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P086508

 ICRR 14479 Report Number : ICRR14479 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 10/23/2014 Country : Vietnam Project ID : P086508 Appraisal Actual Project Name : Vn-priority US$M ): Project Costs (US$M): 218\.47 204\.21 Infrastructure Investment Project L/C Number : C4402 Loan/ US$M): Loan /Credit (US$M): 152\.44 146\.24 Sector Board : Urban Development Cofinancing (US$M): US$M ): Cofinanciers : Board Approval Date : 05/22/2008 Closing Date : 06/30/2013 06/30/2013 Sector (s): Roads and highways (48%); Sewerage (28%); Flood protection (14%); General water sanitation and flood protection sector (7%); Sub-national government administration (3%) Theme (s): Urban services and housing for the poor (25% - P); Infrastructure services for private sector development (25% - P); Municipal governance and institution building (24% - P); Pollution management and environmental health (13% - S); Other urban development (13% - S) Prepared by : Reviewed by : ICR Review Group : Coordinator : Ranga Rajan Robert Mark Lacey Christopher David IEGPS1 Krishnamani Nelson 2\. Project Objectives and Components: a\. Objectives: The project development objective as stated in the Financing Agreement (Schedule 1, page 5) is as follows\. "to improve the efficiency, effectiveness and sustainability of urban services in the City of Da Nang through urban upgrading, environmental infrastructure improvements, and strategic road access construction in selected areas, and institutional strengthening in investment planning and in the management of urban areas \." The key associated outcome targets as stated in the PAD (page 27) are: (a) An increase in the number of people who reported satisfaction with the access to new services in the low income areas\. (b) Increase in the actual annual payments made by households for waste water services \. b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components: There were four components: (A) Urban Area Upgrading : Tertiary Infrastructure Upgrading, Resettlement Sites and Housing Improvement Loan Program \. (estimated cost US$ 52\.68 Million, actual cost US$ 36\.32 Million\.) This component aimed at improving the living conditions of the low-income areas through improving service delivery (through on-site upgrading), improving housing by making micro-finance loans available to householders, preparation of resettlement sites (land preparation and infrastructure), and housing for project-affected households\. (B) Environmental Infrastructure Improvement \. (estimated cost US$ 65 systems, and waste water treatment plants serving the city center and the developing suburban areas \. This component aimed at enabling the city to address more effectively the environmental deterioration that was occurring due to population growth and spatial expansion \. Activities included upgrading and extending the drainage systems, waste water sewage systems, and and waste water treatment plants serving the city center and the developing suburban areas \. (C) Urban Roads and Bridges (estimated cost US$ 96\.15 million, actual cost US$ 105\.02 Million)\. This component aimed at improving the road access through constructing two major road links in the southern part of the city connecting the inner city and resettled sites to new residential and development areas, and places of employment \. (D) Capacity Building and Project Implementation Support (estimated cost US$ 4\.22 million, actual cost US$ 1\.84 million)\. This component aimed at enhancing the capacity of the city department in the areas of housing and land management, urban development, urban engineering infrastructure and municipal finance management \. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: Project Costs : At appraisal, the estimated total cost was US$ 218\.47 million, and at completion the cost was US$ 204\.21 million, 93% of the appraisal estimate (ICR, page 23)\. There were, however, considerable cost escalations during implementation due to a combination of factors - including higher costs than estimated for component B and C project activities (which accounted for 85% of the total project costs) and high inflation during the period from 2008 to 2010\. Updated cost estimates incorporated alternative technical designs which were deemed to be more appropriate for the needs of the city were used, but they were significantly more expensive (ICR, page 3)\.These cost escalations would have increased the actual project costs by US$ 36\.9 million- 18% higher than estimated\. Based on an understanding between the Government and the Bank, and in the interest of closing this project on time, it was decided at the mid-term review that rather than seeking additional financing, some activities would be transferred to a follow-on project (Sustainable City Development Project -- SCDP)\. Thanks to this reduction in project scope, the actual amount at project closure was lower than the appraised estimate \. Project Financing : The original approved IDA Credit was US$ 152\.44 million\. At project completion, the disbursed amount was US$ 146\.24 million, and at project closure US$ 5\.52 million was returned to the Bank\. There were no other external sources of financing \. Borrower's Contribution : The Borrower's contribution was estimated at the appraisal stage to be US$ 66\.03 million\. At completion, its contribution was US$ 57\.97 million\. Dates: Dates With the reduction in scope of project activities, the project closed on schedule on June 30, 2013\. 3\. Relevance of Objectives & Design: a\. Relevance of Objectives: High The project objective is relevant to the World Bank Group's strategy for Vietnam as set out in its Country Partnership Strategy (CPS) for the Fiscal Years 2012-2016\. The three pillars of the CPS for which the project objective is relevant are "strengthening Vietnam's competitiveness in the regional and global economy ", "increasing the sustainability of Vietnam's development", and "broadening access to opportunity through improvements in the quality of and access to urban infrastructure\." The project also addressed the cross -cutting themes of: (a) strengthening governance and (b) improving city resilience in the face of natural disasters \. The project objective was also relevant to the four pillars of the CPS for the Fiscal Years 2007: (i) ensuring that municipal infrastructure and logistics and transport costs are less of a constraint to business development, (ii) reducing urban poverty, (iii) reducing pollution and environmental degradation, and (iv) ensuring better links between spending and plans\. The project objectives are relevant to Government strategy as evidenced by the Socio -Economic Development Plan (SEDP) for the 2006-2010 period, and the Government of Vietnam's Orientation for Urban development to Year 2020\. b\. Relevance of Design: Modest \. The project development objective was clear and, in principle, measurable \. There is a reasonable causal link between most of the activities planned under each component and the outputs they were intended to produce \. The link to the development objectives is, however, more tenuous \. Design lacked a governing strategy despite the existence of an approved Master Plan \. As the ICR (page 6) acknowledges, the approach was fragmented \. Activities and investments were designed in isolation and later assembled \. Unsurprisingly, implementation “suffered from a lack of coordination and clear strategy \.â€? Regarding the third sub-objective – " improved sustainability of urban services" there is nothing in design to ensure that the operation and maintenance (O&M) of project-supported infrastructure would be sufficiently funded nor any activities related to strengthening the institutional and technical arrangements for O&M\. Activities related to financial sustainability – a tariff regime for wastewater, issuing of Land Use Certificates – are partial, and there are no overall financial projections for the city for the period beyond 2011\. Efficiency and effectiveness of urban services (the first two sub-objectives) are nowhere defined\. At times, the project documents seem to equate them with outputs such as infrastructure constructed or resettlement schemes completed\. It is not clearly explained how urban area upgrading could be expected to improve the efficacy of urban services, nor how constructing road links and bridges could be expected to improve their efficiency \. Institutional strengthening was compromised by lack of focus in the design of training activities, which were general, covering many thematic areas, and lacking a clear link to the goals of the project \. The connection between the activities aimed at preventing environmental degradation and the project development objective is obscure \. 4\. Achievement of Objectives (Efficacy): The efficacy of the project objective -- to improve the efficiency, effectiveness and sustainability of urban services in the City of Da Nang through urban upgrading, environmental infrastructure improvements, and strategic road access construction in selected areas, and institutional strengthening in investment planning and in the management of urban areas -- is assessed in relation to its three sub -objectives: (i) improve the efficiency of urban services;(ii) improve the effectiveness of urban services; and (iii) improve the sustainability of urban services \. Outputs Project outputs, which were common to all three sub -objectives, were as follows: Upgrading tertiary infrastructure in low income areas and construction of resettlement areas According to the ICR (page 3), these activities were entirely completed as originally planned, although their cost, at US$36\.33 million, was 31% lower than the appraisal estimate\. More than 30 km of asphaltic concrete road, cement concrete in alleys; 33\.3 km of street lighting and 565 luminaries; 41\.4 km of water supply systems; 32\.9 km of drainage system and drainage connection; social infrastructure including community housing, kindergartens and markets have been built in 13 low income areas\. At project closure, 1,792 house improvement loans were disbursed to the households by the Housing Improvement Fund for micro-credit\. Three resettlement areas were constructed in a total of 18\.3 hectares: Thanh Khe Tay, Hoa Minh, and Hoa Quy \. 796 households were resettled, compared to 711 originally planned\. Reducing and managing environmental degradation There were significant shortfalls in completing the activities planned at appraisal, and works with an estimated value of US$16\.6 million (25% of the appraisal estimate) have been transferred to the follow -on Sustainable City Development Project (SCDP)\. Nonetheless, US$61\.02 million (93% of the appraisal estimate) were actually spent on these activities \. 1,905 meters of canals, dredging of approximately 57,000 cubic meters of sludge, 3,285 meters of asphaltic concrete road, 3,088 meters of rainwater drains and 5,943 meters of sewerage system, were completed in the areas surrounding the Phu Loc River \. A small pilot program was implemented and completed, providing 1,601 wastewater connections to the upgraded tertiary wastewater system \. In the pilot areas, the connection rate increased from below 10% to around 50-60%\. 9,375 kilometers of wastewater drains were built, reinforcing the sewerage system and reducing flooding \. 35\.16 kilometers of sewerage pipes and 16 pumping stations were built as part of a wastewater collection system to the Hoa Xuan and Phu Loc wastewater treatment plants \. However, the new Hoaxuan and Lienchieu waste water treatment plants, which were to have been built under the project, required significant design modifications, which increased both their cost and required construction time considerably\. Consequently, the plants had not been completed by project closure, and the work has been transferred to the Sustainable City Development Project (SCDP)\. Similarly, renovation and upgrade works at the existing waste water treatment plant of Son Tra had not been completed by closure and had also been taken over by the SCDP \. The city People’s Committee decided to establish the Da Nang Drainage and Wastewater Management Company as a public entity under the Department of Natural Resource and Environment with full responsibility for operation and maintenance of drainage and wastewater services \. Investments in strategic roads linking the city center with peri -urban areas \. Works to the value of $20\.1 million were not completed as intended under the project and were transferred to the SCDP\. The works that were completed cost US$ 105\.01 million, equivalent to a cost overrun of 38%: One out of two intended road links with accompanying infrastructure (drainage systems and connections, street lighting systems, and bridges ) was completed\. The link involved 6\.4 kilometers of road with a pavement width of 33 meters, 12\.5 kilometers of drainage system and connections, 6\.85 m of street lighting systems, and  construction of two bridges\. The link was opened on June 30, 2013, the same date as the closure of the project \. The second link was still under construction at project closure and was transferred to the SCDP (about 60% of the work was completed)\. Institutional strengthening The ICR states that these activities were “largely completed\.â€? 972 staff of the relevant government agencies were trained, inter alia through study tours; the target was 1,000 trainees\. Additional information provided by the team indicated that the training included study tours to other cities in Vietnam on operation and maintenance of Wastewater Treatment Plans \. Training was provided in procurement, disbursement, waste water treatment technologies, and environmental safety and management, and in the thematic areas of housing and land management, urban development, urban engineering infrastructure management and municipal financial management \. 4,112 people participated in training courses and took part in consultations and participatory activities \. The ICR (page 2) notes that the participation of women in this activity was 60\.7%, as compared to the planned target of 50%\. Outcomes 1\. Improve the efficiency of urban services : Modest \. According to the ICR (page 14), on traffic flows on the constructed road link just after (31,000 PCU day)\. project closure was 8,159 PCU (passenger car equivalent ) per day, about one third of the volume expected \. The ICR reports that the traffic is gradually beginning to increase \. Subsequent information provided by the project team indicated that one year after the inauguration of the road link, traffic had increased to 12,600 PCU/ a day\. This was still well short of the originally expected traffic volume \. The ICR (page 2) reports that the number of people with access to all season roads at project completion was 221,815 -- 6% more than expected at appraisal \. No evidence is provided either of reduced vehicle operating costs or travel times resulting from the road investments\. Nor is there evidence of improved efficiency in the delivery of other urban services supported by the project\. There is thus little basis on which to determine the extent to which the sub -objective was achieved\. 2\. Improve the effectiveness of urban services : Substantial \. According to the PAD, the key targets associated with this objective were : (i) increase in the number of people who reported satisfaction with the access to new services in the low income areas; and (ii) increase in the actual payments made by households for waste water services \. The ICR reports that the number of project beneficiaries as of June 30, 2013, was approximately 403,000, about 80% of the appraisal estimate (at the mid-term review, the target was revised downwards to 402,000)\. The annual payments made by households for waste water services increased from 5,000 VND million at the baseline to 27,076 VND million at project closure as compared to the appraisal target of 25,000 million\. By project closure, 95\.5% of urban households had access to on -plot piped water supply and 97\.5% had drainage and waste water collection facilities as compared to the respective targets of 80% and 79%\. The ICR (pages 39-40) reports that a Beneficiary Survey was conducted in June 2013, to collect information about the quantitative and qualitative socio -economic situation in general, and in particular about the lives of those affected by the project \. The Survey was based on 230 affected households in resettlement areas and 260 individuals\. Simultaneously, 170 “in-depthâ€? interviews with beneficiary from the Project were conducted \. 76\.3% of beneficiaries reported satisfaction with access to new services at the project closure stage as compared to the revised target of 75% (375,000)\. The majority of households reported satisfaction with the resettlement process and related compensation, while the socio -economic conditions of the affected population “showed an upward trend\.â€? However, the sample size is very small – less than 0\.5% of the estimated number of project beneficiaries \. Moreover, there was no control group or similar analysis that would have helped to establish attribution of improved living standards to the project \. Also, it would appear that the Survey was restricted to the beneficiaries of Component A (Urban Areas Upgrading: Tertiary Infrastructure Upgrading, Resettlement Sites and Housing Improvement Loans)\. According to the ICR, land values in the low income areas benefiting from the project increased to 6\.6 million VND per square meter compared to a pre -project baseline of 0\.7 million VND per square meter\. This was short of the target of 10 million VND per square meter; the average land price increased by less than anticipated due to “difficulties in the real estate market and low demand for land purchase â€? (ICR Data Sheet, Table F)\. Additional information provided by the project team indicates that 1,920 new homes were constructed in the southern part of the city in 2013\. The ICR (page 15) reports that the project’s capacity building program was designed in response to specific demands from the Municipality and without a detailed needs assessment \. This resulted in spreading the effort over many areas, in turn compromising the quality of the training and the program ’s ability to address specific needs\. 3\. Improve the sustainability of urban services : Substantial \. The ICR (page 31) reports that, according to a financial analysis of the municipality, Da Nang ’s finances “are assessed to be relatively strong \.â€? The budget surplus rose from VND 1,464 billion (23% of revenues) in 2006 to 4,164 billion (21% of revenues) in 2011\. Land use revenues rose from VND 1,352\.8 billion (21\.7% of total revenues) in 2006 to 5,763\.9 billion (29\.1% of  total revenues) in 2011\. It was estimated that15,500 land use certificates were issued by the municipality in 2013, almost double the target of 8,000\. The cumulative number of certificates issued over the life of the project was 144,400, well in excess of the target of 73,000 set at appraisal\. Cumulative land use revenue had reached VND 59,355 billion by project closure, compared to an appraisal target of 52,011 billion\. For waste water management, it was determined at appraisal that tariff levels were very low and that services depended on heavy subsidies from the Municipality \. The ICR (page 14) reports that the city approved a schedule of tariff increases through 2015\. Collections were VND 17 billion in 2010, 39 billion in 2011 and 50 billion in 2012, with a preliminary estimate of 65 billion in 2013\. These collections were, by 2012, sufficient to cover 97\.7% of the costs of waste water service provision, slightly below the 100% planned at appraisal\. During preparation, an assessment was made of the affordability of waste water services based on the combined costs of water supply and wastewater tariffs and assuming gradual increases in tariffs to the point where costs were 100% covered\. The ICR prepared an updated assessment to reflect actual tariffs and household incomes\. This assessment indicated that the monthly water and wastewater costs to households, including low income families, were projected to remain within the 'affordability benchmark' of 5% of household income\. However, other than mentioning the establishment of the Da Nang Drainage and Wastewater Management Company, there is no discussion in the ICR of the technical, institutional or financial dimensions of operations and maintenance (O&M) of the infrastructure built under the project \. According to Table 4 of Annex 3 of the ICR (page 31), the amount spent on infrastructure and environmental O&M rose from VND 186\.4 billion in 2009 to 327\.7 billion in 2011, but there is no indication of the sufficiency of these amounts \. O&M accounted for about 4% of investment and development expenditure in 2011, down from 5% in 2009 (no figures are available for earlier years)\. Rates of repayment and interest of the Housing Improvement Fund ’s loans were at almost 100% at project closure, with only three borrowers short \. 5\. Efficiency: • An economic analysis based on incremental costs and benefits was made ex ante and ex post for the first three project components: Urban Upgrading, Environmental Management, and Urban Roads (together accounting for 99% of final project costs)\. The respective ex post economic rates of return were 44\.1 percent (49\.1% ex ante), 13\.7 percent (19\.7% ex ante), and 32\.7 percent (31\.6% ex ante)\. Benefits were assumed to come from : (a) reduced expenditures on health and increased productive working time; \.(b) savings from reduced cost due to regularly occurring flooding; (c) appreciation in land and property values; (d) income generation due to project construction activities and growth; (e) savings from reduced time spent on water collection; (f) savings from forgoing tank emptying costs and soak pit construction; (g) savings in drainage maintenance costs; and (h) reduced travel time and vehicle operating cost due to expected daily flow of traffic \. The ICR does not clearly explain whether the values attached to these benefits are assumed or derived from some research source \. A financial analysis was made of the investments in waste water and sanitation (about 22% of total final project cost)\. It was assumed that tariffs would increase to cover costs fully, and that subsidies would be phased out \. The estimated ex post financial rate of return was 13\.5% compared to 10\.3% at appraisal\. There were significant administrative and operational inefficiencies, including considerable cost overruns of between 25% and 38%\. At the time of appraisal, cost estimates were based on preliminary designs, and the actual costs of the detailed technical design were higher than estimated \. As the project team pointed out, the cost overruns were exacerbated by the very high inflation during the implementation period \. Project design had to be modified substantially during implementation \. Both Component B (Environmental Infrastructure Improvement ) and Component C (urban Roads and Bridges) were reduced in scope due to the cost overruns and, in the latter case, to inadequate handling of land acquisition and relocation processes \. Although the project closed on schedule on June 2013, this was only possible because some activities had been transferred to a follow -on operation\. Efficiency is rated as Modest \. ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re- re -estimated value at evaluation : Rate Available? Point Value Coverage/Scope* Appraisal No ICR estimate No * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome:  The project objectives remain highly relevant to the priorities of the country and the World Bank Group's strategy for Vietnam\. The relevance of design is rated modest \. The efficacy of two out of the three objectives – improved effectiveness and sustainability of urban services – is rated substantial\. There is evidence of enhanced effectiveness (a high percentage of households with on -site water and sanitary connections, willingness to pay, high recorded levels of satisfaction, sharp rises in land values )\. Regarding sustainability, services are considered to be affordable, and the Municipality’s financial situation looks solid enough to sustain the provision of services, though it is unclear whether institutional arrangements and funding for operation and maintenance of the infrastructure financed by the project are sufficiently robust \. Efficacy of the third sub-objective – improved efficiency of urban services – is rated modest due to lack of evidence \. Efficiency is modest in view of significant cost overruns leading to reductions in the project scope\. Overall outcome is assessed as moderately satisfactory \. a\. Outcome Rating : Moderately Satisfactory 7\. Rationale for Risk to Development Outcome Rating: The following risks to development outcome are considered moderate : At project closure, a significant portion of project activities related to the road and environmental / sanitary improvements had not been completed, and there is a risk that they may not be completed on time or within budget\. Infrastructure and environmental enhancements supported by the project may not be adequately operated and maintained by the city authorities \. The costs of wastewater and drainage services may not be covered by future tariff increases, and the long term tariff policy and adjustment regime may not be respected \. a\. Risk to Development Outcome Rating : Moderate 8\. Assessment of Bank Performance: a\. Quality at entry: According to the PAD (page 33), preparation benefited from lessons learnt from a prior Bank project (Vietnam Urban Upgrading Project), and pilot operations (such as the Belgian Aid supported upgrading initiative in Ho Chi Minh City, the United Nations Development Program (UNDP) assistance in five provincial towns, and projects supported by Non-Governmental Organizations(NGOs) These lessons included: (i) the need for strong buy-in and ownership from the city’s political leadership as well as the municipality ’s technical staff; (ii) that cost recovery is crucial for financial sustainability; (iii) the need to ensure that tertiary infrastructure is properly connected to the city networks; (iv) services need to be affordable; (v) active participation, and cost sharing, by beneficiary communities increases the likelihood of buy -in and that objectives will be achieved and sustained; and (vi) relocation and resettlement should be minimized \. Preparation work included the identification of all low income areas in the city of Da Nang and possibilities of geographic concentration that would create economies of scale \. An approach involving services from a range of sectors was adopted; this was innovative for Vietnam \. Risks directly associated with the Project were identified, including a substantial risk related to slow implementation due to procurement processing delays, a lack of coordination among departments and inadequate technical and financial resources \. Several mitigation measures were planned and the overall project risk was rated as moderate\. Preparation attempted to address potential problems of slow start -up through a project preparation advance, through securing the city's commitment to pre -finance the preparation of design and bidding documents, and through constructing the first resettlement site prior to the project negotiations \. Environmental (though not social) safeguard and fiduciary compliance issues were adequately addressed at the preparation stage (see section 11 below)\. However, there were a number of significant shortcomings in Quality at Entry : Preliminary costings at the design stage proved to be very inaccurate, leading to considerable cost overruns and the consequent necessity to either seek additional financing or transfer activities to a follow -on operation (the latter option was chosen )\. As the ICR (page 5) puts it, greater care at the preparation stage would have "contributed to a better overall design that captured the best available technologies and construction features at the start, thus reducing time spent in re -designing and partial re-scoping\.â€? In addition to the cost overruns, delays in implementation were to be caused by "a lack of recognition of all  the constraints related to construction, such as land acquisition, relocation and competing interests â€? (ICR, page 6)\. Had project implementation included upfront negotiation on land management, many of the delays and impediments that were to be encountered may have been mitigated \. There was no overall strategic approach governing design \. As noted in Section 3b above, activities and investments were designed in isolation and later assembled \. Insufficient provision was made for enhancing the capacity of the implementing agency and the Project Management Unit, despite the fact that this project was larger and considerably more complex than its predecessors in Vietnam\. There were important weaknesses in M&E design (see Section 10a below)\. at -Entry Rating : Quality -at- Moderately Unsatisfactory b\. Quality of supervision: Supervision was challenging due to deficiencies in Quality at Entry \. From the beginning, the team had to focus on solving problems related to costing, procurement, bidding and contracting, and the application of relocation policies\. The fact that, despite these problems, the city benefited at project closure from a higher quality of infrastructure and urban services, is due in considerable measure to the efforts of the supervision team \. According to the Project Management Unit, the Bank Team were experienced specialists, gave timely solutions to the Unit and to the City Government to ensure that the project complied with the World Bank's procedures and agreed plans\. In addition to the twice a year missions, there were short missions for project implementation support\. However, the team took a considerable time to act on the issue of cost overruns, and the consequent necessity to either obtain additional financing or to transfer activities to another project \. Cost estimates were updated only at the mid-term review in October, 2011, and changes in project scope applied less than a year before closure \. It is noteworthy in this respect that only two Implementation Status Reports were filed during the three years between Board approval in May, 2008, and June, 2011\. In total, six ISRs were filed, and in addition there were two follow -on missions for providing technical inputs and project implementation support\. The ICR (page 21) notes that supervision missions were adequately staffed to address and report on implementation issues as they emerged, though no information is provided on continuity \. In view of the problems encountered, the ratings of progress towards Development Objectives (fully satisfactory in all ISRs) and Implementation Progress (fully satisfactory in all ISRs except the first, which was moderately satisfactory) would appear to lack candor \. Notwithstanding poor preparation at the design stage with regard to social safeguards, the ICR reports satisfactory compliance with safeguards policies \. Financial management was reported to be generally adequate, and the procurement processes of the implementing agency were eventually harmonized with Bank procedures (see Section 11 below)\. Efforts were made to improve upon a weak M&E design through the incorporation of additional indicators, though the ICR is unclear what these indicators were (see Section 10b below)\. Quality of Supervision Rating : Moderately Satisfactory Overall Bank Performance Rating : Moderately Satisfactory 9\. Assessment of Borrower Performance: a\. Government Performance: According to the ICR (page 20), the overall commitment of the government was high for the development objective, and the authorities (both at the national and at the local level ) provided strong support during both project preparation and implementation \. The project at the national level had the backing of the Prime Minister \. The local government had built consensus across the city's departments, communities and the related agencies, and through this consensus, had developed the relevant strategies for the affected sectors \. The adoption of a tariff regime aimed at cost recovery for waste water service provision is one important result of this consensus-building work\. The city government's commitment was demonstrated by its decision to pre -finance the preparation of design and bidding documents, and the construction of the first resettlement site prior to the project negotiations \. Counterpart funding was provided on a timely basis \. Government Performance Rating Satisfactory  b\. Implementing Agency Performance: The Da Nang People's Committee was responsible for project execution as well as for overall Project management and oversight at the city level \. The City established a Board of Management chaired by the Vice Chairman of the People’s Committee and comprised of representatives of the Departments of Planning and Investment, Natural Resources and Environment, Finance, Construction, Transport and Public Works, and the Director of the Project Management Unit (PMU)\. The Da Nang Women's Union was designated to manage the Fund for Housing Improvement\. The PMU’s performance was mixed\. The ICR (page 21) notes that, while monitoring and reporting on the project indicators were timely and the relevant social safeguard policies were complied with, there were, nonetheless, a number of moderate shortcomings in the early years of implementation, which negatively impacted on the timely completion of activities: Several contracts were delayed due to the lengthy process of contract procurement in the initial years of the project\. There were weaknesses in the management of consulting services contracts (such as the failures to obtain Bank no objections to some major modifications )\. There were delays associated with negotiations of agreements for relocation, land acquisition and resettlement\. However, the ICR also points to the Unit ’s willingness to learn new procurement techniques and to adopt them \. Staff capacity was considerably enhanced during the course of implementation, and this permitted the Unit to become far more effective in the latter years of the project \. Implementing Agency Performance Rating : Moderately Satisfactory Overall Borrower Performance Rating : Moderately Satisfactory 10\. M&E Design, Implementation, & Utilization: a\. M&E Design: Responsibility for M&E rested with the Project Management Unit (PMU), which was required to consolidate the data at the project level, and produce annual reports to monitor progress through an integrated project implementation performance audit\. One significant shortcoming of M&E design was that the outcome indicators related almost exclusively to Component A activities (Urban Areas Upgrading: Tertiary Infrastructure Upgrading, Resettlement Sites and Housing Improvement Loans)\. Baseline data were established for the output, intermediate outcome and restricted number of outcome indicators \. b\. M&E Implementation: The ICR (page 7) notes that the implementing agency monitored progress and outcomes and provided semi-annual progress reports on the physical, financial, environmental, resettlement and land acquisition progress of the project and regular updates of all key monitoring indicators \. The ICR (page 7) states that “additional indicators were introduced in the final stages to monitor the effectiveness of all Components\.â€? However, no details are provided of what these additional indicators were, or what “final stagesâ€? precisely refers to\. There is discussion of a Beneficiary Survey and also a statement of overall beneficiary satisfaction with the services provided under the project\. Presumably, the two are derived from the same exercise, but this is not clear \. c\. M&E Utilization: The ICR (page 8) reports that the project indicators are being used to monitor water quality and environmental quality of the river basin\. Water quality in the canal and the river at the discharge point is also to be continually monitored as part of the regular environmental surveillance to ensure that the pollution levels do not exceed the established limits\. The core indicators are to be used after the completion of the project to monitor the sustainability of the activities\. M&E Quality Rating : Modest 11\. Other Issues a\. Safeguards: The project was classified as Category A for Environmental Assessment purposes, and hence a full assessment was required\. In addition to Environmental Assessment (OP 4\.01), two safeguard policies were triggered : Involuntary Resettlement (OP 4\.12), and Cultural Resources (OP 4\.11)\. Environmental Safeguards : \.Environmental The ICR (page 9) notes that an Environmental Impact Assessment and an Environmental Management Plan were prepared to address the environmental and social issues pertaining to OP 4\.01 and OP 4\.11, and public consultations were carried throughout the implementation period with the representatives from local authorities, Non-Governmental Organizations (NGOs) and the affected households \. The ICR reports that, by project closure, there were no unforeseen adverse environmental impacts at the project closure stage \. The ICR (page 9) states that compliance with OP 4\.01 was monitored and that: (i) there were no significant environmental impacts during construction; \. (ii) contractors complied with environmental covenants built into their contracts under the supervision of the project management unit, its supervision consultants and local communities; (iii) “greeningâ€? measures were incorporated into the technical designs; and (iv) there were environmental benefits such as reduced flooding and water pollution \. The ICR also notes that audit reports from the independent environmental consultant and quarterly environmental management plan implementation reports were submitted regularly to the Bank\. The ICR (page 9) states that “throughout Project implementation, the Bank's environmental safeguard policies have been fully complied with\.â€? Social Safeguards : The ICR (page 8-10) notes that at the design stage, efforts were made to minimize adverse social impacts through design modifications and consultations with the affected people \. The project acquired around 189\.1 hectares of land and affected 3,518 households of which 936 had to be resettled and 1,670 lost agricultural land\. The number of households who had to be resettled increased by 12% as compared to the original estimates \. The reasons cited in the ICR for the increase were that some households split their plots, and some households were voluntarily located to better resettlement areas\. The ICR states that a Resettlement Policy Framework (RPF) was prepared in accordance with local laws and Bank policies for ensuring that the displaced people received compensation for their losses at replacement cost, and were also supported by measures to assist them either to improve or at least maintain their pre -project living standards\. In accordance with the RPF, three Resettlement Action Plans (RAPs) were prepared, each of which included a detailed impact inventory and a socio -economic survey\. Consultations were held with the affected households and relevant government agencies\. The ICR (page 8) reports that, by project closure, the RPF and RAPs had generally been completed satisfactorily (except for those acquisitions and resettlements which were transferred to a follow -on project)\. An Independent resettlement monitoring consultant certified that “almost all Project affected people have been able to restore their lost assets and livelihoods \.â€? The ICR further notes that Da Nang used many of the available resettlement sites in the city so that the households could be relocated inside their vicinity and that the grievance system functioned well in satisfactorily resolving the complaints received from the displaced people \. Physical Cultural Resources safeguard policy \. OP 4\.11 was triggered due to the relocation of some graves, the presence of two temples, and four houses of worship located in the project area \. Consultations with the affected people at the appraisal stage indicated their willingness to relocate, provided they were compensated, and alternate sites had been made available to them \. The ICR (page 10) notes that there were no adverse impacts at project closure \. b\. Fiduciary Compliance: Financial management \. At the appraisal stage, financial management software was installed and a financial management manual was developed and adopted by the Project Management Unit (PMU)\. In addition, the Unit was required to maintain financial management systems (including records and accounts ) and prepare financial statements in accordance with applied accounting standards, and have the financial accounts audited by an independent auditor \. At project closure, an independent performance audit showed that the project accounting standards were in order \. The ICR (page 10) reports that quarterly financial reports of acceptable quality were submitted on time, and annual externally audited financial reports were submitted to the Bank with unqualified audit opinion (with one exception in the first Fiscal year 2008)\. Procurement \. The implementing agency's capacity to address procurement issues had been identified as a source of concern, and a procurement capacity assessment was conducted at the appraisal stage \. A plan to mitigate procurement risk was agreed upon to strengthen the agency's capacity to handle procurement issues \. In the initial stages of implementation, procurement was a major source of delays due, in large part, to the subjecting of contracts to a lengthy process, under which the PMU ’s procurement decisions required clearance and approval from both the Department of Planning and Investment and the People ’s Committee\. The decentralization of responsibilities from the Department of Planning and Investment to the Department of Transport improved the timeliness of project execution \. The ICR (page 7) notes that during implementation of the Hoa Xuan wastewater treatment plant the city proposed to the World Bank to tender in the form of “Design-Construction-Operation\.â€? With a projected operation period of 10 years, this process allowed bidders to offer alternative technical solutions for some of the major systems of the plant \. This form of bidding delivered better results and increased effectiveness \. Although actions had been taken by the PMU to expedite and speed the procurement process and their performance improved considerably during the project implementation phase, there were still a number of major contracts that remained incomplete at the closing date, and which had to be transferred to a follow -on project\. However, the responsibility for this has to be shared with incomplete costing work by the Bank at the design stage \. Despite delays, procurement guidelines were generally complied with, and there were no reported cases of misprocurement\. c\. Unintended Impacts (positive or negative): None d\. Other: 12\. 12\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Moderately Moderately Satisfactory Satisfactory Risk to Development Moderate Moderate Outcome : Bank Performance : Satisfactory Moderately There were significant shortcomings in Satisfactory Quality at Entry, including insufficient attention to costing, inadequate preparation of land acquisition and relocation, and M&E design\. These shortcomings were to lead to shortfalls in implementation and the need to transfer activities to a follow-on operation\. Borrower Performance : Moderately Moderately Satisfactory Satisfactory Quality of ICR : Unsatisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade  the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate\. 13\. Lessons: The following lessons are taken from the ICR with some modification of language : An integrated multi-sectoral approach that links each player ’s actions and develops investments in several sectors may be appropriate for urban sector projects, but only if it is integrated into a well thought out coordinated development strategy \. Adequate preparation work, that captures the best available technologies for country -specific conditions and incorporates realistic cost estimates, reduces implementation time and increases the chances of completing project investments as planned \. Careful assessments of land acquisition and resettlement requirements help to avoid delays in project implementation\. Consensus and coordination among all stakeholders are critical for the success of a project benefiting communities in low income urban areas \. Appropriate decentralization of procurement responsibility can help in avoiding the delays during the implementation phase\. At the early stage of this project, the procurement decisions were taken both at the national and at the local level, and this contributed to delays \. Decentralization of procurement proved to be effective in expediting procurement issues \. 14\. Assessment Recommended? Yes No 15\. Comments on Quality of ICR: On the positive side, the ICR provides a thorough analysis of the safeguard and fiduciary compliance issues, and is quite candid about areas of weakness (especially project design)\. However, there are several significant shortcomings : There is a lack of clarity in a number of important areas, including the causal chain between the project activities and the development objectives, the reasons for the need to transfer activities to a follow -on project (why was the additional financing alternative rejected? ), the coverage of the Beneficiary Survey, and why, if the activities of Component A were entirely completed as planned, did it cost 31% less\. The ICR does not analyze the achievement of objectives systematically \. Its discussion is component -based\. The discussion does not make a clear distinction between outputs and outcomes \. There is no analysis of the efficacy of one of the three sub -objective – improved efficiency of urban services \. Presentation of the evidence concerning the other two sub -objectives – improved efficacy and sustainability – is fragmented and spread throughout the report, so that it is not organized in a way that the reader finds easy to follow\. The discussion of M&E, especially of implementation and utilization, is insufficiently detailed and argued \. There is no information on the indicators added during implementation \. The basis for arriving at the quantification of project benefits is unclear \. The impact on efficiency of shifting activities to a follow -on project is not considered \. The ICR reports an increase in the number of beneficiaries with access to all -weather road links, but it is unclear whether this refers to the results of the one new road link that was opened on the day the project closed, or whether there were other road improvements, supported by the project, which had this effect \. There is almost no discussion in the ICR of the technical, institutional or financial dimensions of operations and maintenance (O&M) of the infrastructure built under the project \. On a presentational level, the reasoning behind the lessons learned belongs in the main text, not in an annex \. a\.Quality of ICR Rating : Unsatisfactory

REVIEW

P104041

Document of The World Bank Report No: ICR00003841 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-H3650 IDA-H7520 TF-16319) ON A GRANT IN THE AMOUNT OF XDR 73\.6 MILLION (US$116\.95 MILLION EQUIVALENT) TO THE DEMOCRATIC REPUBLIC OF CONGO FOR A DRC GOVERNANCE CAPACITY ENHANCEMENT PROJECT September 30, 2016 Governance Global Practice Africa Region  CURRENCY EQUIVALENTS (Exchange Rate Effective June 27, 2016) Currency Unit = CDF XDR 1\.00 = US$1\.39 US$1\.00 = XDR 0\.71857148 FISCAL YEAR January 01 – December 31 ABBREVIATIONS AND ACRONYMS AfDB African Development Bank ARMP Procurement Regulatory Body (Authorité de Regulation des Marchés Publics) CAS Country Assistance Strategy COREF Committee for Public Finance Reform (Comité d’Orientation de la Réforme des Finances Publliques) CPD Decentralization Unit (Cellule pour la Decentralisation) DFID U\.K\. Department for International Development DGCMP Procurement Control Body (Direction Generale de Controle des Marchés Publics) DRC Democratic Republic of Congo ERR Economic Rate of Return EU European Union GCEP Governance Capacity Enhancement Project GDP Gross Domestic Product HIPC Heavily Indebted Poor Countries HR Human Resources HRM Human Resources Management ICR Implementation Completion and Results Report IFI International Financial Institution IFMIS Integrated Financial Management Information System ISR Implementation Status and Results Report IT Information Technology M&E Monitoring and Evaluation MEF Ministry of Finance MIDS Ministry of Interior, Security, and Decentralization MOB Ministry of Budget MTR Midterm Review PAD Project Appraisal Document PCU Project Coordination Unit PDO Project Development Objective PEFA Public Expenditure and Financial Accountability PER Public Expenditure Review PFM Public Financial Management PFMA Public Financial Management and Accountability PI Performance Indicator (PEFA Indicator) PIU Project Implementation Unit PSM Public Sector Management PTS Transitory Pay System Senior Global Practice Director: Deborah Wetzel Practice Manager: Renaud Seligmann Project Team Leader: Jean Mabi Mulumba ICR Team Leader: Fabienne Mroczka  DEMOCRATIC REPUBLIC OF CONGO Governance Capacity Enhancement Project CONTENTS Data Sheet A\. Basic Information B\. Key Dates C\. Ratings Summary D\. Sector and Theme Codes E\. Bank Staff F\. Results Framework Analysis G\. Ratings of Project Performance in ISRs H\. Restructuring I\. Disbursement Graph 1\. Project Context, Development Objectives and Design \. 1 2\. Key Factors Affecting Implementation and Outcomes \. 5 3\. Assessment of Outcomes \. 11 4\. Assessment of Risk to Development Outcome \. 20 5\. Assessment of Bank and Borrower Performance \. 20 6\. Lessons Learned\. 23 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners\. 25 Annex 1\. Project Costs and Financing \. 26 Annex 2\. Achievements by Objective and Outputs by Component \. 29 Annex 3\. Economic and Financial Analysis \. 42 Annex 4\. Bank Lending and Implementation Support/Supervision Processes\. 43 Annex 5\. Beneficiary Survey Results \. 45 Annex 6\. Stakeholder Workshop Report and Results \. 46 Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR \. 47 Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders \. 49 Annex 9\. List of Supporting Documents \. 50 MAP \. 51 A\. Basic Information Congo, Democratic DRC Enhancing Country: Project Name: Republic of Governance Capacity IDA-H3650,IDA- Project ID: P104041 L/C/TF Number(s): H7520,TF-16319 ICR Date: 08/02/2016 ICR Type: Core ICR MINISTRY OF Lending Instrument: SIL Borrower: FINANCE Original Total US$50\.00 million Disbursed Amount: US$107\.06 million Commitment: Revised Amount: US$113\.85 million Environmental Category: C Implementing Agencies: Ministry of Interior Cofinanciers and Other External Partners: B\. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 05/30/2007 Effectiveness: 08/23/2008 08/23/2008 Appraisal: 01/07/2008 Restructuring(s): 10/01/2010 Approval: 04/22/2008 Mid-term Review: 01/05/2015 01/05/2015 Closing: 02/28/2013 02/28/2016 C\. Ratings Summary C\.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Development Outcome: Substantial Bank Performance: Satisfactory Borrower Performance: Moderately Satisfactory C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Moderately Satisfactory Implementing Quality of Supervision: Satisfactory Satisfactory Agency/Agencies: Overall Bank Overall Borrower Satisfactory Moderately Satisfactory Performance: Performance: i C\.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating Performance (if any) Potential Problem Quality at Entry Project at any time Yes None (QEA): (Yes/No): Problem Project at any Quality of Yes None time (Yes/No): Supervision (QSA): DO rating before Moderately Closing/Inactive status: Satisfactory D\. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Central Government (Central Agencies) 50 50 Sub National Government 50 50 Theme Code (as % of total Bank financing) Administrative and civil service reform 29 29 Decentralization 29 29 Other accountability/anti-corruption 14 14 Public expenditure, financial management and 28 28 procurement E\. Bank Staff Positions At ICR At Approval Vice President: Makhtar Diop Obiageli Katryn Ezekwesili Country Director: Ahmadou Moustapha Ndiaye Marie Francoise Marie-Nelly Practice Renaud Seligmann Anand Rajaram Manager/Manager: Project Team Leader: Jean Mabi Mulumba Antonius Verheijen ICR Team Leader: Fabienne Mroczka ICR Primary Author: Fabienne Mroczka F\. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) To enhance transparency and efficiency in central and sub-national public finance and human resource management\. To establish and consolidate an equitable resource sharing mechanism between central and sub-national government\. ii Revised Project Development Objectives (as approved by original approving authority) (a) PDO Indicator(s) Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years At least 35% of domestic revenue transferred regularly to sub-national Indicator 1 : government Value (Quantitative or Between 8–10% 30% 35% 46% Qualitative) Date achieved 01/31/2008 09/30/2012 01/01/2016 12/31/2015 Comments Achieved\. Note that the actual value calculated includes the amounts transferred (including % directly to the provinces, as well as the salary payments transferred to provincial achievement) civil servants and the provincial capital investments\. Integrated budget execution reports are published on the Ministry of Budget and Indicator 2 : Ministry of Finance websites on a regular basis, at central and provincial levels Budget execution reports are Budget execution Budget execution published on a reports are reports are monthly basis Budget execution reports regularly published Value published on a on the are produced, but are of on the Ministry of (Quantitative or monthly basis on Ministry of low quality and are not Budget and Finance Qualitative) the Ministry of Budget and made publicly available websites at central Budget and Finance and provincial Finance websites websites at levels central and provincial levels Date achieved 01/31/2008 09/30/2012 01/01/2016 12/31/2015 Comments (including % Achieved achievement) Indicator 3 : Regular payment of at least 60% of provincial level civil servant salaries Value Salary payments are (Quantitative or regularly delayed and 60% 60% 100% Qualitative) many staff are not paid Date achieved 01/31/2008 09/30/2012 01/01/2016 12/31/2015 Comments (including % Achieved achievement) iii (b) Intermediate Outcome Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Percentage of expenditures handled outside the "chaine de la depense" is lower Indicator 1 : than 10% Value (Quantitative 20% 10% 10% 7% or Qualitative) Date achieved 01/31/2008 09/30/2012 01/01/2016 12/31/2015 Comments (including % Achieved achievement) Indicator 2 : Annual increase in tax revenues at central level Revenue Revenue Value collection Tax collection is at CFAF collection (Quantitative increases by 6% 157\.5 billion (2006) increases by 10% or Qualitative) 10% over over previous year previous year Date achieved 01/31/2008 09/30/2012 01/01/2016 12/31/2015 Comments Partially achieved\. Tax collection has increased from year to year, but the (including % increase in the last few years has been lower than 10%\. achievement) The difference between budgeted and executed expenditures decreases to less Indicator 3 : than 10% of total expenditures at the central level Discrepancy between Value projected and real (Quantitative 5% 5% 41% expenditures is 21% in or Qualitative) 2006 Date achieved 01/31/2008 09/30/2012 01/01/2016 12/31/2015 Comments (including % Not achieved achievement) 70% of civil servants at central level paid via a reformed and computerized Indicator 4 : payroll system Payroll system Value implemented and includes (Quantitative 70% 90% 97% a portion of central level or Qualitative) civil servants Date achieved 01/31/2008 09/30/2012 01/01/2016 12/31/2015 Comments (including % Achieved achievement) The differences between budgeted and executed expenditures reduced in pilot Indicator 5 : provinces iv Value Budget execution data are (Quantitative 5% 10% 63% erratic and not published or Qualitative) Date achieved 01/31/2008 09/30/2012 01/01/2016 12/31/2015 Comments (including % Not achieved achievement) Indicator 6 : Annual increase in provincial tax revenues Value Tax revenues in the 3 (Quantitative 10% 10% 39% pilot provinces for 2007 or Qualitative) Date achieved 01/31/2008 09/30/2012 01/01/2016 12/31/2015 Comments (including % Achieved achievement) At least 60% of provincial personnel in pilot provinces paid via reformed and Indicator 7 : computerized payroll system No public service and Value payroll management (Quantitative 60% 60% 97% system exist at the or Qualitative) provincial level Date achieved 01/31/2008 09/30/2012 01/01/2016 12/31/2015 Comments (including % Achieved achievement) Procurement code is effectively applied throughout the territory of DRC and Indicator 8 : competitive bidding is applied in at least 80% of all procurement processes with a value exceeding US$200,000 No procurement code in Value place\. Procurement code (Quantitative is promulgated in April 80% 80% 80% or Qualitative) 2010 and is in force since October 2010 Date achieved 01/31/2008 09/30/2012 01/01/2016 12/31/2015 Comments (including % Achieved achievement) G\. Ratings of Project Performance in ISRs Actual Date ISR No\. DO IP Disbursements Archived (USD millions) 1 06/30/2008 Satisfactory Satisfactory 0\.00 2 10/27/2008 Satisfactory Satisfactory 4\.00 3 03/14/2009 Satisfactory Moderately Satisfactory 4\.60 4 07/25/2009 Moderately Satisfactory Moderately Satisfactory 5\.68 5 12/21/2009 Moderately Satisfactory Moderately Satisfactory 7\.27 v  6 06/22/2010 Satisfactory Moderately Satisfactory 12\.55 7 04/02/2011 Satisfactory Satisfactory 21\.10 8 10/31/2011 Satisfactory Satisfactory 35\.91 Moderately 9 06/06/2012 Moderately Satisfactory 43\.57 Unsatisfactory 10 11/14/2012 Satisfactory Satisfactory 48\.33 11 11/04/2013 Moderately Satisfactory Moderately Satisfactory 52\.54 12 11/14/2014 Moderately Satisfactory Satisfactory 76\.27 13 06/29/2015 Moderately Satisfactory Satisfactory 92\.48 14 01/15/2016 Moderately Satisfactory Moderately Satisfactory 101\.37 H\. Restructuring (if any) ISR Ratings at Amount Board Restructuring Disbursed at Restructuring Reason for Restructuring & Approved Restructuring Date(s) Key Changes Made PDO Change DO IP in USD millions Add new activities to Component 1 related to procurement reform and 10/01/2010 N S MS 15\.63 increase the scope of the project in Component 2 to implement some activities in other provinces I\. Disbursement Profile vi 1\. Project Context, Development Objectives and Design 1\.1 Country Context Country Context 1\. At appraisal in 2007, the Democratic Republic of Congo (DRC) remained one of the poorest countries in the world with a per capita gross domestic product (GDP) of US$130 (2006), despite having access to vast reserves of natural resources, including oil, copper, coltan, gold, and diamonds\. The dire economic situation of the country was a result of decades of mismanagement under authoritarian rule and several years of armed conflicts\. 2\. Since the early 1990s, macroeconomic indicators steadily deteriorated in the DRC, which was further exacerbated by four major conflicts between 1996 and 2011, which took an estimated 5 million lives\. Following the conclusion of a peace agreement in 2001, and with the support of the international community, the Government launched the implementation of economic, financial, and structural adjustment policies aimed at stabilizing the macroeconomic situation and the creation of a climate conducive to private sector-led development\. As a result, real GDP growth became positive in 2002, after 13 years of decline\. 3\. The year 2006 marked the successful completion of the presidential and parliamentary elections in the DRC\. The success of the elections and the subsequent establishment of a coalition government, with strong commitment toward enhancing the quality of governance, raised hopes for a successful transition to a multiparty democratic rule\. However, clashes between armed supporters of the runner-up in the presidential elections and the army in March 2007 and continued security problems in the eastern provinces of the country showed that the democratic process remained fragile\. Nevertheless, the chances of the development of a stable governance system, based on democratic principles, remained the best the country had experienced since its independence in 1960\. Sector Context 4\. The successful completion of the presidential and parliamentary elections in 2006 provided a unique opportunity of addressing deep-seated governance problems\. Governance in the DRC lagged behind almost all other Sub-Saharan African states\. Inadequacies exist in virtually all aspects of governance, including institutions, governance outcomes, and the business investment climate\. 5\. The DRC has a long history of centralization and mismanagement of resources, which greatly weakened public institutions at the central and decentralized level\. Though with different justifications and characteristics, the central government dominated the execution of power during both the colonial and the second republic, thus inhibiting the development of functional public institutions at the decentralized level\. Even at the central level, public institutions have been shattered by decades of neglect, mismanagement, corruption and war\. Most of the infrastructure has been destroyed and public institutions had all but disappeared\. 1 6\. Recruitment for the civil service did not follow any transparent procedures but was often based on kinship or political affiliation\. Hence, rather than serving the population, the civil service frequently served the power that sustained it\. 7\. The key governance challenges in the DRC are summarized in the ‘Contrat sur la Gouvernance’ or Governance Compact, which is part of the Government program\. The Governance Compact sets out seven main priorities, divided into three sector governance priorities (reform of state-owned enterprises, mining sector reform, and security sector reform), and four crosscutting or horizontal priorities (enhancing transparency, decentralization, public financial management [PFM] reform, and public sector management [PSM] reform)\. A Common Assistance Framework has been agreed between the Government and the donor community to address these and other strategic priorities in the Government program\. The Common Assistance Framework constitutes the framework for the World Bank Country Assistance Strategy (CAS) approved in December 2007 and remains relevant for the new FY13–16 CAS approved in May 2013\. Among the four crosscutting areas outlined above, the decentralization process has been the Government’s main priority in its first year\. In addition, the Governance Compact outlines a large reform agenda in the areas of PFM and PSM\. 8\. With regard to the decentralization process, the 2006 Constitution stipulates a significantly increased level of provincial autonomy, both in political and fiscal terms\. Specifically, the constitution foresees that 40 percent of domestic revenues should be retained by the provinces and that significant government functions (primary and secondary education, primary health care, and agriculture) should be transferred to this level\. In reality, however, at the time of appraisal, transfers in the first semester of 2007 amounted to less than 6 percent of domestic revenue, which led to strong discontent among elected local leaders and posed a risk to political stability\. At the same time, there is a recognition that the capacity of provincial governments to effectively absorb a significant increase in resources and responsibilities and translate this into improved service delivery remained in doubt\. Rationale for World Bank Involvement 9\. The World Bank’s engagement was motivated by ï‚ the fact that improving the quality of governance was seen as crucial to ensuring the conditions for sustainable economic growth and poverty alleviation, as well as assisting in maintaining political stability; ï‚ the World Bank’s comparative advantage of leveraging of prior support in the DRC in this sector, as the World Bank was at the center of the dialogue in governance since the start of the peace process in 2003 and was viewed as one of the lead partners by the Government; and ï‚ analytical work underpinning the project’s relevance through studies carried out by the World Bank and other donors (such as the Policy Notes on decentralization, the Public Sector Wage Reform, and the Public Expenditure Review [PER] published in 2008)\. 2 1\.2 Original Project Development Objectives (PDO) and Key Indicators 10\. The original PDO is (a) to enhance transparency and efficiency in central and subnational public finance and human resource management and (b) to establish and consolidate an equitable resource sharing mechanism between central and subnational government\. The PDO outcome indicators are the following: 1\. Evidence of domestic revenue transferred regularly to subnational government 2\. Evidence that Integrated Budget Execution Reports are published on the Ministry of Budget and Ministry of Finance websites on a regular basis, at both central and provincial levels 3\. Evidence or regular payment of provincial level civil servant salaries in target provinces 4\. Evidence of increase in citizens’ satisfaction with public services in the pilot provinces 1\.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification 11\. Despite a project restructuring in 2010 and an additional financing in 2013, no revisions were made to the original PDO\. The Results Framework was adapted during the restructuring process by introducing two new intermediate results indicators to measure the outcome of the new procurement activities and the replication of key elements of PFM and PSM systems to provinces other than the three pilot provinces\. The Results Framework was also revised with the additional financing by introducing changes to end targets to reflect the outcome of the scaled-up activities\. 1\.4 Main Beneficiaries 12\. The primary direct beneficiaries of the project were various agencies within the Ministry of Interior, Security, and Decentralization (MIDS); the decentralization unit (Cellule pour la Decentralisation, CPD), the lead ministry for the decentralization project responsible for the implementation of the overall project; the Ministry of Budget (MOB) and the Ministry of Finance (MEF), the lead ministries for the PFM reform; the Ministry of Public Service, the lead ministry for the PSM reform; the Ministry of Planning; the governorates of the pilot provinces; and the Public Administration Reform Technical Committee (Comite Technique pour la Reforme de l’Administration Publique)\. More broadly, the project had a positive impact on the entire public as the decentralization process sought to bring the Government closer to the citizens and increase the opportunity for citizens to directly influence decisions that pertain to key issues of social service delivery\. In addition, the implementation of wage system reforms aims to address the existing lack of equity and income predictability in the public sector and will have a positive impact on civil servants at the central and provincial levels\. 1\.5 Original Components (as approved) 13\. To reflect that the project focuses on medium- and longer-term institution building, the project was designed around two main components, with a third component to strengthen 3 governance reform implementation capacity, project implementation, and monitoring and evaluation (M&E): (a) strengthening PFM and PSM at central government level, including establishing a functioning system of intergovernmental fiscal relations and (b) building public sector and financial management systems at provincial level (see annex 1 for details of approved subcomponents and activities)\. Component 1: Strengthening PFM and PSM at Central Government Level (US$21\.28 million) 14\. Considering the priorities expressed in the Government program as well as issues identified in the Policy Notes on Decentralization and Public Sector Wages and in the PER, this component focused on (a) supporting the MIDS in designing and implementing the decentralization process; (b) supporting the Ministries of Budget and Public Service in implementing Public Sector Wage Reforms, including the design of an integrated personnel and payroll management system; and (c) supporting the Ministries of Budget and Finance in strengthening the budget process\. Component 2: Building PFM and PSM Systems at Provincial Level (US$20\.72 million) 15\. As building effective and transparent PFM and PSM capacity at the provincial level was recognized as one of the most urgent elements of the governance agenda in the DRC, this component focused on (a) developing budget management systems and capacity at the provincial level, (b) developing personnel and payroll management systems, (c) building regional development project management capacity to enable provincial officials to formulate economic development opportunities and supporting investments, (d) building capacity to design and monitor performance indicators, (e) implementing a small capacity development facility which will finance specific capacity development and demand-side activities, and (f) peer learning at provincial level\. Originally, three representative pilot provinces (Bandundu, Katanga, and Sud- Kivu) were selected by the Government to be covered by the project\. Component 3: Governance Reform Implementation Capacity (US$7\.98 million) 16\. This component financed the implementation and monitoring of the project as well as the broader M&E effort related to the implementation of the Governance Compact\. 1\.6 Revised Components 17\. A restructuring process was completed in October 2010 at the request of the Government to (a) increase the scope of the project to allow for replication of critical elements of PFM and PSM systems to provinces other than the pilot provinces and (b) expand the scope of project activities in the area of PFM and add engagement on procurement reform\. 18\. An additional financing approved in April 2013 to (a) support the broadening of approach on PFM, specifically support the financing of the Government’s PFM Strategic Action Plan including scaling up provincial support and strengthening PFM and PSM reforms at central government level, specifically acceleration of procurement reforms and the expansion of activities related to public service reforms such as staff identification processes in the MEF, MOB, and the Ministry of Public Service and (b) expand the scope of project activities to one additional province (Kasai Occidental)\. 4 1\.7 Other Significant Changes 19\. The institutional arrangements for the execution of additional financing took into account the need for reinforcing the fiduciary management capacities of the ministry in charge of decentralization so that the risks of delaying decisions and execution of project activities were reduced\. 2\. Key Factors Affecting Implementation and Outcomes 2\.1 Project Preparation, Design, and Quality at Entry 20\. The project was designed to assist the Government in building or strengthening critical elements of PFM and PSM systems at the central and decentralized level, thus enabling it to build a strong base for further PFM and PSM reforms\. The project used the decentralization process as an entry point to governance reform, as well as a prism through which to approach central (policy and design) and provincial (implementation and capacity) level efforts to strengthen the governance system reforms\. With regard to its approach, the project focused on medium- and longer-term institution-building measures to build a strong base\. 21\. The project was designed around three principal interventions\. They were establishing an equitable resource-sharing mechanism between the central and subnational governments, strengthening PFM and PSM systems at the central level, and strengthening PFM and PSM systems at the subnational level, particularly in the pilot provinces\. Thus, the project worked with several agencies and provided seed funding for a broad set of activities related to the PFM, PSM, and decentralization reforms\. While this could present coordination challenges, it also afforded better coordination among the various reforms\. 22\. Components and activities under the project are extensively detailed in the Project Appraisal Document (PAD), showing effective sequencing of activities, while keeping some flexibility for adjustments\. Because of identified capacity constraints, emphasis has been placed on sequencing activities, as well as on building in learning and evaluation opportunities\. In its first phase, the project focused on supporting the design of essential legislation (decentralization, PSM, and PFM reforms) and the enhancement of existing PFM and human resource management (HRM) systems, including training and capacity building, at central level\. At the provincial level, initial support focused on capacity development and the design of interim arrangements for financial and public service management\. Information technology (IT) systems components were launched once new legal frameworks and business processes were designed\. 23\. The design of components and activities were driven by prior analytical work (Policy Notes on decentralization, the Public Sector Wage Reform, and the PER published in 2008), discussions with government officials and other financing partners, similar experiences in other African countries, and to complement the work of other financing partners\. The US$50 million (and the subsequent additional financing) is an important contribution to the overall governance program of the development partners in DRC, as presented in table 1 below\. 5 Table 1: Main areas of donor assistance in the governance and decentralization sectors Donors Areas of Governance Reform Belgium Decentralization and Local Governance (local level in selected provinces) Support to Capacity Building Focus on Kasai-occidental French Cooperation PFM, Payroll System Support to Capacity Building Support to Administration and Finance Sections South Africa Public Administration and Civil Service Reform (Census of Civil Service) UNDP/DFID Building the provincial taxation system (technical and institutional support for revenue collection) Setting up the chain of revenues Implementation of an automated chain of expenditures (procedures, circuit and software) Support to the rationalization of the provincial payroll Revision of the legal framework for PFM Capacity building for PFM and HRM at provincial level Support to the planning and budgeting process (MTEF) Focus on Kasai- Occidental, Nord Kivu and Equateur European Commission Technical and institutional support to the provincial structures for revenue collection Setting up the chain of revenues Setting up of an automated chain of expenditures (procedures, circuit and software) Rationalization of the provincial payroll Revision of the legal framework for PFM Capacity building for PFM and HRM at provincial level Support to the planning and budgeting process (MTEF) Focus on Nord Kivu and Kinshasa USAID Capacity building of ECOFIN members at provincial level Focus on Maniema, Bandundu and Katanga AfDB Building the provincial taxation system (technical and institutional support for revenue collection) Setting up the chain of revenues Implementation of an automated chain of expenditures (procedures, circuit and software) Rationalization of the provincial payroll Revision of legal framework for PFM Capacity building for PFM and HRM at provincial level Support to the planning and budgeting process (METF) Support to procurement law implementation at provincial level Focus on Bas-Congo, Province Orientale, Maniema 24\. Under the preparatory activities for the project, training programs in leadership and rapid results methodologies were conducted\. These initiatives initially helped identify a group of change agents at both provincial and central government levels\. The project then relied on this network of change agents to ensure that technical advice and training provided under the project were effectively translated into behavioral change\. Experience in other African countries, including Burundi and Kenya, had shown the viability of this approach in driving and consolidating the implementation of key aspects of governance reform\. Training and networking of this group of change agents continued to be facilitated under the project, both under the peer learning network subcomponent and under the various training initiatives\. 6 25\. While the PAD provides a comprehensive discussion of risk and mitigation measures, it appears to have understated the political and capacity risks related to the acquisition and implementation of the integrated information system\. Delays experienced in the acquisition and implementation of the integrated information system resulted in this activity not being fully implemented\. 26\. A number of risks rated high were appropriately mitigated\. For example, the risk that there would be a lack of leadership and coordination within the Government was rated high, yet coordination among the key ministries was strong due to the efforts made by the project at the beginning to build consensus around the reform program\. Similarly, the risk that funds at the decentralized level may not be used in an efficient and economical way and exclusively for intended purposes was rated high; yet this risk was appropriately mitigated due to the timely intervention of the World Bank team\. This resulted in no issues with procurement or use of funds at the decentralized level\. 27\. Risk rating related to capacity risks and implementation delays were identified at the outset but given that the project was one of the first World Bank projects to be fully implemented through an existing government structure rather than by a specially created Project Implementation Unit (PIU), the risk of capacity constraints, which was originally rated moderate, was more significant and materialized, creating initial delays in the implementation of the project\. It is important to clarify that while the project was not implemented by a specially created PIU, it was coordinated by a Project Coordination Unit (PCU), located within the CPD (MIDS)\. 2\.2 Implementation 28\. The overall project implementation arrangements were Satisfactory\. Overall, the project’s implementation strategy remained relevant and adequately responded to the Government’s priorities and the limited capacity of the central and subnational government\. The project effectively used the decentralization process as an entry point to governance reform, as well as a prism through which to approach central (policy and design) and provincial (implementation and capacity) level efforts to strengthen the governance system\. The implementation strategy included assisting the Government in the preparation of the regulatory framework, establishment of entities to carry out the new framework, including refurbishing of buildings to house them and equipment (for example, the Procurement Control Body [Direction Generale de Controle des Marchés Publics, DGCMP], Procurement Regulatory Body [Authorité de Regulation des Marchés Publics, ARMP] and ministerial procurement units for procurement, Committee for Public Finance Reform [Comité d’Orientation de la Réforme des Finances Publliques, COREF] for public finance reforms, tax collection agencies in the subnational government, and procurement units in the subnational government)\. The newly created units benefited from training (for example, 1,048 people received training in procurement), and technical assistance for 12 to 24 months\. The establishment of those units was successful, as those units now continue to carry out their mandate satisfactorily\. 29\. Overall, the PCU played an effective role in coordinating the assistance provided by the project, helped in each of the four pilot provinces by the small coordination units, which helped coordinate the assistance provided by the project effectively at the subnational level\. Throughout the project, the team also responded to the volatile context and new priorities by realigning project 7 activities, when needed, to ensure the achievement of the PDO\. The project had anticipated the split of the 11 provinces into 26, which was to happen in February 2010, by putting aside some funds to finance certain activities to allow the new provinces to become operational\. However, the split did not happen until 2015 because of a shift in the political direction, toward the end of the project, with local governments being installed by the end of 2015\. This did not allow the project to execute its planned strategy for newly created provinces\. However, the Public Financial Management and Accountability (PFMA) Project financed by the World Bank, U\.K\. Department for International Development (DFID) and the Belgian Cooperation is taking over the activities financed by the Governance Capacity Enhancement Project (GCEP)\. 30\. The project, originally planned for 4\.5 years, was extended once for a total of 7\.5 years\. The project was approved by the Board on April 22, 2008 and it became effective on August 23, 2008 with the original closing date of February 28, 2013\. The project was extended with the additional financing, which was approved by the Board on May 9, 2013 and became effective on September 6, 2013, with an extended closing date of February 28, 2016\. Figure 1\. Yearly Disbursements of the GCEP (source: DRC Government, MIDS) 31\. The project was slow to move forward in its first year of implementation (as demonstrated in figure 1), mainly due to (a) political volatility including a change of Government and a government reshuffle at the central level, which included several changes of supervising ministers; (b) the fact that the project was one of the first World Bank projects to be fully implemented through an existing government structure rather than by a specially created PIU; and (c) the fact that this was the first World Bank project to directly support an elected subnational government, which created a learning curve for the subnational authorities\. The pace of disbursement picked up in 2010, slowed down in 2012 and 2013 while the additional financing was being approved, and picked up again after the approval of the additional financing\. Hence, after an initial period of being rated Moderately Unsatisfactory on implementation progress in April 2012 due to the existing political environment, the project delivered satisfactory results on both development objectives and implementation progress, as shown in the latest Implementation Status and Results Report (ISR)\. 32\. Despite its successful implementation, the project suffered from political instability, which underscored the challenging implementation environment\. From preparation to the closing of the project, the project has had to work with three different prime ministers (the president of the Steering Committee), six ministers at the MIDS responsible for the 8 decentralization process, six ministers at the Ministry of Public Service, four ministers at the MEF, and five ministers at the MOB\. At the provincial level, the project has had to work with three governors in the provinces of Bandundu, Kasai Occidental, and Sud-Kivu and two governors in the province of Katanga\. 33\. The project suffered from several delays, which had an impact on its implementation: (a) irregular meeting of the Council of Ministers resulting in a long delay for the approval of the Grant Agreement and therefore, occasioning delays in the effectiveness of the project; (b) long delay in the approval of new regulations in parliament necessary for the implementation of the reform program; and (c) delays in the approval of the additional financing\. 34\. A Government reshuffle and the reorganization of the PFM and PSM reform teams in 2010 contributed to a renewed political engagement on government-related reforms and a renewed interest in furthering the initial progress made by the project at the national and provincial levels\. Initially the project had a significant impact on the improvement of PFM and PSM at the national and provincial level\. The implementation of the project helped create a platform for development partner support to administrative and fiscal decentralization\. 35\. Another issue that was identified during the first annual review was the need to decentralize more responsibility to the provincial units, which was subsequently done by creating the provincial procurement specialists, paving the way for moving responsibility for procurement to the subnational level\. 36\. While most of the activities were completed at project closure, the acquisition and implementation of the integrated financial management information system (IFMIS) and the human resources (HR) system was not completed by the end of the project1, mainly because of delays in the procurement process and the lack of coordination within the administration which may indicate a lack of commitment\. The HR system, which integrates payroll and personnel information, was installed, but could not be tested before the end of the project, and the IFMIS system was not acquired\. Those activities will be taken over by other governance projects in the DRC (PFMA project for PFM activities and the Public Service Reform and Rejuvenation Project for PSM activities)\. The PFMA project is currently preparing an additional financing to allow for the inclusion of these activities under the project; the concept review meeting should happen in late August\. 2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 37\. While the PDO was clear and measurable, it was complex (with nine identifiable objectives)\. The activities and outputs of each component and subcomponent had a clear link with the objectives\. 1 While the integrated HR system was not completely implemented by the end of the project, a reformed and computerized payroll system was implemented and fully operational\. In fact 97 per cent of civil servants are currently paid through the reformed computerized payroll system financed by the project\. 9 38\. The relevance of the indicators chosen by the team was suitable to capture the achievements of the project and allow attainment of the PDO\. Since the beginning of the project, a change in behavior, in favor of more transparency in the DRC, correlates to the publication of budget monitoring reports (from 2014) and with the changes in the management of public procurement, with at least 60 percent (in 2012) of procurement processes going through competitive procedures\. In addition, increased tax revenue and the decrease in percentages of expenditures handled outside normal procedures were good proxies for measuring the increase in efficiency of PFM both at the central and decentralized level\. Similarly, the increase in the regular payment of civil servant salaries is a good proxy for measuring the efficiency gain in HRM\. 39\. The team could have been more thorough in updating the Results Framework to facilitate monitoring of results\. Not every aspect of the PDO was measured in the Results Framework\. For example, no direct outcome indicators were available for measuring transparency in HRM at the central and subnational level\. An indicator was originally set for measuring citizens’ satisfaction with public services in the pilot provinces, but it was later dropped because of the unavailability of baseline data without a formal process\. Finally, there were several discrepancies in the different Results Frameworks, for example, the Results Framework in the additional financing still mentions a target of 60 percent of provincial-level civil servants salaries paid regularly in the pilot province, while the ISR mentions a 95 percent target (although this probably happened because the target was reached in 2012, which would seem to imply that the target should have been adjusted for the additional financing)\. Another example is the percentage of expenditures executed outside normal procedures at the central level, whose target in the Results Framework in the additional financing paper is 5 percent, but is shown as 10 percent in the ISR\. 40\. However, given the weak capacity context, the PCU implemented an effective system for M&E of project activities and results\. Serious investments were made to build an M&E system, even if not perfect, across different levels of the Government, resulting in evaluation reports of acceptable quality, related to the M&E systems being published quarterly\. All indicators were updated on a regular basis, except indicators related to the implementation of the integrated system\. The evaluation reports were validated by the beneficiaries to enhance their ownership and ensure accuracy of data\. 41\. In the last ISR, the achievement toward the PDO was rated Moderately Satisfactory because of the delays observed in the implementation of the integrated PFM and PSM information systems\. 2\.4 Safeguard and Fiduciary Compliance 42\. The project did not trigger safeguard policies and there were no exceptions to World Bank policies\. It was categorized as C for both\. 43\. The financial management and procurement activities were conducted in line with the provisions in the legal agreement and were considered satisfactory\. The project was well managed with no overdue audit report and financial information and reports of acceptable quality were produced on time\. Reports were delivered on time, with the last audit report for December 31, 2014 having a clean opinion\. Significant progress was made by the project team to address inadequacies related to the procurement management system at the beginning of the project\. More 10 procurement responsibility was transferred to the provincial level to respond to issues identified in the early stages of project implementation\. As of the end of the project, the contract management system was well functioning, with contract deadlines being broadly met\. The only remaining problem was related to the delays experienced in the procurement and delivery of the integrated PFM and PSM systems\. 2\.5 Post-completion Operation/Next Phase 44\. Many activities, including the remaining activities in the implementation of the integrated PFM and PSM systems, continue to be financed under the existing governance projects\. In addition, as the project was effective in building a platform for support of reforms at the decentralized level, partners continue to finance support activities in financial management of public resources at the provincial level\. 3\. Assessment of Outcomes 3\.1 Relevance of Objectives, Design, and Implementation 45\. Relevance of the PDO\. The relevance of project objectives is rated High at design and remained so throughout implementation\. As mentioned in previous sections, when the project was designed and even now, with the newly installed provinces, the Government’s priorities remain centered on the decentralization processes, with an increased level of provincial autonomy, in both political and fiscal terms, as well as the need to address deep-seated governance problems in public finance and HR administration\. Therefore, the PDO, as stated in the PAD, was and remains relevant to the context and challenges in the DRC\. The PDO was seen as responsive to the country’s circumstances and development priorities at that time\. A majority of the indicators was realistic and reachable, focusing on the outcomes for which the project could reasonably be held accountable given its duration, resources, and approach\. 46\. Relevance of Design\. Project design is rated Substantial for financing key priorities and systems of Government and providing assistance in much needed areas\. The design of components and activities were not only designed to support key government priorities, but were also driven by prior analytical work performed by the World Bank or other financing partners\. At project design, the project was the only World Bank project in governance and was, thus, used to engage in a large number of areas, at multiple levels (central and subnational), and with multiple implementing agencies\. Component 1 focused on public finance and HRM at the central level and financed key activities such as the drafting of key legal instruments for the rollout of the new procurement policy and the new decentralization policy, the upgrade and rollout of the automated payroll system, and the upgrade and rollout of the ‘chaine de la depense’, which contributed to substantial improvements in the transparency and efficiency in PFM and PSM at the central level\. Component 2 focused on similar activities at the subnational level, which contributed to substantial improvements in the transparency and efficiency in PFM and PSM at the subnational level\. The strengths of the design include the fact that by supporting various reforms (decentralization, public finance, procurement, and HRM) the project was able to obtain an overall view of governance issues and ensure better coordination among all those reform plans\. In addition, the fact that the project not only assisted in the creation of the environment with the drafting of key legal instruments, but also assisted in the implementation of those instruments with the setting up of 11 new institutions that were later fully integrated with the administration, ensured a sustainable way to implement reform and strength governance\. Finally, the fact that the project received a large additional financing which enabled it to expand the scope of intervention and that other donors have started to also finance certain reforms, prove the relevance of design\. 3\.2 Achievement of Project Development Objectives 47\. The PDO is clearly defined in the PAD and additional financing paper and activities under each component and subcomponent are closely linked to the achievement of each objective\. The PDO can be broken down in to nine identifiable objectives: (a) To enhance transparency in public finance at the central level (b) To enhance transparency in human resource management at the central level; (c) To enhance transparency in public finance at the sub-national level (d) To enhance transparency in human resource management at the sub-national level; (e) To enhance efficiency in public finance at the central level (f) To enhance efficiency in human resource management at the central level; (g) To enhance efficiency in public finance at the sub-national level (h) To enhance efficiency in human resource management at the sub-national level; (i) To establish and consolidate an equitable resource sharing mechanism between central and subnational governments 48\. Annex 2 on the assessment of achievements by objectives captures the Results Framework as in the PAD, while showing achieved outputs by components\. The sources of information include information collected directly from the M&E unit and units directly responsible for the execution of the project during an Implementation Completion and Results Report (ICR) mission, as well as the borrower completion report, the 2008 (published) and 2012 (unpublished) Public Expenditure and Financial Accountability (PEFA) reports, and the 2015 PEFA self-evaluation undertaken by the Government\.2 49\. Objective 1, to enhance transparency in central public finance, is rated Substantial, as the outcome indicator was fully achieved\. By the end of the project in 2015, budget execution reports were published regularly on the MOB website, making the information available to the public and thus enhancing transparency of public finance at the central level\. In addition, budget execution 2 The 2015 self-evaluation was undertaken by the Government under the PFM and accountability project, but was not directly sponsored by donors and therefore, did not undergo in-depth review usually associated with a PEFA exercise\. 12 reports now present information that is more comprehensive, allowing for better analysis\. At the close of the project in February 2016, the Government and the World Bank sponsored a series of meetings on governance and transparency in the DRC, which were very well received, and put transparency at the forefront of the Government agenda\. According to the 2012 PEFA exercise (conducted by the World Bank and DFID, but not published) the rating for Performance Indicator 10 (PI-10), public access to key fiscal information, increased from a ‘D’ in 2008 to a ‘C’ in 2012, with notable efforts identified to provide key fiscal information to the public\. A self-evaluation performed in 2015 by the Government of the DRC rated PI-10 a ‘B’, with the publication of more reports and information that is more comprehensive\. Finally, in addition to transparency in budget information, there is greater transparency in procurement with procurement information published periodically on the Procurement Authority website, making it available to the public\. 50\. Objective 2, to enhance transparency in central human resource management, is rated Modest (the project is devoid of any transparency-related results indicator in HRM at the central level)\. Transparency in HRM at the central level has improved over the eight-year implementation period\. Recruitment for civil service personnel now follows a more transparent process which includes an exam open to the public, whose results are published in the media\. The last recruitment exam took place in September 2015 with 4,824 participants in Kinshasa and provinces\. The project also supported the elaboration and adoption of standardized organization charts to help streamline the structures of the ministries and institutions, thus, forcing more transparency in the appointment of officials\. Furthermore, the project also supported the computerization of the HR system, as well as the rollout of the transitory pay system (PTS) (payroll) reform\. Along with the computerization of the payroll system, the use of electronic transfers for payroll resulted in more transparency and control over the list of civil servants receiving salaries\. However, progress in this regard is partial and can only be deemed sustainable if the Government implements the law on the General Statute of Public Service (recently adopted by parliament) and if the integrated management software for payroll and HR is effectively implemented, activities which will now be financed under the Public Service Reform and Rejuvenation Project’s additional financing\. 51\. Objective 3, to enhance transparency in subnational public finance, is rated Substantial, as the outcome indicator was fully achieved\. By the end of the project in 2015, budget execution reports for each province were published regularly on the MOB website, making the information which was not available before the project, now available to the public and hence enhancing transparency of public finance at the subnational level\. In addition, support to the assemblies in the four pilot provinces yielded better transparency (in Sud-Kivu for example, a television channel was created to make public the meetings of the assembly, including budget discussions)\. The participatory budget that was implemented in the province of Sud-Kivu, which will be implemented in other provinces, helped enhance citizen’s participation in the budget process and increase transparency over the use of public resources\. Due to the participatory budget, stakeholders including the provincial government, decentralized localities, civil society, and the private sector started participating in the preparation of the provincial budget since 2012 through a series of public meetings\. 52\. Objective 4, to enhance transparency in subnational human resource management, is rated Modest (the project is devoid of any transparency-related results indicator in HRM at the subnational level)\. The project contributed to providing the four pilot provinces with databases following the 2012 biometric census, which enabled the pilot provinces to have a list of civil 13 servants working in the provinces, thus increasing controls over ghost employees and improving transparency in HRM at the subnational level\. However, to enhance the sustainability of this action, those databases need to be updated\. In the absence of a law on the General Statute of Decentralized Public Service, recruitment criteria and promotion of local agents remain a contended issue\. 53\. In addition, as many civil servants at the subnational level are paid from the central level, the support provided to the computerization of the HR system, as well as the rollout of the PTS (payroll) reform at the central level and the use of electronic transfers for payroll, resulted in more control over the list of civil servants receiving salaries at the subnational level\. 54\. Objective 5, to enhance efficiency in central public finance, is rated Substantial, as the outcome indicators were mostly achieved\. This objective was mostly measured by looking at the efficiency of spending, tax collection, and use of procurement procedures\. With respect to spending efficiency, by the end of the project in 2015, with the 2010 manual on the ‘chaine de la depense’ available online from the MEF, there was a better clarity of spending procedures that had to be applied\. As can be seen in figure 2, the implementation of the ‘chaine de la depense’ at the central level and the improvements made to the information system enabled an improvement in the expenditures that were handled outside normal procedures\. The percentage of expenditures handled outside normal procedures steadily decreased from 26 percent in 2009 to reach 7 percent in 2015\. Figure 2\. Percentage of Expenditures Executed Outside Normal Procedures at the Central Level (source: DRC Government, MEF) 55\. In addition, the 2012 PEFA exercise recognized the improvements made through the utilization of the ‘chaine de la depense’ at the central level by changing the rating of PI-20, effectiveness of internal controls for non-salary expenditures, from a ‘D’ in 2008 to a ‘C’ in 2012\. 56\. With respect to tax collection, tax collection at the central level showed a year-to-year increase from CDF 1,427,534 million in 2009 to CDF 3,894,202 million in 2015, with a large year- to-year increase from 2009 to 2012 and a leveling of the increase from 2012 to 2015\. In addition, tax budgeting is becoming more accurate from 123 percent of realized taxes in 2009 to 106 percent in 2015\. 14  Figure 3\. Annual Increase in Tax Collection at the Central Level (source: DRC Government, MEF) 57\. With respect to procurement efficiency, with the implementation of the new procurement regulation, the regulatory environment for procurement considerably improved since 2010 with the creation and operationalization of the DGCMP and ARMP\. Procurement processes are now reviewed by the Procurement Directorate within the MOB and at the end of the project, procurement became more efficient with 80 percent of contracts over US$200,000 following a competitive process\. In addition, the percentage of direct contracts diminished from 43 percent in 2013 to 20 percent in 2015\. The 2012 PEFA exercise recognized improvements made in the procurement area by changing the rating of PI-19, competition value for money and controls in procurement, from a ‘D’ in 2008 to a ‘B’ in 2012\. 58\. Objective 6, to enhance efficiency in central human resource management, is rated Substantial, as the outcome indicator was fully achieved\. The percentage of civil servants paid through the reformed and computerized payroll system was very low (29 percent on average) during the first three years of project implementation\. The acquisition of a large capacity server and the access to the unique base of census of Public Service in 2011 has allowed the Payroll Department (MOB) to accelerate the integration of new services in to the computerized system (an average of 20 services per quarter according to the PEFA 2012)\. Significant progress has also been made in efficiency of the control of staff and payroll, causing the 2012 PEFA score for PI-8 to improve from a ‘D’ in 2008 to a ‘C+’ in 2012\. The centralization of the payroll files combined with the development of computer applications and security devices helped clean up the payroll database and delete duplicates\. In 2015, 97\.74 percent of the agents and civil servants were paid by the reformed computerized system\. 59\. With regard to the bonuses and allowances, 80–85 percent types of bonuses and allowances have been set in the system according to the independent final evaluation report\. The report makes no mention of the actual use of the system for the payment of these bonuses and allowances\. Furthermore, an IFMIS for pay and personnel rolls was planned to be installed to improve HRM but this software was installed but could not be tested before the end of the project\. The Public Service Reform and Rejuvenation Project funded by the World Bank is financing the operationalization of the software\. In the absence of integration of the pay and personnel rolls, the payroll management by the MOB and the HRM by the Ministry of Civil Service remain disconnected; there is no evidence that patronage in the recruitment and promotion of civil servants has decreased\. 15 60\. Objective 7, to enhance efficiency in subnational public finance, is rated Substantial, even though some of the selected outcome indicators were only partially achieved\. This objective was mostly measured by looking at the efficiency of spending and tax collection\. For the central level, the efficiency of spending was measured by the difference between real and budgeted expenditures\. However, the project mainly financed reforms related to the implementation and utilization of the ‘chaine de la depense’ and substantial progress has been made in enhancing the efficiency of public finance at the subnational level because of project intervention, which is not being captured by the indicator mentioned above\. Looking at the execution of transfer for operating expenditures at the subnational level (which are expenditures that are directly managed by the provinces), an overall improvement can be seen in the execution of expenditures from 82 percent of execution in 2011 to 90 percent in 2015 (there is no data available before 2011 for the provinces)\. The trend is even more pronounced in the four pilot provinces which went from 76 percent in 2011 to 90 percent in 2015\. In addition, with the implementation of the ‘chaine de la depense’ at the subnational level, where none existed before, efficiency of expenditures has increased at the subnational level\. In addition, at the subnational level, efficiency of spending was strengthened by bringing the Government closer to the citizens through their involvement in participatory budgeting\. This activity led to small projects that were financed by the subnational budget, such as the construction of latrines in a neighborhood in Sud-Kivu, which were much needed by the citizens\. Due to the positive results demonstrated in Sud-Kivu, participatory budgeting will be implemented in other DRC provinces\. Figure 4\. Execution of Transfers for Operating Expenditures at the Subnational Level (source: DRC Government, MEF) 61\. With respect to tax collection, tax collection at the subnational level increased, especially in the four pilot provinces, from 249 percent in 2010 (compared to 2009) as the project was establishing tax collection administrations in the provinces and continued to improve until 2015 (39 percent increase over the previous year)\. In the province of Sud-Kivu for example, tax collection increased from CFAF 4,027 million in 2010 to CFAF 5,821 million in 2015\. 62\. Objective 8, to enhance efficiency in subnational human resource management, is rated Substantial, as the outcome indicators were fully achieved\. The 2015 ISR reports that 100 percent of the civil servants in the pilot provinces are paid by the reformed and computerized system\. However, it should be noted that the staff of the decentralized sectors are not yet transferred and continue to be paid by the central government with provincial resources\. The 16 biometric census conducted in 2012, with the support of the project, has allowed the creation of a database, which needs to be kept updated\. In addition, it appears from the meetings with the beneficiaries, that 100 percent of civil servants are paid; however, this percentage remains impossible to verify as the number of civil servants and agents at the subnational level is still unknown\. Figure 5\. Transfer of Resources from the Central to the Subnational Government (source: DRC Government, MEF) 63\. Objective 9, to establish and consolidate an equitable resource sharing mechanism between central and subnational governments, is rated Substantial, as the outcome indicator was fully achieved\. A key objective of the project, as stated in the PAD, was the establishment of a more equitable resource-sharing mechanism between the central and subnational governments\. The project assisted in the establishment of the formula for resource sharing between the central and provincial governments which is still in use and has lessened tension between the central and provincial governments\. In the 2012 PEFA exercise, the rating for PI-8, transparency of intergovernmental fiscal relations, recognized the improvements in the relations between the central and provincial governments by improving the rating of the indicator from a ‘D’ in 2008 to a ‘D+’ in 2012\. This increase in the rating was mostly due to better and more equitable allocation of resources between the central and provincial governments and better communication between the central and provincial governments\. Transfer of resources to the provincial governments has undoubtedly increased since 2009 as can be seen in figure 53 above\. 3\.3 Efficiency Rating: Substantial 64\. The return on investments under the project is Substantial, even under conservative assumptions\. Table 1 summarizes the key results for the project\. Under quite conservative assumptions, where GDP would grow at 10 percent and 11 percent in 2017 and 2018 (as is 3 Note that the actual value calculated includes the amounts transferred directly to the provinces, as well as the salary payments transferred to provincial civil servants and the provincial capital investments 17 currently forecasted), then at 7\.4 percent until 2038, the economic rate of return (ERR) would be 91 percent\. Table 2\. ERR for the Project Project Components Cost (US$) ERR % 1\. Strengthening PFM and PSM at Central 38,080,158 Government Level 2\. Building PFM and PSM Systems at Provincial 41,044,471 91 Level 3\. Governance Reform Implementation Capacity 29,892,771 Total 109,017,400 65\. With respect to decentralization, the project contributed to the establishment of an equitable resource-sharing mechanism between the central and subnational governments\. Since 2009, transfer of resources to provincial governments increased, to 49 percent of collected revenue in 2015\. This transfer of resources enabled provinces to maximize necessary resources to fund their development and contributed to the improvement of public services delivered, thus having a positive impact on the population living condition\. 66\. With respect to Public Sector Wage Reform, the project contributed to the regular payment of civil servant salaries at the central and subnational levels (97 percent of agents and civil servants are receiving regular payments through the reformed and computerized system)\. The resultant spending made by civil servants would have a significant impact on reviving the economy and reducing poverty levels\. 67\. With respect to public finance reform, the project contributed to an increase in tax collection at the central and subnational levels, which resulted in the Government having more available resources and improving the availability and quality of public services\. In addition, the project also contributed to better performing public institutions capable of employing finances and HR in a more effective, transparent, and accountable way\. More efficient execution of budgetary transactions, reduced delays in payments, and improvement in procurement practices, will lead to reduction in the cost of goods and services to the Government\. 3\.4 Justification of Overall Outcome Rating Rating: Satisfactory 68\. The overall outcome rating of Satisfactory is based on the individual ratings for relevance, efficacy, and efficiency as shown in table 2\. Table 3\. Calculation of the Overall Project Outcome Rating Relevance of: Efficacy: Objective Overall Efficiency Objectives Design 1 2 3 4 5 6 7 8 9 Outcome High Substantial S M S M S S S S S Substantial S 69\. The project had a significant impact in three important areas: decentralization, public wage reform, and public finance reform\. Since the start of implementation in August 2008, the project had a significant impact on the improvement of PFM and PSM at the central and provincial level in a difficult and volatile environment\. Furthermore, the implementation of the 18 project has helped create a platform for administrative and fiscal decentralization of public services and financial management of public resources, which are now being taken over and deepened by projects financed by the World Bank and/or other donors\. The project contributed to the more equitable transfer of resources to the provincial level\. While some shortcomings in efficacy surfaced during implementation, the evidence available indicates that they were minor, given the many achievements of the project and the very fragile context of the operation\. 3\.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development 70\. The strategic importance of improved governance in providing reliable data to inform policies aimed at poverty reduction and social inclusion is well recognized\. Through the establishment of a more equitable resource-sharing mechanism between the central and subnational governments, the project ensures that resources are shared among richer and poorer provinces\. In addition, by strengthening participation of citizens in the budgeting process through participatory budgeting, the project allows the population not only to access information about public finances but also provides better access to basic services, such as sanitation services (with the construction of latrines, for example, in a neighborhood in Sud-Kivu)\. (b) Institutional Change/Strengthening 71\. The governance project is essentially an institutional strengthening project\. Today, the DRC benefits from better trained and highly capable staff, both at the central and subnational levels, thanks to the intervention of the governance project\. Many newly created bodies, such as the DGCMP, ARMP, provincial governments, provincial assemblies, and CPD, became and continue to be operational owing to the assistance (training, equipment, and technical assistance) of the project\. The project made effective use of technical assistance to strengthen key units and ministries\. The governance project was instrumental in operationalizing the reform process in the DRC\. (c) Other Unintended Outcomes and Impacts (positive or negative) 72\. With the training and technical assistance provided by the project (for example 1,048 people were trained in procurement), many units in the Government of the DRC, particularly in the prime minister’s cabinet, the MEF, MOB, MIDS, as well as in provinces are staffed with highly trained and skilled individuals\. The project, therefore contributed to creating a more robust civil service\. 73\. The implementation of the new procurement regulation, supported by the project, contributed to helping the DRC to reach the completion point under the heavily indebted poor countries (HIPC) initiative assistance in 2010, resulting in the cancellation of its external debt of approximately US$10 billion\. This allowed the DRC to allocate more resources to core sectors, such as health and education over the last few years\. 3\.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops Not applicable 19 4\. Assessment of Risk to Development Outcome Rating: Significant 74\. The overall risk to the development outcome is rated Significant\. The project had significant results and was a major contributor to increased governance in the DRC\. In particular, the project was a key contributor to the implementation of the Government’s decentralization policy by providing the new provincial governments and administrations the necessary tools and training to function, increasing the transparency and efficiency of management of public finance and collection of taxes\. The policy of decentralization in the DRC is likely to remain a Government priority, as it is reflected in the 2006 Constitution\. However, one significant risk to the achieved development outcome is the split of the 11 initial provinces into 26 in late 2015, toward the end of the project life\. The risk is that the capacity gains experienced in the 11 initial provinces will be greatly diminished or lost because of the split\. This risk, however, is mitigated by the continued involvement of other donors in the provinces (DFID and African Development bank [AfDB]) and other World Bank-financed projects such as PFMA project and the Public Service Reform and Rejuvenation Project\. These projects continue to finance activities to enable efficient operation of provinces (DFID and the World Bank cover 20 provinces and AfDB the remaining 6 provinces)\. Another significant risk is the ability to retain existing capacity at the subnational level in the absence of an implemented civil service reform, as with each new government there is an opportunity to start with all new staff\. However, this risk is mitigated by the existence of established procedures and systems which remain and the continued support of the World Bank and other donors\. 75\. Another major achievement of the project is the improvements made in increasing transparency and efficiency in government procurement\. With respect to this activity, the risk to the achieved development outcome is Moderate as agencies supported under the project have now been operational for a few years, while demonstrating visible results and are fully embedded in government procedures\. 76\. The project achieved the establishment of a more equitable formula for resource sharing between the central and provincial governments, which is still in use and has lessened tension between the central and provincial governments\. For this reason, with respect to this activity, the risk to the achieved development outcome is Moderate\. 77\. The project made a significant impact in increasing the transparency and efficiency in PFM and contributed to the establishment of a group of highly trained and skilled staff in many government units in the DRC\. While tools and procedures will remain in place, it is now the responsibility of the Government to retain those staff\. 78\. Finally, the improvement made in HRM can be at substantial risk if the Government does not live up to its commitment of linking payroll to the HR system\. 5\. Assessment of Bank and Borrower Performance 5\.1 Bank Performance 20 (a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory 79\. The project drew on extensive analytical work performed in the DRC PEFA/PER 2008, which sets out a comprehensive reform agenda on PFM reforms; the programmatic series of Policy Notes on Decentralization, jointly designed with the European Union (EU); the Public Sector Wage Reform (2008); the HIPC/Africa Action Plan (2004); Country Financial Accountability Assessment (2005); the Institutional and Governance Review (2005); the Country Procurement Issues Paper (2005) and sector related analytical work with governance aspects, notably the Governance Note produced as part of the preparation of the Education Sector Reform Project and the Mining Sector Study\. 80\. The project design drew on several lessons and good practices in similar projects in the DRC and World Bank-wide projects\. The project, which was prepared in a postconflict environment, specifically supported the implementation of the Government’s priorities in enhancing the quality of governance\. It built flexibility into the project design to accommodate for changes in reform priorities over the medium term\. It focused on supporting small steps in the right direction in governance reforms, which has been recognized to work better than grand designs\. The project provided technical support, focusing on implementation practicalities, in particular at the provincial level, which became the linchpin between the central government and the community levels, based on the decentralized design of the DRC Constitution\. Finally, the project took into consideration the need to coordinate with other donors, especially when faced with the extensive work program involved in increasing the capacity at the subnational level\. 81\. The project was the first project in the governance sector in the DRC and as such included various aspects of governance, working at the central and subnational levels, as well as various beneficiary entities\. However, the project’s governance structure was put in place to ensure effective coordinating of those various reforms\. (b) Quality of Supervision Rating: Satisfactory 82\. Between 2008 and 2015, the World Bank conducted 14 formal supervisory missions, documented in ISRs with formal supervision missions and corresponding Aide Memoires\. These missions covered approximately six-month periods and included reviews of the technical aspects of the project, as well as the aspects relevant to procurement, financial management, and social and environmental safeguards, when applicable\. The close supervision and day-to-day support by the field-based team allowed for effective implementation and disbursement\. Bottlenecks and challenges were flagged and were addressed on time\. 83\. The first midterm review (MTR) took place in November 2010 after the restructuring of the project in October 2010\. It highlighted the need for the additional financing, which was not approved until April 2013\. The results of the 2010 MTR were, however, taken into account for the additional financing in 2013 with the inclusion of the fourth province to ensure coverage of all provinces by development partners and the scaling up of PFM activities\. The second MTR took place in March 2015\. It highlighted the deficiencies in procurement of the GCEP and enabled the 21 team to take corrective actions to speed up the procurement process of certain activities, including procurement activities related to the purchase of the integrated HR system\. 84\. During the course of the project, the World Bank team provided regular technical supervision and hands-on assistance focused on proactively identifying and resolving threats to the achievement of the PDO\. These supervision missions were conducted with the support of various specialized technical experts and jointly with the Government\. This created a real dynamic environment for the project, promoting the sharing and implementation of good practices and initiatives\. The team went out of its way to work directly with clients and provide hands-on support in very difficult conditions and remote locations with challenges of access\. 85\. The Government counterparts consistently praised and greatly appreciated the commitment, support, and technical assistance provided by the World Bank team at all levels of the Government\. In almost every single meeting, both at the central and at the subnational levels, the World Bank team was recognized for having provided high quality implementation support and troubleshooting a number of complex issues that had the potential to derail some activities\. 86\. The team could have been more thorough in updating the Results Framework to facilitate monitoring of results\. Even though the team did a thorough job in regularly monitoring the Results Framework, not every aspect of the PDO was measured in the Results Framework and there are several discrepancies among the different Results Frameworks, which could have been addressed by the team during the restructuring of the additional financing\. (c) Justification of Rating for Overall Bank Performance Rating: Satisfactory 87\. The overall Bank performance is rated Satisfactory based on the ratings for quality at entry and quality of supervision\. The ICR author questioned whether the impact would have been greater had the project focused only on a few reforms\. However, the consistent feedback received from counterparts was that the design of the project, although complex and covering multiple levels and actors, was well prepared and responded to the needs of each agency\. In addition, the availability of permanent resources in-country, the regularity of the supervision missions, and the efforts made to increase dialogue at all levels of the Government are elements that contributed to reinforcing the partnership between the DRC’s Government and the World Bank\. 5\.2 Borrower Performance (a) Government Performance Rating: Moderately Satisfactory 88\. A consistent finding from the evaluation was the high level of commitment from the Government to the objectives of the project, its components, and subcomponents\. This can be measured by the fact that the performance of the beneficiary units increased and that most objectives were achieved\. However, the Government’s performance is rated Moderately Satisfactory because of the inability to complete the testing of the integrated HR system and the acquisition of the IFMIS, mainly due to a lack of commitment from the Government’s side\. This lack of commitment stemmed from a political issue (certain reforms are not understood the same 22 way by institutional players supposed to facilitate their preparation and implementation, thus impeding the participation of officials and members of political cabinets in evaluation committees) which resulted in substantial delays in procurement processes\. (b) Implementing Agency or Agencies Performance Rating: Satisfactory 89\. One of the recognized positive elements was the performance of the coordinating unit, both at the central and subnational levels\. At the central level, the coordinating unit collaborated effectively with beneficiary entities for the implementation of activities and performed its fiduciary role satisfactorily\. In addition, the fact that the coordinating units were used by the governor as an advisor in the four pilot provinces underlies the effectiveness of its performance\. (c) Justification of Rating for Overall Borrower Performance Rating: Moderately Satisfactory 90\. Overall, the coordinating unit and the beneficiary agencies performed effectively in a very challenging environment that was marked by political instability\. However, considering the noncompletion of the IFMIS system, the overall borrower performance is rated Moderately Satisfactory\. 6\. Lessons Learned 91\. In a fragile context, to ensure ownership and relevance, a governance project needs to participate in the process of consensus building, as well as build strong relationships with all levels of Government\. As the Government took power after the 2006 elections, its mandate was to build a more stable and transparent State, the project facilitated a consensus building process among Government officials on how to build such a stable and transparent State, by devoting some resources for workshops\. This ensured that the project remained relevant and fully aligned to Government objectives\. In addition, the World Bank team concentrated much effort on building strong relationships with all levels of government by maintaining a fluid communication with them, ensuring they understood the objectives of the project, how these objectives contributed to the goal of the new Government, and thus, allowing for the delivery of the activities under the project\. 92\. In a context of ever changing Government officials and priorities, a project needs to remain flexible and adaptable in order to remain relevant, as well as strong implementation arrangements\. It is important to periodically perform in-depth reviews, such as MTRs (the World Bank Team performed two such reviews), as well as more regular supervision to make appropriate adjustments to project activities, and use appropriate avenues such as restructuring (the project was restructured once to allow for additional activities to be included in the project)\. Given the high turnover of Government officials, both at the central and provincial level, it is important to put in place strong implementation arrangements to keep the institutional memory (for example, in the provinces, the implementation units set up for the project, although may seem costly, were in fact essential as they became advisors for new elected officials ensuring continuity in project implementation)\. 93\. Supporting delegation, devolution, or decentralization in a weak capacity context can provide greater accountability and better results in governance\. In a context of weak human 23 and institutional capacity, the approach taken to strengthen central systems, while laying the foundation of the system at the decentralized level ensured sustained client capacity building and provided for better results at the decentralized level\. For example, by giving the provinces more autonomy in the collection of taxes and at the same time strengthening the provincial tax collection agencies, local tax collection has seen an increase of 250 percent from 2009 to 2010 as the project put in place tax collection administrations in the four pilot provinces, and continued to increase year over year until the end of the project\. In addition, with the assistance provided by the project on the utilization of the resources (with the implementation of the ‘chaine de la depense’ and participatory budgeting), provinces became more accountable and were able to provide better services to the population\. Thus, in the presence of significant disparity between the central and decentralized levels, even in cases of weak capacity, such an approach enables the pooling of available resources and ensures a minimum functioning of public services and greater accountability in the poorest localities\. 94\. Designing a project that is anchored on previous analytical work greatly facilitates implementation\. Many of the activities planned at the outset of the project came from the extensive analytical work that was done before project preparation (PEFA/PER 2008, which sets out a comprehensive reform agenda on PFM reforms; the programmatic series of Policy Notes on Decentralization, jointly designed with the EU, United Nations Development Programme, and the Belgium Technical Cooperation; the Public Sector Wage Reform (2008); the HIPC/Africa Action Plan (2004); the Country Financial Accountability Assessment (2005); the Institutional and Governance Review (2005); the Country Procurement Issues Paper (2005); and sector-related analytical work with governance aspects, notably the Governance Note produced as part of the preparation of the Education Sector Reform Project and the Mining Sector Study)\. This provided a path to organize the reform dialogue with the Government responding to its specific needs in a coordinated manner\. 95\. Designing a project that fits and supports the country’s reform agenda pays off in the medium term\. Design might take longer than usual and additional efforts are needed to find consensus with the Government and other international financial institutions supporting the country, to align the project’s content with the country’s reform agenda\. This is all the more relevant when the implementation periods on average are long and outlive different political administrations\. This project did just that by assisting the Government to put in place the required regulatory framework following the reform agenda, then the establishment of entities to carry out the new framework (for example the DGCMP, ARMP, and ministerial procurement units for procurement, COREF for public finance reforms, tax collection agencies in subnational governments, and procurement units in subnational governments)\. These efforts contributed to greater ownership and stronger partnership between the country and the World Bank, as well as other international financial institutions\. It also translated into a project whose PDO and components were not modified over time\. Finally, it enhanced the ability of the team and the project to remain flexible/adaptable by responding to new Government priorities and financing new and urgent activities that may not have been planned at the outset\. 96\. Interinstitutional collaboration and civil society participation are key for the successful implementation of governance reform programs\. Strengthening governance, at the central and decentralized levels, can only be achieved as a government effort, with the collaboration of all sectors and joint support from international financial institutions\. In efforts to 24 strengthen governance at the decentralized level, strengthening the MIDS was crucial\. However, in the case of the project, it did not end there, as the project promoted coordination with and strengthening of the MEF, MOB, Planning, and Public Service, and other agencies involved in the governance reform process such as COREF and the Public Administration Reform Technical Committee (Comite Technique pour la Reforme de l’Administration Publique)\. The collaboration was an integral part of the successes and the progress reached during the life of the project\. In addition, strong cooperation between development organizations such as the World Bank, DFID, AfDB, United Nations Development Programme, and the EU was also a factor of success, especially in the context where leadership and donor coordination by the Government was inadequate\. The GCEP project illustrated how cooperation under a win-win framework emphasized the adding up of the comparative advantages of these entities, especially in a context of decentralization, where one donor may not be able to do everything\. Finally, greater participation of the civil society in the governance reform program would lead to an even better result, particularly at the decentralized level\. 97\. Considering the behavioral element of reforms and implementing a national communication campaign to build awareness when new or transformational strategies are implemented is crucial to facilitate implementation\. To ensure that new procedures, systems, or institutions are utilized, there is a need to ensure that the project takes into account the behavioral aspect of change, as well as build awareness of the new or transformational elements of the reform\. An example could be to offer economic incentives for the utilization of new procedures, systems, or institutions created by new reforms or tie activities of the project to prior actions, or output of budget support, or an agreed upon economic framework\. 98\. Considering power elements when providing support to IT elements in subnational governments can ensure sustainable results\. For example, the supply of electricity in many provinces is unpredictable, affecting the efficient use of computerized systems\. One option is to consider the purchase of alternative energy sources (such as solar panels) when making investments in computerized systems in subnational governments\. In fact, given the early experience in the provinces, the GCEP project applied this lesson in its intervention in the Kassai province by exploiting solar energy for the implementation of the ‘chaine de la depense’\. Similarly, when making investments in computerized systems, it is important to consider maintenance of those systems for sustainability purposes\. 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies Not applicable (b) Cofinanciers Not applicable(c) Other partners and stakeholders Not applicable 25 Annex 1\. Project Costs and Financing (a) Project Cost by Component (in US$, millions equivalent) Total Actual/ Appraisal Additional Latest Percentage Components Estimate (US$, Financing (US$, Total Estimate (US$, of Appraisal millions) millions) millions) Component 1: Strengthening PFM and PSM at Central Government 21\.28 35\.16 56\.44 38\.08 67\.5 Level Component 2: Building PFM and 20\.73 13\.43 34\.16 41\.04 120\.1 PSM Systems at Provincial Level Component 3: Governance Reform 7\.99 18\.36 26\.35 29\.89 113\.4 Implementation Capacity Actual/Latest Estimate (US$, 50\.00 66\.95 116\.95 109\.02 93\.2 millions) Physical contingencies 0\.00 — — 0\.00 0\.00 Price contingencies 0\.00 — — 0\.00 0\.00 Total Project Costs 0\.00 — — 0\.00 Front-end fee Project Preparation — 0\.00 — 0\.00 0\.00 Fund Front-end fee IBRD 0\.00 — — 0\.00 0\.00 Total Financing Required 50\.00 66\.95 116\.95 109\.02 (b) Financing Appraisal Actual/Latest Type of Percentage of Source of Funds Estimate Estimate Cofinancing Appraisal (US$, millions) (US$, millions) Borrower NA 0\.00 0\.00 0\.00 IDA Grant NA 116\.95 109\.02 93\.2% (c) Approved Project Components, Subcomponents and Activities Component 1: Strengthening PFM and PSM at Central Government Level (US$21\.28 million) 1\.1 Supporting the MIDS in designing and implementing the decentralization process ï‚ Key decentralization laws and decrees ï‚ Legal instruments to roll out decentralization including to the split of the provinces foreseen in 2010 ï‚ Training and dissemination of legislation and policies 26 1\.2 Supporting the MOB and Ministry of Public Service in implementing Public Sector Wage Reforms, including the design of an integrated personnel and payroll management system ï‚ Amendments to public service legislation ï‚ Design and implementation of public sector payroll and pension reform ï‚ Upgrade and rollout of the automated payroll system, creation of a civil service register and assuring their effective linkage ï‚ Comprehensive training needs assessment ï‚ Support to the restructuring and adaptation of six selected line ministries most affected by the decentralization process 1\.3 Strengthening of public financial management ï‚ Reform and reinforcement of the legal and institutional framework for budget management ï‚ Design and implementation of a Medium-term Expenditure Framework, including capacity-building support to line ministries and support for change management ï‚ Reform of tax policy and administration ï‚ System support for PFM through the implementation of an integrated system Component 2: Building PFM and PSM Systems at Provincial Level (US$20\.72 million) 2\.1 PFM systems at the provincial level ï‚ Provincial budget procedures ï‚ Provincial-level tax and fiscal agencies ï‚ System support to PFM 2\.2 Personnel management and payroll systems at the provincial level ï‚ Development of model organizational structures at the provincial level, including accountability arrangements ï‚ Design and installation of a simplified database system for provincial public service, with a link to the central systems and roll out of the automated pay system to the provinces ï‚ Implementation of a comprehensive training program in HRM and PFM 27 2\.3 Capacity building for regional economic planning ï‚ Capacity building for the development of regional plans and evaluation of project proposals 2\.4 Monitoring indicators ï‚ Design and monitor performance indicators to track provincial government performance 2\.5 Capacity development facility ï‚ Financing under the capacity development facility for proposals submitted by provincial institutions relating to the core objectives of the project 2\.6 Rollout strategy and monitoring ï‚ Rollout strategy which will serve as a framework for donor coordination on capacity development activities at the provincial level ï‚ Information and practice-sharing activities between provinces Component 3: Governance Reform Implementation Capacity (US$7\.98 million) ï‚ Building project implementation capacity ï‚ Monitoring and evaluation ï‚ Building demand for governance reforms 28 Annex 2\. Achievements by Objective and Outputs by Component Table 2\. 1\. Achievement by Objective Objective 1 : Enhance transparency in public finance at central level Rating: Substantial (achieved or nearly achieved) PDO Outcome Actual Statu Data Baseline Target Comments Indicator (2015) s Source 1\. Integrated Budget Budget Budget Achie MOB and ï‚ Report published on Budget execution execution execution ved MEF the MOB website on a Execution reports are reports reports are websites at monthly basis in 2015 Reports are produced provide regularly central and ï‚ February 2016 series published on the but are of reliable published on provincial of meetings on Ministry of low quality information the MOB and levels governance and Budget and the and are not and can be MEF transparence in the Ministry of made readily websites at DRC budget execution Finance websites publicly obtained central level reports present more on a regular available from the comprehensive basis at central MOB and information allowing level MEF for better analysis website at ï‚ In addition to central transparency in budget level information, there is greater transparency in procurement with procurement information published periodically on the Procurement Authority website ï‚ According to the 2012 PEFA exercise (conducted by the World Bank and DFID, but not published) the rating for PI-10, public access to key fiscal information increased from ‘D’ in 2008 to ‘C’ in 2012 with notable efforts to provide key fiscal information to the public ï‚ A self-evaluation performed in 2015 further rating PI-10 ‘B’ with the publication of more reports and more comprehensive information Objective 2: Enhance transparency in human resource management at central level Rating: Modest (partially achieved) 29 PDO Outcome Actual Statu Data Baseline Target Comments Indicator (2015) s Source No indicator ï‚ No indicator ï‚ Recruitment for civil service personnel now follows a more transparent process which includes an exam open to the public, whose results are published in the media\. The last recruitment exam took place in September 2015 with 4824 participants in Kinshasa and provinces ï‚ Adoption of standardized organization charts to help streamline the structures of the ministries and institutions ï‚ Computerization of the HR system ï‚ Use of electronic transfers for payroll resulted in more transparency and control over the list of civil servants receiving salaries Objective 3: Enhance transparency in public finance at subnational level Rating: Substantial (achieved or nearly achieved) PDO Outcome Actual Statu Data Baseline Target Comments Indicator (2015) s Source 30 1\. Integrated Budget Budget Budget Achie ï‚ Report published on MOB and Budget execution execution execution ved MEF the MOB website on a Execution reports are reports reports are websites at semester basis in 2015 reports are produced provide regularly ï‚ Support to the central and published on the but are of reliable published on provincial assemblies in the four Ministry of low quality information the MOB and levelspilot provinces yielded Budget and the and are not and can be MEF better transparency (in Ministry of made readily websites at Sud-Kivu for example, Finance websites publicly obtained the a television channel on a regular available from the subnational was created to make basis at MOB and level public the meetings of subnational level MEF the assemblies, website at including budget the discussions) subnational ï‚ Implementation and level utilization of a ‘chaine de la depense’ in provinces to allow for more efficient and transparent use of resources ï‚ Participatory budget implemented in the four pilot provinces helped enhance citizen's participation in the budget process and increased transparency over the use of resources Objective 4: Enhance transparency in human resource management at subnational level Rating: Modest (partially achieved) PDO Outcome Actual Statu Data Baseline Target Comments Indicator (2015) s Source No indicator ï‚ No indicator ï‚ The project contributed to providing the four pilot provinces with databases following the 2012 biometric census Objective 5: Enhance efficiency in public finance at central level Rating: Substantial (Achieved or nearly achieved) PDO Outcome Actual Statu Data Baseline Target Comments Indicator (2015) s Source 31 1\. Percentage of 30% Less than 7% Achie Budget ï‚ There is a better clarity expenditures 10% ved execution of procedures to apply handled outside report with the 2010 Manual of the ‘chaine de on the ‘chaine de la depense’ is depense’ available lower than 10% online from the MEF at the central level ï‚ The 2012 PEFA exercise recognizes the improvements made through the utilization of the ‘chaine de la depense’ at the central level by rating PI-20, effectiveness of internal controls for non-salary expenditures, from ‘D’ in 2008 to ‘C’ in 2012 ï‚ The implementation of the ‘chaine de la depense’ at the central level and the improvements made to the information system enabled an improvement in the expenditures handled outside normal procedures; however, an average of 10% of commitments still continue to be handled outside normal procedures ï‚ A reduction in expenditures handled outside normal procedures from 26% in 2009 to 7% in 2015 2\. Procurement 30% in 2011 80% 80% Achie ARMP ï‚ Procurement processes code is effectively ved report are now reviewed by applied the Procurement throughout the Directorate within the territory of the MEF DRC and ï‚ 80% of contracts over competitive US$200,000 in 2015 bidding is followed a competitive applied in at process least 80% of all ï‚ Percentage of direct procurement contracts have processes with a diminished from 43% value exceeding in 2013 to 20% in 2015 US$200,000 ï‚ The 2012 PEFA exercise recognized the 32  improvements made in the procurement area by improving the rating of PI-19, competition value for money and controls in procurement, from ‘D’ in 2008 to a ‘B’ in 2012 ï‚ The regulatory environment for procurement was considerably improved since 2010 with the creation and operationalization of the DGCMP and ARMP\. 3\. Annual Tax 10% 6% Partia Budget ï‚ Tax collection has increase in tax collection is increase lly execution increased year to year revenue at CFAF 175\.5 year to year achie report from CDFF 1,427,534 central level billion in ved million in 2009 to greater than 2006 CDFF 3,894,202 10% million in 2015, with a large increase year to year from 2009 to 2012 and a leveling of the increase from 2012 to 2015 ï‚ In addition, tax budgeting is becoming more accurate from 123% of realized taxes in 2009 to 106% in 2015 4\. The difference 21% in 2006 Less than 41% Not Budget ï‚ Even though the between 5% achie execution difference between budgeted and ved report budgeted and executed executed expenditures at the expenditures central level is still decreases from high (41% in 2015), 21% in 2006 to the trend, for example, less than 10% of shows an improvement total from 65% in 2010; expenditures at ï‚ Even though the rating the central level for PI-1, expenditure out-turn compared to original approved budget, remains the same at ‘D’ from 2008 to 2012 and the self- evaluation in 2015, there is an evolution from 2008 to 2015 (PEFA 2008 included 33  2004: 70%, 2005: 120\.9% and 2006: 116\.1%; PEFA 2012 included 2009: 16\.3%, 2010: 34% and 2011: 29%; and self- evaluation 2015 included 2013: 28\.2% and 2014: 21\.5%) ï‚ PFM reforms still under implementation aim to refine the budgeting process and improve accuracy of budgeting\. Objective 6: Enhance efficiency in human resource management at central level Rating: Substantial (achieved or nearly achieved) PDO Outcome Statu Data Baseline Target Actual Comments Indicator s Source 1\. At least 70% 28% in 2008 70% 97\.70% Achie Payroll ï‚ The single file payroll of civil servants ved report introduced by the PTS at central level reform in 2008 to paid through a allow for transparency reformed and and a better control of computerized the wage bill is still payroll system under constitution ï‚ The independent final evaluation report mentions that between 80% and 85% of bonuses and allowances have been set in the system but makes no mention of the actual use of the system for the payment of these bonuses and allowances Objective 7: Enhance efficiency in public finance at subnational level Rating: Substantial (achieved or nearly achieved) PDO Outcome Statu Data Baseline Target Actual Comments Indicator s Source 1\. The difference 31% Less than 63% Not Provincial ï‚ As for the central level, between 10% achie budget the difference between budgeted and ved execution budgeted and executed real expenditures report expenditures at the does not exceed provincial level is still 10% of total high (63% in 2015) expenditures at ï‚ PFM reforms still the provincial under implementation level aim to refine the budgeting process and improve accuracy of budgeting 34 2\. Annual 28% in 2009 Annual 39% Achie Provincial ï‚ Tax revenue and increase in tax increase ved budget collection has revenues at execution increased in the provincial level report provinces (in the four pilots) from 250% in 2010 (compared to 2009) as the project was establishing tax collection administrations in the provinces and continued to improve until 2015 ï‚ In the province of Sud- Kivu for example, tax collection increased from CDF 4,027 million in 2010 to CDF 5,821 million in 2015 Objective 8: Enhance efficiency in human resource management at subnational level Rating: Substantial (achieved or nearly achieved) PDO Outcome Statu Data Baseline Target Actual Comments Indicator s Source 1\. Regular Salary 60% 100% Achie Provincial ï‚ Currently 100% of payment of at payments ved budget public servants in the least 60% of are regularly execution pilot provinces are paid provincial level delayed and report by the reformed and civil servant many staff computerized system\. salaries are not paid However the staff of the decentralized sectors are not transferred yet and continue to be paid by the central government 2\. At least 60% No PSM and 60% 97\.74% Achie Budget ï‚ 100% of civil servants of public payroll ved execution are paid according to servants in pilot management report the budget report; provinces are system however, this paid via a exists at the percentage remains reformed and provincial impossible to verify computerized level because the number of payroll system civil servants and agents working at the subnational level is still unknown Objective 9: Establish and consolidate an equitable resource-sharing mechanism between central and subnational government Rating: Substantial (achieved or nearly achieved) PDO Outcome Statu Data Baseline Target Actual Comments Indicator s Source 35 At least 35% of Between 8% 35% 46% Achie Budget ï‚ The project helped domestic revenue and 10% in ved Execution establish the formula transferred January Reports for resource sharing regularly to sub- 2008 between the central national and provincial government governments which is still in use and has lessened tension between the central and provincial governments ï‚ Transfer of resources to the provincial governments has undoubtedly increased since 2009 ï‚ In the 2012 PEFA exercise, the rating for PI-8, transparency of intergovernmental fiscal relations recognized the improvements in the relations between the central and provincial governments by rating the indicator a ‘D’ in 2008 and a ‘D+’ in 2012; this increase in the rating was mostly due to the allocation of resources between the central and provincial governments and better communication between the central and provincial governments Table 2\. 2\. Output by Component Project Achieved/Not Explanation if Not Output at Completion PDO Components/Activities Achieved Achieved Component 1: Strengthening PFM and PSM at Central Government Level (US$56\. 44 millions) Subcomponent 1\.1: Supporting the MIDS in designing and implementing the decentralization process 1\. Key decentralization Studies on the Partially Critical activities which 3 ,4, 7, 8, 9 laws and decrees development of achieved remain incomplete are decentralization laws and the following: Adoption decrees; studies on of the Law on the Statute budgetary decentralization of Central, Provincial and territorial and Local Public decentralization; several Service, adoption of a laws and decrees adopted Law on the National Equalization Fund, 36  Project Achieved/Not Explanation if Not Output at Completion PDO Components/Activities Achieved Achieved adoption of a bill for clarification of concurrent jurisdiction between the central government and the provinces\. 2\. Legal instruments to Outreach campaign on Achieved — 3, 4, 7, 8 roll out decentralization legal instruments 3\. Training and Experience sharing and Achieved — 3, 4, 7, 8 dissemination of training of roughly 20 legislation and policies staff of the Ministry of Decentralization Subcomponent 1\.2: Supporting the Ministries of Budget and Public Service in implementing public sector wage reform, including the design of an integrated payroll management system 4\. Amendments to public Production of legal texts Achieved service legislation and application decrees on public service reform — 2 5\. Design and Studies on pay reform; Achieved implementation of public Institutional audits for the sector payroll and establishment of standard pension reform directions in the ministries — 2 and other public institutions 6\. Upgrade and rollout of The PTS was Partially The critical activity the automated payroll implemented; acquisition- achieved which remains system with civil service HRM payroll software; incomplete is the register pending integrated HR and implementation of the 6 payroll system integrated HR and payroll management system\. 7\. Training needs 100 IT professionals Achieved — 6 assessment trained in system development 8\. Support to the Acquisition of furniture Achieved — 6 restructuring of six line and hardware for the ministries affected by the MEF, Ministry of decentralization process Decentralization, MOB, and CTAD; Rehabilitation of Buildings UADS; development of a website for the MEF; studies on the interconnection of government’s websites; recruitment of 540 agents for the Ministry of Agriculture 37  Project Achieved/Not Explanation if Not Output at Completion PDO Components/Activities Achieved Achieved 9\. Implementation of Development of a Achieved — 6 biometric staff database of the identification system decentralized sector’s civil servants Subcomponent 1\.3: Strengthening of Public Financial Management 10\. Reinforcement of Production and Achieved — 1 legal and institutional dissemination of the framework for budget organic law on public management finance 11\. Implementation of a Development of the Achieved — 5 Medium-term National Strategic Expenditure Framework Development Plan 2017– 2021 12\. Reform of tax policy Support for tax reform Achieved — 5 and administration (value added tax and several laws) 13\. Implementation of Assistance for the Partially Integrated financial 5 IFMIS implementation of the achieved management software computerization of public was not acquired; Terms finance; of Reference were IT support to Materials to prepared through the improve the computerized project system of execution of public expenditure Subcomponent 1\.4: Procurement reforms 14\. Procurement reforms About 1000 workers Achieved trained in procurement; furniture and IT equipment acquisition for — 5 ARMP; Audit of Public Procurement (FY2011); adoption of the Law on Procurement Component 2: Building PFM and PSM Systems at Provincial Level (US$34\.16 millions) Subcomponent 2\.1: Public Financial Management Systems at Provincial Level 15\. Provincial budget Establishment of Achieved procedures minimum standards of — 3 PFM; Several technical assistances in PFM 16\. Provincial-level tax At least 750 agents Achieved and fiscal agencies recruited and trained in — 7 revenue mobilization techniques; 38  Project Achieved/Not Explanation if Not Output at Completion PDO Components/Activities Achieved Achieved rehabilitation of buildings for the provincial revenues authorities; office rehabilitation of the provincial assemblies; studies on provincial revenue collection system; Elaboration of a directory of taxpayers 17\. System support to Installation of ‘Chaine de Achieved public finance la dépense’ in four pilot management provinces; at least 600 — 7 agents trained for the use of ‘Chaine de la dépense’ Subcomponent 2\.2: Personnel management and payroll systems at provincial level 18\. Development of Review of legal and Partially Legal texts have been organizational structures organizational framework achieved prepared but are still at provincial level, in provinces and awaiting adoption by the 4 including accountability preparation of legal texts parliament arrangements 19\. Implementation of Census of provincial staff Achieved The decentralized staff database system for and creation of a database continue to be monitored provincial public service for provincial at the central level 4 and automated pay system 20\. Implementation of Basic training in IT, Achieved training programs in training in revenue HRM and PFM mobilization techniques, public finance and — 7, 8 procurement; experience sharing between the provincial assemblies 21\. Implementation of Biometric staff Achieved biometric staff identification conducted in — 8 identification system 2012 Subcomponent 2\.3: Capacity building for regional economic planning 22\. Capacity building for Training provided on Achieved regional development participatory budgeting, planning leadership, and so on; technical assistance — 7 provided for the preparation of local development plans Subcomponent 2\.4: Monitoring indicators 23\. Performance Establishment of Achieved indicators to track performance indicators to provincial government track provincial — 7, 8 performance government performance and training Subcomponent 2\.5: Capacity development facility 39  Project Achieved/Not Explanation if Not Output at Completion PDO Components/Activities Achieved Achieved 24\. Capacity Implementation of Achieved development facility for investment projects of provincial initiatives public-private partnership between provinces and private investors; supporting budgetary conferences; supporting provincial assemblies open houses events for — 7, 8 civil society; training in participatory budget for decentralized territorial entities (entités territoriales décentralisées); capacity building in leadership Subcomponent 2\.6: Roll out strategy and monitoring 25\. Roll out strategy and Communication campaign Achieved monitoring for experience sharing — 7, 8 among the provinces 26\. Information and Experience sharing Achieved practice sharing among the provincial — 7, 8 activities between assemblies provinces Component 3: Governance Reform Implementation Capacity (US$26\. 35 millions) 27\. Implementation Furniture, equipment, and Achieved capacity in the Cellule supplies and capacity pour la Decentralization building for PCU and the — 1, 9 CPD 28\. Capacity building in Support to governance for Achieved M&E for the the presidency Governance Department (Governance Department) — 1, 9 under the administration of the president 29\. Strengthening Support to governance for Achieved implementation capacity the prime minister on the Governance — 1, 3, 9 Compact in the Prime Minister's Office 30\. Design and No outcome listed implementation support for a government — — communication policy 40  Project Achieved/Not Explanation if Not Output at Completion PDO Components/Activities Achieved Achieved 31\. Balanced scorecard No outcome listed surveys (3 over the duration of the project) — — 41  Annex 3\. Economic and Financial Analysis 1\. The impact on GDP is computed as the value of disbursement per year assuming that government consumption increases by that disbursement value, therefore increasing GDP by the same amount (%) and there are no other positive externalities\. Under the assumption that the project has a positive impact on GDP of 0\.035 percent on average over its life cycle and beyond (30 years total, which is the standard for World Bank loans to IBRD or IDA countries, that is, 2008–2038), using a 11 percent discount rate, which is the midpoint between 10 percent and 12 percent usually used in World Bank projects’ appraisal, gives the following results: Period 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017–2038 Financial flows (641,752) (5,769,435) (10,194,447) (20,170,179) (10,566,804) (8,312,696) (25,188,537) (5,396,943) (7,688,070) 15,696,078 (US$) NPV — — — — — — (14,144,788) — — — (US$) ERR 9% — — — — — — — — — Note: NPV = Net Present Value 2\. Now assuming that after the project is completed (2016), GDP growth is at 10 percent and 11 percent in 2017 and 2018 respectively (as is currently forecast), then at 7\.4 percent until 2038, the project would yield the following result: Period 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017–2038 Financia l flows (641,752) (5,769,435) (10,194,447) (20,170,179) (10,566,804) (8,312,696) (25,188,537) (5,396,943) (7,688,070) 5,003,788,649 (US$) NPV — — — — — — — — — 11,628,100,395 (US$) ERR 91% — — — — — — — — — 42 Annex 4\. Bank Lending and Implementation Support/Supervision Processes (a) Task Team Members Responsibility/ Names Title Unit Specialty Lending Maurice Adoni Senior Procurement Specialist GGO07 Procurement Monthe Bienvenu Biyoudi Senior Operations Officer AFCW2 Operations Jean Charles Amon Kra Sr Financial Management Specialist GGO13 Financial Management AFTP3 - Emilie Ayaza Mushobekwa Economist Economic Analysis HIS Herimpamonjy Mavoarisoa Operations Analyst GGO13 Operations Ranaivoarivelo AFTP1 - Dieudonne Randriamanampisoa Senior Economist Economic Analysis HIS Janette Uhlmann Senior Program Officer MNCMI Operations Antonius Verheijen Country Manager ECCYU Operations Supervision/ICR Bourama Diaite Senior Procurement Specialist GGO07 Procurement Jean Charles Amon Kra Sr Financial Management Specialist GGO13 Financial Management Philippe Mahele Liwoke Senior Procurement Specialist GGODR Procurement AFTME - Gaspy Gedeon Muanda E T Consultant Operations HIS Jean Mabi Mulumba Senior Public Sector Specialist GGO25 TTL Evariste Niyonkuru Consultant GGO13 Governance Thomas Jeffrey Ramin Senior Operations Officer DFGPE Operations AFTP1 - Dieudonne Randriamanampisoa Senior Economist Economic Analysis HIS Arleen Cannata Seed Senior ICT Policy Specialist GTI11 ICT (b) Staff Time and Cost Staff Time and Cost (World Bank Budget Only) Stage of Project Cycle US$, thousands (including No\. of Staff Weeks travel and consultant costs) Lending FY07 123\.10 FY08 337\.87 Total: 460\.97 Supervision/ICR FY07 0\.00 FY08 0\.00 FY09 290\.07 FY10 222\.46 FY11 148\.98 FY12 83\.54 FY13 186\.56 43 FY14 120\.45 FY15 72\.04 FY16 146\.91 FY17 12\.09 Total: 1,283\.10 44 Annex 5\. Beneficiary Survey Results Not applicable 45 Annex 6\. Stakeholder Workshop Report and Results Not applicable 46 Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR 1\. The evaluation of the DRC - Enhancing Governance Capacity Project was undertaken over the month of February 2016 by an independent evaluator\. The project was originally approved by the Board on April 22, 2008 with a closing date of February 28, 2013 and was extended until February 28, 2016 by the additional financing approved on May 9, 2013\. The project was structured in three components whose activities were targeting the performance indicators of the log frame of the financial agreement approved on June 8, 2013\. 2\. Over a total funding estimated at US$116\.95 million, the project has disbursed US$102\.33 million, approximately 87\.50 percent\. 3\. Component 1 was dedicated to strengthening PFM and PSM at the central government level\. At the end of the project, most of the activities planned were completed\. Such activities as the adoption of key decentralization laws, the implementation of the integrated HR and payroll management system did not happen because of political reasons (Legal texts prepared are still awaiting adoption by parliament) and administrative/procedural delays in contracting\. 4\. Component 2 was aimed at building public sector and financial management systems at the provincial level, based on 12 planned activities\. At the end of the project, 10 activities were fully completed and 2 activities, the development of organizational structures at the provincial level and implementation of database system for provincial public service and automated pay system, were partially achieved\. 5\. With regard to Component 3 on enhancing governance reform implementation capacity, over five planned activities, three were fully achieved\. Design and implementation support for a government communication policy did not happen, nor did the three balanced scorecard surveys planned over the duration of the project\. 6\. On the relevance\. The design stage the DRC-Enhancing Governance Capacity Project was developed on the basis of identified needs and priorities of the Poverty Reduction Strategy Paper and the Country Strategy Paper 2013–2016 to improve governance\. The project formulation considered the objectives, policies, and strategies of the Government’s guiding documents defining the need to strengthen governance with the backdrop of improved transparency in public finance and the public sector\. The activities were also properly designed to support the achievement of the PDOs\. 7\. On the effectiveness\. The DRC-Enhancing Governance Capacity Project has delivered substantial non-quantifiable benefits of improving governance capacity at the central and subnational level\. The cost-effectiveness of the project relates to its relevance to enable the country to have better trained and highly capable civil servants, both at the central and subnational level\. 8\. On the impact\. Significant positive impact of the project has been noticed through its role in capacity building played by the World Bank experts\. These made a real and lasting capacity impact for the DRC’s inadequate public service\. The supervision missions conducted, with the support of experts have created among civil servants, an incentive to implement best practices and develop new initiatives to promote transparency and good governance\. 47 9\. The evaluation noted that the project has played an important role in supporting capacity building and improving governance in the DRC\. These results, reflect efforts made by the PIU, and implementing agencies and their effective involvement despite the difficult implementation environment\. In effect, the Government was supposed to exercise its oversight through the steering committee meetings; however, meetings were held only sporadically\. Overall, only 33 committee meetings were held, out of the initially planned 140 meetings, throughout the period of implementation of the project at central level and in the four provinces\. In addition, the few committee meetings failed to address the project's strategic orientation issues\. 10\. Furthermore, frequent changes of the head of key implementing ministries and unstable provincial governments have contributed to slow down the implementation of some activities; with new officials continuously reconsidering decisions made by their predecessors\. 11\. The PIU (36 staff members) takes credit for the sound implementation arrangements that contributed to the good results\. The creation of local coordinating entities in the four provinces to coordinate the activities of the project and ensure monitoring, reflects the achievements at the subnational level\. Effective coordination, timely funding of activities; adoption of annual work plans and budgets; and submission of progress indicators echo the PIU’s effective performance in project coordination\. 12\. IDA performance was characterized by multiple supports including joint (IDA- Government) supervision missions for harmonious implementation\. These supervision missions conducted, with the support of experts have helped to develop transparency and good governance in PFM and HRM\. 48 Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders Not applicable 49 Annex 9\. List of Supporting Documents Loi N 08/012 portant principes fondamentaux relatifs à la libre administration des provinces (July 31, 2008) RDC Loi N 10/010 relative aux marches publics (April 27, 2010) RDC Analyse de la situation administrative et financière et de la livraison des services publics des entités territoriales décentralisées (ETDs) (February 28, 2011) World Bank-USAID-EU Plan stratégique de réforme des finances publiques (March 2010) RDC Evaluation finale indépendante du projet PRCG (February 2016) RDC Mesure de la performance de la gestion des finances publiques en RDC, selon la méthodologie PEFA (March 2008) EU Mesure de la performance de la gestion des finances publiques en RDC, selon la méthodologie PEFA (2012) World Bank-DFID Exercice d’auto évaluation de la gestion des finances publiques de la RDC, selon la méthodologie PEFA (2015) COREF/RDC Rapport annuel PRCG (2014) RDC Evolution des dossiers des marches examinés a la DGCMO suivant le mode (2016) RDC 50 MAP 51

REVIEW

P000198

Document de LA BANQUE MONDIALE POUR USAGE OFFICIEL Rapport No\. 16095 REPUBLIQUE DU BURUNDI RAPPORT DE FIN D'EXECUTION PROJET DE DEVELOPPEMENT DU SECTEUR DE L' EDUCATION (Crédit 1881 BU) ler Novembre 1996 Direction des opérations pour le Burundi Bureau régional Afrique Le présent document fait l'objet d'une distribution restreinte et ne peut être utilisé par ses destinataires que dans l'exercice de leurs fonctions officielles\. Son contenu ne peut être divulgué qu'avec l'autorisation de la Banque mondiale\.  PARITES MONETAIRES Unité monétaire = Franc Burundais (FBU) (Moyenne en FBUJ pour I dollar E\.U\.) 1988 1989 1990 1991 1992 1993 1994 1995 1996 140 159 171 181 208 243 253 276 285* A la date du 31 janvier 1996\. POIDS ET MESURES Système métrique ANNEE SCOLAIRE DE L'EMPRUNTEUR septembre - juin ANNEE BUDGETAIRE DE L'EMPRUNTEUR ler janvier - 31 décembre ABREVIATIONS ET SIGLES BEET Bureau d' Etudes de 1' Enseignement Technique BEPES Bureau d' Etudes et des Progranmmes de 1' Enseignement Secondaire BER Bureau d' Education Rurale BPE Bureau des Projets Education CCAP Comité de Coordination des Activités Pédagogiques CRPD Centre Régional de Pédagogie et de Documentation DCS Direction des Constructions Scolaires DPE Direction de la Planification de 1' Education EFI Ecole de Formation d' Instituteurs MEBAA Ministère de l'Enseignement de Base et de l'Alphabétisation des Adultes MEN Ministère de 1' Education Nationale MESSRS Ministère de lEnseignement Secondaire, Supérieur et de la Recherche Scientifique PDP Programme de Dépenses Publiques PIP Programme d' Investissements Publics PNUD Programme des Nations Unies pour le Développement RPP Régie des Productions Pédagogiques UNICEF Fonds des Nations Unies pour 1' Enfance  REPUBLIQUE DU BURUNDI RAPPORT DE FIN D'EXECUTION PROJET DE DEVELOPPEMENT DU SECTEUR DE L'EDUCATION (CREDIT 1881-BU) TABLE DES MATIERES PREFACE \.i RESUME DE L'EVALUATION \. iii 1\. EVALUATION DE L'EXECUTION DU PROJET \.1 A\. HISTORIQUE \.1 B\. DEFINITION ET EVALUATION DES OBJECTIFS \.4 C\. REALISATION DES OBJECTIFS \. \. \.5 D\. FACTEURS IMPORTANTS AYANT AFFECTE LE PROJET \. 13 E\. VIABILITE DES RESULTATS \.14 F\. PERFORMANCE DE LA BANQUE \. 15 G\. PERFORMANCE DE L'EMPRUNTEUR \. \. \. 16 H\. EVALUATION DES RESULTATS \. 17 1\. OPERATION FUTURE \. 18 J\. PRINCIPAUX ENSEIGNEMENTS \. 18 2\. DONNEES STATISTIQUES \. 20 TABLEAU 1: RESUME DES EVALUATIONS \. \. \. 20 TABLEAU 2: PRETS/CREDITS CONNEXES DE LA BANQUE \. 22 TABLEAU 3: CALENDRIER DU PROJET \. 23 TABLEAU 4: DECAISSEMENTS DU CREDIT: PREVISIONS ET MONTANTS EFFECTIFS \. 23 TABLEAU 5: INDICATEURS DE PERFORMANCE \. \.24 TABLEAU 6: INDICATEURS CLES DE L'OPERATION FUTURE \. 28 TABLEAU 7: ETUDES INCLUSES DANS LE PROJET \. 29 TABLEAU 8A: COUTS DU PROJET \. \. 30 TABLEAU 8B: FINANCEMENT DU PROJET \. \. 31 TABLEAU 9: COUTS ET AVANTAGES ECONOMIQUES \. 31 TABLEAU 10: RESPECT DES CLAUSES JURIDIQUES \. 32 TABLEAU 11: RESPECT DES DIRECTIVES DU MANUEL OPERATIONNEL \. 35 TABLEAU 12: RESSOURCES DE LA BANQUE - PERSONNEL \. \. \. 35 TABLEAU13: RESSOURCES DE LA BANQUE - iSSIONS \. 36 3\. ANNEXE \.37 RAPPORT DE SYNTHESE DU GOUVERNEMENT \.38   REPUBLIQUE DU BURUNDI RAPPORT DE FIN D'EXECUTION PROJET DE DEVELOPPEMENT DU SECTEUR DE L'EDUCATION (Crédit 1881 BU) PREFACE 1\. Le présent document est le rapport de fin d'exécution du Projet de Développement du Secteur de l'Education au Burundi, pour lequel le Crédit 1881 BU, d'un montant de 31,5 millions de dollars, a été approuvé le 23 février 1988\. Le Crédit est entré en vigueur le 20 juillet 1988\. 2\. Le Crédit a été clôturé le 31 décembre 1995 après prorogation à deux reprises de la date initiale fixée au 30 juin 1994\. Le dernier décaissement du Crédit a eu lieu le 29 mai 1996 et le montant non décaissé (0,6 millions' de dollars EU, soit 1,9 % du Crédit) a été annulé le 19 juin #996\. Le Programme des Nations Unies pour le Développement (PNUD) et le Fonds des Nations Unies pour l'Enfance (UNICEF) ont participé au financement du Projet respectivement pour 0,6 millions et 1,0 millions de dollars EU, respectivement\. 3\. Ce rapport a été établi par M\. Magaye Gaye, Consultant, avec la contribution de M\. Pamphile Kantabaze, Chargé des opérations (AF3BU)\. Il a été révisé par M\. Daniel Viens, Chargé de projet (AFTH2) et fait l'objet d'observations de la part de MM\. David Berk, Chef a\.i\. de la Division AFTH2 et Nils Tcheyan, Direction des Opérations pour le Burundi\. Sa préparation a débuté avec la dernière mission de supervision de la Banque qui a séjourné au Burundi du ler au 15 février 1995\. Une autre mission s'est rendue dans le pays du 18 au 29 mars 1996 afin de collecter des données et de recueillir des informations dans la perspective du présent rapport\. Celui-ci est basé sur le Rapport d'Evaluation initial, l'Accord de Crédit de Développement, les rapports de supervision, le rapport sur la Revue des Dépenses Publiques du 28 juin 1994, le rapport de la Banque sur la Stratégie d'Assistance au Pays du 2 mai 1995, les correspondances entre la Banque et l'Emprunteur et autres documents concernant le projet\. L'Emprunteur a préparé sa propre évaluation du projet, qui a été reçue par la Banque le 29 mai 1996 (Annexe B)\. l Un solde non décaissé de DTS 398,860 a été annulé et le crédit a été clôturé le 19 juin 1996\.   REPUBLIQUE DU BURUNDI RAPPORT DE FIN D'EXECUTION PROJET DE DEVELOPPEMENT DU SECTEUR DE L'EDUCATION (Crédit 1881 BU) RESUME DE L'EVALUATION Situation macro-économique 1\. Le Burundi fait partie des pays les plus pauvres du monde avec un revenu par tête d'habitant de 150 dollars en 1994\. Sa superficie est de 27\.834 km2 sur laquelle vit une population de 5, 8 millions d'habitants augmentant aux taux de 3,1 % par an\. La densité au km2 est de 208 habitants et représente dix fois la moyenne de celle des pays africains au Sud du Sahara\. L'agriculture contribue pour près de 50 % au Produit Intérieur Brut, 90 % à l'emploi et plus de 80 % aux recettes d'exportations\. Le secteur privé représentait seulement 16 % des investissements bruts en capital au cours des 15 dernières années, principalement dans les petites exploitations agricoles et le transport\. Le secteur public domine l'industrie manufacturière, l'énergie, les infrastructures, le secteur financier et les autres activités du secteur moderne et contribue pour plus de 50 % à l'emploi formel (40\.000 employés)\. Environ 80 % des investissements sont financés sur ressources extérieures\. Rôle de la Banque dans le secteur de l'éducation 2\. Les opérations de la Banque dans le secteur de l'éducation du Burundi ont commencé avec le Premier Projet Education (Cr\. 679 BU signé le 29 avril 1977 et clôturé le 31 mars 1983)\. Ce projet comprenait une assistance pour l'amélioration quantitative et qualitative de l'enseignement primaire par la construction d'écoles primaires, la formation des enseignants pour l'enseignement des matières pratiques, la préparation de nouveaux programmes scolaires et la production de matériels didactiques\. Le Second Projet Education (Cr\. 976 BU signé le 23 avril 1980 et clôturé le 30 juin 1985) assista le Gouvernement dans l'extension et l'amélioration de son programme d'enseignement technique, principalement pour former des ouvriers spécialisés et des techniciens dans les domaines de la construction, du commerce, des travaux publics, de la mécanique, du dessin, de la dactylographie et de la comptabilité\. Le Troisième Projet Education (Cr\. 1358 BU signé le 9 juin 1983 et clôturé le 31 mars 1988) a fourni une assistance pour l'extension et l'amélioration de l'enseignement primaire formel et informel et la formation dans les zones rurales, pour l'extension de l'enseignement du premier cycle du secondaire, pour l'amélioration de la formation des enseignants et le renforcement du département du Bureau d'Education Rurale (BER) responsable du développement des manuels scolaires et de la production des matériels didactiques pour l'enseignement primaire\.  iv Projet de Développement du Secteur de l'Education 3\. Les premier, second et troisième projets d'éducation ont été achevés dans les délais prévus et sont considérés comme satisfaisants\. La particularité du Quatrième Projet Education est qu'il comporte une assistance au Gouvernement pour l'adoption et la mise en oeuvre de politiques sectorielles destinées à réduire les coûts de l'éducation à tous les niveaux et à répartir le budget de l'éducation en faveur du niveau primaire\. Objectifs du Projet 4\. Les objectifs du Projet étaient de: (a) mettre en oeuvre des mesures visant à limiter les coûts et à faciliter l'ajustement du secteur de l'éducation; (b) renforcer les capacités de planification, de budgétisation et de contrôle des coûts du Ministère de l'Education Nationale (MEN); (c) améliorer la qualité et l'efficacité de l'enseignement primaire et secondaire; et (d) améliorer l'accès à l'éducation\. 5\. Le Projet comprenait les composantes suivantes: (a) Coûts de lEducation: (i) un programme d'ajustement sectoriel comprenant 29 mesures spécifiques pour réduire les coûts unitaires et permettre une réallocation du budget de l'éducation en faveur du niveau primaire; et (ii) une assistance au MEN pour couvrir les coûts résultant de l'augmentation temporaire du budget des bourses pour l'année scolaire 1987/88; (b) Renforcement des Capacités du MEN: (i) renforcement de la Direction de la Planification de l'Education (DPE) pour lui permettre de mettre en oeuvre et de suivre le Programme et de préparer des plans d'ajustement sectoriel, et d'élaborer des mesures de coût-efficacité, incluant les Programmes de Dépenses Publiques (PDP) et les Programmes d'Investissements Publics (PIP) et des études connexes sur l'éducation; et (ii) renforcement et coordination de l'administration et de la planification scolaires; (c) Amélioration de la Qualité et de lEfficacité de l'Enseignement: (i) renforcement du rôle des inspecteurs, des formateurs d'enseignants et des directeurs d'établissements scolaires pour les aider à fournir aux enseignants un soutien pédagogique et administratif, (ii) formation d'instituteurs et d'enseignants du secondaire; (iii) amélioration de l'enseignement des sciences et de la technologie dans les écoles secondaires grâce à la fourniture d'installations et de matériels adéquats; (iv) renforcement de la Régie des Productions Pédagogiques (RPP), y compris par la fourniture de matériels et d'équipement; et (v) attribution de bourses de formation à l'étranger à des spécialistes de l'enseignement primaire et secondaire; (d) Accès à l'Education: (i) renforcement de la capacité du MEN à construire, remettre en état et entretenir les établissement scolaires par la réorganisation du BPE: (ii) construction de 55 écoles primaires et remise en état de 55 existantes avec fourniture de mobilier et d'équipement; (iii) construction de 3 écoles d'enseignement secondaire du premier cycle et  Evaluation de l'Exécution du Projet v remise en état de 10 écoles secondaires existantes; (iv) réalisation et suivi d'un programme d'entretien scolaire\. Réalisations des objectifs 6\. La plupart des objectifs du Projet ont été atteints et quelquefois même dépassés\. Les objectifs liés aux politiques sectorielles, au renforcement de la capacité institutionnelle et au développement du secteur privé ont été atteints partiellement\. Le Projet a eu un impact faible sur les objectifs financiers, institutionnels et de réduction de la pauvreté\. Durant la période 1987- 1993 qui a précédé les événements d'octobre 1993 (assassinat du Premier Président élu), l'accès à l'enseignement de base s'est amélioré comme le témoignent les effectifs du primaire qui n'ont cependant pas augmenté au rythme prévu dans le Programme\. Le Projet a financé des activités de développement des ressources humaines en formant des enseignants, des directeurs d'établissements et des inspecteurs des écoles primaires et secondaires\. Le volet construction et remise en état des écoles primaires et secondaires a été exécuté comme prévu et quelquefois les réalisations dépassent les prévisions\. En somme, l'évaluation des résultats est généralement satisfaisante\. 7\. Durant les troubles d'octobre 1993, du matériel, du mobilier et des bâtiments de certaines écoles primaires et secondaires ont été endommagés, d'où la nécessité de réparer ces dégâts\. Le coût (790\.000 dollars) de réhabilitation et de rééquipement de ces écoles --qui n'était pas prévu dans le Crédit-- a pu être financé grâce aux économies réalisées par le Projet\. A la rentrée scolaire 1993/94, plus de 25 % des élèves du primaire et du secondaire ne sont pas retournés à l'école et le taux de scolarisation du primaire est passé de 68 % en 1992/93 à environ 50 % en 1994/95\. On estime que 25 % des enseignants du primaire et 42 % du secondaire n'ont pas rejoint leurs postes depuis le début de l'année 1994\. Viabilité des résultats et opération future 8\. Après une période de démarrage difficile entre juillet 1988 et juillet 1990, la DPE a repris ses activités entre août 1990 et juin 1994\. Cependant, depuis cette date, la Direction s'est effondrée et la préparation des PEP et des annuaires statistiques, ainsi que la mise à jour du tableau de pilotage ont été interrompues faute de ressources humaines et financières\. En conséquence, il y a un besoin urgent de renforcer les services de la DPE\. En ce qui a trait aux objectifs d'amélioration de la qualité et de l'efficacité de l'éducation, plus du quart des résultats atteints avant octobre 1993 ont été perdus à travers la disparition de manuels d'enseignement, le départ ou l'absence des instituteurs dans certaines zones rurales (en raison de l'insécurité) et le manque d'enseignants aux niveaux secondaire et supérieur\. La Régie des Productions Pédagogiques (RPP) a réapprovisionné, en grande partie, les manuels scolaires en maintenant le ratio d'un manuel pour deux élèves\. Par contre, au niveau secondaire, le BEPES n'a pas été en mesure de réapprovisionner les établissements pour retrouver un ratio de 1 manuel pour deux étudiants\. Les inscriptions risquent de baisser pendant un certain temps, à l'exception des collèges communaux\. Le niveau des taux de scolarisation observés en septembre 1993 pourrait être atteint  vi Projet de Développement du Secteur de l'Education de nouveau si la paix sociale et la stabilité politique étaient restaurées, mais seulement après que les personnes déplacées (instituteurs et élèves) aient regagné confiance au régime en place et rejoint leurs domiciles\. Les constructions scolaires aux niveaux primaire et secondaire sont généralement de très bonne qualité\. Cependant, l'entretien des bâtiments et des équipements fait défaut, en particulier dans les établissements secondaires\. Certains bâtiments nouveaux ont besoin de peintures ou de réparations des installations de plomberie ou d'électricité afin de contrer une détérioration rapide due à un usage intensif 9\. En somme, la viabilité des résultats du Projet dépend, en grande partie, du retour à la paix sociale et de la stabilité politique, de l'engagement des deux ministères chargés de l'éducation pour redonner à la DPE son rôle important, et de l'allocation de ressources publiques suffisantes pour l'entretien des écoles\. L'atteinte de ces résultats est cependant incertaine en raison des problèmes politiques que connait le Burundi\. 10\. L'éducation demeure l'un des secteurs prioritaires pour le lancement d'actions de réconciliation et le retour à la paix\. Cependant, dans le contexte actuel, il est peu probable que la Banque supporte des investissements massifs dans le secteur avant un retour à la paix\. Une forme d'assistance plus appropriée pourrait être un appui, modeste certes, à des campagnes d'information, à l'éducation à la paix et à d'autres activités qui contribueraient à améliorer l'accès équitable à un enseignement de base et secondaire de qualité\. Enseignements Il\. L'expérience de ce projet démontre qu'il n'y a pas de réponses toutes faites au problème de la formulation des conditions dans des projets d'éducation\. Cette expérience montre qu'il faut exercer un bon jugement, à savoir, une flexibilité dans l'interprétation, combinée au respect de certains principes de base\. Les principaux enseignements de ce projet sont résumés dans les propos suivants\. 12\. Les conditions de décaissement basées sur l'atteinte de résultats découlant de politiques sectorielles ne devraient être utilisées que dans des cas où le changement de politique constitue un pré-requis nécessaire pour la justification ou l'utilisation rentable de l'investissement qui fait l'objet de la condition\. 13\. Les conditions devraient être structurées de façon à encourager les bénéficiaires à respecter ces conditions\. 14\. Les conditions devraient éliminer toute ambiguité et être comprises parfaitement par toutes les parties\. Dans les cas où des conditions à caractère plus général sont jugées appropriées (plutôt que des conditions spécifiques), celles-ci devraient définir des critères explicites de performance\. Le tableau de pilotage, et ses indicateurs, est utile\. Cependant, il ne doit pas faire l'objet d'un contrat formel\.  Evaluation de l'Exécution du Projet vii 15\. Le calendrier de la revue des conditions devrait coïncider avec des événements-clés à l'intérieur de l'année scolaire ou du cycle budgétaire, de façon à permettre au Gouvernement d'adopter des actions nécessaires sans pour autant bloquer des investissements qui dépendent de l'achèvement de ces conditions\. 16\. Bien qu'il soit difficile d'entrevoir des changements politiques majeurs ou des crises sociales comme celles qui sont survenues au Burundi durant la mise en place de ce projet, les projets sectoriels devraient avoir la flexibilité de s'adapter aux besoins d'urgence\. A travers l'usage des économies réalisées grâce à la gestion efficace du projet, le Gouvernement a pu financer une partie importante de son programme de reconstruction d'urgence pour des écoles endommagées au cours des événements qui ont suivi la crise d'octobre 1993\. 17\. Enfin, les opérations financées par le PNUD et l'UNICEF devraient être reflétées dans les états financiers du Projet même quand ces fonds ne sont pas gérés par la Banque\. Cette lacune est contraire au principe d'exhaustivité de la Banque qui veut que toutes les ressources et dépenses d'un projet soient comptabilisées\. A l'avenir, des arrangements devront être faits pour que les opérations financées parallèlement puissent être comptabilisées par l'agent d'exécution du Projet\.   REPUBLIQUE DU BURUNDI RAPPORT DE FIN D'EXECUTION PROJET DE DEVELOPPEMENT DU SECTEUR DE L'EDUCATION (Crédit 1881 BU) 1\. EVALUATION DE L'EXECUTION DU PROJET A\. HISTORIQUE Situation macro-économique 1\.1 Le Burundi fait partie des pays les plus pauvres du monde avec un revenu par tête d'habitant de 150 dollars EU en 1994\. Sa superficie est de 27\.834 km2 sur laquelle vit une population de 5,8 millions d'habitants augmentant au taux de 3\.1% par an\. La densité au km2 est de 208 habitants et représente dix fois la moyenne de celles des pays africains au Sud du Sahara\. L'agriculture contribue pour près de 50% au Produit Intérieur Brut, 90% à l'emploi et plus de 80% aux recettes d'exportations\. En 1993, le secteur secondaire représentait seulement 19% du Produit Intérieur Brut et 11% des exportations\. Malgré une croissance relativement forte depuis 1985 (moyenne annuelle de 5%), le secteur moderne n'a pas été capable d'absorber la main d'oeuvre rurale excédentaire\. Le secteur privé a financé seulement 16% des investissements bruts en capital durant les quinze dernières années, principalement dans les petites exploitations agricoles et le transport\. Le secteur public domine l'industrie manufacturière, l'énergie, les infrastructures, le secteur financier et les autres activités du secteur moderne et contribue pour plus de 50% à l'emploi formel (40\.000 employés)\. Environ 80% des investissements sont financés sur ressources extérieures\. Préparation du Projet 1\.2 Durant la période 1986-1988, les effectifs du primaire ont augmenté au taux annuel de 18% suite à une politique vigoureuse de la double vacation destinée à améliorer l'accès à l'éducation de base\. Au niveau du secondaire, les effectifs ont évolué à un rythme plus lent en raison de mesures strictes de contrôle de l'accès au premier cycle du secondaire\. Durant la même période, les effectifs des enseignants du secondaire général et pédagogique ont augmenté de 13%, alors que ceux de l'enseignement technique professionnel ont diminué de 9%\. Dans l'enseignement supérieur, les effectifs de l'Université du Burundi et des Instituts Supérieurs augmentèrent de 8%\. Les taux bruts de scolarisation du primaire (69%), du secondaire (5%) et du supérieur (1%) se comparaient valablement à ceux de l'Afrique au Sud du Sahara: 75%, 20% et 1%\. L'enseignement privé se développe particulièrement au niveau secondaire et principalement dans les zones urbaines et comprend tout l'enseignement informel dispensé dans les centres confessionnels\.  2 Burundi: Projet de Développement du Secteur de l'Education 1\.3 En 1988, les problèmes suivants restaient encore à résoudre dans l'enseignement primaire: malgré des augmentations remarquables au niveau des effectifs, l'accès était encore limité dans les zones rurales désavantagées où les taux bruts de scolarisation étaient inférieurs à 50% comparés à ceux de plus de 100% des zones urbaines; rendement interne faible avec un taux moyen de redoublement de 26%; pénuries de livres et autres matériels didactiques et d'équipement; difficulté à attirer et retenir des enseignants qualifiés à cause surtout de l'incapacité des organismes de formation à recruter des candidats motivés et aussi à cause de conditions de travail pauvres: support professionnel, logement et accès aux lieux de travail; accès à l'enseignement secondaire limité à une petite portion d'élèves (environ 10%) qui terminent le programme d'enseignement des six années du primaire\. Dans l'enseignement secondaire, les problèmes majeurs se résument ainsi: surcharge des infrastructures existantes, faiblesse de la charge horaire hebdomadaire du personnel enseignant, importance des effectifs du personnel non-enseignant et mauvaise répartition des ressources publiques en faveur des services non-académiques (internat principalement)\. 1\.4 Dans le domaine de la formation professionnelle, l'enseignement technique secondaire et tertiaire aussi bien que l'enseignement technique supérieur sont caractérisés par une participation limitée ou inexistante du secteur privé et des employeurs\. Les organes de formation sont mal équipés pour répondre aux réformes structurelles majeures sur lesquelles le Gouvernement s'est engagé et leurs programmes et méthodes d'insertion ont besoin d'être révisés pour s'adapter à un environnement qui évolue\. 1\.5 Durant la période 1986-1988, la part du budget allouée à l'enseignement primaire a diminué de 46 à 44%, celle de l'enseignement général, pédagogique et technique est restée stationnaire (30%), tandis que celle de l'enseignement supérieur a augmenté de 22 à 25%\. 1\.6 Durant la période 1988-1993, l'accès à l'enseignement de base s'est amélioré comme le témoignent les effectifs du primaire augmentant au taux de 7% par an, soit le double du taux de croissance de la population\. Le taux brut de scolarisation du primaire atteignait 68% en 1993\. A ce moment éclata la crise du 21 octobre 1993 (assassinat du Premier Président élu) dont les conséquences continuent d'affecter le secteur jusqu'à ce jour\. Le matériel, le mobilier et les bâtiments de certaines écoles primaires et secondaires ont été endommagés durant les troubles d'octobre 1993, d'où la nécessité de réparer ces dégâts\. A la rentrée scolaire 1993/94, plus de 25% des élèves du primaire et du secondaire ne sont pas retournés à l'école et le taux de scolarisation du primaire est passé de 68% en 1992/93 à environ 50% en 1994/95\. On estime que 25% des enseignants du primaire et 42% du secondaire n'ont pas rejoint leurs postes depuis le début de l'année 1994\. Rôle de la Banque dans le secteur de l'éducation 1\.7 La première opération de la Banque dans le secteur de l'éducation du Burundi a commencé avec le Premier Projet Education (Cr\. 679 BU signé le 29 avril 1977 et clôturé le 31 mars 1983)\. Ce projet comprenait une assistance pour l'amélioration quantitative et qualitative de l'enseignement primaire par la construction d'écoles primaires, la formation  Evaluation de l'Exécution du Projet 3 des enseignants pour l'enseignement des matières pratiques, la préparation de nouveaux programmes scolaires et la production de matériels didactiques\. Le Second Projet Education (Cr\. 976 BU signé le 23 avril 1980 et clôturé le 30 juin 1985) assista le Gouvernement dans l'extension et l'amélioration de son programme d'enseignement technique, principalement pour former des ouvriers spécialisés et des techniciens dans les domaines de la construction, du commerce, des travaux publics, de la mécanique, du dessin, de la dactylographie et de la comptabilité\. Le Troisième Projet Education (Cr\. 1358 BU signé le 9 juin 1983 et clôturé le 31 mars 1988) fournit une assistance pour l'extension et l'amélioration de l'enseignement primaire formel et informel et la formation dans les zones rurales, pour l'extension de l'enseignement du premier cycle du secondaire, pour l'amélioration de la formation des enseignants et le renforcement du département du Bureau d'Education Rurale (BER) responsable du développement des manuels scolaires et de la production des matériels didactiques pour l'enseignement primaire\. Le Tableau 2 présente les crédits connexes de la Banque dans le secteur de l'éducation\. 1\.8 Les premier, second et troisième projets d'éducation ont été achevés dans les délais prévus et peuvent être considérés comme satisfaisants\. Selon l'évaluation du Département de d'Evaluation des Opérations de la Banque, les résultats des trois projets sont mixtes\. L'extension a été réalisée dans l'enseignement primaire, secondaire et technique/professionnel\. La composante formation des enseignants du primaire du Troisième Projet augmenta les effectifs du secondaire mais, comme les élèves ne choisissent pas la carrière enseignante, ces effectifs sont restés inférieurs aux prévisions\. Les résultats de l'enseignement informel ont été négatifs\. Dans le domaine du renforcement institutionnel, ces projets ont permis de mettre en place une unité compétente des programmes du primaire (BER) et de renforcer la production des manuels scolaires\. Le Projet de développement du secteur de l'éducation 1\.9 Les objectifs du Projet étaient de: (a) mettre en oeuvre des mesures visant à limiter les coûts et à faciliter l'ajustement du secteur de l'éducation; (b) renforcer les capacités de planification, de budgétisation et de contrôle des coûts du Ministère de l'Education Nationale (MEN); (c) améliorer la qualité et l'efficacité de l'enseignement primaire et secondaire; et (d) améliorer l'accès à l'éducation\. 1\.10 Le Projet comprenait les composantes suivantes: (a) Coûts de l'Education: (i) un programme d'ajustement sectoriel comprenant 29 mesures spécifiques pour réduire les coûts unitaires et permettre une réallocation du budget de l'éducation en faveur du niveau primaire; et (ii) une assistance au MIEN pour couvrir les coûts résultant de l'augmentation temporaire du budget des bourses pour l'année scolaire 1987/88; (b) Renforcement des Capacités du MEN (i) renforcement de la Direction de la Planification de l'Education (DPE) pour lui permettre de mettre en oeuvre et de suivre le Programme et de préparer des plans d'ajustement sectoriel, et d'élaborer  4 Burundi: Projet de Développement du Secteur de l'Education des mesures de coût-efficacité, incluant les Programmes de Dépenses Publiques (PDP) et les Programmes d'Investissements Publics (PIP) et des études connexes sur l'éducation; et (ii) renforcement et coordination de l'administration et de la planification scolaires; (c) Amélioration de la Qualité et de l'Efficacité de l'Enseignement: (i) renforcement du rôle des inspecteurs, des formateurs d'enseignants et des directeurs d'établissements scolaires pour les aider à fournir aux enseignants un soutien pédagogique et administratif, (ii) formation d'instituteurs et d'enseignants du secondaire; (iii) amélioration de l'enseignement des sciences et de la technologie dans les écoles secondaires grâce à la fourniture d'installations et de matériels adéquats; (iv) renforcement de la Régie des Productions Pédagogiques (RPP), y compris par la fourniture de matériels et d'équipement; et (v) attribution de bourses de formation à l'étranger à des spécialistes de l'enseignement primaire et secondaire; (d) Accès à lEducation: (i) renforcement de la capacité du MEN à construire, remettre en état et entretenir les établissement scolaires par la réorganisation du BPE: (ii) construction de 55 écoles primaires et remise en état de 55 existantes avec fourniture de mobilier et d'équipement; (iii) construction de 3 écoles d'enseignement secondaire du premier cycle et remise en état de 10 écoles secondaires existantes; (iv) réalisation et suivi d'un programme d'entretien scolaire\. B\. DEFINITION ET EVALUATION DES OBJECTIFS 1\.11 Le but du projet était d'accélérer l'accès à l'enseignement de base et de stimuler le développement qualitatif de l'enseignement primaire et secondaire tout en maintenant la part du budget de l'État allouée au secteur de l'éducation à environ 20%\. De façon plus spécifique, le projet visait une croissance annuelle des effectifs compatible avec les ressources financières et techniques du Gouvernement (et qui permettraient d'atteindre la scolarisation universelle en 1995-96), le renforcement de la capacité institutionnelle du Gouvernement pour le contrôle de la croissance quantitative et qualitative, et une amélioration de la qualité de l'éducation par la révision des programmes et des matériels didactiques\. 1\.12 Une caractéristique importante du projet résidait dans l'assistance au Gouvernement pour l'adoption et la mise en place de politiques et de mesures sectorielles pour l'atteinte de ces objectifs\. Ces mesures étaient regroupées dans quatre champs: la réduction des coûts unitaires par élève, la réduction des subventions aux secteurs d'enseignement secondaire et supérieur, l'amélioration du recouvrement des coûts et l'amélioration de l'accès à l'enseignement de base\. Afin d'éviter une spécificité trop pointue dans l'Accord de Crédit, ces indicateurs ont été distillés dans deux mesures synthétiques qui devaient refléter les effets de la mise en place de toutes les mesures prévues\. Ces deux mesures synthétiques sont une réduction annuelle des coûts unitaires à tous les niveaux d'enseignement et un rythme de croissance de la part du budget affecté à l'enseignement primaire\.  Evaluation de l'Exécution du Projet 5 1\.13 Les objectifs du Projet ainsi que les moyens à mettre en oeuvre pour les atteindre étaient clairement définis et répondaient aux priorités du Gouvernement dans le secteur\. Cependant, il y a lieu de noter qu'il n'existe pas à proprement parler une stratégie de développement du secteur de l'éducation\. C\. REALISATION DES OBJECTIFS 1\.14 Tel qu'illustré dans le Tableau résumé de l'évaluation (Section 2, Tableau 1), les objectifs physiques ont été atteints et même dépassés\. Les objectifs liés aux politiques du secteur, à la gestion du secteur public et au développement du secteur privé ont été partiellement atteints\. Le projet a eu un impact négligeable sur les objectifs financiers, institutionnels et de réduction de la pauvreté\. La viabilité des résultats est incertaine, en particulier depuis 1993 qui a marqué le début d'une crise sociale et politique profonde\. Les performances de la Banque et de l'Emprunteur ont été satisfaisantes, à l'exception du non-respect de certaines conditions par le Gouvernement\. En résumé, l'évaluation des résultats est généralement satisfaisante\. 1\. Les mesures d'ajustement sectoriel 1\.15 Le suivi de la mise en place des mesures d'ajustement sectoriel et des indicateurs synthétiques correspondants (coûts unitaires et redistribution de la part du budget de l'État par niveau d'éducation) s'est avéré une tâche beaucoup plus complexe qu'elle n'était envisagée au moment de l'évaluation 2 \. Au cours de la période 1988-1992, les tendances relatives à l'application des conditions spécifiées dans l'Accord de Crédit ont été les suivantes\. 1\.16 Coûts unitaires\. Aux niveaux primaire et secondaire, les salaires des enseignants qui constituent la plus grande partie des dépenses ont augmenté moins rapidement que le rythme de l'inflation, et le ratio maître:élèves ont été respectés\. En conséquence, les coûts unitaires pour l'enseignement primaire et secondaire ont été réduits à des niveaux qui s'approchaient (sans toutefois correspondre parfaitement) de ceux qui avaient été spécifiés dans l'Accord de Crédit\. Cependant, alors que les coûts unitaires dans l'enseignement supérieur national baissaient, l'augmentation rapide du nombre et du coût des bourses d'études à l'étranger a eu pour effet d'augmenter les coûts unitaires de l'enseignement supérieur au-delà du niveau stipulé dans l'Accord de Crédit\. 1\.17 Redistribution de la part du budget\. Les effectifs de l'enseignement primaire ont augmenté plus lentement que prévu, alors que les effectifs de l'enseignement supérieur ont augmenté plus rapidement\. Cependant, les effectifs à l'Université et le nombre des boursiers à l'étranger ont augmenté beaucoup plus rapidement que prévu\. La conjugaison de ces facteurs avec les tendances d'évolution des coûts unitaires (paragraphe 1\.17) n'a pas 2 Les paragraphes qui suivent reflètent les enseignements tirés de la revue à mi-parcours et, en particulier, un mémorandum préparé par le Conseiller aux opérations principal du Bureau du Vice- Président régional en date du 11 avril 1991\.  6 Burundi: Projet de Développement du Secteur de l'Education permis au Gouvernement de respecter le second engagement stipulé dans l'Accord de Crédit -- accroître la part des dépenses publiques à l'enseignement primaire et réduire la part de l'enseignement supérieur\. 1\.18 En somme, bien que les tendances observées pointent dans la direction de certains objectifs spécifiés dans l'Accord de Crédit, aucune des cibles identifiées n'a été atteinte\. La revue à mi-parcours (mars 1991) a conclu, au vu de l'ambiguïté dans la mesure des indicateurs, une interprétation de "l'esprit de la loi" était appropriée\. La mission a également conclu qu'en ce qui concerne l'enseignement primaire et secondaire, l'esprit des conditions avait été respecté puisqu'il y avait des progrès importants dans les domaines de l'amélioration quantitative et qualitative de l'éducation\. 1\.19 L'expérience de ce projet démontre qu'il n'y a pas de réponses toutes faites au problème de la formulation des conditions dans des projets d'éducation\. L'usage de mesures synthétiques (e\.g\. la redistribution du budget) présente l'avantage de permettre de laisser au Gouvernement une certaine latitude sur les moyens de réaliser cet objectif Par contre, cet indicateur est susceptible d'échec si l'une des composantes du budget dérape ou si le budget alloué à l'éducation croît à un taux différent de celui qui avait été projeté lors de l'évaluation\. Egalement, des conditions très spécifiques tout comme des conditions à caractère assez vague (par exemple une "performance satisfaisante") portent certains risques\. D'un côté, des conditions vagues risquent d'être interprétées différemment par le Gouvernement et la Banque notamment en ce qui concerne la qualité des performances\. Ainsi, il est important de définir explicitement les critères à utiliser afin de minimiser les mésinterprétations\. Par ailleurs, des conditions très spécifiques sur certains points principaux peuvent ne pas refléter un développement sain du système d'éducation: un gouvernement peut ne pas atteindre une cible donnée tout en se dirigeant dans la bonne direction\. 1\.20 Cette expérience montre qu'il faut exercer un bon jugement, à savoir, une flexibilité dans l'interprétation, combinée au respect de certains principes de base\. Les principaux enseignements de ce projet sont résumés dans les propos suivants\. Les conditions de décaissement basées sur l'atteinte de résultats découlant de politiques sectorielles ne devraient être utilisées que dans des cas où le changement de politique constitue un pré- requis nécessaire pour la justification ou l'utilisation rentable de l'investissement qui fait l'objet de la condition\. Les conditions devraient être structurées de façon à encourager les bénéficiaires à respecter ces conditions\. Les conditions devraient éliminer toute ambiguïté et être comprises parfaitement par toutes les parties\. Dans les cas où des conditions à caractère plus général sont jugées plus appropriées que des conditions spécifiques, celles- ci devraient définir des critères explicites de performance\. Le tableau de pilotage, et ses indicateurs, est utile\. Cependant, il ne doit pas faire l'objet d'un contrat formel\. Le calendrier de la revue des conditions devrait coïncider avec des événements-clés à l'intérieur de l'année scolaire ou du cycle budgétaire, de façon à permettre au Gouvernement d'adopter des actions nécessaires sans pour autant bloquer des investissements qui dépendent de l'achèvement de ces conditions\.  Evaluation de l'Exécution du Projet 7 Evaluation détaillée des indicateurs de performance 1\.21 Les paragraphes qui suivent présentent une évaluation détaillée des indicateurs de performance définis dans le Tableau de pilotage du Rapport d'évaluation du projet, tel qu'illustré dans le Tableau 5 (Section 2) qui résume les résultats atteints pour chacun des 29 indicateurs\. 1\.22 Primaire: Avant octobre 1993, (i) le rythme d'accroissement des effectifs (indicateur no\.1) est légèrement inférieur aux prévisions (631\.039 élèves inscrits en 1991/92 comparés à une projection de 781\.000), en raison notamment de l'insécurité dans des zones rurales éloignées; (ii) le rendement interne (indicateur no 5); ne s'est pas amélioré en raison de la baisse du taux de promotion (71% en 1991/92 comparé à une projection de 85% et à un taux de 75% en 1986/87, reflétant l'incapacité du MEN de réduire le nombre de redoublements en fin de cycle); (iii) le ratio maître:élèves (indicateur no\. 7) a augmenté moins rapidement que prévu (1:66 en 1991/92 comparé à une projection de 1:70); (iv) le niveau de la charge horaire hebdomadaire (indicateur no\. 11) est resté conforme aux prévisions; (v) la diminution du taux de suppléance (indicateur no\. 15) (la proportion du nombre de suppléants représentait 9% du personnel en 1991/92 comparée à une projection de 6%), justifiée par la féminisation de la profession enseignante, et seules les anomalies concernant la concentration des suppléants en zone urbaine pourraient réellement faire l'objet de mesures correctrices; (vi) la diminution du rapport non-enseignants/enseignants (indicateur no\. 16) a été atteinte; et (vii) aucune augmentation n'avait été appliquée sur le minerval (indicateur no\. 20) dont la valeur en monnaie constante avait baissé de 25% entre 1987 et 1991\. 1\.23 Après octobre 1993, (i) les effectifs ont baissé en 1994/95 jusqu'à un niveau légèrement inférieur à celui de 1987/88 et ont ensuite augmenté de 20% (base 1987) en 1995; (ii) après avoir légèrement diminué en 1994, le rendement interne a retrouvé son niveau d'avant octobre 1993, à savoir 64%; et (iii) le ratio maître:élèves qui était de 1:63 en 1993 a chuté à 1:52 en 1995\. 1\.24 Secondaire: Avant octobre 1993, (i) les effectifs dans l'enseignement secondaire général (indicateur no\. 2) et technique (indicateur no\. 3) ont augmenté plus rapidement que prévu (42\.332 élèves au secondaire général en 1991/92 comparé à une projection de 30\.000; 5\.403 élèves au secondaire technique comparé à une projection de 4\.000), en raison de l'ouverture des collèges communaux à partir de 1990; (ii) l'augmentation du ratio élèves/maître (indicateur no\. 8) a été conforme aux prévisions; (iii) on observe un dérapage dans les recrutements d'enseignants (indicateur no\. 25) (1\.701 enseignants en 1991/92 comparé à une projection de 1\.200) et une mauvaise utilisation corollaire de ces enseignants en termes de charge horaire (indicateur no\. 12); de même, aucune amélioration n'a été enregistrée s'agissant du personnel adrninistratif hors internat (indicateur no\. 17), dont les effectifs demeurent excessifs; (iv) le maintien du statu quo des effectifs d'internes (indicateur no\. 19) à un niveau supérieur aux prévisions (82% en 1991/92 comparé à une projection de 71%) et celui du ninerval des internes à son niveau nominal de 1987 (indicateur no\. 21) conduisent à une impasse financière et à une situation très critique pour les internes, dont les conditions de vie se sont gravement dégradées\.  8 Burundi: Projet de Développement du Secteur de l'Education 1\.25 Après octobre 1993, les effectifs de l'enseignement secondaire pédagogique ont légèrement diminué de 9% par rapport à leur niveau d'avant octobre 1993, à cause de la crise issue des événements de 1993\. Les données ne sont pas disponibles pour les charges horaires des enseignants, les effectifs du personnel administratif hors intemat et les internes\. 1\.26 Université: Avant octobre 1993, (i) les effectifs (indicateur no\. 4) ont connu une forte croissance avec une augmentation de plus de 51% par rapport à l'année 1987 (année de base), alimentée par l'absorption de la quasi-totalité des sortants homologués de l'enseignement secondaire par l'université\. Si la programmation initiale était excessivement restrictive (stabilisation des effectifs), il n'en reste pas moins que cette évolution traduit une perte du contrôle des flux d'étudiants, et une pression insoutenable sur les structures d'accueil, sans pour autant répondre à une demande claire de l'économie moderne; (ii) les taux de redoublement (indicateur no\. 6) ont diminué plus rapidement que prévu (18% en 1991/92 comparé à une projection de 30%), bien que des varient beaucoup entre les Facultés et les Écoles; (iii) le ratio maître-temps plein:étudiants (indicateur no\. 10) a été légèrement inférieur aux prévisions (1:11 en 1991/92 comparé à une projection de 1:10), en raison notamment de la croissance rapide des effectifs; (iv) la part du personnel administratif (indicateur no\. 18) a été réduite plus rapidement que prévue (66% en 1991/92 comparé à une projection de 75%); (v) faute d'être ajusté comme prévu, le prix du ticket de restaurant (indicateur no\. 22) avait déjà perdu 26% de son pouvoir d'achat en 1991 comparé à celui de 1987; et (vi) au lieu de diminuer, le nombre de bénéficiaires de bourses nationales à l'étranger (indicateur no\. 23) (122 étudiants comparés à une projection de 40), accompagné d'une augmentation substantielle du budget pour l'enseignement supérieur\. 1\.27 Après octobre 1993, (i) les effectifs de l'université ont augmenté de 7% par an depuis cette date; (ii) les taux de redoublement restent stationnaires au lieu de diminuer; (iii) le ratio maître-temps plein:étudiants a augmenté en passant de 1:11 en 1991/92 à 1: 16 en 1994/95 à cause du départ de la plupart des coopérants étrangers; (iv) le nombre de bénéficiaires de bourses nationales à l'étranger (indicateur no\. 23) a beaucoup diminué en passant de 143 en 1993/94 à 20 en 1994/95\. 2\. Renforcement des capacités du MEN 1\.28 Cette composante devait être financée conjointement par le Programme des Nations Unies pour le Développement (PNUD) et l'IDA, de façon parallèle\. Le PNUD devait financer les services d'un assistant technique en planification et administration de l'éducation (30 personnes-mois), des frais de formation (41 personnes-mois), du matériel de bureau et de l'équipement\. Le Crédit IDA devait financer les services d'un spécialiste en informatique, du mobilier et du matériel pour la DPE\. 1\.29 Le Don PNUD d'un montant de 600\.000 dollars EU a servi à financer l'assistance technique (364\.000$EU), la formation (186\.000$EU) du matériel de bureau (13\.500$EU) et de l'équipement (69\.500$EU), ce qui fait apparaître un excédent de financement de 33\.000 dollars\.  Evaluation de l'Exécution du Projet 9 1\.30 Le Crédit IDA a pris en charge la prolongation de l'assistance technique en planification et administration de l'éducation pour la période allant de novembre 1991 à juin 1994, soit 32 personnes-mois\. Par contre, la Banque n'a pas financé l'acquisition du matériel informatique destiné à la DPE pour mauvaise procédure de passation de marché\. Elle annula ce marché d'un montant de 467\.000 dollars le 18 mai 1990 parce que celui-ci n'a pas été attribué au soumissionnaire le moins disant\. 1\.31 Les travaux qui relèvent de la responsabilité de la DPE sont ceux d'un bureau de statistiques et peuvent se résumer comme suit: (i) réalisation des PDP; (ii) mise à jour du tableau de pilotage; (iii) rationalisation et informatisation des procédures d'orientation scolaire, (iv) informatisation de la gestion des bourses; (v) confection de l'annuaire statistique et réalisation d'études connexes sur l'éducation\. Les fonctions de planification, suivi et évaluation ne sont pas précisées à la DPE et ni ailleurs de façon explicite\. Pour produire le PDP, la DPE a élaboré un modèle de planification informatisé\. Les PDP de deux périodes successives ont été préparés en 1990 pour celui de 1991-93 et en 1991 pour celui de 1992-94\. A partir de 1992, l'élaboration des PDP a été confiée à un bureau d'études privé auquel furent associées deux cellules, chaque ministère ayant sa propre cellule composée de deux cadres et rattachée au cabinet du Ministre\. Le consultant a produit un nouveau modèle de planification et le PDP 1993-95 a été préparé sans la participation de la DPE qui n'a pas de liens précis avec les deux cellules\. Le tableau de pilotage qui contient les mesures à prendre durant la vie du Projet et les indicateurs de performance prévus a pu être rapproché facilement avec la réalité jusqu'en 1992/93\. Pour les années académiques 1993/94 et 1994/95, les indicateurs de performance réalisés ont été déterminés sur la base d'estimations à cause des troubles qu'a connus le pays à partir d'octobre 1993, rendant difficile la collecte des données concernant certaines régions et aussi à cause de départs de personnel constatés au niveau de la DPE\. La rationalisation et l'informatisation des procédures d'orientation scolaire a été réalisée\. L'informatisation de la gestion des bourses a été confiée à un consultant national mais le travail commencé par ce dernier n'a pas été finalisé suite à un contentieux survenu entre lui et la DPE\. Les annuaires statistiques des années 1991/92 et 1992/93 ont été réalisés\. Sur le plan des études, la DPE a produit deux documents portant respectivement sur la stratégie de développement des collèges communaux (1992) et la stratégie de développement et de financement de l'éducation (1993)\. 1\.32 Parmi les travaux non réalisés par la DPE, on peut citer: la préparation du PDP de 1989, et les annuaires statistiques des années 1993/94 et 1994/95\. En ce qui concerne le PDP de 1989, tous les participants aux différentes phases de préparation du Projet avaient été transférés à d'autres postes, et les nouveaux responsables, aussi bien au PNUD qu'au Gouvernement, n'ayant pas eu le temps de prendre connaissance de tous les documents, ignoraient le cadre d'intervention de la mission de l'UNESCO\. Le premier Conseiller Technique Principal financé par le PNUD (il y en a eu deux) semblait ignorer totalement le rôle qu'il avait à jouer dans le cadre du Projet\. Le Directeur de la Planification ignorait également que l'UNESCO (agent d'exécution du PNUD) devait l'assister pour la maîtrise des problèmes liés en particulier, au financement et à la préparation des futurs budgets de l'éducation\. Cela a entraîné l'absence totale de préparation du PDP de 1989\. Pour ce qui est des annuaires statistiques, aucun n'a été élaboré après celui de 1992/93 pour les raisons  10 Burundi: Projet de Développement du Secteur de l'Education suivantes: événements d'octobre 1993, grande mobilité du personnel au sein de la DPE, manque de moyens matériels et financiers\. Les événements d'octobre 1993 (assassinat du premier Président élu) et les troubles civils que connaît le pays jusqu'à ce jour ont provoqué une crise sans précédent et instauré un climat d'insécurité permanente\. La conséquence qui en a résulté est la difficulté d'obtenir des données et des informations de l'intérieur du pays\. Après le départ de l'assistant technique en planification et administration de l'éducation en juin 1994, la DPE a enregistré les départs de trois cadres nationaux en l'espace d'une année: un Directeur, un Directeur Adjoint et un cadre\. A l'origine de ces départs, il y a le manque de motivation financière et l'insécurité\. Actuellement, il existe seulement deux cadres au sein de la DPE: un Directeur nommé depuis août 1995 et un autre cadre capable de manipuler le modèle de planification\. A cette pénurie de ressources humaines vient s'ajouter celle des ressources financières\. En effet, le budget de fonctionnement de la DPE est tellement limité qu'il ne lui permet même pas de réparer le matériel qui est en panne et de recruter ponctuellement des enquêteurs\. 1\.33 Après le PDP 1993-95 préparé en 1993 par le consultant et les deux cellules ministérielles, aucun PDP pour les années ultérieures n'a été préparé\. La formation du personnel à l'utilisation du nouveau modèle de planification n'a pas été assurée et les cellules PDP ne sont pas fonctionnelles\. Les commentaires négatifs de la DPE sur le PDP 1993-95 ont été les suivants: informations erronées, absence d'un tableau d'indicateurs, pas de comparaison avec le précédent PDP\. 3\. Amélioration de la Qualité et de l'Efficacité de l'Enseignement 1\.34 Cette composante devait être financée conjointement par le Fonds des Nations Unies pour l'Enfance (UNICEF) et par l'IDA de façon parallèle\. L'UNICEF financerait une partie de la formation en cours d'emploi des instituteurs par l'organisation de séminaires durant les deux premières années du Projet et l'amélioration du programme de l'enseignement primaire\. Le Crédit IDA financerait les éléments suivants: équipement des 16 Centres Régionaux de Pédagogie et de Documentation (CRPD); achat de 15 véhicules pour les inspecteurs régionaux; 6 personnes-mois de consultation pour la formation locale des inspecteurs et 65 personnes-mois de bourses et de voyages d'études pour des spécialistes locaux; environ 760 personnes-années de formation en cours d'emploi des instituteurs, 10 personnes-années de formation des inspecteurs, 60 personnes-années de formation des directeurs d'écoles et 30 personnes-années de formation des formateurs des instituteurs\. 1\.35 L'UNICEF a financé des séminaires de formation d'instituteurs et de directeurs d'écoles, du matériel informatique (deux ordinateurs), l'achat de deux véhicules et la production de manuels scolaires\. Il n'a pas été possible d'obtenir auprès de l'UNICEF le montant réellement décaissé sur l'enveloppe prévue à cause d'un problème d'archivage des pièces comptables et de changement de l'Administrateur du programme éducation\. Cette information n'est également pas disponible au niveau du BPE car celui-ci n'a pas comptabilisé dans ses livres les opérations de l'UNICEF et du PNUD faute d'avoir reçu les pièces justificatives\.  Evaluation de l'Exécution du Projet 11 1\.36 L'ensemble des activités financées par la Banque s'est déroulé de manière satisfaisante\. Qu'il s'agisse des stages de directeurs d'écoles ou d'inspecteurs ou de la formation plus longue (55 jours) des instituteurs, tout a été accompli selon les prévisions, et sous le contrôle efficace du CCAP à l'exception des activités des CRPD\. 1\.37 Les activités du CCAP ont dépassé les prévisions\. Il a organisé 94 stages de formation continue sur 59 initialement prévus et 14 journées pédagogiques au profit des enseignants du primaire et du secondaire (3 929 participants au total sur la période 1988- 92)\. Il a réalisé en juin 1995 deux études portant sur "l'évaluation qualitative de l'enseignement primaire et secondaire" d'une part, et sur "les résultats du concours national et des tests nationaux de 10ème et de lère année des humanités" d'autre part\. Ces études restent à finaliser faute de financement après la clôture du Crédit\. En ce qui concerne la première étude, l'évaluation de la seconde moitié du primaire et l'évaluation du secondaire restent à faire\. Quant à la seconde étude, il reste à déterminer sur le terrain les raisons des réussites dans les meilleures écoles et celles des échecs dans les moins bonnes écoles\. Par ailleurs, compte tenu du rôle efficace que joue le CCAP dans la coordination des activités du BER, du BEPES et du BEET, celui-ci serait plus performant s'il était institutionnalisé en tant que structure\. 1\.38 En ce qui concerne les activités de la RPP, la Banque a financé l'acquisition d'une machine d'imprimerie et un équipement de photocomposition\. Les aspects techniques n'appellent que des jugements favorables puisque la production est bien organisée\. Les livres commandés sont fournis dans des conditions d'impression d'une excellente qualité et la gestion générale semble efficace\. Pour ce qui est du BER, la Banque a financé l'achat de 6 minibus pour l'encadrement sur le terrain des enseignants et l'acquisition de 15 camionnettes pour les inspecteurs régionaux\. 1\.39 Les CRPD ont reçu chacun un fonds documentaire de 1 040 livres, une machine à écrire et un duplicateur à stencil\. Ils n'ont pas fonctionné convenablement pour les raisons suivantes: manque de structure et d'organisation, et aussi d'engagement de la part des responsables pour la rationalisation des ressources humaines\. Certains livres et matériels pédagogiques ont fait l'objet de dégâts suite aux événements de 1993 d'où la nécessité de les remplacer et d'augmenter leur nombre\. 1\.40 En 1990, le Gouvernement a initié une stratégie de développement des collèges communaux (CC) censés se substituer progressivement aux collèges publics pour le premier cycle du secondaire\. Cette stratégie visait à accroître légèrement le taux de scolarisation secondaire alors égal à 6,5%\. Le principe est de confier la construction et l'entretien des nouveaux collèges dits communaux aux communes, collectivités locales et éventuellement ONG, tandis que le fonctionnement courant de ces collèges est financé par les parents d'élèves via le minerval, et que l'État assure celui des salaires des enseignants et administratifs ainsi que celui des équipements didactiques\. Par ailleurs, cette stratégie, qui implique une multiplication des établissements, permet d'éviter le recours à l'internat et par là de diminuer le coût unitaire, notamment à la charge de l'État\. Dès l'origine de l'expérience, 5 collèges communaux furent crées en 1990/91\. Actuellement, les 114 communes du Burundi comptent 155 collèges comrnunaux dont 61 ont été ouverts durant  12 Burundi: Projet de Développement du Secteur de l'Education la seule année scolaire 1995/96\. Parmi les communes il y en a 4 qui n'ont pas encore un collège communal\. Durant la période 1991-96, il y a eu un développement parallèle du premier cycle du secondaire dans les collèges publics et communaux et non un transfert des effectifs des collèges publics vers les collèges communaux\. Le développement des CC a été plus rapide que prévu et s'il n'est pas contrôlé à court terme, l'État ne pourra plus assurer les charges qui lui incombent\. Le Gouvernement envisage d'arrêter l'ouverture de nouveaux collèges communaux dans les communes qui en possèdent déjà, mais aucune décision officielle n'est encore prise\. 4\. Accès à l'Education 1\.41 Le programme de construction de 55 écoles primaires et de remise en état de 55 existantes, de construction de 3 écoles d'enseignement secondaire du premier cycle et de remise en état de 10 écoles secondaires existantes a été réalisé en totalité et parfois même dépassé\. 82 écoles primaires ont été construites (dont 11 par des entreprises privées) en comparaison du nombre de 55 prévu au départ\. 65 écoles primaires ont été remises en état au lieu des 55 initialement prévues\. Deux écoles d'enseignement secondaire ont été construites en plus des 3 qui étaient prévues\. Sur les 10 écoles secondaires réfectionnées, le privé en a réalisé 3\. 1\.42 Le Projet prévoyait que les communes devait participer au financement de la construction et de l'équipement des écoles primaires\. Cette participation consistait en la fourniture des matériaux de gros oeuvre (moellon, gravier, sable, briques) et la rémunération de 20 manoeuvres\. Le degré de participation a été satisfaisant dans l'ensemble jusqu'avant les événements d'octobre 1993\. En 1994, les communes n'ont effectué aucune contribution suite à la conjoncture économique\. Celle-ci a été exceptionnellement prise en charge par le BPE moyennant environ FBU 750\.000 (3\.000 dollars) par chantier\. 1\.43 L 'entretien des écoles primaires relève de la responsabilité des collectivités locales\. Compte tenu de la nature solide des constructions (toitures en tôle, murs en briques apparentes ne nécessitant pas de peinture), l'entretien des établissements primaires ne pose généralement pas de problèmes\. Par contre, la situation se présente avec beaucoup plus d'acuité pour les établissements secondaires qui reçoivent annuellement de l'État des dotations d'entretien insuffisantes prélevées sur le minerval et variant entre FBU 200\.000 et FBU 400\.000 suivant les effectifs\. En particulier, le mobilier et les sanitaires des internats nécessitent des fonds d'entretien plus importants à cause de leur détérioration rapide causée par l'augmentation du nombre des internes: parfois les effectifs prévus au départ ont été par la suite multipliés par deux ou par trois\. Il y a lieu de mentionner que le BPE a élaboré un guide de maintenance et l'a présenté lors de deux séminaires des directeurs des établissements secondaires\. Mais il reste à imprimer et à diffuser ce guide\. 1\.44 Durant son exécution, le Projet a bénéficié des services de 10 assistants techniques financés par la Banque, le PNUD et la Coopération Belge\. Les membres de cette assistance technique étaient spécialisés dans les domaines suivants: passation de marchés, architecture et travaux publics, ingénierie, planification et administration de l'éducation,  Evaluation de l'Exécution du Projet 13 imprimerie\. De manière globale, l'assistance technique a été bénéfique au Projet puisque les nationaux ont progressivement pris la relève et continué les activités du Programme sauf à la DPE\. Le nombre des assistants techniques a été réduit à 2 avant la fin du Projet en décembre 1995 grâce à la vigilance du BPE et de la Banque en ce qui concerne la formation du personnel local\. Cela n'a pas été facile dans certains cas, où l'assistance technique a voulu se substituer au personnel local prétextant du manque d'aptitude des nationaux\. 1\.45 Dans le domaine de la formation, 15 agents du Projet (5 pour le BPE, 8 pour le BER et 2 pour la RPP) ont reçu une formation à l'étranger dans les domaines suivants: passation des marchés, gestion des projets, construction d'écoles, comptabilité et finances, gestion des imprimeries et photocomposition\. La durée des séminaires et stages a varié entre un et sept mois\. Une vingtaine d'employés du BPE a reçu une formation locale en informatique pour l'utilisation de divers logiciels\. D\. FACTEURS IMPORTANTS AYANT AFFECTE LE PROJET 1\.46 L'exécution du Projet a été affectée par un certain nombre de facteurs qui ont dévié l'intérêt des partenaires et entraîné des retards, à savoir: la non-performance du premier Conseiller Technique, l'annulation de l'appel d'offres pour l'informatisation de la DPE, le non-respect en mars 1991 par le Gouvernement des conditions de passage à la seconde phase du Projet, la grande mobilité du personnel au niveau de la DPE et le manque de moyens matériels et financiers, les campagnes électorales de juin 1993 et les événements d'octobre 1993\. 1\.47 Le premier Conseiller Technique financé par le PNUD semblait ignorer totalement le rôle qu'il avait à jouer au niveau de la DPE par manque de communication: réalisation des PDP, mise à jour du tableau de pilotage, confection de l'annuaire statistique, etc\. Il fut remplacé par un second Conseiller en août 1990\. Les conséquences qui ont résulté de la non-performance du premier Conseiller est la non-préparation du PDP de 1989 et le retard de trois ans accusé au départ dans la production de l'annuaire statistique\. 1\.48 L'annulation par la Banque pour vice de procédure (le 18 mai 1990) de l'appel d'offres pour l'acquisition de matériel informatique destiné à la DPE a entraîné du retard dans la production des statistiques par celle-ci\. En effet, il a fallu attendre que le Gouvernement finance l'achat de ce matériel sur ses propres ressources\. 1\.49 Après le constat de la mission de la Banque de mars 1991 que les conditions de passage à la seconde phase du Projet n'étaient pas réunies, les décaissements sur les catégories correspondant à la deuxième phase du Crédit 1881 BU ont été retardés de trois mois en attendant de recevoir la lettre d'engagement du Gouvernement et le PDP incluant l'enseignement supérieur\. 1\.50 Après le départ de l'assistant technique en planification et administration de l'éducation en juin 1994, la DPE a connu une grande mobilité de personnel\. En l'espace d'une année, trois cadres nationaux ont quitté cette direction: un Directeur, un Directeur  14 Burundi: Projet de Développement du Secteur de l'Education Adjoint et un cadre\. A l'origine de ces départs, il y a le manque de motivation financière et l'insécurité causée par la crise socio-politique qui sévit dans le pays depuis les événements d'octobre 1993 et d'avril 1994\. A cela s'ajoute le fait que le budget de la DPE est devenu très limité ce qui ne lui permet pas de réparer du matériel en panne ou de recruter ponctuellement des enquêteurs\. 1\.51 Les élections présidentielle et législatives de juin 1993 ont entraîné une démobilisation de la part des autorités parce qu'elles constituaient une première dans l'histoire du pays\. Cette démobilisation s'est manifestée par des retards dans la prise de certaines mesures de réforme\. 1\.52 Les conséquences de la crise de 1993 ont entravé l'exécution du Projet dans les domaines suivants: (i) difficultés pour obtenir des données et informations de l'intérieur du pays pour la production des statistiques de 1994 et 1995: tableau de pilotage, annuaire statistique; (ii) accentuation de la crise en ressources humaines selon l'estimation que 25% des enseignants du primaire et 42% du secondaire n'ont pas rejoint leurs postes depuis le début de l'année 1994\. La plupart de ces enseignants sont morts, ou réfugiés, ou sont rentrés chez eux, au Zaïre ou au Rwanda\. En outre, presque tous les directeurs d'écoles avaient été remplacés avant cette date par "promotion politique"; (iii) dégâts de manuels scolaires surtout au niveau du secondaire où le ratio livre/élève est passé de 1/2 avant octobre 1993 à 1/3 actuellement; (iv) retard dans la réfection du Lycée de Gitega dû à la lenteur des études et des procédures de passation des marchés trop longues; et (v) nécessité de réfectionner et de rééquiper certaines écoles primaires et secondaires endommagées et dont le coût n'était pas prévu dans le Projet\. E\. VIABILITE DES RESULTATS 1\.53 Après avoir connu une période de léthargie entre juillet 1988 et juillet 1990, la DPE a connu un regain d'activités entre août 1990 et juin 1994\. Depuis, c'est presque l'effondrement total et la préparation des PDP, des annuaires statistiques et du tableau de pilotage accuse deux années de retard à cause d'un manque de ressources humaines et financières\. Par conséquent, il existe un besoin pressant de renforcement de la DPE et des cellules PDP\. 1\.54 En ce qui concerne l'amélioration de la qualité et de l'efficacité de l'enseignement, plus de 25% des résultats atteints avant octobre 1993 ont été effacés du fait de la destruction de certains manuels scolaires, de la pénurie d'enseignants du primaire à l'intérieur du pays (pour cause d'insécurité) et de celle des enseignants du secondaire et du supérieur\. Pour ce qui est des manuels scolaires du primaire, la RPP a déjà remplacé ceux qui étaient détruits en maintenant le ratio normal de la double vacation qui est de un livre pour deux élèves\. Par contre, s'agissant des manuels scolaires du secondaire, le BEPES n'a pas encore retrouvé le ratio livre/élèves qui était de 1/2 en septembre 1993\. Les inscriptions risquent de baisser pendant un certain temps, à l'exception des collèges communaux\. Le niveau des effectifs du primaire et du secondaire de septembre 1993 pourrait être atteint de nouveau à condition que la paix sociale et la stabilité politique  Evaluation de l'Exécution du Projet 15 reviennent, mais seulement après que les personnes déplacées (instituteurs et élèves) aient regagné confiance au régime en place et rejoint leurs domiciles\. 1\.55 La construction et la réhabilitation des écoles primaires et secondaires ont été de bonne qualité\. Cependant l'entretien des locaux et des équipements est un problème crucial dans les établissements secondaires\. Bien que récents, certains bâtiments ont déjà besoin de peintures extérieures et de réparation des sanitaires et des installations électriques pour éviter une dégradation rapide\. 1\.56 En résumé, la viabilité à long terme des réalisations auxquelles le Projet a donné lieu dépend en grande partie d'un retour à la paix sociale et à la stabilité politique, de la volonté des deux ministères de l'éducation de donner à la DPE la place qui lui revient et de l'allocation par le Gouvernement de fonds suffisants pour l'entretien des écoles secondaires\. C'est incertain d'atteindre ces résultats du fait des problèmes politiques au Burundi\. L'atteinte de ces résultats est cependant incertaine en raison des problèmes politiques que connaît le Burundi\. F\. PERFORMANCE DE LA BANQUE 1\.57 La durée du Projet était initialement prévue pour cinq ans et demi\. La date de clôture du Crédit a été prorogée à deux reprises, ce qui a eu pour effet de prolonger la vie du Projet de deux ans\. La Banque a consacré des ressources considérables aux diverses étapes du cycle du projet, à raison de 185 semaines de travail, pour un coût d'environ 474\.200 dollars EU(voir Tableau 12 dans la Section 2)\. Le coût de ces ressources représente 1,6% des fonds décaissés (30,4 millions de dollars EU)\. En termes de temps, l'apport de la Banque se décompose ainsi: (i) 37 semaines pour la préparation du projet; (ii) 24 semaines pour l'évaluation et l'approbation par le Conseil; (iii) 11 semaines pour l'entrée en vigueur du Crédit; (iv) 107 semaines pour le travail de supervision, étalé sur six ans et demi, au rythme de 16 semaines par an sur le terrain et au siège; et (v) 8 semaines pour l'achèvement du projet\. 1\.58 L'identification et la préparation du projet ont débuté en novembre 1986\. La manière dont la Banque s'est acquittée de ce travail de préparation est jugée, dans l'ensemble, satisfaisante, en raison de l'effort mené pour faire coïncider les objectifs du Projet avec les priorités du Gouvernement dans le secteur de l'éducation\. 1\.59 Parmi les trois risques identifiés au départ deux se sont produits: (i) le risque lié au manque de contrôle de la croissance des effectifs du secondaire et du supérieur et à l'absence d'une mise en place d'un système de recouvrement des coûts de l'éducation; et (ii) le risque lié à l'augmentation des bourses du second cycle du secondaire et de l'enseignement supérieur\. Par contre, les événements d'octobre 1993 n'étaient pas prévisibles\. 1\.60 La performance de la Banque durant la phase de supervision est jugée satisfaisante\. Les missions régulières de supervision du Projet ont permis de conseiller le Gouvernement sur des politiques et des mesures permettant d'atteindre les objectifs du secteur, en  16 Burundi: Projet de Développement du Secteur de l'Education particulier au cours de 1991 et 1992 lors de la revue à mi-parcours du Projet\. Egalement, les missions de supervision ont répondu avec diligence à des besoins non anticipés, en particulier pour la reconstruction et la réfection des locaux endommagés suite à la crise d'octobre 1993\. La Mission Résidente a joué un rôle important de suivi entre les missions de supervision, en particulier depuis 1994\. G\. PERFORMANCE DE L'EMPRUNTEUR 1\.61 La performance de l'Emprunteur durant la phase d'identification et de préparation a été jugée satisfaisante, compte tenu de la part et de l'initiative qu'il a prises en vue d'identifier les composantes du projet\. 1\.62 Au stade de l'exécution, sa performance est jugée satisfaisante jusqu'en septembre 1993 avant le déclenchement de la crise socio-politique qui constitue un facteur externe ayant affecté l'exécution du Projet\. Suite à la crise d'octobre 1993, le BPE a continué de jouer un rôle critique dans la mise en place d'un programme d'urgence et dans l'achèvement des activités du Projet\. Cependant, les résultats atteints en termes de développement institutionnel n'ont pu être maintenus faute de départs massifs d'enseignants, des directeurs d'établissement et du personnel du MEN\. 1\.63 Avant la crise de 1993, la DPE a préparé deux années de PDP, deux annuaires statistiques et a mis à jour le tableau de pilotage jusqu'en 1993\. Le CCAP a su coordonner les activités du BER, du BEPES, du BEET et contrôler efficacement la formation continue des enseignants du primaire et du secondaire, des directeurs d'écoles et des inspecteurs\. Le BPE s'est montré performant dans la construction et la remise en état des établissements scolaires\. Le programme qui était initialement prévu a été réalisé à temps à l'exception de la réhabilitation du Lycée de Gitega confiée à une entreprise privée et dont les travaux ont été achevés en juin 1995\. Une étude comparative du BPE et du secteur privé dans la construction des infrastructures scolaires réalisée en mai 1994 reconnaît à l'actif du BPE que: (i) la qualité des constructions est généralement bonne et il n'y a pas de différence notable avec le privé; (ii) les coûts et délais d'exécution ont été dans l'ensemble inférieurs aux estimations\. En ce qui concerne les coûts, l'étude parle d'une différence de 38 à 50% en faveur du BPE\. L'effet conjugué de cette compétitivité des coûts et des deux dévaluations du Franc Burundais a permis de réaliser des économies sur le Crédit IDA de l'ordre de 200 millions de FBU (790\.000 dollars)\. Dans le domaine de l'entretien des bâtiments et des équipements, le BPE a élaboré un guide de maintenance et initié en 1993 l'octroi de prix aux 5 premières écoles secondaires qui se sont distinguées dans l'entretien physique du patrimoine scolaire\. Par contre, le BPE chargé de la gestion administrative et financière du Projet n'a pas été performant dans le respect du délai de transmission des rapports d'audit dans les six mois qui suivent la clôture de l'exercice\. Tous les 6 rapports d'audit des exercices 1989 à 1994 ont été transmis à la Banque avec du retard (voir Tableau 10)\. 1\.64 Le Gouvernement n'a pas rempli, à proprement parler, les deux conditions majeures pour le démarrage de la seconde phase du programme d'investissement\. Tel qu'indiqué au paragraphe 1\.18, la Banque a autorisé les décaissements sous la seconde  Evaluation de l'Exécution du Projet 17 phase après avoir reçu confirmation par le Gouvernement des décisions sur la mise en place de politiques dans l'enseignement supérieur et la production d'un PDP pour le sous- secteur, et sur la base du constat que le programme était mis en place dans l'esprit de l'Accord de Crédit de façon satisfaisante, en dépit des événements inattendus\. Trois conditions liées à l'entretien des établissements n'ont été respectées que partiellement, en particulier depuis 1993\. Enfin, les six rapports de vérification ont été soumis en retard, bien que la gestion financière du Projet ait été jugée satisfaisante\. H\. EVALUATION DES RESULTATS 1\.65 La plupart des objectifs du Projet ont été atteints et quelquefois même dépassés, exception faite en ce qui concerne la plupart des mesures de rationalisation du secteur (Tableau de Pilotage et Indicateurs de Performance) et le renforcement des capacités des ministères de l'éducation\. Compte tenu de la crise qui sévit dans le pays depuis les événements d'octobre 1993, les résultats concernant l'exécution du Projet et les objectifs de développement sont mitigés\. Durant la période 1986/87 à 1992/93, l'accès à l'enseignement de base s'est amélioré, bien qu'à un taux inférieur aux prévisions\. A la rentrée scolaire 1993/94, plus de 25% des élèves du primaire et du secondaire ne sont pas retournés à l'école\. En se basant sur des hypothèses optimistes, le niveau du taux brut de scolarisation du primaire atteint en 1992/93 (68%) pourrait être atteint de nouveau en 1996/97\. Les effectifs aux niveaux secondaire et supérieur ont augmenté plus rapidement que prévu, entraînant une hausse importante de la part du budget public alloué à ces niveaux\. Le Projet a financé deux études d'évaluation d'impact en 1995; elles doivent être finalisées ((paragraphe 1\.37)\. 1\.66 Le Projet a financé des activités de développement des ressources humaines en formant des enseignants, des directeurs et des inspecteurs des écoles primaires et secondaires\. On estime que 25% des enseignants du primaire et 42% du secondaire n'ont pas rejoint leurs postes depuis le début de l'année 1994\. Au milieu de l'année 1994, le Gouvernement lança un programme d'urgence pour recruter et former des étudiants du niveau secondaire inexpérimentés et non-qualifiés en vue de remplacer les enseignants du primaire alors que du personnel administratif fut reconverti pour enseigner dans le secondaire\. 1\.67 Le volet construction et remise en état des écoles primaires et secondaires a été exécuté comme prévu et quelquefois les réalisations dépassent les prévisions\. Néanmoins, l'entretien des écoles secondaires demeure un problème crucial à cause des effectifs disproportionnés aux capacités d'accueil et de l'insuffisance des ressources mises annuellement à leur disposition par l'État pour leur entretien\. L'assistance technique a associé les cadres nationaux aux travaux qui lui étaient confiés et la relève a été généralement bien assurée\. L'échec constaté au niveau de la DPE est beaucoup plus imputable à la mobilité du personnel local et à un manque d'attention de la part des responsables politiques\. Sur 9 études commencées durant la vie du Projet, 7 ont été achevées et 2 restent à finaliser (voir Tableau 7)\.  18 Burundi: Projet de Développement du Secteur de l'Education L\. OPERATION FUTURE 1\.68 Afin d'assurer le suivi de l'évolution des principaux indicateurs du secteur, le Gouvernement s'est engagé à rebâtir la capacité institutionnelle de la DPE pour préparer des annuaires statistiques et des PEP\. Le MEN a déjà demandé une assistance de la Banque dans le cadre du Crédit d'Urgence et de d'autres donateurs\. Par contre, il n'y a pas de programmes précis pour la suite des deux études d'évaluation d'impact puisqu'une grande proportion des enseignants, des directeurs d'établissements et des conseillers qui ont bénéficié de formations ne sont plus en poste ou ne travaillent plus dans le secteur\. Les établissements construits ou réhabilités dans le cadre du Projet seront utilisés aux fins prévues\. 1\.69 La Banque, en collaboration avec le Gouvernement, avait commencé la préparation d'un Cinquième Projet Education depuis octobre 1992\. Le 8 mars 1996, le Gouvernement a crée un Groupe de Réflexion chargé d'identifier les actions prioritaires à mener dans le secteur de l'éducation\. Ces actions concernent: la scolarisation universelle au niveau primaire, l'appui au développement de l'enseignement général secondaire, technique et professionnel, le développement de l'enseignement supérieur, le développement de l'enseignement privé, l'appui au renforcement institutionnel dans l'administration de l'éducation, les conditions de travail des enseignants et les stratégies de financement de l'éducation\. Les premières ébauches ont été publiées en mai 1996\. 1\.70 L'éducation demeure un des secteurs clés pour le lancement d'actions visant la réconciliation nationale et le retour à la paix\. Cependant, dans les circonstances actuelles, il est peu probable que la Banque finance des investissements massifs dans le secteur avant un retour à la paix\. Des formules d'assistance plus appropriées pourraient comprendre un appui modeste à des campagnes d'information, d'éducation à la paix et d'autres activités prioritaires qui pourraient contribuer à assurer un accès équitable à l'enseignement de base et secondaire\. J\. PRINCIPAUX ENSEIGNEMENTS 1\.71 L'expérience de ce projet démontre qu'il n'y a pas de réponses toutes faites au problème de la formulation des conditions dans des projets d'éducation\. Cette expérience montre qu'il faut exercer un bon jugement, à savoir, une flexibilité dans l'interprétation, combinée au respect de certains principes de base\. Les principaux enseignements de ce projet sont résumés dans les propos suivants\. 1\.72 Les conditions de décaissement basées sur l'atteinte de résultats découlant de politiques sectorielles ne devraient être utilisées que dans des cas où le changement de politique constitue un pré-requis nécessaire pour la justification ou l'utilisation rentable de l'investissement qui fait l'objet de la condition\. 1\.73 Les conditions devraient être structurées de façon à encourager les bénéficiaires à respecter ces conditions\.  Evaluation de l'Exécution du Projet 19 1\.74 Les conditions devraient éliminer toute ambiguité et être comprises parfaitement par toutes les parties\. Dans les cas où des conditions à caractère plus général sont jugées plus appropriées que des conditions spécifiques, celles-ci devraient définir des critères explicites de performance\. Le tableau de pilotage, et ses indicateurs, est utile\. Cependant, il ne doit pas faire l'objet d'un contrat formel\. 1\.75 Le calendrier de la revue des conditions devrait coïncider avec des événements-clés à l'intérieur de l'année scolaire ou du cycle budgétaire, de façon à permettre au Gouvernement d'adopter des actions nécessaires sans pour autant bloquer des investissements qui dépendent de l'achèvement de ces conditions\. 1\.76 Bien qu'il soit difficile d'entrevoir des changements politiques majeurs ou des crises sociales comme celles qui sont survenues au Burundi durant la mise en place de ce projet, les projets sectoriels devraient avoir la flexibilité de s'adapter aux besoins d'urgence\. A travers l'usage des économies réalisées grâce à la gestion efficace du projet, le Gouvernement a pu financer une partie importante de son programme de reconstruction d'urgence pour des écoles endommagées au cours des événements qui ont suivi la crise d'octobre 1993\. 1\.77 Enfin, les opérations financées par le PNUD et l'UNICEF devraient être reflétées dans les états financiers du Projet même quand ces fonds ne sont pas gérés par la Banque\. Cette lacune est contraire au principe d'exhaustivité de la Banque qui veut que toutes les ressources et dépenses d'un projet soient comptabilisées\. A l'avenir, des arrangements devront être faits pour que les opérations financées parallèlement puissent être comptabilisées par l'agent d'exécution du Projet\.  2\. DONNEES STATISTIQUES Tableau 1: Résumé des évaluations A\. Réalisation des objectifs Substantielle Partielle Négligeable Sans objet Macropolitiques 1 Politiques sectorielles J Objectifs financiers 1 Développement institutionnel / Objectifs matériels 1 Réduction de la pauvreté Problématique hommes/femmes Autres objectifs sociaux Objectifs environnementaux / Gestion du secteur public Développement du secteur privé Autres (préciser) B\. Viabilité du projet Probable Peu probable Incertaine  Données Statistiques 21 C\. Performance de la Banque Très Satisfaisante Insuffisante Satisfaisante Identification l Aide à la préparation J Evaluation J Supervision J D\. Performance de Très Satisfaisante Insuffisante l'Emprunteur Satisfaisante Préparation J Exécution J Respect des clauses J Fonctionnement J E\. Evaluation des Résultats Très Satisfaisante Insuffisante Satisfaisante J  22 Burundi: Projet de Développement du Secteur de l'Education Tableau 2: Prêts/Crédits connexes de la Banque Titre du Prêt/Crédit Objectif Année Situation d'approbation Siuto Opérations antérieures * Crédit 679 BU Amélioration quantitative et qualitative de 1977 Clos en 1983 Premier projet éducation l'enseignement primaire, formation des enseignants pour l'enseignement des matières pratiques, préparation de nouveaux programmes scolaires et production de matériels didactiques\. * Crédit 976 BU Extension et amélioration du programme 1980 Clos en 1985 Deuxième projet éducation d'enseignement technique, formation d'ouvriers spécialisés et de techniciens dans les domaines suivants: construction, commerce, travaux publics, mécanique, dessin, dactylographie et comptabilité\. * Crédit 1358 BU Extension et amélioration de 1983 Clos en 1988 Troisième projet éducation l'enseignement primaire formel et informel, extension de l'enseignement du premier cycle du secondaire, renforcement du Bureau d'Education Rurale (BER)\. Opérations parallèles * Crédit 2494 BU Encouragement de la population à 1993 En cours: Programme d'Action Sociale s'engager dans de petites activités de priorité a été génération de revenus; amélioration des donnée aux conditions de vie par la création d'emplois, infrastructures l'amélioration des services sociaux et des sociales dont infrastructures; encouragement des la construction collectivités locales à participer dans des des écoles activités de développement similaires; et représente renforcement des capacités de l'Emprunteur 80% de la à évaluer et contrôler les tendances des demande de la conditions de vie de la population\. population\. * Crédit 2668 BU Réhabilitation des secteurs de la santé, de 1994 En cours Programme d'Action d'Urgence l'éducation, de l'agriculture, des infrastructures, du secteur privé et réalisation d'audits et d'études\. Opérationfuture Les objectifs du Projet sont en cours de Sans objet En prépa- Cinquième projet éducation définition par un Groupe de Réflexion créé ration le 8 mars 1996 par les deux ministères de l'éducation\.  Données Statistiques 23 Tableau 3: Calendrier du projet Etapes du cycle du projet Date prévue Date effective Identification Novembre 1986 Novembre 1986 Préparation Décembre 1986 Décembre 1986 Evaluation Avril 1987 7-21 avril 1987 Négociations Décembre 1987 7-11 décembre 1987 Approbation par le Conseil Février 1988 23 février 1988 Signature n\.d\. 28 mars 1988 Entrée en vigueur Avril 1988 20 juillet 1988 Revue à ml-parcours 1991 12-22 mars 1991 Achèvement du Projet 31 décembre 1993 31 décembre 1995 Clôture du Crédit 30 juin 1994 19 juin 1996* * Correspond à la date d'annulation du solde non décaissé du Crédit\. Tableau 4: Décaissements du Crédit: prévisions et montants effectifs (milliers de dollars) Exercice 1988 1989 1990 1991 1992 1993 1994 1995 1996 Prévisions (REP) - 3\.500 8\.500 14\.500 20\.500 26\.500 31\.500 - Réalisations - 3\.066 8\.181 14\.770 19\.567 23\.718 26\.835 29\.741 30\.725 Réalisations/Prévis\. - 88% 96% 102% 95% 89% 85% - Date du dernier décaissement: 29 mai 1996  24 Burundi: Projet de Développement du Secteur de l'Education Tableau 5: Indicateurs de Performance Nbre Objet Niveau Mesures/Actions Repère Projection Actuel Récent Commentaires (1986/87) (1991/92) (1991/92) (1994/95) 1 Effectif Primaire atteindre la 446,000 781,000 631,039 537,795 Croissance moins rapide que prévue due d'élèves scolarisation élèves en particulier à l'insécurité dans les zones universelle rurales\. 2 Secondaire Linuter l'accès dans 21,000 30,000 42,220 39,676 Expansion très rapide à partir de 1990-91 Général les écoles publiques élèves avec l'ouverture des collèges communaux\. 3 Secondaire Stabiliser les 3,600 4,000 5,403 4,569 Croissance plus rapide que prévue due Technique effectifs aux étudiants aux pressions sociales\. environs de 4000 étudiants 4 Supérieur Maintenir le niveau 2,500 2,500 3,787 4,628 Croissance incontrôlée en réponse aux actuel étudiants pressions sociales 5 Rende- Primaire Accroître le taux de 75% 85% 71% 64% Piètre performance due à l'incapacité de ment promotion limiter le nombre des redoublements en fin inteme de cycle\. 6 Supérieur Diminuer le taux de 43% 30% 18% 16% Meilleure performance que prévue, avec redoublement en des variations importantes entre facultés et premiere année écoles\. 7 Ratio Primaire Augmenter le ratio 1:63 1:70 1:66 1:52 Ratio acceptable compte tenu de la Maître: dimension des classes et de la double élèves vacation\. 8 Secondaire Augmenter le ratio 1:21 1:25 1:25 1:26 Atteint\. Général 9 Secondaire Augmenter le ratio 1:11 1:15 1:13 1:11 En raison de la croissance moins rapide Technique __que prévue des effectifs d'élèves\. 10 Supérieur Augmenter le ratio 1:8 1:10 1:11 1:16 Atteint et même dépassé en raison de la _ __ _croissance rapide des effectif d'élèves\.  Données Statistiques 25 i Charge Primaire Maintenir au niveau 37 heures/ 37 37 NA Objectif atteint\. de actuel semaine travail des 12 enseigna Secondaire Augmenter 16 heures/ 21 18 NA De nombreux enseignants continuent d'être nts Général graduellement semaine affectés à des postes administratifs\. 13 Secondaire Augmenter 16 heures/ 18 15 NA Objectif pas atteint\. Technique graduellement semaine 14 Supérieur Augmenter 204 heures/ 240 220 NA L'augmentation de 204 à 220 heures a été graduellement année mise en place plus tard que prévu (en 1991/92)\. 15 Ensei- Primaire Réduire le nombre 10\.6% des 6% 9% NA Pas atteint\. Il existe une grande gnants des vacataires\. enseig- proportion de femmes qui bénéficient de vacatair nants congés (maternité par exemple)\. es 16 Personn Primaire Réduire la 8% du 5% 5% NA Atteint\. el non- proportion entre personnel enseigna personnel enseignant non- nt et non-enseignant\. enseignant 17 Secondaire Réduire le ratio non- 1:65 1:85 1:44 NA Pas atteint\. enseignant: étudiants\. 18 Supérieur Réduire la 97% du 75% 66% NA Pas atteint\. proportion entre personnel administrateurs et admis\. enseignants\. 19 Intemats Secondaire Réduire la 86% des 71% 82% 85% Les données n'incluent pas les effectifs des proportion des étudiants collèges communaux qui n'ont pas intemes\. d'intemats\.  26 Burundi: Projet de Développement du Secteur de l'Education 20 Recou- Primaire Augmenter le 200 FBU 400 FBU 300 FBU 300 FBU Pas atteint\. vrement minerval (FBU par élève (courant) (courant) des constants 1987) par année coûts\. 21 Secon-daire Augmenter les frais 6,000 FBU 9,000 FBU 9,000 NA Atteint\. général et pour les intemes\. par FBU technique étudiant, (courant) par an\. 22 Bourses Supérieur Réduire le nombre de 120 40 122 20 Pas atteint\. Le Gouvemement estimait d'études bourses nationales à bourses qu'il avait besoin de plus de diplômés\. l'étranger\. 23 Supérieur Augmenter les frais 100 FBU 150 FBU 150 FBU 128 Pas atteint\. Augmentation récente fait de repas\. par jour partie des mesures de rationalisation\. 24 Impact Primaire Augmenter le 7,140 11,200 9,582 10,285 Pas atteint\. Du à la croissance moins sur le nombre d'enseignants ensei- rapide que prévue des effectifs d'élèves\. person- gnants nel enseign\. 25 Secon-daire Augmenter le 1,000 1,200 1,701 1,759 Pas atteint\. Du au besoin de recruter des nombre d'enseignants ensei- enseignants pour les collèges gnants communaux\. 26 Supérieur Maintenir le nombre 270 ensei- 270 356 283 Pas atteint\. Récente diminution due au d'enseignants gnants départ de plusieurs enseignants après la _ ___ _crise de 1993\.  Données Statistiques 27 27 Allocati Primaire Augmenter la part de 45% 54% 44% 41% Atteint partiellement\. Tendances récentes on l'enseignement montrent une diminution importante de la budgétai primaire\. part de l'enseignement primnaire\. re par sous- secteur\. 28 Secon-daire Réduire la part de 30% 27% 28% 29% Atteint partiellement\. l'enseignement secondaire\. 29 Supérieur Réduire la part de 22% 17% 25% 27% Pas atteint\. L'augmentation incontrôlée l'enseignement des effectifs d'étudiants risque de mettre supérieur\. en péril les efforts d'universalisation de l'enseignement de base\. AI Coût Primaire Réduire les coûts 4,200 FBU * 3,800 à mi- 4,900 8,340 FBU Pas atteint\. L'augmnentation récente unitaire unitaires par élève par année parcours FBU (courant) reflète les hausses de salaires et des (FBU constant * 3,500 en (courant) bénéfices\. indicate 1987)\. 1992 ur synthéti que A2 Secon-daire Réduire les coûts 43,200 * 40,000 mi- 38,200 65,800 FBU Atteint, mais les données plus récentes général unitaires par FBU par parc\.; FBU (courant) montrent une tendance à une étudiant, par année\. année * 37,000 en (courant) augmentation rapide\. 1992 A3 Secon-daire Réduire les coûts 86,500 * 80,000 mi- 76,600 131,800 Atteint\. technique unitaires par FBU par parc\.; FBU FBU étudiant, par année\. année * 73,000 en (courant) (courant) 1992 A4 Supérieur Réduire les coûts 303,000 * 270,000 443,620 645,420 Pas atteint\. Du à l'augmentation unitaires par FBU par mi-parc\.; FBU FBU incontrôlée des effectifs de l'Université et étudiant, par année\. année * 240,000 en (courant) (courant) des coûts unitaires\. 1__ _ _ __ __ 1992 _ O  28 Burundi: Projet de Développement du Secteur de l'Education Tableau 6: Indicateurs clés de l'opération future Il importe de noter que le prochain projet n'a pas encore fait l'objet d'évaluation pour déterminer les indicateurs\. Cependant, le Gouvemement devra continuer le suivi des indicateurs clés par la collecte et l'analyse des statistiques de l'éducation et par la préparation annuelle du programme triennal des dépenses publiques\. A cette fin, le Ministère de lEducation entend renforcer la capacité institutionnelle au sein de la Direction de la Planification de lEducation\. Les études sur la qualité continueront, notamment en ce qui conceme l'évaluation au terme du cycle primaire\.  Données Statistiques 29 Tableau 7: Etudes incluses dans le projet Etude Objet Situation Impact 1\. Etude comparative du BPE et du secteur Etude de restructuration Etude réalisée en mai 1994: Faible: début d'exploitation par une privé dans la construction des infrastructures conclusions non encore restructuration au niveau du Conseil de Gestion; scolaires adoptées mise en place prochaine d'un service de patrimoine appuyé par une mission de l'UNESCO\. 2\. Etude financière et institutionnelle de 2'ietéude financière etfrcmn innstitute de EFaible parce que la majorité des recommandations l'Université du Buundi Renforcement institutionnel et Etude réalisée en mars 1995 n'est pas encore appliquée (analyse en cours du de la gestion Groupe de Réflexion) 3\. Etude sur la stratégie et le plan d'action Réalisation en décembre 1995\. Etude pas encore exploitée, en cours d'analyse au pour le développement de l'enseignement Plan de développement du Rapport définitif produit en mveau du Groupe de réflexion secondaire communal, technique et de la e e ucabon avril 1996 formation professionnelle 4\. Etude sur la Revue desAmélioration des finances Réalisation en décembre 1995\. Publiques pubhques Rapport définitif produit en avril 1996 5\. Etude sur l'avenir institutionnel et Etude de restructuration Rapport final produit en février Adoption du nouvel organigramme et début de financier de la RPP 1993 mise en place des recommandations de l'esigne primairet qai\.atve Evaluation de l'impact de la \. \. \. Reste à finaliser\. Le Gouvernement a l'intention de l'enseignement primaire et secondaire formation des enseignants et du de soumettre une rèquete de financement pour matériel didactique fourni achever cette étude\. 7\. Etude des résultats du Concours natonal Analyse scientifique et Etude réalisée en juin 1995 Reste à finaliser\. Le Gouvernement a l'intention et des tests natonaux de 10 ème et de pédagogique des résultats des 3 de soumettre une rêquete de financement pour \.etùde natna des 10m meité d dernières sessions du Concours achever cette étude\. national et des tests nationaux 8\. Etude sur les conditions de passage de Réglementation de l'accès en Analyse faite dans l'audit de Création récente d'une commission chargée de la l'enseignement secondaire à l'enseignement fonction de la capacité l'Université mise en application des recommandations supérieur d'accueil  30 Burundi: Projet de Développement du Secteur de l'Education Tableau 8a: Coûts du projet (en millions de dollars) Prévions (REP)| Coûts effectifs Coûts Coûts en Total Coûts Coûts en Total locaux devises locaux devises 1\. Planification de l'Education 0,4 1,3 1,7 0,2 0,9 I,I 2\. Amélioration Qualitative a) Primaire 2,8 3,2 6,0 1,4 1,6 3,0 b) Secondaire 0,5 1,4 1,9 0,5 1,3 1,8 3\. Amélioration Quantitative a) Primaire 2,2 5,7 7,9 1,7 4,4 6,1 b) Secondaire 2,8 10,4 13,2 1,9 7,4 9,3 4\. Administration du Projet 0,2 0,7 0,9 1,6 6,9 8,5 5\. Bourses 0,2 1,3 1,5 0,2 1,3 1,5 6\. Provisions a) Aléas matérials 0,5 1,5 2,0 _ b) Aléas financiers 1,5 0,9 2,4 - TOTAL 11,1 26,4 37,5 7,5 23,8 31,3* * Ne comprenant pas les fonds décaissés par l'UNICEF dont le montant n'a pas été communiqué\.  Données Statistiques 31 Tableau 8b: Financement du projet (en millions de dollars) Prévisions (REP) Montants effectifs Source Coûts Coûts en Total Coûts Coûts en Total locaux devises locaux devises BIRD 6,3 25,2 31,5 7,5 23,8 31,3 Gouvernement 4,5 - 4,5 4,4 - 4,4 UNICEF 0,3 0,7 1,0 n\.d\. n\.d\. n\.d\. PNUD - 0,5 0,5 0,6 0,6 TOTAL 11,1 26,4 37,5 n\.d\. n\.d\. n\.d\. Tableau 9: Coûts et avantages économiques Comme aucune estimation de la valeur actuelle nette (VAN) ou du taux de rentabilité économique (TRE) n'a été tentée lors de l'évaluation, on n'a pas de données de référence permettant de faire une réestimation pour les besoins de l'évaluation rétrospective\. De plus, aucun paramètre n'a été fourni à l'évaluation sur le plan du rapport coût-efficacité\.  32 Burundi: Projet de Développement du Secteur de l'Education Tableau 10: Respect des clauses juridiques Section de Type de clause Respect Date Date Desription de la clause Commentaires l'Accord de prévue modifiée Crédit 3\.02 (a) Politique Non Echanges de vues avant le 31 mars La réduction des coûts unitaire sectorielle de chaque année sur la réduction des prévue n'a pas été respectée jusqu'en coûts unitaires par élève, de l'ordre 1992/93\. Les données des années de 9,1% dans le primaire, 7% dans 1993/94 et 1994/95 ne sont pas le secondaire général, 7,5% dans le complètes à cause de la crise qui a secondaire technique et 10% dans le commencé depuis octobre 1993\. supérieur 3\.02 (b) Politique Partiel Echanges de vues avant le 31 mars Budget atteint jusqu'en 1993\. sectorielle de chaque année sur la répartition du budget: primaire 45-50%; secondaire: 30-28%; supérieur: 22- 20%\. 3\.03 Exécution Partiel Préparation et soumission à l'IDA Les PIP et PDP de 1989/91 n'ont pas été pour approbation: a PIP pour préparés ainsi que ceux postérieurs à 1989/91 pas plus tard qu'au 30 l'année 1993\. septembre 1988; un PDP pour 1989/91 pas plus tard qu'au 31 décembre 1988; et, ensuite des PIP et PDP pas plus tard qu'en septembre et décembre de chaque année, respectivement\. 3\.03 (d) Exécution Oui Tout nouvel investissement d'un Des documents concernant un prêt de montant supérieur à 0,5 million de la BAD ont été soumis à l'IDA en dollars doit être préalablement 1993 pour accord\. examiné et accepté par l'IDA\. 3\.04 (a) Exécution Oui Réorganisation du BPE et La réorganisation fut terminée en constitution de la DSC\. avril 1988\.  Données Statistiques 33 Section de Type de clause Respect Date Date Description de la clause Commentaires l'Accord de prévue modifiée Crédit 3\.04 (c) Exécution Oui Prendre toutes les dispositions nécessaires pour s'assurer les services des bénéficiaires de bourses une fois leurs études achevées\. 3\.05 (a) Exécution Oui Soumettre un plan annuel de constructions scolaires pas plus tard que le 30 septembre de chaque année\. 3\.05 (b) Entretien Partiel Concours du BPE pour le contrôle Contrôle fait en 1992 par le BPE pour de l'utilisation des fonds d'entretien les écoles secondaires et suivi de la par les administrateurs des remise de prix aux 5 écoles les mieux collectivités locales et par les entretenues\. directeurs d'établissement\. 3\.05 (c) Entretien Partiel Assurance par le Gouvernement Dans certaines écoles, la contribution qu'une partie suffisante de la des parents est suffisante pour contribution des parents soit l'entretien\. réservée pour financer l'entretien des écoles primaires\. 3\.05 (d) Entretien Partiel Assurance par le Gouvernement que des fonds adéquats du budget annuel de fonctionnement des écoles secondaires soient réservés à l'entretien de ces dernières\. 3\.06 Passation des Oui La passation des marchés portant Avec une exception concernant l'appel marchés sur les fournitures, travaux et d'offres du matériel informatique destiné services de consultants est régie par à la DPE et qui a été annulé par la les dispositions de l'Annexe 4 de Banque\. l'Accord de Crédit\.  34 Burundi: Projet de Développement du Secteur de l'Education Section de Type de clause Respect Date Date Description de la clause Commentaires l'Accord de prévue modifiée Crédit 4\.01 Comptabi- Partiel L'Emprunteur fournit à l'IDA dans Tous les six rapports d'audit de la lité/Audit (avec du les six mois qui suivent la clôture période 1989 à 1994 ont été transmis retard) de chaque exercice le rapport avec du retard\. Le démarrage de l'audit d'audit (incluant les états certifiés de 1995 est prévu en avril 1996\. de dépenses) se rapportant à cet exercice\. Annexe 1 Déboursement Partiel Aucun retrait ne sera effectué au La mission à mi-parcours (Mars 1991) titre des catégories 2 et 4 de a recommandé la flexibilité dans l'Annexe 1 à moins que l'examen des progrès réalisés par l'Association soit satisfaite (a) des l'Emprunteur et des actions à progrès réalisés par l'Emprunter entreprendre par le Gouvernement\. Les dans l'exécution du programme et déboursements au titre des catégories 2 (b) que les actions décrites à et 4 ont été autorisés au début de 1992\. l'annexe 3 soient entreprises\. Annexe 3 Déboursement Partiel Actions reprises aux para\. 3(b) de Voir Section 2, Annexe 5 pour le l'Accord de Crédit": 1\. réduction en compte détaillé des progrès réalisés au termes réels du budget par étudiant titre de ce programme de 9,5% au niveau primaire, 7% au niveau secondaire, 7,5% au niveau secondaire technique et 10% au niveau supérieur, par rapport au budget 1986-1987; et 2\. restructuration du budget de l'éducation en changeant la répartition des dépenses publiques effectives comme suit: (a) augmentation du budget du primaire de 45% à 50%; (b) réduction de celui du secondaire de 30 à 28%; et (c) réduction de celui du supérieur de 22 à 20%\.  Données Statistiques 35 Table 11: Respect des directives du Manuel opérationnel Titre et numéro de la Directive Commentaire 1\. D\.O\. 13\.05 Supervision des projets (par\. 4) La Banque a effectué une seule mission de supervision durant l'année 1990, ce qui est inférieur à la moyenne générale\. Table 12: Ressources de la Banque - Personnel (en semaines) Etape du Mle du projet Nombre prévu Nombre modifié Nombre effectif Semnaines $EU (en Semaines $EU (en Semaines $EU milliers) rnilliers) (en (en \.milliers) milliers) Jusqu'à l'évaluation (préparation, 37,1 90,1 préévaluation) Evaluation -* Conseil 24,0 58,2 Conseil -* Entrée en vigueur 11,0 27,4 Supervision 38,0* 70,5** 30,0* 41,3** 106,9 291,6 Achèvement 9,0 8,0 6,2 6,9 Total 47,0 1 38,0 185,2 474,2 * Pour les années fiscales 1994, 1995 et 1996\. ** Pour les années fiscales 1995 et 1996\.  36 Burundi: Projet de Développement du Secteur de l'Education Table 13: Ressources de la Banque - Missions Nota"ion de la performance Etapes du cycle Mois/ Nbre de Nbre de Spécllites Etat d'avan- Impact sur Types de du projet année per- jour sur représentées cenuet le dévelop- problèmes SOes le terrin pement Jusqu'à 06/86 2 11 A,E l'évaluation 11/86 3 11 ES,A,E 04/87 3 ES,A,E Evaluation - 10-11/87 3 11 ES,A,E Conseil Supervision 09/88 1 8 A i - Supervision 12/88 1 5 E Supervision 02/89 1 11 ES I I M Supervision 11/89 2 15 ES,A M 2 M Supervision 02-03/90 1 8 A M 1 M Supervision 03/91 4 11 ES,A,E(2) 3 2 M Supervision 07/91 1 18 A Pas de notation Pas de notation Supervision 01/92 3 12 ES,A,E 2 I M Supervision 09-10/92 4 18 ES,A,E,C I 1 M Supervision 05/93 3 12 ES,A,E 1 Supervision 09-10/93 5 19 ES(2),A,C(2) 1 1 M Supervision 03/94 4 6 ES(2),A,OO 2 2 M Supervision 02/95 2 15 ES(2),00 S S- Achèvement 03/96 1 14 C M A = ARCHITECTE TYPES DE PROBLEMES C CONSULTANT F = DISPONIBILITE DES FONDS DC = CHEF DE DIVISION S = ETUDES DDC = CHEF DE DIVISION ADJOINT M = GESTION SE = SPECIALISTE DE L'EDUCATION O = SITUATION D'ENSEMBLE E = ECONOMISTE, TA = ASSISTANCE TECHNIQUE FA = ANALYSTE FINANCIER ES = SPECLALISTE DE LA MISE EN OEUVRE NOTATION DES PERFORMANCES: PES/PIS = SPECIALISTES DE L'EXECUTION DES PROJETS I = AUCUN PROBLEME OU PROBLEMES MINEURS, OO = CHARGE DES OPERATIONS 2 = PROBLEMES MODERES RS = SPECIALISTE DE LA FORMATION 3 = PROBLEMES MAJEURS, SOLUTION EN VUE TTS = SPECLALISTE DE L'ENSEIGNEMENT TECHNIQUE 4 = PROBLEMES MAJEURS, PAS DE SOLUTION EN VUE (NEANT AU TITRE DE CE PROGRAMME) S =SATISFAISANT  ANNEXE  38 Burundi: Projet de Développement du Secteur de l'Education RAPPOPT - SYNTHESE A\. LE PROJET Le IVe Projet de Développement du secteur de l'e-ducation financé par le crédi t IDA n° 1881-BU était guidé par les objectifs principaux suivants : - mise en oeuvre des mesures visant à limiter les couts et à faciliter l'ajustement du secteur ; - - renforcement des capacités de planification budgétisation et contrôle des coûts du Ministère de tutelle - amélioration de la qualité et l'efficacité de l'Enseignement primaire et secondaire - amélioration de l'accès par l'augmentation de la capacité d'accueil\. L'Accord signé le 28 mars 1988 prévoyait deux co-financiers à câté de l'IDA, le Gouvernement participant directement sous forme de l'apport des collectivités bénéficiaires sur le volet génie-civil des écoles primaires\. Financements extérieurs : 57\.6l\.000 S dont IDA 31\.591\.100 S PNUD 6'8\.200 5 UNICEF :l\.!'4\.O00 S Un montant de 351\.000 DTS réservé à l'acquisition de matériel infcrmatique a été annulé suite aux difficultés liées à la conclusion du marché\. Dans la situation de 1987, période à laquelle le projet a été évalué, ces objectifs étaient très pertinents et le restent actuellement surtout si l'on considère que la crise socio-politique dans laquelle notre pays se débât depuis bientôt 3 ans a remis en question les progrès réalisés Cans certains domaines\. Les actions programmees en vue d'atteindre les objectifs susmentionnées, et qui figurent plus haut dans ce rapport sont des différentes natures - construction de 55 écoles prirnaires et réfection de 55 autres avec la participation des com-lunautês Locales pour la fourniture des matériaux ce gros oeuvre et quelques manoeuwres (une vingtaine)\.  39 Rapport de S-nthèse du Gouvernement - uut, rucL u i dr 'u (UiL` u '~tlut'i;tx et dend::t\.aL : de ID tIyces - 7ormation conLirjue dec enseiunanLs eL 2npui divers er o Un\.Itures de matérie\. scien':fipue, l\.Lvres pou\. bibl:othèques du pri,maire e' du secondaire, équ:JPe- nent in-crm,\.atique pour la planification, achat de véhicules d'encadrement, bourses, assistance technique et autres\. Le ?NUD a cofinancé l'équipement et l'Assistance technicue de lE Planification tandis cue »'UNiCEF a pris en charge les stages du prima:re\. Un tableau de pilotaoe et des indicateurs de perFormances ont été prévus pou: suivre les zroores réalisés en cours d'exécution en ce qui concerne les mesures d'accompecnement tendant vers l'ajustement du secteur éducatif lequel venait compléter le prororm\.ne olus larce d'ajustement structurel adopté par le Gouvernement\. Le 5PE desicné comme agence d'exécution devait se réorcaniser en une Direction des constructions scolaires, suivre avec la DPE la mise en oeuvre des mesures visant à promouvoir -l maintenance scolaire et associer le secteur privé cans la construction avec Possi-Iité de comparer les coDts de ce dernier à ceux de la Régie\. Le reliquat dégagé sur le financement, a éÈ- affecté de commun accord à d'autres priorités movennant prorocation de la date d'achèvement\. Ceci e oermi notamment de ,econstrui\.e certaines écoles endommagés lors de la crise et de mener des études de préparation de projets Futurs\. B\. REALISAÀIONS Dans l'enserole, les réalisations au niveau quantilatif et qualitatif ont dépassé les Drévisions méme si quelques insuffisances ont été relevées ici et là en ce qui concerne entre autres le volet bourses, la reduction/répart\.iion de certains coDts Par niveau d'e\.ioeTent\. la planiFication dans ses asoe-ts tecniqpes, firar-riers et bdoetaîes\. la rrun- ter\.are des in,a-trcues\. La crise qu: a éclaté en octobre 1993 et qui perdure a eu des efFets négatifs sur la progress:on de certaines composantes Que ce soit au niveau de la dualîte\. de I'acc~-s ou de la planification\.  40 Bwrundi: Projet de Développement du Secteur de l'Education Xou- rep:,eflorlu ci-der;J\. !';:ente des; r \.S! so oils c ,-: programmne :rkti\.a ou' :inanr ur D)nen er, L\.: qUi cuncerme e eDn:e \.; -cm2;-n et les études\. ; CODMPOSANIE PROGRAMME INIIlAL ALi-\.'110NS 1\. Génie Civil : - ~r:2iie - Construction :\.66 - RéhabiliLation 191,6 375,9 - Reconstruction : -1:0, : Secondaire - Construction * ll,3 : E , 7 - Réhabilitation :858,6 : l 3\.: - Reconstruction 9 -5\.7 2\. Staces : - Primaire : 283\.1 : 2\.O : - Secondaire 35,2 1' 3 3\. Sou\.ses - Etrancers 38,1 * d\. Etudes 1'8\.3 ' 5\. Appui divers 1\.82t\.! 2\.583\.6 4\.109 6\.042,2 Ouoique les réalisations soientsupérieures aux prévisions en ce qu- concerne certaines composantes comme le Génie Civil et les stages, la crise a fail reculer le niveau atteint dans différents secteurs signalé plus haut\. à cause de la violence qui l'accompagnait et qui a occasionné des décès importants au sein du corps enseignants tout en limitant l'activité et le temps passé en classe dans les régions touchees par les troubles\. Ce prcblè\.me a eée accentué par le déDart du Dersonne! ètranger et le one- nomène de déplacement des populations fuyant les z5nes per-urbées v compris les enseqg- nants cui préFèrent exercer dans les z5nes dites de sécur:é relative\. Cec a lzmité For\.ement les amélirations attendues au n:veau de l'acc-s, la qualité Ce !'Enseigne- ment comme :mpact des actions menées mais aussi en ce qui concerne les mesures d'accom- paonement cu proiet oui peuvent être difficilement suivi avec rigLeur en oe7ode de  Rapport de Synthèse du Gouvemement 41 Au cours de l'exàcct or du P! ojel ! des actions de sensili s2 tion ort te menées à l'intention des gestionnaires d'établ\.ssements scolaires à *rave-s trois sén::naires et une tournec rjênérole eilc lues dans les écoles secondaire pour uér:Fer le suivi des recommandations en matière de propreté et de maintenance\. Le constat fait à l'issue des visites était que le niveau de réalisations en la matière était encore très bas\. La cr:se et les destruction qui i'accomaC\.nent ont contribué à accentuer les difficultés\. Tout les intervenants conviennent qse l'effort est à poursuivre par les premiers concernés pour oue les Jnvestissements soient perennes\. les moyens de l'Etat n'étant pas suffisant pour subvenir à tous les besoins\. Un service du patrimoine pourra etre mis en place à l'avenir pour assurer un meilleur suivi de toute la situation des infrastructures scol2ares\. Planification sco\.al1e ------------------ Au re-ard des différentes étapes parcourues jusqu'au mois de juin 1994, on peut constater qu'il v a eu de reels progrès avec l'appui de l'IDA même si des faiblesses ont été relevées notamment au niveau institutionnel, et ur la d:;s=iiilité des dDries actLelles\. Sionalons que le mois de juin 1994 correspond à la fin du mandat de l'Assistance Technicue et avec elle l'appui matériel qui n'a pas pu etre remplacé\. Deouis cette période aussi, l!e bureau a enregistré des départs parmi ses cadres à commencer par la Direction\. Ceci est venu s'ajouter aux autres difficultés nées avec la crise comme celles liées à la collecte des données et partant\. la mise à jour de certains indicateurs qui constituent en ces mmetts la prenière Priorité pour pemettre de mix ca-rmitre la situaticn actuelle et de projeter les resures rncessaires au pilotage du secteur\. Aussi\. la mesure concernant le PIP et PDP n'a été réalisée que partiellement ;ur toute la durée du projet si l'on considère aussi la période couverte par 12 proro- ,ation de la date d'achèvement\. esures d'ajustement sectoriels \.------------:----------------- Le tableau ce p:lotage des mesures à prencre et les indicateurs de perro mances rees lors ce la préparation du projet devaient etre m:s à jour régulièrement par le 'reau ce la Planification de lEducation\.  42 Burundi: Projet de Développement du Secteur de l'Education Cela a pu se ten cIt r k irli ~1, 1 in \.OSt J:I3dS\.i e IUScPJ ½ 'ei e; i ? de - -\. se\. Dans l'ensernDle la procre stn a è'e bonne r-is r pa7t ouelques mezjnes ?" on; c-nnu un certain dérapage\. La vers!in IF DIus récente tu tableau acconpaonie des commentaires -e la planification fgu-re en annexe du présent \.appor\. Activités du C\.C\.A\.P\. --------------------- Dans le cadre de l'exécution, le C\.C\.A\.P\. a etè charoé du suivi des actions d'amélioration qualitative en collaboration avec les différents bureaux pédagogirques qui ont été directement mpl:ies dans l'organisation\. Ils ont bien accompli'>f- t\.avæl si l'on considère le travail qui a été réalisé et la taille des effectifs qui ont é é touchés à travers la Formation continue\. S'agissant des CRPD, les objectifs n'ont pas êté atteints au niveau du râle quils étaient appelés à jouer dans le milieu dimolan:ation\. Une relance s'impose ainsi qu'une réorganisation des comités de gestion pour su-rmonter les difficultés\. C\. PERrFRMANCES DANS LA IISC EN OEUVRE C\.l\. De manière générale\. l'exécution du projet a été satis,faisante c:n\.e s; alé pl sait\. L 'Assista-ce Teznicue aui a acouyé l'exL-,tion au coté cdi perse-rel r:o-cra a ;wreste da façnsa;-is- sante sauf pcur deux unitès pcur JesqJe\.les la relè-\.e et le trasFert des crreisa--ces n'cnet pas été aisés\. Les constructions ont été réalisées avec diligence et la quasité vculues tandis que les stages des enseignants pilotées par le CCAP ont permis de toucher avec succès une population de 9\.0O0 enseignants du primaire et du secondaire\. De méme l'exploita- tion des supports d'enseignement comme les livres et matériels des sciences ont per\."i sans contesLe d'améliorer la qualité de l'enseignement, ajouté au perfectionnement des maitres\. Par contre, les CRPD n'ont pas atteint les résultats escomptés au niveau du rayonnement vers les écoles primaires par l'organisation des activités péda2ogiques de Formation continue\. Le Fond documentaire et les autres matériels a étê plus exploité Par les seuls enseignants des écoles secondaires cù se trouvent installés ces Centres\. De l'avis même du CCAP, cette action mérite c'etre redynamisée en vue d tte±ndre les onjectiFs et la réussite dépendra essentiellement de la mot:vaî\.on des responsables appelés à gérer ces centres\. laquelle constitue un élément cèterimnant cans la conduite de touLe activité\. j\. \./\.  Rapport de Sy-nthèse du Gouvernement 43 S'arj, ssant des cuoj),ncis qIu: éaioent atLendues de la Planfi;cat:cn a t,avers lappui a20Dze r\. ce service, el!es ont ete; reelles jusqu'en juin 199' méme s: des LFLfculté5s on, été sicnalées par moment au niveau institutionnelle nais aussi le risoue DU :_ v avàît a retomber dans le besoin à la l:n ce l'assistance technique et du soutien ce fonctibnnement qui était associé à cette aern:ere\. - L'éclatement de la crise eh 1993 avec ses mauvaises consequences occasionnés par l'însecr::ê, a été suivi du départ de l'assistance et la mobilité des cadres notamment au niveau de la Direction et des autres agents\. Ces difFicultés eL le désor- dre crée pa: la crise ont rendu difFicile aussi la réalisation de ce\.taines mesures préconisées au niveau de l'ajustement de l'Education comme on pourra le constater sur -le tableau de pilotage et les indicateurs de performr-nces\. Tous ces fi\.ts ont remis en question les progrès réalisés à tel point que le service a besoin d'un auLre appui matériel et en for\.ation des ressources humaines pour rem?lIr convenablement sa mission, mais aussi une analyse instt'uticnnelle allant dans le sens de reduire la arande mobilité au profit de la carrière et partant d'un soutien erficace à la politicue de l'Education\. C\.2\. Au nive-u de la Bancue -------------------;-- Le projet a toujours bénéficié des missions \.e supervision fréquentes de la part de cette dernière lesquelles ont permis d'évaluer chaque 'ois les procrés et les difficultés survenues en cours d'exécution en vue d'v réméder à temps\. Ceci constitue un gage de bonne exécution\. Aussi\. des inFormations utiles ont été régulièrement communiquées aux gestion- naires des Projets à travers des séminaires en ce qui concerne les grandes orientations de la Sanque mais aussi pour recueillir Les avis etconsidérations des bénéficiaires sur certaines stratégies à mettre en oeuvres pour un réel développement et aLLeindre l'nojectif de lutter contre la pauvreté\. iou; au long du projet, le Gouvernement a dener:ce d'un ree soutien en ce ou: concerne les nouvelles priorités comme les programmes compiémentaires ce cnstruc'^n/rehab:l:tat:on et reconstruction après l'é-'atement de la crise mais aussi Les nouvelles études dont les requêtes de non objection et de prorogation de la date d'ecnèvenent ont été analysées favorablement en général\.  44 Burundi: Projet de Développement du Secteur de l'Education Le su-, ou r1v ,au cJ ! p\.l wm dcs ,'- éz ' de\. nrirJn5e - 'JD;» :--en: 1 e satissasan: -*e!!e en-eZine C le bu,eau dexé uL:c- n'- ,art S e er L - --':es a e: ses a\.-' een 'e r Lou rnsseurs e 7 e-es taeurs de se:- U:-s 2ien plus\. e I Ve Projet d'Educat on a sve rv nct: e emen\. de suoporp aux autres projets ou services divers que le SPE a rendu aux autres services ministériels et promoteurs dans le secteur de l'Education\. C'est le cas pour ce\.tains Financements d'autres bailleurs et étudies reai:soes sans frais de fonctionnement au siJce (K:W - A'CCT - HCR, é[udes diverses-\.) et qui aDportée leur au\. 2 évelccemen: de I 'Education\.  IBRD 28085 CAMEROON 0 CEN FR!CAN REPUj1\._, SUDAN ETHIOPIA3000 030 EQ r 01UGAND, ' I \. KENYA I O} ZRE RWANDAB\. BURUNDI + CONGO) ,TANZANIA ANGOLA \. * y J 8 >0t ZABIA MOZAMBAQUE -230' `- 20- -RWANDA KIRUNDO® Ta Kigali ~2 `ANZ,Y ' \ \ w-,<MUYNGA \ CIBITOKE < X a KAYA~~~NZA oZ- --7 To M\.longwe - BRR ofPv Roads ( Routes Revetûes <f Aero port International MAKAMA- Port WPort Province Capitals Chef-Lieux des Province National Capital Capitale Nationale Province Boundaries Frontières des Province lInternational Baundaries Frontières Internationales \.nop s peped by the Mop Desg Uit of the WoChe f-ik\. d Province Th\ondis coo do- notionsadonyOte Cap\.i t a l 1 20 30 4 y( 0gElonl\.lg1satso n e,io,O n KILOM'ETERS \.ndouse,\.nt o, Pcrvptnce of sch boundories\. 0000 Il 0', 30'3 I - \. 1996 -4n30~~~~~UN 1996erûino ondre  1 i i i   i t i i la

REVIEW

P050880

 ICRR 13525 Report Number : ICRR13525 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 04/29/2013 PROJ ID : P050880 Appraisal Actual Project Name : Rural Poverty US$M ): Project Costs (US$M): 40\.0 80\.5 Reduction Project - Pernambuco Country : Brazil Loan/ US$M): Loan /Credit (US$M): 30\.1 56\.9 Sector Board : ARD Cofinancing (US$M): US$M ): Sector (s): Other social services (35%) Roads and highways (25%) General agriculture fishing and forestry sector (20%) Power (10%) Sub-national government administration (10%) Theme (s): Participation and civic engagement (25% - P) Rural services and infrastructure (25% - P) Rural non-farm income generation (24% - P) Rural policies and institutions (13% - S) Other social development (13% - S) L/C Number : L4625 Board Approval Date : 06/26/2001 Partners involved : Closing Date : 06/30/2005 01/31/2010 Evaluator : Panel Reviewer : Group Manager : Group : John R\. Heath Ridley Nelson IEG ICR Review 1 IEGPS1 2\. Project Objectives and Components: a\. Objectives: (I) ORIGINAL PROJECT The statement of project development objectives in the Project Appraisal Document (PAD) is similar but not identical to that in Loan Agreement (LA)\. According to the PAD, "The project aims to assist the State of Pernambuco to reduce currently high levels of rural poverty by: (a) improving well-being and incomes of the rural poor through better access to basic social and economic infrastructure and services and support for productive activities, using proven community-driven development (CDD) techniques; (b) increasing the social capital of rural communities to organize collectively to meet own needs; (c) enhancing local governance by greater citizen participation and transparency in decision-making, through creation and strengthening of community associations and Municipal Councils; and (d) fostering closer integration of development policies, programs and projects at the local level, by assisting Municipal Councils to extend their role in seeking funding, priority-setting and decision-making over resource allocation" (pp\. 2-3)\. According to the LA, "The objectives of the Project are: (a) to increase social and economic opportunities for the Municipalities' rural poor by improving access to basic, social and economic infrastructure through Community Subprojects; (b) to increase the social capital of rural communities to organize collectively and meet their own needs ; and (c) to foster local governance and citizenship through creation and strengthening of Municipal Councils, at the same time forging links with governmental and nongovernmental agencies, civil society, financial institutions and the private sector" (Schedule 2, page unnumbered)\. (II) ADDITIONAL FINANCING The additional financing that was approved in March 2007 had the same objectives as the original project\. The statements of project development objectives in the Project Paper and the Loan Agreement were identical\. According to the Additional Financing LA, "The objectives of the Project are: (a) to increase social and economic opportunities for the Municipalities' rural poor by improving access to basic, social and economic infrastructure through Community Subprojects; (b) to increase the social capital of rural communities to organize collectively and meet their own needs ; and (c) to foster local governance and citizenship through creation and strengthening of Municipal Councils, at the same time forging links with governmental and nongovernmental agencies, civil society, financial institutions and the private sector; and (d) to scale up the impact of the Original Project by using the social capital created by the Original Project to further increase incomes of the rural poor and by fostering closer integration of development policies, programs and projects in rural areas at the local level, by assisting Municipal Councils to extend their role in seeking funding from, setting priorities for and making decisions concerning the allocation of resources from other programs beyond the Project" (Schedule 1, p\. 5)\. IEG evaluates the project against the statement of objectives contained in the PAD, because this makes clear that the project's overarching objective is to reduce rural poverty: sub-objectives (a)-(d) in the PAD are treated as intermediate outcomes; all five outcomes will be assessed\. b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components (or Key Conditions in the case of DPLs, as appropriate): 1\. Community Subprojects (Expected cost at appraisal, US$34\.3 million; Additional financing, US$31\.2 million; Actual cost at closing, US$67\.9 million)\. This component provided matching grants to rural community associations to identify infrastructure, social and productive investments (subprojects) that would improve community well-being, each subproject costing a maximum of US$50,000\. There were three separate channels for financing subprojects: State Community Schemes (PAC)\. Rural communities submitted their investment proposals directly to the State Technical Unit (the project implementing agency), which screened and approved them and released funds to the beneficiary associations\. Municipal Community Schemes (FUMAC)\. Decision-making on investment proposals was delegated by the State Technical Unit to project Municipal Councils, composed of community members and representatives of civil society and municipal authorities\. At least 80 percent of Council voting members were potential project beneficiaries and civil society representatives\. The Municipal Councils discussed, and sought to build consensus on priorities and approve community proposals, in the context of an indicative annual budget amount determined by the state\. Pilot Municipal Community Funds (FUMAC-P)\. The State Technical Unit established an annual budget envelope, according to a distribution formula based on clear and measurable criteria (rural population, poverty levels and previous year's performance)\. Based on this budget, Municipal Councils submitted an Annual Operating Plan (Plano Operativo Anual) for review by the State Technical Unit\. Upon approval, funds were  transferred to the Municipal Council, which was then responsible for managing their distribution to community associations and assisting them with implementation of subprojects\. 2\. Institutional Development (Expected cost at appraisal, US$2\.7 million; Additional financing, US$5\.4 million; Actual cost at closing, US$7\.8 million)\. This component financed technical assistance and training to build the capacity of the Community Associations, the Municipal Councils and the implementing agency\. It also included modest funding to support state institutional modernization and reform related to poverty reduction programs and policies\. 3\. Administration, Supervision, Monitoring and Evaluation (Expected, US$1\.0 million; Additional financing, US$1\.7 million; Actual cost at closing, US$4\.5 million)\. This component financed the costs (excluding salaries) of project administration and coordination including supervision, monitoring and impact evaluation\. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: Project Costs Under the original project, the total cost was estimated as US$40\.0 million at appraisal, rising to US$40\.7 million at closing\. Under the additional financing, the total cost was estimated as US$40\.0 at appraisal, and was US$39\.5 million at closing\. Financing The loan agreement was amended twice to accommodate reallocation of funds between components and extensions of the closing date; none of these amendments involved Board approval\. In 2005, US$8\.0 million from the original project was reallocated, mainly involving a shift of funds from the Pilot Municipal Community Funds (FUMAC-P) subproject window (explained in Section 1c above) to the Municipal Community Schemes (FUMAC) subproject window\. Under additional financing, a further US$1\.3 million was reallocated between components, partly to allow for increased spending on operating costs and supervision\. Borrower Contribution Adding funding from the original project to the additional financing, the expected Borrower contribution was US$19\.9 million, and the actual contribution was US$21\.1 million\. The Borrower contribution included both the counterpart from the state government and the funds contributed by Community Associations; the ICR does not give their respective shares\. Dates For the original project, the expected loan closing date (June 30, 2005) was extended twice: first, to June 30, 2006; and then to January 31, 2007\. The first extension sought full disbursement of the Bank loan that was financing the original project\. The second extension provided a bridge from the original project until the additional financing proposal was presented to the Board\. The closing date of the additional financing was not extended and it closed at the end of its allotted three years\. 3\. Relevance of Objectives & Design: Relevance of Objectives (Rating: Substantial) Throughout the implementation period the relevance of this project’s objectives was consistently endorsed in the Borrower and Bank's strategy\. The overarching objective of rural poverty reduction was relevant because, when the project was appraised in 2001, 65 percent of rural families in the state of Pernambuco lived in poverty\. Data from 1999 showed that 87 percent of rural households in Pernambuco lacked piped water supply, 54 percent were without sanitation, and 20 percent had no electricity\. The Borrower attached particular importance to the aim of using the subproject process to leverage financing from sources outside the project (sub-objective (d) in the Project Appraisal Document)—a new departure for this series of community-driven development projects, one that was relevant because it increased prospects for sustaining the drive to reduce poverty\. The Bank’s FY2001-03 Country Assistance Strategy (dated May 24, 2001) identified poverty and inequality reduction as the core of Bank assistance efforts and stressed well-targeted, decentralized programs, social capital formation and local integration of programs\. The Additional Financing accorded with the FY2004-07 CAS (dated November 10, 2003), which called for successive projects under the Northeast community-driven development program to finance basic infrastructure for the rural poor, support income generation, and promote closer integration of state and federal rural initiatives in participating municipalities\. The Country Assistance Strategy that was current when the loan closed (covering the period 2008 to 2011) acknowledges the validity and the success of the series of Northeast community development operations of which this project is a part, "both in building social capital and in enabling poor communities to get access to water and electricity" (p\. 10)\. However, the FY08-11 CAS did signal a change of emphasis, indicating that in response to demands from state governments in the Northeast, the Bank would henceforth address the development needs of rural municipalities by prioritizing the promotion of productive subprojects connected to high-value supply chains (e\.g\. contracts with supermarkets)\. This signaled a shift of emphasis away from the rural community infrastructure investments, promotion of which was central to the project\. Relevance of Design (Rating: Substantial) Design relevance was enhanced by the incorporation of lessons learned from the two earlier community-driven development projects in this series of operations for Pernambuco\. The project components were sufficiently few in number, clear in conception, and flexible in implementation to make it more likely that the objective and intermediate outcomes would be achieved\. Attainment of project objectives was facilitated by a process that promoted community commitment to the investments by involving would-be beneficiaries in identifying subprojects, choosing between investment alternatives, and cofinancing of the subprojects that were selected\. The components included the training and technical assistance to Community Associations and Municipal Councils that was needed to make them more effective and more sustainable agencies for local planning\. Equally important was the “leaning by doingâ€? that implementation entailed\. The availability of a pre-existing menu of tried and tested subproject options helped to make these small-scale investments more feasible\. The existence of three distinct windows for sub-project financing made it possible to tailor the project process to the institutional capacity of the various communities, with greater delegation of decision-making to communities with greater capacity (using the FUMAC and FUMAC-P windows, explained in Section 2c above)\. The transparent and participatory process of subproject selection helped to ensure that decisions reflected the will of the majority of would-be beneficiaries, reducing the scope for elite capture (although possibly limiting the opportunity for targeting investments to the poorest members of each community)\.Project design ensured that around 90 percent of project funds flowed directly to beneficiaries, increasing the scope for attaining the overall objective of poverty reduction\. 4\. Achievement of Objectives (Efficacy): (a): Improve well-being and incomes of the rural poor through better access to basic social and economic infrastructure and services and support for productive activities, using proven community-driven development (CDD) techniques\. (Rating: Substantial) Outputs Adding the results under the original project to those achieved under additional financing, 96,398 families were served (65 percent of the combined target) and 2,248 subprojects were approved and financed (86 percent of the combined target), from among the 2,541 proposals\. Subprojects were distributed among the following categories: infrastructure (59 percent), social (35 percent) and productive (6 percent)\. Household water cisterns accounted for the largest number of subprojects (38 percent), followed by household sanitation (28 percent) and communal water supply (13 percent)\. Subprojects were selected from a menu of tried and tested options, helping to ensure they were technically sound\. Ninety percent of subproject proposals were approved for financing following appraisal\. A physical performance study in 2010 confirmed that, in most cases, subprojects were being soundly operated (ICR, p\. 21)\. Under additional financing, beneficiaries reported that 60 percent of the subprojects delivered had satisfactory arrangements for operation and maintenance\. The project team reported that, taking the two financing phases together, targets were not met because the average cost of subprojects was higher than expected owing to exchange rate changes and inflation; and also because the number of eligible families had been overestimated\. Outcomes With respect to targeting, across the two phases of financing, 70 percent of the subprojects were implemented in Area 1, which comprised 110 of the poorest municipalities in the project area (61 percent of all municipalities served by the project) (ICR, pp\. 30-31)\. The ICR (p\. 15) says that “preliminary resultsâ€? showed an average increase of 22 percent in incomes between August 2003 and July 2004 (but this accounts for only one year in the eight years between loan effectiveness and closing; and it is not clear how much of the increase can be attributed to the project)\. Only 6 percent of the subprojects fell into the "productive" category, reducing the scope for increasing incomes and employment\. The employment increment from productive subprojects (agricultural mechanization, agroindustry, grain processing and fish breeding) amounted to 9,507 jobs (ICR, p\. iii)\. A 2009 survey of 300 productive subprojects reported that “these subprojects had significant impact on quality of life of the beneficiaries, although this did not always translate into increased incomeâ€? (ICR, p\. 43)\. Survey evidence from IPEA (2012) shows that in Pernambuco during 2001-09, rural household per capita income rose from R$121 to R$193\. This would include project areas and other rural areas in Pernambuco; it is unclear how much of the improvement would be due to the project as opposed to general improvements in the economy or other social protection programs\. According to the Campinas Economic Foundation (FECAMP) survey of 2004, 86 percent of project beneficiaries reported significantly improved living conditions from 2000 (pre-project) to 2002/2003 (ICR, p\. 15)\. The same study found that the provision of safe water access reduced water-borne diseases by 50 percent\. The project team subsequently provided evidence that access to potable water in rural Pernambuco doubled from 2004-2009, from roughly 20% to 40%; this would include project areas and other rural areas in Pernambuco and reflect both results from the project and other government programs in improve access to water\. (b): Increase the social capital of rural communities to organize collectively to meet own needs\. (Rating: Substantial) Outputs The number of Community Associations and Municipal Councils formed under the project, and the training they received, may be construed as evidence of increased collective organization\. Combining results under the original project and additional financing, 2,216 Community Associations were created (there was no target; there were around 4,500 communities in the project area)\. 101 Municipal Councils were created, against a target of 38\. The number of training courses delivered to Community Associations and Municipal Councils by project end was more than eight times larger than the target\. Outcomes The ICR (p\. 16) says that “social capital is displayed in social solidarity, confidence, mutual cooperation, linkages, access to diverse institutions and to the resources and information of a range of assistance programs outside the Bank-supported project\.â€? A Social Capital Index was part of the project design but the necessary data were not collected to assess change between the start and finish of project implementation\. Most of the evidence presented for social capital formation consists of beneficiary opinions, and is sometimes mixed up with assessments of the benefits from subprojects\. In 2004, the Campinas Economic Foundation (FECAMP) survey, which covered 8,602 beneficiary families and 493 control families, found that over 85 percent of beneficiaries agreed that subproject execution contributed to unify the community and 90 percent of the interviewees reported that the subprojects encouraged the participation of members during implementation and afterward\. Also, beneficiary Community Associations compared with non-beneficiary Community Associations were more capable of: (i) resolving internal conflicts; (ii) responding to communal demands; (iii) effectively advocating for their membership; (iv) solving local problems for the community; and (v) mobilizing financial and human resources\. (c): Enhance local governance by greater citizen participation and transparency in decision-making, through creation and strengthening of community associations and Municipal Councils\. (Rating: Substantial) Outputs Women and indigenous groups were adequately represented in the Municipal Councils\. Under the additional financing, the Councils became independent legal entities and there was a state-wide process of unifying the councils that had been generated by separate programs—98 percent of the councils are now unified\. However, none of the Municipal Councils created were of the FUMAC-P type (see Section 2c above for explanation), which was, according to the project design, the most advanced model of decentralized decision-making and administration; the target was to create 14 of these councils\. Outcomes There is some overlap with the previous objective with respect to the participation element\. A survey with use of appropriate controls found that over 85 percent of interviewees were persuaded that communities had been unified by the project; other evaluations found that 85 percent of Community Associations view Municipal Councils as representing community interests\. According to beneficiary surveys, community members said they were better represented and that decision making about municipal planning was more transparent\. The capacity of Community Associations to represent the community and resolve community problems was rated highly in 80 percent of cases (ICR, p\. 19)\. The ICR (p\. iv) cites evaluation studies which found that 85 percent of Community Associations view Municipal Councils as effective in representing community interests and channeling project information; 65 percent of Associations said that their operations had been strengthened through the work of the Municipal Councils\. On the other hand, the most decentralized model of Municipal Councils (FUMAC-P) was not implemented\. This the ICR attributes to “(i) poor results on the ground; (ii) the Borrower’s reticence in delegating sub-project prioritization and financing to Municipal Councils; and (iii) institutional roadblocks (legal and procurement) making FUMAC-P non-viableâ€? (pp vi-vii)\. (d): Foster closer integration of development policies, programs and projects at the local level, by assisting Municipal Councils to extend their role in seeking funding, priority-setting and decision-making over resource allocation\. (Rating: Modest) Outputs "About 70 percent of the more advanced Municipal Councils were actively deliberating the resources from other programs" (ICR, p\. 20)\. Outcomes Data from the ICR (p\. 17) show that the project leveraged some US$25 million under its integration objective: less than envisioned at appraisal yet nonetheless 41 percent of the combined loans under the Original Project and Additional Financing\. The project team subsequently reported that only about 6 percent of the Municipal Councils had actually received funding from other programs\. Also, the ICR states (p\. 18) that only 16 percent of Community Association members had established links with other associations\. "There is no evidence that during project implementation the proposed partnership with credit institutions worked as planned" (ICR, p\. 6)\. (e) Assist the State of Pernambuco to reduce currently high levels of rural poverty\. (Rating: Substantial) The project team provided additional evidence that the incidence of extreme rural poverty declined from 37 percent to 22 percent of the population in Pernambuco\. There are no doubt many factors affecting this reduction – including the expansion of social safety net and rural water supply programs and a general economic improvement in Brazil\. However, the extent of targeting and the evidence of improved access and incomes suggest that the project activities likely contributed to poverty reduction in the project area\. 5\. Efficiency (not applicable to DPLs): Given the demand-driven nature of the projects in this series the distribution of funds between the various categories of subproject could not be known in advance, explaining why a project-wide economic rate of return was not estimated at appraisal\. The PAD (p\. 14) makes it clear that efficiency should be assessed on the basis of: (a) cost effectiveness (logically, of infrastructure and social subprojects) ; (b) the financial rate of return to productive subprojects; and (c) the fiscal savings reaped from not providing infrastructure through other, less cost-effective, public programs\. Benefit-cost analysis\. At closing, the ICR reports that a financial rate of return was estimated for 29 subproject "case studies" (equal to 1 percent of all subprojects financed), comprising the four most common subproject types: water supply, domestic sanitation, farm tractors, and honey production\. However, the cases were not randomly sampled; the project team noted that the cases represented subprojects considered by knowledgeable people to be moderately successful\. Although the sampled units were not limited exclusively to very successful subprojects, they excluded unsuccessful projects and the overall share of successful projects is not known\. For the cases studied, all of which were at least moderately successful, under different cost scenarios for productive subprojects, the financial rate of return for tractors was 39-61 percent and for honey 54-82 percent\. The ICR estimates the benefit stream for water supply and home sanitation by imputing a value to the time of family members freed from having to fetch water, the incremental employment generated by water availability, reduced disease burden, and the increased value of houses due to the investment\. The financial rate of return thus estimated was 53-83 percent for water supply and 8-11 percent for home sanitation\. The project team confirmed that operation and maintenance projections were included in the rate of return calculations\. Fiscal savings\. There is some evidence of the project’s fiscal impact\. Foregone expenditure for water distribution via tanker trucks are significant in those communities where water supply subprojects were executed\. Some 49,000 families benefited from water supply subprojects at a combined investment cost of US$32\.9 million\. For virtually all of these families, the only viable alternative for water supply would have been tanker trucks at an overall monthly recurrent cost of US$2\.4 million\. Cost-effectiveness\. The region provided some comparative cost figures suggesting that public investments of a similar type were more costly than the investments made by communities\. Project costs were reported to be between 47% and 77% of the non-project cases\. However, it has been difficult to assess the comparability of these estimates to what was actually implemented for this particular project\. Area targeting reduced the scope for “leakageâ€? of project funds to the non-poor\. The actual cost of project management (Component 3) was 6 percent of total project cost, consistent with claims in the PAD about the limited overheads involved in this approach to community-driven development\. The price benchmarks that the implementing agency used for labor and building materials were market-based (ICR, p\. 21)\. On the other hand, combining original and additional financing, actual spending on subprojects (US$66\.9 million) was 102 percent of the expected amount, but only 65 percent of the expected number of families benefited from the project\. Efficiency is rated modest\. ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re- re -estimated value at evaluation : Rate Available? Point Value Coverage/Scope* Appraisal No ICR estimate No * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: The overall objective of reducing rural poverty was substantially relevant in terms of conditions in Pernambuco, and in relation to Bank and Borrower strategy\. The relevance of design was also substantial, because the project components were tried and tested, and they were appropriate for reducing poverty\. Although questions about attribution to the project remain, new evidence shows that rural poverty in the state did fall and a plausible case can be made that the various elements in the results chain were consistent with poverty reduction\. Two of the four sub-objectives were, on balance, substantially achieved\. However, there are weaknesses in the efficiency analysis particularly concerning the representativeness of the subproject sample\. a\. Outcome Rating : Moderately Satisfactory 7\. Rationale for Risk to Development Outcome Rating: Subprojects were selected from a tried and tested menu of options, increasing the prospect that they would be sustainable\. Environmental screening processes were apparently adequate\. Provisions for operation and maintenance were included in the contract between the Community Association and the State Technical Unit\. Based on beneficiary self-report, 60 percent of the subprojects approved in the additional financing phase had adequate provision for operations and maintenance (ICR, p\. v)\. The largest group of subprojects was for household water cisterns: it is reasonable to assume that families will have adequate incentive to maintain these; and, moreover, the costs and technical knowhow required for maintenance of these individual systems is undemanding\. Unification of the various Municipal Councils set up by different programs (see intermediate outcome (c) in Section 4 above) may have helped to counter the tendency toward creating parallel structures that often weakens community-driven development\. But the evidence that Municipal Councils have leveraged funds outside the project is insubstantial, reducing the likelihood that the project’s benefits will be sustained\. The lack of sound technical assistance during project implementation, and “the pervasive issue of scant technical support in the rural Northeastâ€? (ICR, p\. 7), raises concerns about the long-term viability of some project investments, particularly for productive subprojects\. There are particular doubts about the sustainability of the productive subprojects, given the drought-prone nature of this region, and the limited availability of credit\. At the ICR Review meeting, the project team told IEG that it was not clear what proportion of the Community Associations had obtained credit from commercial banks, acknowledging that the implementing agency did not actively pursue linkage of Community Associations (or individual members) to banks\. On the other hand, in this Pernambuco operation, productive subprojects accounted for only 6 percent of all subprojects, for which reason risk is rated "moderate" rather than 'significant"\. a\. Risk to Development Outcome Rating : Moderate 8\. Assessment of Bank Performance: Quality at Entry The project's objectives were relevant to Borrower and Bank strategy at the time of appraisal and afterwards; and its design was relevant to the attainment of those objectives\. The Bank developed fruitful working relations with the state government during project preparation\. The provision for targeting the poorest municipalities was sound\. The Management Information System inherited from the previous project was strengthened (see Section 10 below)\. In support of the broad thrust toward decentralization of planning capabilities, the project set up eight Regional Technical Units in strategic locations statewide\. The closeness of these units to the beneficiaries increased the speed and flexibility of project procedures and facilitated subproject supervision, helping to ensure that the expected outcomes were realized\. The establishment of a management fee, equal to 1 percent of the budget of each subproject, made a modest contribution to funding the work of the Municipal Councils during project implementation\. Quality at entry had three shortcomings\. First, there was a lack of clarity about rules for the “graduationâ€? of Community Associations: it was not clear whether this meant that Community Associations had matured to the point where they could stand alone without further funding; or whether it meant simply that Community Associations would not be eligible to receive funding for more than one productive subproject (a more limited definition; one that did not, moreover, rule out the possibility of successive rounds of funding for the same Community Association as long as this was for subprojects not classified as productive)\. Second, there was incomplete specification of baselines and targets and the provision for measuring the project’s contribution to poverty reduction was limited\. Third, there was no provision made for recruiting salaried Technical Advisors during project implementation, potentially compromising subproject viability (particularly for productive subprojects)\. Supervision The locally-based Bank team made regular visits to randomly picked Community Associations, Municipal Councils and subprojects, helping to ensure that there was close oversight of funding\. There was good follow up on financial management and procurement problems\. However, the Bank could have pressed for a mid-term review during implementation of additional financing, it should have included a water and sanitation expert in the supervision team given the large volume of small-scale water infrastructure financed under the project, and it could have pushed the implementing agency harder in order to secure the follow-up survey that was needed to provide sufficient data for the impact evaluation\. at -Entry :Moderately Satisfactory a\. Ensuring Quality -at- b\. Quality of Supervision :Moderately Satisfactory c\. Overall Bank Performance :Moderately Satisfactory 9\. Assessment of Borrower Performance: Government The Borrower was the state government (the federal government acted as guarantor)\. The state government remained committed to project objectives and approach throughout the period of preparation and implementation, despite three changes of administration\. The state government underscored its commitment by leveraging US$25 million from other programs to expand project coverage and intensify the focus on the most vulnerable groups\. At appraisal concern was expressed that the state government might not honor its counterpart funding promises; but an adequate level of counterpart funding was maintained throughout implementation\. Implementing Agency The State Technical Unit (STU), which was the primary implementing agency, underwent a radical restructuring during project implementation, devolving responsibilities to eight Regional Technical Units scattered across the state\. This process of decentralization made the project process more flexible and agile, speeding up subproject disbursements\. The rotation of state governments led to some loss of continuity\. To its credit, the STU took the lead in exploring new approaches to productive investments under the Fair Trade initiative and also in seeking to extend project coverage to communities (quilombos ) composed of the descendants of escaped slaves\. But the implementing agency did not promote productive projects as actively as it could have done and was lukewarm in its support for the impact evaluation that the Bank had proposed\. a\. Government Performance :Satisfactory b\. Implementing Agency Performance :Moderately Satisfactory c\. Overall Borrower Performance :Moderately Satisfactory 10\. M&E Design, Implementation, & Utilization: Design Insufficient attention was paid to the results framework: performance indicators were poorly designed and not enough provision was made for impact evaluation\. The project had a good Management Information System (MIS), which produced the data needed for sound monitoring; but evaluation was weak\. The MIS was designed to give on-line access to the Regional Technical Units and the program coordinating unit in Recife and a website was set up to provide information to the public on project implementation\. Data could be entered locally by Community Associations, allowing for real-time monitoring of the entire subproject cycle\. The MIS for this project improved on the approach taken in previous projects: first, by registering leveraged (i\.e\., non-project) resources from partnerships with others programs; second, by tracking the share of the rural poor receiving grant financing for productive subprojects; and, third, by recording Community Associations obtaining commercial loans\. For purposes of evaluation, the project financed several studies, including a baseline and intermediate results study\. The aim was to follow up with a second field survey that would allow for project impact to be estimated\. Implementation The MIS was implemented according to plan and performed satisfactorily\. Evaluation proceeded less smoothly\. The follow-up survey was delayed owing to staffing changes in the project management unit and the state government and slow progress with competitive contracting of the study\. The follow-up survey was initially deferred until implementation of the Additional Financing but had not gone ahead by loan closing so the anticipated formal impact evaluation never materialized\. The governments in the various Northeast states resisted the multi-state evaluation that the Bank envisaged and it proved impossible to agree on a common design\. As a partial substitute some other studies were implemented, including reviews of the physical performance of selected subprojects and estimates of economic and financial rates of return\. Use The MIS was an invaluable adjunct to project management, data collection and analysis feeding directly into decision making\. Thanks to the MIS, monitoring was exemplary\. But assessment of the project's contribution to poverty reduction was impeded by failure to complete the anticipated formal impact evaluation\. Given the size of the overall program of which this project is a part and the length of time it has been running, this pushes the M&E rating to modest\. a\. M&E Quality Rating : Modest 11\. Other Issues (Safeguards, Fiduciary, Unintended Positive and Negative Impacts): Safeguards The project was Category B, with an Environmental Management Plan, which remained the same under additional financing\. All subprojects were vetted for compliance with the Operational Manual, which included the Bank's Environment and Social Safeguards\. Subprojects were also assessed against state and federal environmental laws\. The staff of the implementing agency included an environmental specialist\. No safeguard violations were reported\. Financial Management With one exception, financial management supervision missions rated the project "satisfactory": in June 2003, Brazil-wide fiscal constraints affecting most of the Bank's portfolio, led to a downgrade in the financial management rating to "unsatisfactory\." The final financial management supervision (April 2010) concluded that the State Technical Unit's fiduciary performance was "satisfactory"\. Unintended Impacts No unintended impacts are reported in the ICR\. 12\. 12\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Moderately Moderately Satisfactory Satisfactory Risk to Development Moderate Moderate Outcome : Bank Performance : Moderately Moderately Satisfactory Satisfactory Borrower Performance : Moderately Moderately Satisfactory Satisfactory Quality of ICR : Satisfactory NOTES NOTES: - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate \. 13\. Lessons: Lessons suggested by the ICR include the following: Community-driven development (CDD) can promote social capital formation if subprojects are rigorously and transparently selected and adequate training is given: "Tangible benefits from subproject investments strengthen collective capacity, generate a sense of citizenship, and raise the bar for local government accountability" (p\. 28); Delegating responsibility for routine supervision to project monitoring unit regional offices (of which there were 8 in this project) helps increase project visibility at the local level, making the project more accountable to beneficiary families; and Productive subprojects are more likely to succeed if they are supported by business plans, allow for training and assess potential demand for the product\. They are more likely to be sustainable if provision is made for linkage to banks\. IEG adds: A complete assessment of the efficiency of CDD projects involves reviewing the evidence for cost-effectiveness, showing how this varies between subproject categories, and the extent of variation between the average for the project and the average obtained under other public programs\. Intermediate outcomes, such as social capital, need to be properly quantified with well-designed indicators, baselines and targets\. 14\. Assessment Recommended? Yes No 15\. Comments on Quality of ICR: The report is well written and comprehensive, distinguishing clearly between what was achieved under the original project and under additional financing\. There is a thorough assessment of project design\. A number of specific and informative lessons are proposed\. Given the project objective of reducing high levels of rural poverty in the state, there is limited evidence presented on poverty outcome (perhaps reflecting the weak M&E)\. The economic analysis should have included data on subproject unit costs relative to other programs and the efficiency analysis should have been based on a larger number of subprojects and not excluded those that were unsuccessful\. a\.Quality of ICR Rating : Satisfactory

REVIEW

P129563

Document of The World Bank FOR OFFICIAL USE ONLY Report No: ICR00005308 IMPLEMENTATION COMPLETION AND RESULTS REPORT IBRD-75471 ON A LOAN IN THE AMOUNT OF US$100 MILLION TO THE PEOPLE'S REPUBLIC OF CHINA FOR THE ANHUI YELLOW MOUNTAIN NEW COUNTRYSIDE DEMONSTRATION PROJECT December 21, 2020 Urban, Resilience and Land Global Practice East Asia and Pacific Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  CURRENCY EQUIVALENTS (Exchange Rate Effective June 30, 2020) Currency Unit = Chinese Yuan (CNY) CNY 7\.06 = US$1 FISCAL YEAR January 1 – December 31 Regional Vice President: Victoria Kwakwa Country Director: Martin Raiser Regional Director: Benoit Bosquet Practice Manager: Francis Ghesquiere Task Team Leaders: Ahmed A\. R\. Eiweida, Minghe Tao ICR Main Contributor: Mansha Chen  ABBREVIATIONS AND ACRONYMS CPF Country Partnership Framework CPS Country Partnership Strategy ECOP Environmental Code of Practice EIA Environmental Impact Assessment EIRR Economic Internal Rate of Return EMP Environmental Management Plan FM Financial Management FYP Five-year Plan GDP Gross Domestic Product GoC Government of China HMG Huangshan Municipal Government ICR Implementation Completion and Results Report ISR Implementation Status and Results Report IRI Intermediate Results Indicator M&E Monitoring and Evaluation MDRC Municipal Development and Reform Commission MIS Management Information System MTR Midterm Review NSCS New Socialist Countryside Scheme O&M Operation and Maintenance PAD Project Appraisal Document PCR Physical Cultural Resources PDO Project Development Objective PIU Project Implementation Unit PMO Project Management Office PMP Pest Management Plan PMU Project Management Unit RAP Resettlement Action Plan RF Results Framework RPF Resettlement Policy Framework TEG Technical Expert Group WTP Water Treatment Plant WWTF Wastewater Treatment Facility  TABLE OF CONTENTS DATA SHEET \. 1 I\. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES \. 6 A\. CONTEXT AT APPRAISAL \.6 B\. SIGNIFICANT CHANGES DURING IMPLEMENTATION \.10 II\. OUTCOME \. 13 A\. RELEVANCE OF PDOs \.13 B\. ACHIEVEMENT OF PDOs (EFFICACY) \.13 C\. EFFICIENCY \.19 D\. JUSTIFICATION OF OVERALL OUTCOME RATING \.20 E\. OTHER OUTCOMES AND IMPACTS \.20 III\. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME \. 23 A\. KEY FACTORS DURING PREPARATION \.23 B\. KEY FACTORS DURING IMPLEMENTATION \.24 IV\. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME \. 25 A\. QUALITY OF MONITORING AND EVALUATION (M&E) \.25 B\. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE \.26 C\. BANK PERFORMANCE \.28 D\. RISK TO DEVELOPMENT OUTCOME \.29 V\. LESSONS AND RECOMMENDATIONS \. 30 ANNEX 1\. RESULTS FRAMEWORK AND KEY OUTPUTS \. 32 ANNEX 2\. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION \. 49 ANNEX 3\. PROJECT COST BY COMPONENT \. 51 ANNEX 4\. EFFICIENCY ANALYSIS \. 52 ANNEX 5\. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS \. 57 ANNEX 6\. SUPPORTING DOCUMENTS \. 58 ANNEX 7\. RESULT STORIES \. 59 ANNEX 8\. PHOTOS OF PROJECT RESULTS\. 62 ANNEX 9\. PROJECT MAP \. 72  The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) DATA SHEET BASIC INFORMATION Product Information Project ID Project Name Anhui Yellow Mountain New Countryside Demonstration P129563 Project Country Financing Instrument China Investment Project Financing Original EA Category Revised EA Category Partial Assessment (B) Partial Assessment (B) Organizations Borrower Implementing Agency Huangshan Municipality development and Reform People's Republic of China Commission Project Development Objective (PDO) Original PDO The objective of the Project is to improve the quality of services and income generating opportunities available to rural households in selected villages of Huangshan Municipality\. Page 1 of 72  The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) FINANCING Original Amount (US$) Revised Amount (US$) Actual Disbursed (US$) World Bank Financing 100,000,000 96,579,192 96,579,192 IBRD-83090 Total 100,000,000 96,579,192 96,579,192 Non-World Bank Financing 0 0 0 Borrower/Recipient 0 0 0 Local Govts\. (Prov\., District, 45,190,000 32,180,000 30,820,000 City) of Borrowing Country Sub-borrower(s) 0 0 0 Total 45,190,000 32,180,000 30,820,000 Total Project Cost 145,190,000 128,759,192 127,399,192 KEY DATES Approval Effectiveness MTR Review Original Closing Actual Closing 27-Dec-2013 30-May-2014 20-Feb-2017 30-Jun-2019 30-Jun-2020 RESTRUCTURING AND/OR ADDITIONAL FINANCING Date(s) Amount Disbursed (US$M) Key Revisions 19-Dec-2016 22\.94 Change in Results Framework Change in Components and Cost Change in Financing Plan Reallocation between Disbursement Categories Change in Disbursements Arrangements Change in Procurement Change in Implementation Schedule 26-Jun-2019 76\.30 Change in Results Framework Change in Components and Cost Change in Loan Closing Date(s) Change in Implementation Schedule Page 2 of 72  The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) KEY RATINGS Outcome Bank Performance M&E Quality Satisfactory Satisfactory Substantial RATINGS OF PROJECT PERFORMANCE IN ISRs Actual No\. Date ISR Archived DO Rating IP Rating Disbursements (US$M) 01 07-Apr-2014 Satisfactory Satisfactory 0 02 26-Oct-2014 Satisfactory Satisfactory 2\.40 03 30-Apr-2015 Satisfactory Satisfactory 4\.79 04 06-Jun-2015 Moderately Satisfactory Moderately Satisfactory 5\.29 05 04-Nov-2015 Moderately Satisfactory Moderately Satisfactory 8\.80 Moderately 06 24-Jun-2016 Moderately Unsatisfactory 13\.73 Unsatisfactory Moderately 07 11-Nov-2016 Moderately Unsatisfactory 18\.94 Unsatisfactory 08 16-Apr-2017 Moderately Satisfactory Moderately Satisfactory 29\.95 09 05-Dec-2017 Moderately Satisfactory Moderately Satisfactory 33\.10 10 25-May-2018 Moderately Satisfactory Moderately Satisfactory 43\.33 11 23-Dec-2018 Moderately Satisfactory Moderately Satisfactory 59\.96 12 26-Jun-2019 Moderately Satisfactory Moderately Satisfactory 76\.30 13 13-Dec-2019 Satisfactory Satisfactory 85\.10 14 15-May-2020 Satisfactory Satisfactory 90\.34 15 30-Jun-2020 Highly Satisfactory Highly Satisfactory 98\.85 Page 3 of 72  The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) SECTORS AND THEMES Sectors Major Sector/Sector (%) Public Administration 6 Sub-National Government 6 Social Protection 18 Social Protection 18 Transportation 19 Rural and Inter-Urban Roads 19 Water, Sanitation and Waste Management 38 Other Water Supply, Sanitation and Waste 38 Management Industry, Trade and Services 19 Other Industry, Trade and Services 19 Themes Major Theme/ Theme (Level 2)/ Theme (Level 3) (%) Private Sector Development 100 Jobs 100 Finance 6 Finance for Development 6 Agriculture Finance 6 Page 4 of 72  The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) Human Development and Gender 20 Health Systems and Policies 20 Health Service Delivery 10 Adolescent Health 5 Child Health 5 Urban and Rural Development 75 Rural Development 56 Rural Markets 6 Rural Non-farm Income Generation 11 Rural Infrastructure and service delivery 39 Cultural Heritage 19 ADM STAFF Role At Approval At ICR Regional Vice President: Axel van Trotsenburg Victoria Kwakwa Country Director: Klaus Rohland Martin Raiser Director: John A\. Roome Benoit Bosquet Practice Manager: Mark R\. Lundell Francis Ghesquiere Ahmed A\. R\. Eiweida, Minghe Task Team Leader(s): Rabih H\. Karaky Tao ICR Contributing Author: Mansha Chen Page 5 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) I\. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES A\. CONTEXT AT APPRAISAL Context 1\. Since 1978, China has embarked on a series of economic reforms, leading to economic growth at a remarkable annual rate of about 10 percent and more than 600 million people lifted out of poverty by the time of appraisal of the Anhui Yellow Mountain New Countryside Demonstration Project (the “project”) in 2013\. To sustain this rapid pace of development, China had to address a number of challenges, among them, high inequalities in incomes, opportunities, and quality of life between rural and urban areas\. In 2010, the average per capita disposable income among rural residents was less than one- third that of urban residents\. One key program to tackle these challenges was the ‘New Socialist Countryside Scheme’ (NSCS), launched by the Government of China (GoC) under the 11th Five-year Plan (FYP, 2006–10) and continued through the 12th FYP (2011–15)\. The NSCS aimed at increasing farmers’ incomes, diversifying their employment opportunities, improving their livelihoods and productivity levels, enhancing their living conditions and the overall management of their rural environment, and strengthening their institutions for self-governance within harmonious communities\. 2\. At the time, Anhui Province’s economy was lagging behind many other provinces in China’s eastern region because of higher concentration on low-productivity agriculture and a lagging service sector\. As a result, in 2010, Anhui’s per capita gross domestic product (GDP) was less than 40 percent that of neighboring Zhejiang and Jiangsu Provinces, and its average per capita rural income was considerably lower than the national average\. The Anhui Provincial Government had been actively implementing the NSCS through several schemes, 1 with strong focus on Huangshan Municipality, whose economy depended heavily on the agriculture and tourism sectors 2 owing to its beautiful natural environment and abundant Huizhou cultural architecture\. These efforts were successful to some extent, with improvements to the economy and the living conditions in rural areas; however, several challenges remained, including (a) insufficient investments in infrastructure, especially for roads, water, and sanitation (for example, 70 percent of Huangshan Municipality’s villages lacked wastewater systems); (b) shortage of funding to preserve cultural heritage assets; (c) low productivity in agriculture; (d) limited employment opportunities in the non-farm sector; (e) underdeveloped tourism infrastructure and services in the villages; and (f) lack of capacity and skill set of the institutions and stakeholders to improve quality of services and create economic opportunities\. Recognizing these constraints and their impact on rural communities, the Huangshan Municipal Government (HMG) made it a priority to promote rural development by substantially increasing investments in infrastructure, preserving cultural heritage, and developing tourism in rural areas\. 3\. Rationale for World Bank involvement\. The World Bank was well positioned to help the HMG in its efforts to promote rural development, given its past engagement in similar projects, such as the Ningbo 1 For example, the ‘Thousand Villages and Hundred Towns Demonstration Scheme’, which included 165 villages in the Huangshan Municipality\. 2 Huangshan Municipality’s agriculture sector employed more than 42 percent of the labor force in 2010\. Its tourism revenue represented nearly 65 percent of its total GDP\. Page 6 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) New Countryside Development Project (P106956, 2010–16) and the Chongqing Urban-Rural Integration Project (P086446, 2010–17)\. Furthermore, the World Bank was experienced in cultural heritage protection owing to its engagement in the Gansu Cultural and Natural Heritage Protection and Development Project (P091949, 2008–15), the Guizhou Cultural and Natural Heritage Protection and Development Project (P091950, 2009–17), and the Shandong Confucius and Mencius Cultural Heritage Conservation Project (P120234, 2011–17)\. This experience was documented in a 2011 report, ‘Conserving the Past as a Foundation for the Future: The China-World Bank Partnership on Cultural Heritage Conservation’\. 3 With this experience at hand, the World Bank was able to explore new approaches to rural development that integrated infrastructure upgrading, cultural heritage conservation, and enhancement of economic opportunities in rural tourism and agriculture\. This multisectoral approach and the emphasis on skill training, economic development, and preservation of local culture set the Anhui Yellow Mountain New Countryside Demonstration Project discussed in this report apart from the majority of rural development projects in China at that time that focused exclusively on infrastructure\. 4\. Project contribution to higher-level objectives\. The project was aligned with both strategic themes of the World Bank Group Country Partnership Strategy (CPS) for China for FY2013–16 (Report No\. 67566), namely supporting greener growth and promoting more inclusive development\. It contributed to achieving a number of outcomes set in the CPS, including promoting sustainable agriculture practices, demonstrating sustainable natural resource management approaches, and enhancing opportunities in rural areas and small towns\. The project also contributed to improving the quality of life, raising farmers’ incomes, and constructing the ‘New Socialist Countryside’ in line with the objectives of the 12th FYP\. Theory of Change (Results Chain) 5\. The Theory of Change is illustrated in figure 1\. It is derived from the project description in the Project Appraisal Document (PAD, Report No\. 75471-CN)\. 6\. The project design included multisectoral interventions in infrastructure improvement, conservation and development of tourism assets, promotion of modern agriculture industries, skill building for rural residents, and institutional strengthening for local government staff\. Assuming that the investments reflected local needs and infrastructure services were affordable and properly maintained, investment in rural infrastructure was expected to improve the quality of infrastructure services available to rural residents, thus contributing to reduced inequalities in quality of life between rural and urban areas in the long term\. Better conserved and developed tourism assets, including tangible and intangible cultural heritage and tourism facilities, and enhanced residents’ skills in conserving cultural heritage and providing tourism services were expected to increase the quality of tourism services, attract more tourists, and create jobs and income-generating opportunities in tourism\. Improved irrigation conditions, development of green and higher value-added agriculture production bases and market facilities, and enhanced farmer skills in applying new agriculture technologies were expected to increase agricultural productivity, integrate more farmers into the modern agricultural value chain, and create jobs and income-generating opportunities in agriculture production and related services\. Assuming sufficient demand for agricultural and tourism products, improved income-generating opportunities in tourism and agriculture was expected to increase incomes of rural residents, thus contributing to reduced income 3Ebbe, Katrinka, Guido Licciardi, and Axel Baeumler\. 2011\. “Conserving the Past as a Foundation for the Future: China-World Bank Partnership on Cultural Heritage Conservation\.” Urban Development Series Knowledge Papers No\. 12\. World Bank\. Page 7 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) inequalities between rural and urban areas in the long term\. Strengthened institutional capacity of local government staff in planning new countryside development, cultural heritage conservation and tourism, and operation and maintenance (O&M ) of public assets were expected to improve asset management of infrastructure and management of cultural heritage conservation, tourism, and agriculture industries, contributing to improved quality of services and increased income-generating opportunities for rural residents\. Figure 1\. Theory of Change Activities Outputs PDOs/Outcome Long-term Outcomes Improving roads, • Roads, drains, sewers, water PDO 1: Improved quality of water supply, supply, streetlights, and river services in project villages drainage, revetment completed wastewater • Wastewater treatment facilities PDO indicators: collection and completed • Number of beneficiaries treatment, river • Public spaces completed with improved revetment, and infrastructure services in other rural project villages\. infrastructure • Historic buildings restored and adaptively reused Restoring historic • Tourism facilities completed Reduced buildings and • Exhibitions and/or performances inequalities in developing tourism held incomes and facilities • People trained in traditional arts quality of life and techniques between rural and PDO 2: Improved income- • People trained in tourism urban areas generating opportunities for services rural households • Tourism associations supported PDO indicators: • Number of tourists visiting • Production bases completed project villages Improving irrigation • Land with improved irrigation • Value of agriculture and developing conditions production in project agricultural • Market facilities and exhibition villages production bases centers for agriculture products and facilities and handicrafts completed • Farmers trained in new agricultural technologies • Agriculture associations supported Critical Assumptions: 1\. Investments reflect • PMO/PMUs/PIUs staff trained in beneficiaries’ needs project management 2\. Local authorities and village Improved communities maintain • Government agencies and village management of organizations trained in O&M constructed assets for continued Strengthening cultural heritage use institutional • Studies and plans on new conservation, tourism, 3\. Infrastructure services are capacity countryside development, and agriculture affordable cultural heritage conservation, industries; improved 4\. There is sufficient demand for and rural tourism completed asset management agriculture and tourism products including O&M\. Note: PDO = Project Development Objective; PMO = Project Management Office; PMU = Project Management Unit; PIU = Project Implementation Unit\. Page 8 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) Project Development Objectives (PDOs) 7\. The PDO, as articulated in the Financing Agreement and the PAD, was to improve the quality of services and income-generating opportunities available to rural households in selected villages of Huangshan Municipality\. 8\. The project focused on 68 villages in the Huangshan Municipality\. They were selected based on specified criteria that emphasized buy-in and participation from villages, a balance of assessed needs and existing potential (tourism, cultural, and so on), and adequacy of resources and institutional arrangements for meeting O&M needs\. Key Expected Outcomes and Outcome Indicators 9\. The PDO consisted of the following two outcomes and key indicators at appraisal: • PDO 1 ‘Improve the quality of services available to rural households in selected villages’; the key PDO indicator was ‘Number of beneficiaries with improved infrastructure services in project villages’ (target: 145,357) • PDO 2 ‘Improved income-generating opportunities available to rural households in selected villages’; the key PDO indicators were (a) ‘Number of tourists visiting project villages’ (target: 10,013,000) and (b) ‘Value of agriculture production in project villages’ (target: CNY 88,633,000) Components 10\. The project financed four components as detailed in the following paragraphs\. Component 1: Infrastructure Improvement (original allocation: US$66\.46 million 4, of which IBRD US$57\.28 million; actual cost: US$74\.78 million, of which IBRD US$62\.95 million) 11\. This included investments in (a) village roads, bridges, sidewalks, domestic and tourism pathways, streetlights, and associated sub-surface infrastructure services (such as power and telecommunication cables); (b) piped water supply either from mountain springs or town water supply plants; (c) drainage systems, sewer networks, and low-cost and environmentally appropriate wastewater treatment and disposal facilities; (d) river revetment upgrading; and (e) rehabilitation of small dams, ponds, and irrigation and drainage canals\. Component 2: Cultural Heritage Conservation (original allocation: US$20\.72 million, of which IBRD US$18\.25 million; actual cost: US$15\.58 million, of which IBRD US$13\.17 million) 12\. This component financed (a) restoration of historical buildings; (b) installation of signage for restored buildings; (c) preparation of cultural heritage conservation plans; (d) provision of sub-grants to owners of private historic buildings to restore their properties; and (e) provision of equipment, show 4Component costs mentioned in this section and para\. 18-22 exclude costs related to land acquisition and resettlements, O&M funds for built assets, project overheads, contingencies, and front-end fees\. This accounts for the difference in counterpart funds presented in the datasheet, on the one hand, and this section and annex 3, on the other\. Page 9 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) centers, and skills training for protecting and utilizing intangible cultural heritage assets\. These investments targeted 40 villages that had historic buildings and 16 villages that had intangible cultural heritage\. Component 3: Enhanced Economic Opportunities (original allocation: US$21\.47 million, of which IBRD US$18\.92 million; actual cost: US$20\.90 million, of which IBRD US$17\.40 million) 13\. This component financed (a) improvement of farm roads and provision of production materials for special agricultural bases such as tea, mulberry, flowers, herbs, and grapes; (b) improvement/construction of market facilities and exhibition centers for agriculture products; (c) provision of sub-grants to agriculture associations and training of farmers in modern agriculture practices; 5 (d) retrofitting of existing buildings along tourism routes into Huizhou architecture; (e) provision of tourism ancillary facilities such as tourist service centers, exhibition and performance spaces, parking lots, public toilets, and improvements to public spaces such as squares and exercise facilities; and (f) provision of sub-grants to tourism associations and training of villagers in tourism service skills\. Component 4: Institutional Support (original allocation: US$5\.29 million, of which IBRD US$5\.29 million; actual cost: US$2\.81 million, of which IBRD US$2\.81 million) 14\. This component supported (a) strategic research and planning of new countryside development and rural tourism development; (b) development of capacity for management and O&M of project outputs of relevant government agencies; (c) raising of awareness and building skills of project stakeholders and beneficiaries in new countryside development opportunities; (d) establishment of effective financial and project management information systems (MIS) and a project monitoring and evaluation (M&E) system; (e) the purchase of systems hardware and software for the PMO and PMUs and training of PMO and PMU staff on how to effectively utilize the systems; and (f) other project-related studies and consultancies, including for construction supervision\. B\. SIGNIFICANT CHANGES DURING IMPLEMENTATION 15\. The project underwent two Level II restructurings, in December 2016 and in June 2019\. Revised PDOs and Outcome Targets 16\. There was no revision to the PDO; however, the wording and targets of the three PDO indicators underwent changes in both restructurings\. In 2016, PDO Indicator 1 (Number of beneficiaries with access to improved infrastructure services in project villages) was expanded to add a gender-disaggregated breakdown indicator, along with sub-indicators on access to all-season roads, improved water sources, and improved sanitation, and its target was reduced\. 6 PDO Indicator 2 (Number of tourists visiting project villages) was revised to focus on villages that benefitted from cultural heritage conservation investments, and its baseline and target were reduced accordingly\. PDO Indicator 3 (Value of agriculture production in project villages) was revised to measure the number of new jobs generated as a result of investments in 5 Such as integrated pest management, soil fertility management, and green and organic certification\. 6 Two indicators on access to improved water sources and improved sanitation were moved to PDO indicators from intermediate results indicators (IRIs); baselines of these two indicators were revised to 0 and targets modified to reflect the increase (that is, difference between the original target and baseline at appraisal)\. Page 10 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) enhanced economic opportunities in 2016\. In 2019, the targets of the three PDO indicators were increased to account for outcomes of additional activities funded by loan savings and other unallocated funds, owing mainly to changes in exchange rate and lower costs from competitive biddings\. Revised PDO Indicators 17\. Consequently, the revised PDO indicators and their targets were as follows (see annex 1): • PDO Indicator 1: Number of beneficiaries with access to improved infrastructure services in project villages, of which women (target: 145,400; 66,972) o Number of beneficiaries with access to an all-season road within 500 m range (target: 127,131) o Number of beneficiaries with access to improved water sources (target: 32,011) o Number of beneficiaries with access to improved sanitation (target: 21,000) • PDO Indicator 2: Number of tourists visiting project villages which have implemented the cultural heritage conservation component of the project (target: 3,669,000) • PDO Indicator 3: Number of enhanced economic opportunities related jobs created (target: 4,550) Revised Components 18\. The components and their respective costs were revised in both restructurings: Component 1: Infrastructure Improvement (2016: US$70\.91 million, of which IBRD US$65\.33 million; 2019: US$71\.59 million, of which IBRD US$69\.27 million) 19\. Two rural roads were added in 2016, eleven rural infrastructures were added in 2019\. Some works that had been fully financed by counterpart funds and completed before loan effectiveness were taken out during project implementation\. Component 2: Cultural Heritage Conservation (2016: US$15\.24 million, of which IBRD US$14\.04 million; 2019: US$18\.31 million, of which IBRD US$17\.71 million) 20\. In 2016, some of the planned activities (for example, restoration of some historic buildings) were financed under government grant programs and removed from the scope of the project\. Sub-grants of US$1\.08 million initially planned to be allocated to villagers for rehabilitating privately owned houses were reduced and eventually cancelled due to low participation\. 7 Additional activities for historic building restoration were added in 2019\. Component 3: Enhanced Economic Opportunities (2016: US$18\.01 million, of which IBRD US$16\.59 million; 2019: US$10\.61 million, of which IBRD US$10\.26 million) 7The amount of sub-grants was reduced from US$1\.08 million to US$110,000 in 2016 and further decreased to US$86,000 in 2019\. Page 11 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) 21\. The cost of this component was reduced in 2016 mainly due to procurement savings and the elimination of some low-priority activities\. Two special agriculture bases were added in 2019\. Component 4: Institutional Support (2016: US$3\.79 million, of which IBRD: US$3\.79 million; 2019: US$2\.51 million, of which IBRD: US$2\.51 million) 22\. The technical assistance work on the ‘Beautiful Village Development Master Plan’ was removed from the project scope as it had been covered under another government program\. A socioeconomic impact study and beneficiary survey were added in 2019\. Other Changes 23\. Intermediate Results Indicators (IRIs)\. In 2016, Component 1 IRIs measuring outputs of water supply and wastewater treatment were added, and the indicator measuring the area of flood protection construction was dropped\. Component 2 IRI measuring the number of idle historic buildings adaptively reused was dropped\. Under Component 3, the target for area of developed production bases was reduced by 27 percent and its unit of measure was adjusted from mu to hectare, 8 and the indicator measuring the number of village houses with a changed façade was dropped\. In 2019, the targets of six IRIs were increased compared to their original targets, to reflect the expanded scope of works\. 24\. Disbursement arrangements\. In 2016, the disbursement percentage for the civil works category was increased from 86 percent to 100 percent\. This also resulted in changes in the financing plan and reallocation between disbursement categories, with loan proceeds allocated to the works category increased, and loan proceeds allocated to the categories for goods, consultant services, training, and sub- grants reduced\. In 2019, the disbursement allocations to the categories for goods, consultant services, training, and sub-grants were reduced, and the reduced amounts were added to the works category\. 25\. Procurement Plan and implementation schedule\. In both restructurings, the Procurement Plan and the implementation schedule were revised based on the actual status of implementation and the changes to project activities\. 26\. Project extension\. The loan closing date was extended by 12 months from June 30, 2019, to June 30, 2020\. Rationale for Changes and Their Implication on the Original Theory of Change 27\. The main reasons for changes were (a) more activities were added to utilize substantial loan balance (US$30 million as of project restructuring in 2019) mainly due to changes in US dollar to Chinese yuan exchange rate 9 and lower costs from competitive bidding, (b) some activities were canceled to avoid duplication with government-funded activities, (c) the sub-grants for rehabilitating privately owned house façades did not generate much interest as the amount allocated to each family was insufficient to meet rehabilitation costs and were eventually cancelled, (d) the disbursement percentage for the civil works category was increased to alleviate the budgetary pressures faced by project counties as a result of the 8 1 hectare=15 mu\. Mu, or mou, is a Chinese unit of land measurement that varies with location but is commonly 806\.65 square yards (0\.165 acre, or 666\.5 square meters)\. 9 The US dollar to Chinese yuan exchange rate was 6\.12 at appraisal and 6\.92 on June 15, 2019\. Page 12 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) slowdown of the Chinese economy, and (e) the project duration was extended to complete the construction activities that were delayed mainly due to unusually inclement weather conditions in 2018 and the added activities\. Overall, these changes facilitated the achievement of project outcomes because they increased the scope of relevant activities, removed activities which were less relevant to the outcomes or had a lower chance of success due to low demand, and improved the ability of the project to link activities to outcomes\. II\. OUTCOME A\. RELEVANCE OF PDOs Assessment of Relevance of PDOs and Rating Rating: High 28\. At appraisal, the project was fully consistent with the two strategic themes of the CPS for FY2013– 16 (Report No\. 67566), namely supporting greener growth and promoting more inclusive development\. At closing, the PDO was highly relevant to the World Bank Group Country Partnership Framework (CPF) for FY2020–25 (Report No\. 117875) as it supported two of its three engagement areas: ‘Promoting Greener Growth’ (Engagement Area 2) and ‘Sharing the Benefits of Growth’ (Engagement Area 3)\. Specifically, the project responded to CPF Objectives 2\.2 (to reduce air, soil, water and marine plastics pollution) by improving sanitation services, 2\.3 (to demonstrate sustainable agriculture practices and improve food system quality and safety) by promoting environmentally friendly agriculture practices and improving the quality of high-value agricultural production, and 3\.2 (to enhance the quality of early learning and skills development programs) by training farmers on tourism services, cultural heritage conservation, and agriculture industries\. The PDO was also aligned with China’s development priorities as articulated in the 13th FYP (2016–20), particularly agricultural modernization and countryside development\. The PDO was also consistent with the Rural Revitalization Strategy put forward by the Chinese Government in 2018, which prioritized investments in agriculture, rural areas, and farmers to promote the integrated development of urban and rural areas, strengthen rural governance systems, and ensure food security\. The cultural heritage conservation activity of the project was fully aligned with the Circular on Strengthening the Daily Maintenance of Ancient Buildings issued by the State Administration of Cultural Heritage in 2015\. The project’s emphasis on environmental and ecological protection of rural areas was closely aligned with China’s priority on green development as articulated in the three-year Action Plan for the Improvement of Rural Human Settlement Environment issued in 2018\. 29\. More broadly, the PDO was closely aligned with the World Bank’s twin goals of eliminating extreme poverty and boosting shared prosperity through economic growth among the bottom two quintiles\. The project specifically targeted rural households in 68 villages whose per capita annual disposable income was only about one-third of their urban counterparts and are therefore more vulnerable to external shocks, such as natural disasters and change of market conditions\. B\. ACHIEVEMENT OF PDOs (EFFICACY) Assessment of Achievement of Each Objective/Outcome Page 13 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) 30\. The efficacy analysis assesses the two PDO outcome statements: (a) improve the quality of services available to rural households in selected villages and (b) improve income-generating opportunities available to rural households in selected villages using the relevant PDO indicators, IRIs, and other results not measured by the Results Framework (RF)\. Annex 1\.C shows the achievement of PDO indicators and IRIs against the original and revised targets\. This project was the main one active in the project villages during the project duration\. Where applicable, results were compared to ten non-project villages in the same municipality that had not benefitted from major investments in rural infrastructure, cultural tourism, and agricultural production in the past five years\. All data, unless otherwise stated, came from the borrower’s project completion report and socioeconomic impact beneficiary survey report, which were reviewed and accepted by the World Bank team\. Outcome 1: Improve the quality of services available to rural households in selected villages 31\. The project supported services related to basic infrastructure, tourism, and agriculture\. Service quality was improved as detailed in the following paragraphs\. 32\. Improved quality of basic infrastructure services\. Infrastructure investments under the project focused on constructing and upgrading basic infrastructure in 68 project villages, including (a) village roads, bridges, and quays; (b) drainage and sewage systems; (c) water supply systems; (d) streetlights, power, and telecommunication facilities; (e) riverbank protection; small dams; and dredging of rivers, ponds, and canals; (f) wastewater treatment and disposal facilities; and (g) fitness squares and other public spaces\. The project also provided garbage trucks, small sweepers, and equipment for garbage sorting facilities\. 33\. Access to all-season roads\. The project constructed and upgraded 426 km of roads (137 percent of the original target of 308\.6 and 115 percent of the revised target of 370)\. A total of 136,566 people (107 percent of original target of 127,131) now have access to wider and better-quality roads within 500m from their homes\. Before the project, some villages did not have vehicle access due to their location in high mountains or separation by rivers or lakes, and goods and materials could only be transported by manpower or ferry\. In other villages, existing roads were mostly earth or sand gravel, in poor condition, and easily damaged by rain\. Some remote villages lacked river-crossing bridges, or their bridges were in a dilapidated state and unsafe (see annex 8)\. Owing to the support of the project, the time it took for vehicles and bicycles to access villages from outside was reduced from 1–2 hours to 5–30 minutes, respectively\. 34\. In addition, streetlights were provided along the upgraded alleys to improve safety and visibility\. Before the project, most villages did not have public lighting, which prevented villagers from safely traveling at night and there was frequent occurrence of injury from tripping or drowning\. The installation of streetlights and guardrails along rivers have greatly enhanced the sense of security for villagers, especially for women, the elderly, and children\. 35\. Access to improved water sources\. The project installed 256 km water supply pipeline (117 percent of the target of 219 set in 2016 and 106 percent of the revised target of 241), added 11,715 m3 of daily water supply (323 percent of the target of 1,141,500 tons per year set in 2016 and 115 percent of revised target of 10,226 m3 per day, see footnote 31 for conversion), and provided 35,622 people with metered water supply connections (125 percent of the target of 28,530 set in 2016 and 111 percent of Page 14 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) revised target of 32,011)\. The coverage of tap water supply increased by 16 percent, from 82 percent before the project to 98 percent in 2019 (slightly higher than 96 percent in the non-project villages)\. Before the project, in villages that did not have tap water, villagers had to use self-built mountain spring supply facilities or manual wells, which lacked quality water treatment equipment\. Some wells were polluted due to contamination of groundwater from infiltration of pit latrines, posing health risks\. As a result, some villagers had to either buy bottled water or travel two to three miles for mountain spring water\. Water supply from the original sources failed to meet increasing demand, especially during the peak tourist season\. The project provided safe and reliable piped water supply either from mountain springs or town water supply plants with appropriate treatment technologies\. As a result, villagers now have 24/7 access to higher pressure and better-quality water\. Women and the elderly, who often head households in the absence of young adults working in cities, now have access to tap water, reducing the time and effort involved in fetching water and freeing up time for engaging in home-based business or other economic opportunities\. 36\. Access to improved sanitation\. The project added 1,921 m3 of daily wastewater treatment (188 percent of the target of 322,500 tons per year set in 2016 and 115 percent of revised target of 1,663 m3 per day) and provided 24,286 people with connection to sewage system (125 percent of the target of 19,450 set in 2016 and 115 percent of the revised target of 21,000)\. The coverage of centralized wastewater treatment increased from 11 percent before the project to 46 percent in 2019 (almost three times the rate of 16 percent in the non-project villages)\. Before the project, domestic sewage in some villages was directly discharged into rivers, causing pollution; the widespread use of pit latrines resulted in pollution of wells, an important source of drinking water then\. The project greatly improved the quality of the overall environment in the villages and their sanitation by constructing low-cost and low-impact wastewater treatment and disposal facilities and collection networks, removing pit latrines (villagers replaced them with water-flush toilets), and constructing public toilets for tourists\. The project also provided some villages with equipment for solid waste collection and sorting\. Because 51 of the 68 project villages are located upstream of a strategic water source for Eastern China (Qiandao Lake), the improved sanitation status of the villages contributed to better water quality in the wider region\. 37\. Access to improved drainage and flood control\. The project provided 4,198 ha of land with improved irrigation and drainage services (103 percent of the original target of 4,065 and 101 percent of the revised target of 4,151)\. Before the project, due to clogging of rivers by garbage, lack of a drainage system, and poor river bank protection, some villages (for example, Shuxi Village and Yongfeng Village in Huangshan District) were flooded twice a year for up to three months, and houses were often submerged by more than 1 m during the rainy season\. As most of the rivers near the project villages are small, they had not been maintained by the national government, resulting in siltation and riverbank erosion, leading to human and livestock accidents\. The project financed the construction of drainage systems, river revetment, and dredging of river and ponds, greatly increasing the villages’ resilience to flooding, reducing riverbank erosion and riverbed siltation, and enhancing safety\. The construction of irrigation channels mitigated the impacts of floods and droughts and contributed to increasing agricultural harvests\. In recent years, there have been several heavy rain seasons in the project area, but no major flooding occurred in the project-supported villages\. 38\. Access to public spaces\. Although not measured by the RF, the project also financed the construction of public spaces, such as 39 public squares with fitness equipment, playgrounds, and parking, for the public to exercise, socialize, and participate in community events\. Page 15 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) 39\. Improved quality of services for tourism\. Before the project, the local tourism sector was underdeveloped due to lack of connectivity of the villages with regional road network, insufficient facilities to accommodate tourists, disrepair of cultural heritage sites, and low quality of tourism services\. The infrastructure investments financed by the project greatly improved these conditions: the project restored 58,062 m2 of historic buildings (124 percent of the original target of 46,788 and 100 percent of the revised target of 57,935), and it constructed 301 tourism facilities (172 percent of the original target of 175 and 140 percent of the revised target of 215), such as parking lots, public toilets, cultural squares, landscaping, and tourism reception centers\. The project also supported the villages to develop tourism plans and promotional materials, conduct research about protection of tangible and intangible cultural heritage, purchase equipment and organize festivals for traditional arts, establish/strengthen tourism associations, and train villagers in tourism service management\. The project introduced a new approach to preservation of tangible and intangible cultural heritage, such as integration of restoration and adaptive reuse of historic buildings, and many of the previously dilapidated and idle buildings were put into new use (for example, as community places, museums, and tourist facilities) after their renovation (see annex 8)\. Three provincial historic buildings were upgraded to national cultural heritage sites after the project\. These activities contributed to a significant increase in the number of tourists to the project villages\. From 2013 to 2019, the number of tourists in project villages increased by 78 percent (much higher than the growth rate of 44 percent in Huangshan Municipality as a whole), from 3\.03 million to 5\.4 million\. In the 30 project villages where cultural heritage conservation investments took place, the number of tourists reached 3\.754 million annually (104 percent of the target of 3\.61 million set in 2016 and 102 percent of the revised target of 3\.669 million)\. Some tourist attractions, such as Yangjiazhai in Shuxi Village of Huangshan District, experienced a fivefold increase in the number of tourists\. 10 Number of audiences attending exhibitions and performances increased to 54,284 (220 percent of the original target of 24,600 and 100 percent of the revised target of 54,000)\. Better infrastructure and services for tourism development with a focus on cultural heritage conservation has also increased the project-supported villages’ ability to more sustainably manage the exponential increase in domestic tourism that has occurred in the last decade, especially around the Yellow Mountain area\. 40\. Improved quality of services for agricultural industries\. The project financed the construction of access roads and irrigation channels, rehabilitation of small dams and construction of 11 agriculture markets, 29 agricultural production bases for indigenous products (for example, products used as traditional Chinese medicine, tea, and bamboo), one processing factory, three fresh-keeping warehouses, and two exhibition centers\. Consequently, the total area of production bases reached 684 ha (83 percent of the original target of 12,377 mu or 825 ha, 105 percent of the revised target of 649 ha) and benefited a total of 27,980 people\. The project also supported the operation of 19 agriculture associations and trained 4,831 farmers (105 percent of the target of 4,600), including 2,191 women (100 percent of the target of 2,180) in new agriculture technologies, including green and organic agriculture\. According to a 2019 survey of 79 small and micro enterprises that received support from the project, 11 99 percent of businesses were ‘very satisfied’ or ‘satisfied’ with the project, especially with aspects of improved infrastructure and the overall business environment\. 10 There were only 37,000 visitors visiting Yangjiazhai in 2013\. This number exceeded 180,000 in 2018 and reached 220,000 in 2019\. 11 These enterprises mainly engage in agricultural production and tourism\. Page 16 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) Outcome 2: Improve income-generating opportunities available to rural households in selected villages 41\. The project improved agricultural productivity, engaged farmers in higher value-added agriculture production, and promoted rural tourism to create new employment opportunities and diversify the sources of income for rural residents\. Overall, the project created 4,565 local jobs that resulted from investments in tourism and agriculture (114 percent of the target of 4,000 set in 2016 and 101 percent of the revised target of 4,550)\. In tourism, examples are jobs in transportation, hotel services, catering, cleaning, and other tourist services such as ticketing and public toilets\. In agriculture, the project generated jobs in production, processing, and trade\. In addition, 11,000 person-months of local labor were hired for small and medium-size construction activities financed by the project, generating total salary incomes of more than CNY 30 million (US$4\.2 million) for the local farmers\. Although not directly supported by the project, 178 new small and micro enterprises were established in the course of the project in response to the improved business environment, generating more than 1,900 new jobs\. The following paragraphs provide more information about the efficacy of the second outcome in each of the two sectors\. 42\. Improved income-generating opportunities in tourism\. The project financed the training of 1,409 people in traditional arts and craftsmanship (156 percent of the target of 900) and 2,401 villagers, including 1,361 women, in the provision of tourism services (100 percent of the target of 2,400 and 101 percent of the target of 1,350 women)\. The investments in tourism increased the number of employees in tourism by 240 percent, from 1,554 in 2013 to 5,295 in 2019\. 12 In some villages, owing to the increase in the number of tourists, tourism spots became a key source of employment and local revenue (see annex 7, box 7\.1)\. More than half of the people receiving tourism training were women and some of them decided to start their own farmhouse businesses using the knowledge and skills gained from the training (see annex 7, box 7\.2)\. These businesses increased their income significantly and allowed them to stay at home and take care of the elderly and children\. In Changxi Village in Changxi Township, Shexian County, there was only one guesthouse before the project, while ten were available in 2019\. Half of these farmhouses are operated by villagers who received training in tourism management\. 43\. Improved income-generating opportunities in agriculture\. Farmers’ income-generating opportunities improved in several ways: (a) The new agricultural production bases created 1,017 new permanent jobs and many more temporary jobs, providing additional income for the villagers\. Some of these jobs were offered to women and the elderly who could not afford to work elsewhere due to their family duties or physical conditions (see annex 7, box 7\.3); (b) The improved infrastructure and application of new technologies led to increased productivity and revenue (for example, revenue increased by CNY 200–300 or US$28–42 per 12Regarding the ‘number of enhanced economic opportunities-related jobs created in project villages’ by the project, there are two sources of data\. According to the socioeconomic study in 2019, the total number of jobs created was 4,758, including 3,741 tourism-related jobs and 1,017 agriculture-related jobs\. According to the project M&E report, the total number of jobs created was 4,565, including 3,750 tourism-related jobs and 815 agriculture-related jobs\. The borrower’s project completion report used the data from the socioeconomic study while the RF used data from the M&E report\. The discrepancy was due to different methods and time in data collection\. Page 17 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) kilo of tea)\. 13 As a result, these agricultural bases generated an additional annual revenue of CNY 16 million (US$2\.3 million) for the farmers and village collectives (see annex 7, box 7\.4)\. 44\. Long-term socioeconomic outcomes\. The project also generated positive long-term socioeconomic outcomes for the rural households in the project villages\. According to the local statistical data, the per capita net income of the project villages increased by CNY 7,330 (US$1,038), or 12\.4 percent annually, from CNY 9,852 (US$1,395) in 2013 to CNY 17,184 (US$2,434) in 2019\. This annual increase rate is higher than the 10\.5 percent annual growth rate of the 10 non-project comparison villages and significantly higher than the 8 percent annual growth rate of per capita rural income of Huangshan Municipality during the same period\. Owing to the faster increase in rural households disposable income compared to their urban counterparts, the rural-urban income gap in Huangshan Municipality became narrower from 2\.36 times in 2010 to 2\.18 times 14 in 2018, a gap that was smaller than the national average of 2\.69 times\. 15 Justification of Overall Efficacy Rating Rating: High 45\. The project fully achieved and exceeded its expected outcomes as measured by the three PDO indicators and their respective original and revised targets, and all 15 IRIs except for one\. At completion, the number of beneficiaries with improved infrastructure services in project villages reached 145,788, slightly exceeding the original target of 145,357 and the revised target of 145,400\. According to the beneficiary survey conducted in 2019, the villagers' overall satisfaction with infrastructure in their villages has increased significantly by 74\.8 percent from 4\.78 before the project to 8\.33 (on a scale of 0 to 10)\. At completion, the number of tourists visiting project villages that have implemented the cultural heritage conservation component of the project reached 3,754,000 annually, slightly exceeding the original target of 3,610,000 and revised target of 3,669,000, and the number of enhanced economic opportunities- related jobs created in project villages was 4,565, exceeding the original target of 4,000 and the revised target of 4,550\. In addition, the project generated positive long-term socioeconomic outcomes for the rural households in the project villages\. The per capita net income of the project villages increased 12\.4 percent annually from 2013 to 2019, higher than the increase rate of 10 non-project comparison villages and significantly higher than that of Huangshan Municipality\. Owing to the faster increase in rural households disposable income, the rural-urban income gap in Huangshan Municipality reduced from 2\.36 times in 2010 to 2\.18 times in 2018\. 46\. One original PDO indicator and three original IRIs were dropped\. As these results were neither directly relevant to the PDO nor were captured in other IRIs, they were not considered in the efficacy 13 According to the socioeconomic study in 2019, these projects all generated substantial economic benefits, with an internal rate of return of between 20 percent and 30 percent based on an operation period of ten years\. 14 In Huangshan Municipality, the average per capita disposable income was CNY 15,834 (US$2,243) for urban residents and CNY 6,716 (US$951) for rural residents in 2010, and CNY 33,551(US$4,752) for urban residents and CNY 15,391 (US$2,180) for rural residents in 2018\. 15 In China, the average per capita disposable income was CNY 39,251(US$5,560) for urban residents and CNY 14,617 (US$2,070) for rural residents in 2018\. Page 18 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) rating\. As the PDO remained unchanged and its scope was expanded (see para\. 23, 27, 50, 51), a split rating is not applied in this Implementation Completion and Results Report (ICR)\. 16 C\. EFFICIENCY Assessment of Efficiency and Rating Rating: Substantial 47\. Economic analysis\. At appraisal, an economic analysis was conducted for project investments under Components 1, 2, and 3, including cost effectiveness analysis for infrastructural investments, and cost-benefit analysis for irrigation, agriculture, and tourism activities\. The economic benefits were assumed to consist of (a) reduced journey times and vehicle operating costs on access roads; (b) increased agricultural production due to flood mitigation, irrigation, and improved production technology; (c) increased value of agriculture production, including through improved access to agricultural land; (d) increased value of agriculture products due to improved production technology and certification; (e) reduced losses in agriculture product processing and marketing; and (f) increase in the number of tourists and in the output of sale of goods and services in the tourism sector; as well as other intangible benefits\. The evaluation indicated that investments in infrastructure and water supply were cost effective; the economic internal rates of return (EIRRs) of investment in flood control, irrigation, special agricultural industry, and cultural heritage were estimated at about 27 percent, 18 percent, 24 percent, and 33 percent, respectively, that is, the investment in these activities was economically viable\. 48\. At completion, economic analysis was performed to assess the economic viability of the project based on actual costs, number of beneficiaries, and a broader set of estimated benefits, using approaches similar to the ones used at appraisal\. The updated economic analysis confirms that investments in roads, water supply, wastewater treatment, and other infrastructure were cost effective: the investment unit cost in the project was about 75–90 percent of similar projects in China, while the quality of the project was considered higher than other projects based on beneficiary feedback from the socioeconomic study\. Investments in flood control, irrigation, the special agricultural industry, tourism, and cultural heritage were economically viable with the EIRR higher than the discount rate of 12 percent, in the range of 16 percent to 30 percent (see annex 4), which are in line with the EIRRs at appraisal\. 49\. Financial analysis\. No financial analysis was conducted at appraisal\. The main revenue-generating services in which the project invested were water supply and wastewater treatment, and these investments represented 9 percent of the project’s cost\. At completion, it was not feasible to separate O&M costs for project items from the overall activities of utility companies\. Nevertheless, data collected from water treatment plants (WTPs) showed that most of the WTPs that supplied water to the project villages were small-scale township-level WTPs, and because the development of the economy and production in the project villages had increased local and tourist consumption, water fees collected were adequate for regular O&M\. The daily O&M for wastewater treatment facilities (WWTFs) costs CNY 5,000- 10,000 (US$708–US$1,416) per year and is paid by villages collectively\. As shown in annex 7, box 7\.4, 16According to the World Bank ICR Guidelines issued on March 2, 2020, para\. 60, in the case that “scope of the project expanded\. If the project became overall more ambitious, generally a split rating is not applied regardless of whether project funding increased (say through Additional Financing), decreased (say through cancellation), or remained the same – unless good reasons can be presented as to why a split rating makes sense in a specific case\. Generally, the operation can be assessed on the basis of the more ambitious revised outcomes and outcome targets\.” Page 19 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) through leasing out tourism, agriculture facilities, or other village collective properties, and conducting agriculture production, annual revenues of some project villages increased by CNY 100,000–300,000 (US$14,164–US$42,493)\. In addition, the district and county governments subsidize each project village by CNY 50,000 (US$7,082) per year through O&M funds\. This shows that the costs of O&M are affordable to the villages\. The fees that need to be collected from villagers for the constructed infrastructure are relatively small, mainly water tariff\. Interviews with beneficiaries suggested that the current water tariffs were affordable\. With an average water tariff of CNY 1\.5 (US$0\.2) per m3, water consumption takes up about 0\.5 percent of the average household income\. This was substantially lower than the affordability limit of 5 percent normally used by the World Bank in its assessments\. 50\. Efficiency of implementation\. The project was extended by one year, mainly because of delays in construction works due to extreme weather events in 2018 and implementation delays in the first half of the project\. During the extended project lifetime, the scope of outcomes was expanded beyond the original targets by using substantial savings from procurement (final bid prices were about 27 percent less than estimated costs based on Chinese cost norms) and changes in currency exchange rate\. As a result, all but one original target was exceeded at closing (that is, set at appraisal or in 2016 for added indicators), and all revised targets were exceeded as well\. Even with the extension, project management costs at closing were still substantially lower compared to the plan (see annex 3)\. Project implementation encountered difficulties in the first three years, but these were overcome in the latter part of the project (see para\. 62, 63, 64 and 65), which resulted in implementation being accelerated, targets exceeded, cost savings well utilized, and project management costs lower than planned\. The one-year closing date extension is less than the average closing date extension in the current China portfolio (18 months)\. Therefore, on balance, the shortcomings on implementation efficiency did not have a significant detrimental impact\. D\. JUSTIFICATION OF OVERALL OUTCOME RATING Rating: Satisfactory 51\. The relevance of the PDO was High at closing, as was the efficacy in achieving the PDO\. The efficiency was Substantial despite the factors that affected implementation efficiency, as discussed above\. In particular, the 12-month extension of the closing date allowed for net efficiency gains because project cost savings were used during this time to expand the scale of results\. Overall, the project exceeded original expectations and the restructurings facilitated the achievement of project outcomes because they increased the scope of relevant activities, removed activities which were less relevant to the outcomes or had a lower chance of success due to low demand, and improved the ability of the project to link activities to outcomes\. However, given the history of the early implementation years, it cannot be stated that there were no shortcomings at all in the operation’s achievement of its objectives, in its efficiency, or in its relevance (per the definition of Highly Satisfactory Overall Outcome in the World Bank ICR Guidelines), the overall outcome was therefore assessed as Satisfactory\. E\. OTHER OUTCOMES AND IMPACTS 52\. Gender\. There was no specific gender-targeted activities in the original project design, but the participatory approach of the project ensured equal rights for both men and women to participate in project activities and provided equal opportunities for men and women to access and benefit from services supported by the project\. Further, women’s expectations from the project, as identified by a Page 20 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) gender-disaggregated analysis conducted during project preparation, were incorporated in the designs of investments\. During implementation, women participated in construction supervision groups and 44 percent of trainees were women\. About 49 percent of the direct beneficiaries were women, benefiting from infrastructure improvement and economic opportunities brought by the project\. Before the project, women in these villages rarely went out of the mountains, mainly because of the poor and unsafe road conditions\. The project improved connectivity to some isolated villages and made it more convenient for women to go out to work or do business\. Women who could not go out to work because of household responsibilities were hired for construction activities and were employed either permanently or temporarily in tourism and agricultural production\. Some started new businesses or expanded their existing businesses, which increased their income (see annex 7, box 7\.2, and box 7\.3)\. 53\. Institutional strengthening\. This was the first World Bank-financed project implemented by the PMO of Huangshan Municipal Development and Reform Commission (MDRC), the PMUs at the county/district level, and the PIUs at the township/village level\. Therefore, when the project started, most PMUs and PIUs showcased very low technical and managerial capacities\. The project strengthened their capacity mainly in three areas: (a) Project management\. After a slow start, training and hands-on support provided by the World Bank team as well as recruitment of consultants, greatly improved the capacity and performance of project management staff as demonstrated in the gradual improvement of project management ratings in the World Bank Implementation Status and Results Reports (ISRs) since 2017\. Most of the staff were retained to implement the Asian Development Bank-financed Xin’an River Basin Ecological Protection and Green Development Project (approved in November 2019) owing to their improved skills\. (b) Asset management\. The project ensured that proper institutional and funding arrangements for O&M were put in place to improve the sustainability of project investments\. Most of the infrastructure constructed by the project is managed and used at the village level which often lacks technical and managerial capacity\. The project developed technical guidelines for construction and O&M of the different infrastructure (for example, sewage, sludge disposal, water supply, roads, bridges, squares, and small water conservancy facilities), and held trainings for township and village-level management units on O&M\. Huangshan MDRC together with district and county governments formulated special provisions to specify the organization, personnel, and funds for O&M of the different types of public assets; each village was required to formulate their ‘Infrastructure O&M Plan’ and have dedicated personnel for O&M\. It was agreed that the O&M cost of village-level infrastructure will mainly come from the operating income of the village collectives, and the township government will also provide supplementary funds\. (c) Participatory approach\. The project enhanced the capacities of the local governments and villages’ leadership to plan and implement infrastructure investments with clearly defined roles for the various village organizations and a participatory process of engaging with communities\. This contributed to a highly satisfactory rating in the beneficiary survey (see paragraph 44)\. As the project progressed and the participatory process was shown to be effective, the local governments began to consider the local communities as partners in development instead of passive recipients of support\. Page 21 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) 54\. Improved community participation\. One key principle of the project was community participation\. During project preparation, the construction plan in each village was widely consulted and villagers were encouraged to contribute ideas and suggestions, and where possible, such feedback was reflected in the project design and implementation\. Selection of village-level investments was decided jointly by the villagers in public meetings\. Villagers learned how to participate in the project and that experience was carried on to the implementation stage of the project, such as participating in monitoring of construction and completion acceptance, which contributed to improving the quality of construction\. After project completion, each village has hired full-time administrators to carry out daily operation, maintenance, and management of project assets\. The 27 agriculture and tourism associations supported under the project were actively engaged in disseminating project information, providing feedback, participating in construction supervision and O&M, and serving as liaisons between the community and the village collectives\. According to the survey in 2019, over 90 percent of the villagers in the project villages had ‘very clear’ and ‘clear’ knowledge about the project, and they gave a satisfaction rating of 8\.9 out of 10 for the project implementation process\. 55\. Mobilization of private capital\. The project created favorable market conditions and improved the business environment for private investments\. Owing to improved connectivity and infrastructure of villages and increased demand for tourism and agricultural production, 356 new small and micro enterprises were established between 2013 and 2018, generating more than 1,700 new jobs\. Among the 79 small and micro enterprises surveyed, the number of employees increased from 396 in 2013 to 1,084 in 2018 and the monthly income of employees increased from CNY 2,074 (US$294) to CNY 3,022 (US$428)\. The increase in number, employees, and output value of these small and micro enterprises (73 percent, 75 percent and 59 percent respectively) are all higher than those in the non-project comparison villages (50 percent, 43 percent, and 52 percent respectively) over the same period\. Villages were able to attract investments from private companies, such as in the case of Jiekou Village of Shexian County, where an investor plans to invest CNY 130 million (US$18\.4 million) to establish a training base for traditional Chinese medicine in this mountainous area\. 56\. Poverty reduction and shared prosperity\. Although poverty reduction was not explicitly part of the PDO, the project did contribute to improvement of incomes and livelihoods as shown in the efficacy section\. Before the project, the incidence of poverty in the 68 project villages was 3\.85 percent; this figure dropped to 2\.26 percent in 2019, representing a 42 percent reduction, showing better progress compared to the non-project comparison villages\. 17 Among the 145,788 people directly benefitting from the project, 4,902 (3 percent) were poor according to local standards\. Some of the poor were lifted out of poverty status (see annex 7, box 7\.5)\. Other Unintended Outcomes and Impacts 57\. Revitalization of villages\. Owing to increased economic opportunities that resulted from project investments, many young adults who used to work outside the project villages now chose to start businesses or find employment in their hometowns\. This revitalized the villages that used to be hollowed out as younger adults migrated out to find jobs in the city and left behind the old and the children\. In 17During the same time, the incidence of poverty in the non-project comparison villages dropped by 38 percent from 4\.10 percent to 2\.54 percent\. Page 22 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) Huaqiao Village in Xiuning County, for example, 85 percent of young people who worked outside the village before the project were able to find jobs in the village\. 58\. Project investments contributed to the Government’s preparedness for future disease outbreaks\. Although the project villages were not at the epicenter of the COVID-19 pandemic, project investments in water and sanitation are expected to be instrumental in preventing disease outbreaks and protecting human health during infectious disease outbreaks with fecal-oral transmission\. In addition, project investments in tourism and agriculture contributed to the post-COVID-19 economic recovery of the province and increased the villages’ overall economic resilience to future pandemics\. III\. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME A\. KEY FACTORS DURING PREPARATION 59\. Strategic alignment and government commitment\. The project was very well aligned with the Government’s national and local priorities at appraisal, which generated strong commitment from the HMG and its leadership team\. The HMG actively engaged in World Bank preparation missions, while the MDRC, the lead project implementing agency, mobilized resources and ensured line bureaus’ participation in the design and preparation of project activities\. The participating district/country/town governments and village organizations also demonstrated strong commitment and a high level of readiness for implementation and a number of retroactively financed packages for civil works and consultancies had already been commissioned before the project became effective\. 60\. Quality of the project design\. The project aimed to demonstrate new approaches to regional development that integrated multiple sectors\. Its design incorporated lessons from similar projects in China and elsewhere and from various studies\. 18 These included the value of integrating cultural heritage preservation with tourism and skills development, the importance of community participation throughout the project cycle, the adoption of least life-cycle cost and technically sound options for rural infrastructure, and the value in defining clear asset management and O&M arrangements from the outset and in minimizing resettlement impacts\. The selection process of participating villages was appropriate and effective, with well-defined criteria, full participation of stakeholders, and demand driven\.19 The PDO statement was realistic, and the project’s interventions supported its achievement\. The RF was overall well designed, however one original PDO indicator was considered not relevant and replaced by another, and another PDO indicator and some IRIs needed revision in their wording or baseline values during the restructuring in 2016\. The sub-grants for rehabilitating privately owned house façades were not well 18 These include the Ningbo New Countryside Development Project (P106956, 2010–16), the Chongqing Urban-Rural Integration Project (P086446, 2010–17), the Gansu Cultural and Natural Heritage Protection and Development Project (P091949, 2008- 2015), the Guizhou Cultural and Natural Heritage Protection and Development Project (P091950, 2009–17), the Shandong Confucius and Mencius Cultural Heritage Conservation Project (P120234, 2011–17), and the World Bank report on ‘Conserving the Past as a Foundation for the Future: China-World Bank Partnership on Cultural Heritage Conservation’ (Urban Development Series Knowledge Papers No\. 12, 2011)\. 19 Selection of villages were based on 20 considerations including buy-in and participation from villages, a balance of assessed needs and existing potentials (tourism, cultural, and so on) and adequate resources and institutional arrangement for meeting O&M needs\. Selection of investments was based on 56 criteria in 15 categories which emphasized alignment with national strategies and local plans, needs and support of beneficiaries, minimization of resettlement impacts, and technical soundness\. Page 23 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) designed, resulting in low interest of community members to participate; the amount was substantially reduced and an IRI associated with this activity was dropped during the 2016 restructuring\. 61\. Risk assessment and mitigation measures\. The overall risk rating at appraisal was assessed as Moderate, with capacity being the only Substantial risk\. The Substantial risk rating was explained by the lack of experience of the project implementing agencies in preparing and implementing World Bank- financed projects\. The design risk factor was rated Moderate given the large number and diverse nature of the planned investments\. Mitigation measures were built into the project design, including, among others, training PMO and PMU staff on World Bank policies and procedures; engaging experienced technical staff from line departments and expert teams to provide technical guidance, reviews, and approvals during project preparation and implementation; and designing cost-effective and technically sound interventions\. While the capacity risk was appropriately assessed as Substantial, the Moderate risk rating of the design appears to have been underestimated\. In particular, the risk associated with the cultural heritage conservation activities was not sufficiently assessed, including the availability of specialized expertise and complex government approval procedures for restoration of historic buildings\. B\. KEY FACTORS DURING IMPLEMENTATION 62\. Institutional and project management capacity\. The PMO and PMUs did not have experience with World Bank projects and their capacity, especially that of the PMUs at the county/district level and PIUs at the township/village level, to implement a complex multisectoral World Bank project that included large number of investments was relatively low\. Some PMUs lacked project management staff and technical expertise in engineering, agrobusiness, and cultural heritage conservation, and the mobilization of support consultants was delayed\. Several PMUs experienced frequent turnover of staff\. In addition, government procedures for the design approval of cultural heritage conservation activities and for acquiring collective land in national park areas were cumbersome and took longer than expected\. Consequently, the project was delayed in the first three years\. The change of the PMO director in 2015, which coincided with the handover of the World Bank’s task team leadership, also temporarily affected progress\. Performance improved, starting in 2017, as staff gained operational and technical experience and with the support of training and consultants\. The 2019 closing date extension provided the extra time needed to catch up on past delays and implement scaled-up activities\. 63\. Commitment, leadership, and coordination\. After the slow start, the HMG demonstrated its continued strong commitment and leadership by explicitly making project progress an integral part of the performance evaluation system of district/county leaders\. Provincial agencies extended technical support to the Huangshan MDRC, where the PMU was located\. This was particularly instrumental for a project that covered multiple sectors and several layers of jurisdictions\. Coupled with intensified support from the World Bank, performance improved greatly starting in early 2017\. 64\. Availability of counterpart funds\. Before the 2016 restructuring, some project counties had difficulty in providing the required counterpart funds for civil works due to the accumulated local government debt and slowdown of the Chinese economy\. This slowed down implementation and payment to contractors\. The 2016 increase in the World Bank disbursement percentage for works (from 86 percent to 100 percent) helped to release the fiscal pressure of the counties and accelerated project implementation\. Page 24 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) 65\. Utilization of loan savings and other unallocated funds\. The PMO forecasted in 2017 that there would be around US$17 million of funds available upon completion of all proposed activities as a result of procurement savings and dropping of some activities that had been financed by other sources\. 20 Loan savings continued to occur owing to successful bidding processes in 2017–18\. By end of 2018, there was a balance of US$30 million available in the project, mainly due to (a) change in currency exchange rate of Chinese yuan to US dollars (US dollar:Chinese yuan from 6\.12 at appraisal to 6\.90 in mid-2017) and (b) effective competitive bidding combining with an overestimation of costs 21 resulting in final bid prices being about 27 percent less than estimates on average\. It was agreed to use these funds to scale up some existing investments and finance additional complementary small-scale infrastructure and services\. The additional activities were identified quickly because they were included in the feasibility studies and had been evaluated during preparation in case additional resources became available\. The 2019 restructuring formalized these changes and implementation was quick thereafter, allowing an expansion of the project’s scope within the one-year extension\. IV\. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME A\. QUALITY OF MONITORING AND EVALUATION (M&E) Rating: Substantial M&E Design 66\. In general, the project’s Theory of Change established clear links between project activities, results, and the PDO\. The RF presented measurable indicators with clearly defined baselines and targets, which were in line with the M&E capacity of the client and the expected availability of data\. The RF also measured several results in a gender-disaggregated manner and more disaggregated targets were added in the 2016 restructuring\. However, several indicators were dropped or revised during the restructuring in 2016\. One PDO indicator ‘Value of agriculture production in project villages’ did not capture well the expected project outcome on improved income-generating opportunities and was replaced by a new PDO indicator ‘Number of enhanced economic opportunities related jobs created in project villages’ and another PDO indicator ‘Number of tourists visiting project villages’ was revised to ‘Number of tourists visiting project villages which have implemented the cultural heritage conservation component of the project’ to strengthen the link between the cultural heritage conservation component and project outcomes\. The IRI ‘Number of village houses changed with Hui-style façade’ was removed due to cancelation of sub-grants intended for rehabilitation of privately owned houses and another IRI ‘Number of idle historic buildings adaptively reused’ was dropped due to different interpretation of what is considered ‘adaptively reused’ between the World Bank team and the client\. In addition, targets of several indicators were overestimated at appraisal and were also revised in the restructuring\. The M&E system was comprehensive and included an MIS to track physical and financial progress, and a socioeconomic impact study and beneficiary survey were added in the 2019 restructuring\. It also put in place appropriate 20Project Restructuring Paper, 2019\. 21It is commonly seen in World Bank projects in China that cost estimates based on government-regulated cost norms are in general higher than market prices due to the tendency to reserve abundant contingency\. While it is difficult to quantify the impacts of the different factors, both the World Bank team and the client are of the opinion that the lowest cost bidding method (that is, contract is awarded to the lowest evaluated responsive bid) adopted in the project was a key factor contributing to the procurement savings\. Page 25 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) arrangements for data collection and reporting with information flowing from county/district PMUs to the municipal PMO for compiling, verification, and reporting on a semiannual basis to the World Bank\. M&E Implementation 67\. A good system was in place for M&E implementation\. An MIS was developed and used from the onset, integrating the functions of investment planning, project progress monitoring, contract management, withdrawal application and payment, capital budgeting, and financial management (FM)\. The PMO and each PMU had a dedicated officer in charge of M&E to monitor and collect data on indicators as planned, and their capacity to carry out M&E and the quality and timeliness of progress reports submitted to the World Bank were generally good\. After some delay, M&E consultants were mobilized to support the PMO and PMUs in conducting surveys and monitoring progress\. The consultants set up research groups in each of the project districts/counties to conduct onsite investigation, surveys, and interviews as planned, feeding important information to the MIS\. The PMO with support from the M&E consultants provided a thorough midterm progress report, with information on physical and financial progress and status of achieving the PDO-level and intermediate outcome-level indicator targets, contributing significantly to identifying the main issues for discussion during the midterm review (MTR)\. A comprehensive socioeconomic impact study and beneficiary survey were commissioned by the PMO and completed in 2018 (see annex 7)\. These data allowed a meaningful assessment of project outcomes and attribution for the ICR\. M&E Utilization 68\. Monthly reports were generated by the PMUs using the MIS to assess the physical, procurement, and financial progress in each village, rank its performance, and identify outstanding issues\. The monthly and semiannual M&E reports were used by the World Bank, PMO, and PMUs to track implementation progress on an ongoing basis and identify issues and potential risks, particularly those related to counterpart fund allocations, delays in site clearance, and any contract management issues\. These reports and the comprehensive midterm evaluation directly informed the two restructurings\. The PMO used the M&E reports to update the Project Leading Group on progress monthly and highlighted critical issues for its coordination and support\. This reporting was particularly useful in timely obtaining the GoC’s agreement to restructure the project\. Justification of Overall Rating of Quality of M&E 69\. The overall quality of project M&E was Substantial given the comprehensiveness of the M&E system’s design, the efforts taken by the client to collect, evaluate, and report on progress on time and with high quality, and the usefulness of M&E efforts in the identification of implementation issues and their resolution\. The RF weaknesses were timely corrected through the restructurings and therefore did not affect the overall M&E efforts\. B\. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE 70\. Environment safeguards\. The project was classified as Environmental Assessment Category B (Partial Assessment) and triggered five environmental safeguards policies: Environmental Assessment (OP/BP 4\.01), Natural Habitats (OP/BP 4\.04), Pest Management (OP 4\.09), Physical Cultural Resources Page 26 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) (OP/BP 4\.11), and Safety of Dams (OP/BP 4\.37)\. During project preparation, an Environmental Impact Assessment (EIA) was conducted and an Environmental Management Plan (EMP) was developed to manage the project-related environmental risks/impacts following the policy requirements\. 22 The EIA and EMP included Environmental Codes of Practices (ECOPs) for construction activities, a Pest Management Plan (PMP), and a Physical Cultural Resources (PCR) Management Plan, respectively, responding to the requirements of OP 4\.09 and OP/BP 4\.11\. A Dam Safety Action Plan was prepared as part of the Project Operational Manual to address dam safety issues\. The EIA and EMP were disclosed locally and in the World Bank’s InfoShop before project appraisal\. 23 71\. Environmental safeguards policies were complied with\. The environmental monitoring reports from the independent environmental monitoring consultant indicated that the project complied with the environmental safeguards policies, with ECOP and contract-specific mitigation measures incorporated into the tendering documents and contracts of civil works and well implemented\. Regular environmental monitoring did not find any noncompliance during construction, and there was no reporting of environmental complaints or occupational health and safety accidents throughout project implementation\. The effluent quality of 16 village-level WWTFs was regularly monitored as needed, and the measures specified in the EMP, PMP, PCR, and Dam Safety Action Plan were satisfactorily implemented\. Beyond safeguards, project activities such as soil improvement, restricted use of chemical fertilizers and pesticide, and reduced discharge of untreated wastewater, contributed to environmental improvements in the project areas\. 72\. Social safeguards\. Social safeguards policies were complied with\. Because the project involved land acquisition in all seven counties/districts, the client prepared a Resettlement Policy Framework (RPF) for the entire project and Resettlement Action Plans (RAPs) for the counties/districts\. 24 The RPF and RAPs were disclosed locally and in the World Bank InfoShop before project appraisal\. 25 The resettlement activities were carried out consistent with the RPF and RAPs as confirmed by the independent social monitoring reports, and legal land entitlements that were identified at appraisal were strictly followed\. 26 Various measures were undertaken to minimize resettlement impacts, such as the innovative land exchange schemes implemented in several villages\. 27 Consequently, although the project supported a large number of facility improvements, only 22 ha of farmland were acquired at closing and there was no physical relocation of affected persons\. The 1,914 affected persons were compensated as required\. 73\. Grievance redress mechanisms were established as planned in each county/district, within the PMUs, and at village committees to respond to concerns or complaints\. The social monitoring reports by the independent social monitoring consultants showed that the resettlement agencies at the city, district/county, and township levels did not receive complaints about land acquisition and resettlement\. 22 Environmental Assessment Report No\. E4228\. 23 The Environmental Assessment and EMP and their revisions were locally disclosed for four rounds during December 2012– June 2013, and the English versions were disclosed at the World Bank’s InfoShop in June/July 2013\. 24 Resettlement Plan RP1415\. 25 The RPF and Resettlement Plan were publicly disclosed in the Huangshan Municipality and counties/districts on March 6, 2013, and in English in Washington, DC on May 30, 2013\. 26 Based on the Chinese Land Law 2004, village committees terminate land contracts with farmers (that is, acquire farmers’ land) if the contracted land is used for village public interests and farmers receive proper compensation\. 27 In Sanhe Village of Huangshan District, farmers were given reserved farmland owned by village collectives in exchange of their own farmland to facilitate the implementation of the Xiyi drinking water works\. Page 27 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) 74\. Procurement\. The World Bank procurement policies and procedures were followed in most transactions\. Procurement activities were conducted by the municipal PMO and the seven county/district PMUs, and their performance varied considerably\. In some cases, the unawareness of the relevant World Bank policies and tendency to adopt local practices resulted in noncompliance with requirements, and the PMO and PMUs took necessary remedial actions as suggested by the World Bank\. 75\. FM\. The World Bank FM policies and procedures were complied with\. The project’s FM arrangements, including FM staff, planning and budgeting, and internal control procedures were properly maintained throughout implementation\. The PMO and all the seven PMUs had adequate qualified FM staff with accounting and internal control systems in place\. A contract management system was properly maintained\. Interim unaudited financial reports were consolidated and regularly submitted to the World Bank with acceptable quality\. Project audit reports with unqualified (clean) opinions were submitted on time to the World Bank, and issues identified by the auditors were properly addressed by the PMO\. 76\. Legal covenants\. The legal covenants requiring the borrower to maintain a Technical Expert Group (TEG) at the municipal level to be responsible for advising the PMO and PMUs on technical and institutional matters relating to project implementation were partially complied with from project effectiveness to December 2018 28 and fully complied with since 2019 as reported in the ISRs\. C\. BANK PERFORMANCE Rating: Satisfactory Quality at Entry 77\. The World Bank task team took the project from Project Concept Note/identification to Board approval in 16 months, which is in line with the average processing time of projects in China\. The composition of the task team was appropriate for the design of the project, with operational and technical specialists with experience in rural development projects in China (see annex 2)\. The task team made sure to closely align the objectives of the project with the national agenda and the World Bank's CPS and incorporated lessons from other projects in China and international experiences in the project design\. The task team took the necessary steps to conduct social impact assessments and assessment on sustainability of water utilities and O&M arrangements\. The findings of these studies informed the technical designs, O&M plans, and social safeguards\. The project allocated sufficient funding for technical assistance activities, training, capacity building, and implementation support to the PMO and PMUs, and delivered trainings during project preparation on World Bank policies and requirements to address identified capacity risks\. However, the design of some indicators in the RF did not appear to be appropriate in measuring the expected project outcomes, and the design of the sub-grants on renovation of private house façade seemed inadequate in generating demand, and these were addressed during restructurings\. Quality of Supervision 78\. The World Bank undertook regular supervision with a total of 13 full implementation support missions (two per year on average) and many short technical missions in between, producing candid and 28The TEG was mobilized for four out of seven counties/districts by 2017, however mobilization of the TEG was delayed in the three remaining counties/districts\. Page 28 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) comprehensive mission reports and ISRs\. Although the task team leaders changed twice during project implementation, this did not appear to slow down project implementation as the co-task team leader and most team members were located in Beijing and were able to interact with the PMO and PMUs on a day- to-day basis\. The World Bank team’s composition was adequate to effectively support the client, and additional international expertise was mobilized to advise the team on rural development during the MTR in 2017\. Fiduciary, environmental, and social safeguards specialists consistently participated in the missions and carried out just-in-time technical missions as needed, and they diligently followed up on identified fiduciary/safeguard weaknesses and worked with the PMUs to resolve them\. The World Bank continuously organized hands-on training and experience-sharing workshops that significantly strengthened the PMO’s and PMUs’ technical and operational capacities\. 79\. In view of issues related to technical designs, institutional capacity and counterpart funding that slowed down initial project implementation, the World Bank team downgraded the project key performance ratings to Moderately Unsatisfactory in June 2016, and the overall risk rating was increased from Moderate to Substantial\. The World Bank team closely monitored and evaluated project risks and weaknesses and supported the client in mitigating them, including by timely processing the two restructurings\. Given the improved project management and implementation progress, the ratings were upgraded to Moderate Satisfactory in April 2017 right after the MTR, and eventually to Highly Satisfactory in June 2020 to reflect the full achievement of PDO\. 80\. The borrower’s project completion report assessed the World Bank’s overall support to the client as ‘Satisfactory’ especially in terms of timely communication, proactiveness in identifying and solving issues, professional technical advice, and sharing management experiences with the project management staff\. Justification of Overall Rating of Bank Performance Rating: Satisfactory 81\. The World Bank supported the client in designing a project that was relevant and technically sound, followed implementation progress closely to address institutional and technical challenges, and took proactive measures to ensure weaknesses and challenges were resolved timely\. Weaknesses at entry were addressed proactively through the restructurings\. D\. RISK TO DEVELOPMENT OUTCOME 82\. Key risks to the project’s development outcome are discussed in the following paragraphs\. 83\. Natural disaster and climate change\. Natural disasters such as flooding and landslides could have a detrimental impact on project assets\. Most project villages are located in mountainous areas that are susceptible to landslide and some villages also suffer from regular flooding\. The engineering design of project investments properly considered these potential natural disasters and climate change, and the investments in drainage, landslide protection, flood control, and soil conservation increase the resilience of project villages\. Investments in sanitation improvement and development of organic agriculture also reduced pollution and contributed to climate change mitigation\. Page 29 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) 84\. O&M\. Another potential risk is the sustainability of the institutional capacity involved in O&M of both the physical and intangible assets\. As discussed in the efficacy section, many village collectives saw their revenue increase substantially from land lease, agriculture production, tourism, and other public assets, sufficient to cover the O&M needs\. However, given the diverse economic profile of the project villages, there is a risk that some villages may not have the fiscal and technical capacity to carry out proper O&M, 29 especially for the few centralized WWTFs that require a higher level of technical know-how in O&M and those infrastructure assets that do not generate user fees\. Villages may need to consider ways to raise O&M funds, such as through charging user fees from beneficiaries for the irrigation facilities\. The agriculture and tourism associations supported and trained under the project are expected to play an active role in O&M, but they may require policy support to sustain their role and operation beyond the project\. It is also uncertain if the local government will continue to carry out skills trainings (for example, in traditional arts, new agriculture technologies, and tourism services) to ensure the socioeconomic impacts generated by the project will sustain in the long run\. V\. LESSONS AND RECOMMENDATIONS 85\. Key lessons and recommendations are detailed in the following paragraphs\. 86\. Integrating ‘hard’ infrastructure with ‘soft’ skill building and economic promotion helps to maximize socioeconomic impacts\. Before the project, government-funded rural development programs placed more emphasis on infrastructure development over human capital and institutional capacity, limiting beneficiaries’ access to economic opportunities to fully take advantage of the improved infrastructure\. The multifaceted approach introduced by the project that combined infrastructure improvement, development of tourism assets, including cultural heritage, and promotion of modern agriculture industries and skill building, proved to be effective in creating economic opportunities and nurturing entrepreneurship while improving communities’ living conditions, contributing to the social, economic, and environmental sustainability of the villages\. This integrated approach is now endorsed in the Rural Revitalization Strategy put forward by the Chinese Government in 2018 and being adopted by many local governments’ rural development programs\. 87\. Proper institutional and funding arrangements for asset management are essential for the sustainability of investments\. Local authorities need to place a high priority on asset management, especially for public assets at the village level where capacity and resources are often a challenge\. This important issue was repeatedly highlighted to the local authorities throughout the project cycle\. During project preparation, technical assistance was provided to develop asset management manuals of different types of assets; the designs of investments such as selection of wastewater treatment/disposal technologies and restoration of historic buildings should consider the availability of the required technical expertise and costs during the O&M stage\. Before project closing, local authorities had to develop their respective asset management plans to ensure that the organizational, personnel, and funding arrangements for O&M of the different types of public assets are appropriate to the capacity and resources at the village level\. 29 Field work in 30 villages in 2019 found that only two village collectives did not have a reliable income while the other 28 villages already had stable and reliable source of collective income\. Page 30 of 72  The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) 88\. An adaptive approach to selection of investments proves to work better under the rapid rural development context in China\. In anticipation of unforeseen circumstances that may arise during project implementation, the project feasibility studies and relevant safeguards documents tried to cover all necessary investments identified in the project villages, including reserved items that were not included in the project initially\. This greatly facilitated the process of identifying and appraising additional activities to utilize the loan savings during project implementation as these investments were already included in the feasibility studies and appraised during the project preparation\. 89\. Having an easily accessible and integrated MIS streamlines data collection and reporting and improves efficiency in project management\. As the project was implemented by one PMO, seven PMUs, and 68 PIUs, having an MIS with easily accessible and integrated information on physical progress, contract management, and FM greatly facilitated project monitoring, reporting, information sharing, and communication among different implementation agencies\. This saved project management costs and improved implementation efficiency\. Villages were ranked in the MIS and results were shared monthly among all implementing agencies, generating incentives to improve their performance\. The efficiency of the MIS was well recognized by the relevant government agencies who intended to adopt a similar system in other projects\. 90\. The trade-off between maximizing the demonstration effect of a project and increasing its geographic coverage should be carefully considered\. The project supported a large number of villages (68) primarily to meet the local government’s objective of ensuring equitable development of as many people as possible\. This could have hampered the scale of interventions in each village and the demonstration effect of its integrated model\. A good balance was reached through a careful village selection process, making sure that the selected villages were located along major tourist routes and well connected with the regional economy for maximum impact\. However, monitoring and supervising the numerous scattered investments still resulted in relatively high efforts for both the client and the World Bank, especially considering the relatively low institutional capacity at the lower administrative level\. For future projects that cover a wide geographic area with a large number of small-scale investments, a more flexible, results-based approach may be considered to reduce the transaction costs and achieve similar objectives\. \. Page 31 of 72  The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) ANNEX 1\. RESULTS FRAMEWORK AND KEY OUTPUTS A\. RESULTS INDICATORS A\.1 PDO Indicators Objective/Outcome: Improve the quality of services available to rural households in selected villages Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Indicator One: Number of Number 0\.00 145357\.00 145400\.00 145788\.00 beneficiaries with access to improved infrastructure 30-Dec-2013 30-Jun-2019 26-Jun-2019 25-Jun-2020 services in project villages Indicator one (i): Number of Number 0\.00 127131\.00 127131\.00 136566\.00 beneficiaries with access to an all season road within 500m range Indicator one (ii): Number Number 0\.00 28530\.00 32011\.00 35622\.00 of beneficiaries with access to improved water sources\. Indicator one (iii): Number Number 0\.00 19450\.00 21000\.00 24286\.00 of beneficiaries with access to improved sanitation\. Page 32 of 72  The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) Indicator One: (0) Number Number 0\.00 61023\.00 66972\.00 71609\.00 of beneficiaries with access to improved infrastructure services in project villages of which women Comments (achievements against targets): The result has been achieved by 100\.2% compared to the final target\. This is an original indicator of PAD\. The result is in line with the PDO to improve the quality of services to rural households in selected villages\. This was achieved by financing in upgrading infrastructure services, including roads, drains, sewers, water supply, street lighting, river revetment, and wastewater treatment facilities\. Objective/Outcome: Improve income generating opportunities available to rural households in selected villages Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Indicator Two: Number of Number 2580\.00 10013\.00 3669\.00 3754\.00 Tourists visiting project (Thousand) villages which have implemented the cultural 30-Dec-2013 30-Jun-2019 26-Jun-2019 25-Jun-2020 heritage conservation component of the project\. ('000) Comments (achievements against targets): The result has been achieved by 102% compared to the final target\. This is an original indicator of PAD, but the final target was revised in the first and second restructuring\. The result is in line with the PDO to improve the income-generating opportunities available to rural households in selected villages\. Page 33 of 72  The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) This was achieved by financing in restoring and preserving the existing cultural heritage assets, including restoring historic buildings and improving tourism facilities\. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Indicator three: Number of Number 0\.00 4000\.00 4550\.00 4565\.00 enhanced economic opportunities related jobs 30-Dec-2013 30-Jun-2019 26-Jun-2019 25-Jun-2020 created Comments (achievements against targets): The result has been achieved by 100\.3% compared to the final target\. This is a newly added indicator in the first restructuring\. The result is in line with the PDO to improve income-generating opportunities available to rural households in selected villages\. This was achieved by financing in supporting agricultural associations and tourist associations, training farmers in new agricultural technologies, training in traditional arts and techniques, training in tourism services\. A\.2 Intermediate Results Indicators Component: Component 1 Infrastructure Improvement Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion IOI 1-1: Increased length of Kilometers 0\.00 308\.60 370\.00 426\.00 Page 34 of 72  The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) roads 30-Dec-2013 30-Jun-2019 26-Jun-2019 25-Jun-2020 constructed/rehabilitated under the project Comments (achievements against targets): The result has been achieved by 115% compared to the final target\. This is an original indicator of PAD\. The result is under the first component (infrastructure improvement) and in line with the PDO to improve the quality of services to rural households in selected villages\. This was achieved by financing in constructing and repairing roads in the project villages\. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion IOI 1-2: Length of water Kilometers 0\.00 219\.00 241\.00 256\.00 supply pipeline installed under the project\. 30-Dec-2013 30-Jun-2019 30-Jun-2019 25-Jun-2020 Comments (achievements against targets): The result has been achieved by 106% compared to the final target\. This is an indicator that was introduced in the first restructuring\. The result is in line with the PDO to improve the quality of services to rural households in selected villages\. This was achieved by financing in installing water supply pipeline in the project villages\. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion IOI 1-3 :Increased daily Cubic 0\.00 1141500\.00 10226\.00 11715\.00 production of quality water Meter(m3) Page 35 of 72  The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) supply under the project 30-Dec-2013 30-Jun-2019 30-Jun-2019 25-Jun-2020 Comments (achievements against targets): The result has been achieved by 115% compared to the final target\. This is an indicator that was introduced in the first restructuring\. The result is in line with the PDO to improve the quality of services to rural households in selected villages\. This was achieved by financing in improving the daily production of quality water supply in the project villages\. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion IOI 1-4: Increased daily Cubic 0\.00 322500\.00 1663\.00 1921\.00 capacity of wastewater Meter(m3) treatment and disposal facilities under the project 30-Dec-2013 30-Jun-2019 30-Jun-2019 25-Jun-2020 Comments (achievements against targets): The result has been achieved by 115% compared to the final target\. This is an indicator that was introduced in the first restructuring\. The result is in line with the PDO to improve the quality of services to rural households in selected villages\. This was achieved by financing in improving the daily capacity of wastewater treatment and disposal facilities\. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion IOI 1-5: Land area with Hectare(Ha) 0\.00 4065\.00 4151\.00 4198\.00 improved access to irrigation and flood control with 30-Dec-2013 30-Jun-2019 26-Jun-2019 25-Jun-2020 Page 36 of 72  The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) improved irrigation and drainage services Comments (achievements against targets): The result has been achieved by 101% compared to the final target\. This is an original indicator of PAD and the final target was revised to a higher value in the restructuring\. The result is in line with the PDO to improve the quality of services to rural households in selected villages\. This was achieved by financing in improving irrigationand drainage services in the project villages\. Component: Component 2 Cultural Heritage Conservation Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion IOI 2-1: Area of historic Square 0\.00 46788\.00 57935\.00 58062\.00 buildings restored Meter(m2) 30-Dec-2013 30-Jun-2019 26-Jun-2019 25-Jun-2020 Comments (achievements against targets): The result has been achieved by 100\.2% compared to the final target\. This is an original indicator of PAD and the final target was revised to a higher value in the restructuring\. The result is in line with the objectives to improve employment opportunities in tourism\. This was achieved by financing in restoring historic buildings in the project villages\. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Page 37 of 72  The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) IOI 2-2: Increase in number Number 0\.00 24600\.00 54000\.00 54284\.00 of audience attending exhibitions and performanes 30-Dec-2013 30-Jun-2019 26-Jun-2019 25-Jun-2020 Comments (achievements against targets): The result has been achieved by 100\.5% compared to the final target\. This is an original indicator of PAD and the final target was revised to a higher value in the restructuring\. The result is in line with the objectives to improve income-generating opportunities and employment opportunities in tourism\. This was achieved by financing in supporting exhibitions and performances in the project villages\. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion IOI 2-3: number of successors Number 0\.00 900\.00 900\.00 1409\.00 trained for traditional arts and techniques 30-Dec-2013 30-Jun-2019 26-Jun-2019 25-Jun-2020 Comments (achievements against targets): The result has been achieved by 156% compared to the final target\. This is an original indicator of PAD\. The result is in line with the objectives to improve employment opportunities in tourism\. This was achieved by financing in training in traditional arts and techniques\. Component: Component 3 Enhanced Economic Opportunities Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion IOI 3-1: Area of production Hectare(Ha) 0\.00 12377\.00 649\.00 684\.00 Page 38 of 72  The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) bases developed in project 30-Dec-2013 30-Jun-2019 26-Jun-2019 25-Jun-2020 villages Comments (achievements against targets): The result has been achieved by 105% compared to the final target\. This is an original indicator of PAD\. The result is in line with the objectives to improve the employment opportunities and economic values of agriculture products\. This was achieved by financing in developing production bases in the project villages\. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion IOI 3-2: Farmers trained in Number 0\.00 4600\.00 4600\.00 4831\.00 new agriculture technologies 30-Dec-2013 30-Jun-2019 26-Jun-2019 25-Jun-2020 IOI 3-2: (i) Farmers trained Number 0\.00 2180\.00 2180\.00 2191\.00 in new agriculture technologies of which 30-Dec-2013 30-Jun-2019 26-Jun-2019 25-Jun-2020 women Comments (achievements against targets): The result has been achieved by 105% compared to the final target\. This is an original indicator of PAD\. The result is in line with the objectives to improve the employment opportunities and economic values of agriculture products\. This was achieved by financing in training farmers in new agricultural technologies\. Indicator Name Unit of Measure Baseline Original Target Formally Revised Actual Achieved at Page 39 of 72  The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) Target Completion IOI 3-3: Rural residents Number 0\.00 2400\.00 2400\.00 2401\.00 trained in provision of tourism services 30-Dec-2013 30-Jun-2019 26-Jun-2019 25-Jun-2020 IOI 3-3: (i) Rural residents Number 0\.00 1350\.00 1350\.00 1361\.00 trained in provision of tourism services of which 30-Dec-2013 30-Jun-2019 26-Jun-2019 25-Jun-2020 women Comments (achievements against targets): The result has been achieved by 100% compared to the final target\. This is an original indicator of PAD\. The result is in line with the objectives to improve the employment opportunities and economic values of agriculture products\. This was achieved by financing training in tourism services\. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion IOI 3-4: Increase in number Number 0\.00 175\.00 215\.00 301\.00 of tourism facilities 30-Dec-2013 30-Jun-2019 26-Jun-2019 25-Jun-2020 Comments (achievements against targets): The result has been achieved by 140% compared to the final target\. This is an original indicator of PAD\. The result is in line with the objectives to improve the employment opportunities and economic values of agriculture products\. This was achieved by financing in improving tourism facilities\. Page 40 of 72  The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) Component: Component 4 Institutional Support Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion IOI 4-1: Staff from various Number 0\.00 2600\.00 2600\.00 2908\.00 line departments trained - men and women 30-Dec-2013 30-Jun-2019 26-Jun-2019 25-Jun-2020 IOI 4-1 (i): Staff from Number 0\.00 1080\.00 1080\.00 1119\.00 various line departments trained - of which women 30-Dec-2013 30-Jun-2019 26-Jun-2019 25-Jun-2020 Comments (achievements against targets): The result has been achieved by 118% compared to the final target\. This is an original indicator of PAD\. The result is in line with the objectives to support and develop the capacity of institutions to implement the project and to sustainably manage, operate, and maintain the outputs of investments\. This was achieved by financing in providing training sessions to staff from various line departments on cultural heritage conservation, tourism, agriculture industries, project management, and etc\. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion IOI 4-2: PMO and PIU Staff Number 0\.00 1500\.00 1500\.00 2110\.00 trained 30-Dec-2013 30-Jun-2019 26-Jun-2019 25-Jun-2020 Comments (achievements against targets): Page 41 of 72  The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) The result has been achieved by 140% compared to the final target\. This is an original indicator of PAD\. The result is in line with the objectives to support and develop the capacity of institutions to implement the project and to sustainably manage, operate, and maintain the outputs of investments\. This was achieved by financing in providing training sessions to staff from PMO and PIU staff on financial management, project construction management, and etc\. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion IOI 4-3: Number of units Number 0\.00 68\.00 68\.00 95\.00 trained in O&M 30-Dec-2013 30-Jun-2019 26-Jun-2019 25-Jun-2020 Comments (achievements against targets): The result has been achieved by 140% compared to the final target\. This is an original indicator of PAD\. The result is in line with the objectives to support and develop the capacity of institutions to implement the project and to sustainably manage, operate, and maintain the outputs of investments\. This was achieved by financing in providing training sessions on asset management and O&M\. Page 42 of 72  The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) B\. KEY OUTPUTS BY COMPONENT Objective/Outcome 1: Improve the quality of services available to rural households in selected villages Number of beneficiaries with access to improved infrastructure services in project villages, of which women Outcome Indicators • Number of beneficiaries with access to an all-season road within 500 m range • Number of beneficiaries with access to improved water sources • Number of beneficiaries with access to improved sanitation 1\. Increased length of roads constructed/rehabilitated under the project 2\. Length of water supply pipeline installed under the project 3\. Increased daily production of quality water supply under the project 4\. Increased daily capacity of wastewater treatment and disposal facilities under the project 5\. Land area with improved access to irrigation and flood control with improved irrigation and Intermediate Results Indicators drainage services 6\. PMO and PMU staff trained 7\. Number of units trained in O&M 8\. Area of historic buildings restored 9\. Increase in number of tourism facilities 10\. Area of production bases developed in project villages Component 1: Infrastructure Improvement 1\. 426 km of new or improved roads 2\. 256 km of new water supply pipeline 3\. 11,715 m3 of water supply constructed Key Outputs by Component (linked to the achievement of the 4\. 1,921 m3 of wastewater treatment and disposal facilities constructed Objective/Outcome 1) 5\. 4,198 ha of land with improved access to irrigation and flood control 6\. 136,566 people with access to an all-season road within a 500 m range 7\. 35,622 people with access to improved water sources 8\. 24,286 people with access to improved sanitation Page 43 of 72  The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) Component 2: Cultural Heritage Conservation 1\. 58,062 m2 of historic buildings restored Component 3: Enhanced Economic Opportunities 1\. 301 tourism facilities constructed 2\. 684 ha of production bases developed Component 4: Institutional Support 1\. 2,110 person-months of PMO and PMU staff trained 2\. 95 units of government departments trained in O&M of infrastructure assets built/improved by the project Objective/Outcome 2 Improve income generating opportunities available to rural households in selected villages 1\. Number of tourists visiting project villages Outcome Indicators 2\. Number of enhanced economic opportunities related jobs created 1\. Increase in number of audiences attending exhibitions and performances 2\. Number of successors trained for traditional arts and techniques Intermediate Results Indicators 3\. Farmers trained in new agriculture technologies, of which women 4\. Rural residents trained in provision of tourism services, of which women 5\. Staff from various line departments trained Component 2: Cultural Heritage Conservation 1\. 1,409 person-time successors trained on traditional arts and techniques Component 3: Enhanced Economic Opportunities 1\. 4,831 person-months of farmers trained in new agriculture technologies (including 2,191 Key Outputs by Component person-months of women) (linked to the achievement of the 2\. 2,401 person-months of rural residents trained in provision of tourism services (including Objective/Outcome 2) 1,361 person-months of women) Component 4: Institutional Support 1\. 2,908 person-months (men) and 1,119 person-months (women) of staff from line departments trained on cultural heritage conservation, tourism, and agriculture industries Page 44 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) C\. ACHIEVEMENT OF PDO INDICATORS AND IRIS Revised Revised Percent of Percent of Baseline Original Actual Indicators Target Target Original Target Revised Target Value Target Completed (2016) (2019) Achieved Achieved PDO Indicators\. Outcome 1: Improved the quality of services available to rural households in selected villages\. P1 Number of beneficiaries with access to improved infrastructure services in 145,357 127,131 145,400 145,788 100\.3 100\.3 project villages 0 Of which women n\.a\. 61,023 66,972 71,609 n\.a\. 107 P1\.1 Number of beneficiaries with access to 0 n\.a\. 127,131 127,131 136,566 n\.a\. 107 an all-season road within 500 m range P1\.2 Number of beneficiaries with access to 0 n\.a\. 28,530 32,011 35,622 n\.a\. 111 improved water sources P1\.3 Number of beneficiaries with access to 0 n\.a\. 19,450 21,000 24,286 n\.a\. 115 improved sanitation PDO Indicators\. Outcome 2: Improve income generating opportunities available to rural households in selected villages P2 Number of tourists visiting project villages which have implemented the 3,806 10,013 3,610 3,669 3,754 104 102 cultural heritage conservation (2,580) component of the project (000) 30 Original Value of agriculture production in 72,167 88,633 n\.a\. n\.a\. n\.a\. n\.a\. n\.a\. P3 project villages (CNY 10,000) P3 Number of enhanced economic 0 n\.a\. 4,000 4,550 4,565 n\.a\. 101 opportunities related jobs created IRIs\. Outcome 1: Improve the quality of services available to rural households in selected villages I\.1\.1 Increased length of roads 0 308\.6 309 370 426 138 115 30This indicator’s definition was changed in 2016 from ‘number of tourists visiting project villages’ to focus only on the project villages that have implemented the cultural heritage conservation component, resulting in change in baseline and targets\. The target set in 2016 is considered the original target when compared with the actual achieved\. Page 45 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) Revised Revised Percent of Percent of Baseline Original Actual Indicators Target Target Original Target Revised Target Value Target Completed (2016) (2019) Achieved Achieved constructed/rehabilitated under the project villages(km) Original Number of beneficiaries with access to I\.1\.2 improved water sources in project 94,670 123,200 n\.a\. n\.a\. n\.a\. n\.a\. n\.a\. villages 1\.1\.2 Length of water supply pipeline 0 n\.a\. 219 241 256 n\.a\. 106 installed under the project (km) Original Number of beneficiaries with access to 9,700 29,150 n\.a\. n\.a\. n\.a\. n\.a\. n\.a\. I\.1\.3 improved sanitation in project villages 1\.1\.3 Increased daily production of quality 1,141,500 water supply under the project (cubic 0 n\.a\. (tons per 10,226 (m3) 11,715 (m3) 323 115 meter) 31 year) 1\.1\.4 Increased daily capacity of wastewater 322,500 1,663 1,921 treatment and disposal facilities under 0 n\.a\. (tons per 188 115 (m3) (m3) the project (cubic meter) year) I\.1\.5 Land area with improved access to irrigation and flood control with 0 4,065 4,065 4,151 4,198 103 101 improved irrigation and drainage services (ha) Original Improved flood protection 0 843,506 n\.a\. n\.a\. n\.a\. n\.a\. n\.a\. I\.1\.5 construction (m2) IRIs\. Outcome 2: Improve income generating opportunities available to rural households in selected villages I\.2\.1 Area of historic buildings restored (m2) 0 46,788 41,560 57,935 58,062 124 100 Original Number of idle historic buildings 0 96 n\.a\. n\.a\. n\.a\. n\.a\. n\.a\. I\.2\.2 adaptively reused 31 For both 1\.1\.3 and 1\.1\.4 added in 2016, unit of measure was adjusted from ton per year to m3 per day (1 m3 per day = 365 tons per year) in 2019\. Page 46 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) Revised Revised Percent of Percent of Baseline Original Actual Indicators Target Target Original Target Revised Target Value Target Completed (2016) (2019) Achieved Achieved I\.2\.3 Increase in number of audience attending exhibitions and 0 24,600 54,000 54,000 54,284 220 100 performances I\.2\.4 Number of successors trained for traditional arts and techniques 0 900 900 900 1,409 156 156 (Person-time) I\.3\.1 Area of production bases developed in 12,377 0 602 649 684 83 105 project villages (ha) 32 mu I\.3\.2 Farmers trained in new agriculture 4,600 4,600 4,600 4,831 105 105 technologies 0 of which women 2,180 2,180 2,180 2,191 100 100 I\.3\.3 Rural residents trained in provision of 2,400 2,400 2,400 2,401 100 100 tourism services 0 of which women 1,350 1,350 1,350 1,361 101 101 I\.3\.4 Increase in number of tourism 0 175 175 215 301 172 140 facilities Original Number of village houses changed 0 292 n\.a\. n\.a\. n\.a\. n\.a\. n\.a\. I\.3\.5 with Hui style façade I\.4\.1 Staff from various line departments 2,600 2,600 2,600 2,908 112 112 trained - Men and women (person 0 months) 1,080 1,080 1,080 1,119 104 104 I\.4\.2 PMO and PMU staff trained 0 1,500 1,500 1,500 2,110 140 140 I\.4\.3 Number of units trained in O&M 0 68 68 68 95 140 140 Note: P = PDO indicator, I = IRIs\. Indicators in red: removed during 2016 restructuring; indicators in green: newly added indicators during 2016 restructuring; indicators in purple: moved from 32 Unit of measure was adjusted from mu to hectare (1 ha = 15 mu) in 2016\. Page 47 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) IRIs to PDO indicators during 2016 restructuring, baselines of these two indicators were revised to 0 and targets modified to reflect the increase (that is, difference between original target and baseline at appraisal)\. Targets in red: reduced target values during 2016 restructuring; target in green: increased target values during 2019 restructuring\. Percentages in red: actual achieved < original or revised target; percentages in green: actual achieved > original or revised target\. Page 48 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) ANNEX 2\. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION A\. TASK TEAM MEMBERS Name Role Preparation Rabih H\. Karaky Task Team Leader, Senior Agricultural Economist Zheng Liu Procurement Specialist Yi Geng Financial Management Specialist Kingsley Robotham Regional Development Consultant Julian Abrams Local Development Consultant Ximing Zhang Dam Safety Specialist Zhefu Liu Social Specialist Feng Ji Environmental Specialist Eddie Humm Engineer Supervision/ICR Ahmed A\. R\. Eiweida, Minghe Tao Task Team Leaders Zheng Liu Procurement Specialist Haixia Li Financial Management Specialist Zhefu Liu Social Specialist Yan Zhang Procurement Assistant Xiaodan Huang Environmental Specialist Xiao Wu Institutional Strengthening and M&E Eddie Humm Engineer Mansha Chen ICR Author, Urban Specialist Page 49 of 72  The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) B\. STAFF TIME AND COST Staff Time and Cost Stage of Project Cycle No\. of staff weeks US$ (including travel and consultant costs) Preparation FY12 8\.750 32,468\.75 FY13 38\.725 196,933\.73 FY14 9\.058 54,316\.11 Total 56\.53 283,718\.59 Supervision/ICR FY14 8\.555 55,066\.04 FY15 18\.178 105,252\.52 FY16 13\.118 81,024\.27 FY17 17\.659 109,291\.38 FY18 18\.550 148,539\.71 FY19 23\.023 164,058\.80 FY20 15\.902 115,288\.72 Total 114\.99 778,521\.44 Page 50 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) ANNEX 3\. PROJECT COST BY COMPONENT Revised at Revised at Actual at Percentage Amount at Approval 2016 2019 Components Project Closing of Approval (US$, millions) Restructuring Restructuring (US$, millions) (%) (US$, millions) (US$, millions) Counterpart IBRD a IBRD CF IBRD CF IBRD CF Fund (CF)b Infrastructure 57\.28 9\.18 65\.33 5\.58 69\.27 2\.32 62\.95 11\.83 113 Improvement Cultural Heritage 18\.25 2\.47 14\.04 1\.20 17\.71 0\.60 13\.17 2\.41 75 Conservation Enhanced Economic 18\.92 2\.55 16\.59 1\.42 10\.26 0\.35 17\.40 3\.50 97 Opportunities Institutional 5\.29 0\.00 3\.79 0\.00 2\.51 0\.00 2\.81 0\.00 53 Support Subtotal 99\.75 13\.94 99\.75 7\.95 99\.75 3\.02 96\.33 17\.74c — Total 113\.94 107\.95 103\.02 114\.07 100 Note: a\. All IBRD figures exclude front-end fee of US$250,000\. b\. All CF figures of the four components exclude costs related to land acquisition and resettlements, O&M funds for built assets, project overheads and contingencies, unless otherwise stated\. c\. Including US$10\.9 million from contingencies\. Page 51 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) ANNEX 4\. EFFICIENCY ANALYSIS Introduction 1\. At appraisal, an economic analysis was conducted for project investments under Components 1, 2, and 3, including cost-effectiveness analysis for infrastructural investments and cost-benefit analysis for irrigation, agricultural, and tourism activities\. The economic benefits were assumed to consist of (a) reduced journey time and vehicle operating costs on access roads; (b) increased agricultural production due to flood mitigation, irrigation, and improved production technology; (c) increased value of agriculture production, including through improved access to agricultural land; (d) increased value of agriculture products due to improved production technology and certification; (e) reduced losses in agriculture product processing and marketing; and (f) increased number of tourists and output of sale of goods and services in the tourism sector, as well as other intangible benefits\. The evaluation indicated that investments in infrastructure and water supply were cost-effective; the economic rate of return of investment in flood control, irrigation, special agricultural industry, and cultural heritage were estimated at about 27 percent, 18 percent, 24 percent, and 33 percent, respectively, that is, the investment in these activities was economically viable\. 2\. At completion, economic analysis was performed to reassess the economic viability of the project based on actual costs, number of beneficiaries, and a broader set of estimated benefits, using similar approaches used at appraisal\. Methodology and Assumptions 3\. Due to the large number, small scale, and diverse types of investments that were scattered in 68 project villages, different approaches were used: (a) cost-effectiveness analysis was conducted for infrastructures such as rural roads, bridges, water supply, drainage, and wastewater with strong public welfare attributes, due to the wide range of benefits and many factors involved; (b) cost-benefit analysis was conducted for four types of investments, namely flood control, irrigation, tourism, and special agriculture, which generate economic benefits and can be easily measured by outputs; and (c) investments in cultural heritage protection in this project are expected to generate diverse benefits, not only contributing to economic income for tourism but also generating many intangible benefits\. 4\. It is also noted that only a ‘before-and-after’ approach was applied in the cost-benefit analysis, while the measurement of benefits against a ‘without-project’ counterfactual was not conducted\. Owing to nationwide implementation of various government-funded rural development programs, the overall economic and social situation has been substantially improved in the whole municipality and region; as a result, the ‘with-project’ and ‘without-project’ analysis was not conducted\. 5\. The economic analysis for the project followed the methodologies of the World Bank and Chinese standards and regulations\. Prices in costs and benefits were market prices without large deviation from its economic values, so shadow price and conversion coefficient were not used\. Economic costs and benefits were calculated based on the constant price level of 2014\. When available, retrospective data for variables at the sub-project level were utilized for the first five years (2014–19) and projected forward for the remaining ten years (2020–30)\. For other variables, data at the sub-project level were extrapolated using available data points\. The social discount rate is assumed to be 12 percent\. Page 52 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) Economic Benefits 6\. The main economic benefits derived from the cost-benefit analysis of the project include the following: (a) Flood control\. By comparing ‘before-project’ and ‘after-project’ scenarios, it is estimated that the flood control facilities constructed under this project helped avoid about 10 days of flooding each year and reduced the economic losses by CNY 400 (US$57) per mu\. Taking the O&M costs into account, the EIRR of investment in flood control is estimated to be about 22 percent over a benefit period of 10 years\. (b) Irrigation\. The irrigated arable land in the targeted villages is mainly used to grow rice, oilseed rape, soybean, corn, and so on, and some is used to grow economic crops, such as tea trees, to get higher returns\. Based on information collected from field interviews and taking O&M costs into account, the EIRR of investment in irrigation is estimated to be about 16 percent over a benefit period of 10 years\. (c) Tourism\. The project invested a total of CNY 122\.8 million (US$17\.4 million) in constructing tourism supporting facilities (CNY 56\.1 million or US$7\.9 million) and cultural heritage protection (CNY 66\.6 million or US$9\.4 million)\. By comparing ‘with-project’ and ‘without- project’ scenarios, the EIRR of investment in tourism is estimated to be 27 percent, and the economic net present value is estimated to be CNY 243\.8 million (US$34\.5 million)\. Due to difficulty of carrying out large-scale tourist surveys, ‘willingness to pay’ is not available to calculate consumer surplus\. (d) Special agriculture\. The project invested CNY 96\.7 million (US$13\.7 million) in constructing agricultural infrastructures, such as irrigation, drainage, and farm roads; special agriculture production bases (for example, traditional Chinese medicine, vegetables, aquatic products, tea, oilseed rape, flowers, fruit trees, seedlings, and Lei Bamboo); and agriculture product trading markets\. These investments improved the agricultural production and income of farmers\. The 28 production bases supported by the project benefited 26,080 people, created 1,017 new jobs, and increased the annual revenue by CNY 16 million (US$2\.3 million)\. An input and output analysis of some of these projects shows that significant economic benefits have been achieved, with EIRR ranging from 20 percent to 30 percent for a 10-year operating period (table 4\.1)\. 7\. Other economic benefits of the project include the following: (a) Roads\. The project invested CNY 356\.5 million (US$50\.5 million) in constructing 426 km of roads, including roads inside villages, roads connecting villages, and roads for production\. A total of 360,339 people directly or indirectly benefited from these roads, including 136,566 people living within 500 m of the roads\. Unit cost per km and unit cost per beneficiary in the project were about 93 percent and 76 percent of those in similar projects in China, respectively\. With the construction of the roads, travel efficiency has greatly improved\. Travel time by car between some villages has been shortened from one to two hours in the past to five to ten minutes nowadays\. Meanwhile, the improved connectivity also facilitated the development of tourism and special agriculture in the project villages\. Page 53 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) (b) Water supply\. The project invested CNY 35\.6 million (US$5\.0 million) in constructing 256 km of water supply pipes, adding water supply capacity of 1,715 m3 per day\. A total of 138,166 people directly or indirectly benefited from the water supply investments\. Unit cost per km and unit cost per beneficiary in the project were about 80 percent and 90 percent of those in similar projects in China, respectively\. The drinking water supply is directly connected to the village households, which solves drinking water safety issues for the rural residents\. (c) Wastewater collection and treatment\. The project invested CNY 26\.0 million (US$3\.7 million) in constructing 16 WWTFs and 108 km of drainage and sewage pipes\. With these investments, sewage is no longer discharged directly into water bodies, contributing to a healthier environment and protection of water resources\. The living environment of rural residents was greatly improved, which also promoted the local rural economy\. 8\. The updated economic analysis confirms that investments in roads, water supply, wastewater treatment, and other infrastructure were cost effective: investment unit cost in the project was about 75– 90 percent of similar projects in China, while the quality of the project was considered higher than other projects based on beneficiaries’ feedback from the socioeconomic study\. Investments in flood control, irrigation, special agricultural industry, tourism, and cultural heritage are economically viable with the EIRR higher than the discount rate of 12 percent, in the range of 16 percent to 30 percent, generally consistent with the estimate at appraisal\. Page 54 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) Table 4\.1\. Economic Benefits of Selected Special Agricultural Investments Investment amount Projects Description Direct Benefits Indirect Benefits EIRR (%) (CNY 10,000 ) Ginkgo 45 mu of 282\.47 With the support of the project, 50 mu of The business is operated by Zhejiang 30\.67 Greenhouse greenhouse greenhouses is constructed\. Cultivate small sweet Xiaoxiangshu Co\., Ltd\., which employs 40 Characteristic and 310 mu potato seedlings and plant small sweet potatoes on local villagers on a daily basis, with a wage Agriculture of base a 310 mu planting base\. Small sweet potatoes are of CNY 100 per day\. It brings about CNY harvested in two seasons each year, 3,500–4,000 jin 800,000 labor income for local villagers (a unit of weight = 0\.5 kg) of small sweet potatoes every year\. are harvested per mu per season, at a price of CNY 2 per jin\. Compared with similar local products, the profit increased by CNY 0\.5 per jin\. Sanhe Village 50 mu of 100 With the support of the project, Sanhe Village It recruits 200 people in the 15-day tea 25\.16 Tea Garden base and reclaimed idle land to build 15 mu of Taiping picking season each year, and the ratio of 230 mu of Houkui Garden, promoted 35 mu of new varieties, male to female workers is 9:1\. The daily tea garden and improved 230 mu\. After the improvement, the wage of male workers is CNY 220 and output of the tea gardens has increased year by female workers is CNY 150\. Every year, it year, and the quality has improved, reaching creates about CNY 550,000 of labor maturity in 3–5 years\. The yield of tea per mu is income for local villagers\. increased by 10 jin, and the income for 0\.5 kg of tea can be increased by CNY 100–150\. Xingcun Rose 200 mu of 150 The project supported Huangshan Rose Valley Spice It recruits 70 people (mainly local elderly 25\.98 Garden rose garden Co\., Ltd\. to build a rose garden base\. The land for people and women over 60 years old) the rose garden was obtained through transfer with during the 20 days of the flower picking a cost of CNY 552 per mu per year\. Rose syrup is season each year, and the daily wage is extracted from the Damascus roses grown in the about CNY 120\. Every year, it creates rose garden\. During the mature period, the rose about CNY 168,000 of labor income for garden produces 600 kg of flowers per mu, with a local villagers\. profit of CNY 5 for 1/2 kg\. Page 55 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) Investment amount Projects Description Direct Benefits Indirect Benefits EIRR (%) (CNY 10,000 ) Xinjiang 160 mu of 494\.06 The project constructed 160 mu of greenhouses for Employment of 20 villagers (mainly local 23\.56 Village greenhouse watermelon and cantaloupe, whose growth cycle is elderly and women over 60 years old) Greenhouse and 260 mu between 3 and 5 months\. Vegetables are grown at during the harvest season and 10 for other of base other times\. The annual net income per mu is more seasons\. The male-to-female ratio is about than CNY 10,000\. Compared with the local rice 7:3\. The daily wage for men and women is planting before, the annual profit increased by CNY CNY 80\. Every year, it creates about CNY 6,000 per mu\. 400,000 of labor income for local villagers\. It brings CNY 40,000 collective income to the village\. The per capita income of the village increased by CNY 1,000\. Page 56 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) ANNEX 5\. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS 1\. The World Bank team shared the ICR with the PMO for comments on November 23, 2020, and PMO responded on behalf of the Borrower via email on December 4, 2020 confirming that they have discussed the ICR and have no comment on it\. Page 57 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) ANNEX 6\. SUPPORTING DOCUMENTS • Project Appraisal Document\. World Bank\. November 2013\. • Loan Agreement\. World Bank\. March 2014\. • Country Partnership Strategy for China 2013–2016\. World Bank\. October 2012\. • Country Partnership Framework for China 2020–2025\. World Bank\. November 2019\. • Aide Memoires (various) and Management Letters (various)\. World Bank\. 2014–20\. • Implementation Status and Results Reports (various)\. World Bank\. 2012–18\. • Restructuring Papers, 2016, 2019\. • Anhui Yellow Mountain New Countryside Demonstration Project Completion Report\. Prepared by Beijing Helison Information Consulting Co\., Ltd\. on behalf of Huangshan PMO\. June 2020\. • Anhui Yellow Mountain New Countryside Demonstration Project Socio-Economic Impact Assessment Report\. Prepared by Wuhan University Research Group on behalf of Huangshan PMO\. May 2020\. Page 58 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) ANNEX 7\. RESULT STORIES 1\. To capture the project results, a socioeconomic impact study was carried out by the PMO consultants in 2019\. The study included (a) beneficiary survey and focus group discussions in 30 out of 68 project villages and 10 non-project comparison villages, (b) interviews of small and micro enterprises supported by the project in the 30 selected project villages, and (c) interviews of tourists in the 11 project villages that implemented tourism projects\. Boxes 7\.1 to 7\.5highlight some of the result stories that emerged from this study\. Box 7\.1\. Tourism Increased Employment and Revenue Yangjiazhai is a tourist attraction in Shuxi Village of Huangshan District\. The project rebuilt Shibichen Bridge in Shuxi Village and constructed new roads, river revetment, tourist public toilets, and other tourist facilities\. In the past, Shibichen Bridge, the only external passageway in the village, was inaccessible for about three months every year due to flooding\. After the project, the village’s connectivity with the outside world greatly improved\. The scenic spot of Yangjiazhai has become an internet star\. Its fishing festival has become a major brand of rural tourism\. At the beginning of the project in 2013, the number of visitors was only 37,000; it exceeded 180,000 in 2018 and is expected to exceed 220,000 in 2019\. Now the scenic spot of Yangjiazhai employs 120 local villagers to engage in various management and service work, promoting the development of local upstream and downstream industries\. The scenic spot provides more than CNY 200,000 (US$28,329) for the collective economy of the village every year, becoming an important pillar of economic development of Shuxi Village\. Box 7\.2\. Women Started New Business Ms\. Jiang is the owner of Bishuige Farmhouse in Bishan Village, Yi County\. Before the project, Ms\. Jiang worked in the county to earn money to support her family\. At that time, she had to travel back and forth between the factory and her home, which was exhausting both physically and mentally, and her income was limited\. The improvement of the village road and its environment promoted the development of local rural tourism\. Therefore, she decided to return home to start a business\. She opened a farmhouse and homestay services in her own house, and her life is getting much better\. Compared with the previous work, her income has increased significantly, she is able to stay home and take care of the elderly and children, and family life is happy and comfortable\. During the peak tourist season, she even needs to hire her neighbors as waiters at a salary of CNY 2,000 per month, which not only increases the income but also benefits the neighbors around\. Ms\. Li is the hostess of the Youhao Farmhouse of Daguling Group\. She participated in the tourism service training organized by the county twice and obtained the junior and intermediate professional qualification certificates\. Using the knowledge from the training, she transformed her own house into a farmhouse, becoming a well-known farmhouse run by a ‘girl from Anhui’, and was promoted by tourism websites such as Ctrip and Yilong\. The farmhouse has received numerous messages from tourists inside and outside the province and even overseas, which compliment the service of Ms\. Li's farmhouse\. Box 7\.3\. New Employment for Women and Elderly In Rao Village, Huangshan District, interviewed women talked about the benefits from the project in the village\. First, the project boosted the business of Tanjia Courtyard Company\. At present, Tanjia Courtyard employs a dozen women in the village all year round\. For these people, it is something that they did not even think of in the past as employment and now they have a stable and guaranteed source of income without leaving the village\. Second, the Rose Garden Project supported by the project has continuously expanded its planting scale in recent years\. Currently, 70–80 villagers are employed locally, including women and a few men who are not Page 59 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) suitable for working outside the village\. According to an elderly person, no contractor would like to employ people over 60 or 70 years in construction sites\. Yet, women are now able to earn CNY 80 a day weeding in the rose garden\. That is, they have an annual income of over CNY 100,000\. This job not only helps them exercise but also increases their income\. Women who are too old to go out for work or are busy with household duties now have opportunities to work in the neighborhood\. Third, after the infrastructure was completed, the traditional hand-made jewelry in the village became another important channel for women to generate income\. Companies outside regularly drive into the village to purchase commodities\. Some women in the village who cannot go out due to the needs to cook at home and take care of their children can make handicrafts such as headwear using their spare time so as to increase their income\. Box 7\.4\. Improved Agriculture Production Increased Employment and Local Revenue With support from the project, Houkeng Village of Huangshan District reclaimed unused land to construct 15 mu (1 ha) of a Taiping Houkui tea tree garden, developed 35 mu of new varieties, and improved productivity of 230 mu of existing ones\. After the improvement, the yield of tea per mu increased by 5 kg, and the income per kilogram of tea increased by CNY 200–300 (US$28–42)\. Annually, the revenue of the Taiping Houkui tea production demonstration base increased by CNY 1\.4 million (US$198,300) and raised the income of the village collective by CNY 300,000 (US$42,493)\. With the growth of the collective economy, some public services in the village were gradually developed\. For example, the cost for garbage collection in the village was fully borne by the village\. In 2018, the village used collective funds to support some villagers' medical and social insurances\. The construction of a vegetable base in Xinjiang Village of Tunxi District attracted large farm owners in the surrounding areas\. The villagers also leased the land to build vegetable greenhouses to obtain rental income\. The large farm owners employed local villagers to grow vegetables, melons, and fruits, which provided additional employment opportunities and labor pay for the villagers\. The project supported the construction of a 45 mu greenhouse and a 310 mu small sweet potato production base in Baiguoshu Village of Huangshan District, which raised the revenue by CNY 900,000 (US$127,479) annually and increased the income of the village collective by more than CNY 100,000 (US$14,164)\. The small sweet potato production base employed 40 villagers all year round and 70–80 temporary employees during the peak production period\. Most of these temporary employees were women who were unable to seek employment or engage in trade far from home and men who were of relatively senior age\. Box 7\.5\. Poor Households Lifted Out of Poverty In the Zhongtan Group of Houkeng Village in Huangshan District, two senior villagers who used to plant and sell tea in a restricted manner, due to the inconvenience of transportation, benefitted from the road infrastructure supported by the project\. In previous years, their sales of tea were poor, which caused difficulties in their living\. The project built roads to their village, which brought many customers and big merchants\. One of the merchants particularly liked the hand-made tea prepared by the elderly villagers and agreed with them to have exclusive right to purchase their tea\. Now their trade has continued for three consecutive years\. In this way, these two senior villagers now have a guaranteed source of income\. Mr\. Cui is nearly 70 years old and lives in Rao Village, Huangshan District, with his daughter and son-in-law\. As his daughter and grandchild are disabled and his son-in-law works outside the village, Mr\. Cui could not go out to work, and the family lived in poverty\. The development of local tourism and the increase in the number of visiting tourists promoted the surrounding homestays and related industries and offered Mr\. Cui’s family employment in the village\. The number of guests received at the Tan Family Courtyard near Rao Village doubled year after year since project investments were implemented\. According to Ms\. Huang, the reception manager of the company, in the first half of 2020, during the COVID-19 epidemic, the number of guests received still increased by 50 percent over the same period last year\. The Tan Family Courtyard provided employment opportunities for more than 10 Page 60 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) senior villagers and women in Rao Village, including Mr\. Cui’s family\. The Tan Family Courtyard provided Mr\. Cui with part-time job opportunities with flexible schedule, earning about CNY 100 (US$14) a day\. Calculated according to the actual working hours, it increased the income of the family by more than CNY 20,000 (US$2,833) every year, and the household is no longer poor\. Page 61 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) ANNEX 8\. PHOTOS OF PROJECT RESULTS Component 1: Infrastructure Improvement Access Roads in Xinjiang Village Tunxi District before and after the Project 33 Roads in Rao Village Huangshan District before and after the Project 33 All photos came from the borrower’s project completion report\. Page 62 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) River and Revetment in Xing Village Huangshan District before and after the Project Guanyin Bridge in Wanxin Village Xiuning County before and after the Project Page 63 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) Component 2: Cultural Heritage Conservation Wang Ancestral Hall in Baiguoshu Village Huangshan District before and after the Project Su Ancestral Hall in Yongfeng Village Huangshan District before and after the Project Wushidi in Huang Village Xiuning County before and after the Project Page 64 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) Zhongxiandi in Huang Village Xiuning County before and after the Project Page 65 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) Component 3: Enhanced Economic Opportunities Vegetable Base in Xinjiang Village Tunxi District Tea Production Base in Houkeng Village Huangshan District Page 66 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) Greenhouse in Rao Village Huangshan District New Vegetable Base in Hongqin Village She County Page 67 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) Tea Production Plant in Tianli Village Xiuning County Huizhou-style Buildings Project in Guo Village Huangshan District Page 68 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) Xianyuan Che Gong Dian Square in Longshan Village Huangshan District before and after the Project Cheng Ancestral Hall Tourist Parking Lot in Xing Village Huangshan District before and after the Project Page 69 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) Component 4: Institutional Support Cultural Heritage Database Page 70 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) Project Management Information System Page 71 of 72 The World Bank Anhui Yellow Mountain New Countryside Demonstration Project (P129563) ANNEX 9\. PROJECT MAP Page 72 of 72

REVIEW

P001043

 ICRR 10514 Report Number : ICRR10514 ICR Review Operations Evaluation Department 1\. Project Data : OEDID : OEDID: C2416 Project ID : P001043 Project Name : Energy II Project Country : Republic of Guinea Sector : Distribution & Transmission L/C Number : C2416-GUI Partners involved : GTZ, EIB, AfDB, SIDA, FED/CEE, JICA, CFD, USAID, KfW Prepared by : George T\. K\. Pitman, OEDST Reviewed by : Alain A\. Barbu Group Manager : Gregory K\. Ingram Date Posted : 08/18/1999 2\. Project Objectives, Financing, Costs and Components : Project Objectives : The primary objective was to ensure the sustainability of the electric power sector through a comprehensive reform and privatization program \. A second objective was to establish a regulatory framework to oversee the privatized petroleum product distribution system \. Both objectives were in accord with an agreed IMF macroeconomic adjustment program\. These objectives were to be achieved by creation of an appropriate policy framework, disengagement of government while strengthening its regulatory and policy functions, creation of incentives to attract private investors and financing the transition from the public to the private sector \. Financing and Costs : Approved in 1992 and made effective June 1993 for a total cost of US$161\.0 million, actual project costs at project completion in December 1998 (one year late) were US$135\.1 million of which the Bank disbursed US$47\.0 million\. A consortium of 8 partners cofinanced the project for US$ 70\.0 million (in US$ millions: EIB 25\.0; AfDB 16\.6; CFD 11\.1; SIDA 7\.7; JICA 7\.4; FED/CEE 6\.7; KfW 2\.2 and USAID 1\.0)\. Components : There were four: (1) an institutional reform program to (a) facilitate privatization (assisted by TA) of the Enterprise Nationale d'Electricite de Guinea (ENELGUI) and provide a joint venture to manage it through the transition period, (b) reorganize the Ministere des Resources Naturelles, de L'Energie et de L'Environment (MRNEE) and strengthen its policy formulation ability and (c) development of national strategies /plans to provide electricity to the interior; (2) a priority investment program to raise service standards and support privatization (rehabilitation and expansion of generation and distribution facilities, telecommunications, vehicles and equipment ); (3) TA to assist government to develop and manage a regulatory framework for petroleum product distribution; and (4) provision of goods and services to support ENELGUI's operation and maintenance function \. 3\. Achievement of Relevant Objectives : The primary objective to make the electric power sector sustainable through well regulated privatization was not achieved\. However, the secondary objective to provide a regulatory framework for the petroleum distribution was successfully implemented\. 4\. Significant Achievements : All the physical components were completed (including the addition of a 30 MW generating plant at Tombo) even though there were significant design and procurement problems \. System reliability has increased and power availability has risen from 2 to over 23 hours a day\. National strategies and plans to provide electricity to the interior were developed and discussed at two workshops \. Government appears strongly committed to a deregulated, decentralized rural electrification program and has issued a sub -sector policy letter that has stimulated preparation of a project\. Government enacted the Electricity law of 1993 that limits its role to policy making and regulation and allows the private sector to have a major role in management and operations \. It also enacted a series of decrees governing the power sector (mainly hydroelectricity), but the only one to become effective is that preserving and protecting electricity consumers' rights \. Government signed a concession agreement to manage ENELGUI with a private sector operator (SOGEL) in 1994 but did not follow-through with essential enabling actions \. 5\. Significant Shortcomings : Despite the significant physical and legislative achievements, government was internally divided on the issue of privatization\. The ICR makes the case that the Bank is partly responsible for this lack of unity because its Letter on Sector Development Policy undermines the project's emphasis on reform and privatization, and gives a higher priority to physical extension of the system \. The Borrower states that they were forced into the privatization process by the donors as a condition for implementation before they had time to fully examine the options or understand the risks involved\. In consequence, the co -management concession finally agreed made the privatization unworkable \. It did not allow the private operator full responsibility for operations and the demarcation of responsibilities between it, ENELGUI and government was unclear \. Staff of ENELGUI were unaware of the scope of the project and this led to fragmented implementation\. Resistance to privatization strengthened following award of the concession and reduction of ENELGUI's staff from 1350 to 65, and ENELGUI management was preoccupied by its own fate \. Government reneged on key covenants necessary to make the privatization arrangement effective \. It was very lax in paying its own electricity bills and arrears, and did not support enforcement of penalties for non -payment by others, illegal connections and high-level fraud\. As a result, the billing rate declined form 55% in 1994 to 43% in 1998 (compared with the appraisal target of 80%) and the private operator received revenue for only 40% of the electricity it generated\. Not surprisingly, at the end of the project the private operator was near bankruptcy \. Indeed, since 1994 the sector has registered a cumulative deficit of US$ 40 million\. Essential environmental safeguards (except a change to low sulfur fuels ) were not implemented due to the borrower's financial constraints \. Bank appraisal and supervision was deficient \. Appraisal failed to learn lessons from the Bank's experience elsewhere and thus the prerequisites for successful privatization : the importance of ownership and governance \. Supervision was woefully inadequate given the innovative nature of the project (even though it improved markedly after mid-term review) and was not helped by four changes of task manager \. 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Unsatisfactory Unsatisfactory Institutional Dev \.: Negligible Negligible Sustainability : Unlikely Unlikely Bank Performance : Deficient Unsatisfactory Borrower Perf \.: Deficient Unsatisfactory Quality of ICR : Exemplary 7\. Lessons of Broad Applicability : Ownership is key to successful privatization of utilities \. Premature project approval to implement before the government fully understands the prerequisites and risks of privatization are likely to be counterproductive \. Similarly, successful private sector ownership requires clearly defined responsibilities and full authority to operate the utility\. Private sector co-managment with government does not work \. 8\. Audit Recommended? Yes No Why? This was the first power sector privatization in the Africa Region and some of the problems highlighted in the ICR need deeper examination \. There is clearly a lot to learn\. 9\. Comments on Quality of ICR : Although the ICR is longer than the norm and contains a number of typos, it is an exceedingly thorough review of the problems and lessons of this operation \. There is a particularly useful discussion of how this project relates to sector development policy and the CAS and the Aide Memoire and summary of the Borrower's comments are very illuminating\. The only real failing is that the role of the 8 cofinanciers has to be deduced from the tables in the appendix (7 provided goods and equipment, USAID provided TA to assist institutional development and reform )\.

REVIEW

P051741

 ICRR 12942 Report Number : ICRR12942 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 09/05/2008 PROJ ID : P051741 Appraisal Actual Project Name : Second Health Sector Project Costs (US$M): US$M ): 44\.38 69\.51 Support Project Country : Madagascar Loan /Credit (US$M Loan/ ): US$M): 40\.0 58\.0 Sector Board : HE US$M ): Cofinancing (US$M): 0 0 Sector (s): Health (96%) Central government administration (4%) Theme (s): Health system performance (29% - P) Other communicable diseases (29% - P) Nutrition and food security (14% - S) Population and reproductive health (14% - S) Participation and civic engagement (14% - S) L/C Number : C3302 Board Approval Date : 12/02/1999 Partners involved : Closing Date : 12/31/2006 12/31/2007 Evaluator : Panel Reviewer : Group Manager : Group : Denise A\. Vaillancourt Soniya Carvalho Monika Huppi IEGSG 2\. Project Objectives and Components: a\. Objectives: The project’s overall development objective was to contribute to the improvement of the health status of the population through more accessible and better quality health services \. Specific development objectives were to : (i) improve the quality of and access to primary health services with a focus on rural areas; (ii) support priority health programs with emphasis on endemic infectious diseases, reproductive health (including family planning, sexually transmitted diseases and HIV /AIDS) and nutrition; and (iii) strengthen sector management and administrative capacity within the Ministry of Health (MoH), and at provincial and district levels, to enable successful decentralization and sector reform \. The above statement of project development objective comes from the PAD \. The statement in the DCA concurs with this statement, but is less clear \. b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components (or Key Conditions in the case of DPLs, as appropriate): Part A : Development of District Health Services , including: development implementation of a Health Infrastructure Development Plan, including rehabilitation of existing health facilities (health centers and district hospitals ) and construction and equipment of new ones; construction of infrastructure for decentralized health administrations; drugs and logistical support for health facilities functioning; studies, and training of service providers \. Part B : Infectious Disease Reduction Program (IDRP) IDRP ), including: developing an IDRP focusing in particular on malaria, plague, schistosomiasis and tuberculosis through technical advisory services; inputs and supplies for IDRP implementation (drugs, insecticides and impregnated bed -nets); technical refinements to improve the detection, prevention and control of plague outbreaks and establishment of a surveillance system; and screening campaigns, drugs, and laboratory equipment to identify and treat schistosomiasis \. FP ) and Reproductive Health (RH) Part C : Family Planning (FP) RH) Services , with a special emphasis on three underserved provinces (Fianarantsoa, Mahajanga and Tiliary ) including (1) development and implementation of a national RH program to (a) promote safe motherhood and improve management of high risk pregnancies; (b) increase access to FP services through provision of contraceptives; and (c) information, education and communications activities aimed at adolescents ’ sexuality and risks associated with sexually transmitted disease, including HIV/AIDS; and (2) provision of logistical support for FP and RH service delivery (drugs, laboratory equipment, diagnostic tools)\. Part D : Child Nutrition Services : In complement to a major national community -based prevention program (financed by IDA and others under separate projects ), provision of advisory and institutional strengthening services, training, supervision, program monitoring, refurbishing health centers and goods to improve nutrition rehabilitation services for severely malnourished children in all 111 districts in Madagascar\. Workshops and studies leading to common protocols and procedures will also be supported, along with strategic planning and management capacity building \. Part E : Strengthening of Institutional Capacity , including studies, technical assistance, training and other support to: strengthen the sector reform process, including sector coordination, decentralization of decision -making, promotion of private sector activities; improve sector resource management, including planning and budgeting, human resources development, financial management and accounting, physical accounting and maintenance and monitoring and evaluation; and oversee sector performance, including beneficiary assessment and other selected studies\. Support for program and project implementation (technical assistance, equipment, supplies, operating costs) were also included\. While the project objectives or key associated outcome targets were not changed, p roject components were amended to address the effects of two unanticipated crises \. In 2000, only a few months after effectiveness, following a series of major cyclones that hit Madagascar, the first component was limited to the rehabilitation /reconstruction of damaged facilities and new construction was dropped \. In 2003, project restructuring allowed for the financing of district health administration, as well as services, and also provincial /regional administration and services \. The cost recovery policy was temporarily lifted by government to mitigate the impoverishing effects of the political and socio-economic crisis in 2001-02\. In response, the project supported the financing of more drugs than originally anticipated to cover these costs \. In addition, in 2003 the credit agreement was amended to allow for the financing of health district non-salary recurrent costs\. As other (especially Global Fund) financing became available for infectious disease control, the project stopped financing of STI /HIV/AIDS in 2003, malaria in the coastal areas in 2004, and tuberculosis in 2005\. A supplemental credit was approved in 2005 to provide the project with the funds needed (in light of emergency expenditures responding to the crises ) to achieve the original project objectives \. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: The project’s actual cost was 154 percent of its original cost\. Project funding was used to provide emergency assistance following major cyclones and political crisis that undermined health services and exacerbated poverty \. A supplemental IDA credit, a Japanese Trust Fund and additional counterpart financing supported these substantial cost overruns\. Total IDA support to this project amounted to US$ 58\.0 million (41\.3 million SDRs), of which US$40\.0 million (29\.0 million SDRs) was for the initial project and US$18\.0 million (12\.3 million SDRs) was for the supplemental credit\. Both the original and supplemental credits were 100 percent disbursed\. In addition, 0\.77 million SDRs were disbursed against a 1\.06 million SDR Japanese Trust Fund approved during implementation to provide Government with implementation assistance; and the balance (0\.29 million SDRs) was cancelled\. According to the PAD for the original credit, Government was estimated to contribute US$ 4\.38 million in counterpart financing\. Its contribution for the supplemental credit is not specified in the design documents or in the ICR \. Actual counterpart financing is US$9\.78 million\. 3\. Relevance of Objectives & Design: The relevance of project objectives is substantial \. Improving health services quality and access, controlling malaria, reducing maternal and child mortality, controlling the spread of HIV /AIDS and implementing an effective family planning strategy are some of the commitments of the Madagascar Action Plan (MAP) 2007-2012 (a second generation poverty reduction strategy )\. The Bank's CAS 2007-2011 aims at contributing to these goals by helping to improve access and quality of services \. The original project aimed at these same goals \. However, the relevance of project design is modest\. While the project appropriately focused on the priority diseases and health issues in Madagascar and was fully supportive of Government's policy to decentralize the health sector through strengthening health districts and provinces, project design had two important shortcomings \. First, the project's target for improving access focused only on a geographic goal (population living within a 5 km radius of a health facility), and not on the equally, if not more, pressing issue of financial access (affordability)\. Second, the capacity building objective was not grounded in a clear strategy, nor were targets or indicators established to track progress in achieving this goal \. Changes in the design right after effectiveness (particularly the limitation of civil works to the rehabilitation of facilities damaged by the end-2000 cyclones), were appropriate, but should have led to changes in selected performance indicators\. Overall relevance is substantial\. 4\. Achievement of Objectives (Efficacy): Overall efficacy is substantial\. [Note: Demographic and Health Survey (DHS) data, where used, is cited\. All other data is from Government/MoH sources\.] Outcomes by Objective: (i) Improve the quality of and access to primary health services with a focus on rural areas : modest The share of the population living within 5 km of a health facility was maintained (57 percent in 2000 and 58 percent in 2007)\. While falling short of the project target of 85 percent, the 58 percent coverage is a notable achievement considering the devastation of three major cyclones occurring shortly after effectiveness, which severely damaged one third of all of Madagascar's primary health facilities \. The use of project resources to rehabilitate destroyed health facilities prevented a potentially dramatic decrease in geographic access in the aftermath of the cyclones\. The project financed the rehabilitation /reconstruction of 192 health facilities, especially in remote, hard-to-reach rural areas, complementing efforts of other financiers to rehabilitate some facilities in more easily accessible areas \. Coverage of key services was maintained and /or improved between 2000-2006, according to MoH service data, with antenatal care coverage increasing from 65 to 75 percent, and assisted deliveries increasing from 20 to 26 percent\. While these trends are positive, results fall below the respective project targets of 80 percent (for antenatal care) and 60 percent (for assisted deliveries)\. (Trends in general utilization rates provided in the ICR are not disaggregared by type of service and thus are not useful in assessing the coverage and quality of priority services\.) The project financed critical inputs for service quality, including the provision of equipment and supplies for health facility functioning, non -salary recurrent financing in all public facilities from 2004-07, motorbikes for supervision, and drugs and staff training for primary and first -referral facilities\. Some indications of improved service quality are shown under Objective (ii) below\. ii) Support priority health programs with emphasis on endemic infectious diseases, reproductive health and (ii) nutrition : substantial Performance indicators for infectious diseases control reveal positive trends, although some outcomes fell short of targets DPT3 coverage rose from 83 percent in 2000 to 95 percent in 2006 (a proxy for full immunization for which recent data are not available )\. The hospital fatality rate among children under five being treated for severe malaria fell from 14\.9 percent to 7\.1 percent, falling short of the target of 3 percent, but a positive trend, nonetheless \. Malaria incidence fell from 9\.4 percent in 2000 to 5\.4 percent in 2006, almost reaching the target of 4\.5 percent\. Investments in prevention (indoor spraying, surveillance, bednets ) and treatment (home treatment kits) prior to Global Fund support, which started in 2004, are likely to have facilitated this decline, although data sources and reliability are not assessed \. The cure rate for TB cases increased from a baseline of 70 percent in 2000 to 75 percent in 2006, falling short of the target of 84 percent, but a positive trend, nonetheless \. Project support up to 2005 (when Global Fund began covering these expenditures ) included training, drugs, laboratory and other diagnostic supplies, supervision and IEC campaigns\. Fatality rate among plague cases fell from a baseline of 20 percent in 2000 to 7\.8 percent in 2006\. The number of new plague cases also fell dramatically from a baseline of 1334 in 2000 to 328 in 2006\. No targets had been set for these indicators, but these outcomes are significant\. The project (the only source of financing for this intervention) supported and facilitated improved surveillance, diagnosis, prevention and treatment \. Reproductive health services improved with regard to family planning and antenatal care, while assisted deliveries remain very low Contraceptive prevalence rates increased from 9\.7 percent (DHS) to 24 percent in 2006 (PSI), exceeding the target of 17 percent\. The project financed training and contraceptives, with a particular focus on a new long-duration method of easy insertion especially convenient to rural and remote areas and generating high demand\. The number of facilities/locations offering family planning services increased from 1,645 in 2003 to 2,389 in 2007\. According to DHS data, the antenatal coverage rate increased from 71 percent in 2000 to 81 percent in 2003 (the approximate mid-point of project implementation)\. MoH data on ante-natal care indicate lower coverage, but, nonetheless, corroborate the overall positive trend : 65 percent in 2000; 61 percent in 2001; 64 percent in 2002; 70 percent in 2003; 68 percent in 2004; 58 percent in 2005; and 75 percent in 2006\. The project target was 80 percent\. The percentage of deliveries attended by a skilled health provider increased from a baseline of 47 percent in  2000 to 54 percent in 2003 (DHS)\. MoH data show lower levels, and very little change in coverage, except for the last year (2006): 21 percent in 2000; 18 percent in 2001; 20 percent in 2002; 24 percent in 2003; 23 percent in 2004; 20 percent in 2005; and 26 percent in 2006\. To this end the project invested in training, kits, equipment, infrastructure upgrading and other inputs to improve the quality of delivery services and referral services \. The increase in coverage in the last year may be attributable to community -level awareness raising financed under the project\. Nutrition rehabilitation activities culminated in positive outcomes Hospital fatality rate among malnourished children being rehabilitated in hospitals fell from a baseline of 20 percent to 6\.5 percent in 2006, exceeding the target of 10 percent\. The proportion of children severely malnourished, who left the intensive nutritional recovery centers cured, increased from 63 to 87 percent, a positive trend, but no target had been set for this indicator \. The project financed these services (contracted through NGOs) to ensure that they would be available free of charge to the population\. iii ) Strengthen sector management and administrative capacity within MoH to enable successful decentralization (iii) and sector reform : substantial At end of project all districts had produced district development plans and annual work plans; and implementation rates of annual plans increased from 71 percent (actual expenditures as a share of plan budget ) in 2004 (first year of plan financing) to 89 percent in 2007\. This is an indication of strengthened district planning and implementation capacity\. Project financing of non-salary recurrent costs, net of pharmaceuticals, allowed districts to finance essential costs of doing business (e\.g\., operating costs, supervision )\. The project supported the establishment of 22 regional health bureaus in 2005, replacing the six provincial health bureaus, with a view to underpining a further decentralization of the health system \. Only 20 of 104 electronic data equipment, purchased and installed under the project, are still used for transferring data, although the others are still used for their radio functions \. Support to central MoH did not emanate from a comprehensive strategy or specific goals \. The project financed the development of several policy and planning documents, including the Human Resources Development Plan and the Hospital Policy\. It also supported the preparation of the National Health Policy 2003-2006, the Sector Development Plan and a health map, all to strengthen MoH planning capacity \. Workshops and meetings for internal coordination and some rehabilitation work were also financed \. Policy and planning documents appear to have set the stage for a move to a Sector -Wide Approach (supported under an ongoing operation ), and the HR plan has brought to light key issues requiring attention to ensure adequate staffing, but the extent to which central-level MoH capacity has been strengthened, if at all, has not been adequately tracked \. Impacts: While it is acknowledged in the project design documents that declines in mortality and fertility are affected by other factors outside of the health sector, specific goals for reducing infant and maternal mortality and fertility were included in the project logframe, to which the project was expected to contribute \. "Actual" data are from the 2003 DHS and show averages for the previous five years (1999-2003) for mortality and the previous three years for fertility \. Trends for the last four years of project implementation are not known \. Given that disbursements were modest during the project's initial years, attribution of any of these changes to the project is somewhat weak \. Infant mortality rate was reduced from 96/1000 to 58/1000, exceeding the project target of 80/1000\. Nutrition rehabilitation, high immunization rates, antenatal care and early malaria interventions may have contributed, but, again, were at early stages of implementation in 2003\. Changes in the maternal mortality rate from a baseline of 488 to 469 are not significant and fall short of the project target of 400\. Antenatal care coverage did increase almost to the target level, while assisted deliveries increased only modestly with project support \. Total fertility rate fell from a baseline of 6\.0 in 2000 to 5\.2 in 2003 (DHS), exceeding the project target of 5\.5\. Increases in the availability of family planning services and in contraceptive prevalence, although at early stages of implementation in 2003, may have contributed\. 5\. Efficiency (not applicable to DPLs): Project efficiency is substantial\. It supported activities focused on cost -effective interventions aimed at the causes of Madagascar's high disease burden \. It also supported public goods, including prevention, public health and public information\. It also addressed inequities in access to services, by focusing on rural areas, especially those which were particularly remote\. The Social Fund was requested to, but would not, take on the job of rehabilitating/rebuilding rural health centers destroyed by the cyclones, because of the considerable expense of these works\. Thus, the project assumed this support, which helped restore services to the more devastated and deprived areas (ICR p\. 9 and interview with TTL)\. The ICR's economic analysis questions, however, the justification for establishing basic dental services, even though dental problems do represent a burden on the rural population \. ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re- re -estimated value at evaluation :  Rate Available? Point Value Coverage/Scope* Appraisal % % ICR estimate % % * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: Overall outcome rating is satisfactory, based on substantial relevance, efficacy and efficiency \. a\. Outcome Rating : Satisfactory 7\. Rationale for Risk to Development Outcome Rating: Given the low public expenditure on health in the country (about $7 per capita), it is not clear whether enough resources will be allocated to non -salary recurrent expenditures to ensure smooth functioning of health facilities \. The follow-on (SWAp) project is likely to support these costs in the short -term, but the ability of Government to gradually assume the financing of these costs is not assured \. Maintenance of infrastructure tends to be underfunded \. a\. Risk to Development Outcome Rating : Significant 8\. Assessment of Bank Performance: The project design does not address demand -side issues, especially financial access /affordability\. The monitoring and evaluation design and framework was not fully developed during preparation, especially with respect to the capacity building objective \. On the positive side, the Bank was flexible in using the project to address issues caused or exacerbated by the cyclones and political and socioeconomic crisis \. It was also instrumental in supporting the building blocks of a SWAp (now under implementation)\. Government in its comments values the technical advice and support provided by the Bank, in addition to the financial support provided under this project\. The M&E framework was never formally changed to correctly assess and follow the progress of the project and to reflect the changes in project support following the cyclones and political and socio-economic crises, and also as a result of the decision to stop financing HIV /AIDS, malaria and tuberculosis control in light of Global Fund financing \. at -Entry :Moderately Satisfactory a\. Ensuring Quality -at- b\. Quality of Supervision :Moderately Satisfactory c\. Overall Bank Performance :Moderately Satisfactory 9\. Assessment of Borrower Performance: The failure to deposit counterpart funds delayed the implementation of the project at several points in time \. However, one of the main reasons behind the successful (albeit delayed) implementation of the project was the capacity, flexibility and hard work of the project implementation unit and its adherence to the Bank's fiduciary requirements\. a\. Government Performance :Moderately Satisfactory b\. Implementing Agency Performance :Satisfactory c\. Overall Borrower Performance :Moderately Satisfactory 10\. M&E Design, Implementation, & Utilization: The M&E framework was not sufficiently developed during preparation, especially with regard to the capacity building objective; and targets and indicators were never changed to reflect the changes in project support \. During implementation data collection and analysis were not given adequate attention by GoM /MoH, due in significant part to their preoccupation with the cyclones and political and socio -economic crisis (interview with TTL)\. a\. M&E Quality Rating : Modest  11\. Other Issues (Safeguards, Fiduciary, Unintended Positive and Negative Impacts): In its environmental assessment, the project was rated C in the PAD, partly in anticipation of the use of environmentally friendly insecticides (pyretroids) in limited areas for indoor spraying \. However, at the start of implementation it became apparent that the Government wanted to continue the use of DDT and not pyrethroids for indoor spraying (for malaria control) and DDT was procured\. The Bank's supervision team originally opposed the procurement of DDT with the credit\. However, the Government insisted on using it as WHO had given poor countries a 10-year timeframe (starting in 1998) to continue its use\. At effectiveness DDT was the least expensive alternative and Government had at least 6 months' supply of it\. Eventually the Bank's team accepted the procurement of DDT on the condition that a study would be conducted on possible alternatives so that other insecticides could be used before the 10-year timeframe was over\. DDT procurement was always done through WHO and many measures were taken to ensure an environmentally sound use of this insecticide \. By 2004 the project started to procure alternatives to DDT and by 2005 it stopped all DDT procurement\. During appraisal, this issue should have been identified and a detailed assessment of the Government's capacity to use DDT in an environmentally safe manner should have been carried out \. 12\. Ratings : 12\. ICR IEG Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Risk to Development Moderate Significant The ICR notes that an ongoing SWAp Outcome : is supporting recurrent costs, but raises questions about the Government's ability to eventually assume these costs with its own budget\. It also raises the neglect of maintenance of investments\. Bank Performance : Moderately Moderately Satisfactory Satisfactory Borrower Performance : Satisfactory Moderately IEG agrees with ICR subratings: Satisfactory moderately satisfactory government performance; and satisfactory implementing agency performance\. Harmonized guidelines require a moderately satisfactory rating if one of the subratings is satisfactory and one is moderately satisfactory\. Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate \. 13\. Lessons: Flexibility within a Bank-financed operation can be critical for rapidly and effectively mitigating the adverse effects of unanticipated crises \. However, such flexibility needs to be reflected in a revised M&E framework \. Rehabilitation/reconstruction of health facilities, rather than building new facilities, and allowing the Global Fund to assume the grant financing of priority disease programs made sense \. But these were not reflected in the M&E framework, which still included indicators to increase geographic coverage and to measure outcomes of infectious disease programs \. Utilization of facilities is not likely to increase as desired if the underlying reasons for low utilization are not assessed and addressed \. In Madagascar, because of very difficult roads and mountainous terrain, living within 5 km of a health facility does not guarantee physical access \. Furthermore, inability to pay for drugs and services is likely to continue to depress utilization if it is not addressed \. 14\. Assessment Recommended? Yes No Why? The eventual availability of end -of-project data through a planned DHS in 2008 or 2009 would shed new light on the efficacy of this project, since most recent (DHS 2003) data on many indicators do not capture trends in the project's last four years \. It would also be interesting to trace how the building blocks of this project have supported the move toward the (ongoing) SWAp\. 15\. Comments on Quality of ICR: The ICR is of satisfactory quality overall, providing a candid assessment of project performance and making good use of available (albeit incomplete) data\. A few shortcomings include: Failure to cite data sources systematically \. A follow-up discussion with the ICR author established that all data not cited came from Government sources \. Incomplete cost and financing data \. Data on project costs and financing (Annex 1, page 21 of ICR) show original costs and financing breakdowns and actual financing, but do not show revised costs by component and financing plan, estimated at the time of approval of the supplemental credit \. The ICR might have been more systematic in assessing achievement of project development objectives as they are stated in the PAD (and in Section 5 of this ICR Review)\. The third objective (strengthening sector management and administrative capacity ), especially, is only addressed under the discussion of that component\. a\.Quality of ICR Rating : Satisfactory

REVIEW

P106663

Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BR Sao Paulo Feeder Roads Project(P106663) Report Number : ICRR0020150 1\. Project Data Project ID Project Name P106663 BR Sao Paulo Feeder Roads Project Country Practice Area(Lead) Additional Financing Brazil Transport & ICT P118077 L/C/TF Number(s) Closing Date (Original) Total Project Cost (USD) IBRD-76880,IBRD-78370 30-Jun-2014 923,195,000\.00 Bank Approval Date Closing Date (Actual) 09-Jul-2009 30-Jun-2015 IBRD/IDA (USD) Grants (USD) Original Commitment 493,425,000\.00 0\.00 Revised Commitment 493,425,000\.00 0\.00 Actual 493,425,000\.00 0\.00 Sector(s) Rural and Inter-Urban Roads and Highways(100%) Theme(s) Rural services and infrastructure(100%) Prepared by Reviewed by ICR Review Coordinator Group Victoria Alexeeva Robert Mark Lacey Christopher David Nelson IEGSD (Unit 4) 2\. Project Objectives and Components a\. Objectives The project objective was “to improve the efficiency of the Borrower’s [the State of São Paulo, Brazil] paved municipal road network” (Loan Agreement, p\.7; Project Appraisal Document (PAD), p\.vii)\. The PAD (p\. vii) specified that efficiency was to be improved as a result of improvements to the institutional framework used by the Borrower in four key areas to deliver adequate transport conditions to users (planning, environmental licensing, participation of private sector, and execution), combined with improvements in the condition of the paved municipal road network\.  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BR Sao Paulo Feeder Roads Project(P106663) b\. Were the project objectives/key associated outcome targets revised during implementation? No c\. Components 1: Feeder Roads Rehabilitation (appraised US$477\.04 million, actual US$1,010\.25 million) included (a) rehabilitation works of about 100 km of the state’s paved road sections, and 1,500 km of particular sections of the state’s municipal paved road network, and b) consolidating the State Road Administration’s (DER-SP) capacity to manage its road investment programs, including the Government's municipal paved road rehabilitation program (the Pró-Vicinais Program)\. 2: Institutional Strengthening (appraised US$23\.8 million, actual US$10\.17 million) included (a) support to the structure and management of the state investment program (Economy and Planning Secretariat); (b) modernization of the state’s environmental management system (Environment Secretariat); (c) consolidation of planning and logistics capacity in the transport sector (Transport Secretariat); and (d) improved public sector execution capacity in the road sector (State Road Department)\. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates Project Cost: The total project cost increased twofold from US$477\.04 million to US$1,010\.25 million by project closure, due to cost overruns and additional works\. Financing: The original IBRD loan in the amount of US$166\.65 million was complemented by Additional Financing (AF) in the amount of US$326\.78 million, to total US$493\.43 million\. At closure, the loan disbursed at exactly the same amount of US$493\.43 million\. The AF was approved on August 3, 2010 to cover cost overruns of rehabilitation works on about 700 km of the 1,500 km of road sections financed under the original loan as well as to scale up the project by adding another 1,200 km paved feeder roads for rehabilitation\. Borrower Contribution: The Borrower (the State of São Paulo) contributed US$527\.42 million in total, up from the original commitment of US$429\.77 million and additional commitment of US$82 million during AF in 2010\. Dates: The original project closing date was extended by one year at a Level 2 restructuring in 2014 from June 30, 2014 to June 30, 2015, due to delays in the institutional strengthening activities\. The additional financing in 2010 that included additional works did not trigger revision in the project closing date\. 3\. Relevance of Objectives & Design a\. Relevance of Objectives The State of São Paulo is the most populous state of Brazil with the highest gross domestic product, which accounts for about 40% of Brazil’s GDP and surpasses that of Chile\. At the time of appraisal, the State Multi-Year Expenditures Program (PPA) for 2008-2011 set as priorities increasing the State’s competitiveness and improving inter-regional equity within the State through a combination of interventions, including infrastructure\. Its regional development agenda focused, among other areas, on transport and logistics to reduce transport costs through improvement of accessibility to the State's core paved road network (supported by the State's municipal paved roads rehabilitation program (the Pro-Vicinais Program))\.The World Bank Group’s (WBG's)Country Partnership Strategy (CPS) at appraisal (FY 2008-2011) identified poor transport infrastructure as a major bottleneck in Brazil and placed emphasis on addressing logistical growth constraints, through support to roads, among others\. At closure, the objectives remained relevant to the State’s priorities set out in PPA for 2012-2015 and the WBG’s CPS FY2012-2015, which also targeted improvements in transport and logistics\. Rating  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BR Sao Paulo Feeder Roads Project(P106663) High b\. Relevance of Design The statement of the objective to improve the efficiency of the paved municipal road network was not specific\. While the PAD p\.10 indicated that the improved efficiency would be monitored on the delivery side during implementation of the Pro-Vicinais Program (through intermediate indicators), the project development outcomes would measure improved efficiency on the demand side (i\.e\. gains accruing to users), through reduction of economic costs to users on the paved municipal road network and the degree of satisfaction of road users\. Moreover, several selected intermediate indicators in the results framework were not fully capturing the efficiency gains directly related to the road network management at the municipal level but at the state level, including other sectors\. The activities related to improving the efficiency of public sector management were well beyond the subject of municipal roads, and this was not fully captured in the project development objective (ICR, p\.19)\. Rating Modest 4\. Achievement of Objectives (Efficacy) PHREVISEDTBL Objective 1 Objective To improve the efficiency of the State of São Paulo's paved municipal road network\. Rationale Outputs • A total of 3,300km of municipal road sections were rehabilitated under the project, out of a total of 11,968 km of municipal roads rehabilitated under a four-phase Pro-Vicinais Program\. As a result of the Pro-Vicinais Program, 97\.6% of the paved municipal road network were in good condition (IRI<3\.5) at project closure, up from 23\.6% in 2009 and well above the targeted 83%\. Under the institutional strengthening activities: • In support of planning, the agenda of the State Logistics Development Plan (SLDP) along the Tiete River was prepared and agreed, involving both public and private sectors (the target was the overall agenda of public and private sector actions to reduce logistics bottlenecks); two studies were produced on freight demand and aspects of the state’s transport planning that provided inputs for the State Plan for Logistics and Transport 2030 (PDLT), which was under preparation at the ICR stage\. • In support of environmental licensing, the environmental geo-reference system (DATAGEO) was developed that integrated various data related to land use and environmental information on the same map, and an on-line Integrated & Unified Environmental Licensing System (GAIA) was installed in 2015 to assist potential applicants in the process of permit requests, although the modules related to the actual issuing of licenses were still being tested at project closure\. • In support of private sector participation, a toolkit for processing PPPs and an on-line platform were developed in all infrastructure sectors to increase the efficiency and transparency of the process\. The platform was institutionalized by a government decree 61371 of July 25, 2015\. While private and external investments toward the state’s projects in 2011-2014 increased to R$25\.6 billion in total (including metro, highway, and energy projects), as compared to R$11\.6 billion in 2009 and surpassing the target, this is influenced by many factors beyond the project contribution (ICR, Result’s Framework)\. • In support of efficiency and improved public sector management capacity in the road sector, the Pavement Management System (PMS) was partially developed and was not yet operational at project closure\. The progress included the database system of the road inventory and geo-references of the state and municipal road network installed by DER-SP, a statewide traffic volume survey, and introduction of the  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BR Sao Paulo Feeder Roads Project(P106663) Highway Development and Management Model (HDM-4)\. The structuring and management of the State Investment Program was cancelled\. The project helped pilot the monitoring and evaluation frameworks of “budget by results” (performance-based budget management) related to government expenditures on education and penitentiaries for the state administration secretariat in 2014 and the education secretariat in 2015\. Outcomes • The rehabilitation of the municipal roads under the Pro-Vicinais program resulted in an estimated reduction of economic costs to users of 7\.7% between 2011 and 2014, surpassing the target of 5\.7%\. • 91% of road users reported that they were satisfied with the road improvements, surpassing the target of 75%\. The results are based on the interview surveys of road users of the paved municipal road network that was improved under the 3rd and 4th phases of the Pro- Vicinais Program\. The survey was carried out by DER-SP in 2015 and involved 2,047 users (2,078 light vehicles and 380 heavy vehicles)\. The reason for lack of satisfaction was the fact that some roads do not have a shoulder lane, which was not included in the program’s scope due to low cost effectiveness, as explained by the ICR p\. 14\. • With regard to improved efficiency at the institutional level, efficiency gains were reported in evaluation of the environmental licensing requests for medium and small projects: the turn-around time was 120 days at project closure, improving from 240 days in 2009 and surpassing the target of a 30% improvement\. The efficiency indicator related to the reduction of the average delay in civil works contracts under the Pro-Vicinais Program was dropped and not reported\. The ICR explains that the duration period of contracts was short, and external factors beyond the control of DER-SP could affect their implementation, for example the wet season\. The ICR does not provide other evidence that the efficiency related to the municipal roads network improved at the institutional level\. While most of the outputs were delivered as planned, some were clearly in support of the State’s capacity in handling projects in infrastructure and other sectors at the state level, rather than at the municipal level\. The planned support to municipalities in defining and implementing mechanisms for sustainable maintenance of municipal networks was not carried out\. Overall, the implementation of the institutional strengthening activities was less efficient, affecting the expected results, in particular with respect to development of the new pavement management system, which was still not operational at project closure\. Rating Substantial 5\. Efficiency The ex-post Economic Internal Rate of Return (EIRR) for the 3rd and 4th phases of the entire Program was estimated at 36\.6% with NPV of R$620 million at a 12 percent discount rate at a 2010 price\. The economic analysis was conducted on the sample of road sections of 1,053 km that represented 17% of all sections under the 3rd and 4th stages\. It followed the methodology used during the Additional Financing (AF), which assessed the 3rd and 4th phases of the Pro-Vicinais program\. Using the Highway Development and Management Model (HDM-4), the benefits were calculated for the reduction of vehicle operating costs and passenger time costs, along with the reduction of maintenance costs to the road agency, when compared to a “do minimum”\. At the time of the AF, the EIRR for the 3rd phase was estimated at 40\.7% with an NPV of R$885 million and the EIRR for the 4th phase was 20\.5% with an NPV of R$544 million at a 12% discount rate\. A slight decrease in the NPV value as compared to the AF estimate was explained by a lower traffic growth rate applied to the ex-post evaluation (1%) compared to the one at the AF (3%)\. An ex-ante economic analysis was done for the road sections of the 2nd phase based on the assumption of its homogeneity to the 3rd phase in terms of the road characteristics\. The estimated ex-ante EIRR was 35\.2% with NPV of R$ 521 million, at a 12 % discount rate\. The analysis used the HDM-4\. The project implementation period was one year longer than planned due to delays in the institutional strengthening activities, while the road works were completed as scheduled\. There was a high cost overrun on the road works, which triggered the Additional Financing to cover half of the originally planned volume of roads works (700 km out of 1500 km)\. The cost overrun is explained by an unfavorable exchange rate during the first year of project implementation and the increased work due to the application of heavier than originally estimated solutions as a result of the improved engineering standard developed under the project to increase the sustainability of the municipal road assets (ICR, p\.5)\. As explained by the AF Project Paper (p\.4), there was underestimation of the costs of works at the preparation stage that were based on the prices of the Program's earlier phases\. Technical solutions had therefore to be adjusted to the more deteriorated conditions  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BR Sao Paulo Feeder Roads Project(P106663) of the roads\. Efficiency Rating Substantial a\. If available, enter the Economic Rate of Return (ERR) and/or Financial Rate of Return (FRR) at appraisal and the re-estimated value at evaluation: Rate Available? Point value (%) *Coverage/Scope (%) 0 Appraisal  35\.20 Not Applicable 0 ICR Estimate  36\.60 Not Applicable * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome The relevance of objectives is rated high, and that of design is substantial\. The project achieved its objective of improving the efficiency of the paved municipal road network to a substantial extent, albeit with minor shortcomings at the institutional level\. Efficiency is assessed as substantial\. a\. Outcome Rating Satisfactory 7\. Rationale for Risk to Development Outcome Rating • The municipal roads under the Program are reported to be maintained by the municipal governments, according to their agreement with the State, which was one of the requirements for participating in the Program\. The ICR (p\.19), however, adds that financing of the municipal roads continues to raise doubts in terms of the capacity of the local governments to live up to the actual needs of future maintenance\. Although municipal governments are responsible for municipal roads, historically DER-SP has been in charge of developing and maintaining the network, as explained by the ICR\. • The outcomes of the technical assistance activities under the institutional strengthening component are likely to be sustainable as they are being incorporated into the operational processes in the state agencies\. a\. Risk to Development Outcome Rating Modest 8\. Assessment of Bank Performance  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BR Sao Paulo Feeder Roads Project(P106663) a\. Quality-at-Entry The project was seen at the time of appraisal as an opportunity for the Bank to re-engage with the state of Sao Paulo in the inter-urban transport sector (the last operation had closed in the 1980s)\. The project design relied on the government-led program and responded to the middle-income countries (MIC) agenda by providing high value technical support to a sophisticated client\. At the time of appraisal, works under the Pro-Vicinais Program's 1st phase (2,100 km financed by the Borrower at a total cost of US$175 million) were near completion, works under the 2nd phase (2,550 km at a cost of US$117 million financed by the Borrower and with a US$180 million loan from the Inter-American Development Bank) were ongoing, and under the 3rd phase, bidding of civil works (3,100 km) was underway and was to be supported by the project\. While most risks were assessed appropriately and mitigation measures were identified, one risk related to the preparation of complex information management systems was not identified at the time of appraisal and eventually led to delays in the institutional strengthening component\. The cost estimates were underestimated at the preparation stage, as the condition of roads had deteriorated, thus requiring a different technical design, as acknowledged in the AF Project Paper (p\.4)\. The fiduciary and safeguard arrangements proved to be adequate, while the project’s results framework had shortcomings (see Section 3)\. Quality-at-Entry Rating Moderately Satisfactory b\. Quality of supervision Supervision missions were carried out more than twice a year on average\. The project’s mid-term review was advanced by about six months, as the disbursement exceeded 50% of the loan amount within the first two years of project implementation\. Overall, the officials interviewed for the ICR confirmed that the presence of the Bank provided helpful technical advice, and that in some cases it was instrumental in ensuring a bidding process lead to the best choice of consulting firms (p\.20)\. The project team was active in supporting the institutional activities, emphasizing the need to speed up the launching of technical assistance activities under the project; however with a one- year extension of the project closing date, the pavement management system was not yet operational at project closure\. The ICR (p\. 20) points out that the Bank could have been more proactive in supporting municipalities on the sustainable maintenance mechanisms of municipal networks\. Quality of Supervision Rating Moderately Satisfactory Overall Bank Performance Rating Moderately Satisfactory 9\. Assessment of Borrower Performance a\. Government Performance The Borrower was the State of São Paulo, represented by its Finance Secretariat\. The São Paulo Government's commitment was strong throughout the project implementation\. It provided the necessary funding as per commitments\. The Pro-Vicinais Program supported by the State was implemented in less than five years and improved about 12,000 km of municipal roads\. Government Performance Rating Satisfactory b\. Implementing Agency Performance The State Road Administration (DER-SP) was the implementing agency of civil works under the program, and was also responsible for the coordination of information gathered from the State Secretariat of Planning and Regional Development (SPDR), the State Secretariat of Logistics and Transport (SLT) and the State Environment Secretariat (SMA) on procurement planning, certification of bills, progress monitoring and reporting on the indicators\. The DER-SP performed well in the implementation of civil works and management of the  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BR Sao Paulo Feeder Roads Project(P106663) project (technical, fiduciary, and safeguards)\. However, the implementation of the Pavement Management System was delayed until late into the project execution period and was not operational by project closure\. The SMA’s performance was rated by the ICR as highly satisfactory; at the same time, the ICR (p\.25) notes with regard to the development of a pilot system of collecting site survey data that the strategy changed and the services were cancelled in the middle of contracts\. SLT and SPDR dropped some of the original proposed studies, and it took time before the final scope of their components were defined\. There were also some minor shortcomings in financial management (see Section 11 below)\. On balance, performance is assessed as Moderately Satisfactory\. Implementing Agency Performance Rating Moderately Satisfactory Overall Borrower Performance Rating Moderately Satisfactory 10\. M&E Design, Implementation, & Utilization a\. M&E Design The results framework included two outcome indicators and six intermediate indicators, and most had baselines and targets set at appraisal (PAD, Annex 3)\. The outcome indicators were clear and measurable, though some intermediate indicators were not clear (i\.e\., the agenda of public and private sector actions to reduce logistics bottlenecks agreed with key stakeholders) or attributable (i\.e\., private/external capital mobilized for financing state investment programs)\. The ICR (p\.10) adds that the indicators could have included an indicator to measure enhanced capacity of municipalities that are principally responsible for maintenance of municipal roads considering its importance in sustainability\. At the time of the AF in 2010, the indicator on the average percentage delay in the execution of civil works contracts was found to be unsuitable for measuring the efficiency in the implementation of civil work contracts as these had a short execution period, and was replaced by the Bank’s core output indicator related to the number of km of roads rehabilitated\. b\. M&E Implementation The ICR (p\.10) reports that the monitoring and evaluation (M&E) was implemented as planned\. Semi-annual reports were regularly submitted to the Bank on time and in a proper form\. The measuring result indicators included a satisfaction survey of 2,467 users of light and commercial vehicles\. The user’s satisfaction survey was part of the study supported by the project to assess the impact of the Pro-Vicinais program, however, as the ICR p\.15 explains there were challenges in insolating the impact of the road investments from other external factors, and the study was not finalized\. c\. M&E Utilization The ICR does not report on the M&E utilization but it is apparent that it was used for the evaluation of the achievement of its project's objective\. M&E Quality Rating Substantial 11\. Other Issues a\. Safeguards This was a ‘Category B’ project as rehabilitation and maintenance work was foreseen on existing roads and no significant negative impacts were expected\. The PAD (p\.23) reports that three Bank safeguard policies were triggered: Environmental Assessment (OP4\.01), Physical Cultural Resources (OP4\.11), and Involuntary Resettlement (OP 4\.12)\. No new safeguard policies were triggered during AF (AF Project  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BR Sao Paulo Feeder Roads Project(P106663) Paper, p\.8)\. Environmental Assessment\. The ICR (p\.11) reports that the Bank accepted Brazil’s procedures for the identification, prevention, and mitigation of the environmental impact of road rehabilitation, and DER-SP hired an environmental specialist to ensure that proper procedures were closely followed\. The ICR further states that there were no major impacts or safeguard compliance issues arising during project implementation\. The ICR does not report on the mitigation measures, if any, implemented during the project duration, and does not have an explicit statement of the project's compliance with this Bank safeguard policy\. Physical Cultural Resources\. The ICR does not report on this safeguard, which was triggered at both appraisal and at the time of the AF\. Involuntary Resettlement\. The ICR p\. 11 reports that Bank missions confirmed that the management of the risks and impacts identified under the Involuntary Resettlement safeguard policy was conducted in a satisfactory manner, and that there were no indigenous peoples present in, or with collective attachments to, the project area\. There was no land acquisition or physical displacement because all civil works and support activities were conducted on lands situated within the existing right of way\. The marginal widening of a road shoulder to improve road safety or drainage did not result in any adverse social effects on the land owners present in the project area\. The ICR (p\.11) also adds that very few indigenous peoples remain in the state of São Paulo - approximately 60,000 in all, or 0\.2 percent of the total population - and most of these live in urban areas\. None of the project roads are located in the vicinity of lands legally occupied or claimed by indigenous peoples\. b\. Fiduciary Compliance Procurement: The ICR p\.11 reports there were no procurement issues reported, and the procurement of goods, works, and services was carried out satisfactorily in accordance with agreed procedures\. Procurement processes of complex information technology services were lengthy and meticulously reviewed by the supervision team\. The Borrower (p\.35) mentions that there were disagreements between the Bank and DER-SP related to the legal principle of public works and services contracts due to the differences between the Bank’s guidelines and the recommended procedures of the external Supervising and Advisor Organizations to DER-SP\. This led to numerous discussions between the DER-SP procurement team and the Bank’s procurement experts, and eventually resulted in the delay of some bidding processes\. There were no reported cases of misprocurement\. Financial Management (FM)\. The Financial Management Specialist stationed in Brasilia periodically carried out formal FM supervision\. The ICR (p\.11) reports that the FM performance was downgraded from satisfactory to moderately satisfactory after August 2011 when some shortcomings were observed that included inconsistencies between the designated account balances presented by the project and the account balances observed by the external auditors through the state’s Integrated Financial Administration System (SIAFEM)\. Another shortcoming was the delay of DER in implementing the controllership department (hiring internal auditors)\.The audit reports were rated as satisfactory, although they were sent with delays, and in most cases included unqualified opinions about financial statements, except for 2013, as mentioned by the ICR p\.12 without further details\. c\. Unintended impacts (Positive or Negative) --- d\. Other --- 12\. Ratings Reason for Ratings ICR IEG Disagreements/Comment Outcome Satisfactory Satisfactory ---  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BR Sao Paulo Feeder Roads Project(P106663) Risk to Development Outcome Modest Modest --- Due to moderate shortcomings during Quality at Entry and Bank Performance Satisfactory Moderately Satisfactory Supervision (please, see relevant sections)\. Performance of the Implementing Agencies was assessed as Moderately Borrower Performance Satisfactory Moderately Satisfactory Satisfactory due to delays in implementation of the institutional strengthening activities\. Quality of ICR Substantial --- Note When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate\. 13\. Lessons Two lessons from the ICR are highlighted with some adaptation: • There is a need for sufficient lead-time and resources for consensus building on introducing new management systems involving complex procedural changes\. During the initial years of this project implementation, the internal deliberations on strategies and goals and definition of specifications for the management systems took significant time, leading to delays and subsequent extension of the project closing date\. • Sustainability of local road assets could be enhanced through assisting state-level institutions in supporting local governments\. While working with state-level government on implementing a program on rehabilitation of the local road network, there is an opportunity to be more proactively engaged at the local level to ensure sustainability of results\. 14\. Assessment Recommended? No 15\. Comments on Quality of ICR The ICR offers good insights into the project implementation experience and important details on the project design, activities, and monitoring\. Some aspects, however, are not clearly described or analyzed, in particular with regard to the institutional set-up on maintenance responsibilities for the municipal road network (for example, the ICR makes statements such as “Although municipal governments are responsible for municipal roads, historically DERSP has been informally in charge of developing and maintaining those networks” )\. Lessons are informative; though it would be advisable to maintain consistency in terminology for the types/classifications of roads between the text in the ICR and corresponding lessons\. The Project Cost and Financing Table (a) in Annex 1 has errors in cost calculation as the percentage of appraisal estimate\. The ICR also does not discuss if any issues which arose during implementation and does not report on the project’s compliance with the Bank’s Environmental Assessment safeguard policy\. The ICR omits that the project triggered a safeguard policy Physical Cultural Resources OP4\.11 and does not report on it\. It also says (p\. 11) that “Neither OP 4\.12 on Involuntary Resettlement nor OP 4\.10 on Indigenous People were triggered by the project”, while OP4\.12 was triggered at appraisal and at the time of the AF\.  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BR Sao Paulo Feeder Roads Project(P106663) a\. Quality of ICR Rating Substantial

REVIEW

P157923

 Document of The World Bank FOR OFFICIAL USE ONLY Report No: ICR00005129 IMPLEMENTATION COMPLETION AND RESULTS REPORT TF-A2340 ON A STATE AND PEACE BUILDING FUND (SPF) GRANT IN THE AMOUNT OF USD 4\.90 MILLION TO THE Government of Central African Republic FOR Local Connectivity Emergency Project (P157923) March 30, 2020 Transport Global Practice Africa Region Regional Vice President: Hafez M\. H\. Ghanem Country Director: Jean-Christophe Carret Regional Director: Riccardo Puliti Practice Manager: Nicolas Peltier-Thiberge Marc Marie Francois Navelet Noualhier, Aguiratou Task Team Leader(s): Savadogo-Tinto ICR Main Contributor: Shruti Vijayakumar  ABBREVIATIONS AND ACRONYMS CAR Central African Republic CEMAC The Central African Economic and Monetary Community CPF Country Partnership Framework DPF Development Policy Financing ESIA Environmental and Social Impact Assessment EU European Union FCV Fragile, Conflict, and Violence FER Fonds d’Entretien Routier, Road Fund FPA Fiduciary Principles Accord FY Fiscal Year GBV Gender-Based Violence GP Global Practice GDP Gross Domestic Product GNI Gross National Income GRM Grievance Redress Mechanism ICR Implementation Completion and Results Report IDA International Development Association – World Bank LCEP Local Connectivity Emergency Project LIPW Labor-Intensive Public Works M&E Monitoring and Evaluation MoU Memorandum of Understanding MINTP Ministère des Travaux Publics, Ministry of Public Works MINUSCA UN Multidimensional Integrated Stabilization Mission in the Central African Republic NGO Non-Governmental Organization OP Operational Policy PAP Project-Affected Persons PDO Project Development Objective RAP Resettlement Action Plan RCP Rural Connectivity Project RCPCA Plan National de Relèvement et de Consolidation de la Paix en Centrafrique, Plan for Recovery and Peace-Building RN8 Route Nationale No\. 8 – National Road No\. 8 SCD Systematic Country Diagnostic SPF State and Peace-Building Fund TF Trust Fund TTL Task Team Leader UN United Nations UNOPS United Nations Office of Project Services USD United States Dollars WB World Bank WBG World Bank Group  TABLE OF CONTENTS DATA SHEET \. ERROR! BOOKMARK NOT DEFINED\. 1\. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES \. 4 2\. OUTCOME \. 9 3\. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME \. 15 4\. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME \. 17 5\. LESSONS LEARNED AND RECOMMENDATIONS \. 19 ANNEX 1\. RESULTS FRAMEWORK AND KEY OUTPUTS \. 22 ANNEX 2\. PROJECT COST BY COMPONENT \. 30 ANNEX 3\. RECIPIENT, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS \. 31 ANNEX 4\. PHOTOGRAPHS \. 32 ANNEX 5\. SUPPORTING DOCUMENTS \. 36 ANNEX 6\. MAP OF PROJECT INTERVENTION \. 37  The World Bank Local Connectivity Emergency Project (P157923) DATA SHEET BASIC INFORMATION Product Information Project ID Project Name P157923 Local connectivity emergency project Country Financing Instrument Central African Republic Investment Project Financing Original EA Category Revised EA Category Partial Assessment (B) Partial Assessment (B) Organizations Borrower Implementing Agency Government of Central African Republic United Nations Office for Project Services Project Development Objective (PDO) Original PDO The PDO is to reconnect the population of the Northeast CAR to urban centers and local markets by rehabilitating the Kaga-Bandoro – Mbrès – Bamingui – Ndélé road\. The project will contribute to the State and peace building efforts by ensuring basic transport connectivity between poorly connected areas in districts situated in the lagging regions (North-East)\. This should contribute to: (a) revitalize local economy by providing temporary employment at local level; (b) facilitate the movement of goods and domestic trade; and (c) State redeployment for development through the Ministry of Equipment and Transport, Civil Aviation, and Integration (Ministère de l’Equipement et des Transport, de l’Aviation Civile et du Désenclavement – METACD) decentralized civil servants along the targeted road\. Page 1 of 37  The World Bank Local Connectivity Emergency Project (P157923) FINANCING FINANCE_TBL Original Amount (US$) Revised Amount (US$) Actual Disbursed (US$) Donor Financing TF-A2340 4,900,000 4,900,000 4,900,000 Total 4,900,000 4,900,000 4,900,000 Total Project Cost 4,900,000 4,900,000 4,900,000 KEY DATES Approval Effectiveness Original Closing Actual Closing 03-Apr-2016 15-Apr-2016 30-Sep-2019 30-Sep-2019 RESTRUCTURING AND/OR ADDITIONAL FINANCING Date(s) Amount Disbursed (US$M) Key Revisions 15-Jan-2018 3\.24 Change in Components and Cost KEY RATINGS Outcome Bank Performance M&E Quality Moderately Satisfactory Satisfactory Modest RATINGS OF PROJECT PERFORMANCE IN ISRs Actual No\. Date ISR Archived DO Rating IP Rating Disbursements (US$M) 01 07-Feb-2017 Satisfactory Moderately Satisfactory 1\.81 02 17-May-2017 Satisfactory Moderately Satisfactory 1\.81 03 23-Oct-2017 Satisfactory Moderately Satisfactory 3\.24 04 29-May-2018 Satisfactory Moderately Satisfactory 4\.90 05 14-Dec-2018 Moderately Satisfactory Moderately Satisfactory 4\.90 Page 2 of 37  The World Bank Local Connectivity Emergency Project (P157923) 06 21-Oct-2019 Moderately Satisfactory Moderately Satisfactory 4\.90 ADM STAFF Role At Approval At ICR Regional Vice President: Makhtar Diop Hafez M\. H\. Ghanem Country Director: Paul Noumba Um Jean-Christophe Carret Director: Pierre A\. Guislain Riccardo Puliti Practice Manager: Nicolas Peltier-Thiberge Nicolas Peltier-Thiberge Marc Marie Francois Navelet Marc Marie Francois Navelet Task Team Leader(s): Noualhier, Aguiratou Savadogo- Noualhier, Abel Paul Basile Bove Tinto ICR Contributing Author: Shruti Vijayakumar Page 3 of 37  The World Bank Local Connectivity Emergency Project (P157923) 1\. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES 1\.1 Context at Appraisal 1\. The Central African Republic (CAR) is one of the poorest and most fragile countries in the world\. As a landlocked country bordered by unstable neighbors, it has a long history of violence and conflict\. With a Gross National Income (GNI) per capita of US$581 in 2014, it ranked 187th out of 188th in the 2014 UN Human Development Index\. Since early 2013, CAR has experienced a massive political-security crisis, creating unprecedented humanitarian needs\. The conflict has had a negative effect on the fundamental underpinnings of society in the country, including the collapse of the economy, the erosion of the state’s capacity to reach and care for the population, and large-scale forced displacement\. 2\. The challenges faced by CAR are long-standing, and conflict and political violence predate the 2013 crisis\. The crisis is believed to be a result of long-lasting, structural fragility fueled by inadequate public sector governance and dysfunctional and weak institutions\.1 In 2015, the World Bank Group (WBG) and other donors prepared a Fragility Assessment of CAR, which concluded six drivers of conflict and fragility to explain how the crisis developed a cyclical aspect: (i) a lack of social cohesion at every level of society; (ii) political power concentrated in a very small elite with very little legitimacy; (iii) social and regional disparities between Bangui, the capital, and the periphery and between the East and the rest of the country; (iv) elite capture of scarce natural resources; (v) imputing and lack of prosecution of criminals; and (vi) a lasting state of insecurity\.2 The 2013 crisis was unprecedented in scale and had a particularly devastating impact, as half of the country’s GDP was lost\.3 Over 20 percent of the country’s population was displaced and 2\.7 million, over half of the population, needed humanitarian support\.4 3\. The crisis prompted a large-scale international response\. Peacekeeping interventions followed by the African Union (AU), France, the European Union (EU) and the United Nations (UN) forces as well as emergency relief by UN agencies and non-governmental organizations (NGOs)\. As the crisis deepened, the country descended into localized violence based on ethnic-religious lines\. The need to reinforce peacekeeping led to the 2014 UN Security Council Resolution 2149, which authorized the deployment of a 12,000-men strong UN peacekeeping force, known as the UN Multidimensional Integrated Stabilization Mission in the Central African Republic (MINUSCA), which replaced the former African Union peacekeeping mission (formerly MISCA) in September 2014\. 4\. National elections were held in February 2016, but challenges remain, and the conflict is not considered to be over\. The situation has continued to deteriorate with a rise in violence and fragmentation of armed groups in parts of the country\. At the time the project was prepared, there seemed to be clear consensus among local authorities about the priorities for the country: peace, reconciliation, security, followed by good governance, the provision of basic services, and economic development\.5 1 Systematic Country Diagnostic (SCD) for the Central African Republic, Report No\. 125268-CF, June 19, 2019 2 Ibid\. 3 Ibid\. 4 Local Connectivity Emergency Project, Project Paper, Report No\. PP1759, March 2016 5 SCD, June 2019 Page 4 of 37  The World Bank Local Connectivity Emergency Project (P157923) 5\. The World Bank (WB) was one of the main development partners to reengage\. The intervention was well-aligned to the main objectives of the WB\. The WB’s span of engagement included the CAR First State Consolidation Development Program (DPF, P160123), the CAR Policy Notes (P157806), the CAR Recovery and Peacebuilding Assessment (P160202), and the Turn Around Facility which led to the US$2 billion pledge in Brussels in November 2016\. As elaborated in the Country Engagement Note for the CAR FY 2016-20176, the priorities were to (i) restore core public sector institutions; (ii) provide basic support to livelihoods; and (iii) enhance basic social service delivery\. The operation was also aligned to recent WB analytical underpinning and strategies in Fragile, Conflict, and Violence (FCV) countries, notably the 2011 World Development Report on Conflict Security and Development\. The operational implications included a focus on deepening partnerships and plans for enhanced implementation of the UN-World Bank Partnership Agreements\. 6\. The State- and Peace-Building Fund (SPF) Trust Fund (TF) was able to quickly mobilize financing for this critical operation for rapid infrastructure reconstruction in the CAR\. The multi-donor TF was created in 2008 to finance innovative approaches to state and peacebuilding in regions affected by FCV\. It supports measures to improve governance, institutional performance, and reconstruction and development in countries emerging from, in, or at risk of sliding into crisis or arrears\. In particular, the TF supports pilot innovative initiatives that address the challenges of fragility and create a foothold for wider development involvement\. The SPF remains an important part of the WB’s broader efforts to address the drivers and impacts of FCV, and to contribute ultimately to peace, stability, and prosperity\. The project was processed under WB emergency procedures given the urgency of the needs\. 7\. At the time the project was prepared, the infrastructure deficit in CAR was enormous, particularly its road network\. Although the road network formed the backbone of the transport system in CAR, it remained underdeveloped and in poor condition\. Road density was low at only 1\.5km per 100km2 compared to an average of 15km per 100km2 for Sub-Saharan Africa\.7 Transit times remain high and many roads are only accessible for some months of the year\. Many communities were left isolated, exacerbated by the rainy season due to damaged and flooded roads and bridges\. 1\.2 Theory of Change (Causal Chain) 8\. The underlying logic of the proposed emergency intervention was clear\. The project was intended to ensure basic transport connectivity between poorly connected areas in districts situated in the lagging region of the Northeast of the country, which would contribute to peacebuilding and development efforts\. The project aims to reopen the section of the National Road No\. 8 (Route Nationale No\. 8, RN8) between the city of Kaga-Bandoro to the Northeast city of Ndélé, a gravel/earth road section of about 333km long\. RN8 was prioritized and selected as the main intervention of the project, and is the lifeline that runs through the Northeast of the country, from Sibut via Kaga- Bandoro, Ndélé and Birao to the Sudanese border\. It has a high symbolic value as it reconnects the capital Bangui to the marginalized Northeast, a hotspot following the 2013 rebellion\. 6 Country Engagement Note for the CAR FY 2016-2017, Report No\. 96209-CF, July 13, 2015 7 Project Paper, March 2016 Page 5 of 37  The World Bank Local Connectivity Emergency Project (P157923) 9\. The rehabilitation of RN8 enables the isolated rural populations of Northeast CAR to be physically connected to the country’s other urban centers, particularly the capital Bangui\. This would help to (i) revitalize the local economy by providing temporary employment and related cash transfers; (ii) facilitate the movement of goods and internal trade; (iii) make local governance more inclusive by engaging stakeholders and local communities in maintenance; (iv) redeployment of state authority through civil servants\. 10\. The intervention focuses on tangible outputs (i\.e\. improvement of roads, bridges, drainage etc\.) using Labor- Intensive Public Works (LIPW)8 where feasible\. This approach goes beyond infrastructure-building, to promote social cohesion and economic inclusion of the vulnerable populations, while fostering community ownership and reviving territorial connectivity along a humanitarian corridor\. 8Labor-Intensive Public Works (LIPW) tasks include clearing brush, manually opening diches, curing channels, and dealing with certain critical points as they arise\. Page 6 of 37  The World Bank Local Connectivity Emergency Project (P157923) 1\.3 Project Development Objectives (PDOs) 11\. The Project Development Objective (PDO), as stated in the Grant Agreement, is to reconnect the rural population of the Northeast part of the Central African Republic to urban centers and local markets by rehabilitating the Kaga- Bandoro – Mbrès – Bamingui – Ndélé road\. 1\.4 Key Expected Outcomes and Outcome Indicators 12\. The PDO indicators were as follows: • Number of direct beneficiaries (including share of women) provided with an all-season access to the Kaga-Bandoro – Mbrès – Bamingui – Ndélé road within a 2 km range under the project; • Average daily traffic (all types of vehicle included); and • Number of man-days created through Labor Intensive Public Works activities (including share of man- days created for women)\. 13\. Main beneficiaries\. The main intended beneficiaries were the villages along the Kaga-Bandoro – Mbrès – Bamingui – Ndélé road\. Reopening the road was expected to benefit 74 villages, accounting for more than 37,000 people and the recovery of traffic along the road\. The population would also benefit from the temporary employment generated through the LIPW and light maintenance, helping to revitalize the local economy\. The population would benefit directly from increased state presence and supervision through the redeployment of the Ministry of Public Works (Ministère des Travaux Publics, MINTP) civil servants in Kaga-Bandoro and Ndélé\. Furthermore, the reopening of this road, RN8, a commercial road linking Bangui to the border with Sudan, was of strategic importance for MINUSCA and was expected to also contribute to improving security along the road and fostering domestic and foreign trade along the corridor\. 1\.5 Components 14\. The US$4\.9 million Local Connectivity Emergency Project (LCEP) consisted of four components: a\. Component 1: Drainage Improvement (US$ 2\.8 million)\. This component finances the improvement of drainage, road signaling, and rain barriers along the Kaga-Bandoro – Mbrès – Bamingui – Ndélé road (333 km), including (a) the rehabilitation and construction of bridges, and box and pipe culverts; (b) the construction of ditches; (c) the provision and installation of rain barriers; (d) the provision and installation of road signaling through LIPW\. This project’s main activity and accounting for 51 percent of project costs, this component finances the construction of a new metal bridge over the Bamingui River to allow the crossing of the river during all seasons\. b\. Component 2: Road Protection and Maintenance (US$0\.5 million)\. This component includes the management of rain barriers, and the setting of light maintenance systems involving communities (“cantonnageâ€?) to ensure the protection and maintenance of the full length of road (333 km) during project implementation\. Page 7 of 37 The World Bank Local Connectivity Emergency Project (P157923) i\. Sub-Component 2\.1: Management of Rain Barriers (US$0\.15 million)\. This sub-component finances the management of 14 newly-installed rain barriers (one every 20-25km), provided and installed under Component 1, for the protection of the road\. The activities will contribute to restoring the national operating system of rain barriers, by (a) recruiting and training local agents; (b) restoring supervision from the MINTP at the local and national level; (c) setting a payment system ii\. Sub-Component 2\.2: Light Maintenance Systems (US$0\.35 million)\. This sub-component finances the implementation of a light maintenance system on the full length of the road (333 km)\. This system will allow the day-to-day local maintenance of the road for the duration of the project and progressively following road rehabilitation\. The system would be composed of segments of 20-25 km, each managed by a team composed of a chief cantonnier whom would manage 10 cantonniers\. It would include setting up a payment system and recruiting, training, and compensating local workers\. Local maintenance committees will be set up and trained in order to encourage the sustainment of the light maintenance system, which will be handed over to the MINTP for supervision and payment once the project ends\. c\. Component 3: Institutional Strengthening and Capacity Building (US$0\.4 million)\. This component focuses on carrying out a program of activities aimed at redeploying the Chefs de Services Préfectoraux to ensure proper supervision and monitoring of the project, including the rehabilitation and reconstruction of offices and supervision-related training for the Chefs de Service, and carrying out studies and workshops to identify lessons learned from project-related activities and assess the project impact\. i\. Sub-Component 3\.1: Redeployment of the Chefs de Service Préfectoral of the MINTP in the sous- prefectures (US$0\.3 million)\. This sub-component finances (a) the rehabilitation and re-equipment of MINTP offices in the sous-préfectures of Kaga-Bandoro and Ndélé; (b) job-related expenses (excluding salaries and compensations) for the Chefs de Service who will be in charge of the monitoring of the project; (c) the training of the Chefs de Service in order to be able to conduct proper supervision of the project\. ii\. Sub-Component 3\.2 Lessons Learned (US$0\.1 million)\. This sub-component will finance a study and a workshop for stakeholders, building on lessons learned from the project and other similar initiatives\. A baseline and impact study, taking into account the indicators of the project and the impact on economic activity once the project is completed will also be financed\. d\. Component 4: Project Management and Contingency Fund (US$1\.2 million)\. This component will finance the direct and indirect costs necessary for the implementation of the project\. The Fiduciary Principles Accord (FPA) provides 7 percent for indirect cost\. Direct costs related to project implementation by United Nations Office for Project Services (UNOPS) will be financed under this component\. Project management will also (a) include the hiring of a social specialist and a community facilitator to ensure the project implementation is well coordinated with local authorities; (b) a rapid development assessment at the community level to gather necessary data for successful project implementation; (c) inclusive engagement with local stakeholders and setting up a Grievance Redress Mechanism (GRM); (d) the provision of contingency funds to cope with unpredictable challenges during project implementation (US$0\.5 million)\. Page 8 of 37  The World Bank Local Connectivity Emergency Project (P157923) 15\. Initial project costs and project costs at completion are included in Annex 2\. 1\.6 Other Significant Changes 16\. Restructuring\. A Level 2 restructuring was approved on January 16, 2018\. The restructuring was intended to reallocate costs to cover the additional costs involved in the construction of the Bamingui Bridge, the main activity under the project (see Annex 2)\. It did not affect the theory of change for the project nor the originally expected outcomes\. 2\. OUTCOME Assessment of Achievement of Each Objective/Outcome 2\.1 Relevance of PDOs Rating: High 17\. At the time when the operation closed, the development objectives remained consistent with the Bank’s strategy\. The Country Partnership Framework (CPF), currently under preparation, is based on the major findings of the Systematic Country Diagnostic (SCD) published in June 2019\. The CAR SCD concludes that improved mobility is a critical aspect of an enabling environment for service delivery and income generation, whilst also helping to reduce the rural-urban divide that might otherwise emerge when state presence is limited to mostly urban areas due to security concerns\. To address the low levels of security, emergency investments in road corridors (for example, through labor-intensive programs) is specifically mentioned\. Moreover, while upsurges of violence and instability can be expected, creating an accountable state presence across the territory continues to be critical to addressing spatially inequitable service delivery\. In this regard, the operation continues to be highly relevant as it sought to address all three binding constraints defined in the SCD: (i) low levels of security; (ii) grievances and spatially inequitable service delivery; and (iii) inadequate growth and job creation\. To put CAR in a trajectory towards poverty reduction and growth, the need to address the country’s structural challenges including regional imbalances, weak institutions, and lack of state presence outside the capital remains highly relevant\. 18\. The project remains fully aligned with the Government’s Plan for Recovery and Peace-Building (Plan National de Relèvement et de Consolidation de la Paix en Centrafrique, RCPCA), which was enacted in late 2016, during project implementation\. The RCPCA identified the widening gap between the elite and the rest of the population, and the total neglect of large parts of the rural population, as root causes of the crisis\. It emphasized the need to improve road infrastructures across the country especially in rural areas\. The project remains relevant as it helped to open remote areas and foster access to market and trade\. CAR’s post-crisis transportation policy also outlines the importance of strengthening the capacity of sectoral institutions, especially outside the capital, and enhancing the rural transportation network and services to open-up remote areas and promote national cohesion\.9 9 Rural Connectivity Project, Project Appraisal Document, Report No\. PAD2199, June 2017 Page 9 of 37  The World Bank Local Connectivity Emergency Project (P157923) 19\. Recognizing the ongoing need to close the infrastructure gap, the operation paved the way for preparation of the $45 million IDA-financed Rural Connectivity Project (RCP)\. This is testament to the relevance of the project’s objectives, design, and implementation arrangements\. Given the emergency nature of the intervention, RCP is consolidating works in the same geographic area, while incorporating the lessons learned\. Reconnecting the isolated Northeast region of the country by reopening a key section of the RN8 remains a key objective of the follow-on operation, including the use of LIPW to create employment opportunities for vulnerable populations, which is contributing to reconciliation and stabilization efforts\. An additional financing for RCP is currently under preparation\. 2\.2 Achievement of PDO (Efficacy) Rating: Substantial 20\. The PDO of the project is to reconnect the rural population of the Northeast part of the Central African Republic to urban centers and local markets by rehabilitating the Kaga-Bandoro – Mbrès – Bamingui – Ndélé road\. This essentially entailed the physical improvements on the gravel/earth road to ensure connectivity, including improving the drainage system, the installation and maintenance of road signage and rain barriers, and the installation of a light maintenance system throughout the road section\. On the institutional and capacity building side, the project rehabilitated and equipped the MINTP’s prefectural service chief offices in both Kaga-Bandoro and Ndélé to ensure proper supervision\. 21\. By project closure, the objective of reopening the road had been met\. Two of the three PDO indicator target values had been achieved: a\. Direct project beneficiaries\. The number of targeted beneficiaries was met\. The reopening of the Kaga- Bandoro – Ndélé road directly benefited 74 villages along the road, accounting for more than 37,000 people\. The works have improved the traffic conditions\. Some parts of the road still do not have all-weather access as mechanized works were not completed on the entire stretch\. The main bottleneck on the road, Bamingui Bridge, was successfully constructed\. b\. Average daily traffic (vehicles per day)\. The number of vehicles per day recorded at project closure was 20 vehicles, well below the target of 120\. Although it did not meet the intended target, there is a significant improvement from the baseline of 3 vehicles\. Security conditions in the region is a major factor for the limited number of vehicles travelling on the corridor\. Generally, vehicle ownership in CAR remains very low and consists primarily of intermediate means of transport (bicycles, animal carts, motorcycles), especially in remote and isolated areas\. The number of registered vehicles and transport permits and overall traffic levels have declined dramatically because of looting and insecurity\. This has discouraged transport firms from operating in CAR\. In addition, overloading of vehicles has increased\. The benefits of the passable road may take some time to materialize in view of the limited number of transport vehicles and high levels of insecurity in the project area\. This indicator also highlights the difficulty in setting realistic baselines and forecasts in such FCV environments with crucial lack of data and connectivity, and high insecurity\. c\. Number of man-days created through the Labor-Intensive Public Works (including share of man-days created for women)\. At project closure, 100,830 man-days had been recorded, well exceeding the target of 75,000\. However, the sub-indicator on the share of man-days created for women was only 27 percent, and Page 10 of 37  The World Bank Local Connectivity Emergency Project (P157923) below the intended target of 33 percent, despite measures taken such as sensitization and awareness raising, and putting in place lotteries for employment, etc\. Workers employed under the project to conduct LIPW have been empowered through employment generated by the project\. More than 50 percent of the LIPW beneficiaries surveyed attested that these revenues have enabled them to obtain basic necessities (mattresses, beds, cooking utensils, clothes, radios, and telephones); 26 percent said they used it to build a decent home; 19 percent to provide health care for their families; 16 percent for food; and 13 percent for the child’s schooling\. 35 percent of beneficiaries surveyed invested in agricultural activities (e\.g\. acquisition of seeds and other inputs) and 32 percent have used it to purchase livestock\.10 22\. Beyond the chosen project indicators, the following are illustrative outputs that bear testimony to the project’s achievements with a limited amount of funds (photographs are included in Annex 4): a\. Construction of Bamingui Bridge: The main achievement of the project was the construction of a 45-meter and 4\.20-meter wide bridge over the Bamingui River\. The bridge, which was completed in May 2019, links the locality of Bamingui to Ndélé, an axis which is heavily used by MINUSCA, merchants from Sudan, South Sudan and Bangui\. Before the project, it was identified as a major bottleneck as the road had been almost impassable during the rainy season because of the rising waters from the Bamingui River\. The bridge was constructed using a participatory and inclusive approach through LIPW, mobilizing about 1,200 people and creating 11,000 man-days of employment over 9 months\.11 This approach has revitalized the local economy and ensured the construction has the full support of the surrounding communities\. One beneficiary woman who worked on- site commented\. “When it rains, the old bridge is flooded\. This makes it invisible and therefore impractical\. The construction of the bridge has really boosted the economy, since the work began, I’m selling better, and my business is doing well\.â€?12 The completion of the bridge is a notable achievement particularly given the challenges faced around the precarious security conditions in the area, the low capacity of enterprises in the area, and the excessive rain which disrupted works during the construction period\. Photographs of the bridge are included in Annex 4\. b\. Rehabilitation of Bridges and Culverts: Priority was given to critical points along the 333km road section\. Out of 78 structures identified by UNOPS for potential intervention, a total of 81 have been constructed/rehabilitated under the project\. c\. Supply and Installation of Rain Barriers and Road Signs: The project built and laid 12 barriers along the road, out of the 14 initially planned\. In addition, UNOPS installed 56 road signs in strategic points\. These were made according to safety and traffic code standards enforced in CAR\. d\. Rain Barrier Management: For the management of the 12 installed rain barriers under the project, 12 managers were recruited and trained (3 women and 9 men)\. Given the objective is to re-establish the national system of operating rain barriers, MINTP will take over supervision following project closure\. At the time of project closure, 11 of the 12 barriers were functional; and 1 is occupied by armed groups\. e\. Establishment of Community Maintenance System (“cantonnageâ€?): The project set up 13 maintenance teams, composed of 143 people, consisting of 159,660 man-days for light maintenance along the 333-km road\. 10 Ibid\. 11 UNOPS, Rapport Narratif Final, September 30, 2019 12 Ibid\. Page 11 of 37  The World Bank Local Connectivity Emergency Project (P157923) f\. Institutional Strengthening of MINTP: Given responsibilities are handed over to MINTP following project closure, it was necessary to rehabilitate and equip the offices of the prefectural services in Kaga-Bandoro and Ndélé as well as strengthen the technical capacity\. Under the project, two offices were rehabilitated (see photographs in Annex 4)\. They were equipped with adequate working equipment (computers, furniture, office supplies, motorcycles, etc\.), however utilization of offices was low given security problems\. Four training workshops for MINTP managers were held on (i) procurement; (ii) management of infrastructure projects; (iii) management of safety, health, environment, and social aspects; and (iv) road maintenance\. g\. The reopening of the road has stimulated activity along the road, including access to markets and other social services\. In contrast to project initiation, when activity along the road was limited, according to data collected at project closure, there are 12 markets on the road section, of which 9 are currently functional\. Of the 49 schools along the road section, 44 are currently in operation, consisting of 88 school buildings and 177 classrooms, serving 16,053 pupils, 6,212 of which are girls\. 23 of the 26 health facilities are operational, serving an average of 5,077 patients per month\. 23\. Despite the challenges faced, the project substantially achieved its overall outcome of reestablishing connectivity with the Northeast region in an emergency context\. This was primarily achieved with the completion of the construction of Bamingui Bridge, the project’s main activity, and a critical point on the RN8 between Kaga-Bandoro and Ndélé\. Looking forward and given the emergency nature of the intervention, the results achieved under the project would need to be consolidated by follow-on operations to ensure the sustainability of investments and to ensure all-weather access on the entire stretch of road\. 2\.3 Efficiency Rating: Substantial 24\. No cost-benefit analysis or estimate of the economic rate of return was undertaken during preparation, given the emergency nature of the project and the general lack of recent data for most of the territory\. The project design was based on cost effectiveness, i\.e\. maximizing the Bank’s added value and minimizing costs without forfeiting the quality of outputs\. 25\. From the outset, it was recognized that a business-as-usual approach would not work in the given context\. Private companies possessing the necessary equipment, machinery and skills were hard to come by, and were unlikely to go beyond the capital without security ensured, resulting in a high-risk premium\. This would impact value-for-money and imply procurement challenges\. UNOPS was already engaged in the scale-up of activities in CAR, and had the capacity and means to implement the project swiftly\. Overall project costs were not known as part of the works were undertaken by MINUSCA through force account\. Therefore, standard models (e\.g\. Road Economic Decision (RED) model) do not apply\.13 Moreover, as experienced under the LONDO Project (P152512), the use of labor-based method was proven to be a cost-effective alternative to equipment-based methods for road maintenance\. 13 Project Paper, March 2016 Page 12 of 37  The World Bank Local Connectivity Emergency Project (P157923) 26\. The project faced some shortcomings during project implementation due to competing priorities of MINUSCA and the worsening security situation\. Mechanized works under the project were to be carried out by MINUSCA, however they were hampered due to the low quality of work and lack of alignment with MINUSCA’s schedule and itinerary\. MINUSCA was unable to complete the full 333 km because of the worsening security situation and diversion of resources, and therefore UNOPS had to find an alternative solution to complete the works\. Since mechanized works needed to be done upstream, this impacted other project activities such as the LIPW and the installation of the rain barriers\. The completion of the construction of Bamingui Bridge was prioritized\. 27\. The change in the design of the Bamingui Bridge was the primary reason for the escalation in project costs\. Following the completion of technical studies (hydraulic, geotechnical, topographical, structural, environmental, and economic), the design of the bridge was amended from 23m to 45m in length and included a pedestrian walkway\. This new and more robust design of the bridge was validated by the project’s technical committee\. The financial impact was an increase of $400,000 (US$1\.6 million versus US$1\.2 million)\. A project restructuring was undertaken so primarily the project’s budget contingencies could be used to cover the additional costs\. 28\. The overall rationale for the project of improving connectivity and development in the region remains valid\. At the time of project closure, traffic remains extremely limited on the road\. However, as mentioned earlier, activity is picking up along the road including the operation of markets, schools, and health facilities\. The main socio-economic benefits include reduced transport costs, improved access to services such as schools, markets, and health clinics, employment creation through construction activities, and greater state presence\. Despite the lack of data, anecdotal evidence collected through interviews with beneficiaries point to the broader social and economic impacts of the project, which go beyond the individual to stimulate the recovery of communities\. According to one beneficiary interviewed, “We the people of Bamingui had never seen such a project in the area\. The bridge will really benefit the whole community\.â€?14 In addition, the project enabled greater state presence thanks to the rehabilitation and the re- equipment of the MINTP offices in Kaga-Bandoro and Ndélé\. 29\. The substantial rating is justified as even with a relatively small amount ($4\.9 million), the project was able to have a large impact\. Despites its challenges, without the project it is likely the Northeast region would continue to be isolated from the rest of the country\. The construction of Bamingui Bridge has transformed the region, and improvements along the road has reduced travel times, benefiting approximately 37,000 beneficiaries\. Without the project, it would have remained unpassable during part of the year particularly during the rainy season\. 2\.4 Overall Outcome Rating 30\. The overall outcome is rated Moderately Satisfactory\. The project achieved substantial efficacy, substantial efficiency, and remained highly relevant throughout its duration\. 14 UNOPS, Rapport Narratif Final, September 30, 2019 Page 13 of 37  The World Bank Local Connectivity Emergency Project (P157923) 2\.5 Other Outcomes and Impacts 31\. The LCEP supported the mobilization of additional funding and strengthened the dialogue with the Government and donors\. The pilot led to the preparation of a larger project, the $45 million IDA-financed Rural Connectivity Project (RCP)\. This project was designed to further strengthen the results achieved under the emergency grant in the Northeast basin, and incorporate the lessons learned\. Replicable best practices and implementation arrangements had been developed under the grant which facilitated preparation of the new operation\. The project served as a pilot for other projects and reflects how operations should be envisioned in such contexts – simple design, flexible and pragmatic execution, adaptable in high-risk environment, with a satisfactory result\. The team engaged on the project were closely involved in the policy dialogue with the Government and contributed to the preparation of Development Policy Financing (DPF), the SCD, CPF, and the RCPCA for CAR\. Moreover, the WB team has played a critical role as convener in coordinating with other donors in the transport sector to ensure alignment and to develop a broader road sector program for the country (under RCP)\. Sectoral engagement, implemented in parallel to the project, complemented the project and contributed in further strengthening institutional capacity\. 32\. The LIPW has helped affected populations to reduce their vulnerability and contributed to the reconciliation process\. Amid the crisis, the works was an effective way to stabilize critical areas by providing a source of employment, where security and government presence was weak\. The public lottery method ensured equal treatment with a view of empowering vulnerable groups\. Women were encouraged to submit their nominations\. Although women’s participation was generally low due to the scarcity of women working in infrastructure (27 percent share of man-days created for women versus a target of 33 percent), opportunities were given to women to work on sites, for example in food preparation, as part of the overall strategy to encourage women’s involvement in the project\. 33\. The project intervention area is highly exposed to Gender-Based Violence (GBV), and the project incorporated best practices in implementation\. Due to the remoteness of the area and the general security context, there was already a high incidence of GBV\. UNOPS, who was already well advanced on the matter, implemented specific provisions based on their own internal practices and on the recommendations of the WB’s Good Practice Note for Addressing GBV in Investment Projects Involving Major Civil Works (June 2018), as well as the CAR’s legal framework, the national strategy to combat GBV developed by the Ministry for the Promotion of Women, Family, and Protection of Children, with the involvement of other departments such as the Ministries of Justice, Health, and Education, in partnership with other UN agencies\. During implementation, attention was paid to both GBV and compliance with Occupational Health and Safety, which was included in the subcontract provisions\. There were no incidents of GBV reported during implementation of the project\. 34\. With a project component dedicated for institutional strengthening, the intervention has contributed to enhancing the longer-term development of CAR’s capacity and institutions\. Specifically, the rehabilitation and reequipment of MINTP offices in Kaga-Bandoro and Ndélé, the training of the Chefs de Service, and the redeployment of MINTP staff to conduct proper supervision of the project will enhance the Government’s ability to manage and supervise such projects in the future\. In addition, UNOPS’ On-Track approach was executed during project implementation, whereby Page 14 of 37  The World Bank Local Connectivity Emergency Project (P157923) hands-on technical assistance and inclusion of the government counterpart were part of the execution and monitoring of the project\. This would also ensure the sustainability of project investments\. 3\. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME 35\. The project was prepared under challenging circumstances amid civil unrest and growing tension\. The project aimed to mitigate the geographic divide between the isolated Northeast part of CAR by reopening the strategic RN8 between Kaga-Bandoro and Ndélé\. This was intended to prevent the de facto partition of the country and to re-establish state presence and security, ultimately contributing to reconciliation and stabilization efforts\. Humanitarian relief had been largely confined to stable areas, thereby reinforcing the disparity\. The project’s intervention area and targeted beneficiaries were therefore considered appropriate\. 36\. The team overcame multiple challenges during preparation\. The crisis and insecurity prevailing in the project area meant there was a general lack of data obtained from the Government\. Key pieces of information, such as an updated map of access constraints in the country, were obtained by expanding consultations to UN agencies and NGOs\. A map of the project intervention is included in Annex 6\. Furthermore, the joint WB/UNOPS/MINUSCA survey of the Kaga-Bandoro to Ndélé road during preparation15 allowed the team to fill core gaps including the need for the construction of the Bamingui Bridge and the overall costing of the project\. Partnerships and synergies between the Government, UNOPS, MINUSCA, and the World Bank were formalized during the implementation through Memorandums of Understanding (MoUs)\. 37\. The lack of state presence shaped the project’s design and activities\. At the time of preparation, many regional representatives of the MINTP were based in Bangui due to security concerns as well as the lack of proper facilities and equipment to work in the field\. This added to the challenge of supervising projects financed by the Government in those regions\. This was the key rationale for the capacity building activities financed under Component 3 of the project\. 38\. Given the low capacity of the Government, it was agreed to use the Fiduciary Principles Accord (FPA) which enables a UN agency to implement the project on behalf of the Government\. Under the FPA, the WB contracted UNOPS to implement the project according to UN fiduciary, procurement, and environmental and social safeguards policies, as stipulated in the FPA\. UNOPS was selected as the implementer of the project due to (i) the general lack of state presence in the targeted area; (ii) the availability of UN facilities and resources; (iii) the capacity of UNOPS for rapid deployment in the area; (iv) UNOPS’ expertise in conflict areas and infrastructure, as the UN agency mandated in this field of expertise\. Having UNOPS carry out these works was beneficial also for security reasons because the road passes through territory under control of different armed groups\. A MoU was signed between the Government, MINUSCA, and the WB on August 4, 2016\. This arrangement was designed to enable UNOPS to leverage MINUSCA’s presence and security support to implement the project in a highly volatile context\. MINUSCA would also undertake the mechanized works for the project using their equipment\. MINUSCA was assessed as the most optimal and available option that could 15 The preparation mission took place from February 2 to 10, 2016\. Page 15 of 37  The World Bank Local Connectivity Emergency Project (P157923) provide a balance of expertise, machinery, and security necessary to carry out the force account works under the project’s budget constraints, and in an extremely volatile security environment of the project\. Reopening the same road was also identified as a priority for MINUSCA following the 2016 rainy season\. 39\. Considering the urgent needs in CAR, the project was prepared under emergency procedures (Operational Policy (OP) 2\.30 Development Cooperation and Conflict, OP 8\.00 Rapid Response to Crises and Emergencies, and OP 10\.00 Paragraph 12 Situations of Urgent Need of Assistance\. From initiation to effectiveness, the total project preparation time was only four months, and the first disbursement followed two months later\. The project benefited from an expedited and simplified approval process which shortened the overall preparation time\. 40\. Key lessons from other WB engagements in CAR were considered during preparation\. Given the successful implementation of the LONDO Project, which provides temporary employment through LIPW throughout the country, the project utilized the same approach\. This provided the opportunity to revive the local economy, engage with local stakeholders, and foster community ownership\. The project also incorporated lessons from existing WBG activities in CAR including the Emergency Public Services Response Project, the Emergency Urban Infrastructure Project, and the CEMAC Transport and Transit Facilitation Project\.16 41\. The project was recognized as a high-risk intervention at the outset\. Three of the main risks identified at preparation eventually materialized during implementation: (i) technical issues emerging from the construction of Bamingui Bridge; (ii) stakeholder risk and the need to coordinate closely among civil and military actors, notably with MINUSCA for the provision of military escort and mechanized works; and (iii) the volatile security environment\. 42\. With these risks in mind, an appropriate set of stakeholders (WB, MINTP, MINUSCA, UNOPS) were engaged during preparation and implementation of the project, underscoring the importance of collaboration in a fluid environment\. The project’s technical coordination and steering committees ensured information sharing among the main actors and provided a platform for issues to be identified and resolved swiftly\. Following the first MoU between the WB, MINUSCA, and the Government on August 4, 2016 to frame a common understanding of the collaboration required during implementation, a second MoU was signed between UNOPS and MINUSCA on December 22, 2016 to outline the technical description and quality of tasks to be completed by each party\. 43\. During implementation the country experienced an upsurge in clashes between armed groups competing for territory and access to resources\. Each episode of violence brought more casualties and displacement, overstretching MINUSCA’s resources across the country, to the detriment of the project timeline and delivery\. In practice, the MoU did not work well and MINUSCA was unable to fulfill its obligations\. The mechanized works and the treatment of critical points undertaken by MINUSCA was incomplete and accounted for only 70 percent, or 230km of the road, with the quality standards below those agreed with UNOPS and referred to in the MoU\. Furthermore, MINUSCA deviated from the agreed itinerary on RN8 and carried out works on the 16 Project Paper, March 2016 Page 16 of 37  The World Bank Local Connectivity Emergency Project (P157923) Kaga-Bandoro-Balakete/Azene-Bamingui- Ndélé route, isolating the locality of Mbrès\. Given the security situation, the costs of the mechanized works that was proposed by local companies to complete the works significantly exceeded the available budget set aside for the work\. Given the burden fell on UNOPS, it was decided to concentrate efforts on finalizing the major works (e\.g\. Bamingui Bridge and the two large concrete box culverts in Mbrès) which would still achieve the project objective of restoring connectivity\. The rains have also damaged sections of the road where there had been no mechanized works\. In view of the lack of financial resources and the emergency nature of the interventions, this project will be followed by a consolidation phase along the Kaga-Bandoro – Mbrès – Ndélé section under the currently ongoing WB Rural Connectivity Project (P160500, RCP)\. 44\. High insecurity hindered project execution and results\. Dozens of armed groups operated in the Kaga Bandoro – Ndélé, making works even more challenging, and prevented the full operation of the rain barriers along the entire road\.17 For example, the construction of the large concrete box culverts in Mbrès involved multiple unsuccessful call for tenders due to the deteriorating security situation in the work area\. The contract was finally signed with a local company in June 2018 but works began only in December 2018\. The project financed the rehabilitation and re-equipment of offices in both Kaga-Bandoro and Ndélé, and training on maintenance and management of rain barriers\. However, the Chef de Service position in Kaga-Bandoro remained vacant for extended periods of time, despite promises made by the Ministry, and the Ndélé position was never filled\. Reports indicate armed groups have reportedly taken control of some offices\.18 These examples highlight the unique challenges of operating in FCV\. 4\. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME 4\.1 Bank Performance Rating: Satisfactory 45\. The Bank played a major role in facilitating preparation and recovery during the post-conflict transition\. The preparation time of just four months from initiation to approval was highly compressed\. Despite the tight timeframe, the quality at entry was considered adequate for an emergency operation with a focus on simple design and objectives\. The Bank brought sound technical design and expertise and recognized the capacity challenges on the ground, engaging an appropriate set of stakeholders\. 46\. Supervision was effectively undertaken from the World Bank side\. On average, two supervision missions were undertaken a year\. The Aide Memoires and Implementation Status Reports (ISRs) present clear recommendations for project implementation\. Task Team Leader (TTL) turn-over was low, with the same TTL in charge for the project lifetime which helped ensure continuity, particularly as the UNOPS team leader in CAR changed three times over the course of the project\. The Bank also took advantage to participate in sessions of the steering committee when they coincided with the missions\. 17 UNOPS, Rapport Narratif Final, September 30, 2019 18 Ibid\. Page 17 of 37  The World Bank Local Connectivity Emergency Project (P157923) 47\. Field visits remained a challenge as basic logistics and planning took a lot of coordination and planning with UNOPS and MINUSCA\. Kaga-Bandoro and Birao are considered to be hotspots of violence\. Most areas require the use of armed escorts, lodging on the MINUSCA base and the use of armored vehicles\. In addition, the timing of field missions was almost always dependent on the UN and/or MINUSCA flight schedules and availability, which changed frequently\. Supervision remains costly and challenging given the security constraints\. 4\.2 Compliance Issues 48\. Environmental and social safeguards, and fiduciary responsibilities were transferred to UNOPS under the FPA\. An Environmental and Social Impact Assessment (ESIA) and Environmental and Social Management Plan (ESMP) and a Resettlement Action Plan (RAP) were prepared for the project\. A team of experts from MINTP carried out monthly monitoring and missions to ensure mitigation measures were effectively being implemented according to the reports\. General reporting, including on environmental/social safeguards compliance, was generally satisfactory, and provided essential required information, although it was succinct and would have benefited from being more exhaustive\. 49\. The compensation of Project-Affected Persons (PAPs) took time to implement, particularly as a re- evaluation of the PAPs was carried out to take into account the new design of Bamingui Bridge\. The span increased from 22m to 45m, generating new loss of assets by the local populations\. The ESMP and RAP were updated to reflect this change\. Financing for compensation, to be borne by the Government, finally came from the Fonds d’Entretien Routier (FER), the road fund\. 50\. To facilitate implementation, the project put in place a robust communication and community mobilization plan\. Information and community awareness raising covered complaint mechanisms, dangers on the road, HIV/AIDS prevention, sensitization on the need to install rain barriers and prevent the deterioration of the road, and explanation on the criteria for selection for the LIPW and the equipment made available\. These mechanisms helped to ensure trust was built among community and between the community and project stakeholders\. (See photographs in Annex 4)\. 4\.3 Quality of Monitoring & Evaluation (M&E) M&E Rating: Modest 51\. Design\. The PDO was too ambitious in its wording: “reconnect the rural population of the Northeast part of the Central African Republic to urban centers and local marketsâ€?\. The project seemed to concentrate on connectivity to urban areas even though one of the PDO objectives was to also increase connectivity to markets\. The PDO indicators were not well-developed vis-a-vis the objectives as there were no PDO indicators for market connectivity\. In addition, the PDO was not constructed well enough to incorporate the institutional support and capacity building aspect of the project\. Page 18 of 37  The World Bank Local Connectivity Emergency Project (P157923) 52\. Implementation\. One of the main weaknesses in the M&E system was the challenging circumstances to collect data on-the-ground\. As noted during preparation, the main risk identified for the M&E framework was limited resources as data needed to be collected in the field and would require monitoring on a large scale of territory (e\.g\. number of beneficiaries)\. The security situation in the project area limited the collection of detailed information such as the socio-economic impacts of the project and indicators were not reported on regularly\. 53\. Utilization\. The project was not able to demonstrate improved market connectivity, access to social services, or the capacity building activities as this information was not captured in the PDO indicators\. Assessment of the project relies heavily on limited data, physical completion of works (e\.g\. the bridge) and anecdotal evidence, given the shortcomings in the M&E framework\. In addition, there was no comprehensive post- project impact assessment\. The project would have benefited from more systematic beneficiary surveys to capture the wider socio-economic benefits, as well as the use of remote monitoring tools\. 4\.3 Risk to Development Outcome 54\. The overall risk to development outcomes is rated High\. The project closed against a backdrop of sporadic and uneven improvement in the security situation in the country\. The recurrence of large-scale outbreaks of violence, if this were to happen, are likely to affect project investments\. About 75 percent of the country’s territory remain under control of rebel groups\. The social contract remains weak with no or little state presence in a large part of the country\. Although the project funded capacity building activities, attacks are constantly being reported, included some targeting civil servants, presenting problems for staff retention\. The probability that results will be maintained also depend on the ability of the Government to maintain the road and sustain LIPW\. The lack of history of maintenance, the limited devoted funding, and a constrained macro- economic context presents an overall risk\. However, through its engagement in the DPF and the RCP (which is preparing an additional financing), the WB is supporting CAR to improve its maintenance practices\. Improved maintenance would be required to fully support the continued flow of benefits from the rehabilitated roads in the longer term\. The project was not necessarily designed for sustainability of outcomes, given the emergency nature and the rapid response intended, but the project sought to assure it, where possible, by emphasizing a hands-on approach and technical assistance for counterparts\. 5\. LESSONS LEARNED AND RECOMMENDATIONS 55\. A pilot project, such as this one, is an effective method to scale up small, targeted investments to incrementally build a larger portfolio\. This $4\.9 million investment led to the preparation of the $45 million IDA-financed RCP\. The project design was developed based on this pilot, and the same team was involved in the preparation both on the government and WB side, therefore leveraging efficient use of resources and carrying forth institutional knowledge and key lessons learned\. 56\. A simple, flexible, and focused project design works best in fragile and evolving contexts\. In an emergency context with low capacity in-country, even simple, concrete interventions can have a substantial impact on Page 19 of 37  The World Bank Local Connectivity Emergency Project (P157923) the population\. The project also benefited from the shortened processing timeline and simplified procedures, with overall positive development outcomes, despite the small dollar amount\. Flexible project arrangements are important in achieving results\. It is with this modular perspective in mind that the new RCP was designed to include two different geographies, involving both UNOPS and the Government as implementing partners\. The use of contingency funds to account of the design changes on the Bamingui Bridge highlights the importance of allocating and maintaining a contingency budget from the beginning, particularly for projects operating in volatile and data-scarce contexts such as CAR\. 57\. Collaboration across Global Practices (GPs) and institutions is important, particularly early in the preparation and design stages\. Important cross-GP collaboration and field missions during preparation allowed the team to (i) tailor interventions based on specific criteria (e\.g\. security situation and prospects, accessibility to sites, costing within budget); (ii) find, link and select key partners for the project (MINTP, MINUSCA, UNOPS), and (iii) address the data gap with consultations with UN agencies and NGOs, as well as the carrying out of a field mission facilitated by UN peacekeeping logistics and security\. On this project, the Governance and Social, Urban, Rural and Resilience (SURR) GPs as well as the FCV Cross-Cutting Solutions Areas added value in both the design and the implementation of the project, thanks to their respective knowledge and lessons learnt of (i) CAR environment of Civil Society Organizations/NGOs; (ii) the LONDO Project (including LIPW); and (iii) UN system, UN Department of Peacekeeping Operations (DPKO), and security requirements to operate in such environment\. 58\. Institutional strengthening and capacity building take time to realize benefits\. The project had a capacity building component, yet for the initial investment to pay off requires long-term engagement to ensure that institutional support is secured over more than one short project lifecycle\. The RCP provides a good platform to continue institutional strengthening and building the capacity with the same set of stakeholders\. There is a balance between realization of activities in a short amount of time and investment on capacity building for sustainability\. Keeping this in mind, projects should consider how capacity can be transferred to national authorities following closing so that governments can decrease reliance on external assistance over time\. This would also ensure greater ownership within the government\. 59\. The Bank has an important role to play as a convener and in coordinating donor efforts\. This is key particularly when a large amount of funds is flowing in from multiple donors as the country emerges from conflict\. The Bank is playing a vital role in CAR in the transport sector\. At a strategic level, the WB continues to participate in donor’s conferences (e\.g\. the Brussels Conference which took place on November 17, 2016 US$2\.06 billion was pledged for CAR)\. At an operational level, the follow-on RCP is financing a study to develop a road sector investment program which will be relevant for other donors in the sector to ensure complementary and efficiency in investments\. 60\. The security constraints in FCV settings require innovation in monitoring and supervision, as well as during the design stage\. When circumstances make it difficult for TTLs to undertake supervision in certain areas, other WB projects have contracted out third-party monitoring firms, however this remains a very costly option\. Given the challenges of organizing and conducting field visits, teams operating in fragile and conflict settings can consider innovations such as the WB’s Geo-Enabling Initiative for Monitoring and Supervision Page 20 of 37  The World Bank Local Connectivity Emergency Project (P157923) (GEMS) and integrating its remote supervision capacities into the M&E framework\. This would also help ensure improvement of M&E usefulness and accuracy\. It could also help to administer perception/beneficiary surveys and help capture results on intangible outcomes such as social cohesion\. In addition, the absence of project team staff in-country also presented challenges both in high supervision costs and monitoring of project progress\. Recognizing the constraints, the transport team has since filled a full-time staff member based in Bangui\. Moreover, security problems hampered the road project and therefore needs to be thoroughly assessed and considered during project design\. Most of the failures in this project result from the security conditions which did not allow smooth project implementation or the attainment of the objectives in terms of traffic, state redeployment, and road rehabilitation\. 61\. In a difficult and unstable environment and context, road infrastructure projects should focus on essential works including spot improvement or building critical bridges to restore connectivity, instead of trying to reopen/rehabilitate a maximum road length\. The main achievement of this project was the construction of Bamingui Bridge\. The target of improving 333 km of road was not reached\. This is not the only road project which at the end shifted from road spot improvement to bridge construction because of difficult circumstances\. In addition, bridges are considered more sustainable since they often require less frequent maintenance compared to earth roads\. 62\. A stronger partnership with peacekeeping forces (e\.g\. MINUSCA) is needed to fully embed them in the project design\. The WB did not have enough leverage to alter MINUSCA’s itinerary and work program to fulfill its obligations as agreed during preparation\. MINUSCA’s responsibilities, as spelled out in the MoU, was not fully fulfilled\. This had a detrimental impact on the project and required alternative solutions to complete the project objectives\. Despite the signed MoU and several meetings with high-level officers, including the Chief Commander, it was difficult to gain leverage for project implementation as the incentives and strategic priorities of MINUSCA were not aligned perfectly with the WB\. The lack of institutional knowledge and leverage with the DPKO refrained the implementation team in being more effective\. \. Page 21 of 37  The World Bank Local connectivity emergency project (P157923) ANNEX 1\. RESULTS FRAMEWORK AND KEY OUTPUTS A\. RESULTS INDICATORS A\.1 PDO Indicators Objective/Outcome: The PDO is to reconnect the population of the Northeast CAR to urban centers and local markets by rehabilitating the Kaga-Bandoro –Mbrès – Bamingui – Ndélé road\. Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Direct project beneficiaries Number 0\.00 37000\.00 37000\.00 37000\.00 01-Mar-2016 01-Mar-2016 01-Mar-2016 12-Oct-2018 Female beneficiaries Percentage 0\.00 50\.00 50\.00 50\.00 01-Mar-2016 01-Mar-2016 01-Mar-2016 12-Oct-2018 Comments (achievements against targets): The target was fully achieved\. Page 22 of 37  The World Bank Local connectivity emergency project (P157923) Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Average daily traffic (all types Number 3\.00 120\.00 120\.00 20\.00 of vehicle included) (vehicle per day) 01-Mar-2016 01-Mar-2016 01-Mar-2016 12-Oct-2018 Comments (achievements against targets): The target was not fully achieved\. Security conditions in the region is a major factor for the limited number of vehicles travelling on the corridor\. Generally, vehicle ownership in CAR remains very low and consists primarily of intermediate means of transport (bicycles, animal carts, motorcycles), especially in remote and isolated areas\. The number of registered vehicles and transport permits and overall traffic levels have declined dramatically because of looting and insecurity\. This has discouraged transport firms from operating in CAR\. In addition, overloading of vehicles has increased\. Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Number of man-days created Number 0\.00 75000\.00 75000\.00 100830\.00 through the Labor Intensive Public Works activities 01-Mar-2016 01-Mar-2016 01-Mar-2016 12-Oct-2018 (including share of man-days created for women) Share of man-days created for Percentage 0\.00 33\.00 33\.00 27\.00 women 01-Mar-2016 01-Mar-2016 01-Mar-2016 12-Oct-2018 Comments (achievements against targets): Page 23 of 37  The World Bank Local connectivity emergency project (P157923) The target was exceeded\. However, the sub-indicator for share of man-days created for women was only partially achieved despite measures taken including awareness raising, sensitization, and lotteries for employment\. A\.2 Intermediate Results Indicators Component: Component 1: Drainage Improvement Component 2: Road Protection and Maintenance Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Number of bridges Number 0\.00 13\.00 13\.00 12\.00 rehabilitated 01-Mar-2016 01-Mar-2016 01-Mar-2016 12-Oct-2018 Comments (achievements against targets): The target was largely met\. Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Number of bridges constructed Number 0\.00 1\.00 1\.00 1\.00 01-Mar-2016 01-Mar-2016 01-Mar-2016 12-Oct-2018 Comments (achievements against targets): Page 24 of 37  The World Bank Local connectivity emergency project (P157923) The target was fully achieved\. Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Number of culverts Number 0\.00 49\.00 49\.00 25\.00 rehabilitated 01-Mar-2016 01-Mar-2016 01-Mar-2016 12-Oct-2018 Comments (achievements against targets): The target was only partially met (~50%) due to the diversion of MINUSCA's resources and the prioritization of the construction of Bamingui Bridge\. Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Number of culverts Number 0\.00 57\.00 57\.00 57\.00 constructed 01-Mar-2016 01-Mar-2016 01-Mar-2016 12-Oct-2018 Comments (achievements against targets): The target was fully achieved\. Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Page 25 of 37  The World Bank Local connectivity emergency project (P157923) Number of ditches Meter(m) 0\.00 200000\.00 200000\.00 63000\.00 constructed 01-Mar-2016 01-Mar-2016 01-Mar-2016 12-Oct-2018 Comments (achievements against targets): The target was only partially met due to the diversion of MINUSCA's resources and the prioritization of the construction of Bamingui Bridge\. Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Number of rain barriers Number 0\.00 14\.00 14\.00 12\.00 constructed 01-Mar-2016 01-Mar-2016 01-Mar-2016 12-Oct-2018 Comments (achievements against targets): The target was largely achieved\. Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Number of functioning rain Number 0\.00 14\.00 14\.00 12\.00 barriers 01-Mar-2016 01-Mar-2016 01-Mar-2016 12-Oct-2018 Comments (achievements against targets): Page 26 of 37  The World Bank Local connectivity emergency project (P157923) The target was largely achieved\. Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Number of kilometers of road Kilometers 0\.00 333\.00 333\.00 333\.00 maintained under the project 01-Mar-2016 01-Mar-2016 01-Mar-2016 12-Oct-2018 Comments (achievements against targets): The target was essentially met as even though only 234km of the road was subject to mechanized works (due to the diversion of MINUSCA's resources), the full length of the road (333km) was manually maintained by UNOPS and community-based maintenance schemes\. Component: Component 3: Institutional Strengthening and Capacity Building Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Number of MINTP offices Number 0\.00 2\.00 2\.00 2\.00 rehabilitated and re-equipped 01-Mar-2016 01-Mar-2016 30-Sep-2019 12-Oct-2018 Comments (achievements against targets): The target was fully met\. Page 27 of 37  The World Bank Local connectivity emergency project (P157923) Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Number of technical assistance Number 0\.00 4\.00 4\.00 4\.00 workshops delivered to MINTP 01-Mar-2016 01-Mar-2016 30-Sep-2019 12-Oct-2018 Comments (achievements against targets): The target was fully achieved\. Page 28 of 37  The World Bank Local connectivity emergency project (P157923) B\. ORGANIZATION OF THE ASSESSMENT OF THE PDO Objective/Outcome 1 The PDO is to reconnect the population of the Northeast CAR to urban centers and local markets by rehabilitating the Kaga-Bandoro – Mbrès – Bamingui – Ndélé road\. 1\. Direct project beneficiaries (including women) 2\. Average daily traffic Outcome Indicators 3\. Number of man-days created through the Labor-Intensive Public Works activities (including share of man-days for women) 1\. Number of bridges rehabilitated 2\. Number of bridges constructed 3\. Number of culverts rehabilitated 4\. Number of culverts constructed 5\. Number of ditches constructed Intermediate Results Indicators 6\. Number of rain barriers constructed 7\. Number of functioning rain barriers 8\. Number of km of road maintained under the project 9\. Number of MINTP offices rehabilitated and re-equipped 10\. Number of technical assistance workshops delivered to MINTP Component 1 and 2: 1\. Km of roads rehabilitated/maintained 2\. Number of bridges constructed/rehabilitated Key Outputs by Component 3\. Number of culverts, ditches, rain barriers constructed/rehabilitated (linked to the achievement of the Objective/Outcome 1) 4\. Number of man-days created (temporary jobs) Component 3: 5\. Number of MINTP offices rehabilitated and re-equipped 6\. Number of workshops delivered to MINTP Page 29 of 37  The World Bank Local connectivity emergency project (P157923) \. ANNEX 2\. PROJECT COST BY COMPONENT Amount at Approval Actual at Project Closing Component Name (US$M) (US$M) Component 1: Drainage Improvement 2\.80 3\.37 Component 2: Road Protection and 0\.50 0\.46 Maintenance Component 3: Institutional 0\.40 0\.37 Strengthening and Capacity Building Project Management and Contingency 0\.86 0\.36 Fund UNOPS General Management Support 0\.34 0\.34 Total Project Cost 4\.90 4\.90 Page 30 of 37  The World Bank Local connectivity emergency project (P157923) ANNEX 3\. RECIPIENT, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS UNOPS: A draft of the ICR was shared with UNOPS\. Minor comments were provided in track changes and were incorporated in the document\. Government: A draft of the ICR was shared with Government\. The following comments were received: Bonjour Madame le Chargé de Projet, Nous avons bien pris connaissance du rapport d'achèvement du Projet d'Urgence de Connectivité Locale et nous apprécions hautement la qualité du rapport qui retrace les points forts et les faibles du dispositif ayant permis le déploiement des activités programmées\. Nous souhaitons vivement que les enseignements tirés et les recommandations faites de la réalisation de ce projet puissent être capitalisés et bénéficiés au nouveau projet de connectivité qui se met résolument en oeuvre dans la même zone et dans les mêmes circonstances\. Au nom du Coordonnateur Intérimaire, nous approuvons ce rapport et demandons que sa version finale approuvée nous soit communiquée pour toutes fins utiles\. Bien cordialement, Bigué-Kola Reginald Expert Principal en Passation des Marchés English Translation: Good Morning Project Manager, We have taken note of the completion report of the Local Connectivity Emergency Project and we highly appreciate the quality of the report, which describes the strengths and weaknesses of the system that enabled the deployment of the planned activities\. We sincerely hope that the lessons learned, and the recommendations made during the implementation of this project can be capitalized and benefit the new connectivity project which is being resolutely implemented in the same area and under the same circumstances\. On behalf of the Interim Coordinator, we endorse this report and request that its final approved version be communicated to us for all purposes\. Yours sincerely Bigué-Kola Reginald Senior Procurement Expert Page 31 of 37  The World Bank Local connectivity emergency project (P157923) ANNEX 4\. PHOTOGRAPHS Old Bamingui Bridge prior to Construction: Bamingui Bridge during Construction: Page 32 of 37 The World Bank Local connectivity emergency project (P157923) Completed Bamingui Bridge: Page 33 of 37 The World Bank Local connectivity emergency project (P157923) Labor-Intensive Public Works: Community mobilization/awareness-raising and public lottery activities: Page 34 of 37 The World Bank Local connectivity emergency project (P157923) Old and Rehabilitated Office in Kaga-Bandoro: One of the Constructed Rain Barriers: Training Workshops: Page 35 of 37  The World Bank Local connectivity emergency project (P157923) ANNEX 5\. SUPPORTING DOCUMENTS • UNOPS, Rapport Narratif Final, September 30, 2019 (UNOPS Completion Report) available at: http://wbdocs\.worldbank\.org/wbdocs/drl/objectId/090224b0876e745f • Systematic Country Diagnostic (SCD) for the Central African Republic, Report No\. 125268-CF, June 19, 2019 • Local Connectivity Emergency Project, Project Paper, Report No\. PP1759, March 2016 • Country Engagement Note for the CAR FY 2016-2017, Report No\. 96209-CF, July 13, 2015 • Rural Connectivity Project, Project Appraisal Document, Report No\. PAD2199, June 2017 Page 36 of 37  The World Bank Local connectivity emergency project (P157923) ANNEX 6\. MAP OF PROJECT INTERVENTION Kaga-Bandoro – Mbrès – Bamingui – Ndélé Road and Drainage Status (February 2016) Source: Local Connectivity Emergency Project, Project Paper, Report No\. PP1759, March 2016 Page 37 of 37

REVIEW

P115486

IEG Report Number: ICRR14665 ICR Review Independent Evaluation Group 1\. Project Data: Date Posted: 06/24/2015 Country: Armenia Project ID: P115486 Appraisal Actual Project Name: Lifeline Roads Project Costs (US$M): 30\.40 126\.07 Improvement Project L/C Number: C4549; L7751 Loan/Credit (US$M): 25\.00 101\.49 Sector Board: Transport Cofinancing (US$M): Cofinanciers: Board Approval Date : 02/24/2009 Closing Date: 12/31/2010 12/31/2013 Sector(s): Roads and highways (98%); Public administration- Transportation (2%) Theme(s): Rural services and infrastructure (100% - P) Prepared by: Reviewed by: ICR Review Group: Coordinator: Ranga Rajan Midori Makino Christopher David IEGPS1 Krishnamani Nelson 2\. Project Objectives and Components: a\. Objectives: The project development objective as stated in the Financing Agreement (Schedule 1, page 4) and in the Emergency Project Paper (page 5) prepared in lieu of the Project Appraisal Document (PAD) was "to upgrade selected sections of the lifeline road network and create temporary employment in road construction"\. b\.Were the project objectives/key associated outcome targets revised during implementation? Yes If yes, did the Board approve the revised objectives/key associated outcome targets? Yes Date of Board Approval: 08/27/2009 c\. Components: Component One\. Rehabilitation of the Lifeline Road Network (appraisal estimate US$30\.00 million and actual cost $123\.99 million)\. This component planned to rehabilitate about 1OO km of the lifeline road network (defined as roads that connected rural communities to an interstate road) located in seven Marzes (administrative divisions)\. Activities included; (i) civil works for road rehabilitation; (ii) consultancy services for the construction and supervision and technical auditing of rehabilitation works; (iii) updating of the original Millennium Challenge Corporation (MCC) financed 2007 designs and environmental documents; and (iv) project implementation expenses including funding project audits, incremental operational implementation costs and additional costs for intensified project supervision\. The scope of this component was expanded (discussed below) through two additional financing in the amount of $42\.12 million (2009) and $45\.80 million (2010)\. Component Two\. Technical Assistance (appraisal estimate US$0\.40 million and actual cost US$1\.88 million)\. This component aimed at technical assistance for strengthening of the Armenian Roads Directorate (ARD)\. Activities included; (i) financing a study to review low cost pavement options for Armenia which was to explore options for different pavement types and ways to increase labor based activities; (ii) updating of designs for about 100 km of lifeline roads for a potential project; and (iii) vehicle for supervision and related training\. The scope of this component was expanded (discussed below) through two additional financing in the amount of for $0\.87 million (2009) and $0\.62 million (2010)\. Through the two additional financing that were approved within the first two years of project effectiveness the following changes were made to the project components and indicators (ICR, page 4)\. At the first additional financing on August 27, 2009: ï‚The number of roads to be rehabilitated was increased by an additional 140 km (from 100 km to 240 km)\. ï‚A "safe village" program was to be implemented for supporting rural communities in implementing road safety measures, recommended by road safety audits and by the National Road Safety Strategy\. ï‚Additional indicators were incorporated for monitoring the total classified roads and the share of rural population with access to all season road\. At the second additional financing on July 15, 2010: ï‚The number of roads to be rehabilitated was increased by an additional 190 km (from 240 km to 430 km)\. ï‚Technical assistance component was to include development of new road geometric standards, feasibility studies, designs of future investments and procurement of road data collection equipment\. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: Project Costs: The original appraisal cost (including costs of contingencies and front end fee) was US$30\.40 million\. With the first and the second additional financing which took place on August 27, 2009 and July 15, 2010, the cost estimates went up to US$76\.12 million and then to US$126\.10 million\. The actual cost at completion was US$126\.07 million\. Project Financing: At appraisal, the Bank's contribution was through an US$25\.00 million IDA grant\. The Bank's subsequent additional financings were through IBRD loans of US$36\.60 million and US$40\.00 million\. With these, the total Bank financing was estimated at US$101\.60 million\. At closure, the Bank's actual contribution was US$101\.51 million\. There were no co-financiers\. Borrower's Contribution: At appraisal, the borrower contribution was estimated at US$5\.40 million\. Their contribution increased by an additional US$9\.12 million following the first additional financing, and by an additional US$9\.98 million with the second additional financing totaling $24\.50 million\. At closure their actual contribution was US$ 24\.58 million\. Dates: With the first additional financing, the project closing date was extended by one year from December 31, 2010 to December 31, 2011, and with the second additional financing, by two more years to December 31, 2013\. The project closed on December 31, 2013\. 3\. Relevance of Objectives & Design: a\. Relevance of Objectives: Relevance of Objective : High\. The objective was relevant to the Government's Lifeline Road Development Program launched in 2008, which identified a priority network for providing at least one access road to Armenia’s 960 communities\. The objective continued to be relevant to the current Government Strategy\. The Armenia: Transport Sector Development Strategy 2020, included an investment plan for the road sector, and identified priority investments on the interstate and rural road network for the 2010-2020 period\. At appraisal the Country Assistance Strategy (CAS) for the fiscal years 2004-2008 identified the need for promoting private sector growth by reducing infrastructure bottlenecks, and this CAS and Progress report specifically mentions improving road transport infrastructure as a key outcome indicator\. The Country Partnership Strategy (CPS) for the fiscal years 2014-2017 period, highlighted the need " for strengthening competitiveness and supporting job creation\." The CPS for the fiscal years 2009-2013 period, highlighted the need for continued investments in lifeline road rehabilitation, for building the foundations for competitiveness and medium term growth (PAD, page 8)\. b\. Relevance of Design: Relevance of Design: Substantial\. The statement of the project objective is clear, and the causal chain between the project activities, outputs, and outcomes are logical\. Upgrading of the selected sections of the lifeline road network could be expected to improve their conditions\. The institutional dimension of the project, in areas such as implementing road safety measures, developing new road geometric design standards, and establishing a data collection management unit, can be expected to improve the capacity of the Armenian Roads Directorate (ARD)'s to manage the lifeline road assets of the country\. The civil works associated with road rehabilitation could be expected to create temporary employment in road construction\. 4\. Achievement of Objectives (Efficacy): Both the first objective, to upgrade selected sections of the lifeline road network, and the second objective of creating temporary employment in road construction, were rated substantial\. Since the first objective was output focused and the second objective was outcome focused, they are assessed together below\. Output: ï‚ 446 km of lifeline roads were upgraded at the project closure stage as compared to the target of 430 km\. The average roughness of the project roads measured by the International Roughness Index (IRI) reduced from 11\.1, m/km to 3\.1 IR (ICR, page 17)\. ï‚ According to the independent technical auditors, 51\.5% of the lifeline road network was reported to be in good or good condition at the project closure stage, as compared to 32\.2% before the project (ICR, page 44)\. ï‚ A Road Safety Audit Manual was developed in 2010 as targeted\. The staff of the Ministry of Transport and Communication, Armenian Roads Directorate, the Project Implementation Unit, traffic police and design consultants were trained in the principles of road safety audit by an international consultant (ICR, page 28)\. ï‚ The Armenia's Road Safety Secretariat was established with support from a grant from the Bank administered Global Road Safety Facility (GRSF), with a director and full time staff (ICR, page 11)\. ï‚ A data collection unit was established in the Armenian Road Directorate as targeted (ICR, page iv)\. ï‚ A Double Bituminous Treatment (DBST) pavements contract (including for rehabilitation works and routine and winter maintenance was piloted on two sections covering 16\.5 km of roads\. The ICR (page 12) reports that this pavement standard was relatively inexpensive, as compared to the traditional asphalt concrete standards and pavement layers\. ï‚ One Pilot "safe village" program was implemented as targeted for supporting rural communities to implement road safety measures\. The program supported the villages in installing road safety measures, by making them eligible for funding, only if they had prepared and implemented road safety awareness campaigns\. (ICR, page 6)\. ï‚ The new road geometric design standards which was included at second additional financing was cancelled\. Outcome: ï‚ 39,855 person day/month of temporary construction jobs were created as compared to the target of 36,650 person day/month\. Of these 60-70% went to people from local villages and 70% of them were unskilled, Since on average US$ 500 per month was paid to the workers, this represented a direct income transfer of approximately US$5\.0 million to workers (ICR, page 17)\. Nine of the 23 contractors chosen did not have any other contracts than those offered under the stimulus package provided to mitigate the impact of the global financial package, and rural roads contracts accounted for 22 to 27% of the gross revenue of the contractors\. (ICR, page 5)\. ï‚ The travel time on the rehabilitated roads decreased by 58\.5% as compared to the target of 20%\. ï‚ Transport costs, measured using the Highway Development and Management Model (HDM) indicated that these costs decreased by 25\.8% as compared to the target of 20%\. ï‚ 51\.5% of the rural population had access to all season roads at project closure although the baseline data was not available\. ï‚ According to the statistics provided by the team, in 2013 the number of fatal casualties as a result of road accidents was 316 as compared to 315 in 2012 and 327 in 2011\. Although the decrease does not seem to be significant, the team leader clarified that more crashes were being reported as a result of the introduction of a compulsory motor vehicle insurance for supporting insurance claims\. The team also reported that road crashes were recorded by video cameras (90% of which were installed in Yerevan as part of the project), and that the number of fatal crashes was 29 between January - March 2014, as compared to 39 between January- March 2013\. ï‚ A qualitative social assessment survey was conducted at project closure on 48 focus group in eight rural communities in eight regions\. (ICR, page 36-38)\. The methodology was to compare people’s views in the regions that benefited from the projects and those of the regions that did not benefit from the project\. While 51% of the former group reported the roads to be in good or excellent condition, as compared to 12% of the latter group\. 41% of the former reported the transportation services in the rehabilitated roads to be good or excellent as compared to 22% of the latter\. 91% of the former group reported improvement in market access as compared to 71% of the latter group\. 88% of the former group reported that the rehabilitated roads facilitated their visits to shops and other purposes as compared to 72% of the comparison group\. 5\. Efficiency: An economic analysis was done using the Highway Development and Management Model (HDM-4) on approximately 153 km of lifeline roads both at appraisal and at completion\. The main economic benefits were assumed to come through vehicle operating costs and travel time savings\. The ex post Economic Rate of Return was 18\.1%, very close to the ex-ante EIRR of 18\.4%\. The unit transport costs trucks computed using the HDM for the ex post valuation were US$ 0\.40 per vehicle Km for with the project, as compared to US$ 0\.54 for without the project\. This represented a 25\.8% reduction in transport cost for medium trucks as compared to the target of 20% (ICR, page 17)\. There were no cost overruns, and although the project closing date was extended by three years, this extension was for completing the expanded scope of the project, and therefore did not affect the efficiency of the project\. Efficiency is rated Substantial\. a\. If available, enter the Economic Rate of Return (ERR)/Financial Rate of Return (FRR) at appraisal and the re-estimated value at evaluation : Rate Available? Point Value Coverage/Scope* Appraisal Yes 18\.4% 44% ICR estimate Yes 18\.1% 44% * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: Overall outcome is rated as Satisfactory\. The relevance of the objective is high and relevance of design is Substantial\. Both efficacy and efficiency are rated as Substantial\. Although the outcome targets were revised twice during implementation, the split rating method was not applied because this did not affect the overall outcome rating\. a\. Outcome Rating: Satisfactory 7\. Rationale for Risk to Development Outcome Rating: There is a risk that the project development objective may not be sustained due to inadequate allocation of funds for routine and periodic maintenance of the rehabilitated roads\. Although the Ministry of Transport and Communication has been increasing its budgetary resource allocation, it is not clear whether the amount allocated would be sufficient for both routine and periodic maintenance needs since in 2012 the amount allocated was insufficient for covering routine maintenance, let alone periodic maintenance\. Also, although there have been positive steps taken on addressing road safety issues (such as approval of a National Road Safety strategy, adoption of a five year plan etc\.) it is not clear if these activities would be implemented in view of the weak institutional arrangement, such as the under funding and under staffing of the Road Safety Secretariat (ICR, page 21)\. a\. Risk to Development Outcome Rating : Significant 8\. Assessment of Bank Performance: a\. Quality at entry: Quality at entry is rated as Satisfactory\. Since the original project had to be prepared fairly quickly in response to the urgent request from the Government in the wake of the global financial crisis, it required an experienced team\. The project preparation which was initiated in late 2008, and approved by the Board on February 24, 2009, became effective about two months later on April 20, 2009\. The project roads to be rehabilitated had already been identified by the Millennium Challenge Corporation (MCC) as priorities and were in areas facing increasing unemployment\. Road designs prepared by MCC were adapted to current road conditions and traffic surveys, and revised to conform to the standards of European roads (ICR, page 8)\. Appropriate risk mitigation measures were incorporated through a covenant included in the loan agreement- such as requiring the government to deposit 20% of the counterpart funding within two weeks after the ratification of the Loan Agreement, to address the possibility of delays associated with counterpart funding (ICR, page 11)\. The World Bank ensured project readiness by having an implementing agency which was experienced in managing World Bank and other transport projects financed by International Financial Institutions (ICR, page 9)\. According to the ICR the Safeguard policies were adequately addressed at the appraisal stage (discussed in section 10a)\. Quality-at-Entry Rating: Satisfactory b\. Quality of supervision: Quality of supervision is rated as Satisfactory\. Since it was IDA Fast Track Facility operation requiring fast disbursements, supervision was intensive and the project was closely monitored during the project implementation phase (ICR, page 8)\. While the initial road rehabilitation activities responded to the emergency needs of creating temporary employment in the wake of global crisis, the supervision team helped in expanding project scope to include road safety and institutional strengthening dimension through two successive additional financing in a short time (ICR, page 8)\. The supervision team was fully engaged with the client during the implementation phase\. In keeping with the emergency nature of the original project, supervision missions were more frequent in 2009 (about three missions)\. Missions since then were on average twice a year, The supervision team addressed the implementation problems in a proactive manner (ICR, page 22) but they could have engaged more with the Government to ensure the sustainability of the roads through provision of adequate maintenance funds\. The supervision team had as many as five task team leaders which affected continuity and the Bank could have reduced the processing burden by combining the two additional financing in a single operation (ICR, page 22)\. Quality of Supervision Rating : Satisfactory Overall Bank Performance Rating : Satisfactory 9\. Assessment of Borrower Performance: a\. Government Performance: Government Performance is rated as Moderately Satisfactory \. The Government was highly committed to the project development objective right from the preparatory phase\. This enabled the project to be prepared and approved by the Board within two months\. Since the government had already adopted a Rural Infrastructure Strategy and Action Plan and had identified the priority lifeline rural roads for rehabilitation, the project could be implemented immediately after effectiveness\. During implementation, when counterpart funds were delayed due to the quicker than anticipated implementation of civil works, the Government resolved the issue through larger counterpart allocations\. The government commitment was further evidenced by their request for a follow up project to further rehabilitate 170 km of lifeline roads that was approved by the Board on January 31, 2013 (ICR, page 10)\. The Government however was not able to make available adequate budgetary resources for road maintenance as stipulated in the legal covenant (ICR, page 10)\. Government Performance Rating Moderately Satisfactory b\. Implementing Agency Performance: Implementing Agency Performance is rated as Satisfactory\. Although the Ministry of Transport and Communication (MoTC) had the overall responsibility for implementing the project, the Ministry had delegated the responsibility to a Transport Project Implementation Unit\. This institution had experience in implementing both externally financed projects and transport projects executed with local financing (ICR, page 9)\. The unit was headed by an experienced engineer with knowledge of both Bank and Armenian procedures\. The implementing agency handled the safeguard and fiduciary issues with no major problems (discussed in section 11)\. During the implementation phase when unit became overburdened with additional responsibilities (unrelated to Bank funded projects) and hence could not respond expeditiously to the Bank requests, the unit resolved the issue through hiring additional staff (ICR, page 11)\. Implementing Agency Performance Rating : Satisfactory Overall Borrower Performance Rating : Moderately Satisfactory 10\. M&E Design, Implementation, & Utilization: a\. M&E Design: Responsibility for the M&E rested with the Transport Project Implementation Unit\. The M&E design which included specific and appropriate indicators for both the physical works component and the institutional strengthening were fairly simple and easy to collect\. Two sector indicators were introduced in 2009 as per Bank requirements (roads in good or fair condition as a share of total classified roads and share of rural population with access to an all season road)\. (ICR, page 13)\. The M&E did not include any indicators related to providing for road maintenance\. b\. M&E Implementation: The only details provided in the ICR on M&E implementation were quarterly and semiannual reports on implementation progress submitted to the Bank\. c\. M&E Utilization: While the ICR does not provide details on M&E utilization, the task team clarified that the data collection unit established by the Armenian Roads Directorate continues to collect and monitor data on the condition of road networks\. M&E Quality Rating: Modest 11\. Other Issues a\. Safeguards: The project was classified as Category B for Environmental Assessment purposes (OP/BP 4\.01), and partial assessment was required\. In addition, one safeguard policy was triggered: Involuntary Resettlement (OP/BP 4\.12)\. The ICR (page 14) reports that an Environmental Management Plan (EMP) was developed at the project preparation stage, and site-specific EMPs were discussed with local communities residing close to road sections to be rehabilitated, and appropriate features were incorporated in the project design\. There was an incident in 2009 when some shortfalls in the compliance of the EMP in the quality of arranging drainage infrastructure and sidewalks but the issue was adequately addressed\. The ICR (page 14) reports that there was no resettlement or land acquisition\. b\. Fiduciary Compliance: Financial Management : According to the ICR (page 15), the implementing agency's financial management performance was deemed to be adequate\. Annual financial audits were unqualified\. The government provided the counterpart funding for the most part in a timely fashion, except in 2010 when there were some delays due to the delayed approval of the budget\. Procurement: Arrangements: According to the ICR (page 15), all procurement activities related to works contracts were deemed to be satisfactory and there was no case of misprocurement\. c\. Unintended Impacts (positive or negative): d\. Other: 12\. Ratings: ICR IEG Review Reason for Disagreement/Comments Outcome: Satisfactory Satisfactory Risk to Development Significant Significant Outcome: Bank Performance: Satisfactory Satisfactory Borrower Performance : Moderately Moderately Satisfactory Satisfactory Quality of ICR: Satisfactory NOTES: - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate\. 13\. Lessons: \.The ICR draws the following lessons:  Project readiness could enable quick implementation of civil works and thereby contribute to providing temporary employment and quick economic support to rural areas hit by financial crisis\.  Incremental improvements can be made during project implementation (such as incorporating road safety features) by adjusting to changing conditions\.  Road safety audits can be successfully incorporated with road construction and rehabilitation works when there is government ownership\. And support for road safety programs can be obtained from communities, which consider road safety a major problem\. 14\. Assessment Recommended? Yes No 15\. Comments on Quality of ICR: The ICR systematically reported both outputs and outcomes of the project, and its assessment of the achievement of the project development outcome was evidence based\. The ICR was also concise and consistent with the guidelines\. However, there are areas where the ICR could have provided more details, for instance, the important road safety features of the project which was very brief\. The overall quality of the ICR is rated as Satisfactory\. a\.Quality of ICR Rating : Satisfactory

REVIEW

P040808

 ICRR 12871 Report Number : ICRR12871 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 03/27/2008 PROJ ID : P040808 Appraisal Actual Project Name : Native Forests & US$M ): Project Costs (US$M): 30\.0 20\.9 Protected Areas Project Country : Argentina Loan/ US$M): Loan /Credit (US$M): 19\.5 15\.8 Sector Board : ENV Cofinancing (US$M): US$M ): Sector (s): Central government administration (47%) Other social services (22%) Roads and highways (22%) General agriculture fishing and forestry sector (5%) Law and justice (4%) Theme (s): Law reform (25% - P) Export development and competitiveness (25% - P) Biodiversity (25% - P) Environmental policies and institutions (25% - P) L/C Number : L4085 Board Approval Date : 09/05/1996 Partners involved : Closing Date : 06/30/2005 06/30/2007 Evaluator : Panel Reviewer : Group Manager : Group : Ramachandra Jammi Kris Hallberg Soniya Carvalho IEGSG 2\. Project Objectives and Components: a\. Objectives: The objectives of the project as stated in the SAR were : a) help the Secretariat of Natural Resources and Human Environment prioritize its actions dealing with native forests; b ) facilitate the development of an incentive and regulatory framework to encourage decision makers; both public and private, to more fully internalize within their decision making processes the full range of social costs and benefits associated with their decisions and actions affecting native forests; c ) develop a plan for transforming the National Parks Administration into a world - class park management organization; and d) increase the environmentally sustainable level of tourism in four national parks \. b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components (or Key Conditions in the case of DPLs, as appropriate): a) Generation and dissemination of research and information consisting of policy, legal and regulatory reform, a national inventory of native forests and establishment and operation of a related database; and applied research and studies to facilitate management and conservation of native forests and protected areas (US$13\.4m at appraisal; US$9\.8m actual)\. b) Protected areas comprised of the development of a plan for the modernization of the National Parks Administration and specific infrastructure development and management strengthening in four Patagonian Region parks (US$10\.3m at appraisal; US$9\.5m actual)\. c) Project implementation (US$2\.2m at appraisal; US$1\.5m actual)\. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: Project Cost, Financing and Borrower Contribution : Actual project costs were 69 percent of appraisal estimates \. According to the ICR, the majority of expenditures were denominated in pesos, which depreciated against the U \.S\. dollar, explaining the lower project cost and financing required \. In 2003, amendments were made to the loan agreement to reflect reallocations of funds to specified sub -components and cost-sharing between IBRD and the borrower\. Dates: The project had 3 extensions of 12, 9, and 3 months for a total of 24 months beyond the original closing date, mainly due to slow progress during the fiscal and political crises of 2001 – 2003\. The first extension contained triggers for the second and were primarily directed at the subcomponent of infrastructure works in component B, though other subcomponents also benefited from the extensions \. The third extension was for residual infrastructural works\. 3\. Relevance of Objectives & Design: Objectives: The project internalized findings from a 1991 IEG (then OED) evaluation study and a Forestry Sector Review (1992) that identified the sector as a promising growth area as the country emerged from a period of hyperinflation and uncertainty, while pointing out gaps in information, economic analysis and institutional factors that were necessary to develop a sound policy framework for the sector \. The 1995 CAS covered improvement of management and the regulatory framework for forestry under one of its three pillars \. The 2004 and 2006 CASs support regulatory guidance and oversight over a growing forestry industry and promoting sustainable forestry management in general\. Design: The project design internalized findings from a comprehensive sector report (1995) that pointed out shortcomings in the sector policy framework, institutional structure and capacity, research capacity and extension services, plantation management and environmental sustainability \. Major risks and uncertainties in terms of government commitment and insufficient capacity on the part of implementing agencies were mitigated by providing for appropriate training, capacity -building and external expertise \. 4\. Achievement of Objectives (Efficacy): Objective 1: Help the Secretariat of Natural Resources and Human Environment prioritize its actions dealing with native forests\. Achievement-substantial\. Argentina now has an updated and comprehensive native forest inventory which has provided the foundation for an informed and substantive policy discussion on native forest issues that has led to a new legal framework for forest management and forest incentives, and sets the stage for forestry reform in the future \. A computerized database has been made available on the internet, and a Forestry Atlas of Argentina has been published \. The data inventory, whose quality has been vetted by independent parties including the US Forest Service, is also being utilized by NGOs and the general public\. Objective 2: Facilitate the development of an incentive and regulatory framework to encourage decision makers, both public and private, to more fully internalize within their decision making processes the full range of social costs and benefits associated with their decisions and actions affecting native forests \. Achievement-modest\. By developing a reliable forest inventory, conducting several policy studies and examining existing laws and regulations, the project helped draft the "Ley de Presupuestos Minimos para la Proteccion Ambiental de Bosques Nativos" which was ratified by Argentina's Senate in November 2007\. The law helped establish a fund to pay for forest environmental services drawn from a portion of agricultural export tax, a national budget provision, and donations from other sources \. Nevertheless, the ICR does not provide information on whether decision -makers, especially those in the private sector, have actually internalized social costs and benefits in their decision -making\. Objective 3: Develop a plan for transforming the National Parks Administration into a world - class park management organization\. Achievement-modest\. The project commissioned several studies and developed a reform agenda for modernizing the National Parks Administration (APN), but was not able to make sufficient progress due to intervening events that included the transfer of APN from the Secretariat of Natural Resources and Human Environment (SRNyHA) to the Ministry of Tourism, the economic crisis, and several changes in APN's leadership \. In April 2007, APN approved a Modernization Plan, which now serves as the basis for strengthening the agency \. Objective 4: Increase the environmentally sustainable level of tourism in four national parks \. Achievement- substantial \. The project undertook infrastructure investments and management training in four high visibility parks in Patagonia -- Lanin, Los Alerces, Nahuel Huapi, and Glaciares -- that resulted in significant increases in visitation rates and revenues, though this was also partly due to the devalued peso which made tourism attractive to foreigners \. 5\. Efficiency (not applicable to DPLs): The SAR did not attempt an economic cost -benefit analysis, but the ICR attempts it in a qualitative manner and predicts potential gains from sustainable forestry and integrated livestock production; and stimulation of small businesses from increased tourism \. The ICR undertakes a limited financial analysis from revenues and expenses at the four major national parks in Patagonia yielding FIRRs between 13% and 57% for which a simple average is provided below\. The overall efficiency of the project was negatively affected by the two year delay in implementation of the project\. ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re- re -estimated value at evaluation : Rate Available? Point Value Coverage/Scope* Appraisal Yes 19% 45% ICR estimate Yes 25% 45% * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: The project scope and design was satisfactory and continues to be relevant in terms of country priorities and strategy\. Despite the challenges posed by the intervening economic crisis, the project managed to make substantial progress on almost all objectives, resulting in new legislation, a national forest inventory, an action plan for modernization of APN; and several infrastructure works, policy studies and capacity building through training \. However, there were gaps in achievements in some specific works in the parks, and training and research projects \. Also, the outcomes from the recently approved legislation and implementation of the modernization plan for APN are yet to be seen\. In the balance, the overall outcome of the project is considered Moderately Satisfactory \. a\. Outcome Rating : Moderately Satisfactory 7\. Rationale for Risk to Development Outcome Rating: Even though project implementation was delayed on several fronts, the project finally helped to pass new legislation and finalize a modernization plan for APN \. Also, the national inventory of forest data puts future policy-making and implementation on a sound footing \. The new legislation also provides for a dedicated fund for forest management with identified sources of revenue \. Given these developments and the fact that the project overcame major difficulties during the economic crisis which served to underline government commitment, the risk to development outcome is considered low \. a\. Risk to Development Outcome Rating : Negligible to Low 8\. Assessment of Bank Performance: Quality at Entry: The Bank team included economists, forest specialists, protected areas specialists and other technical experts including staff from FAO -CP who worked with their national counterparts in project formulation \. Project design was based on an appropriate diagnosis of the state of forest management and a focus on strengthening the institutional and human resources of the relevant sectors \. However, the Bank underestimated the complexity of legislative reform and implementation arrangements in APN at appraisal, resulting in the slow startup some portions of the project \. Supervision: Supervision missions were carried by diverse teams of specialists two to three times an year, and brought to bear experience in addressing similar issues in other countries \. The Bank team displayed flexibility in working with their counterparts during the economic crisis in order to keep up some momentum in the project \. at -Entry :Moderately Satisfactory a\. Ensuring Quality -at- b\. Quality of Supervision :Satisfactory c\. Overall Bank Performance :Moderately Satisfactory 9\. Assessment of Borrower Performance: In general, the government gave priority to forestry development and conservation, and collaborated with the Bank\. During the crisis years, the government provided counterpart funds to the extent possible, and helped the line agencies when called upon to do so \. The implementing agencies (PIUs) were composed of qualified technical professionals and administrative staff and were generally efficient in their work \. Within the constraints experienced during implementation, the line agencies are to be commended for their focus and commitment to bring the majority of work to closure \. a\. Government Performance :Satisfactory b\. Implementing Agency Performance :Satisfactory c\. Overall Borrower Performance :Satisfactory 10\. M&E Design, Implementation, & Utilization: Design: The project does not provide any significant outcome indicators ( the project was appraised several years prior to the recent emphasis placed on outcome indicators ) but contains a long list of output indicators which are quite clear and measurable in most cases (e\.g\. policy studies; training programs; number of trainees; creation of databases etc\.)\.The M&E effort was a first for both APN and the Secretariat of Environment and Sustainable Development (SAyDS)\. Implementation: Data for most output indicators is provided in a satisfactory manner \. Utilization: The PSRs and ISRs were regularly updated with monitoring information, which was particularly useful in the crisis period to identify gaps in implementation and to establish priorities \. a\. M&E Quality Rating : Modest 11\. Other Issues (Safeguards, Fiduciary, Unintended Positive and Negative Impacts): Safeguards: This project was classified as Category "B" and invoked OP 4\.01 (Environmental Assessment); OP 4\.04 (Natural Habitats); OP 4\.36 (Forestry); and OP 11\.03 (Cultural Property)\. Relevant environmental assessments were prepared, and were reviewed and cleared by the Bank's team that included biologists, foresters and environmental specialists\. APN complied with the Bank's safeguards for Natural Habitats as well as Forestry even though provisions for the latter were formalized during the project's implementation \. The project also improved protection and performed appropriate restoration of cultural properties in the project parks \. Fiduciary Issues: The overall financial management and procurement performance is considered satisfactory \. Four independent fiduciary missions were conducted during the project \. Some errors were noted in the application of exchange rates during the financial crisis in 2000-2002, but they were eventually resolved \. 12\. 12\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Moderately Moderately Satisfactory Satisfactory Risk to Development Negligible to Low Negligible to Low Outcome : Bank Performance : Moderately Moderately Satisfactory Satisfactory Borrower Performance : Satisfactory Satisfactory  Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate \. 13\. Lessons: Flexibility on the part of both the Bank and the borrower, while keeping their focus on overall objectives, can pay off in the face of difficult country circumstances such as fiscal crises or institutional changes \. Investing time and resources in developing a sound technical, social and legal knowledge base can help underpin a sound sectoral legislative and regulatory framework \. Applied research projects that are attempted on a large scale in different regions and levels should take into account local capacity to ensure acceptable quality, and if necessary should be supplemented by outside expertise\. 14\. Assessment Recommended? Yes No Why? The project attempted important policy and regulatory reform in Argentina's forestry sector with potentially far-reaching impacts\. The project also managed to stay broadly on course during the country's financial crisis in the early 2000s\. It will be instructive to review the outcomes of these experiences and relate them to project design, and the strategy employed during implementation in the face of uncertainties arising from the financial crisis \. 15\. Comments on Quality of ICR: The ICR is informative, and is written in a clear and fairly balanced manner \. It tends to be too descriptive and process-oriented in some places, especially in the section on achievement of PDOs, where the narrative could be more tightly organized around outcomes \. The Borrower's contribution to the ICR should have been translated into English\. a\.Quality of ICR Rating : Satisfactory

REVIEW

P001718

 ICRR 10403 Report Number : ICRR10403 ICR Review Operations Evaluation Department 1\. Project Data : OEDID: OEDID : C1906 Project ID : P001718 Project Name : Office du Niger Consolidation Project Country : Mali Sector : Irrigation & Drainage L/C Number : C1930 Partners involved : Governments of Germany, Netherlands, France, USAID Prepared by : Robert C\. Varley, OEDST Reviewed by : George T\. K\. Pitman Group Manager : Gregory K\. Ingram Date Posted : 06/30/1999 2\. Project Objectives, Financing, Costs and Components : The broad objective was to reduce poverty, increase agricultural production and reduce government subsidies and support for agriculture by providing strong incentives to farmers to increase production, improving the efficiency of irrigation management and creating mechanisms for sustainable irrigation development \. This was to be achieved thorough reform of the irrigation agency (Office du Niger or ON), rehabilitation and modernization of irrigation canals/structures, and agricultural policy reforms (rice price/market liberalization and land tenure \.) Sub-objectives were to: (i) divest ON's commercial activities to strengthen and narrow its focus on infrastructure management and agricultural services; (ii) forge stronger ON/GOM (Government of Mali) partnerships though performance contracts, training and improved financial management; and (iii) rehabilitate and modernize irrigation networks and perimeters and increase farmer involvement in water fee determination and management of maintenance \. Source of Finance : $million Appraisal Estimate Actual /Latest IDA 48\.8 48\.8 Government of Germany 19\.0 28\.9 French Aid Agency 2\.4 34\.8 Government of Netherlands 1\.3 87\.2 GOM 4\.1 16\.1 3\. Achievement of Relevant Objectives : i\. Liberalization of the rice trade and markets have been achieved and sustained; ii\. The ON was restructured, its financial health restored and the investment program successfully implemented; iii\. Reduction in milling costs saved GOM $ 1\.6 million/annum and reduced milling costs to farmers /consumers by $6 million/annum; iv\. Rice production increased from 98,000 to 271,000 tons; v\. Water fee collection rate increased from 60% to 97%; vi\. Increased production of non -rice crops such as onions (71,000 tons), garlic (800 tons) and pepper (600 tons); vii\. Real per capita income increased by $ 70/annum and production exceeded targeted level by 37%; viii\. 57 km of canals and main drains were rehabilitated and modernized \. 4\. Significant Achievements : i\. The success of the project led other donors to finance even more perimeters in successive tranches - the Bank's investment leveraged 250% more investment from other donors; iii\. Yields increased from 1\.8 to 5\.5 MT/ha while the ex-post ERR was 30%, compared to 16% at appraisal; iv\. GOM was able to push through difficult institutional reforms involving divestiture and staff layoffs; v\. Participation was strengthened through farmer membership on management committees and overseeing performance contracts; vi\. The project transferred credit responsibility from ON to the State Agricultural Bank and stimulated private investment in farm infrastructure\. Credit was initially used for equipment, oxen and fertilizer, with repayment rates of over 95% ; vii\. Water fees are retained in the areas where they are collected; at least 50% are used for maintenance while only 10-12% are transmitted to Head Office for general use \. 5\. Significant Shortcomings : i\. No capital cost-recovery despite a 20% target\. Primary infrastructure maintenance is still funded entirely by GOM \. ii\. The promised focus of ON on delivery of agricultural services, improved resource management, agricultural training and extension either did not materialize, or was not sustainable; iii\. Programs to promote village associations through training in functional literacy, book keeping, input purchase and output marketing strategies were not executed; iv\. Real cost-recovery of O&M costs declined by 14% but was offset by ON's reduction in operating cost (fee declined from 18% to 6% of rice crop value); v\. Despite an increased farmer role in negotiation, fees are still fixed by order of government; vi\. GOM's recent deferment of a water fee increase because of election considerations (1997/98) is a threat to increased cost recovery in the future \. vii\. Natural resource management was only partially successful - 40% of the area still requires soil mapping, volumetric management of water is still rudimentary but is needed to enable volume based water billing that will lead to increased water use efficiency, and environmental monitoring (water quality, health, drainage) and maintenance (tree planting, crop diversification, pasture regeneration ) received little attention\. 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Institutional Dev \.: Substantial Substantial Sustainability : Likely Likely Bank Performance : Highly Satisfactory Satisfactory Lack of consideration of alternatives and involvement of beneficiaries in design; no explanation for partial achievement of environmental objectives, little social / stakeholder analysis\. Borrower Perf \.: Satisfactory Satisfactory Quality of ICR : Exemplary 7\. Lessons of Broad Applicability : i\. Sector reforms require a conducive macroeconomic framework including realistic currency valuation and liberal trade policy; ii\. Complementary sectoral investments and policy reforms are required in order to have a major impact; iii\. A well coordinated multi-donor effort is essential for high impact investments which utilize potential synergy and complementarity within and between sectors; iv\. Farmer empowerment is essential for water -fee recovery and sustainability, and the fee setting mechanism should be an independent and transparent process, based on clear needs and free from government interference; v\. Greater transparency in land management increases farmers' land security, even in the absence of land titles; vi\. Institutional reforms should be headed by an independent agency outside the concerned ministries /agencies; vii\. The design of canals has to be adapted to the maintenance regime utilized; viii\. Farmer involvement in digging tertiaries requires organization and monitoring by a consulting company to ensure quality\. 8\. Audit Recommended? Yes No Why? The project appears to have been successful in overcoming institutional problems which have been identified as key constraints to the improvement of O&M performance in other countries \. The ON is described as having become transformed from a bloated bureaucracy to a lean and efficient organization accountable to both users and government\. Lessons learned need to be confirmed and more widely disseminated \. The relative role of the devaluation/price liberalization on the demand side and the institutional reform / physical rehabilitation on the supply side, need to be assessed \. 9\. Comments on Quality of ICR : Exemplary - a concise, comprehensive and well written report which contains good supporting annexes \.

REVIEW

P010406

 ICRR 10122 Report Number : ICRR10122 ICR Review Operations Evaluation Department 1\. Project Data : OEDID : OEDID: C2430 Project ID : P010406 Project Name : Sunsari Morang Headworks Country : Nepal Sector : Irrigation & Drainage L/C Number : C2430 Partners involved : None Prepared by : George T\. K\. Pitman, OEDST Reviewed by : Alice Galenson Group Manager : Roger Slade Date Posted : 06/29/1998 2\. Project Objectives, Financing, Costs and Components : Approved: November 1992, Effective: January 1993, Closed: December 1997 (on schedule) Project Costs (US$ million) Appraisal Actual Canceled Total 29\.7 26\.3 IDA credit 28\.0 23\.8 4\.2 Objectives: ∗ Provide the irrigation system with silt -free water during the monsoon through construction of a desilting basin equipped with continuous dredging facilities \. * Eliminate dry season blockage of the intake through construction of a new intake \. Components: ∗ Construction of the new intake 1\.3 km upstream and linking it by a culvert to a new pre -settling basin in front of the existing intake\. * Modification of the existing intake \. * Improvements in the desilting basin constructed under the Sunsari Morang second phase project \. * Provision of electrically powered dredgers and a micro -hydropower plant\. * Management, O&M, and training\. * Technical assistance for construction, supervision, and training in dredger and water management \. 3\. Achievement of Relevant Objectives : The project fully achieved its objectives of providing reliable and silt free water \. The civil engineering works were completed satisfactorily and project staff were trained in the operation of the dredger equipment and in water management of the rotational water supply system \. 4\. Significant Achievements : Water Supply : The project proved the wisdom of forming a panel of Experts to impartially review the technical viability of the dredger solution that had been the subject of debate with government since IDA's first credit for Sunsari Morang in 1978\. Water User Groups (WUGs): The project rejuvenated farmers' interest and confidence \. Extension officers and consultants embarked on a more participatory approach to forming WUGs \. Over 90 percent of the project's WUGs have joint management agreements with the project authorities for operation and management (O&M) of the tertiary level distributary system, a third of which have been fully handed over to WUGs \. 5\. Significant Shortcomings : Management : Frequent changes of senior staff jeopardize the successful management of this technically complex project\. The project's O&M budgeting system has no priorities and disbursement is ad hoc and some essential O&M tasks are not done\. The micro-hydro station has not been taken over by the Nepal Electricity Authority \. Dredger Operations : The current operational policy for the dredgers is unsatisfactory : it decreases the basin's trapping efficiency and increases the risk of siltation should one of the dredgers fail \. Importation of spare parts is a problem\. Budget for O&M : Once IDA funding ceased it fell to half of needs in 1997/98\. Cost Recovery : Only 26 percent of the 1995-96 assessment was collected and has since declined \. About a third of farmers refuse to pay water charges because adjacent areas are not asked to pay, and penalties are not enforced by project management despite covenants in the credit \. A recent court decision challenged the WUGs' right to manage water and undermines their authority and effectiveness \. Part of project management's indifference to water charges is that it does not directly benefit : half goes to the users’ groups and half to the central revenue \. Keeping all fees collected within the project would be a substantial incentive and improve funding for O&M \. 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Institutional Dev \.: Partial Substantial Participatory institution strengthening efforts were introduced (leaning from the failures of the preceding credits ), WUGs cover almost all the project area and are effective at managing O&M\. Sustainability : Uncertain Uncertain Bank Performance : Satisfactory Satisfactory Borrower Perf \.: Satisfactory Satisfactory Quality of ICR : Satisfactory 7\. Lessons of Broad Applicability : * WUGs will not be sustainable unless government and project management uphold WUGs' authority to manage water and collect irrigation service fees \. * The Bank must be more vigilant in imposing covenants regarding water user fees and their recovery \. * Incentives to induce cost recovery apply to WUGs and project management, and it is essential these are fully explored and agreed at appraisal \. 8\. Audit Recommended? Yes No Why? To determine the factors leading to the eventual success of the Sunsari Morang project under the headworks project compared with the two preceding credits that were unable to resolve the water and sediment problems nor form viable water user groups \. A cluster audit of the two earlier projects and this project was undertaken in January 1998\. 9\. Comments on Quality of ICR : Very thorough\. It would have been difficult to understand this project without a good knowledge of the problems highlighted by the preceding credits \. Fortunately, the ICR gives a concise account of how the headworks project evolved and, unusually, also calculates the ERR for several scenarios including not treating the earlier investments as sunk costs\. Under all scenarios the ERR is greater than 20 percent, and for the stand alone project it is estimated at 49 percent\.

REVIEW

P004589

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 22153 IMPLEMENTATION COMPLETION REPORT (CPL-36070; SCL-3607A) ONA LOAN IN THE AMOUNT OF US$ 51\.3 MILLION TO THE REPUBLIC OF THE PHILIPPINES FOR A SECOND IRRIGATION OPERATIONS SUPPORT PROJECT (IOSP II) June 13, 2001 Rural Development and Natural Resources Sector Unit East Asia and Pacific Region This document has a restricted distribution and may be used by recipients only in the performance of their | official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  CURRENCY EQUIVALENTS (Exchange Rate Effective for January-May 2001) Currency Unit = Peso (P) I Peso = US$ 0\.020 US$ 1 = 50\.0 FISCAL YEAR Government: January 1 - December I ABBREVIATIONS AND ACRONYMS AFMA Agriculture and Fisheries Modemization Act (Republic Act 8435) AO Administrative Order BAS Bureau of Agricultural Statistics CAS Country Assistance Strategy CIA Council of Irrigators' Associations DA Department of Agriculture ERR Economnic Rate of Return GOP Govemment of the Philippines IA Irrigators' Association ICR Implementation Completion Report IMIS Irrigation Management Information System IMT Irrigation Management Transfer IOSP I First Irrigation Operations Support Project IOSP II Second Irrigation Operations Support Project IPM Integrated Pest Management ISF Irrigation Service Fee LGU Local Government Unit MRIIS Magat River Integrated Irrigation System NDC-5 North Diversion Canal-5 in MRIIS (pilot for IMT and for modality of operation) NIA National Irrigation Administration NIS National Irrigation System NPV Net Present Value O&M Operation and Maintenance SAR Staff Appraisal Report Vice President: Jemal-ud-din Kassum, EAPVP Country Manager/Director: Vinay K\. Bhargava, EACPF Sector Manager/Director: Mark D\. Wilson, EASRD Task Team Leader/Task Manager: Syed Husain, EASRD  FOR OFFICIAL USE ONLY PHILIPPINES SECOND IRRIGATION OPERATIONS SUPPORT PROJECT (IOSP II) CONTENTS Page No\. 1\. Project Data 1 2\. Principal Performance Ratings 1 3\. Assessment of Development Objective and Design, and of Quality at Entry 2 4\. Achievement of Objective and Outputs 4 5\. Major Factors Affecting Implementation and Outcome 10 6\. Sustainability 10 7\. Bank and Borrower Performance 12 8\. Lessons Learned 13 9\. Partner Comments 14 10\. Additional Information 15 Annex 1\. Key Performance Indicators/Log Frame Matrix 16 Annex 2\. Project Costs and Financing 18 Annex 3\. Economic Costs and Benefits 20 Annex 4\. Bank Inputs 27 Annex 5\. Ratings for Achievement of Objectives/Outputs of Components 29 Annex 6\. Ratings of Bank and Borrower Performance 30 Annex 7\. List of Supporting Documents 31 Annex 8\. Beneficiary Survey Results 32 Annex 9\. Borrower's ICR 46 This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not be otherwise disclosed without World Bank authorization\.   Project ID: P004589 Project Name\. IRRIG OPER SUPP 11 _I_ Team Leader: Syed Husain TL Unit: EASRD ICR Type: Core ICR Report Date\. June 13, 2001 1\. Project Data Name: IRRIG OPER SUPP 11 L/C/TF Number\. CPL-36070; SCL-3607A CountryIDepartment: PHILIPPINES Region: East Asia and Pacific Region Sector/subsector: Al - Irrigation & Drainage KEY DATES Original Revised/Actual PCD: 03/27/1992 Effective: 09/07/1993 10/15/1993 Appraisal: 11/16/1992 MTR: 12/05/1995 03/31/1997 Approval: 05/20/1993 Closing: 06/30/1999 12/31/2000 Borrower/lImplementing Agency: REPUBLIC OF THE PHILIPPINES/NIA Other Partners: STAFF Current At Appraisal Vice President: Jemal-ud-din Kassun A\. Karaosmangolu Country Manager: Vinay K\. Bhargava Rolando Arrivillaga Sector Manager: Mark D\. Wilson Pamela Cox Team Leader at ICR: Syed Husain C\. Gunasekara ICR Primary Author: Alvaro Bueno (FAO) 2\. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainability: L Institutional Development Impact: M Bank Performance: S Borrower Performance: S QAG (if available) ICR Quality at Entry: S Project at Risk at Any Time: No  3\. Assessment of Development Objective and Design, and of Quality at Entry 3\.1 Original Objective\. The project's principal objective was to achieve sustainable improvement in the operational efficiency of national irrigation systems (NIS) and thereby help increase agricultural production (mainly rice) and small farmers' incomes, expand rural employment opportunities, and contribute to rural poverty alleviation\. The project, to be implemented from mid-1993 to end-1998, was to finance the second phase of the program launched under the Irrigation Operations Support Project (IOSP I, Loan 2948-PH, approved on June 2, 1988)\. A distinctive feature of the project was its emphasis on participation of beneficiaries in identifying irrigation system improvement works, sharing in improvement costs through labor contributions, and assuming operations and maintenance (O&M) responsibility for laterals and sub-laterals after completion of improvement works\. The main objective of improving irrigation efficiency was clear and in line with the Bank's Country Assistance Strategy (CAS) of restoring economic growth, while reducing poverty and improving equity, through, inter alia, accelerated and environmentally sustainable rural development and support to infrastructure\. It was also consistent with the high priority given by the Government of the Philippines (GOP) to expanding irrigated agriculture as an instrument for increasing food security, raising small farmers' incomes and alleviating rural poverty\. The project, as originally designed, was moderately demanding for the implementing agency\. 3\.2 Revised Objective: The project's principal objective remained unchanged during implementation\. However, the scope of the systems improvement sub-component and the institutional development component was considerably expanded after the mid-term review in March 1997 (details in sections 3\.5 and 4\.2)\. 3\.3 Original Components: The project had four major components: (a) improvement of 18 selected NIS; urgent repair of 22 structures in 14 NIS; construction of three pilot sedirnent exclusion structures and a few improved pilot water control structures on a selected lateral; and erosion prevention measures in critical areas within and in the vicinity of existing NIS; (b) support to sustain the improved system-level O&M achieved under IOSP I; (c) institutional development through support to the Irrigators' Associations (IAs) and the National Irrigation Administration (NIA); and (d) strengthening of agricultural support services\. The components were well-related to the project objective and to the capacity of the implementing agency\. 3\.4 Revised Components: The major components remained the same during implementation\. However, the number of NMS improved was eventually 17, as one system was financed under another program\. 3\.5 Quality at Entrv: Quality at entry is rated satisfactory in view of the clear main objective, which was consistent with the Bank's CAS and GOP policies and strategies for the sub-sector\. Project design and components were coherent, incorporated valuable lessons from IOSP I (Loan 2948-PH), and gave due consideration to the implementing capability of NIA\. For the five NIS where improvement works were to commence in the first year, NIA had prepared before negotiations a detailed program of work, supported by relevant engineering data and cost estimates\. Although an increase in rice yield was not a project objective, the project did include a small agricultural support services component (1% of project cost)\. The component was appropriately kept small since, at the time of appraisal, the responsibility for agricultural extension was being transferred from the Department of Agriculture (DA) to the local government units (LGUs) under the Local Government Code of 1991, and there was considerable uncertainty about the organisation, staffing - 2 -  and funding of the devolved agricultural support services\. Moreover, the Bank at that time was discussing with the Government a second agricultural support services project (ASSP II), which was expected to provide services to both irrigated and non-irrigated areas\. Although the ASSP II did not materialise, the DA eventually implemented the component through a Memorandum of Agreement with the LGUs\. In addition, the DA's larger national programs, such as the Grains Production Enhancement Program, provided support services in most of the project areas during the implementation period\. One significant question relating to quality at entry that can be raised in retrospect, and was indeed raised during the Staff Appraisal Report (SAR) review process within the Bank, is whether project design was substantive and innovative enough, considering the long experience with rehabilitation and improvement of NIS and water users' involvement with system O&M in the Philippines\. To address this issue, and to use the project as a vehicle for initiating long-term irrigation sector reforms in the Philippines, substantial additions to project content were introduced after the mid-term review\. The additions to project content were made within a comprehensive framework: (a) The first step was to introduce technical change: rehabilitation and improvement of the existing NIS within the framework of an Irrigation System Improvement Plan (ISIP) prepared by NIA for each system included for improvement\. The ISIP aimed at increasing the irrigated area, and, at the same time, ensuring equitable distribution of water by changing the modality of operation from the old labor-and-management-intensive gated water control and distribution system to a new system requiring little or no operation, based on long-crested weirs for water level control, and proportional dividers and/or reduced pipe sizes (in proportion to the area irrigated) at turnouts for water distribution\. (b) The technical change was accompanied and followed by institutional change: empowerment of irrigation water users through forrnation or strengthening of the Turnout Service Area Groups, LAs, IA Federations, and Council of lAs (CIAs), and signing of an irrigation management transfer (IMT) contract by NIA with the IAs/CIAs, which transfers to them the responsibility for O&M of the secondary canals in larger irrigation systems (also mandated by the Agriculture and Fisheries Modemization Act (AFMA) of 1997), and O&M of the entire NIS for smaller systems (less than 3,000 ha), as agreed under the follow-on Water Resources Development Project (WRDP - Loan 41 10-PH)\. (c) The institutional change was accompanied by changes in cost recovery policies: the IMT contract replaced the earlier cumbersome system of sharing of the irrigation service fee (ISF) collection between NIA and the IAs/CIAs by a straightforward negotiated share (usually 50/50); this sharing system also has drawbacks (the lAs frequently complain of late remittance of their share by NIA)\. and is envisaged to be gradually replaced by a lump sum payment system, either on a per ha basis or based on volume of water supplied by NIA (volumetric pricing)\. The volumetric pricing pilot, which had been agreed under WRDP to have started by December 31, 1999, started in late 2000 on two pilot laterals, and will start on another pilot lateral in the next wet season (June 2001)\. (d) The above interventions were accompanied by efforts to establish self-sustaining systems for O&M and rehabilitation of irrigation schemes: this was aimed at overcoming the long-standing problem of deferred maintenance, which leads to deterioration of irrigation systems, which then require rehabilitation prematurely, thus consuming scarce resources which could have otherwise been used for expansion of the irrigated area\. This element of reform has been partially achieved (establishment of trust funds), while discussions on earmarked O&M funds are continuing (details in section 6\.1)\. (e) To adddress the problem of NIA staff redundancy resulting from the progress of the IMT program, a proposal for downsizing of NIA was formulated (details in section 4\.5)\. The actual downsizing has not yet started due to lack of funds for early retirement of NIA staff\. (f) The elimination of direct and indirect O&M subsidies to NIA was to follow NIA downsizing\. Several elements of the reform program (a to d) made significant progress during project implementation\. However, since the original IOSP II design had not addressed the NIA overstaffing issue (e above), discussions on this issue started only in year 2000 after the extent of redundancy resulting from the IMT - 3 -  program implementation was known\. Neither NIA downsizing nor elimination of O&M subsidies had started by mid-2001 (see further section 4\.5)\. 4\. Achievement of Objective and Outputs 4\.1 Outcome/achievement of objective\. The outcome of the project in terms of its contribution to food security and incomes of small farmers is rated satisfactory\. However, there was a delay of about two years in project implementation, and the Bank loan closing date had to be extended from June 30, 1999 to December 31, 2000\. This delay was due to a variety of reasons, including: (a) inadequate budgetary allocation in the first three years of the project (1993-95), when only 49% of the amount projected in the SAR and requested by NIA was allocated by the Government; (b) expansion in the scope of the systems improvement sub-component and the institutional development component (section 3\.5), which necessitated a time-consuming process of consultation and agreement with the LAs; (c) a considerable delay in the recruitment of consultants for the design of modality of operation and the DMT program, primarily due to the long time taken by the Government to approve the use of Bank loan proceeds for TA (although it was already included in the Loan Agreement); and (d) the lack of knowledge and experience among the NIA design and field staff of the new technology promoted for water level control and modality of operation, and the consequent delays from trials and errors\. Overall, at Bank loan closing, the project is estimated to have benefited 504,850 farm families (110% of the SAR estimate of 460,000), with about 45,300 families benefiting from rehabilitated areas, and about 10,700 from restored and generated areas in 17 improved NIS; and the rest in NIS provided with incremental O&M support\. An additional 10,000 farm families are expected to benefit when the restored areas reach full development in year 2003\. The main benefits accrued to farmers in restored and generated areas, as these were converted or will be converted from rain-fed to irrigated areas\. The incremental rice production at full development of irrigated areas in year 2003 is estimated at about 94,000 t/year, compared to the appraisal estimate of 93,000 tons\. The project has a highly satisfactory ERR (section 4\.3) and the net financial return to beneficiaries is expected to be higher than that estimated at appraisal (section 4\.4 and Annex 3)\. The project objective of increased operational efficiency of NIS was substantially achieved through a higher cropping intensity and technical changes in modality of operation in 17 NIS (see section 4\.2)\. Moreover, greater equity in water distribution, not envisaged at appraisal, was achieved through changes in modality of operation\. The project also supported formation and/or strengthening of lAs and CIAs, achieved participatory planning and implementation of improvement works, and initiated a major IMT program covering 17 improved NIS under the project and other NIS being improved under the follow-on WRDP (Loan 4110-PH)\. 4\.2 Outputs by components: Improvement and Urgent Repair of Selected NIS\. The performance of the component, which accounted for about 50% of project costs at appraisal and 52% at completion, is rated satisfactory overall, although its implementation was considerably delayed due to reasons explained in section 4\.1\. All major improvement works on the 17 selected NIS were completed by the Bank loan closing date\. Since minor tertiary and farm-ditch works by farmers are in progress, full development of incremental irrigated areas is expected in year 2003\. The SAR targeted improvements on 78,655 ha in 18 NIS with a service area of 95,944 ha\. The improved - 4 -  area included both rehabilitated and incremental irrigated area, but the figures for the two were not specified\. During implementation, as a result of parcellary mapping and exclusion of one NIS, the firmed-up service area of 17 NIS was determined to be 86,913 ha\. Further, after agreement with the August/September 1999 Bank supervision mission, improvement targets were revised upwards to 84,200 ha in both wet and dry seasons (97% of the firmed-up service area)\. The improved area target included: (i) rehabilitation of about 61,580 ha in the wet season and 60,000 ha in the dry season; and (ii) incremental irrigated areas, consisting of restored areas of about 22,470 ha in the wet season and 24,000 ha in the dry season, and new/generated areas of about 200 ha in both seasons (rehabilitated, restored and generated areas are defined in Annex 3, para\. 5)\. As some incremental irrigated areas were achieved in the early years of the project due to other funding available to NIA, the incremental area to be achieved through project funds alone was projected at about 16,900 ha in the wet season and 17,700 ha in the dry season\. By the end of year 2000, about 73,000 ha in the wet season and 72,000 ha in the dry season had been improved in the 17 selected NIS\. This represented about 92% of appraisal expectation, and about 86% of the revised higher target\. The achievement of rehabilitated and generated areas was 100% of the respective revised targets\. However, the restored area was about 11,700 ha in the wet season (52% of the revised target) and 12,200 ha in the dry season (51% of the revised target)\. The relatively low achievement of restored areas was due to the fact that many tertiary works by farmers were still in progress at the end of year 2000 when NIA completed the improvement works on main and secondary canals\. Since, in addition to the system improvement and repair component, the project provided incremental O&M support to all existing 165 NIS, the SAR target for irrigated cropping intensity (increasing from 140% without project to 150% with project) referred to the entire service area of 620,000 ha\. Although the irrigated area in year 2000 was about the same as expected at appraisal, the irrigated cropping intensity was 144%, lower than that projected at appraisal, since the service area had increased to 646,000 ha without a commensurate increase in irrigated area (see Annex 3 for details)\. However, for the 17 NIS included in the system improvement component, the irrigated cropping intensity increased from 149% in without project situation to 167% by the end of 2000, and is expected to reach 194% at full development in year 2003 (compared to 164% projected at appraisal)\. The results of the survey undertaken for the ICR show that 80% of the farmers and CLA/IA officials reported timely delivery and equitable distribution of water after the project, compared to only 40% before the project (a summary of the survey results is at Annex 8, and details are available in Annex 9 of the Borrower's ICR in Project Files)\. This and other findings in the survey clearly demonstrate the view held by an overwhelmning majority of beneficiaries that there were significant improvements in irrigation service in the 17 NIS brought about by the project\. The positive views of the beneficiaries are corroborated by a technical evaluation, which shows that water level control through long-crested weirs and changes in the modality of operations (proportional weirs and modified pipe sizes, or a combination of the two), greatly simplified operation, thus reducing the labor and management inputs required from both NIA and CIAs/lAs, shortened the time required for land soaking and preparation, and improved timeliness, adequacy and equity of water delivery (details of the technical evaluation are in Annex 8 of the Borrower's ICR in Project Files)\. Further attention to improving the planting calendar and on-farm water management is needed to reap full benefits of the new technology\. Appraisal targets for repairs to major structures were exceeded, as 28 structures in 17 NIS were repaired compared to 22 structures in 14 NIS envisaged at appraisal\. Works included repair of diversion dams and sluice gates, additional sluices, river protection works, etc\. Two of the three planned silt excluders were constructed; and erosion control measures (vetiver grass, gabion or rip-rap) were implemented in 52 NIS or - 5 -  163% of SAR target (see section 6\.1 for further discussion on the siltation problem)\. Incremental O&M\. All activities were substantially completed, and the output of the component (accounting for 36% of project costs both at appraisal and completion) is rated satisfactory\. By the end of year 2000, the project had provided nation-wide incremental funding for O&M activities covering 181 NIS with a service area of about 646,000 ha, including canal maintenance (desilting and repair of embankment), maintenance of service roads, maintenance of control structures and gates, and incremental personnel costs for the Institutional Development Officers\. Targets for physical improvements under this component were not specified in the SAR, but achievements included over 1,600 km of de-silting of canals and gravelling or grading of service roads, and repair/replacement of some 4,700 structures\. The project also sought to close the gap between O&M expenditures and NIA's revenues from ISF collection and thus ensure sustainability of the improved system-level O&M services achieved under IOSP I (Loan 2948-PH)\. While NIA was expected to maintain in 1992 constant terms the O&M expenditure level (Peso 822/ha) achieved under IOSP I, sections of NIS were to be turned over to the lAs for O&M, and ISF collection was to be increased in tenns of efficiency (from 60% of collectibles in 1991 to 70% by project completion) as well as net collection (from Peso 317 million in 1991 to Peso 757 million in 1999 in current terms), so that at least 95% of the O&M cost in 1999 was met through ISF collection\. NIA succeeded in maintaining the O&M expenditures in 1992 constant terms, and in implementing a major IMT program\. However, the objective of increasing net ISF collection, which was being achieved until 1997, received a major setback when the then President announced "condonation" of ISF during his State of the Nation Address in July 1998\. As a result, many farmers stopped paying ISF\. To control the damage done by the Presidential announcement, a compromise solution was worked out, embodied in the Administrative Order No\. 17 (AO 17) of August 31, 1998, establishing "socialised" ISF rates based on size of holdings, which were substantially lower than the previous rates\. The net ISF collection in 1998 declined to Peso 316 million from Peso 455 million in 1997, and the collection efficiency to 49% from 63%\. However, there was a marked improvement in 1999 and 2000, and net ISF collection improved to Peso 398 million and the collection efficiency to 67% (71% in the 17 improved NIS) by the end of year 2000 (unaudited figures)\. While the collection efficiency in year 2000 was thus close to the appraisal target of 70%, the net ISF collection was about 87% of the 1997 level and only 53% of the appraisal target in current terms\. Moreover, the net ISF collection in year 2000 met only about 54% of the O&M expenses (compared to 95% expected at appraisal)\. The remaining O&M expenses in year 2000 were met from NIA's equipment rental income and government budgetary allocations (further discussion in section 6\.1)\. Institutional Development\. The project continued the institutional development efforts initiated under IOSP I for strengthening of lAs and NIA, through improvement in the ISF collection process (parcellary mapping and preparation and updating of irrigation fee registers), staff training, support to the Irrigation Management Information System (IMIS), technical assistance, and provision of equipment and materials\. The achievement of the component (accounting for 13% of project costs at appraisal and 11% at completion) was satisfactory overall\. The project initiated the implementation of a major IMT program in 17 NIS improved under the project\. The institutional efforts focused on reorganization and strengthening of Turnout Service Area Groups and then LAs, and eventually organizing CIAs\. This process was piloted in the North Diversion Canal (NDC)-5 of MRIIS, with signing of the IMT contract in December 1998, and later replicated in other 17 NIS\. As of end-2000, O&M responsibility under the new IMT contract in these NIS was turned over to 23 CIAs and 17 lAs, covering an area of 44,715 ha and 36,726 farmers\. In addition, management by lAs under existing Stage II and III contracts covered 9,571 ha (33 lAs) and 2,308 ha (3 UAs), respectively\. The total area under CIA/IA management, as of end-2000, was, therefore, 56,594 ha, or 71% of the 80,240 ha targeted - 6 -  for farmer management (80,240 ha is derived by excluding from the total service area about 6,670 ha served by main canals in large NIS, which are expected to remain under NIA management)\. The IMT program in MRIIS was halted in mid-2000 due to resulting redundancies of NIA staff and lack of financing for their early retirements\. However, negotiations for the signing of IMT contracts in the other systems are continuing, and the total area under farmer management is expected to increase to about 68,000 ha by the end of 2001 (85% of the area targeted for farmer management)\. As regards the overall institutional development program in 181 existing NIS, achievements for organising new lAs, registering them (as well as the backlog of lAs) with the Securities and Exchange Commission, and providing them with O&M contracts, fell short of appraisal expectations (Annex 1), primarily due to the decision to devote intensive efforts to the IMT program in the 17 NIS rather than extensive efforts in other NIS\. However, about 80% of the total NIS service area is now under various forms of participatory irrigation management (compared to about 62% at appraisal in 1992)\. The number of farmers and IA officers trained (166,260) in all NIS far exceeded the appraisal target of 79,900\. This training covered basic leadership, financial and system management, improved rice farming, and integrated pest management (IPM)\. Local training was provided to NIA staff, except for two NIA staff, who were sent on a study visit to Mexico to observe the IMT program in that country\. One of the foremost authorities on the Mexico IMT program also provided consultancy assistance to NIA\. His recommendations were consistent with the thrust of the on-going IMT program and improved O&M services\. The IMIS did not make much progress as the IMT program and the changed modality of operation required a new set of indicators and monitoring arrangements\. This had not been finalized at the time of Bank loan closing\. However, data for most of the monitoring indicators specified at appraisal were provided by NIA to Bank supervision missions\. The one exception was gender-disaggregated data relating to lAs and training activities\. Although some benchmark information on IA women members and officers was collected, and some Gender and Development training provided to NIA staff, the efforts were not systematic\. Moreover, targeting of training programs to increase participation of women in IA activities, envisaged at appraisal, was not implemented\. Agricultural Support Services\. The achievements of this component (accounting for about 1% of project costs both at appraisal and completion) were close to targets (Annex 1)\. Activities under the component consisted of demonstration trials of appropriate technologies; IA-based seed multiplication and distribution; and training of farmers in soil and water management, integrated pest mnanagement (IPM), improved rice production technologies, crop diversification, seed production, rice-fish culture, etc\. All support provided by the component was channelled through the lAs, in coordination with the extension services of the concerned LGUs\. Average yield (weighted by service area) of palay (paddy) in the 17 improved NIS, reported for the year 2000 in the survey for the ICR, was 3\.92 tlha in the wet season and 4\.39 t/ha in the dry season (a detailed discussion on yields is at Annex 3, para\. 7)\. As regards fertiliser use, the survey results showed that, consistent with DA's recommendation, the farmers applied an average of 335 kg/ha (about 7 bags) of conmuercial mixtures (appraisal expectation was 4-6 bags)\. The effect of the training on IPM was reflected in the reduced expenditure on pesticides\. The average cost of pesticide application reported in the survey was P 1,140/ha for the dry season and P 1,234/ha for the wet season, compared to P 1,920/ha and P 2,004/ha in 2000 constant prices, respectively, estimated during project preparation\. - 7 -  4\.3 Net Present Value/Economic rate of return: Following appraisal methodology, the NPV and ERR were re-estimated for the system improvement and urgent repairs component only, including 100% of costs for institutional development and agricultural support services\. These costs account for 64% of total costs\. For the incremental O&M component, which accounts for the remaining 36% of total costs, the NPV and ERR were not recalculated since, as stated in the SAR, the component was designed to maintain, and in fact did maintain, the O&M expenditures achieved under IOSP I in 1992 constant terms, and, its ERR is, therefore, the same as for IOSP I (the ERR for IOSP I was estimated in the SAR for IOSP II at 21%, but was re-estimated at 28-35% in the subsequent OED Performance Audit Report No\. 18034 of June 19, 1998 for IOSP I)\. For the system improvement and urgent repairs, only the benefits of incremental irrigated areas in 17 NIS were included, and benefits of rehabilitation as well as urgent repairs, which are significant but difficult to quantify, were not included\. Similarly, in the without project situation, there could have been a decline in the irrigated areas due to further system deterioration, but this possible decline has not been taken into account in the analysis\. The re-estimated NPV and ERR are thus conservative\. Incremental production benefits were estimated on the basis of weighted average yields of 3\.92 t/ha and 4\.39 t/ha for the irrigated areas in the wet and dry seasons, respectively, as reported in the ICR survey (compared to 4 t/ha for both seasons assumed in the SAR), and 2\.2 t/ha for the rain-fed areas (compared to 2\.8 t/ha in the SAR), as reported by the Bureau of Agricultural Statistics (BAS) for the year 2000\. The weighted average yields for irrigated areas are heavily influenced by relatively high yields in MRIIS, which accounts for about 75% of the service area in the system improvement sub-component\. The higher yields in MRIIS are mainly due to the fact that it is a reservoir-backed system with more stable water supplies, compared to the other NIS under IOSP II which are run-of-the-river systems (except for four pump systems with a relatively small total service area) with highly variable water supplies from year to year (details in Annex 3, para\. 7)\. The average official exchange rate of Peso 50=US$I, which prevailed from late 2000 to mid-2001, and a Standard Conversion Factor of 1\.0 for local costs were used for the base case ERR\. Based on the above assumptions, the ERR is re-estimated at 21% (and NPV at Peso 1,251 million at a discount rate of 10%), compared to 17% estimated in the SAR\. Separate ERRs calculated in the Borrower's ICR show about 26% for system improvement and 18% for urgent repairs\. The major factor contributing to the relatively high ERR at completion is the farmgate economic price of palay (paddy), which was projected at P 3\.78/kg for year 2000 in 1992 constant terms (Peso 6\.8/kg in 2000 constant terms) in the SAR, but was estimated at P 8\.7/kg or about 28% higher in real terms at end-2000, principally resulting from the steep exchange rate depreciation over the last few years (from Peso 25\.5=US$1 in December 1992 to an average of Peso 44 in year 2000, and further to Peso 50 in the first half of 2001), which has made import substitution of commodities like rice economically very attractive\. Sensitivity analyses show that the project is economically viable in several adverse scenarios\. The ERR is most sensitive to the level of achievement of full development targets for incremental irrigated area and to world rice prices: if only 50% of the incremental irrigated area was achieved, the ERR would decline to 12%, and if world rice prices decline by 20%, the ERR would be 14%\. With an assumed irrigated paddy yield of 3\.75 t/ha for both seasons over the 30-year period of analysis (the assumption made in the OED Performance Audit Report on IOSP I), the ERR would still be 16%\. If the incremental irrigated area starts declining at 3% per annum from year 2001 onwards due to inadequate O&M (historically, the decline has been much less even with inadequate O&M), the ERR would remain at 21%, although the NPV at 10% discount rate would decline a little to Peso 1,146 million (see Annex 3 for details of financial and economic analyses)\. 4\.4 Financial rate of retutrn: It is estimated that, at full development of irrigated areas in the 17 NIS improved under the project (194% irrigated cropping intensity), net returns for share-tenants and owner-operators would be about Peso - 8 -  21,600/ha/year and Peso 44,100/ha/year, respectively (US$430 and 880, respectively)\. This represents increases of 19% and 21%, respectively, over the without project situation\. These returns are also higher than those expected at appraisal (see Annex 3 for details)\. The increased farm incomes would have direct poverty alleviation effects, since the beneficiaries are small owner-operators and share-tenants\. 4\.5 Institutional development impact: Although significant institutional reform efforts were initiated under the project, beginning in 1998, and, in particular, considerable progress on IMT was made, several issues remain to be addressed relating to the financial viability of NIA, and the lack of political conmnitment to pursue irrigation sector reforms\. The institutional development impact of the project at the time of Bank loan closing is, therefore, considered modest\. The IMT program is a positive step towards empowerment of farmers, and a critical element of the irrigation reform process in the Philippines\. It has encouraged more active involvement of beneficiaries in decision-making relating to irrigation systems management and CIA/IA operations\. It has several desirable features, which distinguish it from the earlier turnover programs followed by NIA: (i) the IMT contracts are signed after improvement works are completed; this greatly improves sustainability of O&M after the tumover, and since the improvement works are aimed at simplifying operation, the CIAs/lAs can concentrate almost exclusively on maintenance after turnover; (ii) larger organisations (CIAs or Federations) are encouraged; this facilitates more professional management (like in Mexico); (iii) the earlier cumbersome arrangements for sharing of ISF between NIA and the CIAs/JAs are replaced by a simple sharing formula (section 3\.5); and (iv) monitoring by NIA of CIA/IA performance in O&M during a two-year transition period after signing of the IMT contract, based on a set of technical, financial and organizational indicators, is built into the IMT contract\. However, the IMT contract needs further refinement, since it does not have a self-sustaining mechanism to ensure proper O&M by the CIAs/IAs, and the sharing of ISF is still fraught with problems (see sections 3\.5 and 6\.1)\. Although the IMT program made good progress until mid-2000, it was halted in MRIIS as staff redundancy became an issue\. At the Bank's urging, NIA established a Task Force in mid-2000 to assess the impact of IMT on staffing\. According to the Task Force report, some Peso 143 million was needed in the first phase for about 300 staff willing to retire in the NIS covered by IOSP II, WRDP and the ADB-supported ISIP II\. Unfortunately, the Government's acute budgetary problems since last year make it unlikely that funding for early retirement of NIA staff will be available soon\. While serious efforts should continue to be made to secure funding from the Government for already-identified NIA staff willing to retire, the Task Force should expand its exercise to cover all the other NIS, Regional and Provincial offices, and the central office, so that a phased streamlining program can be formulated to ensure NIA's long-term viability\. A Streamlining Plan, which did not consider the implications of the IMT program, was submitted by NIA to the Department of Budget and Management (DBM) in January 2000\. The Plan proposed a 50% reduction in authorized NIA monthly positions (from 11,451 to 5,701), with the consequent reduction in personnel costs from Peso 1\.64 billion to Peso 0\.95 billion\. However, since only 5,816 positions were filled at that time, the Plan implied an actual net reduction of 115 positions, with virtually no change in the actual personnel cost of about Peso 0\.9 billion\. No decision on the Plan has been taken by the DBM so far\. Clearly, the reduction in NIA monthly positions needs to be much larger than that proposed in the Plan, particularly if the IMT program is taken into account\. There should also be a significant reduction in the number of dailies (about 700 are charged to the NIA operating budget, and about 7,400 to various on-going projects)\. In addition to a significant downsizing of NIA, continued efforts to improve ISF collection would be necessary to overcome the setback to NIA's financial viabilitv caused by the Presidential "condonation" of -9-  ISF in 1998 (see further section 6\.1)\. It is essential, for the Government to assist NIA in streamlining its staffing and organization, and thereby improving its financial viability\. 5\. Major Factors Affecting Implementation and Outcome 5\.1 Factors ouitside the control of government or implemnenting agency: Improvements and repair in some NIS were affected by occurrence of typhoons and flooding during the construction period, resulting in increased cost and delayed implementation\. 5\.2 Factors generally subject to government control: Implementation of the key components (system improvement and institutional development) was affected by delays in the release of counterpart funds, and the Government's reluctance to use loan funds for TA (see further section 7\.5)\. 5\.3 Factors generally subject to implementing agency control\. NMA's efficiency in equipment procurement declined considerably in the last three years of the project\. As a result, USS3 million of the Bank loan, which was planned to be used for procurement of pump equipment and accessories for MRIIS, was cancelled\. NIA could also have made more concentrated efforts to accelerate implementation of improvement works and the IMT program\. 5\.4 Costs andfinancing: The total project cost at appraisal was estimated at US$69\.6 million (Peso 2,081\.3 million), and the Bank loan of US$51\.3 million was to finance 74% of the project cost\. At completion, the total project cost is estimated at US$68\.9 million (Peso 2\.2 billion), with Bank financing of US$47\.3 million, or 69% of total costs (Annex 2)\. US$3 million of the Bank loan was canceled on January 5, 2001, and the remaining US$1\.0 million on April 30, 2001\. 6\. Sustainability 6\.1 Rationalefor sustainability rating: Sustainability, using the Bank's prevailing definition (the likelihood of the project generating a flow of benefits large enough to exceed the expected marg&nal costs of operation and maintenance), is considered likely\. The sensitivity analysis reported in section 4\.3 and Annex 3 shows that the economic returns from the project would be attractive in many adverse scenarios, including the scenario of insufficient O&M expenditures leading to a 3% per annum decline in irrigated areas (ERR of 21%)\. If the capital costs are excluded from the analysis (treated as sunk costs), and only the post-project O&M costs are included, the ERR and NPV would be very high\. While sustainability is thus rated likely, a few steps should be taken by the Government and NIA to ensure proper O&M of systems and thereby maximise project benefits\. The current average annual O&M expenditure per ha for the 17 MS improved under the project is estimated at Peso 1,500 (US$30)\. The desirable O&M expenditure per ha, as calculated in a recent consultant study (funded by ADB) on cost recovery mechanisms for NIS, is Peso 2,300 (US$46)\. The desirable expenditure level would be lower as the IMT program progresses, since the LAs/CIAs with IMT contracts would have their own staff whose salaries and wages are much lower than those of NIA staff\. Even with the desirable average expenditure of Peso 2,300/ha, eight of the 17 NIS are not expected to face any problem in meeting the O&M requirements from the ISF income alone (a detailed system-by-system analysis is in section 6 of the attached Annex 9 - Borrower's ICR - and in Annex 7-Ga of the Btorrower's ICR in Project Files)\. For the others, a combination of increased ISF collection and reduction of O&M cost through IMT will be necessary\. It * 10-  should be pointed out, however, that apart from ISF, NIA has other sources of funds for O&M, including equipment rental income, annual budgetary allocations under the locally-funded programs for repair and rehabilitation and drainage of NIS, and O&M subsidy of Peso 145 million per annum (Peso 220/ha) being received from the Government since 1998\. The prospects of sustainability of O&M expenditures are, therefore, much better than they would appear if one considered ISF alone, although, in the ideal situation, ISF collection should at least provide for routine O&M, and the other sources of funds should be reserved for repair and rehabilitation\. The annual O&M expenditures, a significant proportion of which is for silt removal, can be further reduced if a solution is found to the siltation problem\. The silt reduction measures adopted under the project, and continued under the follow-on WRDP (Loan 41 10-PH), appear promising\. A preliminary evaluation carried out by NIA last year in four selected NIS showed favorable technical and economic results\. In the case of Tumauini, where a settling basin was constructed under IOSP II, the volume of sediments removed declined by about 35% (from the pre-project annual average of 9,997 cubic meters to 6,450 cm)\. However, substatial additional data is needed to arrive at a definitive judgement on the cost and technical effectiveness of sediment reduction measures\. The data is expected to be generated under the on-going sediment monitoring sub-component of WRDP\. Moreover, a complementary, broader watershed management program is included under WRDP, and would be continued under the proposed (FY04) River Basin and Watershed Management Program (likely to be an Adaptable Program Loan)\. To further improve sustainability of O&M expenditures on headworks and main canals in larger systems (>3,000 ha), which, as stipulated under AFMA, will remain with NIA even after IMT, NIA should continue its program of increasing ISF collection (including efforts to re-instate the pre-1998 ISF rates) and reducing its operating costs, particularly by persuading the Government to allocate sufficient funds for early retirements of NIA staff\. The current costly practice of collecting ISF from hundreds of thousands of farmers (water retailing) should be replaced by direct billing to the lAs (wholesaling)\. Moreover, a move from the present system of sharing of ISF based on uniform national rates to a lump sum, system-specific, and negotiated payment (including volumetric pricing, if found feasible under the on-going pilots) should be seriously considered, as it will be advantageous to both NIA and the CIAs/IAs\. To improve sustainability of O&M expenditures on smaller systems (<3,000 ha), which are to be completely managed by CIAs/IAs after IMT, and on laterals and sub-laterals of larger systems already transferred or to be transferred to the CIAs/lAs, monitoring by NIA of actual O&M expenditures during the transition period after signing of the IMT contract should be given due attention\. Since continued monitoring by NIA after the transition period is uncertain, establishment of earnarked O&M funds from the share of the CIAs/lAs in ISF collection (such funds have already been established in some countries which have IMT programs) should be seriously considered\. These earmarked funds are necessary because the IMT contract does not have any in-built mechanism or assurance that there will be proper maintenance in areas covered by IMT\. The exact proportion to be earmarked would depend on the O&M cost, and is likely to differ from lateral to lateral and system to system\. The earmarked portion could be supplemented, as necessary, by voluntary labor by the farmers or additional funds from the IA's share of ISF collection\. The earmarking of O&M funds could be done by changing the bylaws of the lAs\. The IMT contracts could also be modified accordingly\. The modified IMT contract with an earmarked O&M fund could then combine the desirable features of earlier contract systems followed by NIA: it would retain the independence of CIAs/lAs, and, at the same time, provide for a self-sustaining mechanism for proper O&M\. The earmarked O&M fund, to be available with the CIAs/lAs, would supplement the trust fund, currently kept by the Regional Managers of NIA, which was established for each NIS improved under IOSP II from - 11 -  the equity contribution of farmers for improvement works (25% of labor cost for improvement of secondary canals and 100% of labor cost for tertiary systems)\. Guidelines for the utilization of the trust fund were finalized by NIA and circulated to its field offices in April 2001\. These should be disseminated to the CIAs/lAs immediately, so that they can access the funds for their priority needs\. The CIAs/IAs should also consider setting their own ISF rates, since they are not bound by AO 17\. A higher collection of ISF would help ensure proper O&M and capital build-up for their other needs\. 6\.2 Transition arrangement to regular operations\. Since development of incremental irrigated areas and institutional processes required for IMT were still in progress in several NIS at the time of Bank loan closing, transition arrangements to regular operation are extremely important\. The most important objective would be to ensure that conversion of rain-fed to irrigated areas proceeds as planned, and is completed by year 2003, since the ERR is highly sensitive to this development (scc section 4\.3)\. NMA should monitor this development and should prepare six-monthly progress reports\. Several steps should also be taken to ensure the sustainability of the improvement works and the IMT program: (i) close monitoring of the performance of CIAs/IAs as regards O&M in IMT areas is necessary; (ii) monitoring of the functionality and impact of changes in the modality of operation should be continued; (iii) the O&M plans for the systems and laterals transferred or to be transferred, which were being translated into local dialects at the time of Bank loan closing, should be delivered to the CIAs/IAs without further delay; (iv) the prototype manual for IMT, which was produced by the TA team, should be polished by incorporating improvements based on the experience gained in different NIS; (v) the cascading approach to technology transfer proposed by the TA team (training the IA officers, who would, in turn, train farmers) and followed in the IMT pilot area (NDC-5), should be implemented in other IMT areas to facilitate rapid capability build-up of ClAs/IAs; and (vi) efforts should continue to establish earmarked O&M funds (section 6\.1)\. As regards performance indicators to help monitor future operations and impact of the project, current activities of NIA field offices and BAS in collecting yield data should continue\. The monitoring format produced by NIA and regularly used by Bank supervision missions should also be maintained and updated every year\. The format includes indicators for service area, irrigated area in wet and dry seasons, irrigated cropping intensity, benefited area in wet and dry seasons, ISF collectibles and gross and net collection, other income used for O&M, O&M expenses, and net income (deficit) for O&M\. The monitoring table used during supervision showing the achievement of targets for rehabilitated, restored and generated areas under the project should be updated regularly until full development is reached\. NIA should also have regular rather than sporadic gender-disaggregated data collection related to CIA/IA activities and leadership\. 7\. Bank and Borrower Performance Bank 7\.] Lending Bank performance during the design, preparation and appraisal processes was generally satisfactory\. However, there was scope for a more substantive and innovative project design (section 3\.5)\. 7\.2 Supervision: Bank supervision is rated satisfactory\. The supervision missions had an appropriate skill mix and staff continuity, and reviewed project progress every six months\. The Bank helped NIA initiate a reform program for the irrigation sector (section 3\.5), not envisaged at appraisal\. The Bank also played a decisive role in ensuring technological change in the 17 NIS (structures for water level control and improved modality of operation), expanding the IMT program coverage and content (including complete transfer of - 12-  small systems to the CIAs/lAs, not envisaged at appraisal), initiating the discussion on earmarked O&M funds, and helping initiate volumetric pricing pilots\. The Bank also assisted the Government in resolving the problem of shortage of counterpart funds by establishing a Project Special Account (PSA) and a 90-day advance facility from the PSA to field offices to expedite implementation of works\. An 1 8-month extension of the loan closing date facilitated completion of major physical works by NIA\. The Quality Assurance Group (QAG) of the Bank reviewed this project in the third Rapid Supervision Assessment (FY99), and gave a satisfactory rating to focus on development impact, supervision of fiduciary aspects, adequacy of supervision inputs and processes, and overall quality of supervision, and a highly satisfactory rating to realism of project performance ratings\. 7\.3 Overall Bankperforrnance: The overall Bank performance is rated satisfactory in the light of discussion in sections 7\.1 and 7\.2 above\. Borrower 7\.4 Preparation: Project preparation by NIA was satisfactory\. Detailed arrangements for first year civil works and other activities were in place before negotiations\. A notable feature of project preparation was the high level of participation by the LAs in identifying and agreeing to the improvement works to be undertaken in the selected NIS\. Equity participation by the farmers through contribution of labor in improvement works was a good idea as it led to accumulation of funds which can be used by the CLAs/LAs for priority activities\. 7\.5 Government implementation performance: The implementation perfornance of the Borrower is rated unsatisfactory due to several reasons: (a) insufficient budgetary allocation to the project in the first three years of implementation; (b) long delay in approving the use of Bank loan proceeds for TA; (c) "condonation" of ISF by the then President; and (d) lack of initiative to implement IMT (see further section 8)\. The above actions and inactions considerably delayed project implementation and benefits, and undermined irrigation sector reform efforts\. 7\.6 Implementing Agency: Overall, the performance of the implementing agency, NIA, was satisfactory\. Detailed and regular monitoring of project progress was undertaken, and the draft ICR on behalf of the Borrower was submitted to the Bank in time\. No significant problems relating to accounts and audits were encountered\. However, equipment procurement performance was unsatisfactory in the last three years of the project (section 5\.3)\. 7\.7 Overall Borrower performance\. Despite the problems mentioned in section 7\.5, the overall performance of the Borrower is rated satisfactory since most project objectives were substantially achieved by the loan closing date\. 8\. Lessons Learned * Political commitment is essential for irrigation sector reform\. (a) Although AFMA (Republic Act 8435) of 1997 mandated IMT and stipulated its completion within five years, that is, by the end of year 2002, no initiative was taken by central agencies to implement this requirement\. The IMT program, which commenced under IOSP II, was based entirely on the agreement between the Bank and NIA, and the central agencies have so far not addressed the issue of NIA staff redundancy and financing requirement for early retirements\. As a result, the IMT program remains stalled in MRIIS, and its future progress in MRIIS and other large NIS remains uncertain\. (b) An equally serious evidence of the lack of political comniitrnent was the populist action taken in mid-1998 when payment of ISF by the farmers was publicly "condoned" by the then President of the country\. As a result, many farmers stopped paying ISF, and ISF collection declined dramatically\. This action seriously undermined the efforts which had been made in the Philippines over the - 13-  last two decades to improve cost recovery, increased budgetary subsidies to NIA in the short term but jeopardized NIA's long-term financial viability, weakened the lAs as their share of ISF declined with the overall decline in ISF collection, and diminished the capability of lAs and NIA to undertake proper O&M of irrigation systems\. A strong political commitment is urgently needed if efficiency and equity are to be improved in the irrigation sector, and if the AFMA provisions relating to IMT are to be implemented\. * A program approach is needed for irrigation sector reform and NIS improvement\. The system improvement and IMT models developed under IOSP 11, and the sequence of IMT following improvement works, showed promising results in terms of improvement of both efficiency and equity in irrigation services and generation of greater farmer involvement in planning and implementation of improvement works and in O&M of irrigation systems\. Moreover, rehabilitation, repair and improvement of existing NIS proved to be a cost-effective way to increase irrigated areas, as the average cost of incremental irrigated area under the project was only about US$1,500/ha equivalent, which is much lower than the cost/ha of new construction\. However, only a small number of NIS were covered under IOSP II and other externally-supported projects, including WRDP (Loan 4110-PH)\. Since the gap between the service area and the actual irrigated area of NIS is over 200,000 ha, a big potential exists to close the gap at a relatively low cost by replicating the model developed under IOSP II in the remaining NIS\. This, along with implementation of other elements of the irrigation sector reform program initiated under IOSP II (section 3\.5), necessitates adoption of a 10-15 year program approach\. The proposal recently submitted by NIA to the central agencies for improvement of the remaining NIS should be seriously reviewed by the central agencies, and they, along with NIA, and with the support of extemal agencies, if necessary, should ensure that the reform momentum is not dissipated\. - 'The borrowing policy for TA should be decided early in the project cycle\. Although the Loan Agreement included a disbursement category for TA, the Government, given its general policy to minimise borrowing for TA, took a long time during the implementation phase to approve the use of the loan proceeds for TA required for the design and piloting of modality of operation works and IMT\. This seriously delayed project implementation and benefits\. The borrowing policy for TA should be decided early in the project cycle, so that alternatives for project implementation can be considered before appraisal\. Participatory system evaluation improves sustainabiity of improvement works\. The NIS Assessment undertaken by NIA, with the participation of the [As, for each system prior to improvement, proved to be a valuable tool for identifying the performance deficiencies and improvement needs of the system\. The participatory evaluation ensured acceptability by the lAs of the specific improvement works undertaken, particularly changes in the modality of operation, and thereby improved prospects for sustainability of the improvement works\. 9\. Partner Comments (a) Borrower/implementing agency: Comments from NIA We have no objection on the presentations in the ICR\. In fact, they have provided a clearer picture of details that effectively substantiate the factors, constraints, lessons and items for sustainability\. One minor thing we only want to elaborate pertains to the last paragraph of Institutional Development in - 14 -  section 4\.2 "\.targetting of training programs to increase participation of women \. was not implemented"\. We wish to explain that while this did not happen as envisaged in the SAR, this aspect was mainstreamed into our programs and strategies\. We encouraged the adoption of LA policies to ensure that there are women BOD members\. In the conduct of training programs, we ensured that there are women participants as much as possible\. Further, and since the situation in our country is different from other countries, we realize that it is not increasing women participation that we need but providing the opportunities\. The improved modality of operations gave more opportunities for women to occupy operations - related positions because the control structures are easy to operate and monitor\. For more than six years span of Systems Improvement under IOSP II offered immeasurable opportunities for physical and institutional advancement on 17 NIS's\. Achieving the goal at the highest level becamne difficult at a time when political climate is less cooperative\. The needed strong political commitment has been disturbed by internittent changes in the agency leadership within the period of implementation\. Nevertheless, what was achieved sufficiently justifies nurturing similar efforts in the future\. With lessons leamed accumulating and political situation ripening, the needed efficiency and equity to improve irrigation sector is more appealing as ever\. To ensure a successful replication of the physical improvements and improved modality of operation, design and construction of weirs and proportional dividers must be completed simultaneously before operations\. (b) Cofinanciers: Not applicable (c) Other partners (NGOs/private sector): Not applicable 10\. Additional Information The project's environmental category was appropriately rated B at appraisal\. While there is no evidence of any significant increase in application of fertilisers due to the project, the survey undertaken for the ICR preparation shows that pesticide use has actually declined in project areas since appraisal (see discussion on Agricultural Support Services in section 4\.2)\. - 15-  Annex 1\. Key Performance Indicators/Log Frame Matrix Outcome / Impact Indicators: tndicatorMatrix Projecte in ta estPSR ActuaULatest Estimate Farmers benefited (No\.) 460,000 504,850 Farm (rice) net income (P/ha/year) Share tenants 19,104 21,600 Owner-operators 38,209 44,100 Incremental rice production (t/year) 93,000 94,000 Output Indicators: IndiirlMatrix Projected in te PSR Actua/Latest EstImat* A - Improvement and urgent repairs Number of NIS for system improvement 18 17 Service area (ha) 95,944 86,913 Improved area (ha)* Rehabilitated - Wet season 61,577 61,147 - Dry season 59,970 59,644 Restored - Wet season 22,463 11,705 - Dry season 24,020 12,144 Generated -Wetseason 210 210 - Dry season 210 210 Incremental irrigated area (ha)- Wet season 22\.673 11,915 Dry season 24,230 12,354 No\. of NIS for urgent repairs 14 17 No\. of structures for repair 22 28 Silt excluders (No\.) 3 2 Erosion cortrol (No\. NIS) 32 52 Pilot water control structure 1 1 B- Incremental O&M Numberof NIS 165 181 Irrigated cropping intensity* 150 144 ISF collection efficiency 70 67 Canal maintenance (km) Not quantified 1\.640 Control gates and structures repaired Not quantified 4,707 C- Institutional development No\. of new lAs organised (overall) 47 29 No\. of lAs registered with the SEC (overall) 347 130 No\. of lAs with O&M contracts (overall) 536 226 No\. of IMT contracts in 17 NIS Not quantified 40 Ha under farmer management in 17 NIS Not quantified 56,594 No\. of IA officerstfafners trained (overal) 79,900 166,260 0 Agricultural support services Number of demonstraton farms 421 345 Numberof IPM-Fanmer Field Schools 18 17 Farming systems demonstraton (No\.) 11 12 Fertiliser demonstrations (No\. sites) 120 102 Variety trials (No\. sites) 7 7 Rice/fish cuture (No\. sites) 18 9 Grain drying pavements (No\.) 4 4 Seedling nursery (No\.) 1 1 Field days (No\.) 98 43 - 16 -  Seed production (No\. 40 kg bags) Foundation seed procured 126 100 Registered seed procured 2,863 2,259 Foundation seed dstributed 126 100 Registered seed cistributed 1,908 1,395 Registered seed produdion 12,960 8,272 Certified seed production 284,600 124,000 Certified seed distribution 205 267 Farmers' training (No\. participants) Rice production/pest management 261 189 Farmer field school 3,087 2,743 Crop diversffication 44 43 Seed producion 540 370 Farming systems technology 50 20 Capital build up 27 14 Rice/fish culture 50 25 End of project Note: The column 'Projected in last PSR' refers to projections in SAR, Mid-Term Review or last PSR, as the case may be\. * For a definition of rehabilitated, restored and generated area, see Annex 3, para\. 5\. ** The incremental irrigated area is the total of restored and generated area\. The achievement of restored and generated areas as of end-2000 was 11,915 ha in the wet season and 12,354 ha in the dry season, as shown above\. Full development of the targeted 22,673 ha in the wet season and 24,230 ha in the dry season is expected by early 2003\. Some incremental irrigated area was achieved through other funding sources in the early years of the project\. The targets to be achieved through project funding alone are estimated at about 16,900 ha in the wet season and 17,700 ha in the dry season at full development in 2003\. "** The figures refer to overall intensity for the entire service area of NIS\. For the 17 NIS selected for improvement (18 at appraisal), the target irrigated cropping intensity was 164%, the achievement by end-2000 was 167%, and projected by full development in early 2003 is 194%\. - 17 -  Annex 2\. Project Costs and Financing Project Cost by Component\. (in US$ million equivalent) ra i -sal Actual/Ls Percentage of one l~~Esimae Etm pria 000j:jPrw$ectL Cost Bytiti|X ECoponent0 US$ m ;0;0 0jU illion; 0 tUS$ millilon;0; Improvement and Urgent Repair of NIS 29\.10 36\.15 103 Support to System-level O&M 22\.20 24\.66 100 Institutional Development 7\.90 7\.25 82 Agricultural Support Services 0\.80 0\.80 89 Total Baseline Cost 60\.00 68\.86 Physical Contingencies 3\.40 Price Contingencies 6\.20 Total Project Costs 69\.60 68\.86 Total Financing Required = 69\.60 68\.86 Note: In the column 'Percentage of Appraisal', appraisal costs are inclusive of contingencies\. Project Costs by Procurement Arran ements (Ap raisal Estimate) (US$ million equivalent) Eedttr atgV IB 0 0NCB Otet ;;\.F MTd ta lgF Cos 1\. Works 0\.00 14\.40 21\.60 0\.00 36\.00 (0\.00) (1311\.40) (20\.10) (0\.00) (33\.50) 2\. Goods 3\.60 1\.00 0\.00 0\.00 4\.60 (3\.20) (0\.90) (0\.00) (0\.00) (4\.10) 3\. Services 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 4\. Incremental O&M 0\.00 6\.20 18\.50 0\.00 24\.70 (0\.00) (2\.40) (7\.00) (0\.00) (9\.40) 5\. Institutional 0\.00 0\.00 4\.30 0\.00 4\.30 Development & T\.A\. (0\.00) (0\.00) (4\.30) (0\.00) (4\.30) 6\. Miscellaneous 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (o\.00) (0\.00) (0\.00) (0\.00) Total 3\.60 21\.60 44\.40 0\.00 69\.60 (3\.20) (15\.70) (31\.40) (0\.00) (51\.30) - 18 -  Project Costs by Procurement Arrangements (Actual/Latest Estimate) (US$ million equivalent) Expenditure Category Procurement Method N\.8\.F\. Total Cost N4C8 Other' _ _ _ _ _ _ _ _ 1\. Works 0\.00 15\.30 21\.65 0\.00 36\.95 (0\.00) i(13\.02) (18\.42) (0\.00) (31\.44) 2\. Goods 3\.00 1\.35 0\.00 0\.00 4\.35 (3\.00) (0\.96) (0\.00) (0\.00) (3\.96) 3\. Services 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 4\. Incremental O&M 0\.00 4\.20 20\.46 0\.00 24\.66 (0\.00) (1\.53) (7\.43) (0\.00) (8\.96) 5\. Institutional 0\.00 0\.00 2\.90 0\.00 2\.90 Development & T\.A\. (0\.00) (0\.00) (2\.90) (0\.00) (2\.90) 6\. Miscellaneous 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00 Total 3\.00 20\.85 45\.01 0\.00 68\.86 (3\.00) I(15\.51) (28\.75) (0\.00) (47\.26) Figures in parenthesis are the amounts to be financed by the Bank Loan\. All costs include contingencies\. v Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project Rinds to local government units\. Project Financing by Component (in US$ million equivalent) Pereeatage of Appraisal Component Appraisal Estimate Actual/Latest Estimate _ _ Bank I Govt\. CoF\. Bank Govt\. CoF\. Bank Govt CoF\. Improvement and Repair 32\.70 2\.40 30\.75 5\.40 94\.0 225\.0 Incremental O&M 9\.40 15\.30 8\.96 15\.70 95\.3 102\.6 Institutional Development 8\.40 0\.50 6\.85 0\.40 81\.5 80\.0 Agric\. Support Services 0\.80 0\.10 0\.70 0\.10 87\.5 100\.0 Total 51\.30 18\.30 47\.26 21\.60 92\.1 118\.0 -19-  Annex 3: Economic Costs and Benefits Pree;t ValueofFaws(2000 Con t Te Appraisal Latest Estimate Appra 0isa La \ test Estimate Economic rate of 17 21 return (%) Net return (P/ha/year) -Share-tenant 19,104 21,600 -Owner-operator _ 38,209 44,100 NVP at 1O % (Peso 292\.1 1,251\.4 million) I I Note\. Netfinancial returns and NPVat appraisal have been converted to 2000 constant terms using the consumer price index\. FINANCIAL AND ECONOMIC ANALYSIS for ICR A\. Introduction 1\. The analysis presented here re-estimates the economic rate of return (ERR) calculated in the Staff Appraisal Report (SAR), using updated prices, actual project costs, and latest information on crop production\. The impacts of the project on agriculhtual production and farmers' incomes are also re-estimated\. 2\. The framework of the analysis follows, as far as possible, that of the SAR\. Project costs and physical areas covered were based on project records and are considered fairly accurate\. The crop yield estimates are based on a survey conducted towards the end of year 2000 by the consultants who prepared the Borrower's ICR\. Since yield projections over a 30-year period of analysis for the ERR calculation are always subject to uncertainties, a sensitivity analysis, based on a lower yield level, was also undertaken to test project economic viability in an adverse scenario\. B\. Project Benefits 3\. The project's major objective was to achieve a sustainable improvement in the operational efficiency of the National Irrigation Systems (NIS)\. The main benefit of the project was an increase in irrigated area or irrigated cropping intensity, which, in turn, has and would help increase palay (paddy) production, farm incomes and employment\. 4\. Since, in addition to the system improvement and repair component, the project provided incremental O&M support to all existing 165 NIS the SAR target for irrigated cropping intensity (increasing from 140% without project to 150% with project) referred to the entire service area of 620,000 ha\. The wet season irrigated area was expected to increase from 446,000 ha to 483,000 ha, and the dry season irrigated area from 421,000 ha to 446,000 ha\. The latest data provided by NIA show that the - 20 -  appraisal figures were not entirely accurate: although irrigated cropping intensity was 140% in 1991, it had already declined to 134% in 1992, the appraisal year, and was the same in 1993, the year of project commencement\. The latest data also show that the irrigated area in year 2000 was about 478,000 ha in the wet season and 450,000 ha in the dry season\. These figures are almost the same as expected at appraisal\. However, the irrigated cropping intensity in year 2000 at 144% was lower than that expected at appraisal, since the service area had increased to 646,000 ha without a commensurate increase in irrigated area\. However, for the 17 NIS included in the system improvement component, the irrigated cropping intensity increased from 149% in without project situation (1992) to 167% by the end of 2000, and is expected to reach 194% at full development in year 2003 (compared to 164% expected at appraisal)\. The SAR estimated the annual incremental rice production at about 100,000 tons (93,000 tons, to be precise, converting the 144,000 tons of paddy at 65%)\. This was projected on the basis of the overall NIS service area of 620,000 ha\. For the ICR, the incremental production at full development in year 2003 is projected at about 94,000 tons of rice (145,000 tons of paddy)\. This projection is based on the incremental production from the 17 NIS improved under the project\. The production projection is about the same as at appraisal, since the yields of irrigated paddy are assumed to be higher and of rain-fed paddy lower than those at appraisal (see para\. 7 below for a detailed discussion)\. If the appraisal yields were assumed, the production projection would be somewhat lower in the ICR than that in the SAR\. 5\. For the 18 NIS to be improved under the project, the SAR targeted 78,655 ha out of a service area of 95,944 ha\. The improved area included both rehabilitated and incremental irrigated area, but the exact figures for the two were not shown\. During implementation, as a result of exclusion of one NIS and parcellary mapping, the firmed up service area of 17 NIS was reduced to 86,913 ha\. Further, after agreement with the August/September 1999 Bank supervision mission, improvement targets were revised upwards at 84,200 ha in both wet and dry seasons (97% of the firmed-up service area)\. The improvement targets were disaggregated into rehabilitated areas (existing irrigated areas where irrigation structures and/or water availability are improved as a result of the project), restored areas (area within the firmed-up service area which was not irrigated before or not irrigated for the past few years, and is now irrigated as a result of the project), and new or generated areas (new areas over and above the firmed-up service area which are brought under irrigation as a result of the project, and thus lead to a higher firmed-up service area)\. The targets for rehabilitated areas were about 61,580 ha in the wet season and 60,000 ha in the dry season, for restored areas about 22,470 ha in the wet season and 24,000 ha in the dry season, and for new/generated areas about 200 ha in both seasons\. However, part of the areas restored in the early years of the project were due to other funds available to NIA for the 17 NIS, and the incremental area targeted for achievement through project funds alone is about 16,900 ha in the wet season and 17,700 ha in the dry season\. The August/September 1999 Bank supervision mission also agreed with NIA that project contribution would be measured primarily in terms of restored and new/generated areas, and the ERR would be estimated on the basis of these areas only\. Benefits from the existing areas, which were rehabilitated under the project, were to be regarded as additional benefits but not included in the ERR calculation\. The rationale for this methodology was that restored and generated areas could be clearly ascribed to the project, whereas benefits in rehabilitated areas, which would be mainly in terms of yield increases, were difficult to ascribe to the project alone, since many other factors, including weather, could have affected the yields, and yields would have fluctuated from year to year because of those factors\. 6\. By the end of year 2000, about 73,000 ha in the wet season and 72,000 ha in the dry season had been improved in the 17 selected NIS\. This represented about 92% of the appraisal expectation, and about 86% of the revised higher target\. The achievement of rehabilitated and generated areas was 100% of the respective revised targets\. However, the restored area was about 11,700 ha in the wet season (52% of the revised target) and 12,200 ha in the dry season (51% of the revised target)\. The relatively low achievement of restored areas was, in general, due to the delay in the start of improvement works, and, in -21 -  particular, due to the envisaged introduction of improved structures, which were completely new in the irrigation sector in the Philippines (long-crested weirs for water level control and proportional dividers and reduced pipe sizes for modality of operation), and which started only in 1999 after a time-consuming process of consultation and agreement with the lAs and after technical trials and errors\. The remaining restored areas are expected to be fully irrigated by early 2003 as tertiary works and farm ditches are completed by farners\. C\. Major Assumptions for Financial and Economic Analysis 7\. Project benefits were computed on the basis of the incremental irrigated areas only\. Estimates of outputs in the irrigated areas covered by the project were based on the survey of beneficiaries in all the 17 NIS conducted for the Borrower's ICR by consultants\. Production costs for rain-fed areas were based on the 1999 Bureau of Agricultural Statistics (BAS) average regional data converted to 2000 prices using the consumer price index (CPI)\. The average yield (weighted by service area) of palay (paddy) for the rehabilitated, restored and generated areas in the 17 improved NIS, as reported in the survey carried out by consultants for the Borrower's ICR, was 3\.92 t/ha in the wet season and 4\.39 tlha in the dry season (see table below)\. This was 2% lower in the wet season and about 10% higher in the dry season than the yield levels estimated in the SAR (4 t/ha for both seasons)\. As expected, these yield levels were relatively higher than the average of 3\.48 t/ha for irrigated areas reported by BAS for the year 2000, since BAS figures are the average of IOSP II and non-IOSP II areas, and the latter generally did not have the improved facilities provided to the 17 selected NIS\. The survey yield figures show a huge variation among the 17 NIS, from 2\.52 tlha in the dry season in Pongso and 2\.62 t/ha in the wet season in Barit to 5\.40 t/ha in the dry season in MRIIS District 3\. The weighted average yield is heavily influenced by relatively high yields in the three Districts of MRIIS, which account for about 75% of the service area\. The higher yields in MRIIS are mainly due to the fact that it is a reservoir-backed system with more stable water supplies, compared to the other NIS under IOSP II, which are run-of-the-river systems (except for four pump systems with a relatively small total service area) with highly variable water supplies from year to year\. The relatively high yields in MRIIS for the year 2000, reported in the survey, are consistent with those reported by NIA field offices for MRIIS over 1992-2000 (average 3\.96 t/ha and 4\.34 t/ha in the wet and dry season, respectively)\. There were also significant annual variations in yields of all 17 NIS from 1992 to 2000, as reported by NIA field offices, and as would be expected from the vagaries of weather and other natural phenomena in the Philippines\. The average yield used for the financial and economic analysis (in the base case) is 3\.92 t/ha in the wet season and 4\.39 t/ha in the dry season, as reported in the consultant survey\. This implies a wet season incremental yield over rain-fed yield (2\.2 tlha, as reported by BAS for the year 2000) of 1\.72 t/ha and dry season incremental yield of 4\.39 t/ha (as there was no rain-fed crop in the dry season)\. - 22 -  Yield Per Hectare (kg) - Survey Data for Year 2000 Bonga 1 4,805\.64 4,805\.64 Bonga 2 4,517\.34 4,535\.51 Bonga 3 3,780\.00 3,780\.00 Cura 2,801\.78 2,801\.78 IAAPIS 2,750\.00 3,681\.08 Baggao 3,484\.16 3,572\.74 MRI1S District I 3,828\.95 4,254\.06 MRIIS District 3 4,528\.51 5,396\.83 MRIIS District 4 4,425\.36 5,017\.29 Agos 3,054\.50 3,829\.19 Matogdon 4,473\.25 4,076\.62 Barit 2,620\.04 3,135\.87 Sta\. Maria 3,081\.11 4,228\.42 Pongso 3,390\.49 2,517\.64 Maranding 3,807\.51 4,065\.12 Malasila 4,573\.61 4,049\.76 Cantingas 2,843\.71 3,012\.70 Weighted Average 3,920\.29 4,387\.46 8\. The above reported yields in year 2000 are lower than the potential with good irrigation and drainage services, management, and adequate agricultural support services\. However, for the financial and economic analyses, no further increases have been assumed over the 30-year period of analysis\. Further, a sensitivity analysis for the ERR was undertaken, assuming an average yield of only 3\.75 t/ha in both the wet and dry seasons over a 30-year period of analysis (the yield figure of 3\.75 t/ha was assumed in the OED Performance Audit Report No\. 18034 of June 19, 1998 for the preceding IOSP - Loan 2948-PH)\. Similarly, in the without project situation, there could be a decline in irrigated areas in both seasons due to further system deterioration\. This possible decline has also not been taken into account in the economic analysis\. D\. Financial Analysis 9\. Farmers' Income\. The financial attractiveness of the project to fanners was evaluated using crop budgets and farrn models\. To determine the impact of the project on the individual farrners, detailed financial crop budgets were prepared and typical farm models were analysed\. The results of the survey by the consultants, who prepared the Borrower's ICR, show that the majority of the farmers in project areas are owner-operators, representing 64% of farmers, with an average holding of 1\.5 ha\. The rest are predominantly share tenants, cultivating about 1 ha per household\. The most common arrangement for the tenants was equal sharing of the net harvest after deducting the expenses for inputs and planting costs\. Based on crop budgets, and two indicative farm models with average farm size of 1 ha and 1\.5 ha under different types of tenure (share-tenant and owner-operator, respectively), the full development annual incomes of farmer beneficiaries estimated at appraisal and completion are summarised below: - 23 -  Annual Income Projections for Farmers (Peso '000) , ICR with :roject X *\.R with projec' 3 Without prjec 1 ha share-tenant 21\.6 19\.1 18\.1 1\.5 ha owner-operator 66\.1 57\.3 54\.6 ** Adjusted to 2000 price using CPI At full development of irrigated areas, which is to be achieved by early 2003, net returns for a one hectare share-tenant and 1\.5 ha owner-operator would have increased by 19% and 21%, respectively, compared to the without project situation\. Assuming (as at appraisal) 82 person-days/ha required for farmning in irrigated areas, net returns per person-day of family labor per ha would be Peso 538 for an owner-operator and Peso 263 for a share-tenant\. These returns are very attractive, compared to the prevailing rural wage rate of Peso 60-100/person-day\. The higher farmer's income now projected at full development compared to that at appraisal is due to the higher cropping intensity (194%), higher farm-gate prices, and higher yields (4\.39 ton/ha) for irrigated areas in the dry season, compared to the cropping intensity, farm-gate price, and yield estimated in the SAR\. However, the net return figures in the ICR are not comparable to those in the SAR, because the SAR figures were calculated on the basis of an overall irrigated cropping intensity of 150% and average yields of 4 ton/ha over the entire project service area of 620,000, whereas the ICR estimates are based on the irrigated cropping intensity and yields on the 17 NIS irnproved under the project\. 10\. Poverty reduction impact\. As mentioned above, most of the farmers benefiting from the project are smallholders/share-tenants\. Project benefits, as reflected in increased farm incomes, would, therefore, have direct poverty alleviation effects\. E\. Economic Analysis 11\. At appraisal, the ERR was calculated for the system improvement sub-component on the basis of costs and benefits of five NIS where improvement works were to commence in the first project year\. The ERR for the sub-component was 19%\. For the urgent repairs sub-component, the ERR (28%) was calculated for 20 structures in 14 NIS\. The overall ERR for the project was 17%\. At completion, the ERR for the system improvement sub-component covers all the 17 NIS under the project\. For the urgent repairs sub-component, the ERR (calculated in the Borrower's ICR) covers 13 of the 17 NIS repaired\. 12\. Investment costs\. Project costs used in the analysis were based on actual costs incurred\. All costs were included in the analysis except incremental O&M costs\. For the incremental O&M component, which accounts for 36% of total costs at completion, the NPV and ERR were not recalculated since, as stated in the SAR, the component was designed to maintain, and in fact did maintain, the O&M expenditures achieved under IOSP I in 1992 constant terms, and its ERR is, therefore, the same as for IOSP I (the ERR for IOSP I was estimated in the SAR for IOSP II at 21%, but was re-estimated at 28-35% in the subsequent OED Performance Audit Report on the project)\. For the economic analysis of IOSP II at completion, costs in current Pesos were converted to 2000 prices by applying the Consumer Price Index to the local costs and the MUV Index to the foreign costs\. The foreign exchange component was estimated at 20% of the total costs\. Project investment costs in constant financial prices were converted into economic prices by applying the Standard Conversion Factor (SCF) of 1\.0 to local costs\. The average official exchange rate of Peso 50=US$1, which prevailed from late 2000 to mid-2001, was used in the base case ERR\. However, since there has been a considerable exchange rate volatility over the last few years, and the average exchange rate in year 2000 was Peso 44=US$1\.00, a sensitivity analysis - 24 -  was also undertaken at that exchange rate with a SCF of 1\.0\. At appraisal, the SCF used was 0\.83 (or a shadow exchange rate 20% above the market exchange rate), and the opportunity cost of unskilled labor was estimated at 60% of the prevailing market wage rate\. At completion, the SCF applied to the financial labor costs (both hired and family labor) is 1\.0, since there appear to be no significant distortions in the rural labor market\. 13\. O&M and Other Recurrent Costs for 17 NIS\. For the restored and generated areas included in economic analysis, an 0 & M cost of Peso 1,500/ha, which is the estimated actual for year 2000, was used through the year 2001\. From the year 2002 onwards, the desirable O&M expenditure level of Peso 2,300/ha, as estimated in a recent consultant study, was used\. Economic costs of trade-able farm inputs were valued at border (parity) prices\. For economic costs of non-tradeable farm inputs and labor, an SCF of 1\.0 was used\. Savings in cost of operation for pump systems, which were included in the ERR calculation in the Borrower's ICR, were not considered in the Bank's ERR calculations\. 14\. Benefits\. Project benefits, as mentioned earlier, are based on the incremental irrigated (restored and generated) area in the 17 NIS\. The areas restored due to other funding sources were excluded, and only areas attributable to project funding were included in the economic analysis (16,900 ha and 17,700 ha in the wet and dry season, respectively, at full development)\. The economic farm-gate price of paddy is based on import parity\. In the Borrower's ICR, the ERR for the urgent repairs sub-component was calculated separately, and the benefits included were: reduction of future repair costs; restoration and increase of irrigated areas; prevention of loss of irrigated areas; savings in O&M costs; prevention of health hazards; and prevented upstream flooding and facilitated releases downstream\. 15\. Re-estimation of the ERR\. The ERR of the project was based on all project costs (except that of the incremental O&M component) and incremental production benefits in restored and generated areas in 17 NIS\. The ERR was re-estimated at 21% and NPV at Peso 1,251 million at a discount rate of 10%, as compared with the ERR of 17% in the SAR\. The ERR of 21% is conservative, since no benefits of rehabilitation and urgent repairs were included in the economic analysis, even though the corresponding costs were included\. The Borrower's ICR also estimates ERRs separately for the systems improvement sub-component (about 26%) and the urgent repairs sub-component (about 18%, compared to 28% estimated at appraisal), and individual ERRs for the 17 NIS with system improvement and 13 NIS with urgent repairs\. The individual ERRs for the system improvement sub-component range from a low of about 7% for Bonga Pump #3 and Cura to a high of 115% for Malasila\. Of the 17 NIS, only three had ERRs of less than 10%\. For the urgent repairs sub-component, the individual ERRs range from a low of 4% for the Pagbahan intake to a high of 63% for the M'lang Diversion Dam\. Of the 13 NIS analysed, only three had ERRs of less than 10%\. The overall ERR for the urgent repairs sub-component (18%) was lower than that at appraisal (28%), principally because delayed and staggered fund releases led to increases in costs, slower implementation and the consequent reduction in actual and potential benefits\. The details of individual system ERRs are in Annexes 7 and 11 of the Borrower's ICR in Project Files\. 16\. A relatively high ERR is to be expected for projects of this nature where incremental benefits are generated at a relatively low cost through improvement and rehabilitation\. The cost of an incremental irrigated ha under the project at full development is estimated at only Peso 75,000 or US$1,500 (the total cost of system improvement works and associated costs of agricultural support services, IA/CIA development, technical assistance, parcellary mapping, NIA staff training, and equipment and materials, was Peso 1\.279 billion in 2000 constant terms, and the expected full development incremental irrigated area in year 2003 is about 17,000 ha)\. Moreover, the steep exchange rate depreciation over the last few years has made import substitution of commodities like rice economically very attractive\. The ERR at completion is also higher than at appraisal due to the following major factors: (i) the irrigated cropping - 25 -  intensity at full development in the 17 NIS is projected to be higher than that estimated in the SAR; (ii) yield in the irrigated areas in the dry season is assumed to be higher than that in the SAR; and (iii) the economic farmgate price of palay (paddy), which was projected at Peso 3\.78/kg for year 2000 in 1992 constant terms (Peso 6\.8/kg in 2000 constant terms) in the SAR, was estimated at Peso 8\.7/kg or about 28% higher in real terms at end-2000, principally resulting from the steep exchange rate depreciation over the last few years (from Peso 25\.5=USS1 in December 1992 to an average of Peso 44 in year 2000, and further to Peso 50 in the first half of 2001)\. 17\. Sensitivity Analysis\. Several sensitivity analyses were undertaken\. (i) At an exchange rate of Peso 44=-US$1 and an SCF of 1\.0 for local costs, the ERR would decline to 17% and the NPV at 10% discount rate to Peso 710 million\. (ii) At an assumed paddy yield in irrigated areas averaging only 3\.75 t!ha over the 30-year period of analysis, the ERR would decline to 16% and the NPV at 10% discount rate to Peso 642 million\. (iii) If only 50% of the targeted incremental irrigated area is achieved at full development, the ERR would be only 12% and the NPV at 10% discount rate only Peso 163 million\. (iv) If the incremental irrigated area starts declining at 3% per annum from year 2001 onwards due to inadequate O&M (historically, the decline has been much less even with inadequate O&M), the ERR would remain at 21%, although the NPV at 10% discount rate would decline a little to Peso 1,146 million\. (v) With a 20% decline in world rice prices, compared to the currently projected level of US$250-270/ton over 2000-2010 in 2000 constant terms, the ERR would be 14% and NPV Peso 407 million at a discount rate of 10%\. The major sensitivity results are shown below: With paddy With 50% achievement of full With irrigated With world rice price decline of yield of 3\.75 development irrigated area area declining at 20% t/ha target 3% p\.a\. 16% 12% 21% 14% The sensitivity results show that the project is economically viable and relatively robust, although quite sensitive to the level of achievement of full development targets for incremental irrigated area and to world rice prices\. - 26 -  Annex 4\. Bank Inputs (a) Missions: _ Stage of Project Cycle No\. of Persons and Specialty Performnce Rating (e\.g\. 2 Economists, I FMS, etc\.) Implementation Development MontvYear Count Specialty Progress Objective Identification/Preparation Aug/1991 4 C(2), B, E Nov/1991 2 C(2) May/1992 2 C, B Appraisal/Negotiation Pre-Appr: 4 B(2), C, E Sepl 1992 Appraisal: 6 A, B(2), C(2), E Dec/1992 Supervision Jul/1993 I C S S Jan/1994 1 C S S Jun/1994 I C S S Feb/Mar/1995 4 A, B, C, D S S Mar/1996 3 A, B, C S S May/1996 I C S S MTR - 3 B, C, E S S Mar/Apr/1997 Jun/1997 2 B, C S S Oct/Nov/1997 3 B, C, G S S Mar/1998 2 B, C S S AuglSep/1998 5 B(2), C, F, G S S Mar/1999 2 B, C S S Sep/1999 3 B, C, D S S Mar/2000 3 B, C, D S S Sep/2000 4 B, D, E, F S S ICR Feb/2001 3 A, B, C Specialty: A: Agronomist B: Economist C: Engineer D: Financial Analyst E: Institutional Development Specialist F: Procurement Specialist G: Operations Officer - 27 -  (b) Staff | Stage of Project Cycle Actual/Latest Estimate No\. Staff weeks US$ ('000) Identification/Preparation 110\.00 243\.9 Appraisal/Negotiation 33\.10 80\.4 Supervision 77\.01 224\.6 ICR 10\.00 60\.0 Total 230\.11 608\.90 Above includes Bank-financed and Trust Fund consultants\. - 28 -  Annex 5\. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating O Macro policies O H OSUOM O N * NA [II Sector Policies O H OSUOM O N * NA O Physical O H *SUOM O N O NA O Financial O H OSUOM * N O NA n Institutional Development 0 H 0 SU * M 0 N 0 NA O Environmental O H OSUOM O N * NA Social El Poverty Reduction O H O SU * M O N O NA El Gender O H OSUOM * N O NA M Other (Please specify) * H OSUOM O N O NA Stakeholder participation O Private sector development 0 H O SU O M 0 N 0 NA n Public sector managementH 0 0 SU 0 M 0 N 0 NA C0 Other (Please specify) O H OSUOM O N O NA - 29 -  Annex 6\. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6\.1 Bank perfornance Rating 0- Lending OHS OS OU OHU E Supervision OHS OS OU OHU Q Overall OHS OS O U O HU 6\.2 Borrowerperformance Rating Q Preparation O HS * S OU O HU E Government implementation performance 0 HS O S 0 U 0 HU O Implementation agency performance O HS * S O u O HU Q Overall OHS OS 0 U O HU - 30 -  Annex 7\. List of Supporting Documents Back-to-Office Report of the ICR Mission (April 9, 2001) Aide-Memoire of the ICR Mission (February 26, 200 1) Borrower's ICR and Annexes (March 30, 2001) Financial and Economic Analyses QAG Report on the Third (FY99) Rapid Supervision Assessment - 31 -  Additional Annex 8\. Bene ficiary Survey Results 1\. Although a beneficiary survey is not required for Core Accountability ICRs, a survey of 17 NIS improved under the project was carried out by the consultants as a part of preparation of the Borrower's ICR\. The survey had respondents from CIA/IA officers, farmers and NIA staff\. The detailed results of the survey are in Annex 9 of the Borrower's ICR in Project Files\. Given the significance of the survey results for a proper understanding of project impact, a summary of the major findings relating to perceptions of CLIA officers and farmers is provided below\. 2\. A pre-determined sample of 1,400 farmers was taken from the 17 NIS improved under IOSP II\. The sample was further stratified into farmers in IMT areas (those CIA/IAs who were under contract as of 1999; the year 1999 was chosen so that two cropping seasons after contract signing could be captured) and farmers in areas with IOSP II interventions but without IMT contract\. Within the lAs, sample farmers were further stratified as farmers within the rehabilitated area and farmers within the restored and generated areas\. The percentage sample was selected at random within the sub-stratum\. Major Survey Findings 1) CIA/IA Officers a) Knowledge and Perceptions of IOSP Il/IMT Modality of Operation 3\. When asked whether they were farniliar with how the modality of operation installed in their system operated, a big majority of 341 (97%) said yes\. In terms of satisfaction of the members of the LA/CIA with irrigation service performance as a result of the new modality of operation, 251 (74%) gave a satisfaction rating of 7-10\. The main reason given was that the system was functioning well and majority of members were satisfied, as mentioned by 136 (40%) of the respondents\. Seventy one (21%) respondents gave a rating of 4-6 while 17 (5%) did not respond to the question\. Among the reasons given for the lower ratings were: (a) unequal water distribution; (b) not all structures/facilities installed; (c) unrepaired damaged canals and structures; and (d) some farms not irrigated during the dry season (Tables I & la)\. - 32 -  Table 1\. Knowledge and Perception of the Modality of Operation Installed 1\. Knowledge of how the modality operates Yes 341 97 No 9 3 No answer 3 1 Total 353 100 2\. Are you and the members of the LAJCIA satisfied with the modality? Yes 341 97 No 12 3 Total 353 100 If yes, rating given: I -3 2 1 4 - 6 71 21 7 -10 251 74 No answer 17 5 Total 341 100 Table la\. Reasons for the Satisfaction Rating on Modality of Operation 1\. System is fanctioning well and majority of members are satisfied 136 40 2\. Adequate water is provided at the right time 19 6 3\. Un-repaired damaged canals and structures 17 5 4\. Not all structures/facilities have been installed 23 7 5\. Some farms are not irrigated, especially during dry season 13 4 5\. Unequal water distribution 32 9 6\. Late water delivery 4 1 7\. Target ISF collection of 90-100% not achieved 16 5 8\. Some members are uncooperative and cannot accept the new system 7 2 9\. Farm located downstream 16 5 10\. Farm located midstream 12 4 11\. Noanswer 46 13 Total 341 100 Impact of IOSP II/IMT on Irrigation Services 4\. Table 2 presents the perceptions on the irrigation system performance before and after IOSP II in terms of timeliness, equity of water distribution and adequacy\. An almost equal number of respondents - 33 -  indicated that timeliness of water delivery and adequacy of irrigation water had improved significantly\. In terms of equity of water distribution, more than half (52%) of the respondents thought that with IOSP II, there was more equitable water distribution\. Table 2\. Impact of IOSP [ LMT on Irrigation Services 1\. Timeliness Just right 130 37 235 67 Delayed 193 55 58 16 Advance 14 4 44 12 No answer 146 41 16 5 Total 353 100 353 100 2\. Equity of Distribution Equitable 88 25 182 52 Just right 93 26 120 34 Not equitable 149 42 33 9 No answer 23 7 18 5 Total 353 100 353 100 3\. Adequacy Adequate 134 38 236 67 Not adequate 167 47 86 24 More than adequate 29 8 19 5 No answer 23 7 12 3 Total 353 100 353 100 b) Institutional Development and Strengthening CIA/IA Strenjthenina Activities Implemented 5\. The real challenge of IMT is the development of strong and self-reliant Irrigators' Associations with the capability to manage the irrigation system on a sustainable basis\. The activities undertaken by NIA in preparation for CIA organization, and participation by CLA/IA officers and their perceptions, are detailed in Table 3\. - 34 -  Table 3\. Activities Undertaken for CIA Strengthening 1 Situation Analysis 242 69 18 5 190 54 7 2 2\. Consultative Workshops 281 80 5 I 211 60 5 1 3\. Information/Dissemination re: IMT 287 81 5 1 225 64 7 2 4\. Setting of CLA/IA Vision, Mission, Objectives 265 75 12 3 204 58 5 1 5\. Establislmuent of CIA/IA CBL 213 60 22 6 158 45 4 1 6\. Preparation of CIA/IA O&M Plan and Budget 253 72 18 186 53 4 1 7\. Assessment of Irrigation Structures 225 64 20 6 167 47 3 1 8\. Training 250 71 8 2 184 52 8 2 Total 353 * 353 * 353 * 353 * *There were multiple responses 6\. Training\. Majority of the respondents attended one or more training conducted by NIA or by other government agencies such as the Department of Agriculture\. Financial Management and Basic Leadership training was attended by 196 (5 6%) and 180 (51%) respondents, respectively\. Table 4\. Training Attended, Adequacy of Training, and Adoption of Lessons Learned Basic Leadership 180 5 1 1 |0 164 46| l Systems Management 73 21 2| 1 70 20 11| 0 Financial Management 196 56 4 l 185 l 52l 3 11 Operations and Management 25 7 22 6 Gender 45 13 40 11 Value Formation 62 18 56 16 Irrigation Management 99 28 2 1 90 25 Water Management 8 2 8 2 PMES 12 3 12 3 IPM 49 14 2 1 39 11 Rice Production 25 7 25 7 Modem Farming 15 4 12 3 Others ** 23 7 23 7 Total 353 * 353 * 353 * 353 * * There were multiple responses\. ** Others include: Aquaculture, crop protection, cooperative, livelihood, grains classification, etc\. - 35 -  c) ISF Collection and Payment 7\. When asked whether the CIA/IA management believed that all the O&M expenses had to be recovered to be able to continue providing irrigation service, 85% said yes (Table 5)\. Only 12 (2%) respondents believed otherwise, while 42 (12%) did not give any answer\. 8\. Of the officers interviewed, 330 (93%) claimed that they paid their ISF voluntarily\. They added that among the members, 55% voluntarily paid ISF, 37% waited for the collector and 17% did not pay ISF at all\. A big majority of the respondents did not answer this question\. These percentages, as reported by the CIA/IA officers, closely coincide with the responses obtained from the farmers where 75% reported that they paid the ISF and 14% said that they did not pay ISF\. The reasons given for non-payment of ISF were: low yield, sale from harvest not enough for family needs, insufficient water and late water delivery, among others\. 9\. The ISF collected by the IA is remitted to the CIA who immediately remits the collection to the NIA\. However, as reported by 64% of the respondents, NIA is not able to give the CIA share of the ISF even if all the required documents have been complied with\. This situation seemed to have caused frustration and distrust among farmers in relation to NIA's sincerity in pursuing its commitment to the ClA/IA as expressed in the Memorandum of Agreement\. 10\. Collection rate improved after IMT according to 226 (68%) respondents (Table Sa)\. Fifty four (16%) did not think that there was any increase in ISF collection\. AO 17, which was issued by the Philippine President in mid-1998, was identified by 33% as among the causes of the non-improvement in the ISF collection even after IMT\. AO 17 is the adoption of a socialized irrigation service fee, which established new ISF rates based on farm size\. Non-payment of ISF by some farmers is another reason cited by 19% of the respondents who claimed that ISF collection did not improve\. 11\. To improve ISF collection, a number of ways have been devised by the CIAIA\. Foremost among the assistance provided by the officers is an intensive collection drive, as indicated by 159 (69%) respondents (Table 5b)\. Information dissemination on the importance of payment, and collection by group, were cited by 48 (21%) and 38 (17%) respondents, respectively\. Another 16 respondents (7%) mentioned good irrigation service as a means of improving collection\. Sharing Arrangaements 12\. Less than half (47%) of the respondents expressed satisfaction with the present sharing arrangement for ISF, while 36% said they were not satisfied (Table 5)\. The reasons given for the dissatisfaction was the inability of NIA to give the CIA share immediately (35%) and the misunderstanding of the sharing basis indicated in the Memorandum of Agreement signed by both parties\. - 36 -  Table 5\. ISF Collection Does the CIA/IA Management believe that, to be able to continue irrigation service, all the O&M expenses have to be recovered? Yes 299 85 No 12 3 No answer 42 12 Total 353 100 Do you voluntarily pay your ISF? Yes 330 93 No 4 1 No answer 19 5 Total 353 100 What percent of the members: a\.) Voluntarily pays the ISF 55 17 b\.) Waits for the collector 37 11 c\.) Does not pay ISF 17 5 d\.) No answer 221 67 Total 330 100 Was the ISF collection remitted immediately to CIA or NIA? Yes 284 86 No 7 2 No answer 39 12 Total 330 100 Was the CIA/IA share given back by NIA? Yes 70 21 No 210 64 No answer 50 15 Total 330 100 Are you satisfied with the sharing arrangement? Yes 155 47 No 118 36 No answer 57 17 Total 330 100 If no, what do you suggest? 50-50 from total cash collection as under - stood from old MOA 35 30 IA share must be given back immediately 35 30 Give honorarium 1 1 Completion of canal lining 1 1 No answer 46 39 Total 118 100 - 37 -  d) Operation Adequacy of Water Supply 13\. A majority (84%) of the respondents reported that at least 88% of members received adequate irrigation water\. On the other hand, 52% said that about 16% of members did not get adequate supply of water in their farms\. It was also claimed that fanns of nine percent (9%) of members did not receive any water at all\. It may be because some farms are in high locations or are located downstream\. It may also be because efficiency of irrigation water delivery through the lateral decreased in some areas since some structures remained incomplete or were damaged (1Table 6)\. Table 6\. Adequacy of Water Supply Are all members given adequate water? - With adequate supply 295 84 88 - With inadequate supply 182 52 1 6 - With no w 150 42 9 Total 353 Why are there members not receiving enough water? - Farm located upstream 42 33 - Incomplete/damaged structure 27 21 - Farm located downstream 25 20 - Inadequate water 9 7 - No discipline among farmers 4 3 - No farm ditch 4 3 - Existence of illegal turn-out 3 2 - Canal not in proper level 2 2 - Irrigation water overflows 2 2 - Drainage problem 2 2 - Wrong placement of turn out 2 2 - Shallow canal 1 I - Water was given to other CIS 1 1 - Because of reduced pipe size 1 I - El Nino/dry season 1 1 - Forced irrigation 1 1 Total 127 100 * There were multiple responses\. Participation in Systems Operation 14\. According to a big majority of respondents (65%), there is a System Management Committee (SMC) for the NIS, with the CLA/IA as a member\. As to whether NIA involved the CLI/IA in the - 38 -  preparation of the Operation Plan, 77% said that they did participate in this activity\. Water Distribution and Monitoring 15\. According to a majority (77%) of the respondents, the CIA/IA was in-charge of water distribution and monitoring in the areas covered by the lateral\. However, almost one-half (47%) of the respondents were not aware what measuring device was used in monitoring the volume of water available for distribution\. On the other hand, 40% mentioned staff gauge as the most common measuring device used\. In terms of being able to follow the water distribution schedule, 273 (77%) respondents said that the organization was able to adhere to the schedule (Table 7)\. Table 7\. Adherence to Water Distribution Schedule Is the water distribution schedule being followed? Yes 273 77 No 29 8 No answer 51 14 Total 353 100 If no, why? Farm located downstream 5 17 Late repair 4 14 Damaged canal 3 10 Water availability 2 7 Wrong schedule 2 7 Damaged equipment 2 7 Blocked passage 1 3 Schedule mo na inaagaw pa 1 3 No answer 9 31 Total 29 100 e) Repair and Maintenance Maintenance Activities 16\. Vegetative clearing and canal clearing are the two activities that are participated in by majority of the members with an average attendance of 74% and 71%, respectively, according to the respondents\. A big number of members also participate in canal reshaping and repair of service road (Table 8)\. - 39 -  Table 8\. IA Members' Participation in Maintenance Activities 2 ) I What are the maintenance activities participated in by members? - Vegetation clearing 221 63 74 - Repair/cleaning of farm 164 46 73 - Canal clearing 306 87 71 - Canal reshaping 155 44 67 - Repair of service road 132 37 67 - Desilting 161 46 63 Walk thru inspection 206 58 61 Total 353 * * * There were multiple responses\. 2) Farmers a) Participation of Family Members in Farming Activities 17\. When asked if there were members of the family who were involved in farmning activities, less than half or 47 percent of the respondents reported that at least one male member was helping full time in farming\. On the other hand, only 9 percent reported that a female member was involved full time in farming (Table 9)\. This low involvement of family members in farming activities could be attributed to the fact that some of them were still studying or were working outside of the farm\. This also explained the present dependence of farmers on hired labor\. As expected, the survey also revealed that women are actively involved in food preparation for farm labor, particularly during planting season, as reported by 69 percent of the respondents\. More than 30 percent of the respondents also reported that women are involved in choosing seeds/variety to plant, planting, drying and selling of palay\. Other activities reported were harvesting, threshing and winnowing\. - 40 -  Table 9\. Family Members' Participation in Farming Activities (1399 Farmers, 17 NIS) Family Members Involved in Farming Activities Full time: Male 658 47 1\.20 Female 140 9 1\.17 Part time: Male 261 19 1\.42 Female 363 26 1\.16 Participation of Women in Farming Activities Use of seeds 482 34 Food preparation 967 69 Threshing 179 13 Drying 539 39 Vegetables planting 492 35 Planting palay 449 32 Harvesting 358 26 Winnowing 273 20 Selling 563 40 Others (weeding) 30 2 b) IA Membership and IMT Participation in IA Activities 18\. IA farmer members participate in three major activities of the IA: planning, meetings and irrigation canal maintenance\. Results of the survey showed that farmer members participated in IA planning activities as indicated by 75% of the respondents\. Those who did not participate were either not aware of the activity (18%), busy (19%) or believed that planning activities were only for officers (23%)\. With regards to maintenance activities, the CIA/IA officers interviewed reported that vegetative clearing and canal clearing were the two activities that were participated in by majority of the members with an average attendance of 74% and 71%, respectively\. A big number of members also participated in canal reshaping and repair of service road as gleaned from the responses of the CIA,IA respondents when asked the same question\. Knowledge and Perception of IOSP II/IMT 19\. A majority (70%) of the farmer respondents claimed that they knew what IOSP II/IMT was (Table 10)\. However, when asked what they knew, 21% did not give any answer while the responses given by 22% indicated that they were not completely familiar with the project\. Responses included: no more illegal turnout, NIA project, increased production, training/meeting, etc\. This would imply that information dissemination about IOSP II/IMT to the farmer members was not adequate\. 20\. Those, who said that they did not know what IOSP II/IMT was, were asked if they were aware of any improvements in irrigation facilities and managernent\. A majority (69%) acknowledged that there had been improvements such as : better irrigation servize, repair and/or lining of canals, improved control points, etc\. (Table 10)\. More than one-third were not aware of any improvement done while a small minority did not give any answer\. - 41 -  Changes in the IA Due to IOSP II/IMT 21\. Generally, in all of the 17 IOSP II systems, the farmer members indicated their satisfaction with the improved irrigation service, particularly in terms of reliable and adequate water supply brought about by system improvement (Table 10)\. However, some noted that system improvement had not been completed, and, according to them, this could bring about maintenance problems\. Some noted that members had become more cooperative, active and responsible, although there were also those who said that one of the problems of the IA was the lack of cooperation among the members\. Table 10\. Knowledge and Perception of IOSP II/IMT 1\. Do you know IOSP II/IMT Yes 977 70 No 422 30 Total 1399 100 If yes, what do you know about it? Transfer of management of irrigation to IA 398 41 Irrigation improvement, i\.e\. adequate water 158 16 No more illegal TO 109 11 NIA Project 48 5 Increased Production 18 2 Training, meeting 10 1 Road construction, service road 13 1 IA collects ISF 6 1 Seed Production 3 1 Financial support 4 1 Good rules and regulation 2 1 Maintenance of farm ditch I I No answer 207 21 Total 977 100 If no, do you know of any improvements done in your irrigation facilities/management? Yes 256 61 No 166 39 Total 422 100 If yes, what are these Repair of canalUcanal lining 161 33 Better irrigation service 203 41 Improved control points 68 14 Increased Production 6 1 No more illegal turn out operation 33 7 No answer 21 4 Total 492 100 Impressions On IMT 22\. Varied responses were obtained when respondents were asked about their impression on IMT\. More than half (55%) said that IMT was beneficial to farmers\. This may be related to improved water -42 -  supply as a result of improvement of irrigation facilities as articulated by 11% of the respondents\. Others looked at IMT as a channel by which farmers could become more responsible and cooperative\. However, a number of respondents did not look at IMT positively but rather believed that IMT may bring about maintenance problems because of the non-completion of system improvement\. A small percentage (3%) was not satisfied with IMT and suggested that this was difficult to manage\. Still others thought that even with IMT, NIA needs to provide support to the farmers (Table 11)\. Table 11\. Impressions on IMT WI, 1\. Beneficial to farmers 769 55 2\. Systems improvement brought about improved water supply 150 11 3\. May bring about maintenance problem because of incomplete 41 3 systems improvement 4\. Farmers will become more responsible and cooperative 32 2 5\. Improvement in ISF collection 16 1 6\. Fair ISF payment 7 1 7\. Good rules and regulations 4 1 8\. Still needs NIA's support 10 1 9\. Not satisfied/difficult to manage 46 3 10\. Easy to manage 6 1 I1\. No answer 297 21 c) Impact of IOSP Il/IMT on Irrigation Service 23\. The farmers were asked if they observed improvements in the irrigation service vis-a-vis timeliness of water delivery, equity of distribution and adequacy of water supply after project implementation\. As shown in Table 12, improvements were observed by a significant number of respondents\. With regards to timeliness of water delivery, farmers in areas without IMT contract reporting timely delivery increased from 29 percent before project to 69 percent after the project\. Simnilarly, in IMT areas, 70 percent of the farmers reported satisfaction after the project as compared to only 44 percent who said they were satisfied before the project\. For all areas on the average, 39 per cent of farmers reported timely and advanced delivery of water before the project and 77 percent after the project\. 24\. As regards equity of distribution, improvement was reported by farmers both with and without IMT contracts\. Satisfied farrners increased from 45 percent to 76 percent in non-IMT areas and from 62 to 84 percent in IMT areas\. Overall, the satisfaction before the project was reported by 53 percent of farmers and that after the project by 80 percent of farmers\. 25\. As to the adequacy of the water delivered to their farms, the number of respondents who said it was adequate/more than adequate increased from 40 percent before the project to 76 percent after the project and from 54 to 84 percent for non-IMT and IMT areas, respectively\. Overall, the proportion of respondents reporting adequate to more than adequate water supply increased from 46 percent before the project to 80 percent after the project\. 26\. These observations of the farmer respondents were consistent with the observations of the officers of the CIAs and LAs\. The officers reporting that there was a timely/advance delivery of water increased from 41 percent before the project to 79 percent after the project\. Similarly, those who observed an equitable distribution of water increased from 41 percent before project to 86 percent after the project, while those reporting adequate water supply increased from 46 percent before the project to 72 percent - 43 -  after the project\. 27\. The observations reported above clearly demonstrate the view held by a majority of beneficiaries that there have been significant improvements in irrigation service brought about by the project\. However, considering that there are still about 20 to 30 percent of the farmers who did not report having benefited from the project, there is a need to continue improvement of irrigation facilities and to have better information dissemination relating to project interventions\. -44 -  Table 12\. Impact of the Project on Irrigation Service Areas without IMT Contract _ 1\. Timeliness of Water Delivery \. Just Right 235 29 552 69 Delayed 513 64 170 21 Advance 22 3 55 7 2\. Equt of Distribution_ Equiitable 161 20 356 44 _Just Right 205 25 258 32 Not Equitable 396 49 131 16 3\. Adequacy Adequate 256 32 555 69 Not Adequate 442 55 165 21 More than Adequate 66 8 59 7 Areas with IMT Contract 1\. Timeliness of Water Delivery Just Right 263 44 414 70 Delayed 287 48 108 18 Advance 25 4 55 9 2\. Equity of Distribution Equitable 214 36 343 58 Just Right 154 26 157 26 Not Equitable 200 34 73 12 3\. Adequacy Adequate 306 51 481 81 Not Adequate 246 41 84 14 More than Adequate 15 3 18 3 All Areas 1\. Timeliness of Water Delivery Just Right 498 36 966 69 Delayed _ _ 800 57 278 20 Advance 47 3 110 8 2\. Equity of Distribution Equitable 375 27 699 50 Just Right ___ 359 26 415 30 Not Equitable 596 43 204 15 3\. Adequacy Adequate 562 40 1036 74 Not Ad e 688 49 249 18 More than Adequate 81 6 77 6 - 45 -  Additional Annex 9\. Bo rrower's ICR Borrower's Implementation Completion Report On The Second Irrigation Operations Support Project (IOSP II) (Prepared by NIA) 1\. Assessment of Development Objective and Design, and Quality at Entry 1\.1 Original Objective: The Project's primary objective is to improve and sustain the operational efficiency of the National Irrigation Systems (NISs) thereby, help increase agricultural production (mainly rice), expand small farmer incomes and rural employment opportunities and contribute to rural poverty alleviation\. Specifically, the project aims to: 1) undertake intensive improvements for priority NISs, urgent repairs, improved water and erosion control measures; 2) support the improved system-level O&M services achieved under IOSP-I; 3) institutional development through: IA organization, training and development, strengthening of NIA through improvements in collection process, staff trainings on O&M and appropriate engineering design techniques, and provision of high priority O&M equipment and materials; and 4) improved agricultural support services\. A distinctive feature of the project is its appraisal process\. Emphasis was placed on participation of beneficiaries in identifying irrigation improvement requirements and increasing responsibility for O&M of the portions of the system serving them\. The objectives were clear, realistic and in line with the Bank's Country Assistance Strategy (CAS) of restoring economic growth, while reducing poverty and improving equity, through accelerated and environmentally sustainable rural development and support to infrastructure\. The objectives were likewise consistent with the Government's objectives for the agricultural sector of: (a) increased productivity and real incomes of small farming families, (b) ensuring productivity of the agricultural resource base, and (c) attaining self-sufficiency in rice and com for food security\. 1\.2 Revised Objective The project objectives remained unchanged during implementation\. 1\.3 Original Components: The project has four (4) major components: (a) System Improvement; (b) Incremental O&M; (c) Institutional Development; and (d) Agricultural Support Services 1\.4 Revised Components: The project design remained unchanged throughout implementation\. However, changes were made on specific NISs covered, for example, Hanagdong RIS was excluded in the coverage of NISs for system improvement in view of duplication of donor Agency for civil works in adjacent scheme\. This, therefore, reduced to 17 the number of systems covered by IOSP HI\. Additional three (3) NISs were covered by urgent repairs\. These changes duly passed the approval process\. 1\.5 Quality at Entry: Quality at entry is rated satisfactory in view of clear and realistic project objectives and consistency with the Bank's CAS and GOP priorities for the sub-sector\. Project design was coherent, incorporating lessons from the preceding Irrigation Operations Support Project (IOSP I, Loan 2948-PH), and was consistent with the capability of the implementing Agency\. - 46 -  2\. Achievement of Objective and Outputs 2\.1 Outcome/achievement of objective: The outcome of the project in terms of its contribution to the Governnent's goals of poverty alleviation and food security is rated satisfactory\. Overall, the project is estimated to have benefited about 504,850 farm families (110% of the SAR estimate of 460,000 families to be benefited within the systems included in IOSP II), with about 45,294 families benefiting fiom rehabilitated areas, 10,710 from restored and generated areas in the 17 systems and the rest from systems with incremental O&M\. The incremental rice production under the project is about 66,101 tons/year or about 66% of the appraisal expectation of 100,000 tons/year\. In terms of net revenue per hectare of palay production per year a farm family generated an average revenue of P28, 756 at an average cropping intensity of 163%\. For the restored and generated areas, and factoring/considering cropping intensity, a total yearly net income of P27, 899 was realized\. On the other hand, P27,570 was obtained from rehabilitated areas-P13, 570 and P20, 138 for the wet and dry seasons, respectively, which is still higher than the estimated net revenue at project preparation\. The project also provided support aimed at increasing IA participation in identification of improvement needs, as well as increased level of participation in O&M\. lAs already organized prior to the project were mobilized for participatory identification of improveiment works, implementation of works at secondary level and assumption of O&M responsibility to sustain improvement works\. 2\.2 Output by components: Systems Improvement and Repair\. The output for civil works is rated satisfactory\. The SAR envisaged intensive improvement of 18 NISs covering 95,782 ha but was reduced to 86,913 ha after firming up of SA and exclusion of Hanagdong RIS from the original IOSP II coverage\. Based on the survey, improvements in the irrigation service vis-a-vis timeliness of water dlelivery, equity of distribution and adequacy of water supply was observed by a significant number of respondents\. For all areas surveyed, farmers reporting timely and advanced delivery of water increased from 39 percent before the Project to 77 percent after the project\. Similarly, CLA/IA officers reporting timely delivery of water increased from 41% before the project to 79% after the project\. In addition, officers who observed an equitable distribution of water increased from 41% before the project to 86% after the project\. These findings revealed that there were significant improvements in irrigation service brought about by the project\. At completion, the total irrigated areas during wet season was 69,509 compared to 82,958 ha expected at appraisal, and 72,068 ha compared to 83,725 at appraisal stage during dry season for an average of 85% accomplishment\. Cropping intensity nationwide decreased from 140 in 1992 to 138% in 2000\. However, if we consider only the 17 NISs with improvements, the cropping intensity increased from 149 in 1992 to 163% in year 2000\. Activities related to improved modality of operations wvere planned in order to improve equitability of water delivery and distribution\. This led to the technical change in irrigation operation through adoption of water control structures that are easy to operate and require less labor\. Proportional weir, modified pipe sizes, or a combination of the two (2) schemes have been tested in the 17 systems\. As of ICR preparation date, an assessment of pilot areas for modality of operations adopting the different schemes showed initial successes on equitable water distribution\. It was observed that there was a shorter required time for land preparation and wider areas irrigated\. For pump irrigation system, a low energy cost/hectare was also noted\. The operation, however, would need further attention on optimization of water supply through timely planting calendar scheduling and institutional measures for sustainability\. Both the NIA field staff and IAs need to - 4,7 -  fully understand the interrelationships of technical adjustments and irrigation operation, and the necessity of strict maintenance of farm level facilities to ensure wider irrigated area (as in the case of IAAPIS)\. The project envisioned to provide for urgent repairs of 22 river diversion structures in 14 National Irrigation Systems (NISs)\. This involved repair of major structures which when not attended to will compromise stability of the structures and may ultimately result to their collapse\. Aside from preventing total damage of structures, the intervention was deemed to prevent more costly repairs and to increase irrigated areas\. At project completion, the component has accomplished repair/restoration works of 28 structures in 17 NISs despite the 3-year delay in the initial release of fumds as programmed\. Works included repairs of diversion dams, sluice gates, protection works, provision of sluiceway and river protection works, and other interventions to restore and/or protect the major structures\. A total of P1264\.5 M was expended, representing 122% of total original SAR allocation of P1036\.9\. Changes in allocations were mainly due to force majeure that affected the initially accomplished works in the course of implementation, complemented with the intensification of the degree of physical damage before the repairs are completed as well as in delays in the flow of funds\. A prominent example of this case is the Balanac RIS with a dramatic increase of POWs from P6\.0 M when the substantially completed works were washed out by unusually strong flash floods in November, 1995\. Among other NISs which have substantial changes in Programs were Cabadbaran, Pagbahan and Magasawang tubig\. The interventions facilitated the restoration of the structures thereby caused savings in costs for future repairs, restored irrigated areas in some NISs and prevented loss of irrigated areas in other NISs\. Economic analyses of 13 NISs show EIRR of ten (10) NISs ranging from 11\.56% to 53\.35%\. In three NISs, however, EIRR fell below 10%\. Overall, however, economic benefits prove to be satisfactory as compared to a scenario where repair of structure should have been delayed by 3 years and/or structures would have been totally damaged if repair works were not implemented\. Rating of the sub-component is satisfactory in view of the actual interventions provided and the number of NISs covered and works done\. Urgent repair works must be given more emphasis so as not to compound the damage\. The project gave more emphasis on Incremental O&M but in the occasion of limited funds, this component should give way to urgent repair which could give more benefits on specific NIS basis, and would prevent higher cost of interventions\. Incremental O&M\. The rating is satisfactory\. In all NISs the project supported the incremental O&M activities which included canal maintenance (desilting and repair of embankment), maintenance of service roads, control gates and structures, and incremental personnel costs (particularly IDOs)\. It is also envisioned to reduce the gap between O&M expenditures and revenues from ISF collections by turning over NIS sections to LAs and, thus, increase their participation in O&M, broaden the base for ISF collection, and improve ISF collection\. The project succeeded in broadening the base for ISF collection and increasing IA participation particularly in the 17 NIS with system improvement\. However, the nationwide target collection of 70% was not attained (actual CE was 67% in CY 2000) but this was because of factors outside the implementing Agency\. Government pronouncement on non-payment of ISF during the State of the Nation Address of the President in July 1998 and the succeeding issuance of Administrative Order No\. 17 (Socialized ISF rates) in September 1998 dampened the farmers' willingness to pay ISF and caused a drastic reduction in collection efficiency\. A\.O\. 17 reduced the collectibles by 40% and significantly affected the collection efficiency\. Institutional Development\. Institutional development and strengthening activities varied in intensity among the systems included in IOSP II\. Overall, rating is satisfactory in terms of facilitating the - 48 -  progressive turnover of NIS infrastructure to lAs for O&M, mobilizing lAs for self management of financially viable IA, improvements in the collection process and indication of increased participation of women in IA activities\. The Technical Assistance component (whose implementation was delayed for about two years, due to factors external to the implementing agency) facilitated major institutional change through irrigation management transfer or IMT which was not envisioned at appraised\. IMT provided for the transfer of O&M of NISs or parts of NIS based on hydrologic control point (per lateral) for NMSs of more than 3,000 ha and of the whole of smaller NISs (3,000 ha or less)\. As of completion date, 44,715 ha out of 86,913 ha have been turned over to lAs under the IMT or Stage 111 scheme\. A major deterring factor, however, is the issue on staff redundancy and the reduced ISF collection base and efficiency resulting from the socialized ISF rate based on A\.O\. 17\. A study on affected personnel has been done recently and support for acceptable retrenchment package is being pursued\. IA development programs focused on IA and TSAG/FIG reorganization and strengthening, CIA organization and preparatory activities towards IMT which were part of the IMT Process developed in the IMT pilot area in NDC-5 of District III in MRIIS\. Activities such as Consultative workshops, Planning workshop and Core Group Formation, orientation on IMT and presentation of CBL, Articles of Incorporation and IMT Contract were conducted in some systems, notably in MRIIS and Agos, but sadly lacking in other systems\. The project also supported the regular IA activities such as BOD and General Assembly meetings, conferences, functionality survey and information dissemination\. Training and upgrading of skills for both the CIA/IA officers and the general membership were similarly provided by the project\. These are recognized by the members as primary interventions towards strengthening the CIA/IA\. Among the trainings conducted were Basic Leadership Training, Financial Management, System Management, Values Formation, IA Collectors' Training, Rice Production and Integrated Pest Management\. Based on available data, a total of 166,259 CIA/IA officers and members participated in the training at a total cost of P18,799,000\. It is to be noted, however, that training continued to be provided by NIA rather than taken over by the CIA or IA as its responsibility\. The cascading strategy for capability development as conceptualized and adopted in the IMT piloting activities in NDC-5 of District III in MRIIS through the Technical Assistance was envisioned to facilitate the learning process through the assistance of CIA and IA officers in the conduct of training activities for their members\. This strategy is based on capability build-up by actually doing the activity and learning on-the-job\. The available data on institutional development activities imply that this strategy was not operationalized in the IMT replication areas\. As of December 2000, 22 of the 37 CIAs in MRIIS Districts I, III and IV with a membership of 26,422 fanners have signed the IMT contract, representing about 36,770 ha or 42\.3% of the total area of 86,913 ha to be benefited under IOSP II\. In the smaller systems with service area of less than 1000 ha (Bonga I, 2 & 3, Cura, Cantingas, Matogdon and Pongso) 12 IAs/CIA have signed the IMT contract covering an area of 2,957 hectares and farner-members of 4,638\. Baggao, which has a total service area of 2,300 ha has one IA with IMT contract which covers 707 ha and 1218 farmers\. In Agos, one IMT contract has been signed covering an area of 175 ha with a membership of 500\. In Malasila four IMT contracts have been signed covering a combined area of 4106 ha and a combined membership of 3948 farmers\. In IAAPIS, Sta\. Maria-Mayor, Barit and Maranding IA contracts remain to be either Stage 3, Type 1 or Type I and 2 although preparatory activities towards IMT have been initiated and IMT contracts set to be forged with IA/CIA\. Overall, 40 IMT contracts have been signed with a total area of 44,715 ha which is 51\.4% of the target area (86,913 ha) and a total membership of 36,726 farmers (refer to Annex 10A)\. Of the 302 lAs in the 17 systems, 213 have existing contracts with NIA\. Of this, 149 lAs have Type 1 and 2 contract, 24 have Type 2 contract and 33 with Stage 2 contract (refer to Annex lOB)\. - 49 -  NIA Staff Training and Workshops\. Orientation and review and planning workshops were the major activities conducted within 1993 to 1996\. As a preliminary activity to the preparation for system improvement and NIS performance, technology transfer sessions on NIS assessment were conducted by the PMO\. These were aimed at providing the staff with the appropriate skills in identifying gaps and measures that should be considered in the design and implementation of improved modality of operation\. As an offshoot of the Technical Assistance, which started in April 1997 and was completed in 1998, majority of trainings and allied activities centered on Modality of Operation, generally through on-the-job training (OJT) and Irrigation Management Transfer\. However, replication of the OYT on modality in the other IOSP systems was not carried out as programmed\. Delays in project implementation resulted to delays in system improvements, which consequently affected the implementation of the OYr scheme for the NIA staff\. Project Review and Consultation Sessions were likewise given more emphasis in the later part of project life\. By and large, trainings on O&M and Technical Design were conducted on-the-job (OJT)\. Two NIA staff were sent on a Study Visit to Mexico in the later part of CY 2000 to observe and study the Irrigation Management Transfer program in Mexico\. To develop the intemal capability of NIA in project preparation, on-the-job skills training on the participatory project preparation procedures adopted in IOSP II was conducted through actual project preparation for NISPOP in 14 pilot NISs in 14 regions\. Agricultural Support Services\. The agricultural support services component of IOSP II aims to support only the essential interventions and farmer/extension staff training to provide farm families under the System Improvement Program the best available technologies in order to maximize yields and incomes\. These consist of the setting up of verification and demonstration trials of new and appropriate technology packages, IA-based seed multiplication and distribution, training of IA members on soil and water management and agricultural production practices, and the conduct of IPM-Farmer Field Schools\. Whenever possible, all the support provided by the program was channeled through the lAs\. The lAs coordinated with the Municipal Agricultural Officer (MAO) and Agricultural Technicians (ATs) of the concerned LGUs through their Sub-Committee for Agricultural Production\. During the first year of project implementation, the component was piloted in three schemes along with the implementation of systems improvement and based on the results, implementation was expanded with necessary modifications\. A number of verification and demonstration trials were established covering all the systems under IOSP II\. These consist of demonstrations on appropriate palay production technologies, farming systems technologies, variety trials and IPM\. A total of 482 demonstration trials (81% of target) were established until project completion involving a total of 473 farmer cooperators\. Limited agricultural support facilities were also provided consisting of a nursery and four (4) multi-purpose drying pavement (100% of target) in Region I benefiting 416 farmers\. The seed production and distribution sub-component was able to distribute a total of 1,495 (73% of target) bags of foundation and registered seeds, respectively, producing a total of 132,272 bags (44% of target) of registered and certified seeds\. A total of 1,402 farmers (75% of target) were benefited by this scheme\. In addition, 267 bags of certified seeds (130% of target) were distributed directly to 279 farmers (104% of target)\. Overall this component is rated satisfactory\. The institutional strengthening sub-component provided training on a wide variety of subject matter which include rice production technologies, pest management, crop diversification, seed production, rice-fish culture and other farming system technologies, assistance to organization of self-financed group involving a - 50 -  total of 3,464 farmner participants (75% of target)\. Improvements in yield levels for both the dry and wet season were observed only in 9 out of the 17 systems\. Despite the decline in yield levels of the other systems, overall, the 17 systems posted an average yield level of 3\.92 MT and 4\.39 MT for the wet and dry season, respectively\. During project preparation (1992) yield levels were 3\.87 MT for the wet season and 3\.97 MT for the dry season\. This gives a yield increment of 50 kilos per hectare for the wet season and 420 kilos during the dry season\. The NISs reporting relatively high yield levels include MRIIS Districts 3 & 4 and Bonga Pumps I & 2\. As expected, these yield levels are also relatively higher than the average yield of 3\.37 MT and 3\.45 MT for the wet and dry season for irrigated areas, respectively, as reported by the Bureau of Agricultural Statistics (BAS) since BAS survey covers both IOSP and non-IOSP areas\. On the other hand, the average estimated yields reported by the NIA field offices were lower than the projected yields and the survey results at 3\.58 MT and 3\.92 MT for the wet and dry season, respectively\. Although on a per system basis, seven (7) systems were reported to have attained slightly higher yields than the survey results\. For the rehabilitated areas, the average yield attained was 3\.89 MT and 4\.41 MT for the wet and dry season respectively\. Compared to the 1992 level of 3\.87 MT and 3\.97 MT for the wet and dry season, the increase in the wet season of 20 kilos was compensated by the substantial increment of 440 kilos in the dry season\. On the other hand, for the restored and generated areas, the average yield reported was 3\.96 MT and 4\.25 MT for the wet and dry season, respectively\. This brought about an incremental yield of 1\.82 MT for the wet season over the average yield of non-irrigated rice as per BAS data for 1999 of 2\.4 MT\. In terms of fertilizer usage, the farmers reported an average usage of 6\.71 bags, which approximates the recommended package of the Department of Agriculture\. It is interesting to note, that the use of organic fertilizer was reported in most of the systems, albeit in small quantities\. The effect of the training on IPM, one of the inputs of the Agricultural Support Component, was reflected in the relatively small expenditure on chemical applications\. The expenditure on chemicals as reported in the survey consists of chemical applications to control pest and diseases and snail infestation\. The average cost of chemical applications for all the system was P1,140 for the dry season and P1,234 for the wet season as compared to 1992 levels of P1,920 and P2,004 (adjusted to 2000 price using the CPI)\. The bulk of the present chemical usage went to the high cost of chemical to control snail (P1,100/li) as reported by a majority of the respondents in all areas\. 2\.3 Net Present Value/Economic rate of return: A re-estimation of the EIRR was done the following the NEDA guidelines used in project preparation and using updated information gathered from the survey and reports from the systems\. These include actual project costs incurred by the NIS and incremental areas by season (as of project completion), crop yields, input use and prices (based on the survey)\. For systems improvement component, despite the delays in project implementation, the resulting EIRR for all the 17 NIS of 25\.57% is highly acceptable\. It is significantly higher than the SAR estimate of 19\.1% although lower that the FS estimate of 33\.6%\. This is understandable since the SAR estimate considered only the five systems and the assumptions used were different\. The major reasons for the good project performance are the high incremental yield levels attained by MRIIS which accounted for majority of the area and the low investment but high incremental benefits of Malasila which more then compensated for the marginal performance of the other systems\. The estimated NPV and BCR at 15% discount rate are P690 million and\. 2\.02, respectively\. - 51 -  A sensitivity analysis of the project showed that even if only 25% of discrepancy between the target and accomplished incremental areas as of December 2001 could be attained by 2003, overall, the project will still be viable with a computed EIRR of 16\.8%\. For the urgent repairs component, EIRR re-estimation was done for 13 out of 17 systems repaired using IOSP funds\. Despite the delays in implementation, which resulted to higher repair costs, all the resulting EIRRs are at acceptable levels, except for Nasisi Dam, Pagbahan and Lasang\. The average (weighted) EIRR for the 13 systems is 18\.21% which is lower than the 28% ETRR for the 20 systems as per SAR\. 2\.4 Financial rate of return: A cost and returns analysis per hectare of palay production reveals that irrigated palay production still generates attractive revenue for the owner operators\. On the average, an owner operator generated a net return per hectare of P16,012 and P19,213 for the wet and dry season, respectively, or a total net revenue of P28,756 for one year at an average cropping intensity of 163% (0\.83 for dry and 0\.8 for wet)\. The imputed cost of family labor amounting to an average of P2,192 per year was included in the expenses\. Adding back to the net revenue, the farm family has actually generated an average revenue of P30,948 from farming\. For the rehabilitated area, the average net revenue reported was P13,570 and P20,138 for the wet and dry season, respectively, for an average net revenue of P27,570 per hectare per year and considering/factoring the effect of cropping intensity\. For the restored and generated areas, the average net revenue generated was P15,898 for the wet season and P18,290 for the dry season for a total yearly net income of P27,899\. The estimated net revenue of P14,638 and P21,196 (excluding family labor) for the wet and dry season, respectively, in the rehabilitated area is still higher than the estimated net revenue during project preparation of P13,104 and P20,331 for wet and dry, respectively (P7,268 for the wet and P1 1,276 for dry adjusted to Year 2000 using the CPI)\. The total incremental benefit for the year is P865 for the dry season and P1,534 for the wet season\. For the restored areas, the incremental net return per hectare (over the rainfed crop of P4,496 (BAS 1999 regional data adjusted to 2000)) is about P11,650\. For the 17 NIS, the average incremental net revenue generated was P3,183\.72 for the wet season and P3,854\.92 for the dry season\. 2\.5 Institutional development impact: Survey results showed that there was a high percentage of participation by the CIA/IA officers in organizational activities such as in the formulation of Operations Plan together with NIA, planning activities for improved ISF collection scheme and preparation of cropping calendar\. The IA members have also taken on a more active participation in planning meetings to strengthen the CIA/IA as well as in planning for income generating activities\. Results also indicated that the CIA/IA officers consulted with members before making decisions on certain issues such as on matters related to finance, water distribution schedule and cropping calendar\. This implies that as an offshoot of the institutional development and strengthening activities, members are now more recognized as active partners and participants rather than mere recipients in the irrigation development and management process\. With IMT there has been a more organized and focused management by the CIA/lAs at the lateral level\. With the transfer of the O&M responsibilities as part of the IMT contract, the CIA/lAs have taken on an increased role in O&M particularly in the area of monitoring of water delivery, identification of irrigation facilities that need repair, canal clearing and vegetative clearing at the lateral level\. Similarly, the officers - 52 -  have taken an active role in ISF collection\. This is a positive step towards empowerment and a realization of the vision that as IMT progresses and farmers take on the responsibility to make decisions for the improvement of the irrigation service, not only in the area of O&M but in organizational and institutional areas as well, there is a corresponding decrease in interventions provided by the NIA\. The project also facilitated increased capability through the participation of the lAs in system improvement and this provided the lAs the financial capability to put up their share for system improvement which is now kept as trust fund for future repair\. Generally, in all of the 17 IOSP systems, the members have indicated their satisfaction with the improved irrigation service particularly in relation to reliable and adequate water supply\. There were also indications that members have become more cooperative, active and responsible\. Officers of the CiA/IA have also been observed to be more critical and wanting in information that will enable them to make informed decisions\. They see their role in varied ways in relation to the success and sustainability of the project in terms of efficient performance of their duties and responsibilities as officers, punctual payment of ISF and assistance in ISF collection, fostering of cooperation with and among the CIA-IA officers and NIA as well as providing support in the implementation of programs and policies\. 3\. Major Factors Affecting Implementation and Outcome 3\.1 Factors outside the control of government or implementing agency: The implementation in a number of NISs was affected by the occurrence of typhoons during the construction period and crop maintenance\. The repairs to the damage increased cost and resulted to delays in implementation\. 3\.2 Factors generally subject to government control: Civil works implementation was affected by the delays in the release of support funds, particularly during the first three (3) years of implementation\. These delays caused uncoordinated implementation of components and lowered the overall performance rating\. Moreover, the sensitivity analysis that was conducted in the SAR showed that the Project's ERR will decrease from 16\.7 to 12\.3 with a three-year delay in implementation\. The promulgation of R\.A\. 8435 (Agriculture and Fisheries Modemization Act) best enforces the objectives of the Project and plays a vital support to its achievements\. However, presidential pronouncements and issuances (particularly, A\.O\. 17) resulted to difficulty in attaining the desired CE level and was cause for apprehensions by both the field staff and IAs\. Furthermore, the Project and the Agency also faced difficulties in acquiring approval for the TA component in view of Government policies to undertake TA using grant funds only\. Approval was acquired only in 1997 resulting in the delay of TA-dependent activities\. 3\.3 Factors generally subject to implementing agency control: Untimely release of funds was resolved by the Agency through the conscientious reprogramming of activities, which considered the interdependent aspects and implementation of action programs\. With assistance of the Bank, the Agency was able to source grant funds for four (4) out of six (6) studies affected by the non-approval of the TA and further sought reconsideration for the remaining two (2) sub-components\. 3\.4 Costs andfinancing: The total project cost at completion is estimated at P2,211\.6 million equivalent to US$ 67\.86 million (SAR - 53 -  estimate was P2,081\.3 million)\. Of this total, 71 percent came from the loan proceeds equivalent to P1,574\.7 million (US$ 46\.5 million) while government counterpart amounted to P636\.9 million equivalent to US$ 21\.3 million (see Annex 2 for details by component)\. The average cost for incremental irrigated area in NIS as of November 2000 was P63,146/ha (US$1,503\.00)\. On the other hand, the rehabilitation cost/ha in NIS (which also included incremental irrigated area) was P 12,571 (US$299\.00)\. 4\. Sustainability The sustainability of the irrigation service hinges on the proper mnaintenance and operation of the facilities and the preparedness of the CIA/IA to manage the systems either fully or at the lateral level\. The eventual transfer of management of the laterals to the CIA/1A carries with it the responsibility for operations and maintenance\. The IMT contract between NIA and the CIAs/IAs defined the sharing anrangement when it comes to ISF collection and the responsibility on the operations and maintenance of the system but as pointed out by previous Bank review mission, there is no built-in mechanism or assurance that the lateral will maintained properly\. The CIA/IA should be able to determine the level of expenditures for maintenance requirements of the lateral and set aside sufficient funds for the purpose\. NIA records show that from 1993 to 2000, the average cost of O&M per hectare for the 17 systems under IOSP 11 is P2,297 per hectare\. It ranges from a low of P79 per hectare for Cantingas to as high as P3,862 per hectare for Sta\. Maria\. This wide disparity in O&:M expenses necessitate a per system sustainability analysis\. Given this average per hectare costs, the total O&M expenses per system was computed and compared to the ISF collectible under the old rate and the socialized rate\. ISF collectible was further computed under four conditions: a) at presently irrigated area; and upon attainment of the balance of the target incremental areas at b) 25%; c) 50%, and d) 100%\. It is encouraging to note that eight (8) NIS have more than enough collectibles even at socialized rate to sustain the O&M expenses with the present irrigated area\. However, the analysis also reveals that the ISF collectible both at the old and socialized rates, even at the maximum area attainable for Agos, Barit and Pongso will not be sufficient to sustain the present O&M expenses\. The rest of the systems can survive only if the ISF will be reverted to the old rate (See Amnex 7Ga)\. With the IMT program, it is envisioned that NISs with service area of 3,000 hectares and below shall be fully tumed-over to the lAs\. In fact, some of these snrall systems have been turned-over to the lAs but are still being supported by NIA\. At full turnover, the O&M expenses shall be fully shouldered by the lAs technical supervision by charging a management fee of 10-15% of the collectible ISF to cover the salaries of the personnel who will supervise the system\. Full turnover will mean a lower O&M costs since it is known fact that government expenditures, particularly salaries and wages, are usually higher (40-70%) that if it will be performed by the lAs\. Furthermore, the IAs are expected to be more effective in ISF collection and could also make adjustments in the ISF rates if the sustainability of the system will be affected\. For pump systems with high operations costs, NIA has to provide financial assistance to LAs (soft loan) to sustain their operations until such time when they could be on their own\. For Agos, Barit and Pongso, NIA has to seriously study all possibilities to reduce the O&M costs to make the tumover acceptable to IAs\. This should be not only through the retirement or transfer of IMT affected personnel but also reduction of the direct costs of O&M\. For example, for Agos O&M cost could be reduced if the affected personnel will be retired or transferred to other projects since almost all of the COB went to Iheir salaries and wages\. Only two relevant position may be absorbed by the CIA/LAs (1 Engineer A and I WRFT) with a total basic salary of P274,056\. Administrative costs to the IA will amount to P1\.3M plus the maintenance costs of P1\.13M\. The total - 54 -  operation and maintenance costs will amount to P2\.71M, which could sufficiently be covered by the potential ISF only at the old rate\. This cost could be reduced further when the lAs take over the operations\. Taking MRIIS District 1 as a case for partial turnover, the 0 & M cost could be reduced by as much as P4\.28 M by retiring the willing affected personnel and by another P1\.85 M with the expenses on canal maintenance contracts with lAs\. This will reduce the COB from P23\.92 to P17\.8 M\. Adding one-half of the expenses coming from other local funds of P4\.1 M, the total 0 & M expenses to be shouldered by NIA will be P21\.9 M\. This could be sufficiently met by the potential ISF at socialized rate (at 50-50 sharing arrangement) of P23\.43 million\. Since MRIIS is collecting at socialize rate, collection efficiency should therefore not go below 93%(at the present irrigated area) to make it sustainable or at a lower efficiency of 84% if 100% of the target irrigated area under IOSP II could be attained\. On the side of the CIA/lAs, the 0 & M costs to be shouldered is estimated at P9\.5 M consisting of the following: a) the salaries and wages of displaced personnel at basic rate amounting to P2\.46M; b) one-half of the expenses coming from other local sources of P4\.1 M; c) the costs of IA contracts formerly being paid by NIA in the amount of P1\.85 M; and d) an assumed administrative cost of 15% or P1\.24 M\. Of the 50% share from the ISF collectible equivalent to P23\.43 M, the CIA need to earmark 40% for 0 & M\. IMT therefore is favorable to the CIA/lAs in MRIIS since they could accumulate funds from their share after 0 & M which could be used for other income generating activities of the associations and for future rehabilitation of the system\. It is therefore important that he CIAs/LAs understand that under the IMT program, the share in the ISF collection is actually intended to cover operation and maintenance responsibilities that will be turned over to them\. The commitment and responsibility of the CIAs/IAs for the maintenance and operation the irrigation facilities has to be clearly defined not only in the IMT contract but should also be part of the by-laws of the association\. The sustainability of the systems improvement under IOSP-II is likely, however, this would need further support to IMT in terms of the following: a) establishment of CIA/IA self-sustaining mechanisms in O&M\. there is an indication that funds for maintenance and operation are allocated in the CIA/IA budget but strict operationalization of the plans has to be observed, monitored and evaluated\. Furthermore, NIA and CIAs have to ensure that sufficient funds are allocated based on actual needs of the systems and strictly disbursed for the purpose\. This has to be explicit in the NIA-CIA/IA Contract, in the CIA/IA By-Laws, and supported with intemal rules, procedures and mechanisms\. b) Refinement of IMT policies in accordance with the provisions or AFMA (RA 8435) particularly those pertaining to affected personnel\. Since the goal of IMT is sustainability of both NIA and [As, proper attention given this issue will assure long-term success\. There is really a need for unrelenting enforcement of NIA's organizational streamlining program\. Streamlining is an imperative to achieve corporate viability\. Corollary to this, definite guidelines on IMT specifying manpower requirement vs NIA and CIA roles has to be finalized\. This will conscientiously define the manpower requirement during IMT, such that O&M is given due attention\. With successful IMT, assurance of sustainable O&M will also be attained\. c) M&E of IMT performance should be done intensively during the transition period in order to ensure sustainability\. Mechanism for M&E and IMT sustenance which have been introduced in pilot NISs, have to be assessed and if necessary refined and thereafter, replicated in all the areas\. d) Implementation of other transition measures in order to complete the transfer of technologies to - 55 -  lAs, particularly for some aspects of O&M\. This should adopt and on-the-job (OJT) approach\. Likewise, the proper reorientation of NIA-ISO and staff roles, duties and skills is also necessary\. e) Institutional strengthening measures should ensure that the capabilities and skills required to be able to effectively manage the system are installed among the officers and the necessary internal reorientation among the general membership is effected to ensure continued member participation and cooperation in the activities of the organization\. 5\. Bank and Borrower Performance Bank 5\.1 Lending: The Bank lending performance was highly satisfactory\. Despite the delays in the provision of counterpart funds and in the recruitment of consultants, the Bank continued to provide support to the Project\. Moreover, the Bank even granted an extension of the loan closing date from June 30, 1999 to December 31, 2000 to allow the institutional component to have a significant impact on the Project beneficiaries\. 5\.2 Supervision: Bank supervision was satisfactory\. The supervision missions reviewed the progress of work almost every six months\. Apart from reviewing progress of work, technical details, factors, constraints and prospects were likewise probed through interactions and field visits\. 5\.3 Overall Bank performance: The overall Bank performance was satisfactory\. The Bank was flexible in administering the loan and assisted the GOP in resolving shortage of counterpart funds\. Upon the GOP's behest, the Bank established the Project special account (PSA) and later agreed to a request for the use of a 90-day facility to expedite works implementation\. The Bank provided quick responses to queries and requests, including requests for specific modifications and an 18-month extension of the loan closing date\. Borrower 5\.4 Preparation: The preparation by the Borrower of the different components for project appraisal was satisfactory\. The Borrower completed the participatory project preparations before the final negotiations, involving the active participation of beneficiary lAs\. All components, particularly those in the 17 NISs with S\.I\. were implemented in a coordinated manner\. 5\.5 Government implementation performance: The performance of the Borrower may not be considered satisfactory with regards to availability of counterpart funds that made it difficult for the Project to conscientiously pursue programmed activities\. However, the situation slightly improved in 1998 but this was still insufficient to meet the requirements in terms of volume and timeliness\. 5\.6 Implementing Agency: Overall, the performance of the implementing agency (NIA) was satisfactory\. The investigations and surveys were adequate with the incorporation of improved participatory procedures that strengthened socio-technical coordination in system improvement\. The accomplishments would not have been substantial if not for the efficient reprogramming in view of delays in support funds\. Strict implementation of policies and guidelines for works implementation that ensured benefits was carried out\. In addition, the implementation of joint civil works implementation at secondary level to assure IA participation with improvement share deemed to install ownership were also undertaken\. This scheme, further, assured the - 56 -  availability of some funds for emerging repair works and are kept as trust funds for such\. 5\.7 Overall Borrower performance: Despite the delays in counterpart funds, overall borrower performance is rated satisfactory\. This is in view of the ability to attain objectives substantially\. 6\. Lessons Learned * ,The technical change under modality of operations and all the underlying principles would warrant sustainability of project benefits\. However, knowledge and skills have to be appropriately transferred to NMA field personnel and lAs\. * Urgent repairs should be done at the soonest time possible, in order to realize its objective in the most cost-effective manner\. Late start implementation could give way to further deterioration of the structures that make them prone to damage in time of calamities, hence, increases in cost requirement as in the case of Balanac\. It is a recognized fact that NISs naturally deteriorate at a certain rate/year\. And structures identified for urgent repair have more sensitive condition\. Thus, fund support should be released as per program/schedule\. * The IMT likewise caused institutional change as in the assumption of more responsibilities by ClAs/IAs\. The immediate implication is the staff redundancy issue for which any implementing agency should have corresponding programs before vigorously pursuing the program\. * Improvements on technical design and O&M are better facilitated by on-the-job trainings\. As in the case of Technical Design Workshops, outputs were immediately used for the design of modality of operations\. This enables immediate application and evaluation\. Participatory system evaluation as in the case of NIS Assessment enables wholistic identification of performance gaps and ensures measures acceptable to both parties (NIA and lAs)\. The strategy ensures acceptability and provides better prospect of sustainability\. The timing of all components is critical to project implementation\. The bulk of activities were conducted after start of IMT development and more needs have been identified thereafter\. This validates the fact that institutional interventions should have a lead time, closely coordinated with technical interventions\. The appropriate timing of detailed interventions, however, boils down to factors extemal to the implementing Agency\. (Late approval of the Technical Assistance Component on the part of the GOP)\. * The new rates promulgated by AO 17 resulted to significantly lower total ISF collectibles but much higher collectibles from big landowners\. Many of those with big landholding (>5\.0 ha) have, in the past, incurred ISF back accounts and have been difficult to convince to pay ISF\. If this trend continues the projected collection efficiency will be affected\. The cascading theory of technology transfer must be implemented to facilitate capability build-up and allow the participants to develop personal sense of confidence and openness to new learning\. This is also meant to facilitate farmer empowerment by providing assistance to the limited NIA field personnel tasked with providing the support services necessary in effective group participation and change\. There is no doubt that coordinative implementation of components abates the repercussion of delayed financial support for works\. More benefits could have been attained if financial allocations were provided on time\. - 57 -  While substantial activities have been conducted, the introduction of IMT, with inputs from other countries necessitate further interventions that were not covered in the original project design\. There are activities identified but completion of project duration did not warrant its implementation\. Among these are: Polishing of IMT manual, which cover: operations planning, design of modality of operations, technology transfer for both NIA and LAs, and monitoring and evaluation\. A prototype manual was produced under TA but polishing of the manual would provide opportunities for incorporating improvements based on experience of the different NISs\. Likewise, the manual should emphasize on the coordination of all components, which should be well contextualised at operations level\. Thereafter, translation into the vemacular may be done and should be included in the documents to be transferred to lAs\. * Policy Deliberation Workshops for IMT\. The program has implications on IA policies - manpower, extent of transfer coverage, financial and institutional change towards sustainability\. Series of policy deliberation workshops would enable management to intensify consultations with affected personnel and offices, such that policy issuances would expedite in more conscientious manner, maximizing synergy within the Agency\. * IMT Advocacy Workshops\. The implication of IMT on NIA personnel is a threat to Program success\. However, the knowledge and experiences from the project would benefit other projects\. IMT Advocacy Workshops would enable dissemination and sharing towards a unified direction in participatory irrigation development\. NIA may use its experienced personnel and/or invite external resources, if necessary\. 7\. Additional Information Additional data and information are supplied in the supporting annexes of this Implementation Completion Report (ICR)\. - 58 -

REVIEW

P069857

 ICRR 13332 Report Number : ICRR13332 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 05/04/2010 PROJ ID : P069857 Appraisal Actual Project Name : Tuberculosis And US$M ): Project Costs (US$M): 76\.4 55\.76 Hiv/aids Control Project Country : Ukraine Loan/ US$M): Loan /Credit (US$M): 60\.0 38\.67 Sector Board : HE Cofinancing (US$M ): US$M): 0 0 Sector (s): Health (75%) Law and justice (15%) Other social services (5%) Central government administration (5%) Theme (s): Tuberculosis (50% - P) HIV/AIDS (25% - S) Health system performance (25% - S) L/C Number : L4682 Board Approval Date : 12/19/2002 Partners involved : Closing Date : 06/30/2007 09/30/2009 Evaluator : Panel Reviewer : Group Manager : Group : Judith Hahn Gaubatz Susan A\. Stout IEGSE ICR Reviews IEGSE 2\. Project Objectives and Components: a\. Objectives: According to the Project Appraisal Document (PAD) and the Loan Agreement (LA), the project objectives were : (i) to reduce tuberculosis (TB) and; (ii) to reduce HIV/AIDS morbidity and mortality\. These were to be achieved through implementing the National Strategy for TB Control Adapted to the World Standard and an HIV /AIDS program focused on prevention of transmission among high -risk groups\. b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components (or Key Conditions in the case of DPLs, as appropriate): The project supported TB and HIV /AIDS control activities in the general population and high -risk groups, coordinated by the Ministry of Health (MOH), as well as a separate set of TB and HIV /AIDS control activities in the prison population coordinated by the State Department of Prisons (SDP)\. Although activities under the MOH and SDP components were similar, a separate implementation arrangement was designed due to the self -contained institutional nature of the prison system \. (1) Control of Tuberculosis - MOH (Appraisal: US$28\.7 million, Actual: US$19\.9 million ): Activities included training and education in the detection, treatment, monitoring and supervision of TB; equipment and development of technical guidelines for diagnosis; drugs for treatment; media campaigns to increase public awareness of TB; and monitoring and evaluation\. (2) Control of HIV/AIDS - MOH (Appraisal: US$32\.2 million, Actual: US$25\.1 million): Activities included prevention interventions among intravenous drug users (IDUs), commercial sex workers (CSWs), and men having sex with men (MSM); blood safety; information campaigns (IEC) for the general population; prevention of mother -to-child transmission (PMTCT); opportunistic infection (OI) treatment; and psycho-social care and support for People Living with HIV/AIDS (PLWHAs)\. (3) Control of TB and HIV/AIDS – SDP (Appraisal: US$12\.7 million, Actual: US$9\.1 million ): Activities included training, equipment, and drugs for TB diagnosis, treatment and monitoring, as well as HIV prevention interventions (IEC, condom distribution, and disinfectant distribution ), PMTCT services, and treatment of infants born to HIV + mothers in the prison\. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: The loan was amended for the first time in November 2005 to allow more flexible procurement processes and to allow SDP to manage their portion of the loan separately from the MOH \. It was amended for the second time in May 2008 to cancel US$12\.5 million of the loan (as the Bank and Government agreed the funds could not be used by the closing date and thus the cancellation would save the country from paying commitment fees on the undisbursed funds) and reallocate funds between expenditure categories, most notably US$ 26\.5 million towards OI treatment drugs and supplies, compared to the original estimate of US$ 2\.0 million\. Another loan cancellation of US$ 4\.15 million occurred in December 2008\. Loan disbursements were suspended between April 2006 and November 2006 due to non-compliance by the Government\. Three actions required of the Government had not been taken at that point : (i) endorsement of the National TB control training modules; (ii) acceptance on using UN agencies for several tasks; and (iii) development of a plan to ensure the integration of the project implementing unit (PIU) into the MOH structure and the creation of a "sector" in the MOH solely responsible for the management of the project \. The closing date was extended four times from December 2008 to September 2009 primarily to allow time for delivery of contracts with UN agencies \. Shortly after project approval, in January 2003, the Global Fund (GF) approved HIV/AIDS grants to Ukraine totaling US$99\.12 million for a period of five years, for activities including treatment, care and support, targeted prevention, and IEC for the general population \. Subsequently, a decision was made that the Bank project would not provide antiretroviral drugs (ARVs) for PMTCT\. The GF temporarily suspended the grant in Jan 2004 due to concerns about slow implementation and ineffective management \. 3\. Relevance of Objectives & Design: The relevance of the project objectives is rated High\. The goal of bringing the TB and HIV /AIDS epidemic under control was, and remains, highly relevant to Ukraine's development priorities and the well -being of its population\. The TB situation had grown considerably worse from the 1990s to the 2000s, with significant increases in the TB case notification rate (doubling from 31\.9 to 66\.9 cases per 100,000 people) and mortality rates (tripling from 8\.1 to 22\.2 cases per 100,000 people)\. At the end of 1999, UNAIDS had estimated that Ukraine was the worst HIV affected country in the region\. The current Country Partnership Strategy identifies “improved quality of public health and health servicesâ€? as a major element of its program\. Although the prevention activities would have been more likely to impact longer-term outcomes (beyond the time frame of the project, given the long asymptomatic period following infection), the treatment activities for OIs and TB would likely have impacted morbidity and mortality rates in the short-term\. The relevance of the project design is rated Negligible\. The project addressed two growing epidemics within a single project, which was appropriate given that HIV infection is a major factor contributing to the spread of active TB \. There was also a separate component focused on the prison population, also appropriate given that about 30% of all TB patients are in the prison system \. Interventions were based on a relatively well -established information base of the TB and HIV/AIDS situations in the country, such as the need to target HIV prevention activities towards IDUs, CSWs and prisoners\. However, the project design did not adequately identify or take account of critical policy and institutional development constraints\. Given the fragile level of commitment of the borrower to a new TB -control approach (based on the internationally-accepted Directly-Observed Treatment, Short Course (DOTS)), the project design should have had more explicit measures to ensure that this critical shift in strategy was carried out \. Adoption of the DOTS approach and progress in its implementation could have been included as specific key project indicators or project milestones \. Moreover, given that this was the first health sector operation in the country and that Borrower staff had very limited experience with Bank regulations and procedures,insufficient attention was given to capacity -building activities or the need for international technical assistance \. The risk assessment did not include the challenges involved in relying on NGOs to reach high-risk groups given the high degree of stigma and discrimination in the country, nor of operating within a highly political, unstable and bureaucratic environment \. Lastly, the project design did not identify adequate mechanisms for coordinating activities between the two implementing agencies \. 4\. Achievement of Objectives (Efficacy): Objective 1: To reduce tuberculosis Achievement is rated Modest\. Although the TB prevalence rate in the general and prison population decreased, other related indicators did not improve \. (Note: Data below on TB prevalence and incidence are presented per 100,000 individuals\.) General population : Outputs: Provision of 1st and 2nd line treatment drugs, in the amount of $ 13\.7 million\. Adoption of a National Program on TB Control (based on the internationally-accepted DOTS approach) in 2006\. 56 trainer-of-trainers from MOH and 61 SDP staff participated in TB retraining courses \. However, these were based on voluntary attendance and did not include certifications \. Only 30% of laboratories needing upgrades were equipped and made operational for diagnostic functions \. The laboratory network was not full developed, nor a national reference laboratory for monitoring quality \. Outcomes: The TB prevalence rate decreased 15%, from 224\.9 cases in 2004 to 192\.2 in 2008\. The number of new TB cases (77\.5 cases in 2003 to 84\.1 in 2005 to 77\.8 in 2008) did not decrease\. TB mortality (21\.8 in 2003 to 22\.1 in 2008) did not decrease significantly during the same period \. Therefore, it is unclear whether the decreased TB prevalence is more due to increased deaths or decreased incidence \. DOTS coverage increased from 15% in 2004 to 60% in 2007 and the case detection rate was 56% in 2008\. However, there is no data on successful completion of or quality of treatment \. Prevalence of multi-drug resistant TB (MDR-TB) increased significantly (2\.5% in 2003 to 7% in 2008)\. Prison population : Outputs: Provision of 1st and 2nd line treatment drugs, in the amount of $ 3\.56 million, as well as drugs to treat clinical side-effects of TB\. 85 first-level units and 10 3rd level hospitals received laboratory equipment and supplies \. 5 seminars on TB were conducted, attended by 61 staff\. However, this represented only 10% of planned training activities\. Outcomes: The TB prevalence rate decreased 22%, from 5,744 cases in 2004 to 4,491 cases in 2008\. The number of new TB cases decreased from 2013\.7 in 2003 to 938\.6 in 2008\. The TB mortality rate decreased from 103 in 2003 to 71 in 2008\. Objective 2: To reduce HIV /AIDS morbidity and mortality Achievement is rated Modest\. Key indicators of the status of the HIV /AIDS epidemic did not improve over the project period\. Although data on intermediate outcomes, such as changes in risky behavior, show some positive impact, it is unlikely to be due to the project ’s activities as the ICR reports that the project ’s planned actions in the areas of targeted prevention to high-risk groups, treatment and care were not implemented \. Moreover, the extent of attribution to the Bank’s support is unclear, given the significant contribution of the Global Fund \. General population : Outputs: The number of facilities offering VCT increased from 214 to 300\. Pilot IEC campaigns were conducted , although the planned expansion of IEC beyond the pilot phase was not carried out\. Infant formula was provided to HIV+ mothers, though there is no information on level of coverage \. 14 million condoms were distributed to IDUs and CSWs \. Drugs for the treatment of OIs were provided in the amount of $ 19\.3 million, though there is no information on level of coverage of types of OIs treated \. 11 new AIDS centers were established and equipped \. Outcomes: The number of AIDS deaths increased from 1,285 in 2003 to 2,710 in 2008\. Knowledge of methods of preventing HIV transmission increased among 15-24 year olds from 14% in 2003 to 40% in 2008\. The percentage of IDUs who used a condom during their last sexual encounter increased from 21% in 2004 to 55% in 2008\. The percentage who used sterile injecting equipment at the last injection increased from 50% in 2004 to 84% in 2008\. The percentage of CSWs who reported using a condom in their last sexual encounter increased slightly from 80% in 2005 to 86% in 2007\. There is no information provided on the outcomes of OI treatment activities \. Prison population : Outputs: Provision of 600,000 condoms and 120,000 lubricants\. Provision of drugs to treat OIs \. 2 seminars on HIV/AIDS, attended by 40 medical professionals, and 34 seminars on HIV transmission, attended by 340 trainers of prisoners, were conducted \. Studies completed included a behavioral survey in 10 prisons, a study on HIV infection among TB patients, and a survey of MDR-TB in 6 prison hospitals\. Some elements of “harm reductionâ€? activities were carried out in prisons (i\.e\. provision of disinfectants, training for SDP staff, peer education activities ); however, programs such as needle -syringe exchange and substitution therapy were not carried out\. The ICR reports that despite efforts made under the project, there was still “some degree of resistanceâ€? towards the introduction of such programs \. Outcomes: The number of AIDS deaths increased from 70 in 2004 to 138 in 2008\. Knowledge of methods of preventing HIV transmission increased modestly from 39% to 43%\. Knowledge of methods of preventing HIV transmission increased slightly from 39% in 2003 to 43% in 2008\. 5\. Efficiency (not applicable to DPLs): Efficiency is rated Negligible\. Given the fact that the most cost -effective project activities - the targeted HIV/AIDS interventions to high risk groups and the DOTS approach to TB control - were not implemented in a timely or effective manner, the cost-effectiveness of the project as implemented was less than the original design \. ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re -estimated value at evaluation : re- Rate Available? Point Value Coverage/Scope* Appraisal No ICR estimate No * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: Based on High relevance of objectives, but Negligible design relevance, Modest efficacy, and Negligible efficiency, project outcome is rated Unsatisfactory \. a\. Outcome Rating : Unsatisfactory 7\. Rationale for Risk to Development Outcome Rating: Risk to Development Outcomes is rated Significant\. Some of the institutional changes supported by the project may provide a better environment for the project's activities, such as the establishment of a Presidential Commission on HIV/AIDS, the creation of a separate Center for Monitoring and Evaluation in the National AIDS Center, and an agreement between the WHO and the TB Institute on reporting forms \. However, major weaknesses - such as weak capacity and agreement on the use of NGOs - impeding the effectiveness of activities were not squarely resolved by the project's closing, and leadership and commitment by government at the highest levels remains inconsistent \. a\. Risk to Development Outcome Rating : Significant  8\. Assessment of Bank Performance: at -entry is rated Unsatisfactory\. A significant amount of resources was invested in the preparation of Quality -at- the project, in terms of time (2\.5 years), the number of preparation/appraisal missions (12), and background studies (assessment of TB and HIV/AIDS control needs, social assessment for M&E program, and economic and financial analysis)\. However, this intense preparatory work overlooked some critical issues, such as the weak government commitment to adopting the DOTS approach and the risks involved in using NGOs to reach highly vulnerable groups, as well as the difficulties of working in the prevailing bureaucratic and political environment \. Indeed, the ICR notes that the preparation period was lengthy in part due to delays in implementing the preparation grant and lack of consensus on the project design \. The Bank had specified certain conditions for bringing the project to the Board for approval, but some were not enforced, namely the creation of a dedicated project implementation unit (PIU) in each agency\. In addition, weaknesses in Borrower capacity which had became apparent prior to appraisal were not sufficiently addressed \. Capacity that had been built during the preparation period was lost due to the departure of original project staff during the long interval between project approval and effectiveness since there was no bridge financing to retain staff \. Supervision is rated Unsatisfactory\. The Bank's attempts to address the significant difficulties the project faced during implementation were unsuccessful \. Although various issues were recognized and flagged, several reviews initiated to address implementation problems (including a study on the direct and indirect costs of the HIV epidemic in Ukraine, an in-depth fiduciary review, and a TB strategy review ), and efforts made to improve donor coordination through working groups, these were insufficient to turn the project around \. A Quality Enhancement Review, dated December 8 2005, criticized both the Bank and the Borrower \. Shortcomings in Bank performance included poor project design, high staff turnover, inflexible interpretation of rules, and lack of real engagement with key partners working in the same area \. The Government reported additional difficulties in working with the Bank, citing instances of inconsistency and "moving goal postsâ€?\. For example, the ICR states that in October 2005, when the project appeared to be “on the verge of turning the corner â€?, Bank management (which had just completed a review of the Bank’s portfolio in Ukraine and concluded that a number of unsatisfactory projects had to be restructured) issued a letter to the Government which “essentially claimed that the project was not working and failing to meets its objectives â€? and called for “radical measuresâ€? including disbanding the PIU\. The Bank's efforts to improve donor coordination were ineffective -- the ICR alludes to several UN agencies ’ statements that they were taken by surprise in the tasks they were called on to perform, sometimes outside their respective areas of comparative advantage\. Country staff were cited expressing the view that some of the Bank ’s proposals were not thoroughly researched and detailed before being presented to the Government (such as the use of UNICEF to implement IEC campaigns which, a year later, was determined to be contractually infeasible ), and that while the Bank constantly claimed that it would not agree to extensions of the closing date, the project was in fact extended four times despite consistently unsatisfactory ratings \. Lastly, project implementation, which was already hampered by weak country capacity, was made more difficult by the frequent turnover in Bank staff (as evidenced by six different TTLs ) and some decisions by the Bank such as the refusal to allow training for the PIU due to presumed experience and capacity \. at -Entry :Unsatisfactory a\. Ensuring Quality -at- b\. Quality of Supervision :Unsatisfactory c\. Overall Bank Performance :Unsatisfactory 9\. Assessment of Borrower Performance: Government performance is rated Unsatisfactory\. There were major shifts in government commitment on critical elements of the project, which led to significant disruptions in implementation \. During project preparation, the highest levels of government (including MOH, SDP and Parliament) were committed to introducing DOTS\. However, the new MOH minister in mid-2000, along with the TB Institute, medical practitioners and other vested interest groups (i\.e\. pharmaceutical companies) opposed DOTS and the Government adopted a national TB program for 2002-2005 that did not use or refer to DOTS\. The Government did not follow through with all agreements in a timely manner, including the creation of a dedicated PIU in MOH and the contracting of NGOs to reach high-risk groups\. For example, the Government wrote a letter to the Bank the day before Board presentation which said that the PIUs would be established, yet only the SDP carried out its commitment in a timely manner\. A Supervisory Council which was to provide leadership and oversee project implementation never became functional\. In addition, top leadership changed frequently, with the Prime Minister changing seven times during the entire project period \. Lastly, the Government insisted on focusing on hardware components rather than "soft" components such as technical assistance or training which were essential for addressing critical capacity weaknesses\. Implementing agency performance is rated Unsatisfactory\. There were frequent changes in leadership at the MOH - including at the Deputy Ministry level, which was directly responsible for project oversight - affecting both logistics and substance of project implementation \. The ICR cites one PIU director who described the changes as "extremely disruptive because every time a new Minister or Deputy Minister arrived, the essence and the design of the project were put into question and explanations needed to be provided for why this project is necessary, etc\." In addition, there was limited coordination between the MOH and SDP (exacerbated by low commitment by the MOH in carrying out the project activities ), which contributed to delays given the MOH's responsibility for managing the project account for both agencies \. However, the SDP, which retained its top leadership and level of commitment throughout the project period, was able to implement a number of activities and to achieve some positive outcomes \. a\. Government Performance :Unsatisfactory b\. Implementing Agency Performance :Unsatisfactory c\. Overall Borrower Performance :Unsatisfactory 10\. M&E Design, Implementation, & Utilization: M&E Design is rated Negligible\. The extensive list of indicators to be tracked reflected the numerous facets of the project (i\.e\. impact on the general population vs \. prisons, changes in mortality and incidence, behavior changes, institutional capacity)\. However, it was too lengthy (Annex 1 of the PAD lists 11 outcome indicators and 34 output indicators), given the weak M&E capacity of the country staff and the lack of detailed implementation arrangements in the project design\. There were few baseline or target figures provided \. As noted previously, the key indicators on HIV prevalence and mortality rates were not appropriate due to the nature of the interventions (focused on prevention) and the time lag in seeing any impact \. M&E Implementation is rated Modest\. The ICR reports some M&E activities that were implemented, including a behavioral survey in 10 prisons, a study on HIV infection among TB patients , a survey on MDR -TB in 6 prison hospitals, and the hiring of an M&E officer (albeit four years after the project became effective )\. Although the Bank team revised the list of indicators to include more relevant and time -appropriate indicators (such as behavior change among high risk groups) and updated some baseline and target figures, there was still no systematic monitoring taking place aside from that already taking place at the national program level \. The ICR notes that project-specific M&E was "persistently one of the weakest areas and no complete set of indicators was ever produced with updated information\." M&E Utilization is rated Negligible\. The ICR reports M&E activities of various government entities that were used to inform decisions about the overall national TB and HIV /AIDS programs\. However, there is little evidence that the limited M&E activities implemented by the project per se were used to inform policies \. a\. M&E Quality Rating : Negligible 11\. Other Issues (Safeguards, Fiduciary, Unintended Positive and Negative Impacts): Procurement: Procurement performance was problematic for the greater part of the project period \. Particularly in the first two years of implementation, PIU staff had very limited procurement experience, which was reflected in the poor quality of, and frequent revisions to, procurement documents \. Moreover, the "dual review process" which persisted almost throughout the project (in addition to the standard project evaluation committee, all documents also had to be cleared by an internal MOH committee ) added to delays\. Financial Management: Financial management performance was generally weak for most the project, initially due to low capacity but subsequently due to non -compliance with Bank reporting and auditing requirements \. The Bank team's recommendation of installing an automated accounting system was not implemented, and financial reports and audits were often submitted late \. A Special Integrated Review (SIR), initiated by the Bank, was conducted in June 2006, due to questions from the media regarding impropriety on fiduciary issues \. The SIR covered procurements, receipts for goods and  services, payments, accounting, reporting, and loan withdrawal application processes for 75% of all contracts awarded up to May 31, 2006\. Although the SIR noted a number of weaknesses due to low capacity, no instances of misuse of funds were identified \. Recommendations about the need to implement a robust accounting system and improve financial management were, however, strongly reiterated by the SIR \. 12\. 12\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Unsatisfactory Unsatisfactory Based on High Relevance of Objectives, Negligible Design Relevance, Modest Efficacy and Negligible Efficiency\. Risk to Development Significant Significant Outcome : Bank Performance : Unsatisfactory Unsatisfactory Borrower Performance : Unsatisfactory Unsatisfactory Quality of ICR : Exemplary NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate \. 13\. Lessons: Strong political commitment is particularly essential for implementing a vastly different approach to a health issue (i\.e\. DOTS), including taking into account the interests of vested stakeholders who may be opposed to the changes\. The Bank should ensure that both management and task teams are pursuing a consistent approach to a country’s program, rather than risk sending mixed or contradictory messages to the Borrower \. There needs to be effective coordination among multiple implementing agencies, as one less committed agency could render other more committed agencies less effective \. When relying on significant support from other donor agencies, there needs to be a clear understanding of roles and responsibilities of the different donors \. Arrangements for project staffing during the interval between project approval and effectiveness should be carefully considered (including financial arrangements ) to ensure that capacity built during the preparation period is retained for the project implementation period \. 14\. Assessment Recommended? Yes No 15\. Comments on Quality of ICR: ICR quality is rated Exemplary\. Although project-specific data were very limited, the ICR team drew upon data from other sources in an extensive effort to compile missing information and assess the project's achievements \. The extensive discussion of the project's shortcomings and overall implementation history can serve as critical background information should the Bank decide to engage the country on health issues in the future \. Furthermore, the contribution the ICR can make to lesson -learning is valuable\. All HNP staff working in communicable diseases can benefit from its reading before embarking on a new project \. a\.Quality of ICR Rating : Exemplary

REVIEW

P000783

Document of The World Bank FOR OFFICIAL USE ONLY Report No\. 15695 IMPLEMENTATION COMPLETION REPORT GABONESE REPUBLIC ECONOMIC RECOVERY LOAN (LOAN 3759-GA) June 11, 1996 Country Operations I Central African and Indian Ocean Department Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  CURRENCY EQUIVALENTS Currency Unit = CFA franc (CFAF) The CFA franc is pegged to the French Franc at the rate of FF I =CFAF100 Fiscal Year US$l=CFAF 1994 555\.20 1995 506\.50 SYSTEM OF WEIGHTS AND MEASURE: METRIC Metric U\.S\. Equivalent I meter (m) = 3\.2 feet (ft) 1 kilometer (km) = 0\.62 miles (mi) I square kilometer (km2) = 0\.39 square mile (sq mi) I hectare (ha) = 2\.47 acres (a) I metric ton (t) = 2,205 pounds (lb) I kilogram (kg) = 2\.2046 pounds (lb) FISCAL YEAR January I - December 31 ABBREVIATIONS AND ACRONYMS CFAF : Franc of the Central African Financial Cooperation ERL : Economic Recovery Loan FTID : Levy for Computerized Processing of Customs MTNECOFfN : Ministry of Economy and Finance GR : Gabonese Republic SEEG : National Water and Electricity Company UDEAC : Customs Unions of Central African States VAT : Value Added Tax  FOR OFFICIAL USE ONLY IMPLEMENTATION COMPLETION REPORT GABONESE REPUBLIC ECONOMIC RECOVERY LOAN Loan 3759-GA Table of Contents Page Evaluation Summary \.i PART I\. PROGRAM IMPLEMENTATION ASSESSMENT INTRODUCTION \.1 Country Background \. 1I The Devaluation and the Economic Recovery Loan \.1 1\. STATEMENT A ND EVALUATION OF OBJECTIVES \.2 11\. ACHIEVEMENT OF THE OBJECTIVES \.3 1\. Macroeconomic Policy \.3 2\. Structural Reforms \.4 3\. Sectoral Policies \. 6 111\. MAJOR FACTORS AFFECTING THE PROJECT \.7 A\. Factors under the Control of the Authorities \.7\.7 B\. Factors Beyond the Control of the Authorities \.8 IV\. ASSESSMENT OF OUTCOME AND SUSTAINABILITY \.8 V\. PERFORMANCE OF THE BANK AND THE GOVERNMENT \. 9 Bank Performance \.9 Borrower Performance \. 10 VI\. FUTURE OPERATIONS \.10 VII\. MAJOR LESSONS AND CONCLUSIONS \. 10 This document has a restricted distribution and may be used by recipients onry in the performance of their official dudies\. Its contents may not otherwise be disclosed without World Bank authorization\.  PART H\. BORROWER CONTRIBUTION TO THE ICR \. 12 Annex 1 Action Matrix \. 24 Annex 2 Social sectors - Public expenditures \. 27 PART HI\. STATISTICAL INFORMATION \. 28 Table 1: Summary of Assessments\. 28 Table 2: Related Bank Loans 29 Table 3: Project Timetable \.30 Table 4: Loan Disbursements \.31 Table 5: Key Indicators for Project Implementation \.32 Table 6: Key Indicators for Project Operation 34 Table 7: Studies Included in Project\. 34 Table 8a: Project Costs \.35 Table 8b: Project Financing \.35 Table 9: Economic Costs and Benefits \.36 Table 10: Status of Legal Covenants in Loan Agreement 37 Table 11: Bank Resources - Staff Inputs 38 Table 12: Use of Bank Resources - Missions\. 39 APPENDIXES \. 40 A\. Actions taken by the Government as conditions of disbursement B\. Map  IMPLEMENTATION COMPLETION REPORT GABONESE REPUBLIC ECONOMIC RECOVERY LOAN LOAN 3759-GA PREFACE This is the Implementation Completion Report (ICR) for the Economic Recovery Loan (ERL) to the Gabonese Republic, for which Loan 3759-GA in the amount of $30 million was approved on June 21, 1994 and made effective on September 16, 1994\. The credit was released in its entirety upon effectiveness\. It was fully disbursed on October 17, 1994\. The ICR was prepared by Mr\. Lionel Laurant, Consultant (AF3CO) and reviewed by Mr\. Jerome Chevallier, Country Operations Division Chief and Ms\. Nichola Dyer Cisse, Country Economist\. The Borrower provided its own assessment of the project which is included as part II of the ICR\. The ICR is based on material in the project file\. The Borrower contributed to the ICR by providing its own evaluation of the project's preparation and execution\.   IMPLEMENTATION COMPLETION REPORT GABONESE REPUBLIC ECONOMIC RECOVERY LOAN LOAN 3759-GA EVALUATION SUMMARY Background 1\. Gabon is a Central African country with a population of just over I million growing at an annual rate of 2\.5 percent\. It is well endowed with natural resources, including timber, manganese, uranium, and oil\. The country, however, is confronted with deep-rooted financial and structural imbalances and is still striving to promote sustainable economic and social development, as well as to diversify its export base\. The sharp decline in world oil prices during 1976-77 and again in 1986-87 caused major disruptions in economic activity and government spending, and contributed to a steep expansion in external public debt and government payments arrears\. Adversely impacted by the growing overvaluation of the CFA Franc, compounded by a significant decline in the terms of trade, Gabon's overall financial situation deteriorated\. 2\. The Government adopted a Development Policy program in the aftermath of the devaluation of the CFA franc (effective January 12, 1994)\. The program's objectives were to restore the competitiveness of the economy and lay the basis for growth and poverty alleviation\. It was supported by an Economic Recovery Loan of US$ 30 million, as well as an lNfF Stand-by arrangement\. The ERL was appraised, negotiated and brought to the Board in three months, following exceptional procedures\. To consolidate the early gains from the devaluation, it was made available in one tranche after effectiveness\. Loan Objectives 3\. The loan was designed to provide emergency support for the Government's program of economic recovery to complement the parity adjustment of January 12, 1994\. The program covered: (i) macroeconomic policies designed to re-establish the conditions for balanced growth; (ii) structural reforms to promote free and efficient markets, redefine the role of government and minimize the impact of the devaluation on the social sectors; and (iii) sectoral policies to reduce government involvement in the economy and strengthen its capacity to provide basic services to the population\. In coordination with its partrers in the regional economic and customs union (UDEAC), the authorities undertook a far-reaching tax and tariff reform aimed at simplifying the tax system and reducing imporL tariffs\. The Government fulfilled a number of conditions prior to disbursement (see Appendix A)\.  ii Implementation Experience and Results 4\. Program implementation was satisfactory overall, although weaknesses in administrative capacity resulted in delayed implementation of structural measures and left Gabon's reform agenda unfinished\. The economy responded positively to the improvement in competitiveness that followed the devaluation\. Fiscal performance improved appreciably under the program, while the increase in the civil service wage bill was contained at 10 percent as targeted\. A value added tax was introduced in April 1995 to replace all other domestic indirect taxes on domestically produced goods\. The authorities were successful in carrying out ambitious trade and fiscal reforms, and preliminary action was taken to improve public enterprise performance and reduce the burden of these enterprises on public finances\. Sustainability of Results and Future Operations 5\. Sustainability of results hinges on the pursuit of appropriate macroeconomic policies and the implementation of a program of supporting reforms that will consolidate the gains in external competitiveness, stimulate private sector growth, and strengthen the capacity of government to deliver basic services to the population\. The ERL-supported program has re-established a real exchange rate consistent with economic competitiveness, while substantial tax and tariff reforms were implemented to unleash Gabon's growth potential in the non-oil private sector and create an environment propitious to private investment\. 6\. Ongoing projects include a Transport/Urban Technical Assistance Project and a Forestry and Environment Project\. The Bank is preparing a Public Enterprise Reform Technical Assistance Operation to assist the Government in the disengagement from productive activities, and preparations are under way for a Pilot Agricultural Extension Services project\. Lessons and Conclusions 7\. The Economic Recovery Loan aimed to support the Government's program to restore the competitiveness of the Gabonese economy and lay the basis for growth and poverty alleviation\. Program results were satisfactory overall\. Most of the requirements established under the ERL were met, laying the basis on which deeper reforms could be built\. Despite close monitoring by the Bank, however, program implementation was affected by weaknesses in administrative capacity and financial management on the part of the authorities\. 8\. The ERL implementation record suggests that administrative and social rigidities may significantly hinder the actual fulfillment of agreed measures\. Weaknesses in implementation capacity and resistance to reform are best addressed through early investment in: (i) setting up appropriate institutions and mechanisms to monitor progress  iii and implement measures; and (ii) building consensus on reform and mobilizing the support from socio-economic groups critical to program implementation\.   IMPLEMENTATION COMPLETION REPORT GABONESE REPUBLIC ECONOMIC RECOVERY LOAN LOAN 3759-GA PART I: PROGRAM IMPLEMENTATION ASSESSMENT INTRODUCTION Country Background 1\. Gabon is a Central African country with a population of just over I million growing at an annual rate of 2\.5 percent\. After gaining independence in 1960, Gabon opted for a single-party system of government, which prevailed until multiparty presidential elections were held in December 1993\. Municipal and legislative elections are scheduled for 1996, followed by Presidential elections in 1998\. 2\. Gabon is well endowed with natural resources, including timber, manganese, uranium, and oil\. The country, however, is confronted with deep-rooted financial and structural imbalances and is still striving to promote sustainable economic and social development, as well as to diversify its export base\. The sharp increase in world oil prices in the early 1970s and 1980s boosted government revenue which, along with heavy recourse to foreign borrowing, accommodated an ambitious public investment program, a generous pay policy for civil servants and other public sector employees, and recurring extra-budgetary outlays\. At the same time, the "oil syndrome" contributed to the crowding out of other industries in the tradable goods sector\. The sharp decline in world oil prices in 1976-77 and again in 1986-87 caused major disruptions in economic activity and government spending, and contributed to a steep expansion in external public debt (from I percent of GDP in 1965 to 54 percent by 1993) and government payments arrears\. Gabon, however, remains at the top of the per capita income bracket in sub- Saharan Africa (US$ 3,770 in 1994)\. The Devaluation and the Economic Recovery Loan 3\. The adjustment of the Gabonese economy to the worsening external environment during 1985-93 was relatively modest, relying mainly on a deflationary policy that led to a stagnation of real GDP, despite a strong increase in oil output\. The strategy entailed large cuts in government investment and a reduction in the budget deficit, but failed to achieve significant progress in lowering the high labor costs\. Adversely impacted by the growing overvaluation of the CFA Franc, compounded by a 46 percent decline in the terms of trade during the period, Gabon' s overall financial situation deteriorated\. 4\. The Government adopted a Development Policy program in the aftermath of the devaluation of the CFA franc (effective January 12, 1994)\. The program's objectives were to restore the competitiveness of the economy and lay the basis for growth and  2 poverty alleviation\. It was supported by an Economic Recovery Loan of US$ 30 million, as well as a twelve-month Stand-by arrangement approved by the IMF on March 30, 1994\. Bank assistance was justified by: (i) the necessity to support the Government's post-devaluation reform program; (ii) the need for a rapid intervention to ensure that the price and incentive effects of the exchange rate action would be accompanied by appropriate measures to achieve a lasting improvement in competitiveness and growth; and (iii) the opportunity to break with a period of several years during which Bank involvement in Gabon had been limited by the absence of a sustainable macroeconomic framework and weak commitment to reforms\. The ERL was appraised, negotiated and brought to the Board in three months, following exceptional procedures\. To consolidate the early gains from the devaluation, it was made available in one tranche after effectiveness\. I\. STATEMENT AND EVALUATION OF OBJECTIVES 5\. The loan was designed to provide emergency support for the Government's program of economic recovery to complement the parity adjustment of January 12, 1994\. The program covered: (i) macroeconomic policies designed to re-establish the conditions for balanced growth; (ii) structural reforms to promote free and efficient markets, redefine the role of government and minimize the impact of the devaluation on the social sectors; and (iii) sectoral policies to reduce government involvement in the economy and strengthen its capacity to provide basic services to the population\. The Government fulfilled a number of conditions prior to loan disbursement (see Appendix A)\. Notably, in coordination with its partners in the regional economic and customs union (UDEAC), the authorities undertook a far-reaching tax and tariff reform aimed at simplifying the tax system and reducing import tariffs\. 6\. The scope of the ERL's objectives was commensurate with the extent of the economic and financial crisis confronting the country\. The deflationary process in recent years, triggered by adverse external conditions (50 percent drop in oil prices in 1986, overvaluation of the CFAF) compounded by poor economic management, had left Gabon with legacies incompatible with sustainable development: an overextended and deficit- ridden public sector; a deteriorating physical and human capital base and declining productivity; and deepening poverty\. The ERL was also well in line with the Country Assistance Strategy, and provided a consistent response to the parity change of the CFAF\. 7\. Swift availability of funds was justified by the need to capitalize on the momentum created by the devaluation\. It remains uncertain, however, whether the Gabonese economy, served by oil reserves that turned the country into the richest nation in continental sub-Saharan Africa, was in need for immediate Bank support following the devaluation\.  3 II\. ACHIEVEMENT OF OBJECTIVES 8\. Gabon's performance under the ERL-supported program was satisfactory\. Within a much improved macroeconomic framework, the authorities were successful in carrying out ambitious trade and fiscal reforms\. The traditional export sector (oil, timber, mining) responded positively to the improvement in competitiveness that followed the devaluation, while preliminary action was taken in the public enterprise sector to improve performance and reduce the burden of these enterprises on public finances\. Implementation of the structural reforms suffered substantial delays, however, and the reform agenda remains unfinished\. 1\. Macroeconomic Policy 9\. Agenda: Macroeconomic objectives under the Government's post-devaluation reform program included: re-establishing the conditions for balanced growth through realization of the potential competitiveness gains of the devaluation; stabilizing the debt ratio by 1995 through primary budget surpluses (4\.1 percent of non-oil GDP in 1994 and 14 in 1995); maintaining the new parity of the CFA franc with the French franc without undue compression of credit to the economy; and controlling inflation (expected to reach about 33 percent in 1994)\. 10\. Results: The economy responded positively to the improvement in competitiveness that followed the devaluation (the real effective exchange rate, based on relative consumer prices, declined by 30 percent in 1994)\. The inflation rate was contained at 36 percent in 1994 (only slightly above the program target), thus limiting the erosion in exchange rate adjustment\. Overall, the structure of relative prices and economic incentives improved markedly, as reflected in an unprecedented current account surplus of 7 percent of GDP in 1994 (from a 1\.1 percent deficit in 1993)\. 11\. Fiscal performance improved appreciably in 1994\. While total government expenditure was kept significantly below program levels, higher-than-expected oil revenue more than offset a shortfall in non-oil revenue\. As a result, the primary, budget surplus rose from 1\.9 percent of non-oil GDP in 1993 to 9\.5 percent in 1994 (facilitating repayments to the banking system and of domestic arrears), and the overall deficit as a percentage of GDP was cut by more than two thirds to 1\.8 percent in 1994\. Strong activity in the non-oil sector and higher oil exports boosted government revenue in the first half of 1995, but significant fiscal slippages during the period (large repayments of domestic arrears and high government expenditure) more than offset the revenue surplus and resulted in an accumulation of external payments arrears\. 12\. Monetary developments in 1994 were marked by a strong recovery in money demand and a substantial improvement in the net foreign assets position of the banking system\. In the face of an improved profit and liquidity position of the private sector and a contraction in industrial output, bank credit to the private sector declined modestly during 1994, but picked up strongly in early 1995\. After a strong acceleration in the first months  4 following the devaluation, inflationary pressures abated, owing mainly to wage restraint and the accompanying measures implemented by the Government\. Despite the introduction of an 18 percent value-added tax in April, as well as upward adjustments in public utility rates and retail petroleum product prices, inflation is projected to reach 5\.8 percent in 1995 -- a level more consistent with the fixed exchange rate with the French franc\. 2\. Structural Reforms 13\. Agenda: Gabon's post-devaluation reform program entailed measures to grant greater freedom to markets and redefine the role of Government\. In pursuit of this objective, reforms to be implemented under the ERL included: fostering competition; liberalizing external trade; establishing more efficient energy pricing; minimizing the impact of the devaluation on the social sectors; establishing a less penalizing tax system and introducing a value added tax; organizing consultations with employers and unions for a possible revision of the Labor Code; limiting the increase in the wage bill to 10 percent in 1994; and simplifying and reducing the cost of approval and other administrative procedures involved in the establishment of small and medium enterprises (SMEs) and industries (SMIs)\. 14\. Results: Compelition - Measures to strengthen competition on the domestic market were largely implemented\. Substantial price and trade liberalization was achieved prior to loan disbursement, and a redrafted Law on Competition is awaiting Parliament approval\. However, quantitative restrictions on sugar imports were not lifted by January 1996 as targeted\. 15\. Trade policy - The external trade regime was liberalized significantly\. In the wake of the parity change, and in the context of UDEAC reforms, import tariffs were reduced sharply to a range of 5-30 percent (the average tariff dropped from 27\.4 percent in 1993 to 19\.2 percent in 1994); several tax exemptions were eliminated; the system of import/export licenses was revoked; import quotas were abolished (except for sugar); and export taxes were eliminated (except for wood and mineral products) or simplified (for wood)\. To complement these reforms, tax and customs duty exemptions granted to certain enterprises under special agreements are being renegotiated with a view to broadening the tax base, and no new exemptions have been granted\. Elimination of exemptions will require concerted action at the sub-regional level\. 16\. Finally, while the levies on imports to finance the CGC (Conseil Gabonais des Chargeurs) and CGCE (Centre Gabonais du Commerce Exterieur) were abolished, a bill is to be passed that re-introduces the provisions of a 1992 ordinance requiring the payment of fees by managers of ore and oil tankers\. Further, the authorities failed to reduce the customs data processing fee (FTID) from 2 percent to 0\.5 percent of c\.i\.f\. value as targeted\. The upholding of the FTID tax on imports is not consistent with the trade liberalization undertaken in Gabon under the program and, despite overall satisfactory implementation, remains an important outstanding issue\.  5 17\. Fiscal reform - A value added tax system has been in place since April 1, 1995, at a single rate of 18 percent\. It replaces all other domestic indirect taxes (with the exception of certain excise taxes) on domestically produced goods and, to that extent, supports local production\. The next step is to expand the base of firms participating in the VAT (about 600, the largest in terms of sales, have been included)\. As conditions of loan disbursement, and to establish more efficient energy pricing, fiscal levies on petroleum products were lowered and prices paid to the refinery were linked to import parity prices\. Reflecting the introduction of the value added tax, and as a way to obviate the need for government subsidies, electricity charges were raised by roughly 15 percent and prices of petroleum products by an average of 7 percent\. 18\. Labor sector - The increase in the civil service wage bill was contained at 10 percent in 1994 as targeted, while wage increases in the private sector averaged about 15 percent, contributing to the satisfactory inflation rate recorded in 1994\. The Labor Code had been aimed at liberalizing the modalities for hiring and releasing labor by private and public enterprises (while providing for adequate safeguards)\. However, it was substantially amended by the National Assembly, and the revised version has not removed all constraints to labor mobility and job growth\. The Government has committed itself to remedy these deficiencies\. 19\. Better efficiency of the labor market has been aided by the Office National de l'Emploi and the Fonds d'Insertion et de Reinsertion\. These counseling and financing bodies, which began operating in early 1994, aim at: (i) monitoring labor supply and demand and ensuring the widest possible dissemination of information on employment opportunities, and (ii) providing those seeking employment with guidance in line with their skills and market needs\. The functioning of the Fonds d'Insertion et de Reinsertion has been seriously hampered, however, by a lack of financing by the Government\. 20\. Social sectors - As condition of loan disbursement, the budget allocations to National Education and Public Health were adjusted to reflect cost increases resulting from the parity change\. These sectors, however, remain affected by a low efficiency of public expenditure due to inadequate internal allocation, as reflected in relatively low social indicators\. 21\. Facilitationi - No progress was made on simplifying and reducing the cost of approval and other administrative procedures involved in the establishment of enterprises\. Even if account is taken of the abolishment of the system of import/export licenses under the program, as well as ongoing preparations for the revision of the business legislation and the establishment of a new Investment Code, the Gabonese authorities have yet to show significant action to improve the institutional and legal framework for private sector development\.  6 3\. Sectoral Policies 22\. Agenda: The authorities' post-devaluation reform program entailed sectoral policies designed to: (i) develop output in the key sectors of the economy (agricultural and forestry sectors, energy sector, social sectors) and improve performance; (ii) set administered prices at levels that reflect real costs; and (iii) reduce the burden of public enterprises on public finances\. 23\. Results: The structure of relative prices and economic incentives improved markedly under the program\. A decline in real household disposable income following the devaluation gave rise to a sharp contraction in real domestic demand and non-oil output, but a strong pickup in oil production allowed for an increase of 1\.7 percent in total GDP in 1994\. Benefiting from improved competitiveness and increased foreign demand, forestry exploitation remained buoyant in 1994; production of manganese increased by 11\.3 percent while, with a stabilization of output in agriculture, value added in the primary sector grew by an estimated 9\.2 percent in real terms\. In contrast, reflecting a reduced real household disposable income, real output dropped in the secondary and tertiary sectors by 4 percent and 3 percent respectively\. 24\. In addition to the liberalization measures discussed above, producer prices were raised by 33 percent for cocoa and 50 percent for coffee for the 1994 season\. Further, emergency programs aimed at reducing operating costs and introducing rates adjustments were put in place by the Government to improve the financial performance of the four public enterprises deemed most exposed to the impact of the parity change (Air Gabon, the electricity and water company SEEG, the oil refinery company SOGARA, and the post and telecommunication company OPT-TIG)\. As a result of these measures, the total losses incurred by these enterprises in 1994 were contained at CFAF 23\.2 billion, less than half the devaluation-induced increase in costs (estimated at some CFAF 51 billion) for the year\. In addition, with assistance from the Bank, a far-reaching program of public enterprise reform has been adopted by the government, entailing the preparation of a privatization law (approved by the National Assembly in January 1996), the restructuring or divestiture of key public utilities and firms in which the Govemment has a minority interest, the elimination of government subsidies, and the clearing of cross-debts and arrears\. 25\. Output growth and improvement of social indicators in Gabon remain predicated on the definition of clear sectoral policies by ministries\. Notwithstanding some progress in the preparation of a new Investment Code, aimed at enhancing the transparency of the existing framework for promoting private investment (particularly in the mining and forestry sectors), the lack of a clearly defined line of conduct in this respect remains an impediment to private sector development and efficiency of the economy\.  7 III\. MAJOR FACTORS AFFECTING THE PROJECT Factors under the Control of the Authorities 26\. Weaknesses in implementation capacity and financial management, reflecting a failure to sufficiently internalize the program and create an effective mechanism for forceful and timely government action, affected program implementation in four different respects: (i) no progress was made toward the introduction of simplified administrative procedures for the establishment of enterprises, and the customs data processing fee (FTID) was not reduced as targeted; (ii) although fiscal performance in 1994 was broadly on track, resulting in a significant improvement in the fiscal position, a shortfall in non-oil receipts was recorded in the period, resulting from a slower-than-expected expansion in the tax base (particularly taxable imports) and delays in eliminating customs exemptions granted to certain enterprises under special agreements and adjusting export taxes on wood and manganese\. Delays were also recorded in: (a) eliminating the levy on imports to finance the Conseil Gabonais des Chargeurs and Centre Gabonais du Commerce Exterieur contributions; (b) applying the VAT to oil company imports (despite intense efforts by the authorities), as well as to the subcontractors of companies benefiting from tax exemptions; and (c) adapting public enterprises to the post-devaluation environment; (iii) the quantitative restriction on sugar imports was not lifted by January 1996 as targeted\. In any event, this restriction is to be replaced for a three-year period by a surcharge of 30 percent, so that the degree of liberalization in the sector will remain tenuous for the period (the surcharge, combined with the normally applicable import duties, would actually bring duties to a total 83 percent of the c\.i\.f value)\. Indeed, a recent FAO estimate (December 1995) shows that, even if account is taken of the proposed surcharge, the retail price of imported sugar would be over 25 percent below that of domestically produced sugar\. A nationwide controversy, nourished by the fear of bankruptcy of the local producer, jeopardizes the chances of a possible lifting of the quota as targeted - despite potentially substantial cost cuts (from 30 to 40 percent according to the FAO); (iv) weaknesses in transparency and effectiveness of use of public financial resources exacerbated concerns about governance during program implementation, contributing to the shortfall in nonproject external assistance in 1994\. These are being remedied in the context of the three-year program approved by the IMF in late 1995\.  8 Factors beyond the Control of the Authorities 27\. Program implementation was also affected by a devaluation-induced fall in income and the limits imposed by regional economic integration: (i) a decline in real household disposable income following the devaluation resulted in a sharp contraction in domestic demand (8\.6 percent)\. As a result, non-oil output declined by an estimated 3 percent, affecting fiscal performance under the program; (ii) the necessity for concerted action at the sub-regional level affected progress in eliminating tax and customs duty exemptions\. On the other hand, economic performance was helped by favorable world market oil prices, contributing to the higher-than-expected oil revenue under the program\. IV\. ASSESSMENT OF OUTCOME AND SUSTAINABILITY 28\. The ERL-supported program has re-established a real effective exchange rate consistent with economic competitiveness (with a substantially lower rate of inflation), improving substantially the structure of relative prices and economic incentives\. It has resulted in significant fiscal reforms (including the introduction of a value added tax) and progress toward more efficient energy pricing\. Most government controls on prices have been lifted, and substantial trade liberalization has been undertaken to unleash Gabon's growth potential in the non-oil private sector and create an environment propitious to private investment\. Preliminary action was taken in the public enterprise sector to improve performance and reduce the burden of these enterprises on public finances\. 29\. Gabon's performance under the program was satisfactory overall, providing a necessary base on which deeper reforms could be built\. Sustainability of results remains heavily dependent on the pursuit of appropriate macroeconomic policies and the implementation of a program of supporting reforms that will consolidate the gains in external competitiveness, stimulate private sector growth, and strengthen the capacity of government to deliver basic services to the population\. 30\. Consolidation of the gains from the ERL-supported program also hinges on the improvement of public financial resources management\. The fiscal slippages that occurred in the first half of 1995, and came to light later during the year, illustrate the fragility of the progress toward more transparency and efficiency in government financial management\. With technical assistance from the IMF, however, measures to improve budgetary procedures and strengthen the authorities' monitoring capacity are now being implemented\.  9 V\. BANK AND BORROWER PERFORMANCE Bank Performance 31\. The Bank's performance in the design and monitoring of the Economic Recovery Loan was satisfactory overall: (i) Design: the Economic Recovery Loan provided a consistent response to the parity change of the CFA Franc, contributing to the establishment of a solid base on which deeper reforms could be built\. It was also well in line with the Country Assistance Strategy\. The Bank's performance in the design of the project, however, may have failed to fully appreciate the administration's capacity limitations\. Program ownership and administrative coordination would have been served by strengthened high-level committees to focus on the implementation and monitoring of the program\. Swift availability of funds was justified by the need to capitalize on the momentum created by the devaluation\. The Loan provided a pragmatic response to the parity change, but could not fully address the deep-rooted rigidities of the Gabonese economy: (a) the management of public financial resources remains affected by insufficient transparency and discipline in government financial management, as well as weaknesses in effectively monitoring overall fiscal developments; (b) the development of the non-oil private sector remains impeded by rigidities in the institutional and legal framework, strong government involvement in productive activities, and large government domestic payments arrears; (c) the social infrastructure and services remain inappropriate, and protection of the most vulnerable groups from the negative impact of the devaluation could have been strengtherned by reforming the pharmaceutical distribution system, or implementing labor-intensive public works (as in the ongoing Urban/Transport Technical Assistance project); (d) the civil service remains inefficient and overextended\. (ii) Monitoring: close monitoring by the Bank was instrumental in focusing assistance on key activities for the success of the program\. In addition to three supervision missions, program implementation was monitored in the context of a joint Bank/IMF Public Expenditure Review and the preparatory work for technical assistance to privatization\.  10 Borrower Performance 32\. Government performance under the program was satisfactory overall\. Despite early progress in meeting up-front conditionalities (notably, Gabon took the leadership within UDEAC in reducing tariff protection immediately after the devaluation), weaknesses in administrative capacity and financial management, compounded by a legacy of heavy-handed public intervention in the economy, affected program implementation\. The exceptional procedures under which the ERL was appraised, negotiated and brought to the Board may have prejudiced consensus building and program internalization\. Reflecting these conditions, the authorities' failure to create an effective mechanism for forceful and timely government action and overcome resistance to reform resulted in delayed implementation of the agreed measures and left Gabon's structural reforms agenda unfinished\. VI\. OTHER OPERATIONS 33\. The ERL-supported program set the stage for deeper reforms that will consolidate the gains in competitiveness, improve economic incentives and promote efficient markets\. As identified in the Bank's Country Assistance Strategy, Gabon's unfinished agenda includes: poverty alleviation, promotion of private sector growth, reduction of the country's vulnerability to oil-related shocks, capacity building and human resource development, and adoption of a sound forestry policy to ensure the conservation and sustainable use of existing forests\. 34\. Ongoing projects include a Transport/Urban Technical Assistance Project (PAPSUT), aimed at defining the strategies and investment programs in those sectors, as well as a Forestry and Environment Project\. The Bank is preparing a Public Enterprise Reform Technical Assistance Operation to assist the Government in the disengagement from productive activities, and preparations are under way for a Pilot Agricultural Extension Services project\. Based on the conclusions of the PAPSUT project, Bank operations are envisaged in the Urban Infrastructure and Transport sectors\. VII\. MAJOR LESSONS AND CONCLUSIONS 35\. The Economic Recovery Loan aimed to support the Government's program of economic recovery initiated through the devaluation of the CFA franc on January 12, 1994\. The program entailed: (i) macroeconomic policies designed to re-establish the conditions for balanced growth; (ii) structural reforms to promote free and efficient markets, redefine the role of government and minimize the impact of the devaluation on the social sectors; and (iii) sectoral policies to reduce government involvement in the economy and strengthen its capacity to provide basic services to the population\.  I1 36\. The Economic Recovery Loan provided a consistent response to the parity change of the CFA franc\. Program results were satisfactory overall\. Most of the requirements established under the ERL were met, laying the basis on which deeper reforms could be built\. Despite close program monitoring by the Bank, however, weaknesses in administrative capacity and financial management on the part of the authorities hindered implementation of the agreed measures\. The authorities have yet to define a coherent structural reform program based on the transition to a competitive, market-based economy\. 37\. The ERL provided the opportunity to strengthen the policy dialogue with Gabon, following a period of several years during which Bank involvement in the country had been constrained by the absence of a sustainable macroeconomic framework and weak commitment to reforms\. It remains uncertain, however, whether the Gabonese economy, served by oil reserves that turned the country into the richest nation in continental sub- Saharan Africa, was in need for immediate Bank support following the devaluation\. 38\. The ERL's implementation record suggests that administrative and social rigidities are liable to significantly hinder the actual fulfillment of agreed measures\. Weaknesses in implementation capacity and resistance to reform are best addressed through early investment in: (i) building appropriate institutions and mechanisms to monitor progress and implement reforms, so as to strengthen the authorities' ability to overcome conflicting political interests and forestall weaknesses in administration (lack of appropriate administrative structure and lack of institutional coordination and organization)\. Program ownership and administrative coordination may be better served by creating high-level committees to focus on program implementation and monitoring; and (ii) building consensus on reform by involving civil society - fulfillment of program targets is predicated on the mobilization of support from socio-economic groups critical to program implementation (private sector, government officials and civil servants, trade unions, other key representatives of civil society)\.  12 PART II: BORROWER CONTRIBUTION TO THE ICR I\. THE DESIGN OF THE PROGRAM From initial thinking on a medium-term development strategy to a specific operation dictated by multilateral commitments assumed in the aftermath of the devaluation of the CFA franc\. Mired for six years in an economic and financial crisis, Gabon has been seeking since the end of 1992 to formulate a new development strategy based on an overall review, including a long-term approach and reexamination of certain determining sector policies\. The World Bank had supported this undertaking and offered its technical support in the form of an Economic Memorandum and identification of sector adjustment programs in agriculture, transport and the restructuring of parapublic enterprises\. On January 12, 1994, the Franc Area countries decided on a 50% devaluation of the CFA franc, and the donors undertook to put in place programs designed to mitigate the impact of this measure, which was something new for the countries concerned\. A Stand-By arrangement was accordingly approved by the International Monetary Fund on March 30, 1994, and an Economic Recovery Loan (ERL) was obtained from the World Bank at the end of April of that year\. The ERL was thus an individual operation, but one that was based on an analysis of the Gabonese economy made in the course of 1993 by World Bank and Gabonese Government experts, and lies within the scope of a wider-ranging review including sector adjustment plans' with a medium-term horizon\. The review of the evolution of the Gabonese economy presented as an introduction to the "Strategy Letter" resulted from the study made and set forth the strategic thrusts of the policy to be implemented based on: divestiture by the State in favor of the private sector, and refocusing of its role on its essential functions, * combined with a search for a replacement for public expenditure as motor for the economy, thus implying reestablishment of competitiveness\. l The project concerning the transport sector was on the point of being negotiated, that for agriculture was under preparation and that for restructuring of the parapublic sector had been the subject of an urgent request, as evidenced by the minutes of the negotiations: "The Gabonese party expressed its intention to request Bank assistance in the form of a quick-disbursing project to support the restructuring of the public enterprises\. Said party also reiterated its desire to receive financial and technical support from the Bank for the preparation of the restructuring of the enterprises of the agroindustrial and transport sectors"\. Minutes of Negotiations, Washington, April 26, 1994\.  13 The ERL is inseparable from the IMF Stand-By arrangement\. The Bank had participated in the preparation of the latter, with inclusion in it of a certain number of structural elements to be developed further in the ERL\. while the ERL adopted the framework and the macroeconomic objectives of the Stand-By\.2 Moreover, right from the start it was intended that the Stand-By would be followed by a three-year Extended Fund Facility (EFF) to bring Gabonese economic policy back to a medium-term perspective, after the uncertainties connected with the real consequences of the devaluation had dissipated\. II\. THE CONTENT AND EXECUTION OF THE ERL PROGRAM Aside from the macroeconomic framework resulting from the IMIF program, the ERL as defined in the "Letter of Development Strategy" focuses on two main areas: structural reforms sector policies 11\.1 Structural reforms These result from the diagnosis of the barriers to economic development and the factors behind Gabon's lack of competitiveness\. Five primary topics are involved: liberalization of domestic and foreign trade, energy prices, the institutional environment of the private sector, reform of indirect taxation, and mitigation of the negative impacts of the devaluation on the poorer segments of the population\. II\. I \. 1 Liberalization of domestic and foreign trade The protectionist framework that has made the going easy for enterprises and helped to maintain the high level of costs and prices is directly attacked, in particular by the lowering of quantitative or tariff barriers: abolition of the last quantitative restrictions (five products), by means of a temporary and degressive (30%, 3 years) surtax in order to give the enterprises the time needed to implement the restructuring plan, lowering of the customs tariff in the context of the Central African Customs and Economic Union (UDEAC), so as to reduce the protection rates\. As implemented after the devaluation, however, trade liberalization became more a policy of controlling inflationary pressures, elimination of tax and customs exemptions granted in the context of the Investment Code, so as to avoid distorsions among industries and enterprises, 2 This completion rcport will not directly considcr the macroeconomic aspects\.  14 reduce the adverse impact of protection on productivity, and offset the revenue loss incurred as a result of lower import tariffs; l iberalization of profit margins after a temporary period (6 months) of strict price control to prevent post-devaluation speculation\. It should be noted that the lowering of the customs tariff and the elimination of the exemptions allowed by the Investment Code have the effect of reducing the gains in competitiveness derived from the devaluation\. By and large these measures were adopted and implemented in accordance with the agreed schedule\. However, three points caused or are still causing difficulties: * the establishment of the legislative and regulatory framework for ensuring free competition, which prompted reformulation of the Law on Competition which accompanied SAP I of 1989\. The new law and its implementing decrees have been adopted by the Government\. * the abolition of protection for the sugar industry, whose low competitiveness (50%)3 in an international market characterized by dumping (the major producers' domestic prices "subsidize" their exports, which are generally effected at a loss or at marginal cost) would have entailed disappearance of the enterprise concerned (SOSUIHO) without there being time to devise replacement solutions4 for converting SOSUHO's considerable land and facilities for other uses\. To offset these delays in the designing of the restructuring or conversion plans (delays that also occurred in the rest of the agroindustry sector), the elimination of quantitative protection for sugar originally scheduled for January 1, 1995, had to be twice deferred and was ultimately reprogrammed for the end of 1996, in accordance with the revised EFF schedule\. * the elimination of advantages granted through establishment agreements whose contractual nature excludes any purely regulatory action\. Pending UDEAC directives, the renegotiation of the agreements concerned was deferred to the beginning of 1996\. The decisions taken then concern the parapublic sector enterprises where the State has authority to act as owner (in accordance with the EFF, March 1996 revision)\. 50S% deficiency (World Bank mission, of March 30, 1994)\. 4World Bank missions of March 1994 and June 1994, Agriculture and Forestry Sector Review, February 24\. 1995\.  15 I\. 1\.2 Energy prices The price of energy, petroleum products and electricity is a decisive factor in the production costs of enterprises and, directly or indirectly, in household budgets\. The general objective of the measures included in the program was to lead the producing enterprises (SOGARA and SEEG) to improve their performance: Oil products Demand for oil products is covered by the national refinery (SOGARA), which processes a small proportion of Gabon's crude production (750-800,000 tons/year)\. The domestic market is currently less than 500,000 tons and the rest is exported\. The specific objective for this subsector was to index SOGARA's ex-refinery prices to international prices after incorporation of the impact of the devaluation and without subsidies\. In an initial stage, fuel taxes were adjusted to temporarily stabilize prices at the pump\. Then, when VAT was introduced, the structure of prices was modified in accordance with the IMF's recommendations\. SOGARA's ex-refinery prices were raised by 12%; the nominal level of taxes remained basically the same -- with a different breakdown (shift from the consumption tax to VAT and the equalization tax) --; and distributors and retailers' margins remained constant in nominal value\. As a result of the deductibility of VAT, the industrial diesel oil category (tax-free fuel for fixed industrial installations) was abolished\. It should be noted that indexing on import parities runs into the practical difficulty of establishing a basic reference price\. While it is possible to ascertain the prices of products offered on the international market, it is not so easy to define a realistic price for delivery in Gabon, freight rates being extremely dependent on the quantities delivered and these quantities themselves being dependent on available storage capacities (which are currently limited in Gabon)\. On the other hand, following exceptional bitumen imports connected with road projects, it was found that SOGARA's prices were competitive\. The prices of the other products appear to be essentially the same as the cost of possible imports\. Electricity Electricity prices were not adjusted to incorporate the effects of the devaluation until December 1994, when an average increase of 13% went into effect\. The price reform adopted by the Government in the context of the redefinition of public service concessions introduced two elements in the tariff-setting: installed power and consumption\. Billing also reflects generation costs according to region\. The reform was introduced gradually, starting with the big medium-voltage consumers, and the initial tariff studies were updated\. The low-voltage tariffs were also revised recently\.  16 The Law Establishing the National Water and Electricity Council was adopted by the National Assembly\. This Council determines the special charges for water and electricity which are added to the energy price proper and are intended for financing system maintenance and expansions for which local authorities are responsible\. Beyond the tariff reforms, the most significant step forward in regard to water and electricity is the decision to make water and electricity service the subject of a private concession, i\.e\. to privatize the state company currently holding the concession\. 11\.1\.3 Reform of indirect taxation VAT was introduced on April 1, 1995, as agreed under the ERL\. From the standpoint of its fiscal performance, the results obtained have exceeded expectations\. However, in view of its limited sphere of application, the hesitancy of certain parapublic enterprises which fear its impact on the prices of certain sensitive products, and the difficulties connected with certain establishment agreements, application of VAT creates certain distortions in the economy\. These will, however, be resolved by extension of its application to all sectors and products\. To this end, the human resources and equipment of the authority responsible for administering VAT will have to be strengthened\. 11\. 1\.4 Reforms of the institutional framework These reforms concern the legislative and regulatory framework in which the enterprises operate, their objectives being to eliminate the obstacles to proper functioning of the labor market, to implement an enabling environment and a review of the Investment Code, to revise the country's business legislation and to ensure equity and transparency in its application\. In these fields, the years 1994 and 1995, i\.e\. the period covered by the ERL, were devoted to gaining a better understanding of the problems to, consultations between the private sector and the authorities and preparation of proposals to be submitted to the Government\. These reforms are not expected to be completed until some time in 1996, according to the new EFF program agreed on with the IMF\.5 They envisage: a revision of the Labor Code which, although adopted in 1994, does not provide the flexibility necessary for development of the employment market, and the introduction of implementing legislation and specialized institutions\. At the same time, the National Employment Office (Office National de l'Emploi - ONE) has been made operational with the establishment of an employment-monitoring unit, The Extended Fund Facility (EFF) was prepared with the collaboration of the World Bank\.  17 and identification and implementation of training programs for retraining of the unemployed or the young graduates, so as to equip them to work where employment is available\. The ONE's actions will have a decisive impact in the further application of the policy on privatization and restructuring of the parapublic sector\. adoption of a new law on investments based among other things on equal treatment of all operators, security of investments and establishment of a facilitation mechanism, with particular reference to enterprise creation\. The law will be rounded out with sector codes in the priority sectors specifying the technical conditions for activity and the particular incentives applicable\. modernization of business legislation and its harmonization within the Franc Area\. 11\.1\.5 Minimization of the impact of the devaluation on the social sectors In the short term, the inflation induced by the devaluation and the deterioration of the employment market have greatly reduced consumers' purchasing power\. After having slumped sharply in 1994, private consumption appears to have continued to contract in 1995 notwithstanding the slowing of inflation (measured by the index for 125 articles) to 3\.4% in 1995 compared with 47% in the preceding year\. Paid employment outside government declined by 3\.5% in 1994 despite the acceleration of the recovery in the forestry sector begun in 1993 and a slight improvement in construction and public works due to public investments\. Increasing unemployment will therefore aggravate the fall in the standard of living\. Being aware of the importance of a reduction in real wages for the competitiveness of the economy, the Government has maintained a rigorous wage policy in which it has itself set an example\. Public service pay was only raised by 10% in 1994 and was kept at the same level in 1995, and it is estimated that private sector pay increases remained within the 15% limit recommended\. It is clear that these negative developments weigh proportionally heavier on the poorest segments of the population\. To mitigate the impact on them several approaches have been adopted: maintaining control over price increases\. After the temporary controls imposed to deter speculation, an agreed price policy was instituted with the collaboration of the producers as regards staple items\. In addition, taxation (customs duties and VAT) was reduced on certain sensitive products such as school books and medications\.  18 partially offsetting the fall in living standards by an improvement in social services\. The funding for the education and health sectors was increased after the Amending Finance Law of 1994 in order to maintain the real level of expenditures as set before the devaluation\. While the funding from national resources has been used, there have been considerable delays in disbursements from loan funds\. For these two sectors, the capital expenditures executed in 1995 were double those of 1994, and this level has been maintained for 1996 (see annexed table)\. definition of a policy in favor of the disadvantaged groups\. To accomplish this, Gabon has undertaken a study on poverty with Bank assistance\. The field surveys were conducted in the first half of 1995 and the report is in process of finalization\. It will include the definition by the Gabonese party of a strategy to combat poverty and a governmental action plan\. III\. SECTOR POLICIES Beyond general economic policy measures designed to create an environment better suited to development of the private sector, the post-devaluation strategy had to define the directions to be given to the sectors that are motors of or necessary for growth\. These sectors are dominated by the state enterprises (to a lesser extent for the wood sector)\. This is why the restructuring of the parapublic enterprises is a key element in the sector policies to be redefined\. The fact is that the production enterprises will have to face international competition as they progressively lose the protections that have sheltered them to date (quotas, elimination of tax advantages)\. They have been given a three-year period, by means of a temporary and degressive surtax (30%), to adapt to the new context\. To facilitate the changes they will have to make, technical and financial support was sought from the World Bank, to consist of a restructuring component for the agroindustrial enterprises in the context of an agriculture sector project,6 a restructuring component for the transport enterprises (operation and infrastructure) in the context of a technical assistance project for the transport sector,7 which was itself to prepare a transport sector project, and, more generally, a future project to support restructuring of the public enterprises\. In the event, only the transport sector project (PATRANS, later PAPSUT) materialized when the ERL was set up (negotiations in August 1994)\. Unfortunately its actual startup was delayed by a certain number of administrative and material difficulties and it did not in fact become truly operational until the last quarter of 1995\. The agriculture project is still in gestation with changes being made by the parties involved, 6 Cf\. para 32 of the Strategy Letter 7 Cf\. paras\. 38 and 39 of the Strategy Letter\.  19 while the parapublic sector project may perhaps see the light of day in 1996, as an accompaniment (post-synchronized) to the measures included in the IMF's EFF program\. In addition to their public enterprises component, these sector projects were intended to help with formulation of strategies and policies in the two basic sectors -- agriculture and transport infrastructure -- with the aim of profiting from the devaluation- induced stimulus for the first-named sector and improving the quality and cost of transport sector\. Despite these ups and downs certain positive developments in the different sectors warrant noting: 111\.1 Production sectors Agriculture The emphasis in the public programs in favor of advisory and extension services for farmers was reflected in the capital expenditures, especially the IFAD and IGAD projects and the village-scale components of the rubber and cattle-raising programs\. Moreover, the upgrading and paving of the north-south highway will progressively improve the conditions for marketing food crops\. Unfortunately, the urban structures (markets) have been left in their dilapidated state and it is not unlikely that the additional costs due to losses are a source of discouragement for merchants and local producers\. Following the devaluation there was a distinct shift in trade in foodstuffs toward the countries of the subregion, and even South Africa, and away from Europe\. The response of local production is presently hard to quantify, but in light of price movements it would seem that food products are more plentiful in the markets\. The studies made by the Bank (Agriculture and Forestry Sector Review, 1995) express a certain optimism taking into consideration the appreciable productivity gains that can be expected in the food sector and the shortfall to be filled between domestic consumption and national production\. Regarding cash crops the situation is one of contrasts\. The devaluation and the upward movement of prices are working to the advantage of the rubber sector, which is pursuing its efforts to improve productivity\. Coffee production, on the other hand, is still in decline while the slight rise in cocoa production is well below what was hoped in view of the higher incomes for growers resulting from devaluation and the higher international prices\. The producer prices for these two products were increased by 50% and 35% respectively at the time of signature of the ERL\.  20 Fishery Although there is a sustained demand, catches are held down by technical factors: the poor condition of the industrial fishery equipment, and the departure of a large number of the nonindustrial fishermen from western Africa\. Forestry The forestry sector benefited from an improvement in the world market in 1993\. The devaluation enabled significant gains that were shared between the operators, OCTRA and the State\. However, in the course of 1994 this very favorable situation and the CFAF profits generated by the devaluation led to an unrestrained and uncontrolled scramble for "'green gold" just as the market trends reversed themselves\. The outcome was production quotas that sharply reduced the level of utilization of the newly acquired production capacities\. Recent events in this sector have underscored two phenomena: one negative, regarding the management of permits and production, with detrimental effects on the country's forest resources despite the objectives of the forest/environment program; the other positive, with the development of local processing started by the major European groups operating in the sector\. In light of these observations, the Government has undertaken a study in partnership with the operators on management of the wood sector and development of industrial processing\. The conclusions of the commission formed for this purpose have been submitted to the Government and in the coming months a new policy should be implemented in the sector aimed at better management and development of the resources and promotion of a preliminary processing industry that accounted for no more than 7% of total production in 1994\. Mining The mining sector, like all other export sectors, has experienced an upturn in its profitability, but the expansion of its exports is still entirely dependent on international market demand that is unaffected by purely national policies\. 111\.2 Infrastructure Despite the marked increase in the cost of imported inputs, the road investment program has been maintained in order to provide the country with the communication infrastructure necessary for development of productive activities, agriculture and forestry in particular\.  21 The PAPSUT project already referred to should enable improved operation of the transport services as a result of (i) adjustment measures involving the public enterprises in particular; and (ii) the formulation of a coherent investment program aimed, among other things, at better intermodal complementarity\. A certain number of studies are under way and the privatization of the railway operation was initiated at the end of 1995\. 111\.3 The social sectors The changes in budgetary appropriations confirm the State's withdrawal from the production sectors and the emphasis now placed on infrastructure for transport, production and energy distribution and on meeting social needs, especially in education and health\. Despite a low execution rate in 1994, investments in education are continuing on a sustained basis\. In accordance with the program, allocations from national resources have been increased by nearly 30% to maintain the volume of construction programmed before the devaluation\. Operating expenditures, in which salaries feature very largely, have been increased by 15%\. Actual expenditures in 1995 were more than double those of 1994\. The investments made and the recruitment carried out mean that in primary education in Libreville the number of students per classroom was brought down from 104\.6 in 1990 to 76 in 1995, and the student-teacher ratio from 72\.7 to 48\. Although favorable development of these parameters is one of the prerequisites for improvement of the education system, strengthening of management capacities in this sector nevertheless remains essential if its efficiency is to be improved\. In this connection, a public expenditure review covering the main sectors has been started with World Bank assistance\. This will make it possible to define budget appropriations and the procedures for executing expenditures better\. Regarding health, besides the increase in investments and operating funds, a reform of the institutional framework has been carried out with a new Framework Law designed to harmonize the supply of the health system, restructure its management methods and ensure the system's financial equilibrium\. In addition to improving access to education and health and the efforts to reduce poverty, the authorities' action has been reoriented to focus on improving living conditions in the urban centers, where over 70% of the population is concentrated\. Programs to improve the sewerage systems have been started, together with an experiment in labor- intensive road works in the context of the PAPSUT project which also aims to reformulate urban management concerning infrastructure\. A law on decentralization designed to better define the role and strengthen the means of the local authorities is in the process of being adopted\.  22 IV\. CONCLUSION The adjustment and economic recovery measures included in the ERL program have for the most part been implemented, although certain of the reforms are still in the gestation stage\. As regards economic growth, the impact of these measures is not yet apparent, as is demonstrated by the modest growth of the nonoil GDP (1\.5% in 1995) notwithstanding the 30% increase in the public investment program, while consumption posted a further contraction\. It is undeniable that the export sector enterprises have appreciably improved their position as a result of the devaluationi\. However, none of the major sectors has gained new market shares\. The increase in oil production derives from investments made in the past\. Traditional mining and forestry products are riesponding to the same market movements as before\. At the same time the agriculture sector has not yet seized the opportunities provided by the devaluation and a large part of the industrial sector has been adversely impacted by the application of the regional reform program\. The devaluation of the CFA franc and the measures to liberalize the economy have not so far provided vigorous enough signals for a reordering of economic activity\. The institutional reforms, preparation of which was started during the program period, need to be implemented and sector strategies must be developed that will attract private investment in the lead sectors such as agriculture, mining and wood\. Beyond the review of sector policies and actions to promote the private sector with a view to reactivating growth, greater attention will have to be paid to the macroeconomic framework and the management of public finances\. The fact is that the Gabonese economy is driven by the oil sector and utilization of that rent as recycled by the State\. In this respect, the devaluation heightens the importance of the external sector and increases the public resources\. The increased utilization of these resources must be controlled so as to prevent the oil revenues from fuelling public consumption to the detriment of the investment that should accompany growth\. It is in the context of these concerns that the new studies (such as the public expenditure review and the administrative reform) are taking place\. They will ultimately permit better dimensioning of the government apparatus on the basis of its redefined purposes and an optimization of public expenditure, the results of which are inconsistent with the volume of resources employed\. On the other hand, in the short and medium term the surpluses expected from the export sector are largely consumed by the impact of the devaluation on the public debt\. Only the interest on the debt now exceeds the public investment program\. The rescheduling recently obtained from the Paris Club have made it possible to balance the budget, but the projections of future debt service indicate a steadily growing need in terms  23 of budget funds to cover past commitments\. It is therefore vital to put in place a medium and long-term debt policy that will make it possible to sustain the macroeconomic framework and the equilibrium of the public finances\.  24 Annex 1: Action Matrix TRADE POLICY Es\.timatedDate ActualDate C mment Application of four customs tariff rates February 1\. 1994 Done Measure implemented in the (5%, 10%, 20% and 30%) in line with aftermath of the devaluation, UJDEAC categories before the ERL To be confirmed in the revised Budget Law Mav/June 1994 Done Confirmed in the Revised 1994 Budget Law No\. 05/94 of Section Ill - Customs arrangements Elimination of customs exemptions under February 1994 Done Measure implemented at the the Investment Code or by virtue of SME same time as the new customs status or other special exemption provisions tariff To be confirmed in the revised Budget Law IM,ay/June 1994 Done Confirmed in the Revised 1994 Budget Law No\. 05/94 of Section III - Customs arrangements No new exemptions, under conventions or Permanent Done No new convention was other agreements, to be granted, no renewal granted as specified by the of exemptions under existing conventions Revised Budget Law 1994 after their expiration date Renegotiate existing conventions to 1994/95 Done Measure adopted under the eliminate any exemptions which depart IMF Extended Financing from common law Facility; renegotiation initiated in February 1996; delays were caused by a lack of instructions from UDEAC Fix a ceiling of 0\.5% of cif value on the Revised Budget Completed Circular letter from FTID and on the rate for contributions to Law 1994 except FTID MINECOFIN (Ministry of the Conseil Gabonais des Chargeurs and Economy and Finance) the Centre Gabonais du Commerce addressed to the relevant bodies ExtLrieur Eliminate the levy on imports to finance the January 1, 1995 Done The levy was eliminated under Conseil Gabonais des Chargeurs and the the 1995 Budget Law\. The Centre Gabonais du Commerce Extcrieur VAT replaces the contributions contributions (Revised Budget Law 94) Eliminate exit duty on exports except for Revised Budget Done Measure was implemented in wood and mineral products Law 1994 the context of the Revised Budget Law No\. 05/94, Section 111- Customs arrangements (Article 10, p\.31) Simplify the tax and duties structure on Revised Budget Done Article 11, p\.31 wood products for export Law 1994 Increase the producer prices of coffee and May 1994 Done Decree of 8/19/94 + 35% for cocoa in the wake of the devaluation (35% cocoa and 50% for coffee for the current season)  25 Elimination of quantitative restrictions on June 1994 Done Decree 546/PR of 7/5/94 imports and of monopolies on vegetable eliminating quantitative oils, soap, bottled water, and cement restrictions on imports Elimination of restrictions on sugar imports January 1995 Postponed Initially agreed upon in the context of decree 546, modified by Budget Law 95: postponed until 96\. Decree of February 96 postpones elimination by 2 years Pevoke the system of import/export licenses May/June 1994 Done Abrogated by decree 772/PR of (Decree 766 of 6/1183) 8/23/94 STRENGTHENING COMPETITION ON THE DOMESTIC MARKET Decree in application of the 1989 Law on 1994 Postponed Technical discussions with the Competition until 1996 Bank in 1996 led to a revision of the entire competition framework, including the law\. Law adopted by Council of Ministers on 2/28/96 Elimination of margin controls (Decree 168 1994 Done Eliminated by decree 547/PR of of 1/31/94) July 5, 1994 Liberalization of the price of vegetable oils, June 1994 Done Included in decree 547 soap, bottled water, and cement (Amendment of Decree 541 of 5/24/89) Liberalization of sugar prices (Amendment January 1995 Postponed Included in decree 547, but of Decree 541 of 5/24/89) postponed by 1995 Budget Law and by decree of February 1996 FISCAL REFORM Application of the Value Added Tax which March 1995 Done | Implemented on April 1, 1995 will replace all other indirect taxes with the exception of customs and excise duties RFFORM OF ENERGY PRICES Set e:x-refinery prices with reference to June 1994 import parity prices Reduce taxation to keep pump prices June 1994 Done From January 94 to May 95 constant if this can be done without subsidy (except household kerosene) Simplification of fuel price structures, March 1995 Done May 95, decree 414 MEBP indexing to import parity prices and (Ministry of Economy and application of VAT to fuels _ Budget)  26 Application of new electricity tariff June 1994 Done December 1995 reflecting costs Full pricing study before any increases Done September 1995 indexing tariffs to costs are made LABOR POLICY Consultations with employers and unions 1995 Postponed Joint commission emplovers/ on possible revision of the Labor Code until 1996 administration under the aegis Start operations of the Office National de 1994 Done I Emploi and the Fonds d'Insertion et de Reinsertion FACILITATION Simplify approval and other adrinistrative 1994 Postponed Postponed until 1996 in the procedures involved in establishment of an until 1996 context of the revision of the eitterprise and reduce cost investment code BUDGET ALLOCATIONS TO THE SOCIAL SECTORS Adjust allocations to National Education Revised Budget Done Revised Budget Law 1994 and Public Health in light of cost increases Law 1994 resulting from the devaluation  27 Annex 2: Social Sectors - Public Expenditures 1994 1995 Initial Budget Final Actual Final Actual Allocation Budget Expenditures Budget Expenditures Allocation Allocation __ _ Investment Education 9518 15637 6543 15811 12901 Health 2909 3908 1764 5827 3981 Compensation for 1675 1564 the devaluation Total Gabonese 12427 19545 8307 21638 16882 Republic (GR) + External Financing of which domestic financing Education 3400 3336 3308 9212 9101 Health 1910 1808 1764 4327 3981 Compensation for 1675 1564 the devaluation Total GR 5310 6819 6636 13539 13082 Increase (%) 28\.42 98\.55 Increase in actual 97\.14 expenditures 95/94 (%) I Current Expenditures Education 36493 40853 40850 45746 45740 Health 20251 24361 24300 27410 27410 Total 56744 65214 65150 73156 73150 Increase (%) 14\.93 12\.29 Increase in actual 12\.28 expenditures 95/94 Total GR 62054 72033 71786 86695 86232 Investment & Current expenditures Increase (%) 16\.08 20\.35 Increase in actual 20\.12 expenditures 95/94 I (%/)i  PART mH: STATISTICAL INFORMATION 28 Table 1 Summarv of Assessments (A) Achievement of Ohiectives Substantial Partial Nealirjible Not applicable Macroeconomic Policies x j Sector Policies Financial Objectives I r Institutional Development X Physical Objectives j___j _ j_j_j_ X Poverty Reduction j X Gender Issues x Other Social Objectives W Environmental Objectives I _ I I L X Public Sector Management X Private Sector Development x Other (specify) _ ____i__X_ (B) Proiect Sustainability Likely Unlikelv Uncertain Highly (C) Bank Performance Satisfactorv Satisfactorv Deficient Identification X Preparation Assistance Appraisal X Supervision ______X___j_j Highly (D) Borrower Performanec Satisfactory Satisfactor' Deficient Preparation X Implementation W i Covenant Compliance | X Operation (if applicable) Highly Highly (E) Assessment of Outcome Satisfactorv Satisfactory Unsatisfactory Unsatisfactorv w w  29 Table 2 Related Bank Loans Credit Credit Purpose Year of Status Title Number Approval Preceding operations 1\. Technical Assistance Project 3 114-GA Support the Government's adjustment program over a three-year period by 1989 Closed strengthening its key ministries in critical areas ofeconomic management\. Key components included civil service reform, training and skills transfer to local counterparts, and medium-scale enterprise development\. 2\. First Structural Adjustment Loan 2933-GA (i) initiate a program ofpuiblic enterprise rchabilitation and rationalization, 1988 Closed (ii) strengthen public sector resource management tlhrough better control over the investment budget and wagc reduction; and (iii) liberalize the policy environment in order to stimulate private sector initiative  30 Table 3 Project Timetable Date Date actual/ Steps in Project Cycle Planned \2 latest estimate Identification (Initiating Memorandum) [January 10-14, 1994 Preparation _3 months Appraisal March 21 - April 8, 1994 March 21 - April 8, 1994 Negotiations lApril 25-26, 1994 ; April 25-26, 1994 __ Letter of Development Policy [April 26, 1994 jApril 26, 1994 Board June21, 1994 _ June 21, 1994 Signing _ June 23, 1994 Effectiveness June 30, 1994 September 16, 1994 Project completion Credit closing June 30, 1995 June 30, 1995 \2 As provided in the President's Report\.  31 Table 4 Loan Disbursements Estimated and Actual FY 1995 (US$ millions, unless indicated otherwise) Appraisal estimate 30\.0 Actual disbursement 30\.0 Actual as % of estimate 100% Date of final disbursement October 17, 1994  32 Table 5: Key Indicators for Project Implementation Estimated Date Actual Date TRADE POLICY Application of four customs tariff rates (5%, 10%, 20% and 30%) in line February 1, 1994 Done with UDEAC categories To be confirmed in the revised Budget Law 1994 May/June 1994 Condition Elimination of customs exemptions under the Investment Code or by February 1994 Done virtue of SME status or other special exemption provisions To be confirmed in the revised Budget Law 1994 May/June 1994 Condition No new exemptions, under conventions or other agreements, to be granted, Permanent Done no renewal of exemptions under existing conventions after their expiration date Renegotiate existing conventions to eliminate any exemptions which 1994/95 Under way depart from common law Fix a ceiling of 0\.5% of cif value on the FTID and on the rate for Revised Budget Law Not completed contributions to the Conseil Gabonais des Chargeurs and the Centre 1994 Gabonais du Commerce Exterieur Elimix,ate the levy on imports to finance the Conseil Gabonais des January 1, 1995 April 1, 1995 Chargcurs and the Centre Gabonais du Commerce Exterieur contributions Eliminate exit duty on exports except for wood and mineral products Revised Budget Law Condition 1994 Simplify the tax and duties structure on wood products for export Revised Budget Law Done 1994 Increase the producer prices of coffee and cocoa in the wake of the May 1994 August 1994 (33% devaluation (35% for the current season) for cocoa and 50% for coffee) Elimination of quantitative restrictions on imports and of monopolies on June 1994 Condition vegetable oils, soap, bottled water, and cement Elimination of restrictions on sugar imports January 1995 Not completed Revoke the system of import/export licenses (Decree 766 of 6/1/83) May/June 1994 Condition STRENGTHEN COMPETITION ON THE DOMESTIC MARKET Decree in application of the 1989 Law on Competition 1994 Redrafted Law on Competition is awaiting Parliament -approval Elimination of margin controls (Decree 168 of 1/31/94) 1994 1994 Liberalization of the price of vegetable oils, soap, bottled water, and At the time Condition cement (Amendment of Decree 541 of 5/24/89) quantitative restrictions on imports are lifted ________________________________________________________________ (June 1994)  33 Liberalization of sugar prices (Amendment of Decree 541 of 5/24/89) At the time Not completed quantitative restrictions on sugar imports are lifted (January 1994) FISCAL REFORM Application of the Value Added Tax which will replace all other indirect March 1995 at the April 1995 taxes with the exception of customs and excise duties latest Reform of energy prices: promote competitiveness of the economy by reducing fiscal surcharges and taking account of opportunity costs a) Fuel Prices: Set ex-refinery prices with reference to import parity prices May/June 1994 Condition Reduce taxation to keep pump prices constant if this can be done without May/June 1994 Condition subsidy (except household kerosene) Simplification of fuel price structures, indexing to import parity prices and March 1995 at the May 1995 application of VAT to fuels latest b) Electricity Prices Application of new electricity tariff reflecting costs | May/June 1994 | Condition Full pricing study before any increases indexing tariffs to costs are made December 1994 Done LABOR POLICY Conisultations with employers and unions on possible revision of the Labor 1995 Government has Code committed itself to remedy deficiencies of Labor Code Start operations of the Office National de 1'Emploi and the Fonds 1994 Done d'Insertion et de Reinsertion FACILITATION Simplify approval and other administrative procedures involved in 1994 Not completed establishment of an enterprise and reduce cost BUDGET ALLOCATIONS TO THE SOCIAL SECTORS Adjust allocations to National Education and Public Health in light of cost Revised Budget Law Condition increases resulting from the devaluation 1994 l l  34 Table 6 Key Indicators for Project Operation Not applicable Table 7 Proiect Studies Not applicable  35 Table 8a Project Costs Not applicable Table 8b Project Financing Appraisal estimate Actual/Latest estimate Item (US$ mil) (US$ mil) l\. IDA 30\.0 30\.0 _ 2\._Other 0\.0 0\.0 TOTAL 30\.0 30\.0 -  36 Table 9: Economic Costs and Benef'its COSTS ($ million) BENEFITS 30 Improvement in the economy's competitiveness and correction of macroeconomic imbalances\. Substantial price and trade liberalization\. Introduction of a value added tax\. Progress toward more efficient energy pricing and public enterprise restructuring\. Budget allocations to the social sectors maintained in real terms\.  37 Table 10 Status of Leeal Covenants in Loan Aereement Section Covenant Present Fulfilment Date Description of Covenant Comments Type Status Original Actual 3\.01 9 C continuous Borrower to submit project progress report periodically and exchange views with the Bank on the basis of this report 3\.02 3 C continuous Procurement guidelines 3\.03 (a) 1 C continuous Maintain records and proper accounts of expenditures under credit 3\.03 (b,c) I C continuous Have records and accounts audited; furnish audit/other information to IDA 5\.01 (a) 12 C Prior to Enact the Loi de Finances Rectificative for 1994, containing effectiveness regulations concerning trade liberalization and budgetary provisions for the social sectors 5\.01 (b) 12 C Prior to Enact laws or promulgate regulations to eliminate remaining effectiveness quantitative restrictions, abolish import/export licenses, eliminate price and margin controls, and modifs tariffs and taxes on petroleum products 5\.01 (e) 12 C Prior to Restructure the electricity rates I____I_____ effectiveness Covenants types: 10= Project implementation not covered by categories 1-9 Present Status: I= Accounts/audits 11 = Sector or cross-sector budgetary or other resource allocation C = Covenant complied with 2= Financial performance/revenue generation from beneficiaries 12= Sector or cross-sector policy/regulatory/institutional action CD= Complied with after delay 3= Flow and utilization of project funds 13= Other CP= Complied with partially 4= Counterpart funding NC= Not complied with 5= Management aspects of the project or executing agency 6= Environmental covenants 7= Involuntary resettlement 8= Indigenous people 9= Monitoring, review and reporting  38 Table 1 1 Bank Resources Staff Inputs Stage of Planned Actual Project Cycle Weeks US$ (OOOs) Weeks US$ (OOOs) Preparation to Appraisal 12\.2 29\.9 Appraisal _ 9 24\.6 Negotiations through Board Approval 11\.9 28\.3 Supervision 23\.8 53\.7 14\.3 34\.6 Completion 5 15 3\.4 2\.7 Total 50\.8 120\.1  39 Table 12 Use of Bank Resources: Missions Stage of Month/ Number of Days in Specialized Performance Rating Types of Project Cycle Year Persons Field staff skills Implementation Development Problems represented status objectives Through Appraisal Appraisal through Board Approval Mar-Apr, 1994 8 19 EC, FA, LEG, CONS 2 2 Board Approval through Effectiveness Supervision June-July, 1994 1 7 EC 2 2 Mar-Apr, 1995 1 19 EC 2 2 May-June, 1995 1 28 EC 2 1 Completion I Key to specialized staff skills Key to Performance Rating Key to Problems EC = Economist LEG = Legal I = Problem Free AF = Availability of funds IE = Infrastructure Engineer CONS = Consultant 2 = Moderate Problems CLC = Compliance with legal covenants FA = Financial Analyst STE = Senior Transport Engineer 3 = Major Problems FP = Financial Performance CC = Computer Consultant MFA= Municipal Financial Analyst 4 = Major Problems - PMP = Project management performance UP = Urban Planner UFS = Urban Financial Specialist Corrective Action to be taken PP = Procurement progress TRE = Traffic Engineer YP = Young Professional SP = Studies progress TEC = Transport Economist  40 APPENDIXES ACTIONS TAKEN BY THE GOVERNMENT AS CONDITIONS OF DISBURSEMENT (i) agreement on, and implementation of, a major trade reform that includes a four-rate import tariff structure (5, 10, 20 and 30 percent import tariff, according to the classification agreed upon in the context of the UDEAC reform), the elimination of export duties on all exports (except mineral and wood products), and the elimination of fiscal exemptions under special regimes (Investment Code, Single Tax, Medium and Small-Scale Enterprises regime, Forestry Regime); (ii) price liberalization and the elimination of four of the five remaining quantitative restrictions on imports (the last remaining restriction, on sugar imports, was to be eiiminated in early 1995 as part of the program), and of the requirement for import licenses; (iii) reform of the pricing system for energy products, so as to improve the competitiveness of Gabonese products\. For petroleum products, the objective of the reform was a) to reduce the excess cost of petroleum products by lowering the fiscal levies on them; and b) to increase efficiency by linking the prices paid to the refinery to import parity prices\. For electricity, the immediate measures aimed to establish differentiated tariffs reflecting the specific cost conditions of the different grids supplying power to different locations; and (iv) adjustment of the 1994 budgetary allocations to the social sector (health and education) to prevent any reduction of the real resources available to these sectors due to the increased prices of goods and services\. The budgetary allocations in the revised Budget Law for 1994 were adjusted to correspond fully to the budgetary allocations of the pre-devaluation allocation in terms of purchasing power\.  10 12' ii\. C A M E R 0 0 N ,T Y- Songmrelmo NkonTng =M,nout - - - _V_ 2' ~~~~~~~~~~~~~~~~~~~Ebe boyin ± m R,laEbo rrane r- s \. 2 L 1 E U- E Q U A T b R I A LAsnokN90um G U I N E A ye (RIO MUNI) N A i f 6 \. r -------Meomo CaiIobfoutr on O G O O U f- > LIBREVLE Voom Lal\. DD O 0MAu Ond::ConubKo SOE Ci \.r, pr Ako Alogor\.n OF o ul ien Ndjl\)oI) \Ae _ ou >-_>o WC)on0 SR,RC E ?oo~n r ?Sf C 0J9 / / ,rs i :\< f *-- '@ , O \ i? K\. -K r E N J > < r WKenono ' _-1 } Joulomoutou 9 >; | c?F klvne r r > Mandil XE)~~Moodo Mbiugoo ' -t < BokoonEbo -~~ * ~ ! Reservccb L<ebonb J |) ', t as - rS~~~~~~~~Mokloboin I*\.l<> ,_\,(c) ro Moroko \, \. Selle C an,r oiuin\ / <* N, i a 2 GABON 39~~~~~~~~~~ \. \. , L\. \. \. ~ ~ ~~~ ~~~~/ \. Prirnory Raads - Rionos I~~~~~~~ Sr- Roules Pn,ncipoles Rini\.res 'o G ' o \-y FgTAutres Roes Moroh NIGERIA / I'CENTRAL Chermin De Fier\. Acheve Regonsoly InundohledE Aro,sn / ~~~~~AFRICAN CA 1 ATRCEOC Coblewoy Forest Reserves and Notional Parks C^^^rROO~~~~~~~~~~~~~~~~~~~~~~~~tiuni XFvculoire Reserves tioresierees Et Pores Ndobonour aiuiori\.u Asneropart Alnrna tan(3 Carvtolrs Reg,onoles 'c^;crA----_ Othrr Airports g Notionol Copitol GAShON > CONGO)f Ports Rcgion Boundaries I /~~~~/ r- 0\.I O Termrinol _____ Internatitonal Boundaries \.I siiuorettsTo \. Zp TA t,O, 5p 0 ITO Is; ito u erminal Peirol tioee Ntooe ZA RE tT RO 50 Au io iou \. 5 ~~~~~~~~Th ououdareoe\. siatoo\. d\.noiminetioaa and anti other iatiar,azion rJ t\. shrawn onT Srie Top do not irnpiy\. on, the port of Th* Wortd eostP Group, ony jdonr\.nt onrt,toa Stoous afonny b oitar)\.or any oal 11 [ A __1 odorseeme,t orouceptara\. of \.Oh boundoriea O ____ _ ___ - IX Iz -;M J-0    IMAGiNG Report No: 15695 Type: ICR

REVIEW

P090375

Document of The World Bank Report No: ICR00003237 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-48640 TF057757) ON A LOAN IN THE AMOUNT OF US$173 MILLION AND A GLOBAL ENVIRONMENTAL FACILITY GRANT IN THE AMOUNT OF US$5 MILLION TO THE PEOPLE’S REPUBLIC OF CHINA FOR A SECOND LIAONING MEDIUM CITIES INFRASTRUCTURE PROJECT December 23, 2015 Water Global Practice China and Mongolia Country Management Unit East Asia and Pacific Region CURRENCY EQUIVALENTS (Exchange Rate Effective November 30, 2015) Currency Unit = RMB 1\.00 = US$ 0\.156 US$ 1\.00 = 6\.40 FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS AMP Asset Management Plan APL Adaptable Program Loan AWSC Anshan Water Supply Company BOD Biological Oxygen Demand CDB China Development Bank CLG City Leading Group CNAO China National Auditing Office CMDB Chinese Model Bidding Documents EA Environmental Assessment EDZ Economic Development Zone EMP Environmental Management Plan EPB Environmental Protection Bureau FIP Financial Improvement Plan (for utilities) FIRR Financial Internal Rate of Return FMS Financial Management Specialist FWC Fushun Wastewater Company GEF Global Environment Facility GEO Global Environment Objectives GIS Geographic Information System GPA Global Program of Action (for the Protection of Marine Environment from Land-Based Activities HWSC Haicheng Water Supply Company IBRD International Bank for Reconstruction and Development ICB International Competitive Bidding ID Institutional Development ISR Implementing Status Report IW International Water LA Loan Agreement LEP Liaoning Environmental Project LIEPP Liaoning Integrated Environmental Protection Program LMC-2 Second Liaoning Medium Cities Infrastructure Project LME Large Maritime Ecosystems LPDRC Liaoning Provincial Development and Reform Commission LPDF Liaoning Provincial Finance Department LPDHURC Liaoning Provincial Department of Housing and Urban-Rural Construction LPLG Liaoning Provincial Leading Group LRBP Liao River Basin Project LUCRPO Liaoning Urban Construction and Renewal Project Office M&E Monitoring and Evaluation NCB National Competitive Bidding MTR Mid-term Review NDRC National Development and Reform Commission O&M Operation and Maintenance OP Operational Program PA Project Agreement PAD Project Appraisal Document PDO Project Development Objectives PEMSEA Partnerships in Environmental Management for the Seas of East Asia (GEF/UNDP/IMO Regional Program on Building Partnerships) PIU Project Implementing Unit PMO Project Management Office PPP Public Private Partnership RAP Resettlement Action Plan SO Strategic Objective SS Suspended Solids SW Solid Waste TA Technical Assistance TN Total Nitrogen TP Total Phosphorus WWTP Wastewater Treatment Plant Regional Vice President: Axel van Trotsenburg Country Director: Bert Hofman Senior Global Practice Director: Junaid Kamal Ahmad Practice Manager: Ousmane Dione Project Team Leader: Khairy Al-Jamal ICR Team Leader: Khairy Al-Jamal  CHINA Second Liaoning Medium Cities Infrastructure Project CONTENTS Data Sheet A\. Basic Information B\. Key Dates C\. Ratings Summary D\. Sector and Theme Codes E\. Bank Staff F\. Results Framework Analysis G\. Ratings of Project Performance in ISRs H\. Restructuring I\. Disbursement Graph 1\. Project Context, Development and Global Environment Objectives Design \. 1 2\. Key Factors Affecting Implementation and Outcomes \. 6 3\. Assessment of Outcomes \. 15 4\. Assessment of Risk to Development Outcome and Global Environmet Outcome \. 24 5\. Assessment of Bank and Borrower Performance \. 25 6\. Lessons Learned \. 28 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners \. 30 Annex 1\. Project Costs and Financing \. 32 Annex 2\. Outputs by Component \. 34 Annex 3\. Economic and Financial Analysis \. 44 Annex 4\. Bank Lending and Implementation Support/Supervision Processes \. 51 Annex 5\. Beneficiary Survey Results \. 53 Annex 6\. Stakeholder Workshop Report and Results\. 54 Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR \. 60 Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders \. 74 Annex 9\. List of Supporting Documents \. 75 Annex 10\. Project Pictures\. 76 MAP – IBRD34896 ii A\. Basic Information China-Second Liaoning Country: China Project Name: Medium Cities Infrastructure Project IBRD-48640, TF- Project ID: P092618, P090375 L/C/TF Number(s): 57757 ICR Date: 12/16/2015 ICR Type: Core ICR PEOPLE'S REPUBLIC Lending Instrument: SIL, SIL Borrower: OF CHINA Original Total USD 173\.00M, USD 161\.03M, Disbursed Amount: Commitment: USD 5\.00M USD 4\.80M Environmental Category: A, A Focal Area: I Implementing Agencies: LUCRPO Cofinanciers and Other External Partners: B\. Key Dates China-Second Liaoning Medium Cities Infrastructure Project - P092618 Revised / Actual Process Date Process Original Date Date(s) Concept Review: 09/20/2005 Effectiveness: 12/04/2007 12/04/2007 04/01/2008 12/30/2013 Appraisal: 10/27/2006 Restructuring(s): 04/04/2014 12/23/2014 Approval: 06/26/2007 Mid-term Review: 10/18/2010 Closing: 12/31/2013 06/30/2015 China-GEF-Liaoning - P090375 Revised / Actual Process Date Process Original Date Date(s) Concept Review: 09/20/2005 Effectiveness: 12/04/2007 09/19/2007 05/24/2012 Appraisal: 10/27/2006 Restructuring(s): 04/04/2014 12/23/2014 Approval: 06/26/2007 Mid-term Review: 10/18/2010 Closing: 12/31/2013 06/30/2015 i C\. Ratings Summary C\.1 Performance Rating by ICR Outcomes Moderately Satisfactory Risk to Development Outcome Moderate Bank Performance Moderately Satisfactory Borrower Performance Moderately Satisfactory C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry Moderately Satisfactory Government: Moderately Satisfactory Implementing Quality of Supervision: Satisfactory Moderately Satisfactory Agency/Agencies: Overall Bank Overall Borrower Moderately Satisfactory Moderately Satisfactory Performance Performance C\.3 Quality at Entry and Implementation Performance Indicators China-Second Liaoning Medium Cities Infrastructure Project - P092618 Implementation QAG Assessments Indicators Rating: Performance (if any) Potential Problem Quality at Entry Project at any time No None (QEA) (Yes/No): Problem Project at any Quality of Yes None time (Yes/No): Supervision (QSA) DO rating before Moderately Closing/Inactive status Satisfactory China-GEF-Liaoning - P090375 Implementation QAG Assessments Indicators Rating: Performance (if any) Potential Problem Quality at Entry Project at any time No None (QEA) (Yes/No): Problem Project at any Quality of No None time (Yes/No): Supervision (QSA) GEO rating before Moderately Closing/Inactive Status Satisfactory ii D\. Sector and Theme Codes China-Second Liaoning Medium Cities Infrastructure Project - P092618 Original Actual Sector Code (as % of total Bank financing) Flood protection 6 4 Solid waste management 17 10 Sub-national government administration 1 1 Wastewater Treatment and Disposal 34 30 Water supply 42 55 Theme Code (as % of total Bank financing) City-wide Infrastructure and Service Delivery 40 53 Pollution management and environmental health 40 29 Water resource management 20 18 China-GEF-Liaoning - P090375 Original Actual Sector Code (as % of total Bank financing) Solid waste management 29 24 Sub-national government administration 59 58 Wastewater Collection and Transportation 6 9 Wastewater Treatment and Disposal 6 9 Theme Code (as % of total Bank financing) Municipal governance and institution building 40 52 Pollution management and environmental health 40 42 Water resource management 20 6 iii E\. Bank Staff China-Second Liaoning Medium Cities Infrastructure Project - P092618 Positions At ICR At Approval Vice President: Axel van Trotsenburg James W\. Adams Country Director: Bert Hofman David R\. Dollar Practice Ousmane Dione Keshav Varma Manager/Manager: Project Team Leader: Khairy Al-Jamal Greg J\. Browder ICR Team Leader: Khairy Al-Jamal ICR Primary Author: Heinrich K\. Unger China-GEF-Liaoning - P090375 Positions At ICR At Approval Vice President: Axel van Trotsenburg James W\. Adams Country Director: Bert Hofman David R\. Dollar Practice Ousmane Dione Keshav Varma Manager/Manager: Project Team Leader: Khairy Al-Jamal Greg J\. Browder ICR Team Leader: Khairy Al-Jamal ICR Primary Author: Heinrich K\. Unger F\. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The project development objective is to improve the performance and sustainability of water supply, wastewater, and solid waste services in the Second Liaoning Medium Cities Infrastructure Project (LMC-2) cities\. Revised Project Development Objectives (as approved by original approving authority) The PDO was not revised\. However, it was phrased differently in the approved Loan Agreement\. The PDO in the Loan Agreement is to assist Liaoning Province in improving the performance and sustainability of the wastewater, water supply, and solid waste services through: (i) construction of infrastructure in the Project Cities; and (ii) improving utility management and regulatory practices in Liaoning Province\. Global Environment Objectives (from Project Appraisal Document) The global environmental objective of the LMC-2 project with the GEF enhancements is the reduction of land-based pollution into the Bohai Sea through investments in wastewater and solid waste infrastructure and improved utility regulation, planning and management in the LMC-2 cities and throughout Liaoning Province\. iv Revised Global Environment Objectives (as approved by original approving authority) The GEO was not revised\. Moreover, the GEO in the Grant Agreement was identical with the PDO in the approved Loan agreement\. (a) PDO Indicators Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years 1 Indicator 1 : Wastewater utility cost recovery ratio in four cities Yingkou 1\.0 Yingkou 1\.1 Yingkou 1\.0 Yingkou 1\.1 Value Panjin 0\.6 Panjin 1\.1 Panjin 1\.0 Panjin 1\.0 (quantitative or Fushun 0\.5 Fushun 1\.1 Fushun 1\.0 Fushun 1\.0 Qualitative) Gaizhou 0\.0 Gaizhou 1\.1 Gaizhou 1\.0 Gaizhou 1\.0 Date achieved 06/26/2007 12/31/2013 06/30/2015 06/30/2015 Comments Revised target 100% achieved: Panjin, Fushun and Gaizhou received subsidy (incl\. % from local government to operate their respective WWTPs\. achievement) Indicator 2 : Water supply utility cost recovery ratio for five cities Yingkou 1\.0 Yingkou 0\.80 Yingkou 0\.9 Yingkou 1\.2 Panjin 1\.0 Panjin 0\.80 Value Panjin 0\.8 Panjin 1\.2 Anshan 1\.0 Anshan 0\.93 (quantitative or Anshan 1\.0 Anshan 1\.2 Haicheng 1\.0 Haicheng 1\.0 Qualitative) Haicheng 0\.8 Haicheng 1\.2 Xingcheng 1\.0 Xingcheng 1\.0 Xingcheng 0\.9 Xingcheng 1\.2 Fushun 1\.0 Fushun 0\.9 Date achieved 06/26/2007 12/31/2013 06/30/2015 06/30/2015 Partially Achieved: Haicheng and Xingcheng achieved the revised target\. Comments Yingkou has more debt service; Yingkou and Panjin had higher operations costs; (incl\. % Xingcheng received local government subsidy\. Fushun was added at achievement) restructuring (no subsidy)\. Indicator 3 : Solid Waste Disposed in Landfill (tons/day) in three cities Value Panjin 0 Panjin 450 Panjin 450 Panjin 630 (quantitative or Fushun 0 Fushun 360 Fushun 360 Fushun 1000 Qualitative) Yingkou 0 Yingkou 492 Yingkou 0 Date achieved 06/26/2007 12/31/2013 06/30/2015 06/30/2015 Comments Target exceeded: Revised target exceeded to reach 140% for Panjin and 278% (incl\. % for Fushun\. However, Yingkou SWM subproject was dropped during achievement) restructuring due to land availability related issues\. 1 According to the PAD, a cost recovery ratio applied to all wastewater and water supply companies for this project was defined as operating and non-operating revenues (including subsidies) divided by total operating expenses and the greater of depreciation or debt service\. See Section 3\.3 for more details\. v Indicator 4 : Comprehensive Cost Accounting System and MIS Value (quantitative or No Yes Dropped N/A Qualitative) Date achieved 06/26/2007 12/31/2013 04/04/2014 06/30/2015 This indicator was dropped during the 2014 restructuring\. However the activity Comments was implemented and utility staff were better equipped to deal with financial (incl\. % achievement) aspects, especially cost recovery and tariff collection by project closing (see Section 3\.2)\. Indicator 5 : Decrease in Non-Revenue Water (NRW) Yingkou 45% Yingkou 36% Value Panjin 46% Panjin 37% Indicator (quantitative or Anshan 37% Anshan 30% N/A dropped Qualitative) Haicheng 47% Haicheng 38% Xingcheng 55% Xingcheng 44% Date achieved 06/26/2007 12/31/2013 04/04/2014 06/30/2015 Comments This indicator was dropped during the 2014 restructuring but substantial (incl\. % reductions in NRW were achieved (see Section 3\.2)\. achievement) (b) GEO Indicators Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years New wastewater treatment plant BOD removal (tons/year) in four cities Indicator 1 : (Yingkou, Panjin, Fushun, Gaizhou) Value (quantitative or 0 5,750 N/A 17,629 Qualitative) Date achieved 06/26/2007 12/31/2013 06/30/2015 06/30/2015 Comments (incl\. % Target exceeded\. 306% achieved\. achievement) New wastewater treatment plant total nitrogen (TN) removal (ton/year) in Indicator 2 : four cities (Yingkou, Panjin, Fushun, Gaizhou) Value (quantitative or 0 1,100 N/A 4,978 Qualitative) Date achieved 06/26/2007 12/31/2013 06/30/2015 06/30/2015 Comments (incl\. % Target exceeded\. 452% achieved achievement) New wastewater treatment plant total phosphorus (TP) removal (ton/year) Indicator 3 : in four cities (Yingkou, Panjin, Fushun, Gaizhou) Value 0 210 N/A 509 vi (quantitative or Qualitative) Date achieved 06/26/2007 12/31/2013 06/30/2015 06/30/2015 Comments (incl\. % Target exceeded\. 242% achieved\. achievement) (c) Intermediate Results Indicators Indicator 1 : Direct project beneficiaries (number) Value (quantitative or 0 5,100,000 3,000,000 2,900,000 Qualitative) Date achieved 06/26/2007 12/31/2013 12/23/2014 06/30/2015 Comments Revised target substantially achieved\. 97% achieved\. This core indicator was (incl\. % revised during December 2014 restructuring\. achievement) Indicator 2 : Percentage of female beneficiaries (number) Value (quantitative or 0 46\.1 N/A 50 Qualitative) Date achieved 06/26/2007 12/31/2014 06/30/2015 Comments Target exceeded: 108% achieved\. This core indicator was added after April (incl\. % 2014\. achievement) Indicator 3 : Wastewater treatment plant (WWTP) capacity (m3/day) Value (quantitative or 450,000 650,000 N/A 700,000 Qualitative) Date achieved 06/26/2007 12/31/2013 06/30/2015 06/30/2015 Comments Target exceeded\. 107% achieved\. Additional 50,000 m3/d (above the target) (incl\. % was added to Panjin WWTP\. achievement) Indicator 4 : Total new or rehabilitated drainage pipelines (km) Value (quantitative or 0 145 N/A 116 Qualitative) Date achieved 06/26/2007 12/31/2013 06/30/2015 06/30/2015 Comments Target partially achieved\. 80% achieved because of a dropped subcomponent (incl\. % due to the changes in some city plans\. achievement) Indicator 5 : Length of new or rehabilitated pipelines for water supply (km) Value (quantitative or 0 440 NA 495 Qualitative) Date achieved 06/26/2007 12/31/2013 06/30/2015 06/30/2015 Comments Target exceeded\. 112% achieved\. vii (incl\. % achievement) Indicator 6 : Number of Water Meters installed Value (quantitative or 0 185,200 145,000 184,332 Qualitative) Date achieved 06/26/2007 12/31/2013 06/30/2015 06/30/2015 Revised target exceeded\. 127% achieved\. The target was revised because of Comments implementation delays\. However, the project implementation caught up and (incl\. % exceeded the revised target by project closing\. achievement) Industrial and municipal waste disposal capacity created under the project Indicator 7 : (ton/day) Value (quantitative or 0 2,170 1,050 1,800 Qualitative) Date achieved 06/26/2007 12/31/2013 06/30/2015 06/30/2015 Comments Revised target exceeded\. 171% achieved\. The landfill in Panjin has a capacity (incl\. % of 600 ton/day, and Fushun 1,200 ton/day\. achievement) Indicator 8 : Training for public utilities program (person-days) Value (quantitative or 0 100 NA 226 Qualitative) Date achieved 06/26/2007 12/31/2013 06/30/2015 06/30/2015 Comments Target exceeded\. 226% achieved\. With the support of GEF activities, the (incl\. % project exceeded the target\. achievement) Indicator 9 : Number of solid waste master plans completed Value (quantitative or 0 3 4 4 Qualitative) Date achieved 06/26/2007 12/31/2013 06/30/2015 06/30/2015 Comments Revised target 100% achieved: The cities of Fushun, Yingkou, Gaizhou, and (incl\. % Panjin completed SW master plans achievement) Indicator 10 : Number of wastewater master plans completed Value (quantitative or 0 3 2 2 Qualitative) Date achieved 06/26/2007 12/31/2013 06/30/2015 06/30/2015 Comments Revised target 100% achieved: The cities of Panjin and Gaizhou completed (incl\. % WW master plans\. WW masterplan for Huludao was dropped from the project\. achievement) Indicator 11 : Number of water utilities that the project was supporting Value 0 6 N/A 6 viii (quantitative or Qualitative) Date achieved 06/26/2007 12/31/2013 06/30/2015 06/30/2015 Comments Target 100% achieved\. The water utilities of Yingkou, Panjin, Anshan, (incl\. % Haicheng, Xingcheng, and Fushun were supported by the project achievement) Indicator 12 : Annual provincial utility benchmarking program 100% of LMC-2 100% of GEF PIUs Value cities 100% of GEF are presented at the (quantitative or None PIUs city benchmarking Qualitative) 50% of other cities system in Liaoning Date achieved 06/26/2007 06/30/2011 06/30/2015 06/30/2015 Revised target 100% achieved and PIUs are focussed in utilizing the Comments benchmarking as driver for the utility performance improvement\. Two provincial (incl\. % agencies monitoring services & performance of all WS& WW utilities\. achievement) Summary data available on web2\. 2 This indicator has not been reported in the previous Implementation Status Reports\. However, it is captured in the ICR report\. ix G\. Ratings of Project Performance in ISRs - Actual Date ISR Disbursements No\. DO GEO IP (USD millions) Archived Project 1 Project 2 1 06/29/2008 MS MS MS 0\.00 0\.00 2 06/25/2009 MS MU MS 10\.00 0\.00 3 01/21/2010 MS MU MS 10\.00 0\.00 4 06/27/2011 MS MS S 38\.65 0\.00 5 04/08/2012 MS MS MS 47\.10 0\.00 6 05/16/2013 MU U MU 78\.08 0\.00 7 03/03/2014 MU MU MU 94\.27 1\.00 8 06/25/2014 MS MS MS 113\.86 2\.49 9 12/08/2014 MS MS MU 130\.12 3\.44 10 06/14/2015 MS MS MS 153\.33 5\.00 x H\. Restructuring (if any) Amount Disbursed ISR Ratings at Board Approved at Restructuring in Reason for Restructuring Restructuring USD millions Restructuring & Key Date(s) PDO GEO Changes Made DO GEO IP Project1 Project 2 Change Change (i) Reallocation of loan proceeds necessary for capitalization of the front end fee; (ii) reduction of loan allocation for consultant services by 04/01/2008 0\.00 $1 million; and (iii) correction of an error in the Project Agreement of the date for submission to the Bank by each utility of their financial improvement plan\. Amendment of project 05/24/2012 N MS MS 0\.00 scope and dissemination Extension of closing 12/30/2013 N MU MU 89\.20 date\. (i) Revision of the project scope for some project cities; (ii) project costs and financing plan update; (iii) reallocation of 04/04/2014 N MU MU 97\.48 Loan proceeds among categories; (iv) amendment of the Results Framework; and (v) amendment of certain covenants in the Project Agreement\. Extension of closing 04/04/2014 N MU MU 1\.00 date Extension of closing date and revision of 12/23/2014 N MS MU 130\.12 Intermediate Outcome Indicator 1 Extension of closing 12/23/2014 N MS MU 4\.39 Date xi I\. Disbursement Profile P092618 P090375 xii 1\. Project Context, Development and Global Environment Objectives Design 1\.1 Context at Appraisal Country and Regional Context 1\. Over the past 30 years, China had become an international symbol of economic growth and poverty alleviation but the medium-sized cities in Liaoning Province had benefited to a lesser extent from this prosperity than many other parts of the country\. Before the initiation of market oriented reforms of the late 1970s, Liaoning was one of the country’s major industrial centers, focusing on heavy industry and mining\. The province became one of China’s most urbanized provinces with 53 percent of the residents living in urban areas\. Much of the urban population settled in a number of medium cities with their economies anchored around a small number of state-owned industrial and mining enterprises\. Such enterprises have had mixed success in the transition to a market economy, and many found themselves under severe financial pressure\. This weakened the economic base of these cities and, as a result, at a time when many of the cities in China’s coastal region – including the two large cities of Shenyang and Dalian in Liaoning – were investing heavily in infrastructure, the medium cities of Liaoning were suffering from systemic underinvestment and deferred infrastructure maintenance despite continued urban growth; this resulted in an accelerated deterioration of the asset base necessary for the provision of urban services\. Project Context 2\. Much of the existing water supply infrastructure in Liaoning’s medium cities was in urgent need of renovation, caused by a severe deterioration of the urban water supply pipelines\. Non-revenue water ranged from 37 percent to 55 percent, mainly due to pipeline leakage\. This exacerbated the financial difficulties of the water companies since financial sustainability was a major issue with revenues from user fees falling short of meeting the costs of service provision\. 3\. In addition, Liaoning’s medium cities were just starting to develop their wastewater management programs\. The collection of wastewater fees from large self-supplied water users, discharging into the municipal drainage system, was a major challenge\. Similar to the water supply sector, drainage pipelines were in a state of disrepair and in urgent need of renovation as well as expansion\. Wastewater utilities had been established in most cities in Liaoning, but given the limited financial resources in the sector, the utilities were operating rather as government departments and not as commercial enterprises\. 4\. Many of the medium cities did not have a sanitary landfill and solid waste was disposed of in open dumps that posed hazards to public health and the environment because the collection and transport of municipal solid waste was often incomplete and inefficient\. Cost recovery levels for solid waste services were low, and fees were collected in an uncoordinated manner\. Moreover, solid waste management functions were provided in a fragmented manner at the district and municipal level; this prevented the adoption of 1 comprehensive solid waste management and cost recovery strategies\. 5\. As a consequence, the urban environment of these cities was in serious decline\. An investment climate study conducted by the Bank in 2005 found that “livability” concerns had become a significant factor undermining the investment climate in Liaoning’s medium cities\. The absence of serious efforts to properly maintain and rehabilitate the urban infrastructure had become a significant constraint to the future economic prospects of Liaoning Province\. Some cities in Liaoning turned to the private sector to provide urban environmental services but, in the absence of increased sector funding and better utility regulation, these efforts had mixed success and were not financially sustainable\. Therefore, it was clear that Liaoning’s medium cities and their residents would benefit greatly from investments that supported rehabilitation and upgrading of the urban infrastructure, and in particular urban environmental services\. The Bohai Sea 6\. The Bohai Sea, located in the northwest corner of the Yellow Sea is one of the most ecologically important, and stressed, bodies of water in the region\. Its fishery resources are vital to China, and North and South Korea\. More than 40 rivers discharge into the Bohai Sea, of which the Yellow (Huang), Hai, and Liao Rivers are the most significant\. The Bohai Sea is a large, shallow embayment of the Yellow Sea which is itself a shallow continental sea of the northwest Pacific Ocean\. The open water environment in the Bohai Sea supports diverse marine life including invertebrates, fish, marine mammals and birds\. In the past, the Bohai Sea was a major source of larvae and juvenile fish for the East China Sea, but this function has steadily diminished\. Therefore, the ecological condition of the Bohai Sea is critically important for maintaining fish stocks and biodiversity in East China coastal waters\. It is generally accepted that over-fishing, pollution, reduction of freshwater inflows and habitat loss have contributed to a reduction of these ecosystem functions\. 7\. The Liao River is the main river in Liaoning Province, discharging into the Bohai Sea which is partly surrounded by Liaoning Province\. Before the project, the Liao River had become one of the most polluted river systems in China with more than 68 percent of the river reaches classified as polluted in 2004; 40 percent of these reaches were classified as at or above Class V (worst pollution category)\. In addition, there were a number of medium and small sized cities along the Bohai Sea coastline in Liaoning Province that discharged wastewater directly into the sea\. 1\.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) 8\. According to the loan agreement (LA), the objective of the Project was to assist Liaoning Province in improving the performance and sustainability of the wastewater, water supply, and solid waste services through: (i) construction of infrastructure in the Project Cities; and (ii) improving utility management and regulatory practices in Liaoning Province\. 2 9\. On the other hand, the PDO in the Project Appraisal Document (PAD) was to improve the performance and sustainability of water supply, wastewater, and solid waste services in the Second Liaoning Medium Cities Infrastructure (LMC-2) project cities\. 10\. The two different versions of the PDO are identical in spirit\. For the purposes of the ICR report, the legally agreed LA version PDO is used\. 11\. The key indicators are listed in sub-sections F(a), (b) and (c) of the ICR Datasheet; they are grouped as institutional and environmental indicators as follows: (a) Institutional: (i) wastewater utility cost recovery ratio in Yingkou, Panjin, Fushun and Gaizhou; and water supply utility cost recovery ratio in Yingkou, Panjin, Anshan, Haicheng and Xingcheng; and (ii) development of comprehensive cost accounting system and MIS for solid waste services\. (b) Environmental: (i) percentage of non-revenue water in Yingkou, Panjin, Anshan, Haicheng and Xingcheng; (ii) tons of annual BOD reduction, and (iii) solid waste disposed in landfill site in tons/day in Yingkou, Panjin and Fushun\. 1\.3 Original Global Environment Objectives (GEO) and Key Indicators (as approved)3 12\. The GEO in the Grant Agreement is identical to the PDO in the Loan Agreement\. In the PAD, the GEO is specified as the LMC-2 project with the Global Environment Facility (GEF) enhancements was the reduction of land-based pollution into the Bohai Sea through investments in wastewater and solid waste infrastructure and improved utility regulation, planning and management in the LMC-2 cities and throughout Liaoning Province\. The GEO stated in the PAD were used for this ICR report together with the relevant indicators listed below\. 13\. The GEO key indicators specified in the PAD were (i) the amount of biological oxygen demand (BOD) removal in tons/year by the new wastewater treatment plants constructed in Yingkou, Panjin, Fushun and Gaizhou; (ii) new wastewater treatment plant total nitrogen (TN) removal (ton/year) in the four cities, and (iii) new wastewater treatment plant total phosphorus (TP) removal (ton/year) in the four cities\. 1\.4 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification 14\. The PDO were not revised but, as part of the restructuring finalized in April 2014, the original five key indicators were consolidated into the following three indicators that fully reflect the level of achievement of the PDO: (i) wastewater utility cost recovery ratio 3 The PDO in the Loan Agreement and the GEO in the Grant Agreement are identical as follows: The objective of the Project is to assist Liaoning Province in improving the performance and sustainability of the wastewater, water supply, and solid waste services through: (i) construction of infrastructure in the Project Cities; and (ii) improving utility management and regulatory practices in Liaoning Province\. The project descriptions in the two agreements are also identical\. 3 in Yingkou, Panjin, Fushun and Gaizhou; (ii) water supply utility cost recovery ratio in Yingkou, Panjin, Anshan, Haicheng and Xingcheng; and (iii) solid waste disposed in landfill site in tons/day in Panjin and Fushun\. Also, the following two core indicators were added: (i) number of direct project beneficiaries (further amended as part of the April 2014 restructuring), and (ii) percentage of female beneficiaries\. Also, target figures for the results indicators were revised primarily to reflect implementation delays and revisions of scope and outputs for certain subcomponents\. In several cases, indicators for individual cities were consolidated into one for the whole project area to simplify reporting\. Additionally, cost recovery ration indicator targets for water supply and wastewater utilities were revised to more realistic levels in line with updates financial projections\. 1\.5 Revised GEO (as approved by original approving authority) and Key Indicators, and reasons/justification 15\. Neither the GEO nor the key indicators for the GEF program were revised\. 1\.6 Main Beneficiaries, 16\. The PAD was silent on the main beneficiaries of the project and the GEF program but the PDO and GEO made it clear that the majority of the urban populations of the seven project cities would benefit to varying degrees from improved urban wastewater management, water supply and solid waste services\. A core indicator, added as part of project restructuring, set a target of 3 million beneficiaries\. In addition, the reduction of pollution into the Bohai Sea and improvements to Bohai Sea water quality would mainly benefit populations involved in fisheries and recreation\. 17\. Additionally, the project was expected to benefit the staff of the municipal utilities in the project cities through the implementation of the institutional development (ID) component of the Project, mainly by strengthening project management, monitoring safeguards implementation and technical assistance (TA) for the public utility improvement program, solid waste (SW) master planning, and water pollution control planning\. 1\.7 Original Components (as approved) 18\. The original components defined in the PAD were as follows: Component 1: Wastewater Infrastructure (US$129\.9 million)\. This component covered four cities (Panjin, Yingkou, Fushun and Gaizhou) and included: (i) the construction of new and rehabilitated wastewater collection systems in four cities; (ii) the construction of new wastewater treatment plants in Yingkou, Panjin, and Gaizhou; and (iii) the construction of river embankment works in Fushun\. Component 2: Water Supply Infrastructure (US$132\.2 million)\. This component covered six cities (Panjin, Yingkou EDZ, Fushun, Anshan, Haicheng and Xingcheng) and included: (i) the renovation of water distribution pipelines in all cities; (ii) installing around 185,000 water supply meters; (iii) upgrading treatment plants in Anshan and Haicheng; and (iv) the construction of a new water treatment plant and transmission lines in Yingkou\. 4 Component 3: Solid Waste Infrastructure (US$55\.6 million)\. This component included: (i) the construction of new sanitary landfills in three cities (Panjin, Fushun and Yingkou EDZ); (ii) closure of existing open dumps in Fushun and Yingkou; and (iii) solid waste collection vehicles and transfer works and equipment\. Component 4: Institutional Development (US$7\.7 million)\. This component covered the following activities: (i) technical assistance (TA) for design and construction; ii) public utility improvement program; iii) solid waste (SW) master planning; and iv) water pollution control planning\. The last three activities were to be financed through the GEF grant\. The GEF project components, as set out in the GEF grant agreement, were identical to the above project components but GEF funding was only applied to Component 4 – subcomponents (ii) to (iv)\. 1\.8 Revised Components 19\. As part of the April 2014 restructuring, the following revisions were made: 1) Due to evolving needs and requirements in the project cities Component 3 was revised as follows to allow the expansion and modification of subcomponents: Component 3: improving the infrastructure and management of solid waste services in the project cities through: (i) constructing and/or expanding solid waste collection and transfer systems, sanitary landfills with leachate control and treatment (newly required by government regulations), closure of open dumps, and other associated works; and (ii) strengthening solid waste management practices, including development of integrated and city-wide solid waste management programs, dedicated cost accounting systems, and management information systems; and improved cost recovery through user fees\. 2) The solid waste subproject in Yingkou EDZ was dropped from the project because no suitable location for a new landfill could be secured and the city opted to build a waste incinerator\. 3) Subcomponents (ii), (iii) and (iv) of Component 4 were substantially expanded, described in much more specific detail and revised as follows: (ii) Public Utility Management: Providing technical assistance with respect to: (a) a capacity building program for public utility functions in water for Yingkou, Anshan, Panjin, Haicheng and Fushun cities, and wastewater for Panjin and Gaizhou cities; (b) data collection and development of an information management system for Anshan, Yingkou, and Haicheng urban water distribution networks; and (c) studies on ecology service function and basin ecology compensation mechanism of Dahuofang reservoir; (iii) Solid Waste Master Planning: Providing technical assistance to Fushun, Yingkou EDZ, Gaizhou and Panjin for solid waste management planning and its implementation with respect to: (a) development of solid waste master plans; (b) institutional development; (c) landfill site assessment and engineering design; (d) procurement assistance; (e) landfill construction supervision; and (f) training of personnel for effective operation of solid waste management systems; (iv) Water Pollution Control Management: Providing technical assistance to Panjin and Gaizhou for water pollution control management, including: (a) institutional development and financial sustainability; (b) 5  wastewater master planning; (c) industrial water pollution control; and (d) sludge management\. 20\. To maintain coherence, compatible revisions were made to the GEF program\. These changes include: (i) inclusion of support for geographic information systems (GIS) implementation by water utilities; (ii) increased emphasis on non-revenue water management within the public capacity building program; and (iii) the inclusion of the Dahuofang reservoir ecological study, whilst the public utility capacity building program was downsized by removing the support for the planned private sector participation (PPP) pilot, and the original content on strengthening sector regulation\. These changes became necessary because the startup of the GEF component had been delayed and the cities’ needs had evolved by the time the GEF program was eventually launched\. 1\.9 Other significant changes - Restructuring in 2008 to (i) reallocate loan proceeds for the capitalization of the front- end fee; (ii) reduction of loan allocation for consultant services by $1 million and reallocation of loan proceeds to works and goods categories; and (iii) correction of an error in the Project Agreement (in paragraph 15 of Annex A to the Schedule) of the due date for submission to the Bank by each utility of their financial improvement plan\. - Restructuring in April 2014 to : (i) require the provision of resettlement action plans (RAPs) for new and / or expanded subcomponent investments in Gaizhou, Fushun and Panjin, (ii) preparation of environmental assessments (EAs) and implementation of environmental management plans (EMPs) in the same three cities, (iii) preparation of comprehensive solid waste (SW) strategic sector plans plus detailed action plans for implementation, and (iv) require water supply and wastewater utilities to prepare and make public annual water and wastewater utility performance reports\. Also, the loan proceeds were reallocated with some cities and sectors being increased and others having their allocations reduced to deal with capacity increases and cost overruns of some subcomponents, self-funding by some cities, and reduced subcomponent scope due inability to complete works\. - Targets of some results indicators were revised to reflect implementation delays and revisions of scope and outputs for some subcomponents\. In several cases, indicators for individual cities were consolidated into one for the whole project area\. Additionally, cost recovery ratio indicator targets for water and wastewater utilities were revised to more realistic levels in line with updated financial model\. - Two extensions of the project closing date to December 31, 2014 and subsequently to June 30, 2015\. 2\. Key Factors Affecting Implementation and Outcomes 2\.1 Project Preparation, Design and Quality at Entry Rationale for Bank involvement 21\. As part of a program to revitalize the industrial base in the country’s northeast, the 6 Government of China had programmed a series of Bank urban infrastructure investment projects in Liaoning\. The provincial government had asked the Bank to support urban transport, environment and energy investments in high-priority medium sized cities\. The LMC-2 project, focusing on urban environment, was the second in a series of three projects\.4 22\. The Bank was well positioned to help Liaoning’s medium cities address their urban environmental challenges, due to the Bank’s competitive advantage in financing and policy advice and its strong, long-term relationship with Liaoning province\. The Bank had been Liaoning’s development partner for over fifteen years, and could apply its long experience of working in China on urban environment issues\. Bank assistance provided the project cities and the provincial government an opportunity to gain from the Bank’s extensive China and global experience with institutional development and sector policies\. 23\. In June 2001, the Liao River Basin Project (LRBP) had been approved and it closed in December 2008\. The LRBP had a similar PDO, i\.e\. to assist with the environmental recovery of the Liao River Basin through investments in wastewater collection and treatment\. While the physical investments were completed satisfactorily (according to the June 2009 ICR report), tariff increases and institutional reforms of the wastewater / drainage companies made less progress\. In fact, the ICR report had expected the LCM-2 project, as the follow-on project to the LRBP to continue the institutional reforms over time\. Rationale for GEF grant support 24\. Liaoning province had not only requested Bank support for LMC-2 project but also expressed an interest in additional support from GEF to demonstrate innovative approaches to reducing land-based sources of pollution into the Bohai Sea\. With co-financing from GEF the project was able to fund a set of institutional development activities to address the key regulatory, management, and planning issues that would have negatively affected the sustainability of the physical investments in pollution control activities in strategic “hot spots” close to the Bohai Sea\. It was expected that the lessons learned from these institutional innovations could then be disseminated locally and nationally\. 25\. In 2007, the GEF had financing available through the Strategic Partnership Investment Fund for Pollution Reduction in the Large Marine Ecosystems of East Asia (“the Fund”) that operated under GEF’s Operational Program (OP)10, the contaminant- 4 The first Liaoning Medium Cities Infrastructure Project dealt with urban transport and was approved in June 2006 and closed in October 2013; and the Third Liaoning Medium Cities Infrastructure Project dealt with urban heating and gas distribution; it was approved in 2008 and is expected to close on June 30, 2016\. 7 based OP\. It stressed the removal of barriers to pollution reduction, which LMC-2 targeted by addressing institutional and planning constraints in a holistic way\. The GEF activity was also in line with GEF Strategic Objectives (SOs) in the International Waters (IW) Focal Area\. It was in conformance with SO1 (catalyze reform and investment) as it aimed to improve utility regulation and management throughout Liaoning Province, and contributed to planning and investment in pollution control infrastructure in the project cities\. With respect to SO3 (innovative demonstration), this GEF activity was to demonstrate: (i) provincial level utility benchmarking programs – the first of their kind in China; (ii) new approaches to solid waste management (SWM) which was a significant source of non-point source pollution from uncollected garbage and point source pollution from unsanitary dumps; and (iii) industrial pollution control within the context of overall municipal wastewater management\. The GEF activity was expected to generate a mix of local and also regional benefits by reducing pollution (BOD and nutrients) to the East China Sea, in accordance with one of the four new strategies in the IW Agenda for GEF’s fourth replenishment period: to address land-based pollution (especially nitrogen) that creates anoxic “dead” zones in coastal waters\. Incorporation of lessons learned 26\. During preparation a number of important lessons, mainly from the 2007 Bank study on “Improving the Performance of China’s Urban Water Utilities”, were incorporated in the project design: (i) strengthen financial sustainability through the requirement of financial improvement plans (FIPs) to be updated and reviewed annually; (ii) improve utility regulation and oversight of municipal utility companies through building the capacity of local and provincial governments to do performance benchmarking, initiate PPPs, improve utility regulations and introduce competitive utility management; and (iii) improve the performance of pipeline networks for wastewater collection and water supply distribution through TA for asset management plans to guide pipeline inspection and renovation work\. 27\. A 2005 Bank study on “Waste Management in China” had highlighted the need to take a comprehensive approach to solid waste management, and the project scope included financing for all aspects of solid waste management (SWM), i\.e\. collection, transfer, closure of open dumps and construction of new sanitary landfills\. Counterpart funding in an earlier urban environment project in Liaoning had been a major problem, and therefore this project was designed with 60% Bank financing of works and 100% for goods\. 28\. However, lessons from the still ongoing Liao River Basin Project (LRBP) which was being implemented from 2002 to 2008 came too late to influence design\. The June 2009 ICR report (Report No\. 0000 01101) specifically discourages over-ambitious targets and covenants for institutional and financial reforms of Liaoning’s medium cities utilities\. Design for project sustainability 29\. Past experience in Liaoning province suggested that the investment program was likely to be constructed to high-quality standards and completed on schedule\. Long-term 8 sustainability of the water supply, wastewater and solid waste services would, however, depend on financial sustainability of the utilities providing the services and their ability to operate, maintain, renovate, and expand the infrastructure\. Experience over the previous decade with Bank projects had indicated that many cities in Liaoning were still struggling with utility financial sustainability issues\. The Project addressed this issue through a variety of measures: (i) requiring each city to have FIPs which would be closely monitored during implementation; (ii) a large, province-wide utility regulatory and management capacity building program; (iii) a provincial benchmarking program to provide competitive pressure on cities and their utilities to improve financial and operational performance; and (iv) comprehensive solid waste strategic sector studies to establish the institutional and financial framework for sustainable services\. 30\. The project, through GEF funding, included outreach activities to disseminate experience and knowledge learned from the GEF-funded institutional development component to the entire Liaoning province, East Asia, and globally\. Key experiences to be replicated included: (i) planning and implementing a utility regulatory and capacity building program, including utility benchmarking; (ii) sustaining solid waste services to reduce non-point source pollution and landfill leachate run-off; and (iii) wastewater management planning for cities with complex industrial and municipal pollution sources and limited financial resources\. Dissemination was to take place mainly through involvement in GEF and Partnerships in Environmental Management for the Seas of East Asia (PEMSEA) sponsored workshops and websites\. The replication potential in Liaoning and throughout China was considered to be high\. Risks and their mitigation 31\. Several substantial risks were identified during preparation and appropriate risk mitigation measures – similar to the lessons that were incorporated – were applied: (i) the risk to financial sustainability was mitigated through up-front tariff increases and the requirement for FIPs and annual updates; (ii) the risk to the sustainability of solid waste services was mitigated through the requirement to prepare strategic solid waste studies early during project implementation; (iii) the risk of lower than targeted reductions in non- revenue water was mitigated through TA for asset management plans (to determine the most effective loss reduction actions) and financing of metering programs to improve billing\. Lastly, the risk of insufficient provincial leadership in the public utility program was addressed through close Bank interaction with provincial leaders and the establishment of a strong provincial leadership group\. 32\. While in general, the counterpart fund met the commitment at appraisal, the risk of inadequate counterpart funds for some cities was underestimated during project appraisal; it should have been rated as “substantial” instead of “moderate”\. For example, the shortage of counterpart funds had significant impacts on the implementation of the Fushun component, and the Liaoning Finance Department, LUCRPO and the Bank had to intervene several times with the Fushun Mayors to ensure implementation of the Fushun component as appraised earlier\. Lack of sufficient counterpart funds for land acquisition and / or resettlement also caused some subprojects to be dropped or reduced in scope\. Bank 9 appraisal had not identified the risk of slow project startup of implementation, and therefore not even preliminary designs had been prepared prior to project approval\. Project design 33\. Project design considered a number of options, such as an adaptable program loan (APL) and three multi-sector projects (each covering urban environment, urban transport and energy) focusing on a selected number of medium cities\. The APL option was dismissed because of the likely difficulty to define appropriate triggers for the second and third projects and the length of time needed for the approval of the follow-on projects\. A series of single-sector projects was eventually used as the most suitable packaging because it would complement the sector investments with sector-specific and institutional reforms\. The reduced complexity of a single-sector project was another key consideration for the chosen project design; in fact, the water supply, wastewater and solid waste management utilities involved in seven medium cities presented considerable challenges to coordinate and supervise\. The design decision to focus on renovation and service improvements in existing urban areas – rather than investing in new satellite cities and industrial parks as had been proposed by the government – was definitely correct since many of the new developments are not fully occupied at this stage\. PDO and key indicators 34\. The indicators selected for the monitoring the achievement of the GEO were designed to measure the reduction of pollution loads rather than – directly or indirectly – measuring the water quality of the Bohai Sea, the target of the GEF intervention\. Few appraised KPI targets were found to be impractical and therefore revised during loan restructuring, and some legal covenants required by the Bank did not adequately take account of the local institutional, financial and policy constraints\. 2\.2 Implementation Implementation arrangements 35\. The Liaoning Provincial Leading Group (LPLG), chaired by a Vice Governor of Liaoning, provided high-level guidance to the project, and coordinated all policy and institutional issues related to the project\. A well-established office under the Liaoning Provincial Department of Housing and Urban-Rural Construction (LPDHURC), called the Liaoning Urban Construction and Renewal Project Office (LUCRPO), provided continuous day-to-day project management, coordination and liaison\. The Liaoning Provincial Department of Finance (LPDF) was responsible for integrated management of the Project on behalf of LPLG, including providing guidance to LUCRPO and the project cities; they managed the designated Project Account\. The Liaoning Provincial Development and Reform Commission (LPDRC) is responsible for providing overall infrastructure planning management in Liaoning and developing policies to promote economic reform and development; the LPDRC was closely involved throughout the project implementation\. Each participating city established a City Leading Group (CLG) in which local government leaders took part\. The CLGs were responsible for providing 10 high level direction and oversight for project implementation activities in the respective cities\. Each city also established a project management office (PMO) to coordinate project implementation activities within its jurisdiction and provide linkages with LUCRPO and the LPLG\. The CLG assigned either the existing public utility company or a suitable government department as the project implementing agency (PIA) for each individual sub- component with the responsibility for the implementation of that particular sub-component\. Implementation problems and delays 36\. After a long preparation period the project got off to a slow start, and six months after Effectiveness some disbursement conditions (signing of subsidiary LAs and some safeguard documents) still had not been met\. In fact, there was a year’s delay between Effectiveness and start of any significant implementation activities\. The construction management consultants were hired at that point but after two years they still had not been paid and threatened to quit\. Eleven contracts that had been earmarked for retroactive financing were completed some four years later only due to: difficulties with land acquisition / resettlement, inadequate counterpart funding, procurement delays and slow internal clearances\. New requirements for the mandatory installation of leachate treatment facilities at landfill sites caused more problems, and local governments scrambled for funds to finance such facilities\. The TA proposed for the GEF grant funding kept being delayed by uncertainty about the scope of GEF activities and the content of the TORs, and there was no real champion to move things along\. A special procurement review was carried out by the Bank to finally allow the award of construction contracts that had been held up due to supposed irregularities; these turned out to have been minor in nature\. Mid-term review and project restructuring 37\. The Bank’s on-time mid-term review in October 2010 readily determined that the project needed to be restructured on an urgent basis to drop a few subcomponents, add some new items such as leachate treatment facilities, reallocate funding accordingly, and also re-design the GEF components\. However, it took almost three years before the restructuring, formally, took place in April 2014\. Earlier in 2013, the Bank had made the restructuring conditional upon satisfactory progress on some key activities and also delivery of some outstanding safeguard actions\. This approach worked well, and following the restructuring, the project acquired a new momentum; this applied in particular to the GEF component: newly designed studies and TA, responding to the then current needs, and executed without further delays\. This work contributed much to the successful completion of the project – with an 18 months extension – which was concluded with a very productive dissemination workshop in June 2015 (see section 3\.6 below and also Annex 6)\. 38\. Despite the late restructuring all contracts were successfully completed\. About USD12 million were canceled, mainly due to some significant contract savings\. Also, about USD0\.2 million of the GEF grant were canceled after satisfactory implementation of all grant-funded TA, training and dissemination activities\. 2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 11 Design 39\. The results framework was logically conceived, with an appropriate balance of indicators to measure institutional and environmental outcomes\. The results framework was closely linked to the project supported activities and measures used to assess progress were fairly standard for this type of project\. Given that the project worked in a large number of cities, data collection demands were significant, but this was to be expected in a multi-city project\. One shortcoming was that the cost recovery targets were ambitious, given the fact that the utilities in the project cities of Liaoning do not have full control of tariff adjustments – they are imposed by the local governments\. However, there is a provision for local governments to subsidize wastewater and solid waste services, if cost recovery is not adequate\. At appraisal it was expected that wastewater, and even some water supply companies would have a continuing need for subsidies “during a transition period\.” Implementation 40\. M&E reporting was part of the Borrower’s semi-annual progress reports, and these comprehensive reports listed the updated indicators\. As a result of the slow start-up of the M&E system in May 2008, information was generated either through the LRBP-supported TA program or the Provincial EPB but there was no comprehensive reporting on the status of key legal covenants and monitoring indicators except by Bank staff in the Bank’s own implementation status reports (ISRs); it is therefore rated as Modest\. The results indicators were modified and simplified as part of the restructuring\. The GEF-funded TA was to support setting a utility benchmarking system, eventually to cover 75% of all provincial utilities in Liaoning\. Due to delays of the TA, the GEF support was modified to focus the on use of benchmarking as driver of performance improvement at the utility level\. In addition, two 2 provincial agencies were set up by government to monitor services & performance of all WS& WW utilities in Liaoning province\. Summaries of these monitoring data are available on the web\. Utilization 41\. M&E was intensively and very effectively used especially in safeguard implementation where independent external agencies were employed to monitor, and report on, the management and mitigation of environmental and social impacts, especially land acquisition\. Detailed environmental data and information were gathered and used to monitor and manage ambient conditions, especially during construction to minimize negative impacts on, and resultant complaints from, the local populations\. The M&E system is at moderate risk of being abandoned after the completion of the project\. This has been mitigated through building the IAs’ capacity and the good practice established over the past four years\. The provincial system, set up for monitoring utility performance and service, will also contribute to continuing M&E of WS and WW companies\. 2\.4 Safeguard and Fiduciary Compliance Environment 42\. LUCRPO was responsible for supervision and review of all environment management activities such as training, coordination, and reporting; it also reviewed 12 implementation of the EMP\. Each Project Implementation Unit (PIU) set up a separate environment management division during the early stages of the project\. For each component, environment management organization members addressed environment- related issues, took charge of environmental protection of sites, coordinated with relevant government departments, and ensured that all contractors fulfilled their environmental obligations by implementing all necessary mitigation measures during construction\. It was found that when environmental education of the local population was done ahead of implementation, and good communication was maintained throughout the actual implementation stage, there was minimal complaints and resultant delays\. 43\. During implementation, both internal and external routine environmental monitoring was conducted to ensure that all contractors implemented effective environmental management measures as stipulated in the respective EMPs and contracts\. Each PIU hired qualified external local environmental monitoring agencies to conduct regular environment monitoring\. All monitoring results met national environmental standards and there were a minimal number of complaints\. Based on the EMP, the following key environmental impact mitigation measures were employed: (i) control of air pollution, (ii) control of water contamination, (iii) control of the spreading of solid waste, and (iv) minimizing traffic conflicts\. Bank supervision made sure that environmental safeguard requirements were complied with, such as in the case of Gaizhou were the extension of the closing date for the entire project was made conditional on the city submitting a satisfactory EIA\. Land acquisition 44\. There were problems initially when three landfill site locations had been selected without sufficiently broad public consultation, especially ignoring the concerns and objections of the adjacent population\. The local people eventually rejected the initially selected sites with the result that one subcomponent had to be dropped and two others had to find new sites\. 45\. The main resettlement agencies had local offices and a well-trained full-time workforce\. All staff members were proficient in operations and policies on land acquisition (LA) and temporary land occupation; they also had good experience in compensation and resettlement for LA\. Consequently, they ensured the smooth implementation of land acquisition and resettlement\. All LA was implemented in strict conformity with the applicable policies, compensation rates and resettlement programs\. Temporary land occupation for construction activities was also dealt with and appropriate compensation was provided; efforts were made to minimize the length of temporary land occupation\. As the implementation proceeded and further to the initial problems with landfill sites, the local resettlement implementing agencies attached great importance to the participation of, and consultation with, project-affected people (AP)\. Many announcements were released and many mobilization meetings were held to collect comments and opinions from the APs\. The grievance redress and appeals mechanisms were established and well publicized\. 46\. Based on the available records, all APs were properly resettled, and most opted to take monetary compensation; many of those initiated their own livelihood restoration measures, such as exporting labor and job training\. Most of APs responded positively to a 13 sampling “satisfaction survey”\. There was regular monitoring and review of all LA by an independent external agency, and detailed reports are available\. A good precedent of creative land acquisition was set in Fushun where the local government allocated a former state-owned coal mine waste dump site for the new sanitary landfill, thereby avoiding all resettlement – it would otherwise have required the resettlement of 238 rural HHs\. 47\. With regard to overall safeguard compliance, project restructuring in 2014 was made conditional upon the Borrower first completing, submitting and disclosing satisfactory EIA and RAP documents for all delayed existing, and one new component (in Panjin)\. Compliance was achieved very promptly\. Procurement 48\. All procurement was undertaken in accordance with Bank guidelines and there were no incidents of mis-procurement\. However, strict adherence to Bank procurement procedures caused serious delays in some cases, such as the GEF studies where the Bank carried out a special procurement review due to supposed irregularities; these turned out to be minor and the contracts were eventually awarded\. There also were long delays with awarding eleven contracts that had been earmarked for retroactive financing, and procurement issues were given as one of the reasons for these delays\. In all cases, though, the Bank’s procurement specialists provided advice and assistance to resolve issues and expedite procurement decisions\. Financial management 49\. Audits consistently received clean opinions, and there were no outstanding audits\. The project coordination office had an adequate financial management system (FMS) in place that provided accurate and timely information on implementation progress and Bank loan uses\. However, FM capacity varied among different PIUs, and most PIUs required some training in FM and guidance on project accounting and financial reporting from the LUCRPO\. Therefore, in the later stages of implementation, the project management consultants were tasked to assist LUCRPO with financial management (FM) aspects; this led to substantial improvements in FM by the local PIUs\. 50\. During the earlier years of project implementation, disbursement progress was a serious concern until the old paper-based payment requisitioning and disbursement system was upgraded by the PIU to an electronic online system in 2012\. This new system enhancement resulted in substantive efficiency improvements to the processing of disbursement requests\. 2\.5 Post-completion Operation/Next Phase 51\. All new infrastructure facilities constructed under the project are being well operated and maintained, and each municipal government is providing sufficient budget funds to ensure these operations are fully financed\. However, tariffs are not at a level that provide for financial sustainability and in the case of some sub-components low income collection rates are also a threat to financial sustainability\. This situation may change in 14 the future as in late 2013 the PRC national government announced new policies which recognized the need to increase water supply charges as a water conservation measure, however as yet this has not filtered down to the LMC-2 project cities and subsidies have increased significantly over the life of the project\. 52\. The three municipal WWTPs have made a largely trouble-free transition to regular operations5\. Panjin has signed an outsourcing contract for the O&M of their WWTP with an experienced contractor to assure high operational and effluent quality standards\. The operational procedures developed jointly between the PIUs and the GEF consultants were used for improving operations of two new WWTPs in Panjin and Yingkou, and the GEF- funded TA was instrumental in resolving operational issues with the Ghaizhou WWTP\. 53\. The only sanitary landfill constructed under LMC-2 was in Fushun whose sanitation department also benefited from GEF-funded technical assistance, and the landfill is being operated to the required standards that could still be improved, especially placing an adequate daily cover\. The new Panjin sanitary landfill constructed under BOT arrangements is considered an LMC-2-associated project and, based on local EPB inspections, is also being operated within the set standards\. This project financed collection vehicles, transfer stations and sanitary landfill equipment to improve overall sanitary conditions in Panjin\. 54\. With regard to a follow-on operation, in April 2015 the Liaoning PDRC submitted a proposal to the NDRC to consider an application for funding from the Bank as a follow- on urban water supply project – termed “a safe and sustainable development and demonstration project”\. Building on the long-standing relationship between Liaoning and the Bank, the province wants to deepen policy reform, move forward with institutional innovation (“mixed ownership”), and achieve modern utility enterprise management objectives\. The needs to be addressed by the new project are: (i) low per capita water resources in Liaoning, (ii) aging networks with high losses, excessive energy use, insufficient HR capacity, and (iii) poor management and financial performance\. The Bank has received the request officially from the Government in September 2015, and it is under review for possible financing\. 3\. Assessment of Outcomes 3\.1 Relevance of Objectives, Design and Implementation Relevance of Objectives 5 There were initial start-up problems at Gaizhou, caused in part by the current low hydraulic loading of the WWTP\. However, Gaizhou benefitted from GEF-funded operational support TA, and the WWTP eventually passed EPB inspection that it complied with the set effluent standards\. 15 Rating: High 55\. The project’s objectives were consistent with the 2006 to 2010 Country Partnership Strategy (approved by the Board in May 2006) which sought, among other objectives, to: (i) improve the competitiveness of the various regions of China and the overall investment climate, and (ii) address the needs of disadvantaged groups and underdeveloped areas through financing infrastructure\. Specifically, the project supported the objectives of: (a) reducing poverty, inequality, and social exclusion; (b) financing sustained and efficient growth; and (c) improving public and market institutions\. 56\. The Project is also consistent with the current Country Partnership Strategy (CPS) for 2013-2016\. The CPS highlights the high level of pollution in the water bodies in China that necessitate better management of environmental pollutants from wastewater and solid waste\. The CPS also recognizes the need for high-quality public services; need for better water resources management; integration of rural-urban growth; promoting an integrated approach to water and environmental management; expanding safe water supplies to smaller cities; supporting private sector investment in water and sanitation; improving sanitation, solid waste and other basic urban services in selected second-tier cities; addressing environmental management; enhancing opportunities in rural areas and small towns through high quality water and sanitation services; enhancing urban environmental services through improved water supply, wastewater collection treatment and disposal, and solid waste collection and disposal; and enhancing opportunities in rural areas and towns through improved services\. 57\. The project is also relevant to China's current 12th Five Year Plan (2011-2015)6 which aims to forcefully address environmental and social imbalances through the development of services measures to set targets for reduction of pollution and increased energy efficiency\. 58\. GEF assistance was and still consistent with (i) China’s strategy for reducing municipal water pollution, and (ii) various international agreements, including the recommendations of the PEMSEA, the Bank’s partner in the Fund\. The GEF activity further was consistent with the aims and objectives of the World Summit on Sustainable Development to which GEF subscribes\. The Project also had direct relevance for the Global Program of Action (GPA) for the Protection of the Marine Environment from Land- based Activities through the proposed improvements of the Bohai Sea coastal and marine environment\. Relevance of design and implementation Rating: Substantial 59\. The design of the project built on the lessons learned from past projects and was 6 The current CPS and the 12th Five Year Plan were informed by the joint study, China 2030, prepared by the Bank and the Development Research Center of the State Council\. 16 based on a solid intervention logic\. The link between the objective and the areas of intervention was clear\. The subprojects were carefully selected to ensure that their impacts were aligned with the project objectives, and the performance indicators facilitated the measurement of such achievements\. The project design could not fully anticipate the dynamic development situation in China in general, and Liaoning Province in particular\. The rapidly changing requirements and needs would have benefited from a number of pre- screened stand-by “spare subprojects” (as suggested by one of the PIUs) that could have replaced the dropped subprojects\. 60\. Project preparation for the institutional development component resulted in a design that responded to the needs of Liaoning\. The appraisal decision was confirmed subsequently by more recent research and the sector planning and policy documents issued by national authorities, many of which are aligned with the original program objectives\. The relevance of the design of the GEF component was high\. 61\. The original design also included a management structure for the program that was agreed by all parties at the time of appraisal, and the risks to the program were identified and assessed\. However, two shortcomings were identified during implementation: (i) failure to identify and enlist a senior level “champion” within the provincial government with the ability and commitment to implement the program as intended; and (ii) a relatively low level of consultation on the design of the program with the city level agencies\. These shortfalls delayed the public utility capacity building program in particular since it was designed as a provincial level initiative\. 3\.2 Achievement of Project Development Objectives and Global Environment Objectives Rating: Substantial (i) Improving Performance and Sustainability of Wastewater Services Sub-rating: Substantial 62\. The project has greatly improved the performance of the wastewater services by meeting all physical infrastructure targets: (i) construction of 250,000m3/day new wastewater treatment capacity; (ii) installation of ten new and seven upgraded wastewater pumping stations; and (iii) construction of 60 km of new interception and collection sewer pipelines in Fushun, Yingkou, Panjin and Gaizhou\. The expanded wastewater collection systems and increased treatment capacities improved the overall performance of the wastewater utilities; they served more people and lowered the annual pollution and nutrients loads to the surrounding environment, including the Liao River and the Bohai Sea, by about 17,629 tons of BOD, 4,978 tons of TN, 509 tons of TP – far exceeding the performance indicators targets\. These works also helped to increase coverage of sewage collection and treatment, thereby reducing the risks of local flooding\. Below is a summary listing of the beneficial outcomes of improved wastewater services performance: - in Panjin, wastewater treatment coverage comprises 722 ha with an estimated population of 283,000 and the coverage rate has increased to 85% - in Yingkou, wastewater treatment coverage increased to 90% and now covers a population of 420,000 and the wastewater treatment rate increased from 45 to 90% 17  - in Gaizhou, river banks have been stabilized and bank erosion has been halted over a section of 3\.3 km - in Panjin and Yingkou, substantive treated effluent re-use by municipality and industry - cleaner, less polluted surface water for irrigation, fisheries and recreation - cleaner urban environment and decrease of unsanitary conditions - reduction of pollution load entering – directly or indirectly – the Bohai Sea - conservation of economic activities in the Bohai Sea, i\.e\. fishing and tourism - improved investment climate 63\. In terms of improved sustainability of wastewater utilities, the cost recovery of the targeted four utilities in Yingkou, Panjin, Fushun and Gaizhou increased significantly from between 0\.5 and 1\.0 to reach the range of 1\.0 to 1\.1; and in Yingkou, wastewater tariffs and collection performance are satisfactory\. While business plans (identifying financing needs arising from growing service demands) were prepared for four cities, two wastewater master plans were also completed\. The master plans update the previous wastewater plans; they include an updated service demand forecasts, the extent and timing of infrastructure improvements needed, and broad financing estimates\. They also include a specific strategy for the separation of existing wastewater and storm water collection networks\. The master plans are essential for city authorities to update their own planning documents and to guide detailed infrastructure planning\. 64\. Equally important for sustainability, staff capabilities and skills have increased very significantly and measurably through the following measures: - operator training, compilation of training material and an operational manual - domestic study tours to relevant sites and facilities - optimization and efficiency savings reviews - completion workshop on innovative approaches to utility planning, design, operation and management - increased monitoring of utility performance and service and posting of results\. (ii) Improving Performance and Sustainability of Water Supply Services Sub-rating: Substantial 65\. The project financed construction of (i) installation of 260,000 m3/d new water treatment capacity; (ii) construction of 540 km of new transmission and distribution pipelines; and (iii) the purchase and installation of more than 180,000 new household water meters\. The increased drinking water supply and treatment, the installation of more than 180,000 household water meters and the replacement / rehabilitation of water distribution pipelines improved the water supply utility performance to a great extent\. Some specific benefits of the physical investments are: - in Anshan, 250,000 households benefited directly from improved water service as a result of pipe replacements - in Yingkou the service area was increased by about 2,000 ha with an estimated population of 105,000 18  - reliable 24-hour water supply covering the entire urban areas in all project cities at adequate pressure 66\. While water supply tariffs are not yet at adequate levels for full financial sustainability7, local governments have been consistent in their budgetary support for water supply operations and debt service\. Despite a general reluctance to increase tariffs (due to social and political reasons), Government policy is expected to catch with tariff increases; this will assure the financial sustainability of the water supply utilities in the future\. At this stage, the water supply companies are considered to be operationally sustainable only\. Moreover, the capacity building provided by the project and GEF-funded TA, has developed and grown staff skills considerably resulting in: - development of network mapping by a computer-based geographic information system (GIS) in Yingkou, Anshan and Haicheng - improved operations, leakage control and systems optimization through well- trained and highly competent operators and users of GIS mapping - three cities now have and utilize a state-of-the-art GIS for more effective monitoring, upgrading, expanding and repairing their water supply networks - resulting in considerable revenue increases and efficiency gains - optimal decisions for priority repairs, upgrading or new construction of pipes - higher quality of treated water through operator training and operational manuals - more accurate billing of customers, increased tariff collection and higher revenues for the water utilities 67\. Moreover, non-revenue water (NRW) was reduced significantly in most of the project cities, which resulted in having more water available for sale, although it was formally dropped from the PDO indicator\. Under the GEF TA activity, pilot NRW programs were implemented in five cities: Anshan, Yingkou, Panjin, Haicheng, and Xingcheng\. Although scope and size of the pilot activities varied among the cities, all the participating cities benefited from the program by reducing water production loss, lower operating costs, reduced leakage and NRW, sold more water and increased revenues\. Moreover, the intervention had positive influences over the utilities’ capabilities for system operation and management, gained from better data collection and analysis through installed GIS systems\. Some cities, such as Xingcheng, established a dedicated team for leakage detection to further continue NRW reduction efforts\. Overall, all the five cities gained NRW reduction experience and motivated to continue the efforts\. The table below summarizes the scope and the results in NRW reduction\. City NRW Condition Intervention Name 2012 2015 Anshan 18 communities Replace 91 km of pipes 53% 19\.5% 7 Despite improvement in cost recovery, the utility companies in Yingkou, Panjin, Anshan and Fushun are still lagging slightly in cost recovery and will need to increase their revenue base through tariff increases and / or the local government support 19  High losses Install 65,000 new meters Yingkou Average 50% losses Network rehabilitation 54% 13% 2 pilot communities Meter replacement 39% 12% Panjin Old network from 1950s Reconstructed ~50% of 51% 41% network Replaced 45,000 meters Haicheng 78 communities Demand monitoring & 26% Not Worked in 2 pilot areas measurement known Data analysis yet Leakage detection & repair Xingcheng One pilot district Rehabilitated pipes 55% 35% Relocated many meters (35%) (25%) (iii) Improving Performance and Sustainability of Solid Waste Services Sub-rating: Substantial 68\. The project achieved the physical targets for SWM infrastructure: (i) the construction of two new sanitary landfills in Fushun and Panjin with a combined capacity of 2,000 t/d including the associated landfilling equipment; (ii) installation of one leachate treatment plant; (iii) closure of one old dump site; (iv) supply of 50 compactor-type solid waste collection vehicles; (v) installation of one solid waste transfer station; and (vi) the establishment of a large number of local refuse pick-up points in three cities\. These investments created a cleaner environment and provided new solid waste disposal capacity of some 2,000 tons/day, including the treatment of highly contaminating leachate at the landfill sites8\. - reduced odor and visual nuisance of open dump sites, especially in Fushun where several scattered uncontrolled dump sites were closed - less potential for groundwater contamination through landfills - cleaner urban environment and decrease of unsanitary conditions for both cities - reduction of pollution load entering – directly or indirectly – the Bohai Sea - conservation of economic activities in the Bohai Sea, i\.e\. fishing & tourism\. 69\. The GEF-funded TA contributed importantly to achieving the completion of the targeted SWM master plans which addressed institutional, financial, cost recovery, technical and infrastructure planning issues in the solid waste sector in three cities\. Key positive outcomes for sustaining fully adequate SWM services in the future are as follows: - Gaizhou and Panjin have better designed landfill sites and associated facilities with minimal negative environmental impacts 8 Leachate collection and treatment below solid waste landfill sites is especially important for the protection of ground water resources 20  - these two landfill sites have proper groundwater monitoring wells to prevent the spreading pollution into important water resources - new operational manuals assist with safe and efficient operation of sanitary landfills - utility staff are better informed on collection, transfer, disposal and management options thus contributing to a cleaner & healthier urban environment - utility staff are better equipped to deal with financial aspects, especially cost recovery and tariff collection - SWM utility staff are better equipped to plan for future expansion - Gaizhou, Fushun & Panjin have separate SWM master plans to guide future development - Panjin was enabled to operate a well-designed pilot project of integrated urban- rural solid waste management\. 70\. The GEO were largely achieved (rated moderately satisfactory) because important investments in wastewater and solid waste management infrastructure were put into operation that are reducing the pollution loads into the Bohai Sea through (i) effective city- wide wastewater collection and treatment, and (ii) solid waste collection and disposal in fully engineered sanitary landfill sites (including leachate treatment plants) that minimize groundwater and surface water pollution to reach rivers and eventually the sea\. The positive outcomes of the GEF component were demonstrated by the fact that the GEO indicators of reduced BOD, TN and TP – all indicating a decrease in pollution loads – were all exceeded by a factor of at least 2\.5\. 71\. The GEF-funded activities, modified after initial delays, responded well to the key sector issues that arose\. The grant financed several highly relevant studies, technical assistance and training activities that contributed greatly to the development and strengthening of the utility companies in planning, monitoring, water supply system network mapping investment projects management, metering and NRW management\. All the above-mentioned activities contributed to the improved performance of the targeted urban services\. Moreover, the achievement of wastewater and solid waste utilities’ cost recovery is expected to ensure the sustainability of these services\. Lastly, the dissemination activities held in 2015 assure that study findings will be used widely (see Annex 6 for details)\. 3\.3 Efficiency Rating: Modest 72\. Detailed financial projections were carried out at appraisal for the project water supply and wastewater companies, focusing on (i) utility tariffs, their adequacy and affordability; (ii) the financial performance of the utility companies, especially cost recovery ratio and debt service coverage ratio; and (iii) the fiscal sustainability of the local governments for supporting the water supply and wastewater companies’ budgets as needed\. Annex 3 provides details of the financial analysis done at the time of project completion\. Tables 3\.2 and 3\.3 in Annex 3 demonstrate that the affordability of utility tariffs has increased significantly since appraisal as a result of rapid economic growth whilst over the same time period there have only been very limited, if any, increases in the 21 tariffs charged for these services\. The financial performance of the utility companies is summarized in Table 3\.5, also in Annex 3\. It shows that varying levels of tariff increases are needed to achieve full financial sustainability, i\.e\. no operating subsidy from the local government\. In China, it is a common practice that the local government provide subsidies to wastewater and water supply companies that are meeting performance targets imposed by the government\. These subsidies are counted as non-operating revenues, and they are incorporated in the calculation of a cost recovery ratio\. In this context, the situation of the wastewater companies is more complex because low collection rates and inadequate tariffs often impair the prospects for financial sustainability except in Yingkou where tariff collection performance is satisfactory\. With regard to the fiscal sustainability of the local governments, there has been significant growth in municipal revenues since appraisal as shown in Table 3\.4\. In view of these impressive growth rates and also in consideration of the fact there has been no major cost escalation during the LMC-2 implementation, it is apparent that the local governments’ fiscal sustainability is now stronger than what it was at appraisal when it was considered to be adequate\. 73\. At appraisal, subproject-level economic cost-benefit analysis was not considered to be appropriate but all subprojects had used a standard least-cost / cost effectiveness methodology that incorporated technical, environmental, financial and social criteria into the design and decision-making process and an open, competitive bidding process that was used throughout\. It is evident that the project investments provided good value for money and can be considered to be substantially efficient\. As an example from the city of Panjin, the specific unit price to construct a large WWTP has remained almost the same – it increased only slightly from RMB 2751\.9 /t to 2899\.5/t over a time span of ten years, i\.e\. less than 5% which is considerably much less than inflation (28% over 10 years from 2005 to 2014)\. This means that in real terms the costs actually decreased while the plant developed under this project meets higher treatment standards (Class A) compared to the plant built ten years with financing from the LRBP treated sewage to Class B standards only\. 74\. Although not readily quantifiable, the project generated economic benefits through improved utility service delivery, higher water use efficiency, reduction of non-revenue water, and better sanitation\. The latter improvements contributed important health, environmental and aesthetic benefits\. Although there are no data to measure the direct economic impacts of the project, it is interesting to note – as shown in Annex 3 – that the project implementation period witnessed significant economic growth in the benefiting cities: per capita Gross Domestic Product (GDP) increased by factors ranging from 1\.6 to 3\.6 between 2007 and 2015\. The project generated large increases in service areas and benefiting populations, such as in Fushun where 250,000 HHs have benefited directly from water supply services improvements, and in Panjin where the added wastewater treatment capacity covers an area of 722 ha with an estimated population of 283,000; the overall wastewater treatment rate in Panjin increased from 45 to 85%\. The urban environmental infrastructure improvements also improved – in a significant way – the local investment climate, thus contributing further non-quantifiable economic benefits\. 22 75\. The non-revenue water (NRW) projects supported by the GEF grant generated important efficiency gains\. For example, in one pilot community of Xingcheng city, NRW volume was reduced from 55 to 35%, and water revenue increased almost five-fold\. In addition, power consumption was reduced and there were fewer customer complaints\. As a result, Xingcheng has set up a NRW team to continue getting further efficiency gains system-wide\. In Anshan city, similar results were achieved, i\.e\. a NRW reduction by about one third and a three-fold revenue increase\. 3\.4 Justification of Overall Outcome Rating Rating: Moderately Satisfactory 76\. As discussed above, the project was and still is highly relevant to the Bank-China Country Partnership Strategy and also to China’s strategy as described in section 3\.1\. The PDO and GEO were substantially achieved as described above, and the efficiency of the investments was assured through the least-cost approach for selecting and design the priority improvements\. 3\.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development 77\. The urban poor have definitely benefited to a greater extent from the project interventions since – before the project – they would have had less access to municipal services, such as reliable clean water supply and garbage pick-up, and would have been more negatively affected by discharges of untreated wastewater\. Table 3\.3 in Annex shows that the current utility charges are readily affordable by the poorer households, too\. The project benefited both genders equally although women usually appreciate the improved sanitary conditions more highly\. Regarding social development, the participating local government agencies gained valuable practical experience in the implementation of fair land acquisition with adequate compensation and restoration of livelihoods (in case of resettlement) that were supported by grievance redress and appeals mechanisms\. (b) Institutional Change/Strengthening 78\. The capacity of provincial, local government and utilities staff was strengthened significantly, not only through well-targeted capacity building TA, but also by acquiring practical on-the-job experience in project and financial management, strict and fair procurement procedures, and innovative technical solutions\. Staff capacity also was increased – through training and study tours – for operations and management of the newly built facilities\. The project also pushed local governments towards increasing commercialization, especially the wastewater, drainage and solid waste departments\. (c) Other Unintended Outcomes and Impacts (positive or negative) 79\. The revisions of the GEF grant subcomponents as part of the 2013 project restructuring provided an opportunity to conceive new TA, based on actual needs at that stage\. These changes produced an ecological study of the Dahuofang Reservoir, installation of advanced GIS for the three water supply companies, and master plans for urban 23 wastewater and SWM\. The dissemination workshop in June 2015 not only demonstrated the value of this revised TA but also served as a – previously unplanned – stakeholders’ project closing workshop\. 3\.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops 80\. A GEF dissemination workshop was held on June 12, 2015 in Shenyang\. The principal objective of the workshop was to disseminate the lessons learned and information on specific GEF outputs to some 80 public utility managers and relevant government officials across Liaoning Province\. The gathering also took the place of a stakeholder workshop\. It dealt with the two main components of the project: i) urban water supply and wastewater management and ii) municipal solid waste management, for which the GEF program had provided the TA for the associated ID\. 81\. The GEF component had been successfully implemented in the later years of LMC- 2 implementation in accordance with a revised design\. The goals of the GEF program were largely achieved: (i) better public utility management and operations; (ii) up-to-date wastewater sector plans, (iii) some public- private sector partnerships were initiated; (iv) municipal solid waste management was greatly improved, including sector planning and financing, optimization of garbage collection and transportation, landfill operations and training, dump closure plans, and integration of urban and rural waste collection and disposal services; and (v) good asset management was introduced, with particular emphasis on the management of non-revenue water, water leakage reduction, and the implementation of GIS\. 82\. As well as benefiting the cities and utilities that directly participated in the different GEF initiatives, a very important additional objective of the GEF component was to disseminate best practices and lessons learned from the GEF work to other cities of Liaoning and potentially beyond\. The workshop was an important part of that process and achieved the additional objective very well\. See Annex 6 for a detailed report\. There was no beneficiary survey\. 4\. Assessment of Risk to Development Outcome and Global Environment Outcome Rating: Moderate 83\. The table below summarizes risks identified at project closing to the sustainability of the achievements / results of the PDO and how they are expected to be mitigated after project completion\. Risk factors Mitigation Operation & maintenance of facilities is O&M Staff are well trained, and seem to poorly executed be competent and highly motivated Equipment fails to perform as expected Superior equipment and construction and designed quality were employed to prevent failure 24  Tariff collection rate is too low and Improved municipal service delivery will utilities lack revenues motivate customer to pay tariffs\. Water supply tariff collection rates are improving but WW and SW charges and collection systems remain inefficient\. GEF work suggested reforms for SW charges which are now under consideration by LGs Tariffs are not increased sufficiently to National policies are supportive of tariff cover operations and debt service reforms but policy implementation is lagging\. LGs recognize need for tariff increases but most are awaiting direction from higher levels of government\. Local governments fail to provide enough Some local governments are committed & subsidy to make up revenue shortfalls national policies are expected to change Institutional reform and Institutional and commercialization commercialization stalls reforms progressing well at national level but absence of enabling regulations to date have impeded policy implementation at local level Momentum for reform and further Liaoning Province has already applied to improvements slows down or is lost the Bank for a follow-on project 84\. On the basis of the brief analysis above, the risk to development outcome has been assessed as Moderate because despite several significant risk factors, there are a number of positive mitigation factors that reduce the overall risk to a moderate level\. The analysis applies equally to Development and GE outcomes\. 5\. Assessment of Bank and Borrower Performance 5\.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Moderately Satisfactory 85\. PDO and GEO were well formulated and focused foremost on improvements in service and sustainability and on reducing environmental pollution, mainly of surface water and the marine environment, although it would have been impossible to devise a suitable indicator to monitor Bohai Sea water quality directly\. Strategically, the project was highly relevant and the approach to implementation was well thought out\. The indicators used could be measured, but their number could have been reduced\. 86\. Project preparation took more than two years from concept to Effectiveness and caused some of the proposed investments to be outdated by the time implementation eventually started\. Project design was too ambitious in terms of expecting local wastewater utilities to become managerially and financially independent – even though at the time of preparation the ongoing LRBP had experienced difficulties in this regard\. On the positive 25 side, the original investment plan was substantially implemented by project closing\. While the technical and financial aspects of the project design were well prepared, the economic analysis was lacking\. Safeguard and fiduciary aspects were appropriately covered during preparation, and adequate monitoring processes were included in the design\. 87\. As mentioned in section 3\.1, project preparation for the institutional development component resulted in a design that responded to the needs of Liaoning\. However, it was not implementable in its intended form due to a number of factors: (i) a lack of “buy-in” from the project cities, (ii) a minimum of consultations, and (iii) the rapidly changing infrastructure needs and priorities of the cities\. This problem was addressed by the original design of the GEF component which responded to the more relevant key issues in the management of the water, wastewater and solid waste sectors in Liaoning, and indeed, in many other parts of China\. 88\. While local governments succeeded in adjusting their investment priorities, the project design had not anticipated the dynamic development situation in China in general, and Liaoning Province in particular\. The rapidly changing requirements and needs would have benefited from a number of pre-screened stand-by “spare subprojects” (as suggested by one of the PIUs) that could have replaced the few dropped subprojects\. (b) Quality of Supervision Rating: Satisfactory 89\. Although not very effective in the early stages of project implementation to assist the Borrower to overcome initial problems and substantial delays, following the mid-term review, Bank supervision fully supported the Borrower’s request for a project restructuring and cooperated with Government to complete the project by the extended closing date\. Also, Bank supervision paid particular attention to fiduciary, environmental and resettlement safeguard aspects\. Bank completed a Special Procurement Review in May 2011 and found only minor deviations of from Bank guidelines; this was done to allow the implementing agencies to proceed with some badly delayed contract awards\. They contributed helpful technical advice and innovative solutions for the infrastructure investments\. The Bank was also very supportive in assisting with project restructuring and the re-design of the GEF grant funded sub-components\. Bank staff also allowed a fine- tuning of their content in 2014 to utilize grant savings and satisfy emerging needs in relation to sector planning and policies, the commercialization of public utility services, and urban-rural service integration\. Bank staff made restructuring and loan closing date extension conditional upon (i) delivery of outstanding safeguard documents for revised / additional subcomponents, and (ii) achievement of important progress actions, which proved to be effective incentives\. Lastly, Bank supervision helped to ensure that adequate transition arrangements to regular operation were in place and also stressed the importance of good asset management\. Overall, Bank supervision had focused on development impact and was fully adequate in terms of frequency and filed regular and candid reports on project performance\. (c) Justification of Rating for Overall Bank Performance 26 Rating: Moderately Satisfactory 90\. Based on the above assessments, Bank performance is rated a solid Moderately Satisfactory despite the above mentioned issues with project preparation and problems during the early part of implementation\. Bank staff made persistent efforts to get project implementation back on track through a successful restructuring, and with an adequate closing date extension, see it through to completion\. 5\.2 Borrower Performance (a) Government Performance Rating: Moderately Satisfactory 91\. Both the central government and LPG showed great commitment to the project and worked hard to secure the necessary counterpart funds, process the PAs and SLAs, and maintain good project records\. They also complied with the loan re-payment schedule, met the legal covenants, and fully cooperated with the Bank\. 92\. In the early stages of implementation there was poor coordination and cooperation between LUCRPO and LFD\. This poor working relationship had impeded the progress of implementation and also seriously delayed the request for a badly needed project restructuring which the MTR mission had agreed upon in October 2010\. However, the LPG is to be commended for their decision in 2012 to make radical changes in the management team of the PDRC and LFD; they also changed the staffing of LUCRPO\. These changes led to a greatly improved implementation performance from 2012 onwards\. 93\. Some government actions actually interfered with a smooth implementation: a Liaoning provincial requirement to have full wastewater treatment capacity by 2010, and national requirements – introduced in 2008 – for leachate treatment at all sanitary landfills led to changes in project scope as local governments scrambled to meet the new requirements\. 94\. Lastly, LPG’s slow progress with implementing national utility tariff policies discouraged local governments from enacting the covenanted tariff increases in a timely manner\. (b) Implementing Agencies Performance Rating: Moderately Satisfactory 95\. In general, the IAs embraced the project and aspired to its outcomes\. They procured a total of 84 goods and works contracts, of which 79 were completed as planned, four were 27 completed with reduced scope 9 , and one dropped 10 \. The pace of implementation was varied; some cities managed to complete the construction of their subprojects in 2013, but others implemented very slowly, especially during the first few years so that after two years of implementation the project was 12 months late\. 96\. In general, there was a stubborn disbursement lag throughout implementation (due to slow processing of withdrawal applications at the IA and the provincial levels) although physical progress was much better, especially during the later years\. By 2010 the key construction management consultants had not been paid (due to an unreasonable payment procedure) and threatened to leave the project – three years after Effectiveness\. Bank management called the project “at a critical stage”\. Just prior to the project restructuring in 2013, DO and IP ratings were downgraded to Moderately Unsatisfactory, and the GEO rating was Unsatisfactory\. 97\. In view of the impressive recovery of implementation progress after the restructuring, and the efforts made to expedite the processing of all pending payments, the IAs performance overall is rated as Moderately Satisfactory\. (c) Justification of Rating for Overall Borrower Performance Rating: Moderately Satisfactory 98\. Since both Borrower and IAs were rated Moderately Satisfactory, the overall rating is also Moderately Satisfactory; this rating reflects a slow start with many problems and delays but good efforts on the part of the Borrower to overcome the difficulties, complete the project successfully and achieve the PDO and GEO as well as the full counterpart fund disbursement\. 6\. Lessons Learned (a) Partnership engagement and ownership 99\. Build strong partnership between all stakeholders including the Bank, the Borrower and the implementing agencies while recognizing their cultural diversity\. The Bank team’s emphasis on strong partnership increased the trust between the parties\. The simple act of sitting with the Borrower’s team on their side of the table helped greatly to build trust\. This was reported by LUCRPO to the top management of LFD and LDRC, and Liaoning shared the concept for a follow up project with the Bank team; that concept was later submitted to the Bank for possible future financing\. 9 Two works and goods contracts were reduced due to a land availability issue for the Dawa solid waste transfer station (which is now proposed for construction with funding from the local budget) and the other two are related to Haicheng water distribution pipelines\. 10 This is related to the cancellation of water supply pipelines in Haicheng that were not needed anymore due to changes in the city’s masterplan\. 28 100\. Ensure the availability of counterpart funds before project Effectiveness\. This would expedite the pace of implementation and avoid unnecessary delays\. 101\. Build strong local commitment and buy-in early on during project preparation and the early part of the implementation period\. Implementation proceeded smoothly in Xingcheng where local buy-in was secured early on but there were delays and setbacks with the GEF component due to a lack of sufficient local commitment and buy-in\. (b) Institutional and financial 102\. Identify institutional weaknesses that may impede the pace of implementation\. This should be carried out at a very early stage in close cooperation with the government and the implementing agencies involved\. Thanks to the LPG’s intervention, the serious delays at the beginning of the project that were caused by the unworkable implementation arrangements and procedures were compensated for by the fast progress after the radical changes in the management teams of LFD, LDRC and LUCRPO in 2012\. 103\. During project preparation and start-up focus the institutional and capacity- building efforts on those cities with no prior Bank experience\. The cities that were new to Bank financing had considerable start-up problems and delays, but cities with experience from earlier Bank projects performed much better during the early implementation period\. 104\. Do not set targets that are unlikely to be achieved in view of the prevailing policy environment and precedents\. The cost recovery indicators for the project cities were not well selected since the utilities in the project cities of Liaoning do not have control of tariff adjustments – tariffs are usually imposed by the local governments\. (c) Operational 105\. Aim for a simple project and proper packaging of the investments to expedite implementation\. The project financed 84 works and goods contracts\. Given their similar nature, the contracts could have been packaged differently to reduce their number and thus the management efforts\. However, the complexity of contracting was exacerbated by the wide project scope: eleven IAs covering three distinct infrastructure sectors, and seven widely separated cities\. 106\. Once the need for project restructuring has been identified and agreed upon, proceed expeditiously to actually restructure the project\. The very much delayed restructuring of this project caused serious disbursement lags due to category allocation limits\. 107\. Expect changes and therefore build flexibility into a project that supports local government investments\. Fast-growing local governments insisted on their autonomy to make decisions when faced with changing needs and new regulatory and policy requirements\. Such situations led to a number of scope changes, some subcomponents were dropped but no substitutes were ready, and a major restructuring became necessary\. 29 108\. Make sure to actually implement the risk mitigation measures that were proposed for all risks identified during the appraisal process\. Mitigation measures for risks related to design, fiduciary aspects and institutional capacities were not fully implemented and this caused a number of problems and delays\. 109\. Have some detailed designs for subprojects ready by the start of implementation and also develop some pre-screened standby spare subprojects\. The lack of completed detailed designs at start-up caused serious implementation delays\. Moreover, the project design should have anticipated for the dynamic development situation and develop some pre-screened standby “spare subprojects” that could have replaced the dropped subprojects\. (d) Capacity building and technical assistance 110\. Maximize the benefits of the TA and expedite TA implementation during the early stages of the project\. All studies and TA activities under the loan and GEF have been completed, albeit late, but it would have been preferable to start these activities during the early stages of the project\. This would have given the IAs the opportunity to fully practice, apply and use the acquired skills and adapt or scale them up to respond to specific needs\. 111\. Whenever available, seek grant assistance to finance additional TA for complex technical / institutional projects\. The GEF grant funds – after restructuring – provided an opportunity to mobilize additional, special TA to address the complex institutional, financial and technical challenges faced by the IAs\. The GEF grant also allowed the Borrower to reduce loan funding for TA by USD 1 million\. (e) Other Lessons for specific aspects of implementation 112\. Carry out full geotechnical investigations before finalizing bidding documents to ensure good engineering design of foundations and structures\. Lack of complete technical, especially geotechnical, information for the construction of WWTPs necessitated later design changes and variations that caused cost increases and delays in contract completion\. 113\. Do broad and intensive public consultations early in the landfill site selection process and consider all objections and concerns, especially from adjacent populations\. Three landfill site locations that had been selected early in the land acquisition process were later rejected by the local population; this caused project delays, and the cancellation of one of the SWM components\. 114\. Include sub-metering of electric power consumption within WWTPs\. The absence of detailed data made the monitoring and control, and subsequent reduction, of power usage difficult to achieve\. 115\. Conduct targeted environmental training of project participants early during project implementation; later, during construction, communicate effectively with the local population with regard to potential environmental and social impacts\. Timely and 30 appropriate environmental training helped project participants to better understand the importance, requirements and implementation approach of the EMPs\. Also, where good communication with directly affected populations was done, it contributed considerably to smooth project implementation and avoided complaints and construction delays\. 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies 116\. Liaoning Province, in its project completion report (PCR) which was prepared by LUCRPO and is summarized in Annex 7, expressed great satisfaction and pride with the project’s outcomes\. The entire implementation process has been a valuable experience for all agencies involved, and much capacity building of the PIUs has been achieved that will help them with their ongoing operations, planning and implementation of future projects\. 117\. LUCRPO is also very satisfied with the level of support they received from the Bank during project identification, preparation and implementation; the facilitation of procurement and timely reviews and approval for contract re-packaging and the project restructuring following the MTR discussions; and the re-design at MTR of the GEF grant funded sub-components, and in fine tuning of their content in 2014 to satisfy the needs of emerging sector policies in relation to marketization of public utility services and urban- rural service integration\. 118\. LUCRPO emphasized that the Bank loan and GEF grant have not just simply helped to finance the Project, but have also introduced advanced management practices for project implementation, strategic sector planning and enterprise operation\. Bank project implementation rules and procedures for procurement, contracts management and construction supervision have been broadly accepted as being fair and giving greater assurance of a satisfactory outcome\. Good experience has been gained by applying these rules and procedures, which have been replicated on similar projects not financed by the Bank\. 119\. LUCRPO acknowledged that the GEF-funded capacity building activities have laid a good foundation for improved performance of Liaoning public utilities, in strategic sector level planning and the use of public private partnerships (PPP)\. In addition; (i) greater knowledge has been obtained of the ecology of the Dahuofang reservoir watershed, which is the key water resource of the Province, and draft mechanisms were developed for its preservation; and (ii) a pilot system of urban-rural integration of solid waste collection and disposal has been designed for implementation in Panjin, which it is hoped can become a model for future integration of public utility services across the urban-rural divide\. 120\. The Bank concurs with LUCRPO’s assessment regarding (i) the importance of the counterpart funding for smooth implementation; (ii) the importance of comprehensive project design that takes into account the site conditions and the local land use plans to avoid variations and delays; (iii) the need for proper arrangements for electricity consumption audits in all water and wastewater installations to be able to develop better energy management plans; (iv) the recognition that cost recovery covenants cannot be viable without considering institutional reforms, as in case of Panjin and Yingkou; (v) the 31 importance of leadership to facilitate timely implementation of the capacity building activities under GEF; (vi) the great need to do more capacity building in PPP (a PPP pilot was dropped from the GEF component); and (vii) the need for proper asset management, sustainability of the project outcomes and the scaling up of the project activities to further improve the water and wastewater services in Liaoning\. (b) Cofinanciers N/A (c) Other partners and stakeholders N/A 32 Annex 1\. Project Costs and Financing (a) Project Cost by Component (in USD Million equivalent) China-Second Liaoning Medium Cities Infrastructure Project - P092618 Actual/Latest Appraisal Estimate Percentage of Components Estimate (USD (USD millions) Appraisal millions) Wastewater infrastructure 129\.90 124\.36 95\.7 Water supply infrastructure 132\.20 145\.63 110\.2 Solid waste infrastructure 55\.60 36\.35 65\.4 Institutional Development 2\.70 2\.78 102\.9 Total Baseline Cost 320\.40 309\.12 96\.5 Physical Contingencies 0\.00 0\.00 - Price Contingencies 0\.00 0\.00 - Total Project Costs PPF 0\.00 0\.00 - Front-end fee IBRD 0\.43 0\.43 100 Total Financing Required 320\.83 309\.55 96\.5 China-GEF-Liaoning - P090375 Actual/Latest Appraisal Estimate Percentage of Components Estimate (USD (USD millions) Appraisal millions) Public utility program 2\.35 0\.00 N/A Solid waste master planning 1\.50 0\.00 N/A Water pollution control planning 1\.00 0\.00 N/A Dissemination & training 0\.15 0\.05 33\.3 Public utility capacity building N/A 0\.78 - Water networks GIS systems N/A 1\.59 - Study of ecology of Dahoufang N/A 0\.30 - Reservoir Urban solid waste management N/A 1\.14 - Strategic planning for urban N/A 0\.92 - wastewater management Total Baseline Cost 5\.00 4\.78 96\.0 Physical Contingencies 0\.00 0\.00 - Price Contingencies 0\.00 0\.00 - Total Project Costs 5\.00 4\.78 96\.0 PPF 0\.00 0\.00 Front-end fee IBRD 0\.00 0\.00 Total Financing Required 5\.00 4\.78 96\.0 Note: Due to the delayed start-up of the GEF-financed studies, the first three components were completely revised and replaced by five new components\. Total GEF expenditures do not add up to total amount disbursed due to rounding errors\. 33 (b) Financing P092618 - China-Second Liaoning Medium Cities Infrastructure Project Appraisal Actual/Latest Type of Estimate Estimate Percentage of Source of Funds Financing (USD (USD Appraisal millions) millions) Borrower 147\.83 148\.52 100\.5 GLOBAL ENVIRONMENT - 5\.00 4\.80 96\.0 Associated IBRD Fund (Grant) International Bank for 173\.00 161\.03 93\.1 Reconstruction and Development Totals 325\.83 309\.55 96\.5 P090375 - China-GEF-Liaoning Appraisal Actual/Latest Type of Estimate Estimate Percentage of Source of Funds Financing (USD (USD Appraisal millions) millions) Borrower 0\.00 0\.00 - Global Environment Facility (GEF) 5\.00 4\.80 96 Note: Local funds were converted at the exchange rate of RMB1\.00 = USD0\.157 34 Annex 2\. Outputs by Component Components 1, 2 and 3 of the project generated a large number and range of physical outputs with many general and some city- or site-specific outcomes\. The main outputs and their clear linkages to outcomes are shown in matrix format below\. CITY OUTPUTS OUTCOMES Component 1 – Wastewater infrastructure Fushun - 10\.8 km of new sewers in Liushan & - cleaner urban environment Zhang Dan districts - decrease of unsanitary conditions - no more wastewater discharges or over-flows into rivers & lakes Yingkou - new 100,000 m3/d WWTP - cleaner, less polluted surface water - drainage & interceptor sewers for irrigation, fisheries & recreation - 7 new sewage pump stations - in Panjin & Yingkou, substantive - 1 sewage pump station was upgraded treated effluent re-use by municipality & industry, respectively - reduction of pollution load entering – Panjin - new 100,000 m3/d WWTP directly or indirectly – the Bohai Sea In two districts of Panjin: - conservation of economic activities - 18\.8 km sewer lines rehab’d in the Bohai Sea, i\.e\. fishing & tourism - 2 new sewage pump stations - reduction of pollution load entering – - 6 sewage pump stations were directly or indirectly – the Bohai Sea rehabilitated - improved investment climate - in Gaizhou, river banks have been stabilized & bank erosion has been Gaizhou - new 50,000 m3/d WWTP (using halted over 3\.3 km extended aeration A/O process) - in Panjin wastewater treatment - new 7 km sewage interceptor coverage comprises 722ha with an - 3\.4 km of new main sewers estimated population of 283,000 and - 1 new sewage pump station coverage rate has increased to 85% - 3\.3 km new riverbanks improvement - in Yingkou wastewater treatment works coverage increased to 90% and an covers a population of 420,000 and the wastewater treatment rate increased from 45 to 90% Component 2 – Water supply infrastructure Anshan - new 120,000 m3/day water treatment plant (WTP) - 120 km distribution lines either upgraded or newly constructed - 65,250 water meters purchased - non-revenue water was reduced Haicheng - 10,000 m3/d capacity expansion of significantly in all project cities & existing WTP more water is available for sale, - 60,000 m3/d capacity expansion of resulting in better service for existing water distribution plant customers & revenue increases for the - 74 km of water distribution pipes utilities newly constructed or upgraded - more accurate billing of customers 35  CITY OUTPUTS OUTCOMES - plan to purchase 25,000 water meters - increased tariff collection & higher later (using non-Bank funds) revenues for the water utilities Yingkou - new raw water intake and - due to GIS, more efficient 31\.3 km transmission line management of distribution system - 70,000 m3/d capacity WTP - optimal decisions for priority repairs, - construction or upgrading of upgrading or new construction 125\.9 km water distribution lines - higher quality of treated water Panjin - construction of 33 km of water - better investment climate because of distribution pipelines availability of reliable and good - water loss monitoring and water quality water supply metering equipment: - in Anshan 250,000 HHs benefited - 205 bulk meters directly from improved water service - 92,262 water meters as a result of pipe replacement - 6,212 u/g meter chambers - in Yingkou the service area increased Fushun - construction of large diam\. 15 km by about 2,000ha with an estimated raw water transmission main line population of 105,000 - construction & upgrading of 125\.9km water distribution lines - purchase of water loss monitoring equipment Xingcheng - construction of 17\.5 km of - availability of 24-hour adequate distribution network pressure throughout the distribution - purchase of water loss monitoring system while before the project there equipment was low pressure & intermittent water - purchase of 2,200 water meters rationing Component 3 – Solid waste infrastructure Fushun - sanitary landfill with capacity of - cleaner urban environment 1,400 t/d (NBF) - decrease of unsanitary conditions - one leachate treatment plant\. - reduced odor & visual nuisance of - landfill operating equipment open dump sites - closure of old open dump - reduced potential of groundwater - 30 rear compaction vehicles contamination Panjin - sanitary landfill with capacity of 600 - reduction of pollution load entering – t/d (by BOT – not using Bank directly or indirectly – the Bohai Sea financing) - conservation of economic activities - 20 rear compaction vehicles in the Bohai Sea, i\.e\. fishing & tourism - One transfer station w/associated - improved investment climate vehicles - in Fushun, closure of several scattered uncontrolled dump sites Component 4 (i) – TA for design and construction - review bidding documents - a well-managed project - assist with project management - timely and informative reports - review of payment applications - project was able to get back on track - site inspections and training for after serious problems & delays supervision activities - effective construction supervision - assistance with financial - good documentation & dissemination management, accounting, and of studies and TA outputs safeguards monitoring - an effective FMS - good safeguards monitoring with 36  CITY OUTPUTS OUTCOMES minimal problems & complaints - significantly increased inst\. capacities Component 4 (i) was implemented between 2008 and 2015\. The TA consultant provided advisory services to the PIUs and LUCRPO for bidding documents review, project management, payment review and asset management\. All bidding documents were reviewed by the consultant before submission to the Bank for ‘no objection’ (prior review) or to LUCRPO for approval (post-review)\. All payment applications (including VOs) were also reviewed by the consultant and submitted to LUCRPO, with appropriate comments\. The consultant did site inspections to construction sites during the construction period\. The consultant also provided advice and training to LUCRPO and PIUs, relating to management of contracts, safety issues, and quality and cost control\. In 2013, due to progress and financial reporting problems, additional tasks were added to the package A1 work scope in relation to financial management, accounting, environmental and resettlement safeguards monitoring\. The consultant also provided TA support for implementation of 11 retro-actively financed contract packages scheduled for implementation between September 2007 and March 2008\. The TA consultant provided services to the relevant PIUs and LUCRPO for bidding documents review, and project management for these 11 packages\. However, due to the delay in implementing some of the packages, the services were not actually completed until December 2012\. Outcomes: Increased project management capacity of project agencies Through the support of the consulting team all 12 project implementing entities developed as effective project implementation agencies and the procurement and the construction phase of all project components were generally well managed\. Most construction contracts were completed ahead of schedule, although some delays occurred, notably in Gaizhou, Haicheng and Panjin\. All PIUs acquired solid experience in project management and in the particular requirements of implementing a Bank-funded project, such as open and transparent procurement, and effective controls over contract variations and procedures for the handling of contractors’ claims\. The fact that the project was generally implemented successfully, with performance improving as time went on, demonstrates this capacity building was successful\. In view of the large number of studies, initiatives and reports generated by the GEF component, a summary of objectives, outputs and related outcomes is presented below\. Component 4 (ii) to (iv) – GEF-financed Studies and their dissemination Ref\. Objectives Outputs Outcomes B1 Public Utility Capacity Building B1-2 Leakage Control and Water balances prepared for Management Report each participating utility\. Strategies for reducing leakage levels developed and implementation commenced\. 37 Component 4 (ii) to (iv) – GEF-financed Studies and their dissemination Ref\. Objectives Outputs Outcomes B1-3 Operational Management and Potential optimization and Optimization Report efficiency savings identified for each utility and managers briefed on potential follow-up - Provide leadership in the actions\. B1-4 design and supervision of Final Benchmarking Report Improved awareness of staff of the start-up of the potential benefits from Liaoning Public Utility benchmarking, relevant Improvement Program methodologies and implementation issues\. Utility managers now better understand the importance of proactive performance management and the techniques involved\. All participating utilities are to publish annual performance reports in future\. B1-5 Capacity Building Design Comprehensive compilation of Report and Training Material all training material available in hard and electronic format\. Several participating utilities started to incorporate this material into their internal training programs\. 7 utilities benefited from this program: Anshan City WS General Co; Fushun City WS Co; Haicheng City Water Supply Co; Panjin City WS Gen\. Co\.; Panjin Urban Drainage Mgt Co Ltd; Yingkou Water Affairs Co\. Ltd; and Gaizhou Drainage Co\. (GDC)\. B2 GIS Systems for Water Supply Networks B2-1 - Provide leadership in Data Base of Water Network Three cities – Yingkou, design & supervision of Assets Anshan and Haicheng – now B2-2 the start-up of Information Mapping Database have and utilize a state-of-the- B2-3 Management Systems Inception Report art GIS for more effective B2-4 (IMS) of Urban Water Pipe network hydraulic model monitoring, up-grading, B2-5 Supply for scientific Training Materials expanding & repairing their B2-6 management & optimize Final Completion Report water supply networks\. GIS water distribution\. facilitates improved operations, leakage control and systems optimization\. Operators & users are well trained & highly competent\. B3 Study of Ecology of Dahuofang Reservoir B3-1 - Quantify the ecological - availability of more accurate service values in the values of ecological service Dahuofang watershed Report on values of ecological functions value generated by services of Dahuofang Reservoir forests, reservoirs, farms and - Promote the other types of ecosystems in B3-2 improvement of the the surrounding areas ecological environment Report on proposals for - ecological compensation and water quality of ecological compensation policies can be developed 38 Component 4 (ii) to (iv) – GEF-financed Studies and their dissemination Ref\. Objectives Outputs Outcomes Dahuofang Reservoir mechanisms for the Dahuofang based on eco-compensation Reservoir watershed index - Clarify overall goals, - based on above, a system for basic principles, then ecological governance can be design ecological developed & implemented compensation mechanism - case study available for use by other regions C Urban Solid Waste Management C-1 Inception Report - Gaizhou & Panjin have better C-2 Design of Gaizhou proposed designed landfill sites & solid waste facilities with minimal C-3 Panjin priority projects and plan negative environmental for the expansion of waste impacts - Assist the selected cities collection systems - the 2 landfill sites have C-4 to prepare strategic solid Report on the design of the new proper groundwater monitoring waste plans that address landfill of Yingkou EDZ wells to prevent spreading C-5 institutional, financial, Financial Management, Cost pollution cost-recovery and Recovery, and Management - SW utility staff are better infrastructure planning Model Report equipped to plan for future C-6 issues Planning consultation report on expansion Fushun urban waste collection - Gaizhou, Fushun & Panjin and transportation system have separate SW master plans C-7 Report on the proposals for to guide future development integrated urban-rural mgt\. of - utility staff are better solid waste in Panjin informed on SW collection, C-8 Final SW Master Plans transfer, disposal & C-9 Final Operational Manuals management options thus C-10 Final Report (includes capacity contributing to a cleaner & building activities) healthier urban environment - utility staff are better equipped to deal with financial aspects, especially cost recovery & tariff collection - new operational manuals assist with safe & efficient operation of sanitary landfills - Panjin is enabled to operate a well-designed pilot project of integrated urban-rural solid waste management D Strategic Planning for Urban Wastewater Management D-1 Inception Report - staff have updated practices D-2 Gaizhou Operational Manual & procedures for plant D-3 Panjin Operational Manual - wastewater utility staff in D-4 Gaizhou General Business Plan Gaizhou & Panjin are better D-5 - Assist Panjin and Panjin General Business Plan informed about future inst’l & D-6 Gaizhou to develop Gaizhou Wastewater and ownership options sustainable wastewater Drainage Master Plan - specific recommendations are D-7 management systems Panjin Wastewater and Drainage available to guide planning & Master Plan design for future needs & 39  Component 4 (ii) to (iv) – GEF-financed Studies and their dissemination Ref\. Objectives Outputs Outcomes D-8 Report on potential for market- expansion of plants oriented (commercial) operation - staff have knowledge of of urban infrastructure options for technical facilities D-9 Final Report (includes capacity & wastewater treatment building activities) systems - staff are better trained & equipped to operate & manage existing facilities E Dissemination and Training Activities - Facilitate learning & Dissemination workshop for 80 - all utility staff in Liaoning replication staff in June 2015 in Shenyang Province are better informed - Import relevant best Publication of detailed on innovative approaches to practices proceedings of workshop utility planning, design, operation and management\. Staff are better informed on best practices, esp\. national practices To supplement the above matrix of the GEF component outputs and outcomes a summary of outputs, outcomes and benefits by sub-component is presented below\. Sub-component – Public utility capacity building The two main pillars of the technical assistance were: (i) improved operational performance, focusing on reducing the NRW of water supply utilities and the opportunities for operational efficiency and effectiveness improvements (especially via systems optimization) of water and wastewater utilities, and (ii) improved public utility management, with a particular focus on performance measurement, including performance benchmarking\. Reduction of Non-revenue Water (NRW) ï‚ A water balance was prepared for each participating water supply utility in close conjunction with water supply operations managers\. Each utility should now be able to repeat this exercise and update their water balance\. ï‚ Strategies for reducing water leakage levels and other aspects of NRW were developed and their implementation was commenced\. ï‚ A pilot exercise to assess the effectiveness of meter replacement in Panjin demonstrated that such replacement programs can achieve increased water sales of up to 40%\. Operational Efficiency and Systems Optimization Improvements ï‚ Potential optimization and efficiency savings were identified for each utility and managers briefed on potential follow-up actions\. ï‚ Specific applications in the use of supervisory control and data acquisition (SCADA) were introduced and explained, and how these could be utilized in conjunction with the new GIS implemented under sub-component B2\. 40  ï‚ Opportunities for pressure optimization both as a means of leakage reduction and service level improvement were identified and explained, and are being actively followed up by the concerned utilities\. ï‚ Pumping optimization and potential energy efficiency improvements were identified and explained; and ï‚ For each participating WWTP, a detailed study of treatment efficiency and effectiveness was conducted and specific opportunities explained to local operational managers for their follow-up action\. Improved Performance Management of Public Utilities ï‚ Through capacity building sessions and discussions with each participating utility managers now better understand the importance of proactive performance management and the techniques involved\. ï‚ All participating utilities have been enabled to publish annual performance reports in future – this will improve transparency in the required service standards and the actual performance of the utilities concerned which is likely to lead to a more informed and supportive customer base\. ï‚ The use of performance benchmarking and its potential benefits and shortcomings, alternative approaches and benchmarking systems, and a history of its use in China was provided to the participating utilities, and the IBnet system supported by the World Bank was identified as being most suitable for use in Liaoning\. Sub-component – Implementation of water network GIS This sub-component has resulted in fully operational GIS for the water networks of Anshan, Haicheng and Yingkou water supply companies\. Specific benefits obtained or anticipated are as follows: ï‚ Provision of mapping databases for the water supply areas of each of the participating water utilities, training in database use and maintenance and handover to the utilities, ï‚ Provision of operational water network asset databases for each utility, training in database use and maintenance, and handover to the utilities for future updating ï‚ Provision of a hydraulic model of each utilities’ water network, and training in its use\. ï‚ The systems and tools provided will lead to undoubted improvements in asset management and in the operation of water distribution systems, including leakage reduction; ï‚ Use of hydraulic modelling will allow plans for future investments to strengthen existing networks or their extension to be optimized, The GIS, although currently operating as stand-alone systems, can later be readily integrated with other IT systems, such as SCADA, work scheduling, financial and inventory systems, to enhance operational efficiency and service levels\. Sub-component – Study on ecology of Dahuofang Reservoir 41 The study is utilized by the Liaoning Province Dahuofang Water Resource Management Office for developing ecological compensation policies, and the development of a “Dahuofang Reservoir basin ecological compensation system”\. The research associated report provided a theoretical and value basis for the development of related ecological and environmental governance systems, and is of reference and promotion value to other PRC regions on how to carry out basin ecological service value assessments\. Specific benefits arising from the study included: ï‚ a current situation assessment of ecological environment protection, and economic and social development in the Dahuofang Reservoir catchment, ï‚ a proposed methodology, together with a specific quantification of the ecological service values in the Dahuofang watershed ï‚ identified problems, clarified overall goals and basic principles, and made specific proposals for building and perfecting an ecological compensation system for the watershed, and\. The study also advocated for the improvement of the ecological environment and water quality of Dahuofang Reservoir\. Sub-component – Strategic planning of solid waste disposal Construction Plan for monitoring wells at the new SW sanitary landfill in Gaizhou\. The plan was established taking account of related standards, engineering, geological and hydrogeological surveys, and has been adopted by Gaizhou city\. Priority projects and plan for the expansion of waste collection systems in Panjin Based on the current situation and taking account of future service needs, a well-designed SW collection and transfer expansion plan was prepared for Panjin and has been adopted by the local government\. Report on the design of the new landfill of Yingkou EDZ A comprehensive design report was prepared covering: (i) engineering, geological, and hydrogeological survey of the landfill site; (ii) the liner system; (iii) leachate collection and treatment; (iv) gas collection; (v) final cover and closure arrangements; (vi) control of leachate level; (vii) monitoring of leachate leakage, and (viii) requirements for underground water monitoring wells\. Financial management, cost recovery, and management model report Provides a guide for the project cities to develop and realize a highly efficient and sustainable solid waste management system capable of delivering the service according to agreed targets in a planned, cost effective and transparent way using most appropriate technology\. Planning consultation report on Fushun waste collection and transportation system Based on the current situation and taking into account the future service needs, a well- designed SW collection and transfer system was prepared for Fushun\. Proposals for integrated urban-rural (URI) management of solid waste in Panjin Three reports prepared under the TA contract deal respectively with (i) a specific plan for URI; (ii) financial management of the system; and (iv) URI administrative management\. 42 The overall outcome is that a URI pilot system has been instituted and so far is operating satisfactorily\. Final MSW Master Plans Separate master plans and supporting reports provided for each of Gaizhou, Fushun, and Panjin cities and the Yingkou EDZ\. Each master plan (i) confirmed and evaluated the current situation; (ii) provided a development forecast (iii) set strategic targets, (iv) developed master plans for MSW collection, transportation and treatment; (v) identified required investments needed; and (vi) safeguard actions needed for system sustainability\. These plans are being used by city authorities to update their own planning documents and to guide detailed infrastructure planning\. Where applicable these master plan reports are compatible with the recommendations of other relevant TA outputs\. Final Operational Manuals These manuals provide for the safety and efficient operation of landfills\. They provide standard guidelines and quantitative regulations for operation, facilities, quantification information, environment and safety of solid waste sanitary operations in two parts: (i) MSW landfills and (ii) SW transfer stations\. Report on SW Institutional Framework and management information system\. Provides the analysis, a framework and specific recommendations to MSW management authorities to enable them to better manage all aspects of the MSW \.service; this includes suggestions on how PPP outsourcing might be used\. Construction Plan for monitoring wells at the new LMC-2 funded landfill in Fushun This plan was established taking account of related standards, engineering, geological and hydrogeological surveys\. Closure plan for the Taiyangsheng MSW dumping site in Gaizhou\. Provides detailed closure design plans, including shaping and treatment of the dumps, cover system, leachate collection system, landfill gas collection system, surface water control system, and underground water monitoring, taking account of the specific local situation\. The plan facilitates a safe, environmentally sound means of dump closure\. Sub-component – Strategic planning of urban wastewater management Gaizhou and Panjin Operational Manuals The scope of the manuals was restricted to the operations and maintenance requirements of the WWTP in Gaizhou and Panjin constructed under the LMC-2 project and took account of the actual treatment process and the inventory of installed treatment equipment\. These manuals, together with the detailed content of manuals supplied by equipment manufacturers, provide comprehensive guidance for use by local WWTP managers to revise and update their practices and procedures\. Gaizhou General Business Plan 43 Provides a development path and identifies the financing needs for the Gaizhou Drainage company assuming service demands are as forecast in the revised city master plan prepared under this same TA (see below)\. Panjin General Business Plan Provides a development path and identifies the financing needs for the management of wastewater services in Panjin, assuming service demands and associated infrastructure improvements take place as forecast in the revised city master plan prepared under this same TA\. Gaizhou and Panjin Wastewater and Drainage Master Plans These plans update the previous city wastewater master plans and integrate the planning of wastewater management with the prevention of water-logging in the cities\. The plans include an updated forecast of service demand, the extent and timing of infrastructure improvements needed, and broad financing estimates\. These plans also include a specific strategy for the separation of existing wastewater and storm pipes, where this is necessary to ensure effective drainage of an area\. The plans are being used by city authorities to update their own planning documents and to guide detailed infrastructure planning\. Report on potential for market-oriented operation of urban infrastructure Provides an analysis of the legal and regulatory environment for the marketization of wastewater services in the PRC and lessons from past marketization experience\. Identifies actions needed, and suggests a delineation of responsibilities, to facilitate the more effective use of marketization in the wastewater sector\. 44 Annex 3\. Economic and Financial Analysis Economic analysis In accordance with the PAD, all project components utilized the standard least-cost which incorporated technical, environmental, financial, and social criteria into the decision- making process\. At subproject level economic cost-benefit analysis was not considered to be appropriate because: i) the water supply, wastewater and solid waste treatment investments were driven by the Chinese national standards; and, ii) a significant portion of the investments consisted of renovation of existing pipeline assets\. A major innovation under the project was the use of an asset management planning approach for network rehabilitation, which generated the most economic approach for these types of investments by allowing for strategic assessment of the highest priority investments on an ongoing basis\. Although not quantifiable – due to the inherent difficulty in quantifying precisely and meaningfully the benefits in environmental projects, particularly those relating to public health and environmental improvements – the project generated substantial economic benefits through: - greater urban coverage with water supply, wastewater and solid waste services - increased treatment capacities for water supply, wastewater and solid waste, facilitating future urban and industrial investments and growth - improved utility service delivery providing safe and reliable 24-hour water supply, benefiting businesses in particular - higher quality of treated water - higher water use efficiency achieved through metering and NRW reduction initiatives - increased revenue for water companies resulting from metering and lower NRW, strengthening the utility companies - expanded wastewater collection, treatment and disposal, including some economic re- use of effluent - higher quality wastewater effluent - better sanitation through improved wastewater and solid waste collection and disposal\. The beneficial improvements listed above also provided important health, environmental and aesthetic benefits\. Highlights of environmental benefits: ï‚ Additional 250,000 m3/d of WWTP treatment capacity has been added in the project cities, with an approximate reduction in total COD discharge of 12,000 tons per annum (2013)\. ï‚ In Panjin, 30,000 m3/d of treated wastewater effluent is now being re-used for municipal management purposes (irrigating green space and street cleaning)\. ï‚ In Yingkou, effluent from the wastewater treatment plant is supplied to Zhongyejingcheng (Yingkou) Equipment and Technology Co\. Ltd\. for use as production water\. 45  ï‚ Sanitary municipal solid waste landfills in Panjin and Fushun provide for the daily disposal of 2,000 t/d of solid waste disposal, with full leachate treatment provided in accordance with national standards\. ï‚ The new SW facilities have allowed the closure of the old waste dump sites resulting in environmental benefits at those locations\. (Professional support on the closure of these existing facilities was provided as part of the GEF component)\. ï‚ Water quality in the Bohai Sea in the coastal areas of Yingkou and Panjin (the two municipalities where WWTP were constructed) showed a decline in the period up to 2011, but has since improved\. ï‚ No significant environmental management issues arose during project implementation and all WWTP and Sanitary landfills constructed under the project at being operated in accordance with the EMP and are in compliance with relevant national operating standards\. The participating local governments also reported that the urban environmental infrastructure improvements improved – in a significant way – the local investment climate, thus contributing further non-quantifiable economic benefits\. Lastly, the project investments – by reducing seawater pollution – also contributed to the preservation of economic activities, i\.e\. fisheries and tourism, in the Bohai Sea\. Financial analysis Introduction This section of the annex reviews the financial performance of the project entities in relation to the following: ï‚ Utility tariffs levied in the project cities ï‚ Tariff affordability ï‚ Financial performance of the water and wastewater companies, including compliance with financial covenants ï‚ Fiscal sustainability of local government guarantees and subsidies Each of these aspects is considered in turn using the data recorded in the project appraisal document PAD as a baseline and comparing the current situation with the appraisal forecasts\. Utility Tariff Analysis Information on the current tariffs levied by the LMC-2 PIUs is set out in Table 3\.1 below and is compared with the tariffs at appraisal and projections made in the PAD for the level of tariff needed to result in financial sustainability\. There was little change in the tariffs charged for the utility services provided by the utilities during the implementation period and therefore, given the increased costs resulting from the LMC-2 project and ongoing price inflation, there is now increased rather than decreased reliance on government subsidies\. The financial position of each company is discussed further below under the heading Financial performance\. Table 3\.1: Tariff Comparisons for Water, Wastewater and Solid Waste services 46  Sub-Component 2006 2010 2010actual 2015 2015 Notes actual projected proj actual Water Supply Sub- components Anshan, (yuan/m3) 1\.6 2\.0 2\.0 2\.3 2\.0 Fushun, (yuan/m3) 1\.1 n/a 1\.35 n/a 1\.65 2, 5 Haicheng, (yuan/m3) 1\.6 1\.9 1\.7 2\.1 1\.7 Panjin, (yuan/m3) 1\.6 1\.9 1\.85 2\.3 1\.85 Xingcheng, (yuan/m3) 1\.5 1\.7 1\.73 2\.3 1\.8 4 Yingkou, (yuan/m3) 2\.0 2\.6 2\.13 2\.6 2\.56 Wastewater Sub- components Fushun Wastewater, 0\.5 0\.8 0\.6 1\.05 0\.6 yuan/m3 Gaizhou Wastewater, 0\.35 n/a 0\.35 n/a 0\.35 2 yuan/m3 Panjin Wastewater, yuan/m3 0\.6 0\.8 0\.6 1\.1 0\.6 Yingkou Wastewater, 0\.5 1\.2 0\.5 1\.3 0\.6 yuan/m3 Solid waste sub- components Fushun Solid Waste, 4\.0 n/a 4\.0 n/a 4\.0 3 yuan/hh/mth\. Panjin Solid Waste, 0\.0 n/a 3\.0 n/a 3\.0 3 yuan/hh/mth\. Notes: 1\. All water supply tariffs include the water resource fee (where separately charged)\. 2\. No financial projections to estimate future tariff requirements were made at the time of appraisal\. 3\. At appraisal, financial analysis was undertaken in respect of service costs but no assumptions on service financing were made at that time\. Instead, sector financing was to be studied under the GEF\. 4\. Tariff increased in Oct 2010, so tariff shown for 2010 is pro-rata\. 5\. In Fushun a rising block water tariff applies\. The blocks were in the range 1\.1 to 3\.0 yuan/m3 at appraisal and have subsequently risen to a range of 1\.65 to 3\.3 yuan/m3\. Only the tariff for the basic block, which accounts for the majority of domestic consumption, is included in this table\. Tariff Affordability The general affordability of water and wastewater tariffs has improved very significantly during the period of project implementation, as shown in Table 3\.2 below\. This is a result of rapid economic growth (a general proxy for overall earnings growth) whilst over the same time period there have only been very limited, if any, increases in the tariffs charged for these services\. 47  Table 3\.2: Comparison of Tariff Increases with GDP growth City 2006 Domestic Tariffs 2014 Domestic Tariffs % Total % GDP tariff per Increase Capita increase Water Waste Total Water Waste Total water water Anshan 1\.6 0\.5 2\.1 2\.0 0\.6 2\.6 23\.8 158\.01 Fushun 1\.5 0\.5 2\.0 1\.65 0\.6 2\.25 12\.5 268\.77 Gaizhou 1\.6 0\.35 1\.95 1\.65 0\.35 1\.95 0\.0 364\.09 Haicheng 1\.6 0\.5 2\.1 1\.7 0\.6 2\.3 9\.5 158\.01 Panjin 1\.6 0\.6 2\.2 1\.85 0\.6 2\.45 11\.4 254\.22 Xingcheng 1\.5 none 1\.5 1\.8 0\.6 2\.4 60\.0 219\.88 Yingkou 2\.0 0\.5 2\.5 2\.56 0\.6 3\.16 26\.4 364\.09 Notes: 1\. In Fushun the domestic water tariff operates on a rising block basis – the tariff above is the charge applied to the first block\. So the minimum tariff increase is 12\.5%, with high water consumers facing larger increases dependent on the amount they consume\. 2\. Haicheng and Gaizhou are assumed to have the same GDP as their parent city (i\.e\. Anshan and Yingkou) as this was the assumption made during the project preparations, to avoid double counting\. Where sufficient data was readily available the affordability of water and wastewater charges has been computed as a percentage of earnings for both the average and low income households\. The results as presented in Table 3\.3 show that the current charges are readily affordable by even the poorer members of society when compared to the international yardstick, as referred to in the PAD, that affordability concerns start to arise if charges exceed 5% of disposable earnings\. Table 3\.3: Results of City Affordability Computations City Average household costs Low income household as percentage of costs as percentage of disposable earnings disposable earnings Anshan 0\.6% 0\.9% Fushun 0\.3% 0\.5% Gaizhou 1\.0% 1\.2% Haicheng 0\.6% 0\.9% Panjin 0\.5% 0\.9% Xingcheng (see note) 0\.2% 0\.4% Yingkou 0\.7% 1\.1% Note: Xingcheng has yet to introduce a wastewater fee for domestic users and therefore the calculation is based on water usage only, and reflects relatively low per capita usage\. 48 Fiscal Sustainability At appraisal the participating local governments had adequate fiscal capacity for both, debt service and incremental recurrent costs needed for the sustainable operations and maintenance of the project facilities\. The fiscal capacity assessment assumed all LMC-2 costs would fall on the local government even where the PIU was a corporate entity with access to its own funds and intended to be financially autonomous; this assessment was very conservative\. There has been significant growth in municipal revenues since appraisal as shown in Table 3\.4 below\. In view of these impressive growth rates and also in consideration of the fact there has been no major cost escalation during the LMC-2 implementation, it is apparent that fiscal sustainability is now stronger than when it was assessed and considered adequate at appraisal\. Table 3\.4: Growth in Municipal Revenues over past 10 years City 2005 2013 Percentage Annual Revenues Revenues Increase Revenue (RMB billion) (RMB (%) Growth billion) (%) Anshan 6\.303 37\.965 502% 55\.82% Fushun 4\.719 14\.887 215% 35\.05% Gaizhou 0\.682 6\.246 813% 90\.64% Haicheng 1\.411 9\.364 564% 62\.61% Panjin 3\.401 n/a n/a n/a Xingcheng 0\.355 4\.744 1236% 137\.36% Yingkou 4\.782 8\.920 73\.4% 8\.15% Financial Performance of Covenanted PIUs Financial projections have been prepared based on the terms of the LMC-2 project agreement (PA) signed between Liaoning Province and the Bank\. The projections use the available financial data to the end of 2013 (there was no time to update all projections using the end of 2014 financial data)\. These projections assess the medium term financial sustainability of the PIUs, and therefore, the use of 2013 data is considered to be acceptable as no major unforeseen changes in the financial situation of the utilities occurred during 2014\. The main provisions of the PA were that, commencing in 2008 and each year thereafter, the Anshan, Fushun, Haicheng, Panjin, Xingcheng and Yingkou water supply companies, together with the Panjin and Yingkou wastewater companies need to achieve a simple cost recovery ratio of 1\.0 and a debt servicing ratio of 1\.3\. It is worth noting that the wording of the PA requirements does not exclude government subsidies within the definitions provided and hence government subsidies are included rather than excluded when calculating whether or not covenants have been complied with\. The LMC-2 solid waste PIUs were not required to prepare annual financial projections\. In addition Gaizhou Drainage Company was excluded from the definition of “Project Company” as it was not an operational entity at that time, and Fushun Wastewater Company also was not included in that definition\. Thus there is no requirement for either Gaizhou or Fushun wastewater companies to meet the stated financial targets, although 49 they were required to prepare Financial Improvement Plans (FIPs) and update these annually – which was done\. Although at the time of the PAD it was stated that the Fushun Wastewater Company would be the project owner for the Fushun wastewater component, in reality the Fushun Urban Construction Bureau through the Fushun PMO managed the implementation of this sub- component and Fushun Finance Bureau is providing the resources to service the debt\. Summary of Results The results of the financial projections exercise are summarized in Table 3\.5 below\. The last column in the table gives an indication of the tariff increases, relative to the 2014 tariff rate, that is needed to achieve full financial sustainability, i\.e\. no operating subsidy from the local government\. In this context, the situation of the wastewater companies is more complex because low collection rates and inadequate tariffs often impair the prospects for financial sustainability\. This is the case in Gaizhou and Panjin, but is not a problem in Yingkou where tariff collection performance is reported as being satisfactory\. Table 3\.5: Summary Results of Financial Projections Company Cost Recovery Debt Service Ratio Approximate Ratio tariff Increase needed 2013 2014 2015 2013 2014 2015 Anshan Water Supply 0\.93 0\.93 0\.96 0\.51 0\.03 1\.55 30% Fushun Water Supply 0\.88 0\.90 0\.88 15% Haicheng Water 0\.95 1\.00 1\.05 0\.53 0\.96 1\.73 55% Supply Panjin Water Supply 0\.75 0\.80 0\.99 1\.00 1\.02 1\.01 120% Panjin Drainage See note 2 below\. 140% Company Xingcheng Water 0\.79 1\.00 0\.51 100% Supply Yingkou Water 0\.82 0\.80 0\.72 0\.65 0\.44 0\.51 35% Supply Yingkou Wastewater 1\.15 1\.1 1\.05 0\.88 0\.90 1\.06 0% Notes: 1\. As stated above there was no requirement for Fushun or Gaizhou wastewater companies to meet specific financial targets\. 2\. No financial projections for Panjin Drainage Company were prepared as that company no longer has any responsibility for wastewater operations, and simply operates as a project office\. Using a sector approach the future financing needs for wastewater management in the city estimated that tariff increases of approximately 140% are needed to achieve full cost recovery\. 3\. 2014 and 2015 figures are based on assumptions made in the 2013 projections\. 4\. The 2015 estimate for Xincheng excludes any subsidy from the local government, as no decision on subsidy had been made at the time the financial projections were 50  prepared\. However, based on past experience the local government will provide subsidies necessary to ensure the company’s financial viability\. Conclusions Each municipal government is providing sufficient budget or operating subsidy to ensure all operations are fully financed\. However, tariffs are not at a level that provide for full financial sustainability and in the case of some sub-components low tariff collection rates are also a threat to future financial sustainability\. This situation may change as the national government has announced new policies that recognize the need to increase water supply charges as a water conservation measure, however this has not yet filtered down to the LMC-2 project cities11\. Moreover, local government subsidies have increased significantly over the life of the project as there is a marked reluctance to increase tariffs\. The financial analysis undertaken during the last year of project implementation has revealed that most of the entities face some financial challenges at present, and in several cases receive operating subsidies from the local government; this means the financial indicators in table 3\.5 above look better than their underlying financial performance and sustainability\. Therefore, the financial autonomy of the water supply companies is compromised by the continuing reliance on government subsidy due a widespread failure on the part of the project city governments to increase the water and wastewater tariffs\. 11 In China it is typical that utility tariffs are increased infrequently but when they do increase, the amount of increase is often substantial\. This is largely due to the long and complex application and approval processes for tariff adjustments, and also because of the understandable reluctance on the part of local politicians to impose unpopular measures\. However, given that in most cases the tariffs have increased very little over the past 10 years whilst affordability has improved significantly, there is clearly scope for most PIUs to achieve a position of financial sustainability with just one sizable increase\. Specifically, with regard to water supply, central government policy is for water utilities to operate on a commercial basis and, generally, subsidies should not be provided\. Increasing water tariffs to economic levels is seen as an important water conservation measure, and the introduction of rising block tariffs as already implemented in Fushun is being actively encouraged\. Such reforms take time to plan and implement successfully, but they also present opportunities to enhance financial sustainability\. 51 Annex 4\. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Responsibility/ Names Title Unit Specialty Lending Greg Browder Task Team Leader EASUR TTL Hao Zhang Sanitary Engineer EASUR Wastewater Mgt Axel E\. Baeumler Senior Economist EASUR Economic aspects Hardy Wong Solid Waste Specialist Consult\. SWM Eddie Hum Environmental Engineer Consult\. Env’t & Urban Patrick McCarthy Financial Specialist Consult\. Fin\. Mgt\. & FIRR Terrence Driscoll Environmental Engineer Consult\. Environment Yue Ma Environmental Engineer Consult\. Environment Chaogang Wang Sr\. Social Scientist EASSD Land acquisition Chongwu Sun Sr\. Environmental Specialist EASEN Environment Zhentu Liu Sr\. Procurement Specialist EAPCO Procurement Haixi Li Financial Management Specialist EAPCO FM Mei Wang Senior Counsel LEGEA Legal matters Anne Harrison Program Assistant EASUR Team support Raja Iyer LMC Program Advisor EASUR Review & advice Supervision/ICR Chongwu Sun Senior Environmental Specialist GENDR Environment Greg J\. Browder Lead Water Resource Management GWADR TTL (early) Suhail Jme’an Sr Financial Specialist EASWE TTL (later) Guangming Yan Urban Specialist GSURR Urban issues Guoping Yu Senior Procurement Specialist GGODR Procurement Hiromi Yamaguchi Consultant GFADR Jiang Ru Senior Environmental Specialist GENDR Environment Eddie Hum Environmental Engineer Consult\. Env’t & urban Wastewater Mingyuan Fan Sr Sanitary Engineer GWADR &SWM Vellet E\. Fernandes Temporary GWADR Team support Xuemei Guo Country Program Assistant EACPQ Team support Xujun Liu Consultant GSURR Zhefu Liu Senior Social Development Spec\. GSURR Social Safeguards Khairy Al-Jamal Sr\. Infrastructure Specialist GWADR TTL (most recent) Toyoko Kodama Urban Specialist GWADR Indicators & ISR Haixia Li Sr Financial Management Spec\. GGODR FM Specialist Aimin Guo Social Development Specialist GSURR Social Safeguards Yan Li Economist Consult\. Economist Heinz Unger Municipal Engineer Consult\. ICR Prim\. Author 52 (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including No\. of staff weeks travel and consultant costs) Lending 2005 23\.53 144\.55 2006 63\.88 321\.19 2007 42\.36 190\.58 Total: 129\.77 656\.32 Supervision/ICR 2008 12\.67 86\.83 2009 13\.06 77\.74 2010 17\.15 66\.51 2011 13\.91 74\.21 2012 14\.65 86\.18 2013 7\.77 43\.96 2014 23\.59 132\.13 2015 26\.45 166\.82 Total: 129\.25 734\.38 53  Annex 5\. Beneficiary Survey Results No beneficiary survey was done\. 54  Annex 6\. Stakeholder Workshop Report and Results GEF Stakeholder Dissemination Workshop12 – June 12, 2015 in Shenyang 1\. Summary of proceedings from urban water supply and wastewater management Session 1: Public Utility Management and the Use of Benchmarking This presentation included (i) distinguishing attributes of high performing public utilities globally, (ii) the process of performance management, (iii) use and benefits of business planning where utilities operated on a fully or quasi-commercial basis, and the use of performance benchmarking to improve utility performance (with the World Bank IBNET system described in detail, and key cost drivers for water and wastewater utilities\. Points and best practices identified from the GEF work for broader dissemination were: ï‚ The performance issues faced by Liaoning water sector utilities are broadly the same as anywhere else in the world, thus best practices from elsewhere are often highly relevant; ï‚ Customers should be viewed as the key stakeholder group and consultative efforts should be re-directed accordingly; ï‚ Water sector utilities were rarely in direct competition with each other and it was often mutually beneficial to exchange views, compare and analyze performance, and cooperate in making improvements; ï‚ As fixed assets represented a very high percentage of total capital investment in water and wastewater systems, greater attention needed to be given to improving asset performance, and optimizing asset life\. More attention than hitherto should be given to asset maintenance systems, and asset rehabilitation as an alternative to asset replacement; ï‚ Commercially- orientated integrated business planning was difficult to implement in utilities that were necessarily locked in to a government planning system that was functionally compartmentalized, as in Liaoning, although it made sense where water supply companies (in particular) were given commercial freedom and could benefit, in the right circumstances, both a utility and its government regulators; ï‚ There was little sense in Liaoning developing its own bespoke benchmarking system but local adjustments and enhancements to an established system were likely to make sense ï‚ Earlier work in Shandong and pilot testing in several Liaoning utilities suggested the IBNET set of indicators would be a practical set for use in Liaoning; ï‚ Fragmented institutional arrangements for wastewater management made the introduction of a sector wide system of performance indicators and establishing benchmarking partnerships difficult to achieve at the utility level\. 12 The dissemination workshop was held in lieu of a stakeholder workshop; it achieved comparable outcomes\. 55  ï‚ To avoid benchmarking being viewed as a threat, participation should be voluntary rather than compulsory; and ï‚ Energy consumption is a key cost driver for both water supply and wastewater operations and therefore improved energy management needs to be a key priority in any cost reduction/efficiency improvement strategy\. Session 2: The Use of Public Private Partnerships for Public Utilities This presentation included (i) the definition and features of a PPP and some of the different structures (models) used; (ii) existing PPP policies of central PRC government, including recent 2015 guidelines and regulations of relevance to PPP implementation; (iii) case studies of PPP both in China and overseas, that identify good and bad practices; and (iv) details of the PPP work undertaken by the LMC2 GEF component and the conclusions drawn\. Points and best practices identified from the GEF work for broader dissemination were: ï‚ Better ways of mobilizing private financing are needed and this is very much the situation in China as emerging government policies recognize\. Performance-based approaches that push service providers to innovate and to deliver higher quality services at lower cost are therefore called for in order to meet these challenges; ï‚ PPP is strongly supported by central government and being increasingly promoted and supported by government guidelines and regulations; ï‚ A PPP center has been created within the Ministry of Finance and Liaoning has also established a PPP center to promote PPP and provide guidance to public sector organizations; ï‚ PPP should not be viewed as just an alternative financing vehicle but also as a driver of improvements in service levels and the efficiency of service provision; ï‚ To be sustainable over a long contract period of up to 30 years, a PPP contract has to create a win-win situation for both parties and trust between the parties needs to be established with each understanding their role in the arrangement\. ï‚ The governments with the most developed PPP markets focus on using the market to enable the public sector to achieve value-for-money, which is driven primarily by:  Risk transfer: relieving government of the cost of asset-based risks—that is, risk directly associated with build or operating assets  Whole-of-life costing: through whole-of-life costing the government can achieve optimization between capital costs and operating and maintenance costs\.  Innovation: providing wider opportunity and incentive for innovative solutions as to how service requirements can be delivered  Asset utilization: developing opportunities to generate revenue from use of the asset by third parties\. ï‚ Key success factors to establishing a conducive environment and facilitating a successful arrangement include:  strong government support;  meaningful stakeholder consultation;  a stable legal and regulatory framework, that ensure both public and private interests are met;  a contractual framework that reflects the economics of the project, 56   the rational allocation of risk among parties; and\.  well-understood and fair exit mechanisms\. ï‚ Currently, the principles of PPPs are not well understood in China and a significant number of PPP contracts of different types have failed to meet their objectives or run into other problems due to:  inadequate due diligence by one or both parties;  a lack of transparency and competition in the procurement process;  insufficient attention given to risk allocation;  contracts that are biased in favor of one party; and  contracts are not sufficiently detailed to allow changes in circumstances to be readily managed or to protect the interests of both parties\. Session 3: The use of Geographic Information Systems (GIS) This presentation included (i) an overview of GIS and its application to improving the management water supply networks, (ii) details of the GIS system development work undertaken for Anshan, Haicheng and Yingkou Water Supply Companies, (iii) an explanation of the systems installed, (iv) the functionality of the software package (v) potential applications that will improves standards or efficiency of water supply provision, and (vi) the key success factors in a successful water network GIS implementation\. Points and best practices identified from the GEF work for broader dissemination were: ï‚ Water and wastewater utilities are best advised to engage specialist support to help them with the design and implementation of a network GIS system\. ï‚ Under the GEF, separate contracts were let for (i) system design, software acquisition, implementation and initial training and support; and (ii) data gathering, verification and system input\. This split in contractual responsibilities worked well being aligned with the expertise and experience of the different contractors\. ï‚ Data verification is a crucial process in ensuring the output from the implemented system has user confidence\. ï‚ Ongoing data management is equally important and utility procedures and record – keeping systems often need to be re-engineered to ensure GIS data update is fully integrated with day-to-day procedures\. ï‚ It is envisaged GIS systems in each of the 3 client companies will continue to evolve and integrating GIS with other utility business systems will be explored to give expanded benefits in the medium term (e\.g\. links with planned preventative maintenance, customer billing, operations SCADA, and financial management systems, as well as network modeling software)\. Session 4: The Management of Non-Revenue Water (NRW) This presentation included (i) the benefits to be obtained from NRW reduction (ii) the composition of NRW; (iii) developing a systematic approach to NRW reduction via 5 key questions (iv) establishing a water balance and other best practices to answer the key questions below; (v) the four pillars of leakage management; (vi) use of performance indicators to evaluate progress in NRW reduction; and (vii) using asset management and GIS to support NRW reduction efforts\. Points and best practices identified from the GEF work for broader dissemination were: 57  ï‚ Liaoning suffers from extremes and rapid changes in climate placing great stress on water networks, and many cities have areas of old and poorly installed pipe networks; ï‚ Under such a situation Liaoning is very unlikely to ever achieve best practice results and the inherent situation dictates that active NRW management will need to be a continuing priority; ï‚ Assessments made during the GEF work confirmed that the participating LMC2 water utilities were indeed very poorly performing and all need (and are) treating NRW reduction as a high priority; and ï‚ The five key questions to answer in addressing NRW management problems, in the correct sequence are: 1) How much water is being lost? 2) Where is it being lost from? 3) Why is it being lost? 4) What actions can we take to reduce losses? 5) How can we evaluate our progress? ï‚ Priority based replacement of water meters in older apartment buildings in Panjin had been assessed as leading to a 40% improvement in water sales\. ï‚ Improved pressure management within water distributions systems is often a key contributor to reduced leakage; ï‚ Specialist leakage control technology and equipment requires skilled trained operators to make best use of it\. This in turn suggest the creation of specialist leakage detection teams within each water utility; ï‚ Link NRW reduction with other programs like Asset Management and GIS\. Session 5: Technology utilization and Case Studies in NRW Management\. This presentation included (i) a snapshot of the NRW and water leakage challenges faced by Chinese water utilities, (ii) an introduction to some modern technology that could assist water utilities in their NRW management; and (iii) some specific case studies in China where such technology had brought good results\. Points and best practices identified for broader dissemination were: ï‚ China has 20% of the World population but only 7% of the usable water resources; ï‚ Even this statistic understates the water management challenge as water resources are unevenly distributed across China with some of the more densely populated areas having the least per capita resources\. Liaoning was in this situation and makes water conservation a priority; ï‚ Modern technology can greatly support a systematic management strategy to reduce levels of non-revenue water; and ï‚ Specialist suppliers are available to advise and support local water utilities and will provide necessary user training Session 6: General Discussions and Questions Session The main areas of delegate interest, exchanges of view and questioning were as follows: (i) Recent announcements on PPP policy, regulations and guidelines by central government, and how to select a suitable PPP models for specific cases; (ii) Specific questions on NRW technology and systems; 58  (iii) Concerns that use of performance indicator systems meant more work for ordinary staff without any obvious reward for them – this made gaining their cooperation difficult\. It was suggested that systems first be piloted on a small scale and then built into enhanced MIS designs, thus largely automating the process – this potentially had the benefit of enriching job content rather than increasing workloads; and (iv) An exchange of views on GIS implementation and the key factors in getting it right, especially the importance of the data verification process to ensure systems output could be trusted and used with confidence\. 2\. Summary of proceedings from municipal solid waste management Session 1: Project Summary of Strategic Planning of Urban Solid Waste Disposal This presentation gave an overview of the LMC-2 – “Strategic Planning of Urban Solid Waste Disposal: Fushun, Panjin, Yingkou EDZ and Gaizhou City”, introducing project background, objectives, project activities implementation process and outputs and outcomes\. Also, the results and best practices internationally and domestically were disseminated and the technical and administrative staff from local waste management departments in Liaoning provincially trained\. Session 2: Urban-Rural Integrated Solid Waste Management (i) Sophisticated solid waste management and waste separation (ii) Urban-rural solid waste collection and transportation system - National policies and standards for rural waste treatment; - Solid waste collection and transportation principles and methods; - Urban-rural integrated (URI) waste management in Switzerland\. (iii) URI Solid Waste Management Plan for Panjin City\. - Present situation and evaluation of solid waste management system; - Development Forecast; - URI solid waste management mode; - Plan of solid waste sorted collection; - Plan of URI solid waste collection, transportation and treatment; - Investment plan of solid waste treatment; - Safeguards and benefit analysis\. Session 3: Current Status and Outlook of Waste to Energy in China (i) Solid waste management and utilization in China - Social problems caused by municipal solid waste; - Current status of waste generation in China; - Solid waste treatment method in China; - Waste management hierarchy; Recycling or waste-to-energy (WTE) – Principles of efficiency\. (ii) Current status of WTE in China - Advantages of WTE; 59 - Traditional WTE methods: landfill gas utilization and heat or power from incineration & landfill gas, incl\. introduction to this technology in China; (iii) New WTE methods based on waste separation - Organic waste: biogas and fertilizer; - High heat value waste: incineration/gasification/RDF\. Session 4: Current Status and Trend of Solid Waste Incineration - Environmental policy system and waste incineration in Europe; - Waste incineration in North America; - Waste incineration in Japan and South Korea; - Waste treatment and incineration in developing countries; - General condition of waste treatment in China; - Construction of waste incineration plants in China; - Waste incineration standards in China; - New features of waste incineration industry in China; - Outlook of waste incineration industry\. Session 5: Leachate Treatment Technologies and Typical Cases in China - Characteristics of leachate; - Standard and regulations on leachate treatment; - Current technologies and case studies of leachate treatment; - Main issues existing in current technologies; - New process for leachate treatment; - Concentrated leachate treatment technologies; - Operational management and construction modes\. Session 6: Rural Solid Waste Management in China - Current status of rural SWM: almost no management or simple disposal; - Where does the rural waste come from and where does it go? - Serious problems of rural waste in China; - How do the developed countries cope with rural solid waste? - Waste recycling: a way out? 3\. Other Observations The workshop – although fairly brief – also provided a useful opportunity for representatives of the different city utilities to network amongst themselves, and to discuss issues of mutual concern and interest\. A comprehensive set of documentation was issued to all delegates, and a name list and contact details of all delegates is being made available by LUCRPO to support further networking in the future\. Report prepared by LUCRPO – June 2015 60 Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR The following summary is the main text of the Borrower’s ICR dated October 2015 1\. ASSESSMENT OF PROJECT OBJECTIVE AND QUALITY AT ENTRY Original Project Objectives As defined in the Project Appraisal Document (PAD) Report No\. 38278-CN, dated May 15, 2007, the project development objective was to improve the performance and sustainability of water supply, wastewater, and solid waste services in the LMC-2 cities\. Enhanced wastewater and solid waste services will also help reduce pollution into the Bohai Sea and contribute to improving Bohai Sea water quality\. The Global Environment Objective of the LMC-2 project with the GEF enhancements is the reduction of land-based pollution into the Bohai Sea through investments in wastewater and solid waste infrastructure and improved utility regulation, planning and management in the LMC-2 cities and throughout Liaoning Province\. 1\.1 Revised Objectives Although there have been changes in project content and in detailed design of some components during implementation, there has been no change in the project objectives during implementation, which have remained as stated in the appraisal document\. 1\.2 Original Components The project was structured as four separate components with the project scope of each described in Schedule 1 of the loan agreement: (A) wastewater management; (B) water supply management; (C) solid waste management; and (D) institutional development\. The cities participating in the different components were expected to be: a) Wastewater interception & treatment sub-components in 4 cities of Panjin, Yingkou, Fushun and Gaizhou; b) Water treatment and distribution sub-components in 5 cities of Anshan, Haicheng, Panjin, Yingkou and Xingcheng; c) Solid waste management sub-components in 3 cities of Panjin, Fushun and Yingkou EDZ; d) Institutional development, comprising institutional capacity building, technical assistance and training was intended to benefit all cites with dissemination and replication within Liaoning and across China as appropriate\. This component was to be financed in part by the loan (package A) and in part by GEF grant (packages B, C, D & E)\. 1\.3 Project Changes Significant changes that occurred within the scope of infrastructure components included: (1) Fushun wastewater sub-component was reduced in size and scope at the MTR; (2) the Yingkou EDZ solid waste sub-component was dropped; and (3) Panjin added a new project of Comprehensive Urban and Rural Area Solid Waste Collecting System\. 61 Changes were also made to the institutional development component of the project, especially to the GEF funded packages, with the most significant of these affecting the proposed public utility capacity building program\. 1\.4 Project Delays The original closing date of the loan was December 31, 2013\. However, implementation of Gaizhou wastewater, Haicheng and Fushun water supply were slower than expected, and the Panjin solid waste sub-component was extended in scope, meaning that additional time was required to complete the physical works\. In addition there were design issues and serious procurement delays in respect of the GEF funded technical assistance packages forming a large portion of institutional development component of the project\. In order to maximize loan utilization and ensure the achievement of development objectives, the loan closing date was therefore extended to June 30, 2015 with the agreement of the PRC Ministry of Finance, and the Bank In addition not all contracts earmarked for early completion under retro-active financing arrangements were implemented early as envisaged in the project implementation program, with extensive delays in implementing package HWS/1\.3\. This was due to late domestic approval of the preliminary design for Haicheng water supply, which was not obtained until October 2011\. 1\.5 Quality at Entry Project preparation of the physical investments at appraisal has been proved largely satisfactory\. The feasibility studies and engineering design for each project component (as well as for the overall project) proved to be appropriate\. Most of the technical designs employed advanced yet commercially available technologies that proved to be fit for purpose\. The procurement plan, as appraised, proved to be executable, but some of the contracts earmarked for retro-active financing were delayed indicating preparations and /or the need for these were not as advanced as claimed by the relevant PIUs at Appraisal\. However, some of the appraised KPI targets were found to be impractical and therefore revised during loan restructuring, and some legal covenants required by the Bank did not adequately take account of the local situation\. Project preparation for the Institutional Development resulted in a design that can be considered to have responded to the needs of Liaoning\. However, unfortunately, it did not prove to be implementable in its intended form due in part to a lack of “buy-in” from the project cities and their rapidly changing needs\. 2\. ACHIEVEMENT OF OBJECTIVE AND OUTPUTS 2\.1 Outcome / Achievement of Objective 1) Wastewater Component The municipal wastewater sub-components in Panjin and Yingkou are already in operation achieving their design capacity (100,000 m3/d in each case) and producing effluent that 62 meets the required quality standards\. A wastewater sub-component in Gaizhou is in operation and producing effluent that meets the required quality standards, but is not yet achieving its design capacity (50,000 m3/d), due to the city’s wastewater collection network being incomplete\. All the three new WWTP have passed examination and acceptance testing by Liaoning EPB\. The Project has constructed wastewater treatment facilities with design capacity of 250,000 m3/d, and made BOD discharge reduction of 3,500 t/a in year 2014\. Total BOD discharge reductions contributed by 6 WWTPs in 4 project cities with Bank loan financing is about 17,629 t in year 2014\. This will contribute significantly to protecting water quality in the Bohai Sea and the component can be considered to have fully achieved its objectives\. Indeed, since the new WWTP in Panjin and Yingkou were commissioned there is evidence of some quality improvements in those receiving coastal waters\. 2) Water Supply Components The Anshan and Yingkou WTPs are already in operation achieving their design capacity (120,000 and 70,000 m3/d) and producing water that meets the PRC urban water supply quality standards\. The extensions to the Haicheng WTPs are capable of meeting their increased design capacity (100,000 and 30,000 m3/d respectively and are producing water that meets the PRC urban water supply quality standards\. Average demand is currently only 65,000 m3/d but can rise to between 85,000 to 90,000 m3/d during winter peak time\. The most significant reason for this shortfall in demand is that Haicheng is no longer required to export water to Anshan due to the extensive development and increased utilization of the Dahuofang surface water resource and conveyance system\. The Project has constructed water treatment capacity of 260,000 m3/d in total, installed 184,330 water meters, and constructed 495 km of pipelines, with a benefiting population of 1\.85 million in the service area\. The component can be considered to have substantially achieved its objectives\. 3) Solid Waste Components The solid waste sub-component in Fushun is already in operation with a design capacity of 1,400 t/d\. Currently it is receiving on average some 1,000 t/d\. The solid waste landfill in Panjin was taken out of the project, but was successfully implemented under the BOT mode of implementation, rather than with Bank funds; LMC2 Loan funds provided associated equipment and vehicles to improve solid waste collection and conveyance\. This has contributed significantly to improving urban sanitation in the two districts\. Construction of Panshan transfer station and procurement of vehicles has been substantially completed, but 3 types of trucks were identified as technical deviation and could not be accepted\. Dawa transfer station has been cancelled from contract PSW/21\.2 (after receiving ‘no objection’ from the Bank) because the proposed proved to be unsuitable\. It will now be constructed later by local funding once a suitable site has been identified\. 63 2\.2 Output by Components (a) Fushun Wastewater (RMB 219\.3 million PAD; RMB 73\.7 million after MTR, RMB 42\.4 million by completion) This sub-component was implemented between 2009 and 2013, in accordance with the reduced scope agreed by the Bank during the MTR\. (b) Yingkou Wastewater (RMB 376\.7 million PAD; RMB 331\.3 million by completion) This sub-component has been satisfactorily implemented as appraised between 2008 and 2013\. It is now providing 100,000 m3/d of secondary treatment capacity, and about 90% of total municipal wastewater flow from the city is now being treated in compliance with the relevant national discharge standard (class 1A)\. (c) Panjin Wastewater (RMB 319\.3 million PAD; RMB 292\.5 million by completion) This sub-component has been satisfactorily implemented between 2008 and 2015 in accordance with the revised FSR agreed by the Bank\. It is now providing 100,000 m3/d of secondary treatment capacity, and about 90% of total municipal wastewater flow is now treated in compliance with the relevant national discharge standard (Class 1A)\. (d) Gaizhou Wastewater (RMB 123\.7 million PAD; RMB 119\.3 million by completion) This sub-component was implemented as appraised between 2008 and 2015\. It is now providing 50,000 m3/d of secondary treatment capacity, and about 70% of total municipal wastewater flow from the city is now being treated in compliance with the relevant national discharge standard (Class 1B)\. (e) Anshan Water Supply (RMB 240\.6 million PAD; RMB 186\.8 million by completion) This sub-component was satisfactorily implemented between 2009 and 2013, in accordance with the revised FSR agreed by the Bank\. It is now providing 120,000 m3/d of potable water to the local residents\. (f) Haicheng Water Supply (RMB 117\.1 million PAD; RMB 76\.1 million by completion) This sub-component was implemented between 2012 and 2015, with reduced scope for pipeline as agreed with the Bank during implementation\. It is now capable of providing an additional 70,000 m3/d of potable water to the local residents, bringing the total capacity to 30,000 m3/d\. (g) Yingkou Water Supply (RMB 289\.9 million PAD; RMB 310\.1 million by completion) This sub-component was satisfactorily implemented between 2009 and 2013, in accordance with the PAD\. It is now capable of providing an additional 70,000 m3/d of potable water to the local residents\. (h) Panjin Water Supply (RMB 160\.4 million PAD; RMB 74\.5 million by completion) This sub-component was implemented between 2010 and 2014, with reduced scope as agreed with the Bank during implementation\. This was because the remaining residential area where it was planned to install new pipelines and water meters (as per the PAD), was replaced by new buildings and water meters by property developers\. 64 (i) Fushun Water Supply (RMB 213\.6 million PAD; RMB 251\.5 million by completion) This sub-component was implemented between 2011 and 2014, in accordance with a revised plan as agreed with the Bank during implementation\. (j) Xingcheng Water Supply (RMB 36\.0 million PAD; RMB 29\.9 million by completion) This sub-component was satisfactorily implemented between 2008 and 2010, with minor change to that in the PAD\. (k) Fushun Solid Waste (RMB 87\.8 million PAD; RMB 118\.0 million by completion) This sub-component was satisfactorily implemented between 2010 and 2015, in accordance with a revised plan as agreed with the Bank\. (l) Panjin Solid Waste (RMB 264\.9 million PAD; RMB 302\.7 million after MTR; RMB 113\.2 million by completion) This sub-component was implemented between 2010 and 2015, except for the Dawa transfer station which – due to site complications – is still to be completed by local funding (NBF), once an alternative site is found\. (m) Institutional Development (RMB 21\.6 million PAD; RMB 14\.48 million by completion)\. This component was fully implemented between 2008 and 2015, but with changes to the GEF subcomponent made as agreed at the MTR\. The reduced cost of this component is largely due to changes in the RMB: USD exchange rate and procurement savings and not any significant downsizing of component scope\. Project Management & Asset Management (Package A) Based on the PAD this sub-component was to be implemented between 2007 and 2013, and involved four TA packages (A1, A2, A3 and A4)\. Package A2 and A4 subsequently became non-banked financed (NBF)\. Packages A1 (as revised in agreement with the Bank) and A3 were satisfactorily implemented between 2007 and 2015\. GEF Funded Technical Assistance to support the Global Environmental Objective The appraised design of this technical assistance comprised 6 contracts and was to be implemented from 2008 to 2013\. This part of the component was restructured following the MTR and was satisfactorily implemented in 10 contract packages between June 2013 and December 2014\. 2\.3 Economic Benefits The nature of the works and benefits created methodological challenges and benefit quantification difficulties during project preparations\. Therefore, taking account of the clear objectives of the project, the original economic analysis used for appraisal of the project comprised of: i) a qualitative description of benefits; and ii) least cost analysis\. All the physical project outputs have been important as facilitating environmentally sustainable growth in the project cities and Liaoning Province\. Economic growth in Liaoning has increased from 221\.43 billion RMB in 2006 to 695\.6 billion RMB in 2013, an average increase of 229%\. Specific economic benefits include substantial benefits in terms of service quality, water use efficiency and improved sanitation; resulting in 65 important health, environmental and aesthetic benefits, and the preservation of economic activities in the Bohai Sea, such as fisheries, that are water quality dependent\. 2\.4 Financial Performance The financial viability of the Project water and wastewater components was assessed based on the ability of the water and wastewater tariff to generate sufficient revenues for the project companies to meet their principal financial targets\. These targets were a cost recovery ratio of at least 1\.0 and debt service coverage of at least 1\.3, set on the assumption that all water and wastewater charges revenues are retained by, or transferred to the project companies\. This reform has yet to take place for wastewater companies, and therefore both wastewater project companies (Panjin and Yingkou) are technically non-compliant with the related loan covenants\. However, in all four cities with wastewater sub-components, the municipal government is providing adequate financial resources to ensure the full operation of the new WWTPs, as well as other wastewater infrastructure\. 2\.5 Institutional Development The project implementation units (PIUs) for all the LMC-2 water and wastewater sub- components are legally autonomous state-owned enterprises established under PRC company law, although the wastewater companies, especially, have negligible financial or managerial autonomy\. Solid waste services in the project cities continue to be directly provided by government agencies\. Institutional development initiatives focused primarily on: (i) project management support and capacity building; (ii) strategic sector planning; and (iii) public utility capacity building, with specific attention paid to the management of non-revenue water, asset management, and operational efficiency and systems optimization\. 2\.6 Procurement All procurement was undertaken in accordance with WB guidelines and there were no incidents of mis-procurement during LMC-2 implementation\. All bidding documents were subject to review by TA consultants and approval by LUCRCPO, or the WB “prior review” procedure\. These arrangements operated successfully\. Some relatively minor procurement issues arose from time to time during the implementation which were dealt with in an open and transparent manner and by involving the Bank’s procurement specialists as needed\. 2\.7 Poverty Alleviation and Social Impacts Whilst poverty alleviation and social impact were not primes objectives of the project, the water, wastewater and solid waste components have directly provided significant local temporary job opportunities during construction and over 300 permanent jobs on the water and waste treatment plants and disposal facilities\. The water supply improvements in Xingcheng have provided for 24-hour supplies to all parts of the urban area, and also increased service reliability during the peak tourist season, with tourism critical to the local economy and the livelihoods of many residents\. 66 The significant reduction in the discharge of untreated wastewater and improved solid waste collection and disposal have improved the urban environment and living conditions in the cities, reduced the risk of health concerns due to groundwater contamination and helped preserve the viability of the Bohai Sea fishery resource\. As a facilitator of sustainable economic development, the Project will have continuing beneficial poverty alleviation and social impacts, because economic growth has been shown to be the most influential factor in reducing poverty and improving livelihoods\. 2\.8 Environmental Impact No significant environmental management issues arose during project construction and the environmental management plans prepared to mitigate potential adverse environmental impacts resulting from the Project activity were implemented in full\. The Project is set to fully achieve the beneficial impacts that were identified in the PAD Environmental Assessment, and although it will only be possible to assess the full environmental impact some years after project completion, specific benefits are already apparent\. 2\.9 Land Acquisition and Resettlement All land acquisition and resettlement of affected persons was successfully dealt with in accordance with the resettlement plans approved by the Bank\. Some construction delays did arise as a result of land acquisition and resettlement issues, most notably in Gaizhou and Panjin\. 2\.10 GEF Activities GEF funded capacity building activities have laid a foundation for improved performance of Liaoning public utilities, in strategic sector level planning and the use of public private partnerships (PPP)\. In addition; (i) greater knowledge has been obtained of the ecology of the Dahuofang reservoir watershed, which is the key water resource of the Province, and draft mechanisms developed for its preservation; and (ii) a pilot system of urban-rural integration of solid waste collection and disposal has been designed for implementation in Panjin, which it is hoped can be a model for future integration of public utility services across the urban-rural divide\. 2\.11 Monitoring and Evaluation Systems LUCRPO, supported by the project management consulting team, established and subsequently operated a comprehensive monitoring, and reporting system for the project\. The system included (i) the monitoring of key implementation progress milestones; (ii) Land acquisition and resettlement; (iii) procurement (planning, bidding and contract awards); (iv) construction progress and contract completions; (v) environmental compliance; and (vi) key output performance indicators\. Customized templates were prepared and issued to individual PIUs to collect information and the updated progress status on a half-yearly basis, and the completed templates were then used to prepare half-yearly progress reports to the Bank\. 67 2\.12 Financial Management Financial record-keeping and project accounting has been conducted in accordance with relevant guidelines of the PRC Ministry of Finance as apply to all sovereign foreign loans, including those of the Bank\. At project commencement project management manuals were prepared and issued by the Liaoning Provincial Department of Finance (LPDF), and included procurement, payment and disbursement procedures\. Aggregated project accounting statements were prepared on a six monthly basis\. The annual project accounts were audited (by Liaoning Provincial Audit Office on behalf of the China National Audit Office) as required in the loan agreement and submitted to the Bank, together with the audit report\. No significant audit issues arose during project implementation\. During the course of project implementation the old paper-based payment requisitioning and disbursement system was upgraded to an electronic online system\. This new system enhancement resulted in big efficiency improvements to the processing of loan disbursement claims\. 3\. MAJOR FACTORS AFFECTING IMPLEMENTATION AND OUTCOME 3\.1 Factors Outside the Control of Local Government or the Implementing Agency (a) The exchange rate of US$ with RMB was 1:6\.8 at the time of appraisal (2007), by January 2010 the rate had fallen to 1:6\.3 and by June 2014 stood at 1:6\.15\. This significantly reduced the real value of WB loan and increased the level of counterpart funding required as most contracts were denominated in Chinese RMB\. The need for unanticipated supplementary financing created difficulties for some of the project companies, exacerbated by budgetary constraints, and caused some payment delays to contractors\. The Fushun and Xingcheng water supply sub-components were delayed and/or downsized at least in part due to failures in providing counterpart funding as needed\. (b) Revised eligibility criteria established by the national government meant it was not feasible to implement many of the overseas training programs that had originally been designed into the project\. 3\.2 Factors Generally Subject to Local Government Control (a) Approval of the preliminary design for Haicheng water supply was delayed by some 3 years as the original FSR endorsed expanded use of groundwater sources, as the preferred option\. This conflicted with a new provincial water resources policy to restrict groundwater use and required special investigation and justification, before the proposals were allowed to proceed\. (b) In 2010, Panjin city decided to utilize a BOT contract in place Bank funding for construction of the sanitary landfill, this was disappointing, given the efforts made by both Liaoning and the Bank to prepare and appraise this sub-component for inclusion in LMC2\. 68 However, there has been no detriment to the intended outcome and the BOT contract is operating satisfactorily\. At the same time Panjin proposed a new project of “Comprehensive Urban and Rural Area Solid Waste Collecting System” in 2011, to achieve integration of solid waste management in urban and surrounding rural areas\. This innovative proposal received strong support from Liaoning and the Bank, but changed the original scope of the sub-component and resulted in an extended project period being required\. (c) Yingkou EDZ proposed a change of the project scope by introducing an incineration facility in 2009\. This proposal could not be supported by Liaoning Province nor the Bank and the sub-component was therefore deleted during the MTR\. (d) Counterpart funding issues, and a decision to change the site for the new solid waste landfill, caused initial delays for the Fushun solid waste sub-component\. (e) The redesign of the GEF funded capacity-building sub-components and changing needs of the project cities delayed the implementation by a total of 5 years\. (f) Policy decisions by LPG to (i) develop and actively promote the Dahuofang water resource and transfer scheme; and (ii) impose stringent controls on groundwater abstraction for urban water supplies resulted in major changes in design and in some cases delays and impacts on outcomes in respect of the Anshan, Haicheng and Panjin water supply sub- components and the urban water supply strategies of those cities\. (g) Other political decisions, often resulting from changes in personnel, led to some delays and changes of scope in several other sub-components, especially Gaizhou and Fushun wastewater sub-components\. (h) The complexity of the disbursement procedure for consulting services package A1 impaired the efficiency of the services, and therefore contributed to procurement and construction delays\. (i) Despite the agreements reached with the Bank at the time of appraisal, local government has not complied with financial covenants due to a failure to increase user charges\. 3\.3 Factors Generally Subject to local Project Company Control Most of the engineering design had been based on sound engineering information and proved satisfactory\. However, upon the request of some project companies for the purpose of speeding up project implementation, some of the engineering designs were prepared without detailed site and geotechnical information resulting in unnecessary and preventable variations, and delays during construction\. Land acquisition and resettlement of LMC2 were generally satisfactory, however, in a few cases, such as Gaizhou River Rehabilitation Project (GWW/1\.4), Panjin pumping station (PWW/1\.3), and Dawa transfer station (PSW/1\.3), the land acquisition and resettlement process resulted in a delay in project implementation\. Poor knowledge of Bank-financed contract conditions by contractors, construction supervisory staff, and some PIUs led to some difficulties in processing contract 69 variations and it was a principal cause of disbursement delays due to submission of poorly documented claims\. Changes to the scope or detailed design during implementation, or poor coordination with local planning created problems leading to delays and/or higher costs\. This was a particular problem in Gaizhou and Haicheng\. Poor cost estimation in the original preparation for the Gaizhou wastewater component led to major cost escalation, requiring significant parts of the planned sewage interception facilities to be shelved and removed from the project\. As a consequence, the new Gaizhou WWTP constructed under the project, remains only about 50% utilized\. In contrast, the Panjin wastewater company, following a review of wastewater demand, argued successfully to increase the capacity of the proposed new Shuangtaizi WWTP from 50,000 m3/d to 100,000 m3/d and this has resulted in a significantly increased rate of wastewater treatment in that district of the city, than would otherwise have been the case\. 3\.4 Costs and Financing (a) Costs A breakdown of project cost by component is provided in Annex 1 where final expected costs are contrasted with those at Appraisal\. Total project cost at the appraisal was RMB 2562\.90 million, to be partly financed by US$173\.00 million of WB loan\. The completion cost of LMC2 is currently estimated at RMB 1954 million which is 76\.3% of the estimated project cost at appraisal\. There were three major reasons for this cost variation: ï‚ Water supply sub-components: The Anshan sub-component was re-designed, whilst the sub-components in Panjin and Haicheng were downsized\. ï‚ Wastewater sub-components: The main variation relates to the very significant downsizing of the Fushun sub-component\. ï‚ Solid waste sub-components: The cost variation arises from the cancellation of the Yingkou EDZ sub-component and the implementation of the Panjin landfill facility using BOT financing rather than WB loan\. (b) Financing The necessary counterpart funds were provided through a mixture of state bonds, commercial borrowing, the resources of the municipal governments and implementing agencies self-financing\. The final financing split is expected to be 51\.9 % (Bank Loan funds) to 48\.1 % local funding (assuming the exchange rate of USD1\.00 to RMB6\.3), compared to the 57\.1% Loan to 42\.9% local funding estimate at the Appraisal (with exchange rate of 1:7\.7)\. 70 4\. SUSTAINABILITY 4\.1 Prospects for Sustainability We recognise sustainability of the Project needs to be viewed in terms of (a) whether an appropriate institutional arrangement has been set up to provide for managerial autonomy and sustainability; (b) the ability to operate and maintain the facilities; and (c) financial sustainability\. In our view the overall Project can be considered partly sustainable against these criteria\. The new infrastructure constructed under the project is all being well operated and maintained, and each municipal government is providing sufficient budget to ensure these operations are fully financed\. However, tariffs are not at a level that provide for financial sustainability and in the case of some sub-components low income collection rates are also a threat to financial sustainability\. This situation may be set to change as in late 2013 the PRC national government announced new policies which recognized the need to increase water supply charges as a water conservation measure\. However as yet this has not filtered down to the LMC2 project cities and it is not unusual in China for some detailed policy announcements to take an extended period before detailed regulations are formulated at provincial level and implementation proceeds\. In the meanwhile, subsidies have increased significantly over the life of the project\. 4\.2 Transition Arrangements to Regular Operation Wastewater All three of the municipal wastewater treatment plants have made a largely trouble-free transition to normal operations, although there were initial teething problems at Gaizhou, caused in part by the current low hydraulic loading of the WWTP\. However, Gaizhou benefitted from GEF funded operational support TA (packages B1 and D), and the WWTP has now passed EPB inspection and demonstrated it can meet required standards\. As it did for No\.1 WWTP constructed under LRBP, Panjin has signed an outsourcing contract for the operation and maintenance of the WWTP with an experienced contractor to give assurance over operational standards\. In all three cities, use has been made of operational procedures developed jointly between the PIUs and the GEF consultants\. Water Supply All new treatment facilities were constructed by well-established water supply companies, no significant issues were encountered, and all are operating well\. Solid Waste The only sanitary landfill constructed under LMC2 was in Fushun, whose Sanitation Department also benefited from GEF funded technical assistance (package C)\. The landfill is being operated to required standards, although following concerns expressed by the Bank 71 during their ICR mission, LUCRPO has asked the PIU that detailed procedures for providing daily cover were reinforced\. The new Panjin sanitary landfill constructed under the BOT mode is considered an LMC2 associated project and based on local EPB inspections it is also being operated to required standards\. 5\. BANK AND BORROWER PERFORMANCE 5\.1 Bank The Bank’s performance is considered to be satisfactory both during the design and implementation phases\. The support of WB staff during their missions to Liaoning, was appreciated by LPG, LURPCO and all the PIUs involved\. During the phase of identification, preparation and appraisal for the project, Bank staff provided helpful guidance to assist LUCRPO and the PIUs in project preparation\. During the implementation phase, the Bank deployed supervision missions (on average twice a year) to help Liaoning to achieve project objectives\. Generally, the bidding documents & bid evaluation reports (subject to prior Bank review) were reviewed and approved by the Bank in a timely manner with no delays\. The Bank has also done its best to provide guidance in dealing with (i) changing circumstances, such as timely approval for contract re-packaging and the project restructuring following the MTR discussions; and (ii) implementation issues that arose from time to time\. The Bank was also very supportive in assisting with the re-design of the GEF grant funded sub-components at MTR, and in fine tuning of their content in 2014 to satisfy the needs of emerging sector policies in relation to marketization of public utility services and urban- rural service integration\. 5\.2 Borrower The national and provincial government’s commitment to the project remained strong and supportive during all phases of the Project\. The provincial government supported the Project by directing and coordinating the implementation efforts, with the LPDF as the lead agency\. The LUCRPO, the project cities and the PIUs all performed active project management functions throughout the implementation with the municipalities making great efforts to designate necessary resources for component execution\. As a result, most of the main physical components were completed in good time, well in advance of the original loan closure deadline\. The Project has been implemented in accordance with WB procedures on procurement and contract management, although there have been some procurement and implementation delays and issues, and disbursement progress was a serious concern for large parts of the implementation period\. Despite the extensions to the loan closure date, some investments in Haicheng and Panjin remained incomplete at loan closure\. In Haicheng the principal cause was urban planning issues, including the forecasting of future water demand that resulted in some works not 72 being proceeded with\. In Panjin, the site for the Dawa transfer station was belatedly found to be unsuitable due to the presence of a nearby natural gas pipeline\. It must be acknowledged that the project cities’ failure to increase tariffs means they have performed less well in the implementation of the institutional and financial reforms that had been agreed with the Bank at the time of Appraisal\. 6\. LESSONS LEARNED The LMC2 project has been very successful and achieved most of its original objectives, especially in respect of the physical interventions\. The entire implementation process has been a valuable experience for all the agencies involved, and much capacity building of the PIUs has been achieved that will help them with their ongoing operations, with planning and in implementing future projects\. The WB loan and GEF grant have not just simply helped financing the Project, but have also introduced advanced management practices for project implementation, strategic sector planning and enterprise operation\. WB project implementation rules and procedures on procurement, contracts management and construction supervision have been broadly accepted as being fair and giving greater assurance of a satisfactory outcome\. Good experience has been gained by practicing these rules and procedures, which have been replicated on similar projects not financed by WB\. Specific lessons learned include: 1）Government support, such as fulfilment of covenants, cooperation and timely approval from domestic authorities of various levels, and a strong and stable project management organization are crucial for success in project implementation\. 2）Major changes after appraisal and loan effectiveness should be avoided\. Such changes need review and evaluation by domestic procedures and the Bank, and will inevitably result in delays in implementation and additional cost, with the worst case scenario being under-utilization of the loan\. Under LMC2 most major changes resulted from local political decisions or changes to city master plans, rather than component design failings\. 3）Before engineering design, designers should have adequate site inspection for local planning and geotechnical data, and incorporate that information into drawings and bill of quantities, to reduce unnecessary and preventable variations, and to avoid delay and cost over-run during construction\. 4）The absence of sub-metering of electricity within the WWTP makes the monitoring and control of power consumption difficult to achieve and is something that should be rectified in future projects\. 5）The readiness of contract packages to proceed under retro-active financing needs to be carefully appraised\. The inclusion of Gaizhou contract GWW/1\.1 seems to have been particularly ill-advised, due to the state of preparations and readiness for the whole of that sub-component at the time of appraisal\. 6）The inclusion of the cost-recovery covenants for the Panjin and Yingkou wastewater companies without any matching commitment to institutional reform was a major 73  mistake\. These seem to have been included because the WB Board would have expected them to be included, rather than there being a real prospect of them being complied with\. Under existing institutional arrangements for wastewater service provision, a cost recovery covenant needs to apply at the city sector level and not at the utility level\. 7）The GEF capacity building program lost its impetus in the early stages of implementation due to: (i) the lack of a program “champion” within provincial government (ii) the absence of project city “buy-in”; and (iii) changes in local circumstances\. 8）Unintended beneficial outcomes have included the opportunity to explore urban –rural systems of MSW service integration in Panjin as a result of the change in financing of the proposed landfill to BOT modality, the upsizing of Shuangtaizi WWTP, and also the implementation of successful water network GIS as a result of GEF component restructuring\. 9）Unintended adverse outcomes have been over-capacity created in the Gaizhou wastewater and Haicheng water supply sub-components\. 10） The dropping of the full PPP pilot from the GEF component resulted in a lost opportunity for Liaoning to gain experience in PPP implementation with expert consulting support and under Bank guidance\. Given the current emergence of PPP this could have given very useful experience, indeed, if it had gone ahead\. 74 Annex 8\. Comments of Co-financiers and Other Partners/Stakeholders N/A 75 Annex 9\. List of Supporting Documents The World Bank\. Project Appraisal Document, Report No\. 38378-CN\. May 15, 2007\. Loan Agreement and Project Agreements (and Amendments)\. September 19, 2007\. GEF Grant Agreement (and Amendment)\. September 9, 2007\. The World Bank\. Aide Memoires, ISR Reports and Management Letters\. May 2008 to June 2015\. The World Bank\. Project Restructuring Paper, Report No\. RES12485\. March 20, 2014\. Liaoning Urban Construction & Renewal Project Office (LUCRPO)\. Borrower’s Implementation Completion Report – 2nd Draft\. June 2015\. Note: The following seven studies were financed by the GEF Grant\. AECOM Asia Limited Company\. Capacity Building of Public Utilities – Project Finish Report\. December 2014\. Shenyang Jinjian Digital City Software Ltd\. Consulting Service of Network Geographic Information System (GIS) for Yingkou Water Supply – Project Completion Report\. December 2014\. Shenyang Jinjian Digital City Software Ltd\. Consulting Service of Network Geographic Information System (GIS) for Anshan and Haicheng Water Supply – Project completion Report\. December 2014\. Liaoning Province Finance Society\. Research on the Value of Dahuofang Reservoir Ecosystem Service and Data Collection\. November 2014\. Liaoning Province Finance Society\. Research of Ecological Compensation Mechanisms for Dahuofang Reservoir Basin – Final Report\. November 2014\. China Urban Construction Design & Research Institute Co\., Ltd\. Strategic Planning for Urban Solid Waste Disposal: Fushun, Panjin, Yingkou EDZ and Gaizhou City – Project Finish Report\. December 2014\. HJI Group Corporation\. Strategic Planning of Urban Wastewater Management of Panjin and Gaizhou Cities – Project Completion Report (Volume 1)\. December 2014\. 76  Annex 10: Project Pictures Anshan Water Supply: Water Treatment Plant – Treated Water Pump house Fushun Water Supply: Water Treatment Plant – Transmission Pipe 77 Yingkou Water Supply – Water Treatment Plant Yingkou Water Supply – Water Treatment Plant 78  Panjin Water Supply – Water Meter Box Ghaizhou Wastewater: Rehabilitated Urban Drainage 79 Yingkou Wastewater Treatment Plant Ghaizhou Wastewater Treatment Plant 80 Panjin Wastewater Treatment Plant Panjin Wastewater Treatment Plant 81 Panjin Solid Waste – Garbage Collection Vehicles Panjin Solid Waste – Waste Transfer Station 82  Fushun Solid Waste – Waste Compactor Fushun Solid Waste – Leachate Treatment Plant 83  IBRD 34896 R U S S I A N F E D E R AT I O N CHINA KAZAKHSTAN HEILONGJIANG LIAONING MEDIUM CITIES MONGOLIA OL JILIN Sea of INFRASTRUCTURE PROJECT II NG Japan KYRGYZ REP\. MO LIAONING D\.P\.R\. OF I Water XINJIANG NE BEIJING KOREA WATER SUPPLY COMPONENT BEIJING TIANJIN Supply HEBEI REP\. OF Solid SHANXI NINGXIA SHANDONG Ye llow KOREA JAPAN Waste SOLID WASTE COMPONENT Se a QINGHAI GANSU SHAANXI HENAN JIANGSU Waste Water WASTEWATER COMPONENT SHANGHAI ANHUI XIZANG HUBEI ING SICHUAN ZHEJIANG GEF GEF-FUNDED ACTIVITIES GQ ON GXI CH HUNAN JIAN GUIZHOU FUJIAN PROJECT CITIES NATIONAL CAPITAL TAIWAN YUNNAN GUANGXI GUANGDONG Philippine MAIN CITIES AND TOWNS PROVINCE BOUNDARIES HONG KONG Sea INTERNATIONAL BOUNDARIES VIETNAM MACAO PROVINCE CAPITALS Bay of LAO HAINAN PHILIPPINES B e n g a l P\.D\.R\. PROVINCE BOUNDARIES INTERNATIONAL BOUNDARIES 120° E This map was produced by the Map Design Unit of The World Bank\. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank 122° E 124° E 126° E Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries\. GSDPM Map Design Unit NEI MONGOL JILIN Changtu Kangping Xifeng Kaiyuan Faku Tiefa Zhangwu Tieling Qingyuan 42° N 42° N Xinmin Fushun Beipiao SHENYANG WS WW SW Xinbin Heishan Chaoyang Beizhen LIAONING GEF GEF Yi Xian Dengta Jianping Tai'an Huanren Lingyuan Liaoyang Benxi Jincheng Panjin Jinzhou WS WW SW Anshan Harqin WS GEF GEF Dawa GEF Jianchang Kuandian Huludao Haicheng Yingkou WS Xingcheng WS WW GEF WS GEF Fengcheng GEF Suizhong Gaizhou Xiuyan HEBEI WW GEF Dandong DEM\. PEOPLE'S Bo Hai GEF 40° N 40° N REPUBLIC Donggou OF KOREA Zhuanghe Fu Xian Xinjin Jin Xian Yellow Sea Dalian 120° E 122° E 124° E DECEMBER 2015

REVIEW

P093806

 Document of The World Bank FOR OFFICIAL USE ONLY Report No: ICR00002979 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-43420, IDA-43430, IDA-43480, IDA-H3200, and IDA-H3210) ON THREE PROPOSED CREDITS IN THE AMOUNT OF SDR 6 MILLION (US$9 MILLION EQUIVALENT) TO THE REPUBLIC OF BENIN SDR 11\.9 MILLION (US$18 MILLION EQUIVALENT) TO THE REPUBLIC OF MALI AND SDR 88\.6 MILLION (US$135 MILLION EQUIVALENT) TO THE FEDERAL REPUBLIC OF NIGERIA AND ON TWO PROPOSED GRANTS IN THE AMOUNT OF SDR 6 MILLION (US$9 MILLION EQUIVALENT) TO THE REPUBLIC OF GUINEA AND SDR 9\.9 MILLION (US$15 MILLION EQUIVALENT) TO THE REPUBLIC OF NIGER THE NIGER BASIN AUTHORITY FOR A NIGER BASIN WATER RESOURCES DEVELOPMENT AND SUSTAINABLE ECOSYSTEMS MANAGEMENT PROJECT June 28, 2018 Water Global Practice Africa Region  CURRENCY EQUIVALENTS (Exchange Rate Effective December 31st, 2017) Currency Unit = SDR 1\.00 = US$ 1\.42 US$ 1\.00 = SDR 0\.70 FISCAL YEAR July 1 - June 30 Regional Vice President: Makhtar Diop Country Director: Rachid Benmessaoud Senior Global Practice Director: Guang Zhe Chen Practice Manager: Steven N\. Schonberger Task Team Leader(s): Pierrick Fraval ICR Main Contributor: Taibou Adamou Maiga  ABBREVIATIONS AND ACRONYMS AFD French Development Agency (Agence française de développement) APL Adaptable Program Lending CBA Cost-benefit Analysis CBN Central Bank of Nigeria CER Certified Emission Reduction CIDA Canadian International Development Agency CSCRP Growth and Poverty Reduction Strategy (Cadre Stratégique pour la Croissance et la Réduction de la Pauvreté) ELD Economics of Land Degradation EIRR Economic Internal Rate of Return ERPA Emission Reduction Purchase Agreement ESMP Environmental and Social Management Plan EU European Union GIZ German Agency for International Cooperation (Deutsche Gesellschaft für Internationale Zusammenarbeit) ICR Implementation Completion and Results Report ISR Implementation Status and Results Report M&E Monitoring and Evaluation MESL Mainstream Energy Solutions MWRD Multipurpose Water Resources Development NBA Niger Basin Authority NFS National Focal Structure NIA National Implementation Agency NPV Net Present Value O&M Operations and Maintenance PAD Project Appraisal Document PAG Government Action Plan PDO Project Development Objective PDES Social and Economic Development Strategy (Plan de Développement Economique et Social) PHCN Power Holding Company of Nigeria PMCU Project Management and Coordination Unit PMU Project Management Unit PWC1 Permanent Water Commission RAP Resettlement Action Plan SDAP Sustainable Development Action Plan SVP Shared Vision Process TCN Transmission Company of Nigeria TSA Treasury Single Account TTL Task Team Leader VC Videoconferencing WRDSEM Water Resources Development and Sustainable Ecosystems Management 1 The permanent Water Commission is now named in the water charter “the Permanent Water Technical Committeeâ€?  TABLE OF CONTENTS DATA SHEET \. ERROR! BOOKMARK NOT DEFINED\. I\. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES \. 6 A\. CONTEXT AT APPRAISAL \.6 B\. SIGNIFICANT CHANGES DURING IMPLEMENTATION (IF APPLICABLE) \. 10 II\. OUTCOME \. 14 A\. RELEVANCE OF PDOs \. 14 B\. ACHIEVEMENT OF PDOs (EFFICACY) \. 16 C\. EFFICIENCY \. 22 D\. JUSTIFICATION OF OVERALL OUTCOME RATING \. 23 E\. OTHER OUTCOMES AND IMPACTS \. 23 III\. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME \. 25 A\. KEY FACTORS DURING PREPARATION \. 25 B\. KEY FACTORS DURING IMPLEMENTATION \. 27 IV\. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME \. 29 A\. QUALITY OF MONITORING AND EVALUATION (M&E) \. 29 B\. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE \. 30 C\. BANK PERFORMANCE \. 33 D\. RISK TO DEVELOPMENT OUTCOME \. 34 V\. LESSONS AND RECOMMENDATIONS \. 34 ANNEX 1\. RESULTS FRAMEWORK AND KEY OUTPUTS \. 38 ANNEX 2\. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION \. 49 ANNEX 3\. PROJECT COST BY COMPONENT \. 51 ANNEX 4\. EFFICIENCY ANALYSIS \. 52 ANNEX 5\. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS \. 69 ANNEX 6\. SUPPORTING DOCUMENTS \. 70  The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) DATA SHEET BASIC INFORMATION Product Information Project ID Project Name Niger Basin Water Resources Development and P093806 Sustainable Ecosystems Management Project Country Financing Instrument Western Africa Investment Project Financing Original EA Category Revised EA Category Full Assessment (A) Full Assessment (A) Organizations Borrower Implementing Agency The Niger Basin Authority Niger Basin Authority (NBA) Project Development Objective (PDO) Original PDO The project development objective is to achieve a sustainable increase in the overall productivity of existing water resources to foster economic development in selected countries of the Niger River Basin\. Revised PDO The (new) WRD-SEM APL 1 Development Objective is: to enhance regional coordination and improve water resources management in theNiger River Basin\. PDO as stated in the legal agreement to enhance regional coordination, development and sustainability of water resources management in the Niger River Basin Page 1 of 74  The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) FINANCING Original Amount (US$) Revised Amount (US$) Actual Disbursed (US$) World Bank Financing 9,000,000 8,993,034 8,978,134 IDA-43420 18,000,000 15,860,471 15,483,330 IDA-43430 135,000,000 133,584,298 131,236,002 IDA-43480 15,000,000 14,732,657 14,852,647 IDA-H3200 9,000,000 8,743,448 8,372,877 IDA-H3210 Total 186,000,000 181,913,908 178,922,990 Non-World Bank Financing Borrower 0 0 0 African Development Bank 34,000,000 0 33,660,000 CANADA: Canadian International Development 4,720,000 0 3,776,000 Agency (CIDA) EC: European Commission 3,540,000 0 3,540,000 Total 42,260,000 0 40,976,000 Total Project Cost 228,260,000 181,913,908 219,898,990 KEY DATES Approval Effectiveness MTR Review Original Closing Actual Closing 03-Jul-2007 08-Nov-2007 16-May-2011 31-Jan-2013 31-Dec-2017 23-Nov-2011 01-Dec-2011 31-Dec-2019 31-Dec-2019 Page 2 of 74  The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) RESTRUCTURING AND/OR ADDITIONAL FINANCING Date(s) Amount Disbursed (US$M) Key Revisions 06-Jun-2011 20\.37 Change in Loan Closing Date(s) 23-Dec-2014 130\.02 Change in Implementing Agency Change in Project Development Objectives Change in Results Framework Change in Components and Cost Change in Loan Closing Date(s) Reallocation between Disbursement Categories Change in Safeguard Policies Triggered Change in Implementation Schedule KEY RATINGS Outcome Bank Performance M&E Quality Moderately Satisfactory Moderately Satisfactory Modest RATINGS OF PROJECT PERFORMANCE IN ISRs Actual No\. Date ISR Archived DO Rating IP Rating Disbursements (US$M) 01 12-Dec-2007 Satisfactory Satisfactory 1\.32 02 19-May-2008 Satisfactory Satisfactory 10\.64 03 04-Dec-2008 Satisfactory Satisfactory 11\.64 04 28-May-2009 Satisfactory Moderately Unsatisfactory 13\.69 Moderately 05 09-Oct-2009 Moderately Unsatisfactory 14\.01 Unsatisfactory Moderately 06 17-Mar-2010 Moderately Unsatisfactory 14\.85 Unsatisfactory Moderately 07 09-Jan-2011 Moderately Unsatisfactory 17\.44 Unsatisfactory Moderately 08 22-Sep-2011 Moderately Unsatisfactory 37\.69 Unsatisfactory 09 27-Nov-2011 Moderately Satisfactory Moderately Satisfactory 37\.69 10 11-Jun-2012 Moderately Satisfactory Moderately Satisfactory 42\.00 Page 3 of 74  The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) 11 01-Jan-2013 Moderately Satisfactory Moderately Satisfactory 46\.71 12 17-May-2013 Moderately Satisfactory Moderately Satisfactory 54\.25 13 26-Jul-2013 Moderately Satisfactory Moderately Unsatisfactory 57\.03 14 03-May-2014 Moderately Satisfactory Moderately Unsatisfactory 100\.66 15 23-Nov-2014 Moderately Satisfactory Moderately Satisfactory 127\.81 16 16-Jun-2015 Moderately Satisfactory Moderately Satisfactory 147\.85 17 28-Mar-2016 Moderately Satisfactory Moderately Satisfactory 163\.93 18 30-Jun-2016 Satisfactory Satisfactory 167\.18 19 30-Dec-2016 Satisfactory Satisfactory 175\.76 20 29-Jun-2017 Satisfactory Moderately Satisfactory 176\.67 21 16-Jan-2018 Moderately Satisfactory Moderately Satisfactory 177\.52 SECTORS AND THEMES Sectors Major Sector/Sector (%) Agriculture, Fishing and Forestry 10 Irrigation and Drainage 5 Other Agriculture, Fishing and Forestry 5 Public Administration 12 Central Government (Central Agencies) 12 Energy and Extractives 59 Renewable Energy Hydro 59 Water, Sanitation and Waste Management 19 Other Water Supply, Sanitation and Waste 19 Management Page 4 of 74  The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) Themes Major Theme/ Theme (Level 2)/ Theme (Level 3) (%) Urban and Rural Development 8 Rural Development 8 Land Administration and Management 8 Environment and Natural Resource Management 91 Renewable Natural Resources Asset Management 16 Biodiversity 8 Landscape Management 8 Environmental policies and institutions 25 Water Resource Management 50 Water Institutions, Policies and Reform 50 ADM STAFF Role At Approval At ICR Regional Vice President: Obiageli Katryn Ezekwesili Makhtar Diop Country Director: Mark D\. Tomlinson Rachid Benmessaoud Senior Global Practice Director: Eustache Ouayoro Guang Zhe Chen Practice Manager: Eustache Ouayoro Steven N\. Schonberger Task Team Leader(s): Ousmane Dione Pierrick Fraval ICR Contributing Author: Taibou Adamou Maiga Page 5 of 74  The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) I\. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES A\. CONTEXT AT APPRAISAL Context 1\. Covering 1\.5 million km2 in nine riparian countries (Benin, Burkina Faso, Cameroon, Côte d’Ivoire, Guinea, Mali, Niger, Nigeria, and Chad), the Niger River has a total length of 4,200 km\. This area is characterized by high population growth2\. The livelihoods of more than 72 percent of the basin population depend directly on its water resources and 85 percent of the population live in rural areas\. The effects of climate change coupled with the use of archaic and inefficient methods of land, water, and flora management contribute to severe ecosystem degradation which in turn has a direct negative impact on rural communities\. 2\. The river basin is endowed with huge water resources development potential but this potential is poorly used and managed\. Even though additional water infrastructure is needed to mitigate the seasonal and annual variability of the Niger River, the existing infrastructure is suffering from inadequate operation and poor maintenance, hindering the long-term sustainability of these expensive and important assets that improve the welfare of the population\. In addition, the poor land and water management practices coupled with high water variability in the basin had heavily contributed to the ecosystem degradation and the income reduction of the population\. Therefore, optimizing benefits from existing water infrastructure and adequately managing the water resources will lead to increased productivity and income generation\. 3\. In 2004, the nine riparian countries committed to regional cooperation for joint development and sustainable management of shared water resources through coordinated multisectoral investments and common water governance rules\. This initiated the Shared Vision Process (SVP) that led to a basin-wide Sustainable Development Action Plan (SDAP) piloted by the Niger Basin Authority (NBA) which was approved in 2007\. Its pillars are (a) socioeconomic infrastructure (development of cascade storage dams for irrigation and hydropower), (b) ecosystem conservation and natural resource protection, and (c) capacity building and stakeholder participation, including a strengthened legal and regulatory framework\. The SDAP comprises a set of interventions/investments distributed across the three pillars and countries\. The countries decided to empower and enable the NBA, so that it could deliver on the SDAP and build the legal instruments and institutional mechanisms for cooperative development of water resources in the basin\. The World Bank, together with five other donors, accompanied the SVP and committed to align their future—or ongoing—financial assistance to the pillars of the SDAP\. The NBA lacked operational capacity\. Therefore, supporting the NBA’s institutional strengthening and capacity building at all levels (headquarter and country focal structures) was key to promoting regional cooperation and growth in the basin area\. 4\. The project was aligned with the World Bank’s Africa region strategy to support regional integration efforts\. It is a response to a special request from NBA riparian countries to the World Bank, considering its convening power to gather other donors who can support large investment needs\. The 2Population growth in the Niger Basin was estimated at 2\.8 percent and the population was estimated to be 110 million in 2006\. Page 6 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) World Bank’s involvement in the renewal of the collaborative framework and the successful reform of the NBA have inspired the ownership and strong commitment of the riparian country\. The coordinated and integrated approach can be a powerful instrument to (a) prevent potential conflicts associated to unilateral development of river’s resources, (b) promote regional integration, and (c) increase opportunities for poverty reduction through the management of shared resources\. The World Bank’s regional and worldwide experience in preparing and funding similar water resources management projects (Senegal River Basin Project, P093826) has been a critical determinant in its selection as lead agency under the donor’s collaborative framework to support the NBA for this project\. 5\. The project was the first of an Adaptable Program Lending (APL), focused on the five countries that share the main course of the River Niger\. The APL1 was focus on Benin, Guinea, Mali, Niger and Nigeria\. Moving to APL2, with an extension of the financing to the other member countries, was dependent on the countries being able to meet some defined policy, institutional, and legal triggers\. These triggers are as follows: (a) the finalization of the water charter on Niger Basin, (b) the adoption of the Niger Basin Regional Environment code, (c) the development and adoption of legal instruments for joint management and optimization of large infrastructure, dispute resolution, and arbitrage enforcement by riparian countries, and (d) the creation of a Permanent Water Commission (PWC)\. In addition, a technical trigger was that the Power Holding Company of Nigeria (PHNC) has met the expected output in terms of availability of the rehabilitated units 5, 6, and 12 of Kainji power plant\. 6\. The effectiveness of some of the abovementioned triggers feed the legal instruments target set in the Results Framework\. This target contributes to the measurement of the achievements on the regional coordination for water resources management in the Niger River Basin\. The legal instruments to be adopted are (a) the Niger Basin Regional Environment code, (b) the Agreement on Common Guarantee of Infrastructure, (c) the Agreement on Joint Management of Infrastructure, and (d) the Agreement on Dispute Resolution and Arbitrage\. Setting this trigger-based approach in the project implementation has the objective of establishing incentives to quickly put in place the required instruments to enhance regional coordination, development, and sustainability of water resources management in the Niger River Basin\. Theory of Change (Results Chain) 7\. To address the issues mentioned in the previous section, the project intended to fulfill three main objectives in the Niger River Basin: first, enhance regional coordination for water resources management according to the jointly developed basin-wide plan (SDAP) by reinforcing the capacity of the regional institution, NBA, and its country-level focal structures; second, enhance development of water resources through the water infrastructure rehabilitation works and preparation studies and/or realization of new water infrastructure; and third, enhance sustainability of water resources by implementing the ecosystems’ regeneration activities\. 8\. The lack of sufficient robust legal instruments along with the NBA’s weak leadership had led to competitive unilateral development of river’s resources\. To address the issue of regional coordination for water resources management in the Niger River Basin, the project sought to (a) enhance regional coordination for the implementation of planned activities according to the SDAP and (b) empower the NBA with legal instruments and an institutional mechanism for water resources management\. Page 7 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) (a) Regional coordination for the implementation of activities according to SDAP\. These activities aimed to enable the NBA to set up an overall performance evaluation system, to strengthen communication and practices to share information, knowledge, and experience, and to manage and supervise the project, on one hand\. On the other hand, it aimed to enable the NBA National Focal Structures (NFSs) and National Implementation Agencies (NIAs) to manage and implement investment programs according to SDAP\. The project built the capacity of key stakeholders, starting with the NBA itself, NFS, and NIA through trainings, equipment, and establishing an overall monitoring and evaluation (M&E) system\. (b) Empowering the NBA with legal instruments and institutional mechanisms for water resources management\. The project had supported the elaboration/validation process of legal instruments through specific studies on quality enhancement and validation workshops\. In addition, the project had supported the finalization of the basin water charter and the creation of supporting committees of this charter that set the institutional mechanisms for the development and management of water resources\. 9\. There was inadequate operations and maintenance (O&M) of existing water infrastructure due to delays in maintenance and unutilized development potential in the Niger River Basin\. To address the issue of the regional development of water resources in the river basin, the project sought to contribute by financing rehabilitation works for the Kainji and Jebba hydropower plants to increase energy production in Kainji and secure existing energy production in Jebba\. In addition, feasibility studies of dams were envisaged in Nigeria, Niger, Mali, and Guinea, and small dams and small irrigation schemes rehabilitation were planned\. 10\. The poor land and water management practices coupled with high water variability in the basin had heavily contributed to the ecosystem degradation and the income reduction of the population\. To contribute to the sustainable management of water resources, the project had planned activities of watershed restoration and agroforestry, income generation, and fish production\. Figure 1\. Schematic Overview of the Project’s Theory of Change (Results Chain) Note: PDO = Project Development Objective; * After 2014 project restructuring, these two PDO outcomes were simplified to “improve water resources management in the Niger River Basin\.â€? Page 8 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) Project Development Objectives (PDOs) 11\. PDOs\. The PDO as stated in the legal agreement was to “enhance regional coordination, development and sustainability of water resources management in the Niger River Basin\.â€? The original project’s PDO is the same as the program PDO\. Key Expected Outcomes and Outcome Indicators 12\. Key expected outcomes and outcome indicators\. Key outcome indicators at approval were linked to all the parts of the PDO and contributed to the SDAP\. Three outcomes come out from the PDO and every PDO outcome has a set of indicators as shown in table 1\. Table 1\. Key Expected Outcomes and Outcome Indicators PDO Outcomes Outcomes indicators Enhance regional coordination for Water resources • Percentage of activities implemented according to management in Niger River Basin Niger Basin SDAP Enhance regional development of water resources • Hydropower capacity (MW) rehabilitated at Kainji in the Niger River Basin and Jebba hydropower plants • Hectares of rehabilitated or additional irrigated surface in Mopti region (Mali), Tillaberi region (Niger) and Karimama and Malanville districts (Benin) Enhance sustainability of water resources in the • Percentage of watershed areas in Faranah region Niger River Basin (Guinea), Mopti region (Mali), Dosso and Tillaberi\. regions (Niger) and Alibori region (Benin) using agroforestry, river bank stabilization, silt and sedimentation control Components 13\. At approval, the project was composed of three components\. Component 1: NBA institutional strengthening and capacity building (E3\. US$7\.77 million; A4\. US$10\.73 million) 14\. The objective of this component was to enhance the capacity of the NBA and its NFSs including other national institutions involved in implementing the First Phase Project of the Niger Basin Program\. This was to be achieved through (a) the NBA institutional strengthening and its capacity building, (b) strengthening and capacity building of national water resources management institutions, and (c) institutional support and strengthening of regional water resources management and planning\. After the 2014 project restructuring the project Component1’s cost was increased from US$ 7\.77 million to US$10\.73 million\. This increase is done because US$7\.77 million was provided to only cover 5-year 3 E\. Estimated at Appraisal 4 A\. Actual After the last project restructuring of December 2014\. Page 9 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) activities of capacity building and project management and supervision, and with the project end date extension to December 2017 it is fair to expect such an increase\. Component 2: Rehabilitation, optimization and development of regional infrastructure (E\. US$ 138\.45 million; A\. US$ 134\.62 million) 15\. The objective of this component was to support the rehabilitation and upgrading works of existing large water infrastructures of regional importance and the regional planning framework \. This objective was to be achieved through (a) the rehabilitation works of the Kainji dam and hydropower plant, (b) the rehabilitation works of the Jebba hydropower dam, and (c) the assessment of the optimization and the management options for the development of regional water infrastructure\. Some activities were cancelled with the 2014 restructuring (see section B on significant changes)\. This reduction in works scope explains the change in resource allocation for the component\. Component 3: Sustainable management of selected degraded ecosystems and rehabilitation of small water infrastructure (E\. US$ 39\.78 million; A\. US$ 40\.65 million) 16\. The objective of this component was to combine the rehabilitation of small water infrastructure and ecosystems management to support income-generating activities\. Considering technical, social, and political criteria, the areas and related activities were selected in a participatory process to engage the communities for the sustainable management of the water resources\. Selected areas included the upper basin in Guinea (region of Faranah), the headwaters tributaries in Benin (upper Alibori, Goungoun, Sota, and Goroubi - Karimama and Malanville Districts), the Inner Delta in Mali (Circles of Mopti, Douentza, Djenne, and Tenenkou), and the Niger River middle section in Niger Republic (regions of Tillabéri and Dosso)\. The selected activities were as follows: (a) rehabilitation and diversification of small dams in Niger and Benin, (b) rehabilitation and extension of small irrigation schemes (Benin, Niger, and Mali), (c) supporting development of traditional fisheries (Niger and Mali), and (d) supporting watershed restoration and agroforestry (Benin, Guinea, Mali, and Niger)\. There is a light increase in the resource allocated to this component, while some activities were cancelled in Benin, Guinea, and Niger with the 2014 restructuring\. At appraisal the activities’ costs were underestimated, and, in addition, the safeguards compliance costs were not considered\. This explained the increase in resource allocation for the component\. B\. SIGNIFICANT CHANGES DURING IMPLEMENTATION (IF APPLICABLE) Revised PDOs and Outcome Targets 17\. The December 2014 restructuring led to changes in (a) the PDO, (b) the end date, (c) cancellation of specific activities found not necessary and (d) safeguards, as OP 4\.09 (Pest Management) was triggered\. The new PDO became ‘to enhance regional coordination and improve water resources management in the Niger River Basin’\. The PDO was revised because the scope of the project was reduced to ensure a good link between the project target indicators, achievements, and activities\. The PDO as stated, can be unpacked as follows: (a) ‘enhance regional coordination in the Niger River Basin’ and (b) ‘Improve water resources management in the Niger River Basin’\. Page 10 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) Revised PDO Indicators Table 2\. Revised Outcomes and Outcome indicators PDO Outcomes Outcomes indicators Enhance regional • Percentage of activities implemented according to the Niger Basin coordination in Niger River Sustainable Development Action Plan Basin • Number of legal instruments adopted by riparian integrated water countries for integrated water resources management at regional level Improve water resources • Generation capacity of hydropower rehabilitated under the project management in the Niger • Land area where sustainable land management practices River Basin • Direct project beneficiaries • Female beneficiaries Revised Components 18\. Revised components\. With the 2014 restructuring, the project components were not fundamentally changed in terms of headings\. The changes operated had reduced the scope of components by cancelling some activities or downscaling/modifying the number of tasks under Components 1, 2, and 3\. The previous description of the components are valid for the revised components\. In fact, the deletion/modification of some activities did not have a significant impact on the project PDO\. Component 1: NBA institutional strengthening and capacity building 19\. In this component, the change was done in Subcomponent 1-c\. Three out of eight activities in Subcomponent 1-c were cancelled\. These activities are: (i) support the establishment of a Regional Consultative Group to build a participatory consensus on water infrastructure development in the Niger Basin; (ii) prepare legal instruments for joint management and optimization of large infrastructure, dispute resolution, and arbitrage enforcement by riparian countries; and (iii) establish sub-basin commissions to apply the required subsidiary principles to implement the SDAP\. The reasons of this choice are: (a) the cancellation of these activities happened in a context of budget constraints as the allocated budget for the activities was underestimated, (b) activities indicated in (i) and (iii) had not started at the time of the project restructuring so it was agreed to plan for them in APL2, and (c) for the activity indicated in (ii), the project had financed the studies but the quality of the studies was not satisfactory for the countries and the NBA\. The firm in charge of the studies (TRACTEBEL) was unable to address comments received from the NBA\. At the time of the restructuring it was agreed to cancel it from APL1 and plan for it in APL2 project\. Component 2: Rehabilitation, optimization, and development of regional infrastructure 20\. Modifications were undertaken in the three subcomponents of Component 2 of the original project\. Safeguards consideration to comply with World Bank operational policy, procurement processing, and contracts management issues have increased the projected costs in planned activities\. This led to some adjustments in the scope of work\. Page 11 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) Subcomponent 2-a: Rehabilitation of Kainji hydropower dam 21\. The rehabilitation works of the navigation lock was cancelled\. Subcomponent 2-b: Rehabilitation of Jebba hydropower dam 22\. Rehabilitation of electromechanical equipment: (a) major spare parts were modified; (b) transformer parts were cancelled; and (c) penstocks and scroll cases were cancelled\. Civil works: works on the tailrace spillway channel and grouting of auxiliary dam no\. 3 were modified and works on rehabilitation of the navigation lock were cancelled\. Prevention of tree invasion: (a) the removal of submerged tree logs and debris around turbines and spillway intakes (200 m upstream from dam axis) was modified, and (b) the removal of dead trees in the reservoir was cancelled\. Subcomponent 2-c: Supporting options assessment for regional water infrastructure development 23\. Zungeru studies in Nigeria: feasibility and detailed studies for Zungeru dam site in Nigeria was cancelled and replaced by a new activity, “screening of potential hydropower sites in the Niger Basin within Nigeria and preparation of a master plan of Benue sub-basin in Nigeria\. Niger Kandadji dam studies: (a) updates on the resettlement action plan (RAP) of the first wave out of two were agreed and (b) the detailed engineering design of Kandadji dam was cancelled because it was conducted by other development partners\. Taoussa dam in Mali: complementary studies were cancelled because they were financed by another donor\. Component 3: Sustainable management of selected degraded ecosystems and rehabilitation of small water infrastructure 24\. All the four subcomponents were affected by changes in the scope of their activities compared to the original projects\. The reasons for works scope reduction are similar to Component 2, in addition the costs at appraisal was underestimated\. Changes are described in the following paragraphs\. Subcomponent 3-a: Rehabilitation and diversification of small dams 25\. The number of small dam rehabilitations in Benin is reduced from 12 to 7 dams and the activity related to the diversification of agricultural activities was cancelled\. Activities related to the rehabilitation of Aboka dam in Niger were cancelled\. Subcomponent 3-b: Rehabilitation and extension of small irrigation schemes 26\. The rehabilitation of the irrigation scheme of Kourani and the one of Lossa Kokomani in Niger were cancelled due to lack of funds\. Development of small irrigation schemes in Benin was modified\. This activity increased to 1,500 ha from 250 ha\. Subcomponent 3-c: Support the development of traditional fisheries 27\. The promotion of sustainable fishing practices and fish production processing was modified\. The number of fish pools and fish-farming ponds in Mali were reduced to 120 pools and 20 fish farming ponds due to limited funding available\. Page 12 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) Subcomponent 3-d: Watershed restoration and agro-forestry 28\. The activity related to river bank stabilization and erosion control in Mali and Niger was modified from 6 km of dykes and 9 km of vegetation in Mali to 2 km of mechanical protection and 9\.3 km of biological protection\. Stabilization of 200 km of Koris’ embankments in Niger was modified to stabilization of 6 km of Koris’ embankments\. 29\. Reforestation and revegetation in Niger was modified from 6 million plants produced and planted to 32 plant nurseries\. Other Changes 30\. Implementation period\. The implementation period of the project at appraisal was 5 years with January 31, 2013 as the end date\. A first level 2 restructuring was made in June 2011, to extend the project end date from January 31, 2013, to December 31, 2014\. The reasons for this restructuring are (a) delays in the technical studies of Component35, (b) the need to relaunch the procurement process of the rehabilitation contract of Kainji hydropower plant, and (c) the slow pace at which the NBA itself to supervise the implementation of the investments\. 31\. A second restructuring (level 1) extended the implementation period to December 31, 2017\. The World Bank supervision team had noticed and recommended to the NBA and beneficiary countries, the need to extend the project end date since early 2014\. It was anticipated that the planned activities could not be delivered by the closure date of December 31, 2014\. After an evaluation of the time required for completion of activities in each country, the following closure dates for every country were decided during the restructuring: (a) Niger closure date December 31, 2015; (b) Benin, Mali, and Nigeria closure date June 30, 2016; and (c) Guinea closure date December 31, 2017\. 32\. Pest Management (OP 4\.09) was triggered to comply with the safeguard policies\. The policy on pest management was not triggered at appraisal when irrigation and agriculture activities were planned in Niger, Benin, Mali, and Guinea\. However, during implementation, before restructuring, all activities were compliant with safeguard policies, including Pest Management\. Pest Management Plans were prepared and disclosed in 2012: in Guinea (August 29, 2012), Mali (August 23, 2012), Niger (January 16, 2012) and Benin (August 28, 2012)\. The 2014 restructuring had triggered this policy to formally comply with safeguards\. 33\. Revision of the triggers for Phase 2 of Niger Basin Water Resources Development and Sustainable Ecosystems Management (WRDSEM)-APL1\. At the time of the 2014 restructuring, significant progress was made to facilitate the regional coordination\. The water charter was in implementation after its effectiveness in July 2010, three triggers out of four were achieved, and the Kandadji program in Niger had progressed more rapidly than expected\. Therefore, advancing the beginning of WRDSEM-APL2A, which was related to IDA contributions to the Kandadji Program in Niger\. The achieved triggers are as follows: (a) the finalization of the water charter on Niger Basin (achieved), (b) the adoption of the Niger Basin Regional Environment code (achieved), and (c) the creation of PWC6 (achieved)\. 5 The project design did not did not allocate appropriate time for these studies according to NBA\. 6 PWC is now the Permanent Water Technical Committee according to the Water Charter\. Page 13 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) Rationale for Changes and Their Implication on the Original Theory of Change 34\. Change in the PDO\. The rationale for the revision of the PDO was to respond to the need to reduce the scope of the project to ensure a good link between the project target indicators, achievements, and activities\. The Results Framework was revised and some targets were changed\. Despite these changes, the impact on the original theory of change was negligible\. The regional coordination outcome is the same with the original project; and the two outcomes ‘enhance regional development of water resources in the Niger Basin’ and ‘enhance sustainability of water resources in the Niger Basin’ of the original project were simplified to ‘improve water resources management in the Niger River Basin’\. 35\. Change in triggers\. The rational for adjusting the triggers as part of the 2014 restructuring was to ensure they are relevant to the overall program\. For WRDSEM-APL2 only the three triggers that were achieved were relevant\. The remaining institutional trigger will be essential when the three dams (Kandadji - Niger, Taoussa - Mali, and Fomi - Guinea) are operational\. The technical trigger on the three units 5, 6, and 12 is not relevant\. This change did not affect the theory of change\. 36\. Pest management\. The rational for triggering the pest management as part of the 2014 restructuring was to comply with the safeguard policy\. This change did not affect the theory of change\. 37\. Extension of the implementation period\. The rationale for this closing date extension was to allow appropriate time to effectively deliver the planned activities and achieve the project objectives\. The period extension did affect the theory of change\. II\. OUTCOME A\. RELEVANCE OF PDOs Assessment of Relevance of PDOs and Rating Rating: High 38\. The development objective of the WRDSEM Project at closing was “to enhance regional coordination and Improve water resources management in the Niger River Basinâ€? \. As discussed earlier, the enhance regional development of water resources in the Niger Basin’ and ‘enhance sustainability of water resources in the Niger Basin’ of the original project were simplified to ‘improve water resources management in the Niger River Basin’\. 39\. The original and revised PDO is fully consistent with the World Bank’s current7 Country Partnership Strategy (CPS)/Country Partnership Framework (CPF) with each of the five countries (CPS [2013–2017] - Benin; CPS [2014–2017] - Guinea; CPF [2016–2017] – Mali; CPS [2013–2016] - Niger; and CPS [2014–2017] - Nigeria\. This relevance of the PDO is highlighted through the contribution of the project to the respective following areas: (a) Benin CPS pillar 1: Increasing Sustainable Growth; (b) Guinea CPS strategic area of engagement 2: Stimulate growth and economic diversification; (c) Mali CPF area of focus 2: Create Economic Opportunities; (d) Niger CPS pillars 1 and 2: Promoting resilient growth and reducing 7 ‘Current’ is referring to the World Bank strategy at the time of project closure\. Page 14 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) vulnerability; and (e) Nigeria CPS first strategic cluster: Federally led structural reforms for growth and jobs\. 40\. The PDOs are also in compliance with the objectives and pillars of the Niger Basin’s SDAP, in that all planned outputs of the project components are contributing to this SDAP\. 41\. Benin\. The Government of Benin had set (a) acceleration of economic growth and (b) development of infrastructure as two important pillars out of five pillars of its Growth Strategy for Poverty Reduction\.8 The World Bank CPS contributes to these two pillars through its pillar 1 which intended to ‘Improve Natural Resource Management’ among other actions\. The project component implemented in Benin is contributing to this objective\. Considering this alignment, the PDO relevance rating is considered High\. 42\. Guinea\. In Guinea, the WRDSEM Project’s Components 2 and 3 are contributing to Guinea’s development agenda Poverty Reduction Strategy Paper 3 (PRSP3) which planned to foster inclusive and sustainable growth\. These two components of the project are in compliance with the World Bank CPS through its strategic area of engagement 2, which intends to improve the electricity sector and agricultural productivity\. Consequently, the PDO relevance rating is considered High\. 43\. Mali\. The Government of Mali has developed its Strategic Framework for Growth and Poverty Reduction (CSCRP9 2012–2017)\. However, following the political and security crisis of 2012–2013, the transition government, in place between April 2012 and September 2013, was replaced by the newly elected government in August 2013\. Afterwards, the CSCRP was supplemented by the Plan for the Sustainable Recovery of Mali (2013–2014) and the Government Action Plan (PAG) (2013–2018)\. These two documents are intended to consider the new challenges that emerged during the multidimensional crisis affecting Mali\. This PAG is structured around six priority areas, two of which are (a) construction of an emerging economy, and (b) implementation of an active social development policy\. These two focus areas are in alignment with the WRDSEM Project\. The Mali CPF, in its area of focus 2, has the objective to improve productive capacity and marked integration of farmers and pastoralist\. The PDOs are still relevant for both the CPF and the PAG, so the relevance rating of the project PDO is High\. 44\. Niger\. The development of regional infrastructure and sustainable management of degraded ecosystems are part of the Niger CPS and Niger Government Social and Economic Development Strategy (PDES10)\. The CPS, in its pillar 1, had promoted resilient growth through increased agricultural productivity\. This was done by using underground water or building water infrastructure on international waterways (Niger River and its tributary rivers)\. On the other hand, pillar 2 of the World Bank CPS had contributed to reducing vulnerability through increased adoption of climate resilient actions including watershed restoration, among others\. The PDO remains relevant to both the CPS in Niger and the country PDES\. The relevance rating of the project PDO is considered High\. 45\. Nigeria\. Nigeria’s Government Vision 2020 intends to optimize the country’s human and natural resource potential to achieve rapid economic growth among others action\. The World Bank CPS contributed to part of this vision through its first strategic cluster which intends to federally lead structural 8 Stratégie de Croissance pour la Réduction de la Pauvreté 9 CSCRP: Cadre Stratégique pour la Croissance et la Réduction de la Pauvreté 10 PDES: Plan de Développement Economique et Social Page 15 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) reforms for growth and jobs\. In this first cluster, the CPS actions included (but are not limited to) (a) increasing installed power generation and transmission capacity and improving the efficiency and governance of electricity delivery and (b) boosting agricultural productivity, improving farmers’ links with agro-processors, and scaling up Nigeria’s resilience to current and future climate variability\. These two actions are in alignment with the PDO, mainly with the implemented actions in Component 2\. The relevance rating of the project PDO is High\. B\. ACHIEVEMENT OF PDOs (EFFICACY) Assessment of Achievement of Each Objective/Outcome Rating: Before restructuring - Substantial; After restructuring - Substantial Achievement of the original Evidences of the level of achievement and of the level of directness of Rating PDOs/ demonstrated connections between project activities and outcomes/PDO outcomes Enhance The objectives of enhanced regional coordination for water resources Substantial regional management were to be achieved through the capacity reinforcement/building coordination activities\. These activities included: (a) equipment and training to modernize the for water implementation capacity as well as specific trainings meant to enhance inter- resources ministerial collaboration; (b) the establishment of an overall M&E system; (c) the management assistance to establish and finance the yearly convening of the Regional Steering in the Niger Committee, a platform during which planning and performance assessment were Basin done and discussions held with donors to synergize existing programs or to help formulate and speed up the implementation of other investments of the SDAP of the project than those directly financed by the project; (d) development and/or endorsement of legal instruments for integrated water resources management at regional level; and (e) the support of specific training for technical experts involved in the use of modeling tools for water allocation\. The objectives of these activities were to (a) enhance regional coordination for the implementation of planned activities according to the SDAP and (b) empowering the NBA with legal instruments and an institutional mechanism for water resources management\. Therefore, indicators defined in the Results Framework at intermediate results and PDO outcome levels are all contributing to the achievement of the PDO outcomes\. a\. Enhance regional coordination for implementation of planned activities according to the SDAP The abovementioned capacity reinforcement/building in planning, M&E, technical trainings, and equipment had enabled the shared vision among basin actors and implementation of basin water resources development according to the basin-wide action plan (SDAP)\. At the end of the project, 100 percent of activities implemented under the project are aligned with the Niger Basin SDAP\. This alignment contributed at a percentage of 59 percent to the activity areas of the SDAP as there are 34 activity areas planned in the SDAP, and all activities implemented under the project, fell in alignment with 20 out of 34 activity areas of the SDAP\. Aligning countries’ activities with the basin-wide action plan coordinated by the NBA, denotes the Page 16 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) Achievement of the original Evidences of the level of achievement and of the level of directness of Rating PDOs/ demonstrated connections between project activities and outcomes/PDO outcomes strengthening of regional coordination in relation to the sustainable management of resources in the Niger Basin\. The monthly and/or annual water resources information database is now publicly available on the NBA’s website\. The availability of water resources data to inform riparian countries on the River Basin and water resources status, will call for coordinated actions, experience sharing and coordinated management of critical situations (flooding, drought, and so on)\. These two indicators of the Results Framework are fully achieved under the project\. b\. Empowering NBA with legal instruments and institutional mechanism for water resources management Four legal instruments were defined to be achieved in the Results Framework\. These instruments are (i) the adoption of the regional environment code; (ii) the Agreement on Common Guarantee of Infrastructure; (iii) the Agreement on Joint Management of Infrastructure; and (iv) the Agreement on Dispute Resolution and Arbitrage\. In addition to these four instruments, the Results Framework had set the number of meetings held by the PWC annually as another indicator measuring the achievement of regional coordination\. Working in a complementary manner with other donors (French Development Agency [Agence française de développement, AFD], Canadian International Development Agency [CIDA], European Union [EU], and German Agency for International Cooperation [Deutsche Gesellschaft für Internationale Zusammenarbeit, GIZ]) under the leadership of the NBA, the project supported several activities to clarify and operationalize the legal context that stems from the basin-wide water charter\. It financed key advocacy missions of the NBA to speed up ratification in the countries\. The water charter was adopted by riparian countries since November 2009 and became effective in July 2010, following its ratification by all nine countries\. This charter provides a very strong foundation to build upon, notably to develop subsequent legal instruments: on mechanisms to protect the environment, for common guaranty of infrastructure, coordinated management of infrastructure of common interest, and for dispute resolution and arbitrage\. As a result, five annexes to the charter were planned\. These annexes are as follow: (i) Annex 1 - “Regional environment codeâ€?: This annex corresponds to the first legal instrument mentioned above\. The project supported the studies on the regional environment code\. These studies led to the drafting of the regional environmental code which was endorsed by riparian countries and adopted on October 1st, 2011; the target is fully achieved\. (ii) Annex 2 - “Rules governing the coordinated management and optimization of regional water infrastructureâ€?: This annex matches with the third and fourth legal instruments indicated above as part of the Results Framework\. The studies to prepare annex 2 of the charter were jointly financed by the World Bank project and the EU\. These studies intended to clarify the legal instruments for joint management of water infrastructure, dispute resolution Page 17 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) Achievement of the original Evidences of the level of achievement and of the level of directness of Rating PDOs/ demonstrated connections between project activities and outcomes/PDO outcomes and arbitrage enforcement\. These studies included the preparation of a legal text as well as the development of a computerized model meant to inform water release envelopes within the legal boundaries set in the annex 2, itself a legally binding document\. When reviewed by countries, the model was found to have several shortcomings and notably it could not accommodate flexibility in the features of the (future) dams whereas these features (volume, height, and so on) are not fully confirmed; the legal text was found to be incomplete and hard to operationalize\. As the consultant was unable to finalize the agreed documents that accommodate the riparian countries, it was agreed to end the contract before the 2014 restructuring\. With the 2014 restructuring, due to the unavailability of sufficient funds in the project, it was agreed to finalize the work done through the Cooperation International Water in Africa (CIWA) supported project (ongoing P149714)\. So, the two legal instruments (“Agreement on Joint Management of Infrastructureâ€? and “Agreement on Dispute Resolution and Arbitrageâ€?) will be achieved under the other project, which is also financed by the World Bank\. Importantly, even though the model was not approved since it could not fully accommodate the objective of coordinated management of the dams, it is noted that the objective was politically endorsed by the countries\. Given this and the fact that the study was done and only needs to be supplemented justify that we can fairly consider that the target was Partially achieved\. Considering that the continuation of the studies will be done under an active project under the same project management and coordination unit (PMCU), knowing that NBA and riparian countries are willing to have the effectiveness of all legal instruments governing the water charter, the annex 2 of the charter that captures the two legal instruments is likely to be achieved\. (iii) Annex 3 - “Notification of planned measuresâ€?: This annex covers the issues related to planned infrastructure or activities that may have significant negative impacts on at least one country\. It makes it mandatory to riparian countries to notify planned similar interventions\. The elaboration of this annex 3 was supported by CIDA\. It was adopted since December 17, 2014\. (iv) Annex 4 - “Costs and benefits sharingâ€?: It regulates cost and benefits sharing of common infrastructure and common interests\. The studies related to this annex were financed through the GIZ\. The annex 4 of the water charter was adopted and became effective as of March 31, 2017\. The legal instrument covered by annex 4 is not among those highlighted in the project Results Framework\. However, it complements annex 5, that intends to address the question of the ‘Agreement on Common Guarantee of Infrastructure’\. (v) Annex 5 - “Status of common facilities of common interestsâ€?: The AFD had financed a comprehensive study on the “asset management and ownership responsibility for the projects and programs in the Niger River Basin\.â€? This study was adopted by the basin head of states summit held on September 16th, 2010 in Abuja\. This study contributes to annex 5 which captures the ‘Agreement on Common Guarantee of Infrastructure’\. Despite this study with Page 18 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) Achievement of the original Evidences of the level of achievement and of the level of directness of Rating PDOs/ demonstrated connections between project activities and outcomes/PDO outcomes AFD support, the indicator was not achieved\. Nevertheless, after the delivery of annex 4 which may complement annex 5 as mentioned in the previous paragraph, it is now planned that annex 5 will be also supported by the GIZ\. Knowing the studies will be now financed by the GIZ in 2019, the likelihood of the achievement of this indicator seems strong\. A text establishing a PWC based on the one in force in the Senegal River Basin was drafted in 2013\. This commission is supposed to make strategic water allocation decisions on an annual basis\. It would be the one deciding on the water allocation resulting from the model associated with the aforementioned annex 2\. It never met because, unlike the Senegal basin where the PWC is dealing with an existing transboundary dam, there is none yet in the Niger basin\. It is therefore logical that no such meeting took place even though on average two meetings were expected annually\. Taking into consideration the two dimensions of the regional coordination mentioned in previous sections\. The dimension on ‘implementation of planned activities according to the SDAP’ is fully achieved and the dimension on ‘legal instruments’ is partially achieved but with strong likelihood to be achieved, the rating of the outcome for regional coordination substantial\. Enhance The achievement of enhanced regional development of water resources in the Substantial regional Niger Basin was expected to be done through the implementation of energy development production/securing activities and feasibility studies of dam construction and of water rehabilitation of small-scale irrigation and small dams activities\. These activities resources in led to an increase in energy production, irrigated areas, and availability of water the Niger for various purposes\. Basin The project contributed to the restoration of 340 MW of hydropower generation capacity per the target\. (340 MW was restored from Kainji hydropower plant rehabilitation works and securing the production of existing 578 MW for Jebba)\. About 2,125 hectares of area were rehabilitated or provided with irrigation services in Mopti region (Mali - 5 ha), Tillabéri region (Niger - 620 ha), and Karimama and Malanville Districts (Benin - 1,500 ha), more than double the original target of 1,000 ha\. There were four dam sites with completed feasibility studies, with three out of four studies completed under the project and the fourth site done by another donor (one in Nigeria with a hydropower master plan in Niger basin located in Nigeria, one in Niger with Kandadji dam, and one in Guinea with Fomi dam)\. The targeted feasibility study of the dam site in Nigeria has been achieved, though the Feasibility Study of Zungheru Hydropower Plant according to the original project Results Framework was replaced by the Screening for Hydropower Plant Sites in Niger Basin in Nigeria\. Indeed, at the project effectiveness date, the Feasibility Study of Zungheru Hydropower Plant was already committed to another donor\. In Mali, the studies planned for Taoussa were done by other donors\. Six out of 14 small dams were rehabilitated\. After the completion of feasibility studies, it was realized that the allocated budget was not enough to finance the fourteen dams\. With the 2014 restructuring, the target of 14 was reduced to 8 (one in Niger and seven in Benin)\. The one rehabilitated in Page 19 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) Achievement of the original Evidences of the level of achievement and of the level of directness of Rating PDOs/ demonstrated connections between project activities and outcomes/PDO outcomes Niger collapsed before its technical acceptance\. The Government of Niger had committed to rebuild the collapsed dam\. In Benin, while the bidding documents reflected the rehabilitation of 7 dams, the contract issued could only rehabilitate 5 dams with the available budget\. Enhance the The objectives of enhanced sustainable management of water resources were to High sustainability be achieved through activities of watershed restoration, agroforestry and income of water generation\. These complementary activities had contributed to the adoption of resources the sustainable land management practices and ecosystems improvements\. management Percentage of watershed areas in Faranah region (Guinea), Mopti region (Mali), in the Niger Dosso and Tillabéri regions (Niger), and Alibori region (Benin) using agroforestry, Basin river bank stabilization, and silt and sedimentation control\. The project target was 2,250 ha while the achievement was 10,620 ha, representing more than four times the end-project target\. The target for this indicator is very low compared to total planned area which was 11,260 ha\. This was fully achieved and even exceeded\. In Benin, 2,360 ha were planned and only 1,115 ha were realized\. In Guinea, 900 ha planned and 950 ha realized under the project\. In Mali, 500 ha planned, 590 ha realized under the project, and more than 700 additional hectares realized by the population\. Additional evidence\. This includes income-generating activities (agroforestry and fish production) in involved countries\. In Mali, the pasture land restoration was expanded by the beneficiaries themselves without project money, from 590 ha in 2014 (realized by the project) to more than 1,000 ha in 2017\. Anecdotal facts from the NFS and NIA stated that this activity has improved fish production as a result of the ecosystems’ restoration along the river in the interior Niger River delta where the activity was implemented\. The activity is now being continued by fishermen in place of the population in charge of livestock\. Around 2,500 active persons, mainly fishermen, are continuing the extension of bourgou production\. In Benin, beehives for honey production are being expanded by beneficiaries who had been exposed to the approach before the project was implemented\. So, the project has contributed to this, but all the benefits are not attributable to only the project financed by the World Bank\. In Niger, the fish production activity is really expanding and the beneficiaries are having close control of this\. The Implementation Completion and Results Report (ICR) team had witnessed the interest with which the beneficiaries are taking care of desilting ponds or lakes to continue fishery and other activities around them\. Justification of Combining these three ratings the overall PDO efficacy rating is SUBSTANTIAL\. Substantial the original PDO Achievement of Evidences of the level of achievement and of the level of directness of the revised Rating demonstrated connections between project activities and outcomes/PDO PDOs/outcomes Enhance regional Since the PDO remained the same, the same rating is applicable\. Substantial Page 20 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) Achievement of Evidences of the level of achievement and of the level of directness of the revised Rating demonstrated connections between project activities and outcomes/PDO PDOs/outcomes coordination in the Niger Basin Improve water As explained at the point 34\. “Change in the PDOâ€?, the outcome ‘improve Substantial resources water resources management in the Niger Basin’ is a simplification of the management in following outcomes: ‘Enhance regional development of water resources in the the Niger Basin Niger Basin’ and ‘Enhance the sustainability of water resources management in the Niger Basin’\. Based on this assumption, the objectives of this o utcome were expected to be achieved through the implementation of energy production/securing activities, feasibility studies of dam construction, rehabilitation of small-scale irrigation and small dams activities, and through activities of watershed restoration, agroforestry, and income generation\. These activities intend to support the achievement of a sustainable increase in the overall productivity of water resources to contribute to the improvement of the living conditions of the involved countries’ pop ulation and the environment by ecosystem regeneration\. In addition to the indicators discussed under the PDO aspects of ‘enhance regional development of water resources’ and ‘enhance the sustainability of water resources management in the Niger River Basin’, the following additional indicators, that is, (a) land area where sustainable land management practices were adopted as a result of project, (b) area afforested for ecological or income-generation practices and (c) irrigation schemes rehabilitated\. In addition, the mandatory corporate indicator on the number of direct beneficiaries (of which female) was added\. About 10,620 of land area was brought under sustainable land management practices against a target of 13,439 ha\. This indicator was substantially achieved at 79 percent of the end target (Benin - 1,815 ha of which 1,115 ha was improved; Niger - 7,500 ha of which 7,965 ha delivered; Mali - 2,866 ha planned and 590 ha improved; and Guinea - 950 ha planned and 950 ha delivered)\. About 2,655 ha was afforested for ecological or income-generation purposes, exceeding the project target of 2,205 ha\. However, 2,125 ha of irrigation schemes were rehabilitated falling short of the target of 5,005 ha\. The project was unable to realize the irrigation schemes in Djambakourou (more than 2,000 ha) as the population had refused this option at the end of the social evaluation of the project, so the non-achievement of this target was not due to the project counter performance\. The restructuring of December 2014 added a new PDO indicator to reflect the number of beneficiaries\. However, the proposed target was 55 million people mainly based on the assumption that electricity generation from dam rehabilitation and refurbishment would benefit to all the population living in the River Basin in Nigeria\. Basically, the simplistic assumption theorizes that any KWH produced into the grid would automatically generate as many beneficiaries as inhabitant in the River Basin\. With hindsight, the ICR proposes a more realistic and rigorous approach to estimate the number of beneficiaries from electricity generation based on a minimum energy consumption of 250 Kwh per capita per year recommended by the Page 21 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) Achievement of Evidences of the level of achievement and of the level of directness of the revised Rating demonstrated connections between project activities and outcomes/PDO PDOs/outcomes International Energy Agency\. Considering that, the project enabled the production of incremental electric energy estimated at 796, 977 MWh per year, the number of beneficiaries are objectively estimated at 3,187,908 people\. In Benin, 1,500 people benefitted from irrigation while 2,335 benefitted from other income-generating activities\. The total number of direct beneficiaries is estimated at 3,835 people of which 2,335 are females\. In Guinea, the number of beneficiaries is estimated at 1,600 people half of whom are females\. In Mali, 200 people benefitted from river bank protection training, 1,700 women from Burgu production, and 7,000 people from training sessions\. The total number of beneficiaries is estimated at 8,900 people of which 1,700 are females\. In Niger, the project benefited at least 8,875 people of which 4,438 are females\. In total, the project beneficiaries are estimated at 3,211,118 people of which 1,580,912 females\. Using this more rigorous approach still provides a strong economic rate of return contributing to the rating\. Justification of The two outcomes rating are both Substantial so the overall PDO efficacy the revised PDO rating is SUBSTANTIAL\. SUBSTANTIAL C\. EFFICIENCY Assessment of Efficiency and Rating Rating: Modest 46\. Economic analysis\. The economic analysis of the project is based on cost-benefit analysis (CBA) of the different subprojects implemented in the five project countries\. The overall economic analysis accounts for 100 percent of the project expenditure\. The analysis captures the combined benefits and costs from hydropower generation, irrigation, fisheries, fodder production, reforestation, and agroforestry\. The analysis covers 30 years, including the implementation period and a 25-year stream of benefits and costs\. The analysis follows the same methodology as the PAD for the hydropower generation subproject\. However, for the other subprojects the PAD does not provide sufficient details on the approach used to be comparable with the ICR analysis\. 47\. At 5 percent and 8 percent discount rates, the analysis shows that the project had positive net present values (NPVs) for subprojects in all the countries except for the irrigation subproject in Guinea\. Apart from the lowland development subproject in Guinea, all the subprojects analyzed exhibited an economic internal rate of return (EIRR) higher than 5 percent, ranging from 11\.3 percent to 75\.5 percent\. However, there is significant variability from one subproject to another\. Fisheries, fodder production, and income-generating activities are, generally, the most economically performing subprojects\. Irrigation infrastructure rehabilitation in Niger was the less economic activity mainly because of the higher-than- expected cost associated with this subproject\. The irrigation subproject in Benin exhibited high performance explained by higher number of areas developed than initially planned and the choice to grow high-value vegetables\. The lowland irrigation subproject in Guinea suffered from two major factors: (a) the high per area investment cost of the irrigation infrastructure and (b) the moderate increase in rice Page 22 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) yield probably due to a lack of appropriate water management knowledge\. The overall EIRR of the project is estimated at 27\.6 percent (lower than the PAD estimate of 51 percent) and the NPV, at a 5 percent discount rate, is US$914,826,012 and, at an 8 percent discount rate, US$541,958,802 (tables 4\.1 and 4\.16 at annex 4)\. Further, sensitivity analysis shows that the project remains economically viable even with a combined 20 percent increase in the costs and a 20 percent reduction in benefits with an EIRR of 21 percent (annex 4)\. 48\. Administrative efficiency\. In terms of administrative efficiency, the project suffered from significant delays due to slow progression of activities and the Ebola outbreak in Guinea\. The reasons for delays are further discussed in the section on ‘Key Factors affecting Implementation’\. Through two formal restructurings, the project closing date was extended by about 5 years (59 months)\. Efficiency is rated as Modest pre-and post-restructuring based on the mixed results in terms of EIRR among the activities of the different subprojects as well as delays in implementation\. D\. JUSTIFICATION OF OVERALL OUTCOME RATING Rating: Moderately Satisfactory 49\. The relevance of original and revised development objectives of the project is rated High\. The achievement of the PDOs at completion is rated Substantial both pre- and post-restructuring\. Efficiency is rated Modest\. Consequently, the overall outcoming rating of the project is Moderately Satisfactory\. A split evaluation is conducted below since the PDO was revised\. However, since the ratings remained same pre- and post-restructuring, it has no implications when weighted by disbursement percentage and the overall outcome rating remains Moderately Satisfactory\. Rating the Outcome of Operations with Revised Objectives Rating: Moderately Satisfactory Table 3\. Calculation of Weighted Outcome Rating Pre-restructuring Post-restructuring Overall Relevance of Objectives High High — Efficacy Substantial Substantial — Efficiency Modest Modest — Rating Moderately Satisfactory Moderately Satisfactory — Rating Value 4 4 — Weight 0\.7 0\.3 — Weighted Value 2\.8 1\.2 4\.0 Final Rating Moderately Satisfactory E\. OTHER OUTCOMES AND IMPACTS Gender 50\. Poverty impacts, gender aspects, and social development\. Component 2 did not directly target poverty alleviation, gender equality, or social development in any particular group\. The main focus was the quantity and reliability of electricity supplied to the grid\. However, it is expected that the project will ease the hardships of several households by alleviating power shortage\. Even those households without Page 23 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) electricity may benefit from the general increase in economic activity brought about by a reduction in the destructive load shedding and power failures that currently beset the region\. Studies have been done on the economic effects of unserved electricity\.11 The value of unserved electricity varies greatly depending on customer category, sector, time of year, duration of outages, and so on, and on the methodology of calculation, but it is many times the cost of production\. Any relief from power interruptions alleviates economic damage, financial loss, and social impacts\. 51\. Component 3 implemented activities (small water infrastructure and ecosystems management) to support communities through income generation, and some indications were provided in the countries’ ICRs\. In Niger, 519 persons benefited from capacity reinforcement in fish production, including 149 women\. In Benin, 1,308 persons benefited from small irrigation schemes and 176 communities, among which 33 percent were women who benefited from other income-generating activities\. In Mali, small-scale irrigation benefited 1,700 women\. In Guinea, 26,845 persons benefited of which 13,790 were women\. Institutional Strengthening 52\. Institutional change/strengthening\. The regional context of the Niger Basin WRDSEM Program reinforced the institutional mindset in relation to: (a) Taking a basin perspective, rather than a country perspective, in the optimal and sustainable management of a river system; (b) Taking a regional perspective in developing electricity infrastructure to capture economies of scale, manage reserve margin and power shortages more effectively, and deliver system ancillary services more efficiently; (c) Underlining the long-term benefits of cross-border cooperation through the international context of the program, although the activities in Jebba and Kainji were located wholly within the Nigerian territory; the links between the institutions of the riparian countries were strengthened by the collaboration of the Niger Basin WRDSEM Program; (d) Significantly improving the capacity of Transmission Company of Nigeria (TCN)-Project Management Unit (PMU) to manage large and complex projects\. 53\. The project coordination and procurement staff benefited from the formal training components and, more particularly, the workplace experience of administering a wide variety of contract types (works, goods, and consultants) and procurement methods (International Competitive Bidding, National Competitive Bidding, Shopping, Direct Contracting, Quality- and Cost-Based Selection, and Individual Consultants)\. 11Cost of unserved energy – October 2015 – Ulrich Minnaar; Addressing the electricity access GAP – June 2010 – World Bank; Power outages and economic growth in Africa No7/2012 – Thomas Barnebeck Andersen and Carl-Johan Dalgaard; State of electricity access report – 2017 – World Bank\. Page 24 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) Mobilizing Private Sector Financing 54\. Other unintended outcomes and impacts, including mobilizing private sector financing\. The award of a concession to Mainstream Energy Solutions (MESL) to operate and maintain the Kainji and Jebba hydropower plants for 15 years (with right of renewal for a further 15 years) involves an unintended shift in the nature of the benefits accruing to the country from the Kainji and Jebba investments\. (a) The financial benefits of the sale of electricity from the refurbished plants were accrued by the concessionaire rather than the state-owned utility (b) Compensating for this loss, the total cost of refurbishment works in Kainji and Jebba were reflected in the proposals received from bidders for the concession\. This would have translated into increased benefits received by the Government as follows: (i) Higher block concession payments payable under the Concession Agreement; (ii) Increased revenue stream for the Government’s 10 percent share of electricity payments; (iii) Higher royalty payments (as more water will be turbined at Kainji); and (iv) Increased receipts from MESL’s company tax payments\. 55\. Carbon credit\. As a parallel project to the rehabilitation of Kainji dam and hydropower plant, the IBRD, as trustee of the Umbrella Carbon Facility Tranche 2, signed an Emission Reduction Purchase Agreement (ERPA) with Power Holding Company of Nigeria (PHCN) PLC in December 2011 for the purchase of 2,447,650 Certified Emission Reductions (CERs) to be generated by the Kainji hydropower rehabilitation project between the commissioning date and the end of 2018 (Kainji Hydro Power Plants Rehabilitation [P111179])\. Due to delays in commissioning, no CERs were certified and issued under the above-named ERPA by the project\. Following the privatization process of the Nigerian energy sector, PHCN PLC ceased its activities in late 2013\. The Kainji project was acquired by MESL\. As a result of the change in ownership, the trustee and MESL agreed and signed an ERPA amendment in June 2017 for the purchase of a reduced volume of CERs (1,446,411) between the actual project commissioning date (August 2015) and the end of 2018\. A pre-verification site visit is scheduled to take place in April 2018 to assess the project’s compliance with the requirements under the Clean Development Mechanism of the United Nations Framework Convention on Climate Change\. A verification is expected to take place in late summer 2018\. This parallel project is scheduled to close by December 31, 2019\. III\. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME A\. KEY FACTORS DURING PREPARATION 56\. Soundness of background analysis\. The project design built on multiple analytical works across the Niger River Basin that identified relevant and strategic priorities and demonstrated effective benefits of multi-country and multipurpose activities\. It also built on lessons learned from regional-, national-, and local-level experiences, ranging from integrated Multipurpose Water Resources Development (MWRD) to ecosystems management and income-generating activities associated with environmental protection\. The World Bank’s long-term involvement in the Niger River Basin has been instrumental in promoting regional and coordinated approaches in the development of natural resources in the river basin that involves nine countries\. The Kainji and Jebba hydropower plants were in poor condition and offered a cost-effective Page 25 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) vehicle for furthering many of the development priorities of the Government and the World Bank\. The design of Subcomponents 2-a and 2-b was based on advice received from operating staff on the most urgent needs of the two facilities and reflects the lessons learned from similar hydropower refurbishment projects and the recommendations of previous studies\. 57\. Project design\. The project design was sound and built on the following considerations: (a) coherence of approach and sustainability at national and regional levels; (b) institution strengthening and capacity building, (c) infrastructure development and climate variability, (d) regional common goals and national constituencies, and (e) lessons and experiences from other regional infrastructure APL programs\. However, safeguards consideration to comply with World Bank operational policy was not estimated in the project cost at appraisal\. This led to some adjustments in the scope of work to consider the activities related to safeguard compliance\. The design of the project built on lessons learnt from Global Environmental Facility operations which did the groundworks for the institutional strengthening of the NBA\. The design also incorporates the lessons learned from decades of World Bank engagement in river basins development in Africa and regional projects such as the Niger Basin Reversing Land and Water Degradation Project (P070256), Senegal River Basin Multipurpose Water Resources Development (P093826), Hydropower Rehabilitation in Zambia (P035076), and Loess Plateau Watershed Rehabilitation in China (P056216)\. The institutional setup was designed to ensure ownership and accountability of institutions/community-based organizations at regional, national, and communities levels\. Additionally, capacity-building/-strengthening activities were aimed at improving capacities of implementing agencies which lacked appropriate experience to implement complex projects like the WRDSEM Project\. All of Component 1 is dedicated to this activity at both regional and country levels\. 58\. Coherence of approach and sustainability\. The project institutional arrangements opted for an overall project coordination by a unit anchored at the regional level through the NBA\. At country level, two Government institutions ensured the coherence and the sustainability of actions - the NFS and the NIA\. The project has been designed such that regional and national activities are developed consistently and complement each other in terms of generated benefits\. 59\. Regional common goal and national constituencies\. The shared vision supported by the SDAP constitutes a robust framework for optimal cooperation and coordinated water resources management\. Activities planned in the project combined (a) institutions strengthening and capacity building at all levels, (b) ecosystems management, and (c) water infrastructure development, leverage to consolidate the national agenda, and promotion of regional common goals\. For example, afforestation of upper sources in Guinea benefited infrastructure in Mali\. Similarly, erosion control and silt reduction in Mali and Niger positively affected existing water infrastructure in Nigeria\. Conversely the planned injection of 340 MW of electricity in the grid from the rehabilitation works in Kainji is benefiting Niger and Benin\. 60\. Lessons and experiences from other regional infrastructure APL programs\. The project team has preferred using the APL instrument which ensures long-term commitment and sustainability in water resources development and ecosystems management in the Niger River Basin\. The project team has learned from the design of other APL programs with a regional agenda such as the West Africa Power Pool and the Senegal River Basin MWRD Program\. The main takeaways from previous APL programs that have influenced the project are as follows: Page 26 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) (a) The design of APL programs proving regional umbrella for multifaceted, multicountry infrastructure projects should be focusing on achieving regional goals/objectives assigned to regional institutions\. In addition, a subsidiary principle should be applied for activities of national interest by using the most effective institutions of each beneficiary member state covered by the program\. These principles applied well for the Niger River Basin WRDSEM Project\. (b) The generation of tangible benefits for the stakeholders is important to maintain the full ownership and for consensus building\. The project has learned from the Loess Watershed Rehabilitation Project in China\. The activities related to rehabilitation and diversification of small dams, rehabilitation and extension of small irrigation schemes, support to the development of traditional fisheries, and watershed restoration and agroforestry are inspired from these lessons and experiences\. 61\. Adequacy of Government commitment\. None of the governments of the five participating countries has contributed counterpart funding for the first phase of the Niger Basin WRDSEM Program\. Nonetheless, the outcomes of project components are adding value and improved systems benefits, both in critical need in the five countries\. The commitment of the beneficiary countries to the program is evident in the resources applied to the administration and monitoring of the execution of the works\. However, some mistakes were observed in Niger with dam failure and in Guinea where the dike collapsed in Kissidougou (see lesson learned section)\. Risks and Mitigation Measures 62\. At appraisal, the overall risk of the Niger Basin WRDSEM Project was rated as High\. These high risks were mainly associated to issues related to additional costs that might have occurred during the partial rehabilitation of 40-year-old Kainji hydropower plant\. The other risks are related to the fact that a multisectoral and multi-level scope led to a project design that was both ambitious and complex in a context of weak governance at regional and country levels institutions\. The design of implementation arrangements was adapted to the different mandates of organizations and to allow the project to work on regional, national, and local levels dependent on the ultimate beneficiary\. Institutional strengthening and capacity-building activities were implemented at all levels to allow involvement and ownership of actors at national and communities levels on sound regional agenda\. In addition, specific safeguards and fiduciary trainings have been instrumental in supporting involved implementation teams at regional and national levels to achieve the expected outputs\. B\. KEY FACTORS DURING IMPLEMENTATION 63\. Governments commitments and implementation arrangements\. In a complex project like the WRDSEM Project, of safeguard category A, it is expected to have safeguard issues hindering implementation\. However, from 2008 to 2013, no critical safeguard issue was raised in Implementation Status and Results Reports (ISRs), and from 2013 to June 2016, the safeguard compliance rating was Satisfactory in all ISRs\. However, the midterm review aide memoire raised the issue of delays in preparing the environmental and social management plan (ESMP) for works planned for Kainji and Jebba\. The environmental and social risks of Fomi dam studies were rated Moderate in 2016 and in 2017 ISRs\. The safeguard trainings facilitated by the World Bank supervision team and the project regional management Page 27 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) and coordination unit to countries’ implementation agencies had contributed to tackle safeguard compliance problems before and during investment works implementation\. The project was restructured twice to consider the low pace implementation speed related to fiduciary issues (procurement and financial management)\. The first challenge was the first withdrawal and low quality of the project financial report\. Then at several times, the issue of delays in procurement was experienced by beneficiary countries, mainly Nigeria in Kainji and Jebba hydropower plant contracts, where about 56 percent of the project money was allocated\. At regional coordination level, the project team had suffered from the absence of an internal auditor and the lack of implementation of recommendations from external audits and the World Bank Financial Management Specialist during supervision mission\. In two beneficiary countries, (Benin and Guinea) the poor quality of terms of reference has caused delays in procurement agenda\. 64\. Project implementation\. The project was initially designed to be implemented in five years, but it took 10 years to close the project\. The project was extended twice to address implementation challenges, mainly those related to procurement issues, financial management, and safeguards compliance\. In addition to these challenges, some external factors such as coup d’états and Ebola outbreak in Guinea also had an impact on the implementation time of the project\. The project was managed by five successive task team leaders (TTLs) over its implementation period (representing an average of two years for every TTL)\. This has also adversely affected the project implementation\. Further, the delays had negative bearings on the economic efficiency of the project\. 65\. Internal reasons of delays\. The project had faced issues that have delayed its implementation period\. The first problem was about procurement that caused important delays in the project implementation mainly on Nigeria power plants rehabilitation works (Kainji and Jebba) which represent more than 70 percent of project financing\. The first procurement process on the rehabilitation works of units 5, 6, and 12 of Kainji hydropower was unsuccessful\. The civil works contract for Kainji was signed only in June 2011 (after more than two years of project implementation)\. In addition, the lack of an ESMP, at the early stage of the Nigeria part of the project, had also contributed to the project delays\. The procurement management coupled with safeguards compliance have also caused some delays in Component 3 of the project\. The project team had alerted the NBA and countries through aide memoires and management letters on these issues\. Monthly videoconferencing (VC) and ad hoc training were organized by the project team for close follow-up and capacity reinforcement to improve implementation conditions\. The two project restructurings mentioned above were done to allow the necessary adjustments and full implementation of agreed activities\. 66\. External reasons for delays\. Three countries out of five had experienced a coup d’état (Guinea in December 2008, Niger in February 2010, and Mali in 2012)\. In addition to these coups, Guinea experienced the outbreak of Ebola in early 2014\. It was only in end December 2015 that the country was declared Ebola free\. Both the coup and Ebola has significantly delayed the project implementation\. During the two events in Guinea, the supervision of the project was done only by VC\. The five countries were affected differently by the shortcomings mentioned above\. The end project date in Niger was December 2015 (almost 8 years of implementation) and in Benin, Mali, and Nigeria the project ended in June 2016 (8\.5 years of implementation)\. Guinea with the coup and Ebola, implemented the project in 10 years\. It can be easily seen that external factors had influenced Guinea more than the other two countries (Niger and Mali), leading to more time to implement the project in Guinea Page 28 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) 67\. World Bank performance\. Since the effectiveness of the project in November 2007 to December 2017, the World Bank team has closely provided implementation support to the project\. At least 20 supervision missions and video conferences were organized to support the project implementation\. An average of two supervision missions were conducted every year\. This close follow up helped readjust, as appropriate, the extension of the project, the management of safeguard compliance upstream, and during the implementation of the works\. For example, at appraisal it had been planned to develop 250 ha irrigation schemes in Benin, on the basis of the agricultural development option\.12 The supervision team changed this option and proposed small irrigation schemes with small pumps for every beneficiary household\. This approach increased the area up to 1,500 ha (six times the original area)\. The close supervision also facilitated the complex rehabilitation works on Kainji hydropower plant\. In Mali, the non- acceptance of the population to have more than 2,000 ha irrigation by controlled submersion in Djambacourou had led to the use of funds for additional activities for fish production\. IV\. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME A\. QUALITY OF MONITORING AND EVALUATION (M&E) Overall rating of M&E: Modest M&E Design 68\. Quality of M&E design\. The M&E design is described in the PAD\. The M&E system considers the multisectoral regional nature of the Niger Basin WRDSEM Program by specifying a system that is decentralized to facilitate data collection in each of the five participating countries\. Under the institutional arrangements, the NBA’s observatory has overall responsibility for M&E and reports to the regional Steering Committee and to the NBA’s Council of Ministers\. The Results Framework indicators (PDO and intermediate outcome indicators) are well aligned with the PDO as shown in the theory of change\. 69\. The M&E system operates at two levels of planning and implementation: regional level (NBA) and country level (NFS and NIAs)\. The main NIA coordinates the actions of many other subnational implementers\. In terms of the monitoring and reporting structure, the subnational implementers provide monthly and quarterly reports to the NIA\. The NIA consolidates these reports and provides quarterly reports to the NFS who will in turn send consolidated quarterly, half-yearly, and yearly reports to the NBA\. 70\. The M&E data collection system was designed to allow the progress monitoring against the Results Framework to track PDO outcome and intermediate outcome indicators as defined in the PAD and in the subsequent Restructuring Paper of December 2014\. Responsibilities for data collection were specified in annex 6 of the PAD\. The design of the M&E system was sufficient to assess the achievement of the original PDO and test the links in the results chain\. M&E Implementation 71\. Quality of M&E implementation\. During the project implementation, the monitoring and reporting structure followed the designed structure, mainly in the beneficiary countries\. Data information were provided monthly and quarterly to the respective main NIA from subnational implementers\. The NIA 12 At appraisal, the agricultural development option was community-based with large pumping stations and irrigation channels\. Page 29 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) prepared and submitted quarterly reports to the NFS who in turn sent quarterly, half-year, and yearly reports to the NBA regional project coordination unit\. It often happened that reports were not sent on due time by involved countries but at least an annual report was sent annually\. The data collected allowed the World Bank supervision missions to inform the ISRs\. The PMCU at the NBA had played the role assigned to the NBA observatory in M&E\. M&E Utilization 72\. Quality of M&E utilization\. The M&E system is being used to inform the project regional Steering Committee and NBA management about progress during the annual meetings of the institution\. As mentioned in the previous section, it also informed the World Bank ISRs and aide memoires\. However, the observatory, which is supposed to play the role of department M&E and report all project activities to the regional Steering Committee and to the NBA’s Council of Ministers, is not taking care of this responsibility\. Projects including WRDSEM are not sending their data to the observatory; the NFS yearly reports are sent to the regional project management coordination unit and all projects’ data information are kept at this level\. The platform that exists at the observatory is not fed with project information and data collected from riparian countries, while the planned capacity reinforcement activities to the observatory were delivered\. This raises the issue of sustainability and future use of these data after the closure of the projects (WRDSEM and other projects managed and coordinated by the NBA)\. Justification of Overall Rating of Quality of M&E 73\. Shortcomings highlighted in the design, the implementation and utilization are important\. The overall rating of M&E is Modest\. B\. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE 74\. Environmental compliance\. The project is classified as category A in the Environmental Assessment classification of the World Bank, primarily due to the preparation of studies for regional water infrastructure in Nigeria, Niger, Guinea, and Mali (Zungeru, Kandadji, Fomi, and Taoussa)\. The subprojects financed by the project are not expected individually to have significant environmental and social impacts; nevertheless, accumulative impacts may be more severe\. 75\. At appraisal, seven environmental safeguard policies were triggered by the project, including: (a) Environmental assessment (OP/BP 4\.01), (b) Natural Habitats (OP/BP 4\.04), (c) Physical Cultural Resources (OP/BP 4\.11), (d) Involuntary Resettlement (OP/BP 4\.12), (e) Forests (OP/BP 4\.36), (f) Safety of Dams (OP/BP 4\.37), and (g) Projects on International Waterways (OP/BP 7\.50)\. The policy on Pest Management (OP 4\.09) was triggered during the 2014 project restructuring\. The World Bank April 2007 guidelines on environment, health, and security are also applicable to the project\. 76\. The PMCU has appointed a safeguards specialist in the core team, and in the respective beneficiary countries, the NFS/NIA has at least one focal person for the safeguard issues\. Specific trainings were delivered to implementation agencies and to the PMCU to mainstream safeguard issues before works execution and during their implementation\. Page 30 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) 77\. OP/BP 4\.01 (Environmental Assessment)\. Safeguard activities were planned from the beginning of project activities in 2008\. To ensure compliance, the project conducted specific studies and created an action plan in accordance with respective countries and World Bank safeguards policies\. For Kainji and Jebba rehabilitation works, environmental and social audits were conducted and an ESMP established for works implementation\. Many other environmental studies were conducted for regional water infrastructure at Kandadji (Niger) and Fomi (Guinea)\. 78\. In the case of Component 3, the project has established the Environmental and Social Management Framework and the Resettlement Policy Framework in accordance with respective countries’ safeguard policy frameworks\. Environmental and social systems assessments in beneficiary countries were conducted and safeguard clauses were included in all bidding documents\. 79\. OP/BP 4\.04 (Natural Habitats)\. The activities funded under the project did not affect critical natural habitats\. As part of the project implementation, environmental and social assessments were prepared for Components 2 and 3 and measures to protect, maintain, and rehabilitate natural habitats have been reflected in the ESMPs, in accordance with OP/BP 4\.01 (Environmental Assessment)\. 80\. OP/BP 4\.09 (Pest Management)\. The project financed small irrigated areas with very limited use of pesticides\. To meet the requirements of this safeguard policy, environmental and social impact studies have been carried out and, among the proposed mitigation measures, public awareness sessions on good management practices and use of pesticides by the concerned operators have been provided to minimize specific potential negative effects on human and animal health and the environment and to promote integrated pest control\. 81\. OP/BP 4\.36 (Forests)\. The project financed activities for participatory development of classified forests and reforestation\. In accordance with OP 4\.01, environmental and social assessments have been prepared and measures have been taken to reduce deforestation, enhance the contribution of forested areas to the environment, promote afforestation, combat poverty, and promote economic development, all of which were reflected in these reports\. 82\. OP/BP 4\.37 (Safety of Dams)\. The project financed small dams in Benin and Niger\. It also financed the rehabilitation works of the Kainji and Jebba dams in Nigeria\. At the level of small dams, appropriate measures have been taken to ensure the safety of these small dams, in accordance with Article 1 of this safeguard policy\. Generic safety measures designed by qualified engineers have been proposed in accordance with Article 4 of OP 4\.37\. The environmental and social impact study carried out made recommendations to ensure the quality of the design, execution of works, and monitoring and maintenance of small dams to ensure good maintenance\. In addition, a management strategy for rehabilitated small dams has been developed to allow users to better manage the infrastructure\. These measures have been reflected in the ESMP in accordance with OP/BP 4\.01\. 83\. For rehabilitation work on the Kainji and Jebba dams in Nigeria, measures were also taken to ensure the safety of the two existing dams in accordance with the provisions of this safeguard policy\. During project preparation, an environmental and social audit was carried out for the Kainji and Jebba dams\. During the implementation of the project, the ESMP of the two dams was updated and supplemented by a rapid social assessment in 2010–2012\. To implement the updated ESMP recommendations, another study on the implementation of the Kainji and Jebba Dam Safety System and Page 31 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) the development of an epidemiological survey of waterborne diseases in the areas of both dams was commissioned in 2013\. 84\. OP/BP 7\.50 (Projects on International Waterways)\. In accordance with the provisions of this safeguard policy, notification to riparian states has been made\. It has been verified that there are agreements between the NBA and its member states and that they have been informed and have not objected to the project interventions\. As the regional executing agency for the project, the NBA has consulted all its member countries and received their approval at the 2006 Council of Ministers\. It has also informed all the member countries by official correspondence since the start of the first phase of the project and the ‘no objection’ condition was received before project negotiations\. 85\. Social compliance\. To consider possible resettlement in the project, OP/BP 4\.12 was triggered\. Nevertheless, activities implemented in the project did not cause involuntary resettlement of the population as key activities are about existing infrastructure rehabilitation owned by the Government (Kainji, Jebba) or by communities (irrigation schemes, small dams)\. The realization of remaining activities for traditional fishery, watershed restoration, and agroforestry was done in participatory approaches and agreed by all\. Any resettlement was identified and land losses are minimal and accepted by the population\. 86\. However, in the planned irrigation by controlled submersion in Djambacourou (Mali), safeguard studies have shown economic and social impacts of the project that led to issuing an RAP to mitigate the project impact\. By the end, the population has rejected the implementation of the project in Djambacourou and funds were used to scale up fish production and commercialization\. 87\. With respect to physical cultural resources, a ‘fortuitous discovery’ procedure has been implemented and followed in case of discovery of cultural and archaeological remains during dam rehabilitation works in accordance with the requirements of OP 4\.11\. Fiduciary Compliance 88\. Financial management\. The overall project financial management can be rated Modest\. The PMCU at the NBA has, in the project team, an accountant and an internal control person for the overall project financial management\. It is worth noting that the internal control person resigned in July 2012 and was not replaced until the end of the project\. An external auditor is recruited for the annual financial audit\. At country level, the NFSs and NIAs also have an accountant for each structure\. However, since the beginning, until approximately the end of project implementation, issues of compliance of the project financial management were highlighted\. The financial management risk rating was Substantial during the project implementation\. The key issues were mainly noncompliance and reporting\. 89\. Procurement\. The overall procurement management rating is Modest\. The PMCU at the NBA has a regional procurement specialist; in addition, there is a procurement specialist in the core team of every country NIA\. During the project implementation, the World Bank team conducted specific procurement reviews of the PMCU and NIAs to improve procurement processing and contract management\. Alternatively, the overall supervision missions were also an opportunity to review procurement issues\. Globally the project procurement questions were well-managed; however, many issues have caused Page 32 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) implementation delays in almost all the beneficiary countries (Benin, Guinea, Mali, and Nigeria)\. The key issues were mainly the repetitive delays in procurement processes and contracts signing\. C\. BANK PERFORMANCE The overall rating of the Bank performance is Moderately Satisfactory (MS) Quality at Entry 90\. The project was consistent with the regional, national, and World Bank strategic priorities\. It supports the Niger Basin regional integration efforts that (a) have economic and social benefits, (b) present clear evidence of both country and regional ownership, and (c) provide a platform for high-level policy harmonization\. The project is a response to a request from riparian countries, demanding the support of the World Bank, based on its convening power to gather other donors who can finance large investment needs\. The World Bank team supported a complex, multi-country joint water resources development that promotes shared benefits and fosters regional integration\. This requires layered intervention, with responsibilities at the regional, national, and community level, which amplified the toughness of the project during implementation\. The World Bank team did the project design in a way that benefited both women and young people by income-generating activities at community level through Component 3 of the project\. 91\. There were some shortcomings in the quality at entry, especially in underestimation of costs and risks consideration\. These shortcomings were remedied at the midterm evaluation in 2011 and at the 2014 project restructuring\. On the issue of the budget, the project has downscaled the scope in Niger, Benin, and Nigeria\. The political and security situation was not adequately considered at preparation as a risk to implementation\. Monitoring the outcome and intermediate outcome of the Development Policy Operation was well-designed\. However, the project design did not include, in the M&E system, how the number of beneficiaries should be monitored on a quarterly basis\. Quality of Supervision 92\. The World Bank team has shown continuous and valuable support to the project through dedicated training on safeguards and appropriate advice on fiduciary and technical aspects\. The project was restructured twice to consider its implementation challenges that had caused delays in activities’ execution\. The World Bank’s team identified the project shortcomings on time and proceeded with appropriate measures (restructurings, alerting client’s decision makers, and technical support)\. Strong supervision by World Bank safeguard and procurement/financial management teams assisted specialists in the PMCU to build capacity\. The PMCU was then able to build capacity in the NIA and NFS in a sort of cascading effect\. 93\. One of the shortcomings in the supervision is the continuous change of TTLs\. In a 10-year supervision, the project has had five TTLs, meaning, on average, a different TTL every two years\. However, this shortcoming was moderated by the fact that the tasks team was almost the same\. Page 33 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) Justification of Overall Rating of Bank Performance 94\. The World Bank performance rating is Moderately Satisfactory (MS) as shortcomings are identified at entry and during the project implementation\. D\. RISK TO DEVELOPMENT OUTCOME 95\. The project development outcomes can be classified in three-areas\. Some are under the direct responsibility of the regional organization, NBA\. One is under the Nigerian Government’s responsibility, and two others are under the responsibility of the benefiting communities\. 96\. Risk engaging the NBA\. The sustainability of the development outcome related to ‘regional coordination’ (almost achieved) under the project is under the responsibility of the NBA\. The threat on this development outcome is when the leadership of the NBA management becomes weak\. A continued weak leadership of NBA management leads to friction and mistrust at the higher level of riparian countries and inefficiencies of the NBA\. In this case, the tendency to go back to competitive unilateral development from countries becomes important\. 97\. Risk engaging the Nigerian Government\. The Nigerian Government was responsible for the outcome “Improved performances of rehabilitated hydroelectric plants in targeted areasâ€? (fully achieved)\. The Nigeria Government had appointed a private operator (MESL) to run the rehabilitated Kainji and Jebba hydropower plants through a concession contract\. It is expected that MESL will continue to invest in the two power plants; however, since issuing this concession contract in February 2013, no important investment was made by MESL to extend the energy production\. The ICR team understands the concession contract is aiming at the sustainable maintenance and development of Jebba and Kainji production in the medium and long term\. 98\. Risk engaging beneficiary communities\. The development outcomes directly involving the beneficiary communities are as follows: “Improved irrigated agriculture in targeted areasâ€? which is fully achieved and “Improved watershed management in targeted areasâ€? which is almost fully achieved under the project\. The major threat for sustainability of development outcomes is the weakness of the managerial, organizational, and technical capacities of farmers’ organizations regarding the production process as well as the commercialization of the marketable part\. V\. LESSONS AND RECOMMENDATIONS 99\. The project was faced with a set of related challenges revolving around the following question: how to design a regional project that accommodates at the same time local, national and regional agendas considering the disparity of approaches and existing capacities? The first challenge was to check whether the regional institution, the NBA, had the technical and institutional mechanisms to implement a project that satisfy all\. The second challenge was the alignment of the regional development priorities with the country-level priorities of riparian countries\. The third challenge was how to setup a country-level organization that ensures both country and regional ownership of activities to be implemented\. These challenges were adequately considered in the project design\. Page 34 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) 100\. Need for adequate technical and institutional capacity\. The organizational reform conducted in 2005 had led to the reorganization of the institution during the project preparation\. The training and equipment needs were identified and actions planned under the project to enforce the readiness of the NBA to coordinate the development of the basin’s water resources\. This, together with the strong complementarity of donors’ support demonstrates that the setup was correct and the inputs (training, equipment, and processes) well thought out\. However, and it was quite inevitable, the organization that took up the project in 2007 was young and many of its staff had been recruited only recently\. Was there a way to do it differently? Probably not because (a) the NBA had to begin a development phase after having successfully piloted a planning phase, and (b) only training in implementation can really build the capacity\. 101\. Alignment of the regional priorities with those of riparian countries\. The SDAP is well aligned with the countries’ priorities\. In addition, the project design was done in a way that project activities in the countries are aligned with both the SDAP and the World Bank Country Strategy of the respective countries\. This comprehensive approach had facilitated the buy-in of all involved actors\. The combination of ecosystems management and water infrastructure development provide leverage to consolidate national agendas and promote a regional common goods approach\. For example, activities planned in Component 2 and those in Component 3 are a good illustration of local, national, and regional agendas\. Watershed restoration in Niger and Benin will benefit dam reservoirs from siltation in Kainji and Jebba in Nigeria and conversely energy production in Jebba and Kainji will benefit Niger and Benin\. These five countries, like all countries are engaged in a development agenda on numerous fronts (like ECOWAS) or large donor-funded programs\. One of the interesting questions is: 10 years after they were formulated, how many of the non-implemented activities of the SDAP appear relevant to finance today or in the future? Two conflicting logics can be identified: on the one hand, the NBA considers itself as the guarantor of the regional plan (and of its discrete activities and investments), and on the other hand, countries may want to suggest other activities that still match the criteria of the plan\. They tend to favor a certain degree of flexibility\. The institutional communication should be set up in such a way that it helps reconcile these two perspectives\. 102\. Organization to ensure both country and regional ownership\. As a regional project, its objectives were articulated around objectives assigned to the NBA and to countries by extension\. NBA was responsible for the overall implementation and coordination of the project while the subsidiary principle was applied and activities planned for countries were implemented by national agencies embedded in national institutions (Components 2 and 3)\. The project implementation arrangements were articulated around the NBA, its NFSs and NIAs, where the creation of the NFSs responded to the need of the riparian countries to have a permanent technical arm of the NBA\. The NIAs directly executed activities according to their area of expertise\. 103\. Risks inherent in working with multi-countries, including some fragile states\. When dealing with a complex project involving many countries, including fragile states, it is important to consider the risks assessment of the externally driven delays and provision of a contingency plan to mitigate accordingly to the risk\. In the current project this risk was not assessed properly\. Unfortunately, the coup d’état in Guinea, Niger, and Mali and Ebola outbreak in Guinea occurred without any contingency plan\. The result is known, this had contributed in the project extension to 10 years of project implementation instead of 5\. Page 35 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) 104\. Need for adequate supervision\. Project implementation requires periodic field presence and continuous follow-up by task teams and continuity in the team leadership\. The close follow-up of project implementation by the task team had help keeping the project in acceptable shape in compliance with World Bank policies in terms of safeguards, financial management, and procurement\. However, the frequent changes of TTL did not help\. An in-depth diagnosis of the social aspect during the project preparation of the development of the plain of Diambacourou could have amplified the effectiveness of the project in Mali\. In Benin, the project had started very slowly because of inefficient institutional arrangements, with bottlenecks linked to the fact that the contracted staff recruited for project management are much better paid than those responsible for the NIA and NFS\. For phase 2, a reflection is needed to unlock this kind of constraint\. Some political or regional decisions may threaten the project implementation\. In Guinea, for example, the Government conducted some reforms which has withdrawn (de facto withdrawal) from the DNGR13, the NIA, its prerogatives in terms of the selection of consulting companies and contractors, and also in the works supervision for the benefit of the Public Major Project Controlling/Procurement Authority\. In Nigeria, the Government implemented a Treasury Single Account (TSA) policy which closed all Government accounts in commercial banks and transferred the money to the Central Bank of Nigeria (CBN)\. The process of opening a TSA account with the CBN by the PMU took over five months\. The urgent need for more rigorous technical supervision of studies and work\. 105\. Importance of setting reasonable levels of ambition to build a track record of success with basin authorities: the original project was ambitious relative to its implementation period in terms of both the legal reforms and some of the infrastructure activities\. This resulted in the project quickly falling behind in its original implementation plan and tensions between NBA and its member states and partners\. As a relatively new entity working in a complex, multi-country context, it would probably have been more constructive to set less ambitious goals with a higher probability of achievement to build a track record of success leading into the following phase\. 106\. Bidding Documents for Plant Refurbishment: Refurbishment of an electromechanical plant within a ‘live’ operating facility is expected to encounter unforeseen needs as parts are removed and anticipated repairs may not provide the results expected\. In these situations, the World Bank Standard Bidding Documents need to be adapted to build into the contract the flexibility and mechanisms to deal with issues that typically arise in such projects\. 107\. Successes that Need Replication and Improvement in Next Projects: Activities implemented in Component 3 are directly benefiting the communities in Benin, Guinea, Mali, and Niger\. A wide range of these activities has successfully achieved the expected development outcomes and even exceeded the initial targets (traditional fishery, watershed restoration and agroforestry, and small-scale irrigation)\. These successful activities deserve to be continued and intensified in future projects\. These activities not only boost the local economy but also contribute to improving the environment through the regeneration of ecosystems\. The managerial, organizational, and technical capacities reinforcement activities implemented by the project for beneficiaries and their organizations, regarding the production process as well as the commercialization of the marketable part, have been a key factor for sustaining development outcomes\. The inclusion of such capacity-building activities in similar projects is therefore a decisive step for the viability of development actions\. 13 DNGR: Direction Nationale du Génie Rurale Page 36 of 74  The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) 108\. Water Resources Management regulatory triggers (covenants) and large investments to speed up the establishment of a regulatory framework: the project contributed to create in a very short time a complete Integrated Water Resources Management regulatory framework in the Niger Basin based on the Water Charter that was ratified in less than two years\. It is recognized as one of the most comprehensive ones in Africa\. This is owed to a large extent to (a) the inclusion of some of them as dated covenants; (b) the fact that the project financed large water resources investments (notably the Kainji et Jebba dams)\. The use of such mechanisms is interesting\. It should however be accompanied by a thorough enough political process so that countries really own and enforce this legal framework they get to agree upon\. \. Page 37 of 74  The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) ANNEX 1\. RESULTS FRAMEWORK AND KEY OUTPUTS A\. RESULTS INDICATORS A\.1 PDO Indicators Objective/Outcome: Enhance regional coordination for Water resources management in Niger River Basin (original project PDO) Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Number of legal instrucments Number 0\.00 4\.00 4\.00 1\.00 adopted by riparian integrated water countries 29-Nov-2007 29-Nov-2007 31-Dec-2017 11-Dec-2017 for integrated water resources management at regional level\. Comments (achievements against targets): the adoption of one out of four legal instruments for integrated water resources management at regional level by riparian countries\. the adopted instruments are: (I) regional environmental code\. The three other legal instruments were not adopted during the project lifetime, However, good progress were made on the studies leading to the adoption of two legal instruments\. "the Agreement on Joint Management of Infrastructureâ€? and “the Agreement on Dispute Resolution and Arbitrageâ€?\. With the 2014 restructuring, due to the unavailability of sufficient funds in the project, it was agreed to finalize the work done through the CIWA supported project (ongoing P149714)\. The "Agreement on Common Guarantee of Infrastructure" was not achieved neither, but GIZ is willing to finance the studies related to legal instrument in 2019\. In Conclusion: (i) the legal instrument on "Regional environmental code" was achieved; (ii) good progress is maid in the achievement of the following legal instruments with strong likelihood, "the Agreement on Joint Management of Infrastructureâ€? and “the Agreement on Dispute Resolution and Arbitrageâ€?; (iii) the "Agreement on Common Guarantee of Infrastructure" was not achieved but the studies related to this agreement will be financed by GIZ\. Page 38 of 74  The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) Objective/Outcome: Enhance regional development of water resources in the Niger River Basin (Original project PDO) Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Generation Capacity of Megawatt 0\.00 340\.00 340\.00 340\.00 Hydropower constructed or rehabilitated under the 29-Nov-2012 29-Nov-2007 31-Dec-2017 11-Dec-2017 project Generation Capacity of Megawatt 0\.00 578\.00 578\.00 578\.00 Hydropower rehabilitated under the project (Jebba) 29-Dec-2007 29-Nov-2007 31-Dec-2017 11-Dec-2017 Generation Capacity of Megawatt 0\.00 340\.00 340\.00 340\.00 Hydropower rehabilitated under the project (Kainji) 29-Dec-2007 29-Nov-2007 31-Dec-2017 11-Dec-2017 Comments (achievements against targets): hydropower capacity increased to 340 MW, rehabilitated or reinforced under the project (340 MW for Kainji rehabilitation and securing the existing production of 578 MW for Jebba) Objective/Outcome: Enhance regional coordination in Niger River Basin (Revised PDO) Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Percentage of activities Percentage 0\.00 100\.00 100\.00 100\.00 implemented according to the Niger Basin Sustainable 29-Nov-2007 29-Nov-2007 31-Dec-2017 11-Dec-2017 Development Action Plan Page 39 of 74  The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) Comments (achievements against targets): At the end of the project, 100 percent of activities implemented under the project are aligned with the Niger Basin SDAP (there are 34 activities planned in the SDAP and all activities implemented under the projects are in accordance with 20 activities of the SDAP) Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Number of legal instrucments Number 0\.00 4\.00 4\.00 1\.00 adopted by riparian integrated water countries 29-Nov-2007 29-Nov-2007 31-Dec-2017 11-Dec-2017 for integrated water resources management at regional level\. Comments (achievements against targets): the adoption of one out of four legal instruments for integrated water resources management at regional level by riparian countries\. the adopted instruments are: (I) regional environmental code\. The three other legal instruments were not adopted during the project lifetime, However, good progress were made on the studies leading to the adoption of two legal instruments\. "the Agreement on Joint Management of Infrastructureâ€? and “the Agreement on Dispute Resolution and Arbitrageâ€?\. With the 2014 restructuring, due to the unavailability of sufficient funds in the project, it was agreed to finalize the work done through the CIWA supported project (ongoing P149714)\. The "Agreement on Common Guarantee of Infrastructure" was not achieved neither, but GIZ is willing to finance the studies related to legal instrument in 2019\. In Conclusion: (i) the legal instrument on "Regional environmental code" was achieved; (ii) good progress is maid in the achievement of the following legal instruments with strong likelihood, "the Agreement on Joint Management of Infrastructureâ€? and “the Agreement on Dispute Resolution and Arbitrageâ€?; (iii) the "Agreement on Common Guarantee of Infrastructure" was not achieved but the studies related to this agreement will be financed by GIZ\. Objective/Outcome: Improve water resources management in the Niger River Basin (Revised PDO) Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Generation Capacity of Megawatt 0\.00 340\.00 340\.00 340\.00 Page 40 of 74  The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) Hydropower constructed or 29-Nov-2012 29-Nov-2007 31-Dec-2017 11-Dec-2017 rehabilitated under the project Generation Capacity of Megawatt 0\.00 578\.00 578\.00 578\.00 Hydropower rehabilitated under the project (Jebba) 29-Dec-2007 29-Nov-2007 31-Dec-2017 11-Dec-2017 Generation Capacity of Megawatt 0\.00 340\.00 340\.00 340\.00 Hydropower rehabilitated under the project (Kainji) 29-Dec-2007 29-Nov-2007 31-Dec-2017 11-Dec-2017 Comments (achievements against targets): hydropower capacity increased to 340 MW, rehabilitated or reinforced under the project (340 MW for Kainji rehabilitation and securing the existing production of 578 MW for Jebba) Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Land area under sustainable Hectare(Ha) 0\.00 2250\.00 13439\.00 10620\.00 landscape management practices 29-Nov-2007 29-Nov-2007 31-Dec-2017 11-Dec-2017 Comments (achievements against targets): The project achievements are 10,620 ha of land where sustainable practices were adopted\. the distribution is as follow: (Benin - 1,815 ha of which 1,115 ha was improved; Niger - 7,500 ha of which 7,965 ha delivered; Mali - 2,866 ha planned and 590 ha improved; and Guinea - 950 ha planned and 950 ha delivered)\. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Direct project beneficiaries Number 0\.00 0\.00 55\.00 3\.20 Page 41 of 74  The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) (millions) 29-Nov-2007 29-Nov-2007 31-Dec-2017 11-Dec-2017 Female beneficiaries Percentage 0\.00 0\.00 31\.90 1\.57 29-Nov-2007 29-Nov-2007 31-Dec-2017 11-Dec-2017 Comments (achievements against targets): The restructuring of December 2014 added a new PDO indicator to reflect the number of beneficiaries\. However, the proposed target was 55 million people mainly based on the assumption that electricity generation from dam rehabilitation and refurbishment would benefit to all the population living in the River Basin in Nigeria\. Basically, the simplistic assumption theorizes that any KWH produced into the grid would automatically generate as many beneficiaries as inhabitant in the River Basin\. With hindsight, the ICR proposes a more realistic and rigorous approach to estimate the number of beneficiaries from electricity generation based on a minimum energy consumption of 250 Kwh per capita per year recommended by the International Energy Agency\. Considering that, the project enabled the production of incremental electric energy estimated at 796, 977 MWh per year, the number of beneficiaries are objectively estimated at 3,187,908 people\. In Benin, 1,500 people benefitted from irrigation while 2,335 benefitted from other income-generating activities\. The total number of direct beneficiaries is estimated at 3,835 people of which 2,335 are females\. In Guinea, the number of beneficiaries is estimated at 1,600 people half of whom are females\. In Mali, 200 people benefitted from river bank protection training, 1,700 women from Burgu production, and 7,000 people from training sessions\. The total number of beneficiaries is estimated at 8,900 people of which 1,700 are females\. In Niger, the project benefited at least 8,875 people of which 4,438 are females\. In total, the project beneficiaries are estimated at 3,211,118 people of which 1,580,912 females\. A\.2 Intermediate Results Indicators Component: Component 1: NBA institutional strengthening and capacity building Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Component 1: Percentage of Percentage 0\.00 100\.00 100\.00 100\.00 monthly and/or annual water resources information 29-Nov-2007 29-Nov-2007 31-Dec-2017 16-Jun-2017 database publicly available Page 42 of 74  The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) on NBA website\. Comments (achievements against targets): 100 percent of monthly and/or annual water resources information database publicly available on the NBA’s website Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Component 1: Number of Number 0\.00 2\.00 3\.00 0\.00 water management meetings held per year by the 29-Nov-2007 29-Nov-2007 31-Dec-2017 11-Dec-2017 Permanent Water Commission (PWC)\. Comments (achievements against targets): the PWC was supposed to hold at least three water management meetings per year\. This PWC was in place since 2013, but since then no meeting was held\. Component: Component 2: Rehabilitation, optimization, and development of regional infrastructure Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Component 2: Number of Number 0\.00 10\.00 9\.00 9\.00 Kainji hydropower units rehabilitated and Jebban 29-Nov-2007 29-Nov-2007 31-Dec-2017 16-Jun-2017 units reinforced Comments (achievements against targets): Nine units rehabilitated/reinforced in Kainji and Jebba hydropower (three units rehabilitated in Kainji and six units in Jebba) representing 100 percent of planned units to be rehabilitated/reinforced Page 43 of 74  The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Component 2: Kainji dam Text Faulty Full replacement or Full replacement or Faulty monitoring and instrumentation and repair of recording repair of recording instrumentation and instrumentation equipment monitoring equipment instrumentation and instrumentation and monitoring equipment updated in Kainji and Jebba at Kainji and Jebba monitoring equipment monitoring equipment at Kainji and Jebbah at Kainji and Jebba\. at Kainji and Jebba\. repaired and commissioned \. 100 % achieved 29-Nov-2007 29-Nov-2007 31-Dec-2017 11-Dec-2017 Comments (achievements against targets): The targeted updating of dam monitoring and instrumentation equipment has been achieved\. There are no remarks on post commissioning faults/underperformances of the systems Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Component 2: Number of Number 0\.00 4\.00 3\.00 3\.00 dam sites with completed feasibility studies\. 29-Nov-2007 29-Nov-2007 31-Dec-2017 19-Dec-2016 Comments (achievements against targets): 100 percent of dam sites had the feasibility studies completed (one in Nigeria with a hydropower master plan in Niger basin located in Nigeria, one in Niger with Kandadji dam, and one in Guinea with Fomi dam)\. The revised end project target is three sites with feasibility studies Component: Component 3: Sustainable management of selected degraded ecosystems and rehabilitation of small water infrastructure Indicator Name Unit of Measure Baseline Original Target Formally Revised Actual Achieved at Page 44 of 74  The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) Target Completion Component 3: Hectares Hectare(Ha) 0\.00 1000\.00 2205\.00 2655\.00 afforested for ecological or income generation purposes\. 29-Nov-2007 29-Nov-2007 31-Dec-2017 11-Dec-2017 Comments (achievements against targets): 2,655 ha afforested for ecological or income generation purposes (1115 ha in Benin, 950 ha in Guinea and 590 ha in Mali) while the end project target was 2,205 ha Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Component 3: Hectares of Hectare(Ha) 0\.00 1200\.00 5005\.00 2126\.00 irrigation schemes rehabilitated\. 29-Nov-2007 29-Nov-2007 31-Dec-2017 11-Dec-2017 Comments (achievements against targets): 2,126 ha of irrigation schemes rehabilitated (620 ha in Niger, 1500 ha in Benin and 6 ha in Mali) with end- project target of 5,005 ha, corresponding to 42 percent of the expected target Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Number of small dams Number 0\.00 12\.00 8\.00 6\.00 rehabilitated in Niger and Benin\. 29-Nov-2007 29-Nov-2007 31-Dec-2017 16-Jun-2017 Comments (achievements against targets): Six small dams out of eight rehabilitated in Benin and Niger\. It should be noted that the small dam rehabilitated in Niger collapsed before the formal acceptance of works\. The Government of Niger had committed to rebuild the collapsed dam but to date it is still not rebuilt\. Page 45 of 74  The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Component 3: Hectares of Hectare(Ha) 0\.00 2250\.00 2250\.00 8555\.00 areas stabilized against erosion\. 29-Nov-2007 29-Nov-2007 31-Dec-2017 11-Dec-2017 Comments (achievements against targets): 8,555 ha (7965 ha in Niger and 590 ha in Mali) of areas stabilized against erosion while the end project target was 2,250 ha\. Page 46 of 74  The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) B\. KEY OUTPUTS BY COMPONENT Objective/Outcome 1: Enhance regional coordination in Niger River Basin 1\. Percentage of activities implemented according to the Niger Basin Sustainable Development Action Plan Outcome Indicators 2\. Number of legal instruments adopted by riparian countries for integrated water resources management at regional level 1\. Percentage of monthly and/or annual water resources information database publicly available on the NBA's website\. Intermediate Results Indicators 2\. Number of water management meetings held per year by the Permanent Water Commission (PWC) 1\. Capacity reinforcement/building activities Key Outputs by Component 2\. (linked to the achievement of the Objective/Outcome 1) 3\. 4\. Objective/Outcome 2: Improve water resources management in the Niger River Basin 1\. Generation capacity of hydropower rehabilitated under project 2\. Land area where sustainable land management practices were Outcome Indicators adopted as a result of project\. 3\. Direct beneficiaries from the project\. 4\. Female beneficiaries\. 1\. Number of Kainji hydropower units rehabilitated/reinforced in Kainji and Jebba hydropower 2\. Kainji dam monitoring and instrumentation equipment updated in Intermediate Results Indicators Kainji and Jebba 3\. Number of dam sites with completed feasibility studies 4\. Hectares afforested for ecological or income generation purposes 5\. Hectares of irrigation schemes rehabilitated Page 47 of 74  The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) 6\. Number of small dams rehabilitated in Niger and Benin 7\. Hectares of areas stabilized against erosion 1\. Activities for energy production/securing and dam sites feasibility studies Key Outputs by Component 2\. Activities for small-scale irrigation and small dam’s construction (linked to the achievement of the Objective/Outcome 2) 3\. Activities for watershed restoration and agroforestry 4\. Activities for fish production Page 48 of 74  The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) ANNEX 2\. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION A\. TASK TEAM MEMBERS Name Role Preparation Supervision/ICR Pierrick Fraval Task Team Leader(s) Alpha Mamoudou Bah, Sylvain Auguste Rambeloson, Ibrah Procurement Specialist(s) Rahamane Sanoussi Josue Akre Financial Management Specialist Vincent Roquet Team Member Amadou Soumaila Team Member Abdoul Wahabi Seini Social Safeguards Specialist Federico Ciampitti Team Member Jean Vincent Koua Team Member Medou Lo Environmental Safeguards Specialist Amos Abu Team Member Taibou Adamou Maiga Team Member Mariama Yaye Mme Gamatie Team Member Caroline Plancon Team Member Laura Bonzanigo Team Member Nicolas Jean Marie Sans Team Member Mohamed Nanzoul Team Member Yoro Sidibe Team Member Page 49 of 74  The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) B\. STAFF TIME AND COST Staff Time and Cost Stage of Project Cycle No\. of staff weeks US$ (including travel and consultant costs) Preparation FY05 22\.399 91,339\.33 FY06 43\.149 173,494\.30 FY07 95\.743 584,085\.45 FY08 -\.004 0\.00 Total 161\.29 848,919\.08 Supervision/ICR FY07 0 4,833\.03 FY08 41\.579 309,452\.58 FY09 35\.706 369,602\.13 FY10 36\.063 437,984\.12 FY11 61\.592 782,522\.24 FY12 41\.492 625,383\.26 FY13 36\.791 526,562\.13 FY14 34\.746 372,505\.19 FY15 35\.476 132,539\.78 FY16 43\.128 182,972\.77 FY17 9\.132 40,661\.20 FY18 31\.833 191,027\.06 Total 407\.54 3,976,045\.49 Page 50 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) ANNEX 3\. PROJECT COST BY COMPONENT Amount at Amount at 2014 Actual at Project Percentage of Components Approval Restructuring Closing (US$M) Approval (US$M) (US$M) (US$M) Component 1: NBA 7\.77 10\.73 12\.37 159% Institutional Strengthening and Capacity Building Component 2: 138\.45 134\.62 126\.09 91% Rehabilitation, Optimization and Development of Regional Infrastructure Sustainable Management 39\.78 40\.65 47\.54 120% of selected degraded ecosystems and rehabilitation of small water infrastructure\. Total 186\.00 186\.00 186\.00 100% PROJECT COST BY COUNTRY Amount at Approval Amount at 2014 Restructuring Country/Institution (US$M) (US$M) Benin 9\.00 9\.00 Guinea 9\.00 9\.00 Mali 18\.00 18\.00 Niger 15\.00 15\.00 Nigeria 135\.00 135\.00 NBA Total 186\.00 186\.00 Page 51 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) ANNEX 4\. EFFICIENCY ANALYSIS Economic and Financial Analysis Niger Basin Water Resources Development and Sustainable Ecosystems Management APL 1 Project A\. Project Objectives and Scope 1\. The economic analysis of the project is based on CBA of the different subprojects implemented in the five project countries\. The analysis captures the combined benefits and costs from hydropower generation, irrigation, fisheries, fodder production, reforestation, and agroforestry\. The analysis covers 30 years, including the implementation period with a 25-year stream of benefits and costs\. 2\. At appraisal, the PDO was “enhance regional coordination, development and sustainability of water resources management in the Niger River Basin\.â€? After the second restructuring in 2014, the scope of the project was reduced\. The PDO became “enhance regional coordination and improve water resources management in the Niger River Basin\.â€? Project activities took place in five countries of the River Basin: Benin, Guinea, Mali, Niger, and Nigeria\. Table 4\.16 shows the nature of the activities for which CBA was performed\. 3\. At appraisal, an ex-ante economic assessment based on a CBA was performed\. The analysis considered three main types of quantifiable benefits in the five project countries: (a) sustainable management of degraded environments; (b) rehabilitation of national water infrastructure; and (c) rehabilitation of regional water infrastructure\. Table 4\.1 shows a summary of the results of the economic analysis\. Table 4\.1\. Economic Analysis at Appraisal - Summary of Results Sustainable Rehabilitation of Rehabilitation of Management of National Water Regional Water Total Degraded Infrastructure Infrastructure Environments NPV (US$, IRR (%) NPV (US$, IRR (%) NPV (US$, IRR (%) NPV (US$, IRR (%) thousands) thousands) thousands) thousands) Guinea 4,267 33 — — — — — — Mali 7,957 21 2,046 35 — — — — Niger 537 32 1,838 24 — — — — Benin 485 27 3,693 22 — — — — Nigeria — — — — — 54 — — Total — — — — — — 893,874 51 B\. Ex post Economic Analysis of the Subprojects and the Overall Project I\. Approach of the Cost-benefit Analysis 4\. The project ex post CBA relies on the identification of economic benefits and costs generated by different activities\. Incremental benefits are calculated considering the ‘with’ project and the ‘without’ project situations\. Project benefits are estimated following different methodologies depending on the type of benefit considered\. These methodologies are explained for each subproject\. The benefit stream Page 52 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) does not consider some of the environmental benefits (reduced sedimentation in the river) or some nutritional benefits related to increased nutritional outcomes for local communities that rely on fish consumption for protein intake\. Therefore, the results of the economic analysis should be viewed as conservative lower-bound values\. Project costs are calculated considering investment and O&M costs\. Investment costs are derived from the project financial reporting documents and O&M costs are estimated according to the nature of each activity and reference values either from other similar projects or adopted in the relevant published literature\. An ex post economic analysis has been performed in each country and each quantifiable subproject after following adapted methodologies\. II\. Nigeria 5\. At appraisal, activities in Nigeria were planned to focus on the rehabilitation and upgrading of existing large water infrastructures of regional relevance\. These infrastructures included the Kainji hydropower dam and the Jebba hydropower dam\. For the Kainji dam, planned activities included: (a) Rehabilitation of productive electromechanical equipment to restore the available capacity from the current 480 MW up to a total installed capacity of 760 MW; (b) Rehabilitation of auxiliary services; (c) Rehabilitation of the navigation lock; (d) Upgrading instrumentation and monitoring equipment; (e) Improvement of the flood warning systems and development of a decision support and management system; (f) Implementation of the Environmental Action Plan to mitigate any potential impact of the rehabilitation of Kainji and Jebba sites; and (g) Operational support and reinforcement of the PHCN and NFS in Nigeria\. 6\. Following the restructuring of December 2014, the activity ‘Rehabilitation of the navigation lock’ was cancelled\. 7\. For the Jebba dam, activities included: (a) Selected rehabilitation of electromechanical equipment to ensure the availability of the entire installed capacity of 578 MW; (b) Rehabilitation of auxiliary services; (c) Civil works for stabilization of the tailrace channel and rehabilitation of upper navigation lock; (d) Upgrading of instrumentation and monitoring equipment; Page 53 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) (e) Prevention of tree invasion; and (f) Reinforcement of the maintenance workshops\. Kainji Dam hydropower production Benefits 8\. Economic benefits are derived from the incremental generation from replacement or refurbishment of generating units that were decommissioned or de-rated (that is, Units 5, 6, and 12)\. The post-refurbishment incremental energy generated by Kainji was estimated using the limited available operational data\. Unit 12 was commissioned and entered commercial service on May 28, 2016\. The analysis is based on generation data for the 18-day period from May 29 to June 15, 2016 when Units 5, 6, and 12 were fully operational\. The generation in this period is compared to the generation in the same period in 2011 before the refurbishment works commenced\. The reservoir was spilling during both periods\. The incremental energy over the 18-day period is estimated at 40,987 MWh\. The annual energy generation is estimated at 796\.977 MWh considering 15 days’ outage per year for maintenance\. The ex post CBA tests two values of energy cost in this analysis\. In the baseline scenario, the value adopted in the economic analysis conducted at appraisal in 2007 is considered (refer PAD, annex 9), which is US¢7\.80 per kWh\. A sensitivity analysis is then performed with the levelized cost of generation from a base load proxy unit estimated at US¢6\.90 per kWh\. Costs Investment Cost 9\. The investment cost is equal to the total costs of studies and works for the rehabilitation of Kainji Units 5, 6, and 12, estimated at US$85,648,073\. The construction period extended from 2012 to 2016 (five years)\. Disbursement occurred over these five years in proportion to the disbursement schedule for Component 2\. Incremental O&M Cost 10\. The additional O&M costs incurred in operating and maintaining the refurbished and replaced units is probably small given that the scope of the main refurbishment contract also included updating common systems which would reduce maintenance effort in the future\. Nonetheless, the incremental O&M cost is conservatively assumed to be 1\.5 percent of the capital cost of the refurbishment\. Therefore, O&M costs are estimated at an annual amount of US$1,265,916\. Cost-benefit Analysis Approach 11\. A standard CBA is used\. The time horizon considered in the analysis is 30 years\. Investment costs were incurred the first five years of the project implementation\. NPV was calculated for discount rates of 8 percent and 5 percent\. Page 54 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) Results Table 4\.2\. Summary of the Results of the Economic Analysis of the Subcomponent NPV (US$, millions) NPV (US$, millions) EIRR Assumption Discount Rate of 8 percent Discount Rate of 5 percent (Percentage) Baseline scenario 380\.8 609\.28 35\.7 Sensitivity analysis 328\.0 524\.8 33\.0 12\. This subproject generated an EIRR of 35\.7 percent under the baseline scenario (33 percent for the sensitivity analysis) which is much higher than the opportunity cost of capital\. This economic performance is comparable to that of other hydropower projects\.14 13\. The results confirm the expectations of the PAD economic appraisal\. The economic returns on the investment are attractive and underline the quality of Subcomponent 2-a of the Niger Basin WRDSEM Program\. Jebba Hydropower Dam 14\. At appraisal, the project was expected to improve the dam electricity generation capacity through the rehabilitation of selected electromechanical equipment\. However, this activity was modified during the second restructuring of the project\. At completion, capacity of the Jebba hydropower plant was not increased by the project intervention and there is therefore no incremental energy\. Instead, the project financing focused on safety of structures (spillway channel upgrade and dam instrumentation improvements), service life extension (rehabilitation of concrete structures, 110 kV battery bank, and sequence of events recorder) and improving O&M efficiency (reequip workshop and supply vehicles)\. Attributing a monetary value to the economic benefits deriving from these expenditures would be difficult to rigorously quantify\. However, the economic justification of such investments is easily recognizable considering that they ensured compliance with national and international standards\. The improvements are also expected to reduce future O&M costs, extend the service time of the dam, and increase its safety\. III\. Benin 15\. At appraisal, the following activities were planned under the project: (a) Rehabilitation of 12 small dams in Benin and diversification of agricultural activities (b) Development of small irrigation schemes in Benin 16\. At ICR, the project achieved the following results: (a) Full rehabilitation of five small dams in Borgou and Alibori region 14 See, for example, Renewable Energy Development and Power Sector Rehabilitation Project (RRP SAM 46044)\. Page 55 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) (b) Completed development of 1,500 ha of small irrigation schemes at low cost in Karimama and Malanville (c) Building of two warehouses with a capacity of 1,000 tons each in Karimama and Malanville (d) Land restoration and reforestation of 1,125 ha (e) Development of income-generating activities for 2,335 direct beneficiaries in Karimama, Malanville, and Kalalé 17\. The economic analysis focuses on three main activities: (a) land restoration and reforestation, (b) small irrigation schemes, and (c) development of income-generating activities\. Land Restoration and Reforestation 18\. Land restoration and reforestation activities covered several degraded areas across the northern areas of Benin\. 19\. Agroforestry activities covered several municipalities located in three main departments (Alibori, Atacora, and Borgou)\. The municipalities include Kérou, Sinendé, Kandi, Karimama, Malanville, Bembèrèkè, Kalalé, and Péhunco\. A total of 686,012 seedlings were planted covering an area estimated at 474 ha (an average of 1,447 seedlings per ha)\. Kérou experienced the lowest survival rate of seedlings, estimated at 50 percent, while Sinendé, Karimana, and Péhunco experienced the highest survival rate, estimated at 95 percent\. The average survival rate is 85\.6 percent\. This implies a potential of 1,238 trees per ha over 474 ha\. 20\. Rehabilitation and reforestation activities focuses on 590 ha and included fruit crops\. The representative fruit crop is the cashew (A\. Occidentale) which produces high-value comestible nuts\. Several studies have demonstrated the high profitability of cashew farming both on the African continent and elsewhere in the world\.15 Benefits 21\. Land restoration and reforestation provide a large range of ecosystem services that render substantial benefits to communities\. These benefits include reduced soil erosion, fodder protection, carbon sequestration, soil moisture storage, and in some cases, nitrogen fixation, depending on the type of trees planted\. These benefits have been well-documented through several studies\.16 However, literature quantifying the benefits are scant\. The Economics of Land Degradation (ELD) Initiative has undertaken recent studies that evaluate different dimensions of the economic value of land restoration and reforestation in different countries\. Methodologies used in ELD studies have been validated by a growing body of literature\.17 The estimation of the benefits will rely on the study performed in Mali as the 15 See, for example, Lawal et al\. (2011) and Wongnaa (2013)\. 16 Refer to ELD Initiative studies\. 17 See, for example, Etter, Gerhartsreiter, and Stewart\. (2017)\. Page 56 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) agroecological conditions are similar\.18 To be conservative, the CBA only considers benefits related to soil erosion, sales of cashew nuts, fodder production, and carbon sequestration\. 22\. Benefits from avoided soil erosion are estimated using avoided cost valuation method\. Based on relevant literature, soil erosion leads to substantial opportunity costs in terms of loss of crop yield\.19 The opportunity cost of the incremental loss of a representative crop (maize) is used to estimate the benefits\. 23\. Benefits from cashew sales are estimated using a market-based approach since cashew has a market value\. A similar method is used to estimate the benefits derived from fodder\. Benefits from carbon sequestration is estimated using the method proposed by the technical report on the social cost of carbon of the White House Interagency Working Group\. This method integrates a simplified climate model and a simplified economic model into a cohesive numerical model to capture the feedback effects between the two\. The report provides the projected value of CO2 for a period of 30 years considering the monetary estimate of the associated avoided damage\. Costs 24\. Costs include investment costs and maintenance costs (surveillance, pruning, and so on)\. The bulk of the costs are incurred during the first years when the maintenance of seedlings is critical\. Investment cost areas are estimated at US$1,225,848 and O&M costs are estimated at US$66,667\. O&M costs represent about 5\.4 percent of investment costs\. 25\. Reforestation costs were estimated at US$612,595 (US$574,427 as investment costs and US$38,168 for maintenance costs) representing US$1,038 per hectare\. Reforestation costs were estimated at US$682,385 (US$653,760 as investment costs and US$28,626 for maintenance costs) representing US$1,440/ha\. These costs are higher compared with other studies where farmer-managed natural regeneration methods are applied\. In these studies, costs have been estimated to range from US$267 per hectare to US$316 per hectare\. Results Table 4\.3\. Summary of the Results of the Economic Analysis of the Subcomponent NPV (US$) NPV (US$) Assumption EIRR (percent) Discount Rate of 8 percent Discount Rate of 5 percent Baseline scenario 35,609,787 63,155,433 48\.2 Small Irrigation Schemes 26\. The project financed the development of 1,500 ha of land for rice and vegetables growing: 800 ha in Birni-Lafia, 400 ha in Monnin, and 300 ha in Garou\. Pumps were provided to several young farmers to enable the start of their activities\. This subproject directly benefited 1,500 persons and their households\. Subproject Benefits 18 Refer to Sidibé, Myint, and Westerberg (2014)\. 19 See Diao and Sarpong (2007)\. Page 57 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) 27\. Survey undertaken at the field level in 2015 has shown that agricultural activities have generated rice production and high-value vegetable crops including onion, pepper, tomato, and okra\. Table 4\.4 summarizes the financial results for the crops mentioned\. Table 4\.4 Financial Results by Crop Type (FCFA, per ha) Crop Type Onion Pepper Tomato Okra Rice Yield (t/ha) 26\.4 23\.8 10 7\.2 6 Volume of fuel (L) 672 252 224 128 300 Cost of fuel used (CFAF) 336,000 126,000 112,000 64,000 150,000 Crop sales price (CFAF 167 200 105 167 170 per kg) Sales Revenue (CFAF per 4,400,000 4,760,000 1,050,000 1,200,000 1,020,000 ha) Other farm costs (CFAF 1,555,000 1,872,000 620, 000 500,000 600,000 per ha) Total farm costs (CFAF 1,891,000 1,998,000 732,000 564,000 750,000 per ha) Net farm benefits (CFAF 2,509,000 2,762,000 318,000 636,000 270,000 per ha) Source: Research SU DOM SE-ONG, fields survey, June 2016\. Subproject Costs 28\. The project financed about US$1,752,660 in the agricultural component in Benin\. Most of this investment was used to develop land for irrigation and acquire pumps for irrigation purposes\. Other costs will include O&M and equipment renewal costs conservatively estimated at 20 percent of investment costs\. Result Table 4\.5\. Summary of the Results of the Economic Analysis of the Subcomponent NPV (US$) NPV (US$) Assumption EIRR (Percentage) Discount Rate of 8 percent Discount Rate of 5 percent Baseline scenario 58,588,574 87,752,166 107\.9 29\. The results indicate a very strong economic performance of irrigated systems\. This achievement is mainly due to the relatively low cost of irrigation development using low-cost pumps (approximately US$500 per pump)\. Development of Income-generating Activities 30\. The project supported the achievement of several types of income-generating activities through numerous villages\. Table 4\.6 shows the details of the achievement\. Page 58 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) Table 4\.6\. Data on Income-Generating Activities supported by the project Number of Annual Production Annual Sales Value Income-generating Activities Villages Capacity (CFAF) Apiculture 27 11,340 liters 49,744,800 Mustard (Brassica nigra) 23 16,560 kg 24,840,000 Soy cheese 30 216,000 kg 140,400,000 Vegetable farming 29 91,350 kg 146,160,000 Seedling development 14 250,000 plants 25,000,000 Shea butter 35 94,500 kg 113,400,000 Cow milk cheese 19 213,800 kg 277,940,000 Total estimate — — 778,068,000 Source: Research SU DOM SE-ONG, fields survey International Building and Trade, June 2016\. Benefits 31\. A wide range of benefits resulted from the income-generating activities\. For example, apicultural production enabled several households to produce and market honey and honey-related products\. Nere fruits (Parkia biglobosa) are transformed into local high-value products and sold on local markets\. An estimated 80 percent of the beneficiaries of the income-generating activities are women\. 32\. Since most of the products have market value, the market price and quantities sold were considered in the calculation of the economic benefits of income-generating activities (table4\.6)\. Costs 33\. The project supported income-generating activities in several ways including awareness campaigns, simple management plans, and the provision of kits consisting of equipment that allowed women to initiate activities\. The financing costs are estimated at US$782,891\. Subsequent O&M and renewal costs are estimated at a conservative 20 percent of investment costs\. Result Table 4\.7\. Summary of the Results of the Economic Analysis of the Subcomponent NPV (US$) NPV (US$) Assumption Discount Rate of 8 Discount Rate of 5 EIRR (Percentage) percent) percent Baseline scenario 10,071,175 15,675,019 52 Note: The activity generated a solid economic rate of return\. Other Project Benefits 34\. The project in Benin generated several other benefits that could not be reliably quantified\. These benefits include training provided to women’s groups to perform income-generating activities and training of seedling producers who continue their activities beyond the duration of the project\. The project also generated substantial local employment during its implementation\. Page 59 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) IV\. Niger 35\. In Niger, the project financed the following activities: (a) The eight complementary studies for Kandadji dam in Tillabéri region have been fully completed; (b) 621 ha of small irrigation schemes in Djambala, in Tillabéri region have been fully completed; (c) The project has restored 10,738 ha of plateau and watershed degraded lands in Tillabéri and Dosso regions; (d) 1,955 ha in Tillabéri and Dosso regions have been completely reforested; and (e) The traditional fishery system in Tillabéri and Dosso regions have been improved through the organization of fishermen in groups; the project also supported beneficiaries with fishery equipment\. 36\. The economic analysis in Niger focuses on three key activities including (a) rehabilitation of irrigation schemes, (b) afforestation activities, and (c) traditional fisheries\. Rehabilitation of Irrigation Schemes 37\. The project initially planned to rehabilitate three irrigation schemes: Djambala scheme (689 ha), Kourani scheme (693 ha), and Sona-Lossa-Kokomani scheme (406 ha)\. Only Djambala scheme was rehabilitated as the other schemes were added to other projects\. Benefits 38\. The main benefit derived from the rehabilitation of the Djambala scheme relates to sustainable production of rice and the income generated by this activity\. Before the rehabilitation of the scheme, the drainage system was clogged by substantial sedimentation\. This situation made the scheme vulnerable to recurrent flooding that caused damage to crops and impeded regular access of farmers to the scheme\. As a result, crop yield fell\. Several actions were undertaken to rehabilitate the scheme including the reconstruction of the drainage canals, the reconstruction of the irrigation canals (primary and secondary), and protection of the infrastructure\. 39\. The benefits are estimated as the value of the incremental yield resulting from the rehabilitation\. Average yield increased from 4\.5 t/ha before the rehabilitation to 6\.7 t/ha after the rehabilitation\. Costs 40\. The project financed an estimated amount of US$3,666,190 in studies, works, and supervision of the irrigation subproject in Niger representing about US$5,755 per hectare\. O&M costs are assumed to represent an annual amount of 5 percent of the rehabilitation costs\. Page 60 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) Result Table 4\.8\. Summary of the Results of the Economic Analysis of the Subcomponent NPV (US$) NPV (US$) Assumption Discount Rate of 8 Discount Rate of 5 EIRR (Percentage) percent percent Baseline scenario 712,760 2,044,842 11\.3 41\. The economic performance of the irrigation is acceptable\. The performance has been affected by the relatively high cost of rehabilitation (US$5,755 per hectare)\. Improvement of Traditional Fisheries 42\. Traditional fishery systems in Tillabéri and Dosso regions have been improved through the introduction of different species of fishes into more than 20 ponds, the organization of fishermen in groups\. The project also supported beneficiaries with fishery equipment including small boats, fishing nets, and fish conservation equipment\. Benefits 43\. Benefits are directly derived from the sale of fish caught from the main ponds in Tillabéri and in Dosso\. In Niger, fish has high value in small towns and cities\. Table 4\.9 provides data on fish production and value\. Table 4\.9\. Data on Fish Production and Value 2009 2010 2011 2012 Area with fish introduced (ha) 360 1734 952 1020 Quantity of fish produced (t) 40\.636 64\.136 67\.265 70\.649 Value of fish produced (CFAF) 13,565,600 28,045,400 37,465,250 40,849,750 Costs 44\. The project supported the costs for fish introduction into ponds, trainings for fishermen groups, and provision of fishing equipment\. Costs are estimated at CFAF 287,298,118 (US$548,279)\. Other costs include day to day O&M costs incurred by fishermen in the course of their activity\. Result Table 4\.10\. Summary of the Results of the Economic Analysis of the Subcomponent NPV (US$, millions) NPV (US$, millions) Assumption Discount Rate of 8 Discount Rate of 5 EIRR (Percentage) percent percent Baseline scenario 386,712 722,606 18\.4 Page 61 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) Reforestation 45\. Reforestation activities covered an estimated area of 6,310 ha\. Different species were planted to limit erosion\. Different adapted techniques were used to ensure the survival of seedlings\. These techniques include ‘Demi-lune’\. Benefits 46\. Estimation of benefits follow the same methodology as in Benin\. Costs 47\. Investment costs are estimated at US$4,668,710\. O&M costs are considered negligible\. By experience, once the trees have reached a certain height, the need for O&M becomes minimal\. Result Table 4\.11\. Summary of the Results of the Economic Analysis of the Subcomponent NPV (US$, millions) NPV (US$, millions) Assumption EIRR (percent) Discount Rate of 8 percent Discount Rate of 5 percent Baseline scenario 68,926,627 124,042,774 36\.9 V\. Mali 48\. In Mali, the project activities included: (a) Seven fishponds being fully developed and functional in Gao and Asongo; (b) Development of a 5 ha garden for women in Diambacourou; (c) Implementation of a biological protection of banks against erosion on 9 km with Vetiver grass; and (d) Development of 720 ha of bourgou for pasturage in five villages in Mopti Region\. 49\. The economic assessment in Mali focuses in bourgou production\. Animal Fodder Production - Bourgou 50\. Around 720 ha of bourgou for pasturage in five villages in Mopti Region have been entirely developed\. Bourgou (Echinochloa stagnina) is a highly nutritive herbaceous plant that grows in shallow water\. It is widely used as feed for cattle and other animals in several Sahel countries\. Once dried, it has high value in local markets\. Benefits 51\. The benefits are estimated following a market-based valuation approach\. Page 62 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) Costs 52\. The costs of this subproject are estimated at US$1,400,372\. Recurrent costs are US$1,470 per hectare based on a study by Réseau National des Chambres d’Agriculture du Niger (RECA)\. Results Table 4\.12\. Summary of the Results of the Economic Analysis of the Subcomponent NPV (US$) NPV (US$) Assumption EIRR (percent) Discount Rate of 8 percent Discount Rate of 5 percent Baseline scenario 67,010,779 105,096,566 75\.5 Fisheries 53\. Fishery infrastructures, including fish market, fish smoking and drying equipment, and so on in Gao and Ansongo, have been completed\. The project also supported the procurement of two refrigerated wagons of 100 tons and fishery equipment for Gao and Tombouctou communities\. The five villages in Mopti region received 100 heifers, 5 sires, 30 oxen, and 40 donkeys and completed the construction of four cattle enclosures\. The benefits of these investments could not be quantified due to the lack of reliable quantitative data\. VI\. Guinea 54\. The following activities have been achieved in Guinea: (a) Technical and safeguard studies for the multipurpose Fomi dam (b) Development of 450 ha of lowlands with irrigation schemes in Faranah and Kissidougou, which were fully completed (c) Development of 500 ha under agroforestry system in Faranah and Kissidougou 55\. In Guinea, the CBA focuses on the economic performance of lowlands irrigation development activities and agroforestry activities\. Development of Lowlands for Irrigated Agriculture 56\. The project developed irrigation schemes in prefectures of Faranah and Kissidougou\. The land is mainly used for rice production\. The project intervention resulted in an increase in rice yield\. However, capacity building and strengthening for farmers may be insufficient as they have not received training regarding O&M and adequate water management\. Benefits 57\. As for irrigation schemes rehabilitated in Niger, the main benefits derive from increased crop production\. The irrigation schemes have experienced an increase in production from 3 t/ha without the project to 3\.5 t/ha with the project intervention\. The yield increase is modest probably due to the lack of Page 63 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) agricultural water management knowledge\. Paddy rice has high value in local markets\. The farmgate price fluctuates around US$0\.44 per kg\. Costs 58\. The project investment costs were estimated at US$3,959,738\. This represents a per area investment cost of US$8,800 per hectare\. This cost is relatively high compared to the unit cost expected from investments in lowland development\.20 O&M costs are estimated to represent an annual 5 percent of investment costs\. Results Table 4\.13\. Summary of the Results of the Economic Analysis of the Subcomponent NPV (US$) NPV (US$) Assumption EIRR (Percentage) Discount Rate of 8 percent Discount Rate of 5 percent Baseline scenario −2,765,840 −3,262,499 Not calculated 59\. The irrigation subproject in Guinea exhibits a negative NPV\. The EIRR could not be computed as is often the case when the NPV is negative\. This subproject was hampered by high investment costs and probably by the lack of appropriate knowledge regarding agricultural water management\. Development of Agroforestry System 60\. The project financing supported the development of 500 ha under the agroforestry system in Faranah and Kissidougou\. Different native species were planted including acacia, palm, and orange trees\. Benefits 61\. The agroforestry system provides several benefits including soil protection from erosion, provision of palm oil which is an essential ingredient in several areas in Guinea, nitrate fixation in the soil especially by acacia trees\. Because of the limitations of data availability, the analysis will conservatively focus on benefits from avoided soil erosion, fodder production\. and carbon sequestration focusing on the acacia as the representative tree\. The method used is similar to that applied for agroforestry development in Benin and in Niger\. Costs 62\. Investment costs are estimated at US$844,787\. O&M costs are considered negligible\. By experience, acacia plantations need only limited O&M once they reach three years\. 20You (2008) estimates that investment costs in intercommunity small-scale irrigation range from US$3,000 to US$8,000 per hectare for Sub-Saharan Africa\. Page 64 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) Results Table 4\.14\. Summary of the Results of the Economic Analysis of the Subcomponent NPV (US$) NPV (US$) Assumption EIRR (Percentage) Discount Rate of 8 percent Discount Rate of 5 percent Baseline scenario 843,997 2,006,010 13\.1 63\. The results show positive NPV at both 5 percent and 8 percent discount rates\. The subproject was economically justified\. VII\. Economic Analysis of the Overall Project 64\. The overall economic analysis considers all quantifiable project benefits and all project costs\. This includes the costs of supporting activities such as project coordination, studies, and environmental and social assessment\. Table 4\.15 presents the results\. Table 4\.15\. Summary of the Results of the Economic Analysis of the Overall Project NPV (US$) NPV (US$) Assumption EIRR (Percentage) Discount Rate of 8 percent Discount Rate of 5 percent Baseline scenario 541,958,802 914,826,012 27\.6 65\. Although the EIRR is lower than the expectations at appraisal which was estimated at 51 percent, the results indicate a good economic performance of the project even when all supporting costs are included\. C\. Conclusion 66\. At 5 percent and 8 percent discount rates, the analysis shows that the project had positive NPVs in subprojects in all the countries except for the irrigation subproject in Guinea\. Apart from the lowland development subproject in Guinea, all the subprojects analyzed exhibited an EIRR higher than 5 percent, ranging from 11\.3 percent to 75\.5 percent\. However, there is significant variability from one subproject to another\. Fisheries, fodder production, and income-generating activities are, generally, the most economically performing subprojects\. Irrigation infrastructure rehabilitation in Niger was the less economic activity mainly because of the higher-than-expected cost associated with this subproject\. The irrigation subproject in Benin exhibited a high performance explained by higher areas developed than initially planned and the choice to grow high-value vegetables\. Lowland irrigation subproject in Guinea suffered from two major factors: (a) the high per area investment cost of the irrigation infrastructure; and (b) the moderate increase in rice yield probably due to a lack of appropriate water management knowledge\. The overall EIRR of the project is estimated at 27\.6 percent, an NPV of US$914,826,012 at 5 percent, and an NPV of US$541,958,802 at 8 percent\. Further, sensitivity analysis shows that the EIRR remains economically viable with a 10 percent increase in costs or a 10 percent decrease in benefits\. The project remains economically viable even with a combined 20 percent increase in the costs and a 20 percent reduction in benefits with an EIRR of 21 percent\. 67\. The ICR uses a similar approach and assumptions as the PAD in estimating the benefits from hydropower generation\. However, the ICR did not include benefits from Jebba dam since at project closing Page 65 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) the World Bank financing did not result in incremental energy production at that dam\. Assumptions for irrigation and fishery development are also similar, as the methodology relies on projected yields in the PAD and on actual yields in the ICR\. For agroforestry and income-generating activities, the economic analysis in the ICR includes benefits associated with increased availability of animal fodder, the reduction of soil erosion, and carbon sequestration\. Such benefits, although important, were not explicitly accounted for at appraisal\. Table 4\.16\. Summary of the ICR CBA Reforestation, Income- Agroforestry, Irrigation Fishery Hydropower generating Overall Project and Fodder Development Development Production Activities Production NPV (US$, IRR NPV (US$, IRR NPV (US$, IRR NPV (US$, IRR NPV (US$, IRR NPV (US$, IRR (%) thousands) (%) thousands) (%) thousands) (%) thousands) (%) thousands) (%) thousands) Guinea 2,006 13\.1 — — −3,262 n\.a\. — — — — — — Mali 105,096 75\.5 — — — — — — — — — — Niger 124,042 36\.9 — — 2,044 11\.3 722\.6 18\.4 — — — — Benin 63,155 48\.2 15,675 52 87, 752 107\.9 — — — — — — Nigeria — — — — — — — — 609,280 35\.7 — — Overall — — — — — — — — — — 914,826 27\.6 project Table 4\.17\. Summary of the ICR CBA - Sensitivity Analysis of the Overall Project Results NPV (US$, thousands) at 5 percent IRR (%) Discount Rate Sensitivity analysis on costs Costs increase by 10 percent 899,931,377 26\.0 Costs increase by 20 percent 885,036,743 24\.5 Sensitivity analysis on benefits Benefits decrease by 10 percent 808,448,776 25\.8 Benefits decrease by 20 percent 702,071,540 23\.8 Combined sensitivity analysis Combined costs increase by 20 672,282,271 21\.0 percent and benefits decrease by 20 percent Table 4\.18\. Key Assumptions used in the CBA Data Type Value Unit Source Nigeria Hydropower Production Assumption on benefits See ‘Benefit’ Client ICR Nigeria section for Nigeria Benin Reforestation and Agroforestry Total area under agroforestry or reforestation 1064 Ha Client ICR Benin Page 66 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) Data Type Value Unit Source Average soil erosion in Northern Benin 12\.3 t/ha/year Senahoun, Heidhues, and Deybe (1999) Loss in maize yield due to soil erosion 52 kg/ha Diao (2007) Price of maize 165 CFAF/kg LISA - SAP N° 319 Adult height of Anacardium Occidentale 10 m Survival rate of trees 85\.6 percent Client ICR Guinea Irrigation Area under irrigation 1,500 ha Client ICR Benin Cropping intensity 2 Client ICR Benin Assumption on benefits See table 4\.4 in the Client ICR Benin ‘Benefit’ section for Benin irrigation Income-generating Activities Assumption on benefits See table 4\.6 in the Client ICR Benin ‘Benefit’ section for Benin income- generating activities Niger Reforestation and Agroforestry Total area under agroforestry or reforestation 6310 Ha Client ICR Niger Loss in maize yield due to soil erosion 52 Kg/ha Diao (2007) Price of maize 165 FCFA/kg LISA - SAP N° 319 Density of tress 740 Number/ha Client ICR Niger and team calculation Survival rate of trees 90 Percent Client ICR Niger Irrigation Irrigated area rehabilitated 637 ha Client ICR Niger Yield before the rehabilitation of Djambala 4\.5 T/ha Client ICR Niger scheme (t/ha) Yield after the rehabilitation of the Djambala 6\.7 T/ha Client ICR Niger scheme (t/ha) Price of rice (paddy) farmgate 120,000 FCFA/T Bulletin économique sur le marché des céréales en Cropping intensity 1\.89 Client ICR Niger Fodder price 112 FCFA/kg Jarial (2017) Fisheries Assumption on benefits See table 4\.9 in the Client ICR Niger ‘Benefit’ section for Niger fisheries Mali Page 67 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) Data Type Value Unit Source Fodder Production Area cultivated 720 ha Client ICR Mali Yield of bourgou ‘Echinochloa stagnina’ 20 to 30 (25 is t/ha Zwart et al\. (2006); used here) Reca (2018) Production costs of bourgou 300,000 CFAF/ha Agence Nationale de la Météorologie (2012) Proportion of green to dry matter 20 Percent RECA (2018) Costs for cutting, drying, and storing bourgou 770,000 CFAF/ha RECA (2018) Price of dried bourgou 1,500 CFAF/kg RECA (2018) Guinea Lowland Irrigation Development Area under irrigation 450 ha Client ICR Guinea Yield without project 3 t/ha Client ICR Guinea Yield with project 3\.5 t/ha Client ICR Guinea Paddy rice price 6000 FGN/kg Guinée (2017) Agroforestry Area under agroforestry 500 ha Client ICR Guinea Representative tree species Acacia Client ICR Guinea Density of trees 100 100 trees/ha Client ICR Guinea and ICR team estimation Survival rate of trees 50 Percent Client ICR Guinea Page 68 of 74  The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) ANNEX 5\. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS Comments on the draft ICR were received from the Niger Basin Authority\. There was some additional information and clarifications provided which were addressed and integrated into the present version of the report\. The Borrower also suggested to upgrade the rating of the PDO outcome “Enhance regional development of water resources in the Niger Basinâ€? from Substantial to High\. Given the reasons provided in the ICR and OPCS evaluation methodology, the team believes that ‘Substantial’ is more appropriate\. Page 69 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) ANNEX 6\. SUPPORTING DOCUMENTS 1\. Project Appraisal Document on Five Proposed Credits/Grants, Niger Basin Water Resources Development and Sustainable Ecosystems Management (WRDSEM) Project, May 3, 2007\. 2\. Niger River Basin Authority, Niger Basin WRDSEM Project Implementation Manual, July 2007\. 3\. Project Information Document, NB-WRDSEMP, Appraisal Stage, Report № 43582, June 7, 2007\. 4\. Operations Policy and Country Services, Implementation Completion and Results Report, Guidelines, August 2006, updated October 5, 2011\. 5\. Niger Basin WRDSEM project’s Implementation Status and Reports, December 2008–December 2017\. 6\. New Country Partnership Strategy in Nigeria Set to Spur Growth, Less Poverty, World Bank paper, May 2014\. 7\. Regional Integration Assistance Strategy for Sub-Saharan Africa, Report No\. 43022-AFR, IDA and IBRD, March 2008\. 8\. Country Partnership Strategy FY13–17 for the Republic of Benin; March 5, 2013\. 9\. Country Partnership Strategy FY14–17 for Guinea; September 4, 2013\. 10\. Country Partnership Framework FY16–19 for the Republic of Mali; November 3, 2015\. 11\. Country Partnership Strategy FY13–16 for the Republic of Niger; March 29, 2013\. 12\. Country Partnership Strategy FY14–17 for the Federal Republic of Nigeria; March 13, 2014\. 13\. Financing Agreement, NB-WRDSEMP (Credit No\. 4348-UNI), July 26, 2007\. 14\. Niger Basin – WRDSEM project, Amendment to the Financing Agreement (Credit No\. 4348-UNI), letter to Hon\. Dr\. Ngozi Okonjo-Iweala, Minister of Finance Federal Republic of Nigeria from Marie Francoise Marie-Nelly, Country Director, Nigeria, IDA, 29 December 2014\. 15\. Restructuring Paper on a proposed restructuring of Niger Basin – WRDSEM Project, Report No\. 61998-AFR, June 6, 2011\. 16\. Restructuring Paper on a proposed restructuring of NB-WRDSEMP, Report No\. RESI-16175, December 12, 2014\. 17\. Subsidiary Agreement to the Financing Agreement (Credit No\. 4348-UNI), July 26, 2007\. 18\. Service Contract between NBA and PHCN (TCN), July 26, 2007\. Page 70 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) 19\. Annual Work Plan and Budgets for 2012 to 2016 inclusive\. 20\. Procurement Plans and Procurement Reviews for 2012 to 2016 inclusive\. 21\. “Status of WRDSEMP Contract - February 29, 2016â€?, May 2016\. 22\. Niger Basin WRDSEM project APL1 FM and Procurement reports\. 23\. ICR of Senegal River Basin multi-purpose water resources development project, APL, September 25, 2013\. 24\. ICR of Dam Operational Improvement and Safety Project (DOISP) For Indonesia, October 2016\. 25\. BRL study on the “Sustainable Development Action Plan of the Niger Basinâ€? – 2007\. 26\. Client ICRs on Niger Basin WRDSEM PL1 of Niger – December 2015, Nigeria – June 2016, Mali – August 2017, Guinea – December 2017 and Benin – July 2016\. 27\. Agence Nationale de la Météorologie\. 2012\. Evaluation des besoins technologiques et plan d’action technologique d’adaptation aux changements climatiques au mali\. 103p\. 28\. African Cashew Initiative\. 2010\. Analysis of the Benin Cashew Sector Value Chain\. 29\. Aymeric, R\., M\. M\. Myint, and V\. Westerberg\. 2015\. An economic valuation of sustainable land management through agroforestry in eastern Sudan\. Report for the Economics of Land Degradation Initiative by the International Union for Conservation of Nature, Nairobi, Kenya\. Available at: www\.eld-initiative\.org 30\. Becker, M\., and D\. E\. Johnson\. 2001\. Improved water control and crop management effects on lowland rice productivity in West Africa\. Nutrient Cycling in Agroecosystems, 59(2), 119-127\. 31\. Bulletin économique sur le marché des céréales en Afrique\. 2017\. Les cereraliers\. 13p\. 32\. Diao, X\. 2007\. Cost Implications of Agricultural Land Degradation in Ghana\. IFPRI Report\. 33\. ELD Initiative\. 2015\. Report for policy and decision makers: Reaping economic and environmental benefits from sustainable land management\. 34\. ELD Initiative\. 2015\. The value of land: Prosperous lands and positive rewards through sustainable land management\. Available at: www\.eld-initiative\.org 35\. Etter, H\., T\. Gerhartsreiter, and N\. Stewart\. 2017\. Economics of land degradation: achievements and next steps\. In International Yearbook of Soil Law and Policy 2016 (pp\. 263-281)\. Springer, Cham\. 36\. Guinée\. 2017\. Perspectives sur la sécurité alimentaire\. Page 71 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) 37\. Interagency Working Group on Social Cost of Carbon\. 2013\. Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis\. 38\. IUCN (International Union for the Conservation of Nature)\. 2006\. Hidden cost is value lost: The economic importance of dryland goods and services in the IGAD region, IUCN Policy Brief\. Gland, Switzerland: IUCN\. 39\. Jarial, S\. 2017\. Price quality relationships in fodder trading in Niger with special regards to comparison of cowpea and groundnut haulms with concentrates collected shrubs and grasses\. 40\. Lawal, J\. O\., O\. O\. Oduwole, T\. R\. Shittu, and A\. A\. Muyiwa\. 2011\. Profitability of Value Addition to Cashew Farming Households in Nigeria\. African Crop Science Journal, 19(1)\. 41\. LISA – SAP N° 319\. 2015\. Lettre d’information pour la sécurité alimentaire dans le cadre de l’alerte précoce\. 42\. Myint, M\.M\., and V\. Westerberg\. 2014\. An economic valuation of a large-scale rangeland restoration project through the Hima system in Jordan\. Report for the ELD Initiative by International Union for Conservation of Nature, Nairobi, Kenya\. Available at: www\.eld- initiative\.org 43\. Reca\. 2018\. Fiche technique: Aménagement de bourgoutières\. Retrieved http://www\.reca- niger\.org/IMG/pdf/Fiches_Amenagement_de_bourgoutieres___version_1\.pdf in February 2018\. 44\. Schreckenberg, K\. 2004\. The contribution of shea butter (Vitellaria paradoxa CF Gaertner) to local livelihoods in Benin\. Forest products, Livelihoods and conservation, 91–104\. 45\. Senahoun, J\., F\. Heidhues, and D\. Deybe\. 1999\. Structural adjustment programs and soil erosion: a bio-economic modelling approach for Northern Benin\. Grauer\. 46\. Sidibé, Y\., M\. Myint, and V\. Westerberg\. 2014\. An economic valuation of agroforestry and land restoration in the Kelka Forest, Mali\. Assessing the socio-economic and environmental dimensions of land degradation\. Report for the Economics of Land Degradation Initiative, by International Union for Conservation of Nature, Nairobi, Kenya\. Available at: www\.eld- initiative\.org 47\. Wongnaa, C\. A\. 2013\. Profitability analysis of cashew production in Wenchi municipality in Ghana\. Botswana Journal of Agriculture and Applied Sciences, 9(1)\. 48\. Yegbemey, R\. N\., H\. Kabir, O\. H\. Awoye, J\. A\. Yabi, and A\. A\. Paraïso\. 2014\. Managing the agricultural calendar as coping mechanism to climate variability: A case study of maize farming in northern Benin, West Africa\. Climate Risk Management, 3, 13–23\. 49\. You, L\. Z\. 2008\. Africa: Irrigation Investment Needs in Sub-Saharan Africa\. Page 72 of 74 The World Bank Niger Basin Water Resources Development and Sustainable Ecosystems Management Project (P093806) 50\. Zwarts, L\., P\. V\. Beukering, B\. Koné, E\. Wymenga, and D\. Taylor\. 2006\. The economic and ecological effects of water management choices in the Upper Niger River: development of decision support methods\. Water Resources Development, 22(1), 135–156\. Page 73 of 74

REVIEW

P117087

Document of The World Bank Report No: ICR00002833 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-44510; IDA-44520; IDA-44530; IDA-46500) ON CREDITS (4) IN THE AMOUNT OF SDR6\.00 MILLION (US$9\.60 MILLION EQUIVALENT) TO THE COMMONWEALTH OF DOMINICA, GRENADA, ST\. LUCIA AND ST\. VINCENT AND THE GRENADINES FOR THE ORGANIZATION OF EASTERN CARIBBEAN STATES (OECS) E-GOVERNMENT FOR REGIONAL INTEGRATION PROJECT IN SUPPORT OF THE FIRST PHASE OF THE OECS E-GOVERNMENT FOR REGIONAL INTEGRATION PROGRAM December 29, 2014 ICT Sector Unit Transport and ICT Global Practice Caribbean Country Management Unit Latin American and the Caribbean Region  CURRENCY EQUIVALENTS (Exchange Rate Effective April 16, 2014) Currency Unit = EC$ 1\.00 = US$0\.37 US$ 1\.00 = EC$2\.7 FISCAL YEAR January 1 – December 31 Vice President: Jorge Familiar Calderon Country Director: Sophie Sirtaine Senior GP Director Pierre Guislain Practice Manager: Randeep Sudan Project Team Leaders: Doyle Gallegos/Anat Lewin ICR Team Leader: Anat Lewin ICR Main Author Maria Rosa Puech n  Dominica, Grenada\. Saint Lucia, Saint Vincent and the Grenadines OECS E-GOVERNMENT FOR REGIONAL INTEGRATION PROGRAM Table of Contents Abbreviations and Acronyms \. iv Data Sheet \. vi A\. Basic Information \. vi B\. Key Dates \. vi C\. Ratings Summary \. vii D\. Sector and Theme Codes \. vii E\. Bank Staff\. viii F\. Results Framework Analysis \. viii G\. Ratings of Project Performance in ISRs \.xv H\. Restructuring (if any) \.xv I\. Disbursement Profile \. xvi 1\. Project Context, Development Objectives and Design \.1 1\.1 Context at Appraisal \.1 1\.2 Original Project Development Objectives (PDO) and Key Indicators \.2 1\.3 Revised PDO and Key Indicators, and reasons/justification \.2 1\.4 Main Beneficiaries \.3 1\.5 Original Components \.3 1\.6 Revised Components \.4 1\.7 Other significant changes \.4 2\. Key Factors Affecting Implementation and Outcomes \.5 2\.1 Project Preparation, Design and Quality at Entry \.5 2\.2 Implementation \.7 2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization \.11 2\.4 Safeguard and Fiduciary Compliance \.12 2\.5 Post-Completion Operation/Next Phase \.13 3\. Assessment of Outcomes \.14 3\.1 Relevance of Objectives, Design and Implementation \.14 3\.2 Achievement of Project Development Objectives \.15 3\.3 Efficiency \.23 4\. Justification of Overall Outcome Rating \.23 3\.5 Overarching Themes, Other Outcomes and Impacts \.24  3\.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops \.25 4\. Assessment of Risk to Development Outcome \.25 5\. Assessment of Bank and Borrower Performance \.27 5\.1 Bank Performance \.27 5\.2 Borrower Performance\.28 6\. Lessons Learned \.29 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners \.32 Annex 1\. Project Costs and Financing\.33 Annex 2\. Outputs by Component \.34 Annex 3\. Economic and Financial Analysis \.44 Annex 4\. Bank Lending and Implementation Support/Supervision Processes \.47 Annex 5\. Beneficiary Survey Results \.49 Annex 6\. Stakeholder Workshop Report and Results \.56 Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR \.57 Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders \.68 Annex 9\. List of Supporting Documents \.69 Annex 10\. Rating of Project Outcome \.70 Annex 11\. PAD and Restructured M&E Indicators \.71 Annex 12\. Map of EGRIP-Supported Community Health Clinics in Saint Lucia \.72 Abbreviations and Acronyms APL Adaptable Program Loan ARV Antiretroviral ASYCUDA Automated System for Customs Data CARCIP Caribbean Communications Infrastructure Program CARICOM Caribbean Community CARTAC Caribbean Regional Technical Assistance Centre CAS Country Assistance Strategy CBS Country-Based Specialist CDB Caribbean Development Bank CIDA Canadian International Development Agency CTU Caribbean Telecommunications Union DFID Department for International Development (UK) ECCB Eastern Caribbean Central Bank e-Government Electronic Government EGRIP E-Government for Regional Integration Project / Program EPPS Electronic Pharmaceuticals Procurement System e-Tax Electronic Taxation EU European Union FY Fiscal (Financial) Year IBRD International Bank for Reconstruction and Development (World Bank) ICB International Competitive Bidding ICT Information and Communications Technologies IDA International Development Association (World Bank) IDB Inter-American Development Bank IDR Inland Revenue Department KPI Key Performance Indicator MOH Ministry of Health MPID Multi-Purpose Identification System NCB National Competitive Bidding NGO Non-governmental Organization NSC National Steering Committee OAS Organization of American States OECS Organisation of Eastern Caribbean States PAD Project Appraisal Document PDO Project Development Objective PFM Public Financial Management PPP Public Private Partnership PPS OECS Pharmaceutical Procurement Service PRIMS Performance of Routine Information Management System RCIS Regional Customs Information System REGU Regional E-Government Unit RDDS Regional Digital Development Strategy RHIS Regional Health Information System RHMIS Regional Health Management Information System RTC Regional Technical Committee SDR Special Drawing Rights SIGTAS Standard Integrated Government Tax Administration System SVG St\. Vincent and the Grenadines TA Technical Assistance TAL Technical Assistance Loan TCO Total Cost of Ownership VAT Value-Added Tax  Data Sheet A\. Basic Information OECS E-Government OECS Countries: for Regional Integration Dominica, Grenada, St Countries: Projects Name: Project in support for Lucia, St Vincent and the EGRIP Program the Grenadines (APL) IDA-44510, IDA- P100635 Projects ID: L/C/TF Number(s): 44520, IDA-44530, P117087 IDA- 46500 ICR Date: 10/22/2014 ICR Type: Core ICR Governments of Dominica, Grenada, St\. Lending Instrument: Series of Projects Borrowers: Lucia, St\. Vincent and the Grenadines Original Total SDR 6\.00M Disbursed Amount: SDR 6\.00M Commitment: Revised Amount: N/A Environmental Category: C Implementing Agencies: At regional level: OECS Secretariat, Regional E-Government Unit (REGU)\. At national level: ICT/E-Government Units in each country, acting as national focal points\. Co-financiers and Other External Partners: Caribbean Development Bank (CDB) B\. Key Dates Revised / Actual Process Date Process Original Date Date(s) 09/01/2008 06/18/2009 Concept Review: 05/02/2007 Effectiveness: 01/15/2010 04/15/2010 03/17/2008 04/19/2012 Appraisal: Restructuring(s): 04/27/2009 07/31/2013 05/27/2008 Approval: Mid-term Review: 10/10/2011 10/17/2011 12/09/2009 06/30/2012 Closing: 02/28/2014 08/31/2013 C\. Ratings Summary C\.1 Performance Rating by ICR Outcomes: Moderately satisfactory Risk to Development Outcome: Moderate Bank Performance: Moderately satisfactory Borrower Performance: Moderately satisfactory C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Moderately Quality at Entry: Government: Moderately satisfactory unsatisfactory Implementing Quality of Supervision: Moderately satisfactory Moderately satisfactory Agency/Agencies: Overall Bank Overall Borrower Moderately satisfactory Moderately satisfactory Performance: Performance: C\.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating Performance (if any) Potential Problem Project Quality at Entry No None at any time (Yes/No): (QEA): Problem Project at any Quality of No None time (Yes/No): Supervision (QSA): DO rating before Moderately Closing/Inactive status: satisfactory D\. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Central government administration 100 100 Theme Code (as % of total Bank financing) Administrative and civil service reform 25 25 Public expenditure, financial management and 24 24 procurement Regional integration 25 24 Tax policy and administration 13 13 Trade facilitation and market access 13 13 E\. Bank Staff Positions At ICR At Approval Vice President: Jorge Familiar Calderon Pamela Cox Country Director: Sophie Sirtaine Yvonne M\. Tsikata Senior GP Director: Pierre Guislain Philippe Dongier Practice/Sector Managers: Randeep Sudan Nick Manning Doyle Gallegos Juan Navas-Sabater Project Team Leaders: Anat Lewin Roberto Panzardi Anat Lewin ICR Team Leader: ICR Primary Author: M Rosa Puech F\. Results Framework Analysis Project Development Objective The overall development objective of the project was to promote the efficiency, quality, and transparency of public services through the delivery of regionally integrated e- government applications that apply economies of scale\. Revised Project Development Objectives The PDO remained unchanged while the key performance indicators (KPIs) were modified twice during the life of the Project (see Annex 11 for a table of KPIs at the PAD, the 2012 and 2013 restructurings)\. (a) PDO Indicator(s) Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years Indicator 1 Average number of days to complete VAT tax filing\. Value 1 day (qualitative or n/a n/a 20-30 minutes quantitative) Date achieved 2011/2012 06/30/2012 07/31/2013 02/28/2014 Comments Achieved\. This indicator was modified in the 2013 restructuring to (incl\. % replace: “Average number of days to prepare the annual budget”\. The achievement) PAD did not include specific targets for the outcome indicators\. These were to be defined after effectiveness through a survey\. The revised targets were not formally included in the restructuring document\. Nevertheless, the M&E consultant hired by the Project and the Bank  agreed on a target of 20 percent\. Average amount of time to process a Pharmaceutical procurement Indicator 2 requisition order\. Value Average of 30 (qualitative or 5 to 7 days n/a n/a minutes quantitative) 07/31/2013 Date achieved 2011/2012 06/30/2012 02/28/2014 Comments Achieved\. This indicator was introduced in the 2013 restructuring\. The (incl\. % PAD did not include specific targets for the outcome indicators\. These achievement) were to be defined after effectiveness through a survey\. The revised targets were not formally included in the restructuring document\. Nevertheless, the M&E consultant hired by the Project and the Bank agreed on a target of 20 percent\. Indicator 3 Number of new e-government applications offered or upgraded under the Project Value 14 (qualitative or 0 15 9 quantitative) Date achieved 2010 06/30/2012 07/31/2013 02/28/2014 Comments Surpassed\. The target for this indicator was modified during the 2013 (incl\. % restructuring\. The systems are: 1 Multipurpose ID system in each achievement) participating country; 1 E-Tax front end filing system in each participating country; 1 regional E-Pharmaceutical Procurement Services System; Upgrade to SmartStream in each country; Implementation of the HIS system in Dominica\. Indicator 4 Quality measured through focus groups by end users of the following three systems: Procurement System for PPS, Tax e-filing System and Multipurpose Identification (MPID) System\. Value EPPS – 9 (qualitative or N/A N/A N/A E-Tax- 8 quantitative) MPID- 8 Date achieved 2008 06/30/2012 07/31/2013 02/28/2014 Comments Achieved\. This indicator was modified during the 2013 restructuring to (incl\. % replace: “Quality measured through focus groups by end users of the achievement) following three systems: Public Financial Management System, Regional Customs Information System and MPID System”\. Focus groups carried out before project closing\. See Annex 5 for detailed description of outcomes\. Values are average based on a 10-point scale system with 1 Poor and 10 Excellent\. Indicator 5 Online publication of Pharmaceutical procurement awarded contracts\. Value 0 n/a n/a 19 (qualitative or quantitative) Date achieved 2011/2012 06/30/2012 07/31/2013 02/28/2014 Comments Achieved\. This indicator was introduced in the 2013 restructuring to (incl\. % replace: “Creation of four national Public Finance Management websites achievement) with open and transparent PFM data sets”\. The outcome reflects 4 contracts from the antiretroviral (ARV) procurement cycle and 15 contracts from the general drugs medical supply cycle\. Indicator 6 Publication of an OECS e-government regionally harmonized legislation bill by the first quarter of 2012 approved by the OECS Authority\. E-Government harmonized legislation Publication of Publication approved by the Value OECS the of the (qualitative or 0 Authority in quantitative) harmonized harmonized January 2012 legislation\. legislation\. and published in the OECS Secretariat website\. Date achieved 2008 06/30/2012 07/31/2013 02/28/2014 Comments Achieved\. This indicator was introduced in the 2013 restructuring to (incl\. % replace: Establishment of Regional E-Government Desk at the OECS achievement) Secretariat, hiring of the Senior E-Government Specialist to staff the desk, design a business plan for sustainability of the regional e-government desk are completed”\. (b) Intermediate Outcome Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Regional consensus by OECS countries on a CARICOM e-Government Indicator 1 Strategy, to which OECS countries have contributed, is reached through OECS country agreement to the strategy reports at CARICOM meetings\. Value (qualitative or 0 1 1 1 quantitative) Date achieved 05/28/2008 06/30/2012 08/31/2013 02/28/2014 Comments Achieved\. A regional eGovernment Strategy lead CARICOM, with the (incl\. % partnership of CARICAD, and entitled “Improved Government\. Better achievement) Service: CARICOM eGovernment Strategy 2010-2014” was adopted by EGRIP participating countries through OECS country agreement\. Indicator 2 Publication of OECD e-government regionally harmonized legislation by first quarter of 2012 approved by the OECS Authority\. Set of legislation approved by the OECS Authority (body of Prime Value Ministers and (qualitative or 0 1 1 Chief Ministers quantitative) for the OECS) in January 2012\. Publication in the OECS Secretariat website\. Date achieved 05/28/2008 06/30/2012 08/31/2013 02/28/2014 Comments Achieved\. The harmonized legislation can be found at (incl\. % http://www\.oecs\.org/publications/cat_view/205-egrip-publications/206- achievement) oecs-harmonized-e-government-legislation\. This indicator was included in the 2012 revision of Key Performance Indicators as an intermediate indicator and included as an outcome indicator in the 2013 restructuring\. Indicator 3 Definition and publication of regional e-government standards, enterprise architecture, interoperability framework\. Published in the OECS Secretariat website: (i) the e- government harmonized legislation, (ii) regional e- government Value Consultancies Consultanci standards, (iii) (qualitative or 0 done and es done and enterprise quantitative) published published architecture, interoperability framework and (iv) total cost of ownership documents\. Date achieved 05/28/2008 06/30/2012 08/31/2013 02/28/2014 Comments Achieved\. These documents are available at: (incl\. % http://www\.oecs\.org/publications/cat_view/205-egrip-publications/207- achievement) oecs-regional-e-government-standards-enterprise-architecture-and- interoperability-framework Indicator 4 Regional consensus by EGRIP countries on the approval of the new institutional framework is reached at an EGRIP meeting\. Value Consensus Consensus (qualitative or 0 Consensus quantitative) reached reached reached Date achieved 05/28/2008 06/30/2012 08/31/2013 02/28/2014 Comments Achieved\. A consultancy explored different options for the institutional (incl\. % framework for e-government\. Participating countries agreed on the achievement) preference for a Regional e-Government Center of Excellence, creating an interim e-Government desk that could evolve into the Center of excellence\. After Project completion, the OECS Secretariat was moving forward to implement the ICT/E-Government Desk and had hired an e- government specialist for three months\. Indicator 5 Detailed design and implementation of a multipurpose ID system (MPID) linked to core user agencies, including issuance of ID numbers\. 5 MPID system successfully designed, delivered to and installed in all 4 countries\. The Value systems started (qualitative or 0 4 8 to operate in all quantitative) four countries with tests groups of population\. MPID system linked to 2 core agencies in Dominica\. Date achieved 05/28/2008 06/30/2012 08/31/2013 02/28/2014 Comments Partially Achieved\. This indicator awards two points to each country (incl\. % (giving a total of 8 points) that has successfully implemented the achievement) multipurpose ID system (one point) and connected it to between two core user agencies (e\.g\. Civil Registry and Electoral Office) (one point)\. St\. Lucia foresees to have carried out the interface with two agencies by July 1, 2014; St\. Vincent had successfully connected the MPID with the civil registry and will connect in the electoral and health systems in the near future\. Grenada is working to complete interfaces with the civil registry  and the National Insurance System\. Indicator 6 Percentage of population in participating EGRIP countries covered in the MPID Value 40% 10% per (qualitative or 0 See below\. quantitative) regionally country Date achieved 05/28/2008 06/30/2012 08/31/2013 02/28/2014 Comments Not achieved\. The MPID system had started to be rolled out in all for (incl\. % countries between November 2013 and February 2014\. This explains the achievement) lower than agreed percentage of population enrolled in the system or that the actual enrollment of citizens has not yet started but there has been progress towards the roll out of the system by the time of this ICR\. Enrollment in the system is expected to continue and increase beyond the ICR timeframe\. Dominica: 7\.82%; Grenada: 0\.8%; St\. Lucia: Roll out of civil servants started by ICR end and St\. Vincent and the Grenadines: Enrolment has not yet been initiated, pending Cabinet approval\. Indicator 7 Completion of standard PFM reports and SmartStream operating procedures in each country Value 3 (qualitative or 0 n/a 4 Dominica, St quantitative) Lucia, Grenada\. Date achieved 05/28/2008 06/30/2012 08/31/2013 02/28/2014 Comments Partially achieved\. This indicator replaced “Completion of e-government (incl\. % service upgrades to the Public Financial Management System, as well as achievement) interfaces with other systems”\. By the project closing date, Dominica, Grenada and St Lucia were successfully applying the application upgrade, implementing the SmartStream Reporting Module\. In the case of SVG, the reports for the HR Module were created, but data could not inputted before Project completion\. Caribbean Development Bank is providing resources to buy equipment and to hire staff to upload the data that will allow testing the HR module\. Indicator 8 Number of people trained in generating standard SmartStream reports Dominica- 6 Grenada -4 Value St\. Lucia-16 (qualitative or 0 n/a 19 St\. Vincent and quantitative) the Grenadines- 3 Date achieved 05/28/2008 06/30/2012 08/31/2013 02/28/2014 Comments (incl\. % Surpassed\. This indicator was introduced during the 2013 restructuring\. achievement) Indicator 9 Tax declarations filed online through the tax e-filing system as a percentage of total tax declarations filed (VAT)  St\. Lucia: 15\.47% St\. Vincent and the Grenadines: 30% Value Grenada: 140 (qualitative or 0 10% 10% VAT quantitative) declarations submitted online\. Dominica: 36 VAT filing returns online\. Date achieved 05/28/2008 06/30/2012 08/31/2013 02/28/2014 Comments Achieved\. Dominica and Grenada had not submitted information on the (incl\. % percentages of VAT declarations online by the time of ICR completion\. achievement) Indicator 10 Number of new suppliers registered through Electronic Procurement for Pharmaceutical System (EPPS) Value 21 new 10% (qualitative or 0 N/A suppliers quantitative) registered Date achieved 05/28/2008 06/30/2012 08/31/2013 02/28/2014 Comments Achieved\. This indicator replaced “Increase in the volume of transactions (incl\. % of OECS Pharmaceutical Procurement Service E-tendering System” in the achievement) 2013 restructuring\. New suppliers refer to those suppliers who registered for the first time in the EPPS, though they could have participated previously in PPS\. Indicator 11 Reduction of administrative cost of OECS Pharmaceuticals procurement Value (qualitative or 56 days n/a n/a 23 days saved quantitative) Date achieved 05/28/2008 06/30/2012 08/31/2013 02/28/2014 Comments Achieved\. This indicator replaced “Reduction in the cost of (incl\. % pharmaceuticals procured” in the 2013 restructuring\. A target percentage achievement) number was not included at restructuring\. The PPS at the OECS Secretariat estimated a reduction of costs by saving 23 days of administrative work, through the use of the EPPS\. It estimated a cost of $75 per day (Unit-cost\. See Annex 3)\. Indicator 12 Implementation of an open source Health Information System (HIS) in Dominica Value 0 n/a 1 (qualitative or 1 quantitative) Date achieved 05/28/2008 06/30/2012 08/31/2013 02/28/2014 Comments (incl\. % Achieved\. This indicator was added during the 2013 restructuring\. achievement) G\. Ratings of Project Performance in ISRs Actual Date ISR No\. DO IP Disbursements Archived (USD millions) 1 11/22/2008 Satisfactory Satisfactory 0\.00 2 06/24/2009 Satisfactory Satisfactory 0\.00 3 12/04/2009 Satisfactory Satisfactory 0\.54 4 06/29/2010 Satisfactory Satisfactory 0\.54 5 02/27/2011 Moderately Satisfactory Moderately Satisfactory 0\.85 6 07/05/2011 Moderately Satisfactory Moderately Satisfactory 1\.28 7 02/12/2012 Moderately Satisfactory Moderately Satisfactory 1\.85 8 09/30/2012 Moderately Satisfactory Moderately Satisfactory 2\.19 9 06/20/2013 Moderately Satisfactory Satisfactory 6\.30 10 02/12/2014 Moderately Satisfactory Satisfactory 6\.93 P117087 Actual Date ISR No\. DO IP Disbursements Archived (USD millions) 1 03/06/2010 Satisfactory Satisfactory 0\.00 2 02/27/2011 Moderately Satisfactory Moderately Satisfactory 0\.28 3 07/11/2011 Moderately Satisfactory Moderately Satisfactory 0\.41 4 02/12/2012 Moderately Satisfactory Moderately Satisfactory 0\.61 5 11/04/2012 Moderately Satisfactory Moderately Satisfactory 0\.97 6 08/06/2013 Moderately Satisfactory Satisfactory 1\.75 7 02/12/2014 Moderately Satisfactory Satisfactory 2\.31 H\. Restructuring (if any) ISR Ratings at Amount Board Restructuring Disbursed at Restructuring Reason for Restructuring Approved Restructuring Date(s) & Key Changes Made PDO Change DO IP in USD millions (i) Modify the Project’s indicators to align them 04/19/2012 No MS MS 2\.40 with the Project’s outcomes and outputs; and  (ii) Extension of the closing date of the Credit Agreements for Dominica, Grenada and St\. Lucia to August 31 2013 to align them with St Vincent and accommodate the closing date to the completion of activities for the two projects\. The Project was restructured to (i) extend the closing date of all credits by six months; (ii) drop selected activities 07/31/2013 No MS S 4\.68 and reallocate their funding to other ongoing activities under the Project; and (iii) adjust the M&E to reflect these changes\. I\. Disbursement Profile 1\. Project Context, Development Objectives and Design This ICR covers a horizontal APL program that is composed of two lending projects (P100635 and P117087) of different start dates, covering four countries (St\. Lucia, Grenada, St\. Vincent and Dominica; four IDA credit numbers) and two restructurings, one of which included an extension of the first project to align its closing date with the second project\. The funding between the countries and projects varies slightly\. Facilitating the analysis in this ICR is that once the second project was approved, the two projects were managed as one, with virtually all pooled procurement, one management structure, one implementation process, one disbursement and FM process, and one reporting structure, until project closing\. This ICR follows a split evaluation before and after restructurings, and the analysis for sequencing, financing, disbursement, ratings and overall assessment are of the program as a whole\. 1\.1 Context at Appraisal 1\. At the time of appraisal, OECS countries 1 were facing a number of common challenges, in a context of increasing global competitiveness\. They had high fiscal imbalances and debt ratios, while being exposed to external shocks as small island developing states\. OECS countries were focusing on new sources of growth to reduce vulnerability\. Similar to small states in other regions, OECS countries embraced an approach that emphasized improved governance, public sector modernization and enhanced regional integration\. The countries were looking into how to reinvigorate and sustain growth, reduce high unemployment, lower the poverty rate, restore fiscal and debt sustainability, diversify their economies and secure a sustainable external position\. 2\. Public sector modernization was identified as key to improving efficiency and competitiveness in the region\. Up to then, the public sector had focused on controlling inputs and compliance of rules, rather than on quickly and effectively delivering expected outputs2\. 3\. OECS countries’ public sector strategy at the time placed emphasis on using Information and Communication Technologies (ICT) to improve internal efficiency, delivery of public services, coordination among agencies and transparency and accountability of the public sector, with the overall objective of contributing to regional integration\. Selected OECS countries (Grenada, Dominica and St\. Lucia and St\. Vincent) 1 The OECS has a membership of 9 states: Grenada, Anguilla, Antigua and Barbuda, The British Virgin Islands, Dominica, Montserrat, St\. Kitts and Nevis, St\. Lucia and St\. Vincent and the Grenadines\. 2 OECS Institutional and Organizational Capacity Review of the Core Public Sector (IOCR)\. The public sector was perceived as inefficient and poorly managed\. Citizens deemed the quality of selected public services as unsatisfactory\. This was due to institutional deficiencies, weak accountability and ineffective enforcement mechanisms\. 1 had already been working in the direction of public sector reform with support from the EU and CIDA\. 4\. The Electronic Government Regional Integration Project (EGRIP) consisted of two projects: the first one, financed by three credits, included three OECS countries: Dominica, Grenada and St\. Lucia\. The second project was financed by a credit to St\. Vincent and the Grenadines\. EGRIP was conceived as a horizontal and a vertical Adaptable Program Loan (APL)\. On the horizontal axis, it started with three of the countries, followed by St\. Vincent\. On the vertical or temporary axis, the program was structured in two phases\. The first one corresponded to the project evaluated in this ICR\. The second phase was expected to expand the regional e-Government program into other sectors\. EGRIP was an innovative project, the first regional ICT project supported by the Bank for small island states\. 1\.2 Original Project Development Objectives (PDO) and Key Indicators 5\. The PDO was to promote the efficiency, quality and transparency of public services through the delivery of regionally integrated e-Government applications that would take advantage of economies of scale\. 6\. The PAD included the following general key performance indicators (KPIs) to measure the achievement of the PDO: ï‚ Government financial savings in areas such as public financial management, tax administration, customs and procurement due to new e-Government systems; ï‚ Estimated users’ time and cost-savings; ï‚ Increase in the number of electronic transactions processed by regional e- Government applications; ï‚ Increase in e-Government services offered or upgraded; ï‚ Improvement of ratings in areas of functionality, accuracy and usability of e- Government services as reported by users through satisfaction surveys; ï‚ Improvement of ratings in areas of openness and access to relevant information, as reported by users through satisfaction surveys; ï‚ New regional institutional framework is created with adequate capacity to provide new regionally integrated e-Government services, in accordance with regionally harmonized policies and regulations\. 7\. The PAD indicated that specific parameters of indicators and baseline values were to be determined and collected shortly after Project effectiveness through a study funded by the Project\. 1\.3 Revised PDO and Key Indicators, and reasons/justification 8\. The PDO remained unchanged while the key performance indicators were modified twice during the life of the Project\. The key performance indicators were formally revised in April 2012, after the mid-term review, to adjust a number of the original PAD 2 indicators that did not reflect the evolution of the Project\. The revised KPIs were the following: ï‚ Average number of days to prepare annual budget; ï‚ Regional health information system and regional customs information system are installed and operational; ï‚ Number of new e-Government applications offered or upgraded under the Project; ï‚ Quality measured through focus groups by end users of the public financial management, regional custom information and Multi-purpose ID systems; ï‚ Creation of 4 national PFM websites with open and transparent PFM data sets; and ï‚ Establishment of Regional E-government desk at OECS Secretariat, hiring of the senior E-government specialist, design the business plan for sustainability of the E-government desk\. 9\. In June 2013, the Key Performance Indicators were revised as part of the Project’s restructuring to reflect the changes to the Project’s scope (see section 1\.7 below) and to better assess the achievement of the PDO: ï‚ Average number of days to complete the VAT filing; ï‚ Average amount of time to process a Pharmaceuticals procurement requisition order3; ï‚ Number of new e-Government applications offered or upgraded under the project; ï‚ Quality measured through focus groups by end users of the e-Tax, e-Procurement and Multipurpose Identification Systems; ï‚ Online publication of Pharmaceutical procurement awarded contracts; ï‚ Publication of an OECD e-Government regionally harmonized legislation bill by first quarter of 2012 and approved by the OECS authority\. 1\.4 Main Beneficiaries 10\. The Project aimed to benefit citizens, businesses, consumers and the public sector as a whole in the participating countries\. 1\.5 Original Components 11\. The Projects had the following components: Component 1-Horizontal E-Government Interventions (US$3\.54 million)\. This component aimed to strengthen and harmonize national and regional e-Government processes, operational ICT platforms and frameworks; to promote more efficient regionally-based ICT developments and strengthen capacity, and to provide an enabling 3 “The process quantified is the time from the requisition to be ordered by a country, to the successful procurement under the system” 3 environment to achieve Public Administration objectives in a globally competitive context to better serve citizens, business and consumers in the region\. It had five subcomponents: (i) Policy and Strategy Implementation; (ii) Legal and Regulatory Framework Implementation; (iii) ICT standards and Total Cost of Ownership Optimization; (iv) Regional E-Government Institutional Framework Strengthening; and (v) Automated Registries and Multi-purpose Identification Systems\. Component 2-Vertical E-Government Interventions (US$4\.93 million)\. This component aimed to harmonize and improve key e-Government systems by focusing on specific interventions in core areas of public finance\. It had the following sub- components: (i) E-Government in Public Financial Management; (ii) E-Government in Tax Administration; (iii) E-Government in Customs; (iv) Electronic Government Procurement; and (v) E-Government in Health and Other Social Productive Sectors\. Component 3-Project Management (US$650,000)\. This component would finance the creation of the Regional E-Government Unit (REGU) directed by a Project Manager\. The REGU would include specialized staff located in the agencies identified in each country as focal points for the project\. 12\. A total of US$480,000 (5 percent of total project cost) was unallocated to allow for flexibility in complementing activities under the Project\. This amount was later required to offset the SDR exchange rate deficits\. 1\.6 Revised Components 13\. The Project components were not modified, although some activities were dropped as explained in section 1\.7\. 1\.7 Other significant changes 14\. In April 2012, there was a restructuring to: (i) extend the closing dates of the Credit Agreements for Dominica, Grenada and St\. Lucia to August 31 2013, to align them with the closing date of the St Vincent and the Grenadines Credit; and (ii) to revise the KPIs deemed too broad, ambitious or difficult to attribute to the project\. In June 2013, the two Projects were restructured in order to achieve the PDO by: (i) extending the closing date of all credits by six months; (ii) canceling some activities foreseen in the PAD and reallocating funds to ongoing activities; and (iii) adjusting the KPIs to reflect these changes\. The cancellation of activities was due to: ï‚ The need to prioritize among the major e-Government systems to be financed by the Project, due to costs being significantly higher than foreseen at appraisal\. The e- Government application for the preparation of the national budget was dropped due to its high cost; the estimate had been US$300,000, while the lowest negotiated price resulting from the procurement process was US$2\.2 million\. Further discussion of the disparity between appraised and actual costing is in the ICR’s Implementation section\. 4 ï‚ Unsuccessful procurement processes due to the lack of bidders or inadequate offers that did not meet the required criteria\. The hiring of the e-Government specialist at the OECS Secretariat was dropped due to the lack of candidates\. The Customs application was cancelled due to two unsuccessful procurement procedures and inadequate time remaining to conduct another round\. ï‚ Activities being carried out with alternative financing or expected to be financed with alternative resources, such as the development of PFM websites and related hardware (the countries had in the interim acquired those); the acquisition of software additions to SmartStream 4 ; and activities related to harmonization of policies and strategies under subcomponent 1\.1\. ï‚ Activities having been carried out by one of the countries, then shared the product and its adaptation with the other countries\. The interfaces between the main financial system (SIGTAS) to SmartStream and from the main customs system - ASYCUDA World - to SIGTAS, were developed by Dominica and shared with the other countries\. The development of a manual of the PFM system was dropped, as it could be subsumed under another consultancy (for development of standard PFM reports and Smart Stream Operating Procedures), also financed by the project\. ï‚ Activities that the countries ultimately did not consider themselves ready to tackle regionally, but decided to strengthen the national systems first, such as in the case of the e-Government in Health application, for which the Project had envisaged a Regional Health Integration System (RHIS)\. ï‚ The June 2013 restructuring was undertaken after it was decided at MTR, based on a decision by the project’s Regional Steering Committee (with representatives at Permanent Secretary level) to ascertain the true (not appraised) price of the components by completing the procurement process of each component and enabling an informed prioritization of the activities\. The Bank received the last of the official requests for the restructuring from the four countries in June 2013, at which point the restructuring had been fully prepared, and could be formally processed\. Had additional funds been available under the project, a better approach may have been extend the project for a longer timeframe, and allow it to benefit from another year, given its complexity, regional nature and innovation\. 2\. Key Factors Affecting Implementation and Outcomes 2\.1 Project Preparation, Design and Quality at Entry 4 SEMCAR (Supporting Economic Management in the Caribbean was a Canadian grant for Cdn$20 million to support reforms in Tax, Customs, Public Financial Management and related ICT areas in 12 Caribbean countries\. IN 2012-2013, SEMCAR was providing support to the OECS countries in negotiating a regional Enterprise for the SmartStream application\. 5 15\. Regional approach informed the overall design\. Advancing regional integration was at the top of the OECS agenda at the time of preparation in 2007\. A regional approach to e-Government was seen as a way to reap the benefits of economies of scale\. It was projected that the participating countries, which were participating in the formation of an Economic Union in the Eastern Caribbean, would benefit from harmonizing legislation and implementing common e-Government services\. This was at the core of the Project’s design as a horizontal APL and at the definition of regional implementation arrangements, with a regional body - the OECS Secretariat - as the implementing agency\. The Bank used a regional IDA envelope to help finance the Project\. 16\. Lessons were taken into account at the time of preparation\. The importance of considering a gradual approach and the limited institutional capacity in small states were considered at design\. Recommendations from the Country Partnership (CPAR) for the OECS States and the Public Sector Modernization project for Grenada informed design regarding the main areas to be reformed\. E-government experiences from other countries, where available, were considered in the design5\. 17\. Preparation was participatory at national and regional levels\. Two workshops in February and May 2007 were carried out to inform the Project’s design\. In advance of the workshops, stakeholders at the national levels defined the priority areas of intervention from their countries’ perspective\. These priorities were discussed and matched during the workshops\. The preparation team consulted with the OECS Secretariat to gather information on the regional priorities\. Consultations with the private sector were carried out to support efforts to cost the project\. While estimating the cost of equipment was feasible at the time of appraisal, it was a challenge to cost the systems, as there were no precedents, comparisons and references for regional implementations\. It was assumed that there would be payment for one regional license (rather than four) and project design assumed the OECS Secretariat as the buyer\. Project credits, however, were given to the countries per Bank standard practice\. 18\. The innovative nature of the Project combined with relatively short preparation time, given the scope of the Project\. At the time of preparation, EGRIP was a highly innovative project, both in its subject matter in that it was a pioneering e-Government project at the Bank, and in that no other e-Government lending project had been regional before, or since\. It included activities, such as the regional MPID system, for which there were few international examples to draw on\. This influenced the difficulties to accurately cost the Project activities\. The project would have benefitted from a longer preparation time (a year from PCN approval to appraisal), given the broad scope and pioneering nature of its activities\. However, the Bank attempted to prepare the Project in time to be able to access a regional envelope of IDA credit that otherwise would have expired\. This 5 Operational experience in Grenada showed the importance of taking a strategic and incremental approach to public sector modernization\. The Project’s design focused on addressing primarily the core finance area and attempting to achieve economies of scale through regional cooperation\. Moreover, the Project was conceived as a two-phase APL to allow for flexibility to coordinate with donors and allow for longer adjustment periods\. 6 led to a trade-off between the benefit of longer preparation time and that of leveraging regional IDA credits for the project\. 19\. Assessment of risks was adequate\. The PAD highlighted the Project’s complexity and the capacity of the participating institutions to coordinate across countries and agencies as substantial risks\. Procurement and financial management were identified as high risks as well\. Mitigation measures were included in the design of the Project to address these risks\. These were overall adequate to manage the risks, in particular for procurement and financial management\. 20\. In spite of the above, the Project’s quality at entry is rated as Moderately Unsatisfactory\. The main reason for this rating is that the Project was not fully prepared at the time of approval\. Project preparation was affected by a lack of adequate level of funds for preparation\. The Project did not benefit from a Project Preparation Facility (PPF) to finance gap analyses, needs diagnoses and activity-defining consultancies during preparation\. This translated into broadly defined activities and selected M&E indicators that did not have specific parameters, baselines or targets\. As part of its first year activities, the Project financed, after effectiveness, a significant number of consultancies to better define the scope of the components and produce technical specifications\. A PPF could have undertaken some of these consultancies and brought the REGU team, including the project manager, on board before effectiveness\. The Project design was also too ambitious in terms of the scope of activities included in the PAD, given the available resources to finance activities\. The costing of the major e-Government systems was underestimated at appraisal\. While accurate estimates of the cost of equipment were feasible, it was a challenge to appraise the regional e-Government systems\. The broad project scope was carried out with the assumption that that there would be good potential for economies of scale and that savings would be realized through a regional approach\. While these assumptions were partly realized, they turned out to have been optimistic\. 2\.2 Implementation Factors that negatively affected implementation 21\. Delays in starting the Project\. The Project experienced a 13-month delay between approval (May 2008) and effectiveness (June 2009) due to processes required to be completed by each of the participating countries\. During that time, the lack of a PPF prevented proceeding with some activities, which would have otherwise allowed for a faster implementation pace after effectiveness\. The hiring of the Project Coordinator and team by the OECS Secretariat formed part of these delays\. The Regional e-Government Unit (REGU)’s team was hired, trained and ready for implementation in June 2010\. 22\. Limited resources to finance all Project activities included in the PAD\. Given the broad scope of activities included in the PAD, the implementation team and the Bank realized that there was a shortage of resources available to finance the full content of the PAD\. Early in implementation (2010), the Project management sought additional funds from the CDB for all four countries, which per CDB guidelines also included St\. Kitts and Nevis and Antigua and Barbuda\. A CDB grant of US$2\.5 million was approved in 7 2010 and started disbursement in 2012, supporting activities under Component 1: (a) 1\.3 ICT standards and the Total Coast of Ownership Optimization and (b) 1\.4 Regional e- Government Institutional Framework Strengthening; and project management\. In addition to this initial shortfall, as the activities and systems were being procured in 2012, the cost of the major e-Government systems was found to be significantly higher than appraised and budgeted\. After the mid-term review, priorities among Project activities had to be defined (see section 1\.7) and there was a need to restructure the Project to reduce the number and scope of activities\. Finally, the evolution of the exchange rate SDR/$ negatively affected the availability of project resources, at times reducing the budget by over half a million dollars\. 23\. Procurement was challenging\. Procurement processes were challenging throughout the life of the Project due to several factors: (i) limited capacity of local firms and individual consultants; (ii) lack of attractiveness to international firms due to size, scope and budget of activities in the Caribbean; (iii) lack of firms’ knowledge of the Bank’s procurement rules and documents; (iv) delays in obtaining feedback and responses from stakeholders for non-objections, comments and approvals; and (v) lack of specialized procurement training and detailed proactive guidance from the Bank for the large IT systems\. The REGU invested significant time and efforts in resolving challenges and driving the procurement processes forward, with Bank support\. It split goods packages into lots, based on the capacity of the local firms to enable their participation and to target suppliers; the Bid security requirement was replaced by a security bid-declaration to reduce the financial and logistical challenges on the firms and there was wide and multiple advertisement in the region, at times directly to firms, to prevent the multi- country procurement processes from being deserted\. The Project Management team put much work into the preparation of procurement processes, which was time consuming\. Despite the challenges, the procurement processes for all components were carried out, to identify the costs of the systems\. After the cost of all e-Government systems was known, choices were made as to which systems to prioritize and finance\. 24\. Countries’ slow pace of response to REGU\. It took long periods of time to obtain responses, feedback and sign-offs from stakeholders in the participating countries\. This was due to the multiple institutions involved in the different areas of the Project across four countries and the eagerness of countries to get e-Government systems with Project support rather than consultancies, which were often viewed as not providing tangible results\. The Project financed a significant number of consultancies during its first years of implementation (2010-2011), as foreseen in the PAD\. These were key for: (i) providing detailed diagnostics of the countries contexts and systems; (ii) carrying out consultations with stakeholders; (iii) defining the systems and preparing technical specifications to launch the procurement processes and ascertain the actual market cost of the systems; and (v) creating consensus among the participating countries\. For example, the MPID consultancy included a consensus-building workshop for multiple agencies across the four countries, including civil registries, electoral offices, police, and other agencies\. The countries were, at times, dismayed by the length of time needed to get the much- anticipated systems\. 8 25\. Higher than estimated cost of e-Government systems\. The procurement processes carried out during 2012 showed that the cost of equipment was along the original PAD estimates, while the cost of the systems was much higher than expected\. Firms looked at the relationship with each participating country as a separate one and cost each implementation separately, rather than providing a volume discount for pooled procurement\. Offers proposed by vendors during contract negotiations exceeded the estimated budget available for some of the larger e-Government systems\. Pertinent examples are provided in the table below\. e-Government Application Procurement Plan Lowest Negotiated Price Estimate at after Competitive Negotiation (US$) Procurement Process (US$) Multi-Purpose ID System $0\.95 million $3\.14 million Software for National Budget $300,000 > $ 2\.2 million Preparation e-Tax Filing System $1\.05 million $1\.5 million Electronic Procurement of $440,000 $526,000 Pharmaceuticals System 26\. Except for the EPPS, which was implemented as a single regional instance managed by the OECS Secretariat, implementations and training for the e-Tax filing system and the MPID system were undertaken at four country-levels\. Firms perceived the systems as four separate implementations, and this reduced the expected savings through economies of scale\. Given the size of these economies, there was little room for negotiation with the private firms and the Bank could not influence this situation to a greater economic advantage to the participant countries\. This led to a restructuring in June 2013 that canceled activities and reallocated funds among prioritized e-Government systems\. 27\. Challenges in the roll out and use of the MPID system: There were numerous challenges to roll out the MPID system in the four countries before Project completion\. Once the system was installed and operational acceptance was granted (November 2013), countries needed to define their strategies for deploying the system, introduce the ID cards and decide on the systems with which it would interface\. Several challenges surfaced within each country\. In St Lucia, there were problems in creating an MPID vetting unit, to find a space to locate it, and staff it\. A strategy for enrollment and issuance of cards was developed shortly after Project closure, and kick-started the system’s roll out\. There were bottlenecks at the civil registry related to the reliable and timely issuance of source documents that are critical to enrollment, such as the provision of marriage and birth certificates\. In the case of Grenada, the governance committee created to provide guidance to the Ministry of ICT ceased to meet in June 2013, failing to provide the guidance on rolling out and implementing the system\. The focal point switched from the Civil Registry to the ICT Ministry\. This Ministry lacked previous experience and trained staff to administer such a system\. There were challenges to define registration and issuance locations before Project closure\. In St\. Vincent, the vetting, 9 verification and reconciliation of identity were a challenge while the system was being rolled out\. Factors that contributed positively to implementation 28\. Implementation arrangements worked well and were key to achieving the PDO\. At the regional level, two institutions were created to implement the Project\. The Regional e-Government Unit (REGU) was created at the OECS Secretariat to manage the Project’s implementation\. Additionally, a Regional Technical Committee (RTC) was created to provide overall policy guidance to the REGU and to define priorities\. The RTC was comprised of country representatives at the level of Permanent Secretary and representatives of the OECS Secretariat\. At national level, Country Based Specialists (CBSs) were hired as members of REGU to support implementation in each of the participating countries\. Each country had a focal point (an ICT or e-Government unit representative), providing assistance to REGU to implement the Project\. The collaboration of the national and regional levels was successful, even if time consuming, in implementing the project with a regional focus while integrating national priorities\. 29\. Strong Project Management consistently advanced Project implementation\. The REGU displayed strong leadership in implementing the Project\. It worked closely with the countries, through the CBSs, to obtain stakeholders’ responses and perspectives in an effort to shorten feedback time\. CBSs presented summaries of the consultancy reports to stakeholders, and elicited feedback in these presentation meetings, rather than waiting for feedback on the consultants’ at times lengthy analytical reports\. The REGU implemented a strategy to negotiate on contracts as part of the procurement process and secure more value for money (i\.e\. by extending the systems guarantees for a year, after the systems were given to the countries)\. The REGU showed strong resourcefulness to operationalize the systems, in light of lack of or delays in passing the requisite e-Government harmonized legislation (i\.e\. the REGU used consent forms from individuals in the absence of passed legislation on fingerprints to start using the MPID system)\. The REGU took the initiative to bring in CDB grants to complement the IDA credits to achieve the PDO\. The REGU, in the framework of the implementation arrangements, carried out consensus building, fostered ownership of the Project in each participant country, while being guided by the regional focus of the Project\. For example, a workshop in September 2011 discussed and defined the concept and requirements of the MPID system across a myriad of agencies in four countries, and found consensus before moving forward\. 30\. Scope of activities adapted to the countries’ priorities and needs (national diversity within a regional project)\. While emphasizing the regional nature of EGRIP, the Project sought to adapt to the countries’ realities and needs\. In the case of the MPID system, Dominica, use the MPID system to enhance the electoral registration, which fostered greater acceptance of the system in this country\. St\. Vincent and the Grenadines focused on the use of the MPID system for the modernization of the business and civil registries, since the electoral office had been implementing a new ID card\. Quick win projects were introduced to achieve country-specific reforms and achieve: in St\. Lucia, the Project financed the Government’s online portal, and Dominica opted for the 10 implementation of an open source Health Information System (HIS), as a preparation for its future participation in a regional HIS\. 31\. The Project adjusted to the changes in context after preparation\. As mentioned in section 1\.7, selected activities were canceled to adjust to changes in the implementation context\. This was the case with the strategic review and update of national and regional OECS e-Government strategies, which became unnecessary6\. Countries had defined their national ICT strategies, and CARICOM had carried out work to define the Regional Digital Development Strategy (RDDS)\. Other activities were dropped to adjust to budget shortfalls (i\.e\. activities related to PFM and e-customs)\. The institutional framework at regional level favored by the countries (the Regional e-Government Center of Excellence for which the countries agreed to establish the e-Government desk at the OECS Secretariat) was not implemented due to the challenges of hiring an e-Government specialist, after two unsuccessful rounds of bids and afterwards, to financial constraints\. The OECS Secretariat intends to set up the e-Government desk after Project completion\. 2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization Design 32\. The Project’s original results framework was Moderately Unsatisfactory before restructuring; and Moderately Satisfactory after both restructurings\. A few of the original PAD indicators didn’t include definition, baselines and targets, and it was indicated that these would be clarified with the completion of analytical consultancies in the first year of the project\. A consultant was hired in mid-2010 to carry out a baseline exercise, completed by August 2010, to gather information at the beginning of the Project\. 7 Through this exercise, baseline values were defined, where possible, for the original PAD indicators, through surveys and a desk review\. The PAD mentions a budget for the M&E results surveys, but resources were not allocated for this task and surveys could not be undertaken\. 33\. The M&E framework evolved, as reflected in the 2012 and 2013 restructurings, to introduce revised and new outcome indicators, to ensure the monitoring and evaluation of the project and better monitor the Project’s achievements, and was finalized towards the end of the Project’s implementation\. While steps were carried out to successfully define the M&E framework, the fact that the indicators were finalized and data collected at a 6 The countries no longer required it because of (i) the existence of National ICT Policy and Strategies (ii) the 2010-2014 CARICOM E-government Strategy and (iii) the CARICOM regional Digital Strategy\. Page 19 of the SLU CBS report\. SVG completed its National ICT Policy, Strategy and Action Plan 2010-2015, supported by the EU Special Framework of Assistance (SFA) 2005 and an E-Government Development Strategy\. The Draft CARICOM E-government 2010-2014 and the CARICOM Regional Development Strategy 2011-2014 were completed as well\. 7 11 later stage contributed to not using the M&E online dashboard developed under the project\. Implementation 34\. The REGU regularly carried out the monitoring and evaluation of the Project\. Progress monitoring reports were prepared quarterly, with financial and procurement information to follow the physical and financial progress of the Project\. Information to update outcome and intermediate outcome indicators was regularly gathered, with support of the CBSs, whenever it was available\. Indicators were changed to better measure the progress towards the PDO in light of the prioritization of activities within the Project\. An M&E online dashboard (a web-based M&E system) intended to be used to monitor this Project was financed by the Project\. The REGU and specifically the M&E consultant provided initial information and participated in the acceptance of the system\. The system was given to each participant country and staff was trained on its use\. The system was tested and worked with several browsers, but it showed some limitations with all of them except for one\. Focus groups were carried out before Project completion to gather information towards the achievement of outcomes\. This exercise was led by REGU, specifically by the M&E consultant\. The focus groups gathered information on quality, user satisfaction and functionality of the e-Government systems supported by the Project (e-Procurement, MPID and e-Tax system)\. Participants included stakeholders who had interaction with the systems, both internal and external users\. Its key findings are included in Annex 5\. Utilization 35\. The M&E results framework was used to measure the progress towards the achievement of outcomes and the PDO\. It guided the efforts of the management team during the last phase of implementation in supporting the countries to roll out all systems and in particular the e-Tax filing and the MPID systems\. 2\.4 Safeguard and Fiduciary Compliance 36\. Financial Management\. No internal control issues were brought up in the external audit reports, which were all unqualified\. Disbursement rates reflected the Project’s design and the nature of e-Government Projects, for which the first activities to be financed are consultancies and the acquisition and implementation of systems follow\. The REGU adequately managed the financial uncertainty created by the SDR exchange rate versus the dollar\. The REGU closely monitored the evolution of the exchange rate to ensure the availability of funds to meet the financial commitments under the Project, in particular the MPID system, implemented towards the end of the Project\. 37\. Procurement\. Procurement was an issue throughout the Project\. REGU worked hard and invested significant time to move the processes forward, through intense regional advertisement, support from the Bank and creative actions\. Some procurement processes did not receive bids while others faced challenges to be successfully completed\. This was the case in the procurement of the e-Government specialist position after two unsuccessful recruitment/procurement processes\. In the case of the Public Financial 12 Management component, one of the procurement processes attracted no bidders, and the second received one bid that did not meet the technical criteria\. Lack of familiarity with the Bank’s procurement processes and the size of the Caribbean economies adversely affected procurement activities\. 2\.5 Post-Completion Operation/Next Phase 38\. EGRIP was structured such that a second phase of the project could be conceived, and this was requested by the OECS Secretariat at project closing\. The Bank is currently not considering a follow up operation to this Project due to the competing priorities identified by the countries in the FY15-19 Regional Partnership Strategy process\. The Caribbean Communications Infrastructure Program (CARCIP, active in Grenada, St\. Lucia, and St\. Vincent & the Grenadines) will address the countries’ priorities and concerns regarding broadband capacity\. However, this will not follow up on regional or national e-Government activities\. 39\. By project completion, the OECS Secretariat intended to create a regional e- Government desk and hire an e-Government specialist to staff it\. Through this desk, the OECS Secretariat plans to create an awareness of the Project’s achievements, in an effort to enhance the use of the systems and achieve greater results\. The OECS Secretariat website published all of the reports produced during the life of the Project as well as information on achievements\. 40\. By project completion, all three major systems financed by the Project had been completed, transferred to the countries and were in use or in the early stages of roll out\. In the case of the EPPS, one procurement cycle for ARV was completed and the second procurement cycle of a larger group of medical supplies was underway\. The system is expected to be used and maintained by the OECS Secretariat, specifically by the Pharmaceutical Procurement Service (PPS)\. In the case of the e-Tax system, the respective countries’ Inland Revenue Departments (IRD) have accepted the system and citizens and firms are using it to file their taxes and make tax payments online\. The MPID is being rolled out in each country\. Dominica was the furthest advanced of the four countries, having enrolled the highest percentage of its target population by Project completion\. St\. Lucia is focusing on removing bottlenecks in the civil registry, establishing vetting arrangements and initiating the roll out starting with government employees\. By Project completion, it was waiting for Cabinet approval for the full roll out and issuance of the cards\. St\. Lucia funded ID cards for its population under the CARCIP project\. In St\. Vincent and the Grenadines, a comprehensive document with the strategy to roll out the MPID system and its role in the Identity Management and sharing of ID data among the major government information systems has been prepared and submitted by the MPID Governance Committee to Cabinet for its approval\. In Grenada, the system initiated its roll out by first registering public sector employees, and the Government will take steps to register the general population after this phase is completed\. 13 41\. The OECS Secretariat, the IRDs, the ICT Ministries and responsible agencies have assumed maintenance of the systems\. Warranties for the systems were assured for a year post delivery to the countries\. There were some concerns related to back up of systems and replacement of equipment (in particular, computers) in the medium-term future\. 42\. The online M&E dashboard is expected to be used by the same countries in the OECS for other projects, notably CARCIP\. The regional partner of the CARCIP project, the Caribbean Telecommunications Union (CTU), will input its project-level M&E data into the dashboard so that countries can follow results in real time\. The OECS Secretariat also plans to use it to monitor the OECS economic development strategy\. 43\. Some of the participating countries would like to scale up the ePPS system to develop regional e-procurement for additional public goods\. SVG and St\. Lucia have requested funds from the CDB to work on amending the regional legal framework in this respect\. 3\. Assessment of Outcomes 3\.1 Relevance of Objectives, Design and Implementation Rating: Substantial 44\. Relevance of PDO: Pre-2012 restructuring: high\. 2012 restructuring: high; 2013 restructuring: high\. The PDO remains consistent with the regional and national ICT strategies\. It is in line with the 2010-2014 CARICOM e-regional strategy, the draft Regional Digital Development Strategy (RDDS) developed by CARICOM and the revised Basseterre Treaty establishing the OECS economic union in 2011\. The treaty seeks the free movement of citizens and goods across boundaries, and EGRIP supports this goal, by contributing applications and setting up platforms for the free movement of people and goods\. The PDO remains in line with the OECS Development Strategy approved in November 2013 8 \. The Project’s PDO supports the OECS development strategy regarding governance for the economic union\. PDO Element EGRIP Deliverables Efficiency The e-Tax Filing System will deliver time efficiencies in filing taxes online rather than manually/in person\. The regional procurement of pharmaceuticals will reduce time to complete a pharmaceuticals requisition order in four countries\. Quality The Multi-purpose ID system will provide a unique personal identifier where often 5+ different identifier numbers exist\. End users of the e-Tax Filing system and pharmaceuticals procurement system are expected to experience an improved experience of government service delivery\. Transparency The e-Government system for pharmaceuticals will publish tender and contractual information online\. A web-based M&E system can be adapted by the OECS Secretariat to monitor donor projects and progress towards the economic union\. The e-Government system serves as a pilot for larger regional common electronic procurement systems that countries are 8 CARICOM E-Regional Strategy 2010-2014; Revised Basseterre Treaty 2011; OECS Development Strategy, November 2013\. 14  planning to pursue, e\.g\. for textbooks and other products\. Regional integration A suite of legislation for e-Government is harmonized across the region\. Harmonized technical standards for e-Government, interoperability frameworks and Enterprise Architecture are established at a regional level\. The Multi-Purpose ID system generates unique personal identifiers across participating countries\. The e-Government system for pharmaceuticals pools procurement across OECS\. Government video conferencing facilities were set up to improve connectivity among participating countries\. These systems support the economic union\. Economies of Scale The total cost of ownership of e-Government systems was clarified, with the practice of pooled procurement of licenses across the region implemented\. The regional procurement of software systems produced economies of scale, particularly where one implementation was undertaken for several countries\. 45\. Relevance of Design: Pre-2012 restructuring: modest\. 2012 restructuring: substantial; 2013 restructuring: substantial\. The project’s components and activities proposed in the PAD were adequate to achieve the PDO\. The Project put emphasis on consensus building among the countries, following the Project’s regional approach\. While the Project design was conceived as broad and flexible, to retain agility to respond to the innovative nature of the sector, there were significant shortcomings: (i) the scope of the Project was ambitious, aiming to finance a broad range of e-Government systems with limited budget and in a limited period of time; (ii) the Project lacked a PPF to finance the initial background analyses to implement the systems early on in the project and accomplish more implementation within the life of the Project (these analyses were carried out later through consultancies under the project); (iii) the estimate of the e- Government systems’ costs was optimistic and inaccurate\. There was an assumption that significant economies of scale could be realized through a regional implementation, not foreseeing that the adaptations of the systems to each one of the countries would render each commercial relationship separate and not provide the expected savings for the countries; (iv) though the risk assessment included the complexity of the Project as one of the risks, this did not translate into a narrower scope or sufficient time to implement the Project\. Though a regional Project, the fact that each country signed a credit translated in reality into four projects and not enough time for accommodating consultations, consensus building and accompanying of systems was available\. 46\. Relevance of implementation\. Pre-2012 restructuring: modest\. 2012 restructuring: substantial; 2013 restructuring: substantial\. The REGU and the Bank worked hard from the beginning to move the project forward and overcome the challenges in design and initial implementation\. The mid-term review in 2012 was used to adjust the Project and restructure it\. The 2013 restructuring served to adapt to changes in context and priorities, as explained in section 2\.2, as some activities had been financed by other sources, had already been carried out, were too costly for the available resources or could not be implemented given the remaining timeline of the Project\. 3\.2 Achievement of Project Development Objectives 15 47\. To assess the overall outcome of the Project, the ICR uses a split evaluation approach following Appendix B of the ICR guidelines 9\. Separate outcome ratings for the three dimensions of the PDO (quality, efficiency and transparency) are measured against the original PAD indicators, the revised indicators in 2012 and the 2013 restructured KPIs\. Annex 10 includes tables of the outcome and intermediate outcomes in the PAD and after the revision of KPIs in April 2012\. 48\. By Project completion, the Project interventions had directly contributed to the promotion of greater quality, improvements in efficiency and transparency in the provision of public services\. These outcomes were measured by indicators that captured the development and use of new and upgraded government applications in the areas of e- Tax filing, e-procurement and harmonization of ID systems; the improvements in efficiency through the reduction of the time to do transactions and the reliability of the information provided by the e-Government systems supported by the Project; and the enhancement of transparency in the provision of public services through greater access to the results of the procurement processes in the public sector and the harmonization of legislation related to e-Government systems\. Achievement of outcomes before the 2012 restructuring\. 49\. The achievement of the PDO for this period is rated as Moderately Unsatisfactory, measured by the outcomes indicators proposed in the original PAD\. The reasons are the initial slow pace of implementation and the fact that the Project financed mostly consultancies during its first years (2010-2011)\. The progress towards achievement of outcomes during this period is difficult to measure with the original PAD indicators, since several indicators had no baselines or targets\. By April 2012, while none of the original PAD outcome indicators had been achieved as most of them were expected to be achieved further along in the Project life, there was progress towards the PDO, as the Project financed specific consultancies that were geared towards improving quality, efficiency and transparency in the delivery of public services\. Intermediate outcome indicators – 10 out of 28 - showed progress for each dimension of the PDO (see Annex 10)\. Table 1: OECS EGRIP PAD Outcome Indicators Outcome/Indicator Baseline10 End-target Actual Value 9 Appendix B of the ICR Guidelines: “For projects whose objectives (as encompassed by the stated PDOS and the key associated outcome targets) have been formally revised – through approval by the Bank authority that approved the original loans/credits/grants – project outcome will be assessed against both the original and revised project objectives\. To assist in arriving at an overall outcome rating following this principle, separate outcome ratings (against original and revised project objectives) will be weighted in proportion to the share of the actual loan/credit disbursements made in the periods before and after approval of the revision\. 10 The PAD stated that the baseline and target indicators were to be determined by a survey/study to be launched shortly after effectiveness, to be completed during the first year of the Project \. An M&E consultant hired by REGU completed this task by August 2010\. This exercise was challenging due to: (i) the expectations set in the PAD; (ii) participating countries did not routinely collect and store the data 16  August 2010 April 2012 i Promote Quality of Public Services Increase in the number of electronic transactions 0 20% 0 processed by regional e-Government applications\. Improvement of ratings in areas of functionality, n/a Activity due n/a accuracy and usability of e-Government services as before reported by users through satisfaction surveys completion ii Promote Efficiency of Public Service Government financial savings in areas such as n/a n/a n/a public financial management, tax administration, customs and procurement due to new e-Government systems Estimated users’ time and cost-savings n/a n/a n/a iii Promote Transparency of Public Services Improvement of ratings in areas of openness and n/a Activity due n/a access to relevant information, as reported by users before through satisfaction surveys completion New regional institutional framework is created 0 1 0 with adequate capacity to provide new regionally integrated e-Government services, in accordance with regionally harmonized policies and regulations 50\. The following achievements were accomplished with support from the Project: ï‚ The legislation related to e-Government was developed and presented to the OECS authority; ï‚ The design of a regional e-Government institutional framework was completed; consultations held and the proposal for establishing an e-Government desk at the OECS Secretariat had been agreed by the RTC; ï‚ Consultations and consensus on moving forward with the design for the MPID as well as a detailed design and implementation plan for the MPID system had been completed; ï‚ A PFM financial reporting module (Smartstream budget) had been prepared and was ready to be implemented; ï‚ The e-Tax filing system and had been designed; an effort to procure it was attempted and its requirements were simplified to be able to start with VAT filing, with other tax types to follow; ï‚ The Regional Customs Information System (RCIS) had been designed; efforts had been deployed to procure the implementation of a RCIS through procurement process and negotiations; ï‚ Consultancies on a regional e-procurement system had been carried out and procurement of a system was under preparation\. required by the PAD\. The project did not allocate funds for surveys on customer satisfaction, efficiency and quality, which were important outcome indicators\. In-country visits were carried out between June-August 2010 and data were collected with the help of the CBSs\. 17  ï‚ Assessment of the existing health management information systems had been carried out and training to national teams had been carried out to decide on how to move forward on the RHMIS\. 51\. The Project succeeded in implementing quick win projects during this phase: namely, an upgrading of web portal for the Government of St\. Lucia, the provision of video- conferencing equipment for St\. Vincent and the Grenadines and Dominica and a local network for the Prime Minister’s office in Grenada\. Procurement processes for goods and equipment, which were critical for the implementation of the e-Government systems had been launched\. The fact that the first two and a half years of the project were concentrated on financing consultancies, which were needed to define the applications and systems was the reason for not showing stronger progress towards the achievement of the three dimensions of the PDO, which could not be further seen at this stage\. Achievement of outcomes after the 2012 restructuring\. 52\. The progress towards the achievement of outcomes is rated as Moderately Satisfactory for the period of April 2012- March 2013\. While progress under the outcome indicators was very low (progress in two out of five indicators), three intermediate outcome indicators were achieved and five were partially achieved (out of sixteen indicators): (i) a regional Electronic Pharmaceuticals Procurement System (EPPS) was approved; (ii) harmonized legislation had been approved by the OECS Authority and published; (iii) regional e-standards, total cost of ownership, enterprise architecture and interoperability framework had been defined; (iv) regional consensus on the institutional framework for e-Government had been achieved; (v) the design of the MPID had been completed; and (vi) the conceptual design of the RHMIS had been completed (see Annex 10 )\. 53\. Critical work was carried out during this period (April 2013-June 2013) to find out what systems could be afforded by the countries; to set priorities and to take steps to implement the main systems to be in the end supported by the Project\. These were: (i) a jointly procured e-Tax filing system to allow citizens and business to file their taxes online; (ii) the EEPS to automate the joint procurement of pharmaceuticals and (iii) the MPID system to provide the citizens of the region with a unique identifier across countries\. By the end of this period, the contracts for the major e-Government applications had been signed and were under implementation\. The consultancies and the procurement processes carried out in 2012 had shown the need to concentrate on a smaller number of attainable systems\. The PDO seemed achievable at the time\. Table 2: OECS EGRIP Outcome Indicators as per April 2012 restructuring Outcome/Indicator Baseline End-target Value March 2008 March 2013 i Promote Quality of Public Services New government applications offered or upgraded 0 15 1 under the Project Quality measured through focus groups by end 0 1 0 users of the following systems:(i) public financial Activity due 18 management system; (ii) regional custom before information system and (iii) MPID system*11\. completion ii Promote Efficiency of Public Services Average number of days to prepare annual budget 120 90 120 Regional health information system and regional 0 2 0 customs information system are installed and operational iii Promote Transparency of Public Services Creation of 4 national PFM websites with open and 0 4 0 transparent PFM data sets Establishment of Regional E-government desk at 0 2 1 OECS Secretariat; hiring of the senior E- government specialist; design the business plan for sustainability of the E-government desk completed Achievement of outcomes after the 2013 restructuring\. 54\. The Project succeeded in achieving its PDO\. The table below shows the Project’s achievement for each of the PDO’s dimensions: quality, efficiency and transparency in the provision of public services\. A total of 9 out of 11 intermediate results indicators were achieved or surpassed and 2 were more partially achieved\. Table 3: OECS EGRIP Outcome Indicators as per 2013 restructuring Outcome/Indicator Baseline End-target Actual Value i Promote Quality of Public Services New government applications offered or upgraded 0 9 14 under the Project\. Improved quality as perceived by end-users for the 0 Quality of Quality EPPS, the e-Tax filing system and the MPID services improved for system, measured through focus groups to be provided two of the carried out before Project completion\. improved three systems ii Promote Efficiency of Public Services Average numbers of days to complete VAT tax One day n/a 30 minutes filing Average amount of time to process a 5 days n/a 20-30 minutes Pharmaceutical procurement requisition order iii Promote Transparency of Public Services Publication of procurement awards online\. 0 n/a 19 Publication of an OECS government regionally 0 Legislation OECS harmonized legislation bill by first quarter of 2012, published authority approved by the OECS authority approved it and published Promoting the Quality of Public Services 55\. By Project completion, the scope of public services upgraded to e-Government systems had been enlarged, promoting quality improvements in the delivery of these services\. Dominica, Grenada, St\. Lucia, St\. Vincent and the Grenadines had received a 11 *This indicator was to be captured by Project completion\. 19 total of 14 new or upgraded applications for e-Government systems: the e-Tax-filing system and the MPID system for the four countries; one regional E-pharmaceutical Procurement Services system12; a reporting facility for the SmartStream application in each of the countries and the implementation of the Health Information System in Dominica\. All applications and systems were delivered to and received by the countries; relevant staff had been trained on their use and maintenance\. The systems and applications were overall in use in all four countries by Project completion\. Additionally, by Project completion, all four countries had received additional tools to inform their decisions regarding e-Government and help them improve the quality of public services with regional harmonization: e-Government standards, enterprise architecture, inter- operability framework and total cost of ownership\. These tools were defined, made them available and published by the OECS Secretariat\. 56\. The regional procurement of pharmaceuticals became fully automated13 through the use of the EPPS\. The EPPS was successfully used for the procurement of ARVs in 2013 and for a larger acquisition of medical supplies (July 2013- August 2014) that includes an estimated six thousand items\. As indicated by OECS staff and bidders through focus groups and interviews, the automated process of the EPPS has enhanced the quality of the acquisition of pharmaceuticals in several aspects: accuracy has improved (and quality as a result) in the request for forecasts from the countries, in the collation of the forecast from each country (the system does it automatically now); in objectivity during the invitation to companies to bid has improved; in the possibility of waiting until the last minute to close tenders, objectively closing the time to present the bids at the same time, reducing the claims from bidders and risks of different treatment among them; and in the qualitative preparation of the evaluation report\. Quality has also improved in the process as now all bidders receive the same responses to their questions\. 57\. Increased quality in tax administration was improved with the rollout and use of the e-Tax system by the Inland Revenue Departments of all four countries providing citizens and companies with the ability to file and eventually, pay taxes online\. Except for Grenada, the countries had not yet done much advertising of the e-Tax system\. By Project completion, the system was in full use in all countries\. Grenada was the most advanced, having managed to receive e-payment (collecting close to US$200,000) as well as tax filing declarations for VAT, income and property taxes\. The e-Tax filing system was rated as high quality by the IRD departments in the four countries and by end users\. Annex 5 provides detailed information on the focus groups’ feedback on the quality of the system\. 12 The EPPS is a regional system which includes all OECS countries, including those not participating in EGRIP, such as Antigua, Barbuda, St\. Kiss and Nevis, and Monserrat\. 13 All of the steps that can be automated have been automated\. One approval from the respective Ministers of Health is required, --the only manual step left in the EPPS process, and which could be divested in the future through last procedural reforms\. 20 58\. Though the MPID system was developed and given to each of the countries by Project completion (hardware, software, training and system guarantees), its roll out and registration is ongoing in all four countries\. The objective is to create harmonized ID systems that can be used through other e-Government platforms, integrated with other systems at national and regional levels\. Dominica rolled out the system by project completion and linked the MPID with the Electoral Office System to verify voters’ IDs, and the Inland Revenue Department System to verify tax ID and driver’s licenses\. Dominica completed enrollment of public servants, statutory organizations and most schools, registering close to 4,000 persons, with enrollment of the general public to follow\. St\. Lucia is implementing the first roll out phase with the registration of Government employees (5 percent of the total population)\. The MPID will interface with the Electoral System and the National Insurance Corporation System as first interoperable agencies\. Grenada registered an estimated 800 civil servants in its initial phase to roll out the system\. Work is underway to interface the MPID with the Civil Registry and the National Insurance System\. St\. Vincent and the Grenadines linked the MPID to the Civil Registry and was tested by Project completion\. 59\. The Project supported these outcomes by financing the development of the e- Government systems and their adaptation to the countries’ context, through the delivery of training for each of the systems, providing hardware and software for their implementation and the continuous support, encouragement and guidance to the countries to implement them\. Promote efficiency of public services 60\. Regarding e-Government in tax-administration, all four OECS countries had rolled out and were implementing the e-Tax filing system\. All four countries had achieved improvements in efficiency measured by the average number of days needed to file the VAT tax as well as other taxes, notably income taxes\. All four countries had shortened the period of time needed for filing taxes from 1 day to an average of 30 minutes\. Efficiency had improved as the e-Tax system allows taxpayers to file taxes any day at any time\. Furthermore, efficiency was realized as tax payers did not have to come to the IRD offices, find parking in busy cities, and wait to fulfill this obligation\. The IRD in each country indicated that the e-Tax system has removed the need to renovate more space and install cashiers during each tax-peak payment season\. Annex 3 provides details on the efficiency gains through the use of the e-Tax filing system\. 61\. Grenada had also succeeded in collecting also property tax payments, which does not require filing as it is requested through an invoice\. The public awareness campaign had led citizens to channel these payments through the e-Tax system without being prompted or guided to do so\. Annex 2 includes information by country on the number of e-Tax filings by type of tax\. 62\. Efficiency has improved with the implementation of the e-Procurement system, measured by the “reduction in the average time to process a requisition to purchase order”\. The implementation of the EPPS has brought improved efficiency in other moments of the procurement of medicines and medical supplies: at collate of the forecast, 21 at the bid evaluations, sending the invitation, closing in tenders and evaluation (see Annex 3, table 1)\. The EPPS had been used by Project completion for the acquisition of ARVs in 2013, a procurement process that successfully generated efficiency during various procurement stages\. A larger procurement process of pharmaceutical in the OECS countries started in 2013 and will conclude in August 2014 with the arrival of the pharmaceuticals in the countries\. 63\. The addition of a reporting module to the SmartStream system is allowing the preparation of reports directly by users, which were previously unavailable, unless prepared by IT staff\. This upgrade to the Human Resources module, which involved data entry funded under the Project, enables making informed decisions in these areas and management of these resources\. St\. Vincent had uploaded 300 records to its database\. St\. Lucia encountered challenges when trying to use this software and was working to overcome them by Project completion\. Grenada has been inserting information on teachers, reaching an approximate 75 percent of records by Project completion\. 64\. Upgrades in the Health Information Systems (HIS) at national level contributed to the promotion of efficiency under the Project\. By Project completion, software for new modules had been developed and tested in St\. Vincent and the Grenadines for patient registration and discharge data, billing, access and emergency department\. These modules were developed by consultants in close cooperation with the St\. Vincent and the Grenadines team\. The modules work in an open source environment and store critical information in a friendly format\. The modules were piloted in one health center and one clinic\. In the case of SLU, the country made progress in the roll out of the national HIS and supported 11 wellness centers around the country by installing hardware (computers, generator bought and installed in Vieux Fort and Banonneau) for the national HIS 14\. A map at the end of the PAD indicates the locations of the clinics supplied with required hardware and software\. 65\. The Project contributed to this outcome through the financing of the e-Government systems, the training and the follow up to the implementation and use of each of these systems\. The Project provided financing for the consultants’ work to prepare diagnostics and assessments, software, hardware, and for consultations and consensus building, monitoring through implementation\. Transparency in the delivery of public services 66\. By Project completion, harmonized e-Government legislation had been approved by the OECS Authority - the body of Prime Ministers and Chief Ministers for the OECS member countries - in January 2012: Electronic transactions, electronic funds transfer, electronic filing rules, electronic evidence bill, and electronic crimes and data protection\. The publication of the legislation bill took place in February 201415\. 14 St\. Lucia had established 11 wellness centers around the country with CDB support\. By Project completion, there were 22 facilities around the country, with 8 more to be established in the future\. 15 http://www\.oecs\.org/our-work/projects/egrip 22 67\. These bills served as the guidelines to each country to draft and pass their own legislation\. This achievement is a significant step in improving efficiency of public services across the region\. Of these, Grenada had enacted the electronic crimes bill, which contributed to its gaining the EU status of visa free country; it had passed other legislation, which had allowed the e-payment of taxes\. Dominica had approved legislation on E-filing, E-Evidence, E-fund transfers and E-transactions\. St\. Lucia is waiting for Cabinet approval of these pieces of legislation\. The e-Transaction law was in Parliament by Project completion, expecting to be approved in 2014\. In St Vincent and the Grenadines, the legislation is with the office of the Attorney General and needs to be approved by Cabinet, before going to Parliament\. 68\. The transition to an automated EPPS has contributed to promote transparency by: (i) providing access to the same information to all potential suppliers and consistent answers to questions asked on-line; and (ii) the publication of information of the results of the procurement process\. A total of 19 awarded contracts for procurement of pharmaceutical were published online before Project completion\. 69\. The Project contributed to this outcome through the support of workshops and preparatory work to carry out the draft e- legislation, training staff and financing the acquisition of the necessary equipment to implement these pieces of legislation\. It provided equipment, training and the development, acquisition, and implementation of the EPPS\. 3\.3 Efficiency 70\. Efficiency is rated as Modest\. The rating is based on the following: (i) though the Project lasted longer than foreseen in the PAD, the actual time to procure and implement the systems was two years (from January 2012 till completion in February 2014); and (ii) some of the efficiency gains and savings through the Project’s achievements have not yet been maximized or have not yet been quantified as it may be too early to measure them\. The true impact of efficiencies will become more apparent several years post project closure\. The evidence of the efficiency gains visible now are the access to public services twenty-four hours per day, seven days per week, as indicated by beneficiaries during the focus groups\. More time for implementation would have given the Project the opportunity to realize efficiency gains\. There were no cost overruns in this Project\. The costs for the systems were higher than foreseen, due to the challenges of costing at appraisal\. The REGU optimized the use of resources, negotiating hard and succeeding in getting good value for the price of the systems, during the procurement process and implementation of activities\. 4\. Justification of Overall Outcome Rating Rating: Moderately Satisfactory 23 71\. The overall achievement of outcome is rated as Moderately Satisfactory\. The relevance of the PDO remained high before and after restructuring, while the relevance of design evolved from modest to substantial by Project completion\. There were positive achievements during implementation: (i) after two restructurings, the Project reflected a reduced number of priority activities that were well implemented to achieve the PDO; (ii) the results framework included updated relevant indicators, which provided evidence of the progress towards the achievement of the PDOs; (iii) the three e-Government systems prioritized under the Project had been developed and were in use in all four countries\. There were shortcomings: (i) the restructurings took place later on in the life of the Project, maintaining a results framework that showed limited progress towards the PDO; (ii) the Project was extended for six months on an exceptional basis to allow the achievement of the PDO and may have benefited from a longer extension, had financial resources to sustain it been available or requested by the countries; (iii) the e-Government systems were implemented late in the life of the Project, also with an extension not providing sufficient time to accompany their roll out for an extended period of time to capture the potential efficiency gains\. 3\.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development N/A (b) Institutional Change/Strengthening 72\. The Project strengthened the regional aspect of e-Government through the analysis of the regional and national legislation carried out with Project support, the continuing consensus building and discussions that resulted in the approval at regional level by the OECS Authority of a harmonized set of laws for e-Government, as well as on a regional perspective to the design and adoption of e-Government systems\. 73\. The Project contributed to strengthening the institutional framework for e- Government\. It financed the analysis of the existing OECS institutional framework as well as other possible frameworks\. As a result of this analysis, several options were proposed and considered by the countries\. The Project financed the development of a business plan to develop an e-Government desk to be absorbed by the OECS and staffed by an e-Government specialist\. By Project completion, an interim e-Government desk within the OECS Secretariat was created and temporarily staffed\. 74\. The Project contributed to strengthening capacity through significant training of beneficiaries in several areas\. Training for the three main e-Government systems was supported by the Project\. Capacity was strengthened on M&E framework development, data collection, training and reporting system\. Around 99 participants benefited from the training over 17 workshops, including stakeholders, public sector personnel and beneficiaries, OECS and REGU staff\. Staff was trained in all 4 countries under EGRIP on the upgrade of SmartStream software, the user manuals on the upgrade of the system and on the reports that can be produced now for daily use\. Training took place on the HIS 24 management tools, at the time of preparation of regional HIS\. Training was provided on a regional HIS to personnel of the MOH of the different countries on assessment tools (Health Metric Assessment (HMA) and the Performance of Routine Information Management System (PRIMS) tools) and these tools were used with support from the EGRIP’s consultants to prepare the diagnostic of each country’s HIS\. 75\. The implementation of the MPID system is contributing to the revision and improvement of business processes\. All countries were emphasizing cleaning out the registries that are the source of information to feed the MPID system\. In the case of St\. Lucia, the Civil Registry has carried out a revision of its processes to make them more efficient, to support the cleaning up of records and improve the data provided to the MPID system\. By May 2014, records were being issued in one day, significantly improving from the previous two weeks period\. (c) Other Unintended Outcomes and Impacts (positive or negative) N/A 3\.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops 76\. Before Project completion, a series of focus groups was carried out in order to capture improvements in quality in the provision of services for the three major systems supported by the Project\. Overall, beneficiaries gave positive feedback and ratings to the systems, providing insightful information on challenges, key changes and achievements\. In scale of 1 to 10 where 10 the top score, beneficiaries gave the e-Tax filing system an 8 for quality and satisfaction and a 7 for functionality\. Beneficiaries gave the EPPS a 9 for quality, satisfaction and functionality\. Beneficiaries in Dominica gave the MPID an 8 for quality and satisfaction and a 7 for functionality\. A summary of the findings is included in Annex 5\. 4\. Assessment of Risk to Development Outcome Rating: Moderate 77\. The development outcomes achieved with Project support are expected to be sustained based on the following: ï‚ The enactment of the harmonized e-Government legislation is well underway in each of the participating countries, which indicated enforcement would take place in the near future\. As a result of the approval of the electronic crime bill, Grenada will benefit from a visa-free status for its citizens travelling to the EU\. Such measures are fostering further future efforts towards approving the e-legislation at national level\. While the process is slow, the legislation continues to be processed and is expected to eventually be enacted in all four countries\. While national legal review processes may change the legislation somewhat so that it is not verbatim identical, the contents of the legislation remain harmonized across the four countries\. 25  ï‚ The EPPS has performed in a highly satisfactory manner and it will continue to be used for regional procurement processes for medical supplies\. The countries plan to scale up the regional e-Procurement experience by expanding the system to undertake pooled procurement for other products, such as textbooks; ï‚ The e-Tax system is being used not only for VAT but for other types of taxes and has been welcomed by tax payers and Inland Revenue Departments\. All countries are working to achieve agreements with the appropriate financial institution to allow for e-payments of filed taxes; ï‚ The MPID systems are being rolled out by all participating countries, which are following their implementation strategies to complete their targets to enroll groups of citizens, testing the enrollment process and overcoming the challenges in interfacing with other systems\. Roll-out and adoption of the systems will require time to reach impact, as the countries register all citizens and finalize cabinet approval of underlying legislation\. Ongoing support to the countries under other projects (CARCIP or TA) would support the countries as they maximize EGRIP’s full potential over this time\. Other countries in the region who are not part of EGRIP are exploring joining the MPID formats for their electronic identification; ï‚ System implementations were undertaken with maximum transfer of knowledge to local IT managers, hands-on implementation and with creating a network among the system managers across the countries, so they may assist each other during the life cycle of the system\. Continued training on the use and maintenance of the different systems will contribute to their sustainability\. ï‚ Contracts for the systems were designed to include maintenance and support from the vendors for several years beyond project closure\. 78\. Nevertheless, there are challenges to be addressed in the future: (i) Ensuring that local capacity to enforce the enacted e-legislations is built in the participating countries in a timely manner; (ii) Regarding the e-Tax system, which is a module that sits on top of the main tax system, SIGTAS, it will be important to ensure that infrastructure and hardware of the main tax system, does not prevent the systems from working adequately\. The main servers’ capacities to handle the systems are perceived as a potential limitation to the sustainability of the system, as indicated by the participating countries\. The participating countries may receive an overall tax system upgrade under the Canadian funded and World Bank implemented SEMCAR Phase 2 Project that, if rolled out, will contribute to consolidate the Project’s achievements\. The e-Tax filing system has been designed to interoperate with future systems that may replace the existing system, SIGTAS\. 26  (iii) Continued focus on strengthening the institutional and governance framework for e-Government development at regional and national level is critical for the sustainability of outcomes and for the realization of achievements that were not yet fully reached (i\.e\. MPID)\. (iv) Additional work is necessary to implement the recommendations and best practices in the consultancies produced with Project support (regarding legal and regulatory framework, policy and strategy and architecture standards and total cost of ownership)\. The countries will need to continue to work on EGRIP’S outcomes to realize the benefits of the Project\. 5\. Assessment of Bank and Borrower Performance 5\.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Moderately Unsatisfactory 79\. The performance of the Bank during preparation is rated as Moderately Unsatisfactory\. The Bank worked closely with the OECS Secretariat and the countries to prepare the Project\. It carried out well-staffed preparation missions, ensuring that preparation was participatory and lessons from previous projects or other regions were taken into account\. There were contextual challenges to which the Bank had to adapt and deliver the design more amenable within the circumstances at the time\. There was a set of constraints self-imposed by the Bank that the team accommodated to\. There was also strong interest by the countries to maximize the Project’s components within a relatively small budget, due to the size of the regional envelope and the financial limits to borrow by the countries\. The main shortcomings were: (i) the ambitious Project design given the relatively limited credits’ amount; (ii) the insufficient period of time and limited amount of resources to adequately prepare an innovative project, the first regional e-Government project prepared by the Bank\. The team was under pressure to meet the deadline to be able to use the IDA funds under the regional envelope; (iii) an M&E for the Project that was vague and, though on purpose, left detailed definition to be done during the first years of implementation; and (iv) the inaccurate costing and estimates for the Project’s activities\. This weighted heavy during implementation, though the REGU, the countries and the Bank worked together to overcome these issues\. (b) Quality of Supervision Rating: Moderately Satisfactory 80\. Once implementation started, the Bank worked hard to achieve the PDOs\. The Bank carried out regular well-staffed supervision missions a minimum of twice a year\. The Bank regularly monitored the Project, working with REGU and the M&E consultant to gather information to better assess the Project’s achievements\. During the mid-term review, the Bank supported the REGU’s proposals to restructure the Project, once it was clear that not all activities included in the PAD could be financed under EGRIP\. The Bank provided support in procurement and financial management to REGU when needed, contributing to move the Project forward and overcoming issues during bids and 27 providing suggestions when some bids were deserted or did not succeed\. There were changes of TTL during implementation and the Bank made an effort to make this transition smooth\. The Bank also made efforts to work with the REGU since the Project was innovative and both the Bank and the participating countries were new to an ICT regional e-Government project\. Though the Bank worked with the REGU to restructure the Project twice, restructurings came late during implementation, affecting the overall assessment of outcomes\. (c) Justification of Rating for Overall Bank Performance Rating: Moderately Satisfactory 81\. The Bank performance is rated as Moderately Satisfactory, based on the Moderately Unsatisfactory rating for its preparatory work, the Moderately Satisfactory quality of supervision, in light of the Bank’s focused work, the flexibility to adapt to changes and to overcome the shortcomings derived of the Project’s design and its implementation context\. 5\.2 Borrower Performance (a) Governments Performance Rating: Moderately Satisfactory\. 82\. The performance of the Governments of Dominica, St, Lucia, Grenada and St\. Vincent and the Grenadines during preparation is rated as Moderately Unsatisfactory, as the responsibility for Project preparation was shared with the Bank\. Their performance during implementation is rated as Moderately Satisfactory\. The governments showed commitment to the Project’s PDO during implementation\. The Governments, through the RTC members, played a critical role in guiding implementation and working with REGU to make strategic decisions on what the Project would focus on and finance\. RTC meetings took place regularly and attendance by the countries’ representatives was satisfactory\. Despite these positive actions, there were shortcomings during implementation\. The Governments often took a long time to provide feedback and respond to the REGU, which delayed implementation\. The country-by-country institutional framework to implement the project was challenging, as there were several departments working with ICT, dispersed in each country\. In general, with support from the CBSs, it was manageable\. Ownership of the Project was weak, in some cases weaker than others and particularly weak in St\. Vincent and the Grenadines (during the implementation period when a lot of consultancies were financed and the systems seemed not to come as soon as the countries wanted; the MPID system was reviewed as not really “owned” by the countries)\. There was a lack of knowledge of the Bank procurement rules and lack of understanding of the role of the stakeholders\. In St\. Vincent and the Grenadines, the horizontal coordination of the institutional framework was challenging and undermined the ownership of the project\. The ICT council and the steering committee did not communicate well, which negatively affected implementation\. (b) Implementing Agency or Agencies Performance Rating: Moderately Satisfactory 28 83\. The OECS Secretariat required time to hire the REGU coordinator and set the conditions for launching the project’s implementation\. The regional organization worked to promote regional integration and synergies in e-Government, a pioneering field for the participating countries when the project was launched\. This task is not easy, and the manifestations of success will require time and additional, sustained efforts on the part of the Secretariat to become apparent\. The overall implementing agency performance is rated as Moderately Satisfactory\. Within the Secretariat, the REGU’s performance is rated as Satisfactory\. Well-staffed, the REGU was led by a strong Project Coordinator who, with support from her competent team, showed determination, leadership and resourcefulness in overcoming obstacles to implement the project\. It displayed strong commitment and dedication to negotiate and accommodate each of the countries’ needs and requests, while maintaining the regionalization as a guiding force for the project\. 84\. The CBSs performed a crucial role in linking the REGU at national level, reinforcing ownership, providing critical information on the Project’s implementation to the national teams, supporting and guiding national stakeholders and facilitating dialogue and consensus building\. 85\. The CDB provided critical support to allow the Project to move forward, in a context of shortage of resources, showing flexibility and contributing the strengthened the regional dimension of the Project’s achievements, as Antigua and St\. Kitts and Nevis were included in the activities financed by CDB\. Dialogue with the CDB team was fruitful\. (c) Justification of Rating for Overall Borrower Performance Rating: Moderately Satisfactory 86\. The overall Borrower performance is rated as Moderately Satisfactory based on the combined performance of the participating Governments and the implementing agency\. 6\. Lessons Learned Design 87\. Too broad a design risks to diminish/distort the focus of a project during implementation\. While a broad design might have been chosen to allow for a flexible scope of activities during implementation and to have room of maneuvering given the innovative nature of the Project, it distracted implementation\. It is important to carry out extensive background work during preparation to know to the best extent possible the sector context, the costs and to set priorities, given the budgets and the implementation time\. Though it might be necessary to postpone such work that should have been undertaken during preparation and relegate it to the first years of project implementation, this caused delays to launch the project implementation; it ultimately used resources that were not utilized by the project (e\.g\. M&E dashboard) and then lose relevance if not used by other donors or agencies or the Borrowers in the future (several consultancies)\. 29 88\. Adequate project preparation time versus other considerations must be explicit\. The Project’s preparation was constrained by the existing timing to be able to use regional IDA resources for the OECS region\. While this was the decision at the time, it was not clearly acknowledged that project readiness was affected by the limited preparation time\. While the team did the best possible in that context, taking up to three years to complete the consultancies and procurement and leaving a two-year period to implement the systems, it shortened the time to implement the e-Government systems, particularly the MPID system\. The Bank should avoid setting self-imposed deadlines to take projects to the Board, which might prevent carrying out quality project preparation\. Envelopes for regional financing once identified and approved, should not be the deciding factor to set Board dates\. 89\. A regional approach for ICT projects for small island states shows strengths and weaknesses to be considered at the time of design\. In the case of EGRIP, a regional approach had advantages such as: (i) harmonizing the e- legislation and the design of the e-Government systems by carrying out consultancies for all countries; (ii) carrying out pooled procurement to the maximum extent possible for goods and systems, achieving economies of scale, efficiencies and savings; and (iii) sharing knowledge among participating countries, through a demonstration effect that fostered implementation (case of Dominica in e-Taxes and MPID)\. Choosing a regional implementation institution can be a strength if the PIU is effective in moving a project forward, as it was the case of REGU for EGRIP\. The OECS Secretariat’s capacity in e-Government needs to be addressed by countries; Capacity needs to be strengthened in order to be more effective and play a regional leadership role\. A regional approach entails a slower pace of implementation as more time and efforts are required for consensus building and countries responses\. Implementation 90\. Importance of establishing mechanisms to generate and maintain countries’ commitment to the Project, throughout the project\. In a regional project like EGRIP, it was important to ensure the commitment of the countries for a project that was to be implemented by a regional body – OECS Secretariat\. Ensuring that commitment and ownership were maintained was crucial for the successful implementation of the project, for its credibility, being the Project part of the regional effort it bowed to support\. It required serious work, consensus building, and intense follow up by REGU\. These efforts paid off\. This hard work contributed to maintain the regional focus and regional interests in the framework of the Project, versus the sometime short-term countries’ demands\. The Country Based Specialist system set up by EGRIP worked well and informed the design of other projects in the region such as CARCIP\. 91\. Good project management is key\. The Project’s management was a strength that deserves to be highlighted, as it was key in all of the project’s achievements and in driving the regional and consensus building process forward through the Project\. Efforts to realize outcomes and ensure implementation of the systems as much as possible must continue for as long as possible, while the Project is still under implementation\. Though 30 countries showed commitment throughout the lifetime of the Project, the PCU’s support, monitoring and perseverance contributed greatly to enhanced implementation and outcomes\. 92\. Importance of providing training to successfully achieve the PDO\. Training of stakeholders is key to ensure that Project activities are implemented and outcomes are achieved during the life of the Project\. In the case of the Project, some of the staff trained have left the agencies\. For future sustainability, encouraging some loyalty arrangements so people trained remain in the public sector for a relevant period of time would be helpful\. 93\. Continuous training and awareness building is crucial to successfully implement legislation, after the Project’s completion\. Training of key personnel in the police force, the judiciary, registrars, and senior government officials will be needed to actually implement these laws\. Training on electronic forensics and investigations electronic systems, networks and computers, electronic contracting, security issues and data protection among other training areas will be critical to fully realize the Project’s achievements\. 94\. Governance arrangements can significantly contribute to successful implementation: Finding the appropriate institution to champion a reform or a new system can be critical to its rapid success\. The e-Tax system had a champion while the MPID system did not have a clear one in each participating country\. This made a difference in fostering ownership of the system and embracing the changes its implementation would bring\. 95\. Need for implementation of the national ICT policies in order to support EGRIP’s outcomes\. The development and implementation of national ICT policies, which were not under the scope of the EGRIP project, proceeded at different rhythms in the participating countries and they were not necessarily sequenced with the progress of the Project\. Challenges related to coordination among institutions at national level, the need to identify a champion or the leader capacity of a steering committee, affected the implementation of these policies in the participating countries\. Developing implementation plans, specific deliverable and focusing on implementation of ICT national strategy can contribute to further promoting the PDO\. 96\. Project coordination affects implementation\. The existence of competing projects required extensive consultations and slowed implementation down\. This was the case of HIPCAR ITU legal project and EGRIP OECS e-legislations, both supporting e- legislation update and implementation\. While efforts were put into using outputs from HIPCAR as input for EGRIP, it was costly since both projects used different experts with different opinions\. In terms of coordination, the Project’s implementation showed the importance of consolidation among ICT sectors within government, to use economies of scale, synergies, clear delineation of duties and responsibilities and authority\. 97\. A programmatic approach should be considered to support ICT projects\. In order to work with countries in a fast-changing and innovative sector such as ICT, a 31 programmatic approach should be considered to frame the Bank’s commitment in a consistent manner over the long term\. In the case of this Project, a second phase was foreseen to provide continuity and further support\. Nevertheless, the consultancies financed by the Project took almost two years of the Project’s life to be carried out and little time was left for the actual implementation of the e-Government systems\. Thus, by completion time, the countries had not had enough time to reap the extent of the benefits of the e-Government systems and opt for a second phase of this Project\. This creates uncertainties at completion and undermines the Bank’s investments in a country and sector\. There is a need for continued and strong push for the countries to further roll out the systems\. A follow up operation could provide the tools to do this\. 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies 98\. The REGU and the countries’ contributions are included in Annex 7\. (b) Cofinanciers N\.A\. (c) Other partners and stakeholders N\.A\. 32 Annex 1\. Project Costs and Financing (a) Project Cost by Component (in USD Million equivalent) Appraisal Restruct\. Actual/Latest Percentage of Components Estimate (USD (USD Estimate (USD Appraisal millions) millions) millions) Component 1 3\.54 4\.88 4\.78 135 Horizontal e-Government intervention Component 2 4\.93 3\.33 3\.31 67 Vertical Government Interventions Component 3 0\.65 0\.86 0\.95 146 Project Management Unallocated 0\.48 0\.53 0\.38 79 Total Project Costs 9\.60 9\.60 9\.45 98 Clarify that in SDR the Project spent SDR6 million (100 percent of the resources approved)\. The appreciation of the SDR against the dollar negatively affected the availability of funds for the project\. (b) Financing Appraisal Actual/ Type of Co- Estimate Percent\. Source of Funds Latest Estimate financing (USD of Appraisal (USD millions) millions) Borrowers 0\.00 0\.00 n\.a\. International Development 9\.45 9\.60 98% Association (IDA) (confirm) CDB Parallel financing 0\.00 1\.77** n\.a Total 9\.60 11\.37 118% *Country contributions were in-kind\. They are estimated to have been US$0\.95 million **SDR exchange rate to the dollar explanation ***CDB contributed a total of US$2\.5 million including the other OECS countries (St\. Kitts and Nevis and Antigua and Barbuda)\. The CDB Grants finances 3 consultancies, hardware and software for the National E-government/ICT Units and Project Management\. The grant will close in August 2014\. 33 Annex 2\. Outputs by Component Component 1 – Horizontal E-Government Interventions\. 1\.1 Policy and strategy implementation\. This subcomponent aimed at assisting the countries in the implementation of their national e-Government strategies; supporting the updating and harmonization of e- Government policies and strategies and providing a framework for regional e- Government cooperation activities\. The scope and activities carried out under this subcomponent was adjusted where planned activities related to defining the e- Government and strategies had already been carried out at national or regional level\. This subcomponent financed the M&E activities of the Project: the assessment and revision of the Project’s M&E framework, the definition of specific indicators to measure the Project’s outputs and outcomes, the preparation of a manual on the Project’s M&E, the definition of baselines and the first and following measurements to update indicators and to assess the Project’s progress, and the revision of the M&E framework after the mid-term review\. It also financed the preparation of an M&E Manual and training for the stakeholders to improve indicator collection at the national level\. This subcomponent also financed the design, development and implementation of the Web-based M&E System\. It financed training of REGU staff and stakeholders in the participant countries and delivered final User’s and System Administration Manuals\. The system was conceived to monitor EGRIP’s implementation\. Given that the system was not designed in time to be used to monitor the project’s implementation, and that the M&E framework was restructured (in April 2012 after the MTR and then, in 2013 after restructuring), the M&E dashboard is a product for future project monitoring such as CARCIP\. The M&E online system was handed over to the OECS Secretariat and countries when EGRIP ended\. M&E System training was provided to countries\. 1\.2 Legal and regulatory implementation\. This sub-component contributed to the harmonization of the legal and regulatory frameworks for electronic transactions, focusing on implementation and complementing previously EU-supported efforts\. It involved the provision of support for complementary law drafting and provision of equipment, software and training for implementation of the legislation\. It achieved the approval of the OECS Harmonized E-Government Legislation by the OECS Authority on January 2012\. The main outputs were: (i) Diagnosis (and gap analysis) and Report on Best Practices, Recommendations and Action Plan for ICT legislation in OECS countries; (ii) Report on the Institutional and ICT Infrastructure Requirements, which detailed the training and equipment required to support the implementation of the E-government Legislation\. (iii) Elaboration of the draft and final implementable versions of the OECS Harmonized E-government Legislation, given the technical and financial 34  resources at the national level\. The pieces of legislation were: the Data Protection Bill; the Electronic Crimes Bill, the Electronic Filing Bill; the Electronic Evidence Bill; the Electronic Filing Rules and Regulations; the Electronic Funds Transfer Bill and the Electronic Transaction Bill\. (iv) Review meetings held with Chief Parliamentary Counsels and Attorney Generals to provide support and explain the legislation, which facilitated knowledge transfer for the enactment at the national level\. This subcomponent also financed the provision of hardware and software to support implementation of the harmonized legislation, in particular the electronic signature\. The project financed the acquisition of hardware, software and training for the police force (except in Dominica) and for the Department of Public Prosecutions (DPP)\. In the case of St Lucia, the Royal St Lucia Police Force received the following equipment to roll out its Crime Management System: 20 desktop computers; 20 multifunction printers; 10 scanners; 20 signature pads; 10 color printers; 1 Digital SLR camera\. In the case of St\. Vincent and the Grenadines: nine desktop computers and two multifunction printers were received by the offices of the DPP and the Police\. The laws passed by each country were the following: St\. Lucia: During 2013, the Division of Public Sector Modernization (DPSM) coordinated the consolidation of the harmonized EGRIP draft legislation with the existing legislation 16 and with HIPCAR drafts to finalize the legislation\. The amended e- transaction legislation is in Parliament and it expected to be passed before the end of 2014\. The other pieces of legislation will be sent to Parliament in 2014\. Grenada: Grenada has enacted in 2013 the Electronic Evidence Bill; the Data Protection Bill; the Electronic Funds Transfer Bill; the Electronic Filing Bill and the E-Filing Rules and Regulations Bill\. In October 2013 the Electronic Transactions Act and the Electronic Crimes Act were assented by the Governor General and officially published\. Dominica: The country revised existing draft laws to reflect the Regional Harmonized e- Government legislation\. The following four bills were passed into Law on November 2013: e-Transactions bill, the e-Evidence bill; the e-Funds Transfer bill; the e-Crimes and e-Filing bills\. Two bills are pending: the Data Protection Bill and e-Crimes Bill\. St Vincent and the Grenadines: The legislation has not yet been passed\. All pieces are being revised by the attorney general and the Cabinet before they are debated by Parliament\. Additionally, the country’s existing Electronic Transactions Act 2007 was updated based on current best practices, to limit the cost of implementation (it required the establishment of a Certification Authority)\. 16 In March 2011 three pieces of e-legislation were passed: (i) the Computer Misuse Act, related to crimes committed by the use of any electronic devise and it includes cyber terrorism, identity theft and unauthorized access to secure data; (ii) the Data Protection Act and (iii) the Electronic Transaction Act\. 35 1\.3 ICT standards and the cost of ownership optimization\. This subcomponent supported the improvement of the countries’ e-Government standards and architectures and the public sector’s ICT management and investment practices\. CDB financed these activities for Antigua and Barbuda and St\. Kitts ad Nevis\. The following outputs were produced: (i) An assessment of the current E-government standards, enterprise architecture and interoperability frameworks; (ii) A report on the harmonized e-Government standards, interoperability framework, enterprise architectures; (iii) An assessment of ICT Management and Investment Practices; (iv) Development of the Total Cost of Ownership (TCO) analysis and optimization; (v) Identification of potential savings and strategy for pooled procurement of software and licenses and assistance for pooled procurement of software licenses on a pilot basis; and (vi) Capacity Building workshops to provide training on standards, service architecture, open source software and TCO optimization\. 1\.4 Regional E-government institutional framework strengthening\. This subcomponent provided assistance to strengthen the regional institutional framework for e-Government among OECS countries\. The PAD foresaw the creation of a self-financing sustainable Regional e-Government Center of Excellence to provide participating countries with policy advice and guidance and technical assistance in the implementation of ICT system in government\. However, at a regional consensus building workshop, the countries decided to implement an e-Government desk at the OECS Secretariat\. This subcomponent financed a consultancy to explore a regional e-Government institutional framework\. The main products of the consultancy were: ï‚ Report on Review of Regional E-government Institutional Framework; ï‚ Report on the Business Plan, Strategic Institutional Design and Implementation Plan for the Regional Institutional Framework; ï‚ Report on the Strategic Institutional Design and Implementation Plan; and ï‚ Draft TOR for e-Government Specialist\. The business plan included different options for an institutional framework, including creation of the Center of Excellence or of an interim e-Government Desk within the OECS Secretariat, among other possibilities\. The countries decided to reallocate the funds for this activity to other activities due to: (i) two unsuccessful attempts to hire an e- Government specialist, the preferred option by participating countries; and (ii) the countries sentiment that there was no guarantee of finding a candidate who would satisfy the requirement with the remaining project timeframe at the time\. By Project completion, 36 the OECS Secretariat had established the position for an e-Government specialist and was recruiting to fill it\. Quick Win Projects under this subcomponent The Project supported the following: (i) Dominica: it financed the acquisition of video- conferencing equipment; (ii) St Lucia: it financed video-conferencing equipment; the upgrade of the Web Portal content for the Government of St Lucia and the elaboration of manuals and training of stakeholders\. The Project financed the acquisition of software and hardware and training for DPSM and the Ministry of Public Service, Information and Broadcasting\. It financed: 17 laptop computers with accessories, 1 server, 7 tablets, security software and appliances to support 900 users and one year license; 2 Windows Server 2012 standard licenses and 25 client access licenses and 14 Microsoft Visio Professional 2013 licenses; (iii) Grenada: it financed the acquisition of key computer and accessory equipment for the Department of ICT to support Institutional Strengthening and IT networking equipment for the office of the Prime Minister in Grenada; and (iv) St\. Vincent and the Grenadines: it provided support to the E-Government unit, financing the acquisition of video conferencing equipment (software and hardware)\. 1\.5 Automated registries and multi-purpose identification systems (MPID)\. This subcomponent financed a harmonized multi-purpose e-identification system for the four participating countries, as a shared service to be used throughout all e-Government platforms and integrated with other key information systems at national and regional level\. The system provides a unique identifier for citizens across the four participating countries, key for the free movement of people and goods in the OECS economic union\. The MPID systems were developed by 3M Innovates Properties Company and implemented in countries by October 2013\. The Project financed two key consultancies: a review of the status of the existing key government registries and the development of the system\. The consultant provided technical support to link two core agencies with the MPID System\. Significant in-country and cross-country consultations and consensus building took place during implementation, with the Project’s support, for the design of the MPID systems\. By Project completion, the MPID system was rolled out in all four countries: (1) Dominica rolled out the system and linked the MPID with the Electoral Office System to verify voters’ IDs, and the Inland Revenue Department System to verify tax ID and driver’s licenses\. Dominica completed enrollment of public servants, statutory organizations and most schools, enrolling close to 4,000 persons\. Enrollment of the general public will begin in June 2014\. (2) St\. Lucia is implementing the first roll out phase with the registration of Government employees (5 percent of the total population) to be completed by July 2014\. Its MPID will interface with the Electoral System and the National Insurance Corporation System; tests have been carried out and it will be completed by the end of June 2014\. Grenada enrolled an estimated 800 civil servants in its initial phase to roll out the system\. Work is underway to interface the MPID with the Civil Registry and the National Insurance System\. St\. Vincent and the Grenadines linked the MPID to the Civil Registry and was testing it by Project completion\. 37 The main outputs of the first MPID consultancy were: ï‚ A Gap Analysis and needs assessment report; ï‚ A conceptual design, and business process reengineering Report; ï‚ A Detailed System Design for the MPID; ï‚ A risk assessment and action plan report for the implementation of the system\. ï‚ A Stakeholder workshop with all participating countries (September 2011) in St\. Lucia to present and consider the detailed technical design for the MPID\. ï‚ A Detailed specification document prepared after the decision to adopt the MPID system by the OECS Heads in January 2012\. The main outputs of the second MPID consultancy were: ï‚ A Management Plan for the Development and Implementation of the MPID system; ï‚ Supply, installation, system integration, training, support and maintenance of all technologies, hardware, software and related components of the MPID System\. (Turnkey solution)\. ï‚ A standard Application Program Interface (API) for the MPID system to interface with existing identity systems\. ï‚ Technical support to interface the MPID system with the existing Civil Registry and the Election systems / processes in each participating country, including during the guarantee period\. Other outputs include: ï‚ Hardware and software procured for the MPID system\. ï‚ Launch workshop in Grenada on January/February 2013\. Training was divided in three modules: Module A – System Administrator System; Module B – User/Operator/Supervisor training; and Module C – Technical/Engineer/Data Base Administrator\. ï‚ Project Launch, Inception Workshop, Steering Committee Meeting and Site Visits to the participating countries completed on 5 February 2013\. Component 2 – Vertical E-Government Interventions\. 2\.1 E-Government in Public Financial Management (PFM) This subcomponent financed upgrades to the standard PFM reports and SmartStream operating procedures in all four participating countries\. This activity contributed to promoting greater efficiency of public services by: (i) allowing the preparation of reports directly by users and (ii) providing access to information human resources in the public sector through the upgrade in the HR module, enabling better management through informed decisions\. The Department of Information Technology and E-Government Services of Anguilla (DITES) designed the software for reports, based on each country needs and requirements\. It produced manuals and trained staff in their use\. The main outputs under this subcomponent are the following: 38 Regarding the Development of Standard PFM Reports ï‚ Assessment of PFM Systems: PFM Gap Analysis Report and PFM action Plan; ï‚ PFM Workshop which identified PFM activities to be funded under EGRIP and workshop Report; ï‚ EOI and Specifications for Budget Module; ï‚ EOI and TOR for PFM standard reports and the SS standard operating procedures; ï‚ Evaluation of bids for PFM standard reports and the SS standard operating procedures; ï‚ EOI and TOR PFM websites; ï‚ Evaluation of Bids, EOIs and Proposals\. Regarding the SmartStream (SS) Operating Procedures: ï‚ Inception Report; ï‚ SmartStream report software, the operating instructions and Operating Procedures Manual; ï‚ Installation and testing of SmartStream report software, the operating instructions and Operating Procedures Manual; ï‚ Four-hour seminar on SmartStream Standard Operating Procedures and Manual\. 2\.2 – E-Government in Tax Administration This subcomponent financed the development and implementation of an on-line module for tax filing for all participating countries\. Through this activity, the Project promoted greater efficiency of public services\. By Project completion, citizens were able to file and pay their taxes on line\. The project focused on VAT declarations and payments, but saw that in most countries, citizens and businesses filed for other tax types as well\. The main outputs financed by this sub-component were: ï‚ An initial report to assess the tax context in each country and to serve a background materials to prepare the draft bidding documents for the e-Tax system; ï‚ A workshop to launch the front-end e-Tax filing system and summary report; ï‚ Design, Development, Installation and Training for a front-end e-Tax filing system: o E-users Registration o E-Registration of Taxpayers o E-filing of Tax declarations o E-payment ï‚ Development of the interface of the SIGTAS to e-Tax filing system, with SmartStream and Asycuda World by Dominican officials, and shared with other EGRIP participating countries\. ï‚ Acquisition of software and hardware for each country; ï‚ Training of local IT staff involved in the development of the system and trained to maintain the system in each of the participating countries\. 39  ï‚ The on-line front-end e-Tax filing system will interface, in principle, with any underlying core tax administration system, and will allow for integration with the banking system for payments and refunds\. St\. Lucia In St\. Lucia both corporations and individuals had registered to file taxes online\. By Project completion, electronic filing of VAT taxes reached above 15 percent of the total VAT declarations\. Besides VAT e-filing, tax payers had started to file their income tax online\. Registered taxpayers for e-Tax filing: ï‚ Corporations: 96 ï‚ Individuals: 569 Online Declarations: St\. Lucia VAT Tax Filing Period Total Online Percentage Declarations Declarations online March 2014 1173 158 13\.47% (submitted in April) April 2014 1183 183 15\.47% (submitted in May) Personal Income Tax (2013): 215 Corporate Income Tax: 0 Grenada The tables below show the number of tax payers who have filed and paid their taxes electronically by Project completion\. As shown below, in Grenada also tax-payers have electronically filed and paid taxes other than the VAT\. Number of taxpayers who have paid electronically by tax type Tax TYPE Number of Tax Payers Totals VAT 18 $444,460\.22 Personal Income Tax 8 $18,184\.14 Other License 2 $16,653\.08 PAYE 4 $373201\.93 Property Tax 20 $13,061\.15 Corporate Income Tax 6 $173,225\.18 Annual Stamp Tax 10 $25,869\.35 Total 68 $1,064,835\.05 Number of taxpayers who have filed electronically by tax type TAX TYPE Number Submitted Number Approved 40  Declarations Declarations VAT 140 121 PIT 25 25 PAYE 2 2 CIT 3 3 AST 9 9 TOTALS 179 160 St\. Vincent and the Grenadines As it is the case of St Lucia and Grenada, tax-payers have filed taxes electronically for several types of taxes\. The figures below show the number of e-filing declarations, compared to the total number of tax declarations by type of taxes\. Total Number of VAT Online Submissions: 836 Total Number of VAT Submissions (Online & paper based): 2768 Total Number of Personal Income Tax Online Submissions: 497 Total Number of Personal Income Tax Submissions (online & Paper based): 10,211 Total Number of Corporate Income Tax Online Submissions: 5 Total Number of Corporate Income Tax Submissions (Online & Paper based): 313 Total Number of PAYE Annual TD6 online Submissions: 2 Total Number of PAYE Annual TD6 Submissions (Online & paper based): 1958 2\.3 E-Government in Customs\. Activities under this subcomponent were reduced, due to lack of resources and the need to prioritize the Project’s activities\. UNCTAD was the only agency presenting a proposal for implementation of the Regional Customs Information System (RCIS)\. REGU and UNCTAD were not able to reach an agreement on a contract for implementation\. The main outputs were: ï‚ Customs gap analysis report: this included an assessment of the existing custom system, which included the requirements of capacity building; ï‚ Specifications for the RCIS and an implementation action Plan\. This could be used by the OECS countries in the future; ï‚ Draft TORs for the implementation of the RCIS and procurement work to seek expressions of interest (EOI) to implement the RCIS\. 2\.4 - Electronic Government Procurement\. This subcomponent aimed at supporting the improvement of the OECS public procurement systems as a key step towards regional integration\. Though it could not finance the breath and depth of the activities foreseen originally in the PAD, it successfully financed the development of an e-procurement platform to which the OECS 41 Pharmaceutical Procurement Service (PPS) could connect\. It financed the design and implementation of an e-Tendering System for OECS PPS to improve the efficiency at OECS PPS\. The system went live on 1 July 2013\. It financed an assessment of the current procurement environment of the participating countries\. This activity contributed to improving the quality and efficiency of public services through the automation of the regional procurement process for pharmaceuticals\. This subcomponent financed the following outputs: Consultancy on e-procurement platform for OECS ï‚ Report on Assessment of the current procurement environment of the participating countries; ï‚ Report on conceptual and technical design of the regional e-procurement platform; ï‚ Report on Assessing alternative implementation options, such as using a Public Private Partnership framework for e-procurement; ï‚ Revised Detailed Action Plan for the implementation of a partial e-Tendering System for OECS PPS (public procurement system) and specifications\. Consultancy for e-tendering system for OECS Pharmaceutical Procurement Services (e-PPS) ï‚ Initial workshop to launch the consultancy and report on the workshop; ï‚ Report on the design of the electronic procurement platform for the OECS; Pharmaceutical Procurement Services (PPS) using an e-Tendering system (EPPS); ï‚ Implementation of the Electronic Tendering System to assist the OECS Pharmaceutical Procurement Service (PPS) to carry out its pooled procurement mandate\. The consultant firm implemented the ePPS, providing training, and relevant support / maintenance during a two-year warranty period\. The Project financed the hosting of the system for two years as well\. ï‚ Provision of Training (June 2013) to users:  OECS PPS / Chief Medical Store Managers  Policy Makers  Suppliers The content of the training concentrated on the e-PPS system including the core PPS “pooled procurement” flow; the use of the system for other types of procurements and its benefits\. ï‚ Key documents produced: End-users Buyers, Suppliers and Administrators Manuals and documents on support procedures\. 2\.5 - E-Government in Health and other Social Productive Sectors\. This subcomponent provided an assessment of the health information systems in the participating countries, the requirements for the establishment of a regional HIS and the requested support for each participating country to strengthen their national HIS\. It 42 financed individual country projects, identified as quick wins by the national teams under this subcomponent\. The main outcome of this activity was to strengthen the national HIS in each country as perceived by the Borrowers, as a key previous step to a future regional HIS\. The Project financed the following outputs: ï‚ An Assessment and Conceptual Design of a Regional Health Management Information System (RHMIS); ï‚ A Report on the Assessment of the Current and Proposed Systems in the four countries and a Summary Assessment at the Regional level; ï‚ Report on Conceptual Design and Requirements Definition, with options for Free and Open source system; ï‚ Detailed Technical Design of the RHMIS; ï‚ Technical Specifications for bidding documents for the acquisition and implementation of the RHMIS\. ï‚ Identification of resources to assist the national Health Information System (NHIS)\. o For Dominica and Grenada: the implementation of an Open Source National Health Information System (NHIS)\. o For Saint Lucia: procurement of equipment to support the NHIS\. o For St\. Vincent and the Grenadines (SVG): consultants for Policy Development, Legal Framework Assessment and Regulations and training for health staff\. Equipment ï‚ Upgrading the Infrastructure for Government’s Web Portal SVG -(Firewalls, Routers, Servers and rack); ï‚ Expansion of the St\. Vincent and the Grenadines Government’s Intranet Backbone\. ï‚ Equipment for Roads, Buildings and General Services Authority of St\. Vincent & the Grenadines (BRAGSA): networking equipment, computers and printers and personnel training\. ï‚ Equipment For National Health Management Information System (NHIS)- GRENADA computers; ï‚ Equipment for National Health Management Information Systems (NHIS) – for St\. Lucia and Dominica (networking equipment and computers)\. ï‚ Network servers for Grenada and St\. Lucia\. ï‚ Networking equipment for the Ministry of Health of St\. Lucia and Grenada\. Component 3 – Project Management\. This subcomponent financed: (i) renting office space, equipment (computers) and furniture for the REGU; (ii) operating costs and salaries of REGU staff (Project Manager, Country Based Specialists, FM and procurement specialists and secretary); (iii) annual external audits; and (iv) communication and outreach activities\. 43 Annex 3\. Economic and Financial Analysis The PAD did not include a calculation of the NVP, ERR or FRR for the program or the project as a whole because it was not deemed pertinent for a program of this nature\. Instead, it focused on laying out the overall economic relevance of the program for the region and carried out a selected cost-benefit analysis\. The PAD focused on the broad economic impact on the OECS region of this Project; on how EGRIP would contribute to create the necessary conditions for broader economic reforms\. The PAD mentioned that the economic impacts would not be attributable exclusively to the Project and they would be influenced by externalities\. Efficiency gains through the e-Tax filing system: The implementation of the e-Tax filing system, in its first months of implementation, has shown the following benefits: (i) Savings in time for tax payers to file the tax returns\. (ii) Reductions of costs for tax payers (physical filing of taxes and payments in person, cost of transportation, looking for parking in busy cities, time spent in lines); (iii) Savings for the Inland Revenue Departments, which will not need additional spaces or hire staff around peak tax time; (iv) Greater accuracy of tax data through the reduction of human error; and greater access to accurate and standardized information requested by taxpayers that is readily available; (v) Greater potential savings from redeployment of staff members who will not need to work on tax paperwork (mentioned in St Lucia) Participating countries had not yet quantified these expected savings by Project completion\. The IRDs in each country stated their interest in doing so, to allocate savings to other tasks\. Reduction in Administrative Cost of OECS Pharmaceutical Procurement: The use of the EPPS allowed a reduction in administrative costs (defined as the number of days saved, multiplied by daily administrative cost)\. The PPS at the OECS Secretariat provided an estimated cost of US$75\.00 daily and a savings of 23 days\. Also included is an estimated US$800 for travel and per diem for countries participating in the evaluation process, per procurement cycle\. The PPS estimated that total savings by the reduction in the administrative cost of procurement of pharmaceuticals by using the e-procurement system would reach 66 percent of the previous administrative costs of this process\. Table 1: Reduction in Administrative cost of OECS Pharmaceuticals Procurement Activity Without With e- Difference Original Cost % e-PPSS PPSS (days) Cost Savings Savings (days) (days) (USD) (USD) Request/Collate Forecast 20 10 10 1500 750 50% 44 Collate- Bid Invitation 5 2 3 375 225 40% Send Invitation-Close 5 1 4 375 300 20% Tenders Open Tenders-TAC 1 0 1 875 75 91% Meeting Evaluation 10 5 5 750 375 50% Approval-Contract Award 15 15 0 1,125 0 100% 56 33 23 5,000 1,725 66% Source OECS PPS (Feb 2014) Efficiency gains from value for money: The REGU made great efforts to maximize the outputs of the Project through the well-managed procurement of goods and services\. It negotiated systematically to attain the maximum possible in the services and goods contracts\. As an example, the REGU succeeded in obtaining guarantees and maintenance services for the three main systems to be active, after they were installed and the Project was completed\. This was critical for the MPID system, given the completion of the Project by the end of February 2014\. The Project most likely had a smaller impact than what was envisioned in the PAD, as the number of systems that was feasible to finance was smaller than foreseen, due to the systems’ cost, the available implementation time and the readiness and priorities of the participating countries\. Of the several overarching goals considered in the PAD, the Project prioritized interventions that would support in the medium to long term the regional goals of creating a common labor market, the development of the private sector development and fiscal harmonization\. The Project contributed to advancing momentum towards the Economic Union for the OECS countries\. For the first time in the ICT sector, the OECS countries, with the Project support, carried out pooled procurement for the development of the e-Government systems and the equipment to implement them\. This regional coordination allowed the countries to realize savings in the acquisition of equipment\. The Project backed a regional approach to e-Government that was perceived as a meaningful support to the regional economic integration\. This perception was confirmed during the ICR mission interviews with the leadership of the OECS Secretariat as well as with the members of the RTC and key stakeholders\. 45 Contributing to the goal of fiscal harmonization, the PAD highlighted that the OECS Economic Union would benefit from the implementation of a joint system to monitor and collect VAT\. The PAD addressed a regional tax system to be supported by the project, to reap advantages and avoid the multiplication of costs of national systems\. By Project completion, all countries were using a common on-line model for e-Tax filing system, designed for all four countries with national adaptations\. Contributing to the goal of private sector development, the Project contributed to the creation of a common legal environment, as foreseen in the PAD\. With the simplification and harmonization of legislative and regulatory framework at national and regional level, the Project visibly contributed to a key dimension of the OECS political and economic union\. Harmonization of e-legislation was a key step to enable the implementation of e- Government applications and to operationalize e-Government\. Legislation was passed for six areas: electronic transactions, electronic funds transfer, electronic filing rules, electronic evidence bill, electronic crimes and data protection\. The legislative achievements are key steps for improvement of quality of the provision of public services; of increased transparency; of increased regionalization; and a key step for enabling regional economic development\. Though adopted at regional level, the countries need to complete the enactment and implementation of all pieces of the harmonized legislation to reap the benefits for the public and private sectors\. Contributing to the goal of creating of a Common Labor Market, the Project supported the development and implementation of the MPID system, which is providing a unique personal identifier to citizens across the four countries\. A national identification system is considered key for the full free movement of people and goods and to enable a simplified and more agile business environment in the region\. Since the MPID system is still in the stage of registration, the economic impact is yet to be realized\. 46 Annex 4\. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Responsibility/ Names Title Unit Specialty Lending Juan Navas-Sabater Task Manager TWICT Roberto Panzardi Co-Team Leader LCSPS Kashmira Daruwalla Senior Procurement Specialist CITPO Tanya Gupta RM Officer LCSPS Svetlana Klimenko FM Specialist LCSFM Wolfgang Koehling Economist LCSPS Enrique Fanta Sr\. Public Sector Specialist LCSPS Anat Lewin Operations Analyst CITPO Daniel Cooper Junior Professional Associate LCC3C Badrul Haque Sr\. Country Officer LCC3C Rachel McGolgan Communications Officer LCC3C Rolande Pryce Country Lawyer LEGLA Miguel-Santiago Oliveira Finance Officer LOAFC Randeep Sudan e-Gov\. Practice Leader CITPO Snezana Mitrovic Lead Procurement Specialist LCSPT Patricia Macgowan Sr\. Procurement Specialist LCSPT Cletus Bertin Consultant CITPO Theodore Gering Consultant CITPO Samia Melhem Peer Reviewer CITPO David Gray Peer Reviewer LCSDE Supervision/ICR Juan Navas-Sabater Co-Task Manager, Sector Leader ECSST Co-Task Manager, ICT Policy Anat Lewin TWICT Specialist Co-Task Manager, Lead ICT Doyle Gallegos TWICT Policy Specialist Alan Carroll Operations Advisor TWICT Sandra Monica Tambucho Senior Financial Officer CTRLN Gurchuran Singh Senior Procurement Specialist TWICT Lead Financial Management Svetlana Klimenko LCSFM Specialist Kerry Crawford Financial Management Specialist LCSFM Edith Ruguru Mwenda Senior Counsel LEGAM 47 Martiza Rodriguez De Pichardo Financial Management Specialist LCSFM Eva Clemente Miranda Junior Professional Officer TWICT LCSFM Julia Conter Ribeiro Senior Financial Assistant Tatiana Cristina O\. de Abreu Souza Finance Analyst CTRLN Tasneem Rais Program Assistant TWICT Janina Flores Ramirez Program Assistant IFC Batzul Dashdorj Program Assistant TWICT Samia Benbouzid Program Assistant TWICT (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including No\. of staff weeks travel and consultant costs) Lending FY07 17\.68 123,681\.73 FY08 39\.15 226,913\.63 FY09 1\.80 9,417\.34 FY10 6\.00 31,058\.92 Total: 64\.63 391,071\.62 Supervision/ICR FY09 20\.85 114,301\.42 FY10 24\.40 129,389\.36 FY11 19\.70 110,004\.54 FY12 20\.94 107,741\.35 FY13 22\.68 95,652\.96 11\.63 FY14 65,447\.72 Total: 121\.12 622,537\.35 48 Annex 5\. Beneficiary Survey Results The PAD foresaw carrying out surveys to collect results data as part of the M&E framework\. These could not be done due to resource constraints under the project\. Instead, results and outcomes were captured through focus groups meetings, held on February 3rd, and 4th and 10th\. The focus groups gathered data on the quality, user satisfaction and functionality of existing e-Government systems in an effort to compare the systems prior and post Project interventions\. The focus groups covered the three systems supported by the Project: the EPPS, the E- Tax System and the MPID system\. They included stakeholders in each country who had had interactions with the systems\. The focus groups included a sufficient number of internal users\. The number of external users was limited in the case of all three systems, given the timing of implementation of the e-Government systems and the need to carry out the focus groups before Project completion\. In the case of MPID, the systems was in the early stages of roll out; in the case of the EPPS, it was being used for the first larger procurement of medical supplies and this process was not yet completed and in the case of the e-Tax filing, the system was in the initial phases of implementation\. The focus groups concentrated on two themes: (i) a description of the service experience prior to and after the implementation of a new system and (ii) the stakeholders concerns and recommendations\. The stakeholders’ concerns about technical issues raised in the focus groups were communicated to and addressed to the maximum extent possible by REGU\. Main Focus Groups Findings E-Tax filing system Participants unanimously agreed that the OECS and Norway Registers Development (NRD) requested and considered all input for the development of the E-Tax system from the inception of the design phase through to its development and testing phases\. The final end product met expectations, which gave countries the ability “to easily sell to staff to encourage use\.” Overall feedback of the system was positive\. Participants rated quality, satisfaction and functionality from 7-9 using a ten-point scale where zero is poor and ten excellent\. The Data Sheet and the Achievement of Outcome sections contain information on the ratings of each aspect of the system\. The front-end e-Tax filing system was being rolled out in all four countries when the focus group was conducted\. Participants highlighted the following positive experiences and advantages of the E-tax filing System: ï‚ Dramatic increase in the speed with which applications can be filed for both external and internal user perspectives; 49 ï‚ Ability to file 24 hours a day, seven days a week, making it possible to receive a filing date on days the IRD is officially closed and extending the time for filing on any given day up until midnight; ï‚ Virtually instantaneous provision of filing receipt; ï‚ Flexibility in payment options: either credit/debit cards or account-to-account transfers when this option becomes available\. At the time of the focus group, only Grenada offered on-line payment; ï‚ Money saving because electronic applications are created, reviewed and filed electronically using the internet, ï‚ More accurate filing receipt information because it is transferred directly from the database containing the information entered by the applicant, which is validated and does not require manual reentry; ï‚ There is more efficient review of the applications because they are in a standard format\. ï‚ Increased productivity in some areas\. Across all focus groups in the four countries, participants reported satisfaction with the system and positive feelings about its implementation\. As noted by a respondent who participated; “Although I have not used the VAT to file online, I have used it to do my personal income tax and it was really fast and easy\. Cant’t wait to do the VAT\.” Similarly, another respondent who works at the IRD stated when asked if the system met with expectations said: “I do not miss the data entry, so yes it did meet my expectations!” Participants were asked to rate the quality of the E-Tax filing system using a scale from 1-10 where zero is poor and ten is excellent\. Of the seventeen participants, two chose to abstain from the evaluation process on account of their limited interaction with the system\. This is the rounded average based of the scoring system by participants\. Quality Functionality Satisfaction 8 7 8 Main Issues and Concerns In all focus groups, participants discussed a variety of factors that either fostered or impeded the functioning or quality of the system in any way\. The main ones are quoted or reflected below: Persons who do not conduct business any place or who do not have a fixed address for the business, the system does not provide an option to file\. 50 Seventy percent of participants commented that the “Validate” button was confusing and a little ambiguous and “Calculate” would have been a better option\. In some case s the “register” and “validate” buttons are not seen\. I do not like the way the forms are validated\. Only when you are finished it will point out the mistakes\. Participants chose to highlight aspects of the system not being evaluated but are important to emphasize\. Six participants did share this respondent’s comment: We have an increase in productivity with the VAT because we do not have to do the data entry but the PAYE is terrible\. It is easier for those on the front end and they can do it in one day\. But we on the back end are having the trouble because the system is not accepting the uploads and we have to do the input manually because of some technical problems\. Database administrators are very alarmed that IT and Office administrations are on an equal level: I have been in IT so long and I have never seen anything like this\. I find it ridiculous that an office administrator has the same rights as me\. They can change passwords, assign levels of security\. If there is one thing I do not like it is this\. Participants highlighted that the system invalidates VAT after a certain date or calculates late fees for personal income tax because a due date is not included on the form\. Asked whether changes can be made to the form the following was the response: Of course changes can be made but the software used for the form development is very heavy and in my opinion unnecessary… there should be red flags on user registration to let me know if there are any forms pending\. I always have to go into the system to see if any are pending to validate\. One area of concern was the lack of succession plans for the newly acquired skill set of technical staff and the probability that the trained staff will leave for other lucrative jobs\. Grenada in an attempt to address this has hired a local company to look at the different aspects of the database and plan for code modifications if needed by the government\. The E-Pharmaceutical Procurement Services System (EPPS) Before Project completion, the system was used for the Antiretroviral (ARV) Medicines procurement cycle and the Pharmaceuticals and other Medical Products procurement cycle, though this procurement cycle had not been completed\. All users - the Chief Medical Stores Managers and Pharmacists, the PPS and the pharmaceutical suppliers - expressed extreme satisfaction with the system\. 51 Positive System Experience as expressed by participants: ï‚ The collation and manipulation of spreadsheets from forecast requests is now automatic; ï‚ The time taken to prepare requisition and purchase orders has been significantly reduced; ï‚ Improved efficiency through automated contract awards; ï‚ There is a virtual elimination of paperwork and paper handling; ï‚ Significant reduction in errors and increased productivity; ï‚ The entire bidding process is completely transparent; ï‚ Disqualifications are automated\. The EPPS, in comparison to the e-Tax filing system and the MPID system generated the most excitement among users\. In addition to the many advantages of the system, Focus group participants commented on how comfortable they were with the new system and its ease of use\. Suppliers in particular, expressed that all their concerns and fears over the years have been fully resolved with the advent of the system\. The EPPS has resolved the Suppliers’ suspicion regarding PPS award of contracts: What I really like about the system is that the bids are opened simultaneously and I can see where I stand in relation to other suppliers\. I really like the fact that I do not have to travel any more\. I don’t even have a problem with the disqualification process because the system shows me why I was disqualified\. The costs savings is beneficial to all stakeholders\. The PPS no longer has to invite selected countries to its head office to verify bids\. Suppliers no longer need courier services or travel to deliver bids\. There is no longer any pressure on the PPS to accept late bids from suppliers\. We had a big problem with suppliers sending their bids at the last moment …\. I think that they thought that we tampered with the bids and sometimes like if there was a problem with the weather or delays with the courier the bids will come in late and by law we can only accept a late bid if the postal service goes on strike\. …\.now they have up to midnight on the deadline to send their bids and have no one to blame but themselves if they are late\. The steps involved in awarding contracts for ARV and Pharmaceutical and other medical products are long and tedious\. Preparation of requisition orders and purchase orders was also very time consuming\. One respondent related it to being: “\.An arduous nightmare that I never look forward to… but now I can click a button and I am happy\.” 52 The purchase orders are generated from requisition orders automatically once the requisition is approved by the Ministry of Health\. This can take as much as five to seven working days based on country policy and procedural guidelines and falls outside the purview of the system\. The system has improved the quality of work, efficiency and resulted in time-savings because some requisition orders have as many as two hundred (200) items\. Overall participants indicated that they participated in the development of the system from start to finish\. It was very user friendly and the training provided was thorough with very detailed manuals\. The system met and in most cases surpassed expectations\. Users were “delighted” that the system provides ease of retrieval of information and data\. There were no supplier requests for information on tenders/bidding process/drugs during the last procurement cycle to the PPS because the information is readily available on-line due the transparent nature of the EPPS\. Issues and Concerns The only issue for concern to all users is that the platform is based on Cost Insurance Freight (CIF), which accommodates budgeting and does not allow for Free on Board (FOB)\. FOB affects purchases of small quantities as the application of insurance and freight will vary\. One supplier using an Apple Computer could not access the system switched to a PC to gain access\. Another supplier also using Apple computers reported no issues\. Participants were asked to rate the quality of the EPPS system using a scale from 1-10 where zero is poor and ten is excellent\. This is the rounded average based of the scores by Twenty-four (24) participants\. Quality Functionality Satisfaction 9 9 9 Multipurpose Identification Systems (MPID) The focus groups on the MPID were carried out for all four countries though the questions on the systems use focused on Dominica, which the only country with had successfully linked the MPID System to the Electoral Office System and to the IRD system\. Focus groups participants had been involved from the inception of the system development and received training that was considered adequate and effective\. One of the most interesting aspects of the focus group meetings for the MPID system was the feeling of the lack of ownership of the system from some countries\. Participants gave the following comments: 53 We know there is a target we have to reach for the bank of forty percent for data entry and we will have to try to see what we can do to get there\. When asked when the system will be rolled out: I do not know\. I am not sure what is planned\. The station was set up in the office, but we have not used it yet for registration or made any links\. We intend to use it but I don’t know when\. The focus group meeting surfaced that there was some ambiguity with the objective of the MPID system with a minority of participants: My understanding was that the system was to be used to reform the Civil Registry, births, deaths and so on and replace what is there now with something feasible so that we could follow a person from the time of their birth on to death\. So I must say that the system did not meet my expectations\. Another respondent did provide the following: I always viewed the system as a means to harmonize all other systems\. It has met my expectations in that I know what it can do because of the training we did, but I have not used it since our training finished\. System Operations Dominica’s focus group discussion focused on the MPID System implementation in the country\. Overall the system has met expectations\. “It is doing what it is supposed to do… helping the public and providing secure identities through biometrics\.” The successful implementation of the MPID System has forced the office to seek larger accommodation\. This move will be to the new Electoral Office, which has the required space to meet the demand\. The few systems bugs are most evident when the office is busy with enrollees\. Issues range from scanner hang ups, to camera not responding or the inability to save because of general system failure (freezing)\. These issues are being addressed and should be resolved within six to eight weeks\. Have they been resolved? This is the one dislike from Staff and users because reboots are time consuming\. I must say when the system is not working properly it is so embarrassing dealing with the people that [are] there and I always have to call [IT personnel] for help\. 54 The MPID system end users knew what was required to register in the system\. There was some understanding that it was important to do\. However, just one of the nine participants17 was able to truly describe the benefits of obtaining the ID and card: Not too sure of the benefits to me\. Was asked to go because it was our ministry’s turn\. Not sure what the benefits are right now but I am sure there are… I know I will need one (card)\. The national ID will allow me to facilitate travel in the region\. It will keep me safe from someone trying to use my ID …\. The focus group tried to measure the Quality of the MPID system measured through focus groups\. Although not in use in three countries quality, functionality and satisfaction were still ranked high\. This is the rounded average based of the scores by nineteen (19) participants\. Quality Functionality Satisfaction 8 7 8 17 The focus group report indicates that, despite its many advantages focus groups are not without limitations\. Findings from this discussion are not quantitative, nor can they be generalized to the target population as a whole\. 55 Annex 6\. Stakeholder Workshop Report and Results N\.A\. 56 Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR The Borrowers’ comments section includes inputs from REGU and three of the four Borrowing countries\. Comments by Grenada were not received\. REGU’S Comments I - Main Challenges Issue 1: Insufficient funds in Project Budget Resolution 1: • CDB grants for the four IDA countries, Antigua and Barbuda and St\. Kitts and Nevis\. • Approval given by World Bank at the Mid-Term Review for the reallocation of funds\. • Approval given by World Bank for restructuring of Project\. Issue 2: Costs of goods and services were based on industry prices determine during design\. Actual costs were higher than the budgeted costs\. Resolution 2: • Outputs /deliverables from similar ICT or E-government Projects were used EGRIP input\. • Notices were circulated as widely as possible\. • BIDs Negotiated to get value for money\. • Activities were prioritized based on consultations with the stakeholders\. Issue 3:Delays in receiving timely responses from stakeholders\. Resolution 3: • Discussed impact of delays with stakeholders\. • CBSs followed-up and liaised directly with national representatives to get timely responses\. • The REGU followed-up and liaised directly with the World Bank and the OECS Secretariat to get timely responses\. • Workshops, meetings and consultations held at key decision points\. Issue 4: Lack of enactment of Legislation\. Resolution 4: • Provided support to operationalize systems: – Grenada enacted all the legislation, except the Electronic Crimes Bill\. – Dominica enacted all the legislation, except the Data Protection Act\. – Use of existing tax legal framework and the User Agreement for the e-Tax filing System\. – User Agreement developed for the Electronic Procurement System for OECS PPS\. – Developed Consent forms for fingerprints\. 57 II - Lessons learned ï‚ Consultations were held with all stakeholders to develop the strategic priorities, implementation plan, procurement plan and budget\. These initial consultations were important to align the project activities to the national priorities and build consensus and ownership with the stakeholders\. • On the job training and coaching were provided to the members of the REGU team\. This increased their technical skills and competencies to perform their duties\. • Country representatives were required to participate in the procurement processes (approval of specifications, bidding documents and contracts above specified thresholds), which resulted in ownership of the activities\. • Focal teams were identified for each beneficiary institutions and meetings held at decisions points\. This increased the level of support and commitment at the national and regional levels\. • The quarterly meetings of the RTC and the composition (one representative from each participating country, the OECS Secretariat and the CDB as an Observer) provided: – Support for the removal of bottlenecks; – Alignment of the project to the national priorities and policies; – The resolution of issues; and – The successful implementation of project activities\. • The Country Based Specialists (CBSs) played an important role in coordinating activities at the national level and worked closely with the stakeholders to ensure that the project activities were implemented on time and within scope\. The use of a CBS is recommended for other regional projects\. • The budget was managed to ensure that there were sufficient funds for the implementation of the major e-Government systems\. Therefore, the disbursement rate was low during the implementation of the consultancies and then increased during the implementation of the major e-Government systems\. • Targeted support was required for the implementation and utilization of all the major e-Government systems\. This included Monthly Senior Steering Committee meetings, which were held via Cisco Web Ex for the MPID System, meetings of the Tax Focal Team (Champion and technical staff) and meetings with the Team for the Electronic Procurement Process for the EPPS (PPS and the Chief Medical Stores Managers / Pharmacists)\. • The OECS Secretariat provided significant technical support to the REGU in terms of the utilization of the staff to review procurement documents, financial reports / statements and provide legal / technical advice\. It is recommended that for future projects that this support is quantified so that it can be attributed to the OECS Secretariat in terms counterpart resources for time spent on project activities\. • The scope of future E-government / ICT projects, i\.e\. the number and complexity of the activities, must be used to realistically determine budget and duration\. 58  • The budget for future projects must be determine by conducting market research on the cost of goods and services in the relevant region (example the OECS and the Caribbean) and then adding ten to fifteen percent for future increases in market prices given that the loan approval process is two to three years\. • All projects should have a Project Preparation Facility (PPF) to (i) establish the Project Implementation Unit, (ii) achieve the conditions precedent to the project and (iii) complete the also to develop the TORs / technical specifications for the various activities\. • The project implementation duration should begin after the completion of all activities under the PPF\. This will enable the successful completion of the project within the implementation duration\. • Future projects must include process re-engineering, change management and public relations activities to facilitate a greater pace of utilization of the e- Government systems\. • The calculation of the project duration must factor the election cycle of the participating countries and the delay in project implementation when there is a change in government and Senior Public Servants\. • Funds must be made available to hire additional resources (temporary staff so that core beneficiary staff can be seconded on a full time basis) to assist at the beneficiary institution to focus primarily on the implementation of the e- Government / ICT solutions\. • The Loans and /or grants should be denominated in a stable currency (example USD) to prevent adverse rate changes, which cause deficits in the budget\. Dominica’ Comments I -Main project outcomes and achievements by project completion: Policy and Strategy Implementation – the work undertaken in this area has contributed to the strengthening of e-Government policies and processes\. Dominica has been shifting focus from public sector reform to public sector transformation, utilizing e-Government and ICTs as the platform to foster and create the enabling environment for increased growth and development\. The policy formulation and development activities involved a range of stakeholders who will play a key role in implementation of the recommendations and guidelines\. Legal and Regulatory Framework Implementation – Dominica has received the suite of E-Government Legislation and has passed in Parliament the Electronic Transaction Act, Electronic Filing Act, Data Protection and Security Act,\. In recent times, in addition to the EGRIP systems, significant reorganizing and modernizing initiatives have been undertaken, both sector-specific as well as cross-cutting public administration\. The e- Government legislation is critical to provide the legal and regulatory framework for effective and sustained implementation\. Currently, Government is working with the Commonwealth Secretariat in advancing work in cyber security and the legislation will support the efforts in identifying and combatting criminal activity within our networks\. 59 ICT Standards and Total Cost of Ownership Optimization Total Cost of Ownership (TCO) has now provided the government with an understanding of the factors that influence the costs of operating IT assets\. Due to TCO, the government can now see the avenues for cost saving as it relates to IT assets\. In the past, the Government of Dominica would purchase IT Infrastructure without giving consideration to the full range of costs associated with operating or implementing that particular infrastructure\. The TCO model is allowing the government to move beyond a straight line comparison of infrastructure cost i\.e\. comparing cost of infrastructure by manufacturer or seller to a more realistic examination of all the cost (tangible and intangible) associated with implementing and operating the infrastructure\. ICT Equipment Procurement of the ICTs Equipment for use in the ICT Unit has provided tremendous benefit to the work of the Unit\. Through the new technologies of video-conferencing system and CISCO WEBEX, communication with stakeholders internally and externally has improved\. There has been in a reduction in the cost of attending meetings overseas, productivity has increased as the video conference system provides real time discussions and decisions making opportunities\. Systems are more secured with the procurement of the hardware and software firewalls\. The ICTU is better able to bring its e-Government applications to the wider public with the use of the laptops and the multimedia projectors\. Multi-purpose Identification System (MPID) The MPID is viewed as an effective system for official national identification\. Registration commenced with Government workers and employees of Statutory Bodies\. The total to date is 2, 930\. Registration for the private sector and the general public will commence shortly\. The financial institutions are in agreement that the MPID card would now become the official identification card and it is anticipated that revenue could be generated from verification of the card on-line\. The Dominica Social Security has no objection to utilizing the card for social security purposes\. However, the Dominica Social Security Act would have to be amended since the Act gives the Director the authority to issue cards\. The MPID card will also be used for electoral purposes\. The Government of Dominica had committed itself to the introduction of voting cards and hence cost savings have been realized since Government did not have to expend new resources to implement a separate system\. Additional revenue collection measures to sustain the system are being considered such as fees for replacement cards and for lost or damaged cards\. Amendment to the Elections Act is being finalized to allow the Electoral Office to issue the cards\. E-Tax Filing System To date, the system has recorded 391 users\. Filing returns for VAT, Personal Income Tax and Corporate Tax are 36, 163 and 3 respectively\. Feedback from persons filing on line indicates that the system is easy to use as well as significant reduction in completion time and errors since the system is self-calculating\. The greatest challenge now for sustainability of the system is the introduction of the electronic payment component, which has been delayed pending the finalization of the agreement with the bank\. 60 Open MRS The Open MRS has the functionality and interoperability standards to integrate with that architecture\. Ninety (90%) of the hardware has been deployed, including computers, laptops, wireless routers and network equipment\. The software application, Open MRS, has been customized and is currently undergoing final review and testing in preparation for complete deployment\. Relevant departments are also reviewing Standard Operating Systems (SOPs) and processes in preparation for complete roll-out of the system\. A full demonstration of the system was conducted in April 2014\. Open MRS covers the basic needs of the doctors and administrators with the added benefit of easy to customize to suit the needs of health services in Dominica\. Dominica has embarked on a plan to create a national e-Health architecture\. Conclusion The main challenge with implementation of the EGRIP had been coordinating with all the stakeholders to ensure that timelines were met for the various activities\. However, the engagement of Country Based Specialists was critical in facilitating the timely implementation of the project\. Saint Lucia’s Comments I – Project Outcomes and Achievements The overall development objective of the E-Government for Regional Integration Project (EGRIP) was to promote the efficiency, quality, and transparency of public services through the delivery of regionally integrated e-Government applications that apply economies of scale\. The Project focused on cross-sectorial e-Government issues and on specific applications in the public finance area (including Public Financial Management (PFM), tax, customs and procurement), as well as in health\. At the national level, the project was expected to assist in creating an enabling environment, which would facilitate the leveraging of ICTs to improve Government service delivery and the ease of doing business\. This is in keeping with the current administration’s aim “to modernize our economy and society and bring Saint Lucia fully into the international economy\.” Moreover, the project would relate directly with the vision of the Government of Saint Lucia for ICT, captured in the draft National ICT Policy and Strategic Plan 2010 - 2015 as follows: “Improve the quality of life in Saint Lucia by embracing ICT to promote development, innovation and global competitiveness thereby enabling sustainable social and economic growth\.” Despite the reduction in project scope, due primarily to the limitations in funds available, the EGRIP is still being heralded as a success having completed and implemented the more critical activities and systems\. The key successes in Saint Lucia include: Automated Systems: 61 Through the EGRIP, Saint Lucia was able to benefit from the implementation of three (4) systems at the national and regional levels: ï‚ E-Tax Filing System – which revolutionized the way in which taxpayers conducted business with the Inland Revenue Department commencing in the latter part of 2013 with Value Added Tax (VAT) declarations and then with Income Tax declarations early in 2014\. By April 2014, the Department could boast of a 13\.47% rate of taxpayers submitting VAT declarations via the online system\. ï‚ Multipurpose Identification System – The system gained operational acceptance in November 2013 and steps are being undertaken towards having the go live and the issuance of MPID cards to replace the Electoral ID cards currently in circulation\. It is anticipated that this system, when adequately populated, will become established as the authoritative system in terms of the identification of persons in Saint Lucia\. ï‚ PFM Reporting System – This reporting system interfaces with the currently used Public Financial Management system, SmartStream, and provides the convenience of easily produced reports for the purposes of accounting, budgeting, and human resource management among others\. ï‚ At the regional level there was the implementation of the e-Tendering system for the OECS PPS which could be considered the region’s pilot e-tendering system\. The resulting benefits have already begun to accrue to Saint Lucia as one of the participating countries in the pooled pharmaceutical procurement\. Equipment: Besides the equipment associated with the systems implemented, the EGRIP provided much needed equipment to the Ministry of Health, to facilitate the rollout of the National Health Information System, and to the Royal Saint Lucia Police Force, to facilitate the rollout of its Crime Management System\. In both instances, the equipment provided has been used to furnish wellness centers/stations around the island to expand the access to the automated systems supporting the institutions and ultimately to improve their service delivery\. Legal and Operational Frameworks: EGIRP delivered draft legislation regulations necessary to create the ideal environment for e-business\. This legislation covered the areas of electronic transactions, data protection, electronic crimes and electronic evidence, among others\. In 2013, the Division of Public Sector Modernization (DPSM), through additional assistance provided by ITU, coordinated consolidation of the draft EGRIP legislation with existing and HIPCAR drafts to finalize the legislation in preparation for tabling in Parliament\. Thus far, the Electronic Transactions Bill has been tabled while other legislation is expected to be brought before the House later in 2014\. Saint Lucia also benefitted from the frameworks and reports developed and training conducted\. The areas of e-Government Institutional Framework, Government Enterprise Architecture, Total Cost of ownership, Pooled Procurement and Monitoring and 62 Evaluation, as well as for the establishment of a Regional Customs Information System, Regional Health Information System were covered among others\. These tools are already being used as input into the various ICT and e-Government policies and strategies being developed by the DPSM through the e-Government Taskforce, ensuring that fundamental principles, best practices and lessons learned are factored in\. II – Main Implementation Challenges During EGRIP implementation, challenges faced by Saint Lucia were mainly at the decision making level in terms of continuously re-prioritizing as the shortfalls in financing became apparent\. These shortfalls were primarily due to the underestimation of the costs associated with the planned project activities and was compounded due to the unfavorable fluctuation in the exchange rate of the SDR\. In addition to forgoing some project activities and reallocating funds to those identified as higher priority, the Government of Saint Lucia would have contributed to reducing costs wherever possible\. In the case of the MPID implementation, assumptions were made regarding preparedness of the Civil Status Registry\. However, the modernization of the Registry is still a work in progress with records being cleaned up and processes automated\. Additionally, the is the issue of staffing a Vetting Unit which requires an innovative response due to the current economic situation in which the option of additional employees may not be feasible\. The need for the revision of business processes was a recurring issue being highlighted\. In some cases business processes are antiquated and do not lend themselves to the proper implementation and efficient operation of the electronic systems\. Unfortunately, process reengineering was beyond the scope and budget of the EGRIP\. However, the intention is to review and address business processes issues as part of the DPSM work programme\. III – Lessons Learned The initial scope of the EGRIP had to be reduced quite a bit\. Some systems and a few project activities which were initially planned had to be forgone due to costs being significantly underestimated and, as a result, the agreed financing being inadequate\. This experience highlights the need for more diligence and in-depth analyses in arriving at cost estimates during the project appraisal stage of future projects\. The result would be a smoother and more efficient implementation and the greater likelihood of success in achieving all project objectives\. The Project underscored the importance of coordination and the savings and benefits which are possible through coordination, such as economies of scale or reduced duplication of effort\. For a small island state, such coordination at the regional level, both with other countries and with regional agencies, and even more importantly at the national level is critical to maximizing investment and efficiency\. One area in which the Project fell short was the absence of activities to address any necessary revision of business processes\. Future projects should factor in BPR/BPM activities as this is critical to the adoption and satisfactory utilization of systems\. 63 The EGRIP was quite a complex and ambitious project which not only included multiple participating countries but also involved multiple government agencies within each country and diverse groups of stakeholders\. Nonetheless, it was successfully managed and implemented and this can be attributed primarily to the implementation arrangements, which involved coordination by a regional body (the OECS Secretariat) through the establishment of a project implementation unit (the REGU), which reported to the beneficiary countries and coordinated decisions through the RTC\. Further, the implementation unit maintained an in-country presence by way of the deployment of Country Based Specialists to properly coordinate implementation at the national levels\. This model has been tried and proven through the EGRIP and may be considered a “best practice” framework for future projects of similar nature\. IV – Sustainability of Project Achievements in the Future Work at the national level is ongoing with respect to the full rollout and utilization of the systems and the adoption and implementation of the delivered frameworks, legislation and recommendations\. Resource persons would have been made available for the capacity building activities hosted by the EGRIP to minimize any costs associated with future maintenance of the systems\. In the case of the MPID system, the system will be replacing the current Electoral System and the equipment for these two systems are quite similar\. It is therefore anticipated that costs for maintenance and consumables would be similar\. As such, budgetary allocations already made for the Electoral System should be sufficient to maintain the MPIS system\. In terms of institutional arrangements and strengthening, the Division of Public Sector Modernization (DPSM) was established in 2012 with its primary objectives including: ï‚ Providing support to ensure that appropriate systems and processes are in place to optimize the use of the human resource capacity in transforming the operations and improving the levels of the Public Sector service delivery\. ï‚ The application of innovative solutions through the use of ICTs to improve productivity, enhance efficiency and streamline Public Sector service delivery\. In December 2013, ICT personnel within the Public Service (with the exception of those assigned to the Police, Correctional Facility, and the Inland Revenue and Customs Departments) were reassigned so that they all fall under the purview of the Division of Public Sector Modernization\. In addition, the DPSM has been established as authority to approve all Government investments in ICT\. This has created an environment which makes it much easier to coordinate ICT initiatives, implement policies and ensure that standards are adhered to\. St\. Vincent and the Grenadines’ Comments Main project outcomes and achievements by project completion The following are the major achievements and benefits for St\. Vincent and the Grenadines over the period of implementation: ï‚ The delivery, installation and use of a Video Conferencing System\. 64 ï‚ The delivery of hardware to support the Government’s web portal which allowed for the provision of increased internet bandwidth ï‚ The extension of the Government Fibre Optic backbone to several other government departments allowing for reduction in recurrent cost for individual internet services ï‚ The delivery of hardware and training to BRAGSA for the integration of their information systems ï‚ The delivery of a Web-Based Monitoring and Evaluation Information System and the provision of an operation manual and training delivered to stakeholders in monitoring & evaluation and the use of the system\. ï‚ The delivery of OECS ratified harmonised draft e-Government legislations and hardware support to the Office of the DPP and Criminal Investigations Department of the RSVGPF to support cybercrime investigation and prosecution\. ï‚ The delivery of Gap Analysis, Assessment Reports, Recommendations and Capacity Building for E-Government Standards, General Enterprise Architecture and Total Cost of Ownership Optimization\. ï‚ The Strengthening of the E-Government framework through the delivery of a Business Plan, Strategic Institutional Design and Implementation plan for an E- Government Desk at the OECS to serve the member states\. ï‚ The provision of hardware, software and other ICT management tools through the support of the World Bank and the CDB to strengthen the institutional capacity of the ITSD and Government in general – for example, 5-year Enterprise Antivirus for 500 users ï‚ The delivery of hardware to support and enhance human resource management in the Public Service ï‚ The delivery of Standard Operating Procedures and the installation of a online PFM Reporting System which interfaces SmartStream to provide general and departmental reports\. ï‚ The delivery of PFM Gap Analysis Assessment reports, SmartStream Enterprise Agreement document and Specifications document for a Budget Preparation Software\. ï‚ The delivery of a Multipurpose Identification System for the purpose of vetting and verification of identity with the ability to interface other e-Government systems\. ï‚ The installation of a front-end e-Tax filing System with an E-Payments Gateway for the electronic filing payment of taxes\. ï‚ The delivery of Gap Analysis, Assessment Reports and recommendations for strengthening the procurement environment at the national and sub-regional levels especially as it relates to e-procurement\. ï‚ The delivery of an Electronic Tendering System for the OECS Pharmaceutical Procurement Service (E-PPS) currently being used for the Central Medical Stores ï‚ The delivery of a Business Plan for the customization of the E-PPS to be applied to the electronic procurement of other goods and services at the national and regional levels\. ï‚ The delivery of Draft HIS Policy and Legal and Regulatory Framework to support 65  the Health Information System in St\. Vincent and the Grenadines\. Main Challenges Faced during Implementation In spite of the successful implementation of the sub-components of the project, several challenges existed during the implementation at the national level\. These challenges included but were not limited to the following: ï‚ Inadequate institutional framework for the implementation of the project ï‚ Late responses and feedback to comments on the reports ï‚ Information sharing has at times been difficult to acquire between ministries/departments hindering progress\. ï‚ Lack of understanding of the World Bank procurement guidelines and policies\. ï‚ Most stakeholders did not feel that they own the project but that of the implementig ministry\. ï‚ Difficulty at times to get requesitions signed off after tasks/activities have been completed\. Key Lessons Learned ï‚ An assessment of the National ICT policy, strategy and action plan outlined several e-Government initiatives being implemented to improve and modernize the delivery of Government services; however these initiatives while in themselves essential seemed to be detached from the broader goal/programme of public sector reform, modernisation and transformation\. Stakeholders were not fully aware of the National ICT Policy, Strategy and Action Plan and any accompanying implementation plan\. ï‚ While activities stated in the plan have been and are being implemented, there is no structured monitoring and evaluation framework in place to assess outcome and impact ï‚ The National ICT policy, strategy and action plan was further reviewed and assessed by the Mr\. Anthony Minn – Commonwealth Secretariat and Miss\. Bernadette Lewis – Caribbean Telecommunications Union (CTU) in July and September 2011 respectively\. Both recognized the role of a Champion to deliver successful E-Government interventions and recommended that the Prime Minister champions the implementation of the overall E-government agenda given its centrality to the efficient and effective delivery of government services\. In addition, the following were identified as critical for the successful implementation of the strategy: 1\. Initiatives and activities must contribute to a coherent whole 2\. Manpower planning in terms of the quality and quantity of Human 66  Resources 3\. Review of business processes before systems are implemented or upgraded 4\. Road map or implementation plan ï‚ The National (EGRIP) E-Government Steering Committee also noted the need for a “whole of government” approach to the implementation of E- Government initiatives and activities\. The Governance framework (National ICT Forum), was not in place to guide, support and monitor the implementation of the policy and strategy\. ï‚ Monies borrowed must be in a single currency so as to mitigate loss of funds while transferring from SDR to USD\. ï‚ When activities are assessed, more National Input is required\. ï‚ Agencies promoting projects needs to be realistic in the budgetary allocations with respect to projected implementation practices and costs\. ï‚ Change management must be included where necessary in any project proposed\. ï‚ More open-source applications/solutions should be promoted in future project proposals Sustainability of the project's Achievements in the future There are a number of activities that are necessary for the sustainability of the project's achievements, these include: 1\. Continuous training of the TCO and GEA throughout the government service for decision makers for ICT implementation\. 2\. Recommend and institute proper ICT governance framework government wide\. Ensure Cabinet formed committee meets regularly to continuously monitor and recommend changes as deemed necessary\. 3\. Closer collaboration with each island's personnel who may have specialized skills\. 67 Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders CDB comments to the draft ICR to be included in this section\. 68 Annex 9\. List of Supporting Documents ï‚ Project Appraisal Document for Projects P100635 and P117087 ï‚ Aide Memoires 2007-2014 ï‚ Implementation Status Reports 2007-2014 ï‚ Credit Agreements IDA-44510, IDA-44520; IDA-44530; and IDA-46500 ï‚ Amendments to the Credit Agreements ï‚ Restructuring paper (June 2013) ï‚ â€œEGRIP Monitoring and Evaluation End of Project Report”\. Milva Edmunds- Jerome\. February 2014\. ï‚ â€œEGRIP Grenada End of Project Report\.” Alice Naola Bain\. January 2014\. ï‚ â€œEGRIP Commonwealth of Dominica Final Project Report”\. Geneta Williams\. January 2014\. ï‚ â€œEGRIP St\. Lucia End of Project Report”\. Kervyn Tobias\. January 2014 ï‚ â€œEGRIP St\. Vincent and The Grenadines End of Project Report”\. Winston George\. January 2014\. ï‚ Power Point Presentations by REGU management and accountant\. January 2014\. 69 Annex 10\. Rating of Project Outcome The PDO was not modified during the life of the Project while KPIs were formally modified twice, in April 2012 and in June 2013\. The decision to revise the KPIs was agreed upon during the mid-term review mission in November 2011, to adapt the indicators to the Project changes during implementation and better assess the progress towards the PDO\. Several indicators were dropped because they were deemed too broad and not adequate to measure outcomes attributable to the Project\. A second restructuring formally took place on June 2013, after carrying out the procurement process of some of the key systems in 2012, once the participating countries reached an agreement of the systems to be financed under the Project, in light of their cost and the remaining implementation time\. The achievement of PDOs is rated overall as Moderately Satisfactory, as shown in the table below, weighting the ratings for each period\. The M&E Framework with the 2013 restructured indicators are included in the data sheet\. Against Against Against Revised Overall Original Revised PDOs/KPIs PDOs/KPIs PDOs/KPIs 2013 2012 Rating Moderately Moderately Moderately Moderately Unsatisfactory Satisfactory Satisfactory Satisfactory Rating value 3 4 4 Weight 26% 40% 34% 100% (% disbursed ) Weight value 0\.80 1\.60 1\.36 3\.78 Final rating 70 Annex 11\. PAD and Restructured M&E Indicators Outcome Indicators PAD Indicators 2012 Restructuring 2013 Restructuring Government financial savings in Dropped areas such as public financial management, tax administration, customs and procurement due to new e-Government systems Estimated users’ time and cost- Revised\. Average number of Revised\. Average number of savings days to prepare annual budget\. days to complete the VAT filing\. New\. Average amount of time to process a Pharmaceuticals procurement requisition order\. Increase in the number of Revised\. Regional health Dropped\. electronic transactions processed information system and regional by regional e-Government customs information system are Number of new e-Government applications installed and operational\. applications offered or upgraded under the project Increase in e-Government Revised\. Number of new e- Revised\. Target: 9\. services offered or upgraded Government applications offered or upgraded under the Project* Total: 15\. Improvement of ratings in areas Revised\. Quality measured Revised\. Quality measured of functionality, accuracy and through focus groups by end through focus groups by end usability of e-Government users of the: (i) public financial users of the MPID, e-Tax filing services as reported by users management system; (ii) regional and EPPS systems\. through satisfaction surveys custom information system and (iii) MPID system\. Improvement of ratings in areas Revised\. Creation of 4 national Revised\. Online publication of of openness and access to PFM websites with open and Pharmaceutical procurement relevant information, as reported transparent PFM data sets\. awarded contracts\. by users through satisfaction surveys New regional institutional Revised\. Establishment of Revised\. Publication of an OECD framework is created with Regional E-government desk at e-Government regionally adequate capacity to provide new OECS Secretariat; hiring of the harmonized legislation bill by regionally integrated e- senior E-government specialist; first quarter of 2012 approved by Government services, in design the business plan for the OECS authority\. accordance with regionally sustainability of the E- harmonized policies and government desk completed\. regulations 71 Annex 12\. Map of EGRIP-Supported Community Health Clinics in Saint Lucia 72

REVIEW

P004589

 ICRR 10977 Report Number : ICRR10977 ICR Review Operations Evaluation Department 1\. Project Data: Date Posted : 08/07/2001 PROJ ID : P004589 Appraisal Actual Project Name : Irrig Oper Supp II (IOSP II) Project Costs 69\.60 68\.86 US$M ) (US$M) Country : Philippines Loan/ US$M ) 51\.30 Loan /Credit (US$M) 47\.26 Sector (s): Board: RDV - Irrigation and Cofinancing drainage (99%), US$M ) (US$M) Agricultural extension and research (1%) L/C Number : L3607 Board Approval 93 FY) (FY) Partners involved : Closing Date 06/30/1999 12/31/2000 Prepared by : Reviewed by : Group Manager : Group : Robert C\. Varley George T\. K\. Pitman Alain A\. Barbu OEDST 2\. Project Objectives and Components a\. Objectives The project objective, from the SAR, was "to improve and sustain the operational efficiency of the NIS [National Irrigation System], thereby helping increase agricultural production (mainly rice), expanding small farmer incomes and rural employment opportunities, and contributing to rural poverty alleviation \." b\. Components Total project costs of $ 68\.86 million comprised: 1\. Improvements to 18 selected NISs, 22 urgent repairs for structures in a further 14 NIS, the construction of 3 sediment exclusion structures, improved water control structures on a pilot basis and erosion prevention measures in critical areas (52%\.) 2\. Continued budgetary support for measures to ensure the sustainability of system level operation and maintenance (O&M) improvements achieved under IOSP I (36%\.) 3\. Institutional development through strengthening : Existing Irrigation Associations (IA), establishing new IAs, and financial /management training to facilitate IMT (Irrigation Management Transfer); The National Irrigation Administration (NIA) to improve Irrigation Service Fee (ISF) collection, training in O&M, design and financial aspects of system management, TA for studies and development work, as well as O&M equipment and materials (11%) 4\. Agricultural Support Services (1%\.) Comprehensive sector reforms, reflected in an Irrigation System Improvement Plan (ISIP) and Agriculture and Fisheries Modernization Act (AFMA) in 1997, led to additions to project content during implementation \. At mid-term in 1997 the scope of both systems improvements and institutional development were expanded \. c\. Comments on Project Cost, Financing and Dates The exchange rate fell from 25 to 50 Peso per US$ between appraisal and completion \. This increased the purchasing power of the $ for the largely local currency components \. Some $4 million of the Bank loan was cancelled in January and April 2001\. 3\. Achievement of Relevant Objectives: 1\. The project achieved its main objective and estimated increases in agricultural production are realistic - the ICR contains unusually comprehensive, survey -based data and sound, conservative, economic analysis of impact \. On balance, sustainability seems likely and the assumption that these incremental changes in production will lead, through increased farmer income and rural employment prospects, to poverty alleviation, is highly plausible\. The Incremental O&M component (unchanged in concept since IOSP I ), comprised 36% of project costs and was estimated in OED's audit report of IOSP I to yield a return of 28-35% (compared to the 21% in the SAR for IOSP II\.) For the system repair and improvement component, accounting for the balance of 64% of costs, the ERR was re-estimated at 21% compared to 17% in the SAR\. 2\. 505,000 farm families have benefited (110% of SAR target) with incremental rice production at full development  94,000 tons/annum\. 3\. The project supported the formation of IAs and CIA \. 4\. The project provided incremental O&M support to all 165 NIS resulting in an increase in cropping intensity of 7%; for the 17 NIS the increase was even greater with the that at full development estimated to reach 30% over the baseline of 149% (compared to an SAR target of only 18% increase\.) 5\. In a major ICR survey involving 1,400 farmers, some in the 17 project NIS, and others in control areas, the proportion of farmers giving top ratings for irrigation services increased by nearly 100%\. Timeliness, Equity of Distribution and Adequacy were rated "just right", "equitable" and "adequate" by 67%, 52% and 67% of the farmers (compared to 37%, 25% and 38% before IMT\.) 6\. 80% of the farmers and CIA/IA officials reported timely delivery and equitable distribution of water after the project, compared to 40% before\. 4\. Significant Outcomes/Impacts: Measured against the overall performance of the irrigation sector, the most significant impact of the project was its contribution to momentum for reforms\. These changes took place during implementation and were embedded in new supportive legislation as well as a follow -on Water Resources Development Project (WRDP): (i) technical change - of the modality of operation from gated water control and distribution system to one based on long -crested weirs for water control, and proportional dividers at turnout for water distribution; (ii) institutional change - empowerment of IAs and establishment of CIAs (Federations and Council of IAs ) and, employing a contractual basis for the division of labor between farmers and the NIA for secondary canal O&M \. AFMA mandated this transfer of responsibility for O&M of secondary canals in larger irrigation systems (> 300 ha) ; (iii) Changes in cost -recovery policy - negotiated shares of ISF collections and pilots to introduce volumetric measurement and wholesaling of water to IAs; (iv) Self sustaining systems for O&M and rehabilitation to break the vicious circle of poor maintenance and premature rehabilitation, by introducing stronger financial controls to ensure that ISF collections are applied efficiently; (v) a proposal for downsizing NIA was formulated; and (vi) Elimination of direct and indirect O&M subsidies to NIA was introduced as a long-term goal\. The signing of IMT contracts between IAs and NIA after the completion of improvement works (a stronger foundation for future farmer commitment to ISF), and the establishment of some CIAs (incorporating experience from Mexico's successful IMT program) were milestone achievements\. 5\. Significant Shortcomings (including non-compliance with safeguard policies): 1\. The agency's seeming lack of strong commitment to the reforms ( no initiative was taken by the NIA to implement AFMA) was aggravated by the executive's (the President) mid-1998 populist decision to condone nonpayment of ISF by the farmers \. This has seriously undermined two decades of efforts to increase cost-recovery\. While budgetary commitments have increased to compensate NIA, this does not help its long-term financial viability\. The ISF collections were only 53% of the appraisal target (less in real terms) and met only 54% of O&M expenses, compared to 95% expected at appraisal\. The IA's share of ISF has declined \. While the trend has been reversed, the net effect has been to diminish the capability of both IAs and the NIA to undertake proper O&M of irrigation systems \. 2\. The project design was not very innovative, especially given the long experience and involvement of the Bank in the political economy of irrigation reform \. While progress has been made, the sector is still dominated by an overstaffed NIA and inadequate incentives and institutional design to support full implementation of the Bank's water resource management policy \. Changes introduced in 1997 were designed to address some of these concerns, but NIA has yet to experience any downsizing, and the financial control of funds collected through the ISF (partially used to finance NIA) is still prone to bureaucratic capture and misuse of the funds (which may not be translated into efficient main system O&M by the NIA but used to sustain NIA's staff establishment \.) While some empowerment has been facilitated by project, the reform process is far from complete \. 3\. Consultant estimates of the desirable rate for O&M expenditures is $ 45/ha whilst that presently spent on the 17 NIS areas is only $30/ha\. While this is offset by substitution of lower cost IA /CIA labor for NIA inputs, the ICR considers that 9 of the 17 NIS will still need some combination of increased ISF and reduced costs, to achieve efficiency and sustainability \. The contribution of NIA resources (in the form of its commercial income and budgetary allocation) can only be considered a short -term support to sustainability and would be threatened by a rationalization of NIA size and function \. 4\. There was an 18-month delay in project closing due to inadequate budgetary allocations and a two year delay in use of Bank loan proceeds for TA \. But the expansion in the scope of systems improvements and institutional development was partly responsible for the delay \. 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Institutional Dev \.: Modest Modest Sustainability : Likely Likely "Uncertain" would be a more appropriate characterization given its dependence on  essentially unpredictable political circumstances\. THe region's judgement is that recommitment to reform by the new government is likely\. Bank Performance : Satisfactory Satisfactory The region has addressed some of the concerns raised in the PPAR for IOSP I \. Borrower Perf \.: Satisfactory Satisfactory Quality of ICR : Satisfactory NOTE: NOTE ICR rating values flagged with ' * ' don't comply with OP/BP 13\.55, but are listed for completeness\. 7\. Lessons of Broad Applicability: 1\. Despite two decades of irrigation sector reform, supported by other donors, the process is incomplete in the Philippines\. A valid comparison is the "big bang" approach in Mexico which has made more progress in a shorter time\. Even with a span as wide as the 6 years of IOSP II, intermittent changes in agency and political leadership have seriously retarded the slow progress towards the achievement of policy goals \. 2\. A program approach is needed for irrigation sector reform and NIS improvement \. The IMT program, which commenced under IOSP II, was based entirely on project specific agreements between the Bank and NIA for the 17 NIS\. IMT progress in other systems (for instance the Magat River Integrated Irrigation System ) has stalled, and in other large NISs it remains uncertain \. 8\. Assessment Recommended? Yes No 9\. Comments on Quality of ICR: This was a very good quality ICR and the economic analysis and survey results will help sustain the policy and advocacy efforts of the Bank as it tries to implement the global water resources management policy \. Annex I is of limited use - firstly the so called Log Frame Matrix is misnamed and secondly, even in a more modest role, it is of little use to compare the "Actual/Latest Estimate "of an indicator to that "Projected in last PSR\." One would expect the two values to be close whatever the baseline was \. It would be better not to pretend a Logframe of results is presented if no baseline is available and the causal chain of "Inputs/ Outputs/ Outcomes/ Impact" are not elaborated\. Unfortunately the format used in this ICR has been almost universally adopted by all the regions \.

REVIEW

P035823

Document of The World Bank Report No: ICR00001457 IMPLEMENTATION COMPLETION AND RESULTS REPORT (TF-28408) ON A GRANT IN THE AMOUNT OF SDR 7\.831 MILLION (US$ 10\.08 MILLION EQUIVALENT) TO THE GOVERNMENT OF THE ISLAMIC REPUBLIC OF PAKISTAN FOR A GEF-PROTECTED AREAS MANAGEMENT PROJECT June 8, 2010 Environment, Water Resources, and Climate Change Sector Sustainable Development Department South Asia Region  CURRENCY EQUIVALENTS (Exchange Rate Effective February 28, 2001) Currency Unit = Pakistani Rupee (Rs\.) US$ 1\.00 = 57\.58 FISCAL YEAR July 1 ­ June 30 ABBREVIATIONS AND ACRONYMS AJK Azad Jammu and Kashmir CAS Country Assistance Strategy CBO Community based organization FMR Financial Monitoring Report FPA Fund Protected Area FY Fiscal Year GA Grant Agreement GDP Gross Domestic Product GEF Global Environment Facility GEO Global Environmental Objective GOP Government of the Islamic Republic of Pakistan ICR Implementation Completion Report IP Indigenous Peoples IPDP Indigenous Peoples Development Plan ISR Implementation Status Report LAC Local Advisory Committee MELGRD Ministry of Environment, Local Government and Rural Development M&E Monitoring and evaluation MOE Ministry of Environment (formerly MELGRD, Ministry of Environment, Local Government and Rural Development MTR Mid-term review NGO Non-government organization NWFP North West Frontier Province OD Operational Directive OP Operational Policy PA Protected Area PAMP Protected Areas Management Project PAD Project Appraisal Document PDO Project Development Objective VCC Village Conservation Committee WVCC Women's Village Conservation Committee ii  Vice President: Isabel M\. Guerrero Country Director: John Wall Sector Manager: Gajanand Pathmanathan Project Team Leader: Malcolm A\. B\. Jansen ICR Team Leader: Valerie Hickey ISLAMIC REPUBLIC OF PAKISTAN Protected Areas Management Project CONTENTS Data Sheet A\. Basic Information\. vi B\. Key Dates \. vi C\. Ratings Summary \. vi D\. Sector and Theme Codes\. vii E\. Bank Staff \. vii F\. Results Framework Analysis \. ix G\. Ratings of Project Performance in ISRs \. xii H\. Restructuring (if any) \. xii I\. Disbursement Profile \.xiii 1\. Project Context, Global Environment Objectives and Design\. 1 2\. Key Factors Affecting Implementation and Outcomes\. 8 3\. Assessment of Outcomes \. 14 4\. Assessment of Risk to Development Outcome\. 17 5\. Assessment of Bank and Borrower Performance \. 18 6\. Lessons Learned\. 21 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners\. 22 Annex 1\. Project Costs and Financing\. 23 Annex 2\. Outputs by Component\. 24 Annex 3\. Economic and Financial Analysis \. 28 Annex 4\. Bank Lending and Implementation Support/Supervision Processes\. 29 Annex 5\. Beneficiary Survey Results \. 31 iii Annex 6\. Stakeholder Workshop Report and Results\. 32 Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR \. 33 Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders \. 38 Annex 9\. List of Supporting Documents \. 39 MAP: IBRD 31282 iv A\. Basic Information Protected Areas Country: Pakistan Project Name: Management Project Project ID: P035823 L/C/TF Number(s): TF-28408 ICR Date: 06/14/2010 ICR Type: Core ICR Lending Instrument: SIL Borrower: GOP Original Total USD 10\.1M Disbursed Amount: USD 9\.4M Commitment: Revised Amount: USD 10\.1M Environmental Category: B Global Focal Area: B Implementing Agencies: Ministry of Environment Department of Tourism, Wildlife, Archaeology and Fisheries Department of Wildlife Environment, Livestock, Wildlife, Forests and Tourism Department Cofinanciers and Other External Partners: B\. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 10/17/1994 Effectiveness: 11/19/2002 10/25/2002 Appraisal: 12/01/1997 Restructuring(s): 07/13/2006 Approval: 04/24/2001 Mid-term Review: 07/22/2005 09/01/2005 Closing: 12/31/2007 12/31/2009 C\. Ratings Summary C\.1 Performance Rating by ICR Outcomes: Moderately Satisfactory Risk to Global Environment Outcome Moderate Bank Performance: Satisfactory Borrower Performance: Moderately Satisfactory C\.2 Detailed Ratings of Bank and Borrower Performance Bank Ratings Borrower Ratings Quality at Entry: Moderately Satisfactory Government: Moderately Satisfactory Implementing Quality of Supervision: Satisfactory Moderately Satisfactory Agency/Agencies: Overall Bank Overall Borrower Satisfactory Moderately Satisfactory Performance: Performance: i C\.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating Performance (if any) Potential Problem Project Quality at Entry No None at any time (Yes/No): (QEA): Problem Project at any Quality of No Satisfactory time (Yes/No): Supervision (QSA): GEO rating before Moderately Closing/Inactive status Satisfactory D\. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) General agriculture, fishing and forestry sector 56 60 General public administration sector 5 10 General transportation sector 7 General water, sanitation and flood protection sector 7 5 Other social services 25 25 Theme Code (as % of total Bank financing) Biodiversity 20 40 Environmental policies and institutions 20 20 Export development and competitiveness 20 Participation and civic engagement 20 20 Rural policies and institutions 20 20 E\. Bank Staff Positions At ICR At Approval Vice President: Isabel M\. Guerrero Mieko Nishimizu Country Director: Asif Faiz John W\. Wall Sector Manager: Gajanand Pathmanathan Ridwan Ali Project Team Leader: Malcolm A\. B\. Jansen Najib Murtaza ICR Team Leader: Valerie Hickey ICR Primary Author: Valerie Hickey ii F\. Results Framework Analysis Global Environment Objectives (GEO) and Key Indicators(as approved) The development objective of the project is to achieve the sustainable conservation of globally and nationally significant habitat and species within three protected areas (Chitral Gol National Park in NWFP, Hingol National Park in Balochistan and Machiara National Park in AJK) in Pakistan by the active involvement of local communities\. This objective is to be specifically achieved through the following interventions: (i) Protected Area Biodiversity Conservation Management, which includes the following sub- components: (a) integration of custodial committees in park management and conservation; (b) preparation and implementation of park management plans; (c) improvement of park infrastructure; (d) improvement of park operations; (e) baseline resource inventory, research, habitat improvement and wildlife enrichment; and (f) public awareness and outreach; (ii) Sustainability of park management; (iii) Human resource development; and (iv) Project coordination and monitoring\. Revised Global Environment Objectives (as approved by original approving authority) and Key Indicators and reasons/justifications (a) GEO Indicator(s) Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years Reduction in loss of species and vegetation in the three protected areas by end of Indicator 1 : project period (i) improvement in cover density (ii) selective single species numbers increased (i) CHITRAL - (i) Increase in markhor population cover density;(ii) from 370 to 800 (ii) markhor MACHIARA - population in musk deer (35 to Chitral; musk deer, 72), Grey Goral grey goral, western (100 to 384), Value tragopan and Western Tragopan (quantitative or monal pheasant (75 to 122) and Qualitative) populations in monal pheasant Machiara; and (238 to 436);(iii) Ibex,Urial and Hingol-Ibex (1400 Chinkara to 2000),Urial (350 population in to 500) and Hingol stable at Chinkara (150 to end of project, 200)\. Date achieved 11/01/2001 10/15/2009 Comments Cover density was considered diffucult to measure and attribute to a project of iii (incl\. % relatively short duration\. Changes in population numbers were measured as achievement) these provided a more direct and useful means to measure the impact of the project\. (b) Intermediate Outcome Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Reduction of unregulated grazing and timber/fuelwood collection within core Indicator 1 : zones of protected areas by 20% by mid-term and 40% by end of project CHITRAL: 90% grazing reduction ;90% fuelwood Reduction of reduction and 100% unregulated reduction in timber grazing and collection timber/fuelwood Value HINGOL: 45% collection within (quantitative or livestock reduction core zones of Qualitative) (26,000) protected areas by MACHIARA - 61 20% by mid-term % of pasture lands and 40% by end under controlled of project grazing regimes; and 40% reduction in fuelwood use Date achieved 11/01/2001 10/15/2009 Comments (incl\. % All targets for threat reduction were exceeded during the life of the project\. achievement) Indicator 2 : Reduction in poaching by 30% by mid-term and 60% by end of project Based on sample Reduction in site assessment Value poaching by 30% poaching reduced (quantitative or by mid-term and by 95% in Chitral; Qualitative) 60% by end of 100% reduction in project Machiara and 60% reduction in Hingol Date achieved 11/01/2001 10/15/2009 Comments (incl\. % Reduction of poaching targets were exceeded\. achievement) Number of village conservation committees effectively implementing Indicator 3 : conservation related outcomes Value 57 village 51 village (quantitative or committees and conservation Qualitative) cluster community committees iv  organizations effectively functioning in all implementing three national conservation parks activities and cluster community organizations established in Chitral, Machiara and Hingol Date achieved 11/01/2001 10/15/2009 Comments a few villages were clustered for implementation simplification but all (incl\. % households were covered through the 51 VCCs achievement) Indicator 4 : Changes in incomes of households affected by restrictions in resource use Based on sample site assessment Value 10% change in incomes increased (quantitative or households between 0-20% of Qualitative) incomes sampled VCC members Date achieved 11/01/2001 10/15/2009 Comments (incl\. % achievement) Additional non-project resources channeled to Village Committees in project Indicator 5 : area for conservation and development activities i) MACHIARA - PKRs\. 525\.09 million for community activities (irrigation, health, skills devt); (ii) Value HINGOL - PKRs (quantitative or none 20 million for Qualitative) community activity; and \. (iii) CHITRAL - PKRs 4\.3 million for sewerage systems, irrigation channel rehab\. etc (iii) Date achieved 11/01/2001 10/15/2009 Comments This was an indicator added during the project ot reflect the effectiveness and (incl\. % usefulness of VCCs beyond the project\. achievement) v G\. Ratings of Project Performance in ISRs Actual Date ISR No\. GEO IP Disbursements Archived (USD millions) 1 10/19/2001 Satisfactory Unsatisfactory 0\.00 2 05/10/2002 Satisfactory Unsatisfactory 0\.00 3 10/30/2002 Satisfactory Satisfactory 0\.00 4 01/21/2003 Satisfactory Satisfactory 0\.10 5 06/11/2003 Satisfactory Satisfactory 0\.20 6 12/22/2003 Satisfactory Satisfactory 0\.46 7 06/17/2004 Satisfactory Satisfactory 0\.65 8 12/06/2004 Satisfactory Satisfactory 0\.81 9 06/06/2005 Unsatisfactory Moderately Satisfactory 1\.22 10 11/19/2005 Unsatisfactory Moderately Satisfactory 1\.88 11 05/05/2006 Satisfactory Satisfactory 2\.23 12 08/01/2006 Satisfactory Satisfactory 2\.86 13 03/09/2007 Satisfactory Satisfactory 3\.65 14 08/14/2007 Satisfactory Satisfactory 4\.27 15 04/02/2008 Satisfactory Moderately Satisfactory 4\.90 16 11/28/2008 Moderately Satisfactory Moderately Satisfactory 5\.49 17 03/19/2009 Moderately Satisfactory Moderately Satisfactory 7\.72 18 09/29/2009 Moderately Satisfactory Moderately Satisfactory 8\.30 H\. Restructuring (if any) ISR Ratings at Amount Board Restructuring Disbursed at Restructuring Reason for Restructuring & Approved Restructuring Date(s) Key Changes Made GEO Change GEO IP in USD millions To reallocate funds from existing unutilized funds available in the Ministry of Environment (MOE) and 07/13/2006 N S 2\.73 Balochistan budget line items to consolidate ongoing activities and provide additional funds to AJK\. vi I\. Disbursement Profile vii 1\. Project Context, Global Environment Objectives and Design 1\.1 Context at Appraisal a\. Country Background\. With its dramatic geological history, broad latitudinal spread and immense altitudinal range, Pakistan spans a remarkable number of the world's broad ecological regions\. These range from the coastal mangrove forests of the Arabian Sea to the spectacular mountain tops where the western Himalayas, Hindu Kush and Karakoram ranges meet\. This variety of habitats also supports a rich variety of different species which contributes to the overall biological diversity (biodiversity) of the country\. The project context was determined by the principal role that natural resources play in driving Pakistan's rural economy and in providing livelihoods to a majority of its population\. The Government of Pakistan (GOP) was aware that the pursuit of rapid, decentralized economic growth, as was then happening, might occasion the loss of natural resources on which economic development ultimately depended\. As such, they acknowledged the need to marry better resource stewardship to the execution of its development strategy\. In the absence of environmental sustainability, economic policies would further widen inequalities and force rural people and others to exploit biodiversity at rates that would not be sustainable\. As a result, processes such as deforestation, overgrazing, soil erosion, and salinity would escalate and have increasing and immediate implications for the nation's development in general and for the survival of rural communities in particular\. b\. Sector Background\. Natural resources ­ land, forests, fisheries, mineral wealth and tourism potential ­ featured prominently in Pakistan's development prospects\. At the same time, government capacity to sustainably manage these resources was limited\. Deforestation threatened the forests and was the primary environmental issue of the day\. The resource conservation that did exist was chiefly donor-executed, uncoordinated, unaccountable to the Ministry of Environment, Local Government and Rural Development (MELGRD) and often implemented with the provincial governments playing only minor supporting roles\. MELGRD was restructured during the project period to become the Ministry of Environment (MOE), but it retained oversight for the project throughout its lifespan\. The primary issues in the sector involved the rapid loss of quantity and quality of natural habitat leading to the depletion of species, populations and genetic diversity\. Habitat loss, fragmentation and degradation ­ caused by deforestation for commercial and agricultural purposes, grazing of rapidly increasing livestock populations, fodder collection and soil erosion ­ resulted in a high rate of extinction\. Deforestation had reduced natural forests (coniferous, riverine and mangrove) to just 4% of the land area, and remaining woody biomass was declining at a rate of 4-6% annually\. Species were also adversely affected by poaching and other factors that reduce population viability\. Hunting, for which there continues to be a strong tradition in 1 Pakistan, had seriously affected several charismatic species, including threatened bird populations, such as the Houbara Bustard\. Over-fishing and rampant and unregulated by- catch problems were underlying causes of species loss in the marine environment\. Although the GOP had established environmental agencies at both national and provincial levels, these were relatively new, lacked clarity over implementation responsibilities, faced a severe shortage of properly trained personnel and had little enforcement capacity\. The protected area (PA) system, in particular, was an apt example of these weaknesses\. Of the 189 PAs in Pakistan at that time, most existed only on paper\. Management plans were few and far between, and where they did exist they were almost invariably technically deficient\. Further, management of PAs was widely seen as a policing matter with little or no active participation of local communities\. Physical demands on existing staff and equipment levels were also high ­ for example, the ratio of area conserved per staff member reached up to 7,537 ha per ranger in Balochistan\. The lack of adequate baseline information on natural resources in PAs was another factor that hindered biodiversity conservation\. No inventories of plant and animal species had been undertaken\. This restricted an accurate analysis of populations of key species, which meant that it was impossible to capture changes in their numbers over a period of time or to understand the effect of conservation initiatives\. Awareness building mechanisms for increasing public support toward conservation issues were minor\. They were mostly driven by non-government organizations (NGOs) who targeted narrow audiences in ad hoc manners\. c\. Existing Government Initiatives\. GOP's strategy on conservation of biodiversity had largely been defined by the establishment of an institutional framework, development of legal and policy infrastructure, and the establishment of a PA system\. The institutional framework was divided into two parts\. At the federal level, the Government, specifically the Ministry of Environment (MOE), was responsible for overall policy and planning, inter-provincial and territorial coordination and international liaison for environmental concerns\. Wildlife and Protected Areas issues are coordinated through its National Council for Conservation of Wildlife, established in 1974\. Its office of the Inspector General of Forests conducts all policy, coordination and liaison matters related to forests, rangeland and wildlife management\. Actual conservation and management of biodiversity remained the responsibility of the provincial administrations\. Institutions at this level varied in terms of structure, budgets and implementation capacity\. In North-West Frontier Province (NWFP), Balochistan and Northern Areas, wildlife continues to be administered through the Forestry Department's Wildlife Division\. In Azad Jammu and Kashmir (AJK), this responsibility falls to the Department of Tourism, Wildlife, Archaeology and Fisheries\. In Sindh, the Wildlife Conservation Board oversaw all wildlife management and conservation issues\. After Punjab, Sindh had the highest budget for wildlife management (Rs\.29 million in FY 1998), followed by NWFP (Rs\.21 million)\. 2 The federal government's principal policy instrument on biodiversity conservation is the National Conservation Strategy, developed in 1992, which called for (i) developing a national policy on wildlife management; (ii) strengthening the protected area system; and (iii) improving the legal and policy architecture to promote conservation\. This built on the updated Forestry and Wildlife Policy of 1991 that had emphasized the need to reduce deforestation, conserve forests and biological diversity, promote social forestry and contain environmental degradation in watersheds and catchment areas\. In 1999, the Government completed its first Biodiversity Strategy and Action Plan that set out a strategy for action under thirteen main components which corresponded to the Articles of the CBD: planning and policies, legislation, identification and monitoring, in-situ conservation, ex-situ conservation, sustainable use, incentive measures, research and training, public education and awareness, environmental impact assessment, access issues, exchange of information, and financial resources\. This policy framework was operationalized in legislation enacted at the provincial level, including through the Sindh Wildlife Protection Ordinance (1972), the Punjab Wildlife Act (1974), the Balochistan Wildlife Protection Act (1974), the NWFP Wildlife Act (1975), the Northern Areas Wildlife Protection Act (1975), the Azad Jammu and Kashmir Wildlife Preservation Act (1975), and the Islamabad Wildlife Ordinance (1979)\. Pakistan's protected area system consisted of ten national parks, 82 wildlife sanctuaries, 83 game reserves and 14 private unclassified reserves\. In FY1998, all provincial governments combined planned to spend Rs\. 170 m managing their respective PAs\. Often, these budgets were considered fungible and the first to be reduced in the face of economic stresses\. d\. Country Assistance Strategy\. The Country Assistance Strategy (CAS, 1999) identified the deterioration of Pakistan's natural resources as a key concern, and rough estimates attributed partial costs of environmental damage and pollution to the economy at about 3% of GDP per year\. The conservation of Pakistan's natural resources, including biological diversity, was named an urgent priority\. The Protected Areas Management Project (PAMP) was fully consistent with the CAS and indeed complemented it by filling an important niche in the existing program of activities, particularly in the natural resources sector\. e\. Rationale for Bank Assistance\. Endangered species and threatened critical habitats were most likely to continue to decline in the absence of the project\. GOP lacked the resources to invest in biodiversity conservation despite its professed stake in conserving natural resources because of their key role in sustaining rural livelihoods and driving national economic opportunities\. Staff skills would remain weak, and communities would remain excluded from decision making about the very natural habitats that formed the source of their livelihoods\. Moreover, the World Bank had a long-standing and productive partnership with Pakistan since the early 1990s, mainly through supporting programs aimed at 3 stewarding natural resources through improved land and water management\. Based on this, the Bank's involvement was a logical continuation of such partnership, and was instrumental to the decision to pilot this ambitious conservation project in three provinces to serve as a catalyst to mobilize and reorient the Government's conservation programs towards co-management with local communities who were most immediately at risk should these resources disappear\. 1\.2 Original Global Environment Objectives (GEO) and Key Indicators (as approved) The project development objective (PDO) of the project was to achieve the sustainable conservation of globally and nationally significant habitat and species within three protected areas in Pakistan (Chitral GoI National Park in NWFP, Hingol National Park in Balochistan and Machiara National Park in AJK) through the active involvement of local communities\. This objective was to be specifically achieved through the following interventions: (a) integration of custodial committees in park management and conservation; (b) preparation and implementation of park management plans; (c) improvement of park infrastructure; (d) improvement of park operations; (e) baseline resource inventory, research, habitat improvement and wildlife enrichment; and (f) public awareness and outreach\. The Project Appraisal Document (PAD) included slightly inconsistent project performance indicators (one set in the main text and a less explicit one in the Project Design annex)\. This Implementation Completion and Results Report (ICR) uses the indicators as presented in the main text, since this version was agreed during negotiations and was subsequently used, with some modifications, for Implementation Status Reports (ISRs), a Global Environment Facility (GEF) evaluation and for overall assessment of the outcome of the project\. These key outcome indicators for measuring the achievement of the project development objective was presented as: Reduction in loss of species and vegetation in the three protected areas by the end of the project period, by showing (a) an improvement in cover density, and (b) an increase in numbers of an indicator species\. Intermediate indicators included (i) Reduction of unregulated grazing and timber/fuelwood collection within core zones of protected areas by 20% by mid-term and 40% by end of project; (ii) Reduction in poaching by 30% by the project's mid-term and 60% by its end; (iii) Number of village conservation committees (VCCs) effectively implementing conservation related outcomes; (iv) Changes in incomes of households affected by restrictions in resource use; and (v) Additional non-project resources channeled to VCCs in the project area for conservation and development activities\. This final intermediate indicator was added, and subsequently monitored, only towards the end of the project period\. In terms of the outcome indicator on improvement in cover density, this was subsequently considered to be too difficult to measure, and more 4 importantly, impossible to attribute to the project within its life span\. As such, it was considered that monitoring the changes in selected species was a more accurate measure of the health and conservation status of the individual protected areas\. As a result, this indicator (along with the intermediate indicators that monitored any reduction in timber/firewood collection, grazing and/or poaching) was considered sufficient to measure progress towards achievement of the project development objective\. The two additional indicators that appeared in the Annex of the PAD, namely (i) active Village Conservation Committees achieving reductions in wildlife and management conflicts within PAs and buffer zones; and (ii) local awareness of linkages between PA management, biodiversity conservation and community/household welfare were tracked using existing intermediary indicators, namely reductions in unregulated grazing and timber/fuelwood collection and reductions in poaching\. These twin indicators provided a measurable and verifiable means of assessing the effectiveness of VCCs in the management of conflicts within PAs, and their understanding and appreciation of the explicit linkages between biodiversity conservation and local welfare\. 1\.3 Revised GEO (as approved by original approving authority) and Key Indicators, and reasons/justification The original objective was not modified and the associated outcome targets remained unchanged throughout the duration of the project\. However, the Grant Agreement (GA) was amended following the Mid-term Review (MTR) to extend the closing date from December 31, 2007 to December 31, 2009\. Additionally, on May 22, 2009, the GA was further amended in order to reallocate funds from existing unutilized funds available in the Ministry of Environment (MOE) and Balochistan budget line items to consolidate ongoing activities and provide additional funds to AJK\. Additional details are provided in Section 2\.2 (Implementation)\. 1\.4 Main Beneficiaries a\. Primary target group\. Primary stakeholders included affected communities that were resident in and around the PAs who made use of resources within core and buffer zones\. In Machiara, these numbered around 2,800 households, in Chitral Gol about 1,900, and in Hingol around 750\. Among this primary target group, women, poor households and indigenous people (e\.g\. the Kalash community in Rumboor valley, bordering Chitral Gol PA) were to be paid special attention to ensure that the project provided particular benefits to them due both to their dependence on resources in the parks and buffer zones, and their vulnerability\. b\. Other key stakeholders\. Other important stakeholder groups consisted of NGOs, community-based organizations (CBOs), governmental agencies, and the private sector\. NGOs were an important stakeholder group, particularly in the Chitral Valley, because of their active involvement in biodiversity conservation and social mobilization\. Other potential stakeholders included the private sector, particularly individuals and business concerns that had a direct or indirect interest in biodiversity conservation, nature tourism 5 and resource extraction\. The benefit of involving private businesses and individuals, particularly with regard to ensuring sustainability, was a major reason for including them as important stakeholders\. There were also foreign-funded development projects in the area, including the Chitral Area Development Program and the Environmental Rehabilitation Program, which were semi-governmental in nature, and with whose project implementation units PAMP engaged\. 1\.5 Original Components (as approved) Component 1\. Protected area biodiversity management\. This component consisted of six sub-components, as follows: Process framework for participation of custodial communities in park management and conservation\. Since the exact social impacts of village level investments were only be identified during project implementation, the Process Framework was to ensure that mitigation of any negative impacts deriving from restrictions on access by local communities to resources in the PAs would be based on participatory resource mapping involving the affected stakeholders, and on their consent regarding the scale of the restrictions and the type of mitigation measures to compensate any loss of income\. This was to comply with the Bank OD 4\.30 on Involuntary Resettlement (OP 4\.12 today) and OD 4\.20 on Indigenous Peoples (OP 4\.10 today)\. Formulation of detailed park management plan and strategy\. The project planned to strengthen park management through integrated activities leading to the development and implementation of a five-year detailed Management Plan and Strategy for the three parks\. Since a draft management plan existed for Machiara, the entry point for project-related management support was at the updating stage, but other management planning actions such as training in park planning and management, data gathering, field surveys, research studies and community-based socioeconomic assessments and base-map preparation were still relevant and supported under the project\. Improvement of park infrastructure\. In order to improve the management of the PAs, the project was to provide limited support for the improvement of park infrastructure, including trails, bridges, trekking huts, camp sites with outdoor toilets, cooking facilities, wildlife observation posts, small road maintenance works and repairs, water and waste disposal facilities, signage and patrol huts\. The type of infrastructure works would vary from PA to PA and would not include all of the above facilities in each\. Improvement of park operations\. Depletion of species populations by hunting and poaching represented the primary threat to biodiversity in all PAs\. Toward this end, the project planned to support the installation of surveillance measures, increase law enforcement, improve monitoring of species, habitat conditions and disturbances as well as enhance community appreciation of biodiversity and participation in conservation\. 6  Baseline resource inventory, research, habitat improvement and wildlife enrichment\. In order to achieve the project objectives, an understanding and appreciation of the underlying ecological and human systems and processes operating within and around each PA was required to carry out baseline resource inventory, research and other management activities\. In all three project PAs, there was a paucity of information on the ecological and socioeconomic issues, making it necessary to mount a serious effort to generate critical baseline information required for PA management and results monitoring\. Public environmental awareness and outreach\. Biodiversity conservation can only be sustained if the will exists at all levels of society to act in a concerted and organized manner to ensure environmentally sensitive resource use and management\. The project planned to implement an awareness campaign targeted at politicians, leaders of industry, foreign hunters, the military, the Pakistan Coast Guard, local schools and communities to build this will\. Nearby urban centers also represented important elements in securing public support, as exemplified by the City of Karachi (the source of many hunters and fishermen who visited Hingol whether for legitimate or unlawful purposes)\. Environmental awareness and outreach programs needed to be very site- specific, so that the activities developed highlighted the special significance of the particular PA, its role in conserving global biodiversity and the importance of community-based management and conservation in achieving both short-term and long-term objectives and goals\. Component 2\. Sustainability of park management\. In order to ensure long-term sustainability beyond the life of this GEF grant, the project promoted public/private cooperation in the achievement of long-term biodiversity conservation by assisting with technical assistance and limited cost-sharing arrangements, private sector activities, income-generation activities (e\.g\., improved agricultural output activities, ecotourism, and user entrance fees) and nonprofit fund-raising activities\. Given the limited tourist visitation levels for the foreseeable future given the security situation, the project proposed the establishment of a non-profit entity, the Park Association, to capitalize and manage a trust fund to complement efforts to strengthen institutional capacity, community participation and enforcement, surveillance and park management in order to ensure sustainability\. Component 3\. Human resource development\. The project was to support a strong training program to build capacity within the requisite wildlife departments for improved park management\. Elements of the training program ranged from "on-the-job" training by international specialists to workshops and study tours covering a range of topics from legal and policy reform to tourism management\. The Smithsonian Institution was to be requested to conduct a special 5-7 week training course in Conservation Biology and Wildlife Management based on the many workshops it had held in the region\. The project was also to support diploma and certificate courses as well as Master's degree courses in Pakistan (2 slots per PA) and overseas (one slot)\. 7 Component 4\. Project coordination and monitoring\. Although the field-level execution of the project was to be the responsibility of the respective Provincial Governments through their wildlife or forestry departments, some level of coordination would be necessary at the federal level\. The most important aspect of this coordination role was facilitating the development of policy and legislation relating to protected areas and ensuring that standardized systems were established at each level\. The project was to provide support for a full-time Facilitator and short-term National Legal Specialist to provide guidance and advice on wildlife policy and legal reform\. In addition, technical assistance services were to be available for the design of the Park Association and to conduct a Tourism Feasibility Study and Strategy for the three parks\. 1\.6 Revised Components The components were not modified during implementation\. 1\.7 Other significant changes Ongoing supervision missions, confirmed by the Mid-Term Review, revealed (a) a glut of savings in the Balochistan budget line item due to slow start up of activities that reduced spending on consultants, (b) the dearth of international consultants available to develop an ecotourism strategy at the federal level under the supervision of the MOE, and (c) the need to avoid community return to exploitation of PA natural resources in a post- earthquake situation and to re-affirm their continued engagement in conservation\. As a consequence the following changes were made: (i) an extension of the closing date until December 31, 2009; and (ii) a reallocation of funds from the MOE and Balochistan budget line items mainly to consolidate activities in AJK related to community revolving funds and rural micro-enterprises\. 2\. Key Factors Affecting Implementation and Outcomes 2\.1 Project Preparation, Design and Quality at Entry Following the Millennium Summit of 2000 and the 2002 World Summit on Sustainable Development, poverty reduction had become the overriding focus that guided international assistance to conservation\. Accordingly, international support for biodiversity conservation was increasingly driven by social and economic objectives, and especially by its touted ability to contribute to poverty reduction\. This project was premised on this model and was well prepared in light of the available information, at that time, on maximizing development and conservation gains\. a\. Lessons learned and reflected in the project design\. Establishing clear linkages between economic benefits and resource conservation\. The benefits of long-term sustained economic resource flows from conservation such as through tourism and employment in PA management were found to be essential to ensure sustainability in several conservation projects at the time, particularly in the India 8 Ecodevelopment Project\. This project also highlighted that support for alternative livelihoods and provision of alternative means to meet benefits derived from PAs was contingent on cost sharing by local communities\. This lesson was incorporated in the proposed project at the PDO level by focusing on community co-management and at the sub-component level by establishing reciprocal agreements with communities regarding continued limited resource use that provided them alternative financial flows to mitigate their loss of resource access in PAs\. Building understanding and consensus among stakeholders\. A key lesson from other projects in the sector illustrated the need to build consensus among stakeholders on project objectives, activities and roles\. In the proposed project, mechanisms for consensus building created at the preparation stage ­ such as the local advisory committees ­ were built upon and continued during the implementation phase\. Planning for long term sustainability\. Providing start up funding, appropriate asset management arrangements and assessing the legal framework for the establishment of a trust fund were important lessons that had begun to appear in the sector\. At the time of project preparation, conservation trust funds (such as the Bhutan Trust Fund for Environmental Conservation) were beginning to take shape internationally\. Experience with these funds highlighted the value of having reliable funding available during the initial stages of a trust fund to begin investing in activities before investment income becomes available\. PAMP planned its activities around the notion of establishing a Park Association early in the project that would be capitalized with $2 m in seed funding\. However, the Association was established late in the project and the opportunity to bridge its beginnings until it was flush with investment income was squandered\. b\. Design flaws\. Allocating equal budgets to each park ­ despite disparate political environments, level of apparent support and status and origin of threats to the resource base ­ did not provide the project with sufficient flexibility to meet the specific needs of each park\. Similarly, the focus on establishing a trust fund as the key mechanism to ensure the financial sustainability of the community co-management architecture and the park infrastructure more broadly, coupled with the failure to operationalize this idea early in the project, burdened the project with a relatively unrealistic component from the very beginning\. Moreover, the size of the trust fund, at US$2 million, was a gross underestimation of what would be needed to earn the investment income that could realistically continue project activities in each park\. In addition, the monitoring framework developed at the appraisal stage of the project (Annex 1 of PAD) was vague and had to be modified during projects negotiations (revised monitoring framework in main text of PAD) and later in the project implementation to enable a more realistic assessment of implementation progress\. The revised monitoring framework included a specific indicator "reduction in loss of selected threatened species in the three protected areas" that enabled a more realistic assessment of success of the project in the conservation of the globally important species (and indirectly their habitats) in the three protected areas\. This replaced an earlier indicator on 9 forest cover\. The monitoring of the revised indicators was regularly undertaken and reported\. c\. Risk assessment\. Risk identification was both comprehensive and objective, and resulted in an overall rating of Substantial\. It covered generic risks from community participation and ownership to lack of financial resources in the long term, but also highlighted early on two risks that could have derailed the project\. The project team worked with the responsible parties to affect policy change prior to the approval of the project to reduce the likelihood of these risks undermining the project, and continued to monitor the situation throughout the life of the project\. The first of these concerned a part of the Chitral Valley that was disputed by the ex- Mehtar (chief) of Chitral\. To mitigate the risk, the project worked with the GOP to change the law gazetting Chitral National Park such that (i) private lands within the park boundaries remained under their current status, and (ii) without prejudice to the objective of biodiversity conservation, the rights of the owners of private lands within the Park would be fully respected under the laws of Pakistan\. Until such time as these changes became law, this risk became a reality, slowed project activities and made community consensus all that much more difficult at the start-up of the project\. The second such risk concerned ongoing logging activities in Machiara National Park financed by an AJK parastatal ­ Azad Kashmir Logging and Sawmill Corporation\. However, following a rapid review of the practice by the project team, the provincial government terminated all logging operations as of December 31, 1999, prior to the commencement of the project\. Notwithstanding the project's commendably frank assessment of risk, there was one glaring admission\. While the Park Association trust fund was designed to mitigate the risk of a lack of available resources to sustain project outcomes and continue to engage local communities, it was poorly designed and the risk of it failing ­ given the potentially fragile political and financial environment in Pakistan and the lack of trust fund experience in similar environments ­ was never assessed\. 2\.2 Implementation Key factors that affected implementation included: The project's new approach to PA management, based on increased community consultation and participation, increased ownership and capacity building, but slowed implementation considerably as government staff took on new roles and engaged a larger number of stakeholders than they had traditionally\. The implementation of a significant portion of the project through provincial governments fostered (even required) more rapid capacity development than donor- executed conservation projects typically required in Pakistan, but their limited conservation and project management experience remained a constraint to 10 implementation at the initial stages of the project\. However, with improved capacity building and training, implementation progressed rapidly in the second half of the project\. The implementation of a significant portion of the project through provincial governments vaccinated the federal authorities against learning lessons at the site- level that could have been applied more broadly to community co-management projects throughout Pakistan\. The decision to move significant aspects of project implementation to the provincial governments was deliberate on account of the very weak capacity at the federal level and the understanding that overall responsibility for management of wildlife and forests rested with the provincial governments\. Provincial authorities in Balochistan were slow to buy into the objectives of the project, leading to slow start up of activities, a lag in disbursement, and a delay in consolidating village institutions\. The remote location and difficult field conditions, particularly related to security concerns, affected oversight and supervision\. This also resulted in limited communications between the three parks and between each park and the federal government\. These conditions also severely limited World Bank supervision and the recruitment of adequate technical assistance to guide activities\. The massive earthquake in AJK in 2005 resulted in a sudden shift in provincial and community priorities away from long term resource stewardship and towards more immediate survival concerns\. However, the strong community institutions created by the project in the earthquake-affected areas enabled the effective and timely mobilization of post earthquake assistance and support to the affected communities and ensured that long-term conservation goals were not compromised\. The slow start to the project, partly based on issues arising from the proposed development of a hydropower facility in Hingol, affected staff morale and focused management attention on problems in some areas rather than on outputs and outcomes in others, resulting in some activities being delayed\. 2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization The outcome indicators in the Appraisal PAD (Annex 1) were relevant but not precise, and changed over the life of the project\. The most precise indicators (in the main section of the PAD) were developed and agreed during project negotiations, and modified further during early project implementation to allow for more accurate tracking of effectiveness of conservation management, monitoring of village community institutions and improvements in household incomes\. These indicators were then monitored regularly during the project period\. The most precise indicators relate to the reduction of external pressures and changes in population of selected species, based on a weak threat analysis and incomplete environmental baseline information\. Other indicators particularly those relating to VCCs, 11 referred to unspecified levels of improvement, though they were backed by strong data on livelihoods\. M&E is rated as Moderately Satisfactory\. Internal and external monitoring and reviews largely took place as scheduled based on the revised monitoring framework and indicators refined and developed during early project implementation\. The quality of biodiversity and socio-anthropological M&E was raised to international standards with the assistance of a number of expert NGOs (e\.g\. WWF, IUCN)\. However the absence of a complete biodiversity baseline at the start of the project meant that considerable effort was needed to establish and refine baseline indicators during the early period of the project\. Moreover, in order to reduce dependence on external TA for scientifically sound M&E, PA patrol and monitoring staff required considerably more field training than given to ensure accurate detection, analysis and estimation of species abundance\. Nonetheless, the team was able to assess implementation progress by systematically tracking current numbers as part of supervision and they reported regularly on them through the Implementation Status Reports\. 2\.4 Safeguard and Fiduciary Compliance a\. Safeguards compliance\. The project complied with World Bank safeguard policies indicated in the PAD: (i) Environmental Assessment (OP 4\.01); (ii) Involuntary Resettlement (OP 4\.12); and (iii) Indigenous Peoples (OP 4\.10)\. Although the Forestry (OP 4\.36) and Natural Habitats (OP 4\.04) policies were not triggered at the time of approval, the project applied the principles of both safeguards\. Environmental Assessment\. Though the project recognized that some of the community investments and park infrastructure activities may have environmental impacts, these were considered to be clearly small in scale and narrow in scope\. While, there was no overriding framework with an assigned budget for environmental impacts' mitigation and management, the participatory framework for custodial communities in park management and conservation that was designed and implemented in the three protected areas ensured that park investments adequately identified and addressed such impacts\. Involuntary Resettlement\. A Process Framework to mitigate against restricted access to resources in the three PAs was made a sub-component under component 1\. As such it had clear budgetary and institutional arrangements, and was successfully prepared and implemented in each of the three parks\. It was also included in the project's legal covenants\. Indigenous Peoples\. As spelled out under OD 4\.20, a separate Social Assessment was not mandated\. Nonetheless, the project carried out a stakeholder assessment during project preparation to identify and engage potentially project affected peoples in and around the parks\. However, despite the presence of indigenous peoples (IPs) in the project areas, an Indigenous Peoples Development Plan (IPDP) to prescribe demographic, institutional and legal framework for including IPs in the project was not prepared\. The IPDP was necessary to comply with the OD (and OP 4\.10 that supplanted the OD in March 2005)\. 12 Nonetheless, the project complied with the spirit of the policy, particularly by recognizing IP rights of access to parks and protected areas and their equitable participation in benefits from development of natural resources on lands owned, used or occupied by them\. The project also worked to solicit broad community support for proposed activities and IP Village Conservation Committees (VCCs) had full access to, and decision-making power over, the natural resources they relied upon\. Natural Habitats and Forestry\. Because the project affected ­ for the better ­ the management of natural habitats and natural forests (not commercial plantations), the spirit of these policies was applied in each of the three project sites\. In addition, community investments were disqualified where they proposed conversion of critical natural habitat or commercial forestry\. b\. Fiduciary compliance\. The project mostly failed to comply with financial management requirements with the main weaknesses/noncompliance being in respect to (a) weak FM capacity with lack of/or quick turnaround of accounting staff; (b) poor maintenance of books of accounts/records, (c) delays in release of counterpart funds, and (d) failure to submit timely acceptable audited financial statements\. The failure to submit audit reports in accordance with the required timeframes also resulted in temporary discontinuation of disbursements for Balochistan and AJK\. Although it was initially designed that the project could potentially move to FMR (Financial Monitoring Reports) based disbursement after one year from inception of the project, this was not considered appropriate as most FMRs were still received late and contained deficiencies\. These issues generally continued till the end of the project\. 2\.5 Post-completion Operation/Next Phase Unfortunately, because the trust fund component of the project was not fully operational at the time of project closure, there remains a real urgency to identify additional co- financing for the trust to make it viable in the long term\. While VCCs were largely dependent on park budgets (in a quid pro quo fashion where they participate in park management and engage in sustainable use practices in return for park support to village infrastructure and other activities) during the project period to refrain from returning to unsustainable resource use, each of the three parks require follow-on support to consolidate the very real gains made during the implementation of this project\. Some follow-on support has already been secured from the provincial governments\. For example, in both NWFP and AJK, project activities have been extended beyond the project closing date until June 30, 2010\. In addition, the provinces have prepared PC1s (project proposals) and submitted them to the MOE to support a consolidated project proposal that would enhance federal funding to the three project PAs\. MOE is in discussion with the Ministry of Planning about securing this funding\. This funding would support the technical assistance necessary for continued engagement of park authorities with the VCCs, which is particularly important given that significant funds remaining in the revolving accounts of the VCCs that could provide a valuable resource to sustain community interest and participation in conservation into the future\. 13 3\. Assessment of Outcomes 3\.1 Relevance of Objectives, Design and Implementation Project development and global objectives remain relevant in Pakistan, regionally and globally\. The threats to Pakistan's biodiversity remain high and natural resources continue to play an essential role in the country's growth-oriented economic strategy\. The Bank's proposed CAS (2010-2013) focuses on, among other things, providing support that strengthens the environmental and social sustainability of development, particularly to support pro-poor growth\. This builds on the approach taken by the project in protecting the resource base on which rural communities depended for their livelihoods and for opportunities to attract investment\. The relevance of the project's objectives was high\. The objectives comply with the GEF Operational Strategy in the following respects: (i) priorities were country driven and the selection of sites followed a participatory evaluation process to determine biodiversity value of PAs according to biogeographic representation, socio-economic considerations, degree of threat and feasibility of intervention; (ii) the project aimed to leverage long term financing through the establishment of an endowment fund; and (iii) the project targeted nationally, regionally and globally important biodiversity contained with forest, semi-arid, mountain and marine ecosystems\. The relevance of project design was high with respect to: (a) protecting the three national parks; (b) strengthening voice and customary rights of neighboring communities; (c) strengthening provincial capacity to steward natural resources and manage conflict with local communities; and (d) transferring international conservation practices to Pakistan\. The relevance of project implementation was high, though it suffered from inflexible sequencing which meant that the short timeframe of the project, especially when taking account of the difficulties of social mobilization and institutionalization, meant that the VCCs were not fully mature enough in at least one of the parks to be self-sustaining at the end of the project, particularly since the suite of microfinance activities intended to nurture the VCCs were not introduced until late in the project\. 3\.2 Achievement of Global Environmental Objectives Project objectives were achieved to a large extent\. Being of a clear innovative nature, outcomes of the project provided useful lessons, particularly in the area of local institutional development and community co-management\. The handling of unexpected situations, particularly the failure of Balochistan to engage with the project, the earthquake in AJK and the larger security situation, were managed in a positive way that ensured that the project's GEO was met\. More specifically, the project made significant contributions towards achievement of the project objectives in the following areas: 14 y Protection of key forest areas in the three parks\. For example, in (i) Chitral Gol, there was a 90% reduction in grazing and fuelwood reduction and a 100% reduction in timber collection; (ii) in Hingol, there was a 45% reduction in livestock grazing in the park; and (iii) in Machiara, 61 % of pasture lands were successfully put under controlled grazing regimes and there was a 40% reduction in fuelwood use\. y A significant increase in selected threatened species\. For example, in (i) Chitral Gol ­ the markhor (Capra falconeri) population increased from 370 individuals at the start of the project to more than 800 individuals, a significant increase in an endangered species; (ii) Machiara ­ the number of Musk deer (Moschus chrysogaster), grey goral (Naemorhedus goral bedfordi), western tragopan (Tragopan melanocephalus) and monal pheasant (Lophophorus impeyanus) individuals increased from 35 to 72, 100 to 384, 75 to 122 and 238 to 436 individuals respectively, well above the baseline; and, (iii) Hingol ­ the Ibex (Capra sibirica hemalayanus) population increased from 1400 to 2000 individuals, the Urial (Ovis orientalis vignei) from 350 to 500, and the Chinkara (Gazella bennettii) from 150 to 200\. This was helped by a significant improvement of the existing biodiversity monitoring systems with participation of the local communities\. It was also complemented by a reduction in poaching by 95% in Chitral Gol, 100% in Machiara and 60% in Hingol\. y Increased support for protected areas in the project area, especially among local communities who hitherto only consumed resources from the park\. At the end of the project, 51 village conservation committees were effectively implementing conservation activities in Chitral Gol, Machiara and Hingol\. Their support was based in part on the increased emphasis on environmental education and capacity building of local communities regarding biodiversity conservation and sustainable use of natural resources, and in part on the up to 20% improvement in village incomes based on park support\. The VCC institutional structures have been effective and useful beyond park management activities, as has been demonstrated by their ability to secure significant additional resources (equivalent of US$7\.3 million) from other donors and NGOs for community development\. It also resulted from the successful implementation of an integrated approach to management, biodiversity conservation and sustainable use of protected areas that includes collaboration and complementary work between conservation and consumption agendas, in close interaction with local communities and stakeholders; y Successful implementation of research and management projects, coupled with demonstration plots, aimed at key management needs\. Each park has developed community-based monitoring guidelines that could enable the continued and regular monitoring of selected species populations, reductions in pressures on PA resources, as well as other proxies for community participation\. In addition, the project has resulted in the development of performance indicators for the management of PAs in Pakistan, indicators that can be used more extensively in the country\. 15 3\.3 Efficiency As required for a full-sized GEF project, an incremental cost analysis was done during the project preparation\. No formal economic analysis was completed for project implementation\. However, the cost-effectiveness of park management under the project was comparable with that elsewhere in the region\. (See Annex 3 for details\.) 3\.4 Justification of Overall Outcome Rating Rating: Moderately Satisfactory The overall PDO/GEO outcomes are rated moderately satisfactory\. The PDO/GEO remains highly relevant\. Most planned outputs and additional relevant outputs added during implementation were delivered efficiently and cost effectively, at least in two of the three provinces\. Government counterparts (initially in AJK and NWFP, and later in Balochistan) have demonstrated and maintained commitment supported by continuity in project management staff\. The consultation process supporting community ownership has been effective, indicated by the strong and functional community structures that have been established in the three parks\. Institutional capacity development and staffing has been positive, with a renewed commitment by two of the three provincial governments to maintain park staff numbers beyond the life of the project\. Awareness creation has been exemplary with policy makers, clergy, media, school children, and local communities having a good understanding of the linkages between conservation and the sustainable maintenance of local agriculture and ecological systems\. The management of the three parks have been substantially improved, which is manifested by the substantial (in most cases over two fold) increases in populations of key and threatened species in these areas\. Over 750,000 hectares of biodiversity rich habitat is being effectively managed in the three parks, with enhanced management interventions, surveillance and community participation\. The shortcomings rest in the mixed success achieved at the federal level with engaging MOE, and in the delay of the project to activate the proposed mechanism to ensure long term financial sustainability of the protected areas\. 3\.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development The project specifically targeted women in each park, and provided support for the establishment of Women Village Conservation Councils (WVCCs) to meet cultural needs and promote women's empowerment\. (b) Institutional Change/Strengthening Government agencies engaged with the local community at all levels\. The project established local infrastructure to give local communities and non-government actors a voice in decision-making over natural resources in and around each park\. This institutional interface is invaluable for continued conservation\. Moreover, the 16 infrastructure has reduced park-people conflict as a result of the move towards participatory management of park resources\. (c) Other Unintended Outcomes and Impacts There were no other significant outcomes or impacts\. 3\.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops There was no formal beneficiary survey or stakeholder workshop held\. 4\. Assessment of Risk to Development Outcome Rating: Moderate The risk that the PDO and GEO outcomes will not be sustained is assessed as moderate\. Few PAs in the world are self-financing, and park funding generally relies on a mix of sources\. Government budgetary support to PA management in general and to the three parks in particular was insufficient in the past and recent improvements in their management has relied heavily on resources provided through the project\. Since continued international support to the parks is threatened by the recent destabilization in security in these provinces, mechanisms for sustaining the PDO and GEO have to be supported within the existing institutional and financial constraints that operate in these provinces\. To this end, the provinces have made specific efforts to ensure that project gains are sustained\. Two of the provinces have extended the project period by six months with their own financial resources and committed efforts are underway to obtain federal funding to continue to provide oversight and technical support to the parks to build on, and consolidate achievements made under the project\. Specific risks to development outcomes are linked to the following factors: The sustainability of this project rests on the trade-off between local income enhancement opportunities and the costs and effort incurred in restricting their own use of natural resources in the PAs\. Communities admit that this trade-off is fragile, and its sustainability is predicated on some level of continued investments flowing to communities to compensate them for restricted access\. While the proposed mechanism ­ the Park Association trust fund ­ to sustain project interventions is not operational as of present, the community assets created under the project and the substantial financial resources available in the VCC revolving accounts, can continue to provide supplemental incomes to local communities and ensure their active participation in conservation of the park environment into the future\. Although limited, some attention was paid to the legal and policy base of participatory and co-management processes of PA decision-making\. Though legislation was recently passed in AJK which allows for sustainable use of resources within PAs by custodian communities, and legislation now recognizes the participation of 17 communities in Chitral Gol and Hingol national parks, their empowerment and continued involvement cannot be taken for granted\. Nonetheless, all three Project Directors are very confident that conservation activities in their respective parks will continue despite the closure of the project because of the strong and functioning community structures that are in place and the strong commitment within the respective wildlife departments to continue to engage communities in conservation of the park resources into the future\. Moreover, the VCC infrastructure has been found useful beyond park management activities (e\.g\. in the case of the aftermath of the 2005 earthquake) in being able to manage and oversee significant additional financial resources from other donors\. As a result, the VCCs will likely remain in existence in the medium to long term\. Staff positions have been regularized in two of the three parks, providing some level of comfort that capacity of provincial authorities to manage the parks will not disintegrate after project closure\. In NWFP, about 80% of the project staff positions have been approved by the Government and discussions are ongoing in AJK to do the same\. In the third park, Hingol, all thirty nine project contracted staff positions have been approved by Government and are in position\. An additional 20 new staff positions in the field are anticipated to be approved in the next fiscal year\. The presence of sufficient staff in the parks is a critical factor in ensuring that the GEO and PDO are sustained\. Nevertheless, the real biodiversity outcomes achieved provide more stable populations within each park that will help absorb some of the expected increase in resource use without endangering the GEO\. The significant build up of populations of key animal species within the three parks, the solid co-management architecture that is in place, the substantial funds available in VCC revolving accounts in support of their continued engagement in conservation, and strengthened institutional management capacity of project staff is likely to be adequate to sustain the GEO and PDO over the medium to long term\. 5\. Assessment of Bank and Borrower Performance 5\.1 Bank (a) Bank Performance in Ensuring Quality at Entry Rating: Moderately Satisfactory The project was designed according to best practice at the time, but the Bank effort to ensure quality at entry was mixed and had significant shortcomings\. Strengths included facilitating the selection of highly relevant objectives, encouraging a leading role for local communities and resource users and supporting active provincial government involvement\. The revolutionary nature of the project may also have led to inadequate attention being paid to sustainability at the time of project preparation\. Significant shortcomings in assessing sustainability continued to hamper implementation during the life of the project\. The quality of monitoring framework at project approval and lack of a 18 comprehensive baseline prevented a full assessment of the impact of the project\. Shortcomings in realistically assessing project readiness for implementation, leading to flawed site-selection, was a very real shortcoming, especially in Balochistan province where no buy-in to the project existed, but there were ongoing land tenure conflicts\. The team's failure to adequately deal with problems identified prior to effectiveness, in particular land rights in Chitral Gol ­ meant that implementation got off to a rocky start and these problems reoccurred during the early life of the project\. (b) Quality of Supervision Rating: Satisfactory Actions taken by the Bank during supervision were mostly appropriate, timely and adequate, with some areas of notable achievement\. Critical risks ­ such as with the lack of progress in Balochistan or the earthquake in AJK or threats to the integrity of the park in Balochistan ­ were appropriately flagged and addressed in a timely manner through relevant channels, even if resolution was not always immediately forthcoming\. The task team made routine visits (when security permitted) to Chitral Gol, Machiara and Hingol and to the Ministry of the Environment offices and successfully followed each visit with detailed aide-memoires that flagged actions for follow-up\. The team was also ready to engage the relevant expertise (e\.g\. legal) when problems arose that required such expertise\. The team effectively raised issues affecting the project to management's attention and management responded actively and speedily to issues raised\. These interventions had succeeded in effectively addressing problems that arose\. The team's ratings of GEO and IP were based on realistic assessment of the ground situation\. The team was very proactive in resolving implementation lapses in the project, as was the case in helping move the project from "unsatisfactory" to "satisfactory" status in 2005/2006, through a very structured action plan to deal with the serious shortcomings of the Balochistan component, and then actively following up to ensure that these were resolved in a timely and comprehensive manner\. The downgrading of the GEO to "marginally satisfactory" status in 2008 was based on a realistic assessment of the potential for the Fund for Protected Areas (FPA) becoming an effective and timely instrument for financing of the three protected areas at the closure of the project, on account of the delay of GOP to mobilize adequate co-financing for the FPA\. The team adopted the monitoring indicators to allow for more accurate tracking of impacts on species and reduction of threats on the three protected areas to compensate for the weak monitoring framework at design\. The mid-term review (MTR) was well-timed and addressed key issues with quality inputs, particularly in its frank assessment of the failure of activities in Balochistan\. In addition, the country team was involved in the project despite its relative small size in the overall country portfolio\. Nonetheless, the task team did continue to rely on the poorly designed idea of the trust fund to ensure financial sustainability and continued community engagement\. 19 (c) Justification of Rating for Overall Bank Performance Rating: Satisfactory Except for project activities in Balochistan and the failure of the project's proposed mechanism to ensure long term financial sustainability through the Park Association, the Bank made considerable implementation progress in a very difficult environment, where security concerns, remoteness of locations and difficult terrain were impediments to providing effective supervision and oversight\. This was particularly true at the park level, though less so at the central level where project activities were given less weight than the park activities\. 5\.2 Borrower (a) Government Performance Rating: Moderately Satisfactory At the beginning, federal level coordination through MOE was very weak\. In the first few years of the project, high staff turnover led to loss of institutional memory, ineffective management and inconsistent commitment to the project\. Upon transfer of responsibilities to the Inspector General of Forests, this coordination role improved significantly, though too late to fully implement some of the activities that were housed at this level (e\.g\. the ecotourism study and the Park Association trust fund)\. However, the government was slow to absorb lessons from the pilot sites and apply them to the protected area system more broadly\. Moreover, weak financial management continued throughout the project, despite using the Government's own financial and accounting systems, and despite moving to an FMR- based disbursement system after 2007\. FMRs were still received late and contained deficiencies\. (b) Implementing Agency or Agencies Performance Rating: Moderately Satisfactory MOE, originally tasked with implementing the other three components, showed a reluctance to implement project activities in a timely fashion\. As a result, and given MOE's continued intransigence, the attention paid to the activities under Component 1 in the three provinces began to predominate\. Borrower commitment to field activities varied sharply between the various provincial institutions involved in implementing Component 1\. In two Provinces ­ AJK and NWFP ­ the authorities displayed strong commitment from the beginning\. Activities occurred early and by the end of the project, park infrastructure and co-management architecture 20 was very solid\. However, in the third, Balochistan, key stakeholders lacked commitment and successive supervision missions had to exert substantial pressure for change to even kick-start project activities\. Nonetheless, by project end, co-management models were up and running in Hingol though the park hugely underspent its original budget, some of which was transferred to other budget line items\. (c) Justification of Rating for Overall Borrower Performance Rating: Moderately Satisfactory\. Given the failure of the government in Balochistan to engage in a timely manner with park activities coupled with the reluctance of MOE to coordinate the project in a consistent manner or implement their own-managed activities in the early stages of project implementation, the borrower performance rating is only saved by the excellent commitment and actions of the NWFP and AJK governments\. In addition, when the federal government responsibilities were transferred from MOE to the Inspector General of Forests, these activities finally began to take shape and improve towards the end of the project\. 6\. Lessons Learned An effort should be made to ensure that key stakeholders share the vision of park management and protection before project effectiveness and throughout project implementation\. Decisions about PA management often elicit strong opinions from a range of stakeholders\. To build and maintain a common understanding across national, provincial and local levels, PA managers must engage stakeholders in discussions of key goals and strategies before project effectiveness\. Otherwise stakeholder support is often just congealing at the end of the project when investments and resources dry up too soon to cement the new support\. In AJK the park's commitment to building local awareness of project activities, the importance of biodiversity to local and national economies, and the role of communities in co-management established the groundwork for a very successful project (this was not guaranteed; during the Bank's first supervision mission, local communities in AJK prevented the mission from visiting the park) and for the government to extend project activities beyond the Bank's involvement\. Projects which aim to move away from a conflictual model of PA management to a co-management model must take action from an early stage to ensure the realistic design and early activation of mechanisms to secure financial sustainability of the improved environmental management model to maintain faith with community co-managers who are not in a position to give up resource use without compensation in some form (e\.g\. through the VCC investments)\. Co-management models must be housed within larger entities that can provide technical assistance and support\. The VCCs were confederated at each park and linked to local government, NGOs and related rural support agencies through Local Advisory Committees (LACs) that provided village members with comfort that their actions were 21 consistent with agreed principals, and ensured a more holistic co-management approach rather than a village-based piecemeal approach\. More attention must be paid to M&E\. Adequate attention to M&E design, implementation and utilization is important for every operation, but is essential for a project that proposes to test a new modality for park management that would serve as the model for other parks\. Capturing baselines against which to measure progress and test effectiveness are a critical part of project preparation, and should not be left until later in the project, when this could delay measuring success and cause the project to capture an inflated baseline rather than the without-project scenario\. Safeguard policies should be applied proactively\. Applicable safeguard policies must be triggered and applied in all projects, including those whose explicit objectives aim to protect people and the environment\. A five-year project lifespan is not appropriate\. PA projects in remote areas with weak institutions, inconsistent community support, a fragile financial base, poor communities who depend on PA resources for their livelihoods and uncertain political support need to be recognized as long-term engagements\. Flexibility is important in a dynamic context\. One of the important challenges in Pakistan during the life of the project was the rapidly changing political and security environment\. Flexibility in project design can make implementation more robust by allowing projects to take advantage of opportunities as they arise and to modify the structure and nature of project elements if needed\. Moreover, task teams need to be prepared and empowered to take actions necessary to address inadequate project design\. 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies (b) Cofinanciers There were no cofinanciers for this project (c) Other partners and stakeholders (e\.g\. NGOs/private sector/civil society) No comments received from civil society partners 22 Annex 1\. Project Costs and Financing (a) Project Cost by Component (in US$ Million equivalent) Appraisal Actual/Latest Percentage of Components Estimate (US$ Estimate (US$ Appraisal millions) millions) PROTECTED AREA BIODIVERSITY 7\.05 6\.93 98% MANAGEMENT SUSTAINABILITY OF 2\.13 2\.01 94% PARK MANAGEMENT HUMAN RESOURCE 0\.36 0\.26 73% DEVELOPMENT PROJECT COORDINATION 0\.46 1\.01 219% AND MONITORING Total Baseline Cost 10\.00 10\.21 102% Physical Contingencies 0\.27 Price Contingencies 0\.48 Total Project Costs 10\.75 Project Preparation Facility 0\.00 (PPF) Front-end fee IBRD 0\.00 Total Financing Required 10\.75 (b) Financing Appraisal Actual/Late Type of Estimate st Estimate Percentage Source of Funds Cofinancing (US$ (US$ of Appraisal millions) millions) Borrower 0\.67 1\.08 161% Global Environment Facility 10\.08 9\.13 91% (GEF) 23 Annex 2\. Outputs by Component The following components were envisaged at appraisal: (A) Protected Area Biodiversity Management; (B) Sustainability of Park Management; (C) Human Resource Development and (D) Project Coordination and Monitoring\. The outputs by each of the above components are discussed in detail below: Component A\. Protected Area Biodiversity Management Process framework for participation of custodial communities in park management and conservation: The main achievement in this component has been the establishment of a robust consultative framework to involve local communities in decision making on protected area management and community investments in the three protected areas\. Over 5,000 families living in, and around the three protected areas have participated in the consultative process and project related activities\. The consultation process supporting community ownership was effective as indicated in the strong community structures that seem to be functioning well at the three parks\. Specific guidelines and rules were developed and used for community mobilization, mapping of community resource utilization, formation of VCCs, development of PA resource management strategies and mitigation, and participatory monitoring\. The individual provinces intend to use these tested guidelines for enhancing community participation in other PAs within their respective areas\. Formulation of detailed park management plan and strategy: PA Management planning has undergone a fundamental shift during the project with participatory processes now mainstreamed in the management strategy\. All three parks have new or updated management plans that have been developed with the engagement of the wider community and focuses not only on enforcement, but also management interventions that engage and benefit local communities\. There is enhanced capacity in the three PAs to prepare and update their management plans\. In each park, revised legislation now recognizes the participation of communities in park management and sustainable use of resources within the parks\. Improvement of park infrastructure: Park infrastructure has improved noticeably through the project\. New and strategically useful infrastructure such as park staff housing, administrative buildings, trail networks, water supply schemes and patrol tents have been established under the project, and have helped improve park management and surveillance\. The project created park administration facilities in Machiara and Chitral, and staff quarters in Hingol will enable the continued provision of management and administrative oversight for activities in the respective parks\. In addition, a number of trail networks were created or improved in Machiara and Chitral and irrigation and water supply schemes developed in these two PAs\. At the community level, the VCCs at all three PAs have been able to solicit new and improved community infrastructure in the form of water supply and irrigation systems, solar lighting, fuelwood distribution and 24 liquid propane gas outlets, local health dispensaries and health staff, housing improvements and trail upgrading from non-project funding sources\. Improvement of park operations: The purchase of equipment such as binoculars, communication and other field equipment has enhanced surveillance and enforcement at each park\. Additionally, surveillance and enforcement capacity has also been enhanced with community participation\. Communities have recognized the economic value of protecting their resources from exploitation from outsiders and developed and improved surveillance and management structures to manage them\. Staff and community capacity to reduce illegal activities has greatly improved\. Almost 700,000 hectares of biodiversity rich habitat is now more effectively managed in the three parks, with improved management intervention, surveillance and community participation\. Baseline resource inventory, research, habitat improvement and wildlife enrichment: Development of geographic information systems based topographic and ecological databases for all three parks that provided a valuable tool for protected area management planning\. These databases provide information on distribution and habitat types within the parks and are helpful in monitoring wildlife changes through time\. Baseline research on vegetation, ornithology, rangelands, socio-economic conditions and wildlife are helping park staff define interventions for improving management of park resources\. Periodic monitoring of key wildlife species and their distribution has provided valuable information on the status of species and the health of the ecosystem\. Each park has developed community based monitoring guidelines that will enable a continued and regular monitoring of the status of key species populations, PA management effectiveness, community participation and other related aspects\. Public environmental awareness and outreach: The project has made a remarkable contribution to public awareness by targeting communities, politicians and, importantly religious leaders\. VCCs members have emphasized that they have learnt about the importance of conservation through the project\. They seem to now have a strong sense of ownership and pride in the uniqueness of their natural resources\. Signboards are widespread around the surroundings of the parks, newsletters in local language and leaflets are available, information about study and exposure visit and training workshops for staff and communities are widely circulated and a number of nature clubs for children are functioning\. Component B\. Sustainability of Park Management The sustainability of project interventions as outlined in the Appraisal PAD was to be achieved through: (i) a Fund for Protected Areas (Park Association, or FPA); (ii) establishment of VCCs, which would empower local communities to conserve biodiversity within PAs; (iii) improved capacity within provincial wildlife departments for effective management of PAs; and (iv) creating awareness of the importance of conservation\. The FPA has been established with legal status, governed by a board of directors, with defined rules and regulations and financial procedures, and management and fund raising expertise\. However, the FPA is not fully operational\. To be fully 25 operational, it is expected to generate matching funds from in-country sources\. MOE is in discussion with the government to solicit public funds to enable the FPA to become fully functional\. In the meantime, a PC1 (project proposal) has been developed to seek federal government resources to continue some level of support (namely technical assistance and training) to the three PAs until such time as the FPA is functional and generates sufficient resources to support the PAs\. VCCs have been empowered and co-federated at the PA level into larger district or sub- district entities to give the VCCs a greater voice and status\. The implementation of the VCC revolving funds and microfinance initiatives give reason to believe that some, if not all conservation activities will continue on the medium and longer term\. Project staff positions have been regularized in two of the three PAs (and discussions are ongoing to do the same in the third park) that will provide the institutional capacity to continue to manage the PAs and engage the local communities\. Awareness raising has had a very positive outcome and will no doubt contribute significantly to future conservation efforts\. Component C\. Human Resource Development The capacity of the staff in the three PAs has been substantially enhanced technically and physically and has helped facilitate and guide park management\. Collaboration with TA teams and participation in courses at local and foreign universities has built technical capacity, and physical capacity has improved by purchase of equipment, vehicles and construction of park headquarters to help coordinate their activities\. The increase in populations of selected key species and reduction in the number of illegal and unsustainable activities is indicative of the enhanced capacity of the staff to manage the parks as well as carry out monitoring and community development activities\. The approval of 80% of project staff at Chitral and all of the project staff at Hingol will significantly help them to continue and sustain conservation activities\. The Wildlife Departments of AJK and NWFP have shown interest in replicating the project participatory model in other protected areas in their respective provinces, and the enhanced capacity and experience developed through the project would be beneficial in this respect\. Component D\. Project Coordination and Monitoring Although the field level execution of the project was the responsibility of the respective provincial governments through their respective wildlife and forestry departments, some limited level of coordination was envisaged at the federal level\. While, not fully successful, the MOE helped facilitate the development of legislation relating to PAs and management plans at the provincial level and ensuring that there was some standardization across each level\. The MOE also helped organize regular technical meeting and site visits to enable the PA staff to share experiences and learning\. Building on experiences in the three PAs, the MOE facilitated the development of performance indicators for PAs in Pakistan that can be used more widely throughout the country\. MOE also facilitated an independent review and impact assessment of the project that assessed whether planned project outcomes and objectives have been met\. However, 26 some studies such as the ecotourism study was not commissioned due to the non- availability of suitable local expertise\. Further, the initial lethargy (subsequently rectified by the transfer of the project to the Inspector General of Forests) delayed the design and operationalization of the Park Association\. 27 Annex 3\. Economic and Financial Analysis The project did not undertake an economic analysis\. Instead, as required for a full-sized GEF project, an incremental cost analysis was prepared during project preparation, assessing the total cost of GEF alternative at US$10\.8 million\. This was also the actual cost of the project\. A rough assessment of cost-effectiveness is possible on the basis of comparing PA management cost per unit area with other countries\. Considering the total project cost of US$10\.8 million and the total hectares managed under the project (619,043 ha in Hingol; 7,750 ha in Chitral Gol; and 37,147 in Machiara), the project provided a degree of park protection and management for eight years of its duration, which translates to about US$2/ha/year (or US$185 per km² per year)\. Correcting for the cost of the three components not focused solely on management activities, the annual cost of PA management was about $1\.5/ha/year\. This was broadly consistent with a mean budget of PA budgets from developing countries during 1990s, which was US$1\.57/ha/yr (James et al, 1999)\. 28  Annex 4\. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Responsibility/ Names Title Unit Specialty Malcolm Jansen Senior Environment Specialist SASDI TTL Ethel Sennhauser Sector Manager Agriculture LCSAR Past TTL Senior Natural Resource Najib Murtaza Past TTL Specialist Nadim Khouri Senior Agriculturist Past TTL Social and Senior Social Development Zia Al Jalaly SASDS participatory Specialist aspects Anwar Ali Bhatti Financial Analyst SACPK Disbursement Senior Rural Development Kevin John Crockford SASDA Specialist Sr\. Financial Management Financial Hasan Saqib SARFM Specialist Management Asif Ali Sr\. Procurement Specialist SARPS Procurement Valerie Hickey Environment Specialist LCSDE Riaz Mahmood Financial Management Analyst SARFM Disbursement Tekola Dejene Consultant AFTAR Hasan Masood Mirza Consultant SARPS Procurement Financial Naveed Saeed Consultant SARFM Management Shabir Ahmed Program Assistant SASDO Ghulam Ali Program Assistant SASDO Shahnaz Meraj Team Assistant SASDO Cecilia Belita Sr\. Program Assistant SASSD (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle US$ Thousands No\. of staff weeks (including travel and consultant costs) Lending FY94 n\.a\. 27\.62 FY95 n\.a\. 27\.33 FY96 n\.a\. 29\.57 FY97 n\.a\. 106\.47 FY98 n\.a\. 133\.34 29  Staff Time and Cost (Bank Budget Only) Stage of Project Cycle No\. of staff weeks US$ Thousands (including travel and consultant costs) FY99 n\.a\. 76\.15 FY00 17\.22 43\.91 FY01 39\.82 71\.00 FY02 \.47 2\.44 Total: 509\.77 Supervision/ICR FY02 32\.17 31\.65 FY03 23\.44 75\.93 FY04 15\.07 51\.78 FY05 9\.37 22\.63 FY06 16\.69 68\.95 FY07 8\.51 31\.56 FY08 10\.14 40\.88 FY09 5\.15 22\.39 FY10 7\.76 40\.25 Total: 128\.30 386\.02 *n\.a\. ­ not available 30 Annex 5\. Beneficiary Survey Results Neither the project nor the ICR exercise carried out a formal beneficiary survey at the end of the project\. However, an independent evaluation did interview individuals and families involved in two of the three PAs\. The main feedback was that Village Conservation Committees (VCCs) were well received and their institutional development considered a real benefit of the project\. However, Women's Village Conservation Committees (WVCCs) did not necessarily thrive and many women involved felt that they were still marginalized in decision-making, largely by the other VCCs\. In addition, the VCCs related to the parks on a strict quid pro quo basis, supporting conservation outcomes when they were provided direct benefits in the form of micro-credit or alternative incomes\. 31 Annex 6\. Stakeholder Workshop Report and Results A formal stakeholder workshop was not organized\. 32 Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR Background Protected Areas Management Project (PAMP) was implemented in Pakistan between January 1, 2003 and December 31, 2009\. The project was funded by Global Environment Facility (GEF) under a Trust Fund Grant Agreement (TFGA) through the World Bank (WB) with a cost of US$10\.750 million including a contribution of US$0\.670 million by a Government of Pakistan\. It addressed conservation of globally important habitats and species of three Protected Areas (PAs) of the country including Hingol National Park (HNP) in Baluchistan Province, Chitral Gol National Park (CGNP) in the North West Frontier Province (NWFP) and Machiara National Park (MNP) in Azad Jammu & Kashmir (AJK)\. These Protected Areas represent marine, estuarine, arid range land, mountain and forest ecosystems and contain species of national, regional and global significance\. The Project was implemented by the Ministry of Environment, GoP (Grant Recipient), GoB, GoNWFP and GoAJK\. The Project had 4 major components including Protected Area Biodiversity Management, Sustainability of park management, human resource development and project coordination and monitoring\. Major interventions of the project included integration of custodian communities in the Park management and conservation; preparation of Park Management Plans for three Protected Areas; Development of Park infrastructure; improvement of Park operations; carrying out baseline inventories, research, habitat improvement and wildlife enrichment; Public environment awareness and Human resource development\. Overall assessment of Project Outcomes PAMP implementation has rendered numerous useful outcomes\. Integration of custodian communities in the Park management has resulted in emergence of community institutions at the grass root level\. The process of community organization culminated in formation of Village Conservation Committees, Cluster Organizations, Local Support Organizations and District Conservation Committees\. Park Management Teams came into being and Village Conservation & Development Plans were prepared through a participatory process\. Village Conservation Funds were established for implementation of these plans\. The capacity of community institutions and the staff of Park Administration was developed\. Management Plans were prepared for Hingol, Chitral Gol and Machiara National Parks with the participation of custodian communities, the PMTs and other stakeholders\. These plans are now available to the Park Managers to pursue the prescribed Park Management\. The Management Plans not only provide management strategies but also form basis for future projects and readily provide data on Park resources\. The improvement of Park infrastructure has resulted in a network of trails, mountain huts, Rangers stations, roads, bridges, office & residential buildings etc\. This has ensured the presence of Park staff within the Park premises and has enhanced their mobility in the Protected Areas thus improving their surveillance against poaching and illegal exploitation Park resources\. Improvement of Park infrastructure has also benefited the communities and has enhanced visitor's moment in the P\.As thus promoting 33 ecotourism\. Improvement of Park operations has benefited Park surveillance through improved communication between the field staff and Park headquarters\. Establishment of Ranger Stations and field hut has facilitated staff accommodation in the far flung areas of the Park as a measure against poaching\. Appointment of Community Wildlife Watchers has provided jobs to community members at the local level and has acted as an incentive for their participation in conservation\. The reports and studies physical and biological resources of the Pars are now available for management planning, education and monitoring of trends\. The programme of conservation education and awareness raising is in progress and the professional capacity of Park staff and communities has been enhanced\. The institutions for P\.A management are now in place with scientifically prepared management plans, supportive communities\. Trained and well equipped staff with good park infrastructure and operational capacity\. Project Performance The Project has been completed successfully\. The overall performance of the project was satisfactory\. The targets set for each of the three Protected Areas have been achieved\. The objectives of community organization and integration of custodian communities into Park management was successfully achieved\. The Park infrastructure in the project area was effectively improved and capacity of the Park staff was successfully improved for effectiveness of Park operations\. Management Plans were prepared for Hingol, Chitral Gol and Machiara National Park and baseline inventories of the Park resources were conducted\. The habitat improvement works, research studies and wildlife enrichment program was also carried out on schedule\. The comprehensive program of Public environment awareness was addressed and mechanism for sustainability of Park Management was outlined\. Human resource development was also carried out for building capacity of the Park staff and communities\. All the project interventions were carried out despite belated start of the project, delayed release of funds due to procedural constraints, disastrous earthquake in Machiara National Park, heavy floods in Hingol National Park and lake of trained staff for project implementation\. All the implementing agencies worked in complete harmony for a successful completion of PAMP\. Statement of expenditure Expenditure incurred by Project implementing agencies on implementation of PAMP is shown in table below\. Implementing GEF ­ TFG Allocation Local Component Agency ( Million Rupees) (Million Rupees) Allocation Expenditure Difference Allocation Expenditure Difference MoE 22\.494 24\.281 +1\.787 3\.900 1\.374 -2\.526 Hingol National 220\.918 180\.170 40\.748 25\.730 30\.438 +4\.708 Park Chitral Gol National Park 193\.805 208\.950 +15\.145 19\.406 19\.622 +0\.216 34 Machiara National Park 207\.434 257\.931 +50\.479 15\.900 19\.400 +0\.500 Lesson Learned The PAMP has been highly useful in conservation of biodiversity and P\.A management in Pakistan and has been received by communities and implementing agencies with particular interest and enthusiasm\. The Project was a demonstration of good team work of all the implementing agencies\. Integration of communities into P\.A management, there empowerment and provision of legal and financial incentives were key to successful participatory management of P\.As\. The process of community organization for participatory natural resource management is highly sensitive, complex and lengthy\. It requires specially trained manpower to carry it out\. All the implementing agencies therefore require capacity building of their staff for the purpose\. The project implementation period of 5 years was too short for implementation of PAMP\. Extension of the project period by 2 years was a blessing\. The implementation of such a project should be preceded by a preparatory phase of 1-2 years to cater for the initial staff orientation courses, opening of special accounts and community organization\. The planned project period was not enough for the maturity of community institutions which still require considerable time to get going\. The custodian communities had high expectation about incentives in the form of jobs and village development program but the amount of VCF was quite limited\. However the project has built capacity of communities to tap other sources for micro-enterprise development\. Capacity building of the Park staff should be a continuous process\. Emphasis should be placed on long term courses instead of several short term trainings\. Rapid turns over in T\.A Teams affected the project adversely\. This situation needs to be overcome in future projects\. A number of constraints and bottle necks were faced in project implementation\. It has been experienced that dedication, team work and endurance by the implementing agencies can overcome all the hurdles\. Apart from the field work, financial management of the project is highly important\. The staff of the project needed through training in World Bank Accounting Procedures\. Assessment of Sustainability Sustainability of P\.A management in the post project period is of vital importance to take this unique model of participatory management to maturity and institutionalize it as a future practice\. The prospects of sustainability of P\.A management are encouraging\. Financial sustainability of the program will be ensured partially through Fund for Protected Areas (FPA) an endowment established for this purpose\. The amount of FPA needs to be enhanced by contribution of GoP share and fund raising from other sources\. Windows of Provincial Development Programme are also open and the respective implementing agencies can tap these windows\. Prospects of attracting other donors to this programme also exist\. Replenishment of Village Conservation Fund (VCF) is also important for implementation VCDPs\. The sustainability of institutions including the Wildlife and Forestry Departments as well as community institutions will also determine the sustainability of P\.A management\. 35 There is great likelihood that these institutions will live long\. The GoNWFP and GoB have already regularized several positions in Chitral Gol and Hingol National Park respectively and the Govt of AJK is expected to do in same these in June 2010\. Support to community institutions by the Govt and other donors will ensured their sustainability Technical Sustainability will be ensure by the respective Wildlife & Forest Departments who are fully capable of managing Protected Areas on the lines of PAMP\. Since the Project Directors are still serving as heads of these institutions, technical support for the programme will be available\. Maintenance of Park infrastructure is the responsibility of implementing agencies\. The importance of this maintenance needs emphasis\. Since the Park operations form a part of regular programme of the Wildlife Department and the heads of Park Administration in Baluchistan, NWFP and AJK are staunch advocates of P\.A management, the sustainability of this programme is ensured\. Future Direction The PAMP should be adapted as a model for P\.A management\. It should be replicated and extended to other Protected Areas in the country\. The GEF, World Bank and the Ministry of Environment should seriously consider launching of a Phase-II of PAMP to stabilize the achievements of the concluded project, strengthen VCCs and other community institutions and make P\.A management sustainable\. This project should preferably be for a period of 7-10 years and should keep in view the lessons learnt in PAMP implementation\. The MoE may expedite contribution of the share of GoP towards the FPA and make the fund operational\. Funds may also be arranged for administrative expenses of FPA including hiring of a full time Chief Executive\. The World Bank may also relax the condition of linking of operation of FPA to receipt of GoP contribution\. The unspent amount of TFG may also be transferred to the FPA\. The community institutions should be strengthened\. The Park Administration should keep constant liaison with the communities and help them in securing donor assistance for their micro enterprise development and Village Conservation and Development Plans\. All the project staff should be retained in their respective positions and kept mobile and busy with the same routine functions that they performed earlier\. Community Wildlife Watchers must not be laid off and should continue performing their duties as in the project\. The Project Implementing Agencies should regularized the services of project staff for the post project period and place them on recurring expenditure\. Special conservation and development projects should be prepared and launched in the three Protected Areas to implement Park Management Plans developed under the PAMP\. The other government departments and the NGOs should be encouraged to focus there conservation and development program on the villages in and around the Protected Areas; through custodian communities\. It is proposed that GEF/ World Bank may make arrangements to continue providing technical advice and coordination service to the Project Implementing Agencies of 36 Hingol, Chitral Gol and Machiara National Park as a support to sustainability of PAMP achievements\. 37 Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders Not applicable 38 Annex 9\. List of Supporting Documents World Bank documents Project Appraisal Document Aide-memoires ISRs Quality Assurance Group Evaluation, 2006 Audited financial reports Other IUCN, 1996\. Biodiversity Action Plan and Protected Areas Management Project Interim Report Dunira Strategy, 2009\. Third Party Evaluation Management Plans for Machiara, Hingol and Chitral Community based monitoring reports for Machiara, Hingol and Chitral Revised Wildlife Protection Acts for Machiara, Hingol and Chitral Performance Indicators for Management of Protected Areas in Pakistan (2002) Proceedings of Media Workshop on Environmental Journalism (2004) Operational Manual of Community Participation (Machiara) Manual for Training in Fuel Efficient Stoves for Women (2004) Community Microplans Sustainability Plan for Chitral Gol Framework for Monitoring of Park Management Performance for Hingol (2006) Fund for Protected Areas: Baselines, Structure, Powers and Operational Manual James, A\., Gaston, K\., & Balmford, A\. 1999\. Balancing the earth's accounts\. Nature 401: 323­324\. Project Progress and Completion Reports Machiara National Park (March 2003-December 2007; January 2008-December 2009) Hingol National Park (2005-2006; July 2008-March 2009) Chitral Gol National Park (MTR report) Machiara National Park (Project Completion Report) 39  IBRD 31282 60° 65° UZBEK\. TAJIK\. CHINA TURKMENISTAN PA K I S TA N CHITRAL GOL NATIONAL PARK PROTECTED AREAS MANAGEMENT PROJECT MACHIARA 35° CHITRAL GOL, HINGOL, AND MACHIARA NATIONAL PARKS 35° NATIONAL PARK Approx\. Line Kabul Peshawar of Control NATIONAL PARK BOUNDARIES PAKISTAN N\.W\.F\.P\. AFGHANISTAN Islamabad BUFFER ZONE BOUNDARIES VILLAGES R\. lum ISLAMIC Jhe RIVERS AND STREAMS Lahore REP\. OF INTERNATIONAL BOUNDARIES OF IRAN This map was produced by the Map Design Unit of The World Bank\. PUNJAB The boundaries, colors, denominations and any other information shown 30° on this map do not imply, on the part of The World Bank Group, any 30° judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries\. PA K I S TA N 71°30' 71°45' 65°30' 66° BALOCHISTAN R\. us CHITRAL GOL NATIONAL PARK HINGOL NATIONAL PARK Ind I N D I A HINGOL NATIONAL PARK SINDH Darun 25° 25° Karachi R Lutkho iver 60° 65° 70° 75° r 26° ve Ri l 36° Go 36° 26° BUFFER ZONE ol ng shi 73°30' 73°45' l Hi Go Too th MACHIARA re i Aw Rive r NATIONAL PARK Mastuj Bir mo Besri La g Doba sh t Taranch Paharan R\. Kaswir Seri Shahmiran- Ghatian tral Meran Post Ch deh Chatian/G\.Khetar Broonshal Garan Chi Post itr a lG Shaldane Dandale Bherri Kutli Chakrian/Doliar/Dana ol Balach Chewdok Dangarikandeh Dabrial Noghor Machiara Muglandeh Rehankot Zargarandeh Goldoor Chatha/Mohri/Panjnad Jangbazaar CHITRAL Kurkashandeh Panjur Galli Tingshen Koli Singal Machiara Hinglach Sham Road (derelict) 34°30' Nullah Minha Serli 34°30' s ces Chinian Khetar Serli Sacha Kalash Valley Kundrach Ac Phor Coast 25°30' Sacha East Chandargop Khari Serina/ (Ramboor) 25°30' Guard Outpost Nullah Batdara West Aghor Coast Konkan BUFFER ZONE Ram Guard HQ D h a k Sapat Pala Zerin Panjur Malan Dawalian bur P l a i n Bander Nullah Kund Jing Bala & Patika Jing Zerini Go Malir Hingol River Poti Town Bander l 35°45' 35°45' Estuary Chitral R N eelum River 5 fathom/9m mark N \. TA NIS N ISTA HA AFG PAK 0 10 20 0 5 10 Arabian Sea 0 5 10 KILOMETERS KILOMETERS KILOMETERS 71°30' 71°45' 65° 65°30' 66° 73°30' 73°45' JUNE 2010

REVIEW

P008958

 Industrial schools project Report No: ; Type: Report/Evaluation Memorandum ; Country: Turkey; Region: Europe And Central Asia; Sector: Education Adjustment; Major Sector: Education; ProjectID: P008958 Turkey: Industrial Schools Project (Loan 2536-TU) The Turkey Industrial Schools project, supported by Loan 2536-TU for US$57\.7 million, was approved in FY85\. The loan was closed on December 31, 1994, after two one-year extensions, at which time the balance of US$1\.98 million was canceled\. (The balance was partly a result of cost savings\.) The Implementation Completion Report (ICR) was prepared by the Europe and Central Asia Regional Office\. The borrower's full report on the implementation and achievements of the project is appended to the ICR\. The project was designed to support government vocational programs to improve industrial productivity and promote overall economic growth through: (a) enhancing the quality of training programs, (b) increasing the quantity of trained industrial manpower, and (c) improving the planning and management capacity of the Directorate of Technical and Vocational Education in the Ministry of National Education (MNE)\. To achieve these objectives, the project financed equipment, curriculum development, textbook production, teacher training, and studies\. The project's objectives were partially fulfilled\. Targets for equipping schools were surpassed, and enrollments in the industrial schools were considerably higher than expected\. However, since most students of these schools were eligible for entry to higher education, few actually entered the market as technical workers in their specialty\. Objectives intended to improve instructional quality proved difficult to implement\. Partly because of incorrect advice by the Bank, curriculum development focused on old rather than emerging technologies\. Specializations were narrowly defined and focused excessively on vocational skills training, and did not give students the basic skills needed for effective work performance in any vocation\. Establishing linkages with industry also proved to be difficult, in part because project management was too centralized\. The management improvement (institutional development) objective proved difficult, due to the moderate technical assistance resources provided under the project in proportion to MNE needs\. The Operations Evaluation Department (OED) rates project outcome as satisfactory because training targets were accomplished despite methodological design problems\. Bank performance is rated unsatisfactory (satisfactory in the ICR)\. During preparation, the Bank paid insufficient attention to methodological issues, management requirements, scheduling of project activities, terms of reference for consultants, and budget monitoring\. Ownership by stakeholders was also neglected\. According to borrower statements, advice during implementation was not very effective in providing solutions to problems\. In accordance with the ICR, OED rates institutional development as moderate\. However, OED rates sustainability as uncertain (likely in the ICR), given the lack of training and funds to make equipment operational as well as the out-of-date curricula that were developed\. The project shows that vocational education is best implemented when the responsible agency is strong and well prepared to forge linkages with industry and develop curricula that offer students and employers information on state- of-the art technology\. Provision of equipment without training and support may be insufficient to improve the quality of instruction\. To increase trained manpower in a country, graduates must be willing to enter the labor market rather than pursue higher studies\. The ICR is satisfactory, providing a clear and comprehensive account of project implementation\. It also provides a detailed set of actions the government plans to carry out in order to overcome project weaknesses\. The ICR includes borrower comments which provide a candid criticism of project performance\. An audit is planned\.

REVIEW

P010413

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 20260 IMPLEMENTATION COMPLETION REPORT (19870; 19871) ONA CREDIT IN THE AMOUNT OF SDR 163\.5 MILLION (US$216\.9 MILLION EQUIVALENT) TO THE ISLAMIC REPUBLIC OF PAKISTAN FOR THE SECOND KARACHI WATER SUPPLY AND SANITATION PROJECT June 21, 2000 Infrastructure Sector Unit South Asia Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  CURRENCY EQUIVALENTS (Exchange Rate Effective March 1, 2000) Currency Unit = Rupee (Rs\.) Rs\. 1\.00 = US$ 0\.0192 US$ 1\.00 = Rs\. 51\.89 FISCAL YEAR July I June 30 ABBREVIATIONS AND ACRONYMS ADB = Asian Development Bank CDC = Commonwealth Development Corporation GOP = Government of Pakistan GOS = Government of Sindh IDA International Development Association KMC = Karachi Metropolitan Corporation KWSB = Karachi Water and Sewerage Board KSDP = Karachi Special Development Project ODA = Overseas Development Administration (now called Department for International Development-- DflD) Vice President: Mieko Nishimizu Country Manager/Director: John W\. Wall Acting Sector Manager/Director: Jonathan S\. Kamkwalala Task Team Leader/Task Manager: Manuel G\. Mariffo  FOR OFFICIAL USE ONLY PAKISTAN SECOND KARACHI WATER SUPPLY AND SANITATION PROJECT CONTENTS Page No\. 1\. Project Data 1 2\. Principal Performance Ratings I 3\. Assessment of Development Objective and Design, and of Quality at Entry 2 4\. Achievement of Objective and Outputs 4 5\. Major Factors Affecting Implementation and Outcome 10 6\. Sustainability 11 7\. Bank and Borrower Performance 13 8\. Lessons Learned 15 9\. Partner Comments 16 10\. Additional Information 17 Annex 1\. Key Performance Indicators/Log Frame Matrix 18 Annex 2\. Project Costs and Financing 22 Annex 3\. Economic Costs and Benefits 24 Annex 4\. Bank Inputs 27 Annex 5\. Ratings for Achievement of Objectives/Outputs of Components 29 Annex 6\. Ratings of Bank and Borrower Performance 30 Annex 7\. List of Supporting Documents 31 Annex 8\. Comments on ICR from the Borrower 32 Table 1 6 Table 2 8 This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not be otherwise disclosed without World Bank authorization\.   Poje,ct ID: P010325 Project Name: KARACHI WATER & SANI TemLeader: Manuel G\. Marino TL Unit: ECSIN IC :ye Core ICR Report Date: May 19, 2000 1\. Project Data Aame: KARACHI WATER & SANI L/C/TFNumber: 19870; 19871 CountryIDepartment: PAKISTAN Region: South Asia Regional Office Sector/subsector: WU - Urban Water Supply KEY DATES Original Revised/Actual PCD: 10/28/86 Effective: 08/24/89 12/13/89 Appraisal: 12/09/87 MTR: Approval: 02/28/89 Closing: 06/30/98 06/30/99 Borrower/lImplementingAgency: Government of Pakistan/KARACHI WATER & SEWERAGE BOARD (KWSB) Other Partners: STAF'F Current At Appraisal Vice PDresident: Mieko Nishimizu W\.P\. Thalwitz Country Manager: John W\. Wall H\. Eberhard Kopp Sector Manager: Jonathan S\. Kamkwalala Yoshiaki Abe Team Leader at ICR: Hiroaki Suzuki Neil E\. Boyle ICR Primary Author: Manuel G\. Marifno; Omar Hayat; Herman J\. Nissenbaum 2\. Principal Performance Ratings (HS=1ighly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: U Sustainability: UN Institutional Development Impact: M Bank Performance: U Borrower Performance: U QAG (if available) ICR Quality at Entry: U U Project at Risk at Any Time: Yes  3\. Assessment of Development Objective and Design, and of Quality at Entry 3\.1 Original Objective: Inefficient, inadequate provision of water had long been a glaring problem in Karachi, Pakistan's fast growing, largest city\. This was aggravated by low water pressure and intermittent, sometimes contaminated supply\. When the Second Water Project (K2) was conceived, the city's piecemeal supply system was not meeting demand, and its sources were gradually diminishing\. The oldest one, the Dumlottee wells, neared exhaustion, and the newly completed Hub River dam system was only expected to meet some 26 percent of projected demand\. Thus, with the city's already substantial population doubling about every twelve years, there was urgency in relying more on the Indus River and Kinjher Lake\. These factors stimulated the decision to supplement the 320 million gallons per day (mgd) then drawn from the Indus and 100 from Hub dam\. K2's main objectives were to help: (a) increase Karachi's potable water supply by 100 mgd; (b) expand sewerage treatment capacity; and (c) improve the financial viability, organization and management of the Karachi Water and Sewerage Board (KWSB)\. These clearly set out goals followed from the Government's recognition that significantly expanded infrastructure and reduced water losses were needed to meet the scarcity of supply sources and the projected demand increase, as well as to modernize the sewer network\. It also realized that KWSB's management capacity required upgrading\. 3\.2 Revised Objective: Ref\. para\. 3\.4\. 3\.3 Original Components: The project had three components: (a) Water Supply: a 30-km canal and a 70-km conduit to bring water from the Indus to Dhabeji; four main pumping stations; two direct filtration treatment plants; storage reservoirs; 40 km of primary distribution mains; 10 km of steel pumping main; and expansion/rehabilitation of the distribution network; (b) Sanitation: three new sewage treatment plants, together with associated trunk sewers; repair and cleaning of existing sewers; small-bore sewers for low-income neighborhoods; and (c) Institutional strengthening: technical assistance, training and studies to improve the organization and management of KWSB; technical and management services and equipment to introduce financial planning, improve multi-year budgeting, reporting and commercial practices; and equipment and technical assistance to help KWSB plan and execute large-scale projects, improve operations and maintenance, and improve and extend sanitation in the City and coastal areas\. The project did not include work on the strengthening or reform of the regulatory framework in which KWSB operates\. The scheme called for parallel external financing arrangements for 80 percent of the estimated near US$333 million Project\. IDA and United Kingdom aid sources (ODA, CDC) would help finance the water supply component while the Asian Development Bank (ADB) would help cover the second component\. No provisions were made to coordinate assistance with ADB -2 -  (save for the cross-effectiveness of the respective financing agreements), and financing and implementation of sewerage investments were carried out independently from the water supply and institutional components, which were implemented by the World Bank\. Data on the results of the sewerage component are presented in chapter 2\.4 (d) of the Borrower's contribution to this ICR\. Therefore, this part of the report deals solely with the water supply and institutional strengthening components\. 3\.4 Revised Components: The basic objectives of the Project remained constant throughout its execution and did not change when the Project was amended in 1993, but it became necessary to scale down its scope (ref\. 'para\. 3\.5)\. Components involving some 27 percent of the original project cost for the water component were deferred\. The primary water distribution mains were cut from about 50 km to 10 km and one of the three water treatment plants was eliminated\. Conversely, the amendments included the addition of the repair of the Hub River main\. Also, increased emphasis was placed on leak detection and water loss reductions, along with enhanced revenue mobilization and opening opportunities for new service delivery methods\. The Project components were accordingly amended to include services for preparation of a KWSB corporate plan, expansion of its computer stock, measures to increase collections and educate consumers and examination of the possibilities of private finns' participation in sector activities\. These amendments formed the basis for the 1993 supplemental Credit (ref\. para\. 5\.4) 3\.5 Quality at Entry: Unsatisfactory\. The Project's preparation was deficient, especially by today's "quality assurance" standlards\. Appraisal of the works was based on only preliminary engineering designs along with a somewhat ambiguous definition of the works' final scope\. The construction unit rates selected proved to be invalid because of reliance on inaccurate figures\. Early in project execution as a result, examination indicated a cost underestimation of about 20 percent for civil works, and about 42 percent for plant and equipment\. Moreover, the final design studies showed the necessity for conveyance system changes and some construction expansion\. The initial Project's base cost was estimated to have then increased by approximately 73 percent\. The design also concentrated on physical engineering and financial matters compared with institutional and regulatory issues, although the Board's serious deficiencies and the inadequacy of the regulatory framework in which it operated were well known then\. Remedial measures for these issues were rather narrowly treated in the appraisal report, as was the proposed funding support for their implementation\. The organizational and management component attempted to strengthen KWSB through poorly designed and aimed technical assistance, without fully addressing the reasons for poor performnance\. Furthermore, with a US$1\.5 million budget,it received less than \.005 percent of total base costs\. - 3 -  4\. Achievement of Objective and Outputs 4\.1 Outcome/achievement of objective: Unsatisfactory\. The outcome is judged "unsatisfactory\." Although it achieved substantial, greater than forecast economic benefits (22% ERR), the Project is considered "unsatisfactory" because it lacks sustainability and did not address regulatory and institutional issues adequately\. The Project had three objectives: (i) to increase the supply of potable water; (ii) to improve sanitary conditions in the city of Karachi (including its low income and coastal areas) through the improvement of the sewerage services; and (iii) to improve the financial viability, organization and management of KWSB\. The Project was successful in increasing the supply of potable water to Karachi and in the short term helped reduce the impact of a potentially critical water supply shortage (ref\. 4\.2 A)\. However, its achievements in reducing the deficit are still far off from the SAR expectations and lack sustainability (ref\. 6\.1)\. Achievement of the second development objective is discussed in the Borrower's contribution to this ICR (ref\. annex 8)\. The third objective was only partially achieved too\. KWSB organizational improvements were modest, partly reflecting unfavorable circumstances, like the inadequate regulatory framework and the acute law and order disruption of recent years, but still constructive\. The current situation, with many unresolved problems, indicates that, despite KWSB efforts and the strong commitment to development from its management, more profound institutional reform and regulatory issues are still required, including management capacity strengthening (par\. 4\.2B)\. The services are still unsatisfactory despite many years of local and external efforts (including K2's added contribution), as well as large sums of international assistance, which have been devoted to upgrading the city's water system networks and building capacity\. No effective solution has yet been found to the low availability of water, and ensuring an adequate supply is not in sight\. The 1987 appraisal concluded that overall gross water demand then exceeded supply by about 78 mgd\. By contrast, KWSB in November 1999 estimated the shortfall then at 213 mgd\. Service remains intermittent and has in fact deteriorated, while complaints about its inequality prevail\. Moreover, the aging water distribution system suffers numerous bursts and leakage, clearly indicating that more substantial efforts are needed on maintenance and rehabilitation\. Nevertheless, works were completed only one year longer than forecasted, notwithstanding numerous obstacles\. While reliable data on the Karachi situation are limited, it seems to represent a case of essential services only being available at heavy social costs\. The Board concedes that its distribution system is unbalanced, particularly in the wake of sizable unplanned growth in many areas\. Reportedly, a much larger percent of high-income rather than low-income residents have adequate supplied connections\. In the slum areas (katchi abadis), there is no proper water supply service to serve about half of Karachi's city population--these areas have grown at 9 percent annually, almost twice the overall rate\. Their residents therefore have had to buy water from private venders at high costs\. However, this situation would be much worse without the Project's contribution though\. According to the data supplied by KWSB, the Project did have a significant impact on poor areas as intended at appraisal, even though KWSB has only relatively recently -4 -  completed the civil works and it is much too early to evaluate which areas wereserved by the new distribution mains\. Besides, with the sizable, continuing migration into Karachi, the figures available are not apt to capture accurately the lack/availability of water service in areas distinguished by different income levels/social strata\. In any case, KWSB has done its earnest best in the past few years (through the subsidized tanker provisions) to overcome the Hub shortfall where the Board felt social needs were pressing\. 4\.2 Outputs by components: A\. Works: Satisfactory The main works came into operation in mid-1998 and reached full capacity at year's end, providing 19,480 more cubic meters per day than projected (ref\. Annex 1)\. KWSB also completed these in only one year longer than forecast at project reformulation, a commendable accomplishment considering their several delays\. Full appreciation of the impact of these works has to take into consideration the unprecedented depletion of water storage at the Hub Dam reservoir late in the project period and the impact this had on the overall water system\. Hub's supply declined to almost nothing during the first eight months of 1999 due to a succession of dry years\. As a result, in May 1999, KWSB was only capable of distributing about 23 mgd on alternate days from Hub, which almost offset the additional supply that K2 provided\. Therefore, even after the latter's commissioning, the majority of KWSB's customers still only received spasimodic supply\. The northeast Karachi areas dependent on Hub remained particularly water short although the Board diverted Indus water provided through the newly commissioned K2 scheme to them, together with limited free tanker supply to deficient areas on an emergency basis\. So, in the final analysis, in the short term K2 helped alleviate the emergency situation, but its resullts are short of those expected at appraisal and lack sustainability\. Instead of controlling losses or managing the demand, to mitigate the emergency, KWSB proposed constructing an additional trunk main to divert some of the water provided to the Pakistan steel facility, which was only using a third of its supply\. KWSB sought to use Project funds for this purpose, which IDA rejected because of the Board's deficiencies in fulfilling agreed measures\. Instead, KWSB carried out a project fully financed by KWSB and the Government of Sindh which added 17 mgd to the total available supply\. Additionally, KWSB later commissioned a special operation which successfully added another 40 mgd, helping serve the areas not benefiting from K2\. These actions have had only a limited impact and do not resolve the supply deficit and associated bad service quality the city suffers\. - 5 -  Table I KWSB: Water Supply and Demand 1985-1999 700 - 650- 60 600 - 550 - Demand 450\.1 - -Actual 400 \.u , \. 350 * --- - 300- ,_,, 1985 1990 1995 1999 B\. Institutional Strengthening: Unsatisfactory Unsatisfactory management capacity in KWSB remains the major impediment to improving service quality and increasing its sustainability\. This situation is worsened by the lack of a regulatory framework for the service and the insufficient management autonomy KWSB suffers\. KWSB operates under inadequate institutional arrangements and incentives leading to a generally unsatisfactory performance, marked by episodes of short-term localized improvements resulting from the actions of above-average managers\. Significant and sustainable operational improvements are likely to be achieved only with a combination of adequate institutional arrangements and incentives, and a qualified independent management team\. KWSB only came into existence some five years before the Project, amalgamating three organizations with different service rules and benefit plans, which had not yet coalesced\. Further, its enabling legislation was only enforced in 1996, simultaneous with the Sindh Province's assumption of control of KWSB from the municipality\. These factors hampered the implementation, and limited the usefulness, of the Project assistance aimed at institutional strengthening, even though the Credit helped the Board become somewhat more modern and capable\. The creation and expansion of its Development Wing gave it some additional ability to carry out contract administration, bid evaluation, contract negotiation and award, construction management and works supervision\. However, KWSB still depended on extemal advisors, particularly for the more technical engineering and economic tasks, reliance on whom has only slowly diminished\. Also, although the Board has increasingly gained competence in financial administration with the computerization of the Finance Department, this too is heavily dependent on consultants\. The unsatisfactory outcome of this component is not without several important accomplishments, mainly due to the Board's appointment in February 1995 of a new managing -6-  director, whose forceful manner and adroit use of strong political skills appear to have energized the institution to a more forceful level\. This was fortunate since efforts to achieve the Project's institutional strengthening objectives had slowed by then\. Moreover, the Managing Director won a delegation of greater operating powers, facilitating the reduction of union interference and tightening of operating expenses and investments\. With IDA pressure and under the leadership of the Managing Director, KWSB took other constructive measures, most notably a 46 percent staff cut in 1995-96, an important accomplishment by all measures\. Others included some steps toward increasing and rationalizing the Board's tax base and more persistently pressing local government on reducing its agencies' late water bill payments\. Recently, KWSB solved this long-standing problem with the city electricity corporation\. Also, its settlement of a meter ownership dispute allowed it to disconnect consumers that refused to be metered, and helped accelerate meter replacement and installation\. There were also the widespread introduction of computerization within KWSB and the first steps toward formulating a corporate plan and impleimenting systematic manpower development\. But these strides were--and still are--overshadowed by continued shortcomings in essential operational matters\. KWSB has an inadequate knowledge or control of water resources because of lack of proper measurement and monitoring devices\. It does not meter domestic consumption, which it justifies by the intermittent nature of water supply\. It appears to pay no particular attention to the environmental or health consequences of water availability (or its absence)\. Nor has it curbed the "water mafia", which runs the tanker sales\. Water losses are estimated to be in the 30-40 percent range, and maintenance activities are not yet adequate\. Staff training in repair methods has only been gradually introduced\. In addition, the aforementioned upgrading of the Board's project management capabilities has only enabled it to perform this task at a relatively modest level\. Pakistan Army engineers' involvement was instrumental in the achievement of the recent 40 mgd supply increase, that was implemented without major KWSB input\. Similarly, the Board's financial administration strides have not advanced its management of these matters to a level of commercial expertise, achieving only limited improvements in its commercial and financial management practices\. In their absence and without significant organizational reform, the Board's decision-making practices remain too hierarchical while political factors and union pressures excessively affect routine management matters\. Further, nothing was achieved towards engaging private enterprise in sector activities nor in the development of an strategy and agenda for the role of the private sector\. C\. Financial: Unsatisfactory The Board is still at considerable distance from attaining a firm financial footing\. Over the later years of the project period, KWSB registered gains in financial performance (see financial data in Annex 3 and table below), but the Credit targets were not accomplished\. It thus fell short of re\.alizing the federal authorities' desires for provincial government assumption of financial responsibility for sector services\. KWSB survived through the 1990s on subsidies, and has only recently managed to run an operating surplus\. KWSB has suffered from chronic failures to collect receivables, and the arrears have grown to alarming proportions recently (see annex 3)\. Although KWSB projects improved financial results over the next ten years, these projections depend on - 7 -  assumptions about increases in tariffs, billings, and collections that are not supported by historical performance, and are suspect at best\. There seems to be some noteworthy progress though in financial discipline\. KWSB accounts reflect positive net operating results in FY96-98, with small profits in the first two years and a more substantial one at the end\. Following its staff cuts, the Board has contained staff costs (labor costs in 1997-98 were lower than in 1994-97)\. Also, the overall level of direct expenses for 1997-98 shown on the income and expenditure statement was below the 1994-95 sum\. Meanwhile, water and sewerage revenues in 1997-98 were three times greater than in 1992-93 and over a third greater than in 1996-97\. In the commercial management area, KWSB carried out a survey of unconnected customers and reclassified some connected customers, linked its revenue department to the MIS system, created a collection center, and mobilized external help for producing monthly accounts\. KWSB accounts have been audited in recent years\. However, although the auditors concluded that "KWSB accounts give a true and fair view of the state of the Board's affairs", the ICR mission detected errors in the report and has serious concerns about the validity and reliability of the Board's accounting and financial management information\. Table 2: Key Financial Performance Indicators 1990-91 1995-96 1998-99 Water Production 348\.0 388\.0 525\.0 in mcd Operatine Ratio 1\.0 0\.9 0\.7 Income Per 000 3\.9 10\.0 14\.2 Gallons Expenditure per 4\.1 9\.1 10\.2 000 Gallons Debt Servicine 0\.1 - Debt Servicing 0\.0 - 000 Gallons Cost Recovery 0\.8 0\.9 1\.2 Ratio Self Financing 6\.4% 2\.6% 6\.2% Ratio (cap\. Investment) Annual Billing 496\.4 1,416\.1 2,723\.2 (Rs\. million) Annual Collection 399\.0 1,266\.0 1,778\.0 (Rs\. in million Collection Ratio 80\.4% 89\.4% 65\.3% Collection Period 411\.0 517\.1 1\.035\.0 - 8 -  It is also believed that KWSB made a commendable effort in the final years to reduce arrears despite its lack of success in increasing collection rates and the delays of scheduled payments from the provincial and local governments, as well as KDA\. However, the arrears still remain high, unsurprising given the difficulties of cracking down hard on collections during periods of water scarcity, as well as the recurrent law and order emergencies in Karachi\. In paiticular, KWSB has lost ground in its collection efforts, despite significant improvements in other aspects of its commercial management: water tariffs roughly doubled from FY91 to FY99 in real terms, and billings increased by more than 150 percent in real terms\. Although because of increased tariffs and increased billing collections of about 89 percent in the same time, the average collection period has doubled, from about 525 days throughout FY91 to FY96, to about 1,066 days in the past three years (see lessons in paragraph 8 for further comments on this subject)\. Therefore, more protracted financial improvements remain necessary, particularly to further advance the important initiatives on collections and related issues\. KWSB deferred action on domestic metering and thereby nullified the benefits of the metering study it carried out\. Similarly, there was no follow-up of the aforementioned survey of unconnected customers and new areas, whose prospective billings therefore did not fully materialize\. In retrospect, the Government, as well as the Bank, clearly had unduly high expectations of KWMSB's revenue-generating capability at the outset\. Financial covenants of the Credit were designed to help KWSB improve its financial standing, and to provide convincing measures of the improvement\. However, KWSB consistently failed to meet these requirements\. The primary one was ihat KWSB should generate, in each year, total revenues to cover the sum of: (a) total operating expenses; (b) debt service requirements; (c) increases in net working capital other than cash; and (d) not less than 20% of KWSB's capital expenditures\. Not only has KWSB failed to generate funds to cover the sum of these items, it instead: (a) failed to cover operating expenditures before FY96; (b) failed to meet debt service obligations since FY96; and (c) gene]rated cash from operations sufficient to cover only about six percent, not twenty percent, of capital expenditures\. Despite improvement in the last four years of the Project in operating ratios, the overall financial performance during the Project has been one of clear failure\. These shortcomings are to some extent understandable in view of the substantial Project cost increases over the initial estimates (which were not of KWSB's doing and lead to a Supplemental Credit in 1993), but equally if not more important, this raises questions about the realism of the Project financing plan\. 4\.3 Nret Present Value/Economic rate of return: 22 percent The January 1993 Memorandum of the President (MOP) for the Supplemental Credit estimated the economic internal rate of return (EIRR) at 11 percent\. Retrospective analysis of data provided by KWSB shows that the realized economic rate of return was much higher: 22 percent (see annex 3 for details) under the assumption that physical losses are 35% (a conservative estimate according to all consulted sources) and water is valued at two-thirds of present tanker supplied water prices that the population has been shown willing to pay\. The Project economic returns exceeded expectations, partly because of cost savings in construction -9-  (against the cost estimates used in the Supplemental Credit), and partly because of questionable conservative financial projections\. Additionally, O&M costs are lower than the MOP assumed 5 percent of capital costs, and market prices for water, estimated in the MOP to be constant over the life of the Project in real terms, have instead been slowly increasing\. 4\.4 Financial rate of return: N/A The SAR did not include a financial IRR for the project\. 4\.5 Institutional development impact: Modest On balance, the Project failed to improve KWSB management capacity and institutional setting far beyond its condition at the end of previous IDA-supported activities\. The Board did not substantially upgrade its competence in planning, project execution or service delivery as a result of the technical assistance provided\. It has barely changed to become more independent and competent\. Also, it does not have the required capacity to gather or analyze essential data and its information system is not comprehensive\. Little management capacity, despite the enthusiasm and commitment of most Board members, combined with insufficient autonomy and lack of an independent, adequate regulatory framework to carry out essential management decisions, such as tariff fixing, are the main obstacles faced by KWSB to improve the quality and financial sustainability of its service\. 5\. Major Factors Affecting Implementation and Outcome 5\. Factors outside the control of government or implementing agency: The Project was scheduled over an eight-and-a-half-year period in recognition of the fact that it was larger than the First Project (Cr\. 1374)\. In the end it was concluded in nine years\. Project implementation before the adoption of a revised plan (ref\. para\. 3\.4) and supplemental credit was marred by the emergence of cost overruns over the initial estimates (ref\. para\. 3\.5)\. Overall, the Project took between PCD approval and Appraisal and Closing date 12 and 11 years respectively\. This large span weakened the leverage the Project could exert to facilitate institutional reforms and the development of an adequate environment for sector improvement\. Little interest by foreign contractors in bidding for the civil works was mentioned in the supervision reports among project execution difficulties\. Contracting was also slowed because ODA/CDC procurement requirements complicated matters (and incidentally hiked plant and equipment costs)\. Too frequent government changes in Sindh Province and law and order problems in Karachi hampered Project implementation as well\. 5\.2 Factors generally subject to government control: KWSB's limited autonomy within the Municipality and Province caused significant implementation problems\. Cumbersome approval and review procedures in Pakistan caused initial delays in project - 10-  execution while the tardy effectiveness of the supplemental Credit impeded contract awards\. Additionally, the Government's replenishment of the counterpart revolving fund grew irregular, thereby delaying contractor payments\. Furthermnore, KWSB's finances persistently suffered from high levels of public sector arrears\. Consequently, KWSB was unable to generate sufficient contributions to capital or cover the mounting debt service problems\. The provincial as well as local government and KMC should have done more to reduce their overdue payment arrears, as well as to improve KWSB's management capacity and autonomy\. 5\.3 Factors generally subject to implementing agency control: KWSB desired to employ local contractors in the works in order to increase their experience in such activities\. But this laudable objective had adverse consequences\. The works were obstructed by these firms' inexperience in such operations and their limited capital resources, several of which required corrective measures\. Consequently, save for a tunnel bypass activity, no contract was completed within its original schedule\. Only the pipeline contracts were completed within their extended deadlines\. Although management capacity, including financial management, was weak in KWSB and only achieved limited improvements, this was not a major reason for these delays\. 5\.4 Costs andfinancing: The Project downscaling (ref\. para\. 3\.4) led to a revised funding plan which reduced the cost estimate while the projected foreign exchange component increased\. IDA's portion thus was programmed to rise from $125 million to $217 million with the help of the Supplemental Credit, while local sources' portion increased from $38\.5 million to $66 million\. ODA/CDC were scheduled to continue to finance a significant share of the foreign costs\. IDA thereby assumed a far greater share of total costs, rising from 38 percent to 67 percent, while the co-financing share dropped from 42 percent to 15 percent\. At project completion, the actual figures were below these estimates, except for IDA's larger contribution (ref\. Annex 2)\. 6\. Sustainability 61 Rationale for sustainability rating: Sustainability: Unlikely The K2 works are completed and functioning\. But the prospects for their sustainability as those of the other project achievements are full of uncertainties\. Because of the rush to make the K2 works operational, many of the technical tasks were not fully carried out\. Some of the minor works (employees' housing, the walls surrounding the Dhabeji pumping station and the water treatment plant) were not completed, and the conduits, pumps and the water treatment plant untested\. These tasks are likely to be finished in time, but KWSB's record of poor operations and maintenance practices pose concerns about the durability of, and obtaining full benefits from, the Project investments\. Inspection, flow measurement, cleaning and maintenance of the water systemn have been infrequent over the years\. And KWSB does not have accurate data on pump or rising main performance\. Further, the four 40-year-old pumping stations are beyond their design life and already rely on their standby pumps\. 6\.2 Transition arrangement to regular operatiosns: In light of these deficiencies, several Bank missions recommended that KWSB involve a - 11 -  private operator to ensure quality functioning of its new assets\. Nothing came of this proposal at the time\. During the ICR mission though, new Government authorities expressed interest in enlisting IDA funding for such a scheme to help provide a basis for continuing effective operation of the Project\. However, even success in achieving the latter would only partially alleviate sector conditions --and still not adequately address the basic Karachi water problems, such as excessive leaks, in-efficient allocation of water among users, control of water "mafias" and adequate commercial practices\. There are substantial grounds to judge that the solution to Karachi's water problems should not depend as exclusively as initially perceived on supplementing the city's gross supply\. Important as have been the efforts to augment the latter, there should be more weight given to improving management capacity and providing the adequate regulatory and institutional framework to allow it to improve efficiency and operation, as well as introduce demand management measures\. As mentioned, KWSB has failed to significantly cut its high water losses\. Moreover, the known deficiencies in the distribution system are considered substantial enough to crimp the realization of the full benefits of the additional water from K2\. On these accounts, it appears clear that a fundamental management and regulatory change is needed, rather than to continue pursuing incremental KWSB improvements along the past approaches\. Some of the steps on the path to follow can be suggested from the experience and lessons learned with the execution of this project: * One might be to implement a coherent decentralization of some water sector services in a manner that opens a substantial role for private enterprise\. Engaging more market-disciplined operators appears necessary for replacing KWSB's outdated management practices and responding to demands more agilely\. - A second element is to put greater emphasis on water distribution, reduction of water losses, introduction of demand management and better and more equitable allocation, with less focus on production\. * A third element is to recognize that Karachi's economic and social conditions do not lend themselves to solutions dependent on market-level financial performance\. Full (or even quite high) recovery of water charges is dubious in the short term at such low income levels\. * Another would be to draw on international successes in effective civil society collaboration with local government and private operators in meeting essential urban services, which Karachi in fact provides\. Its low-income Orangi settlement and a local research and training institute have evolved a partnership scheme that has helped overcome sewerage problems for over 15 years\. It has since been replicated in over 45 other settlements in Karachi and 7 other cities\. To be sure, there are great differences between the Orangi's experience in building flush latrines and secondary sewers compared with the construction and operation of far more costly, complex centralized water system infrastructure\. However, the partnership model has been shown globally to confirm the willingness and ability of local groups (along with NGOs) to help organize and even assist in managing public service facilities-as well as to invest in these measures\. - 12 -  The success of the suggested reform path outlined above depend on many unresolved issues though\. These refer mainly to the existence of sufficient agreement among the different actors in the society (both official and non-official, particularly through the local NGOs, some of which have been a vocal opponent to the involvement of the private sector) on the reform path and the subsequent development of an appropriate regulatory framework\. Governance, adequate treatment to low-income areas, social acceptability of the PSP model to use and improvement of financial management practices should be the priority issues to address\. 7\. Bank and Borrower Performance Bank 7\.1 Lending: Unsatisfactory The shortcomings in project appraisal and preparation discussed in para\. 3\.5 were supplemented by the inadequate appreciation during these processes of the extent of Karachi's sizeable infrastructure backlog\. The Project did not address the lack of an adequate regulatory framework that could facilitate the reforms and developments needed to improve service quality in a sustainable way\. There should have been a stronger appreciation that the 20 percent capital expeniditure coverage target was unrealistic and an inappropriate motif of the Credit's financial conditions\. The team also appeared to have made a too optimistic assessment of the commitment of the government and KWSB's capacity-strengthening prospects\. 7\.2 Supervision: Unsatisfactory Although the Bank accurately and fairly judged, rated and reported project implementation progress and performance, it failed to appreciate the importance that institutional reform and adoptiion of an adequate regulatory reform had to achieve project objectives in a sustainable manner, inappropriately stressing physical achievements over overall service development\. On the positive side, it gave helpful technical advice to KWSB and the government in very supportive ways\. It maintained a positive balance between rigorously enforcing Credit covenants (which was instrumental in KWSB's staff reduction and cutting the payment arrears of Karachi government agencies) and showing flexibility when needed\. At a critical juncture, the Bank demonstrated notable cooperation by significantly increasing funding support for the Project, which served to offset the Borrower's and Government's failures to provide their scheduled contributions\. It did the same also in agreeing to cut the sum required for replenishing the counterpart revolving fund\. Also\., at one point, the IDA team carried out a helpful participatory-type examination of KWSB's institutional problems and exploration of options for its strengthening (abetted by ODA and PHIRD support), although KWSB did not implement them\. - 13-  With hindsight, it can be considered that project closing date was correctly extended to complete on-going works and allow the entrance into operation of the expanded system\. Despite the sustainability issues referred to above and the lack of advance in the institutional development of KWSB, the completed works proved critical to, in the short term, avert a huge water crisis with its related social and political costs\. Both the initial appraisal report and the MOP for the supplemental credit state that the Project's civil works are almost exclusively in desert areas or in land already owned by the Government/Board, and therefore KWSB did not need to relocate or resettle any local people\. No reference on resettlement have been found in the project records --even though US$930,000 was spent on land acquisition--, and Bank safeguard policy on resettlement seems to have been properly complied with\. 7\.3 Overall Bank performance: Unsatisfactory The overall Bank's performance is judged unsatisfactory primarily because its contribution, instrumental for the completion of the physical works, failed to achieve their sustainability\. Although attention during supervision was also given to some factors that affect the financial viability of KWSB, such as adequate tariffs and staffing levels, and advances can be seen in these areas, it failed to adequately address essential issues related to the regulatory and institutional framework and the Government's commitment to the Project's concept and objectives (ref\. paras\. 7\.5 below)\. This is despite the recognition of the importance of the completed works and their impact on the preservation of essential water supply volumes for Karachi's needs in a critical period\. These would not have been accomplished --and Karachi's condition could have been more perilous-- without IDA's help\. Similar assessment applies to KWSB's organizational improvements\. However, it bears noting the abundance of IDA's resources devoted to alleviating Karachi's water problems\. From January 1984 until December 1989, three IDA projects addressing these problems were being implemented (Karachi Water Supply I, Credit 1374, US$25\.0 million; elements of the Karachi Special Development Project, Credit 1652, US$70 million, and K2, US$217 million)\. A fourth project was prepared (but ultimately foundered) during K2's execution\. Borrower 7\.4 Preparation: Satisfactory Within the limits of its technical capabilities, KWSB ably contributed to project preparation\. 7\.5 Government implementation performance: Unsatisfactory Government support was particularly deficient in not providing a suitable policy environment for its desired decentralization of sector financial responsibilities, including the - 14 -  development oif an adequate regulatory framnework for the service that delegated management autonomy to K'WSB\. As a result, KWSB's --and Karachi's municipal-- officials were too closely engaged in day-to-day operations and management decisions more suitably left to technically skilled KWSB personnel\. Additionally, the absence of consistently timely, adequate counterpart funds caused costly problems\. 7\.6 Implementing Agency: Unsatisfactory KWSB performed well in comrpleting the civil works largely on time, bettering its past operations\. However, this was overshadowed by its limited progress in upgrading other aspects of its functions and meeting Project commitments (ref\. paras\. 4\.2 B and C, 4\.5, 5\.3, 6\.1)\. Additionally, it showed poor project financial management, including a lack of adequate financial controls as reflected in qualified audit reports and insufficient follow-up of significant audit observations\. 7\.7 Overall Borrower performance: Unsatisfactory (for the reasons indicated in paras\. 7\.5-7\.6) 8\. Lessons Learned Three main lessons can be drawn from this project's implementation: (i) the need for an adequate regulatory framework that provides sufficient management autonomy and a path for reform that guarantees sustainability; (ii) the limitations of financial covenants and conditionality without the former; and (iii) the need to incorporate in project design valuable local experiences, particularly when they specifically address poverty alleviation\. Project results show the importance of addressing the lack of a regulatory framework, together with the strengthening of the institution and the execution of physical works\. No action on the regulatory framework that would give KWSB management the autonomy to undertake the changes--private sector involvement sector, tariff adjustments, collection enforcement through service disconnection and demand management, among others-prevented its capacity to improve service quality in a sustainable manner\. Without this regulatory framework in place, KWSB's management team ability and possibilities to make full use of the support provided by the project to strengthen the institution were greatly constrained\. Apart from limiting the sustainability, subsequent management capacity shortcomings prevented the full realization of the project benefits, as the increased supply achieved was partially offset by continued leaks, no demand management and inequality in the allocation of the scarce resources available\. Related to this, the project also shows wrong beliefs that tariff increases reduce collection efficiency\. KWSB's collections kept pace with billings through the first half of the decade, through nominal tariff increases of 50 percent and (twice) 30 percent\. However, real collections stagnated and the collection ratio declined, from 1997 to 1999, when no tariff increases took place\. Rather than tariff rates, collection efforts and commercial management capacity--and ultimately the existence of an adequate regulatory framework-\.-explain poor collection performance\. - 15-  This project provides yet another example of the limitations of financial covenants when the implementing agency does not have de facto full authority to take all the actions needed to assure full compliance\. It also calls into question the usefulness of focusing on financial undertakings in designing Bank loan conditionality when the fundamental problems concern other issues\. They were in this instance the obstacles to deal with "tanker mafias" and ensure the adequacy of water supply (particularly to low-income customers comprising large portions of the service market); lack of governance; and an adverse environment for commercial incentives\. Third, the reasons for the unsatisfactory outcome of the Project show the importance of incorporating in project design the valuable local experiences available\. The Orangi experience, with its lessons of community involvement and responsibility sharing, would have been of great value in giving more attention to the issues of leak's control and equitable allocation of resources, which have a significant impact on the poor communities of the city\. Weak management, including poor financial management, is the main factor that prevented KWSB from performing more efficiently\. Some lessons can be drawn from this experience: (i) for a project that put so much emphasis on the utility's gaining financial self-sufficiency, the design/appraisal of the financial management capability was entirely inadequate, with a too small budget ($1\.5 million) for TA, and only limited provisions in the TA description for this purpose; (ii) while KWSB finally got a clean audit report, the ICR mission's discussion with the auditors (from the private sector and well regarded) raised numerous questions about their capabilities, thus, even though the Bank can't check out auditors in the normal course of project preparation/supervision/ICRs, some form of control of their work might be necessary; and (iii) to devise a suitable strategy for making/keeping itself more financially viable, KWSB lacked --and needed as a priority-- to bring together its sorry tracking of losses/collections/UFW and assess (from a financial management standpoint) their collective picture\. Finally, although the scope and complexity of the works to be financed and the weak implementation capacity of KWSB recommended a long implementation period, its excessive span (12 years from PCD approval to completion) made it more difficult still to achieve the institutional objectives of the project\. It also hindered the possibility to identify --and address-- issues not properly identified during preparation, such as the need to improve the regulatory framework for the sector\. A series of projects, with smaller project implementation periods, might be more efficient to address the complicated issues and sector development difficulties in situations like this of Karachi\. 9\. Partner Comments (a) Borrower/implementing agency: KWSB stated that its principal lessons from the project experience were: (i) the utility of having established a separate executing entity (the Development Wing) to administer foreign-aided projects; (ii) the benefit of having delegated full authority for the Project to an internal steering committee; - 16 -  (iii) the benefit of international consultants' support from the very initial stages to assist the Board in planning the implementation of the Project, monitoring and evaluating it, providing monthly reports on its progress, and assisting in sorting out disputes during its implementation; (iv) the usefulness of having procedural manuals and updating them, as well as maintaining project databases, during project execution; and (v) the benefits of linking Government requirements for payments with IDA audit requirements\. More detailed comments are included in Annex 8\. (b) Cofinanciers: The Bank team preparing this ICR asked for comments from ADB and DFID in response to the references made by KWSB to their participation in the project\. These comments had not been received at the time of going to press\. If received, they will be added to the project files\. (c) Other partners (NGOs/private sector): As part of project evaluation, a workshop with all involved stakeholders took place in Karachi, from June 28 to 29\. The conclusions of this workshop will be available after this ICR goes to press\. They will be added to project files 10\. Additional Information n/a - 17 -  Annex 1\. Key Performance Indicators/Log Frame Matrix Outcome / Impact Indicators: 1\. Water Transmission and Distribution Construction of about 150km water Provision of about 1 OOkm of second The works constructed began at Guijo, some transmission system conveyance system for 100mgd more raw 90km southeast of Karachi, from where the Indus water to new treatment facility at water gravitates 30km to Dhabji\. From there, northeast Karachi the water is pumped to High Point and again gravitates in a conduit some 50km to the northeast Karachi treatment plant\. Water treated there either gravitates or is pumped into the distribution system through new pipelines\. The new system was brought to full capacity (496,480 m3/d) by December 1998, The works included: -Built new headworks at the tail of the Kinjhar/Guijo canal\. They were connected to the existing canal system (without disruption to water supply) in April 1998\. -Installed some 9\.8km conduit and road crossing under National Highway and 2km pipe to cross Gharo creek -Built forebay structure at High Point; reinforced conduit of 3\.85km and, 13km conduit; buiKt pipes for crossing Sukkur Nallah; and built an additional 13km concrete box conduit -Built a twin rising main 4\.6km long, along with major road and railways crossing -Constructed 6km pipelines to transmit 320,000 m3/day to University Reservoir -Constructed 4\.4km long pipeline designed to transmit 140,000 m3/day of treated water to central Karachi -Installed 130 meter and 6,565 meter pipelines to improve distribution to northeast Karachi zone -Installed 2,914 meter and 35 meter pipelines to improve distribution to central Karachi zone -Built concrete reservoir of 45,460 ,m3 capacity within site of NE treatment works -Strengthening of the primary distribution -Reduction of distribution mains to some system through provision of about 50km of 10km; elimination of mains in southeast new mains in northeast, southeast and Karachi central Karachi -Repaired and plugged 2,235 joint in Hub -Addition of repairs to Hub system main main (which were 30 years old and leaking badly)\. Works were canied while supplies partially continued via a parallel main during dosure period -Kinjher/Guijo canal was remodeled -Upgrading Koti Feeder and Kinjher Lake works -K3 engineenng not -Preparation of detailed engineering for accomplished Karachi IlIl Project (K3) - 18-  2\. W\ater Treatment -Expansion, construction and equipping -Elimination of expansion of treatment -Constructed 450,000m3/day works in treatment facilities at Pipri, Manghopir and facilities northeast Karachi for direct sand filtration, northeast Karachi -Construction of facilities limited to northeast with pump stations, administration building, Karachi standby generator house and site works -Installed complementary plant and equipment at northeast Karachi treatment site for manufacture, installation and commissioning of equipment -Built treatment plant works boundary and staff housing -Expansion of pumping station at Dhabeji -Expanded the Dhabeji station to capacity 477,000m3/d; constructed its boundary wall and staff housing; installed equipment for its mechanical and electdrical plant; installed rising main, major road and railway crossings\. -Computerize data systems for water -Deletion of provision for introduction of -System management study partially carried operations computer-based inventory of water network out and improved mapping of water system -Study on improving water system -Addition of preparation of study for -Consultants assisted in the preparation of management privatization of water distribution functions in privatization proposals, which were set aside high income areas -IDA support provided for carrying out detailed study of Karachi's overall water loss reduction and system strengthening needs\. A project addressing these was prepared\. However, it did not advance because of problems over the proposed privatization measures\. 3\. Institutional Strengthening -Modifying KWSB's organizational structure; -Added preparation of a corporate plan and -Some restructuring was carried out and systems and procedures; training senior an agenda and strategy for a private sector elements of a corporate plan were prepared\. managers and key technicians; role As indicated above, a strategy for a private sector role was designed but this was not implemented\. -Establishing Development Wing -Achieved -Study metering and preparation of metering -Study canied out but recommended program program was not implemented due to problems regarding metering equipment -Train KWSB staff in engineering, -Board staff received considerable ;procurement, operations and management on-the-job training in these fields -Build and manage training center -Attempts were undertaken to build the center but these uitimately were abandoned -Increase collections -Added provision for fumishing collections division with PCs - 19-  -Complete computerization of billing and -Added provision for upgrading mainframe -Progress on computerization of financial collections; upgrade financial planning and computer operations budgeting -Review tariff structure and implement -There were some analyses of tariffs but recommendations their condusions were not comprehensively implemented\. Tariff adjustments were only ad hoc -Develop and manage consumer education -Relatively little was carried out program -Computerize information system for -Not done operations and inventory of sewerage maps -Equip KWSB for industrial effluent survey -Industrial effluent monitoring equipment and monitoring installed and KWSB's laboratory is operational -The Sindh Protection Agency was established, but it proved to be ineffective, partly for lack of funds\. -Strengthen KWSB/GOS to enforce -The KWSB and KMC Council passed environmental ordinances; establish Sindh sewage by-laws\. These are being considered Protection Agency; begin actions on priority by the Karachi Council\. environmental issues Output Indicators: -Potable water supply was increased by -The project's successful addition of 105 about 100 mgd mgd (19,480 more cubic meters per day than projected) increased water production for Karachi's needs\. However, there was a depletion of Hub reservoir supply at the same time\. Normally 100 mgd, it now fumishes only some 15 mgd)\. Thus, K2's production provided less of a net increase than an offset for Hub's reduced supply-although it was very tmely and helped avert a more serious tightening of supply\. -Reduce water wastage -The reception of the new supply has been favorable in the areas most directly supplied by it, whose previous volumes were poor\. -Water transmission system investments listed above: (a) provide control facilities to divide water flow between KWSB system and new canal works; (b) new pipelines enhance distribution in urban areas (c) Kinjher/Guijo canal remodeling permits conveyance of entire Federal water allocation from Indus to head of project works at Guijo -Northeast Karachi treatment facility provides first stage of facility aimed to ultimately have capacity of 200 mgd - 20 -  -KWSB acivities to reduce leakages in hts system included the above noted repairs in the 66 inch diameter trunk main carrying water from Hub reservoir\. These are estimated to save some 6-8 mgd of water\. -Metering program had no impact -KWSB collections improved to 90 percent -KWSB progressively lost ground in of billings, and water bills are settled within collection effidency\. The average collection three months peiiod rose from some 525 days in FY91-96 to about 1,066 days in past three years\. -K'NSB achieve a self-financing ratio of at -KWSB survived through the 1990s through least 22 percent subsidies; has only recently run an operating surplus\. -KNSB generate funds sufficient to cover 20 percent of capital expenditures beginning in FY92 -KVVSB achieve debt service coverage of no -KWSB has failed to meet debt service less than 2\.3 requirements since FY96\. -KWSB's billings rise from Rs\. 510 million -Billings in real terms increased by over in '1988 to Rs\. 1,332 million in 1993\. 150%\. -KWSB's annual collections exceed Rs\. 1\.3 -Real collections increased about 89 percent million in FY91-99\. However, arrears remain high\. -KWSB reduce its personnel and not -KWSB cut staff 46 percent in 1995-96 and increase its manpower costs in real terms contained staffing costs thereafter\. In addition, KWNSB's 1997-98 direct expenses were below those for 1994-95\. End of project - 21 -  Annex 2\. Project Costs and Financing Pro ect Cost by Comr nent (in US$ million e uivalent) Civil Works 192\.70 213\.60 110\.84 Equipment and Installation 65\.90 74\.52 113\.08 Institutional Strengthening 18\.40 19\.71 107\.12 Engineering and Supervision 22\.60 17\.03 75\.35 Land Acquisition 3\.70 0\.93 25\.14 Total Baseline Cost 303\.30 752\.99 Physical Contingencies 15\.00 Price Contingencies 13\.40 Total Project Costs 331\.70 752\.99 Total Financing Required 331\.70 752\.99 *Revised estimate (Ref\. MOP, January 14, 1993) Project Costs b Procurement Arran ements (A raisal Estimate) (US$ million equivalent) 1\. Works 216\.20 0\.00 0\.00 0\.00 216\.20 (173\.00) (0\.00) (0\.00) (0\.00) (173\.00) 2\. Goods 0\.00 1\.10 0\.00 67\.70 68\.80 ______ __ (0\.00) (0\.90) (0\.00) (0\.00) (0\.90) 3\. Services 0\.00 0\.00 43\.00 0\.00 43\.00 (0\.00) (0\.00) (43\.00) (0\.00) (43\.00) 4\. Miscellaneous 0\.00 0\.00 3\.70 0\.00 3\.70 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 5\. Miscellaneous 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 6\. Miscellaneous 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) Total 216\.20 1\.10 46\.70 67\.70 331\.70 (173\.00) (0\.90) (43\.00) (0\.00) (216\.90) - 22 -  roject Costs by Procurement Arrangements (Actual/Latest Estimate) (US$ million equivalent) Procument Method\. Expedfture Ctgory ICP rNCF Oter \. Total Cost 1\. 'Works 213\.60 0\.00 0\.00 0\.00 213\.60 (188\.77) (0\.00) (0\.00) (0\.00) (188\.77) 2\. Goods 0\.00 0\.30 0\.00 74\.22 74\.52 _____________________ (0\.00) (0\.24) (0\.00) (0\.00) (0\.24) 3\. Services 0\.00 36\.74 0\.00 36\.74 _____________________ (0\.00) (0\.00) (36\.74) (0\.00) (36\.74) 4\. Miscellaneous 0\.00 0\.00 0\.93 0\.00 0\.93 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 5\. Miscellaneous 0\.00 0\.00 0\.00 0\.00 0\.00 _____________________ (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 6\. Miscellaneous 0\.00 0\.00 0\.00 0\.00 0\.00 _____________________ (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) Total 213\.60 0\.30 37\.67 74\.22 325\.79 _____________________ (188\.77) (0\.24) (36\.74) (0\.00) (225\.75) 4\. 1Miscellaneous=Land Acquisition " Figures in parenthesis are the amounts to be financed by the Bank Loan\. All costs include contingencies\. 2 2\. Goods -- N\.B\.F\. figure cofinanced in parallel by ODA/CDC: procured in accordance with ODA and CDC regulations\. - 23 -  Annex 3: Economic Costs and Benefits Net Present Value/ERR: 22 percent The January 1993 MOP for the Supplemental Credit estimated the economic internal rate of return (EIRR) at 11 percent\. Retrospective analysis of KWSB's data provided by KWSB shows that the realized economic rate of return was much higher: 22 percent\. The Project economic returns exceeded expectations, partly because of cost savings in construction (against the cost estimates used in the Supplemental Credit), and partly because of questionable conservative financial projections\. Additionally, O&M costs, which the MOP assumed would be equal to 5 percent of capital costs, are lower, and market prices for water, estimated in the MOP to be constant over the life of the Project in real terms, have instead been slowly increasing\. To be in the conservative side, the analysis assumes that: (1) KWSB will fail to reduce system water losses to below 35 percent in the next twenty years; and (2) realized benefits, even for delivered water, would be only two-thirds of observed tanker prices that the population has been shown to be willing to pay\. In addition, the EIRR calculation limits the time horizon to the year 2018, instead of extending it to the full forty-year span of the Project\. - 24 -  PAKISTAN SECOND KARACHI WATER AND SANITATION PROJECT ECONOMIC INTERNAL RATE OF RETURN (ICR) Costs | Benefits Project O&M Incremental Incremental Incremental Net Capital Cost Production Delivery Revenues Benefit Year Rs Ml Rs\. Milf MGD3 MGD4 Rs\. Mil5 Pre-93 842 (842) 1993 686 (686) 1994 768 (768) 1995 807 (807) 1996 1,155 (1,155) 1997 946 (946) 1998 860 303 55 36 1,353 285 1999 508 329 100 65 2,507 1,620 2000 329 100 65 2,556 2,177 2001 329 100 65 2,605 2,226 2002 329 100 65 2,655 2,276 2003 329 100 65 2,706 2,327 2004 329 100 65 2,759 2,380 2005 329 100 65 2,812 2,433 2006 329 100 65 2,866 2,487 2007 329 100 65 2,921 2,542 2008 329 100 65 2,978 2,599 2009 329 100 65 3,035 2,656 2010 329 100 65 3,094 2,715 2011 329 100 65 3,153 2,774 2012 329 100 65 3,214 2,835 2013 329 100 65 3,276 2,897 2014 329 100 65 3,339 2,960 2015 329 100 65 3,404 3,025 2016 329 100 65 3,469 3,090 IRR 22\.03% NPV@10% 5,229 1,862 | 15,236 7,947 - 25 - Notes:  Water values were estimated at two-thirds of estimated tanker prices for water\. Observed tanker prices were: (I) Rs\.100/1,000 gallons in 1990; and (2) Rs\.300-400/1,000 gallons in 2000\. A water value of Rs\.350/1,000 gallons was used in the analysis\. This value was converted to 1993-equivalent prices\. The real growth rate in the value of water was calculated at 1\.9 percent per year from 1990 to 2000\. This growth rate was assumed in the 1 990s and for the remainder of the project\. Source: Karachi Water and Sewerage Board -26 -  Annex 4\. Bank Inputs (a) Missions: S_age of Project Cycle No\. of Persons and Specialty Performnn Rai (e\. 2 Economists, I FMS, etc\.) Implementation Development Month/Year Count Specialty Progress Objective Identification/Preparation n/a n/a n/a n/a n/a n/a Appraisal/Negotiation December 1987 na n/a March 1992 4 1 SE; 1 Ec; I Eng; I Consultant; (supplemental credit -- 1 FA Cr\. 1987-1) Supervision n/a n/a n/a July 1989 4 1 OS, 2 SE, I FA HS HS December 1989 2 1 SE, I FA HS HS July 1990 I I SE HS HS February 1991 2 1 SE, 1 FA HS HS July 1992 2 1 Eng, I Consultant S HS December 1992 2 1 Ec, I SE HS S July 1993 3 1 OS, I SE, I FA HS S February 1994 3 1 SE, I OS, I FA HS S June 1994 3 1 FA, I OS, I SE HS S October 1995 2 1 MFS, I SE S S May 1996 2 1 MFS, I SE S U October 1]996 2 1 MFS, I SE U U August 1997 2 1 MFS, I EE U U May 1998 2 1 WSE, I MFS S S May 1999 1 IWSE S U ICR January 2000 3 1 WSE, 1 FA, 1 Consultant S U Key: Ec=Economist EE=Environmental Engineer FA=Financial Analyst MFS=Municipal Finance Specialist OS=Organizational Specialist S]E=Sanitary Engineer WSE=Water/Sanitary Engineer - 27 -  (b) Staff\. Stage of Project Cycle Actual/Latest Estimate :::______________ _ :I No\. Staff weeks US$ (,000) Identification/Preparation n/a n/a* Appraisal/Negotiation n/a 253\.8* Supervision 499\.5 ICR 38\.2 Total 791\.5 *Includes costs of Identification/Preparation/Appraisal/Negotiation\. - 28 -  Annex 5\. Ratings for Achievement of Objectives/Outputs of Components (H=-High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating FMacro policies O H O SU O M O N * NA FSector Policies O H OSUOM *N O NA ZE Physical O H * SU O M O N O NA F Financial O H O SU O M * N O NA z Institutional Development 0 H 0 SU * M 0 N 0 NA IEnvironmental O H OSUOM * N O NA Social f Poverty Reduction O H OSUOM O N * NA NGender OH OSUOM ON *NA FE Other (Please specify) O H OSUOM ON * NA F Private sector development 0 H O SU O M 0 N 0 NA i Public sector management 0 H O SU O M 0 N 0 NA M Other (Please specify) O H OSUOM ON * NA -29 -  Annex 6\. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 61 Bank performance Rating 1Z Lending OHS Os *U OHU Z Supervision OHS OS *U OHU H Overall OHS Os * u O HU 6\.2 Borrower performance Rating • Preparation OHS *S OU O HU • Government implementation performance O HS O S 0 U 0 HU • Implementation agencyperformance OHS OS * U O HU • Overall OHS OS * U O HU - 30 -  Annex 7\. List of Supporting Documents Available in Project files: 1\. ICR mission Aide Memoire 2\. Staff Appraisal Report 3\. President's Memo Armex 8 -- Borrower's Comments - 31 -  Annex 8: Borrower's Comments Karachi Water and Sewerage Board\. The Second Karachi Water Supply and Sanitation Project\. (Credit 1987-1 PAK) Borrowers Contribution to the Implementation Completion Report\. (ICR) 1\.0 Introduction\. This evaluation statement has been prepared in compliance with the requirements of the IDA ICR preparation procedures BP 13\.55 April 1994\. The statement is based the presentations of departments of KWSB and other concerned authorities to the IDA ICR Mission of November 1999 but without repetition of facts and data already contained in the IDA Implementation Completion Report\. 'The Federal Government allocation of water from the River Indus for the water supply of Karachi is 1200 cusecs (approxirnately 650 million gallons per day (mgd))\. The Second Karachi Water Supply and Sanitation Project (KII) was a step towards development of the water supply infrastructure serving Karachi, to convey and introduce into the existing water distribution system, the balance of the federal allocation, This balance was of the order of 230 mgd\. in parallel with and complementary to this development, the capacity of the sanitation infrastructure of the city was to be increased\. During the process of project preparation, increasing project costs and financial constraints led to decisions to implement the project with a nominal capacity of 100 mgd but designed to facilitate future development of the remaining balance of the federal allocation (130 mgd)\. In addition, full treatment of the 100 mgd scheme was to be provided together with development of existing water treatment facilities to provide full treatment to all water supplied to the city\. From the inception of the project, the need for strengthening the institutional integrity and administrative capability of the recently established KWSB was identified\. In addition, the distribution system required strengthening and water loss reduced\. In consequence, components were introduced into the project to start to address these issues\. The Project commenced against a background of preparatory work\. In particular, the locally funded Balance Conveyance Scheme (nominally 42 mgd) and the rehabilitation of the KG Canal funded jointly by the IDA (Credit 1652) and the GOP under the Karachi Special Development Project I\. (KSDP 1) and the institutional strengthening work carried out under IDA Credits 1652 and 1374\. The most significant event during Project implementation was agreement on the reformulation of the project definition and enhanced funding formalised in the Supplemental Credit Funding Agreement of 1993\. By this agreement, the objectives of the Project were modified and the scope of the Project works reduced\. Specifically, some physical works, mainly those associated with additional water treatment facilities at existing treatment works, were deferred, increased emphasis was placed on leak detection and water loss reduction, revenue collection efforts were to be enhanced, and an in depth examination of possible options for public/private sector participation in the provision of water and sanitation services undertaken\. -32-  Independently, preparation procedures for the funding of the sanitation element of the project by the Asian Development Bank led to a reduction in the proposed treatment capacity from 94 MGD to 80 mgd to be provided by two treatment works located at Mauripur (54 mgd ) and Korangi (26 mgd)\. Ultimately, funding constraints led to the deferment of the Korangi plant and the work proceeded under the title of The Greater Karachi Sewerage Project - Phase I (Stage 1)\. It is against the objectives and definition of the reformulated projects of the IDA Supplemental Credit Agreement and the ADB loan that this evaluation is made\. However, the opportunity is taken for observations regarding the original scope of works\. 2\.0 The Project Objectives and Evaluation\. 2\.1 (a) To increase potable water supply by 100 mgd (about 31%) and further augment water availability by strengthening loss reduction measures\. The physical works of the water supply element of the Project were commissioned at full capacity in October 1998\. These works which provide a new and complete 100 mgd water supply facility to the City of Karachi were a major undertaking across some 120 kilometres from Gujjo in the east to the heart of the City distribution system\. The measured discharge of the Dhabeji pump station with three duty pumps in operation (the design condition) was 107 mgd\. \.All elements of the bulk conveyance system proved capable of sustained operation at this flow, the water treatment works proved capable of treating the flow to the specified standards, and the new primary distribution mains successfully introduced the new water into the existing distribution system\. The objective of development of the water supply infrastructure has been fully achieved\. However, the comnissioning of the scheme coincided with an unprecedented reduction in the supply of water from the Hub River source and was crucial to averting severe water shortage in the city\. As a consequence, the overall enhancement of the water supply to Karachi has yet to be realised and its impact evaluated\. Early work on the water loss reduction and leak detection in the context of the primary credit agreement assisted in indicating extent and nature of the problem\. As a consequence, and consistent with the revised scope of the project, repair of the Hub Trunk Main was included in the physical works programme of the project works redefined in the Supplemental Credit Agreement\. In addition, under Part C:(c) of the project description, the Project Consultants were commissioned to prepare a dedicated water loss reduction and system strengthening project, for appraisal by the IDA\. Repair of the Hub Trunk Main comprised the repair of approximately I Okm of 66 inch diameter (1 \.7m) prestressed concrete pipeline using a proprietary joint repair system\. The contract period was four months from the instruction to cornmence the work\. The work was in fact completed over a period of two years\. Primary reasons for the delay were time taken to develop working techniques, the difficulty, given the already limited daily supply of water in the area to give a series of closely spaced closures of the pipeline, and departmental interfacing within the KWSB\. Following completion of the work subsequent inspections of the ground surfaces and drainage channels adjacent to the main indicated that leakage from the barrel of the 66 inch main had been reduced almost to zero\. Proposals to perform a drop test in the Hub Reservoir to measure residual leakage in the main were not performed due to the continuing necessity to avoid disruption to water supplies\. Nevertheless, the performance of the work gave useful inforrnation regarding the difficulties, organisational requirements, physical condition of large diameter water pipes, and cost effectiveness of repair work which should be of use in future planning\. -33-  The Water Loss Reduction and System Strengthening Project was prepared and available for appraisal by the IDA, by June 1996\. No Appraisal was performed\. This component of the of the Project, intended to provide a spring board to the implementation of work in this crucial area of neglect, has therefore not precipitated the progress hoped for\. 2\.2 (b) Improve the financial viability of KWSB through increased revenues, cost reductions, and greater operational efficiency\. Measures introduced as a result of the terms of the Credit agreement (improved revenue collection and regular tariff increases\.) resulted in a significant increase (approximately six fold) in revenue from the sale of water and related charges over the life of the Project\. This improved performance continues\. However, revenue remains well below both billed and potential revenue\. Increases in water charges have been resisted by the Government at each stage and have been approved only as a result of pressure of potential consequences of default on agreements with the IDA in the context of the Credit agreement\. The requirement for the KWSB to reduce costs by reducing the total number of personnel engaged was tackled with great difficulty\. Never the less, a substantial reduction was achieved, by a combination of both disciplined application of terms of employment and a scheme to encourage personnel to leave the their employment\. The personnel of the KWSB was reduced from approximately 14,000 to approximately 8500\. While assisting materially with the financial management of KWSB it is not perceived that operational efficiency in the KWSB has improved as a consequence of these achievements\. 2\.3 (c) To improve the organization and management of KWSB\. Consequent upon earlier studies and actions, particularly those resulting from Credits 1374 and 1652, the organisational structure of KWSB was reformed\. The KII Project built on this restructuring by confinning the identity and enhancing the performance capability of some departments\. In particular, the establishment of the Development Wing as a dedicated unit in its own separate offices and the capability finance department\., training exposure and computerisation of the accounts department\. The Development Wing was successfully established in new offices under the Director of Foreign Aided Projects\. It played a crucial role in the performance of the Borrowers obligations and in coordination, administration, supervision, and ultimately the completion of all aspects of the Project\. By working as part of the construction supervision organisation of the Project Consultants, or interfacing with them in the performance of the obligations of the Employer under contracts for the procurement of physical works, staff of the Development Wing gained significant first hand experience of construction supervision and contract administration The improved performance of the Finance Department is clearly demonstrable in the increasing billing and collection of water charges and operation of disbursement procedures and rapidly available financial data\. In addition, the Department prepares its accounts annually to a standard conforming with International Audit Standards (IAS)\. Except as a result of steady strengthening of the capability of the Development Wing and the performance of the Finance Department, there have been no significant improvements in the organisation and management of KWSB which are attributable to the Project\. 2\.4 (d) To improve sanitation in the City including its low income and coastal areas by increasing sewerage coverage by 232 mgd and treatment capacity by 94mgd\. -34-  Independent of the Water Supply Component, preparation procedures for the funding of the sanitation element of the project by the Asian Development Bank led to revision in the proposed treatment capacity from 94 mgd to 80 mgd\. This additional capacity was to be provided by two treatment works located at Mauripur (54 mgd ) and Korangi (26 mgd)\. Ultimately, funding constraints led to the deferment of the Korangi plant and the work proceeded under the title of The Greater Karachi Sewerage Project - Phase I (Stage 1)\. The Mauripur treatment works was commissioned in December 1997 with a capacity of 54 mgd\. In addition, the Lyari Trunk sewer having a capacity of 138 mgd was laid together with some 31\.25 km of trunk and secondary sewers in the Baldia area\. These sewers serve significant low income areas but not coastal areas\. The Project did not include extensive tertiary sewers\. The KWSB are working to connect existing upstream networks to the Project trunk mains and to construct improvement works to increase the load delivered for treatment at Mauripur\. These works are being funded from local sources and by this means the area effectively served is steadily being increased\. Throughput at Mauripur treatment works is currently of the order of 35 mgd\. The primary physical objectives of the Project have been substantially achieved though the full benefit through ongoing expansion of the sewerage system is yet to be achieved\. Primary project covenants to increase the Sewerage Tax and increase revenue by improved tax collection have been partially achieved\. The sewerage tax is levied on all water consumers who have been reluctant to pay the tax before the benefit of the expanding sewerage system is available to them\. 3\.0 Implementation Record and Major Factors affecting the Project\. 3\.1 Physical Works\. Water Component\. The implementation of the Project was not performed within the time frame of the original credit\. The time frame was extended by two years from June 1995 to June1997 in the Supplemental Credit Agreement and subsequently to June 1998 by which time the physical works were substantially complete\. A further one year extension was granted to permit the completion of outstanding works and to facilitate discharge of the final contractual obligations of the KWSB\. The principal reasons contributing to delay were- (i) The initial inadequacy of project funding which became apparent shortly after award of the early construction contracts\. This led to delay in the award of further contracts until the Supplemental Credit Agreement was made effective in 1993\. The principle reasons for the inadequacy of funding are presented in the IDA Report P-5794-PAK dated January 1993\. These reasons were changes in the scope of some civil works, escalation in prices of construction materials, currency exchange rates, low contingency provisions, and a mixed response from foreign contractors\. (ii) Following the Establishment of the Supplemental Credit and as a consequence of the quality of response resulting from the initial contract procurement procedures, the IDA required that these procedures should be reviewed and revisions approved before further contract procurement could proceed\. The results of the review were development of a strategy to promote participation in the bidding process of local contractors, revision of the prequalification documents from a subjective points system to a simple pass/fail system against non subjective criteria and the appointment of the Project Consultants as the Engineer rather than an officer of the KWSB\. -35-  Consequent upon the Review and implementation of its results, bidding for the nine remaining contracts, including all the trunk distribution mains to be laid in urban Karachi, was not commenced until December 1994 leading to award of the contracts in September 1995\. (iii) Following award of the pipe line contracts the Pakistan Steel Corporation, a protected industry in Pakistan, was unable to supply hot rolled steel coils for conversion into welded steel pipe\. These unforeseeable circumstances led to conflict with the IDA Procurement Procedures which in turn required renegotiation of affected materials supply clauses of the concerned contracts\. As a consequence, contractors were unable to place orders for pipework until September 1996\. (iv) The construction contracts awarded prior to revision of the contract procurement procedures were all significantly late in completion\. The principal reasons appeared to be poor construction management, and the use of sub-contractors of dubious status\. Also, because of delays to commencement in other works, some Contractors appeared to become complacent as it was clear completion of their contracts did not threaten commissioning of the Project as a whole\. The later contracts, with the exception of staff housing, performed significantly better\. In the case of contracts for the civil works construction of the NEK Treatment Works and the Dhabeji Pump Station (bid prior to the Supplemental Credit Agreement but as a condition enforced by IDA, not awarded until immediately after it) the delays in completion led to consequential delay in commencement of erection of electrical and mechanical plant, and ultimately, commissioning, and significant justifiable claims from the plant contractor\. Sanitation Component\. The implementation of the Sanitation Project was delayed by approximately nine months due to suspension of the Loan on account of KWSB having not settled accounts with the KESC\. In addition, some further delay was attributable to contractor=s performance for reasons similar to the Water Component\. Ultimately, due to local political perceptions towards the end of the Project, KWSB requested alteration to some components of the Works\. This proposal was not acceptable to the ADB and in consequence some sewer laying was not commenced and ultimately the opportunity to construct these works was lost\. 3\.2 Project Funding\. Provision of counterpart funding (GOS/GOP) frequently fell short of both the projected funding requirement and the actual demand\. In consequence, disbursement from the IDA Credit was on occasions withheld\. Ultimately, full counterpart funding was provided which enabled all financial settlements to be made in respect of works funded from the Credit before its closure\. The funding provided in the Supplemental Credit Agreement of $216\.9 together with counterpart funding from the GOP of some Rs 2360 M, proved adequate for the project elements to which it was applied\. On closure of the Credit, a balance of some $10\.OM of the Credit remained unutilised\. Parallel funding for electrical and mechanical plant at Dhabeji Pump Station, Pipri Filter Plant and North East Karachi Treatment Works was provided through a British Government Grant and a loan (L27470 1) from the Commonwealth Development Corporation (CDC)\. As with the IDA funding, the initial provision was inadequate for the works contemplated and the scope of the works financed was reduced to fit the available funds\. The result was that the funding was applied to plant at Dhabeji Pump Station and North East Karachi Treatment Works only\. Hub Treatment Works and the extension of the Pipri Treatment Works were deferred\. -36-  These funding facilities were extended in line with the extended period of the IDA Credit\. However, in September 1998, disbursement from the CDC loan was stopped due to default by the GOP in payment of interest and some capital repayment\. Shortly after this event the loan validity period expired\. No resolution of the loan servicing default has been achieved\. In consequence, available project funding has been reduced by the unutilised balance of the loan of some , 3\.2 million\. As the estimated cost of the contract works approximate to the originally available funding, there is an unexpected shortfall in available funding of the order of, 3\.0 million\. As a consequence KWSB are in substantial default on contract payments\. The contract is effectively suspended and this vital element of the 1 00, mgd system, though in operation, has not been brought to satisfactory completion\. ADB funding was adequate for the Project works undertaken, but on closure of the loan a balance of some 10,000 dollars remained undisbursed\. 3\.3 Compliance with Covenants and other Elements and Objectives of the Project\. Project Consultants were engaged and arrangements made for the retention of their services throughout the implementation period of the project\. Water and sewerage tariffs have been levied, generally in line with the levels agreed at successive stages with the IDA\. The latest increases announced as effective from April 1998 have not been applied pending restoration of the Hub source\. Staffing levels have been significantly reduced from approximately 14000 to approximately 8500\. Designs and bidding documents were prepared for up-grading of the Kotri Barrage Feeder Canal and Kinjhar Lake impounding embankments\. No funding has been made available for the commissioning of these works to proceed\. These works are crucial to the security of the water supply from the Indus Source and its subsequent further increase to the full federal allocation\. Detailed designs were prepared for the Hub and Pipri treatment works and south east Karachi primary distribution system st-engthening\. These are the works deferred in the Supplemental funding Agreement\. The treatment works have subsequently been funded by the Government of Pakistan and the Japanese funding agency JBIC\. The project is ongoing\. Neverthe]Less, and not withstanding what was achieved inj strengthening some departments of the KWSB, lack of a clear and consistent policy for reform of Karachi municipal authorities in successive governments throughout the implementation period of the project, has impeded progress towards a number of project objectives associated with institutional strengthening and administrative reform\. In particular - Strengthening the management of operational departments within the reorganised structure\. The capability for training facilities were enhanced by the establishment of a training centre headed by a Director of Training\. Never the less, implementation of training programmes has been impeded by limited budget provisions\. The development of systems and procedures manuals\. The Training and Pilot Privatisation Project\. 4\.0 Project Sustainability\. 4\.1 Physical works\. -37-  The sustainability of the physical works of the Project depends on the level and competence of maintenance provided\. Water Board staff remain technically (technical competence and material resources) ill equipped to operate and maintain the infrastructure assets of the Board including those of the KII Project\. This problem is common to all staff levels and prevents the formulation of effective operation and maintenance practices and their implementation\. For reasons indicated in section 9 below, KWSB were unable to benefit from facilities provided under the Project contracts for the training of staff at Dhabeji Pump Station and North East Karachi Treatment Works\. At Dhabeji Pump station, urgent remedial works are required to correct aberrant pressure pulse generation from the impellers of the pumps installed, which excites heavy vibration throughout the installed plant\. These remedial works are delayed primarily due to the effective suspension of the contract consequent upon the funding agency (CDC) suspending disbursement from their loan\. The consequences of the vibration are seriously aggravated by the continued operation of the pump station to meet the water demand in Karachi in the face of depleted supplies from the Hub River source\. -38-  At Mauripur Treatment Works (STP 3\.) an operations and maintenance contract has been awarded to a local contractor funded from KWSB resources\. It is hoped that this initiative can be sustained and extended to the operation and maintenance of water works\. 4\.2 Financial\. Improved revenue collection and more realistic tariff levels implemented in compliance with the covenants of the IDA Credit are now yielding encouraging results\. The increased revenue promotes the opportunity to invest in improved maintenance\. However, the continuation of improved revenue collection and its application to the needs of the KWSB remain dependent on uncertain political will and policy\. 4\.3 Institutional Strengthening Consequent upon the project implementation, some departments of the KWSB have improved their working performaance\. This is particularly the case in the Finance Department and the Development Wing\. Generally however, Bulk Water Supply, Water Distribution and service departments have not been strengthened as a result of the project\. The performance of these departments is vital to both the sustainability of the project works and the benefits to flow from them\. These operational departments remain largely the domain of political and union influence\. 4\.4 Conclusion\. Given the continued lack of a clear and consistent government policy for reform and support of KWSB, the sustainability of the project works, the benefits resulting from them, and improvements in the performance of the KWSB are not assured\. In the short term, the new I OOmgd water supply is seriously threatened by failure of the pumps at the new Dhabeji Pump Station consequent upon suspension of the plant contract caused by premature closure of the CDC Loan\. 5\.0 Bank Performance\. IDA Task; Managers and other personnel, particularly those of the permanent Pakistan Country Mission in Islamabati worked closely with the KWSB throughout the implementation stage of the Project\. The support and advice of Task Managers and their sometimes forceful pursuit of Project objectives and compliance with the covenants of the Credit before the Government of Sindh, were of particular value in maximising what could be achieved given the external constraints and pressures on the Government of Sindh\. The constructive attitude of the Bank at the preparation of the Supplementary Funding Agreement, and subsequent extensions of the effectiveness of the Credit were crucial to satisfactory completion of all works financed from it\. The essential need for strengthening of the water distribution system and water loss reduction within it, to maximise the benefit of the additional 100 mgd of water to consumers, was a corner stone of policy in justifying investment in the project\. This aspect of policy was strengthened still further in the terms of the Memorandum and Recommendations of the Bank Report P-5794-PAK, upon which the Supplemental Funding Agreement was based\. As a consequence preparation of the proposed Water Loss Reduction and System Strengthening Project was funded and prepared for appraisal by the Bank\. No appraisal was performed despite close involvement in the project preparation by IDA mission staff\. Instead, a policy shift towards privatisation/private sector participation in the Karachi water supply operations was launched -39-  by the IDA\. In consequence, the momentum towards direct improvement of the distribution system and its operation to maximise the benefit of the anticipated 100 mgd of additional water, was stalled and remains stalled\. While appreciating that the issue of privatisation is an option in considering the future of the water supply of Karachi, stalling of the proposed Water Loss Reduction and System Strengthening Project has been detrimental to realisation of the full benefits of the KII Project and created a vacuum in which ad hoc development has flourished in its place\. 6\.0 Borrower Performance\. We believe Borrower performance on completion of the project should be judged as creditable, given the weakening of the national economy, the previous limited experience of large internationally funded projects and the political instability in the country, particularly Karachi, throughout the project period\. The provision of counterpart funding, while subject to serious constraints was ultimately adequate\. Despite a pattern of failure to meet budgeted requirements and some administrative impediments, available counterpart funds were generally adequate for actual requirements and were not an impediment to the progress of the Project works\. Covenants of loan agreements, in particular the introduction of increasing tariffs, improved revenue collection and staff reduction were ultimately met\. Much of the this achievement was accomplished in the late years of the Project\. These matters were all politically sensitive and achieved despite almost continuous civil strife in the City\. A serious default in servicing the CDC Loan agreement by the GOP led to suspension of disbursement and ultimately premature closure of the loan\. In consequence, there is a funding deficit of some , 3\.OM and rising default in contract payments\. Procurement of the works through competitive bidding was conducted with increasing competence, transparency and professionalism by the KWSB Development Wing\. 7\.0 Assessment of Outcome\. The City of Karachi is now served by an additional supply of treated water of some 100 mgd as a result of the Project\. This is a considerable asset\. Supply of water into the city water distribution system has been enhanced by some twenty percent\. The fact that the impact of the additional water was not felt as directly as it might have been due to the reduced supplies from the Hub River Source, does not lessen the significant benefit resulting from the scheme\. In addition, the position of the KWSB has been strengthened by enhanced revenue collection, reduced costs and an increased capability to manage development projects\. However, the need for improved management of operational departments, strengthening of the water distribution system and water loss reduction remain to tackled \. 8\.0 Future Operation\. The future operation and management of the infrastructure of water supply and sanitation in the City of Karachi is the subject of current but inconclusive debate\. It is foreseen however, that in this important aspect of the provision of city services, progress will only be achieved in partnership with international funding agencies\. -40-  9\.0 Key Lessons Learned\. 9\.1 Lack of International Interest in Bidding Procedures and Consequences\. All invitations to bid were characterised by a lack of interest from truly commercial international contractors\. Typically the response to invitations to bid has been from the local market and from companies from the Peoples Republic of China\. The one commercially independent international contractor who has consistently bid and has won two contracts, had established a long term presence in Pakistan prior to the commencement of the Project\. The contract documents for IDA funded works, are with two exceptions, dedicated to International Competitive Bidding\. 'Bids by local contractors with only local experience and aspirations, limited overheads and commercial responsibilities, and the Chinese Corporations with their qualified commercial status, introduce into the procurement of the works, a large measure of incompatibility with the principles upon which the contractual responsibilities and expectations are based\. This incompatibility is prejudicial to a response from truly commercial international contractors\. Ultimately, it leads to the award of contracts to contractors who, while accepting the contracts with good intent, have an inherent and fundamental lack of commitment to performance as contracted\. The consequences are lower contract values at the cost of reduced quality and delayed completion\. 9\.2 Division of the Works\. From the outset, the project works were divided into relatively small contracts reflecting types of construction\. eg - a pump house, a canal, a conduit\. In consequence most contracts were relatively small in value\. Later, as part of the re-appraisal of procurement strategy conducted by the IDA, the original contract packages were broken down still further\. The fragmentation of the physical works into more and smaller contracts led to greatly increased contact administration which stretched the resources available for contract supervision to an extent that effected overall project management\. It was a fact that the three smallest contracts suffered the greatest delays in proportion to their contracted time for completion, and of these, two (the LCB contracts) delivered the poorest quality work\. It is concluded that larger contract packages are to be preferred\. 9\.3 Security of the Completed Works\. Consequent upon completion, elements of the Project works, in particular, the canal and conduits in rural areas, and the NEK treatment works, have been subject to immediate vandalism and theft of anything that can be removed or abused irnmediately following departure of the contractors from the sites\. These circumstances threaten the effectiveness of the project works and even the works themselves\. KWSB are unable themselves to provide the required level of security\. The issue of security of the water supply infrastructure throughout its entirety is an issue to be addressed by the Government as a matter of national policy\. 9\.4 Politically Motivated Interference in the Management of the Project\. Throughout the implementation of the project there has been significant politically motivated interference in the management of the KWSB\. The influence of this has had both direct and indirect effects on the Project\. In the context cf the Project, such actions may well have been well intentioned, but on many occasions were made without em appreciation of consequential ramifications\. In consequence, the interests of the project, in particular -41-  contractual discipline, the long term service of physical elements of the Project and institutional strengthening have not always been promoted\. Of particular note in this context are directives to commission works in the final stages of their completion, prematurely\. For the sake of a few weeks, additional costs were needlessly incurred while, more significantly, the long term performance of structures and plant was prejudiced in the headlong rush to comply with a chairman=s demands for early commissioning\. The principal effect of such demands, was to cause contractors to abandon all contractual responsibility on the excuse of compliance with unrealistic demands\. A failure of one of the rising mains from Dhabeji Pumps station shortly after commissioning was directly attributable to this cause\. In addition, the KII (100) mgd water supply project was commissioned on the 26th of June 1998 at a nominal level of 30mgd\. This commissioning was premature (albeit, precipitated by the reduced the supply from the Hub river source)\. The early commissioning of the project works and delivery of additional water to Karachi at a time of acute shortage, was achieved at the cost of delay in bringing many contracted works to full completion\. In some cases, because access was no longer available, outstanding or remedial works were never completed\. In particular, as once commissioned, the supply of water through the system was maintained, there has been no opportunity to carry out adjustments, modifications or additional works where the need for these became apparent following early operation\. Nowhere have the negative consequences of this early commissioning been more seriously manifest than at Dhabeji Pump Station\. The plant was put to use before commissioning trials of individual pump sets, satisfactory testing of the pipework and performance of the contractual requirement of the 30 day full scale operation test, had been performed\. Whereas, from the outset, the hydraulic characteristics of discharge from the pumping plant was in accordance with design expectations, significant vibration in the pipework was observed\. By August 1998 the matter was the subject of concern and written communication between the consultants, the Contractor and the KWSB\. By March of 1999 because of the continuing use of the pumps the Consultants advised the KWSB that conditions were such that operation of the pumps should only be permitted in circumstances of the most compelling necessity pending rectification of operating characteristics\. They remain in operation\. The KIT Project works are more sophisticated than any other works operated by the KWSB to date\. Despite provision in the Contracts for the training of personnel at Dhabeji Pump Station and NEK Treatment Works, the opportunity provided by these provisions was, for the most part not taken advantage of\. This was principally because of union or political influence\. Staff appointments were either not made, or staff were appointed who had no intention of attending the works as part of the work force\. As a result of these circumstances the plant contractor, at the request of KWSB operated the pump station and treatment works for a year as an additional duty\. The contractor ceased this service in June 1999 since when these key installations have been operated by KWSB staff who have had no Aworks specific@ training\. Due to a change of political priority, proposals were made to the ADB for revisions to the programme of works\. These proposals were ultimately refused as being contrary to the loan agreement\. As a consequence, some project works of the Sanitation Component were lost and full utilisation of available funding not achieved\. It is concluded that the direction and administration of the KWSB should be depoliticised and union actions set within enforceable limits\. -42-  9\.5 Coordination with the Sindh Government\. Throughout the implementation of the Project, administration of contracts and the Credit Agreement have been hampered by apparent conflict with the administrative procedures of the Sindh Government\. Although many of the consequent difficulties were resolved, solutions were for the most part achieved at the cost of delay and additional cost\. More particularly, the solutions were artificial, avoiding but not resolving fundamental incompatibilities which thus remain pitfalls to other and future international contracts and credit agreements\. Problems of this sort are particularly obvious in the processing of contract payments\. The contracts provide that the Employer (KWSB) shall pay the Contractor within a stated period of receipt of an Interim Payment Certificate\. The KWSB accounting procedures reflect the procedures of the Sindh Government and are audited against these rules by the Government auditor\. These rules provide that payments are made only on the basis of the Measurement Book, a document prepared and signed off by an Executive Engineer\. Preparation of interim certificates by the Engineer and the measurement book by the XEN (a relatively junior officer) are based on entirely different concepts\. The one being a general valuation conferring no degree of acceptance for work done and issued to promote fnancial turnover\. The other, essentially signifying acceptance of specific work done and custodial to the interests of a government department\. Preparation of these documents reflect their provenance and are in consequence, incompatible\. A careful[ examination by most senior and appropriately experienced executives of concerned departments and their advisors, of the administrative interface problems between the provincial government and executive agencies such as KWSE should be conducted\. The purpose being to establish appropriate procedures to facilitate works based on FIDIC type contracts and International funding agreements\. 9\.6 Coordination of Funding Agencies\. The suspension and subsequent closure of the CDC loan has prejudiced the new IDA financed 100 mgd water supply facility\. The sanitation element of the project suffered a delay of some nineteen months and consequential contract costs due to the cessation of disbursement from the ADB Loan pending settlement of KWSB indebtedness to the Karachi Electricity Supply Corporation (KESC)\. Also, a concentration of effort by IDA to promote privatisaition led to stalling of the physical improvement of the Water Loss and Distribution Strengthening Project\. There appears to be a clear need for a formal joint agreement between funding agencies co-funding a project of the size and scope of the Second Karachi Water Supply and Sanitation Project\. Such agreement should bind the agencies to act in concert for the promotion of the project, provide commitment to uniformity of approach and emphasis, and provide a vehicle to act in concert to address circumstances which threaten the beneficial application of their separate funds to a Project\. -43-  2ND KARACHI WATER SUPPLY & SANITATION PROJECT UNDER IDA CREDIT 1987-1 PAK IMPLEMENTATION COMPLETION REPORT (ICR) KWSB'S PARAWISE COMMENTS ON DRAFT ICR # 20260 DATED 26-4-2000 3\.0 ASSESSMENT OF DEVELOPMENT OBJECTIVE & DESIGN AND OF QUALITY AT ENTRY 3\.1 Original Objective: The objectives of the K-II water could not be fulfilled by the World Bank under IDA credit 1987 and the major objective of "Strengthening Loss Reduction Measures" with a view to augment the water supply system could not be taken up, although pre-appraisal is done\. Similarly during negotiation for the supplemental loan for Second Karachi Water Supply and Sanitation Project, the scheme was reformulated and some of the water supply components were deferred which includes the water treatment (direct filtration plant) at Hub and partly primary distribution mains so as to meet the financial provisions give in the IDA's re-formulated scheme and the project cost\. The writeup is not understandable by a reader unless the objective reproduced below & given in SAR are commented in specific terms\. The objective of the project (a) increase potable water by 31 % (100 million gallons per day) and further augment availability by strengthening loss reduction measures; b) improve financial viability of KWSB through increased revenues, cost reduction & increased operational efficiency c) improve the organization & management of KWSB; d) improve sanitation in the City, including its low income and coastal area by increasing sewerage coverage by 232 mgd and treatment capacity by 94 mgd\. The achievement of the objectives (a) to (d) can be analyzed as under for some assessment of performance rating\. Objective (a) 100% physical achievement not sustainable (reasons to follow) 25% achieved by strengthening and implementing loss reduction measures through the leak detection program\. Objective (b) 25% achieved in the increased revenue (i) 50% achievement in operational efficiency (ii) Staff cost reduction 100% implemented\. (Exemplary due to IDA/KWSB coordination)\. Objective (c) improve the organization & management of KWSB; A considerable improvements by the creation of Development Wing to take up the additional responsibilities independently\. KWSB's re-organization plan also implemented as outcome of in depth O&M study\. Objective (d) 30% achievement in the improvement in sanitation of the city\. Second Karachi Water Supply & Sanitation Project with IDA financing for the water supply and the Institutional components while ADB financing arrangements for Karachi Sewage & Sewerage disposal scheme under ADB loan 1001 & 1002 although the loan was once frozen for a period of 2 years and even the project was completed\. IDA never reviewed PCR/ICR of ADB\. KWSB faced problems in implementation\. 50% of these targets achieved & 100% physical implementation done\. US$ 10 million surrendered in IDA -44-  Credit 1987-1 Pak and without improving the coverage due to political environment at that time\. The original objectives are not analyzed by the original formulators, the appraisal mission of World Bank and the Task Manager, who remained involved for maximum duration\. The Master plan report of water as well as SAR clearly mentioned that Indus Source is the only potential & reliable source for Karachi water supply and they recommended a project of 240 mgd\. IDA in consultation with KWSB bifurcated this project into two phases of 100 mgd each due to fmnancial constraints and to restrict a cost within $ 100 million & later it was agreed for $ 125 million, the additional $ 25 million due to inclusion studies to be carried out by international consultants\. Thus, it is suggested that para 3\.1 based on Part 11 ICR of KWSB as agreed by IDA may please be seen for background information and the Bank Staff who remained involved for the maximum period of the project shall be consulted\. 3\.2 Revised Objective: Refer comments for 3\.4\. 3\.3 Original Components: The scheme of Second Karachi Water Supply and Sanitation Project has got a parallel financing from ODA Grant-UK & CDC Loan-UK, to accomplish the water supply components\. During the process of the supplemental financing of the K-II project it was agreed between IDA and Co-financier M/s\. CDC/ODA that the effectiveness of the IDA Credit 1987-I will prevail on whole of the financing plan\. Unfortunately, CDC has failed to fulfill the commitment on the loan closing of IDA Credit 1987-1 Pak dated 30-06-1999\. Moreover, CDC has stopped payments effective from September 1998 in consequence KWSB is in default of making payments on two contracts (WI 8 & W19) which includes the supply and installation of the water treatment plant and pumping station at NEK and Dhabeji\. It was agreed with the donors during loan negotiations that: a\. IDA portion of loans will be exclusively used for the civil works and the institutional components of the project\. b\. ODA grant and CDC loan will finance the plant and equipment component of the project\. C\. ADB financing will include the development works for the sewerage and sewage disposal schemes\. As mentioned the borrowers contribution is given in 2\.4(d) of the report there was a coordination of KWSB/ADB but not IDA because for this IDA have not reviewed ADB PCR/ICR of loan 1001 & 1002\. Similarly, IDA did not help coordination with CDC/ODA in resolving the payments of M/s\. PWT by CDC or contributing from the surrendered money of US$ 10\.0 million of IDA Credit 1987-1 Pak although the components of WI 8 & W19 i\.e\. Dhabeji pumping station & NEK water treatment works the electrical & mechanical funded by CDC / ODA & civil works by IDA coherent to each other, this non cooperative behavior is the main cause of un- sustainability of the project\. 3\.4 Revised Components: In general the comments are acceptable further it should also be taken into account that IDA has assumed a larger contribution by increasing its share from 38% to 67%, while CDC/ODA have dropped their shares from 42% to 15% and even not fulfilling their commitments and obligations by unilateral decision of suspension of the CDC Loan in September 1998 and against the conditions of the supplemental loan wherein it was agreed that the -45-  effectiveness of the CDC Loan & ODA Grant will remain the same as the effectiveness of the IDA Credit 1987-1 Pak\. To achieve the basic objectives, project components were amended to include some more additional service and the fate of some of those services still remains in deed, such as Loss Reduction, PSP, Consumer Education Program etc\. 3\.5 Quality at Entry Declared unsatisfactory by IDA\. In this connection kindly refer minutes of negotiations for supplemental loan which has given the reasons very clearly\. The quality at entry was deficient due to the ambiguity created by IDA\. The PCD in the first instance considered a project of 240 mgd which IDA has curtailed to 100 mgd due to financial constraints & the cost curtailment was applied in the estimates\. KWSB did not agree to these estimates and immediately invited two bids for the assessment of market rates in 1991 & requested for supplemental financing IDA suspended project invitation activities for almost 2 years & allowed bidding after the effectiveness of supplemental credit\. Regarding regulatory framework, nowhere in the SAR this word has been used or even discussed\. A small component of PSP was mentioned and on that basis PSP study was carried out through PHRD grant which identified requirement of a regulatory framework\. Draft regulation were prepared and PSP Steering Committee was formed by GOS & then it was sabotaged by NGO's & political environment at that time in the absence of IDA monitoring\. 4\.0 ACHIEVEMENT OF OBJECTIVE & OUTPUTS 4\.1 Outcome / Achievement of Objective: Heavy social cost concept is confused when we say that larger percent of higher income rather than low income percentage has adequate supply connections\. Katchi abadis considered as low income areas should not be compared because its 50% of existing population it is to be believed that they are not paying any water tax, there is un-authorize occupation of land, the 9% increase per annum of Katchi Abadis means that 50% of city population is receiving water free of charge\. The major reasons of the agencies / personals involved in this mushroom unplanned growth are the NGO's using self help terminology or the political environment where the system is laid on political pressure\. The major example is Orangi where un-authorize occupation is common, the people are living and encroaching every day even up to the extent of hill tops or to the bottom of river beds/nallahs\. To further reinforce please refer IDA Credit 1652 where a provision for Katchi Abadis component was taken on the concept & understanding that the beneficiary has to pay for the services utilized, spend minimum, provide community water taps, provide community latrines, establish a revolving fund etc\. But in the current Credit, IDA has no provision of that component i\.e\. development of Katchi Abadis, IDA's assistance in providing additional conveyance system for the treatment of bulk water supply system is praise worthy but impact of the system could not be demonstrated because IDA has not devoted to upgrading the city water system network, strengthening primary distribution system, IDA has realized that substantial efforts are needed for the rehabilitation of the old water distribution system in order to reduce the intermittent-brusts & leakages but due to financial constraints could not be implemented\. 4\.2 (a) Outputs by Components: In line 5 of the third paragraph the word Karachi Development Association may be deleted & corrected as KWSB/GOS\. 4\.2 (b) Institutional Strengthening: -46-  This shall be declared 'MODEST' instead of unsatisfactory\. 4\.2 (c) Financial: This shall be declared 'MODEST' because there are commendable efforts made by KWSB in the financial discipline of its fnance & accounts management\. 4\.3 Net Present Value / Economic Rate of Return: No comments\. 4\.4 Financial Rate of Return: Agreed\. 4\.5 Institutional Development Impact: Agreed\. 5\.0 MAJOR FACTORS AFFECTING IMPLEMENTATION AND OUTCOME 5\.1 Factors Outside the Control of Government or Implementing Agency: Agreed, also mention IDA Credit 1652\. 5\.2 Factors Generally Subject to Government Control: No further comments\. In line 8 of second para the word KDA may be corrected/replaced by 'KMC'\. 5\.3 Factors Generally Subject to Implementing Agency Control: Whereas the local contractors have performed well\. The foreign contractors involvement have increased the foreign currency payment this needs more clarification\. However, KWSB has desired to encourage the local construction industry but has failed in promoting the object due to the improper coordination, understanding of the problems of the local contractors and their solutions by the international consultants M/s\. Mott Macdonald International Limited - UK whereas they were provided the support of local consultants as well\. The selection of the contractors was entirely based on the World Bank procurement guidelines which is through pre-qualification, the process of evaluation of pre-qualifications was done by the international consultants MMIL\. The concurrence of the shortlisting of the firms by IDA was given on the basis of consultant independent evaluation report, as such there were never any choice for employment of local contractor by KWSB\. 5\.4 Cost & Financing: This upward revision by 74% was done after 2 years when the project was taken up and the work was in full swing\. It needs to be analyzed as to why the cost of the project had to be almost doubled when the project was almost half way through\. What were the major reasons for the consultants for firming up the cost at the time of original approval and clearance by ECNEC and then again the cost had to be revised and the World Bank/KWSB had to sign a supplemental credit\. Consequent upon signing the supplemental credit, the entire financial projections prepared at the time of starting the project based on original cost had to be revised upward\. The repayment schedule increased exorbitantly\. The principle and the interest amount increased\. The targets set out under the covenants were therefore increased tremendously and therefore it became next to impossible for KWSB to meet this covenants\. In order to analyze the position in its true perspective, it is necessary to determine as to, on what basis the consultants firmed up the original estimates which were approved by ECNEC and then what were the reasons for the consultants to enhance and revise the estimates by 75% when the project was almost in the middle of -47-  completion\. This analysis will help in determining if the expenditure incurred on this project was within reasonable limits or it has surpassed the limit of reasonability\. It will also help in determining as to on which component the expenditure was higher and whether the ratio of expenditure on different components was compatible and reasonable\. After analyzing the above issue it will then be easy to determine as to why KWSB could not meet its financial covenants\. 6\.0 SUSTAINABILITY 6\.1 Rationale for Sustainability Rating: The minor works on the housing & boundary wall at Dhabeji and NEK is not directly affecting the operational works\. The suspension of the CDC loan in September 1998 has largely affected the project in the sense that the international contractor M/s\. PWT Projects Limited have delayed the trial of individual pumpsets, satisfactory testing of the pipe works and the performance of the plant & equipment before commissioning of the system\. A significant vibration in the pipework of Dhabeji pump station was observed in August 1998 & the same could not be rectified till date due to suspension of CDC loan in September 1998 and IDA did not bother\. KWSB suggested to IDA not to fmalise ICR & come forward to resolve this matter so as to make the project sustainable which can be achieved through IDA support only by all co-financer involvement with GOP because in the present circumstances of Hub crisis any breakdown at Dhabeji will deprive of 100 mgd which now cannot be avoided for single day and may create havoc\. IDA requested to stop ICR activity where sufficient work has already been done, instead they should come forward to resolve this issue on priority\. 6\.2 Transaction Arrangements to Regular Operations: Agreed, no comments\. Refer in the last paras of section 6\.2 for steps on the path to follow the experience & lessons learned I & 2 are agreeable, lesson 3 must be deleted, because poverty alleviation or NGO's involvements was not included anywhere in the project objectives & guidelines\. International successes in effective civil society collaboration with local government is misconceived in Pakistan\. Low income group related with Orangi settlement, local research & training institute has been pictured to IDA without making them understand the 15 years sewerage problem being tackled by this institute\. -48-  It has not constructed any flush latrins or secondary sewers rather misconceived the sewerage engineering as excreta is sitting on the streets\. Excreta when open or even if covered without flow, allows disease to spread\. Epidemic: hazards may occur as "Shelley once wrote that hell is city much like London"\. Sewers, the conduits beneath the street carry away the unmounted excreta to a point of treatment & disposal, un-doubtly have done more to improve the quality of life in a community than any other social or technological advance, with the possible exception of water supply\. They have improved the communities quality of life more than art or architecture, literacy or drama\. Such facilities given in Orangi on self help basis no doubt has given a facility on one hand moving excreta from on house to another house by misuse of storm water drainage system but on the other hand the disease of un-authorize occupation of land is wide spread and the encroacher now spreading over hilltops and in river beds\. There is no appropriate technology application i\.e\. what they can afford and no concept of pour-flush latrin, aqua privies, septic tank community latrines is known to the society\. Previous World Bank reports in this connection may be referred and avoid such NGO's partnership which may bring health hazard not known to poor people\. This last paragraph may please be deleted\. 7\.0 BANK & BORROWER PERFORMANCE 7\.1 Lending: This section shall be considered 'MODEST' because poverty issue & regulatory framework are not mentioned in SAR or during supervision mission reports anywhere and are not included in the objective of the project\. Recommended for reconsideration and declaring 'MODEST'\. 7\.2 Supervision: This shall be declared 'Modest' instead of unsatisfactory because supervision was in accordance with the bank guidelines and fulfilling all criteria, terms and condition of the IDA's Credit Agreement and the Project Agreement\. The bank has tried to accomplish the original objective which could not be achieved due to financial limitations as such could not implement the concept of institutional reforms & the regulatory reforms\. 7\.3 Overall Bank Performance: It should be noted that the bank has strongly pursued the privatization of KWSB and have provided techniical as well as the financial assistance in the preparation of the strategy/feasibility reports and the selection of the options in respect of the privatization of water & sewerage sector of Karachi\. Moreover, the PSP in KWSB was ultimately the key factor in the abandonment of the implementation of this water loss Reduction & System Strengthening Project named as the "fourth project"\. Implementation of this fourth project would have been greatly enhanced the operation of the distribution system and helped towards to equitable distribution of water simultaneously with the 100 mgd KII water supply scheme\. We suggest that still if this project is implemented in future, would bring fruitful results\. The following four indicators have been selected to declare satisfactory or un-satisfactory, the overall bank performa,nce in respect of the bank funded schemes\. 1\. Karachi Water Supply Credit 1374\. 2\. Karachi Special Development Program\. Credit 1652\. 3\. Second Karachi Water Supply Scheme\. Credit 1987-1 Pak\. 4\. Water Loss Reduction & system Strengthening Project\. IDA pre-appraised\. Three have been achieved, the fourth one not achieved but partially achieved with a sense that the concept was clearly understood by KWSB although it was not the major objective of the project\. The achievement is -49-  therefore more than 25% in this sector\. The concept of previous IDA credits as mentioned could not bring any fnancial viability in KWSB but identified clearly future requirements where a future strategy can be established easily\. IDA Credit 1374 & 1652 actually identified mainly dealing with improvement and rehabilitation works where policy reform was not the major objective except identifying improvement of income of KWSB and water & sanitation requirements upto 2025\. IDA Credit 1987 included several studies which also included identification of the fourth project i\.e water loss reduction & system strengthening project which was pre-appraised by IDA and then IDA failed to take up this matter due to harsh financial covenants which were achievable only with a clear concept by GOP/GOS\. This section therefore falls in a 'MODEST' category with a clear version in the writeup given\. 7\.4 Borrower Preparation: Satisfactory\. 7\.5 Government Implementation Performance: This shall be declared 'MODEST instead of unsatisfactory because this is first time that although delayed, counterpart funds were arranged by GOS & thus the final accounts were settled within the closing dates of IDA Credit 1987 i\.e\. June 30, 1999\. 7\.6 Implementation Agencies: This shall be declared 'MODEST' instead of unsatisfactory because lot of project commitments were fulfilled also except the tariff increase which was not possible due to Hub drawn down situation\. The reasons are also explained in paras 4\.2B & C, 4\.5, 5\.3, 6\.1\. 7\.7 Overall Borrower Performance: This shall be declared 'MODEST in the light of the explanations provided in the above paras 7\.5 and 7\.6\. 8\.0 LESSONS LEARNED No Comments\. -50-  '' brD' _Arxo\.wlsr:r\. bria' \.,g PAKISTAN20' IBRD 20572R HUB CONEV!AKITA -PEPA(RS(I WAE ADPRJC °' t N KK h '\' ;' @ ' 0' ' P/ / SECOND KARACHI W ATERrSPLY N SANITATIONPRJC N5U' F1u3Yt\t O\. 2NC, g 1u _ >-> a PROPOSED WATER SUPPLY IMPROVEMENTS TO BE FINANCED BY IDA AND THE OVERSEAS DEVELOPMENT ADMINISTRATION OF THE UNITED KINGDOM PREYIOASLY FINANCED PROPOSED PROJETc BY IDA PER\.EXISTN- 2SSEM C El, ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~C\.nol \.d C-nduity PAno"ing Mo' PH-noy DistribAti-t \ , a a a ^ ,, ,~~~~~~~~~~~~~~~ , ,, , 'j u sr 2 Pumping Stot=ns~~~~~~~~~~~~~~~~Pu\.i\. 5\.1 0 Li 0 ~~~~~~T-f-innt W-nks )%<2dA A iS F' ;- b A Syphons Moti-nld eyibo (( A i /i-t \. / , f d-=lnps\.leo 4 : - rM | ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~h,dwi1 C\.i\.i1 A \<__ 2S C, t Irthrnatl=nd S=und=ries ~~~~~~~~~~~~~~~~~24 50 >,,,P,~~ ~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ t\. -Eyn ,nABn R\.At2 Sd\.Rn n; 5 < i-- SO \.s\.A Asss~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~R\.R\.~~o\.t \. B - - ,~ ~ ~ ~ ~~~6o Tm, 1 -' F , - - 9>|,1\.* T hKMNI-STAN wU_g) , ( REGIONAL WATER SLIPPLY SYSTEM a A \ a G ] [2 SC/ > * _ 5 9 /tf v 1 AIG- r^SIt ,=-t2 , \. \. \. A> ro\. L ~, i \.n u Sea B */ f dLs INDI ___ _ W t~~~~VvL i>Js t zs1kle 24*452 ^ = i 24-4G_ 1P SlArCb= SL9 ; W!- obTA t : NLm ;d

REVIEW

P084219

 ICRR 13377 Report Number : ICRR13377 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 05/24/2010 PROJ ID : P084219 Appraisal Actual Project Name : Second Financial US$M ): Project Costs (US$M): 75\.5 57\.91 Sector Restructuring Project Country : Nepal Loan/ US$M): Loan /Credit (US$M): 75\.5 57\.91 Sector Board : FPD Cofinancing (US$M): US$M ): Sector (s): Banking (100%) Theme (s): State enterprise/bank restructuring and privatization (67% - P) Standards and financial reporting (33% - S) L/C Number : C3864; CH074 Board Approval Date : 02/24/2004 Partners involved : Closing Date : 09/30/2009 09/30/2009 Evaluator : Panel Reviewer : Group Manager : Group : Valeriano F\. Garcia Jorge Garcia-Garcia Ismail Arslan IEGCR 2\. Project Objectives and Components: a\. Objectives: The overarching objectives of the operation were to support the on-going efforts to improve the financial sector in Nepal which intermediates funds more efficiently and effectively to the benefit of all segments of society in a manner which supports private sector development, increased investment, and faster growth\. The specific objectives were to: Improve corporate governance through provision of management support to the two large commercial banks\. Improve market structure by reducing the state-owned segment of the banking system\. Sustain and deepen the banking reforms\. b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components (or Key Conditions in the case of DPLs, as appropriate): The project had four major components: 1\. Voluntary Retirement Scheme (VRS)  Regarding the two State Owned Banks that were to be readied for privatization the component envisaged a significant reduction in their personnel \. The target was reducing staff by more than 40 percent, focusing first on those who have had more than 20 years of service followed by those in the 15-19 years bracket to achieve the target of retiring roughly 4,700 staff (appraisal $56\.5 million; actual $53\.63 million) 2\. Hiring of Sales Advisors (funded from IDA grant)\. It sought to assist in the ultimate sale of the two State Owned banks ensuring that, at the end of the readiness process, they are sold to "fit and proper" investors\. The advisors would undertake due diligence, prepare prospectus and lead a road show to bring the targeted banks to their point of sale to fit and proper private sector investors; (appraisal $3\.00 million; actual $ 0\.00 million\.) 3\. Second Phase of Nepal Rastra Bank (NRB, Central Bank) Re-engineering It supported strengthening the Central Bank through the following sub-components: (a) Human Resource Re -engineering \. It supported restructuring the Human Resource Department (HRD) and policies resulting in the implementation of merit -based advancement; a time-in-grade criteria and developing a structured training plan; (b) Accounting Support \. It supported modernizing the Accounting Department to assist the Central Bank in meeting the IMF’s Safeguard Assessment milestones; also to help the Bank in producing an international audit of the bank’s accounts to international accounting standards (IAS)\. (c) Bank supervision and regulation \. It supported the work of the bank supervision department in the form of additional desk top computers, lap top computers for on-site examiners, international experts to assist with on-the-job training (for the complete two year examination cycles of all the commercial banks), and classroom training in areas related to bank supervision, computing, and English (report writing)\. (d) Upgrading the Bank ’s Information Technology (IT) IT)\. It supported doing so through the following sub-components: (i) developing a Management Information System (MIS); (ii) developing a computerized General Ledger system (GL) system; (iii) provisioning additional computers and software for on-site examiners and international experts to assist with on -the-job training in areas related to bank supervision and regulation (total for component at appraisal $8\.00 million; actual $0\.28 million)\. 4\. On-Going Management Support Team It supported the continuation of the management team in charge of bringing the banks to point of privatization\. A significant expected outcome was the reduction in the non-performing loans ratio by 50 percent\.(appraisal $6\.00 million; actual $3\.85 million) d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: IDA agreed (on June 4, 2004) to make available to the borrower SDR 47,600,000 (Credit) and SDR 4,900,000 (Grant)\. The loan became effective on July 25, 2004\. On June 5, 2008 the government requested closure of the FSRP and restructuring of the FSTA project to include some of the key activities envisaged in the former loan \. To this end undisbursed funds totaling SDR 8,566,000 of IDA credit and SDR 4,531,000 of IDA grant were cancelled\. 3\. Relevance of Objectives & Design: The objectives of the loan were very relevant to the development of a healthy and growth enhancing financial sector\. They addressed the major fault lines of the system namely the Central Bank and the  two major State Owned banks\. The Central Bank depended on the ministry of finance and had limited autonomy\. It was institutionally weak and lacked the capacity to adequately regulate and oversee the banking system\. The financial system was shallow and dominated by two public banks (NBL and RBB) which comprised a large share of total banking assets (more than 50 percent\.) The Bank strategy fitted in the country context and its culture of slow changes and improvement made one-step-at-a time only\. However, the country context also included high instability which meant that government commitments could easily change\. The project design was relevant and embedded in the country’s slow-change cultural context and consisted in a two prong strategy: the first was the institutional strengthening of the Central Bank and the second was the downsizing and privatization of the two largest commercial banks \. By all accounts those banks were not only bankrupt but also involved in questionable lending practices (bordering with outright corruption\.) One of those banks (RBB) had about 71 percent of its loans in non-performing status while the other bank (NBL) had non-performing loans close to 60 percent of its total loans\. While best international practices unequivocally indicate that under these circumstances banks should be: (a) swiftly liquidated and whatever assets are left should be used to pay severance and depositors, or (b) broken into a "bad" bank and a "good" bank, privatizing the former and liquidating the later, the project was designed under a different paradigm \. Such design took into account the relevance of one of the country’s most significant characteristics : changes are made, but very slow\. However, by taking this time-intense approach in its design the project disregarded the other significant characteristic : changing commitments and great political instability \. Thus in an effort to customize the project design to the cultural demands of the country, the privatization strategy for the public banks did not follow best international practices for bankrupt (and corrupt prone) banks\. The alternative path was rejected under the presumption that outright liquidation would have been politically challenging \. Political instability, however, ended -up being the Achilles' heel of the loan design: according to the ICR "at the time of project inception, the key policy makers in the GON had full commitment to reduce the government ownership and control from the two banks\." With the benefit of hindsight this means that a golden opportunity may have been missed to address the issue of the two large insolvent banks in the way indicated by best international practices \. Summing up, this review finds that the relevance of objectives was very high but the relevance of design was modest\. 4\. Achievement of Objectives (Efficacy): 1\. To improve corporate governance in the banking sector The PAD defined three outcomes indicators for this objective \. For the first one it was established that high profile non-repayment cases, in which corruption is suspected, would be referred to the Commission for the Investigation of the Abuse of Authority (CIAA)\. Of the at least five high profile default cases in which against them was taken and resolved by CIAA, only one was forwarded to CIAA, but no legal action was taken and the case was finally dropped \. The second indicator was to establish a debt recovery tribunal (DRT) that would enforce decisions according to set guidelines : 150 days for turnaround and 90 days to resolve appeals\. The DRT enforced decisions slowly and in an unsatisfactory manner, and failed to meet the turnaround and appeal timelines \. The third indicator was to enforce the "Blacklisting Directive " but its enforcement was not satisfactory\. Efficacy in achieving this objective was negligible \. 2\. To improve the structure of the financial markets The PAD defined three outcome indicators for this objective \. In the first one it was expected a retrenching of staff of both NBL and RBB by 40 percent and rationalization of branch network to  reduce cost structure\. While the staff in the NBL was reduced by 45 percent (from 5,270 to 2,900) and in RBB by 48 percent (from 5,222 to 2,862), NBL increased by 138 its branch network and RBB reduced it by 123\. The ICR notes that despite the reduction in staff, staff costs in both banks almost doubled as a result of the rise in civil service pay made in 2009\. The second outcome indicator, outsourcing of non-core activities, was not achieved\. The third outcome indicator, privatize NBL and RBB, was not achieved as the government failed to decide what to do with the two banks\. Efficacy in achieving this objective was modest \. 3\. To strengthen the oversight capacity of the Central Bank Regarding bank supervision, NRB on-site and off-site supervision capabilities improved during the project but the bank supervision sub-component remained stalled\. After a CIAA charge against the Governor the Central Bank staff became demoralized and did not proceed with any further procurement\. The hiring of a new HR advisor to assist in the streamlining of recruitment, training, transfers and promotion did not take place\. The IT component did not make any progress through the project\. This activity was transferred to the FSTA\. Efficacy in achieving this objective was negligible \. 5\. Efficiency (not applicable to DPLs): This type of project is not apt for calculating specific numbers in relation to ERRs or FRR \. However on a qualitative basis the project was moderately efficient because its main objectives were only partially achieved\. ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re- re -estimated value at evaluation : Rate Available? Point Value Coverage/Scope* Appraisal % % ICR estimate % % * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: The FSRP sought very relevant objectives but its efficacy was limited \. a\. Outcome Rating : Unsatisfactory 7\. Rationale for Risk to Development Outcome Rating: While the PDO were not entirely achieved there was progress in downsizing both, the NBL and RBB while their NPL was substantially reduced \. a\. Risk to Development Outcome Rating : Significant 8\. Assessment of Bank Performance: The initial design of the loan was not appropriate to fully achieve the PDO \. Such design was time-intense and necessarily bound to take a long time to implement \. In the context of fluid political conditions, typical of Nepal, the winds changed and new political realities changed previous commitments not favoring the achievement of the PDO\. Once the project became effective the Bank pursued closely its progress and carried out due dialogue with all stakeholders \. The ISR reports show that the Bank was keenly aware of the extremely difficult problems facing the progress of the loan (for example ISR 11/26/2006\.) However, only the final ISR rated the PDO as Unsatisfactory\. at -Entry :Unsatisfactory a\. Ensuring Quality -at- b\. Quality of Supervision :Moderately Satisfactory c\. Overall Bank Performance :Moderately Satisfactory 9\. Assessment of Borrower Performance: The Government worked with the Bank in the design of the loan and agreed to its targets, intermediate steps, and time-line\. Evidently the government, along with the Bank, miscalculated the reform effort in the context of a fluid political environment \. The government did not honor its commitments as signed in the Letter of Financial Development dated December 9, 2003 regarding the ultimate resolution of NBL and RBB, putting into risk the gains achieved in the restructuring of both banks\. In general the government did not do enough to assure that the implementing agency, which was under its aegis, complied with the loan ’s road map\. a\. Government Performance :Moderately Unsatisfactory b\. Implementing Agency Performance :Moderately Unsatisfactory c\. Overall Borrower Performance :Moderately Unsatisfactory 10\. M&E Design, Implementation, & Utilization: Bank M&E: The Bank design of its M&E was appropriate and in line with standard Bank procedures for these operations and included a mid-term review by mid 2007\. The implementation was achieved by timely bi-annual ISR; The utilization of these reports was dependent on the problem flagged\. However, during 2004-2007 the ISR rated the PDO “Sâ€? and most of the IP as “S or MS"\. Only by end 2007 both indicators were rated “Moderately Unsatisfactoryâ€?\. It was surely earlier in the process that IP had been lagging and signals of failing DO were not timely and properly evaluated and urgently flagged\. This may have prevented the senior management from utilizing the ISR early enough in the process to look for changes or put more pressure on implementation \. Government M&E In its design M&E was not followed at the project level\. This flaw prevented close follow-up, implementation and utilization\. Also, there were frequent changes in project coordinators and other staff and consequently institutional memory, drive and skills were lost at the Coordination Support Team (CST) level\. In summary while the Bank's monitoring was appropriate, its evaluation was faulty and prevented its timely use by senior management\. The borrower's M&E design was flawed, and had little room to use it for proper implementation or utilization \. a\. M&E Quality Rating : Modest 11\. Other Issues (Safeguards, Fiduciary, Unintended Positive and Negative Impacts): 12\. Ratings : 12\. ICR IEG Review Reason for  Disagreement /Comments Outcome : Unsatisfactory Unsatisfactory Risk to Development Significant Significant Outcome : Bank Performance : Moderately Moderately Satisfactory Satisfactory Borrower Performance : Moderately Moderately Unsatisfactory Unsatisfactory Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate \. 13\. Lessons: In politically volatile countries, when there is a window of opportunity to implement substantial policy changes, the time-line of the whole operation should not involve several years \. As the political tide changes, a long to implement operation poses the risks of commitment reversal \. 14\. Assessment Recommended? Yes No 15\. Comments on Quality of ICR: The ICR presents a very good description of the project design, implementation and lack of achievement\. However it does not emphasizes the "quality at entry" issue -which was the Achilles heel of this loan\. Also it does not emphasizes the until very late ISR reports rated PDO as satisfactory when at the end none of the main objectives were achieved\. a\.Quality of ICR Rating : Satisfactory

REVIEW

P079156

 ICRR 13747 Report Number : ICRR13747 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 08/03/2012 Country : Indonesia Project ID : P079156 Appraisal Actual Project Name : Third Kecamatan US$M ): Project Costs (US$M): 630\.3 747\.7 Development Project L/C Number : C3806; L4710; L7750 Loan/ US$M ): Loan /Credit (US$M): 384\.2 378\.9 Sector Board : Social Development US$M): Cofinancing (US$M ): Cofinanciers : Board Approval Date : 06/26/2003 Closing Date : 12/31/2008 12/31/2009 Sector (s): Sub-national government administration (25%); Irrigation and drainage (20%); Water supply (20%); Roads and highways (20%); Primary education (15%) Theme (s): Decentralization (23% - P); Rural policies and institutions (22% - P); Participation and civic engagement (22% - P); Social safety nets (22% - P); Rural services and infrastructure (11% - S) Prepared by : Reviewed by : ICR Review Group : Coordinator : Robert Mark Lacey Ridley Nelson Soniya Carvalho IEGPS1 2\. Project Objectives and Components: a\. Objectives: The project’s development objectives (PDO) as stated on page 2 of the Project Appraisal Document (PAD) were as follows: “KDP-3 [the third Kecamatan* Development Project] has overall development objectives of reducing poverty and improving local-level governance in rural Indonesia \. It is part of a long-term village governance program that began with the first Kecamatan project in 1998\. Specific development objectives for KDP -3 include: (i) institutionalizing participatory processes in local government; (ii) the cost effective provision of basic social and economic infrastructure; (iii) strengthening the capacity of the micro -finance institutions developed under KDP -1 and KDP-2 to manage and monitor funds sustainably \.â€? The PDO as stated in the original IBRD Loan Agreement and IDA Development Credit Agreement, and unaltered in all subsequent additions to, and amendments of, these documents (see Section 2d below), were to: “assist the Borrower in reducing poverty and improving local level governance in rural villages, including (i) institutionalization of participatory processes in local government; (ii) cost-effective provision of basic social and economic infrastructure; and (iii) strengthening of the capacity of micro -finance institutions to manage and monitor funds in a sustainable manner\.â€? In December 2005, a further objective was added : “reconstruction of communities in areas affected by natural disasters\.â€? This was in response to the need for reconstruction in Aceh and North Sumatra following the earthquake and tsunami of January, 2004, and was financed by reallocation of funds within Component 1 (Block Grants to Kecamatan -- see Section 2c below)\. The ICR states that the reconstruction sub -objective was to be achieved in a manner compatible with the project’s CDD principles, design, and implementation arrangements \. The legal agreements were subsequently amended to include the reconstruction sub -objective\. Additional financing, in the form of an IDA credit of US$ 127\.9 million (KDP-3B-AF), was approved in May 2007 and became effective in August, 2007\. It was to assist in the launching of a national KDP program, which the Government had announced in 2006\. Project objectives were not changed \. This Review is based on the PDO statement in the PAD (plus the reconstruction sub -objective) as it is more monitorable\. *A Kecamatan is a sub-district containing, on average, 20 to 25 villages\. b\.Were the project objectives/key associated outcome targets revised during implementation? Yes If yes, did the Board approve the revised objectives /key associated outcome targets? Yes Date of Board Approval: 05/15/2007 c\. Components: There were six components: 1\. Block grants to Kecamatan (US$473\.5 million at appraisal, US$582\.3 million at closure)\. The block grants were transferred directly from the Special Account to the sub -districts participating in the program \. They financed infrastructure and planning\. A third sub-component, for reconstruction grants for communities devastated by natural disasters was added subsequently \. 2\. Community Development (US$68\.6 at appraisal, US$70\.0 at closure) to support activities to strengthen local government councils formed under the decentralization laws \. Most resources allocated under this component financed the operations of community and technical facilitators and their training \. 3\. Support to Village Microfinance Institutions (US14\.2 million at appraisal, US$15\.0 million at closure), providing support for the organizational and financial development of local financial institutions that manage the revolving funds accumulated through participation in KDP projects \. 4\. Implementation Support (US$64\.5 million at appraisal, US$66\.0 million at closure) to finance the provision of technical assistance for project administration at the national, provincial and district levels \. 5\. M&E and Studies (US$5\.1 million at appraisal, US$8\.0 million at closure) to fund the Management Information System; a program of poverty impact assessments using both quantitative and qualitative methods; continuation of the Justice for the Poor program initiated under KDP -2; pilot programs for community based monitoring; and a long term maintenance study to determine village capabilities \. 6\. Incremental Operating Costs (US$3\.9 million at appraisal, US$6\.4 million at closure) to finance KDP field visits and consumables by Ministry of Home Affairs and KDP National Secretariat officials, as well as the cost of workshops and study tours\. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: Financing and Cost\. Cost Proposed World Bank financing for the originally appraised project was US$ 249\.8 million, consisting of an IBRD loan of US$204\.3 million, and an IDA credit of US$45\.5 million\. About one year after Board approval, but before effectiveness, the loan and credit amounts were significantly scaled back to US$ 95\.7 million (US$45\.5 million IBRD and US$50\.2 million IDA)\. This became effective on January 20, 2005, and is designated KDP-3A in the ICR\. The scaling back was due to the political and legal uncertainties created by proposed parliamentary revisions to Indonesia ’s decentralization law\. Had the tabled revisions come into effect, sub -national projects, such as KDP-3, could not have been implemented by government agencies (ICR, page 1)\. By the end of 2005, the uncertainties had receded \. Funding was, therefore, increased again by US$ 160\.6 million (US$80\.0 million IBRD and US$ 80\.6 million IDA)\. The ICR calls this KDP-3B\. It became effective in December, 2005\. The total project amount, at US$256\.3 million, was hence restored to slightly more than the originally approved loan and credit \. In 2006, the Government announced its intention to launch a national KDP program (known as PNPM-Mandiri)\. To facilitate the transition to this program, Additional Financing, in the form of an IDA credit of US$ 127\.9 million (KDP-3B-AF), was approved and became effective in August, 2007\. The approved loan and credit amounts, the effectiveness dates and disbursements corresponding to each designation are summarized in the following table (taken from page 2 of the ICR)\. Designation Approved amount Effectiveness date Disbursed Closing date KDP-3A US$95\.7 million 01/20/2005 US$90\.9 million 12/31/2009 KDP-3B US$160\.6 million 12/13/2005 US$156\.5 million 12/31/2009 KDP-3B-AF US$127\.9 million 08/21/2007 US$131\.5 million 12/31/2009 TOTAL US$384\.2 million US$378\.9 million This Review covers the whole project as described by the three designations in the table \. Cofinancing \. There was no cofinancing, though important bilateral parallel grant financing was provided, notably by Australia, Canada, Japan and the United Kingdom, with eleven separate trust funds totaling US$ 24\.5 million\. There were multi-donor contributions to the PNPM program \. Borrower contribution \. According to Annex 1 of the ICR, the total Borrower contribution was US$ 368\.9 million, compared to an appraisal estimate of US$ 256\.3 million\. This included a local government budget contribution of US$65 million (ICR, page 28)\. 3\. Relevance of Objectives & Design: a\. Relevance of Objectives: High High\. The 2009-2012 Country Partnership Strategy (CPS), current at project closure, states on page 26 that Community Development and Social Protection is the third of five core areas of engagement for the World Bank Group in Indonesia\. Specific reference is made to Bank collaboration in the national PNPM, “which is based on the well-performing Kecamatan Development Project (KDP) and the Urban Poverty Project (UPP) modelsâ€? (CPS, page 27)\. The KDP program is also a key component of Bank support for poverty reduction and decentralization in Indonesia\. The project’s objectives were consistent with what the ICR describes as “the Government’s massive decentralization program\.â€? Their relevance to national policy was underlined by the Government ’s adoption of KDP as the basis for its country -wide community empowerment program (PNPM)\. The statement of project objectives was clear \. b\. Relevance of Design: Substantial \. The causal chain between the project components and the intended outcomes was generally clear, though the sub-objective of institutionalization of participatory processes in local government is not fully supported by the planned activities\. While training and enhanced management skills are important, and were provided for, there is also a significant policy dialogue dimension to achieving more effective local autonomy \. Design built on the lessons learned in KDP -1 and KDP-2, including the need for more technical training and oversight (including enhanced external monitoring ), reduced technical complexity, improved monitoring and evaluation (M&E), increased sustainability of micro -finance institutions, and more effective incentives, sanctions and support for formal procedures to strengthen governance \. Exogenous factors that could affect project outcome were mostly well -considered\. However, the large scaling up of KDP-3, in the context of adoption of the national community development program, was not fully anticipated in design, and was the cause of implementation delays \. 4\. Achievement of Objectives (Efficacy): The project was more successful in reducing poverty than in improving local level governance, although the latter sub-objective was, according to the PAD, meant to be the main focus of the operation \. KDP-1 and KDP-2 had addressed sectoral issues with respect to community development, technical capacity and fiduciary concerns \. KDP-3 was intended to focus on "giving village empowerment a more solid legal and administrative foundation, and providing a rationalized management framework for community microfinance â€? (PAD, page 8)\. A\. Reducing Poverty in Rural Indonesia \. Substantial \. The ICR reports (page 15) that “a quantitative impact evaluation study conducted between August /October 2007 (baseline) and February/March 2010 (end line) showed real consumption gains in households in KDP /PNPM areas to be five to ten percent higher than in non -KDP/PNPM areas\.â€? The ICR argues that, since KDP-3 and the PNPM program were being implemented in parallel for a period of time, and were overlapping, it is not possible to separate the outcomes\. Nonetheless, the results of the study are “considered to fairly reflect outcomes from KDP-3â€? (ICR, page 15)\. The ICR further notes that “households [benefiting from the project] that were poor in 2007 had about a 2\.5 percent higher likelihood of graduating from poverty than households [in the control group]\.â€? B\. Improving Local Level Governance in Rural Indonesia \. Modest \. This was to have been achieved through the three specific development objectives : (i) Institutionalizing participatory processes in local government \. Modest \. The ICR states that KDP made “majorâ€? contributions to institutional strengthening, though these “are difficult to quantify\.â€? Before the start of the KDP programs, Indonesia had “little experience of, or interest in, community developmentâ€? (ICR, page 17)\. Now, however, “community development [has] become an organizing principle for the Government’s overall medium term expenditure plan as well as its national strategy for poverty reduction \.â€? The ICR acknowledges that KDP is not the only factor behind this change in outlook, but was nonetheless an important one\. However, participatory and transparent processes which “are used to good purposeâ€? in the context of project activities, “do not usually spill over to other areas of village development and governance â€? (ICR, page 18)\. Thus, the quality of participation of women and the poor is limited, and much decision making remains within the villages’ elite power structures\. The ICR attributes this to the failure of facilitators to focus on the empowerment of non-elite groups\. Progress in institutionalizing participatory processes has also been limited because the adoption of local regulations and by-laws to (a) strengthen non-elected village councils, and (b) underpin the local development process, especially for community -driven development (CDD)-type projects, did not take place as anticipated \. “Although part of the original outcome indicators, monitoring of these actions has been abandoned â€? (ICR, page  18)\. The ICR does not elaborate on the reasons for this failure \. (ii) The cost effective provision of basic social and economic infrastructure \. Substantial \. According to the ICR, more than 18,000 villages implemented some 28,000 sub-projects, and there were more than 18 million beneficiaries\. The ICR reports that the “physical targetsâ€? of providing “cost effective infrastructureâ€? were “exceeded,â€? although this is not backed by evidence since no such targets are specified in either the PAD or the ICR\. 2\.4 million people were employed and 16\.2 million work days were generated\. The sector breakdown of the sub -projects implemented is shown in the following table (taken from page 27 of the ICR)\. Type of KDP-3 other than Post disaster Total (number of infrastructure post disaster reconstruction sub-projects) reconstruction (number of (number of sub-projects) sub-projects) Road projects 5,583 497 6,080 Bridges 1,429 175 1,604 Clean water supply 2,469 133 2,632 systems Public washing 1,078 82 1,160 facilities Irrigation systems 2,589 244 2,833 New markets 215 6 221 Market 42 35 77 rehabilitation Village 273 1 274 electrification Other 5,685 957 6,642 infrastructure New and 1,643 156 1,799 rehabilitated village health clinics New and 3,462 463 3,925 rehabilitated schools In addition, there were over a thousand health sector activities not involving construction, while in the education sector, nearly 25,000 students received scholarships \. The ICR states that the sub-projects were implemented in a transparent and participatory manner, and that this contributed to improved local governance \. Little evidence is provided to support this, other than a citation from the Stakeholders’ Workshop Report to the effect that “KDP-3 was lauded for high transparency that helped to minimize corruption (misuse of funds) and the strong focus on poverty alleviation â€? (ICR, page 37)\. Sub-projects were handed over to the villages immediately upon completion \. An operations and maintenance (O&M) committee was formed, often comprising the same members as the committee which had implemented the sub-project\. Training was provided to the committee members \. “Despite these efforts to establish adequate O&M capacities, especially for roads (the most popular infrastructure investment and also the most difficult and costly to maintain with community resources alone ), no formal institutional arrangements were made, nor were there any budget provisions for ongoing maintenance and repairs â€? (ICR, page 13)\. A 2009 review indicated that water systems were an exception to this rule, finding that sub -project maintenance was good \. However, the review also identified issues related to poor design and construction of water facilities \. Regarding cost effectiveness, the ICR does present some evidence of lower unit costs resulting from community rather than contractor implementation, but there is no evidence of comparability of construction quality (see Section 5 below)\. (iii) Strengthening the capacity of the micro -finance institutions developed under KDP -1 and KDP-2 to manage and monitor funds sustainably \. Modest \. Microfinance activities were mainly focused on womens ’ savings and loan groups\. Funds were channeled through some 25,400 groups and reached over 634,600 beneficiaries\. According to the ICR, the groups consistently achieved a repayment rate of about 94%\. However, it appears to have been difficult to target the poor with small loans (ICR, page 16)\. Despite high repayment rates, the ICR notes (page 14) that strengthening the capabilities of the savings and loan groups was “less successful\.â€? No further details are provided, except that a risk analysis of microfinance institutions performed at the end of 2006 showed that 24% of all active institutions were not sustainable based on evaluations of their financial reserves, repayment rates, income potential and general management (ICR, page 28)\. C\. Reconstruction of Communities in Areas Affected by Natural Disasters \. Substantial \. As the table above shows, more than 2,500 project-financed activities took place in the disaster -affected areas\. The ICR reports that only a small proportion of the funds reallocated were actually used as the Government preferred to use grant funds for reconstruction, such as those made available by the Multilateral Donor Fund for Aceh and Nias\. However, the readiness of external donors to provide grant financing was enhanced by the Bank-support adoption of KDP principles and methods in the affected areas \. 5\. Efficiency: No cost benefit analysis was carried out at appraisal, since the demand -driven nature of the project made it impossible to know in advance what types of investments would be financed \. Instead, a SWOT framework (Strength, Weakness, Opportunity, Threats ) was used (PAD, Annex 4, pages 56-58)\. Ex ante, it was found that the strengths would outweigh the weaknesses \. The opportunities for improving village development programs were weighed against the threats posed by elite capture, capture by district governments, and opposition by private contractors, though no firm conclusion was drawn \. Economic rates of return averaging 68% were cited for sub-projects financed under KDP-1\. The ICR attempts no ex post economic analysis of a sample of sub -projects\. Instead, it quotes a 2005 study, conducted for KDP-2, which “showed that typical KDP-type infrastructure achieved EIRRs well in excess of 30% with an average of 53%\. The lack of an analysis for KPD -3 is because “Nothing significant has changed since 2005 in the way projects have been selected, prioritized, planned, and implemented \. Therefore, the results of the 2005 economic evaluation are likely to remain valid â€? (ICR, page 15)\. In addition, the ICR reports that KDP investments are cost-effective – significant savings were realized through the use of village labor and construction management, rather than relying on contractors \. It is estimated that, on average, community -implemented KDP infrastructure sub-projects cost between 30% and 56% less than those executed by contractors \. However, evidence provided on construction quality is insufficient to confirm that the comparison is between works of the same standard \. It is also uncertain if budgetary provision for O&M would be sufficient to sustain the longer term beneficiary stream \. On balance, efficiency is rated substantial \. ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re -estimated value at evaluation : re- Rate Available? Point Value Coverage/Scope* Appraisal No ICR estimate No * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: While the evidence indicates that the project achieved the objective of reducing poverty in rural Indonesia, the goal of improving local level governance – described in the PAD (page 8) as the issue that the project was meant specifically to address – was attained only to a modest extent \. Efficiency is substantial, since – although the ICR did not carry out a cost-benefit analysis of a sample of KDP -3 sub-projects – it seems likely that the high returns recorded for KDP-2 would be repeated\. Evidence indicates, moreover, that KDP infrastructure investments are cost effective \. Relevance of objectives is high and that of design substantial \. Outcome is assessed as moderately satisfactory \. a\. Outcome Rating : Moderately Satisfactory 7\. Rationale for Risk to Development Outcome Rating: IEG concurs with the ICR’s rating of a moderate risk to development outcome : The KDP/PNPM program is now well established and its implementation is being continued \. Risk mitigating factors include the high economic impact of community sub -projects, vigorous community engagement in, and ownership of, project -funded activities, and strong government commitment to the program at both local and national levels \. However, a moderate risk is posed by the less -than-satisfactory technical quality of some infrastructure construction, the lack of formal arrangements and budget provision for O&M, the weaknesses of a significant proportion of microfinance institutions, and the failure, to date, to institutionalize fully participatory processes in local government\. a\. Risk to Development Outcome Rating : Moderate 8\. Assessment of Bank Performance: a\. Quality at entry: The Bank’s preparation team built successfully on the experience of the two previous KDP operations \. The intended intermediate and final outcomes – higher household expenditure rates and improved access to economic and social services, the economic rate of return as a measure of sub -project efficiency and cost effectiveness, beneficiary satisfaction levels with services, improved local governance indicators (percentage of poor and vulnerable persons and groups involved in the planning, implementation, operation and maintenance of sub-projects, use of new skills by local governments to fulfill their governance functions ), the adoption of local regulations and by -laws to facilitate the institutionalization of participatory processes in local government, and possession of the appropriate skills by sub -district micro-finance institutions to carry out their credit activities efficiently and sustainably – are all relevant, closely linked to the objectives, and appropriate measures of their attainment \. Technical, financial, and economic dimensions were appropriately addressed, as well as issues relating to fiduciary and safeguards compliance \. Fiduciary aspects, in particular, were tackled through enhanced financial management capacity and a comprehensive anti -corruption plan\. The poverty, gender and social dimensions of the KDP program were incorporated into the design of this operation\. The particular focus on enhanced local governance and institutional strengthening was appropriate in order to consolidate the success of the two previous projects in identifying and implementing sub -projects using a participatory, community-driven process\. Implementation arrangements were workable as they were an improved version of those put in place and tested during KDP-1 and KDP-2\. M&E design focused mainly on attempting to improve the system in place for the earlier projects \. The team did not appear to be aware of the risks posed by the proposed parliamentary amendments to Indonesia ’s decentralization laws and regulations which necessitated a scaling back of the project before Effectiveness \. at -Entry Rating : Quality -at- Satisfactory b\. Quality of supervision: Eight formal supervision missions took place during the six years between Board approval and closure \. Three of these were prior to Effectiveness in January, 2005\. However, the number of formal missions since Effectiveness (averaging about one per year ) understates the intensity of the supervision effort, since there was ongoing supervision by a dedicated KDP /PNPM office based in Indonesia\. The Bank responded swiftly and effectively to the period of legal and political uncertainty during the parliamentary passage of the decentralization law, and also subsequently, when the uncertainty had receded, and the project was substantially expanded (with additional financing)\. The team also responded well to the needs of disaster -hit areas; although only a small proportion of the reallocated funds were used, the Bank -supported application of KDP principles and methods attracted substantial bilateral and multilateral donor participation in the disaster -hit areas\. Arrangements for the roll out of the national PNPM program, which overlapped with KDP -3, were fully adequate and helped to ensure a smooth transition \. Appropriately in the light of experience during KDP -1 and KDP-2, considerable attention was paid during supervision to fiduciary aspects, in particular financial management, local procurement and anti -corruption safeguards and measures\. A complaints mechanism was put in place \. However, the mechanism did not work satisfactorily – there was reluctance to report problems, and nearly half the cases were still unresolved by project closure (see Section 11 below)\. The extent to which concerns raised earlier about due process where land acquisition is required for project purposes have been fully addressed remains unclear (see Section 11 below)\. There was an important effort to train communities in O&M and set up community organizations to handle it \. Nonetheless, these arrangements were not formalized and no budget provision for O&M was made \. The quality and candor of reporting were adequate, though there were only five Implementation Status Reports (ISR) since Effectiveness\. Documentation was also often late, thereby reducing its usefulness to management\. Despite the project’s strong focus on improving local level governance, a number of issues (including the necessary adoption of local government by -laws and regulations) remained unresolved\. The ICR (page 20) reports that follow-up on issues identified during supervision often took the form of "intense engagement with the executing agency almost to the point of micro -management rather than escalation to higher level Indonesian authorities for resolution \.â€? However, that approach is considered to have facilitated smooth processing of the additional financing in parallel with continued implementation \. The ICR notes that, although a large share of Bank lending in Indonesia over the project period was for CDD operations, projects were supervised individually rather than as a portfolio \. Consequently, communications  with Government were not always consistent and sometimes failed to take account of overall trends \. Quality of Supervision Rating : Moderately Satisfactory Overall Bank Performance Rating : Moderately Satisfactory 9\. Assessment of Borrower Performance: a\. Government Performance: The Government displayed high commitment to, and ownership of, the KDP and its objectives, as reflected in its adoption as Indonesia’s national community empowerment and poverty alleviation program \. Adequate counterpart funding was provided, fiduciary covenants were fully complied with and government audits, that also reviewed procurement, were carried out in an adequate and timely manner \. The relationship with, and coordination among, foreign donors were good, as evidenced by the existence of eleven linked trust funds totaling US$ 24\.5 million from four bilateral agencies\. The ICR reports, nonetheless, some weaknesses in government performance : Initially, there were delays with regard to the legal framework for decentralization, although since these originated with Parliament, it is unclear to what extent they were within the Administration ’s control\. The institutionalization of participatory processes at the local level did not progress as well as had been anticipated at appraisal\. There were delays in key staff appointments to the implementing agencies, as well as in release of budgeted funds for project activities\. According to the ICR, there was “over-reliance on Bank supervision, " though few details are provided (there may be a link here to the issue of “micro-managementâ€? mentioned above in connection with Bank supervision performance)\. Government Performance Rating Moderately Satisfactory b\. Implementing Agency Performance: The implementing agency was the Directorate General of Community Development (PMD) in the Ministry of Home Affairs\. The ICR reports that PMD and its regional offices were fully committed to the project ’s development objectives\. Positive aspects of PMD’s performance included (i) the high level of consultation with the beneficiary communities, thereby contributing to their high degree of participation in project -supported activities (ii) good coordination with the international donor agencies and both local and foreign NGOs involved in project-related or ancillary activities; and (iii) an important role in ensuring smooth transition from KPD -3 to the national PNPM\. On the negative side: (i) there were delays in resolving implementation issues, including those related to the M&E and Management Information System (MIS); (ii) poor budget planning led to a high level of budget revisions that adversely affected implementation and contributed to delays in budget releases from central and local authorities; (iii) despite the strengthened arrangements for impeding corruption and receiving complaints, acting on such complaints was, at times, slow; (iv) PMD’s management frequently showed reluctance to address poor staff performance issues; and (v) the agency did not participate fully in the preparation of project performance reviews for use in joint Bank -Government discussions; consequently, these discussions were at times not as conclusive as they might have been \. Implementing Agency Performance Rating : Moderately Satisfactory Overall Borrower Performance Rating : Moderately Satisfactory 10\. M&E Design, Implementation, & Utilization: a\. M&E Design: According to the PAD (page 30), KDP-3’s “robust program for monitoring and evaluation â€? has as its core the KDP program’s Management Information System (MIS) that was developed on the basis of lessons learned during KDP -1 and KDP-2\. “MIS information is aggregated and used in each of the regional management units, with a master system maintained by the national oversight team \. External monitoring is provided through contracts to independent provincial NGOs and a blind contract with the association of independent journalists \.â€? However, the PAD also notes the need to address weaknesses in the MIS to improve its application in KDP -3, including (i) delayed field entries meaning that available information is some 2-3 months out of date; (ii) slow and inappropriate national responses to field reports; and (iii) unwieldiness resulting from over-proliferation of documents\. To help deal with these weaknesses, the PAD proposes the inclusion in the project of “concentrated inputs of international technical assistance to enhance statistical data collection and analysis as well as reporting â€? The project would also commission a study to evaluate the impact of the local government reforms introduced through the program \. b\. M&E Implementation: The ICR reports that the MIS was established without anticipating the rapid scaling up of the program, presumably referring to the rolling out of the PNPM supported by the additional financing \. Even before the expansion, however, the MIS continued to suffer “from a number of systemic issues, including lack of clarity on key indicators to be monitored; staffing issues; issues with customization of software; and hardware problems \. Although detailed project data were readily available at the local level, the information did not flow up smoothly, and there was also a lack of level-by-level consolidation checks on data quality \.â€? A detailed examination of the MIS was made during the mid -term review (MTR) mission of September 2006, and a series of detailed recommendations made regarding strengthening of staff, improvement of hardware, and the integration of the information into a single data base \. These recommendations were intended to enable the system to cope with the scaling up of the operation, which took place in 2007\. There is no indication in the ICR as to whether these recommendations were acted upon \. M&E implementation also suffered from other weaknesses : two proposed studies on matching grants and options for sustainable financing were not carried out; (ii) there was no calculation of the ERR on any of the sub -projects financed by KDP-3, although this was cited as an indicator of cost effectiveness; (iii) no beneficiary survey for KDP -3 appears to have been carried out, since the ICR (page 35) cites results from “a 2005 survey and evaluation of KDP projects across Indonesia \.â€? c\. M&E Utilization: The ICR (page 28) states that the MIS data and the findings of those studies that were completed were “used to improve project design and implementation of new and ongoing KDP operations \.â€? M&E Quality Rating : Modest 11\. Other Issues a\. Safeguards: Environment \. The project was classified as Category “Bâ€? for purposes of OP 4\.01\. The ICR states (page 11) that, due to the “very small scale of the infrastructure sub -projects involvedâ€? (there were some 28,000 sub-projects; the final cost of the block grants for infrastructure was US$ 536 million, yielding an average cost per sub -project of US$19,143), no formal environmental impact analyses were required \. The ICR reports that environmental and social impacts of the sub-projects were, nonetheless, considered \. Checklists of potential impacts were prepared at identification and follow-ups were routinely conducted during and after implementation \. Although “there was no systematic monitoring and reporting relating to the implementation of environmental safeguards, an extensive sample review conducted between 2006 and 2008 showed that only a very small proportion of cases involved serious negative environmental impacts\." Social Safeguards \. The ICR states that there were no reports of involuntary land acquisition or loss of assets \. “It is very likely that such cases would have been brought to light through KDP ’s effective complaints mechanism â€? (page 11)\. At the sub-project identification stage, a checklist of potential compensation needs was prepared for any land or asset losses resulting from implementation \. “In most cases, such assets are donated voluntarily by the owners, who perceive the benefits for themselves and the community as outweighing any potential loss â€? (ICR, page 11)\. These issues are discussed in the inter -village meeting fora, and “without mutually satisfactory agreements, the sub -project would not be permitted to proceed \.â€? The ICR further reports only “a very limited amount of private land is sometimes utilized for sub-projects\.â€? However, it is unclear if the concerns raised in the March 2006 Project Performance Assessment Report (PPAR) for the Second Village Infrastructure Project (Loan 4100) and Kecamatan Development Project (Loan/Credit 4330/3453) have been fully addressed \. These concerns, which the PPAR describes as "carry[ing] through into the KDP 3 [i\.e\. this project] Annex 13 Guidelines" (PPAR, footnote 48, page 30), focus on lack of clarity in cases where a villager does not voluntarily donate land; lack of definition of an "affected person;" "acceptable" in-kind compensation without specifying acceptable to whom; and allowing certain elements of the procedure to be waived where less than 20% of the land is involved\. "Overall, the process seems to be open for a lot of community pressure on affected persons " (ibid)\. b\. Fiduciary Compliance: Financial Management and Audits \. According to the ICR, fiduciary compliance was generally good \. External audit reports by the Central Government ’s audit agency were all unqualified except for that of 2005 which identified some payments errors and an under -statement of the Special Account \. 75% of these issues were reportedly dealt with by the end of 2006\. Nonetheless, “findings related to financial reports from 2007 and 2008 drew attention to internal control weaknesses and some problems with community records and payment verification â€? (ICR, page 12)\. There were also issues related to overpayments, non -compliance with the conditions attached to some block grant disbursements and inadequate monitoring of consultants ’ work\. The ICR states that both government agencies and the Bank’s financial management supervision monitored the resolution of these issues \. Anti-corruption measures \. The ICR reports that KDP-3 introduced a comprehensive complaints mechanism to deal with corruption related issues \. By 2007, specialists had been attached to each provincial management consultant office\. However, “…there was still a reluctance to report problems \. In addition, facilitators and other project actors lacked the skills required to handle complaints well \. Out of approximately 1,900 cases… the complaints handling unit was able to close 56%\.The outstanding cases are still being pursued, including a portion that are slowly making their way through the police and court system â€? (ICR, pages 12-13) This would indicate that some of the governance concerns raised in the PPAR referred to in Section 11a above (see especially the discussion on page 22) remain to be fully addressed\. Procurement \. The same procurement system as in KDP -1 and KDP-2 was adopted – a competitive bidding process was used for consulting firms to provide administrative and logistical support to 140 oversight consultants at the district and sub-district levels, while “the proven system of community procurement â€? (ICR, page 12) was continued for village infrastructure sub-projects\. The ICR reports no procurement-related issues\. c\. Unintended Impacts (positive or negative): The decision by the Indonesian Government to rebrand KDP as PNPM and transform it into a major, national program was an important, unintended outcome \. Three autonomous provinces (Aceh, Papua and West Papua ) decided to adopt a KDP-style approach and allocated significant budget resources to sub -projects which were identified and implemented using KDP facilitators and planning processes \. d\. Other: 12\. 12\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Satisfactory Moderately The goal of improving local level Satisfactory governance was attained only to a modest extent\. Risk to Development Moderate Moderate Outcome : Bank Performance : Moderately Moderately Satisfactory Satisfactory Borrower Performance : Moderately Moderately Satisfactory Satisfactory Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate\. 13\. Lessons: The following lessons are taken from the ICR with some adaptation of language : CDD projects which are popular and have demonstrated success in rural poverty reduction are likely to survive even major political change, to be adopted by national governments, and supported by local ones with  contributions from their own budgetary sources \. Success also attracts bilateral donor participation \. A participatory and transparent approach, together with an effective complaints mechanism, can help safeguard against financial mismanagement \. Although, in this case, financial management issues were limited, the complaints mechanism did not work as well as anticipated \. Means need to be found to increase the public’s willingness to use the system, while facilitators and other actors require substantial specialized training\. Rapid scaling up of a programmatic operation can lead to the capacity of both the relevant institutions and of the MIS/M&E system being exceeded\. To the extent that such expansion can be foreseen, it should be anticipated in project design \. Regular, in-depth evaluation studies are essential tools for improving design and implementation of follow -on operations\. 14\. Assessment Recommended? Yes No Why? A Project Performance Audit Report (PPAR) has already been carried out for KDP 1\. Nonetheless, a combined assessment of the three KDP operations in the light of subsequent implementation of the nation -wide PNPM program would yield important lessons related to CDD -type projects\. The assessment could also determine the degree of degree of compliance with safeguard issues, and the actual satisfaction of all parties concerned with the voluntary donation of assets \. The effectiveness of managing compliance with fiduciary policies, and that of the anti-corruption measures, can also be assessed \. 15\. Comments on Quality of ICR: The ICR is clearly written\. A cost-benefit analysis should have been completed for a sample of KDP -3 sub-projects rather than relying on a previous study of earlier operations \. An explanation as to why the anticipated changes to local government did not materialize, and an indication of whether the MTR recommendations regarding the MIS were implemented or not, would have been useful \. A fuller discussion of safeguards and fiduciary issues would have been helpful\. a\.Quality of ICR Rating : Satisfactory

REVIEW

P145410

 Document of The World Bank FOR OFFICIAL USE ONLY Report No: ICR00004878 IMPLEMENTATION COMPLETION AND RESULTS REPORT TF017709 ON A SMALL GRANT IN THE AMOUNT OF USD 2\.75 MILLION TO THE ChildFund International - Guatemala FOR Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) December 27, 2019 Social Protection & Jobs Global Practice Latin America And Caribbean Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\. Acting Regional Vice President: J\. Humberto Lopez Country Director: Yaye Seynabou Sakho Regional Director: Luis Benveniste Practice Manager: Pablo Gottret Task Team Leader(s): Hugo Martin Brousset Chaman ICR Main Contributors: Karla J\. McEvoy / Claudia P\. Rodriguez Alas Director: Luis Benveniste Senior Global Practice Director: Michal J\. Rutkowski Practice Manager: Pablo Gottret Task Team Leader(s): Hugo Martin Brousset Chaman  ABBREVIATIONS AND ACRONYMS ACODIHUE Association of Integral Development Cooperation of Huehuetenango (Asociación de Cooperación al Desarrollo Integral de Huehuetenango) ASQ-I Ages and Stages Questionnaires-Inventories CEDRO Cooperation for Western Rural Development (Cooperación para el Desarrollo Rural de Occidente) CEO Evaluation and Orientation Houses (Casas de Evaluación y Orientación) COCODE Community Development Council (Consejos Comunitarios de Desarrollo) CODEDE Provincial Development Council (Consejos Departamentales de Desarrollo) COMUDE Municipality Development Council (Consejos Municipales de Desarrollo) COMUSAN Municipal Council for Food and Nutritional Security (Comisión Municipal de Seguridad Alimentaria y Nutricional) CF ChildFund CPS Country Partnership Strategy CSO Civil Society Organizations DMS Municipal Health Districts (Distritos Municipales de Salud) ECD Early Childhood Development IE Impact Evaluation (Evaluación de Impacto) ENSMI National Survey of Maternal and Child Health (Encuesta Nacional de Salud Materno Infantil) FM Financial Management ICR Implementation Completion and Results Report IPP Indigenous Peoples’ Plan IRI Intermediate Results Indicator ISR Implementation Status and Results ITT Intention to Treat JSDF Japan Social Development Fund MAGA Ministry of Agriculture, Livestock and Food Security (Ministerio de Agricultura, Ganadería y Alimentación) MDAT The Malawi Developmental Assessment Tool MIDES Ministry of Social Development (Ministerio de Desarrollo Social) MINEDUC Ministry of Education (Ministerio de Educación) MSPAS Ministry of Public Health and Social Assistance (Ministerio de Salud Pública y Asistencia Social) NGO Non-governmental Organization NNLS Our Smart and Healthy Children (Nuestros Niños Listos y Sanos) PDO Project Development Objective PS Procurement Specialist SESAN Secretariat of Food Security and Nutrition (Secretaría de Seguridad Alimentaria y Nutricional) s\.d\. standard deviation TOT Treatment on the Treated SDG Sustainable Development Goals WASH Water, Sanitation and Hygiene  TABLE OF CONTENTS DATA SHEET \. 1 I\. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES \. 4 II\. OUTCOME \. 15 III\. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME \. 22 IV\. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME \. 27 V\. LESSONS LEARNED AND RECOMMENDATIONS \. 29 ANNEX 1\. RESULTS FRAMEWORK AND KEY OUTPUTS \. 33 ANNEX 2\. RECIPIENT, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS \. 45 ANNEX 3\. IMPACT EVALUATION METHODOLOGY \. 46 ANNEX 4\. DESCRIPTION OF THE NUESTROS NIÑOS SANOS Y LISTOS (NNSL) PILOT PROJECT \. 49  The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) DATA SHEET BASIC INFORMATION Product Information Project ID Project Name Pilot to Improve the Development and Nutrition of P145410 Young Children in Poor Rural Areas in Guatemala Country Financing Instrument Guatemala Investment Project Financing Original EA Category Revised EA Category Not Required (C) Not Required (C) Organizations Borrower Implementing Agency ChildFund International - Guatemala ChildFund Guatemala Project Development Objective (PDO) Original PDO The Development Objective is to strengthen the capacity of parents and communities to improve and monitor child development outcomes (physical, cognitive, socio-emotional and linguistic skills) for children under two in project intervention areas\. Page 1 of 53  The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) FINANCING FINANCE_TBL Original Amount (US$) Revised Amount (US$) Actual Disbursed (US$) Donor Financing TF-17709 2,750,935 2,704,667 2,704,667 Total 2,750,935 2,704,667 2,704,667 Total Project Cost 2,750,935 2,704,667 2,704,667 KEY DATES Approval Effectiveness Original Closing Actual Closing 07-Nov-2014 18-Mar-2015 07-Nov-2018 30-Jun-2019 RESTRUCTURING AND/OR ADDITIONAL FINANCING Date(s) Amount Disbursed (US$M) Key Revisions 21-May-2018 2\.01 Change in Results Framework Change in Components and Cost Change in Loan Closing Date(s) Reallocation between Disbursement Categories Change in Procurement Change in Implementation Schedule KEY RATINGS Outcome Bank Performance M&E Quality Moderately Satisfactory Satisfactory High RATINGS OF PROJECT PERFORMANCE IN ISRs Actual No\. Date ISR Archived DO Rating IP Rating Disbursements (US$M) 01 08-Dec-2015 Satisfactory Moderately Satisfactory 0\.30 Page 2 of 53  The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) Moderately 02 22-Dec-2016 Moderately Satisfactory 0\.56 Unsatisfactory Moderately 03 23-Oct-2017 Moderately Satisfactory 1\.55 Unsatisfactory 04 21-Sep-2018 Moderately Satisfactory Satisfactory 2\.38 05 25-Jun-2019 Moderately Satisfactory Satisfactory 2\.71 ADM STAFF Role At Approval At ICR Regional Vice President: Jorge Familiar Calderon J\. Humberto Lopez Country Director: J\. Humberto Lopez Yaye Seynabou Sakho Director: Luis Benveniste Luis Benveniste Practice Manager: Mansoora Rashid Pablo Gottret Task Team Leader(s): Lucy Katherine Bassett Hugo Martin Brousset Chaman ICR Contributing Author: Karla J\. McEvoy Page 3 of 53  The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) I\. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES Context at Appraisal 1\. At the time of project appraisal, Guatemala faced one of the highest levels of poverty and inequality in Latin America\. With a GNI per capita of US$3,130, Guatemala was considered a lower middle-income country in 2012; however, its social indicators remained low compared to other middle-income countries within and outside the region\. Poverty had increased from 51 to 53\.7 percent in 2011 due to the global food, fuel, and financial (FFF) crisis\. Child malnutrition was one of the highest in the world: stunting and anemia rates were 49\.8 and 47\.7 percent, respectively, affecting nearly half of all children under five\. Under-five mortality was 30 per 1,000 live births, higher than the regional Latin American average of 19 per 1000 live births\. Within Guatemala, there were deep regional and ethnic disparities in child outcomes\. Children in rural areas suffered disproportionally from malnutrition; about 59 percent of children 3-59 months in rural areas were stunted, compared to 34\.4 percent in urban areas\. The northwestern departments were the most affected by chronic malnutrition, with rates as high as 70 percent of children 3-59 months\. As indigenous children mostly live in rural areas, their stunting and underweight rates were almost twice that of non-indigenous children according to the Encuesta Nacional de Salud Materno Infantil (ENSMI) 2008-09\. 2\. Socioeconomic status, social and political exclusion, geographic isolation and cultural practices are key determinants of nutrition outcomes in Guatemala\. As previously stated, indigenous people live mostly in rural areas, many in isolated locations that lack public services\. Moreover, studies show that nutrition and hygiene habits also determine malnutrition in the first months of life\. According to the ENSMI 2008-09, only 49\.6 percent of children 0 to 6 months were exclusively breastfed, and the average month of breastfeeding for infants was only 3\.4 months\. Coffee, on the other hand, is introduced early among the poorest and indigenous populations\. The poor hygiene and sanitary conditions in which the poor live cause childhood diseases such as diarrhea and respiratory infections, and these conditions are exacerbated by malnutrition\. Even though malnutrition decreased from 54\.5 percent in 2002 to 49\.8 percent in 2008-09 (ENSMI 2008-09), at that rate, it was estimated that it would take four decades to eradicate chronic malnutrition in Guatemala\. 3\. Early childhood stimulation, in particular, is a critical input to maximize the impacts of nutritional interventions\. Children who are stunted or otherwise malnourished will benefit from effective nutritional interventions, especially before the age of two, but they cannot catch up with well-nourished children in overall human development (including growth, cognitive, language, social, and motor development) if they do not receive proper stimulation in the early years\. In some cases, children who have access to adequate nutrition fail to eat and to grow properly because of the lack of stimulation and attention they experience at an early age\. This condition may be called "failure to thrive" when children refuse to eat and, as a result, do not grow properly\. Or it may be called "deprivation dwarfism" when children eat but still fail to grow because the emotional and stimulation deprivation that they face depresses the endocrine system and inhibits the production of pituitary growth hormones, a substance known to be essential for the normal growth and development of body cells (World Bank, 2009)\. 4\. The cumulative benefits of the combined approach of early childhood nutrition and early childhood stimulation interventions have been empirically proven in several contexts\. The leading general medical Page 4 of 53 The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) journal, The Lancet, found that poor caring and parenting practices during the first 1,000 days of life, or the “window of opportunity,â€? also have an important impact on malnutrition and child development\. Apathy, lower levels of play, and more insecure attachment are associated with underweight and stunting in young children and with more problems with conduct, poorer attention, and poorer social relationships at school age\. Evidence from Bangladesh and Uganda (Lancet, 2011), demonstrates that community based-psychosocial stimulation, with or without food supplementation, can improve child-rearing practices of mothers of severely malnourished children and the quality of their home environment\. Evidence from Jamaica (World Bank, 2009) shows that stunted children ages 9 to 24 months who received the benefits from a combination of nutrition supplements and stimulation were, in the short term, able to catch up to non-stunted children faster than those only receiving nutrition supplements, and in the long term, were able to show cognition benefits at ages 11 years and 17 years, while those only receiving nutrition supplements were not\. Theory of Change and Results Chain 5\. Given the above, achieving improvement in childhood wellbeing in indigenous areas in Guatemala required an innovative approach that combined nutrition and stimulation\. The Nuestros Niños Sanos y Listos (NNSL) pilot project was a culturally relevant project that placed mothers and caregivers at the center of their children’s development by giving them the tools to stimulate and monitor their children’s physical, cognitive, socio-emotional, and linguistic skills\. The project was designed to complement ongoing interventions by the Government1 and other partners by piloting a set of community-based nutrition and parenting/early childhood stimulation interventions aimed at: (i) improving caretakers’ interactions with young children to enhance their physical, cognitive and emotional development outcomes; (ii) encouraging caretakers to adopt optimal caring and feeding practices for young children; and (iii) increasing community participation in monitoring child development indicators\. The Grant was made to ChildFund (CF) (the implementing agency), who in turn hired two local NGOs (the Association of Integral Development Cooperation of Huehuetenango – ACODIHUE; and the Cooperation for Western Rural Development – CEDRO) to carry out the work in the communities\. The two NGOs hired social workers, who, in cooperation with indigenous community governing structures (COCODES), identified volunteer females they could train in early stimulation concepts and exercises\. These volunteers were known as Madres Guías, and they worked directly with parents and caregivers to educate them on the importance of early stimulation and activities to engage their children\. The use of volunteer mothers from the communities to deliver these services (home visits) is part of similar Government-funded programs, such as the Cuna Más program in Peru\. 1The project complemented the then- current public interventions to improve child nutrition, especially the Hambre Cero (Zero Hunger) Program\. This program was the central initiative of the Government’s social policy\. It aimed to reduce the prevalence of chronic malnutrition in children under-five and child mortality through the coordination of multisectoral interventions\. Page 5 of 53  The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) Activities Outputs Outcomes Long-term Outcomes Develop and integrate Diagnostic of early child stimulation Households with practices/beliefs enhanced early activities into community nutrition activities around early childhood stimulation practices stimulation Cultural adaptation of the Increased community childhood stimulation Implementation of awareness on programs, and monitoring Ventana de la Vida parenting/early tools program early childhood stimulation stimulation and and development Validate early stimulation parenting sessions messages through group Parents/caretakers’ Improved physical, Train social workers, modality) caring and feeding cognitive and Madres Guías, and health practices for young emotional staff on parenting/early Implementation of children is improved development of stimulation Reach Up program beneficiary children (early stimulation and Increased community Train parents & parenting sessions communities on parenting outreach by through home visits) COCODES, health and & early stimulation nutrition institutions Sensitize the COCODES Monitoring Tool to track through community and other government and child development fairs civil society organizations on the importance of early Community Fairs childhood stimulation Parents, caretakers, and communities Train midwives in Baseline and endline monitoring child exclusive breastfeeding data development and early childhood stimulation Impact Evaluation Develop messages to promote positive child care & feeding practices Establish impact evaluation baseline and endline Evaluation of pilot/dissemination of findings Project Development Objectives (PDOs) 6\. The Project Development Objective (PDO) was to strengthen the capacity of parents and communities to improve and monitor child development outcomes (physical, cognitive, socio-emotional, and linguistic skills) for children under two in Project intervention areas\. Page 6 of 53 The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) Key Expected Outcomes and Outcome Indicators 7\. The PDO level results indicators were the following: (a) Percentage of children achieving the expected development level for their age (b) Percentage of participating households with adequate early stimulation in the home (c) Percentage of participating parents that recognize and value key activities for infant and child nutrition and development (d) Percentage of communities regularly monitoring child development outcomes Components 8\. Component 1: Promotion of physical, cognitive, linguistic and socio-emotional development through a parenting and early stimulation intervention (US$1,865,111\.62)\. This component was delivered through three subcomponents: 1\.1 Mapping early stimulation practices in (and applicable to) the participating communities; 1\.2 Developing and integrating a parenting/early child stimulation component into community nutrition activities that were already being carried out (e\.g\., the Hambre Cero program); and 1\.3 Sensitization of state, municipal, and local staff, health facilities staff, and civil society organizations (CSOs) on the importance of the integrated approach to Early Child Development (ECD) and the roles of each entity to promote it through, inter alia, the carrying out of training, seminars, workshops, and the provision of technical assistance\. 9\. Component 2\. Enhanced social and behavior change communication to achieve improved child nutrition and development (US$129,359\.37)\. This component had three subcomponents: 2\.1 Investigation of current child feeding and caring behaviors; 2\.2 Development of an enhanced social and behavior change mode; and 2\.3 Roll out of social and behavior change approach\. It is important to note that this type of nutrition-related behavior change activity was also to be carried out under the World Bank’s Crecer Sano project (P159213), approved on March 24, 2017, which was being prepared at the same time as the JSDF Grant\. The Crecer Sano’s PDO is to improve selected practices, services and behaviors known to be key determinants of chronic malnutrition (with an emphasis on the first 1,000 days of life) in the intervention areas\. Despite this, the Grant team decided to proceed with financing the nutrition activities, since it was likely that Crecer Sano would not be implemented in time to overlap with the JSDF Grant\. 10\. Component 3\. Project management and administration\. Monitoring and evaluation, and knowledge dissemination (US$756,464\.01)\. This component included two subcomponents: 3\.1 Project management and administration; and 3\.2 Monitoring and evaluation and knowledge dissemination\. Significant Changes during Implementation 11\. The Grant was restructured twice2: • In January 2015: to add an expenditure category, and to re-allocate Grant proceeds among expenditure categories; and 2Only the second restructuring appears in the ICR datasheet, because the information platform for trust funds was only established after January 2015 – so the first restructuring was processed by email and does not appear in the trust funds platform\. Page 7 of 53 The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) • In May 2018: to (1) eliminate some nutrition communication and behavior change activities for families; (2) add nutrition-related communication and behavior change activities at community fairs, to promote nutrition sensitive activities;3 (3) reallocate resources across components and across disbursement categories; (4) extend the Grant’s closing date from November 7, 2018 to June 30, 2019, to allow implementation of the activities that were delayed, to ensure a more robust impact evaluation and to allow more children to receive the project benefits for a longer period; (5) change in procurement arrangements to allow remaining procurement to be carried out under the new World Bank’s Procurement Regulations for Borrowers under Investment Policy Financing, approved in July 2016 and revised in November 2017; and (6) change the Results Framework\. 12\. While the PDO was never modified, some new indicators were added to measure activities that directly contributed to the achievement of the PDO, while others were dropped to reflect the elimination of several nutrition activities under Component 2\. In addition, some outcome indicator targets were revised downward to reflect the slow start of Grant activities, and to be in line with what the improved measurement tools indicated was more realistic to achieve in terms of outcomes\. Tables 1 and 2 summarize the changes made to PDO and intermediate indicators\. Table 1\. Summary of Original and Revised PDO Indicators Indicators Revisions Justification PDO Indicator: Percentage of New end target: 60% The end target was adjusted children achieving the expected because, once the Barrilete and development level for their age\. other tools to measure early stimulation practices in families End Target: 70 % had been adapted to the Guatemalan indigenous context and applied to the pilot, it was clear that the original target was not in line with international evidence from other similar interventions, and that it could likely not be reached even within the extended Grant implementation period\. 3Agencies such as Secretariat of Food Security and Nutrition (SESAN) and the Ministry of Public Health and Social Assistance (MSPAS) provided training on several issues including WASH, minimum nutrition packages, etc\., during the community fairs\. Page 8 of 53 The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) PDO Indicator: Percentage of Percentage of The new articulation of the participating households with participant households indicator (‘enhanced early adequate stimulation at home\. with enhanced early stimulation practices’) more stimulation practices accurately reflects the comprehensive set of skills that End Target: 70% New End Target: 40% are supported under the Grant\. The downward revision of the target was due to the fact that: (1) many families migrated during certain seasons for work and so did not remain consistently within the program; and (2) attrition, given that program attendance was based purely on motivation and not by any monetary compensation\. Page 9 of 53 The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) PDO Indicator: Percentage of Dropped The activities this indicator was participating parents that meant to measure were scaled recognize and value key activities down under the Grant’s second for infant and child nutrition and restructuring\. Activities were development\. dropped because it had become clear that ChildFund had more End Target: 70% expertise in delivering parenting practices at the community level, whereas it would have to develop nutrition activities from scratch (including adaptation of measurement tools), and that would have entailed collaborating with MSPAS and NGOs, which would delay implementation even more\. The Bank and ChildFund teams decided therefore to drop most of the nutrition activities, to focus on early stimulation, since ChildFund had a comparative advantage and could make an impact, and leave it to the Crecer Sano project to carry out the bulk of nutrition activities\. Doing this ensured that ChildFund could carry out quality work while still maintaining an integrated approach to combating childhood malnutrition\. PDO Indicator: Percentage of Dropped Under the second restructuring, communities monitoring child Grant activities focused on development outcomes\. working with parents instead of community monitoring\. End Target: 70% Number of children that are direct New indicator This core indicator was added to beneficiaries of the Project\. monitor the final number of children receiving benefits End Target: 5,500 children through the Project\. Page 10 of 53  The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) Table 2\. Summary of Original and Revised Intermediate Result Indicators Component Original Indicators Revised indicators Justification IRI_1: Diagnostic of early No changes childhood development beliefs and practices in beneficiary communities is completed IRI_2: Monitoring tool to No changes track child development is developed IRI_3: Early stimulation Dropped Other early stimulation Component 1: package of activities packages in the results Promotion of developed framework – specifically, physical, cognitive, participation in Ventana linguistic and socio- End Target: Yes de la Vida and Reach Up emotional pilot programs – are developments better able to measure through a parenting progress on early and early stimulation stimulation activities, and intervention were already developed\. IRI_4: Percentage of project Number of project The indicator was re- communities implementing communities worded to precisely activities with caretakers implementing articulate the type of Level 1 (Ventana activities that were being End Target: 100% de la Vida) and measured\. Level 2 (Reach Up) methodologies End Target: 100 % Page 11 of 53  The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) IRI_5: Percentage of local Percentage of Indicator was revised to and municipal leaders and COCODES more accurately reflect health facility staff (Consejos project activities\. The end sensitized on the Comunitarios de target was revised importance of ECD Desarrollo) downward, however, implementing because (despite multiple End Target: 100% activities in favor sensitization efforts) of childhood in some COCODES would their communities not allow the pilot to be implemented in their End Target: 70% communities, nor start their own initiatives\. IRI_1: Summary of key Dropped Grant was restructured constraints to optimal child to focus on early feeding and caring stimulation activities (see Component 2: behaviors is completed explanation in Table 1, Enhance behavior above); therefore, the change End Target: Yes indicator was no longer communication to relevant\. achieve improved child nutrition and IRI_2: Behavior change Dropped Ibid development approach defined End Target: Yes Page 12 of 53  The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) IRI_3: Percentage of Number of The indicator was municipalities community fairs changed to reflect the implementing social and implemented with inclusion of training on behavior change an ECD approach early stimulation and communication with target good nutrition practices groups End Target: 188 during community fairs\. community fairs This ensured that some End Target: 100% nutrition activities remained in the Grant, while others originally intended to be financed by the Grant, were to be carried out under the Bank’s Crecer Sano project\. IRI_1: Baseline survey No changes conducted IRI_2: Quarterly progress Revised end Target increased to align reports completed target:16 reports with extension of closing date\. End Target: 14 reports IRI_3: Mass events hosted Revised end As previously stated, the Component 3: for departmental health target: 2 events mass events were Project management systems dropped under the Grant and administration, and would instead be monitoring and End Target: 16 events carried out by the Crecer evaluation, and Sano Project\. The revised knowledge end target reflects what dissemination had already been carried out before the second restructuring of the Grant\. IRI_4: Final survey Final Impact Revised indicator conducted Evaluation survey references the type of conducted survey (Impact End Target: Yes Evaluation)\. End Target: Yes Page 13 of 53 The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) IRI_5: Final Report Dropped Child Fund reported Completed by ChildFund progress quarterly; therefore, a final report End Target: Yes was no longer relevant\. IRI_6: Number of Madres New New indicator is relevant Guías (MG) trained to apply to monitor early level 1 methodology stimulation activities of (Ventana de la Vida) Ventana de la Vida\. End Target: 595 MG IRI_7: Number of Madres New New indicator is relevant Guías trained to apply level to monitor early 2 methodology (Reach Up) stimulation activities of Reach Up\. End Target: 450 MG IRI_8: Number of children New New indicator is relevant participating in level 1 to monitor early activities (Ventana de la stimulation activities of Vida) within “Casas de Ventana de la Vida\. Evaluación y Orientaciónâ€?- CEO's strategy End Target: 4,480 children IRI_9: Number of children New New indicator is relevant participating in level 2 to monitor early activities (Reach Up) stimulation activities of Reach Up\. End Target: 1,920 children IRI_10: Percentage of New New indicator is relevant Madres Guías with quality to monitor early implementation of level 1 stimulation activities\. and level 2 activities ChildFund had developed a tool to assess quality of End Target: 70 MG implementation\. Page 14 of 53 The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) IRI_11: Number of CEOs New New indicator is relevant implemented to monitor early stimulation activities End Target: 80 CEOs under Ventana de la Vida\. IRI_12: Number of New New indicator is relevant midwives in project to monitor activities to catchment areas trained in be provided to midwives exclusive breastfeeding and as they are the main opportune stimulation by maternal health care the social workers providers in the communities of End Target: 900 midwives intervention\. Other changes 13\. The Grant’s legal agreement was modified to reflect the above changes, as well as the payment of social workers’ salaries for the period between April 2016 and June 2019\. Rationale for changes and their implication for the original theory of change\. 14\. The changes to Grant activities and the subsequent reallocation of resources reflected the realization that ChildFund did not have capacity to deliver both the stimulation and the nutrition activities, and was in fact better equipped to provide the former\. The Bank and implementing teams added training in early stimulation and good nutrition practices (the latter provided by the Ministry of Public Health and Social Assistance - MSPAS) at community fairs, to ensure that some limited nutrition training for the community and particularly for midwives, would take place\. The decision to scale down nutrition activities was also justified by the finalization of the preparation of the IBRD Project Crecer Sano, which included nutrition-related activities that the Grant team believed could be provided to Reach Up and Ventana de la Vida beneficiaries\. The restructuring also allowed the financing of social workers’ salaries, which had to be approved by the donor country, which was key to achieving the Grant’s objectives\. The revisions to Grant activities did not have implications for the theory of change\. II\. OUTCOME A\. Relevance of PDOs Rating: High 15\. The NNSL project was in line with Guatemala’s Country Partnership Strategy (CPS) FY13-16\. One of that CPS’s pillars was to provide support for improved results in social sectors\. This included ensuring the sustainability of achievements of the ongoing health, nutrition and education projects that came to an end during the CPS period\. Page 15 of 53 The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) 16\. The Grant objectives continue to be relevant, in line with Guatemala Country Partnership Framework for FY17-204 and with the Guatemalan government’s national priorities\. The Grant contributes to Pillar 1 (Fostering Inclusion of Vulnerable Groups) of the Country Partnership Framework, and the administration that took office in January 2016 placed health, education, stronger economic growth, and increased transparency at the center of its policy agenda\. Recognizing the important role that human capital development plays in contributing to economic growth (and vice versa), the Government’s 2016-2020 Plan emphasizes the need for improvements in health and education, and reduction of chronic malnutrition\. In February 2016, the Government established the Commission to Reduce Chronic Malnutrition, and in March 2016, the President officially launched the National Strategy to Prevent Chronic Malnutrition 2016-2020\. The Government also recently updated its Primary Health Care (PHC) Model, adopting a multidimensional (individual-family- community) approach and integrating complementary aspects of traditional Indigenous health beliefs and practices\. 17\. The Project is aligned with the WB’s twin goals to reduce poverty and promote shared prosperity, and the WB Human Development Strategy\. Pillar 2 of the Human Development Strategy calls for investments to promote “a strong healthy start for all\.â€? Likewise, the intervention is well aligned with multisectoral interventions promoted by the WBG group to invest in the early years, and which call for a comprehensive approach to invest in the first 1,000 days\. The recently launched Human Capital project also refers to the potential gains that countries can secure by investing in key education and health and nutrition services at an early age, contributing to maximize the potential productivity of children when they reach adulthood, if Governments secure appropriate service delivery networks, including investments such as the ones promoted under the NNSL pilot\. 18\. The Project comes at a critical juncture in global efforts to reduce malnutrition\. The Project’s objectives are in line with the Sustainable Development Goals (SDG) to end malnutrition by 2030, including achieving internationally agreed targets on stunting and wasting in children under five years of age\. The Project also supports SDG 3, to ensure healthy lives and promote well-being for all, and SDG 10, to reduce inequalities within countries\. Guatemala is also participating in the Scaling Up Nutrition Movement\.5 4 Report No\. 103738-GT\. 5 The Scaling Up Nutrition (SUN) Movement was launched in September 2010 by individuals from governments, civil society, donors, United Nations, business and researchers\. It is an effort to eliminate all forms of malnutrition under the principle that everyone has a right to food and good nutrition\. From https://scalingupnutrition\.org/ Page 16 of 53  The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) ACHIEVEMENT OF PDOS (EFFICACY) Rating: Substantial 19\. A rigourous impact evaluation to measure the effectiveness of two delivery modalities was carried out and its preliminary results show that both modalities were successful at improving parental practices on child stimulation, increasing the variety of play material and the play activities conducted by the caregiver\. In terms of the PDO indicators, one of the three revised PDO indicators was achieved, and the other two revised ones were partially reached\. 20\. A clustered randomized control trial was implemented in the departments of Huehuetenango, San Marcos, Quiche and Totonicapán where 113 communities were randomly assigned to one of the three groups: (T1) home visits, (T2) group meetings or (C) control group\. Baseline data was collected between October 2016 and January 2017 on 2,022 households and 2,022 children up to 24 months\. Households were revisited two years later between showing a low attrition rate of 13 percent\. The program reached approximately 50 percent of the children in each treatment groups (T1 and T2)\. The impact of the program is measured based on intention- to-treat (ITT) effects to avoid a selection bias in the comparison between treatment and control groups\. Treatment on the treated has also been estimated to reflect the impact on those that effectively received the treatment (TOT)\. • Family Care Indicators 21\. Preliminary analysis using ITT method shows that the size of the impact on play activities between the caregiver and the child was of 0\.12 standard deviations (s\.d\.); this increases to 0\.37 s\.d\. under the TOT method\. When measured as a percentage change under the ITT method, Ventana de la Vida participants reported a 6\.27 percent increase in play activities compared to the control group, while Reach Up reported an increase of 3\.6 percent\. Under the TOT method, families in Ventana de la Vida report a 11\.7 percent increase in play activities while Reach Up shows a 7\.48 percentage increase\. 22\. Parental practices on child stimulation also improved\. The magnitude of the impact is 0\.16 s\.d\. (ITT method) and 0\.37 s\.d\. (TOT method)\. Compared to the control group, Ventana de la Vida, with the ITT method, led to slightly higher results than Reach Up (3\.10 and 2\.72 percent improvement in parent practices, respectively)\. Both program modalities show about a 5\.6 percent increase in improved parental practices under the TOT method\. • Child Cognitive Indicators 23\. Preliminary estimations show that both program modalities had an impact on childhood cognitive skills\. For Ventana de la Vida, the size of the impact was 0\.27 s\.d\. (ITT) and 0\.6 s\.d\. (TOT)\. For Reach Up, this impact was 0\.20 s\.d\. (ITT) and 0\.46 s\.d\. (TOT)\. This confirms that the improvement in parental care, including play, translates into improved children’s cognitive fine motor and language skills\. 24\. Children in Ventana de la Vida show a 1\.65 percent increase in fine motor skills compared to the control group while Reach Up children show a 1\.38 percent increase (ITT method)\. This impact is higher under the TOT Page 17 of 53 The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) method: cognitive and fine motor skills for children in Ventana de la Vida increased by 3\.01 percent compared to the control group, while those skills increased by 2\.82 percent for children in Reach Up\. 25\. In terms of language skills, children in Ventana de la Vida show a 2\.06 and 3\.75 percent improvement when measured by the ITT and TOT methods, respectively\. For children in Reach Up, language skills improved by 1\.25 percent (ITT) and by 2\.55 percent (TOT), compared to the control group\. 26\. As shown in table 3, the magnitude of the changes is statistically significant for all domains\. Most effects for Ventana de la Vida are highly significant at the 1 percent level, independently of the method\. The size of the effects is medium, according to international standards\.6 The intervention had no impact on nutritional outcomes, in line with results from international evidence\.7 27\. In conclusion, the IE shows that, despite the continued high level of stunting of children (60 percent at baseline, 73 percent endline), the Guatemala pilot was successful in improving cognitive fine motor and language skills, thereby ensuring children will be better prepared to learn once they start school\. By preparing them to learn better in school, the NNSL intervention is helping young kids to catch up on cognitive skills that should help them to change their life path\. Table 3\. Size of the Effects of NNSL Program as Percentage Change (preliminary results) Intent-to-Treat Effects Treatment on the Treated (ITT) Effects (TOT) Ventana de la Ventana de la Reach Up Reach Up Vida Vida Family Care Indicator FCI Play Activities with Adults Scale 6\.27% *** 3\.66% * 11\.47% *** 7\.48% * Family Care Indicators Overall Scale 3\.10% ** 2\.72% ** 5\.66% ** 5\.61% ** Cognitive Outcomes, MDAT Fine motor, MDAT 1\.65% *** 1\.38% ** 3\.01% *** 2\.82% ** Language, MDAT 2\.06% *** 1\.25% * 3\.75% *** 2\.55% * Note: * p<0\.10, **p<0\.05, ***p<0\.01 Source: Trias, Julieta and Irma Arteaga (2020) “Home visitation or group intervention? Effects of early stimulation on child wellbeing in rural Guatemala: A cluster randomize control trialâ€? World Bank mimeo \. 6Effect sizes of 0\.3 -0\.6 s\.d\. are considered in the literature as medium-size effects, while effects above 0\.6 s\.d\. are considered high\. 7 The international evidence on parenting programs for child stimulation is mixed\. These programs, when successful, have shown improvements in parental practices for child stimulation and child development, notably cognitive and language skills\. Effects on cognitive and language skills range between 0\.35 to 0\.47 standard deviations (Rao et al\. 2014, Aboud et al\. 2015, Britto et al\. 2017)\. For parental practices, while the evidence is thinner, the reported effects range between 0\.40â€?0\.55 standard deviation (Aboud and Akhter, 2011; Nahar et al\. 2012, Aboud et al\. 2013 for Bangladesh, Walker et al\. 2004 for Jamaica, and Attanasio et al\. 2014 for Colombia)\. In addition, these programs have been less successful in improving nutritional outcomes\. Page 18 of 53 The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) Efficiency (economic analysis, aspects of design and implementation) Rating: Substantial 28\. An economic analysis was not carried out during Grant preparation\. An economic evaluation was, however, conducted as part of the overall assessment of the two early stimulation models, with the objective of estimating the total cost over the entire four-year program, the monthly ongoing cost while the program was fully operational in all targeted areas, and the cost-efficiency of each modality measured as the average cost per child beneficiary\. This study took a provider perspective of the financial costs, meaning that only the costs to the program implementers were included rather than all direct and indirect costs to the wider society\. However, a basic estimation of the imputed cost of the volunteer Madres Guías was done as this is an important element in the sustainability of the implementation methodology\. Financial costs were estimated using accounting data provided by the implementing organizations in the form of detailed account ledgers\. 29\. At a cost of US$267 for Ventana de la Vida and US$173 for Reach Up, the cost per registered child beneficiary per year is relatively similar between the two methodologies\. However, when the cost-efficiency metric of cost per child is calculated based on number of active children in the program the difference in cost per child is much larger, with Ventana de la Vida at US$268 per child per year and Reach Up at US$420\. Ventana de la Vida has a very low rate of attrition of children beneficiaries (1 percent) meanwhile the rate is much higher in Reach Up (59 percent)\. The attrition rate will be an important factor when interpreting the impact\. When bringing together the impact and cost per impact, it may be more useful to evaluate the program based on cost per active child rather than cost per registered child\. Based on the preliminary results and the costing exercise, group meetings are the modality most cost-effective for scaling up\. 30\. While strict cost comparisons between countries are difficult, Colombia’s implementation of the Reach Up program cost US$500 per child\. In any case, cost-efficiency is only one factor that should be considered when evaluating a program to make recommendations for the future\. Differentials in impact, sustainability, acceptability, and issues of equity should also take into consideration, alongside cost differentials\. 31\. Other dimensions of efficiency\. The Grant was extended one time, for approximately 8 months, to account for a delay in starting activities because of the time it took to adapt the Reach Up program’s materials and assessment and monitoring tools to the Guatemalan indigenous context\. The cumulative supervision costs for this Grant represented 9 percent of the total Grant amount\. 32\. Given that the cost of both models is within international parameters, and that administrative costs, excluding social workers’ salaries, was in line with appraisal estimates, efficiency is rated Substantial\. Page 19 of 53 The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) Overall Outcome Rating: Moderately Satisfactory 33\. Because the Grant was restructured to revise some PDO targets, the outcome rating for the project was assessed against the original and revised project development indicator targets\. Tables 4 demonstrates the calculation of PDO before and after the restructuring\. Table 4: Calculation of Overall Outcome Rating Original Restructured Relevance8 High Efficacy Modest Substantial Efficiency9 Substantial #1: Outcome ratings Moderately Unsatisfactory Satisfactory #2: Numerical value of 3 5 outcome ratings #3: Disbursement 2\.01 million \.74 million #4: Share of disbursement 74% 26% Weighted value of the 2\.22 1\.30 outcome rating (# 2 x # 4) Final outcome rating 3\.52(rounded up to 4\.0) = Moderately Satisfactory 34\. The Moderately Satisfactory (MS) rating is further supported by the preliminary results of the impact evaluation carried out under the Grant which, as previously indicated, shows that NNSL improved parental practices for early childhood stimulation and increased children’s cognitive fine motor and language skills\. These impacts are expected to help children learn better in school and increase their human capital development\. Other outcomes Gender 35\. Beneficiary women in both programs reported a change in their approach to motherhood\. Women learned the development milestones they should expect their children to achieve, how to identify their children’s needs by the way they cry; how to teach their children concepts of space, forms and texture; to play, sing and dance with their children; to practice good hygiene; and to understand the objectives behind the toys and to create toys from materials around the house\. Because of the program, mothers report that they are, in general, more involved with all their children, including their older ones\. Female and male social workers also reported having learned to be better parents\. 8 One rating for relevance in line with the ICR guidelines\. 9 One rating for efficiency in line with the ICR guidelines\. Page 20 of 53 The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) 36\. Women’s perceptions of their children’s development\. Mothers reported that because of the program their children are less fearful, less timid, socialize better with other children, learn to walk and talk faster than their older siblings; they play, sing and dance, and are in general smarter\. 37\. Women were empowered by the program and gained respect in the community\. Women in these communities face multi-layers of marginalization\. They are poor, they live in rural areas - many in remote and isolated places-, and they are indigenous\. Most of them have little or no education\. The program gave them the opportunity to learn and to have a voice\. Madres Guías became leaders, and the ones who implemented Ventana de la Vida and led the CEOs learned to facilitate group meetings\. According to their perceptions, both Madres Guías and beneficiary mothers in both programs learned to socialize, became less timid, increased their self-esteem, learned to express themselves, and started to have a voice in other areas of society, such as their children’s school and during community meetings\. They became role models for other women in the community, and they claim that the program transformed their lives\.10 38\. The NNLS created new spaces where women could come together to share experiences in parenting\. The CEOs, in particular, became spaces for women to gather and learn from each other\. In many cases these spaces -exclusively for women and mothers- had been non-existent in the communities prior to the pilot\.11 Some fathers also participated in CEOs and gained interest in participating in their child’s development\. Communities (COCODES) in general gained interest and some of them decided to continue with the activities even when the project closed\. Community 39\. The program generated changes in the household and in the community\. Children older than two also benefited from the programs\. They learned the same songs and activities and benefited from their mother’s new way of relating to her children\. Mothers reported that these children became proud of their mothers and started to help them in the program activities\. For example, older children of Madres Guías sometimes assisted their mothers during household visits or CEOs\. They would help them read the guidelines when their mothers were illiterate\. Mothers reported that while playing with their children, they forgot about their own problems and were happier\. Husbands were also happier when they noticed the changes in their wives and children\. Beneficiary mothers shared their new knowledge with other women who were not part of the program\. Even women without children asked to be Madres Guías because they recognized the importance of children’s development\. COCODES also learned to respect the work of Madres Guías and to recognize the rights of children\. Community leaders realized that they had often prioritized infrastructure projects and did not think of children as important stakeholders\. In the aftermath of the program, at least one COCODE requested funds from COMUDES for children’s projects\. Institutional strengthening 40\. The community fairs helped to create synergies among government institutions and the NNLS program to sensitize the broader community\. Community fairs were implemented as an opportunity to sensitize and train community members that were not participating in the NNLS program, including parents, community 10 Systematization document, August 2019\. 11 Ibid\. Page 21 of 53 The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) leaders, or other community members in general\. The community fairs also facilitated interinstitutional collaboration, as different institutions came together to staff the fair\. Some of the institutions that collaborated with the program are the Municipal Council for Food and Nutritional Security (COMUSAN), Municipal Health Districts (DMS), Ministry of Agriculture, Livestock and Food Security (MAGA), Ministry of Public Health and Social Assistance (MSPAS), and the Secretariat of Food Security and Nutrition (SESAN)\. The collaboration extended outside the fairs and became helpful resources\. For example, during CEOs, the DMS would refer families to the NNLS to start the ECD program\. Or if a Madre Guía identified during the Barrilete assessment12 that a child needed medical assistance, she would refer the child to the Health Center\. Through collaboration with MSPAS, some communities that initially had rejected the program, opened up to it\. III\. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME Preparation 41\. Initial objectives and targets for beneficiary population were too ambitious\. The original project document stated that the project was expected to reach 12,200 poor indigenous children\. However, that number proved to be too high in practice\. A list of eligible children (age 2 and under) had been drawn from birth records and community referrals\. As implementation began, however, it became clear that there was not such a high number of children fulfilling age eligibility in the target communities\. In addition, from the existing eligible children, some had to be part of the control group for the impact evaluation and could not receive the program; other families with eligible children simply did not want to participate in the program\. Unlike typical cash transfer programs, where there is usually an over demand for the program, NNLS did not provide a transfer but a learning program\. Therefore, community leaders had to be persuaded about the benefits of the program to let it start, then families had to be persuaded to participate\. As a result, target numbers were adjusted to 5,500 children in the mid-term restructuring\. Implementation Factors under implementing agency’s control 42\. At the beginning of the project there were significant delays due to ChildFund’s inexperience with World Bank procurement and financial procedures\. This caused lengthy and complex hiring processes\. There was a lack of annual planning documents to assist with monitoring, there were weaknesses in internal control, including non-compliance with payment policies and procedures, inaccuracies in the auxiliary records, and incomplete documentation of expenditures\. There were also deficiencies in the preparation of SOEs and financial reports\. The World Bank therefore provided training on financial management (FM) and procurement 12 The Barrilete is an assessment tool to monitor the development of children aged 0-36 months\. The tool consists on a questionnaire aimed to measure 5 areas of development: i) gross motor skills, ii) fine motor skills, iii) language and communication, iv) socio-emotional skills, and v) cognitive development\. The tool is divided in 8 phases of 3 months each: 0-3 months, 3-6 months, and so on up to 24-36 months\. Depending on the child’s age the social workers and Madres Guías evaluated the level of development of the child and assigned a score based on a traffic light scale: red if the child could not do any of the activities in the 5 areas assessed; yellow if the child could do some of the activities; and green if the child was able to complete all the activities\. Depending on the score, the social workers and Madres Guías provided recommendations to the parents or caretakers\. This evaluation was conducted to each beneficiary child every 6 months (Systematization document)\. Page 22 of 53 The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) issues and carried out close supervision of both\. In addition, ChildFund hired a FM person with prior experience in Bank’s FM and procurement systems, which helped improve its performance in this area\. 43\. Staff changes in implementing agency caused delays\. There were a few staff changes in ChildFund during program implementation\. The program coordinator was dismissed in August 2015 without a handover of records and plans, causing delays during a critical implementation period\. During the program life, the program coordinator changed three times\. The M&E and financial positions also changed once\. The technical staff (social workers) had on average 1\.5 changes during the life of the project (although by the end of the implementation, both CDRO and ACODIHUE had consolidated strong and permanent teams of social workers, which helped strengthen project performance during the final stage of implementation, when more communities joined, more children were reached, and results started to materialize)\. These changes created a lack of continuity in community activities, diminished supervision to Madres Guías, and placed more work load on social workers who had to cover gaps until a new person was hired\. 44\. Difficulties with the survey firm hired to conduct the baseline\. There were several quality issues with the firm hired to conduct the baseline evaluation\. Specifically, there were delays with the delivery of products, incomplete information on numerators’ credentials, and failure to provide access to a data dashboard for World Bank staff to monitor progress\. The quality issues were exacerbated by the lack of direct communication between the baseline firm and World Bank staff (ChildFund, given the Grant’s design, had contracted the firm and the firm therefore wanted to work only with ChildFund staff)\. With a lot of supervision and pressure from the World Bank, the baseline was delivered\. To avoid further problems, a different firm was hired to conduct the endline\. The firm was hired directly by the World Bank so that Bank staff could supervise the work\. 45\. Initially it was hard to find staff that met the technical profile required for the program \. Both NGOs, CEDRO and ACODIHUE, had issues filling the positions of program coordinators\. There was a shortage of psychometrists that could understand and measure the indicators in the indigenous context, as well as a dearth of early childhood educators that could implement the two curricula\. These capacities had to be created among social workers and numerators through intense and continuous training which took considerable time not originally anticipated in the project design\. 46\. The NNLS pilot project was appropriately adapted to the Guatemala Mayan indigenous rural context\. More than 90 percent of NNLS beneficiaries were indigenous, and the following tasks were carried out to ensure the cultural appropriateness of Grant activities: o An Indigenous Peoples’ Plan (IPP) was prepared in 2014 and updated in 2018\. It provided: i) a review of positive and negative impacts of the pilot and mitigating measures; ii) a plan and framework to respect local indigenous governance, language preference and traditions; iii) a protocol for consultation during implementation; and iv) detailed Grievance and Redress Mechanisms (GRM)\. o Program implementation respected indigenous governance\. The NNLS was introduced to communities only after getting acceptance from the local indigenous authorities\. The program was first presented through all levels of government structures: the Provincial Development Council (CODEDE), the Municipality Development Council (COMUDE) and finally to the Community Development Council (COCODE)\. Social workers introduced and explained the program to the COCODES during their traditional community assemblies with the participation of all community members\. The COCODEs had the authority Page 23 of 53 The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) to grant or deny approval for the introduction of the program in the community\. If the COCODE agreed to introduce the program, volunteer Madres Guías were recruited or appointed by indigenous leaders during the assemblies\. o Program implementers were from the local communities\. The implementing agency, ChildFund Guatemala, partnered with two local non-governmental organizations (NGOs) to run the program on the ground: the Association of Integral Development Cooperation of Huehuetenango (ACODIHUE) and the Cooperation for Western Rural Development (CEDRO)\. These two NGOs had presence and extensive work in the program communities\. ACODIHUE and CEDRO hired field workers that were from the communities and spoke the local languages Mam and K’iche’ to interact with the mothers and children\. Madres Guías were at the heart of program implementation, as they were in charge of teaching and executing the two ECD program modalities\. The Madres Guías were trained in the two ECD modalities by the social workers, so they could then implement the program with the mothers\. The trainings and implementation of the curricula were done in Mam and K’iche’\. o ECD curricula and training materials were socio-culturally adapted\. The Reach Up methodology, created by the University of West Indies for an urban and mestizo context, was adapted to the Guatemalan rural indigenous setting\. The curricula were edited to incorporate illustrations depicting Mayan people, local songs and native animals\. Toys were also recreated to emulate familiar objects made of local recycled materials\. The guidelines were simplified and included more illustrations, rather than text so they could be more easily understood by Madres Guías with low education levels13, including some who were illiterate\. One problem was that the guidelines were only in Spanish, which meant that the Madres Guías had to simultaneously translate from Spanish to Mam or K’iche’ when conducting the activities\. In addition to the curricula, the Barrilete tool for monitoring child development had to be adapted so Madres Guías and mothers would understand the goals they were working toward\. o Monitoring and evaluation tools were also adjusted with support from experts from the University of Missouri\. Tools for the impact evaluation also had to be adapted to the indigenous rural context\. During the data collection for the baseline, the evaluation team initially tried to adapt the Ages and Stages Questionnaires-Inventories (ASQ-I) as a technique to collect information on children’s developmental stage\. Focus groups were conducted to adapt and validate the questionnaires\. However, after much testing the team concluded that the ASQ-I was not a cultural relevant tool to collect information from a rural, indigenous population, with high incidence of poverty, malnutrition and low levels of education\. A quest for a non-western tool that would work in such settings was found in The Malawi Developmental Assessment Tool (MDAT)\. The MDAT was developed as a culturally appropriate tool for rural Malawi to reliable identify children with delayed development and neurodisabilities\. The evaluation team conducted two pilots to culturally and linguistically adapt the MDAT tool to the indigenous Guatemalan setting (including translation to Man and K’iche’)\. After intense training and piloting of the evaluation firms, the MDAT was used to conduct the baseline and endline of the impact evaluation\. 47\. Continuous training was paramount to the implementation of NNLS and generation of local capacities\. The social workers were trained directly from the experts in the two ECD modalities being implemented\. 13 According to the systematization document, 17 percent of Madres Guías never attended school, 34 percent did not finish elementary school and only 22 percent finished Elementary school\. Page 24 of 53 The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) ChildFund trained and certified social workers in the Ventana de la Vida technique, and staff from the Jamaican University of West Indies, trained and certified them in the Reach Up program\. The training consisted of four 10-day workshops and the grade point average to get certified was 80 out of 100\. The training included the curricula but also on the monitoring of child development using the adapted Barrilete tool\. The trainings included interactive sessions, demonstrations and dramatizations so they could replicate them in the trainings for Madres Guías\. Subsequently, social workers trained Madres Guías using andragogical techniques, including demonstrations of the concepts and encouraging active participation\. Concepts and activities were practiced over and over through interactive exercises and plays until the skills were mastered\. Madres Guías were also trained to facilitate workshops, since they were the ones to apply the curricula directly with mothers and children\. Madres Guías continued to receive feedback from social workers during the implementation of the program\. Trainings were repeated as some Madres Guías quit and new ones came onboard\. 48\. The commitment of program staff (ChildFund, NGOs, and social workers) and volunteers was at the heart of program success\. ChildFund has a long trajectory implementing Ventana de la Vida which gives them the necessary experience to work in the Guatemalan indigenous context\. Its staff is knowledgeable, committed and show passion for the work\. The two NGOs, CEDRO and ACODIHUE, are grassroots local organizations with ample knowledge of the field\. Their staff, including the social workers were members of the communities and spoke the indigenous languages\. This gave them an advantage to introduce the program in a cultural appropriate manner with a truly understanding of the ground\. It is also important to understand that this program was mostly run by volunteers\. At the center of program implementation were the Madres Guías, who voluntarily donated their time and effort to learn the ECD program curricula and taught it to other mothers\. They were self-selected or appointed by leaders\. They worked out of conviction that they were contributing to their communities, and thus were responsible and reliable in their duties\.14 Even though they did not receive a monetary remuneration, program managers provided them with other incentives such as public recognition at community events, materials to facilitate their activities and recreational field trips twice a year as an opportunity to get together with other Madres Guías\. 49\. The perseverance and commitment of social workers were also key for success\. Social workers played a central role since they were in charge of training and supervising Madres Guías as well as monitoring children’s development\. They had to overcome many challenges such as sensitizing the community leaders from the COCODEs to obtain approval for the project and building Madres Guías’ capacities\. They struggled with invisible barriers, with existing traditions and paradigms for child bearing, as well as machismo at the household and community levels\. They had to manage frustration, solve problems and be creative to help Madres Guías to learn despite their low schooling\. They needed to be consistent and constant with the methodology and know how to provide appropriate feedback to the Madres Guías\. They had to be dynamic and inspiring to motivate and bring the application of the curricula to life\. One legacy of the NNLS program, therefore, is the skills and capacities generated in social workers and Madres Guías\. 50\. Respecting the governance of the indigenous communities helped legitimize program activities in the communities\. The COCODEs played a key role during the life of the project, as they granted approval to initiate 14When women were asked about their motivation to be a Madre Guía, they responded: they enjoy seeing children’s development, they gain the respect of the community, other mothers and children, and their own children\. They like to support first time mothers, they like to share information in the CEOs, it makes them happy to work with children and to teach other women\. Page 25 of 53 The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) program activities, mediated grievances, facilitated communications during community fairs, provided recognition to Madres Guías and participated in closing activities\. Factors outside implementing agency’s control 51\. The time needed to adapt curricula and impact evaluation tools was underestimated\. During early program stages, a second treatment arm, the Reach Up Early Childhood Parenting Program, was introduced\. Reach Up is an internationally recognized and well-evaluated program from Jamaica\. ChildFund decided to pilot it, as it would be a good opportunity to test the impact and cost efficiency of both programs\. However, introducing Reach Up involved training the implementation agency in the new methodology, and adapting its materials to Guatemala’s indigenous context\. In addition, the surveys and monitoring tools had to be translated, contextualized and tested, all of which took longer than expected\. 52\. To gain acceptance program staff had to overcome barriers including changing the community “mindset\.â€? The expectation of beneficiary communities was to receive a transfer or infrastructure project, as is the case with traditional government programs\. People were not familiar with programs that required them to organize and learn without any apparent economic compensation\. In addition, the program had to compete with domestic and economic activities that mothers may have considered as “more productiveâ€? than playing with their children\. Many women were skeptical at the beginning until they started to notice the changes the program was generating in their children\. 53\. The existence of a macho culture and patriarchal traditions was an obstacle in some communities\. Program participants expressed that this issue was more prevalent in the Mam communities, where community leaders and husbands decided if the women could participate in the program\. Some COCODEs would not let the program start in their communities\. Even if the program was available in the communities, some husbands would not let their wives participate\. 54\. There was attrition of program participants due to agricultural cycles and migration\. In Huehuetenango in particular, families temporarily migrate each year for about six months to participate in agricultural activities in other regions\. There is also a lot of permanent migration to the United States\. Even if families did not migrate, the number of absences in the CEOs increased during the harvest season\. Factors under Bank’s control 55\. The ability to be flexible, incorporate feedback and learn from mistakes kept the program operating smoothly\. Day to day operations benefited from constant feedback and adaptation\. Processes were adjusted along the way to improve implementation\. Examples of changes introduced are: o Hiring social workers to focus exclusively on interinstitutional relations, as the additional task of cultivating relations with different Ministries and local authorities, which had not been envisaged during the project’s design but the need for which became evident during implementation, proved to be too much for the social workers focusing on the training and supervision of Madres Guías\.15 15The social workers for institutional relations coordinated all the inter-institutional activities\. They created and nurtured relations at the departmental (provincial) and municipal level with community leaders, municipalities and central government agencies and ministries such as SESAN and MSPAS\. They also provided support to the social workers in the field working with Madres Guías and produced educational materials\. Page 26 of 53 The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) o Adapting the numbers and distribution of families assigned to Madres Guías\. Instead of assigning equivalent numbers per person, ranges were established to allow flexibility to assign families based of geographical dispersion\. o A package of non-monetary incentive was provided to Madres Guías o Given that the Reach Up modality did not include a community meeting, it was decided to organize meetings every three months to gather groups of three Madres Guías and their beneficiary mothers and children to share experiences\. o For the Ventana de la Vida modality, another volunteer mother was assigned to the Madre Guía to entertain the older siblings that also attended the CEOs\. IV\. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME A\. QUALITY OF MONITORING AND EVALUATION Rating: High 56\. Design\. The project design included monitoring and evaluation and knowledge dissemination through: (i) the carrying out of monthly monitoring and analysis of Project progress and status of child development and behaviors; (ii) financing process evaluations; (iii) the elaboration of an experimental impact evaluation design and the carrying out of baseline and follow-up surveys using a representative sample of young children in treatment and control communities; and (iv) the dissemination of lessons learned from the Project process evaluation and evidence of impact among stakeholders and government decision-makers to encourage sustainability and scale-up\.16 57\. Implementation\. The Bank team carried out regular field visits to Guatemala City and to the communities where the two programs were being implemented\. Regular missions, which always included field visits, were critical to providing timely technical feedback to ChildFund, which allowed them to implement corrective measures throughout implementation\. Examples of how feedback affected implementation include how both modalities were implemented, adjustment of M&E tools, implementation of the community fairs and changes to their content (messages to be included, adding Wash, Sanitation and Hygiene (WASH), etc\.), community validation and implementation of grievance mechanisms, among others\. 58\. The findings from these missions led to two restructurings\. In addition, an ICR mission was included in the last supervision mission before the Grant’s closing\. Most critically, the impact evaluation included in the Project’s design was completed as envisaged, and its preliminary results are shared in this report\. 59\. Utilization\. As a result of implementation support missions, process evaluations, and ChildFund’s progress reports, adjustments were made to program design during implementation\. Examples of such adjustments include the introduction of the Reach Up modality; the revision of Reach Up’s curriculum to adapt to the 16Through LEGO, the Reach Up and Ventana de la Vida modalities are being reviewed, and one intervention being considered merges both (home visits plus group sessions)\. There are also discussions with MINEDUC to utilize the model, as this has already been tested for these areas in Guatemala\. Page 27 of 53 The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) Guatemalan context; the adaptation of the IPP; the introduction of checklists for social workers to measure how well Madres Guías were performing; increasing the frequency of encounters between social workers and Madres Guías; standardizing a supervision mechanism for social workers; and changes to the Barrilete, among others\. 60\. Justification of overall M&E rating\. The M&E rating is High, given that the design was appropriate, the work was carried out and is of good quality, and results of the work are being used to inform other ECD initiatives\. B\. ENVIRONMENTAL, SOCIAL, FIDUCIARY COMPLIANCE 61\. Because most beneficiaries were indigenous, the Indigenous Peoples (OP 4\.10) safeguard should not have been triggered, but instead the project should have been considered an indigenous project\. However, project documents indicate that the preparation team did trigger it and therefore an IPP was prepared\. The IPP was supervised and monitored by the Bank team throughout implementation\. The IPP helped ensure that indigenous beneficiaries’ cultural practices and societal structures were carefully considered at every step\. As previously stated, program material was adapted to fit the Guatemalan context, and two local non-profit organizations were hired to help gain access to these traditional communities\. There were no environmental impacts resulting from the project\. Regarding fiduciary compliance, while the implementing agency initially struggled to follow Bank policies and practices, by the end performance was satisfactory\. C\. BANK PERFORMANCE Quality at entry: Moderately Satisfactory 62\. The Grant design was based on international best practices, and carefully considered how it would fit within other Guatemalan initiatives to improve nutrition and overall development of poor children\. However, as noted earlier, PDO indicator targets were too ambitious, which was evident once the adapted Barrilete instrument and other measurement tools were introduced\. In addition, the time to adapt the ECD curricula and assessments tools to the indigenous Guatemalan context was underestimated, leading to implementation delays\. A well-respected NGO that had deep experience in indigenous communities, and that knew and respected local customs and practices, was selected to implement the grant\. However, the fact that ChildFund had never implemented a World Bank project should have signaled the need for intense training and supervision during preparation and initial stages of Grant execution\. Instead, implementation took some time to take off as ChildFund climbed the learning curve\. In addition, because the team had not learned about Guatemala’s labor laws, it took more time to hire the Program Coordinator, also affecting the initial implementation phase\. Had the Bank team learned of the particularities of Guatemala’s labor laws, it may have also avoided the halt to implementation that took place while the issue of social workers’ payment was resolved\. The Bank team, however, successfully obtained a waiver to pay for social workers’ salaries on an exceptional basis, readjusted the Grant through a comprehensive restructure, and provided needed training and support to get ChildFund up to speed and the pilot project on track\. Because of these initial issues at entry, quality is rated as MS\. Page 28 of 53 The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) Quality during implementation: Satisfactory 63\. The Bank team carried out regular supervision missions and worked diligently, in between those missions, to resolve implementation bottlenecks identified during those visits \. One example is the restructuring of the Grant to drop nutrition activities under Component 2: when it became clear that ChildFund did not have the capacity to deliver high quality instruction in this area in addition to early childhood stimulation activities within a limited timeframe, the Bank team added a nutritional component at the community fairs, and counted on Crecer Sano activities to salvage the nutrition part of the community interventions\. Another example was the issue of ineligible expenditures caused by the hiring of social workers as regular employees, instead of consultants\. In 2017, the FM specialist noted that the social workers hired by the local organizations for carrying out subprojects were appointed under a permanent employment contract instead of under consultant services\. Initially this was considered to be against the operational manual and in violation of the sub-grant agreement signed with Child Fund\. ChildFund explained that this arrangement was made to comply with Guatemala’s Labor Law, which stated that when a person is hired for more than a year, is provided with a physical work space, tools and equipment to perform a job, and reports to a supervisor, that person is automatically considered an employee (Implementation Status and Results, December 2017)\. The team sought approval from the donor (Government of Japan) for these exceptional expenditures, based on the Bank team’s argument that social workers were key to the achievement of the PDO and did not contradict overall Bank guidelines on eligibility of expenditures\. The Japanese government approved this request in January 2018\. The ability to make practical, rational, and timely decisions in these two cases, showcases the good judgment and flexibility of the Bank team which was key to the successful outcome of the Grant\. 64\. Most importantly, the success of the two modalities helped ChildFund to win a grant from the Lego Foundation to continue work on early stimulation interventions\. The Lego grant is considering merging the two modalities (home visits and group sessions) and has required a Memorandum of Understanding (MOU) to be signed between ChildFund and the Ministry of Education, which should strengthen ties between the NGO and central government interventions\. The Crecer Sano project and MIDES are also potential spaces to try to secure continuity and sustainability, although when new authorities are in place will there be progress in this area\. V\. LESSONS LEARNED AND RECOMMENDATIONS 65\. By generating local capacities, the NNLS empowered people, particularly women, to be the managers of their own development, which bodes well for the sustainability of the initiative\. Traditionally indigenous communities are presented with top down models, reminiscent of colonial dominance and that are referred by indigenous people as mere assistance, where they are only passive recipients of social handouts\. NNLS was not an extension program either, where an external organizer come to the communities and implements without generating capacities\. The NNLS had mothers carrying out the program and teaching their peers, which at the end resulted in increased capacities, self-esteem and determination, increasing the social capital of these communities, using as a common narrative the wellbeing of their children\. Page 29 of 53 The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) 66\. To work with indigenous communities, it is critical to respect their societal structures and to hire social workers from the community to ensure smooth implementation\. Because these communities have a long history of being marginalized and because of years of societal unrest, the only way to gain entry to them is to work with organizations who the indigenous trust\. The two NGOs hired by ChildFund met these criteria, and each understood the indigenous governance structure\. This was key to knowing with whom to meet and establish agreements, and even with that, there were a few communities that refused to participate in the pilot\. In addition, it was crucial to hire local social workers that spoke the Mayan languages Mam or K’iche’ because they had to train the Madres Guías and being able to interact with beneficiary mothers and children to monitor child development\. Some children or mothers did not speak Spanish, and some concepts do not translate directly between Spanish and the Mayan languages, so the social workers needed to interpret and explain the concepts more accurately in the Mayan language\. There were also variations between the same Mam language from different locations, so the social workers needed to be familiar with these differences\. Without this language mediation of the social workers, the program would not have had the same degree of success\. 67\. Stipends to cover costs incurred by the Madres Guías should be considered, as having their performance based on altruism and personal commitment may not be sustainable in the long run\. Madres Guías spent time training, preparing the program and walking long distances to do house visits, particularly in the Reach Up modality\. Any change in their life may alter their availability to volunteer\. This issue came up in all interviews conducted with Madres Guías during the ICR research\. In each interviewed group, there was at least one Madre Guía who expressed that they should receive an in-kind or monetary compensation\. To this, program managers responded that if Madres Guías were to be paid, that would change the incentives for which the work is done\. However, Madres Guías and their families live in such poverty and have competing responsibilities that it would make sense to provide some amount of compensation for their volunteer work\. 68\. Implementing pilots, and incorporating feedback mechanisms is critical to incorporating lessons learned in a timely manner\. Doing so helped NNLS adjust and improve implementation during the pilot\. Since the ECD program curricula was new, program implementors had to pilot and test not only the contextualization of methodologies and monitoring tools, but also had to learn and adjust during the implementation process\. Program managers therefore included feedback mechanisms into implementation\. Periodic revision meetings were conducted, and social workers and Madres Guías were given voice to suggest and make changes\. A consultation process for beneficiaries was established at the community fairs and a grievances redress mechanism was established\. In terms of the impact evaluation, the piloting of the ASQ-I helped determine that this was not an appropriate tool to be implemented in rural indigenous contexts, which to the adoption of the MDAT assessment instead\. Feedback and flexibility resulted in dynamic operational processes that improved Grant execution\. 69\. When JSDF grants are executed by NGOs/CSOs, particular attention should be given to building procurement and financial capacity within these organizations\. ChildFund was inexperienced with World Bank financial systems as most NGOs/CSOs would be since they are not the traditional implementing agencies of World Bank projects\. The Bank should implement an upfront fiduciary assessment and develop a formal FM/procurement immersion program to build capacity JSDF grants’ recipients\. Some hand-holding and accompaniment should be provided until the grant implementors are comfortable with the procedures\. In the Page 30 of 53 The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) case of ChildFund, it made a difference to hire a procurement specialist with significant experience on World Bank’s FM policies and procedures\. 70\. It is important that World Bank teams review national labor regulations before any project to guarantee that Bank FM policies do not supersede them\. The Guatemalan Law did not allow contracting the social workers as consultants\. By not realizing this before going into implementation, the Bank spent time and energy resolving the issue, and requesting an exception from the Grant donor\. 71\. The Bank should standardize FM and procurement policies for all its trust funds, so they do not conflict\. Under the WB’s Investment Project Financing (IPF), contracting social workers as permanent staff would not had been an issue\. The issue was with JSDF financial policies\. Putting these FM policies in line would have avoided the violation of grant policies\. 72\. In low capacity environments, the Bank should take responsibility for impact evaluations to ensure independence of assessments and also quality\. In the case of Guatemala, ChildFund contracted the survey firm for the baseline, but when there were problems with the quality of the firm’s work, it was difficult for the Bank to work directly with the firm to resolve those problems\. The Bank could not assume a supervisory role and had to rely on ChildFund to interact with the firm\. The Bank team addressed this issue by directly hiring a different firm to collect the endline data, once the baseline firm had completed its work\. Fortunately, the Bank had piloted and adapted the assessment tools before the firms were contracted, so the quality of the data was not compromised\. 73\. How the survey firm reaches out to the households could affect the future engagement for the program\. In a few cases, the survey firm collecting the baseline told households that the pilot program would bring other services to them, which was never part of the project design\. This led to a rejection of the program from some families/communities, and it could have ramifications if future work is to be carried out in those areas\. 74\. Close collaboration between the operational and research teams is key for allowing flexibility in the design of the evaluation to respond to realities in the field\. For example, the adaptation of the instruments and the preparation of the survey firm were taking longer than expected, but the program needed to start the intervention\. The research team therefore reviewed the list of communities and separated those that could be used for the first phase, and those that were going to be part of the impact evaluation\. This allowed the operational team to start the implementation in areas outside the study without the need to wait for the baseline completion\. 75\. Given the high rates of stunting and malnutrition in the country, the World Bank should take advantage of the pilot experience to disseminate the lessons learned and to show case it internationally as a reference for other Latin American countries with indigenous populations\. The Grant generated capacities in psychometrics and in the implementation of culturally appropriate ECD curricula by people from the same indigenous communities\. With NNLS, Guatemala became a pioneer in the socio-cultural adaptation of the internationally recognized Reach Up and MDAT tools to a rural indigenous context\. The program spent significant time and resources adapting Reach Up, the respected early childhood parenting program from Jamaica, and MDAT, the alternative assessment tool for childhood development in rural Africa\. Other World Page 31 of 53  The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) Bank-funded projects such a Crecer Sano currently under first stages of implementation in Guatemala, should absorb the majority of these lessons and material produced, to also ensure sustainability of this experience\. \. Page 32 of 53  The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) ANNEX 1\. RESULTS FRAMEWORK AND KEY OUTPUTS A\. RESULTS INDICATORS A\.1 PDO Indicators Objective/Outcome: Increase community participation in monitoring child development indicators Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Percentage of children Percentage 0\.00 70\.00 60\.00 64\.00 achieving the expected development level for their age 18-Mar-2015 07-Nov-2018 30-Jun-2019 30-Mar-2019 Comments (achievements against targets): Baseline: No data available at that time\. Objective/Outcome: Improve caretakers' interactions with young children to enhance their physical, cognitive and emotional development outcomes Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Percentage of participating Percentage 0\.00 70\.00 40\.00 32\.00 households with enhanced early stimulation practices 18-Mar-2015 07-Nov-2018 30-Jun-2019 30-Mar-2019 Page 33 of 53  The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) Comments (achievements against targets): A new measurement tool was added to better reflect this outcome; target updated\. Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Number of children that are Number 0\.00 5500\.00 5500\.00 4506\.00 direct beneficiaries of the Project 18-Mar-2015 30-Jun-2019 30-Jun-2019 30-Mar-2019 Comments (achievements against targets): This is a new indicator included as part of the restructuring\. A\.2 Intermediate Results Indicators Component: Component 2\. Enhanced social and behavior change communication to achieve improved child nutrition and development Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Number of community fairs Number 0\.00 188\.00 188\.00 230\.00 implemented with an ECD approach 18-Mar-2015 30-Jun-2019 30-Jun-2019 30-Mar-2019 Comments (achievements against targets): Page 34 of 53  The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) Component: Component 3\. Project management and administration\. Monitoring and evaluation, and knowledge dissemination Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Baseline survey conducted Text No Yes Yes Yes 20-Oct-2015 01-Jun-2016 01-Jun-2016 01-Mar-2017 Comments (achievements against targets): Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Quarterly progress reports Number 0\.00 16\.00 16\.00 16\.00 completed 18-Mar-2015 07-Nov-2018 30-Jun-2019 30-Mar-2019 Comments (achievements against targets): Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Mass events hosted for Number 0\.00 16\.00 2\.00 2\.00 departmental health systems 18-Mar-2015 07-Nov-2018 30-Jun-2019 30-Mar-2019 Page 35 of 53  The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) Comments (achievements against targets): activities were scaled down as part of restructuring Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Final Impact Evaluation survey Text No Yes Yes No conducted 18-Mar-2015 07-Nov-2018 30-Jun-2019 30-Mar-2019 Comments (achievements against targets): Component: Component 1: Promotion of physical, cognitive, linguistic and socio-emotional development through a parenting and early stimulation intervention Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Diagnostic of early childhood Text No Yes Yes Yes development beliefs and practices in beneficiary 18-Mar-2015 30-Nov-2015 30-Nov-2015 15-Jun-2018 communities is completed Comments (achievements against targets): Indicator Name Unit of Baseline Original Target Formally Revised Actual Achieved at Page 36 of 53  The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) Measure Target Completion Monitoring tool to track child Text No Yes Yes Yes development is developed 18-Mar-2015 01-Apr-2016 01-Apr-2016 15-Jun-2018 Comments (achievements against targets): Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Number of project Number 0\.00 100\.00 100\.00 94\.00 communities implementing Level 1 (Ventana de la Vida) 18-Mar-2015 30-Jun-2019 30-Jun-2019 30-Mar-2019 and Level 2 (Reach Up) activities Comments (achievements against targets): This is a new intermediate indicator included in the restructuring\. Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Percentage of COCODES Percentage 0\.00 70\.00 70\.00 76\.00 (Consejos comunitarios de Desarrollo) implementing 18-Mar-2015 30-Jun-2019 30-Jun-2019 30-Mar-2019 activities in favor of childhood Page 37 of 53  The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) in their communities Comments (achievements against targets): Baseline: Data not available at that time\. Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Number of Madres Guias Number 0\.00 595\.00 595\.00 371\.00 trained to apply level 1 methodology (Ventana de la 18-Mar-2015 30-Jun-2019 30-Jun-2019 30-Mar-2019 Vida) Comments (achievements against targets): This new intermediate results indicator was included in the restructuring\. Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Number of Madres Guias Number 0\.00 450\.00 450\.00 523\.00 trained to apply level 2 methodology (Reach Up) 18-Mar-2015 30-Jun-2019 30-Jun-2019 30-Mar-2019 Comments (achievements against targets): This new intermediate results indicator was included in the restructuring\. Page 38 of 53  The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Number of children Number 0\.00 4480\.00 4480\.00 2833\.00 participating in level 1 activities (Ventana de la Vida) within 18-Mar-2015 30-Jun-2019 30-Jun-2019 30-Mar-2019 CEO's strategy Comments (achievements against targets): This new intermediate result indicator was included in the restructuring\. Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Number of children Number 0\.00 1920\.00 1920\.00 1673\.00 participating in level 2 activities (Reach Up) 18-Mar-2015 30-Jun-2019 30-Jun-2019 30-Mar-2019 Comments (achievements against targets): This new intermediate results indicator was included in the restructuring\. Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Page 39 of 53  The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) Percentage of Madres Guias Percentage 0\.00 70\.00 70\.00 47\.00 with quality implementation of level 1 and level 2 activities 18-Mar-2015 30-Jun-2019 30-Jun-2019 30-Mar-2019 Comments (achievements against targets): This new intermediate results indicator was included in the restructuring\. Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Number of CEOs implemented Number 0\.00 80\.00 80\.00 79\.00 18-Mar-2015 30-Jun-2019 30-Jun-2019 30-Mar-2019 Comments (achievements against targets): Unit was changed to Percentage at final ISR dated June 25, 2019\. This new intermediate results indicator was included in the restructuring\. Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Number of midwives in the Number 0\.00 900\.00 900\.00 1473\.00 catchment areas of the project, trained in exclusive 18-Mar-2015 30-Jun-2019 30-Jun-2019 30-Mar-2019 breastfeeding and oportune stimulation by the social workers Page 40 of 53  The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) Comments (achievements against targets): This new intermediate results indicator was included in the restructuring\. Page 41 of 53  The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) B\. ORGANIZATION OF THE ASSESSMENT OF THE PDO Objective/Outcome 1: To strengthen the capacity of parents and communities to improve and monitor child development outcomes (physical, cognitive, socio-emotional, and linguistic skills) for children under two in Project intervention areas\. 1\. Percentage of children achieving the expected development level for their age\. End Target: 60 % (revised from original target of 70%) 2\. Percentage of participant households with enhanced early Outcome Indicators stimulation practices\. End Target: 40% (revised from original target of 70%) 3\. Number of children that are direct beneficiaries of the Project\. End Target: 5,500 children Component 1: Promotion of physical, cognitive, linguistic and socio-emotional development through a parenting and early stimulation intervention IRI_1: Diagnostic of early childhood development beliefs and practices in beneficiary communities is completed IRI_2: Monitoring tool to track child development is developed Intermediate Results Indicators IRI_4: Number of project communities implementing Level 1 (Ventana de la Vida) and Level 2 (Reach Up) methodologies\. End Target: 100 % IRI_5: Percentage of COCODES (Consejos Comunitarios de Desarrollo) implementing activities in favor of childhood in their communities End Target: 70% Page 42 of 53 The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) Component 2\. Enhanced social and behavior change communication to achieve improved child nutrition and development IRI_3: Number of community fairs implemented with an ECD approach End Target: 188 community fairs Component 3\. Project management and administration\. Monitoring and evaluation, and knowledge dissemination IRI_1: Baseline survey conducted IRI_2: Quarterly progress reports completed\. End Target: 16 reports IRI_3: Mass events hosted for departmental health systems\. End Target: 2 events IRI_4: Final Impact Evaluation survey conducted IRI_6: Number of Madres Guías (MG) trained to apply level 1 methodology (Ventana de la Vida)\. End Target: 595 MG IRI_7: Number of Madres Guías trained to apply level 2 methodology (Reach Up)\. End Target: 450 MG IRI_8: Number of children participating in level 1 activities (Ventana de la Vida) within ‘Casas de Evaluación y Orientación- CEO's strategy\. End Target: 4,480 children IRI_9: Number of children participating in level 2 activities (Reach Up)\. End Target: 1,920 children Page 43 of 53  The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) IRI_10: Percentage of Madres Guías with quality implementation of level 1 and level 2 activities\. End Target: 70 MG IRI_11: Number of CEOs implemented\. End Target: 80 CEOs IRI_12: Number of midwives in project catchment areas trained in exclusive breastfeeding and opportune stimulation by the social workers\. End Target: 900 midwives 1\. Key Outputs by Component 2\. (linked to the achievement of the Objective/Outcome 1) 3\. 4\. Page 44 of 53  The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) \. ANNEX 2\. RECIPIENT, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS 1\. ChildFund provided comments to the draft ICR in December 2019\. These comments were fully incorporated into the final report\. Page 45 of 53 The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) ANNEX 3\. IMPACT EVALUATION METHODOLOGY 1\. The objective of the evaluation is to measure the impact of each of the implementation modalities (home visits and group meetings) on children's development and parents' behavior\. More specifically, the evaluation seeks to answer the following questions: 1\. Does the program improve children's cognitive development (problem solving, communication, and fine motor skills)? Does the program improve nutritional indicators? 2\. Does the program help to promote changes in perceptions, behaviors in parents that lead to improved early childhood stimulation in the home? Does the program contribute to reducing mothers' levels of depression and strengthening their empowerment? 3\. Which modality of the program (home visits or group sessions) is most cost-effective? 2\. The evaluation seeks to capture the causal effects of the intervention through an experimental design based on a randomized controlled trial (RCT)\. 115 communities located in the departments of Huehuetenango, San Marcos, Quiche and Totonicapán in which the program had the capacity to operate, were randomized into three groups: - Treatment 1: Home visits (38 communities) - Treatment 2: Group meetings (38 communities) - Control: No child stimulation program (39 communities) Baseline Survey 3\. Within each community, approximately 20 children under 12 months, pregnant women plus a maximum of 5 replacements were selected to participate in the baseline survey using an ad hoc census collected prior to the baseline survey and also information from the community\. 4\. The baseline was collected between October 2016 and January 2017\. The final sample collected includes 2,022 households and 2,022 children up to 24 months in 113 communities\. End-line survey 5\. The endline survey was collected between February and May 2019 on 113 communities and 2,022 households\. Analysis 6\. Given that not all households in the treatment group received NNSL, the impact of the program is measured based on intention-to-treat (ITT) effects to avoid a selection bias in the comparison between treatment and control groups\. Treatment on the treated was estimated to reflect the impact on those that effectively received the treatment (TOT)\. 7\. The study will estimate the ITT and the TOT effects\. Page 46 of 53 The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) Intent-to-Treat (ITT) Analysis Ordinary least squares (OLS) models were ran to examine the effects of random assignment to Reach Up or home visits (HV) and Ventana de la Vida or group meetings (GM)\. í µí±¦í µí±–í µí±? =𝛼0 + 𝛼1 í µí°»í µí±‰í µí±–í µí±? + 𝛼2 í µí°ºí µí±€í µí±–í µí±? + 𝛼3 í µí±‹í µí±–í µí±? + 𝛼4 í µí»¾í µí±? + í µí¼–í µí±–í µí±? Treatment on the Treated (ToT) Analysis To understand the effects of “participation in HVâ€? and “participation in GMâ€?, the lottery assignment was used as an instrument í µí±?í µí±Ží µí±Ÿí µí±¡í µí°»í µí±‰í µí±–í µí±? = 𝛽0 + 𝛽1 í µí°»í µí±‰í µí±–í µí±? + 𝛽2 í µí±‹í µí±–í µí±? + 𝛽4 í µí»¾í µí±? + í µí¼‡í µí±–í µí±? í µí±?í µí±Ží µí±Ÿí µí±¡í µí°ºí µí±€í µí±–í µí±? = 𝛿0 + 𝛿1 í µí°ºí µí±€í µí±–í µí±? + 𝛿2 í µí±‹í µí±–í µí±? + 𝛿4 í µí»¾í µí±? + í µí¼‹í µí±–í µí±? ̂ í µí±–í µí±? + 𝛼3 í µí±‹í µí±–í µí±? + 𝛼4 í µí»¾í µí±? + í µí¼–í µí±–í µí±? ̂ í µí±–í µí±? + 𝛼2 í µí±?𝑎𝑟𝑡𝐺𝑀 í µí±¦í µí±–í µí±? =𝛼0 + 𝛼1 í µí±?𝑎𝑟𝑡𝐻𝑉 8\. The team also explored the distance to the center of the community as that could have affected the probability of participating in the program\. Selected Instruments 1) Child development: Malawi Developmental Assessment Tool (endline), Age and Stages Inventory (baseline)\. 2) Instruments for measuring early childhood stimulation in the home\. a\. Short version of "Home Observation for the Measurement of the Environment (HOME-SF)\. b\. Family Care Indicator (FCI) 3) Maternal Knowledge on child development: KIDI 4) Maternal Depression: Center for Epidemiologic Studies Depression Scale-Revised (CESD-R)\. Validation of the methodology 9\. Balance among groups were exhaustively tested to validate the randomization process (106 variables), see figure 5\.1\. The team tested 22 variables for family characteristics, 13 child characteristics (age, gender, language, premature, birthweight, breastfeeding), 20 economic indicators (employment, hours worked, salary), 17 variables for nutrition (intake of proteins, dairy, fruits, cereals, vegetables, sugars, etc\.), 21 intermediate outcomes (all subtests of home, fci, maternal depression, and time spent with children), 13 outcome variables (weight for age, height for age, stunting, extreme stunting, underweight, fine motor, problem solving, communications)\. Page 47 of 53 The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) Figure 5\.1\. Baseline Balance 100% 80% 60% 40% 20% 0% Child is low Maternal Percentage in Father is Caregiver can Protein Stunting birth weight depression poverty employed read intake Control Group Ventana de la Vida Reach Up 60 50 40 30 20 10 0 Communications Fine Motor Problem solving Control Group Ventana de la Vida Reach Up Note: Outcome variables are reported as raw scores\. Source: Trias, Julieta and Irma Arteaga (2020) “Home visitation or group intervention? Effects of early stimulation on child wellbeing in rural Guatemala: A cluster randomize control trialâ€? World Bank mimeo Page 48 of 53 The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) ANNEX 4\. DESCRIPTION OF THE NUESTROS NIÑOS SANOS Y LISTOS (NNSL) PILOT PROJECT 1\. Nuestros Niños Sanos y Listos (NNSL) is a pilot project implemented by ChildFund Guatemala together with CEDRO and ACODIHUE, two local NGOs with extensive work experience in the areas of intervention\. The project’s main objective was to strengthen the capacity of parents and communities to improve and monitor child development outcomes (physical, cognitive, socio-emotional, and linguistic skills) for children under two in intervention areas\. The Project had two intervention modalities: 2\. Ventana de la Vida (Group intervention) The methodology has been developed and implemented by ChildFund for about a decade\. It consists of group meetings held twice a month in which a Madre Guía would train between 10 to 15 mothers in early childhood stimulation\. The meetings took place at a community center or at the house of the Madre Guía and lasted for about an hour\. The meetings began with a welcoming message and a song, introduction of the topic by the Madre Guía, demonstration of the activities, games and exercises\. The mothers practiced the activities with the children and the meeting ended with a group discussion summarizing a couple of key messages\. The mothers committed to practice, at home, the activities they learned at the group meetings\. Educational materials and toys were made available at each session\. The meetings venues were called Casas de Evaluación and Orientación (Houses for assessment and orientation), or CEOs\. 3\. Reach Up (Individual home visits) Reach Up is an internationally recognized early childhood parenting program developed by Jamaica’s University of the West Indies and backed by over 30 years of research\. The program consists of forty-five minute home visits, in which a Madre Guía shows mothers simple ways of interacting with their children using recycled toys, books, songs and personal interactions\. At each visit the Madre Guía introduces a topic, demonstrates the activities and explains the objectives of the toys and how to use them\. The Madre Guía observed the caregiver practicing with the child and provided feedback, the visit typically ended with a song\. The toys were left at home until they were replaced with different toys at the next session, since they were topic- and age-specific\. In order to have a group experience, this modality combined the home visits with a group session every 3 months so mothers could share and discuss what they had learned in the program\. 4\. Both modalities include agendas or guides for the Madres Guías to deliver the topics at each session\. The content and presentation of these materials were adapted to the indigenous Guatemalan context\. Assessment Tool 5\. To monitor the development of the children, both modalities used an assessment tool called “ El Barrileteâ€? (the Kite)\. The tool is designed to monitor the development of children 0-36 months in the following five areas: gross motor skills, fine motor skills, language and communication skills, socio-emotional skills and cognitive skills (see figure 6\.1)\. Each of these areas represented a side of the kite, and an analogy was made that if one of the sides of the kite was not functioning properly, the kite would not fly well\. Similarly, a child needed to develop all the five areas in order to thrive\. The Barrilete has eight phases of evaluation according to the age of the child: 0-3 months; 3-6 months; 6-9 months; 9-12 months; 12-16 months; 16-20 months; 20- 24 months and 24-36 months\. Page 49 of 53 The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) 6\. The Barrilete used a traffic light color code to assess the child: red if the child could not do any of the activities in the five areas assessed; yellow if the child could do one or two activities in each of the areas; and green if the child could do all the activities in the five areas being evaluated\. The Barrilete was implemented by the Madres Guías and social workers\. Based on the results, they would offer the parents feedback to strengthen the areas that needed more development\. In addition to the Barrilete, the Madres Guías and social workers also measured weight and height of the child and checked the vaccination schedule\. Figure 6\.1\. Barrilete Assessment Tool (0-3 Months) Targeting and Eligibility Criteria 7\. NNLS was implemented in 100 communities in the Departments of Huehuetenango, Quiché, San Marcos and Totonicapán (see figure 6\.2)\. These Departments have the highest levels of malnutrition (more than 70 percent) and poverty (80 percent) in the country according to the ENSI\. Within these Departments, municipalities with the highest level of chronic malnutrition were chosen, which were also prioritized by the Hambre Cero (Zero Hunger) Program, a government flagship program\. 8\. About five to six communities were selected in each municipality considering the incidence of children under two years, geographical feasibility to facilitate supervision and absence of other nutrition and childhood development interventions\. One hundred and fifty communities were selected in total\. Page 50 of 53 The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) Figure 6\.2\. Geographical Distribution of the NNSL Pilot Project NNSL COVERAGE BY DEPARTMENTS Quiche Totonicapán San Marcos Huehuetenango 11% 15% 49% 25% Source: NNSL Infographics, ChildFund 2019 Beneficiary profile 9\. In total 4,161 children benefited from the project (51 percent boys and 49 percent girls)\. The caretakers that participated in the program were almost exclusively women (99 percent), with their average age ranging from 28 to 31 years old depending on the Department\. About 95 percent of the beneficiaries were Mayan from the K´iché (62 percent) and Mam (33 percent) ethnic groups\. The level of education of the caretakers was low\. About 20 percent of the beneficiary caretakers did not have any schooling, while 43 percent did not finish elementary school\. About 77 percent of the caretakers were stay-at-home mothers while 9 percent worked in the informal sector\. Page 51 of 53 The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) 10\. The program trained 965 Madres Guías but only 849 were certified\. About 98 percent of them were Mayan also from the K´iché and Mam ethnic groups\. The average age of the Madres Guías was about 32 years\. About 17 percent of them were illiterate and 34 percent did not finish elementary school\. Most Madres Guías were stay-at-home mothers and about 90 percent did not receive any other social program\. To get certified, Madres Guías received six days of four-hour sessions\. The trainings were conducted in the local language and were adapted to the context and low level of education of the Madres Guías, using andragogic techniques\. Other Program Areas Community Fairs 11\. The community fairs were implemented to sensitize and train the broader community on issues of childhood development\. During the fairs, community members and leaders who were not receiving any of the two modalities of the NNSL program could participate\. The fairs were conducted every two to three months and were structured in “Centersâ€?, or stands, featuring four main areas: 1\. My world of toys\. This center focused on sensitizing about the importance of playing to stimulate children’s brain development\. This center usually included an activity to create a toy out of recycled materials\. 2\. Food of love -breastfeed, give life\. This center emphasized the importance of exclusive breast feeding during the first six months of life, including the benefits of the colostrum\. This center would train mothers on how to effectively breastfeed\. 3\. Water, sanitation and adequate food management\. At this center, participants are sensitized about adequate sanitation to reduce the incidence of infectious gastrointestinal and respiratory diseases that affect children’s development\. Participants were trained on sanitation best practices and effective management of waste\. 4\. My favorite menu\. The objective of this center was to learn the nutritional value of healthy food, many of it already planted and harvested by the families\. Participants learned about healthy recipes using local produce\. 12\. Project staff coordinated with government institutions for some of the specialized content delivery at the community fairs\. Some topics were prepared in coordination with MAGA, SESAN, DMS, MSPAS, MIDES as well as local and municipal authorities\. 13\. Community Fairs also combined cross-cutting issues of interest for the community such as children’s rights, parenting with love and disaster risk management\. The activities at the centers followed the Decroly method, a pedagogical approach developed by Belgian Ovile Decroly (1871–1932)\. The Decroly method organizes educational content based on centers of interest and educative games\. The centers delivered the content based on three activities: 1) observation: the participant needs to have direct contact with object and situations; 2) association: the participant should relate the space and content with his/her own situations\. S/he should be able to identify a cause and effect; and 3) expression: the participant should execute an activity such as reading, writing, drawing, estimating or working on a craft\. Page 52 of 53 The World Bank Pilot to Improve the Development and Nutrition of Young Children in Poor Rural Areas in Guatemala (P145410) Training to Midwives 14\. The NNLS also coordinated with health districts to train midwives as they are the first line of maternal health care providers in the communities of intervention\. Every three months, one-hour trainings were provided to about 50 midwifes on pre-natal and early childhood stimulation\. The project trained 611 in total midwives\. Consultation process and grievance mechanisms 15\. As established in the IPP, the NNSL developed a community consultation process, on program performance\. At the community fairs, along with the traditional four centers, a consultation center was added in which community members were asked to provide feedback about the program\. The consultations were conducted in the local language and asked three specific questions: what has been good about the NNLS project? What has been bad? How can the project be improved? The questions had to be answered from the perspective of the children, the families and the community\. Madres Guías also held their own consultation process during their evaluation or “strengtheningâ€? meetings\. 16\. A grievance mechanism was also established and communicated to the community during the consultation process\. This mechanism included phone numbers of technical staff who could be contacted to submit complaints\. There were also channels to scale complaints to NNSL leadership and community authorities if necessary\. Page 53 of 53

REVIEW

P069947

 ICRR 12575 Report Number : ICRR12575 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 03/16/2007 PROJ ID : P069947 Appraisal Actual Project Name : Ain Temouchent US$M ): Project Costs (US$M): 112\.85 109\.13 Emergency Earthquake Recovery Project Country : Algeria Loan /Credit (US$M Loan/ ): US$M): 83\.5 78\.6 Sector Board : UD US$M ): Cofinancing (US$M): 0 0 Sector (s): Housing construction (56%) Other social services (26%) Central government administration (10%) General water sanitation and flood protection sector (6%) Roads and highways (2%) Theme (s): Natural disaster management (100% - P) L/C Number : L7023 Board Approval Date : 06/22/2000 Partners involved : Closing Date : 12/31/2003 05/31/2006 Evaluator : Panel Reviewer : Group Manager : Group : Anna Amato Peter Nigel Freeman Alain A\. Barbu IEGSG 2\. Project Objectives and Components: a\. Objectives: To restore normal functioning of communities damaged by the December 22, 1999 earthquake in the region of Ain Temouchent and to increase national preparedness for future disasters \. The objective would be reached by : - strengthening the capacity to disaster response of the civil protection entities; - strengthening of the existing system of earthquakes monitoring and studies; - strengthening the guidelines for para -seismical design and control of construction; - promoting risk coverage, specially insurance, to reduce the financial impact of disaster on the national budget; - supporting the government for the construction of durable housing units in the earthquake affected area; - restoring the essential urban services (drinkable water, sewage, roads ); - rebuilding the public social equipment for education, health, and administration \. b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components (or Key Conditions in the case of DPLs, as appropriate):  A\. Disaster Organization and Risk Management (App\.US$9\.37 million; Actual US$6\.67)\. This includes purchase of emergency response equipment, construction of civil protection facilities, assessment of communications systems used in civil protection, upgrading of communication and information systems used in civil protection, seismic risk assessment and monitoring network upgrades, assessment of building code enforcement, assessment of natural hazard insurance programs\. B\. Housing (App\. US$65\.78 million; Actual US$48\.42)\. This includes the building or reconstruction of 3400 rental units and 800 single unit homes\. C\. Technical Infrastructure (App\. US$8\.39 million; Actual US$3\.81) This includes the repair of water supply and sewerage systems and construction of a wastewater treatment plant; repair or reconstruction of 45 kms\. of roads; D\. Social Infrastructure (App\. US$26\.78 million; Actual US$49\.22) This includes repair of 12 schools, 8 small health centers and construction of a 240 bed hospital; and the reconstruction or repair of 17 public buildings (post offices, court house, etc\.) E\. Project Implementation (App\. US$1\.69; Actual US$0\.17) This includes the establishment of an Interministerial Committee for Coordination and Follow-Up for the Ain Temouchent Disaster Area and of a Project Coordination Unit \. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: The GOA requested cancellation of non -committed funds of US$0\.79 million and an additional US$4\.07 million was not disbursed\. Almost one fourth of the loan amount, US$ 17\.4 million dollars, was shifted from the Housing Construction Component to the Social Infrastructure Component, specifically the construction of the new hospital \. It is not explained explicitly in the ICR but it appears to have been for the unexpected costs of building a hospital but did not affect completion of the housing component, which came in under budget \. Because the project was prepared as an Emergency Recovery Loan, it is covered by OP 8\.50, with the terms and conditions applicable at that time, specifically that the project be completed within 3 years\. The original closing date was already half a year beyond policy limitations, and the project was extended yet another two and a half years beyond that due to delays in effectiveness, procurement delays and completion of major infrastructure projects \. 3\. Relevance of Objectives & Design: The project objectives were in line with the CAS, which includes protection of vulnerable groups and transition to a market economy\. They were also relevant to a clear need which was affirmed by both federal and local agencies for better disaster prevention in a seismically active country which also regularly has flooding and pest infestation problems\. And of course, repairing homes and infrastructure after an earthquake are relevant to the economy and well-being of the people of the stricken area, most of whom were poor \. The primary design problem, in retrospect, was including large scale infrastructure in an instrument (ERL) designed for short-term (3-year) completion\. Large scale infrastructure subcomponents (a new hospital and a new wastewater treatment plant) were included in the project\. These were not a direct response to the emergency situation : no water treatment plant was damaged in the event and the hospital that did receive damage was reparable and was repaired by the government\. Most of the delays occurred due to these subcomponents \. 4\. Achievement of Objectives (Efficacy): The objectives were substantially achieved, but with the following problems noted : 1\. Two subcomponents under Component A were not completed : (i) Assessment of communications system for the Civil Protection Directorate was not completed (ii) Purchase of upgraded communications and information management systems\. These subcomponents were not completed due to procurement problems and lack of consultants with this expertise \. 2\. The Social Infrastructure Component included the construction of a hospital, which had significant delays due to approvals needed by the Ministry of Health, and cost overruns \. 3\. The proposed water waste treatment plant was not built upon recognition that it would cost too much and take too long\. The government has planned and budgeted to do this on its own, starting in 2006\. 4\. Only the first phase of a study for stabilization of a major reservoir was completed, because of procurement delays\. 5\. Efficiency (not applicable to DPLs): Because this was an ERL, economic and financial analyses were not done \. However, the project did achieve cost savings over appraisal estimates for almost all components \. The cost of construction was deemed to be 10% to 15% lower than similar investments in others parts of the country, due to the use of small and medium -sized local contractors and the availability of materials from factories close to the worksites \. ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re-estimated value at evaluation : re- Rate Available? Point Value Coverage/Scope*  Appraisal % % ICR estimate % % * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: All of the housing, all of the schools and all of the health centers were completed \. Other than the wastewater treatment plant and the stabilization of the reservoir, all the technical infrastructure was satisfactorily completed \. So the first objective of restoring normal functioning of communities damaged by the earthquake has been satisfied \. Five of the 7 subcomponents for the natural disaster preparedness subcomponents were completed, so the second objective of increase national preparedness for future disasters was mostly met as well\. a\. Outcome Rating : Satisfactory 7\. Rationale for Risk to Development Outcome Rating: Most of the construction was done to higher seismic standards and capacity in earthquake monitoring and disaster management has increased\.The awareness of disaster prevention and management for everyone from the central government to the population as a whole in Algeria is high \. a\. Risk to Development Outcome Rating : Negligible to Low 8\. Assessment of Bank Performance: Including large construction projects (building of a new hospital, and a wastewater treatment plant ) in a short term emergency project was questionable \. Although the project was approved in three months, it took an additional six months after Board approval for effectiveness to occur -- that is, 9 months before any money was available to assist the implementing agencies to recover from this emergency event \. This is an indication that quality at entry had shortcomings \. Also, procurement was problematic\. Otherwise, the indications from the ICR show that Bank staff were responsive and supervision was satisfactory \. at-Entry :Moderately Satisfactory a\. Ensuring Quality -at- b\. Quality of Supervision :Satisfactory c\. Overall Bank Performance :Moderately Satisfactory 9\. Assessment of Borrower Performance: The government was highly committed to the project and they were able to mobilize the resources needed for the project\. There were minor problems with annual reports not being on time \. The PCU was a bit weak\. a\. Government Performance :Satisfactory b\. Implementing Agency Performance :Satisfactory c\. Overall Borrower Performance :Satisfactory 10\. M&E Design, Implementation, & Utilization: Indicators based on the components were developed but, as presented in the ICR, the indicators were not robustly documented\. Monitoring during the project with weekly meetings and quarterly reporting appears to be adequate \. Since it was an emergency operation, a monitoring and evaluation system to evaluate longer -term outcome was not developed\. a\. M&E Quality Rating : Modest 11\. Other Issues (Safeguards, Fiduciary, Unintended Positive and Negative Impacts):  Relocation of affected persons was done well \. Living conditions improved for those affected by the earthquake \. 12\. 12\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Risk to Development Negligible to Low Negligible to Low Outcome : Bank Performance : Satisfactory Moderately Quality at entry is rated "Moderately Satisfactory Satisfactory" due to the delays in disbursement, project design that was not fully consistent with with ERL guidelines for length of implementation, and the inclusion of subcomponents that were not wholly emergency in nature and contributed to the serious delays to which this project was subject\. The current Harmonized ICR Guidelines developed by OPCS, IEG and the Regions stipulate that if a project is rated "Moderately Satisfactory" on either Entry or Supervision, then Overall Bank Performance has to be rated "Moderately Satisfactory\." Borrower Performance : Satisfactory Satisfactory Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate \. 13\. Lessons: 1\. Large,complicated investment components should not be included in ERLs \. In this case, the hospital and wastewater treatment plant added time, money and problems and were not directly related to the project objectives\. Local authorities seized the opportunity to address long -standing problems through an emergency project\. 2\. Up-front training and effort should be put into procurement methods \. This is a frequent problem in ERLs\. 3\. Leadership of the Wali (governor) ensures the effective implementation of an emergency project \. 14\. Assessment Recommended? Yes No Why? The housing component was done well and it would be good to check out whether the seismic construction code enforcement and other disaster prevention activities are sustainable \. 15\. Comments on Quality of ICR: The description of the outputs accomplished could have been more specific and descriptive \. The language was very vague and it was hard to align the outputs described with the subcomponents listed in the original appraisal \. No mention was made of the decision to reallocate a large share of the project funds from one component to another \. There were no Borrower Comments\. a\.Quality of ICR Rating : Satisfactory

REVIEW

P074525

 ICRR 14181 Report Number : ICRR14181 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 09/17/2013 Country : Africa Project ID : P074525 Appraisal Actual Project Name : Waemu Capital US$M ): Project Costs (US$M): 408\.6 252\.7 Market Development Project L/C Number : C3863; CB005 Loan/ US$M): Loan /Credit (US$M): 102\.6 100\.6 Sector Board : Cofinancing (US$M): US$M ): 242\.3 152\.09 Cofinanciers : CIDA, AFD, MIGA, Board Approval Date : 02/26/2004 France, Borrower, Closing Date : 09/30/2009 06/30/2012 Local Sources of Borrowing Country Sector (s): Capital markets (58%); Roads and highways (42%) Theme (s): Regional integration (67% - P); Other financial and private sector development (33% - S) Prepared by : Reviewed by : ICR Review Group : Coordinator : Brian Ames Fareed M\. A\. Hassan Christopher D\. Gerrard IEGPS2 2\. Project Objectives and Components: a\. Objectives: The Project Development Objective (PDO) of the West Africa Economic and Monetary Union (WAEMU) Capital Market Development Project (CMDP) as presented in the Project Appraisal Document (PAD) is to develop the capital markets in the WAEMU region, and mobilize public and private financing for the region ’s infrastructure development\.(PAD, page 3)\. The PDO reported in the Development Credit Agreement (DCA) was to assist the Borrower -- the Banque Ouest-Africaine de Développement (BOAD) -- in developing the UEMOA (Union Economique et Monetaire des Etats de 1 ’Afiique de I’Ouest) capital market and in mobilizing public and private financing for the infrastructure development in such region \. (DCA, page 18)\. Hence, there is a minor difference in language regarding the PDO as presented in the PAD and the DCA, with the later emphasizing “to assist the borrower in developing the capital markets â€? versus the direct aim “to develop the capital markets â€?\. This review uses the objectives in the credit agreement as the benchmark for the evaluation b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components: The CMDP originally consisted of a Technical Assistance (TA) component (US$3\.52 million), a line of credit (LOC) component (US$89\.00 million), a Guarantee Facility (GF) component (US$US$70 million) supported by the International Development Agency (IDA), the Multilateral Investment Guarantee Agency (MIGA), and the French Development Agency (AFD), and a Project Implementation component (US$3\.2 million)\. However, due to persistent implementation problems, the project underwent a Level I restructuring in June 2008, in which the Guarantee Facility component was eliminated, several of the activities in the other components were readjusted, the Monitoring and Evaluation (M&E) framework was revised to reflect these changes, and the closing date was  extended to September 30 2011\. The project went through a subsequent Level II restructuring in September 2011 in which the closing date was extended until June 30, 2011 in order to allow sufficient time for the restructured project to be implemented \. The components of the restructured project are set forth below : Component 1\. Technical Assistance and Institutional Support (cost estimated at appraisal : US$13 13 \.0 million; US$ 13\. US$X \.XX million; actual cost : US$X\. cost estimated at restructuring : US$X\. US$X \.XX million ): This component provided technical assistance to strengthen the regulatory framework for regional capital market operations and technical assistance and training to help strengthen the capacity of the key institutions responsible for regulating and overseeing regional capital markets \. TA to the West Africa Development Bank (Banque Ouest-Africaine de Développement or BOAD) aimed to improve its productivity, facilitate the development of a reference rate for bonds issued within the region, and prepare sub -projects to be covered under the GF \. TA to the capital markets regulator (Conseil Régional de l’Epargne Publique et des Marches Financiers or CREPMF) focused on improving the regulatory framework for equity and bond markets \. TA and training to the West African regional central bank (Banque Centrale des Etats de l ’Afrique de l’Ouest or BCEAO) aimed to facilitate training seminars for market participants\. TA to the West Africa Economic and Monetary Union (WAEMU) Commission focused on studying the harmonization of the tax regimes across the region for medium -term bonds and other financial or capital market instruments, and to the Regional Stock Exchange (Bourse Régionale des Valeurs Mobilières or BRVM) to carry out training for its staff and market participants \. Although this component remained unchanged following the Level I restructuring, the RF was consolidated to focus more specifically on outcomes \. US$ 163\. 163 \.1 million; cost estimated at restructuring : Component 2\. Line of Credit (cost estimated at appraisal : US$163 US$XX \.XX million; actual cost : US$XX\. US$XX\. US$XX \.XX million ): This component extended a credit line to promote economic integration among WAEMU countries by providing necessary long -term resources to fund the foreign currency portion of projects which fostered regional integration \. IDA funding would be allocated to the public sector components of selected investment projects that required preferential and /or long-term financing\. BOAD would on-lend the resources on preferential terms (25-year maturity, 7-year grace period, and 2 percent per annum interest rate) and transfer the foreign exchange risk of the credit to the borrower \. During the Level I restructuring, this component was modified to align it with market demands by increasing the ceiling for financing individual projects to US$20 million and expanding the eligibility criteria to include non -road infrastructure projects and cross-border projects related to food security \. Component 3\. The Guarantee Facility supported by IDA, MIGA, and AFD (cost estimated at appraisal : US$ 227\. 227 \.3 million; cost estimated at restructuring : US$0 US$227 US$ 0 million ): This component US$ 0 million; actual cost : US$0 was originally intended to target the financing gap for private projects by catalyzing private investments in small - and medium-sized infrastructure projects, including privatizations, by mitigating critical risks which constrained investors’ interest, and by facilitating access to these instruments for relatively small projects \. As a well-positioned intermediary within the region, BOAD would help in accelerating the identification and processing of small to medium size infrastructure projects \. The IDA guarantee would be deployed in riskier sectors/transactions when one or several of its features were considered to be critical from a risk management and/or market perspective\. During the Level I restructuring , this component was modified with the guarantee facility being cancelled, MIGA agreeing to analyze and provide guarantees to projects presented by BOAD based on MIGA's own guidelines and procedures, and strengthening of BOAD ’s capacity to develop its own guarantee product\. Component 4: Project Coordination, Management, Monitoring &Evaluation (cost estimated at appraisal : US$ 2\.1 million; cost estimated at restructuring : US$X\. US$2 US$X \.XX million ): This US$X \.XX million; actual cost : US$X\. component was intended to ensure overall project coordination, management, and administration through a Project Coordination Unit (PCU) within BOAD, Project Component Managers, and a Steering Committee \. The component also provided TA to improve coordination and synergy between the key regional institutions \. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: The WAEMU CMDP was a Financial Intermediary Loan (FIL) financed by an IDA credit in the amount of SDR 67\.0 million (US$96\.39 million equivalent) to BOAD for the benefit of the eight WAEMU countries (Benin, Burkina Faso, Cote d'Ivoire, Guinea-Bissau, Mali, Niger, Senegal, and Togo ) which share the same currency (the CFA franc), the same central bank (BCEAO), and the same development bank (BOAD)\. The credit was appraised on June 4, 2003; approved by the Bank Board on February 26, 2004; became effective on July 29, 2005; was restructured on June 18, 2008; had a mid-term review on January 29, 2008; and was closed on June 30, 2012 (33 months after the expected closing date at appraisal )\. 3\. Relevance of Objectives & Design: a\. Relevance of Objectives: The PDO of the WAEMU CMDP is consistent with the development objectives of WAEMU governments to remove infrastructure constraints, develop the human and economic potential of the region, attract private investment in infrastructure, and promote economic integration \. Having put in place key laws, regulations, and institutions in support of the development of a regional capital market, regional government authorities are now placing priority on deepening the financial sector through an action plan aimed at enhancing regional capital market activities, including by strengthening the key institutions, such as BOAD, CREPMF, BCEAO, BRVM, and the WAEMU commission\. The PDO is also relevant to the objectives of the World Bank ’s Regional Integration Assistance Strategy (RIAS) and individual country strategies \. The RIAS aims to help develop a unified regional financial market, promote region-wide infrastructure services, and create an enabling environment for private investment based on greater financial market integration, unfettered capital movements, and a harmonized tax policy\. Member states’ CASs identify the development of infrastructure through public /private partnerships as a priority objective\. Finally, the CMDP is consistent with the Bank ’s Africa Strategy (March 2011), which places emphasis on reducing the infrastructure gap and improving the business environment in member countries \. The relevance of objectives rating is high \. b\. Relevance of Design: The design of the WAEMU CMDP was consistent with its PDO \. The project was intended to assist in strengthening the regulatory framework for regional capital market operations, improving the capacity of institutions involved in the regional capital market, providing medium - and long-term financing for public infrastructure projects, and providing political and commercial risk mitigation instruments to catalyze longer term financing of small and medium-sized regional infrastructure projects \. This was to occur through the provision of technical assistance and institutional support, lines of credit, and guarantees to mitigate private investors ’ risks\. Alternative project designs were considered, including financing projects under credit lines through Bank country assistance programs in individual countries, limiting the scope of the project to a LOC to BOAD without links to strengthening of the capital market, and separating the operation into two parallel projects, one with TA and a LOC and the other with a guarantee facility \. These options were rejected due to concerns about project coordination across country programs, the importance of developing capital market instruments, and the need to ensure synergy among the project components \. However, the project design was overly optimistic given the limited institutional capacity of regional countries and institutions \. The technical assistance component did not include an adequate stakeholder analysis and severely underestimated the importance of market intermediaries for project implementation\. Pre-design work was limited and did not include a detailed demand analysis for the LOC nor took into account regional priorities for non -road infrastructure projects \. And the guarantee facility required the identification of strong and capable intermediaries prior to the commencement of operations \. Although the Level I restructuring addressed many of these design problems, it happened late in the process \. The relevance of design is rated modest \. 4\. Achievement of Objectives (Efficacy): Although the CMDP included an overarching PDO and PDO -specific indicators, the indicators were weak, not directly relevant to the PDO, and suffered problems of attribution \. In addition, the project did not define any intermediate objectives and instead established intermediate performance indicators around each of the project ’ s components\. As a consequence, the weak link between the intermediate output indicators and the PDO indicators, as well as between the PDO indicators and the PDO itself, impeded the ICR ’s assessment of causal connections\. It is also unfortunate, as pointed out in the ICR, that the problems with the indicators were not addressed during the restructuring \. As a result, the ICR had to resort to providing alternate evidence to assess the achievement of the PDO since they were not captured by the Results Framework (RF)\. While laudable, the ICR’s assessment unfortunately still mixed outputs (means to an end) with outcomes (the end result)\. Efficacy in achieving the project ’s objectives prior to restructuring was unsatisfactory for the reasons stated in the ICR\. Although there was success in deploying the project ’s TA component, implementation of the LOC and  Guarantee Facility remained poor and fraught with delays \. Up to the point in time when the CMDP was restructured, no infrastructure projects had been financed under the LOC and no guarantees had been issued under the Guarantee Facility\. Moreover, none of the PDO or intermediate indicators had been met and the project’s disbursement rate was only 2%\. Efficacy in achieving all three objectives prior to restructuring was Unsatisfactory\. The assessment below is conducted on the basis of the achievement of each of the project ’s three objectives after restructuring\. PDO Objective : Develop the Capital Markets in the WAEMU region Performance with regard to achieving this objective was substantial following the project’s restructuring\. Although the number of companies listed in the regional stock market (PDO indicator 2) did not increase measurably, the number of companies issuing bonds in the regional market (PDO Indicator 1) increased from 25 (baseline) to 48 by the project’s closing (just below the target of 50)\. BOAD over-performed regarding achieving the target of issuing at least CFAF 10 billion in bonds per year in the regional market (intermediate outcome indicator 1) and adopted a new prudential framework in line with international best practices (Intermediate outcome indicator 4)\. However, it did not achieve the target of being rated by international ratings agencies (intermediate outcome indicator 3) at closing\. CREPMF achieved 86% of its target of inspecting all commercial financial intermediaries, the regional stock exchange, the central depository, and the settlement bank (intermediate outcome indicator 2)\. The monetary authorities met the target of putting in place new rules and regulations for credit ratings in relation to the removal and substantial relation of bank guarantee requirements (intermediate outcome indicator 5)\. And the WAEMU Commission partially achieved the target of adopting harmonized tax regimes on financial products, as six out of the eight member countries implemented the regime by closing (intermediate outcome indicator 6)\. As the ICR rightfully concluded, despite the project ’s poor design and inadequate RF, the regulatory framework and cost structure of the regional financial market has improved and the credibility and capacity of the regional regulatory body has been strengthened \. Efficacy in achieving the first intermediate objective is rated Substantial \. PDO Objective : Mobilize Public and Private Financing for the Region ’s Infrastructure Development This objective was broadly achieved \. By the closing date, the project ’s line of credit was fully disbursed to regional infrastructure projects in compliance with IDA ’s fiduciary system (intermediate outcome indicator 7)\. Altogether, 11 sub-projects were financed resulting in the construction of key portions of four regional corridors amounting to 953\.8 kilometers of interstate roads\. In addition, the port of Lomé was upgraded\. Importantly, the project’s LOC was able to leverage resources from BOAD, donors, and the private sector at a ratio of 1 to 6 in support of regional infrastructure development \. BOAD has also been transformed into a strong regional institution that, going forward, will be able to extend public and private project finance (as well as TA) to regional member countries\. High \. Efficacy in achieving the second objective is rated High\. 5\. Efficiency: Both the PAD and the ICR argued that it is not possible to quantify the economic and social benefits of the project as a whole due to the nature of some of the activities and the problem of attribution \. Hence, a cost effectiveness and financial analysis was not carried out at appraisal and the ICR did not attempt to quantify the expected gains to be had from the project \. Instead, both the PAD and ICR made qualitative inferences regarding the project’s expected economic and social gains \. These included: (1) increased investment and growth arising from greater availability of long-term capital and financial market integration; (2) improved competitiveness on account of a reduction in transport costs and greater access to the regional market; and (3) transformation of the BOAD into a more profitable regional development finance institutions with a larger stock of capital and a benchmark issuer of bonds in the regional market \. Both the PAD and the ICR noted that economic and financial analysis conducted for each of the infrastructure investments financed under the project ’s LOC indicated an economic rate of return in excess of 12 percent\. Efficiency gains under the project also included a halving of the time required to process the listing and issuance of bonds in the regional market, a reduction in cumulative transit time (by 16 hours) and maintenance cost (by up to 35 percent) along the improved road corridors, and a 30 percent increase in the volume of activity at the port of Lom é (2007-11) despite the number of vessels using the port remaining constant\.  Efficiency in achieving project ’s objectives is rated Modest \. ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re- re -estimated value at evaluation : Rate Available? Point Value Coverage/Scope* Appraisal No ICR estimate No * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: The ICR rated the project’s outcome on the basis of a weighted average of the achievement of the project ’s objectives prior to restructuring (which it rated “Unsatisfactoryâ€?) and after restructuring (which it rated “Moderately Unsatisfactoryâ€?), with the weights being a function of the relative disbursement levels at each point in time (2 percent versus 98 percent)\. Based on this approach, the ICR rated the overall outcome of the project as “Moderately Unsatisfactoryâ€?\. This ICR Review concurs that achievement of the project ’s objectives prior to restructuring was “Unsatisfactoryâ€?, but it rates efficacy after restructuring as being “Moderately Satisfactoryâ€?\. While it is true that limitations in project design resulted in significant delays in implementation and the eventual need to drop some of the project ’s activities, the restructured project nevertheless broadly achieved its development objectives, with efficacy of the first objective being “substantialâ€? and of the second objective being “highâ€?\. Moreover, in addition to efficacy (achievement of objectives), the overall outcome rating takes into account the “highâ€? relevance of the project’s objectives and the “modestâ€? relevance of the project’s design and efficiency in achieving the project ’s objectives\. In light of the above, and using a weighted average of efficacy up to and after restructuring, the overall outcome is rated “Moderately Satisfactoryâ€?\. a\. Outcome Rating : Moderately Satisfactory 7\. Rationale for Risk to Development Outcome Rating: The PAD considered the project as “modest riskâ€? due to concerns that: (1) the regional policy makers, regulators, and intermediaries could fail to implement key reforms and provide the investment capital necessary for a well-functioning regional bond market; (2) the lack of institutional capacity could undermine project implementation; and (3) there could be shortfalls in donor co -financing\. Although there were delays in co-financing arrangements, these risks were largely mitigated through assurances at the highest political level in the region, the provision of TA and institutional support, and donor coordination \. As pointed out in the ICR, the project’s main deliverables were with regard to the provision of regional infrastructure, institutional capacity building, and financial market regulatory framework \. Roads and port infrastructure developed under the project are largely irreversible once constructed and the existence of road maintenance funds in most WAEMU member states should contribute to the maintenance of this infrastructure \. While it is true that timely follow up regarding institutional capacity building and regulatory reforms will be important to maintain the gains achieved, the WAEMU Commission and its members have approved a Regional Economic Program which includes a strong commitment to deepen the regional capital markets and to provide the necessary resources to sustain the project’s institutional changes\. Finally, implementation capacity at BOAD is expected to be sustained long after the project’s closing as experts recruited under the PCU have been permanently hired \. a\. Risk to Development Outcome Rating : Moderate 8\. Assessment of Bank Performance: a\. Quality at entry: The Bank’s performance regarding quality at entry was unsatisfactory \. There were substantial flaws in project design as evidenced by the fact that the project required significant restructuring due to delays in the implementation of activities, the lack of demand for the guarantee facility, and the lack of disbursement of the LOC facility\. The ICR rightly points out that project design was too complex relative to the limited institutional capacity to manage and coordinate the plethora of activities and beneficiaries \. Delays arose in part due to the need to receive approval of the guarantee facility by the various national parliaments and judicial opinions from their respective supreme courts \. Internal procedures of each of the various co -financiers contributed to delays in the implementation of the LOC \. And delays in the signing of agreements between the Bank and both CIDA and BOAD delayed the roll out of the TA component \. Other key deficiencies included inadequate assessment of demand for the guarantee facility, failure to identify capacity deficiencies at BOAD, insufficient flexibility to include non -road infrastructure, and the lack of identification of key risks and the required mitigating measures\. The RF was also poorly designed and specified, with poorly defined and relevant PDO indicators, no intermediate objectives, and a lack of clear links in the causal chain between the project’s inputs, outputs, outcomes and objectives \. at -Entry Rating : Quality -at- Unsatisfactory b\. Quality of supervision: The quality of supervision was unsatisfactory \. Bank supervision was severely deficient \. Although there were regular supervision missions, the generally satisfactory ratings given in the Implementation Status Reports up through mid-2007 were overly optimistic and masked the depth and scope of poor project implementation (i\.e\., delays in the implementation of the TA component, a 2 percent disbursement rate for the LOC component, and the lack of demand for the guarantee facility component )\. According to the ICR, this was due to inadequate skill mix and lack of pro -activeness of the task team \. Had there been more effective supervision, the restructuring of the project could have taken place much earlier and project objectives could have been achieved in a timelier manner \. In this regard, the mid-term review should have been programmed and taken place earlier in the project cycle \. The restructuring of the project did address many of the main design flaws (i\.e\., refocusing and alignment of project activities in line with the borrower ’s institutional capacity, cancelation of the guarantee facility, revision of the eligibility conditions of the LOC to include non-road infrastructure projects and increasing the ceiling for individual projects, and increased TA to BOAD for risk mitigation)\. And the measures taken to improve disbursements under the LOC paid off, with nearly full disbursement achieved by the project closing date (which had to be extended twice )\. However, the Bank failed to address the deficiencies in the design of the RF during the restructuring with a view to better align the outcome indicators with the PDO\. As a result, it is difficult to properly assess whether the project achieved its objectives without resorting to information outside of the RF \. Quality of Supervision Rating : Unsatisfactory Overall Bank Performance Rating : Unsatisfactory 9\. Assessment of Borrower Performance: a\. Government Performance: There was strong commitment on the part of the WAEMU commission and the member countries within the region to deepen the financial market \. Member governments’ national parliaments ratified the credit guarantee and the eight Supreme Courts provided the corresponding legal opinions required for project effectiveness, albeit with some delay \. There were also delays by member countries in approving and procuring finance for the individual sub -projects\. In addition, capacity constraints at the country -level project implementation units contributed to delays in disbursement of the project ’s LOC component\. Following the political turmoil in Cote d’Ivoire, which affected the activities of both the regional stock exchange and the regional capital markets regulator based in Abidjan, the regional authorities took timely decisions to relocate these bodies to Bamako\.  Government Performance Rating Moderately Satisfactory b\. Implementing Agency Performance: BOAD was the principal regional agency responsible for project implementation \. The senior management was committed to overall project implementation and was instrumental in ensuring the implementation of the specific institutional reforms within BOAD \. However, as the ICR pointed out, although the changes in BOAD management did not significantly impact the project, the layers of hierarchy within BOAD undermined the ability of the project coordinator (who was a low level BOAD staff member) to make decisions\. The PIU did have good quality technical staff and key technical experts hired under the project were retained by BOAD \. Unfortunately, there were delays in securing M&E specialists which undermined project monitoring \. There were no substantive procurement problems, however, and the unethical action by a project accountant was handled in a timely manner Implementing Agency Performance Rating : Moderately Satisfactory Overall Borrower Performance Rating : Moderately Satisfactory 10\. M&E Design, Implementation, & Utilization: a\. M&E Design: The PAD discussed the institutional framework for monitoring and evaluating project performance (PAD, pp\. 17-18), including with regard to the structure, location, and responsibilities of the PCU and the guidance to be received from the PSC, which consisted of representatives of all project beneficiaries and one person representing all of the governments \. Although key performance indicators for each of the three project components were listed in the text of the PDO (PAD, p\. 3) and in Project Design Summary (PAD, Annex 1), there was no explicit and comprehensive RF that linked inputs to outputs to outcomes and to objectives and that discussed the causal links between each of the indicators \. Moreover, several of the outcome indicators posed problems regarding attribution (i\.e\., the number of firms listed on the regional stock exchange, the number of companies issuing bonds, and the value of bonds of bonds issued in the regional currency )\. b\. M&E Implementation: In addition to being constrained by the poor design of the M&E framework, M&E implementation was affected by delays in recruiting M&E specialists and overly optimistic performance ratings in the initial Implementation Status Reports (ISRs)\. The ICR did not discuss in any detail the positive and /or negative institutional experience of the PCU in overseeing the implementation of the M&E framework \. It also did not elaborate upon the experience in collecting data and in measuring performance outcomes \. It is clear from the ISRs that the review of the various performance indicators during project implementation was done in a selective and uneven manner \. c\. M&E Utilization: The delays experienced in the implementation of the project ’s activities and in the progress of key performance indicators—particularly that regarding the LOC disbursement rate —were used as the basis for restructuring the project\. However, as indicated in the ICR, the Bank and the borrower missed an important opportunity during the project restructuring to strengthen the M&E framework to ensure better and more direct linkage between the indicators and the project’s objectives\. Instead, the indicators related to the guarantee facility were dropped, resulting in the remaining two outcome indicators being linked only to the capital market development aspect of the PDO with none capturing the infrastructure development aspect \. M&E Quality Rating : Negligible 11\. Other Issues a\. Safeguards: As indicated in the PAD and ICR, BOAD prepared an Environmental and Social Management framework whose procedures were in compliance with World Bank Safeguard Policies and screened sub -projects for environmental and social impacts\. The project supported the development of environmental and social units within BOAD that were responsible for the management of the safeguard policy for all projects financed by BOAD \. b\. Fiduciary Compliance: As indicated in the PAD, BOAD has an acceptable financial and accounting system with well -qualified staff and extensive experience in managing projects financed by donors \. Its financial statements were regularly prepared in accordance with International Accounting Standard and were audited annually by the BCEAO and an internationally recognized auditing firm \. BOAD’s procurement capacity was assessed at entry \. While considerable capabilities existed, there was a need to update BOAD ’s procurement procedures and a procurement specialist was recruited before the credit became effective \. Although there were delays in procurement related to the LOC in the early stage of the project, procurement management was significantly improved after project restructuring \. The unethical practice on the part of an accountant assigned to the PCU was addressed and the individual ’s contract was terminated\. c\. Unintended Impacts (positive or negative): Neither the PAD nor the ICR identified any unintended impacts nor does there appear to be any \. d\. Other: n\.a\. 12\. Ratings : 12\. ICR IEG Review Reason for Disagreement /Comments Outcome : Moderately Moderately Both the ICR and IEG Review rated Unsatisfactory Satisfactory outcome before restructuring as unsatisfactory, However, the IEG Review rates outcome after restructuring as satisfactory (compared to the ICR's rating of moderately unsatisfactory) since the project broadly achieved its objectives --albeit with delay and with the removal of one of its components--with relevance of the objectives rated high, and relevance of design and efficiency rated modest\. Risk to Development Moderate Moderate Outcome : Bank Performance : Moderately Unsatisfactory Bank performance in terms of quality at Unsatisfactory entry and quality of supervision were both highly deficient\. The project was restructured very late in the process and required two extensions of the closing date in order to allow sufficient  time for disbursements to occur and the objectives to be achieved \. Borrower Performance : Moderately Moderately Satisfactory Satisfactory Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate\. 13\. Lessons: The four main lessons learned from the implementation of the CMDP are : 1\. Effectiveness conditions should be realistic \.It took the CMDP a year and a half to become effective \. This was mainly due to cross-conditionality between the development credit and the guarantee facility agreements and by requirement that the credit guarantee be ratified by the eight national Parliaments with corresponding legal opinions from the eight Supreme courts \. The Bank should ensure that effectiveness conditions can be realistically met within a reasonable time frame or else project implementation will be delayed \. Multi -donor operations require a streamlined implementation arrangement \.The CMDP experienced 2\. Multi- delays in implementation due to conflicting funding procedures and inconsistent procurement procedures between key donors\. The establishment of a common account managed by a lead donor and a system of parallel financing (versus co-financing) can be more efficient and avoid duplication of procedures that delay project implementation\. Ex -ante demand analyses and stakeholder assessments can improve project outcomes \. Project design 3\. Ex- did not include demand and stakeholder assessments \. As a result, the guarantee facility was never activated (on account of a lack of demand ) and the LOC initially excluded important non -road regional infrastructure projects (due to a lack of stakeholder assessment )\. Demand analyses and stakeholder assessments should become a routine part of project design and monitoring \. 4\. Comprehensive RFs ensure that project outcomes are measurable and achievable \. The CMDP’s RF was severely deficient, with the causality between inputs, outputs, and outcomes not well specified and the PDOs too high level and not solely attributable to the project \. Well specified RFs and M&E frameworks ensure that outcomes are attributable to project activities and allow for mid -course corrections when performance is not in line with expectations\. Efforts should be redoubled to ensure that all Bank projects have adequate RFs at entry\. 14\. Assessment Recommended? Yes No 15\. Comments on Quality of ICR: The ICR was comprehensive and its tone candid \. It included a useful and detailed assessment of the key factors that affected project implementation and outcomes \. It also appropriately underscored the deficiencies in M&E in general, and in Bank design at entry, particularly regarding the less -than-adequate RF\. In this regard, it made a valiant effort to “fill the gapâ€? by identifying results that could be directly linked to the achievement of the PDO, but that were not fully reflected in the M&E framework \. The ICR needed to make a stronger case for its relatively lower overall outcome rating after restructuring and relatively higher rating of quality of supervision versus quality at entry, given the equally severe deficiencies involved at entry and during supervision \. It also could have  benefited from some edits\. For example, outcome is rated as moderately unsatisfactory in the text on page 12, but moderately satisfactory in Table 3 on page 17\. a\.Quality of ICR Rating : Satisfactory

REVIEW

P050601

Document of The World Bank Report No: 33703 IMPLEMENTATION COMPLETION REPORT (IDA-31790 IDA-31791 PPFI-Q1100) ON A CREDIT IN THE AMOUNT OF US$25 MILLION EQUIVALENT TO THE KINGDOM OF CAMBODIA FOR A SOCIAL FUND II PROJECT December 19, 2005 Human Development Sector Unit East Asia and Pacific Region  CURRENCY EQUIVALENTS (Exchange Rate Effective April 18, 2005) Currency Unit = Cambodian Riel Riel = US$ 0\.0002392 US$ 1 = 4,181 Cambodian Riels FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS AAfC - American Assistance for Cambodia CAS - Country Assistance Strategy ITBA - Independent Technical and Beneficiary Assessment IAU - Internal Audit Unit ICR - Implementation Completion Report MOEF - Ministry of Economy and Finance MoU - Memorandum of Understanding NGO - Non-Government Organization NPV - Net Present Value OPEC - Organizational of Petroleum Exporting Countries PAD - Project Appraisal Document PSC - Project Support Committee RGC - Royal Government of Cambodia SFI - Cambodia Social Fund Project SFII - Cambodia Social Fund II Project SFKC - Social Fund of the Kingdom of Cambodia SPU - Sustainability Program Unit UCD - Unit Cost Database Vice President: Jemal-ud-din-Kassum, EAPVP Country Director Ian C\. Porter, EACTF Acting Sector Director Tamar Manuelyan Atinc, EASHD Task Team Leader/Task Manager: Minna Hahn, EACTF  CAMBODIA Social Fund II Project CONTENTS Page No\. 1\. Project Data 1 2\. Principal Performance Ratings 1 3\. Assessment of Development Objective and Design, and of Quality at Entry 2 4\. Achievement of Objective and Outputs 4 5\. Major Factors Affecting Implementation and Outcome 7 6\. Sustainability 8 7\. Bank and Borrower Performance 8 8\. Lessons Learned 11 9\. Partner Comments 12 10\. Additional Information 14 Annex 1\. Key Performance Indicators/Log Frame Matrix 15 Annex 2\. Project Costs and Financing 17 Annex 3\. Economic Costs and Benefits 20 Annex 4\. Bank Inputs 21 Annex 5\. Ratings for Achievement of Objectives/Outputs of Components 23 Annex 6\. Ratings of Bank and Borrower Performance 24 Annex 7\. List of Supporting Documents 25  Project ID: P050601 Project Name: Social Fund II Project Team Leader: Minna J\. Hahn TL Unit: EACTF ICR Type: Core ICR Report Date: December 14, 2005 1\. Project Data Name: Social Fund II Project L/C/TF Number: IDA-31790; IDA-31791; PPFI-Q1100 Country/Department: CAMBODIA Region: East Asia and Pacific Region Sector/subsector: Primary education (30%); Other social services (20%); Irrigation and drainage (20%); Roads and highways (20%); Water supply (10%) Theme: Conflict prevention and post-conflict reconstruction (P); Other social protection and risk management (P); Rural services and infrastructure (P); Participation and civic engagement (P) KEY DATES Original Revised/Actual PCD: 11/05/1998 Effective: 04/30/1999 07/07/1999 Appraisal: 01/15/1999 MTR: 06/30/2001 09/20/2002 Approval: 03/23/1999 Closing: 12/31/2002 03/31/2005 Borrower/Implementing Agency: Kingdom of Cambodia/Social Fund of the Kingdom of Cambodia Other Partners: Organization of Petroleum Exporting Countries, American Assistance for Cambodia STAFF Current At Appraisal Vice President: Jemal-ud-din Kassum Jean-Michel Severino Country Director: Ian C\. Porter Ngozi N\. Okonjo-Iweala Sector Director: Tamar Manuelyan Atinc Kristalina I\. Georgieva Team Leader at ICR: Minna J\. Hahn Christopher Chamberlin ICR Primary Author: Minna J\. Hahn 2\. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainability: L Institutional Development Impact: M Bank Performance: S Borrower Performance: S QAG (if available) ICR Quality at Entry: S Project at Risk at Any Time: No  3\. Assessment of Development Objective and Design, and of Quality at Entry 3\.1 Original Objective: As the Social Fund I (SFI) project neared completion, the Royal Government of Cambodia (RGC) requested continued World Bank support to the Social Fund of the Kingdom of Cambodia (SFKC)\. As stated in the Project Appraisal Document (PAD), the Social Fund II (SFII) project aimed to: (i) provide small-scale, community-based subprojects in the areas of social and economic infrastructure with emphasis on the poor; (ii) create short-term employment opportunities to absorb the increase in unemployment associated with post-crisis reverse migration of workers from Thailand and the demobilization of Cambodian army units; (iii) strengthen the capacity of communities to implement development projects and sustain them; (iv) improve donor coordination and financing; and (v) improve poverty and district targeting\. The SFII responded to the country context and the RGC's development priorities\. At the time of project preparation, government attention was shifting from emergency relief to nationwide reconstruction and longer-term development goals\. The project supported RGC priorities as outlined in the National Program to Rehabilitate and Develop Cambodia (1994), the Triangle Strategy (1998), and the National Royal Government's Platform on Second Term (1998-2000)\. These objectives, aimed at reducing poverty, included: developing rural areas, building human capacity, and strengthening infrastructure\. The SFII was also consistent with the objectives of the Country Assistance Strategy (CAS) which mirrored those of the RGC: enhancing rural development and natural resources management; improving human resources and reducing poverty; and supporting critical infrastructure rehabilitation\. The project's primary objective responded to a key immediate constraint to Cambodia's social and economic development: the substantial backlog of basic investment requirements in small-scale infrastructure following years of conflict and neglect\. The inclusion of other objectives such as improved donor financing and poverty targeting made the project more complex\. Building on the lessons of SFI, the SFII placed greater emphasis on improving local participation and sustainability and shifted sectoral allocations into more technically complicated sectors in which the SFKC had less experience\. These changes also increased project complexity and the demands on the SFKC but were important and appropriate adaptations to the evolving development of Cambodia\. 3\.2 Revised Objective: In May 2001, one year before the expected completion of the SFII, the Bank approved a Flood Rehabilitation Supplemental Credit (US$10 million equivalent) which provided additional resources to the SFKC to address emergency needs in rebuilding small-scale infrastructure damaged in heavy flooding during 1999-2000\. Given the similar objectives of the two credits, no revision to the SFII credit agreement was required\. 3\.3 Original Components: The project was comprised of three components\. The Subproject Grants component financed sub-grants for small-scale infrastructure and services subprojects proposed by communities, local groups, NGOs, and other entities\. Eligible subproject types included: irrigation systems, bridges and culverts, water supply and sanitation systems, schools, vocational training centers and training, and health centers\. The Institutional Support component financed the costs of staffing, - 2 -  equipping, operating, training, and assessing the SFKC\. Approximately 1% of the credit was left in the Unallocated component to provide flexibility during implementation\. These components are standard to most social fund projects and were linked directly to the achievement of SFKC objectives\. Design features--particularly the introduction of three new "programs of change" to improve the technical quality of subprojects, give more attention to economic analysis in the appraisal of subprojects, and strengthen subproject sustainability--reflected the findings of technical and beneficiary assessments of SFI as well as evaluations of Bank experience with social funds in Latin America and Africa\. As noted above, these changes significantly increased demands on the SFKC\. Its capacity was to be strengthened through the hiring of new staff with social development experience, recruitment of a long-term sustainability advisor, and the creation of a Monitoring and Post Handover unit\. 3\.4 Revised Components: No changes were made to the original components of the project\. The components of the Flood Rehabilitation Supplemental Credit mirrored those of the SFII\. 3\.5 Quality at Entry: Quality at entry is rated as satisfactory\. Bank support for the SFII project was justified given: the substantial backlog of basic infrastructure needs, as evidenced by the accumulation of eligible subproject applications from SFI totaling US$50 million; the direct linkages with RGC development priorities and CAS objectives; and the satisfactory performance of SFI\. Project design--including significant changes to the SFKC's structure and operational procedures to improve local ownership and sustainability, technical quality, cost-effectiveness, and coordination with other partners--was an appropriate adaptation to evolving country circumstances and reflected the lessons of experience from SFI\. One important innovation was the addition of the "new coordination mechanism" under which the SFKC could enter into Memorandum of Understanding (MoU) agreements to facilitate co-financing and cooperation arrangements with NGOs and other development organizations who could stimulate demand for high priority subprojects in high priority districts\. In terms of safeguard policies, although no significant adverse environmental impacts were identified under SFI, dated covenants in SFII included the preparation of improved environmental assessment procedures\. Quality at entry could have been strengthened by: a greater emphasis on outcomes, particularly in terms of project targets; the inclusion of incentives for hiring returning workers from Thailand and demobilized soldiers, in line with the project's objectives; and the establishment of a coherent targeting mechanism\. Project design also did not include a strategy for the SFKC's exit, transformation, or handover of responsibilities at the end of the project\. In addition, although both the RGC's development plans and CAS emphasized the importance of strengthening the capacity of government institutions, the SFII--which was implemented by the SFKC, an autonomous agency created to manage the Social Fund--did not specifically address these objectives\. However, the decision to create a separate agency rather than work through line agencies or local governments was appropriate at the time of project preparation given that national and local government institutions did not have the capacity to address the country's pressing small-scale infrastructure needs\. - 3 -  4\. Achievement of Objective and Outputs 4\.1 Outcome/achievement of objective: The overall achievement of project objectives and outputs is rated as satisfactory\. Although the lack of targets for key performance indicators makes evaluation more difficult, the project financed numerous beneficiary, technical, and other assessments which provide information on outcomes and impact and in part compensate for the lack of defined targets\. Regarding the first objective of providing small-scale, community-based social and economic infrastructure subprojects with emphasis on the poor, the SFII appears to have delivered substantial benefits\. The project financed 1,416 small- to medium-sized economic and social infrastructure subprojects (total value US$31\.5 million) throughout the country, which benefited over 5 million people according to SFKC estimates\. In the Independent Technical and Beneficiary Assessment (ITBA) completed in late 2004, interviewees reported that subproject benefits included: increased school enrollment, particularly among girls; safer school environments; improved access to schools and markets; decreased impacts from flooding; enhanced trade in agriculture and other local products; and added income from employment opportunities\. In terms of creating short-term employment opportunities to absorb the increase in unemployment associated with post-crisis reverse migration of workers from Thailand and the demobilization of Cambodian army units, the SFKC created nearly 52,000 person-months of short-term employment, of which approximately 84% was for unskilled labor\. The SFKC focused on providing higher quality infrastructure facilities, which required relatively less labor inputs than more basic facilities but would be likely to last longer, a key consideration given the vulnerability of the country's infrastructure to devastating floods\. The project did not include special incentives or provisions for hiring returning workers or former military personnel, and the backgrounds of employees hired was not tracked\. Therefore, the degree to which the project may have absorbed the increase in unemployment mentioned in the objective was not assessed\. The extent to which SFII strengthened the capacity of communities to implement development projects and sustain them is more difficult to quantify, but the project appears to have had a positive impact\. The ITBA concluded that community involvement--as measured by time spent in meetings and donations of land, labor, and materials--increased during SFII and resulted in high levels of ownership\. Community contribution as a percent of total subproject cost averaged 11% over the life of the project, above the 10% agreed at appraisal\. In addition, 60% of the community Project Support Committee (PSC) members interviewed for the ITBA stated that after implementation of their SFKC subprojects, they went on to participate in other community development activities, including health promotion and HIV/AIDS awareness, food security programs, and village action planning\. Of this group, over 80% mentioned that they had used skills they gained through the SFKC experience in other development activities\. In terms of improving donor coordination and financing, the SFKC mobilized almost US$10 million (about 20% of total project financing) at the institutional level from American Assistance for Cambodia (AAfC) and the Organization of Petroleum Exporting Countries (OPEC)\. At the - 4 -  subproject level, MoU partnership agreements signed with 10 NGOs and donor organizations raised an additional US$4 million\. The ITBA concluded that MoU partners, as intended, helped: channel resources to some of the most remote and impoverished districts; improve the overall quality of outputs; and strengthen community capacity building efforts, thereby helping to ensure the sustainability of facilities financed\. Regarding improving poverty and district targeting, the SFKC did not fully meet its objectives\. Targeting on a per capita basis resulted in a wide distribution of investments throughout the country (177 out of 183 districts), with nearly 92% of sub-projects in rural areas\. However, while the level of per capita investment was highest in the poorest 10% of districts, the next highest level was in the second wealthiest decile\. Targeting was constrained by insufficient socio-economic data for certain areas of the country and by lack of a coherent targeting mechanism, as the SFKC used a set of different and competing prioritization tools\. Targeting improved over time as a result of better procedures and more extensive outreach activities\. 4\.2 Outputs by components: Subproject Grants\. From July 1999 to March 2005, the SFKC completed 1,416 sub-projects (total value US$31\.5 million), including the rehabilitation or construction of 592 schools, 414 bridges and 2,610 culverts, 5,133 wells and 1,290 latrines, and 88 irrigation systems\. Over one-third of these subprojects were implemented under MoU partnerships, in which partner agencies helped identify local priorities and assist communities in submitting subproject applications to SFKC\. After approval of the subprojects, MoU partners provided field support for implementation as needed and helped mobilize communities for maintenance of the facilities\. According to the ITBA, improved subproject designs and appraisal and supervision procedures, combined with stronger community capacity to oversee procurement and construction and increased contractor performance, resulted in better technical quality of all major subproject types under SFII\. Although quality varied among subproject types, 90% of SFII investments were rated to be of `fair' to `good' quality\. This conclusion was substantiated by other project assessments which found SFKC subprojects to be of average or above-average technical quality compared to similar donor- and government-funded programs\. Subproject quality was correlated with levels of beneficiary satisfaction, which were consistently high throughout the project\. According to the ITBA, 90% of respondents indicated that investments addressed the communities' priority development needs\. Average processing times were long for subproject applications entering the SFKC system through normal channels, such as directly through communities or local groups\. For these subprojects, the time lag between screening and construction "ground-breaking" averaged 3\.73 years, with a maximum of 8\.5 years\. In contrast, flood rehabilitation applications and applications for subprojects supported by MoU partnerships received priority treatment and were sent directly to appraisal after screening, resulting in shorter average lag times of 1\.05 and 1\.24 years, respectively\. This two-tiered system likely lengthened the time lag for normal applications, although it should be noted that the SFKC was not fully responsible for the delays\. Oftentimes insufficient information in the applications delayed the appraisal process, and some subprojects required re-bidding and multiple re-bids to keep the bidding process transparent\. - 5 -  Institutional Support\. With the shift in objectives from SFI to SFII, the SFKC initiated major changes to its structure, policies, and procedures\. Key institutional innovations during design and implementation included: the creation of a Sustainability Program Unit (SPU) and the hiring and effective use of a sustainability advisor; recruitment of staff with social development experience; the establishment of a regional office; and the creation of an Internal Audit Unit (IAU) in response to transparency concerns\. Under this component, the project also financed a number of beneficiary, technical, procurement, and other assessments which were instrumental in improving procurement procedures, technical designs and construction standards, capacity building efforts, and other aspects of the project\. 4\.3 Net Present Value/Economic rate of return: The NPV of the project was not calculated during appraisal or at completion\. Standard rate of return analysis is not readily applicable to a large number of small, demand-driven, and disparate subprojects\. On the benefit side, the SFKC used estimates of potential beneficiaries to calculate return\. For larger economic infrastructure subprojects, relatively simple economic rate of return calculations were applied\. Average subproject costs in current dollars increased during SFII from about US$13,000 in 1996 to over US$18,200 in 2004, reflecting in part the greater complexity and size of an increased percentage of rural economic infrastructure subprojects\. Operational costs were contained to the agreed 8% of total project costs, lower than other public agencies and below the average of social funds included in a recent Bank comparative study (10-13%)\. To ensure cost effectiveness, SFKC introduced new cost-effectiveness ratios in the appraisal process and used a unit cost database (UCD) to calculate unit construction costs across different regions\. The UCD helped keep average unit costs at or significantly below those of similar investment projects built under other programs\. 4\.4 Financial rate of return: N/A 4\.5 Institutional development impact: Although the SFKC succeeded in building capacity at the community level, its overall institutional development impact was modest\. Through its eligibility criteria, operational procedures, partnerships, and the shift from direct contracting for civil works to a community-managed competitive bidding process for all subprojects, the SFKC enhanced community involvement and ownership and improved community capacity to oversee procurement and construction\. The benefits of this increased capacity appear to have extended to other community development projects, as described above\. Although capacity building of government agencies was not a project objective, the project could have been used to influence relevant programs and policy reforms\. The SFKC's institutional development impact was reduced in part by its institutional autonomy, although this autonomy helped protect the SFKC from political pressures and allowed it more flexibility in making changes to increase its effectiveness\. Due to limited contact and collaboration at the provincial and national levels, the SFKC had little direct impact on those authorities and line ministries\. Demonstration or "learning-by-doing" effects were restricted by the lack of mechanisms to introduce SFKC approaches to other agencies and organizations\. Despite continuous urging from - 6 -  Bank supervision teams, the SFKC did not widely disseminate the lessons learned from its experience in local development, community capacity building, good governance, and partnerships until the end of the project\. 5\. Major Factors Affecting Implementation and Outcome 5\.1 Factors outside the control of government or implementing agency: Flooding in Cambodia during the 1999-2000 rainy season was the worst in 30 years\. The Bank responded in part with a US$10 million supplemental credit to the SFKC which financed, relatively quickly, the rebuilding of high-priority facilities in 212 communities\. The additional credit justified a one-year extension of the closing date\. 5\.2 Factors generally subject to government control: Like nearly all Bank-funded projects in Cambodia, the activities of the SFKC and preparation of SFII suffered delays from July 1997 to December 1998 due to political uncertainties\. Retroactive financing of US$400,000 from a Project Preparation Facility allowed SFKC operations to continue prior to project effectiveness, albeit at a reduced level\. It was not until May 2000--10 months after project effectiveness--when operations again reached the level of activity achieved during SFI\. 5\.3 Factors generally subject to implementing agency control: In addition to the factors described above, the introduction of new procedures delayed the initial implementation of SFII and in part necessitated an extension of the closing date to March 2005\. However, these changes were crucial to the achievement of project objectives\. In response to circumstantial evidence of procurement irregularities in mid-2000, the SFKC instituted a "transparency program" to address any possible risks of corruption, which included: the cessation of direct contracting and adoption of local shopping procedures for subprojects valued below US$250,000, establishment of the IAU, and other measures to increase community responsibility for procurement\. A number of approved subprojects had to be re-bid due to unfamiliarity with the new procedures and more stringent IAU procurement prior reviews, and revised designs and appraisal and supervision procedures also caused delays\. However, these changes helped increase community ownership and capacity, prevent procurement mismanagement, improve the technical quality of subprojects, and enhance sustainability\. In terms of partnerships, the SFKC's introduction of MoU agreements with other development organizations helped facilitate local participation and generate quality sub-project proposals\. As noted in the project's Partnership Assessment (2004), the effectiveness of MoU partnerships could have been enhanced further by increased awareness of and appreciation for their respective responsibilities by both the SFKC and partner organizations, consistent and more frequent communication, and compliance with reporting obligations\. 5\.4 Costs and financing: The Flood Rehabilitation Supplemental Credit increased Bank support to the SFKC from US$25 million to US$35 million\. At project close, the total amount disbursed from the SFII and Supplemental Credit was US$33\.83 million or 97% of the approved total\. - 7 -  6\. Sustainability 6\.1 Rationale for sustainability rating: Overall project sustainability is rated as likely\. In terms of subproject sustainability, although maintenance problems plague most development projects in Cambodia, available evidence suggests that many of the indicators for continued sustainability are in place for SFKC subprojects: in the ITBA, nearly 90% of SFII subprojects were assessed to be of good or fair quality; over 90% of community respondents indicated that the subprojects addressed the community's priority development needs and that they were satisfied or very satisfied with the outcome; community contributions exceeded the required percentage of subproject costs; and utilization of assets is reportedly high\. The ITBA found significant evidence of community-initiated maintenance and repairs, particularly for school and rural road subprojects\. Although the SFKC did not specifically require the creation of a maintenance committee, over 60% of community PSC members reported that maintenance committees had been established for their subprojects\. In addition, by 2002, the percentage of beneficiary respondents who believed that subproject maintenance should be the responsibility of the community had increased to nearly 90%\. The sustainability of MoU subprojects appears to be even more likely given the added attention to community mobilization by MoU partners, the higher prevalence of maintenance committees, and strong community support for undertaking maintenance\. Given its mandate as a transitional organization, the sustainability of the SFKC as an institution is given less weight in the project rating than the sustainability of benefits created\. The SFKC was established by Royal Decree as a temporary institution to respond to the country's pressing emergency and reconstruction needs, filling a major gap at a time when national and local government capacity to provide small-scale infrastructure was still low\. The SFKC's current support from other sources will be completed by the end of 2005\. Regarding the approaches, procedures, and systems developed by the SFKC, the Social Fund experience appears to have had some indirect influence on similar programs, but no mechanisms were put in place to facilitate and ensure such transfers, as discussed above\. 6\.2 Transition arrangement to regular operations: The explicit intent of Bank support to the SFKC was to help Cambodia in the initial phase of rebuilding infrastructure at a time when implementation capabilities were weak\. Notably, the previous CAS did not envision continued funding for the SFKC and stated that "the next generation of Bank projects would be implemented through, and help strengthen the capacity of line ministries\." No future Bank funding has been requested for the SFKC\. 7\. Bank and Borrower Performance Bank 7\.1 Lending: Bank performance during project preparation and appraisal was satisfactory\. The appropriate skills mix of the Bank's task team and the continuity of its team leader, lead consultant, and other members who had been involved in SFI contributed to the efficient preparation and appraisal of the project\. The Bank team worked closely with the SFKC to adapt the design of the SFII to the evolving country context and to reflect lessons learned from SFI implementation and other operations\. At the appraisal stage, the Bank team focused on providing needed technical - 8 -  assistance for the "programs of change" to be introduced under SFII to increase the SFKC's effectiveness and impact\. Bank support to the SFKC also helped mobilize over US$15 million in co-financing, and the Bank's approval of Project Preparation Facility funds helped sustain the SFKC's operations until the effectiveness of the SFII\. As suggested above, Bank performance could have been improved by: placing greater emphasis on outcomes and impact, particularly in developing targets for key indicators; building in mechanisms to ensure that the valuable procedures, systems, and lessons learned from the Social Fund would be disseminated and transferred; and specifying whether or how Bank support to the SFKC would be phased out by the end of the project\. It should be acknowledged that at the time the SFII was prepared, the Bank in general was placing much less emphasis on indicators and mechanisms for monitoring and evaluation, compared to the strong focus the Bank now has on measuring outcomes and impact\. 7\.2 Supervision: With intensive supervision and their familiarity with the different stages of project implementation, Bank task team members were able to identify and effectively deal with problems arising during implementation\. When complaints concerning the management of direct contracting were raised, the task team recommended the introduction of measures to improve the competitiveness and transparency of procurement that were implemented successfully by the SFKC\. Bank missions consistently conducted field visits and emphasized financial stewardship and administration through audits of statements of expenditure and procurement documentation\. Support was also provided in the form of "refresher" training for staff of the implementing unit\. Management support was provided by the Country Director as well as sector managers who communicated with counterparts and commented on project status reports\. Supervision reporting would have benefited from consistent tracking of performance indicators and their use in justifying development objective ratings\. Few PAD indicators were monitored during implementation, and even those indicators were tracked sporadically\. In addition, Bank staff could have looked for opportunities to use the Social Fund experience to influence emerging developments at the local level--most notably, the RGC's decentralization reforms\. 7\.3 Overall Bank performance: The Bank's overall performance was satisfactory\. Bank staff worked unusually closely with counterparts and used design and supervision to help the SFKC introduce needed reforms and improve project implementation\. The task team also consistently tracked adherence to the new rigorous procedures for promoting transparency\. Although a series of assessments was carried out under the project, increased attention to monitoring outcomes and evaluating impact was needed during design and supervision\. Borrower 7\.4 Preparation: Based on the achievements of SFI, Government requested additional support for the SFKC\. The Ministry of Economy and Finance was engaged in the preparation process but delegated detailed design decisions to the SFKC\. The SFKC demonstrated continued ownership throughout project preparation, for example in undertaking beneficiary and technical assessments of SFI to help - 9 -  inform changes that would increase its effectiveness for SFII\. 7\.5 Government implementation performance: The risk of political interference in SFKC operations identified during appraisal did not materialize\. The Ministry of Economy and Finance (MOEF) continued to delegate all financial management responsibilities to the SFKC and did not exercise its prior review procedure for SFKC procurement\. Provision of counterpart funds--comprised largely of the required community contributions for sub-projects--was timely\. However, the RGC did not fully comply with its responsibilities regarding the governance of the SFKC\. By statute, the SFKC's Board was to be comprised of 11 members representing a cross-section of stakeholders, yet all members were representatives of the two major political parties\. Although it was to meet every six months, the Board convened only three times between 1995 and 2004 and played a minimal role in establishing and approving operating policies and procedures and organizational changes\. Executive Committee meetings, during which subproject approvals were ratified, were attended by three members of the ruling party and one member of the main opposition party, contributing to perceptions of party influence over the decision-making process\. 7\.6 Implementing Agency: The high degree of continuity among SFKC management and staff during SFI and SFII, combined with the effective use of technical assistance and a series of assessments, contributed to successful project implementation\. The SFKC used its Sustainability Programming Unit (SPU), created under SFII, to conduct activities which fostered community ownership and capacity\. In response to allegations of interference in the procurement process, the SFKC adopted difficult reforms to help ensure transparency, including the creation of the IAU and disciplinary action against several staff members\. Extensive photographic documentation of subprojects helped improve contractor performance and provides a lasting record of SFKC activities\. Given the number of actors involved in the local development process, the SFKC could have placed more emphasis on communication and coordination with stakeholders at all levels\. Although the SFKC held a well-attended workshop in late 2004 to share its experiences, the SFKC's impact could have been augmented by earlier and regular dissemination of lessons learned, participation in government policy forums and sectoral working groups, and the establishment of mechanisms to transfer knowledge\. Greater attention to pipeline management was also needed\. The SFII inherited a backlog of 3,800 sub-projects from SFI which were pending review and appraisal\. Although the SFKC conducted a revalidation exercise for pending applications and stopped accepting new applications in 2002, the pipeline still contained over 3,000 eligible applications at the end of SFII\. Despite the backlog, the SFKC did not return or refer pending applications to other organizations, even with strong urging by Bank supervision missions, and it did not communicate consistently with subproject applicants regarding the status of their applications\. 7\.7 Overall Borrower performance: Although communication and coordination with other Government agencies and stakeholders - 10 -  could have been strengthened, the Borrower's overall performance was satisfactory\. The Borrower demonstrated a high degree of ownership, and the SFKC was effective in managing project activities and implementing difficult changes\. 8\. Lessons Learned Key lessons learned from the project include: Weigh short-term and long-term needs in a post-conflict situation\. Post-conflict countries often face the urgent challenge of rebuilding critical infrastructure and restoring basic services\. If government capacity is low, it may not be possible to work through existing government institutions or build the necessary capacity quickly enough to deliver support at a time when needs are greatest\. Such circumstances may warrant a project design that focuses more on addressing pressing needs than on building longer-term institutional capacity\. Tackle transparency issues systematically\. An effective and transparent procurement process requires: well-defined procedures, adequate training, rigorous internal monitoring, regular independent external evaluations, and appropriate and enforceable penalties and a commitment to invoke them\. Continuity of Bank task teams, field-based task team members, and frequent site visits made possible by the decentralization of Bank staff help facilitate a deep knowledge of country context and project activities, close working relationships, and rapid response times, which in turn increase the effectiveness of supervision\. Monitor outcomes and evaluate impact\. Project design should focus on developing results-based monitoring and evaluation systems\. To assess development effectiveness, input and output indicators (e\.g\., amounts disbursed and number of subprojects completed) should be supplemented by outcome indicators (e\.g\., subproject sustainability and benefits)\. Targets should be set and tracked consistently throughout implementation\. The schedule of evaluations should include not only technical, procurement, and beneficiary assessments which inform procedural changes during implementation but also an impact evaluation to determine whether the project has achieved significant and measurable improvement in people's lives\. For projects benefiting a large proportion of the population, the possibility of using existing national-level instruments such as household surveys to monitor impact should also be explored\. Find mechanisms to ensure appropriate targeting\. Projects aimed at supporting poor communities and specific beneficiary groups should have a coherent targeting mechanism in place\. For a large-scale, nationwide project, one possible approach would be to link the project to national-level targeting efforts\. National-level poverty maps, for example, could be used to help identify priority geographic areas for project support\. In addition, indicators that measure whether project benefits are reaching the target groups should be developed and monitored closely to facilitate any necessary adjustments during implementation\. Build capacity through decentralization\. Decentralizing project responsibilities such as procurement can be an effective means of building local capacity\. While the initial stages can be challenging and potentially costly, empowering communities to manage key tasks can bring longer-term benefits in enabling them to handle their own development beyond the project itself\. - 11 -  Use partnerships to increase effectiveness\. Partnerships with other development organizations can be used to facilitate local participation, improve reach to poorer and more remote communities, and help ensure sustainability\. Such partnerships must be maintained actively, with a clear delineation of roles and responsibilities, recognition of respective contributions, and regular communication to develop trust and respect among partners and foster longer-term collaboration\. Communicate\. Communication with all stakeholders is critical to achieving sustained impact by: promoting understanding of social fund objectives and activities; developing effective partnerships; and encouraging the adoption of social fund approaches, practices, and lessons learned\. Regular and consistent dialogue requires resources and a commitment to external relationship building\. Plan for handover\. To help ensure lasting institutional development impact, social fund projects should include mechanisms to ensure that the valuable processes, skills, and systems which are developed can be adopted by and/or passed on to national and local institutions\. Such transfer mechanisms are particularly important in cases where the social fund enjoys a high degree of autonomy and should include channels for effective dialogue, data sharing and integration, and technical assistance and training\. Seek opportunities to extend impact\. Although day-to-day implementation challenges may demand immediate attention, larger country context issues relevant to the project should be closely tracked and accommodated as needed to increase project impact and sustainability\. Social fund experience holds valuable lessons for decentralization and local development, in particular, and project activities can help foster such efforts if appropriately designed\. 9\. Partner Comments (a) Borrower/implementing agency: Below is an excerpt from the Executive Summary of the Borrower's ICR\. The full document can be found in the project files\. The Social Fund of the Kingdom of Cambodia (SFKC) was established in 1995 as an autonomous agency to assist, based on a demand-driven approach, in the rapid rehabilitation of social and economic infrastructure facilities\. Since its inception, the SFKC has been an entirely locally managed agency with minimal non-Cambodian technical and managerial inputs\. The second phase of SFKC operations (SFII) commenced in July 1999 and completed by March 2005\. The accomplishments of SFII, reviewed in conjunction with Social Fund I (SFI) experiences, were: SFKC's experience illustrates that institutional autonomy eliminated many of the bureaucratic constraints, as sub-projects were appraised and approved months ahead of normal government channels, completing more civil works, making extensive use of decentralized methods of management, and the development of technical supervision and skills of private contractors, than other agencies were able to do in the same period\. However, institutional independence did not necessarily lead to community-based, demand-driven projects from the - 12 -  poorer and the most vulnerable sections of society, because demand was first expressed by communities with the skills necessary to prepare proposals (e\.g\., middle poor and marginally non-poor communities) and gain access to the fund and further, at times this demand was expressed by local elite or contractors themselves\. The SFKC has gained significant levels of internal efficiency as it has been able to deliver services at a lower overhead (about 8% of the total) cost compared to other public agencies and evidence shows a comparatively lower per-unit cost for infrastructure facilities built, with savings as high as 20% in specific cases\. As the recent work of SFKC in providing rehabilitation assistance to communities affected by flooding illustrates, the social fund model has been effective in appraising, approving and completing civil works within a reasonable time-frame, while maintaining low per-unit project costs, and in doing so, SFKC has shown its ability to respond quickly and efficiently to the needs of the beneficiary target groups\. The SFKC's demand-driven approach and targeting methods have yielded mixed results\. In general, sub-projects have served the middle-poor and underserved communities in Cambodia\. As SFKC's experience proved, the success of this approach demanded considerable pre-investment in outreach, training, and technical assistance, without which SFII may have missed critical sections of their intended target groups\. Available information indicates that SFKC sub-projects could generate modest levels of short-term employment for the local population, and most of the local employment was for unskilled labor at wages equal to the minimum wage in the region\. With a total expenditure for labor of not more than 8% of the investment, the labor component was not sufficient to move people out of poverty\. Additionally, there is a persistent contradiction between building quality projects and using local labor\. Thus, the impact of social fund sub-projects in generating wage-employment is necessarily modest, because their emphasis on medium-term project facilities that may not be labor-intensive\. There is evidence, however, that where the social fund has worked with partner agencies, which pursue labor-intensive projects, higher levels of short-term employment have been created\. As several independent assessments have noted, the lack of adequate community participation in the design or management of social fund projects, particularly in procurement and contracting was minimized through decentralized, community-managed contracting methodology\. However, it should be acknowledged that the influence of external sources in the selection of contractors for public works contracts is rife in Cambodia\. Local communities often have little say in selection procedures and are in fact generally overwhelmed with the new role and responsibility\. This, in some cases, had a knock-on effect on sustainability of the facilities created\. These issues were much greater in the first phase of social fund projects and were addressed in the second phase by introducing new tasks in the project cycle and including provision of greater support to the training of communities in development and management principles and community-managed contracts\. The partnership portfolio of SFKC, implemented through the MoU arrangements, enhanced community participation, assumed community responsibility into project - 13 -  implementation, improved the quality of SFII outputs, and increased service delivery to traditionally marginalized groups\. Overall, the work of SFKC demonstrated the will of the government to combat internal strife and regain the trust of civil society, had a favorable impact on education, and generated a positive capital flow in the rural areas and modest levels of short-term employment for the local population\. The SFII coincided with a return to political stability which gave impetus to a new range of development work at the national, provincial and local levels\. This phase was oriented more towards medium to long-term development, with sustainability, eligibility criteria for sub-projects types and sectors, poverty targeting, project quality, design standards, operation and maintenance receiving more attention\. However, SFKC's visibility aroused misplaced expectations and experienced a complex transition from the rehabilitation of infrastructure in the emergency phase to compensating for the continued structural deficiencies in the public administration\. Clearly, the social fund model has many strong points and weaknesses, as often happens with development programs whether they are growth-oriented or equity-oriented\. There is nothing singularly wrong within SFKC\. However, it was not a panacea for all the problems that Cambodia had as it gradually emerged from years of civil strife and struggled with many difficult development issues\. The substantive issue is whether the SFKC approach is a worthwhile endeavor on balance\. Given the institutional experience and technical competence which has been gained, the social fund model can place greater emphasis, in the medium to longer-term, on the public works component\. Working in coordination with other labor-intensive sub-projects, it will have a significant impact with regard to revitalization of the local economy, thus in reality contributing to the poverty alleviation policies and the Triangular Strategies of the Royal Government of Cambodia\. (b) Cofinanciers: Inputs and comments from co-financiers have been incorporated into the above Bank assessment of the project\. Co-financiers did not provide specific comments on the ICR\. (c) Other partners (NGOs/private sector): Inputs and comments from MoU partners have been incorporated into the above Bank assessment of the project\. Detailed feedback is provided in the Partnership Study 2004, which can be found in the project files\. 10\. Additional Information - 14 -  Annex 1\. Key Performance Indicators/Log Frame Matrix Outcome / Impact Indicators: 1 Indicator/Matrix Projected in last PSR Actual/Latest Estimate Provincial targeting coefficient Provincial allocations (US$ m): Provincial allocations (US$ m): Banteay MeanChey 1\.1 Banteay MeanChey 0\.8 Battambang 1\.4 Battambang 1\.2 Kampong Cham 2\.8 Kampong Cham 4\.3 Kampong Chhnang 0\.8 Kampong Chhnang 1\.1 Kampong Speu 1\.1 Kampong Speu 2\.1 Kampong Thom 1\.2 Kampong Thom 0\.7 Kampot 1\.1 Kampot 1\.4 Kandal 1\.9 Kandal 2\.7 Koh Kong 0\.2 Koh Kong 0\.7 Kratie 0\.4 Kratie 0\.6 Mondolkiri 0\.08 Mondolkiri 0\.1 Phnom Penh 0\.8 Phnom Penh 3\.1 Subprojects in priority districts as percentage not available Percentage of subprojects in of total approvals post-conflict/reconciliation areas: 23\.6% Man-months of employment generated by Total man-months of employment generated Total man-months of employment generated: SFII activities (Jan-Aug 2004): total 4,290 (skilled 1,118; total 51,907 (skilled 8,316; unskilled 43,591) unskilled 3,172) Co-financing as percentage of total value of not available MoU partnership subprojects value as subprojects percentage of total subprojects value: 30\.5% Proportion of total approvals with community not available not available contribution delivered at ground breaking Community contribution as percentage of 10% (target agreed at appraisal) 11% total value of sub-projects Total community contribution as percentage not available not available of applicant counterpart Number of handover subprojects with Percentage of total subprojects visited in year Percentage of school subprojects visited with maintenance problems over total number of 2002 and 2003 with maintenance problems maintenance problems during year 1 of use past handover projects visited, by age of during year 1 of use (post construction): (post construction): 15%; during year 2 of sub-project, by sector 12%; during year 2 of use: 14% use: 30% Percentage of rural road subprojects visited with maintenance problems during year 1 of use (post construction): 10%; during year 2 of use: 20% Percentage of water supply subprojects visited with maintenance problems during year 1 of use (post construction): 25% Economic infrastructure subprojects Percentage of subproject approvals under Percentage of bridge and culvert, community approved as percentage of total approvals SFII (as of March 2004): 56\.2% water supply, and irrigation subproject Percentage of subproject approvals under approvals: 45% supplemental credit (as of March 2004): 61\.6% Notes: 1\. Unless otherwise indicated, the totals provided in this table include both Social Fund II and the Supplemental Credit\. 2\. Because no projections were provided in PSRs, the "Projected in last PSR" column reflects actual information from the last PSR if available\. 3\. For indicators that were not tracked during implementation, actual/latest estimates of similar or related indicators are provided\. Therefore, projections and actual/latest estimates may not be comparable across columns\. - 15 -  Output Indicators: 1 Indicator/Matrix Projected in last PSR Actual/Latest Estimate Average unit cost of sub-projects completed; Average unit costs by subproject type (US$): Average unit costs by subproject type (US$): number of infrastructure, agriculture, Commune Clinics 16,109 Irrigation Systems 31,439 education and training, health, social affairs, Irrigation Systems 30,488 Schools 23,928 capacity building, equipment and other Latrines 1,912 Rural Roads 20,135 subprojects completed Primary Schools 22,298 Water and Sanitation 9,643 Rural Roads 20,782 Vocational Training Centers 17,755 Number of subprojects completed by Water Supply 5,320 subproject type: Agriculture 77 Education 607 Health 9 Social Affairs 2 Transport 386 Water and Sanitation 335 Time lag between subproject cycle steps not available For regular subproject applications: 3\.73 years between screening and construction groundbreaking For flood rehabilitation and MoU subproject applications: 1\.05 years between screening and construction groundbreaking Average subproject technical quality not available Percentage of subprojects rated "fair" to "good" quality by independent technical and beneficiary assessment: 90% 1End of project Notes: 1\. Unless otherwise indicated, the totals provided in this table include both Social Fund II and the Supplemental Credit\. 2\. Because no projections were provided in PSRs, the "Projected in last PSR" column reflects actual information from the last PSR if available\. 3\. For indicators that were not tracked during implementation, actual/latest estimates of similar or related indicators are provided\. Therefore, projections and actual/latest estimates may not be comparable across columns\. - 16 -  Annex 2\. Project Costs and Financing Project Cost by Component (in US$ million equivalent) Appraisal Actual/Latest Percentage of Estimate Estimate Appraisal Component US$ million US$ million A\. Sub-Projects 24\.46 22\.96 93\.87 B\. Institutional Support 3\.00 2\.62 92\.25 C\. Unallocated 0\.31 0\.00 0 Total Baseline Cost 27\.77 25\.58 Total Project Costs 27\.77 25\.58 Total Financing Required 27\.77 25\.58 Notes: 1\. This table provides Project Cost by Component for the Cambodia Social Fund II Project\. 2\. Under Appraisal Estimate, the Total Project Cost of US$27\.77 million includes Government financing/co-financing/contingencies\. Bank financing for the project was US$25\.00 million (equivalent to 17,900,000 XDR)\. 3\. Under Actual/Latest Estimate, the Total Project Cost of US$25\.58 million is the total actual cost including Government financing/co-financing/contingencies\. Appraisal Actual/Latest Percentage of Estimate Estimate Appraisal Component US$ million US$ million A\. Sub-Projects 9\.00 8\.73 97\.00 B\. Institutional Support 1\.10 1\.96 178\.19 C\. Unallocated 0\.00 0\.00 0 Total Baseline Cost 10\.1 10\.69 Total Project Costs 10\.10 10\.69 Notes: 1\. This table provides Project Cost by Component for the Flood Rehabilitation Supplemental Credit\. 2\. Under Appraisal Estimate, the Total Project Cost of US$10\.10 million includes Government financing/co-financing/contingencies\. Bank financing for the project was US$10\.00 million (equivalent to 7,900,000 XDR)\. 3\. Under Actual/Latest Estimate, the Total Project Cost of US$10\.69 million is the total actual cost including Government financing/co-financing/contingencies\. - 17 -  Project Costs by Procurement Arrangements (Actual/Latest Estimate) (US$ million equivalent) 1 Procurement Method Expenditure Category ICB NCB 2 N\.B\.F\. Total Cost Other 1\. Works 0\.00 1\.16 18\.03 0\.00 19\.19 (0\.00) (0\.00) (19\.81) (0\.00) (19\.81) 2\. Goods 0\.00 0\.15 1\.48 0\.00 1\.63 (0\.00) (0\.10) (1\.10) (0\.00) (1\.20) 3\. Services 0\.00 0\.00 2\.05 0\.00 2\.05 (0\.00) (0\.00) (0\.59) (0\.00) (0\.59) 4\. Miscellaneous 0\.31 0\.00 1\.82 0\.00 2\.13 (0\.00) (0\.00) (1\.62) (0\.00) (1\.62) 5\. Miscellaneous 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 6\. Miscellaneous 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) Total 0\.31 1\.31 23\.38 0\.00 25\.00 (0\.00) (0\.10) (23\.12) (0\.00) (23\.22) Note: This table provides Project Costs by Procurement Arrangements for the Cambodia Social Fund II Project\. Project Costs by Procurement Arrangements (Actual/Latest Estimate) (US$ million equivalent) Expenditure Category Procurement Method 1 Total Cost ICB NCB Other 2 N\.B\.F\. 1\. Works 0\.00 0\.00 8\.34 0\.00 8\.34 (0\.00) (0\.00) (8\.49) (0\.00) (8\.49) 2\. Goods 0\.00 0\.00 0\.15 0\.00 0\.15 (0\.00) (0\.00) (0\.37) (0\.00) (0\.37) 3\. Services 0\.00 0\.00 0\.88 0\.00 0\.88 (0\.00) (0\.00) (0\.70) (0\.00) (0\.70) 4\. Miscellaneous 0\.00 0\.00 0\.65 0\.00 0\.65 (0\.00) (0\.00) (1\.06) (0\.00) (1\.05) Total 0\.00 0\.00 10\.02 0\.00 10\.02 (0\.00) (0\.00) (10\.61) (0\.00) (10\.61) Note: This table provides Project Costs by Procurement Arrangements for the Flood Rehabilitation Supplemental Credit\. 1/Figures in parenthesis are the amounts to be financed by the IDA Credit\. All costs include contingencies\. 2/Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project and (ii) re-lending project funds to local government units\. - 18 -  Project Financing by Component (in US$ million equivalent) Percentage of Appraisal Component Appraisal Estimate Actual/Latest Estimate IDA Govt\. CoF\. IDA Govt\. CoF\. IDA Govt\. CoF\. A\. Sub-Projects 22\.01 2\.45 20\.76 2\.19 94\.3 89\.4 B\. Institutional Support 2\.68 0\.32 2\.45 0\.17 91\.4 53\.1 C\. Unallocated 0\.31 0\.00 0\.0 Total 25\.00 0\.32 2\.45 23\.22 0\.17 2\.19 92\.9 53\.1 89\.4 Note: This table provides Project Financing by Component for the Cambodia Social Fund II Project\. Component Appraisal Estimate Actual / Latest Estimate Percentage of Appraisal IDA Govt\. Cof\. IDA Govt\. Cof\. IDA Govt\. Cof\. A\. Sub-Projects 9\.00 8\.73 97 B\. Institutional Support 1\.00 0\.1 1\.88 0\.08 188 80 C\. Unallocated 0\.00 0\.00 0\.0 Total 10\.00 0\.1 10\.61 0\.08 106\.1 80 Note: This table provides Project Financing by Component for the Flood Rehabilitation Supplemental Credit\. - 19 -  Annex 3\. Economic Costs and Benefits An economic rate of return was not calculated for this project at appraisal, nor was it calculated at closure\. - 20 -  Annex 4\. Bank Inputs (a) Missions: Stage of Project Cycle No\. of Persons and Specialty Performance Rating (e\.g\. 2 Economists, 1 FMS, etc\.) Implementation Development Month/Year Count Specialty Progress Objective Appraisal/Negotiation 12 Feb 1999 7 MISSION LEADER (1) COMMUNITY PARTICIPATION (1) FINANCE AND ACCOUNTING (1) PROCUREMENT (1) SOCIAL FUND OPERATIONS (2) OPERATIONS AND BUDGET (1) Supervision 2 Dec 1999 3 PROGRAM TEAM S S LEADER (1) TECHNICAL (1) SUSTAINABILITY (1) 26 June 2000 5 TASK LEADER (1) U S FINANCIAL MANAGEMENT (2) PRINCIPAL PROCUREMENT SPECIALIST (1) PROCUREMENT SPECIALIST (1) 7 Sep 2000 3 TASK MANAGER (1) U S EXTERNAL AFFAIRS OFFICER (1) OPERATIONS OFFICER (1) 12 Dec 2000 4 MISSION LEADER (1) S S PROCUREMENT SPECIALIST (1) FINANCIAL MANAGEMENT SPECIALIST (1) SUSTAINABILITY (1) 25 April 2001 3 MISSION LEADER (1) S S PROCUREMENT OFFICER (1) SOCIAL SECTOR SPECIALIST (1) 14 Aug 2001 4 MISSION LEADER (1) S S PROCUREMENT SPECIALIST (1) FINANCIAL OFFICER (1) ECONOMIST (1) 24 Jan 2002 3 MISSION LEADER (1) S S PROCUREMENT SPECIALIST (1) - 21 -  FINANCIAL OFFICER (1) 11 Oct 2002 4 TASK TEAM LEADER (1) S S PROCUREMENT OFFICER (1) FINANCIAL OFFICER (1) PROGRAM ASSISTANT (1) 22 May 2003 7 MISSION LEADER (1) S S SOCIAL PROTECTION (2) PROCUREMENT (2) FINANCIAL MANAGEMENT SPECIALIST (1) PROCUREMENT AND FINANCIAL MANAGEMENT (1) 4 Dec 2003 N/A N/A S S 8 Mar 2004 7 MISSION LEADER (1) S S SOCIAL PROTECTION, IMPLEMENTATION (1) SOCIAL PROTECTION (1) PROCUREMENT (2) FINANCIAL MANAGEMENT (1) PROCUREMENT AND FINANCIAL MANAGEMENT (1) 22 Sep 2004 N/A N/A S S ICR 16 Dec 2004 4 MISSION LEADER (1) S S PROCUREMENT (1) FINANCIAL MANAGEMENT (1) IMPLEMENTATION (1) (b) Staff: Stage of Project Cycle Actual/Latest Estimate No\. Staff weeks US$ ('000) Appraisal/Negotiation N/A 133\.67 Supervision 85\.1 422\.19 ICR Total N/A 555\.86 No\. of Staff weeks and Actual expenses for Supervision and ICR stages are combined\. - 22 -  Annex 5\. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating Macro policies H SU M N NA Sector Policies H SU M N NA Physical H SU M N NA Financial H SU M N NA Institutional Development H SU M N NA Environmental H SU M N NA Social Poverty Reduction H SU M N NA Gender H SU M N NA Other (Please specify) H SU M N NA Private sector development H SU M N NA Public sector management H SU M N NA Other (Please specify) H SU M N NA - 23 -  Annex 6\. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6\.1 Bank performance Rating Lending HS S U HU Supervision HS S U HU Overall HS S U HU 6\.2 Borrower performance Rating Preparation HS S U HU Government implementation performance HS S U HU Implementation agency performance HS S U HU Overall HS S U HU - 24 -  Annex 7\. List of Supporting Documents Aide Memoires and PSRs: Appraisal/Negotiations mission Aide Memoire and PSR - February 12, 1999 Supervision mission Aide Memoire and PSR - July 2, 1999 Supervision mission Aide Memoire and PSR - December 2, 1999 Supervision mission Aide Memoire and PSR - June 26, 2000 Supervision mission Aide Memoire and PSR - September 7, 2000 Supervision mission Aide Memoire and PSR - December 12, 2000 Supervision mission Aide Memoire and PSR - April 25, 2001 Supervision mission Aide Memoire and PSR - August 14, 2001 Supervision mission Aide Memoire and PSR - January 24, 2002 Supervision mission Aide Memoire and PSR - October 11, 2002 Supervision mission Aide Memoire and PSR - May 22, 2003 Supervision mission Aide Memoire and PSR - December 4, 2003 Supervision mission Aide Memoire and PSR - March 8, 2004 Supervision mission Aide Memoire and PSR - September 22, 2004 Supervision/ICR mission Aide Memoire and PSR - December 16, 2004 Assessments Beneficiary Assessment Report - Marilou Pantua-Juanito, December 2000 Independent Technical and Beneficiary Assessment - Robert Deutsch and Peter Feldman, October 2004 Independent Impact Assessment - Robert Deutsch, 2002 Institutional Assessment (Final Report) - David Ayres, November 2004 Partnership Study (Final Report) - Mercedes Logarta et al, June 2004 Procurement Assessment 2003 - Declan O'Leary and Associates, June 2004 SFII Irrigation Assessment - Aruna Technology, December 2002 Sustainability Training End of Mission Report - Marilou P\. Juanito, May-July 2001 Technical Assessment Mid-Term Report - Declan O'Leary and Associates, November 2000 Technical Assessment of 120 Projects - Ko ter Hofstede and Ou Sochivy, July 1998 Technical Assessment Report - De Spiegler Associates, February 1997 Bank systems: Integrated Controller's Systems: disbursement information SAP: budget information Project documents: Development Credit Agreement of Cambodia Social Fund II Project - April 19, 1999 Fund Agreement of Cambodia Social Fund II Project - May 27, 1999 Minutes of Negotiations of Cambodia Social Fund II Project - February 17, 1999 - 25 -  Project Agreement of Cambodia Social Fund II Project - April 19, 1999 Project Appraisal Document of Cambodia Social Fund II Project - March 3, 1999 Staff Appraisal Report Cambodia Social Fund Project - May 11, 1995 World Bank Documents: Assessment of the Interim Poverty Reduction Strategy Paper Country Assistance Strategy - January 28, 1997 Country Assistance Strategy - February 7, 2000 Cambodia Country Assistance Evaluation (OED) - November 16, 2000 Cambodia Poverty Assessment - November 22, 1999 CPPR Mission (May 13-21) report (SF extract) Memorandum to the President for Supplemental Credit IAD Report on an Audit of Procurement of Goods, Works and Consultants in EAP - March 4, 2002 Implementation Completion Report for Social Fund I Project - February 28, 2001 Poverty Alleviation through Geographical Targeting: How Much Does Disaggregation Help? Poverty Reduction Strategy Paper Annual Report and Joint Staff Assessment - August 17, 2004 Poverty Reduction Strategy Paper and Joint Staff Assessment - January 22, 2003 QAG Assessment of Bank Supervision Quality during FY1998 World Bank Group in Cambodia: World for a Cambodia Free of Poverty Social Fund of the Kingdom of Cambodia SFKC National Workshop (November 11, 2004) - Fostering Local Development and Reaching out to Communities: Experiences of the SFKC SFKC A Report for the Period July 1999 to October 2000 SFKC Annual Report of Development Credit Implementation No\. 2739KH on Year 1998 SFKC Finance and Administration Manual SFI - September 1999 SFKC Finance and Administration Manual SFII - July 1999 SFKC Finance and Administration and O & D Manual for Regional Offices - February 2000 SFKC First Semester Report 1999 of DC Implementation No\. 2739KH - 1999 SFKC Implementation Completion Report (Phase I: 1995-1999) - April 2000 SFKC Operations Manual SFI - November 1995 SFKC Operations Manual Social Fund Phase II - July 1999 SFKC Project Overview (blue covered publication ­ undated) SFKC Promoting Community Participation and Sustainability in SF Projects - March 2000 SFKC SFII First Semester Report - July 2004 SFKC SFII Mid-Term Report on July 1999-June 2001 SFKC SFII Report Project Implementation of DCA No\. 3179KH on July 1999-July 2000 SFKC SFII Third Quarter Report 2001 Staffing Plan for 2004 - 26 -  The Work of the Social Fund in Cambodia: A Review of Experiences and Options for the Future Other Commune Councils and Civil Society - January 2004 - 27 -  - 28 -

REVIEW

P099924

Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review CAPSAP (P099924) Report Number : ICRR0020161 1\. Project Data Project ID Project Name P099924 CAPSAP Country Practice Area(Lead) Azerbaijan Governance L/C/TF Number(s) Closing Date (Original) Total Project Cost (USD) IDA-44050,TF-57849,TF-98323 31-Dec-2012 24,000,000\.00 Bank Approval Date Closing Date (Actual) 27-Mar-2008 30-Jun-2015 IBRD/IDA (USD) Grants (USD) Original Commitment 11,000,000\.00 4,865,000\.00 Revised Commitment 11,000,000\.00 4,847,561\.57 Actual 10,567,744\.80 4,847,561\.57 Sector(s) General finance sector(74%):Central government administration(19%):General industry and trade sector(7%) Theme(s) International financial standards and systems(50%):Corporate governance(25%):Public expenditure, financial management and procurement(25%) Prepared by Reviewed by ICR Review Coordinator Group Jose M\. Rodriguez Alvarez Clay Wescott Lourdes N\. Pagaran IEGEC (Unit 1) 2\. Project Objectives and Components a\. Objectives According to the Financing Agreement (p\. 5) the Project Development Objective (PDO) was “to strengthen accountability and transparency in financial reporting for the public and corporate sectors in line with international best practices, and to support institutional strengthening to sustain reforms”\.  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review CAPSAP (P099924) b\. Were the project objectives/key associated outcome targets revised during implementation? No c\. Components The project originally comprised four components, two of which were revised in the first restructuring in 09/23/2011 and three in the 11/19/2013 second restructuring\. The original components were the following: Component 1: Corporate Sector Accountability, costing US$4\.57m at appraisal, US$0\.25m at completion, including: (1\.1) Assist Public Interest Entities (PIEs) in embedding International Financial Reporting Standards (IFRS), in compliance with the Accounting Law; (1\.2) Establishing appropriate legal and institutional frameworks and capacity for translation, adoption and enforcement of IFRS and National Accounting Standards for Commercial Organizations (NASCO); and (1\.3) Improve statutory framework and building capacity to regulate and oversee the audit function Component 2: Public Sector Accountability, costing US$3\.64m at appraisal, US$12\.92m at completion\. This component aimed to enhance public sector accountability through the implementation of the government’s public sector accounting reform strategy, in part by implementing the section of the 2004 Accounting Law requiring budgetary organizations and off- budget state funds to prepare financial statements in accordance with National Accounting Standards for Budgetary Organizations, (NASBOs) based on International Public Sector Accounting Standards (IPSAS)\. Component 3: Strengthening accounting, auditing and financial management capacity, costing US$10\.58m at appraisal and US$5\.56m at completion\. This component aimed to build long-term capacity in accounting, auditing and financial management, bringing both corporate and public sector compliance into alignment with accounting and auditing standards\. Component 4: Project Management, costing US$0\.76m at appraisal, US$1\.39m at completion\. This was to provide support to the government to implement the project through a Project Management Unit (PMU) at the Ministry of Finance (MOF)\. The first restructuring (09/23/2011) and the second restructuring (11/19/2013) included the following changes in components 1, 2 and 3: Component 1: Corporate Sector Accountability\. Under the first restructuring, sub-component 1\.3 on “Improving the statutory framework and building capacity to regulate and oversee the audit function,” was cancelled\. The activities to support the Chamber of Auditors of Azerbaijan (CoAA) were also cancelled to focus instead on establishing an agency within the MOF to regulate the audit profession\. Under the second restructuring, the transfer of the audit oversight from the profession to MOF was cancelled\. Three sub components were revised in the second restructuring in November 2013 as follows: - Cancellation of sub-component 1\.1 on “Assisting the Public Interest Entities (PIEs) in embedding IFRS” based on the government’s request and decision to finance directly the envisioned activities\. - Modification of sub-component 1\.2 and 1\.3 to reflect emphasis on the establishment of the Association of Professional Accountants of Azerbaijan (APAA)\. This would enable APAA to develop appropriate legal and institutional frameworks and capacity for translation, adoption and enforcement of IFRS and NASCOs\. Component 2: Public Sector Accountability\. Under the first restructuring, a new sub-component 2\.3 for “Unified automated accounting system for line ministries and budgetary organizations” was added to support the implementation of the NASBOs and help the government to achieve effective control over spending of budget funds, and to generate reliable consolidated financial statements\. Under the second restructuring, sub-components10 2\.1, 2\.2 and 2\.3 were modified to reflect recent developments in the execution of the Chamber of Accounts and the automated accounting software called “Financial and Accountability Reporting Application for Budgetary Institutions” (FARABI)\. Modifications included:  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review CAPSAP (P099924) - Sub-component 2\.2, CAPSAP was to continue financing the implementation of the Chamber of Accounts’ Strategic Development Plan (SDP), but there were changes in the areas that the Project Appraisal Document (PAD) indicated the SDP would undertake, including focusing on four major themes: enhancing financial audit; introducing performance audit; improving legal and standards framework; and strengthening human resource practices\. - Sub-component 2\.2, the activities pertaining to the introduction of Public Internal Financial Control (PIFC) in Azerbaijan were dropped, since the Government of Azerbaijan (GOA) was expected to develop an Internal Financial Control Framework outside the CAPSAP\. - Sub-component 2\.1 and 2\.3, the establishment of a Maintenance and Support Centre for FARABI was added to ensure due maintenance and technical support of the system\. Component 3: Strengthening accounting, auditing and financial management capacity Under the second restructuring, revisions were made to bring the PAD language more in line with the direction the project had taken since the first restructuring\. - The original PAD activity of “financial assistance, in the form of part-payment or subsidies of the costs of professional qualifications in accounting and auditing will be provided to successive staff of public and private sector accountants to encourage the retooling program” was cancelled, with new emphasis placed on institutionalizing and accrediting the National Accounting Qualification Program\. The “establishment of an international advisory panel of experts in accounting and auditing,” which was envisaged in the original project design, was deleted\. The APAA was to establish structures responsible for the activities initially envisaged for the international advisory panel of experts\. The major reason for the substantial differences between appraised and actual costs for the project’s components are the following: Component one (Corporate Sector Accountability): After the first restructuring, activities related to the Chamber of Accounts on improving the statutory framework and building capacity to regulate and oversee the audit function under sub-component 1\.3 were cancelled\. In addition, under the second restructuring, sub-component 1\.1 on assisting the PIEs in embedding IFRS was also cancelled\. These led to a significant drop in the expenditure under component one although the establishment of the Association of Risk Professional Accountants of Azerbaijan (ARPA) was added under the component\. Component two (Public Sector Accountability): After the first restructuring, a new sub-component 2\.3 was added on unified automated accounting system for line ministries and budgetary organizations (FARABI)\. Under the second restructuring, the establishment of a maintenance and support center for FARABI was added to subcomponent 2\.3\. This significantly increased the cost of the component\. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates Approval was 03/27/2008, effectiveness was 12/19/2008, the mid-term review was 06/10/2012, and the closing date was 30/06/2015\. Initial project implementation delays as well as modifications to project components that required time to implement resulted in two project extensions\. The first restructuring, approved 09/23/2011 extended the project’s closing date for 12 months from December 31, 2012 to December 31, 2013\. The second restructuring, approved 11/19/2013, extended the closing date by 18 months to June 30, 2015 for the International Development Association (IDA) (Credit 44050) and Japan PHRD (TF 57849), while the Swiss Government/State Secretariat for Economic Affairs (SECO) (TF 98323) was extended by 12 months to December 31, 2014, as the parent Trust Fund was due to close by June 30, 2015\. The second restructuring also increased the IDA credit from 60% to 100%\. The appraised cost was US$ 24m\. IDA provided US$11million of the estimated total project cost at the appraisal, US$10\.56 million, actual\. Co-financing came from Japan Policy and Human Resource Development (PHRD) (TF-57849), US$3m at appraisal, the same amount actual; and a SECO Grant (TF-98323) US$1,86m at appraisal, US$1,85m actual\. The SECO Grant TF 98323 was not signed until June 14, 2011, delaying the implementation of sub-component 2\.2 on external audit reforms with the Chamber of Accounts\. The Government of Azerbaijan committed to fund US$8 million, but disbursed only US$7\.15m by the project’s end\. The Government ICR notes that the balance of US$845,042\.12 is attributable to US$644,437\.70 related to exchange rate losses as well as US$200,604\.42 that was on the project bank account but fully committed to be utilized under the project\. 3\. Relevance of Objectives & Design  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review CAPSAP (P099924) a\. Relevance of Objectives CAPSAP was an important component of the World Bank Group’s Country Partnership Strategy (CPS) for 2007 to 2010\. In particular, the first pillar of the CPS aims to strengthen financial management and procurement systems, and establish proper public sector and corporate governance, accounting and auditing frameworks\. The project directly contributed to the first of the CPS objectives through: (i) strengthening financial management; and (ii) proper corporate governance, accounting and auditing, and indirectly support the other three objectives through its impact on key public institutions and private actors\. Transparency and accountability in financial reporting were essential for enhancing the management of public funds\. The project’s PDO is also highly relevant to the 2016-2020 Country Partnership Framework (CPF), which supports the priorities in Azerbaijan’s Vision 2020\. The CPF states that the governance agenda will be supported in the CPF program by enhancing transparency and accountability in public sector management and service delivery, strengthening the rule of law, promoting financial inclusion, and creating a level playing field for businesses\. Furthermore, one of its priority lines of action, within the objective of an effective fiscal management, is the strengthening the structures of governance by building credible and accountable institutions, with the capacity to enforce fiscal rules and a medium term fiscal framework while planning for sustainability\. With respect to the government program, the project aimed to support the GOA’s implementation of the 2004 Accounting Law, which mandated the use of accounting standards based on international best practices\. The GOA is committed to continue implementing the activities that will strengthen public and corporate sector accountability and transparency, bringing them in line with international best practices\. For example, the President of Azerbaijan has endorsed the rollout of FARABI as one of MOF’s key reforms, aiming to improve internal control systems and ensure ministries and budget organizations produce financial statements that comply with IPSAS\. The MOF’s strong focus on the education of accountants in Azerbaijani will strengthen the accounting skills of the public sector civil servants and provide affordable training of professional accountancy courses for the corporate sector\. Rating High b\. Relevance of Design The project design clearly stated the PDO, and the results framework provides a clear causal chain between Bank financing and the expected outcomes\. The significant changes in the three components during the two restructurings affected the results framework; while it remained relevant and there were some additional improvements in the design, the scaling back of component 1 weakened the results chain\. This component was reduced after the second restructuring to a single subcomponent related to the establishment of Association of Professional Accountants of Azerbaijan (ARPA)\. Moreover, ARPA would find a better emplacement in Component 3 (Strengthening accounting, auditing and financial management capacity)\. The investment lending instrument was appropriate for a project designed to assist the borrower in strengthening accountability and transparency in financial reporting for public and corporate sectors in line with international best practices, and to support institutional strengthening to sustain reforms\. In principle, support to the Government could be provided through policy-based lending; however, taking into account the weak institutional capacity and the current level of success of Government reform efforts in the sector, an investment lending operation with targeted capacity building activities was finally considered more appropriate\. In summary, the relevance of the design is in the low side of substantial\. Rating Substantial 4\. Achievement of Objectives (Efficacy) PHREVISEDTBL  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review CAPSAP (P099924) Objective 1 Objective The PDO comprises two objectives: (i) Strengthen accountability and transparency in financial reporting for the public sector in line with international best practices; and (ii) Strengthen accountability and transparency in financial reporting for the corporate sector in line with international best practices\. The PDO also refers to supporting institutional strengthening to sustain reforms\. This is a more general, cross- cutting objective that could be included in the two mentioned ones, since the different components of the project and their activities are in general oriented to the institutional strengthening of both the public sector and the corporate one\. Objective 1: Strengthen accountability and transparency in financial reporting for the public sector in line with international best practices Rationale Significant results were achieved within this objective\. The FARABI system was rolled out to 99 ministries and budget organizations, which together covered 40 percent of the total budget expenditure, and the government expects to scale up to additional 900 institutions, although this plan has not been implemented so far\. The system has gained ownership at both political and technical levels of government, as well as the support from the country’s President\. Institutions using FARABI produce timely financial statements compliant with IPSAS\. The 2015 Open Budget Survey confirms that in-year, year-end and audit reports are now publicly made available, where they were not in 2008\. Also the 2012-2014 Strategic Development Plan (SDP) of the Chamber of Commerce has been met in all its items, including improving financial audits; introduction of performance audit capabilities; enhancement of legal and standards framework; and upgrading of the human resource and training systems\. A number of NASBOs close to the target established in the project were translated into Azerbaijani\. The advancements were also significant in training, with 4,838 students trained by the Financial Science and Training Center (FSTC); three accredited training programs were implemented, focused on the public sector that will strengthen accountability and transparency in public sector; 36 trainers were accredited; and 1 new accounting and audit textbook was produced\. On the downside, there is a relevant shortcoming, because the Chamber of Accounts (CoA) did not audit any budget expenditure using the new methodology since the financial and performance audits depend on the CoA revised draft law, not passed by the Parliament yet\. The CoA only carried out two pilot audits to develop its capacity, but these documents have not official recognition\. To summarize, there are important advances in the implementation of integrated financial management system, in the Strategic Development Plan of the CoA, and in training activities, and despite the mentioned shortcoming, the efficacy of this objective can be rated as substantial\. Rating Substantial PHREVISEDTBL Objective 2 Objective Objective 2\. Strengthen accountability and transparency in financial reporting for the corporate sector in line with international best practices Rationale With respect to this objective, the initial Component 1, specifically related to the Corporate Sector, was reduced after the two restructurings of the project and, finally, one single subcomponent remained\. This subcomponent included the establishment and the capacity building of an Association of Professional Accountants of Azerbaijan, finally called “Accounting and Risk Professionals Association” (ARPA), that should become a member of the International Federation of Accountants (IFAC) to guarantee the accountability and transparency in financial reporting for the corporate sector in line with international best practice\. According to the second restructuring, the Association should be a self-regulating body that is responsible for ensuring operational and ethical quality in the industry, and this change should “reflect the emphasis the project has placed recently on the establishment of the Association of Professional Accountants of Azerbaijan”, and “the achievement of international accreditation for the National Accounting Qualification, expected to be completed in the first half of 2014, would make Azerbaijan the first country in the South Caucasus to have a professional accounting qualification program that is  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review CAPSAP (P099924) internationally recognized”\. This was also one of the reasons for the extension of the project\. This association has been created and registered with the Ministry of Justice, but by the closing of the project was not yet a member of IFAC because ARPA had complied only with 7 of the 47 actions required by the IFAC’s Self-Assessment Questionnaire, as pointed-out in the ICR (page ix)\. On the positive side, there are other activities included in the project with positive inputs in the corporate sector, in particular the translation of 41 IFRSs; the training of 137 Accounting staff in the National Accounting Qualification (NAQ), and 3,759 Bookkeepers; the introduction of two accredited training programs for NAQ and Bookkeepers; the existence of a number of accredited trainers to teach students to comply with corporate sector financial reporting standards; and the publication of ten new books that also will train students to comply with IFRS\. In summary, the efficacy of this objective is modest\. Although there are some advances in the activities related to the training to comply with corporate sector financial reporting standards, the key professional association that should support the professionals responsible for ensuring such standards has not been internationally recognized yet because it has not reach the required standards and only 7 of the 47 actions required by the IFAC have been complied with\. Rating Modest 5\. Efficiency A financial and economic analysis was conducted at appraisal, but the assumptions include activities that were cancelled during the two restructurings\. Furthermore, the cost-benefit analysis of CAPSAP is difficult to quantify, as acknowledged at appraisal\. The ICR provided an efficiency analysis of the project with respect to training accountants, FARABI, strengthening the Chamber of Accounts (CoA), and establishing of the Accounting and Risk Professionals Association of Azerbaijan (ARPA)\. According the ICR, students previously had to travel abroad for training, and the project generated potential cost-savings by training students locally – estimated by the ICR at US$15\.9 million for 4,843 students due to FSTC’s low fees per course and savings in travel and accommodation costs\. Students also benefited from training in their native language and avoided uneven training standards\. The training activities used the same books as used abroad, translated to the national language, and the trainers have been accredited, which means that the training activities achieve the required basic standards\. However, the ICR did not provide evidence that the quality of the training delivered in the country has the same level of quality that the training previously delivered abroad\. With respect to FARABI, the cost of the software, hardware and installation of FARABI for 99 institutions was US $11 million\. These costs are modest compared to FMIS in other countries, taking onto account the FARABI’s functionality\. Finally, it should be pointed out that there is local capacity to support its maintenance\. On the downside, the project experienced significant delays for a total of 2\.75 years, with a slow disbursement flag and was a problem project\. Project management cost increased as a result of implementation delays\. In addition there are outputs that have not been delivered under objectives 1 and 2, which suggest inefficient use of project resources\. In summary, the project supported the provision of in-country training, but there is no evidence on the quality of the training compared to the previous situation\. The project provided good value for money in implementing FARABI\. There was also cost related to the implementation delays and outputs not delivered under components 1 and 2\. On balance, IEG rates efficiency as modest\. Efficiency Rating Modest  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review CAPSAP (P099924) a\. If available, enter the Economic Rate of Return (ERR) and/or Financial Rate of Return (FRR) at appraisal and the re-estimated value at evaluation: Rate Available? Point value (%) *Coverage/Scope (%) 0 Appraisal 0 Not Applicable 0 ICR Estimate 0 Not Applicable * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome Relevance of objective is high and that of design is substantial\. The objective was well aligned with Bank and country strategies and relevant given the country conditions and circumstances\. The causal chain between PDO, components and expected outcomes is generally convincing\. Efficacy in the first sub-objective is rated substantial and it is rated modest in the second sub-objective\. Main shortcomings are the non- achievement of international recognition by the professional association that should guarantee the accountability and transparency in financial reporting for the corporate sector, and the inability of the Chamber of Accounts to officially audit budget expenditures, using new methodology until the enactment of amendments to the CoA Law, not presented at the Parliament at the moment of the project’s closing\. Efficiency is rated modest\. a\. Outcome Rating Moderately Satisfactory 7\. Rationale for Risk to Development Outcome Rating The risk of MOF not implementing FARABI in about 1,000 ministries and budget organizations is low, since there is funding from central government and the President of Azerbaijan institutionally supports the project\. In order to ensure that MOF improves on the usage of FARABI, the MOF will create and maintain a user-friendly web portal for continuous training and education\. There is also low risk that the accountancy training will be discontinued, since MOF has committed to funding the functioning costs of FSTC, and revenues from the professional accountancy course (NAQ) are expected to grow due to the increase in the students’ number\. The ICR emphasizes that the only risk is that students prefer the course to be internationally accredited\. There is some risk that ARPA will not become a member of IFAC, since membership depends on ARPA receiving endorsement from an existing IFAC member in Azerbaijan, which is the CoAA\. However, ARPA has recently established good relations with CoAA, and it is expected that the endorsement will be given\. Finally, there is some risk that the CoA will not perform financial and performance audits according to the new methodology, since CoA audits depend on the final approval of the revised law of the CoA, which is expected in 2016\. But now the MOF has supported and reviewed the draft law, which at the closing of the project was at the Office of the President for review (ICR, p\.22) and its first reading in Parliament is expected in 2016\. a\. Risk to Development Outcome Rating Modest 8\. Assessment of Bank Performance a\. Quality-at-Entry The preparation of the project and appraisal of the operation was facilitated by the Bank team, in order to achieve the planned development outcomes\. Risks and mitigation measures, implementing entity, and beneficiaries were appropriately identified, and the Bank’s fiduciary measures were properly taken into consideration\. However, the team could have provided more resources in the initial design to Component  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review CAPSAP (P099924) Two (Public Sector Accountability) for FARABI, a significant activity to improve accountability and transparency, rather than to Component One (Corporate Sector Accountability), which aimed to facilitate the implementation of IFRS in three specific SOEs\. This is because SOEs tend to use their own resources to computerize FMIS, as the same government recognized later\. This issue only was addressed during the first restructuring in 2011, when FARABI was included as part of the project, and the plan for FMIS in three specific SOEs was dropped because the government decided to let SOEs fund the new systems using their own resources\. Quality-at-Entry Rating Moderately Satisfactory b\. Quality of supervision Bank supervision took place on a regular basis, and the bank team provided timely and appropriate advice and observations\. The aide memoires and ISRs provide evidence of the regular and continuous advice given by the Bank’s team\. In particular, the Bank responded in a timely and adequate manner to the two restructuring requests made by the government, which contributed to the project’s development outcome, particularly through the inclusion in the first restructuring of FARABI and its enhancement in the second restructuring\. Fiduciary policies were well managed\. On the downside, the team could have made in the first restructuring a better and more realistic risk analysis about the feasibility of a complete international recognition of ARPA before the project closing\. Quality of Supervision Rating Satisfactory Overall Bank Performance Rating Moderately Satisfactory 9\. Assessment of Borrower Performance a\. Government Performance The Government of Azerbaijan (GOA) supported the project throughout its different phases (preparation, appraisal and implementation)\. When Japan’s PHRD Grant (TF 56724) closed on March 26, 2008, the PMU was disbanded, but MOF made a commitment to fund the PMU, and attracted experienced candidates to key project positions, so that the PMU was fully staffed by December 2009\. The major challenge was when the GOA decided to prioritize an FMIS for the ministries and budget organizations, instead of building capacity for three SOEs to comply with IFRS, but at this stage there was a good coordination with the Bank, which also helped to synchronize GOA’s new strategy after the first restructuring in September 2011, and thereafter project implementation significantly scaled up\. In general, during the project there was an adequate coordination of GOA with the Bank and SECO\. At project closure, GOA remained committed to continue the implementation of project’s objectives and activities, such as the support to the dissemination of FARABI, the financing of the training activities, and support to ARPA and the new draft law for the CoA\. The stakeholders’ workshop and beneficiary survey provided also positive feedback in relation to the performance of the government in this project\. Government Performance Rating Satisfactory b\. Implementing Agency Performance All key staff of the PMU were appointed by MOF\. However, as the Project Director was not appointed until December 2009, one year after the effectiveness of the project, in the meantime the Deputy Minister of Finance acted as the Project Coordinator\.  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review CAPSAP (P099924) The PMU timely resolved the implementation issues related to the project\. This activity was more effective after the first restructuring, when the GOA harmonized its strategy with the project\. At the beginning of the project some fiduciary aspects struggled, when implementation arrangements were still in flux, but they became satisfactory over time\. The PMU established M&E arrangements with the beneficiary institutions, as well as a coordination mechanism, and the stakeholders relied on reports for decision-making\. There was a good coordination of PMU with the Bank, SECO and all its beneficiary institutions\. Implementing Agency Performance Rating Satisfactory Overall Borrower Performance Rating Satisfactory 10\. M&E Design, Implementation, & Utilization a\. M&E Design The indicators, baselines and targets were identified and set up at the outset, in the PAD, as well as the data collection and reporting arrangements (Annex 3: Results Framework and Monitoring)\. The indicators were in line with the PDO and were revised during the second restructuring after changes were made to activities within the components\. The indicators were simple and easy to ascertain amongst the beneficiaries by a monitoring and evaluation (M&E) Specialist working with the PMU\. However, on the downside, PDO indicators are more output than outcome oriented\. b\. M&E Implementation The PMU, responsible for the M&E of the project activities, collected periodically appropriate data from the beneficiaries\. The M&E specialist was the responsible for the collection and consolidation of the required information and its consolidation to track progress against the monitoring plan included in the project’s Results Framework\. The data proved reliable when validated\. As the indicators were simple, in general terms the information was easy to acquire\. c\. M&E Utilization M&E was effectively used for decision making, and even after the project closing a significant number of indicators are still used in different areas\. The PMU evaluated and used up-to-date data to assess the speed of implementation, and particularly to achieve targets that were lagging behind, since they helped measure progress in addressing some of the institutional weakness of the sector\. After the project closing, the MOF decided that FSTC will continue to use the current indicators for the training program\. Also the current indicators will be used by the Accounting Policy Division to monitor the translation of accounting standards into Azerbaijani; and the Modern Technology and Automation Information Systems Department will expand on the current indicators used for FARABI, by using periodic beneficiary surveys to identify problem areas\. Also other beneficiaries, including the CoA and APRA, will continue to maintain M&E data\. M&E Quality Rating Substantial 11\. Other Issues a\. Safeguards The category C project did not trigger any safeguards\.  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review CAPSAP (P099924) b\. Fiduciary Compliance Financial management was satisfactory, as well as procurement despite a slow start\. All Financial Management covenants were complied with in accordance with the Financing Agreement\. All audit reports were received and all had unqualified audit opinions, and there were no major issues raised in the audit reports\. A revised procurement plan was quickly prepared and implemented after the project’s restructuring\. The project complied with the Bank’s procurement guidelines, and comprehensive procurement plans were prepared and submitted to the Bank for approval\. Approved procurement plans were published on a regular basis and updated when needed, and the Bank staff carried out ex ante or ex post previews of the procurement process, reviewed and cleared procurement documents, contract awards, and amendments, always according to the provisions of the Financing Agreements c\. Unintended impacts (Positive or Negative) None d\. Other None 12\. Ratings Reason for Ratings ICR IEG Disagreements/Comment Efficacy was rated modest in one objective and substantial in another\. There are shortcomings related to (i) the international recognition of the Accounting and Outcome Satisfactory Moderately Satisfactory Risk Professional Association of Azerbaijan, and (ii) the Court of Accounts’ legal powers to undertake financial and performance audits using the new methodology\. Risk to Development Outcome Modest Modest --- Quality at entry was only moderately satisfactory because the project could have provided more resources to Component Bank Performance Satisfactory Moderately Satisfactory Two to computerize FMIS in the public sector, a significant activity to improve accountability and transparency in the public sector finance management\. Borrower Performance Satisfactory Satisfactory --- Quality of ICR Substantial ---  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review CAPSAP (P099924) Note When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate\. 13\. Lessons Three main lessons from this ICR are the following: • Financial Management Information Systems are a key element of Public Finance Management and a critical tool for appropriate financial auditing\. In the case of this project, this tool (FARABI) was only included after the first restructuring and it was one of the most successful project achievements\. This system even had the advantage that its cost was modest compared with similar systems in other countries\. • Substantial training is essential to improve institutional capacity for implementing new tools\. This project devoted significant resources to deliver quality training in Azerbaijan drawing on best practices and international standards on financial auditing\. • The inclusion of new activities through project restructuring requires a deep evaluation and a risk analysis of their feasibility before the project’s closing, especially when their final achievement depends on external decisions\. In the case of CAPSAP, the inclusion of the establishment of an association of professional accountants (ARPA) that follows international standards depended not only on the creation of an internal registry of the association, but also on the recognition by IFAC\. Furthermore, at the closing of the project ARPA only complied with 7 of the 47 actions required by IFAC, which is one of the main shortcomings of this project\. 14\. Assessment Recommended? No 15\. Comments on Quality of ICR The ICR provided a clear and candid assessment of the operation\. It is, in general, consistent with Bank guidelines and reasonably concise\. On the downside the ICR has some inconsistencies, for example: • On page x it is said that the first element of PDO indicator number 2 (percent of total budget expenditures audited, using new methodology by Chamber of Accounts was partially achieved, when it was not achieved (baseline: 0%, target 10%, actual value: 0%)\. The same was the case on page xii, with respect to the intermediate outcome indicator number 7\. • On page 12, in section 3\.2 (Achievement of Project Development Objectives), it does not mention in the heading the rating of PDO 1, which was “partially achieved”, although the correct rating is mentioned in the text • On page 16 it is said that PDO Indicator 1, related to the establishment of ARPA following international standards, was fully achieved -target exceeded, when this PDO was only partially achieved, as indicated on page ix\. The ICR could have also provided more information about the main shortcomings, for example, why ARPA does not achieve all the requirements needed for its international recognition, and the reasons for the delay of the amended law on the CoA\. Evidence to compare the quality of the training activities with those previously delivered abroad was also not provided, which IEG had to clarify in an interview with the team\. The quality of the ICR is on the low side of substantial\. a\. Quality of ICR Rating  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review CAPSAP (P099924) Substantial

REVIEW

P079140

IEG Report Number: ICRR14677 ICR Review Independent Evaluation Group 1\. Project Data: Date Posted: 06/03/2015 Country: Papua New Guinea Project ID: P079140 Appraisal Actual Project Name: Png-smallholder Project Costs (US$M): 68\.8 25\.41 Agriculture Development L/C Number: C4374 Loan/Credit (US$M): 27\.50 23\.26 Sector Board: Agriculture and Rural Cofinancing (US$M): 0\.0 0\.0 Development Cofinanciers: Board Approval Date : 12/18/2007 Closing Date: 12/31/2012 12/31/2013 Sector(s): Roads and highways (66%); Crops (21%); Agricultural extension and research (8%); Other social services (3%); Sub-national government administration (2%) Theme(s): Rural services and infrastructure (67% - P); Participation and civic engagement (33% - S) Prepared by: Reviewed by: ICR Review Group: Coordinator: Hassan Wally Soniya Carvalho Christopher David IEGPS1 Nelson 2\. Project Objectives and Components: a\. Objectives: The Financing Agreement (p\. 5) and the Project Appraisal Document (p\. 3) stated the project development objective as: "increase, in a sustainable manner, the level of involvement of targeted communities in their local development through measures aimed at increasing oil palm revenue and local participation\." This Review evaluates the project against this objective\. b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components: 1\. Smallholder Productivity Enhancement (Appraisal cost: US$59\.2 million, Actual cost: US$15\.72 million)\. This component would support: (a) smallholder oil palm development; (b) road works; and (c) agricultural extension\. It is estimated that 9,000 ha of oil palm would be established on vacant blocks of village land along existing access roads (in-fill planting) within the area already covered by existing oil palm infrastructure\. The project would finance land preparation, purchase of seedlings, fertilizers, basic tools and other inputs provided to smallholders by the mills as suppliers’ credit\. About 550 km of existing provincial access roads serving the oil palm catchment area would be upgraded (reconstruction)\. The project would finance construction and maintenance contracts and the purchase of non-routine maintenance equipment\. A Road Maintenance Trust Fund (RMTF) would be established in each smallholder oil palm scheme, financed by smallholders, palm oil milling companies and provincial governments\. The existing oil palm extension and research services would be upgraded to generate and disseminate productivity improvements\. The project would also finance technical assistance and training to support the management of oil palm smallholdings during and after the project duration\. 2\. Local Governance and Community Participation (Appraisal cost: US$3\.1 million, Actual cost: dropped)\. This pilot component would support the improved provision of local services and infrastructure in the two project provinces of Oro and WNB through participatory processes (CDD)\. The component would finance small community grants, technical assistance and training to Local Level Government and communities\. The grants would finance small scale community infrastructure and services through sub-projects\. The implementation steps would include: (a) capacity building of community-based organizations (CBOs), ward development committees, Local Level Governments and province/district administrations; (b) community mobilization, supported by local facilitators; (c) identification and prioritization of sub-projects through transparent processes at ward or community level; (d) participatory planning and budgeting at Local Level Governments level; (e) provision of funding, with conditions to ensure accountability and effective use of funds by recipient communities; and (f) design and implementation of sub-projects by the communities themselves, with support from district and Local Level Governments, local CBOs, non-governmental organizations (NGOs) and service providers\. 3\. Project Management and Institutional Support (Appraisal cost US$6\.5 million, Actual cost: US$9\.69 million)\. The Oil Palm Industry Corporation (OPIC) would take overall responsibility for project management, coordination and performance of the project components\. The implementation of component 1 would be undertaken through OPIC and its field offices with the support of the palm oil milling companies and PNG Oil Palm Research Association\. Component 2 would be implemented by a management agency contracted by OPIC: (a) to set up Local Coordination Teams (LCT) at provincial level; (b) to select and contract consultants and service providers to carry out all capacity-building activities; (c) to carry out M&E activities for the component; and (d) to transfer the grants and manage the grant accounts at the LLG levels, and to transfer funds for sub-project activities to the Sub-project Implementation Teams’ (SITs) accounts at the LLGs’ request\. Component 3 would strengthen OPIC’s capacity to manage the project and to provide extension to growers\. OPIC would also provide support to and coordinate with existing HIV/AIDS awareness/prevention campaigns in the project areas\. Environmental monitoring would be supported in close coordination with the Department of Environment and Conservation (DEC)\. Revised Components Component 2 was dropped at the time of the first restructuring in September 2012\. The ICR (p\. 4) reports three main reasons for this: first, OPIC's weak capacity has undermined program implementation and contributed to substantial delays; second, at the time of the first project restructuring (September 2012), it was deemed that even if OPIC were to recruit the management agency to implement Component 2, it would have already been too late to obtain a meaningful result under this Component before the project’s revised closing date of December 31, 2013 and third, given the delays in other critical project activities—road rehabilitation and in-fill planting—it was decided that all project efforts would be concentrated on these activities and on improving extension service delivery\. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: Project Cost\. The total project cost at appraisal was US$68\.8 million including US$5\.3 million taxes and duties (PAD, Annex 5)\. Actual project cost was US$25\.41 million (ICR Annex 1)\. According to the ICR (p\. 5) "the reduction in total project cost reflected the fact that the Road Maintenance Trust Fund (RMTF) concept would not be implemented within the remaining project time frame\. Under the original project design, the West New Britain and Oro Provincial Governments, together with the palm oil milling companies and project area smallholders, were to contribute US$23\.7 million to the RMTF\." Financing\. At appraisal the project was expected to be financed through a US$27\.50 million IDA Loan\. According to the ICR (Annex 1) the actual disbursed amount at project completion was US$23\.26 million and US$0\.3 million was cancelled\. Borrower Contribution \. The Borrower was expected to contribute US$7\.4 million of counterpart funding\. The ICR (Annex 1) reports that the borrower contributed US$2\.15 million of counterpart funds which is about 39% of the appraisal estimate\. According to the PAD (p\. 3) the West New Britain Provincial Government, the Oro Provincial Government, palm oil milling companies, smallholder oil palm growers and the PNG Sustainable Development Program were expected to contribute US$7\.20 million, US$3\.5 million, US$5\.7 million, US$7\.3 million, and US$10\.20 million, respectively, totaling US$33\.9 million\. The ICR provides no information on actual contribution from these sources\. The ICR (p\. 33) also notes that: "the financial reporting system does not record information on all the other financiers identified at appraisal, namely the milling companies, smallholder farmers, PNG Sustainable Development and local governments in Oro and West New Britain provinces\." Dates\. The project was restructured twice, the first was a Level 2 restructuring carried out in June 2012 and became effective in September 2012\. The amount disbursed was US$4\.61 million\. This restructuring involved: (i) modifying a number of results indicators to reflect changes in the scope of the project, (ii) scaling back activities under component 1 due to local currency appreciation, revision in the Bank financing share due to insufficient counterpart funding and sharp increase in local costs, and dropping component 2 as discussed above; (iii) total project cost was revised downwards to US$40\.2 million; (iv) reallocation of credit among disbursement categories; and (v) extension of closing date of the project by one year from December 31, 2012 to December 31, 2013\. According to the ICR (p\. 5) this extension was to allow sufficient time for completion of planned road works and implementation of the in-fill planting program and extension activities\. The second restructuring was also a Level 2 carried out on November 2013\. The amount disbursed was US$20\.77 million\. This restructuring mainly involved reallocation of expenditures from the ‘ Consulting Services and Training’ category, which had unspent funds to the ‘Goods’ category\. This was necessary to strengthen road maintenance capacity in each of the three project areas through the procurement of three graders\. The ICR (p\. 5) reports that: "all three graders have been purchased and received at the three project sites\." The Midterm Review was conducted in September 2010\. 3\. Relevance of Objectives & Design: a\. Relevance of Objectives: High\. At project completion, objectives remain highly relevant to Papua New Guinea's current needs of economic and social development\. The objectives are consistent with the World Bank's current (2013-2016) Country Partnership Strategy (CPS)\. The CPS (p\. 16) calls among other things for supporting improved productivity and profitability of small holders growing cash crops, productivity gains for rural households growing food crops, improved sustainability and resilience to price and weather volatility, and improved market chain infrastructure\. At project appraisal, objectives supported GoPNG’s Medium-Term Development Strategy 2005 – 2010 (MTDS) and were also consistent with IDA’s overall goals as stated in the Interim Strategy Note (ISN-Report No\. 31790-PG, March 18, 2005)\. b\. Relevance of Design: Substantial\. Design included a statement of objectives that clearly describes the intended outcome, the beneficiaries and the means through which the project would reach its objective\. The PAD (Annex 3) includes a Results Framework that shows a logical causal chain between the activities to be supported, the outputs expected and the intended outcomes\. The design of component 1 was simple and straightforward; however, component 2 seemed more complex\. The objectives would be directly supported by small holder productivity enhancement activities which were expected to expand the cultivated areas, improve productivity and increase farmers' income\. The second component would contribute to the achievement of the objectives through financing small community grants, technical assistance and training to Local Level Government and communities to increase participation in local development\. One notable design shortcoming is over estimating the capacity of the Oil Palm Industry Corporation which could have benefitted from more attention to capacity building measures\. Also, component 2 was designed as a pilot with no clear plan to scale up which casts doubt on the relevance of design\. 4\. Achievement of Objectives (Efficacy): The degree of achievement of the objectives stated in the Financing Agreement--increase, in a sustainable manner, the level of involvement of targeted communities in their local development through increasing oil palm revenue and local participation -- is rated modest\. Outputs By project completion the following outputs /intermediate outcomes were achieved :  Small holder oil palm yields reached 23\.4 tons/ha compared a baseline of 15\.2 tons/ha\. This represents an increase in the yield by 54% compared to an appraisal target of 15 to 19%\.  231 km of roads serving oil palm catchments were upgraded compared to an original target of 550 km and a revised target of 190 km\.  Three social and environmental audits were completed compared to a target of two\.  1500 growers received training on sustainable production practices\. The ICR (p\. viii) notes that this indicator was only introduced at the time of restructuring in order to incorporate a core sector indicator\.  1,006 ha were planted with oil palm trees compared to an appraisal target of 9,000 ha and a revised target of 2,500 ha\. This activity suffered from poor communication between OPIC and the milling companies\.  Extension service at OPIC was upgraded through recruiting an international extension expert and 28 new extension staff\. The project also provided training and improved the communication and mobility of extension agents through financing the purchase of new vehicles and motorcycles and promoting the use of mobile phones\.  Several studies were completed under the project including the environmental and social audits; the effluent baseline study and follow-up audit; a smallholder engagement strategy and the stream arthropod indicator study undertaken by PNG Oil Palm Research Association; and the Road Maintenance Trust Fund design study\. It is not clear how the results/findings of these studies were utilized by the project\. In a further communication, the project team explained that "the effluent baseline study was used to prepare effluent management plans for mills in the 3  project areas; and these plans were implemented to ensure compliance with PNG effluent discharge requirement\. The Road Maintenance Trust Fund study helped design and study and conduct extensive consultations in preparation of setting up the TF, should the Government of PNG, the milling companies and the farmers provide the require resources for setting up the fund\. The stream arthropod indicator would help monitor water quality downstream of the mills\." Outcome  The project achieved limited success on the agricultural side, and fell short of meeting the majority of its appraisal targets\. Project areas saw an increase in smallholder income from palm oil production from 75\.1 million Kina in July 2006 to 204 million Kina in September 2012, compared to the end target of 96 million Kina\. Such increase in smallholder income was "primarily due to the increase in palm oil prices (ICR, p\. 19)\." Project efforts benefitted small holders through provision of extension advice including better management practices, facilitating fertilizer distribution and ensuring regular fruit bunch collection\. The project also achieved some progress with regards to rehabilitation of roads and in-fill planting, however, it was "too late and were too little with respect to the original targets (ICR, p\. 18)\." There is no evidence provided in the ICR on the impact of road rehabilitation on both decreasing transport cost and loss related to delays in fruit transport\.  There is no evidence that the project achieved its stated objective of increasing the involvement of targeted communities in local development\. The cancellation of activities under component 2 jeopardized the design of the project and limited its ability to achieve the stated objective\. Overall, implementation suffered from weak capacity at OPIC and lack of management oversight, procurement delays, rising costs due to currency appreciation, and an uneasy relation between OPIC and the milling companies\. According to the ICR (p\. 10) "the milling companies were very aggrieved due to the Inspection Panel process and the Effluent Audits and, as a result, were less than supportive of SADP (the project's) activities\." Finally, the ICR (p\. 11) highlights that the Inspection Panel process negatively impacted the relation between the World Bank, GoPNG, OPIC and the milling companies and this in turn further undermined implementation\. 5\. Efficiency: Financial and Economic efficiency Ex ante The PAD (Annex 9) includes a detailed financial and economic analysis of the small holder oil palm for each of the project areas (Hoskins, Bialla and Oro) based on a two hectare oil palm in-fill planting model\. The analysis estimates the Financial Rate of Return (FRR) for smallholders in Hoskins, Bialla, and Oro to be 27%, 24% and 22% respectively\. The differences in FRR among the three schemes reflect the differences in the oil palm yield and oil palm price\. The analysis estimates returns over a 23 year period\. The Economic Rate of Return (ERR) for Hoskins, Bialla and Oro are estimated to be 18\.3%, 13\.2%, and 17\.2%, respectively\. The overall project ERR is 16\.7%\. The Net Present Values (NPV) for Hoskins, Bialla and Oro are US$5\.6 million, US$0\.6 million, and US$4\.7 million, respectively, and US$11\.0 million overall\. Ex post The ICR (Annex 3) includes an ex post analysis that estimates the FRR for the regions covered by the project to be 27\.9% in Hoskins, 23% in Bialla and 22\.6% in Oro with an overall average of 24\.6%\. The project’s Economic Rate of Return was 18\.4% and the Benefit: Cost ratio was 1\.35\. The Net Present Value of project investments worked out to US$12\.7 million\. Sensitivity analyses show that these returns remain robust with drought induced fall in yields and market-induced fall in prices\. The ex post analysis and the reported FRR and ERR estimates are consistent with the ex ante analysis in the PAD\. The analysis should have included a treatment area and a control group (to enable a difference-in-difference evaluation)\. This would have provided a more accurate attribution of outcomes to project activities\. Institutional and Administrative efficiency The project suffered from implementation delays and the closing date was extended by 12 months\. There was also a 14 month delay between Board approval and Credit effectiveness which according to the ICR (p\. 8) was "largely due to the difficult relationship between GoPNG and the Bank following the cancellation of the Forestry Conservation Project\." After project effectiveness, implementation suffered from delays on several fronts, including delays in recruiting consultants for key project management positions, social and environmental audit consultants, procurement advisors, extension specialist and road engineers\. There were also delays in purchasing key assets to support project management operations\. Implementation also suffered from delays stemming from poor communication between project sites and headquarters\. In addition, delays in the provision of counterpart funding exacerbated the situation and eventually contributed to a reduction in the scope of the project\. Procurement process was also slow due to inefficiency in preparing bidding documents, poor quality of documents submitted to the Bank, misaligned procurement activity relative to implementation schedule, internal staff conflicts within the implementing agency and frequent changes in the procurement specialist\. Financial management was also weak\. Finally, the actual cost of component 3 (Project Management and Institutional Support) was US$9\.62 million compared to an appraisal estimate of US$6\.2 million (i\.e\. 155% of appraisal target)\. In a further communication, the project team explained that "this increase must be assessed against the background of substantial appreciation of the local currency and increase in domestic costs\." On balance Efficiency is rated modest\. a\. If available, enter the Economic Rate of Return (ERR)/Financial Rate of Return (FRR) at appraisal and the re-estimated value at evaluation : Rate Available? Point Value Coverage/Scope* Appraisal Yes 16\.7% 100% ICR estimate Yes 18\.4% 95\.5% * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: Relevance of objectives was rated high and relevance of design was rated substantial\. Efficacy was rated modest as the project did not achieve its stated objective of increasing the involvement of targeted communities in local development and fell short of meeting majority of its appraisal targets\. Efficiency was rated modest due to major shortcomings on the project's institutional and administrative side including delays related to hiring staff, procurement and financial management weaknesses\. a\. Outcome Rating: Unsatisfactory 7\. Rationale for Risk to Development Outcome Rating: The sustainability of the project development objective is dependent on the regular pick up and transport of fresh fruit bunches from the farms to the mills\. This in turn requires regular maintenance of the roads through the Road Maintenance Trust Fund (RMTF)\. However, it is not clear whether the RMTF would be properly institutionalized and operational\. There is also concern regarding the sustainability of OPIC's extension services to oil palm growers\. OPIC does not receive funds from GoPNG for its recurrent budget and relies on the levies paid by growers and the milling companies\. In the absence of Bank funding after project completion, it is likely that OPIC will face a serious financial threat by 2015 (ICR, p\. 25)\. In a further communication, the project team highlighted that "OPIC has continued its activities since the project closed, with resources from both levies and the Government\. While the RMTF is not yet functional, the project facilitated the purchase of 3 graders that are being used in the 3 project areas for road maintenance\. The graders are managed by milling companies\." a\. Risk to Development Outcome Rating : High 8\. Assessment of Bank Performance: a\. Quality at entry:  The Bank identified an operation that was consistent with Government priorities and the Country Partner Ship strategy\.  Design included a relevant objective that is appropriate to the current needs of Papua New Guinea’s social and economic development\.  Design featured activities that would lead to increasing the area of oil palm, improve productivity and facilitate transporting of the produce to the mills\. However, it is less clear how design would improve the involvement of communities in local development through pilot activities with no clear plan on scaling up such activities\.  Design incorporated a number of useful lessons from the Oro Smallholder Oil Palm Development Project and the Australian Agency for International Development, most notable of which was the need of regular maintenance to provincial roads to enable regular fresh fruit bunch collection from small holders\.  Although several risks were correctly identified at appraisal, the limited capacity of OPIC to implement project activities was not adequately assessed\. This contributed to various problems that undermined the project implementation\. Also, the withdrawal of support for the project by private milling companies was overlooked\. In a further communication, the project team explained that "OPIC implementation capacities were adequately assessed and proper mitigation measures identified\. Implementation difficulties stem from the lack of Government oversight, which was much more serious than anticipated\."   Design should have included effective safeguard measures to manage potential environmental impacts associated with additional Palm Oil Mill Effluent (POME)\.  M&E design could have benefited from measuring the project's impact on incomes in project areas to better reflect the project impact\. Quality-at-Entry Rating: Moderately Unsatisfactory b\. Quality of supervision: According to the ICR (p\. 26) supervision had enough budget and staff resources\. The project received intensive supervision and close monitoring\. The project team prepared Aide-Memoires on a timely basis and alerted the Government and OPIC to problems with the project\. The team also recommended solutions in accordance with Bank procedures\. The Implementation status Reports (ISRs) were realistic and ratings reflected the performance of the project in terms of achievement of objective and progress of implementation\. The task team also monitored fiduciary and safeguard compliance and managed the Inspection Panel review process and recommended an action plan\. The Bank also provided support and training on fiduciary and safeguards aspects to OPIC staff to ensure compliance\. However, the project suffered from weaknesses in both procurement and financial management\. More attention should have been given to mitigation measures to counter the environmental impacts associated with potential increase in Palm Oil Mill Effluent\. In a further communication, the project team pointed out that project supervision gave substantial amount of attention to implementation, including the management of the Inspection Panel process, and to issues related to Palm Oil Mill Effluent Management, however, the team fully acknowledged that more attention should have been given to the Palm Oil Mill Effluent issues during project design, which was more than compensated during implementation\. Quality of Supervision Rating : Moderately Satisfactory Overall Bank Performance Rating : Moderately Unsatisfactory 9\. Assessment of Borrower Performance: a\. Government Performance: The Government of Papua New Guinea was not committed to the project (ICR, p\. 26)\. This was demonstrated by the long delay between Board approval and Credit effectiveness (about 14 months)\. The ICR (p\. 26) attributes this delay to the difficult relation between the Government and the Bank on the heels of cancelling the Forestry Conservation Project\. Further, OPIC's Board was not operational during the first few years of project implementation because the Government neither appointed a General Secretary nor the Board members\. In addition, the Project Steering Committee, which was supposed to provide guidance to resolve project problems, never met up to the time of the Midterm Review in 2010\. The ICR (p\. 27) highlights that the communication between the Government and OPIC was inadequate\. Finally, the provision of counterpart funding was usually late and amounts were insufficient\. This contributed to implementation delays since inception and led to scaling back the scope of the project\. Government Performance Rating Unsatisfactory b\. Implementing Agency Performance: The project was implemented under the Oil Palm Industry Corporation (OPIC)\. Project management was weak throughout implementation (ICR, p\. 27)\. OPIC suffered from weak staff capacity, delays in recruitment of key staff including OIPC's Secretary General and a procurement advisor for the project\. There was poor coordination of field activities in general, except for road activities which were under Road Engineers Unit\. OPIC also suffered from lack of management oversight at all levels\. This contributed to lack of confidence by the milling companies in OPIC's delivery capacity on project activities--especially with the setbacks in the in-fill activities\. Procurement was unsatisfactory and continued to be slow even after a procurement advisor was hired due to delays by the Central Supply and Tender Board\. Financial management was also weak and suffered from delays in audit reports\. The ICR (p\. 28) highlights that entity audits of the 2011, 2012 and 2013 financial statements are yet to be completed\. Finally, OPIC failed to provide regular monthly reports to the World Bank\. Implementing Agency Performance Rating : Unsatisfactory Overall Borrower Performance Rating : Unsatisfactory 10\. M&E Design, Implementation, & Utilization: a\. M&E Design: The PAD (Annex 3) includes a detailed Results Framework that lists two outcome indicators and seven Results indicators\. The indicators seem adequate and would capture the project's progress and reflect the achievement of the project development objective\. Design would have benefitted from including an indicator to measure the project's impact on incomes\. Also, the baseline survey design should have included a treatment area and a control group (to enable a difference-in-difference evaluation)\. This would have provided a more accurate attribution of outcomes to project activities (ICR, p\. 12)\. b\. M&E Implementation: Implementation was the responsibility of OPIC\. According to the ICR (p\. 13) OPIC had its own monitoring system\. It is unclear why OPIC did not follow the project's M&E arrangements\. In a further communication the project team explained that "OPIC’s monitoring system was simple, Excel-based, and designed solely to monitor key project performance indicators\. OPIC was reluctant to set up a new MIS\. Instead, it installed a customized software package called OMP that enables data on smallholders to be shared between the milling companies and OPIC\. This software was already in use by the milling companies\. However, this software was only installed in Oro province\. The OMP system catalogs agronomic and economic data for smallholders such as fertilizer usage and fruit production\. OPIC is able to continue to use these data in Oro for identifying low production blocks and “skip” harvesting for targeted extension work\." While the quality of data collected by OPIC was good, the two baselines surveys conducted were of unsatisfactory quality\. During restructuring indicators pertaining to component 2 were dropped and other indicators were scaled back because initial targets were ambitious\. OPIC was expected to conduct two impact evaluations, one at the mid-term and the other by the end of the project, however, it is not clear if either was carried out\. c\. M&E Utilization: The M&E data collected by OPIC included a detailed asset management database containing the inventory, condition and indicative repair cost of the entire network of smallholder access roads in the 3 project areas comprising approximately 2,000 km and data on the roads rehabilitated under the project and the in-fill areas planted\. According to the ICR (p\. 13) the afore mentioned data was used for planning and decision making purposes, however, there is limited evidence on how the findings impacted implementation\. M&E Quality Rating: Modest 11\. Other Issues a\. Safeguards: According to the PAD (p\. 16) the project triggered the following safeguard policies: OP/BP/GP 4\.01 (Environmental Assessment); OP/BP 4\.04 (Natural Habitats); OP 4\.09 (Pest Management); OP/BP 4\.36 (Forests); OD 4\.20, being revised as OP 4\.10 (Indigenous Peoples); OP/BP 4\.12 (Involuntary Resettlement)\. The Environmental screening category was "partial assessment" and safeguard screening was "limited impact" (PAD, p\. vi)\. In a further communication, the project team explained that the project was Category B\. Environmental Safeguards  Stream health was monitored to help track changes in water quality over time\. The monitoring methodology used water quality metrics computed from survey data on aquatic invertebrate assemblages on selected sites\. The ICR does not discuss the results of stream monitoring\. In a further communication, the project team explained that d uring the project period sample points were identified and mapped in West New Britain and Oro which helped establish a baseline and water quality continues to be measured against these baselines\.  Land use and forest cover were also monitored under the project through a Bank partnership with the European Space Agency\. Monitoring results were used to confirm that there was no destruction of primary forests due to oil palm cultivation in Oro since 2005\. The maps produced were also used in the final environmental and social audit to identify and inspect high risk blocks in the project area\.  The ICR (p\. 14) reports that one road construction site was closed due to a lack of gravel pit rehabilitation\.  There were issues with inadequate documentation for in-fill sites\. By end of project a legally reviewed standard Clan Land Users Agreement and a standard Plantation Approval Form had been implemented\.  The Plantation Approval Form required evidence that applicants have attended a grower workshop as one of the criteria for grower readiness There were instances of new growers had not been trained, as required Plantation  Approval Form, prior to the planting of seedlings on their blocks\. The ICR (p\. 15) notes that compliance improved in the second half of 2013\.  The ICR (p\. 15) reports that there were poor cultivation practices where farmers needed to improve the upkeep of their block, with the early establishment of cover crop and installation of drains where required\. However, it is not clear how extensive the problem was\.  There was also one incident of inadequate buffer establishment\. The ICR (p\. 15) reports that such incident was addressed and the buffer was returned to natural vegetation\.  The work on Palm Oil Mill Effluent baseline started late due to delays in recruiting the Social and Environmental Audit consultants\. The 2013 effluent audit concluded that “overall, the palm oil mill effluent systems across all mills were operating adequately to ensure PNG regulatory compliance is achieved at each mill most of the time\.” In addition, relevant mills are implementing a number of actions and mitigation measures that were recommended by the audits and a study\. By project completion, most actions were completed as planned while some would be completed in 2014\.  According to the ICR (p\. 13) environmental safeguard compliance was moderately satisfactory\. Social Safeguards\. Project activities did not cause any physical or economic displacement and Social safeguards in the Standard Operating Procedures (SOPs) were generally complied with during implementation (ICR, p\. 13)\. All road upgrading projects had undergone consultations with the affected communities and Community Consent Agreements were secured prior to their implementation\. There were only a few crop damage claims due to road construction in Oro and these were settled in accordance with the process provided in the project's Resettlement Policy Framework\. Garden food production was not disrupted in any of in-fill blocks\. According to the ICR (p\. 13) compliance with social safeguards requirements was moderately satisfactory\. Project Inspection On December 17, 2009, the Inspection Panel registered a Request for Inspection submitted by the Center for Environmental Law and Community Rights (CELCOR), acting as a representative of the Ahora/Kakandetta Pressure Group, other claimants from the Oro Province and affected smallholders within the three project areas\. The Claimants Request contained claims that according to the Panel may constitute violations by the Bank of various provisions of its policies and procedures\. In response to the Request, management took a number of actions as detailed in the ICR (p\. 12)\. The Inspection Panel process was completed in December 2011 and Management issued its first progress report to the Bank’s Board of Directors in January 2014\. b\. Fiduciary Compliance: Financial management\. The Bank’s entity audit requirements were not complied with by OPIC\. It also did not adhere to the timetables agreed upon with IDA in the audit action plan as part of the 2012 project restructuring\. At the time the project closed on December 31, 2013, OPIC had received the audit certificates for 2009 and 2010, while the 2011 and 2012 OPIC audits remain outstanding (ICR, p\. 15)\. The project management did not have a dedicated Financial Controller as envisaged at appraisal\. Procurement\. According to the ICR (p\. 27) procurement was unsatisfactory and continued to be slow even after a procurement advisor was hired due to delays by the Central Supply and Tender Board\. There were no incidence of misprocurement reported\. c\. Unintended Impacts (positive or negative): none\. d\. Other: By the end of the project, cultivation of peanuts was introduced as an alternative income generation product and for enhancing soil fertility\. 12\. Ratings: ICR IEG Review Reason for Disagreement/Comments Outcome: Moderately Unsatisfactory Efficacy was rated modest as the Unsatisfactory project did not achieve its stated objective of increasing the involvement of targeted communities in local development and fell short of meeting majority of its appraisal targets\. Efficiency was also modest due to major shortcomings on the project's institutional and administrative side\.  Risk to Development High High Outcome: Bank Performance: Moderately Moderately Quality at Entry was weak where the Satisfactory Unsatisfactory implementation capacity of OPIC was overestimated and safeguard concerns with regards to Palm Oil Effluent Management were overlooked\. In addition, procurement and financial management were both weak\. Borrower Performance : Unsatisfactory Unsatisfactory Quality of ICR: Satisfactory NOTES: - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate\. 13\. Lessons: The ICR includes eleven lessons, seven were general and four were project specific\. The following four lessons are emphasized with some rearrangement:  Project relevance alone does not guarantee implementation success in an environment where commitment and ownership are lacking on the part of the government and stakeholders \. The project experience demonstrated that good relationships between the government, implementing agencies, and the Bank are critical factors for the success of a project\. Strong government oversight to ensure that implementation issues are tackled in real time in order to keep a project on track is even more important\. Critical decisions such as nominating members of OPIC’s Board could have been made a condition of effectiveness so that the Board would have been operational from the beginning of project implementation\.  Adequate consultation with all stakeholders is a very important pre -requisite during project preparation and implementation\. Equally important is the proper documentation of the consultation process and feedback, not only for administrative reasons, but also to record consent and smooth the path of implementation, especially in environments where land rights are highly contested\.  An effective communication and outreach strategy is important to generate awareness and participation at the community level \. This would help farmers understand the benefits of a project and not be misguided by external influences\.  Adequate staff capacity within the implementing agency is important for successful implementation \. It is important to carefully evaluate the capacity and staffing needs of the implementing agency during project preparation, so that adequate capacity is in place for implementation\. Implementation readiness is critical for the success of projects, and stronger measures should be built in design to address lack of counterpart performance\. Issues of salary differentials between project and non-project staff within an organization are potential source of conflicts that may cripple the organization if they are not effectively handled, and in the case of the project OPIC fell a victim of that\. 14\. Assessment Recommended? Yes No Why? To verify ratings by field based evidence\. 15\. Comments on Quality of ICR: The ICR provides thorough yet concise account of project activities\. It also reports candidly on various project shortcomings\. It includes eleven lessons that reflect the project experience and four them could be generalized to other projects\. The ICR also provides a relevant discussion on the achievement of project outcomes although assessment of outcomes was limited by the weaknesses in the implementation of the project’s M&E framework\. The ICR does not report on contributions from Local communities, Papua New Guinea Sustainable Development Program, Local sources of Borrowing country and footnotes for Annex 1 b are confusing\. Finally, at 31 main text pages, the ICR is relatively long\. a\.Quality of ICR Rating : Satisfactory

REVIEW

P003614

Document of The World Bank Report No: ICR0000529 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-43290) ON A LOAN IN THE AMOUNT OF US$ 200 MILLION TO THE PEOPLE'S REPUBLIC OF CHINA FOR A GUANGZHOU CITY TRANSPORT PROJECT June 26, 2008 China Sustainable Development Unit East Asia and Pacific Region  CURRENCY EQUIVALENTS (Exchange Rate Effective December 2007) Currency Unit = Renminbi (RMB) RMB 1\.00 = US$ 0\.135 US$ 1\.00 = RMB 7\.4 FISCAL YEAR January 1 ­ December 31 ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy CD Country Director of the World Bank ERR Economic Rate of Return GCCTP Guangzhou City Center Transport Project GEPB Guangzhou Environment Protection Bureau GIRR Guangzhou Inner Ring Road GMG Guangzhou Municipal Government GREEO Guangzhou Road Expansion and Engineering Office GCCTCC Guangzhou City Center Transport Construction Company GPAO Guangdong Province Audit Office GURCC Guangzhou Urban and Rural Construction Commission GUTS Guangzhou Urban Transport Strategy IRR Internal Rate of Return MoF Chinese Ministry of Finance MVEC Motor Vehicle Emissions Control PAD Project Appraisal Document PAP Project affected People PDO Project Development Objective PLG Project Leading Group PO Project Office PIP Project Implementation Plan RAP Resettlement Action Plan RR Ring Road (i\.e\., Guangzhou Inner Ring Road) RSMS Road Surface Management System SAB State Audit Bureau SCATS Sydney-Coordinated Adaptive Traffic System VP Vice President of the World Bank TA Technical Assistance TOR Terms of Reference  Vice President: James Adams Country Director: David Dollar Sector Manager: Ede Jorge Ijjasz-Vasquez Project Team Leader: Shomik Mehndiratta ICR Main Authors: Georges Darido/Graham Smith  PEOPLE'S REPUBLIC OF CHINA Guangzhou City Transport Project CONTENTS Data Sheet A\. Basic Information B\. Key Dates C\. Ratings Summary D\. Sector and Theme Codes E\. Bank Staff F\. Results Framework Analysis G\. Ratings of Project Performance in ISRs H\. Restructuring I\. Disbursement Graph 1\. Project Context, Development Objectives and Design\. 1 2\. Key Factors Affecting Implementation and Outcomes \. 5 3\. Assessment of Outcomes\. 12 4\. Assessment of Risk to Development Outcome\. 17 5\. Assessment of Bank and Borrower Performance \. 17 6\. Lessons Learned \. 20 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners \. 21 Annex 1\. Project Costs and Financing\. 23 Annex 2\. Outputs by Component \. 24 Annex 3\. Economic and Financial Analysis\. 28 Annex 4\. Bank Lending and Implementation Support/Supervision Processes \. 31 Annex 5\. Beneficiary Survey Results\. 33 Annex 6\. Stakeholder Workshop Report and Results\. 34 Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR\. 35 Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders\. 50 Annex 9\. List of Supporting Documents \. 51 MAP ­ IBRD 29423  A\. Basic Information CN-Guangzhou City Country: China Project Name: Transport Project ID: P003614 L/C/TF Number(s): IBRD-43290 ICR Date: 06/26/2008 ICR Type: Core ICR PEOPLE'S REPUBLIC Lending Instrument: SIL Borrower: OF CHINA Original Total USD 200\.0M Disbursed Amount: USD 152\.4M Commitment: Environmental Category: A Implementing Agencies: Guangzhou City Center Transport Project Cofinanciers and Other External Partners: B\. Key Dates Process Date Process Original Date Revised / Actual Date(s) Concept Review: 09/28/1994 Effectiveness: 09/23/1998 09/23/1998 Appraisal: 01/14/1998 Restructuring(s): 04/21/2003 Approval: 05/29/1998 Mid-term Review: 06/15/2001 Closing: 12/31/2003 12/31/2007 C\. Ratings Summary C\.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Development Outcome: Moderate Bank Performance: Satisfactory Borrower Performance: Satisfactory C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Satisfactory Quality of Supervision: Moderately SatisfactoryImplementing Agency/Agencies: Moderately Satisfactory Overall Bank Overall Borrower Performance: Satisfactory Performance: Satisfactory C\.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Performance Indicators (if any) Rating Potential Problem Project No Quality at Entry Satisfactory i  at any time (Yes/No): (QEA): Problem Project at any Quality of No Moderately Satisfactory time (Yes/No): Supervision (QSA): DO rating before Satisfactory Closing/Inactive status: D\. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) General transportation sector 25 25 Roads and highways 75 75 Theme Code (Primary/Secondary) Access to urban services and housing Primary Primary Municipal governance and institution building Primary Primary Other urban development Primary Secondary Pollution management and environmental health Primary Secondary E\. Bank Staff Positions At ICR At Approval Vice President: James W\. Adams Jean-Michel Severino Country Director: David R\. Dollar Yukon Huang Sector Manager: Ede Jorge Ijjasz-Vasquez Jeffrey S\. Gutman Project Team Leader: Shomik Raj Mehndiratta Richard G\. Scurfield ICR Team Leader: Shomik Raj Mehndiratta ICR Primary Author: Georges Bianco Darido Graham Smith F\. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The project development objective is to improve the accessibility of the city center of Guangzhou by promoting the efficient use of the urban transport system in an environmentally sustainable way\. The following outcomes and key performance indicators will be monitored to meet this development objective: Outcome 1: Improved level of service and reduced congestion on the City Center road network as a result of: ii  1\. completion of the Guangzhou Inner Ring Road (GIRR); 2\. traffic management\. Outcome 2: Increased throughput (in terms of passengers) of public transport corridors within the City Center as a result of: 1\. improved management of bus priority lanes; and 2\. development of bus priority lanes\. Outcome 3: Reduction in relative levels of air pollution as a result of: 1\. the traffic management measures; and 2\. improved coordination amongst responsible agencies\. Outcome 4: Reduction in the relative levels of accidents per capita as a result of: 1\. the introduction of unleaded gasoline; and 2\. a vehicle emissions control program\. Outcome 5: Improved effectiveness and efficiency of road maintenance as a result of: 1\. introduction of modernized road maintenance equipment; and 2\. development of a road maintenance system\. Outcome 6: Strengthened management capacity of municipal agencies responsible for urban transport as a result of: 1\. technical assistance support and on-the-job training during project implementation; and 2\. classroom training and study tours\. Revised Project Development Objectives (as approved by original approving authority) (a) PDO Indicator(s) Original Target Formally Actual Value Indicator Baseline Value Values (from Revised Achieved at approval Target Completion or documents) Values Target Years Indicator 1 : Traffic Flows to city center (as bounded by IRR) [Outcome 1] Value quantitative or 138,990 -10% +13% Qualitative) Date achieved 06/30/1998 12/31/2003 12/31/2001 Comments Traffic counts in 1999 and 2000 showed reductions by 14% and 6%, (incl\. % respectively, but by 2001 were 13% above baseline and were expected to rise\. achievement) The Bank and the client agreed to discontinue because of the rising trend and high cost of collecting the data\. Indicator 2 : City Center (Cross-town speeds) on N-S corridor (p\.m\. peak) [Outcome 1] Value 24km/hr +15% +33% iii  quantitative or Qualitative) Date achieved 06/30/1998 12/31/2003 12/31/2001 Comments (incl\. % The target was achieved in 2001, but speeds were not monitored after that year achievement) for the same reasons as in Indicator 1\. Indicator 3 : City Center (Cross-town speeds) on E-W corridor (p\.m\. peak) [Outcome 1] Value quantitative or 24km/hr +15% +49% Qualitative) Date achieved 06/30/1998 12/31/2003 12/31/2001 Comments (incl\. % The target was achieved in 2001, but speeds were not monitored after that year achievement) for the same reasons as in Indicator 1\. Indicator 4 : Bus Speeds on N-S corridor [Outcome 2] Value quantitative or 11\.2 km/hr +43% +63% Qualitative) Date achieved 06/30/1998 12/31/2003 12/31/2006 Comments (incl\. % Bus speeds have been consistently at or above the target since 2003\. achievement) Indicator 5 : Bus Speeds on E-W corridor [Outcome 2] Value quantitative or 11\.2 km/hr +43% +63% Qualitative) Date achieved 06/30/1998 12/31/2003 12/31/2006 Comments (incl\. % Bus speeds have been consistently at or above the target since 2003\. achievement) Indicator 6 : Increased Public Transport corridors: Percentage Share of Trips [Outcome 2] Value quantitative or 16% 22% 23% Qualitative) Date achieved 06/30/1998 12/31/2003 12/31/2006 Comments (incl\. % Represents mode share in the 10 districts\. Mode share in the 8 original districts achievement) is 35%\. Indicator 7 : Reduction in Air Pollution: Ambient Air Quality, NOx [Outcome 3] Value quantitative or 0\.151 mg/m(3) -10% -23% Qualitative) Date achieved 06/30/1998 12/31/2006 12/31/2006 Comments The target has been achieved and sustained since 2002\. The monitoring program (incl\. % was changed around 2002 to include 9 sites (instead of 6) and NO2 (instead of achievement) NOx)\. Indicator 8 : Reduction in Air Pollution: Ambient Air Quality, CO [Outcome 3] Value 2\.89 mg/m(3) -10% -46% iv  quantitative or Qualitative) Date achieved 06/30/1998 12/31/2006 12/31/2006 Comments (incl\. % The target has been achieved and sustained since 2002\. The monitoring program achievement) was changed around 2002 to include 9 sites (instead of 6)\. Indicator 9 : Improved Road Maintenance: % roads in good condition or better/High-speed [Outcome 5] Value quantitative or 50% 60% 91% Qualitative) Date achieved 06/30/1998 12/31/2006 12/31/2006 Comments This indicator has achieved its target\. The monitoring methodology was changed (incl\. % after appraisal to better conform with local practice, so the original baseline of achievement) 31% was revised to 50%\. Indicator 10 : Improved Road Maintenance: % roads in good condition or better/Primary Roads [Outcome 5] Value quantitative or 50% 60% 91% Qualitative) Date achieved 06/30/1998 12/31/2006 12/31/2006 Comments This indicator has achieved its target\. The monitoring methodology was changed (incl\. % after appraisal to better conform with local practice, so the original baseline of achievement) 31% was revised to 50%\. Indicator 11 : Improved Road Maintenance: % roads in good condition or better/Secondary and Access Roads [Outcome 5] Value quantitative or 80% 96% 83\.5% Qualitative) Date achieved 06/30/1998 12/31/2006 12/31/2006 Comments This indicator has improved but did not fully achieve its target\. The monitoring (incl\. % methodology was changed after the appraisal to better conform with local achievement) practice, so the original baseline of 34% was revised to 80%\. Indicator 12 : Traffic accidents per capita (10,000 persons) [Outcome 4] Value quantitative or 0\.85 -10% -25% Qualitative) Date achieved 06/30/1998 12/31/2006 12/31/2006 Comments (incl\. % This indicator has been achieved\. achievement) Indicator 13 : Traffic fatalities per capita (10,000 persons) [Outcome 4] Value quantitative or 0\.11 -10% -55% Qualitative) Date achieved 06/30/1998 12/31/2006 12/31/2006 Comments (incl\. % This indicator has been achieved\. v  achievement) (b) Intermediate Outcome Indicator(s) Original Target Formally Actual Value Indicator Baseline Value Values (from Achieved at approval Revised Completion or documents) Target Values Target Years Indicator 1 : % of inner ring road completed Value (quantitative 0% 100% 100% or Qualitative) Date achieved 06/30/1998 12/31/2003 12/31/2007 Comments (incl\. % achievement) Indicator 2 : % of traffic management and safety improvement program completed Value (quantitative 0% 100% 100% or Qualitative) Date achieved 06/30/1998 12/31/2003 12/31/2007 Comments (incl\. % achievement) Indicator 3 : % of Public transport improvement program completed Value (quantitative 0% 100% 100% or Qualitative) Date achieved 06/30/1998 12/31/2003 12/31/2007 Comments (incl\. % achievement) Indicator 4 : % of Motor vehicle emission control facilities completed Value (quantitative 0% 100% 80% or Qualitative) Date achieved 06/30/1998 12/31/2003 12/31/2007 Comments (incl\. % The scope of this component was reduced\. achievement) Indicator 5 : % of Road maintenance facilities completed Value (quantitative 0% 100% 95% or Qualitative) Date achieved 06/30/1998 12/31/2003 12/31/2007 Comments (incl\. % The remaining item is the implementation of the road maintenance information achievement) management system to be completed with local funds\. vi  Indicator 6 : % of institutional strengthening improved Value (quantitative 0% 100% 100% or Qualitative) Date achieved 06/30/1998 12/31/2003 12/31/2007 Comments (incl\. % All elements of the institutional component were completed\. achievement) Indicator 7 : % of Guangfo road completed Value (quantitative 0% 100% 100% or Qualitative) Date achieved 06/30/2003 12/31/2004 12/31/2007 Comments (incl\. % This indicator was added after project restructuring in 2003\. achievement) G\. Ratings of Project Performance in ISRs Actual No\. Date ISR Archived DO IP Disbursements (USD millions) 1 06/15/1998 Satisfactory Satisfactory 0\.00 2 10/13/1998 Satisfactory Satisfactory 0\.00 3 04/06/1999 Satisfactory Satisfactory 8\.00 4 06/16/1999 Satisfactory Satisfactory 8\.00 5 12/08/1999 Satisfactory Satisfactory 27\.39 6 12/17/1999 Satisfactory Satisfactory 31\.61 7 05/17/2000 Satisfactory Satisfactory 57\.08 8 06/06/2000 Satisfactory Satisfactory 57\.08 9 10/19/2000 Satisfactory Satisfactory 57\.08 10 05/03/2001 Satisfactory Satisfactory 69\.19 11 06/12/2001 Satisfactory Satisfactory 69\.19 12 12/21/2001 Satisfactory Satisfactory 69\.19 13 05/14/2002 Satisfactory Satisfactory 69\.19 14 12/11/2002 Satisfactory Satisfactory 70\.46 15 06/30/2003 Satisfactory Satisfactory 70\.46 16 12/29/2003 Satisfactory Satisfactory 79\.69 17 04/15/2004 Satisfactory Satisfactory 79\.69 18 12/20/2004 Satisfactory Satisfactory 83\.12 19 06/16/2005 Satisfactory Satisfactory 93\.55 20 07/29/2005 Satisfactory Satisfactory 97\.19 21 12/13/2005 Satisfactory Satisfactory 97\.19 22 12/08/2006 Satisfactory Moderately Satisfactory 128\.36 23 01/14/2008 Satisfactory Moderately Satisfactory 138\.15 vii  H\. Restructuring (if any) ISR Ratings at Amount Restructuring Board Restructuring Disbursed at Reason for Restructuring & Date(s) Approved Restructuring PDO Change Key Changes Made DO IP in USD millions (i) the allocation of the loan savings of US$40 million for a new Project component; (ii) the further reallocation of US$12 million of loan proceeds 04/21/2003 N S S 70\.46 for expanding the traffic management component; (iii) cancellation of US$20 million from the loan; and (iv) extension of the loan closing date to December 31, 2004\. I\. Disbursement Profile viii  1\. Project Context, Development Objectives and Design 1\.1 Context at Appraisal 1\. The Guangzhou project was the Bank's third stand-alone urban transport investment in China following two loans in Shanghai\. The strategic framework for the project was the Guangzhou Urban Transport Studies begun in 1994\. The project was designed to support three goals of the Country Assistance Strategy (February 25, 1997) by promoting growth with economic stability, alleviating infrastructure constraints, and safeguarding the environment\. While the CAS evolved over the period of implementation, essentially the same goals are relevant at the time of completion\. The rationale for Bank involvement was and remains the concern for the negative impacts of rapid urbanization and preserving the livability of China's third largest city\. The Bank offered experience in five key areas: (i) strategic planning of multi-modal urban transport systems, (ii) impacts of motorization, (iii) public transport operations, (iv) traffic management, and (v) transport environmental issues\. 2\. In 1997, Guangzhou's city-proper population was 4\.6 million and growing rapidly due to a continuing influx of unregistered workers from rural areas\. The population density was extremely high, exceeding 20,000 inhabitants per square km\. The vehicle fleet in 1997 was under 200,000, but growing at over 20% per year, with the number of motorcycles growing at 30% per year\. The decline of the walk mode share was a source of concern for transport planners\. Use of the bicycle, the traditional mode of transport in Chinese cities, was becoming increasingly restricted and dangerous due to the progressive expansion of road space for motor vehicles\. 3\. By the mid 1990s, traffic congestion was becoming an important constraint to Guangzhou's productivity, as evidenced by increased travel times and higher vehicle operating costs\. Guangzhou lacked a functional hierarchy of streets, which complicated the task of separating fast-moving from slow-moving traffic\. Although the City's first underground metro line started operating in July 1997 and two other lines were planned or under construction, road-based public transport (a potentially efficient mode of passenger transport) was hindered by lack of capacity, slow operating speeds and outdated equipment and practices\. Air pollution from vehicle emissions was a concern for the health of the urban population\. The road accident rate was high with pedestrians and cyclists especially at risk\. The accident rate per million inhabitants was growing at 10 percent per year\. 4\. The project attempted to address these challenges by promoting a cost-effective and environmentally-balanced framework for urban transport development\. The project was to add needed infrastructure, promote safer and more efficient use of existing road capacity via traffic management and improved public transport, and mitigate the environmental impact\. In addition, the project included the strengthening of the capacity of local institutions to better manage the sector\. The project was fully consistent to the Bank's sector strategy ("Sustainable Transport," 1996), which emphasized the integrity of 1  economic, social, and environmental dimensions of a sustainable transport policy\. These priorities were also consistent with the Bank's urban transport strategy for China articulated at a major national symposium in Beijing in 1995\.1 1\.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) 5\. The principal PDO was to improve the accessibility of the city center of Guangzhou by promoting the efficient use of the urban transport system in an environmentally sustainable way\. The following outcomes and key performance indicators were included in the PAD: 1) Improved level of service and reduced congestion on the City Center road network as a result of: Completion of the Guangzhou Inner Ring Road Traffic management\. 2) Increased throughput (in terms of passengers) of public transport corridors within the City Center as a result of: Improved management of bus priority lanes; and Development of (new) bus priority lanes\. 3) Reduction in relative levels of air pollution as a result of: The introduction of unleaded gasoline; and A vehicle emissions control program\. 4) Reduction in the relative levels of accidents per capita as a result of: Traffic management measures; and Improved coordination amongst responsible agencies\. 5) Improved effectiveness and efficiency of road maintenance as a result of: Introduction of modernized road maintenance equipment; and Development of a road maintenance system\. 6) Strengthened management capacity of municipal agencies responsible for urban transport as a result of: Technical assistance (TA) support and on-the-job training during project implementation; and Classroom training and study tours\. 6\. Under Outcome 1, the completion of the Guangfo Radial Road was added as a key indicator when the project was amended in April 2003\. Specific baseline and targets for each indicator were not included in the PAD, but were qualitatively described relative to a "no project" scenario\. The definition of the indicators, along with baseline and target values (presented in Section F of the Data Sheet), were established or refined during negotiations as follows: a\. "Increased passenger and freight throughput" was monitored by traffic flows (cordon counts) to the city center as bounded by the RR\. 1China's Urban Transport Development Strategy: Proceedings of a Symposium in Beijing, November 8-10, 1995\. (Editors: S\. Stares and Liu Z\.) 2  b\. "Reduced journey times" was monitored using cross-town speeds on a major north-south and a major east-west corridor in the p\.m\. peak period c\. "Reduced per capital accident rates" was measured by accidents and fatalities per 10,000 people\. An additional indicator for the percentage of accidents involving pedestrians or bicyclists was contemplated but never monitored\. d\. "Increased average bus speeds" was measured along a major north-south and a major east-west corridor\. Public transport "modal share" was originally monitored in 8 districts and then 10 districts after 2001\. No target was set for public transport "ridership" and therefore it is not reported\. e\. "Reduced tailpipe emissions" was altered to measure annual average "ambient air quality" in milligrams per cubic meter of NOx and CO, at first in 6 and then 9 monitoring sites\. f\. "Increased sales of unleaded gasoline" was never monitored despite being included in the PAD\. g\. "Reduced unit costs of road maintenance" was never monitored despite being included in the PAD\. h\. "Increased percentage of roads in good condition" was refined to distinguish between high-speed, primary, secondary and access roads and the methodology was changed after appraisal to better conform to local practices\. i\. "Project agencies' satisfaction with training and services received" and "improved efficiency and effectiveness of public service delivery" were not monitored quantitatively\. 1\.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification Not applicable\. 1\.4 Main Beneficiaries 7\. The project was proposed to benefit all residents of Guangzhou to some degree, but especially those who lived and worked in the city center\. Those who traveled into or out of the city each day would benefit most from the reduction in travel times compared to what they would have been without the project\. About 60% of the Project's economic benefits were expected to come from travel time savings\. The PAD also outlined: The main beneficiary of the Guangzhou Inner Ring Road (RR) were private vehicle users The beneficiaries for the traffic management component were private vehicle users, bus passengers, bus operators, cyclists and pedestrians Air quality improvements would benefit especially those who lived and worked on the most heavily congested streets 3  1\.5 Original Components (as approved) 8\. The original components are summarized below\. Additional details are provided in Annex 2\. Part A: Inner Ring Road - Construction of the Inner Ring Road, including resettlement, rehabilitation of and compensation for people affected by the project\. Part B: Traffic Management and Safety - Traffic management civil works and road safety measures, including the provision of equipment, services and training\. Part C: Public Transport - Implementation of bus information, management and maintenance programs, including program equipment, consultant services and training, and a bus maintenance depot at Longxi\. Part D: Vehicle Pollution Control - A program to control and reduce air pollution from mobile sources through the provision of equipment, consultant services and training\. Part E: Road Maintenance - Provision of equipment, consultant services and training to include undertaking of a comprehensive inventory of maintenance requirements and updating of the maintenance expenditure requirements\. Part F: Institutional Development - Strengthening of the managerial, technical, planning and implementation capacity of the municipal agencies through the provision of equipment, consultant services and training, and studies to assist Guangzhou to formulate plans and policies\. 1\.6 Revised Components Project Restructuring 9\. In November 2002, the MoF formally requested: (i) the allocation of the loan savings of US$40 million for a new Project component (Guangfo Road); (ii) the further reallocation of US$12 million of loan proceeds for expanding the traffic management component to include channelization at major road intersections and installation of the Sydney Coordinated Adaptive Traffic System (SCATS); (iii) cancellation of US$20 million of the loan due to unused funds (see cost variations in Section 2\.2), and (iv) extension of the loan closing date from December 31, 2003 to December 31, 2004\. The size of the cancelled loan and the scope of these other changes in relation to thresholds at the time required the project team to seek World Bank Board approval, which it received on a no-objection basis allowing the loan and project agreements to be amended in April 2003\. 10\. The new component consisted of the first section of the Guangfo (Guangzhou-Foshan Road) Radial Road (5\.5 km), connecting the city center of Guangzhou with the nearby city of Foshan\. It formed part of the proposed urban highway network recommended in the 1994 Guangzhou Urban Transport Strategy study (GUTS) and supported the PDO\. It was fully appraised and found to be economically justified and technically, environmentally and socially sound\. Preparation of the proposal required a full environmental assessment in accordance with Bank safeguard policies\. 4  11\. The vehicle pollution control component had the objective to introduce unleaded gasoline in Guangzhou but was overtaken by a decision of the central government in 1999 to begin phasing out leaded gasoline\. As a result, TA funds for this component were reallocated to purchase of equipment for automatic noise monitoring along the Ring Road\. The final decision to delete the vehicle emissions research function in 2006 reflected the national government's new role in emissions research and standards development in Beijing\. When the project was designed a decade earlier, the national government's role in setting emission standards had not yet been clearly established\. 1\.7 Other significant changes 12\. There were four approved extensions (the second extension being provisional), moving the project's closing date a total of four years: (i) from 12/31/03 to 12/31/04, approved by the Board in April 2003; (ii) from 12/31/04 to 6/30/05, approved by CD on 12/29/04; (iii) from 6/30/05 to 12/31/06, approved by VP on 6/27/05; and (iv) from 12/31/06 to 12/31/07, approved by VP on 12/15/06\. 13\. First extension: The first extension for one year (from December 2003 to December 2004) was approved to allow the use of the loan savings to help finance construction of the Guangfo Road and complete the third phase of the traffic management program and the information technology-based systems for bus management, ring road monitoring and road maintenance\. While amending the project agreement, the Bank emphasized to the City the full scope of the resettlement and environmental requirements triggered by the addition of Guangfo Road\. 14\. Second extension: By September 2004, three months before the closing date corresponding to the first extension, all procurement was complete except the double- glazing of windows to reduce noise from the Ring Road, traffic signals, three important computer-based management systems (traffic control, bus dispatching and tracking, and road maintenance), and the latest urban transport strategy study (GUTS4)\. As disbursement was still very slow, the mission urged the construction commission and the municipal finance bureau to speed up their review of withdrawal applications\. An audit report for 2003 by the Guangdong Province Audit Office (GPAO) qualified its opinion for lack of sufficient financial documentation of the Ring Road resettlement activities, which were financed by the city using counterpart funds (see Section 2\.4 under fiduciary issues)\. As a result, the Bank granted a provisional 6-month extension to June 2005\. 15\. Third extension: The Bank approved the one-year extension to December 2006 after the delivery of an "unqualified" (clean) audit report for 2004\. The second and third extensions were motivated by the disruptions caused by the SARS epidemic in 2003, which restricted activities in Guangzhou for half a year, and to allow more time to finalize design of the three management systems\. Neither side had foreseen the technical complexities and delays involving system design and procurement (further described in Section 2\.2)\. 16\. Fourth extension: A final extension of one year was requested and approved in December 2006, which moved the closing date to December 31, 2007\. This extension 5  was requested to allow the client to fully utilize the loan and complete four remaining components deemed important to the achievement of the development objective: (i) provision and installation of air quality inspection equipment (US$2\.8 million), (ii) construction of a noise barrier adjacent to the Guangzhou City Zoo (US$0\.9 million), (iii) consultants services for the second phase of the Guangzhou Urban Transport Strategy (US$2\.0 million), and (iv) provision and installation of the traffic control and surveillance, bus dispatching and monitoring, and road asset (maintenance) management systems (US$7\.2 million)\. The Bank also agreed in August 2006 to increase civil works disbursement percentages from 43% to 85% at the client's request, although the remaining amount of civil works was small\. 2\. Key Factors Affecting Implementation and Outcomes 2\.1 Project Preparation, Design and Quality at Entry 17\. The quality of the project at entry was satisfactory\. This was also the conclusion of QAG's overall assessment of quality at entry in 1999 (QEA2), although it rated the "lack of any assessment of executing agencies' capacity" as unsatisfactory\. Lessons from earlier operations (notably the two urban transport projects in Shanghai) and early preparation activities (e\.g\. GUTS) were taken into account in designing a comprehensive package of urban transport components\. Risks associated with GMG's limited experience with public transport reforms, emissions testing, and traffic management were noted in project documents\. The project design attempted to address the required capacity building by including an institutional development component and various studies under each of the other components (see Annex 2)\. An adequate participatory process involving project affected people, road users, neighborhood and working groups was used to mitigate risks\. 18\. It took nearly four years from the first mission to loan negotiations in 1998\. Project preparation was suspended when senior officials in the national government questioned whether it was appropriate for Guangzhou to take on an international loan for urban transport, which would not directly generate revenue for repaying the loan\. During this time the City prepared its first urban transport strategy (GUTS), followed by a more detailed strategy (GUTS2), with substantial help from an international consultant and extensive Bank supervision\. 19\. The executive project summary (i\.e\., project concept note), and later the PAD, made a cogent case for a comprehensive approach to addressing Guangzhou's transport problems and the national government eventually approved the approach\. The project documents also stressed that a sustainable coordination mechanism across the many City agencies would be essential to the success of the project\. It gave traffic management and road safety pride of place in the project composition\. The implementation of the first phase of the traffic management improvements was covered by a dated covenant (18 months from the date of loan signing to completion)\. 6  2\.2 Implementation 20\. The implementation of the project was generally very successful, but it is important to note the significant delays with non-road components and cost variations\. The Ring Road (representing over 80% of the investment) was largely complete and open to traffic in January 2000, less than 2 years after construction began\. The last ramps were opened by mid-2000\. The original schedule allowed five years for project implementation, but soon after construction started the City decided that faster implementation would reduce the exposure of residents to construction noise and traffic disruptions and offered the contractors substantial financial bonuses as incentives for early completion (including sizeable overtime)\. Bank supervision specialists were initially concerned by the accelerated implementation plan because (i) it was decided upon without prior consultation with the public or the Bank (per agreement), (ii) it could negatively affect the quality, cost, and environmental impact of construction, and (iii) it could affect the progress of the other project components\. Nevertheless, later supervision missions rated the overall construction quality as "commendably high" and the project was responsive to requests for noise mitigation measures and detailed cost documentation\. 21\. On the other hand, the construction of Guangfo Road experienced initial delays because of (i) funding eligibility and (ii) late possession of site due to resettlement issues, which were eventually resolved (see Section 2\.4 for more detail), and (iii) technical complications with bridge construction and geological conditions\. Guangfo Road included the construction of four large bridges across the Zhu (Pearl) River, a viaduct across an island in the middle of the river, bus priority lanes, and lanes and intersection arrangements for cyclists\. Guangfo Road was completed in 2005, about one year behind the original schedule\. 22\. The Ring Road experienced significant cost variations from appraisal to completion\. The total bid price was less than 50% of the engineering estimate used in the project appraisal\. This difference was due to the use of Chinese Government unit costs for civil works (rather than actual market prices) and the Bank's suggested method of incorporating contingencies for price and physical quantities\. Until 2005, inflation had been less than expected so contracts awarded in the later years of project implementation were at lower prices than had been expected at appraisal\. However, the final construction cost was about 50% higher than the bid price primarily because of: (i) major design changes including two additional lanes of traffic and structural redesign; (ii) low-noise porous asphalt concrete was used throughout instead of only at sensitive locations as originally planned; (iii) additional geotechnical work; (iv) additional payments to contractors for overtime work; and (v) incentives to contractors for quality and advanced completion\. Nevertheless, the cost overrun from bid price to completion did not affect the EIRR of the project as it was still less than the estimate at appraisal\. 23\. There were significant schedule delays with most non-road infrastructure components because of technical problems and an initial lack of capacity\. A Quality of Supervision Assessment in 2006 (QSA7) also concluded that a lack of ownership by the borrower "turned out to be a shortcoming that was later to affect implementation of the non-civil works components of the project\." The mid-term review in April 2001 focused on the 7  progress and challenges to the traffic management, public transport, vehicle pollution control, road maintenance, and institutional components\. The SARS epidemic in 2003 affected the planned supervision of these components, justifying two extensions\. The repeated delay of most of these "soft" components was the justification for a reduction in the implementation progress rating to "moderately satisfactory" in December 2006\. The most important factors influencing the implementation of the non-road components are described below\. a) Unexpected technical issues or challenges (i) Traffic Management -- the Ring Road traffic control system went through an extended decision-making period of over one year to define an implementation approach that would reconcile the proprietary technology of the existing traffic light system with open bidding for its expansion\. The project considered the adoption of North American or United Kingdom interface standards, which would affect the eligible suppliers and the technical compatibility with the current system and future generations of traffic signals, but in the end, adopted no international standard for its two centers\. (ii) Bus Depot - Technical problems, clearances, and new building codes for a waste water treatment facility and refueling station at the Longxi Bus Depot caused repeated delays\. (iii) Geological conditions-- Construction of the bridges for Guangfo Road was complicated by the discovery, during detailed geotechnical investigations, of a number of karst caves in the river bed beneath the intended bridge foundations\. b) Contractual and procurement issues (i) Traffic Management and Surveillance -- The design was initially delayed by performance problems with the local consultant hired to prepare the technical specifications\. The systems were also delayed by a discussion of the procurement approach that lasted well over one year\. The City's consultant recommended a design-build contract, whereas the Bank team questioned whether bids for construction could be feasible and effective before the design was finalized\. (ii) Maintenance Management Systems ­ After a prolonged discussion period of over one year, the City decided to package the road, bridge and drainage maintenance into a single integrated system but procurement was split into three contracts: (1) equipment for the initial development phase, (2) design consulting services, and (3) equipment for long-term system use\. In the end, the Bank provided an experienced international consultant to assist with procurement\. (iii) Pollution Control -- Although not financed by the Bank loan, the construction of the motor vehicle emissions control building affected the installation of the Bank- financed monitoring equipment due to repeated delays in site preparation and the bidding of design and consulting services\. It was eventually completed in March 2005\. Bank missions identified a lack of PO staff for this component as one reason for the delay\. 8  2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 24\. The M&E program was designed on a comprehensive set of indicators corresponding to six outcomes (summarized in Section 1\.2)\. The loan and project documents specified the following M&E activities in addition to regular supervision missions by the Bank, which were generally observed by the PO: Annual project reports with performance indicators (see Section F of Data Sheet) Joint review of progress annually and near project mid-term (2001) Submittal of monthly progress and disbursement reports, and quarterly reports of planned and actual progress for each component (cost and physical works) 25\. The project was being implemented in a city undergoing unprecedented levels of change (annual growth of 12% from 2000 to 2005 resulting in a doubling of the GDP per capita to US$8,500)\. The administrative boundaries of the urban area were changed in 2001 resulting in a 35 percent net increase in population\. In the case of the Inner Ring Road, the performance indicators were structured to measure the impact of the road in reducing traffic in the city center\. In reality, economic development patterns in Guangzhou eclipsed all expectations and by 2001, traffic volumes into the City Center were above projections\. In fact, the Bank and PO agreed to stop monitoring the indicators for improved level of service and reduced congestion (#1, 2 and 3) after 2001 because of their limited usefulness in the context of overwhelming growth and high cost\. Though the Ring Road diverted some through traffic, economic development generated additional traffic into the center\. It is safe to say that the Ring Road played a role in facilitating the continued economic development and congestion today would have been much worse without the project\. In hindsight, a performance indicator that focused on the amount of traffic diverted to the Ring Road from the city center (rather than the absolute levels of traffic into the city center) may have been a better proxy for capturing the facilitating impact of the Ring Road\. 26\. Utilization of the M&E data was somewhat limited because of: (1) problems with realism or reliability of the data and (2) the reports were sometimes submitted late or incomplete\. A Quality of Supervision Assessment in 2006 called for "a more critical examination of the realism of the indicators and interpretation of data\." 2\.4 Safeguard and Fiduciary Compliance 27\. The project was classified as a Category "A" because of substantial new construction and involuntary resettlement\. Environmental Assessments (EA) were carried out for the RR, Guangfo Road, and the Longxi Bus Depot, and were reviewed by both the Chinese State Environmental Protection Agency and the World Bank\. Environmental Impacts 28\. Although there were initial concerns about the environmental impact of the accelerated construction of the Ring Road, the Project has met all requirements and greatly expanded the scope of the mitigation measures from appraisal\. The widening of the RR design from 4 lanes to 6 lanes in some segments caused noise levels for nearby 9  residents in excess of design standards, requiring installation of additional noise barriers\. This took several years to complete, partly because the City wanted to investigate alternative designs\. Noise barriers are now widely used in China but were new at that time and, as such, these investigations were not unreasonable\. The noise barriers recommended in the original EAP totaled 1,860m, but were expanded many times over using local funds to accommodate design changes during construction and requests from those affected\. In early 2002, the City, in response to continued complaints, adopted the policy to pay for double-glazing windows and improved ventilation in the remaining residential units where the noise standards were not met, eventually installing these in about 5,000 housing units\. New trees, shrubs, flowers and grass were planted at ground level below the Ring Road to improve the aesthetics\. Air quality monitoring showed marked decreases in the ambient levels of NOx and CO concentrations\. Residents have expressed full satisfaction with these measures\. Resettlement 29\. The mid-term review praised the high quality of the resettlement actions taken and satisfactory indicators\. It achieved the basic objectives of: (i) compensating Project Affected People (PAPs) for their losses at replacement cost prior to the actual move; (ii) assisting with the move and providing rehabilitation during the transition period in the resettlement site; and (iii) assisting PAPs in their efforts to restore their former living\. The key factors supporting the favorable outcome were: Good institutional arrangements and capacity of staff Supportive leadership and availability of funds Effective coordination with major agencies and stakeholders Systematic program of consultation with PAPs and their participation An innovative computer program that facilitated implementation 30\. On the other hand, the financial and internal management of the resettlement program was inadequate\. The original plans expected construction of the Ring Road to take four years, but it was actually built in less than two years\. Resettlement activities had to be completed in 1999 before the civil works could start, but internal processes and financial controls were not in place\. Fifteen thousand households, shops and businesses were moved in less than one year\. Though the vast majority of displaced persons were satisfied with the outcome, audits found that financial controls were lacking as a consequence of the expedited schedule (see fiduciary section below)\. 31\. The total cost of implementing the RAP reached US$525 million-- more than three times larger than the US$161 million estimated at appraisal\. It is important to note that all resettlement work was funded by the client\. One reason for the cost increase was a rapid rise in land costs, but a 2003 financial management audit of the resettlement program also pointed to the following reasons, which have been largely addressed in the City's current resettlement practices: Initial differences between the compensation policies of the World Bank and the local government, which were appropriately reconciled Lack of appropriate resettlement management and supporting systematic regulations and procedures 10  Lack of effective internal controls, communications, and training for the multi- layer organizational set-up Lack of proper financial management structure and disbursement arrangements, or effective internal and external monitoring mechanisms Fiduciary 32\. While there were no issues with the financial management of Bank-financed works, the audit for 2003 conducted by GPAO flagged serious shortcomings in the financial management of resettlement activities financed by the borrower\. These shortcomings, which have since been resolved, included: Lack of land certifications for certain areas to which the households were moved Lack of housing certifications and supporting evidence Discrepancies between the reported size of land areas paid for and what actually changed hands Lack of supporting documents for the resettlement contracts with affected people and the compensation amounts paid 33\. The audit for 2004, although unqualified, pointed out that the Guangzhou Road Expansion and Engineering Office (GREEO) had acquired new housing (apartment buildings) to receive the displaced people but not all units had been occupied by households displaced by this project\. The Bank's financial management review (including the 2004 audit) concluded that record keeping was adequate and financial management of the loan was satisfactory\. By the time that the Bank was reviewing the request for the final loan extension in 2006, an unqualified audit for 2005 had been accepted by the Bank's financial management specialists and the issue was closed\. Procurement 34\. Procurement was generally successful and fully compliant with Bank rules\. However, there were significant issues and contract variations (described in Section 2\.2), due in part to the client's unfamiliarity with the implementation of new and complex technologies (including for road maintenance, traffic management and public transport) and the Banks' procurement guidelines\. There were several unsuccessful procurements or contracts for consulting services that did not meet or deliver on the requirements, including a road user education program, air monitoring equipment (eventually replaced by noise monitoring equipment), and hybrid buses for a demonstration project (eventually scrapped)\. The difficulties in designing and procuring three computer-based management systems were only resolved with the involvement of Bank-hired specialists with international experience with such complex systems\. 35\. Guangzhou made the Bank aware of one particular case of fraudulent procurement practice for a small sub-component during a supervision mission in February 2007\. The case involved the use of sub-standard materials by the contractor for a pedestrian information system\. The client cancelled the contract as part of a zero-tolerance policy on fraud and corruption (valued at about US$2\.7 million) and barred the contractor from participating in future bids for contracts financed by Guangzhou Construction Commission\. By the time the contract was cancelled, the closing date was imminent and 11  the contract was ultimately not financed by the Bank\. The Bank's task team supported the client's investigation by (i) hiring a consultant to provide evidence and (ii) reporting the case internally on October 25, 2007, although no subsequent Bank action has been taken\. 2\.5 Post-completion Operation/Next Phase 36\. The important road network investments financed by the project (including the Ring Road and Guangfo Road) are being successfully operated and maintained\. The budget for operations and maintenance is adequate\. However, several contracts remained open after the project closing date including (i) the GUTS4 implementation study, (ii) traffic management equipment, and (iii) the road and bridge management system\. GMG agreed to take responsibility for completing these contracts and for contract payments related to activities undertaken after the closing date\. 37\. Well before the original completion date, the City expressed interest in a second Bank-supported urban transport project\. It would require an update of the City's urban transport strategy, analysis of the new demand for urban transport reflecting the shift in modal shares (more cars, less biking and walking), and review of the strengths and weaknesses of current practices\. In April 2005 the head of the PO formally conveyed to the Bank its interest in securing a second loan to support Guangzhou's urban transport development plans, but no formal decision by the central government was made\. The Bank has agreed to review the GUTS4 study once completed (expected by end of 2008)\. 38\. In 2007, Guangzhou entered into dialogue with the Bank's GEF-supported program for urban transport development in China and qualified as one of the demonstration cities\. Given that the amount of the GEF grant is relatively limited, the program is intended to carry out key studies and pilots that can help demonstrate the positive impacts of innovative practices in mitigating GHG emissions and help pave the way for scaling up those initiatives through major investments\. 3\. Assessment of Outcomes 3\.1 Relevance of Objectives, Design and Implementation 39\. The project was and remains fully consistent with the country's development priorities to relieve infrastructure bottlenecks and foster economic growth\. It was also consistent with the Bank's urban transport strategy ("Cities on the Move," 2001) and, later, with the most recent China urban transport strategy ("China: Building Institutions for Sustainable Urban Transport," 2006)\. Both of these Bank documents emphasized that the impacts of rapid motorization can be dealt with on a sustainable basis only by a comprehensive set of actions, going beyond new road infrastructure, all of which were included in the design and implementation of the project: Improvement of public transport services, Facilities for pedestrians and cyclists (particularly the poor and other vulnerable groups), 12  Non-physical ways to derive greater flow capacity from existing streets (traffic management), Restraints on car use (such as paid parking), and Institutional development\. 3\.2 Achievement of Project Development Objectives 40\. The project is rated satisfactory because it was generally successful in delivering the anticipated objective of promoting the efficient use of the urban transport system in an environmentally sustainable way, as detailed below\. a) Improved level of service and reduced congestion on the City Center road network-- Satisfactory 41\. The project has successfully achieved this objective by implementing an elevated Ring Road within schedule and under budget, without sacrificing quality or environment for nearby residents\. Guangfo Radial Road was also successfully implemented\. The level of service in the city center has improved as measured by indicators of cross-town speeds in north-south and east-west corridors during the p\.m\. peak (33-49% increase from 1998 to 2001)\. Congestion however does not appear to have been reduced as traffic volumes in the city center bound by the Ring Road were already above forecast in 2001\. The performance indicator for congestion was undermined by higher than expected economic growth resulting in faster than expected motorization\. 42\. Traffic management measures are working satisfactorily\. Observers report a distinct improvement in the general discipline among Guangzhou's road users, due in part to the channelized intersections and coordinated traffic light systems\. Left turns (the most disruptive of traffic movements) are appropriately restricted by median dividers or controlled at intersections by having their own green phase in the traffic light cycle, with left-turn bays so that vehicles waiting to turn do not obstruct other vehicles\. The channelization at intersections carried out under the first phase of the Traffic Management component was one of the first demonstrations of such low-cost and effective techniques in China\. b) Increased throughput (in terms of passengers) of public transport corridors within the City Center-- Satisfactory 43\. Public transport mode share of total trips has grown from 16% to 23%, meeting the target\. Average speeds in bus corridors have increased by 63%, greatly surpassing the targets\. This was due to improved management of existing bus lanes and development of new bus lanes\. The adoption of the fleet management system in Guangzhou has been exemplary\. The implementation included revisions to business practices and institutional arrangements, and has achieved outstanding results in terms of the reliability and sustainability of operations\. The system is currently owned and managed by the city, which gets information from it to help monitor operations\. All the operators use the system for planning and monitoring, and passengers have benefited from the improved performance\. This kind of "win-win" situation requires very careful structuring, and the Bank's role in nurturing it reflects real value-added\. 13  c) Reduction in relative levels of air pollution-- Satisfactory 44\. Measured ambient concentrations of nitrous oxide and carbon monoxide have been reduced well beyond the original target reduction of 10%\. Observers have also noted that the exposure of people to air pollution from the traffic in the city center has probably been reduced because vehicles on the elevated ring road are farther away from the people\. One can also deduce that vehicles are traveling at closer to ideal speeds and steady flow conditions (i\.e\., less `stop-and-go' traffic) thus emitting fewer pollutants\. These outputs can be attributed in part to the additional infrastructure and traffic management measures (including better road maintenance practices) implemented by the project that helped enhance traffic flows and efficiency (such as channelization and signalization) and general driving conditions\. d) Reduction in the rate of accidents per capita-- Satisfactory 45\. Provisions for cyclists and pedestrians required some fine-tuning but have been successful\. Pedestrians are safer at intersections due to dedicated traffic lights and signal phases, raised `islands', and footbridges\. The benefits are confirmed by the reduction in the number of per capita traffic accidents by 25% and fatalities by 55%, which have surpassed their targets\. e) Improved effectiveness and efficiency of road maintenance-- Satisfactory 46\. The shares of primary and secondary city roads in `good' or better condition have both increased to 91%, although the measurement methodology changed during implementation\. The share of primary roads in particular has surpassed its target as a result of the introduction of modernized road maintenance equipment and the development of a road asset (maintenance) management system\. f) Strengthened management capacity of municipal agencies responsible for urban transport--Satisfactory 47\. The institutional rationale for the project to help the City coordinate the many agencies implementing different parts of this comprehensive project has been largely achieved despite delays early on (see also Section 3\.5(b))\. A Project Leading Group (PLG), chaired by a vice-mayor, initially performed the coordination role though it lost momentum and focus with time\. The Construction Commission eventually drove much of the project implementation, which was dominated by the Ring Road\. While this arrangement was not initially effective in advancing non-road components, the Construction Commission eventually formed productive relationships with line authority agencies including the traffic police, managers of bus services, environmental protection, and resettlement\. For example, missions noted that working relations with the Guangzhou traffic police, the lead agency for the traffic management component, were excellent\. 48\. The project also financed extensive amounts of training (both on-the-job and classroom) and study tours (domestic and international) that had the desired effect of strengthening the capacity of the personnel and agencies involved\. In all, this project component financed 28 technical assistance contracts, 15 investigations, and 191 training 14  events (including to Curitiba, Brazil and Bogotá, Colombia)\. Hundreds of senior and mid-level officials have directly benefited from Bank training\. 3\.3 Efficiency 49\. A traditional cost-benefit analysis was used by the Bank at appraisal to evaluate the two largest components of the project investment, the Guangzhou Inner Ring Road and the Traffic Management Component\. The economic efficiency measures for both are shown in the table below\. The decrease in the net present value and economic rate of return for the RR is attributed to the large increases in the scope and costs of civil works (widening of Ring Road and addition of Guangfo Road), resettlement program, and environmental mitigation (see Sections 2\.2 and 2\.4 for additional details)\. Annex 3 provides more detail on the economic analysis\. PAD ICR Guangzhou Inner Ring Road NPV (12% discount) US$351 million US$147\.9 million ERR 34\.1% 14\.3% Traffic Management Component NPV (12% discount) US$49 million US$15\.2 million ERR 35% 18\.3% 50\. The economic evaluation in the PAD and at completion used traffic forecasts from a typical four-stage urban transport model with fixed trip matrices developed by consultants for a "do-nothing" and "with project" scenarios\. The PAD also described the sensitivity analyses carried out separately for the Traffic Management and Inner Ring Road components with respect to the some key variables: (i) the level of motorization; (ii) rate of economic growth for the city; (iii) delays in completion of construction; (iv) cost overruns; and (v) alternative design standards (4 lanes or 6 lanes of traffic throughout)\. No values of these key variables were found to produce a negative NPV or an economic rate of return of less than 12%\. 51\. The analysis of the fiscal impact of the project found GMG's financial capacity adequate to meet implementation cost (including debt finance and ongoing maintenance costs) and it continues to be the case with ongoing operations and maintenance costs\. 3\.4 Justification of Overall Outcome Rating Rating: Satisfactory 52\. The combination of the project relevance, achievement of PDOs and efficiency described above justify an overall outcome rating of satisfactory\. The project has substantially achieved its main objective of promoting the efficient use of the urban transport system in an environmentally sustainable way despite considerable delays\. Though their utility is limited by the unprecedented changes in context during the extended project period, the performance indicators for traffic safety, air pollution, public 15  transport generally confirm the project's success\. The projects institutional objectives were also substantially achieved\. 3\.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development 53\. Nearly 10,000 households and 4,800 shops and enterprises were relocated as part of the resettlement of the project\. This was the biggest resettlement project in the history of urban construction in Guangzhou\. Almost all PAPs were pleased with their new and larger apartments, which, for the first time for many households, had their own kitchen and bathroom\. The new dwellings were on average 20-35% larger than the old homes (16 m2 more floor space)\. The new communities had better environmental conditions (air quality and vegetation, etc\.) as well\. Restoration of livelihood was at least as good as the control group, except initially for a small number of unskilled workers and small shopkeepers\. The financial management issues were eventually resolved to the Bank's satisfaction\. The scale and quality of the standard of living improvements as a result of the resettlement program have been substantial\. (b) Institutional Change/Strengthening 54\. The institutional capacity of Guangzhou to successfully implement a large and complex project was also greatly improved by the following developments: a\. GUTS was the foundation of the investment and urban development strategy for Guangzhou for nearly a decade and a model many other Chinese cities have emulated\. The follow-on efforts (GUTS2, 3 and 4) demonstrate a great deal of city ownership and the sustainability of the strategy\. The current GUTS is expected to be completed in 2008 and will embody three principles fully consistent with the Bank's development partnership strategy for China\.: (1) comprehensive urban planning, (2) demand management to help solve transportation problems, and (3) `putting people first' (the title of the current Chinese government policy on urban transport)\. b\. The discussions with the Bank team during preparation laid the foundation for Guangzhou's public transport reform\. The adoption of a franchised model regulated and controlled by the city is more or less what the Bank had envisioned and reflects international best practice\. c\. The traffic management component reflected the first time in China that the police and construction personnel worked out solutions to traffic problems in a coordinated manner\. This was a model not just for Guangzhou, but other Chinese cities as well\. d\. The resettlement management software was a major innovation, which has been used elsewhere in Guangzhou in other projects\. e\. Guangzhou greatly values the capacity built in the PMO with respect to project management, financial management (particularly for resettlement), and procurement\. The office is now in charge of special projects and is seen by the Bureau for Municipal Management (where it is now housed) as an important asset\. f\. The project showed the need to plan for dealing with environmental impacts not just during the construction phase of infrastructure but on a continuing basis during operation\. As late as June 2005, five years after the Inner Ring Road was opened to traffic, new noise mitigation cases were still being reported by residents and a health 16  care facility\. As a result, the City needed to retain the capacity to respond appropriately many years after the RR had opened to traffic\. (c) Other Unintended Outcomes and Impacts (positive or negative) Not applicable\. 3\.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops Not applicable\. 4\. Assessment of Risk to Development Outcome Rating: Moderate 55\. Guangzhou is becoming an international city of great importance, but it faces some uncertainties with regard to the project's objectives as it continues to grow\. First, traffic volumes will continue to increase as more people and cars crowd the roads\. Growing congestion in the ring road is almost certain, but would have been far worse without the project\. The indicators suggest that the project struck an appropriate balance of increasing the supply of roads with public transport and traffic management investments\. Further capacity building and balanced urban transport investments will be required to ensure that the mobility and accessibility in the city center are not degraded over time\. Second, the impact of motorization on the supply and safety of facilities for non- motorized and public transport modes is also an issue that requires the continued attention of the public authorities\. 5\. Assessment of Bank and Borrower Performance 5\.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory 56\. The quality of the Bank performance at entry was satisfactory\. The project's objectives and design were closely aligned with both the government and World Bank strategies for urban transport\. The Bank facilitated the planning and preparation of a balanced and comprehensive project\. The project's technical assistance components have brought about great progress in terms of institutional capacity and plans\. A few minor deficiencies are also noted in the following: The PAD correctly recognized but perhaps could have better mitigated the risk of delays in implementing non-road investments in a complex project in light of the experience in Shanghai where, " \. supporting traffic management and public transport facilities have so far seen only limited implementation\. Weak implementation of these components is partly due to lack of ownership of designs produced largely by foreign consultant assistance and partly due to the fragmentation of responsibility across agencies\." Other critical risks identified in the PAD, while appropriate, were not thoroughly described\. For example, the risk for "local government support for any project activity erodes" is vague and went unrated\. A Quality at Entry report from 1999 observed that there had been "no assessment of executing agencies' capacity\." The complexity of the project design required 13 17  different agencies to implement the project\. Given the tendency in China for effective vertical interaction but poor horizontal cooperation, this arrangement ran the risk of inertia after project preparation as the interest of the various stakeholders waned and the PLG did not sustain the necessary commitment, coordination and momentum\. (b) Quality of Supervision Rating: Moderately Satisfactory 57\. The Bank's supervision was deemed moderately satisfactory given the overall success of the project with moderate shortcomings\. The Bank approved the project in May 1998 and was declared effective in September 1998\. The frequency of supervision missions was appropriate and specialists with relevant skills were brought in as needed, although the outbreak of SARS in 2003 hindered supervision for a period of time\. Back-to-office reports and management letters were generally comprehensive, and usually action- oriented\. 58\. While the project's implementation was rated satisfactory on all ISRs from 1998 (project start) until 2005, a Quality of Supervision Assessment in 2006 (QSA7) had an overall rating of "moderately satisfactory" and concluded that the Bank could have been more proactive in finding solutions to the problems that delayed implementation, perhaps with more effective use of field office staff for supervision\. For example, disbursements early on were slow because staff were unfamiliar with the Bank's procedures and rules, and contractors were slow in filing invoices\. Even after the original loan closing date had passed, less than US$80 million had been disbursed from the loan out of the US$180 million remaining after the restructuring\. This is a common problem for a new borrower and could have been dealt with sooner through: (1) a targeted workshop at project launch focusing on financial management and disbursement issues, and (2) more proactive interventions when it became clear that the Guangzhou Finance Bureau was contributing to the delays of withdrawal applications\. In retrospect, the Bank's supervision should also have identified the value of certain indicators that appeared overly optimistic, particularly those with impact areas beyond the project\. 59\. Though the financial management shortcomings of the borrower's resettlement program were significant (see Section 2\.4), the audit process complemented by the Bank's supervision effectively addressed the problems\. The Bank found shortcomings in the financial control structure, but no evidence of fraud or wrong-doing\. 60\. The Bank also showed due flexibility in discussing alternative approaches to allow Guangzhou to use the savings, both as regards additional components consistent with the original project developmental objective and in raising the disbursement percentage for the final loan extension\. (c) Justification of Rating for Overall Bank Performance Rating: Satisfactory 18  61\. The Bank's overall performance was satisfactory based on the quality of the project at entry and during supervision\. There has been substantial completion of the project without compromising environmental, social, or financial safeguards\. The design and implementation also ensured the delivery of a majority of the project development objectives\. 5\.2 Borrower Performance (a) Government Performance Rating: Satisfactory 62\. The performance of the government was satisfactory considering the complexity of the project design and novelty of some interventions\. The primary investment, the Ring Road, was completed in record time (18 months opposed to scheduled 5 years) with high quality, within budget, and featuring state-of-the-practice environmental mitigation measures (noise-dampening pavement, over 22 one-way km of noise barriers and double glazed windows for 5000 households)\. 63\. The resettlement program epitomizes the unprecedented complexity of the development challenges in China\. Fifteen thousand households, shops and businesses were moved in less than one year to minimize the disruption from the construction and to deal with a very rapidly growing congestion problem\. It is unlikely that there are many projects in the history of development (Bank-financed or otherwise) of this dimension and speed\. In the end, the program was considered very successful and the Bank's review concluded that the issues raised were not so much with the substance of the resettlement actions, but the regulation, management and internal control systems needed to govern such a financially large undertaking\. From all accounts, Guangzhou has taken on this lesson and moved to address the gaps\. (b) Implementing Agency or Agencies Performance Rating: Moderately Satisfactory 64\. The performance of the implementing agencies was moderately satisfactory\. Nearly all components were completed as planned, but the project was very slow to disburse, had to be restructured (including the cancelling of US$20 million), and the loan was extended by four years\. Progress on the smaller components in particular was considerably delayed and four extensions of the closing date were required for substantial completion\. 65\. Project governance, including the PLG, was often inconsistent on non-road investments, which greatly contributed to delays\. However, institutional development and implementation improvements have been continuous\. For example, the third phase of the traffic management program was a considerable improvement over the first two phases, reflecting continuous learning by the City\. It recommended incorporation of the latest international thinking on bus lanes and bus rapid transit, channelization and pedestrian safety islands, and physical separation through curbs and `green islands'\. The extended duration of the project coupled with regular turnover necessitated additional institutional strengthening and training\. 19  (c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory 66\. The satisfactory rating is justified by performance of the government and implementing agencies, including the adoption of institutions, policies and programs in support of the project objectives described above\. 6\. Lessons Learned 67\. Project design and governance should carefully consider the institutional capacity for each component and recognize that progress may not occur in parallel\. Major challenges were experienced with the "softer" components due to weaker institutional capacity\. The role of a project leading group is essential to ensure that the various components are implemented in a coordinated fashion, but sustaining their interest and effective functioning is difficult to achieve\. Moreover, setting up institutional capacity for what may be a short but intensive resettlement or a prolonged environmental mitigation program demands special care\. For example, the Project showed the need to deal with noise mitigation not just during the construction but on a continuing basis during operation\. 68\. Computer-based management systems require exceptional inter-disciplinary coordination and specialized experience for procurement\.2 The technical complexity of these systems, which often involve intellectual property rights embodied in proprietary software, is complicated by the procurement policies that aim to promote competition\. Close coordination is needed between specialists who understand the business processes being computerized, technology options, and procurement\. A technical and functional architecture encompassing the project is also needed to ensure current and future system interoperability\. Guangzhou's GPS-based bus dispatching and monitoring system, which also provides real-time passenger information, was eventually scaled up to the entire bus fleet and is a model for other cities\. 69\. Formulating a comprehensive strategy with government ownership is crucial to institutional reform and implementation of innovative urban transport initiatives\. A lengthy but very successful urban transport strategy effort and project preparation period anchored transport investments in Guangzhou for over a decade\. Guangzhou is a model for other cities in the effective demonstration of low-cost traffic management investments, representing the first instance in China where the traffic police collaborated with planning and municipal engineering bureaus to design and implement such schemes\. Furthermore, the Project initiated important institutional reform in the structure and operation of bus services\. Discussions during preparation resulted in a successful, state-of-the-practice model of publicly-controlled (but franchised) and privately-operated bus operations\. 2The Bank's task team is distilling this lesson and additional experiences from the technology implementation and related institutional issues in a technical note (to be published) entitled "Bus Fleet Management Systems: Improving Public Transport in China\." 20  7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies 70\. A Bank ICR mission was undertaken in Guangzhou on June 10-11, 2008\. The Project Office commented that the Bank's ICR made a true and precise description of the project, and a fair and objective appraisal of the outcomes\. A summary excerpt of the borrower's ICR is included in Annex 7\. 21  (b) Cofinanciers None\. (c) Other partners and stakeholders (e\.g\. NGOs/private sector/civil society) None\. 22  Annex 1\. Project Costs and Financing (a) Project Cost by Component (in USD Million equivalent) Appraisal Estimate Actual/Latest Components Percentage of (USD millions) Estimate (USD millions)* Appraisal INNER RING ROAD 431\.5 1,037\.5 240% TRAFFIC MANAGEMENT & SAFETY 27\.7 45\.6 165% PUBLIC TRANSPORT 19\.0 19\.7 104% VEHICLE POLLUTION CONTROL 7\.6 11\.6 152% ROAD MAINTENANCE 6\.7 14\.0 208% TECHNICAL ASSISTANCE 9\.4 10\.2 108% GUANGFO ROAD Added 64\.9 n/a Total Baseline Cost 501\.8 1,203\.4 240% Physical Contingencies 36\.0 n/a Price Contingencies 48\.2 n/a Total Project Costs 586\.1 1203\.4 205% Project Preparation Fund 0\.00 n/a n/a Front-end fee IBRD 0\.00 n/a n/a Total Financing Required 586\.1 1203\.4 205% * The actual costs reflect a much expanded scope of the project in civil works (widening of Ring Road and addition of Guangfo Road), expanded resettlement program, and environmental mitigation (22 km of noise barriers)\. (b) Financing Appraisal Actual/Latest Source of Funds Type of Estimate Estimate Percentage of Cofinancing (USD (USD Appraisal millions) millions) Borrower 386\.1 1122\.8 291% International Bank for Reconstruction and Development 200\.0 103\.0 51% 23  Annex 2\. Outputs by Component Components PAD At Project Completion Part A: Inner 1\. Construction of the Inner Ring Road including: 1\. All work completed\. Ring Road (a) construction of 15\.5 km of an elevated Changes included: highway, with grade-separated interchanges, - additional 2 lanes of primary roads and access ramps to the street traffic in sections with network, and (b) upgrading of 15\.5 km of existing 4 lanes ground level roads underneath the elevated - addition of the highway; and (c) provision of noise barriers and Guangfo Radial Road traffic management equipment for said sections (5\.5 km) of the Inner Ring Road\. - 67,478 m2 of 2\. Resettlement, rehabilitation of and insulated windows compensation for people affected by the project\. - 22\.1km of noise barriers and 800,000 sq\.m\. of sound isolation windows 2\. All work completed\. 24  Part B: 1\. Carrying out of a program of traffic 1\. All work competed, Traffic management in Guangzhou through civil works except pedestrian Management and the provision of equipment, consultant information system and Safety services and training to include: (dropped from project, to a) establishment of a bus lane network of 5 be locally funded) km; (i) pedestrian facilities consisting of 2\. All work completed, sidewalks and footpaths of 2 km, 30 except for ongoing pedestrian crossings equipped with training activities\. refuges, signal controls and special facilities for the aged and the handicapped; and (ii) segregated bicycle routes of about 2 km\. b) installation and replacement of traffic signals and controllers; c) monitoring and control of traffic on the Inner Ring Road; and d) parking management\. 2\. Carrying out of a program of road safety, through the provision of equipment, consultants services and training to include: a) updating of the traffic accident management computer software; b) undertaking of an analytical review of accident information collection procedures; and c) implementation of accident reduction measures\. 25  Part C: 1\. Construction of: (a) a bus maintenance depot at 1\. All work competed\. Public Longxi, (b) a related waste water treatment plant; Transport and (c) provision of maintenance equipment for 2\. All work completed: said maintenance depot\. - Bus dispatching and 2\. Carrying out of a program to develop public monitoring system transport in Guangzhou, through the provision of covering entire fleet equipment, consultant services and training to (8374 buses) installed include: in 2006 a) development of information systems for - A single advanced the location, operational and financial pilot bus was procured control, regulatory management and service planning of buses; b) establishment of a pilot system for bus operations and management; c) carrying out of a program to test selected buses with more advanced and environmentally benign specifications on the main routes for purposes of determining the most suitable types to be operated in Guangzhou; and d) carrying out of a program of maintenance of public transport buses\. Part D: Carrying out of a program to control and reduce All work completed, Vehicle air pollution from mobile sources in Guangzhou except: Pollution through the provision of equipment, consultant - Vehicle emissions Control services and training, such program to include: research center was (i) initiation of the distribution of unleaded cancelled in 2006 as gasoline; standards set by the (ii) strengthening of the vehicle inspection national government\. and maintenance (I/M) system; - I/M equipment (iii) strengthening of the vehicle emission subcomponent research centre; and (iv) improvement cancelled and financed of the air pollution monitoring network\. using local funds - Noise monitoring equipment added Part E: Road Carrying out of a program of road maintenance Pavement and bridge Maintenance management in Guangzhou through the provision management system of equipment, consultant services and training to procured and installation include: undertaking of a comprehensive will continue after inventory of maintenance requirements and project closing using updating of the maintenance expenditure local funds\. requirements\. 26  Part F: 1\. Strengthening of the managerial, technical, 1\. All work competed\. Institutional planning and implementation capacity of the 2\. All work completed, Development municipal agencies involved in aspects of city except contracts for transport, through the provision of equipment, studies to remain open consultant services and training\. after project closing: 2\. Carrying out of studies to assist Guangzhou to - Guangzhou Urban formulate plans and policies in respect of, inter Transport Improvement alia, motor vehicle pollution control, traffic Implementation demand management, bus operations and Schemes\. management\. - Guangzhou Project Management Information System and Guangzhou Transport GIS System\. - Operational Project Management Study 27  Annex 3\. Economic and Financial Analysis Tables A and B are the economic analyses for the Ring Road and Traffic Management components, respectively, using the benefits and costs presented in the borrower's ICR from May 2008\. The remaining components under the project were smaller in cost and less amenable to a quantitative cost-benefit analysis, but international experience has shown that these types of investments are cost-effective\. The main assumptions used in the economic analysis were: The local economy would continue to grow at about 8 percent per year over the evaluation period and motorized vehicle ownership would grow at about the same rate\. The value of time for passengers was assumed to be equal to the wage rate and vehicle operating costs were consistent with those used recently in other highway projects in China\. The traffic management component of the project was assumed to result in a suppression of 20 percent of the motorized trips that would otherwise be made to the central area\. The associated metro and outer area highway developments would take place as planned\. 28  Table A: Guangzhou Inner Ring Road Economic Analysis Benefits (million RMB) Costs (million RMB) Travel Acciden Residu VOC time t al Invest- O&M Net Year savings savings savings value Sum ment costs Sum Value 1998 1,112 1,112 (1,112) 1999 4,360 4,360 (4,360) 2000 573 289 4 866 1,584 102 1,686 (820) 2001 657 331 5 993 397 117 514 479 2002 733 369 5 1,107 100 130 230 877 2003 784 395 5 1,185 100 139 239 945 2004 837 421 6 1,264 25 149 174 1,090 2005 857 432 6 1,294 152 152 1,142 2006 813 409 6 1,228 145 145 1,084 2007 837 422 6 1,265 149 149 1,116 2008 666 545 6 1,218 153 153 1,064 2009 530 705 6 1,241 158 158 1,084 2010 422 911 6 1,339 162 162 1,177 2011 491 930 7 1,428 165 165 1,263 2012 573 949 7 1,528 169 169 1,359 2013 667 968 7 1,642 172 172 1,470 2014 777 988 7 1,772 176 176 1,597 2015 906 1008 7 1,921 179 179 1,742 2016 1007 1026 7 2,040 182 182 1,858 2017 1119 1045 7 2,172 186 186 1,986 2018 1245 1064 7 2,316 189 189 2,126 2019 1384 1083 8 2,474 192 192 2,281 2020 1538 1102 8 1535 4,184 196 196 3,988 Total 17,417 15,392 132 1,535 34,477 7,677 3,362 11,040 23,437 NPV (@12%) 1\.094 Billion RMB NPV (@12%, US$1=8 RMB) US$147\.9 Million IRR 14\.3% 29  Table B: Traffic Management Component Economic Analysis Millions of RMB Sum of Investment O&M Sum of Year Benefits* Costs costs Costs Net Value 1998 - 25 25 (25) 1999 - 50 50 (50) 2000 6 50 4 54 (48) 2001 7 50 5 55 (47) 2002 16 37 5 42 (26) 2003 32 25 10 35 (3) 2004 43 25 12 37 6 2005 85 25 25 50 34 2006 86 25 25 50 35 2007 115 25 35 60 55 2008 123 35 35 88 2009 132 35 35 96 2010 141 36 36 105 2011 151 36 36 116 2012 162 36 36 127 2013 175 36 36 139 2014 188 36 36 152 2015 203 36 36 167 2016 219 36 36 183 Total 1,883 337 443 780 1,103 * Sum of Benefits includes all relevant benefits calculated in the borrower's ICR using standard Chinese methodologies, including time, accident, and other savings from traffic improvements due to SCATS, junction channelization improvements, and bus lane efficiency improvements\. NPV (@12%) 112\.6 Million RMB NPV (@12%, US$1=8 RMB) US$15\.2 Million IRR 18\.3% 30  Annex 4\. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Names Title Unit Responsibility/ Specialty Lending Richard Scurfield Task Team Leader EACCF Peter Midgley Former Task Team Leader EASTR Stephen Stares Former Task Team Leader EACCF Hoon Mok Chung EASFP Mary Judd EASSD Hoi-Chan Nguyen Sr\. Counsel LEGEA Richard Leonard EASTR Robin Carruthers EASTR John Flora TWUTD Zhi Liu Lead Infrastructure Specialist TWUTD Yan Zong Transport Specialist EACCF Anil H\. Somani Consultant EASTE Tilly Chang Rodney J\. Stickland Consultant EASTE Supervision/ICR Jitendra N\. Bajpai Adviser EAPVP Christopher R\. Bennett Sr\. Transport\. Specialist EASTE Edward B\. Dotson Consultant EASTE Boping Gao Consultant EASUR Yi Geng Financial Management Specialist EAPCO Dahong Li Consultant EASTE Zhefu Liu Sr\. Social Development Specialist EASSO Graham Smith Consultant EASTE Anil H\. Somani Consultant EASTE Rodney J\. Stickland Consultant EASTE Roy L\. Sumner Consultant ECSIE- HIS Peishen Wang Environmental Spec\. EASRE Dawei Yang Procurement Spec\. EAPCO Yan Zong Transport Specialist EACCF Shomik Mehndiratta Sr\. Transport Specialist EASCS Georges Bianco Darido Young Professional EASTE 31  (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle No\. of staff weeks USD Thousands (including travel and consultant costs) Lending FY93 4\.51 FY94 4\.21 FY95 109\.91 FY96 210\.55 FY97 167\.31 FY98 232\.03 FY99 5\.74 FY00 0\.00 FY01 0\.00 FY02 0\.00 FY03 0\.00 FY04 0\.00 FY05 0\.00 FY06 0\.00 FY07 0\.00 Total: 734\.26 Supervision/ICR FY93 0\.00 FY94 0\.00 FY95 0\.00 FY96 0\.00 FY97 0\.00 FY98 10\.51 FY99 79\.04 FY00 26 93\.29 FY01 17 46\.30 FY02 16 93\.64 FY03 14 52\.28 FY04 12 62\.14 FY05 19 41\.72 FY06 19 58\.32 FY07 8 37\.59 Total: 131 574\.83 32  Annex 5\. Beneficiary Survey Results Not applicable 33  Annex 6\. Stakeholder Workshop Report and Results Not applicable 34  Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR Excerpt from Borrower's ICR dated June 4, 2008: "Through ten years joint efforts of World Bank and Guangzhou, the predetermined target, was fulfilled, which are as follow: 1\. To improve center road network service level and reduce congestions\. The evaluation indicators of this objective are shown in Annex 1 table1 and table 2\. Screen- line surveys in 1999 and 2000 showed that traffic volume decreased by 14% and 6% respectively\. But in 2001, traffic volume was 13% above the base year and was predicted that the rising would continue\. Considering ever-increasing trend of traffic volume and limitation of charges, GCCTPO and World Bank codetermined not to carry out screen- line surveys\. Compared with base year, the speed of through traffic in central district on N-S corridor increased by 33% in 2001 while on E-W corridor the speed increased by 49% \. 2\. To improve capacity of public transport corridors in city center\. The evaluation indicators of this objective are bus speed and percentage share of bus trips, as shown in Annex 1 table4\. Compared with base year's 11\.2km/h, the bus speed increased by 63% in 2006, while the percentage share of bus increased from 16% to 22\.3%\. The predetermined target has been achieved\. 3\. To reduce air pollution relatively\. The indicators of this objective are shown in Annex 1 table 6\. Compared with base year, NOX decreased to 0\.117mg/m3 in 2006 from 0\.151 mg/m3 , dropping by 23%,while CO decreased to 1\.55 mg/m3 from 2\.89 mg/m3 , dropping by 46%\.The predetermined target has been achieved and sustained\. 4\. To reduce per capita traffic accident rate relatively\. The indicators of this objective are shown in appendix 1 table 3\. Traffic accidents per 10,000 persons dropped from 0\.85 in base year to 0\.67 in 2006, while traffic fatalities per 10,000 persons dropped from 0\.11 in base year to 0\.05 in 2006\. The predetermined target has been achieved\. 5\. To improve the effectiveness and efficiency of road maintenance\. The evaluation indicators are shown in Annex 1 table 7\. The availability rate of major arterial road rose from 50% in base year to 91% in 2006, while the availability rate of minor arterial road and collectors rose from 80% to 83\.5%\. The predetermined target has been achieved\. 6\. To strengthen management ability of urban transportation institutions\. More than 1000 person times, in 180 groups accumulatively were arranged to take inspection and training\. The ability of management, research and technology of government institutions which administrate urban transportation were improved greatly\. predetermined target has been achieved\. 35  The project content were carried out according to original items, both sides have adjusted and increased a batch of sub-projects according to in-depth request during the implementation\. The implementation and evaluation of each sub-project are as follows: I\. Inner Ring Road 7\. The inner ring road is an express viaduct belt road, which is built on the original road of central area\. The total length is 26\.7km\. According to the traffic demand and implementation conditions, some sections of viaduct are dual 6 lanes; some are dual 4 lanes with emergence stop area, others are on the ground\. There are 12 interchanges, 13 ramps and 3 over-river bridges along IRR in total \.The running speed of main line is 60 km/h\. 8\. Land acquisition and resettlement of IRR: on January 5 1998, Guangzhou Urban Housing Units Management Office announced demolition bulletin of inner ring road first phase project-Dongshan interchange\. In mid-May of the same year, Guangzhou municipal Party Committee and municipal government proposed to shorten IRR project period from 5 years to 2 year\. Subsequently, they proposed that inner ring road must be finished within one year\. At the beginning of July, the second, third, fourth phase removal of IRR were at preparatory stage; the whole IRR removal and resettlement work was fully carried out from October and demolition of civil works was finished smoothly under the guidance of GMCC and GREEO on March, 1999\. At this time, the total amount of demolition was 14737 households involving 44,000 persons, while area was 759,700 square meters\. 9\. Demolition engineering of IRR created four "first" in Guangzhou demolition history\. It was the first project that international financial organization (World Bank) participated in; it was the first time that independent supervisor was designated by international institution; it was the first time that computer was introduced to demolition project management; and it was the first time that detailed public participation and consultation plan was covered\. Meanwhile, it was the largest demolition project with shortest period and least complaint\. 10\. On April 8, 1999, the IRR was in full-scale construction\. According to geographical location and construction organization, it was divided into four parts namely west ring road, north ring road , east ring road and south ring road in which west ring road and north ring road were built with cooperation of World Bank ( eight sections in all) and the others were invested by Guangzhou independently (12 sections in all)\. On December 25, 1999, the main project of IRR was completed\. On January 1, 2000 it was open to public and on January 28 of the same year it was completely open to traffic\. 11\. The construction management and operation of IRR was implemented by GTPCC\. All sections of IRR project were bid for according to the international common practice\. The civil works design of IRR was undertaken by GMEDRI and Guangdong Construction Design and Research Institute which are both national designing institutes of first rate\. Construction unit for IRR project was chosen through public competitive bidding (PCB) and national competitive bidding (NCB), and their procedure was according to World Bank procurement guidelines\. The bid of IRR civil works was got by 36  21 construction enterprises at the national first class including the Guangzhou Municipal Civil Engineering Group Co\., Ltd\., CHINA Hong Kong Fourth Flight Operations Engineering Bureau, Guangzhou Municipal Construction Machinery Co\., Ltd\. and so on\. 12\. The construction of IRR was stressed on not only speed but also quality and the quality were not influenced by the short project period\. To ensure project quality, GCCTPO insisted on testing and inspecting every link, every process and every kind of material strictly, and invited road and bridge experts to carry out construction technical guidance\. Municipal quality supervisors and municipal engineering supervisors monitored the quality of IRR project and formed a "three-pronged" which was self- inspection of construction enterprises, the independent Commissioner recheck and quality supervision units further, therefore the project quality was under omni-directional monitoring\. Ultimately, through final completion acceptance and verifying check by Guangzhou Quality Supervision Station, all designs met requirements and quality conformity rate was 100%\. 13\. IRR was put into use in January 2000 completely and the social and economic benefits can be summarized as follows: a\. IRR played a connection role between city center and outlying area\. Through construction of IRR, four lateral and four longitudinal major arterial roads (four lateral major arterial roads : Huanshi Road, Dongfeng Road, Zhongshan Road, Yanjiang road; 4 longitudinal major arterial roads: Liwan Road, Renmin road, Jiefang Lu, Donghaoyong Viaduct) have been linked organically and form new layout- square and radiation, so road network of central area have been optimized\. b\. Traffic capacity was improved by implementation of IRR\. It provided 210,000 vehicles -kilometers capacity for central district which accounted for 30% of artery capacity in 2001\. c\. IRR alleviated traffic pressure inner and outside area, especially city center\. The saturation of IRR increased seriously\. For example: in 2001, saturation of IRR was just 0\.48, in 2005, it increased to 0\.85\. By contrast, the network saturation of central area in the same period is only 0\.8 and 0\.88\. Because of IRR undertaking a lot of traffic, the road services of central area remained at acceptable level\. So IRR contributed a lot to central area\. d\. Construction of IRR accelerated land development and optimization of surrounding areas\. IRR construction promoted the optimization of land use of central area constantly\. There was stratification and decentralization trend in the central area\. For example, coast of the Pearl River (Ersha Dao, Binjiang Road area) emerged new high living area; Yuexiu and Dongshan districts also emerged living grade improving and location concentration\. In addition, traditional commercial advantagearea status and characteristics were enhanced\. And there was commercial leisure and tourism integration trend\. For instance, some areas began to concentrate on original commercial maturity like Shangxia jiu Road, Beijing Road, Nonglin Middle Road and Zhongshan 37  Road and so on\. As a result, Hill pattern commercial network was formed and became the backbone of Guangzhou City\. Some office areas like Huanshi Road and Dongfeng Road were also further strengthened\. And Pearl River coastal region will become the new regional office\. As the same time, pedestrian area, in which commerceleisure and tourism were integrated, also emerged\. The combination of modern and custom recreation areas along Pearl River and large commercial facilities, commercial area (Such as the Beijing Road, Shangxia jiu Road) in center was a good example\. e\. Traffic environmental impact of IRR\. IRR construction made certain environmental impact on alongside, but improved environmental quality of centre area generally\. The residents reflected that the more prominent issues were IRR large capacity, high-speed and large noise effect\. In order to solve the noise problem, soundproof windows were installed and achieved good effect\. Guangzhou's climate is humid, sunshine is very critical\. After the construction of IRR, the duration of sunshine shorted, several residents reflect a great affect; the majority reflected declining of sunshine but not affecting normal life\. On the other hand, because part of IRR passed through old town, by demolitions, the old, dirty, and chaotic appearance was changed\. On this extent, completion of IRR improved people's living environment\. f\. Economic benefits evaluation of IRR According to economic assessment indicators in this report: EIRR is 18\.49%, ENPV is 9\.63272 billion yuan, EBCR is 2\.31, EN is 9\.02\. Under the worst circumstance- investment increased by 20% and benefits decreased by 20%, EIRR is 12\.11%, ENPV is 4\.12042 billion yuan, EBCR is 1\.40 and EN is 15\.4\. All indicators meet requirements\. This shows that the project is reasonable\. II\. Traffic Management and Safety 14\. Traffic Management and Safety included four phases\. The former two were originally planned while the later two were added\. The first phase, as a demonstration project, mainly transformed junctions of old city center; the second phase paid more attention to junctions of Liwan, West Mountain, Yuexiu districts and so on\. Meanwhile, because the former two phases had achieved good effect on traffic improvement, World Bank and GCCTPO agreed with adding third and fourth phases to expand implementation effect continuously\. In particular, the third phase implementation range was the built-up areas around city ring expressway, especially Haizhu, Tianhe, Fangcun district\. The fourth phase-SCATS system was added to further expand sub-project on March, 2006\. In a word, this sub-project contained two parts: Traffic facility improvement and Road user's safety education\. 15\. Traffic facility improvement mainly included: civil works, SCATS procurement and installment project, CCTV procurement and installment project, traffic information induction variable message board, and GIS procurement\. Civil works: It contained three phases, including reforms of more than 350 junctions and 20 arterial roads\. This project has been finished in June, 2006\. ( including : Bus priority network, Pedestrian facilities improvement, and reform of traffic black spot and so on) 38  SCATS procurement and installment: The purpose was to extend traffic control system of Guangzhou\. The specific work was operating the latest RTA PC SCATS software so as to realize intercommunication between a control center and 5 sub- control centers\. The finished time was December 2007\. CCTV procurement and installment: The main work of this project was introducing CCTV system\. Detailed work was installing 30 videos in city center\. Monitoring pedestrians and vehicles in real time, it controlled urban traffic on the whole to make sure traffic diverging reasonably and traffic violation descending, and further promote urban traffic management level\. These works have been finished in August, 2006\. Traffic information induction variable message board and GIS procurement: Main work of this part was installing traffic information induction variable message boards on main skeleton road network in Guangzhou\. Based on real-time traffic data, through various variable limit speed device, variable information board, parking information inducing card and so on, traffic real time condition and control programs could be sent out timely to induce the traffic flow, evacuate blocking, so that people could reach their destinations rapidly and safely\. These equipments have been installed in June, 2006\. Road user's safety education: The main purpose was improving traffic quality of citizens by kings of propaganda methods\. Since December 2003, the project has carried out 8 TV propagandas, 31 media notices and wall charts, manuals, cards and other forms of materials a total of 2\.62 million\. It has been finished August 2005, and achieved good effects\. 16\. The implementation of World Bank's traffic management and safety promoted road traffic management level to a new step\. The project has improved the relationship between people and car, especially citizens' quality\. The project was building with the principle of "people-oriented" and concerned about disadvantaged groups in society, and produced far impact on the harmonious transport, thus prompted harmonious development of Guangzhou city\. 17\. The implementation of this project regulated traffic order, improved about 30% of motor vehicle average speed in centre\. Bus lane average speed has reached to 15 km/h and increased by 20% in comparison with that of 1998\. In addition, Number of traffic fatality also decreased by 336, about 18\.2%\.The passenger volume of public transport increased from 10\.4million in 1997 to 20\.77 million in 2005\. Meanwhile, the proportion of public transport also increased to 22\.31%, ranked the first in various auto modes, which increased by 19\.6% in comparison with that of 1998\. Social economic evaluation also shows, until 2007, the project saved passengers' time 80 million hours, which was equality to 3\.51 million Yuan\. Benefits of accident loss and public transport operation reducing were 2\.27 million Yuan and 2\.30 million Yuan\. The total economic benefits were about 12\.25 million Yuan, and this project relieved the traffic congestion in Guangzhou urban area, ensured the traffic safety\. In particular, the implementation of Road user's safety education changed concepts of traffic participants such as traffic departments and road users, improved citizen's traffic consciousness, and gradually promoted traffic management to a new step\. 39  III\. Public Transport Improvement 18\. Public Transport Improvement Project, as an important composition of Guangzhou City Center Transport Project, obtained great emphasis of provincial and municipal governments and World Bank\. There were three parts: Bus Automatic Monitoring and Dispatch System, Longxi Depot, Environmental Protection Demonstration Car\. In order to improve public transport services level, Bus Automatic Monitoring and Dispatch System could monitor, track and schedule 64 city bus lines and 1424 buses real-timely by GPS (Global Positioning Satellite) technology, and also provided bus information timely with 310 electronic stops (200 intermediates stops and 110 Terminus)\. The specific work plan was as follow: Contract about system development and installation was signed on May 22, 2006\. This project has finished in October 2007\. Now it has been put into operation\. 19\. Longxi Depot provided three types of maintenances and parking services for 620 buses from southwest of Guangzhou\. It has been finished in October 2007 and transferred to GTC\. 20\. A pilot Bus has been purchased by introducing international bus with up-to-date technology\. It provided reference for Guangzhou about vehicle type selection in future\. 21\. The implementation result of the project is basically satisfactory\. Bus Automatic Monitoring and Dispatch System and Longxi Depot have basically reached the predetermined target\. The intellectual deployment system of public transit has improved the overall service level and intelligent intensity of urban public transport, and successfully changed from line dispatch to area dispatch\. With the sub-project implementation, public traffic become attractive, while the private traffic reduced and traffic jam and environmental pollution were also alleviated\. Take the Second Automobile Company as an example; there were four bus routes such as 283, 297, 527 and 803, which have realized intellectual dispatch\. Assumed that travel distance was not added, comparing with same period of last year, income has increased by 12\.98% and the income per thousand car-kilometers increases by 13\.49% in May to July, 2007\. The accomplishment of Longxi Depot has filled the blank field of Fangcun district in Guangzhou, and reduced the deadhead kilometers\. At the same time, as the depot located out of the centre district, it had great contribution to improve transportation efficiency of public transit, utilize the land resource effectively, and relieve traffic pressure in city centre, so that the traffic condition in centre was improved\. IV\. Motor Vehicle Emission Control 22\. The final implementation contents of MVEC included IRR automated noise monitoring system and automated motor vehicle pollution monitoring system\. 23\. GCTP lasted 9 years, under the situation of changes such as the regulation and standard of motor vehicle in China, the social economic level of Guangzhou, environmental monitoring ability construction, etc\. the contents of project were adjusted, particularly, the construction of motor vehicle emission centre and the system of motor 40  vehicle monitor and maintenance were cancelled\. Although some sub-project contents were cancelled, World Bank thought some Guangzhou motor vehicle emission control work had already exceeded the origin contents, and environment protection work had been forefront among Chinese cities\. This sub-project perfected networks of environment monitoring, improved ability of environment detecting, and could provided reasonable data for research on reducing pollution\. V\. Road Maintenance 24\. Guangzhou Municipal Engineering Maintenance Department was responsible for specific implementation\. This project mainly carried out Road and Bridge Facilities Management Systems and three batches of road maintenance equipments procurements as well as new addition equipments procurements\. 25\. Implementation of Road Maintenance promoted road maintenance work of Guangzhou\. It kept road in good condition of arterial road more than 90% from 2001 and minor arterial more than 83%\. These efficiently improved road avail ability rate and evenness, accelerated efficiency of maintenance work, and further improved road maintenance quality and scientific and technological innovation ability of Guangzhou\. In addition, purchasing and using road maintenance equipments made Guangzhou road maintenance equipment level, engineering level and management level reach to domestic leading level, and realized modernization of equipment and technology maintenance\. VI\. Technical Assistance 26\. The functions of this project were making the relevant personnel who participated in project construction trained, improving equipment ability and staff technical and management level of sub-project and relevant units by providing local and overseas trainings and consultation so that the whole project could be implemented on planned schedule\. 27\. The project has been implemented for about ten years and covered numerous sub- projects, total including 110 domestic trainings, 81 abroad trainings, 28 local and international consultant services and 15 science researches\. 28\. The benefits of Technical assistance were mainly as follows: a\. The popularization of science research achievements overcome technical difficulties during implementation of GCTP, improved construction methods, reduced number of staffs and equipment investment, shortened construction time and decreased cost\. For example, the application of external prestressing technology on IRR Bridge did not only reduce time and cost, but also created domestic construction precedence of reinforced concrete overlay beam\. In addition, incremental launching method and simulation analysis technology and relevant technological research results were popularized in Guangfo Road Construction, also became new technology representatives\. 41  b\. TA project provided technical support for other sub-projects, especially difficulties of design and implementation so as to promote other sub-projects smoothly\. c\. The implementation of trainings and inspections, improved personnel quality and work efficiency, accelerated implementation progress\. In addition, expert consultations reduced project risks and unnecessary expenses\. 29\. In short, Technical Assistance provided technical support for other sub-projects\. Regardless of project quality, progress and staff cost, it achieved good social and economic benefits\. VII\. Guangfo Road 30\. Guangfo road, as west export of Guangzhou 7 radiation lines, was an important composition of Guangzhou express way network\. Its complementation fundamentally improved traffic capacity of Guangzhou west export, relieved along traffic congestion and promoted Fangcun region's socio-economic coordinated development\. 31\. Guangfo road started from Zhongshan 8th road, passed Zhujiang East Bridge and Da Tansha district, ended to Fangcun road \.Particularly, A and B viaducts were set up along sides of Sanmao railway\. Full range of one direction length was about 2\.5km\. Line A is 2\.598km while line B is 2\.459km\. There are 4 east and west dual over river bridges and Fangcun interchange with altogether dual 6 lanes\. 32\. GCCTPO was responsible for this project\. The design unit was Guangdong Architectural Design and Research Institute\. Guangfo first phase civil works and supervision units were chosen by international competitive bidding and national competitive bidding respectively\. The final construction units were Guangzhou Municipal Engineering Company, Wuhan Municipal Engineering Company, Anhui Road and Bridge Company and China 16th Railway Engineering Bureau\. Final supervision unit was Guangzhou Guangda Project Management Limited Company\. On July 1, 2003, the civil engineering started\. On February 16, 2005, four over Pearl River Bridges and main line were open\. 33\. In 2005, Guangfo Road was open to operation\. The average traffic volume of all lanes would reach to 75819pcu per day\. In 2007, the average traffic volume of all lanes would reach to 92700pcu per day, and average speed was 55km/h, which was in accordance with the standard design speed\. Influenced by various factors, the project failed to finish constructing on December 31, 2004 according to the original plan, but the total construction quality was better, and it played have much effect on relieving traffic pressure of the west export of the city\. 34\. Through national economic benefits calculation and sensitivity analysis, we can find, the project EIRR was 24\.51%, ENPV was 1444\.46 million Yuan, EBCR was 2\.17 and EN was 7\.69\. Under the worst circumstance-investment increased by 20% and benefits decreased by 20%, EIRR became 18\.68%, ENPV became 9399\.93million Yuan, EBCR 42  became 2\.07, and EN became 10\.6\. All indicators meet request and proved that decisions of this project were correct and implementation was rational\. B\. Evaluation of project executing agency Evaluation of World Bank 35\. The evaluation result to World Bank's performance is satisfactory\. The World Bank has done massive difficult and effective work, which promoted the preliminary work of the project progressing powerfully\. Since 1995, the World Bank had sent out the World Bank Investigation Group, which was made up of experts with rich experience in urban transportation to take preliminary work inspection for four times, and meanwhile, the World Bank tried their best to make Guangzhou Municipal Government understand the World Bank's relevant policies\. They identified and evaluated the Project on the basis of experience which was gathering from transportation project implemented in china\. 36\. On the basis of full consideration of Chinese national situation and Guangzhou real traffic situation, the World Bank demonstrated and analyzed the optional loan project carefully to choose the highly efficient project of solving urban transportation problem\. During preparation stage, The World Bank not only provided a loan, but also brought Guangzhou advanced idea and methods like TMS, the public transport institutional reform, advanced experience of road maintenance to promote urban transportation development\. Meanwhile, in view of ability training of executing department, technical assistance project was set up to strengthen relevant departments' ability\. During the project appraisal, the World Bank evaluated management and consultation institution construction, project funds, load and loan repayment, EIA, resettlement and public participation, and provided suggestions\. 37\. The World Bank's inspection team performed its duty carefully and handled various changes of the project flexibly and responsibly during the project implementation\. The delegation, conducted by project manager visited Guangzhou a total of 27\. During the inspection, the World Bank experts provided many constructive suggestions about TMS, resettlement, environmental protection and so on, and discussed the design and construction difficulties of Inner Ring Road and Guangfo Road\. At the same time, the World Bank cared about project progress, required Project Office to provide project progress report on time and added explanation if the project was delayed\. Except for the delegation's inspection, the World Bank office in China gave a lot of help about project procurement, payment, financial management and operation to support Project Office's work\. Since SARS took place in 2003, the World Bank's supervision degree over the project decreased because of the condition limitation\. 38\. The World Bank fund management surveillance system is also perfect\. After signing contract, the World Bank, according to the contract treaty, paid the loan amount on time\. In contract executing phase, if that the project changed or non-predicative case took place resulted in increase of loan, a detailed written explanation material should be submitted according to World Bank stipulated procedure\. 43  39\. In this cooperation between World Bank and Guangzhou, there were also some problems\. For example, in the examining and approving work, the project usually needs the World Bank and domestic examination and approval dually, thus examination and approval time was too long, the enterprise beard bigger risk and pre-payment time was too long\. We suggest the World Bank integrate its procedure with domestic examination and approval procedure, simplify procedure, and enhance efficiency to reduce the examination and approval time under the premise of maintaining quality and quantity\. Meanwhile, considering Chinese actual condition, it needs to use more flexible procurement way rather than the way of minimum price to win a bid only\. Evaluation of Project Implementation Unit 40\. The evaluation result of Guangzhou project Implementation unit's performance is satisfactory\. GCTP is the second urban transportation project which World Bank carries on in China\. Guangzhou municipal government pays much attention to this project first-phase preparation of the project moved forward well, and the preparation was very perfect and effective\. Since March, 1993, Guangzhou municipal government carried out subject study about "Guangzhou Urban Transport Study (GUTS1)"and "Guangzhou Urban Central Area Traffic Improvement Execution Scheme (GUTS2)"\.This was the foundation of prophase preparation for Guangzhou City Center Transport Project (World Bank) loan\. The research team had made success: the financing and repayment of loan plan was deeply researched, technical support service system was reasonable\. In a word, the preparation work was totally good, and met the World Bank's requirements\. 41\. The project concrete implementation organization used three-class management system, which consisted of leading group, project office and sub-project office\. GCCTPO ,which was in charge of project implementation was a full-time project office, employed enough staffs, could consult with the leading agency effectively, and did properly with each sub-project office in the coordination and communication work\. GCCTPO took the World Bank inspection team carefully, feedback their opinions and questions timely, solved difficulties that sub-project offices were faced with, simultaneously reported problems founded without delay\. In order to assure communication with the sub-project office and other participation units, GCCTPO with the sub-project office also launched regular meeting each month to hear parties' reports about project progresses and difficulties\. 42\. GCCTPO financial management is satisfactory, it established plan-fund department to manage project finance\. Simultaneously, in Technical Assistance project, GCCTPO also sent corresponding staffs to participate in inspection and training, and the professional ability improved gradually\. Problems occurred was able to deal with correctly, and the whole efficiency was improved much\. 43\. As direct executing agency, the sub-project office complied with procedure strictly, cooperated with GCCTPO actively, and also promoted personnel's quality continually through the Technical Assistance and training\. 44  44\. In sum, during the past ten years of project implementation, World Bank made joint efforts with related institute in Guangzhou\. Good cooperation took place in every respect including project preparation, identification and implementation and so on\. GCTP has brought Guangzhou advanced international experience and given security for sustainable development of urban transport\. C\. Main experiences and lessons I\. Experiences 1) Leaderships' focus and efficient organization are the foundation of project implementation\. 45\. GCTP is a large-scale comprehensive traffic improvement project\. It involved wide area, and was urgent, difficult to coordinate\. In order to organize the project efficiently, the project took PLG-GCCTPO- Implementation Units management mode to monitor project among entire process\. Many miracles were created\. Take the IRR as example, its original construction time was 5 years, while it was open to traffic only in 1 year through adopting some measures such as "green channel", "two-way choice of demolition and resettlement", "public participation" and so on\. It created "high efficient"," high quality"," comprehension", "struggle" spirits and became a high quality miracle in Guangzhou municipal engineering history\. 2) Being familiar with World Bank Loan policy, coordinating domestic and World Bank procedure are critical for project progress\. 46\. The World Bank loan project does not only need to follow policy and procedure of World Bank, but also regulation and requests of domestic relevant departments\. Being familiar with these procedures and requests; and setting up several important time nodes could guarantee consistence of progress\. Being familiar with loan policy and procedure of World Bank is helpful for us to make preparation reasonably, maximally reduce commitment fee and increase quality of fund-use\. 3) Introduction of new ideas, new concepts, and raising management level are important conditions for project promotion\. 47\. People-oriented and all-round developments are new management ideas\. This project paid attention not only to construction process, but also to management system establishment, overall benefits and environment sustainable development\. From project plan to implementation process, people-oriented and all-round development concepts were manifested everywhere\. For example, through sub-projects implementation, related systems were established, bus priority was developed, use ratio of road resources was improved efficiently, road management level was improved, so goal of environment improvement was realized\. In addition, demolition and resettlement realized society's prosperous life through guiding idea varying from "resettlement" to "re-housing", and "two-way choice of material object and currency compensation"\. 45  48\. This project provides platforms of experience exchange and propaganda promotes innovation idea\. From the perspective of management innovation, all projects implemented by GCCTPO have referred to international advanced contract management pattern, adopted international general FIDIC articles, introduced contract management, and established inspection mechanism\. From the perspective of project implementation process , through exchange and cooperation with local and overseas experts, international advanced management experience and equipments, project cycle and construction cost were reduced, technical level of correlation departments was impelled to improve, city competitive power was enhanced\. In addition, drawing support from the World Bank is also helpful for expanding influence power\. 49\. The project provides strict procedure and management experiences\. For World Bank loan project, there are a set of management procedures adapting with project determination, appraisal, loan activation, implementation procurement, withdrawals account and payment, post evaluation and so on\. These procedures have intense principle, policy, standard and pertinence\. 50\. Establishing good communication and coordination relationship is basis of project success\. During the implementation, there were variable changes, which the loan agreement and project agreement cannot include and solve\. Therefore, it needs to communicate with and ask instructions for project manager, officials and experts of World Bank in Chinese Representative Office\. So that they understood project further\. World Bank gave vigorously support on many aspects such as procurement, contract variations and payment and so on\. 51\. Comprehensive traffic improvement platform is established successfully\. 52\. Through project implementation, GCCTPO did not only integrate many fields such as infrastructure construction, traffic management, environment protection, public transport and road maintenance, but also established a comprehensive traffic improvement platform in Guangzhou successfully, which was the immaterial asset of Guangzhou urban transport\. It mainly manifested as follow: 53\. It improved field management level\. This is an important cooperation target of municipal government and World Bank\. By implementation, advanced management ideas have been fully absorbed; open bidding, engineering finance management and project management and so on are developed in local front row\. 54\. It enhanced Guangzhou traffic technique level\. This project is an important platform, by which Guangzhou urban transport technology development can realize well connection with international\. And Guangzhou municipal government realized the goal consciously\. Project setup is foresighted, practically impels local transportation technology development\. 46  55\. It strengthened talent cultivation\. Based on talent cultivation mechanism and strategy, Technical Assistance Sub-project provided 180 batches, more than 1000 people inspections and trainings for GMCC, GTC, GEPB, TPDGPSBTraffic Planning Research Institute and so on\. GCTP introduced advanced urban traffic management ideas, and cultivated modern management and technical talented persons who were familiar with international management procedure and could connect with international\. II\. Main lessons 1) Decision-makingmanagementorganization institute for traffic integration should be guaranteed\. 56\. PLG was cancelled a period during project implementation\. Without its organization, project work progress was slow-down, and there were some communication problems between GCCTPO and Sub-Project Office\. So suggest enhancing coordination, holding meeting regularly to improve traffic decision-making and coordinated ability\. 2) In order to guarantee the project development smoothly, GCCTPO's construction should be strengthened\. 57\. Majority of contents were already implemented but parts of following work need continue to develop\. Moreover, because Guangzhou new-round transport strategy planning has been carried out, GCCTPO needs to further strengthen its ability construction to promote sustainable development of Guangzhou transport\. 3) Management procedures of World Bank and local should be better coordinated and simplified\. 58\. World Bank's payment procedure is extremely strict, its examination and approval procedure is different from Chinese, and its payment time is longer, so that expected funds can not be used ultimately\. In addition, it is usually complicated and long-term\. With these differences, when a project is urgent to implement, World Bank's loan can't meet its demands, so some contents cannot obtain World Bank's approval and loan can't be fully used in project certainly\. Thus, when World Bank and Chinese government choose World Bank Loan project, they should coordinate, simplify procedure and accelerate payment process together according to Chinese actual conditions World Bank's requests\. D\. Further actions of Guangzhou urban transportation system 59\. Guangzhou will be constructed into a modern metropolis which leads Guangdong province, radiates southern China, impacts Southeast Asia, and becomes a city suitable for living and business, and will support 16th Asian Sports Meeting in 2010 and a new round revision of the urban overall planning\. Under these backgrounds, it is crucial to provide a good transportation system\. In 2006, Guangzhou timely launched a new round "Guangzhou Urban Transport Strategy Planning" (GUTS3)\. The first-stage study summarized traffic implementation after 10 years since the first round of traffic development strategic planning, scientifically diagnosed key points to current urban 47  transportation problems, deeply analyzed situation, opportunities and challenges that Guangzhou urban traffic faced\. Based on resident trip survey in 2005, it also established traffic strategic model and put forward transport development strategy objectives, tasks, policies, layout and recent action plan\. Its achievements have obtained approvals of local and abroad experts and have pointed out directions for next urban transport development\. 60\. In September 2006, Guangzhou Municipal Planning Bureau proposed the city development goal: "health and safety for all" at "Urban Traffic Forum"\. In December, Guangzhou municipal government added "center adjustment" to original urban development strategy: "South Extension, North optimization, east progress, West Union"\. "Center" means Guangzhou city center, and "adjustment" means perfection and promotion\. The new concept shows that gravity of Guangzhou city development began to change from "development" to "promotion "\. 61\. Along with the improvement of living standards and promotion of scientific, balanced and harmonious development, as a city circle system, traffic supports "Center Adjustment " strategy strongly, and insures realization of city development goal-every person is healthy and safety\. In order to carry out, deepen and carry out achievements of "Guangzhou Urban Transport Strategy Planning", to alleviate traffic pressure in city center, to improve road safety, to promote scientific, balanced and coordinated development of all fields, to ensure Asian Games held smoothly, Guangzhou municipal government will further cooperate with World Bank about research of a new round "Guangzhou Urban Central Area Traffic Improvement Execution Scheme" (GUTS4)\. By means of travel and network models, this research will get the current and future trends, and form traffic-related standards used for sorting strategic programs\. The specific improvement programs should be around but not limit to the following aspects: (1) Road network improvement perfect road network structure and external connection, improve traffic nodes, adjust layout of connectors optimize and adjust traffic function of main corridors propose traffic organization optimized programs for key areas or nodes make road network planning for Asian Games stadiums Analyze future city road sections (2) Public transport improvement propose distribution programs of pedestrian transfer facilities with integration of rail transportation and conventional public transit Bus priority/ traffic management integration BRT network bus stationoperationdepot integration of fare and service passenger information improvement of public transport management and engineering methods 48  (3) Programs of slow traffic improvement sidewalkpedestrian crossing facilities and pedestrian street bicycle network and parking facilities, especially the transfer between bicycle and bus or metro (4) Road safety management program, including motor and non-motor traffic guidance (5) Implementation programs of public parking propose public parking development policy and management measures of on-road or sidewalk parking according to parking demand management and parking industry development develop off-road parking facilities, ride-parking public facilities (6) Implementation plan for improving freight transportation make plan for organization and operation study the relationship between goods transportation and urban transport put forward the planning of goods transportation passages (7) Study of the external contact of urban passenger and goods (8) Implementation programs of ITS propose method for traffic signal coordinated controlparticularly in critical regions make programs for ITS make ITS application programs to traveler information and traffic management (9) Implementation programs of traffic demand management propose programs and measures of congestion pricing in center and other areas conduct parking management by charging (10) Implementation programs of traffic environmental management popularize policy and measures for using clean energy and controlling vehicle emission to reduce air pollution 62\. `Except for GUST3 and GUST4, in 2007, Guangzhou participated in urban traffic development plan, which is sponsored by World Bank with Global Environment Funds (GEF)\. Guangzhou obtained the qualification of demonstration city\. As purpose of this plan is alleviating loan cost and stimulating traffic policies about reducing greenhouse gas by using IBRD loans and GEF\. Guangzhou will carry out Transport Demand Management research to balance traffic demand, to save energy and reduce emission, and finally keep Guangzhou traffic sustainable development\. 49  Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders Not applicable\. 50  Annex 9\. List of Supporting Documents Guangdong Provincial Audit Office\. Memoranda on Audit Report\. 2003-2006\. Guangzhou City Center Transport Project Office (prepared by Beijing ZZZD Traffic Engineering Technology Co\., Ltd\.)\. "Borrower's Implementation Completion Report\." Draft dated June 4, 2008\. Guangzhou City Center Transport Project Office (prepared by Beijing ZZZD Traffic Engineering Technology Co\., Ltd\.)\. "Details of Economic, Financial Cost-benefit Analysis\." June 15, 2008\. The World Bank, Guangzhou City Center Transport Project: Project Appraisal Document, Report No\. 17745-CHA, May 4, 1998\. The World Bank, Guangzhou City Center Transport Project Aide-Memoires and Implementation Status and Result Reports, 1998-2007\. The World Bank, Guangzhou City Center Transport Project Minutes of Negotiation, March 23, 2000\. The World Bank, Guangzhou City Center Transport Project: Loan Agreement and Project Agreement, Loan No\. 4329-CHA, June 26, 1998 (Amended April 21, 2003)\. The World Bank\. Quality of Supervision Assessment (QSA7), 2006\. The World Bank\. Quality at Entry Assessment (QAE), 1999\. 51  CHINA GUANGZHOU CITY CENTER TRANSPORT PROJECT INNER RING ROAD: CONFIGURATION (NUMBER OF LANES) W\. RD\. The Overpass of The Overpass the Railway Station of Hengfu Rd\. Guangzhou (Reserved) Railway Staton The Overpass GUANGYUAN of Luhu Rd\. Xichang W\. ZENGCHA Overpass RD\. RD\. Center of Guangzhou HENGFU MEIDON Color T\.V\. YONGFU G RD\. HUANSHI The overpass of RENM HUANSHI RD\. ZENGBU Guangyuan Rd\. W\. IN RD\. LUHU \. BRIDGE RD C\. RD\. RD\.N\. \. LIE RD D DONGFENG XIAN ROA JIEFAN RD\. RD\. r W\. G RD E\. HUANSHI RD\. E\. RD\. The Overpass lRive NAN'AN \. XIAOBEI GU NG of Meidong Rd\. DONGFENG RD\. E\. The Overpass of Pear No\. 8 Zhongsan Rd\. (Elevated)LLYRD EIDO \. M No\. 2 ZHUJIANG No\. 8 ZHONGSHAN RD\. ZHONGSHAN RD\. 1 ZHONGSHAN RD\. BRIDGE NEW VIADUCT (3 LANES) TOTAL LENGTH = 17\.34 KM Ruyifang ZHEN'AN No\. RD\. QI N RD\. YIRD\. WE NDE S\. NEW VIADUCT (2 LANES) TOTAL LENGTH = 23\.17 KM Overpass RD\. RENMI HAIZHU RD\. RD \. Dongshankuo REBUILD EXISTING VIADUCT (3 LANES) DUOBAO RD\. DONGHUA RD\. Overpass TOTAL LENGTH = 0\.93 KM REBUILD EXISTING VIADUCT (2 LANES) HANG The Overpass of RD\. TOTAL LENGTH = 1\.44 KM Planned Zhen'an Rd\. DONGHU Entrance HAIZHU JIANGWAN with SHA NEW GROUND ROAD (MAIN LINE, 3 LANES) BRIDGE AVE\. YANJIANGG BRIDGE BRIDGE TOTAL LENGTH = 0\.19 KM AN LIU'ERSAN HAIYIN Connected RD\. JIAFBRIDGE RD\. NEW GROUND ROAD (MAIN LINE, 2 LANES) RUYIFANG BRIDGE AO HAIB TOTAL LENGTH = 2\.85 KM BRIDGE BINJIANG EXISTING ROAD & RIVER CROSSING BRIDGE RENMIN RD\. N\.) TOTAL LENGTH = 3\.3 x 2 KM HUANGSHATUNNEL BRIDGE (BAOGAT13 NG RD\. E\. RIVER CROSSING BRIDGE EXPANDED STRUCTURE W\. Sushe TOTAL LENGTH = 0\.5 x 2 KM T13 RD\. NANTIAN RD\. Overpass \. The Overpass of Planned JIANG with RD Southern Side of BRIDGE Haiyin Bridge Connected BAO MONGOLIA JILIN ZHOUTOUZUI NAN XIAO Sea of Ramp of JAPAN Hongde Rd\. GONGY Ramp of Japan MONGOL D\.P\.R\. OF Baogang GANG RD\. DONG LIAONING NEI BEIJING RD\. KOREA BEIJING Pear E AV TIANJIN REP\. OF E\. HEBEI RD\. Yellow KOREA lRive ANG SHANXI SHANDONG Sea NINGXIA r CHANGG JIANGSU GANSU SHAANXI HENAN ANHUI SHANGHAI HUBEI East HEDONG SICHUAN ZHEJIANG BRIDGE China CHONGQING JIANGXI Sea HUNAN GUIZHOU FUJIAN YUNNAN TAIWAN GUANGDONG PACIFIC IBRD This map was produced by the Map Design Unit of The World Bank\. GUANGXI Guangzhou OCEAN JULY The boundaries, colors, denominations and any other information HONG KONG shown on this map do not imply, on the part of The World Bank 29423R MACAO 2008 Group, any judgment on the legal status of any territory, or any LAO VIETNAM endorsement or acceptance of such boundaries\. P\.D\.R\. HAINAN PHILIPPINES

REVIEW

P046051

Document of The World Bank Report No: 33720 IMPLEMENTATION COMPLETION REPORT (SCL-44740 IDA-32130 TF-25682) ON A LOAN IN THE AMOUNT OF US$20 MILLION AND A CREDIT IN THE AMOUNT OF SDR36\.8 MILLION (US$50 MILLION) TO THE PEOPLE'S REPUBLIC OF CHINA FOR A HIGHER EDUCATION REFORM PROJECT April 5, 2006 HUMAN DEVELOPMENT SECTOR UNIT EAST ASIA AND PACIFIC REGION  CURRENCY EQUIVALENTS (Exchange Rate Effective December 29, 2005) Currency Unit = Yuan (Y) Y1 = US$ 0\.12 US$ 1\.00 = Y8\.1 FISCAL YEAR JANUARY 1 DECEMBER 31 ABBREVIATIONS AND ACRONYMS APR Annual Progress Report FDAN Fudan University PAD Project Appraisal Document BISC Baotou Iron and Steel College HIT Harbin Institute of Technology PIs Partner Institutions BIT Beijing Institute of Technology HEAP Higher Education Advisory Panel PKU Peking University BNU Beijing Normal University HED Higher Education Development PKUHSC Peking University Health Science Center BUAA Beijing University of Aeronautics HUST Huazhong Institute of PPI Project Performance Indicators and Astronautics Technology BUST Beijing University of Science & ICR Implementation Completion PUs Project Universities Technology Report COU China Ocean University ISR Implementation Status and SARS Severe Acute Respiratory Results Syndrome CUMT China University of Mining and IDF Institutional Development Fund SNNU Shaanxi Normal University Technology CUST China University of Science and ICB International Competitive SJTU Shanghai Jiaotong University Technology Bidding CERNET Chinese Education and Research JLU Jilin University SCU Sichuan University Network CEP Chinese Expert Panel JUT Jilin University of Technology SEU Southeast University CQU Chongqing University LCBPT Laboratory Center for Basic TJU Tianjin University Physics Teaching CAD Computer-assisted Design LZU Lanzhou University TSING Tsinghua University CAI Computer-assisted Instruction MIS Management Information System USTB University of Science & Technology Beijing CAS Country Assistance Strategy MTUC Mining and Technology WHU Wuhan University University China DLUT Dalian University of Technology MOE Ministry of Education WREP Work Review and Evaluation Report EAP East Asia and Pacific M&E Monitoring & Evaluation XJTU Xi`an Jiaotong University EOP End of Project NJU Nanjing University YNU Yunnan University FILO Foreign Investment Loan Office NKAI Nankai University ZJU Zhejiang University Vice President: Jeffrey Gutman (EAPVP) Country Director David Dollar (EACCF) Education Sector Manager Christopher Thomas (EASHD) Task Team Leader/Task Manager: Dingyong Hou (EASHD)  CHINA Higher Education Reform CONTENTS Page No\. 1\. Project Data 1 2\. Principal Performance Ratings 1 3\. Assessment of Development Objective and Design, and of Quality at Entry 2 4\. Achievement of Objective and Outputs 5 5\. Major Factors Affecting Implementation and Outcome 18 6\. Sustainability 20 7\. Bank and Borrower Performance 21 8\. Lessons Learned 22 9\. Partner Comments 23 10\. Additional Information 26 Annex 1\. Key Performance Indicators/Log Frame Matrix 27 Annex 2\. Project Costs and Financing 39 Annex 3\. Economic Costs and Benefits 42 Annex 4\. Bank Inputs 43 Annex 5\. Ratings for Achievement of Objectives/Outputs of Components 45 Annex 6\. Ratings of Bank and Borrower Performance 46 Annex 7\. List of Supporting Documents 47 Annex 8\. Additional Data on Components 1 and 2 49 Annex 9\. Partnership Implementation Issues 55 Annex 10\. Policy-Based Research Studies 56 Annex 11\. Development of Textbooks and Electronic Materials 59 Annex 12\. Lanzhou University Student Loan Pilot Scheme 61 Annex 13\. List of Project Universities and Partner Institutions 62  Project ID: P046051 Project Name: Higher Education Reform Team Leader: Dingyong Hou TL Unit: EASHD ICR Type: Core ICR Report Date: April 5, 2006 1\. Project Data Name: Higher Education Reform L/C/TF Number: SCL-44740; IDA-32130; TF-25682 Country/Department: CHINA Region: East Asia and Pacific Region Sector/subsector: Tertiary education (98%); Central government administration (2%) Theme: Education for the knowledge economy (P); Social analysis and monitoring (S) KEY DATES Original Revised/Actual PCD: 08/10/1998 Effective: 09/30/1999 10/06/1999 Appraisal: 12/15/1998 MTR: 10/21/2002 Approval: 05/18/1999 Closing: 07/31/2005 09/30/2005 Borrower/Implementing Agency: PRC/Ministry of Education Other Partners: STAFF Current At Appraisal Vice President: Jeffrey Gutman Jean-Michel Severino Country Director: David R\. Dollar Yukon Huang Sector Manager: Christopher Thomas Alan Ruby Team Leader at ICR: Dingyong Hou Hena G\. Mukherjee ICR Primary Author: Hon Chan Chai 2\. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainability: HL Institutional Development Impact: SU Bank Performance: S Borrower Performance: S QAG (if available) ICR Quality at Entry: S Project at Risk at Any Time: No  3\. Assessment of Development Objective and Design, and of Quality at Entry 3\.1 Original Objective: The overall objective was to improve the quality and relevance of undergraduate basic science and engineering programs through integrated reform activities in curriculum and teaching methodology\. The project investment, targeted at the first and second year studies, was designed to provide the impetus for embedding the reforms across all four years of undergraduate science and engineering programs\. Specifically, the project sought to: (a) enable Project Universities (PUs) to improve teaching and learning through restructuring the curriculum, reduction of narrow specializations, and introduce integrative interdisciplinary courses; (b) enable the PUs, through a collaborative partnership program, to disseminate the reforms they developed to their poorer Partner Institutions (PIs); and (c) strengthen institutional planning and administration and central coordination\. The effectiveness of the teaching/learning process was to be improved by adopting student-centered strategies, and making the laboratories, computer facilities and library services more readily accessible to students and staff\. Annex 13 provides a list of project universities, their codes, partner institutions, and implementation completion reports, dates and length\. The project universities are identified by their code, as appropriate\. 3\.2 Revised Objective: The project's development objectives were not revised\. Adherence to the original objectives was a reflection of the broad consensus among the PUs on the reform priorities for their institutional development\. The consensus was significant considering the variation in institutional history of the PUs and levels of socioeconomic development of the eleven provinces and four municipalities in which the PUs were located\. At appraisal, there were three municipalities: Beijing, Tianjin and Shanghai; subsequently Chongqing became the fourth municipality\. 3\.3 Original Components: The project components were designed to meet the project objectives\. Clearly defined implementation responsibilities were shared between the PUs, which would execute project activities at the institutional level, and the Ministry of Education (MOE)/Foreign Investment Loan Office (FILO) at the central, overarching level\. The MOE/FILO was assisted by the Higher Education Advisory Panel (HEAP, also referred to as the "Chinese Expert Panel" or CEP) which carried out advisory and oversight functions in relation to the PUs\. Each PU, in turn, had its own mini-FILO and advisory team to assist in the implementation of institutional project activities\. The three main components supported the improvement of the quality and relevance of undergraduate basic science and engineering programs by reforming the curriculum, teaching-learning methodology, and the examination system\. All components were judged to: (a) have direct relevance to the project's objectives; (b) be well within the capabilities of the implementing agencies; and (c) have been designed with the incorporation of `lessons learned' from previous World Bank (the Bank) projects in China and the East Asia and Pacific (EAP) Region\. The components, as implemented, were as follows: Component 1: Achieving Improvement in Teaching and Learning (Base Cost: US$84\.0 million) The PUs would restructure the curriculum to provide broader, integrative interdisciplinary courses in science and engineering, with improved student-centered teaching-learning strategies, more accessible laboratories and workshops, computer facilities and library services\. New equipment would be provided: (a) to complement the new expanded and modernized physical facilities for first and second year science and engineering programs; and (b) to establish integrated laboratory centers for new type of laboratory - 2 -  experiments which would include open-ended and research-design-oriented projects\. The aim was to meet employers' demand for graduates who, having acquired a broad knowledge base, would be more practical, creative and skilled in team work\. The component's overall objectives would be achieved through four sub-components: (a) Restructuring of Academic Programs through continuous curriculum development to ensure the relevance of academic programs to modern market demands\. Activities would include: (i) improving the relevance of academic programs and curricula through practical linkages between universities and employers by means of external and industrial advisory committees and graduate tracer system to gather feedback from graduates and employers; (ii) supporting continuous curriculum development and improvement through a feedback process linking inputs from students, graduates and employers and committees responsible for program-specific curriculum development; and (iii) restructuring of academic programs by reorganizing and broadening the content of science and engineering programs and strengthening each subject's fundamental concepts and practical aspects, which would be effected by reducing the number of specialized courses and the amount of scheduled time in each program to provide students more time for individual and group learning\. (b) Reforming Learning Strategies\. The above reforms would include support to teaching staff, evaluation of teaching reforms and dissemination of outcomes to other institutions; and integration of new equipment with reformed approaches to teaching-learning\. The reforms would be achieved through: (i) adoption of student-centered teaching-learning methods; (ii) improving the quantity, quality and relevance of laboratory experimental work through improved laboratory equipment, increased student access to laboratories, and changing the balance between directed, "verifying" and/or repetitive experiments and open-ended, design-oriented laboratory projects; (iii) ensuring a safe and conducive laboratory environment through renovated facilities; and (iv) reforming student examinations through more student-centered testing and evaluation strategies and a flexible course credit system\. (c) Improving Learning Opportunities and Conditions\. This would be achieved by facilitating more self-directed learning by: (i) improving and updating textbooks and other teaching-learning materials; (ii) improving the conditions for self-directed learning through reduction of time for traditional lectures and increase of time for student self- or group-study enabled by open access to laboratories, enhanced computer facilities, and library resources; and (iii) improving learning-support services through improved teaching/learning and campus networks linked to Chinese Education and Research Network (CERNET) and the Internet\. (d) Upgrading teachers and staff to support the reforms would be achieved by short- and long-term (local or overseas) training of administrators, teachers and laboratory support staff in higher education planning and management, and teaching-learning strategies\. (For further details on Component 1, see PAD Report No\. 19146-CHA, dated April 14, 1999, Annex 2 pp\. 32-36\.) Component 2: Using Partnerships and Networks to Spread Reforms (Base Cost: US$5\.3 million) This component linked the 28 PUs with their less-developed Partner Institutions (PIs) to share the benefits of project investments in physical and human resource development and to widen the impact of the higher education reforms initiated in the PUs\. This would be achieved by disseminating the curriculum reforms and academic program and course development and improved teaching-learning strategies in basic science and engineering courses\. The partnership core elements would include: (a) training PI staff in higher degrees and/or courses in science and engineering content and teaching methods; (b) training and/or - 3 -  exchange of students between institutions to participate in teaching-learning programs and generally for the PI staff and students to use the better equipment and teaching-learning resources of the PUs; (c) sharing resources, reforms in curricula, teaching-learning methods, good practice in institutional management; and (d) development and use of electronic teaching-learning materials and routine electronic communication between teaching staff and students through CERNET and other networks\. Quality improvements in reforms would be monitored by HEAP or CEP\. Good performance by PUs would be rewarded by MOE under five categories of partnership activities: (i) sharing facilities; (ii) staff training; (iii) joint research and development programs; (iv) technical assistance; and (v) donations (equipment, software, publications)\. PU staff would be expected to help their PI counterparts to adopt the new teaching methods developed under the project\. (For further details on Component 2, see PAD Report No\. 19146-CHA, dated April 14, 1999, Annex 2 pp\. 36-37\.) Component 3: Supporting Institutional Capacity for Change (Base Cost: US$4\.3 million) Aimed at strengthening institutional planning and administration and central coordination, activities under this component, implemented by MOE, were organized under four main groups\. I\. National-Level Technical Assistance Activities included staff training and study tours with follow-up dissemination seminars: (a) staff training would focus on project, financial, and procurement management to ensure effective project implementation; (b) the study tours to various foreign universities would familiarize senior university staff with current good practices in: (i) reform of institutional management and implementation of teaching reform (for university presidents); (ii) reform of curricula, textbooks, teaching methods and the institutional examination system (for directors of teaching affairs); (iii) improving financial management (for finance division directors); (iv) reform of laboratory management (for equipment division directors); and (v) reform of laboratory teaching and management (for chiefs of the experiment centers)\. II\. Policy-Based Research Studies on five research themes identified by MOE/HED, in collaboration with university experts\. The themes were: (a) development of a system for quality assessment in higher education; (b) establishment of a textbook renewal mechanism appropriate for a socialist market economy; (c) managerial autonomy of institutions under legislation; (d) development of a graduate tracer study; and (e) comprehensive assessment of financial management in higher education institutions\. III\. Textbooks and Electronic Materials reform and development activities were coordinated by MOE to ensure adequate dissemination of the most innovative results to all universities in the country\. MOE planned to produce 400 textbooks on 200 basic courses which would include those not covered by the project, with the aim of spreading the reforms beyond the PUs and PIs\. The development of management software would fall under the overall Management Information System (MIS) development activities of MOE and the various universities, while the development of teaching software would be associated with curriculum reform and teaching practice improvement under the project's Component 1\. IV\. Student Loan Pilot Scheme for Lanzhou University, a pilot scheme funded by a US$100,000 PHRD Grant to Lanzhou University, was a study of an alternative student loan scheme\. (For further details on Component 3, see PAD Report No\. 19146-CHA, dated April 14, 1999, Annex 2 pp\. 37-40\.) 3\.4 Revised Components: There were no revised components\. 3\.5 Quality at Entry: The project was not subject to a QAG review or rating at entry\. The ICR rating for quality at entry is satisfactory\. The rating is based on the following findings: (a) from - 4 -  the beginning, the project was strongly focused on agreed-upon development objectives, and this concensus remained through the duration of the project; (b) the thrust of the project was closely aligned with the Borrower's higher education sector development priorities as described in China Higher Education Reform (June, 1997), an in-depth sub-sectoral analysis jointly conducted by MOE and the Bank; (c) the project design was consistent with the Bank's Country Assistance Strategy (CAS, R98-107 dated May 6, 1998); and (d) the Borrower clearly considered the project to have been timely, and had shown strong ownership\. It was implemented at a time when the demand for high level scientific and technological workers was at a critical stage in the nation's economic growth, and the sub-sector could have suffered a development set-back if the project had not been implemented\. The project design was formulated on the basis of a well researched and documented study (referred to above) and lessons learned from previous higher education Bank projects in China and the region\. The project components were designed to be fully sustainable by the PUs and MOE\. Finally, the cost estimates in the original project design were proven to be reasonably accurate, with no significant shortfall in local funding of the project\. 4\. Achievement of Objective and Outputs 4\.1 Outcome/achievement of objective: The project was judged to have met and, in many aspects, exceeded its overall development objectives\. This assessment was based on: (a) satisfactory to highly satisfactory project outcomes and outputs pertaining to all the targeted reforms; (b) strong PU and MOE commitment and participation throughout the implementation of the project; (c) highly conducive student learning environment in the new laboratory experiment centers; (d) highly satisfactory graduate employment rates; (e) effective implementation by the PUs and implementation oversight by MOE/FILO, supported by HEAP; (f) strong indications of PU and PI satisfaction with the overall implementation of the project and its outcomes; and (g) positive indications of continued sustainability of project investments\. These indications are most apparent when the Borrower continues to place strong priority on continued improvements in, and dissemination of, higher education reforms, particularly in laboratory experiment centers, the key to achieving higher levels of teaching-learning in science and technology\. Based on these indicators, the overall outcomes of the project are rated as satisfactory\. 4\.2 Outputs by components: Component 1: Achieving Improvement in Teaching and Learning (a) Restructuring of Academic Programs\. This sub-component is rated highly satisfactory\. At the end of the project (EOP), 1,486 majors were reformed and 4,203 courses were updated (126% of the target of 3,340, MOE/FILO PPI, Tables 2 & 10) including new majors and non-specialized courses for providing undergraduate students with a broad based and flexible education program through wider range of choices\. Each PU carried out the restructuring according to its needs, guided by the overall objective of deepening the reform of undergraduate science and engineering curricula, course content and teaching-learning methods\. Nankai University's experience provides an insight to the general approach to academic program restructuring taken by the PUs\. In Nankai (NKAI), whose reform focused on four lab teaching centers (biology, chemistry, physics and electronics), the restructuring process started with rationalization of the schools of science, followed by reforming the lab management system by integrating the teaching lab resources and establishing the basic lab teaching centers according to education objectives, lab classification and teaching-learning content\. The University realized that reforming the experiment teaching system was inextricably linked to providing quality education for undergraduates\. Thus, issues - 5 -  were thoroughly examined and debated among teachers and administrators to arrive at a consensus on institutional and academic objectives and strategies for achieving them (NKAI, ICR)\. Infrastructure supporting teaching/learning reforms\. A prerequisite for restructuring the academic programs was the provision of new or renovated lab experiment facilities, up-to-date equipment and precision instruments, computer/multimedia and library support services\. All the PUs improved and/or expanded these facilities, with the largest lab area increase in Jilin University (JLU), whose lab space was increased by 264% from 11,365 square meters in 1999 to 29,967 square meters at EOP\. Total PU lab areas increased by 162% from 258,000 square meters in 1999 to 419,000 square meters in 2005 (PPI, Table 3-a)\. The 28 PUs (including JUT, which had merged with JLU) had a total of 117 new or restructured lab experiment centers, averaging 4\.2 centers per institution, ranging from six centers (PKU, TSING, and SCU) to two (USTB)\. Science centers accounted for the highest proportion (53%), followed by engineering (36%) and multimedia and language centers making up 11% (Annex 8, Table 1)\. The completion reports by each PU provides extensive details of experiment centers and the reformed teaching/learning they embodied\. The new laboratories with modern equipment provided the necessary support for educational reforms\. The experiment centers became the focal points of the university reforms and provided the platforms for the implementation of the new approach to teaching-learning science and engineering, which was facilitated by the installation of new equipment collectively valued at US$57\.32 million and RMB264\.5 million, and the acquisition of 97,000 new science and engineering books (increased by 74% from 55,700 in 1999)\. Teaching and learning in the experiment centers were supported by 5,539 lab instructors, increased by 31% from 4,225 in 1999 (PPI, Table 4)\. The successful establishment and equipping of the lab centers, language labs, libraries and other learning resource centers had significantly improved the PUs' health and safety learning environment and broadened the opportunity for students to test their creativity and fulfill their development potential\. (i) Improving the relevance of academic programs and curricula\. This sub-component is rated highly satisfactory\. The reformed undergraduate curriculum typically consisted of a combination of required common basic courses, specialized compulsory courses, optional courses, general education optional courses, and common optional courses\. Within these requirements, students had varying degrees of freedom of choice, depending on the departments they were enrolled in\. The reforms, originally focused on the first and second year science and engineering programs, had spread to the entire undergraduate curriculum at the PUs, and through the PUs to their partner institutions\. The dissemination of reform ideas had a leavening influence on the quality of graduates, with beneficial impact on the graduate employment rate, a key indicator of the relevance of academic programs and curricula\. The new skills, developed under the project, are in high demand locally and globally\. The increasing involvement of industry (e\.g\., participation in Boards of Trustees established during sector work just before the project) in educational activities and management at the PUs helped to strengthen the relevance of science and engineering education to the labor market\. This is evidenced (in early 2004) by the establishment of 438 laboratories with industry built either in the PUs or in university-linked enterprises (FILO draft APR 2004, p\. 2)\. Selected PUs, using a survey instrument developed by SJTU under the leadership of MOE/FILO, conducted a survey of graduate employment for three years (details of the graduate tracer study are given in Component 3, below)\. The results from ten PUs showed graduate employment rates to be high but with not unexpected variation between institutions and changes between 1999 and 2005 (Annex 8, Table 2)\. - 6 -  The graduate employment mechanism which linked employers' requirements and the universities' preparation of students for a socialist market economy had to balance graduates' abilities and expectations with labor market demands\. Generally, local government state enterprises offered lower salaries, while the new private enterprises, particularly foreign or foreign-linked, offered higher salaries\. According to BIT (ICR p\.17), employers were becoming more diverse\. Up to the end of the 1990's, BIT graduates were employed by traditional state enterprises, scientific research institutes, and national departments, but since the turn of the century, graduates increasingly have been sought by multinational and joint-venture enterprises\. In 2004, about 28% of total BIT graduates were employed by foreign enterprises\. In 2005, foreign companies accounted for one-third of employment units advertising for graduates in BIT\. A survey by HIT in 2004 to gauge the quality of education and training students received showed that those who graduated in 1998 or earlier and those who graduated in 1999 or later differed markedly (close to 0\.1 significance level) in computer competence, hands-on work ability, and organizational and management ability\. The high enrollment increases from 1999 produced the first sharp increase in output of graduates of 2\.12 million in 2003, an increase of 6\.5 times over the 1999 output of 322,400\. The situation suggested three main trends: (i) the increase was a response to the changing demands for skills in public sector and fast expansion of private enterprises; (ii) industrial specialties (e\.g\., telecommunications, medical technology, automobile manufacturing) became the preferred majors, and the output of high-quality and broadly trained graduates was a response to the needs of these sectors; and (iii) a growing number of graduates moving to post-graduate studies, a direct result of the enriched curricula as well as an increasingly sophisticated labor market signaling its preference for workers with a post-graduate degree\. (ii) Supporting continuous curriculum development and improvement\. This sub-component is rated highly satisfactory\. Continuous curriculum development is necessary to improve design and to respond to new technologies in science and engineering and the changing labor market demands\. The increased emphasis within the reformed programs in the PUs on basic scientific and technological concepts, instead of narrow specializations, is likely to facilitate continuous updating of curricula\. The PUs have institutionalized various processes for continuous curriculum development and improvement, using feedback from students and graduates, as well as employers, to sustain the process of reviewing and improving curricula and related activities\. An illustration is provided by the experience of Fudan University, a research-focused institution, whose major responsibility, like that of other PUs, is to build up undergraduate disciplines that meet the needs of the 21st century\. The University encourages departments and colleges "to boldly undertake reforms in laboratory curriculum consistent with academic characteristics and the talent-development needs" (FDAN, ICR, p\.6)\. At the management level, a course credit system development team, headed by the University President, and four curricular design expert teams, respectively for humanities, science, medicine, and comprehensive education, were set up to address the reform of curricular structures\. The resultant comprehensive education policy combined all four discipline areas in the systematic development of advanced student talents (FDAN, ICR, p\. 24)\. For other examples, see Annex 8, Table 2\. (iii) Restructuring of academic programs\. This sub-component is rated highly satisfactory\. Historically, science faculties in China's universities evolved from physics and chemistry laboratories affiliated to basic (teaching) faculties\. The specialty faculties only conducted research, while the basic faculties only conducted teaching\. Thus, the arbitrary division between research and teaching adversely affected the improvement of teachers' competency and the improvement of basic teaching quality (USTB, - 7 -  ICR Part 2, Reports by the Experimental Centers, p\. 6)\. The project reform objective was achieved through the integration of basic teaching and research, reflected in the administrative integration of experiment labs\. In turn, the restructured academic programs were reflected in the PUs' increased allocation of laboratory time to students who were free to choose their experiments (see (b) Reforming Learning Strategies, below)\. During the project period, student use of the lab centers totalled 30\.88 million person-hours per year, 27% higher than the plan to provide 24\.30 million person-hours\. Parallel to student use was the total lab openning hours per week increased from the average of 40 hours to 80 hours\. The experiment centers served about 462,000 students, about 29% more than the planned 356,000 students\. The above statistics (PPI, Table 3-b) reflect the opportunities accorded to students to do their experiments at their own convenience as part of the restructured academic programs\. The foundation for the restructured academic programs was provided by the renewed/updated lab experiments for basic science and engineering courses, of which the PUs in 2005 had achieved a total of 7,779 (65\.3%) of the 11,906 total lab experiments\. The experiment centers served 3,368 majors, 115% more than the planned 3,021 to be served (for further details, see MOE/FILO PPIs for PUs, Table 3-a)\. (b) Reforming Learning Strategies\. This sub-component is rated satisfactory\. To achieve the reforms in learning strategies, special emphasis was placed on raising the number and quality of academic staff\. At the end of the project, the PUs had a total of 23,556 teachers with a Master's degree, and 21,556 with a doctoral degree, 40\.2% and 36\.8% respectively of the total of 58,585 full-time (FT) teachers\. In 2005, the student enrollment was 867,142, giving a student-faculty ratio of 15:1 (PPI, Table 1)\. (At appraisal, the corresponding ratio was 11:1; thus, the situation in 2005 suggested an improvement in staff utilization, implying increased efficiency\.) The academic staff training achieved mixed results\. About half of the PUs aimed to attain at least 50% teachers with a Master's degree, but in actuality, only four (14%) of the PUs reached that target on project completion\. By contrast, 20 (74%) of the PUs reached or surpassed their targets for staff with a doctoral degree\. At EOP, the overall picture showed the majority of PUs did not reach their targets for teachers with Master's degree or doctorates\. This shortfall, however, was compensated by a 36% improvement in the average student-full-time teacher ratio (see "Trained Teachers" below)\. Details of the results from selected universities are given in Annex 8, Table 3\. Apparently, one reason that caused the PUs to underachieve the targeted number of higher degree faculty was due to the fact that staff aged 45 or older were ineligible for higher degree training\. Nevertheless, the project's staff development program was a catalyst for many PUs to establish their own program for training younger staff\. For example, to raise teaching standards, Wuhan University (WHU, ICR p\.18), like many universities in China, required young teachers to undergo pre-job training, two rounds of teaching assistance, teaching preparation, and trial teaching before they started independent teaching\. Both young and mid-career teachers were encouraged to study for a Master's or doctoral degree, with the employing university subsidizing the tuition fees or providing support for overseas studies\. Significantly, the training included an introduction to educational theories and modern educational technologies\. All the above indicate an enlightened policy far in advance of many foreign higher education institutions where teaching staff are seldom required to have any training in pedagogy\. All the PUs embraced the student-centered teaching/learning strategy\. The reduction in the lecture mode of teaching, which had no reported negative effects, provided students more time for individual laboratory work, team activities and, most important of all, for individual thinking and reflection\. Examination reforms reduced the demands of the past for extensive memorization\. Traditional "cook-book" lab - 8 -  activities wherein students were required to follow prescribed experiments to verify known results have mostly been abolished and replaced by experiments of greater scientific interest and learning value\. They give students more individual responsibility, require higher-level reflection and challenge their innovative skills\. In BUAA, for example, the updated physics lab experiment courses and the re-grouped chemistry courses were matched by a reduction of lab "verification" experiments and a corresponding increase in activities designed to focus on developing students' creative thinking and innovative abilities (BUAA, ICR p\. 4)\. Most courses in PUs provided for peer evaluation of staff teaching effectiveness as well as student evaluation of their teachers' instructional competence\. Good practices in teaching/learning were shared with other institutions through seminars and workshops, and through the university partnership program\. Updated Courses\. The target total for the PUs was 3,340 updated courses by EOP, with an average of 124 courses per PU to be updated\. The actual achievement was 4,203 or 126% of the target, with an average of 157 courses updated per PU\. With the exception of JLU and SCU, all the PUs exceeded 100% of their targets\. Among the highest achievers were MTUC (204 updated courses, 334% of its target), NJU (250 updated courses, 333% of its target), and TJU (141 updated courses, 282% of its target)\. (MOE/FILO ICR, PPI Table 2)\. Courses with Reformed Examinations\. The main thrust of reformed examinations was to replace the traditional written examination with multiple modes of testing and evaluation of student learning achievement\. The reformed examinations focused on students' creativity, independence, scientific thinking, team work ability, skill in gathering information from the Internet and library, and overall capacity to learn\. The PUs planned to produce 7,861 examination-reformed courses\. The actual achievement was 9,434 (120% of the target)\. LZU with 1,560 (137% of target) had the highest number, followed by SEU, with 1,300 (130% of target)\. The lowest number 20 from PKUHSC was, however, 100% of target\. Overall, the PUs achieved 120% of the target for reforming examinations of basic courses, ranging from 67% (JLU and SNNU) to 312% (NJU) and 304% (MTUC)\. In the case of JLU, the original target of 300 courses was for JLU and JUT (the latter having merged with JLU in 2000), and the actual score of 200 examination-reformed courses was a substantial achievement\. All the above reflect the PUs' highly satisfactory achievement in improving the conditions for more progressive teaching/learning strategies\. Details of updated courses and courses with reformed examinations in selected universities are shown in Annex 8, Table 4\. (c) Improving Learning Opportunities and Conditions\. This sub-component is rated highly satisfactory\. The PUs reached or surpassed their targets for improving the learning conditions and opportunities, as demonstrated by the number of updated/developed textbooks, library open-shelf books, and annual library borrowed volumes (details shown in Annex 8, Table 5)\. These were in addition to the numerous computer, language and multimedia centers established and/or extended by the PUs\. The above-mentioned courses with reformed examinations, as an outcome, produced other outcomes in the form of new courses to meet the objectives of the reformed examinations\. An example is CUMT's establishment of a course on creativity aimed at enabling students to master the general principles and methods of developing creativity and innovation (MOE/FILO ICR, p\. 68)\. Fudan University's experience provides an example of improved learning opportunities and the widening range of innovative approaches to student-centered learning\. The University's Laboratory Center for Basic Physics Teaching (LCBPT) initiated a succession of distinctive experiment programs, such as "Experiment Gardens," "Self-Taught Experiment," and "Open Experiment," designed to stimulate students' higher-level thinking and motivate their creativity\. The Experiment Garden is a "zero-credit" study site which has no - 9 -  access time restriction and offers free entry to first and second year students to try out their favorite experiments (FDAN, ICR p\.10)\. Updated Textbooks\. The project achievement was 6,827 textbooks updated or developed, 157% of the target 4,331\. All the PUs reached or exceeded their targets, except JLU which produced 139 (75% of its target of 185) updated textbooks\. Six universities (BUAA, BNU, HUST, NJU, SNNU, SJTU, TJU) achieved over 200% of their targets (for details, see Annex 8, Table 5)\. Access to Library Resources\. Along with increased service hour of the libraries, the old practice to lock up books and journals in the closed section of the library was abolished\. Now twenty-three (85%) of the PUs had at least 50% of their books on open shelves for students to access these resources more easily\. The achievements, in percentages, ranged from 100% for seven universities (BUAA, PKUHSC, SEU, LZU, SJTU, XJTU, MTUC) to 37% (BNU)\. A commendable case was HIT, which set a modest target of 15%, but actually achieved 78% open-shelf books\. Library Books Borrowed\. Twenty-three (85%) of the PUs reached or exceeded their targets for annual number of borrowed books\. Seventeen (63%) of the PUs achieved 50% and higher of book borrowings, and six (22%) PUs had 30-49% borrowings (see Annex 8, Table 5 for details)\. While the above indicators are important measures of the relative openness of PUs and their accessibility to learning resources for students, their importance should be viewed in conjunction with other factors, such as the availability of reading rooms and carrels in the libraries and colleges that may have reduced the need for open-shelf or take-away books\. Many PUs, such as Lanzhou University with nearly 72,000 square meter of library floor space and 39 reading rooms ­ the largest library in northwest China ­ had greatly expanded their library facilities\. In addition to the above library-based reforms and establishment of computer and multimedia centers, most PUs had developed their own campus intranet with access to CERNET and the Internet so that students had access to virtually all the available websites for their online research\. All the above facilities and services testify to the improving conditions and opportunities in the PUs that are conducive to self-directed student learning\. Laboratory Safety and Environmental Standards\. By the end of the project, all PUs had achieved 100% of their lab safety and environmental standards (PPI, Table 3-a)\. Many PUs were initially skeptical about the need for strict standards, but the project's focused attention to this issue helped change the attitude of the skeptics\. By mid-term the PUs had reached 90% compliance in the new labs which established international safety and environmental standards\. These standards provide the benchmark for students' practice and behavior after graduation when they might be responsible for handling large quantities of toxic materials in factories and industrial laboratories\. It is noted that they might also disseminate these lab safety and environmental good practices in their workplaces\. (d) Upgrading Teachers and Staff to Support the Reforms\. This sub-component is rated satisfactory\. At project completion, 26,430 teachers (under various long- and short-term, in-job and off-job training programs), 4,472 laboratory staff and 2,517 library management staff had received training to upgrade their professional qualifications (PPI, Table 8)\. Trained Teachers\. In 2005, there were 21,745 teachers in all the PUs teaching undergraduate Year 1 and Year 2 courses\. The majority (88%) of PUs reached or surpassed their targets for the teachers to be trained\. The actual achievements ranged from 170% (SEU) to 23% (SJTU) of the planned numbers\. The - 10 -  PUs had 14,055 trained teachers, representing 64\.6% of staff teaching Year 1 and Year 2 courses (Annex 8, Table 6 and PPI, Table 2)\. The increase in the proportion of trained teachers to that of at the beginning of the project was indicative of the higher quality academic staff, which in turn would translate into improved quality of teaching/learning in the classrooms and experiment laboratories\. The above achievements in updated courses and teaching-learning methods, and courses with reformed examination methods provided the teachers with the academic content and learning-assessment tools to continuously raise the quality of teaching-learning\. Another aspect of support for reforms is the ratio of students to full-time teachers\. In 2005, the PUs had a total enrollment of 867,142 students and 57,585 full-time (FT) teachers, giving an average student-FT teacher ratio of 15:1, a 36% improvement over the average PU ratio of 11:1 at appraisal\. This should result in lower per-student costs and therefore overall system efficiency\. Technology programs, which are apt to use more CAI tools for basic instruction, tend to have higher ratios (e\.g\., Dalian), while medical training would have lower ratios (e\.g\., PKUHSC)\. The ratios of students to full-time teachers ranged from 21:1 (DLUT) and 20:1 (COU), to 8:1 (XJTU) and 5:1 (PKUHSC)\. Annex 8, Table 7 provides further details\. Component 2: Using Partnerships and Networks to Spread Reforms This component aimed at spreading reforms through partnerships and networks is rated satisfactory\. The reforms carried out by the PUs were spread in various ways to the Partner Institutions (PIs), and through them to many local tertiary institutions\. The partnership program contributed to the "Chinese Great Western Development Strategy," strengthening the ties and balancing higher education development between the interior underdeveloped regions and the coastal developed urban centers\. The cooperative activities' spin-off effects included stimulating the development of teacher education, education of minorities, private education, as well as distance education (MOE/FILO, 2004 draft APR, p\. 5)\. Implementation, however, was uneven because the planning and coordination of project activities varied among the PUs and their partner institutions\. According to the plan, each PU was to allocate 15% of their counterpart funds to the partnership program\. The total planned budget was RMB37\.47 million, averaging RMB1\.34 million per PI (excluding LZH, which had a planned budget of RMB1\.82 million and four PIs, so that the average per PI was RMB0\.46 million)\. The actual expenditure was RMB37\.79 million, averaging RMB 1\.48 million per PI\. Most PUs carried out their planned activities, but actual expenditure varied widely among the PUs, ranging from 146\.6% for PKU to 10\.9% for WHU\. About 75% of PUs reached or exceeded their planned expenditure\. One PU had no information on their expenditure, and five PUs (18%) fell short of their planned expenditure (Annex 8, Table 8 provides details)\. The expenditure variation was evidenced by non-allocation for books, software and other items among many partnerships, while the largest allocation was for equipment, which accounted for 64% of the total value of materials donated to PIs\. The PIs were handicapped by lack of access to project financing and by being dependent entirely on whatever development funds were available\. The partnership program suffered from a slow start caused partly by the PUs being more concerned initially about implementing their own institutional project activities\. Poor communication between partners, described by the Chinese Expert Panel as the program's "weak link," PU personnel transfers, and arbitrary alteration of partnership program plans hampered implementation\. Differences in the level of institutional development and differing orientations of staff and students made it difficult for various partners to work together smoothly\. In some cases, distance between PUs and PIs made it impracticable to implement certain cooperative activities, such as opening library and lab center facilities to PI staff and students\. - 11 -  Notwithstanding these implementation problems, which tested the ability of the PUs to adjust and adapt to difficult partnership conditions, the partnership program achieved its main and most important objective: enabling the weaker PIs to adopt and incorporate into their undergraduate programs the new teaching/learning methods developed and shared by the stronger PUs\. This is illustrated by the fruitful cooperation between the universities of Fudan and Yunnan in designing and developing Yunnan University's Department of Electronic Science and Engineering, upgrading its equipment, updating the lab experiment courses, course content, and reforming teaching methodology (FDAN ICR, pp\. 28-34); USTB and Baotou Iron and Steel College in improving reforms in course content and teaching methods, and management of teaching, library and laboratory services (USTB ICR, pp\. 17-21); Nankai and Yunnan Normal in working methods of science lab construction, lab teaching content, methods, and textbooks, and staff development (NKAI ICR, pp\. 26-28); and USTC and Anhui Normal in restructuring the latter's laboratory system, establishing a course credit system, and assisting in staff higher degree training (USTC ICR pp\. 50-53)\. These partnership activities testify to the realization of the outcomes of the benefits of higher education reforms\. (Further details are provided in Annex 9, "Partnership Program Implementation Issues\.") (a) Higher degree training for staff\. This sub-component is rated satisfactory\. Higher degree training for PI staff was part of the broader program of staff development\. It facilitated the process of merging small specialty institutions to establish broad-based universities that could offer more comprehensive academic and professional programs through a more broadly and well trained faculty base\. The staff training program was a major factor in contributing to the spreading of reforms as trained staff were the effective instruments of change and innovation\. A total of 499 PI staff were trained in degree programs\. The numbers varied widely among institutions, from 81 (HIT and Heilongjiang College of Science and Technology); 75 (TSING and Yunnan University of Industry); and 66 (SEU and Yancheng Engineering College), to zero (BUAA and Guizhou Industry University, and FDAN and Yunnan University)\. Non-degree training yielded 604 staff, and 1,071 teachers were trained under a short-term program (Annex 8, Table 9)\. With the spread of teaching reforms, many teachers began to feel the need to update their academic and professional qualifications, thus creating the demand for higher degree training, which in time would lead to higher quality undergraduate education and training\. (b) Training and/or exchange of students\. This sub-component is rated satisfactory\. Under this scheme, 42,317 PI students were beneficiaries in various short-term, non-graduating programs in the host PUs where they participated in lab experiments and related courses\. The largest numbers were hosted by Southeast University, which received 15,000 students from Xichang Agricultural College, and China University of Mining and Technology which took in 21,658 students from Xuzhou Vocational University (Annex 8, Table 9)\. An example of particular good practice, Wuhan University supported 30 students from Yunyang Teachers' College in Hubei Province by placing them in Wuhan's 3rd Year bachelor's degree programs so that they graduated after two years' studies\. (c) Sharing resources\. This sub-component is rated satisfactory\. The quantitative aspect of "sharing" comprised mainly donations by PUs to their partners valued at RMB42\.32 million\. All PUs and partners participated in the sharing of resources\. The largest item "shared" in terms of value was equipment which was valued at RMB18\.4 million\. The largest donation valued at RMB3\.11 million was from Peking University to Inner Mongolia University, followed by Fudan University whose equipment donation to Yunnan University was valued at RMB1\.23 million\. Other items - 12 -  included books (RMB1\.19 million); software (RMB2\.92 million); and "others" (RMB6\.15 million)\. In Annex 8, Table 8, the qualitative aspects, by far the most important outcomes of the partnership program, covered the key reforms described in the preceding sections of this ICR\. (d) Development and use of electronic teaching/learning materials\. This sub-component is rated satisfactory\. A number of updated courses and updated textbook titles were developed under two distinct activities: through cooperation and through the efforts of PIs\. Under the partnership program, 2,284 updated courses were produced; and under PIs' own efforts, 259 courses\. Regarding updated textbooks, the partnership program produced 1,937 titles, and PIs on their own produced 186 titles (Annex 8, Table 9)\. Outcomes Although achievements across the PIs were uneven, the expected outcome of Component 2 was achieved\. The achievements included the transfer by the PUs and the adoption by the PIs of the reforms in curriculum, textbooks and other teaching/learning materials; student-centered teaching/learning methodologies; methods of testing and evaluation of student learning achievement; management of lab experiment centers; and staff development programs\. The partnerships deepened the substance and strengthened the traditional "hand-in-hand" inter-institutional program\. The initial collaboration, covering relatively easy to implement activities, such as training teachers, staff and student exchange, provision and sharing of material resources and experience of best practices, etc\., evolved, toward the EOP implementation, to joint efforts to improve the quality of undergraduate courses and develop institutional capacity for quality assessment\. The change came from the need to transcend the simple transfer of equipment and learning materials, and from a shared concern for ensuring the achievement of high value-added education\. Practically every PU ICR testified to the transfer of new ways to organize and manage the lab experiment centers and of the reformed teaching/learning methods used in lab experiments\. The transfer of teaching technology, representing a revolutionary change of educational philosophy and practice, was the most fruitful outcome of the cooperative relationship which both the PIs and the PUs strongly wished to maintain and further develop\. The benefits generated by the PUs spread to other departments within the PIs, as well as to other colleges and universities\. The partnership program convinced the CEP that the strategy initiated by the project was the key to accelerating the development of universities in China's remote areas (CEP, WREP, p\. 21)\. The benefits served as a catalyst for gradually changing narrowly-focused institutions, such as Heilongjiang Mineralogy College, Guizhou Industry University, and Baotou Iron and Steel College, into more comprehensive universities capable of meeting the needs of the 21st century\. The overall rating for Component 2 is satisfactory\. Component 3\. Supporting Institutional Capacity for Change All the project activities were implemented as planned\. The overall rating for this component is satisfactory\. Summaries of the outputs/outcomes of this component are entered in Annex 1 (Key Performance Indicators/Logframe Reference)\. The following paragraphs provide detail on this component's achievements\. I\. National-level Technical Assistance Activities\. This sub-component is rated as satisfactory\. (a) Project Management Training\. The initial training in 1999 of 112 staff responsible for overall - 13 -  project management ensured the smooth implementation of activities that required an early head-start, such as equipment procurement and financial planning, apart from the day-to-day administration of the project\. Between May 2000 and December 2002, MOE and HED conducted seven follow-up training sessions for 364 staff to reinforce the management skills dealt with in the initial training\. Training sessions were held in Beijing, Dalian, Nanjin, Chongqing and Guilin\. As of June, 2004, the total training outputs included 84 staff trained in project management, 56 in financial management, and 336 in equipment procurement management\. However, since the last training session in December 2002, FILO reported a total of 550 staff had been trained as of July 2005, but there was no details provided on the training content for the additional 74 staff who received training after June 2004 (MOE/FILO ICR, p\. 42)\. (b) Domestic Training\. This was accomplish through study-tours of universities in China, including Hong Kong\. They focused on experiment-based teaching-learning in science and engineering laboratories, including the design and operation of such laboratories\. In addition, the multimedia teaching-learning centers established in the PUs were used for upgrading the pedagogical skills of teaching staff\. These included basic IT knowledge on Internet access, web- page designing and development, the relevant technologies related to computer usage in teaching and general communication, laboratory and staff management, facilities use and maintenance\. (c) Overseas Study Tours\. MOE/FILO implemented 21 study tours in key thematic areas specially related to the project for PU administrative and academic staff\. The tours were followed up by dissemination seminars to share information and new ideas gained from overseas institutions\. A total of 210 (versus the planned 217) staff participated in the study tours to Europe, North America, Australia, Malaysia and Singapore\. The participants comprised 29 university presidents, 89 division directors and 92 laboratory experiment center chiefs\. The participants studied institutional, teaching and financial management; science laboratory development and management; and multimedia/language laboratory teaching and management\. The tours helped to deepen understanding of the advances achieved by international universities in the content and methods of teaching/learning science and technology, and to reinforce the growing conviction that the reforms were vitally important to the further development of China's universities and their contribution to the growth in China of the knowledge economy\. (d) Dissemination Seminars\. A total of 12 seminars of 5-6 days duration each were held between August 2003 and July 2005 in various provincial cities\. They involved 1,764 PU participants that included university presidents, division directors, and lab and equipment directors, as well as 207 personnel from 98 other (non-project, non-partner) universities\. The seminar topics were related to project and institutional management, and science and engineering lab development and management\. The 64 national and three international specialists conducted the seminars\. A final seminar, focusing on "Teaching Reform Achievements" was held in Xinjiang during July 4-8, 2005\. II\. Policy-based Research Studies\. This sub-component is rated as satisfactory\. All the research studies on thematic areas, which were identified by MOE at appraisal as having a special bearing on higher education policy formulation, were completed\. The reports, in Chinese, including executive summaries in English for four of them, were on the following topics: (a) development of a system for quality assessment in higher education entitled "Research on Chinese Higher Education Evaluation"; (b) establishment of a textbook-renewal mechanism appropriate for a socialist market economy, with an English summary report entitled "Teaching Material Renovation Mechanism under Condition of Socialist Market Economy"; (c) managerial autonomy of higher education institutions (no English summary report); (d) development of a graduate tracer study (English summary report entitled "University Graduates' Information Tracking and Investigating System"; and (e) comprehensive assessment of financial management in higher education institutions (English summary report entitled "A Report of the - 14 -  Study on the Comprehensive Assessment of College Finance"\.) The following is a summary of the reports, details of which are given in Annex 10\. Developing a System for Quality Assessment The study produced five sub-reports on various aspects of quality assurance\. The study outcomes included: (a) the implementation of a five-year evaluation cycle, using 7 primary and 18 secondary key indicators and 38 "observation points" to monitor and evaluate three key aspects of higher education (operating conditions, the educational process, and institutional efficiency); (b) establishment of data collection system on undergraduate programs and an evaluation agency under MOE; and (c) development of a cadre of evaluation experts and a task force for future work\. Establishment of a Textbook Renewal Mechanism The study contained three parts: (i) the textbook renewal mechanism; (ii) textbook development/reforms under the 10th Five-Year Plan; and (iii) an evaluation system for higher education textbooks\. There were five recommendations focusing on: (a) strengthening the role of publishers; (b) increasing textbook choice; (c) introduction of competitive bidding for textbook development; (d) establishing indicators for quality assurance; and (e) developing electronic materials to diversify textbook provision\. The recommendations were adopted by MOE for systemwide implementation\. Managerial Autonomy of Higher Education Institutions In a three-phase study, the first phase involved designing a framework for higher education institutional reforms which was piloted in the universities\. The second phase, involving the introduction of reforms in 2000, showed that institutional autonomy required a major system restructuring\. The actual study was carried out in the third phase which was completed in mid-2003 and the draft report reviewed in mid-2004\. The issues identified in the study included: (i) the legacy of public ownership of higher education institutions and its attendant problems; (ii) the need to promote institutional autonomy; (iii) the need for institutional reforms to be implemented within the framework of political reform; and (iv) potential obstacles to reforms\. Two key recommendations were to privatize some of the public higher education institutions, and restructure resource allocation to give institutions greater autonomy\. Graduate Tracer Study The study, developed by Shanghai Jiaotong University and tested in all project institutions, generated a questionnaire and a software for tracking student\. By early 2004, the study had: (i) completed a survey of graduate employment, including employer information; (ii) identified/formalized key indicators; and (iii) developed the software for the survey of graduates and employers\. The study was completed in July 2004\. The results of the evaluation that followed the study were integrated into the present evaluation system\. While no formal report was issued, several PUs reported results from their own surveys\. The findings of two PUs have been cited in the ICR text (para\. 4\.2 (a) (i) )\. Additional information was provided by HUST, ICR pp\. 26; HIT, ICR pp\. 23-24\. For further details, see MOE/FILO ICR, Annex 4\. Assessment of Higher Education Financial Management The study was completed in 2003\. The findings confirmed the suitability of the existing financial management system for the current reforms\. The software for the study, developed for use by higher education institutions, contained 38 key indicators divided into three groups to monitor and evaluate financial management\. The key indicators dealt with: (i) total income of the system to be measured; (ii) operational efficiency (e\.g\., teacher-student ratios, expenditure on equipment per student and for faculty - 15 -  research, etc\.); and (iii) risks, such as loans/borrowings by institutions, year-end balances, expenditure versus income, fixed assets versus liabilities, etc\. Following a trial run, the software was being used by 76 higher education institutions under MOE\. III\. Textbooks and Electronic Materials\. This sub-component is rated as highly satisfactory\. The target was to produce 400 textbooks on 200 basic courses through a cooperative effort between the PUs and MOE/HED which produced the guidelines for the innovative approach of having the universities bid for contracts on a competitive basis\. A 120 expert-member review panel approved 333 proposals from 170 institutions from 31 provinces, regions and municipalities\. Significantly, 22% of the successful bids came from "disadvantaged" universities in poorer areas\. Under MOE's leadership, the PUs were successful in developing and implementing new curricula, textbooks, teaching-learning methods for undergraduate core foundation, compulsory and elective courses, supported by a variety of multimedia software\. At EOP, 4,203 key courses had been updated and 6,827 textbooks renewed or developed, approximately 126% and 157%, respectively, of the targets\. At the same time, there were 9,434 examination-reformed courses, 120% of the project target\. (For details, see Annex 1, key performance indicators under Component 1; Annex 8 Tables 4 and 5; and MOE/FILO PPI, Table 2)\. Management Information System (MIS) Development At the outset of project implementation, MOE/FILO established a MIS to support its overall project coordination responsibilities\. Several factors contributed to the development and application of the system: (i) the project universities' management; (ii) the development of IT; (iii) the heavy burden of daily routine work for information dissemination; and (iv) the urgent need for communication among project stakeholders\. Management staff of PUs could access the project website email box with the given user name and password, while an email link was established between MOE/FILO and PUs\. All data transmission, collection and processing were done through computers\. Regular visits to the project website became a part of the PU FILO's work which strengthened communication between the PUs and MOE/FILO\. The project website, as an information-sharing and multi-channel communication platform, was an indispensable tool for project management and coordination (MOE/FILO 2004 draft APR, p\. 9)\. The Severe Acute Respiratory Syndrome (SARS) crisis presented an unexpected opportunity for the MIS to demonstrate its efficacy as a information-sharing and communication support system\. MOE/FILO and the PU leaders responded to the crisis by: (a) creating off-site and online communication to maintain inter-university contact; (b) quickly establishing, in cooperation with CERNET, a public distance education platform that was rapidly expanded with courseware by PUs; (c) using video-conferencing for institutional administration and academic exchanges; and (d) exchanging project information and progress reports through the website created by the MIS (see para\. 5\.1, below)\. - 16 -  Outcomes Under Component 3, the domestic training and overseas study tours, together with the dissemination seminars, were crucial to the reform process because they primed the senior university officials for the leadership roles they would play in implementing all the key aspects of the reforms\. Seeing for themselves how undergraduate science and engineering programs were conducted in the "world class" universities provided the university leaders with a vision of what China's higher education institutions could achieve and needed to achieve\. All the project universities have institutionalized the principles of student-centered teaching-learning methodologies; students' choice of courses within academic programs; and adoption of a range of flexible methods of assessing student learning achievement through team as well as individual projects, written assignments, standard closed-book and open-book tests/examinations, etc\. The reformed curricula emphasize stimulating students' creativity and innovative abilities\. Science and engineering laboratories are open for students' use after regular scheduled sessions, subject to first-come, first-serve advance bookings through their teachers\. Reforms in curricula and instructional methods have led to the institutionalization of regular skill upgrading and professional training for administrative, technical and academic staff\. Key outcome indicators of the reforms may be seen in the national as well as university presidential prizes awarded to numerous student papers for their excellence, to staff for their distinction in teaching, and to institutions for establishing excellent laboratory centers as well as developing excellent innovative basic undergraduate courses\. For example, Nankai University's four lab centers won the first ever title "Excellent Teaching Labs" in Tianjin Municipality, and in Peking University, four teachers cited for their excellence were recognized as "National Excellent Teachers" in 2003\. Similar awards were conferred upon several universities\. The logical outcome of excellence in teaching is student learning achievements\. Nankai University provided the example of one of its students, Zhang Lei, of the Chemistry College winning a special innovation award for his article Luminous Zinc Nanometer Molecule in the 7th National Challenge Cup for College Student Scientific Works in 2001\. The only undergraduate to receive the award, Zhang Lei subsequently had five articles accepted for publication by international journals (NKAI ICR, p\. 18)\. An important outcome with potential long-term impact is the development of multimedia teaching-learning through the establishment in the majority of project universities of multimedia centers which are used for professional staff training and for extracurricular courses for students\. The multimedia-based teaching has not only significantly reduced the conventional instructional time, but also effectively promotes student-centered learning in which students have relatively more time to study and carry out research on their own\. A potentially far-reaching outcome is the introduction of courses in English or bilingual (Chinese/English), as an important first-step towards increasing the internationalization of Chinese higher education\. An expanding number of universities offer bilingual (English-Chinese) courses in science and engineering\. Indeed, in some universities, selected science courses are specifically taught in English to reinforce students proficiency in the language and to familiarize them to the scientific concepts and terminologies in English\. Many of the students that the Bank mission team met in discussion sessions in CUST, XJTU, TJU, DLUT, and JLU said they regularly used the Internet to access science and technology information worldwide -- an indication of their English proficiency -- a foundation for their lifelong learning\. An impressive number were able to discuss in English their learning experience under their respective universities' reformed academic programs and to express their evaluation of the efficacy of the reformed methods of teaching and assessment of student learning\. Discussions with students in NJU, SEU, FDAN, SJTU, PKU and TSING confirmed the earlier mission findings that the university reforms in science and engineering curricula, teaching-learning methods, and use of the equipment-updated - 17 -  laboratories and workshops for students' practical experiments had significantly improved the learning environment and increased student learning achievement\. IV\. Student Loan Pilot Scheme\. This sub-component is rated as marginally satisfactory\. This sub-component was tangential to the main thrust of the project\. The scheme was designed specifically for students to repay their loans aftergraduation when they were employed\. One of the assumed, but not explicitly articulated outcomes was the adoption by Lanzhou University of an official policy to allow students who borrow money to finance their education to repay their loans aftergraduation\. Evidently, there was no change to the prevailing policy of requiring students to repay the loan beforegraduation\. The loan fund (a PHRD grant of US$100,000 equivalent to approximately RMB830,000) provided by the pilot project was quickly taken up by Lanzhou University students\. The majority of borrowers -- about 77% -- were students from rural areas and presumably much poorer than others, repaid their loans before graduation\. One specific lesson learned from this pilot is that such institution based pilot is not likely to succeed in achieving the designed policy objective without adddressing the broader policy framework at the system level\. The prevailing policy environment during the project that did not embrace the transition toward an income contingent scheme limited the experimental value of such pilot\. 4\.3 Net Present Value/Economic rate of return: Not applicable\. 4\.4 Financial rate of return: Not applicable\. 4\.5 Institutional development impact: The institutional development impact of the project was substantial\. The construction of new or renovation of existing lab experiment centers provided the physical infrastructure for the reforms in the teaching and learning of science and engineering that underpinned the institutional development of the PUs as well as the PIs\. The institutional development impact was evidenced by the following project outcomes: (a) the restructured academic programs that integrated basic teaching and research; (b) the administrative reorganization of the previously fragmented labs into a modern integrated system of experiment labs that facilitates cross-discipline teaching and learning; (c) the institutionalization of the credit system, providing students a flexible choice of majors and multiple modes of assessing student learning achievement; (d) the practice of a student-centered teaching/learning methodology and an open-access policy for lab experiment centers to encourage students to carry out experiments that could test their creativity and innovative ability; (e) the establishment by MOE of a quality assessment system; (f) the adoption of a graduate employment mechanism linking employers' requirements and the university undergraduate programs through a feedback system that strengthened the relevance of academic programs to market demands; (g) the establishment of a system of continuous curriculum development, including updating or creating new courses and related examinations, and renewal and development of textbooks and other teaching/learning materials; and (h) the institutionalization of the partnership program with multiplier effects on the reforms undertaken by the PUs\. 5\. Major Factors Affecting Implementation and Outcome 5\.1 Factors outside the control of government or implementing agency: The sudden outbreak of SARS in Guangdong Province in March 2003 was a major factor that had a negative impact, but fortunately no long-term effect on the project (PSR #9, archived June 5, 2003, and PSR #10, archived December 11, 2003)\. During the initial period of the crisis, the travel ban severely limited communication among PUs and especially among those in Beijing, and forced the shut-down of - 18 -  PUs' regular operations in other SARS-infected provinces\. These events temporarily slowed down certain implementation activities, mainly information dissemination and exchange visits between institutions\. The crisis, however, produced unexpected outcomes that demonstrated the creative resilience of the PU leaders whose response to the challenge included the following activities: (a) the creation of off-site and online communication to maintain inter-university contact; (b) the quick establishment of a public distance education platform by CERNET that was rapidly expanded with courseware by PUs open to the public; (c) video-conference technology was used for institutional administration and academic exchanges; and (d) PUs exchanged project information and progress reports through the website created by MOE/FILO's MIS\. As the threat of SARS retreated, mobile tutoring teams were established and more flexible course schedules were developed to maintain the running of courses and cater to students' learning needs\. SARS also had a negative impact on the project's counterpart funding due to the fact that the crisis forced many PUs to use their resources to contain the disease while continuing the teaching/learning process through augmented distance education technologies that also incurred extra expenses\. 5\.2 Factors generally subject to government control: One of the overseas study tours, as one of the MOE-FILO centrally-organized activities, was delayed by visa problems\. Apart from this minor delay, the overseas study tours and dissemination seminars were effectively implemented by FILO's technical assistance department, and institutional project implementation was monitored and guided by the CEP\. The centralized equipment procurement procedure, at least under the first ICB, resulted in many PUs receiving poor quality equipment or instruments that did not match their requirements\. Some PUs reported unsatisfactory or totally non-existent after-sales service; unsatisfactory or no replacement of defective equipment; and poor quality of locally-manufactured equipment purchased on the basis of lower price, but was not cost-effective for lab teaching/learning purposes\. Xian Jiaotong University, for example, was of the opinion that there were "many flaws" in the national public bidding for equipment because "a remarkable number of equipment" did not fit the requirements and specifications of the experiment labs\. The equipment list under this procurement method was too limited\. With reforms deepening and the need for increasingly more sophisticated equipment, adjustments were needed for large-scale equipment procurement (XJTU, ICR pp\. 21-22)\. These problems were addressed in the second and third ICBs\. In staff development, several PUs fell short of their targets for teachers with Master's degree and doctorates, because they were unwilling to release staff for higher degree training programs, and because the prevailing regulation limited staff training for higher degrees to staff who were younger than age 45\. This restriction limited the number of staff eligible for project-financed higher degree training, resulting in the reduced output of staff with higher degrees\. However, this appeared to be only a temporary setback which was being overcome by the PUs' own regular staff development programs whereby younger staff registered for a higher degree while employed by the university which provided incentives, such as reduced or waived tuition fees\. 5\.3 Factors generally subject to implementing agency control: In 2000, several PUs faced difficulties with counterpart funding for the project due to the sudden increase in student enrollments\. After the installation of lab equipment, some PUs claimed that the plan for counterpart funding covered only installation, not maintenance costs, raising questions about the sustainability of the investments in equipment (MOE/FILO, 2004 draft APR, p\. 5)\. The frequent changes of staff responsible for the university partnership program, and the arbitrary changes of certain partnership activities had an adverse effect on certain aspects of the program\. The problems were addressed by the CEP during inspection visits to PUs and at the year-end conference organized by MOE/FILO to review and resolve implementation issues\. - 19 -  5\.4 Costs and financing: At appraisal, the total estimated project cost was US$104\.4 million, including physical and price contingencies (US$6\.4 million and US$4\.8 million, respectively), comprising US$46\.5 million in foreign costs and US$57\.7 million in local equivalent (Annex 3, PAD, dated April 14, 1999, p\. 44)\. The MOE/FILO-revised estimated project cost was US$106\.27 million\. The project was financed by a loan amount of US$20\.0 million and a credit amount of SDR36\.80 million equivalent to US$50\.0 million\. The actual project cost was US$121\.73 million, 116\.60% of the revised appraisal estimate\. The increased cost was mainly due to the cost of civil works funded by counterpart resources from the institutions\. The heaviest expenditures, in absolute terms, compared with the revised appraisal estimates, were laboratory equipment (US$76\.47 million = 132\.07%), and curriculum and textbook development (US$6\.27 million = 285%)\. Annex 2 provides details on costs and financing\. 6\. Sustainability 6\.1 Rationale for sustainability rating: The rating for sustainability is highly likely\. The Government regarded this project as the second wave of major reforms to create a strong, modernized and broadened curriculum content and skills base which would enable the project universities to prepare graduates for an increasingly knowledge- and technology-driven economy\. The MOE fully understood the fact that implementing the much-needed reforms in the first and second year undergraduate basic science and engineering programs would help the country keep abreast of the quickening speed of global knowledge-creation and technological innovation\. The new generation of graduates would help speed up national efforts in the transformation of a planned economy to a socialist market economy which, if successful, would provide important and closely-monitored models of institutional change for China's vast higher education sub-sector\. The reforms are built on a strong policy platform based on the Guidelines of China's Educational Reform and Development (GOC, February 1993),which called for, among other things, the provision of specialists for the nation's modernization\. All the outcomes which had a significant institutional impact (listed in para\. 4\.5, above) are the long-term building blocks of the project's sustainability\. Since 1995, cost recovery mechanisms had been in place with the implementation of tuition fees\. While students who enrolled prior to 1995 did not pay tuition fees, those who enrolled from 1999 were required to pay them\. With the rapid enrollment growth, the real income of the PUs would correspondingly rise, thus increasing their ability to sustain the project reforms in teaching and learning\. To ensure sustainability in the immediate post-completion period, every project university prepared as part of their ICRs a plan for sustaining project investments\. Many included appropriate policies and regulations, with the necessary budget provisions, to create a favorable environment for the continued support of the lab experiment centers and the teaching/learning reforms\. For example, HIT included plans for the continued development of teaching in its second stage of Project 985 and the Eleventh Five-Year Plan, 2006-2010, with the proposed investment of RMB 100 million to build a new laboratory complex, in addition to the annual allocation of RMB 200,000 to maintain each of the four labs developed under the project, and an equal amount to operate the graduate tracer system\. Other budgetary provisions were made for training lab center personnel and investment in the partnership activities, including dissemination of reforms, with Heilongjiang College of Science and Technology (HIT, ICR pp\. 40-41)\. Wuhan University plans to invest RMB 4 million in the next five years for domestic and overseas training of academic and laboratory teaching and administrative staff (WHU ICR, p\. 28)\. 6\.2 Transition arrangement to regular operations: As all the PUs and PIs are long-established, functioning institutions supported according to their - 20 -  governmental or ministerial affiliation by MOE, various Ministries, municipalities and provincial authorities, the transition from project status to regular operations for the project universities and partner institutions has been a seamless process\. 7\. Bank and Borrower Performance Bank 7\.1 Lending: The first Bank project in China in 1981 was for higher education development, which signalled the start of a constructive Bank-Borrower relationship in education projects\. By the mid-1990's, however, undergraduate curricula had not been updated for over a decade\. The 1997 Bank Sector Report, China: Higher Education Reform (op\.cit\.) provided the rationale for the ground-breaking higher education reform project that focused, for the first time, on reforms in undergraduate science and engineering programs\. The Bank Sector Report was in line with the 1993 Guidelines for Development and the Reform of China's Education System which called upon the education sector to speed up the process of transforming the planned economy into a socialist market economy\. The project complemented on-going Government reforms in higher education at the post-graduate level, particularly in "Project 211" which however, focused largely on physical infrastructure enhancement, whereas this project provided the impetus for reforms in curriculum and teaching methodology, and institutional management and finance\. The Bank brought to the project design valuable international experience with regard to science and engineering education development, international higher education consortia information, and management information systems\. 7\.2 Supervision: Budget constraints and the tight work schedule of the counterpart task team, coupled with the SARS crisis in early 2003 reduced the number of field supervision missions, which however, was supplemented by desk reviews of project progress based on the Annual Progress Reports (APR) submitted by MOE/FILO\. A total of 13 Implementation Status and Results (ISRs) (formerly Project Status Reports, PSRs) were recorded, the first dated June 29, 1999 and the last June 7, 2005\. Field supervision missions and communication between Bank resident mission staff and MOE/FILO staff provided timely and consistent support to MOE/FILO and to those PUs which the missions were able to visit in matters pertaining to procurement of equipment and services, financial management and disbursement of loan funds, and project reporting\. From the outset, emphasis was placed on strengthening the monitoring and evaluation (M&E) scheme to track and report on progress towards project objectives and outcomes\. Budget constraints also limited the site visits and composition of the supervision team\. In between the formal supervision missions, the Resident Mission staff provided regular support to MOE/FILO to resolve various implementation, disbursement and financial management problems\. The supervision teams were flexible in addressing implementation issues\. The findings and recommendations of supervision missions are well documented in aide memoires, back-to-office reports, and ISRs\. The Bank's supervision performance is rated satisfactory\. 7\.3 Overall Bank performance: The Bank's overall performance was satisfactory\. The identification, preparation, and appraisal missions were appropriately staffed with a judicious mix of well managed, and effective higher education specialists\. Project negotiations were well planned, managed and executed\. The supervsions were adequate with timely assistance to the Borrower, despite the budget constraints\. Borrower 7\.4 Preparation: To prepare for the project, MOE had commissioned a fairly extensive body of research in locations across China\. The findings had been reported in the project areas of curriculum, teaching, and management - 21 -  reform\. In addition, to facilitate the work of the Bank's identification and preparation missions, MOE's HED had also commissioned 216 research projects nationwide on subject content, teaching method reform, and management reform in higher education\. (The Bank had earlier supported these activities through an IDF Grant\.) Consensus among universities participating in the project was developed through national workshops convened during the project identification, preparation and pre-appraisal stages\. This was to ensure that the universities were fully informed about various aspects of project design, implementation and follow-up\. Between Bank missions, the MOE task team convened several workshops for continuing this work\. In addition, a national experts committee worked with and advised the project teams\. Project design involved university management, administrative and academic staff, and civil service staff at all levels of government managing higher education institutions\. The graduate tracer and social assessment studies covered a wide circle of stakeholders, including students, parents, employers and minority group representatives to elicit their views about the project and its objectives\. Government's performance during project preparation is rated as satisfactory\. 7\.5 Government implementation performance: MOE/FILO made a good head-start with the training of project, procurement and financial management staff soon after project launch\. The centrally-organized activities (domestic and overseas study tours and dissemination seminars) were well-planned and carried out efficiently\. The policy-based studies were implemented as planned, with summary reports issued in 2004, but no final official reports were published\. The Higher Education Advisory Panel (HEAP), also known as the Chinese Expert Panel (CEP) provided effective advisory support for the project\. Frequent staff changes in FILO adversely affected regularity and continuity of annual project progress reporting, especially at the final stage of project implementation\. All the PUs submitted individual ICRs, most with extensive coverage of project activities, particularly of the lab experiment centers\. The CEP submitted a summary report on its supervisory activities, and MOE/FILO submitted a consolidated report based on the 27 project university ICRs\. The Borrower was in full compliance with all loan/credit covenants\. All audit reports had been submitted without negative comments\. 7\.6 Implementing Agency: Each of the PUs had its own FILO as the implementation unit\. As implementation gathered momentum, some institutional FILOs and many lab centers experienced staff turnover problems which caused communication problems between PUs and their partner institutions, adversely affecting the partnership cooperative activities and management of the lab centers\. From year 2000, some PUs had local funding difficulties due to the sudden increase in student enrollments\. Apart from these problems, overall implementation and progress reporting were well managed\. 7\.7 Overall Borrower performance: Overall the Borrower's performance is rated as satisfactory\. 8\. Lessons Learned Key lessons learned are summarized as follows: Project Design and Management 1\. The project demonstrated clearly the crucial importance of: (i) government commitment to the large-scale reform of higher education to ensure successful implementation; and (ii) the effective - 22 -  coordination and integration of the centralized technical assistance and institutional management of training and development of key management and teaching staff, which were the primary enabling factors in the successful implementation of the university reforms (para\. 4\.1 and Component 3, I, p\. 14)\. Policy-Based Studies 2\. Quality Assurance\. A quality assurance system for undergraduate programs requires continued efforts to: (i) clarify the capacity-building needs at the national and institutional levels in the context of the decentralized control and diverse structure of higher education; (ii) transform the evaluation system from being an externally-driven mechanism into an internally-motivated, self-generating agency; and (iii) establish guidelines based on nationally-accepted standards for the accreditation of private tertiary institutions in preparation for their expanding role in the education and training of high-level skilled manpower for China's fast-expanding economy ("Quality Assessment", p\. 15)\. 3\. Institutional Autonomy\. As improvement in institutional governance is the key to effective higher educational institutional autonomy, a supportive policy framework and financial arrangements need to be augmented by strong governance to reinforce institutional autonomy against external administrative interventions ("Managerial Autonomy", p\. 15)\. Competitive Funding for Textbook Development 4\. The strategy adopted for textbook development demonstrated the usefulness of competitive bidding as an effective instrument in improving institutional efficiency and performance, provided objectives are clearly defined, a peer review mechanism is in place, and a set of transparent criteria is established to guide the process ("Textbooks and Electronic Materials", p\. 16)\. Equipment Procurement 5\. Some universities experienced poor or non-existent after-sales service for equipment; others could not obtain replacement of defective equipment which generally was locally manufactured and nominally less costly than the imported (foreign-manufactured) equipment\. The experience suggested that the best cost may turn out to be not cost-effective; and therefore, cost considerations needed to be balanced against quality and specifications of service standard in the procurement of precision instruments (para\. 5\.2)\. Counterpart Funding 6\. Many PUs learned after equipment had been delivered that the local funding provided only for the cost of equipment installation not maintenance\. The experience suggested a need to include funding for equipment maintenance, as well as installation at least during the project period when preparing counterpart financing of the project (para\. 5\.3)\. 9\. Partner Comments (a) Borrower/implementing agency: Note: Borrower's comments included are unedited\. 9\.1 The Borrower thinks that the Bank's ICR made a clear description of the project and its implementation in terms of project targets, implementation experience and results\. The statistical data supporting the report is trustworthy\. The Borrower agrees on the whole to the viewpoints, analysis and - 23 -  recommendations in the ICR\. 9\.2 Project Background\. In 1993, in order to speed up the modernization, the Chinese Government in The Guidelines of China's Educational Reform and Development called for reforms to: (a) provide the required specialists for China's modernization and for establishment of a socialist market economy; (b) improve the social status, work and living conditions of teachers; and (c) build up numbers of key universities and establish key courses of studies and specialized studies\. The main problem in achieving this strategic target was mainly in three aspects: (a) Shortage of education funding\. The proportion of funded educational expenditure was even lower than 3% of Gross National Product of our country by the end of the 1990's\. Following the fast enlargement of the scale of higher education, the problems of the funds for higher education are more severe\. In the 1990's, the universities of our country had already formed an education of mainly financial allocation funded with other patterns of raising education funds through many channels\. In this case, university become the host of funds raising, but because of the gap of economic development level and financial resources invest among different areas, some universities still face the serious funds shortage situation, which is not good for university development\. (b) The university new curriculum reform since the 1980's made the school teachers shoulder the pressure of the knowledge structure renewal\. Furthermore, traditional teaching materials can not meet the new requirements of the new period either\. Therefore, a large number of funds for teaching staff training and textbook compiling are needed badly\. Data shows that universities of our country are confined by factors such as being insufficient in input of science and technology, which leading to low scientific and technical innovation level\. This means that the scientific creativity is not in a high level because of the limitation of insufficient investment in science in universities\. 9\.3 After a careful study and discussion with World Bank and based on the need of country's on-going modernized development strategy, our government determines to utilize World Bank loan supported Higher Education Reform Project to open up a new way in order to solve the above-mentioned development bottleneck problems of higher education through adopting the advanced idea of running a school, focusing on supporting the undergraduate educational reforms in 28 project universities, and improving the education conditions of the universities\. 9\.4 Project Objective\. The agreed objective of the project was to: (a) improve the teaching and learning quality and relative teaching conditions and cultivate more innovative students through reforms in curriculum system, experiment teaching system and teaching pattern of the science and engineering first and second year undergraduate; and (b) strengthen the programming and management ability of government and universities to drive the implementation of the above reforms\. This project will definitely provide favorable environment for project universities and partnership universities to better adapt for the development of socialist market economy of China\. 9\.5 Project Implementation and Results\. Since the project launching 5 years ago, the project has reached all the goals pre-planned and then come to a closure on July 31, 2005\. Thus, the targets are fully met and all construction tasks are completed\. The project has a performance in promoting the conditions of project universities, deepening the reform of undergraduate education, and improving the teachers' professions and abilities of management staff\. This project impelled the management mechanism reform of labs and combined the originally separated labs into 117 experimental teaching centers and multimedia teaching centers with a total area of 420,984 m2 and total experiment teaching staff number of 5,539\. Every year, with the help of these centers, 30,876,600 person times of teaching task can be made\. Besides, the labs areas of basic experimental teaching centers have been enlarged from 245,498 m2 in 1999 to the current 420,984 m2; the value of equipment has also increased 91\.47 million dollars\. All the experimental centers are open to the whole university that realized the resources sharing and intercollegiate resources - 24 -  communication\. The technological assistance activities supported by project organized domestic trainings and also study tours in foreign countries\. Besides, various seminars were held\. In total, the number of project trained staff reaches 39,634 person times completing 152\.89% of the project plan\. In all, the collaboration activities have established relations with 30 project universities, and the investment made by the project reaches 28\.657 million RMB\. 9\.6 The implementation of the project has impelled the reform in undergraduates' education and teaching methods, especially in the experiment courses of basic courses for the first and second year students\. These experiment courses now turn out to be tightly integrated with the respective theoretical courses and as well as independent\. In order to realize the student cultivation goal of "Knowledgeable, capable, and competent" in experiment courses, the project gives much attention to re-equipped the labs, renew the teaching staff structure to realize a human resources recombination, and construct a new management mode and mechanism of experimental centers\. Project also undertakes some goals, which has been realized step by step during the implementation of project: increase the utilization rate of lab equipment with the link of experimental courses reforms; strengthen the training part for university executives, teaching staff and technical teaching staff by training activities both in central level and university level to enhance teachers' quality; project universities provide assistance to partnership universities in fields like human resources, material resources and funds and consequently, their deeds are warmly welcomed by the partnership universities; in total, 9\.07 million RMB has been invested in researches with 186 sets of newly reformed textbooks, 259 renewed courses and many researches valuable to teaching reform and development as the fruit; combined with experimental courses reformation, project universities have bought books and teaching software that relevant to undergraduates' basic courses; project universities have realized the project radiation to other fields through cooperation with partnership universities, especially has obtain good results in education reform and construction\. 9\.7 Project universities have completed all the labs renewal work in the experimental centers and thus have strengthened the equipment condition in laboratories and enhanced the utilization rate of the equipment\. In addition, these universities put much more efforts to teaching reform, construction and amendment of experiment courses, construction of the management mechanism of experimental centers, improvement of utilization of books, speeding up the construction of teaching staff, making good and detailed conclusion and evaluation of the researches of this project and putting it into practice\. These efforts of project universities provide a stable base for realizing the goals of this project\. These are fully analyzed in MOE's ICR and Bank's ICR, so no further description will be given here\. 9\.8 Project Sustainability\. After this project, aiming at maximum of the impact of this project in personnel training, we will continue to support the university for the development of the project in the aspects as policy, personnel, and funds, and also support the university to organize and implement the laboratory construction, teacher training, bachelor degree reform, reform of curriculum and course content, teaching material construction and university teaching management and so on\. Besides, the development of the project will be included in the master plan and annual plan for higher education development\. In order to properly promote the overall development of university education, we will assist the project universities to make the benefits development and fund input plan of five years and after the project is closed\. Recently, Ministry of Education begins to set up the demonstration centre of national-level experiment teaching and organize evaluations on the experimental canters of university and regular review on each center\. It is predictable that a large part of these centers will be supported by the project\. Also more relevant policies and plans will come out for continuous promoting the development of every project university (see details in relevant paragraph in MOE's ICR)\. - 25 -  9\.9 Borrower's Performance\. All the activities related to supporting Institutional Capacity for Change are managed by MOE, who has supervised the implementation of project through these activities\. FILO of MOE has organized overall bidding and procurement of equipment, study tours, national training workshops and dissemination seminars, and provided project management, summary and evaluation\. Higher Education Department and Financial Department of MOE also have favorably cooperated with project universities in operating five researches and studies, curriculum reforms and textbooks compiling activities (electronic textbooks are included)\. The Advisory Panel of Project supported by MOE has played a crucially important role in assisting FILO of MOE to supervise and evaluate the overall status of project\. FILO conspicuously fulfilled its task in project supervision, providing very constructive suggestions and recommendations to project units, and having good coordination with departments concerned, which guarantee a right direction of project development and also rich outcomes of project\. The activities mentioned above help to strengthen the programming, management and coordinating ability of the university authorities\. On the whole, the Ministry of Education has successfully fulfilled its duties in project implementation and management\. 9\.10 Comment on World Bank's Performance\. World Bank (WB) officials and consultants sent to China are all possessed with high professional and management ability\. They had worked harmoniously with the Chinese Counterparts, especially with FILO of MOE who in charge of this project\. From the beginning of the project, the task manager of the World Bank and Bank consultants have been paying much attention to the quality and innovation of the project\. They provided lots of valuable suggestions and recommendations when visiting and supervising the project and helped solve problems appeared in the implementation period, which guaranteed the smooth implementation of the project\. In a word, in the evaluation process, implementation process and implementation completion process, their outstanding work gained respect and high commends from project implementing institutions\. (b) Cofinanciers: Not applicable\. (c) Other partners (NGOs/private sector): Not applicable\. 10\. Additional Information Not Applicable\. - 26 -  Annex 1\. Key Performance Indicators/Log Frame Matrix Outcome/Impact Indicators Indicator/Matrix Projected in Last ISR Actual/Latest Estimate Project Development Objective: Quality and relevance of undergraduate basic science and engineering programs improved\. A\. OUTCOMES Component 1: Achieving Improvement In this section, actual achievements in Teaching and Learning\. pertain to status at EOP\. A1\.1: 75% of project universities (PUs) Over 75% of the PUs 100% of PUs and PIs used the updated and the Partner Institutions (PIs) use the and PIs used the courses and updated or newly curricula review/renewal mechanism on a reformed curricula on a developed textbooks (Project regular basis by end of project (EOP)\. regular basis\. Performance Indicators ­ PPIs ­ Table 2 and Table 6)\. A1\.2: 75% of institutions have adopted Over 75% of 100% of PUs and PIs adopted and and implemented relevant reform programs institutions had adopted implemented the reforms developed by EOP\. and implemented under the project, in teaching/learning relevant reform in laboratory experiment centers\. The programs by EOP\. relevant examinations have also been reformed to conform with the reformed courses; the credit system has been adopted for the Year 1 and Year 2 science and engineering programs, providing greater flexibility for students to choose or change their majors, and to combine different disciplines as desired\. A1\.3: 75% of previously identified Over 75% of identified teaching/learning/management good teaching/learning and management practices used by PUs and by at least 70% good practices are used by PUs and of PIs by EOP\. PIs\. Details are provided by the individual PU ICRs and the sub-reports on their lab experiment centers\. - 27 -  Indicator/Matrix Projected in Last ISR Actual/Latest Estimate A1\.4: Twenty-eight (28) sets of By end of project year 1, there were 31 partnerships between PUs and PIs PIs (Lanzhou University had 4 established and operational by end of partners, and Jilin University had 2, project year 1\. taking over Jilin University of Technology's partner after the merger of the two universities in 2000)\. Not all partnerships were in full operation by end of project year 1, because many were still working out the details of partnership activities\. By Mid-Term, however, all partnerships had been established and operational\. Component 2: Using Partnerships and Networks to Spread Reforms\. A2\.1: 75% of Partner Institutions (PIs) use As in A1\.1 above\. As in A1\.1 above\. the curricula reviewal/review mechanism on a regular basis by EOP\. A2\.2: 75% of institutions have adopted As in A1\.2 above\. As in A1\.2 above\. and implemented relevant reform programs by EOP\. A2\.3: 70% of previously identified As in A1\.3 and A1\.4 above\. teaching/learning/management good practices used by at least 70% of PIs by EOP\. A2\.4 Twenty-eight (28) sets of As in A1\.3 and A1\.4 above\. partnerships between PIs and PUs established and Operational by end of project year 1 - 28 -  Indicator/Matrix Projected in Last ISR Actual/Latest Estimate Component 3: Supporting Institutional Capacity for Change\. A3\.1 A system of quality assessment in A study on quality assessement, higher education developed and initiated in May 2001, developed a new operational by EOP\. undergraduate evaluation scheme focused on teaching and learning\. The study produced five sub-reports dealing with various aspects of quality assurance\. Outcomes included: (i) positive feedback from higher education institutions; (ii) development (on-going) of a pool of evaluation experts and a task force for future undertakings; (iii) establishment and implementation from 2003 a 5-year evaluation cycle; (iv) establishment of a system of regular data collection on undergraduate programs; and (v) establishment (in process) of an evaluation agency under MOE\. For details, see ICR, Component 3, II, Policy-based research studies, p\. 22\. A3\.2: A textbook renewal mechanism A study on this issue resulted in a appropriate for a socialist market economy summary report (2003) with established and operational by EOP\. recommendations for: (i) re-defining GOC role, including exercising overall quality assurance by developing and applying appropriate indicators and establishing appropriate social institutions for textbook monitoring and evaluation; (ii) strengthening role of publishers through decentralization of the responsibility for textbook development; (iii) increasing choice of textbooks for various subjects to meet the need for multiple sets of learning materials; (iv) introducing competition and incentives for open bids in textbook development; and (v) further diversifying textbook provision by developing electronic teaching/learning materials\. Many universities have, in fact, replaced the textbook single-choice with a multiple-choice system\. For details, see ICR, Component 3, II, Policy-based research studies, p\. 22\. - 29 -  Indicator/Matrix Projected in Last ISR Actual/Latest Estimate B\. OUTPUTS Component 1: Achieving Improvement As no baseline was provided in the in Teaching and Learning\. Project Performance Indicators (PPIs) of the PUs' completion reports and in the ICR of MOE/FILO, the comparisons in the increased or decreased OUTPUTS throughout this section are necessarily based on the targets set by the PUs and their actual achievement\. In this section, all achievements pertain to status at EOP\. B1\.1: (a) Ratio of staff with higher degrees increased by EOP\. The results for ratio of staff with higher degrees are mixed\. Seventeen (63%) of the 27 PUs failed to achieve their targets for increasing the ratio of teachers with Master's degree to full-time teachers\. Regarding teachers with doctoral degree, six (2\.2%) of the PUs fell short of their targets\. The situation reflected complex socioeconomic conditions affecting staff training in the universities, most of which had a high proportion of staff aged 45 or older, usually holding only a bachelor's degree or equivalent, who were ineligible for higher degree training\. This apparently was one of the main reasons for many PUs falling short of their training targets\. The higher proportion of PUs meeting their targets for Ph\.D\. teachers suggests that they are the younger academic staff\. For details, see PPI, Table 1\. B1\.2: Ratio of students to [full-time] The average student:full-time teacher teachers increased by EOP\. ratio at appraisal was 11:1 compared with the 2005 ratio of 15:1\. Thus the achievement represented a 36% improvement, implying a higher teacher utilization rate that would eventually result in lower per-student costs\. Further details in PPI, Table 1\. - 30 -  Indicator/Matrix Projected in Last ISR Actual/Latest Estimate B1\.3: Cumulative number of teachers In 2005, there were 14,055 trained trained for basic courses increased by EOP\. teachers teaching Year 1 and Year 2 basic undergraduate courses, representing 64\.6% of the total of 21,745 teachers\. As there was no average target for the PUs, relative achievements could be gauged by comparing individual PU achievement against its target\. Examples of target (T) versus achievement (A) for selected PUs (using their codes): SEU T=100%; A=170%; NKAI T= 15%;, A=43%; LZU T=50%\. A= 97\.5%\. The majority (88%) of PUs reached or surpassed their targets\. The increase in the proportion of trained teachers reflected higher quality staff, which would lead to improved teaching/learning quality\. For details, see PPI, Table 8\. B1\.4: Cumulative number of trained In 2005, the PUs had a total of 16,857 administrator increased by EOP\. administrative staff, of whom 9,296 (55%) were trained\. Twenty-two (81\.5%) of the 27 PUs reached or exceeded their targets for trained administrators\. The five PUs that fell short of their targets may have encountered a similar problem to that of PUs with staff aged 45 and older who were ineligible for further training\. Further details in PPI, Table 8\. - 31 -  Indicator/Matrix Projected in Last ISR Actual/Latest Estimate B1\.5: Number of updated courses and Updated Courses\. In 2005, the PUs updated/developed titles of textbooks achieved a total of 4,203 (125% of increased by EOP\. the target of 3,304), averaging 157 per PU versus the average PU target of 126 updated courses\. The largest number was achieved by PKU: 400 (target also 400)\. Ten PUs (37%) had 200 or more updated courses; 9 PUs (33%) had between 100 and 199; and 8 PUs (30%) had less than 100\. Updated/developed textbooks, the PUs achieved 6,827 titles, averaging 253 per PU, or 158% of the target of 4,331 with the average of 160 titles per PU\. With one exception (JLU), all the PUs exceeded their targets, from 102\.5% (XJTU) to 691% (BUAA)\. Further details in PPI, Table 2\. B1\.6: Ratio of courses with reformed The PUs achieved 9,434 examinations increased by EOP\. examination-reformed courses, 224% of the target of 4,204, averaging 349 per PU, ranging from 20 (100% of target of PKUHSC) to 1,560 (137% of the target of LZU)\. With five exceptions, all the PUs reached or surpassed their targets, from a modest 102% (BNU) to a remarkable 996% (HIT)\. In absolute terms, LZU had the largest number at 1,560\. Further details in PPI, Table 2\. - 32 -  Indicator/Matrix Projected in Last ISR Actual/Latest Estimate B1\.7: Ratio of open-shelf books increased Twenty-three (85%) of the PUs had at by EOP\. least 50% of their books on open shelves\. The percent achievements ranged from 100% for seven PUs (BUAA, PKUHSC, SEU, LZU, SJTU, XJTU, MTUC) to 37% (BNU)\. A commendable case is HIT which set a modest target of 15%, but actually achieved 78% open-shelf\. Further details in PPI, Table 2\. Accessibility to open-shelf books should be seen against the greatly expanded and improved in-library reading/study rooms and carrels (ICR, Component 1 (a) (iii) (c) Improving Learning Opportunities and Conditions, pp\. 15-16)\. B1\.8: Ratio of annual borrowed library Only 12 (44%) of PUs set a target of books\. 50% or higher for book borrowings, and nine had targets between 30% and 40%\. In actual achievement, 23 (85%) of PUs reached or surpassed their targets for annual number of books borrowed\. Seventeen (63%) of PUs achieved 50% and higher of book borrowings, and six (22%) had 30%-49% borrowings\. Further details in PPI, Table 2\. The book-borrowing rate should also be assessed against the expanded and improved in-library reading/study rooms and carrels (ICR, Component 1 (a) (iii) (c) Improving Learning Opportunities and Conditions, pp\. 15-16)\. B1\.9: 90% of labs and experiment centers Practically all the laboratories in every restructured and equipment upgraded by PU were restructured, as evidenced by EOP\. the increase in lab space and the PUs' completion reports testifying to the reorganization and integration of the formerly fragmented lab facilities into dynamic, research-oriented teaching/learning centers, equipped in varying degrees with the latest scientific equipment and instruments\. Details in PPI, Table 3-a & 3-b\. - 33 -  Indicator/Matrix Projected in Last ISR Actual/Latest Estimate B1\.10: 80% of good practices in In the absence of specific indicators for teaching/learning/management identified "good practices", no hard data are are disseminated by EOP\. available to show the amount and proportion of good practices identified and their dissemination\. However, practically all PUs' completion reports declared that they had adopted the student-centered approach to teaching/learning, the credit system allowing students a wider, more flexible choice and combination of courses and majors; reduction of formal lectures and corresponding increase in time for students' self-study; a less rigid examination scheme incorporating lab practical work, library and website research assignments, oral presentations and other evaluation methods, as well as the conventional written tests to assess student learning achievement\. All the project circumstantial evidence point to a high level of good practices identified and disseminated to the Partner Institutions and non-project institutions as well as to other faculties within the PU\. Further details in PPI, Table 3a and 3b, and especially the PUs' completion reports\. - 34 -  Indicator/Matrix Projected in Last ISR Actual/Latest Estimate Staff Updating and training program Data source for this section is PPI, designed and operational\. Table 8\. The numbers pertain to status at EOP\. B1\.11: 90% of university administrative/management staff trained in A total of 6,215 (221% of the target relevant reform subjects by EOP\. 2,811) administrative/management staff had been trained\. B1\.4: (b) 90% of academic staff trained in relevant subjects and teaching A grand total of 26,430 (325% of the methodologies by EOP\. target 8,108) academic staff had been trained through off-job, in-job, long- and short-term training programs\. B1\.4: (c) 90% of lab managers/technicians and librarians A total of 4,471 (152% of the target trained in relevant technical areas by EOP\. 2,925) laboratory staff had been trained; and 2,517 (205% of the target 1,223) library management staff had been trained\. Component 2: Using partnerships and Source of data for this section is PPI, networks to spread reform\. Table 5, and refer to the status at EOP\. B2\.1: Number of teachers trained The training output in three programs long-term and short-term for Partner was: Degree, 499; Non-degree, 604; Institutions (PIs)\. Short-term, 1,071\. B2\.2: Number of PI students served for Total students served: 42,317\. lab experiment/practical work\. B2\.3: Value of equipment donated\. Total value of donations was RMB 28\.68 million, comprising: (a) Equipment, 18\.42 m\.; (b) Books, 1\.19 m\.; (c) Software, 2\.92 m\.; (d) Others, 6\.15 m\. B2\.4: Number of teachers sent to teach in A total of 307 PU teachers served the PIs\. PIs, averaging 11\.4 teachers per PU, in teaching, consultations in curriculum and teaching/learning materials development, teaching methodology, lab experiment center planning/development and experiment teaching\. The largest contingent, 68 teachers, was from Beijing Normal University to its partner Northwest Normal University\. - 35 -  Indicator/Matrix Projected in Last ISR Actual/Latest Estimate B2\.5: Number of updated courses and The larger proportion of courses and updated textbook titles in PIs\. textbook titles was developed by the PIs themselves\. The largest output of updated courses came from Tsinghua University's partner, Yunnan University of Industry, with 600 courses\. The total partnership program output was in two categories: (a) Courses updated by PIs' own efforts, 2,284; cooperatively with PUs, 259; (b) Textbooks updated by PIs, 1,937; cooperatively, 186\. Component 3: Supporting Institutional Capacity for Change\. B3\.1: Number of staff trained in project Staff training under MOE's management, financial management, and national-level technical assistance took procurement management\. place during November 1999 - December 2002\. FILO reported in June 2004 that 476 had been trained, distributed as follows: (a) 84 in project management and implementation; (b) 56 in financial management; and (c) 336 in equipment procurement/management\. However, FILO's ICR (para\. 3\.3\.1) stated that 550 had been trained, versus 504 planned, with no explanation or substantiation for the additional 74 staff trained after December 2002\. B3\.2: Number of study tours completed\. The study tours, implemented during the last quarter of 2002, had 210 participants versus 217 planned\. They included university presidents, division directors, and laboratory chiefs\. The tour groups, which visited higher education institutions in Europe, North America, Australia, Malaysia and Singapore, focused on management of teaching, finance, institutions, science and engineering laboratory experiment centers, and multimedia and language laboratories\. For details, see ICR Component 3, I, National-level technical assistance activities, p\. 21\. - 36 -  Indicator/Matrix Projected in Last ISR Actual/Latest Estimate B3\.3: Number of post-study-tour The dissemination seminars, conducted dissemination seminars conducted\. over the course of 3 years (August 2003 - July 2005) were planned for 588 participants, but the actual number was 1,764\. The three-fold increase was due to three seminars held during April-July 2005, on science and engineering laboratory teaching & management, and teaching reform achievements, which drew 749 participants\. For details, see ICR, Component 3, I, National-level technical assistance activities, p\. 21\. Curriculum Reform and Textbook Development\. B3\.4: Number of policy-based research All the five planned policy-based studies completed and disseminated for research studies were completed and curriculum reform\. their findings disseminated for the pertinent reforms in curricula, textbooks and other teaching/learning materials\. B3\.5: Number of textbooks and electronic A total of 6,827 textbooks were materials developed\. updated or developed\. The total output of electronic materials was not quantified, but the majority of PUs reported developing CAI materials which were shared with their partner institutions\. Details in PPI, Table 2\. Tracer Study Mechanism B3\.6: A graduate tracking system, an The model for a graduate tracer study institutional evaluation system, and a set mechanism was developed by of financial indicators are tested in a Shanghai Jiaotong University and number of institutions and results tested in all PUs\. The resultant disseminated among PUs and PIs\. questionnaire and software were developed and used in several PUs, including Shanghai Jiaotong: HUST, HIT, BIT and DLUT\. For details, see ICR Component 3, II, Policy-based research studies, p\. 23\. - 37 -  Indicator/Matrix Projected in Last ISR Actual/Latest Estimate Student Loan Pilot Scheme for Lanzhou University as an alternative to an existing scheme\. Launched in November 1999 with a B3\.7: Number of applicants and US$100,000 PHRD Grant, the funds beneficiaries disaggregated by gender and were disbursed by December 1999\. By amount disbursed and repaid annually by July 2005, the cumulative loan EOP\. recovery was RMB 707,000 (about US$86,000 equivalent)\. It was unclear whether the pilot scheme could be a viable alternative to the existing scheme\. There were 1,413 applicants and 614 were beneficiaries, of whom 17% were women, 6% were minority students\. For further details, see ICR, Component 3, IV, Student loan pilot scheme, p\. 27\. - 38 -  Annex 2\. Project Costs and Financing Project Cost by Component (in US$ million equivalent) Appraisal Actual/Latest Percentage of Estimate Estimate Appraisal Component US$ million US$ million 1\. Achieving Improvement in Effective Teaching and Learning a\. Staff Training (4\.8) 4\.80 3\.42 71\.25 b\. Teaching Reforms (3\.2) 3\.20 3\.41 106\.56 c\. Lab Equipment (57\.9) 57\.90 76\.47 132\.07 d\. Books & Library Materials (4\.4) 4\.40 5\.06 115 e\. Maintenance/Parts/Consumables (13\.3) 13\.30 16\.46 123\.76 2\. Using Partnership & Networks to Spread Reform a\. Partnership Program (5\.2) 3\. Supporting Institutional Capacity for Change 5\.20 6\.63 127\.5 a\. Staff Training (0\.1) 0\.10 0\.13 130 b\. Study Tours (1\.3) 1\.30 0\.99 76\.15 c\. Curriculum & Textbook Development (2\.2) 2\.20 6\.27 285 d\. Dissemination Workshops (0\.3) 0\.30 0\.50 167 e\. Research & Studies (0\.2) 0\.20 0\.23 115 f\. Operating Cost for Higher Education Advisory Panel: 0\.10 0\.09 90 HEAP (0\.1) Total Baseline Cost 93\.00 119\.65 Physical Contingencies 6\.40 Price Contingencies 4\.80 1\.88 Total Project Costs 104\.20 121\.53 Front-end fee 0\.20 0\.20 100\.00 Total Financing Required 104\.40 121\.73 Note: Figures may not add up due to rounding\. - 39 -  Project Costs by Procurement Arrangements (Appraisal Estimate) (US$ million equivalent) 1 Procurement Method Expenditure Category ICB NCB 2 N\.B\.F\. Total Cost Other 1\. Works 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 2\. Goods 60\.40 0\.00 21\.20 0\.00 81\.60 (54\.30) (0\.00) (7\.50) (0\.00) (61\.80) 3\. Services 0\.00 0\.00 6\.30 0\.00 6\.30 Staff Training (0\.00) (0\.00) (2\.70) (0\.00) (2\.70) 4\. Books & Materials 0\.00 5\.00 0\.00 0\.00 5\.00 (0\.00) (2\.30) (0\.00) (0\.00) (2\.30) 5\. Consultant Services 0\.00 0\.00 6\.00 0\.00 6\.00 (0\.00) (0\.00) (2\.90) (0\.00) (2\.90) 6\. Partnership Program 0\.00 0\.00 0\.00 5\.40 5\.40 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) Total 60\.40 5\.00 33\.50 5\.40 104\.30 (54\.30) (2\.30) (13\.10) (0\.00) (69\.70) Project Costs by Procurement Arrangements (Actual/Latest Estimate) (US$ million equivalent) 1 Procurement Method Expenditure Category ICB NCB 2 N\.B\.F\. Total Cost Other 1\. Works 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 2\. Goods 76\.40 0\.00 13\.20 0\.00 89\.60 (59\.60) (0\.00) (3\.50) (0\.00) (63\.10) 3\. Services 0\.00 0\.00 6\.83 6\.71 13\.54 Staff Training (0\.00) (0\.00) (1\.44) (0\.00) (1\.44) 4\. Books & Materials 0\.00 0\.00 5\.06 2\.90 7\.96 (0\.00) (0\.00) (0\.00) (2\.16) (2\.16) 5\. Consultant Services 0\.00 0\.00 6\.00 0\.00 6\.00 (0\.00) (0\.00) (3\.00) (0\.00) (3\.00) 6\. Partnership Program 0\.00 0\.00 0\.00 4\.63 4\.63 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) Total 76\.40 0\.00 31\.09 14\.24 121\.73 (59\.60) (0\.00) (7\.94) (2\.16) (69\.70) - 40 -  1/Figures in parenthesis are the amounts to be financed by the Bank Loan\. All costs include contingencies\. 2/Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units\. Project Financing by Component (in US$ million equivalent) Percentage of Appraisal Component Appraisal Estimate Actual/Latest Estimate Bank Govt\. CoF\. Bank Govt\. CoF\. Bank Govt\. CoF\. 1\. Achieving Improvement 59\.61 26\.72 62\.98 41\.04 105\.7 153\.6 in Effective Teaching & Learning a\. Staff Training 1\.04 3\.48 1\.21 2\.20 116\.3 63\.2 b\. Teaching Reforms 3\.07 2\.61 85\.0 c\. Lab Equipment 56\.43 17\.97 59\.60 33\.33 105\.6 185\.5 d\. Books & Library 2\.14 2\.20 2\.16 2\.90 100\.9 131\.8 Materials 2\. Partnership & 5\.24 4\.63 88\.4 Networks to Spread Reform a\. Partnership Program 5\.24 4\.63 88\.4 3\. Supporting Institutional 1\.26 3\.51 5\.47 278\.6 Capacity for Change a\. Staff Training 0\.10 0\.03 0\.10 30\.0 b\. Study Tours 1\.30 0\.78 0\.20 60\.0 c\. Curriculum & Textbooks 2\.20 2\.07 4\.00 94\.1 Development d\. Dissemination 0\.30 0\.29 1\.07 96\.7 Workshops e\. Research & Studies 0\.20 0\.22 0\.10 110\.0 f\. Operating Cost for 0\.10 0\.10 100\.0 Higher Education Advisory Panel (HEAP) - 41 -  Annex 3\. Economic Costs and Benefits - 42 -  Annex 4\. Bank Inputs (a) Missions: Stage of Project Cycle No\. of Persons and Specialty Performance Rating (e\.g\. 2 Economists, 1 FMS, etc\.) Implementation Development Month/Year Count Specialty Progress Objective Identification/Preparation 08/25/1997 3 Sr\. General Educator & Mission S S Leader (1); Operations Analyst (1); Sr\. Education Economist (1) 06/14/1998 6 Sr\. General Educator & Mission S S Leader (1); Operations Analyst (1); Higher Education Management Specialist (1); Financial Analyst (1); Science and Technology Specialist (1); Education Economist (1)\. 10/14/1998 10 Sr\. General Educator & Mission S S Leader (1); Operations Analyst (1); Educational Planning Consultant (1); Higher Education Management Specialist (1); Engineering and Technology Consultant (1); Financial Management Specialist (1); Science and Technology Specialist (1); Procurement Specialists (2); Education Economist (1) Appraisal/Negotiation 01/11/1999 14 Sr\. General Educator & S S Mission Leader (1); Education Planning Specialist (1); Education Specialist (2); Financial Management Specialist (2); Principal Counsel (1); Higher Education Management Specialist (1); Procurement Specialist (1); Operations Analyst (1); Engineering and Technology Specialist (1); Higher Education Specialist (1); Science and Technology Specialist (1); Human Resources Economist (1) Supervision 09/13/2000 6 Principal Education S S - 43 -  Specialist & Mission Leader (1); Operations Officer (1); Curriculum Specialist and Social Sector Coordinator (1); Monitoring and Evaluation Specialist (1); Procurement Specialist (1); Disbursement Specialist (1) 10/21/2002 7 Sr\. Operations Officer & S S Mission Leader (1); HD Sector Coordinator (1); Lead Education Specialist (1); Sr\. Monitoring and Evaluation Specialist (1); Sr\. Science Education Specialist (1); Procurement Specialist (1); Disbursement Specialist (1) 06/5/2004 7 Sr\. Operations Officer & Mission S S Leader (1); Education Specialist (1); Monitoring and Evaluation Specialist (1); Science Education and Research Specialist (1); Procurement Specialist (1); Financial Management Specialist (1); Sr\. Program Assistant (1) 06/20/2005 7 Sr\. Operations Officer & Mission S S Leader (1); Education Specialist (1); Procurement Specialist (1); Financial Management Specialist (1); Program Assistant (1); Monitoring and Evaluation Specialist (1); Science Education Specialist (1) ICR 12/21/2005 3 Sr\. Operations Officer & S S Mission Leader (1); Education Specialist (1); Program Assistant (1); (b) Staff: Stage of Project Cycle Actual/Latest Estimate No\. Staff weeks US$ ('000) Identification/Preparation N/A 593,172 Appraisal/Negotiation N/A 162,000 Supervision N/A 300,502 ICR N/A 35,000 Total 1,090,674\.00 - 44 -  Annex 5\. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating Macro policies H SU M N NA Sector Policies H SU M N NA Physical H SU M N NA Financial H SU M N NA Institutional Development H SU M N NA Environmental H SU M N NA Social Poverty Reduction H SU M N NA Gender H SU M N NA Other (Please specify) H SU M N NA Private sector development H SU M N NA Public sector management H SU M N NA Other (Please specify) H SU M N NA - 45 -  Annex 6\. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6\.1 Bank performance Rating Lending HS S U HU Supervision HS S U HU Overall HS S U HU 6\.2 Borrower performance Rating Preparation HS S U HU Government implementation performance HS S U HU Implementation agency performance HS S U HU Overall HS S U HU - 46 -  Annex 7\. List of Supporting Documents A\. Borrower's Implementation Completion Reports for Credit 3213-CHA and Loan 4474-CHA\. 1\. Peking University, July 2005; 234 pages\. 2\. Beijing Aeronautics University (undated); 92 pages\. 3\. Beijing Science and Technology University (undated); 71 pages\. 4\. Beijing Institute of Technology (undated); 74 pages\. 5\. Beijing Normal University (undated); 14 pages\. 6\. Peking University Health Science Center (formerly Beijing Medical University) June 2005; 12 pages\. 7\. Dalian University of Technology (undated); 63 pages\. 8\. Southeast University (undated); 14 pages\. 9\. Fudan University (May 2005); 56 pages\. 10\. Harbin Institute of Technology (undated); 222 pages\. 11\. Huazhong Institute of Technology (July 2005); 62 pages\. 12\. Jilin University ( July 2005); 129 pages\. 13\. Jilin Institute of Technology, incorporated into Jilin University\. 14\. Lanzhou University (June 2005); 87 pages\. 15\. Nanjing University (July 2005); 74 pages\. 16\. Nankai University (June 2005); 111 pages\. 17\. China Ocean University (August 2005); 157 pages\. 18\. Tsinghua University (July 2005); 17 pages\. 19\. Shaanxi Normal University (June 2005); 86 pages\. 20\. Shanghai Jiaotong University (undated); 29 pages\. 21\. Sichuan University (June 2005); 118 pages\. 22\. Tianjin University (June 2005); 82 pages\. 23\. Wuhan University (undated); 81 pages\. 24\. Xian Jiaotong University (August 2005); 135 pages\. 25\. Zhejiang University (August 2005); 119 pages\. 26\. China University of Science and Technology (undated); 54 pages\. 27\. China University of Mining and Technology (undated); 52 pages\. 28\. Chongqing University (June 2005); 65 pages\. (Total 2,310 pages\.) B\. Other Borrower Reports 1\. MOE/FILO: Implementation Completion Report (draft, dated October 2005; final dated December 20, 2005, received January 14, 2006)\. 2\. Chinese Expert Panel, "Work Review and Evaluation Report" (draft: dated August 25, 2005; final: dated December 20, 2005, incorporated in MOE/FILO ICR, as Annex 2\.) 3\. Mid-Term Review Report, dated June 2002\. 4\. Annual Progress Report (draft, 2004)\. 5\. Project Implementation Plan, dated April 20, 1999\. 6\. Centrally-Organized Technical Assistance Activity, dated June 8, 1999\. - 47 -  Bank Documents 1\. Project Appraisal Document, Report No\. 19146-CHA, dated April 14, 1999\. 2\. Development Credit Agreement, Credit No\. 3213-CHA dated July 29, 1999, and Loan Agreement, Loan No\. 4474-CHA, dated July 29, 1999\. 3\. China Higher Education Reform, Report No\. 15573-CHA, dated June 27, 1996\. 4\. Back-to-Office Reports and Aide-Memoires, Project Status Reports\. - 48 -  Additional Annex 8\. Additional Data on Components 1 and 2 Component 1 Tables Table 1: Science and Engineering Laboratory Experiment Centers\. Laboratory Center No\. % Physics 26 22\.2 Chemistry 21 17\.9 Biology/Life/Natural Science 15 12\.8 Sub-Total 62 53\.0 Electronics 5 4\.3 Engineering 11 9\.4 Electronics & Electrotechnics 12 10\.2 Mechanics/Mechanism 14 12\.0 Sub-Total 42 35\.9 Multimedia/Electronics Infotech 8 6\.8 Language 5 4\.3 Total 117 100\.0 Source: MOE/FILO Project Performance Indicators for PUs, Table 3a\. Table 2: Graduate Employment Rates from 10 Selected Universities,* 1999 and 2005\. No\. Project University Employment Rate (%) 1999 2005 1501 PKU 88 96 1502 BUAA 89 99 1504 BIT 99 95 1505 BNU 97 95 1506 PKUHSC 97 93 1508 SEU 98 98 1512 JLU 93 93 1514 LZU 79 70 1517 COU 90 93 1518 TSING 94 95 *These were universities which had the relevant information\. Source: MOE/FILO Project Performance Indicators (PPIs), Table 1\. The above figures have been rounded\. - 49 -  Table 3: Ratio of Teachers with Master's Degree and PhDs in Selected Universities, 2005\. Ratio of Teachers with Master's Degree among Ratio of Teachers with PhD among Full-Time Full-Time (FT) Teachers (FT) Teachers No\. Project University Total FT Total Ts EOP Actual Total Ts with EOP Actual Teachers with M Target (%) 2005 (%) Ph\.D\. Target (%) 2005 (%) Degree 1501 PKU 2189 559 * 26 1299 * 59 1502 BUAA 1343 424 35 32 608 45 45 1503 USTB 1040 407 65 39 413 30 40 1504 BIT 1701 905 50 53 694 40 41 1505 BNU 1285 332 55 26 741 30 58 1506 PKUHSC 2946 1002 29 34 1060 25 36 1507 DLUT 1516 684 66 45 472 24 31 1508 SEU 2001 722 50 36 625 30 31 1509 FDAN 2201 625 45 28 917 45 42 1510 HIT 2860 1203 55 42 829 27 29 1511 HUST 3923 2350 45 60 997 30 35 1512 JLU 4189 1590 63 38 1082 25 26 1514 LZU 1283 609 55 47 264 15 21 1518 TSING 2097 593 20 28 1,462 70 70 * No target was recorded Source: MOE/FILO PPIs, Table 1\. Table 4: Cumulative Number of Updated Courses, & Ratio of Coures with Reformed Examinations in Selected Universities, 2005\. Cumulative No\. of Updated Courses Ratio of Courses with Reformed Examinations Target Actual 2005 Total No\. Reformed Courses No\. Project University No\. % of Courses No\. % 1506 PKUHSC 16 18 112 20 20 100 1511 HUST 20 25 125 495 495 100 1512 JLU 170 116 68 300 200 67 1514 LZU 200 321 160 1,140 1,560 137 1515 NJU 75 250 333 80 250 313 1516 NKAI 210 240 114 1,350 1,242 92 1517 COU 50 126 252 70 110 157 1518 TSING 220 220 100 300 300 100 1519 SNNU 75 89 119 60 40 67 1520 SJTU 101 105 104 100 148 148 1527 CUMT 61 204 334 136 136 100 Source: MOE/FILO PPIs, Table 2\. - 50 -  Table 5: Updated/Developed Textbooks, Library Open-Shelf Books, and Annual Borrowed Volumes in Selected Universities, 2005\. No\. of Updated/Developed Library Open-Shelf Annual Library Textbooks Books Borrowed Volumes Actual 2005 Target Actual 2005 Target Actual 2005 No\. Project University Target No\. % (%) (%) 1502 BUAA 150 272 181 100 100 70 46 1505 BNU 100 210 210 25 37 17 23 1509 FDAN 500 764 153 95 95 25 25 1510 HIT 150 238 159 15 78 39 50 1511 HUST 30 70 233 88 92 22 90 1512 JLU 185 139 75 49 83 38 40 1519 SNNU 50 124 248 44 49 12 28 1522 TJU 120 292 243 30 55 35 65 1523 WHU 260 260 100 76 94 100 168 1524 XJTU 120 123 102 100 100 75 76 1525 ZJU 100 183 183 85 86 60 64 1527 CUMT 60 82 137 37 100 41 62 Source: MOE/FILO PPIs, Table 2\. Table 6: Trained Teachers in Year 1 and Year 2 Undergraduate Basic Courses in Selected Universities\. Ratio of Trained Teachers for No\. Project University Year 1 & Year 2 Basic Courses Total No\. of Trained Target Actual 2005 (%) Teachers Teachers (%) 1506 PKUHSC 2,946 1,426 45 48 1511 HUST 1,382 670 45 48 1512 JLU 1,701 1,105 60 65 1514 LZU 158 154 50 97 1515 NJU 330 330 90 100 1516 NKAI 857 367 15 42 1517 COU 380 220 56 57 1518 TSING 800 721 90 90 1519 SNNU 239 86 35 36 1520 SJTU 246 58 80 23 1527 CUMT 232 115 30 50 Source: MOE/FILO PPIs, Table 2\. - 51 -  Table 7: Ratio of Students to Full-Time Teachers in Selected Universities, 2005\. Ratio of Students to Full-Time (FT) Teachers No\. Project University Total Total FT EOP Actual Students Teachers Target (2005) 1506 PKUHSC 13,126 2,946 5:1 5:1 1507 DLUT 31332 1,516 13:1 21:1 1509 FDAN 29,028 2,201 18:1 13:1 1515 NJU 31,615 1,905 20:1 11:1 1516 NKAI 30,782 1,587 11:1 19:1 1517 COU 18,940 950 12:1 20\.:1 1518 TSING 27,095 2,097 11:1 13:1 1519 SNNU 13,265 1,182 11:1 11:1 1520 SJTU 33,948 2,254 12:1 15:1 1521 SCU 65,162 3,622 14:1 18:1 1522 TJU 23,474 1,891 13:1 15:1 1524 XJTU 19,157 2,363 12:1 8:1 1526 CUST 18,586 1,360 11:1 14:1 1527 CUMT 21,077 1,392 12:1 15:1 Source: MOE/FILO PPIs, Table 1\. The ratios are rounded\. - 52 -  Component 2 Tables Table 8: Partnership Program: Budget and Value of Materials Donated\. Value of Materials Donated by Project Universities to Partner Budget Institutions No\. Project Partner Institution (RMB '000) (RMB'000) University Soft (Code) Planned Actual % Equipment Books ware Others TOTAL 1 PKU Inner-Mongolia University 2,700 3,958 146\.6 3,106 54 -- 798 3,958 2 BUAA Guizhou Industry University 1,800 165\.7 92\.1 1,448 1 -- 31 1,480 3 USTB Baotou Iron & Steel College 1,350 1,350 100\.0 484 -- -- 866 1,350 4 BIT Yan'an Educational College 150 152 101\.3 138 5 -- -- 143 5 BNU Northwest Normal University 1,350 850 63\.0 320 40 11 41 412 6 PKUHSC Inner-Mongolia Medical 1,040 1,050 100\.9 1,000 2 2 46 1,050 College 7 DLUT Dalian Nationalities Institute 1,560 1,586 101\.7 400 196 385 605 1,586 8 SEU Yancheng Engineering College 1,400 1,495 106\.8 -- 125 55 -- 180 9 FDAN Yunnan University 1,500 1,460 97\.3 1,230 -- 30 200 1,460 10 HIT Heilongjiang College of Science 1,500 2,184 245\.6 253 -- -- -- 253 &Technology 11 HUST Hebei Three Gorges Institute ? 1,489 ? 799\.3 21\.6 -- -- 820\.9 12 JLU Jilin Normal College (Beihua 1,431 1,431 100\.0 984 100 -- 347 1,431 University) 13 JUT Yanbian University 1,500 1,508 100\.5 1,316 -- -- 192 1,508 Lanzhou Railway Institute; 14 LZU Qinghai Normal Univ\.; Ningxia 1,824 322 17\.6 97 34 16 43 190 Univ\.; Xinjiang Univ\. 15 NJU Guangxi Normal University 1,650 1,971 119\.4 200 -- -- 275\.8 475\.8 16 NKAI Yunnan Normal University 1,450 1,590 109\.6 250 43 365 -- 658 17 COU Liaocheng Teachers' College 1,350 1,600 118\.5 1\.316 164 -- -- 1,480 18 TSING Yunnan Univ\. of Industry 3,000 3,100 103\.3 500 200 400 2,000 3,100 (Kunming Univ\. of Tech\.) 19 SNNU Baoji Instit\. of Liberal Arts and 125 120 96\.1 43 -- -- -- Engineering 20 SJTU Xinjiang University 2,034 2,050 100\.8 800 -- 930 -- 1,730 21 SCU Xichang Agricultural College 1,460 1,145 78\.4 1,068 -- -- 77 1,145 22 TJU Inner-Mongolia Polytechnic 1,440 1,628 113\.1 360 -- -- 50 410 University 23 WHU Yunyang Teachers' College 1,370 149 10\.9 747 150 -- -- 897 24 XJTU Ningxia Northwest Second 1,500 954 63\.6 300 -- 20 -- 320 Minorities Institute 25 ZJU Qinghai University 191 193 101\.5 568 -- -- -- 568 26 CUST Anhui Normal University 1,500 1,473 98\.2 405 35 270 -- 710 27 CUMT Xuzhou Vocational University 1,320 1,323 100\.2 284 22 439 575 1,320 28 CQU Chongqing Architecture -- -- -- -- -- -- -- -- University TOTAL 37,474 37,787 100\.8 18,416 1\.193 2,923 6,147 28,679 Average 1\.44 1\.40 97\.2 708\.3 74\.5 243\.6 409\.8 Source: MOE/FILO ICR, PPIs for PUs, Table 5\. - 53 -  Table 9: Partnership Program: Students Served, Teachers Teaching in PIs, Teachers Trained, and Courses & Books Updated\. Project No\. of No\. of PU No\. of Teachers No\. of No\. of Updated Courses No\. of Updated No\. University Students Teachers Trained (long-term) Teachers for PIs Textbooks in PIs (Code) Partner Institution served at despatched for PIs Trained PU Lab for teaching (short- Experiment in PIs\. Non- Degree term) for Done by Co- Done by Co- Centers Degree PIs PIs Operative PIs Operative 1 PKU Inner Mongolia University 315 5 -- 9 20 -- -- -- -- 2 BUAA Guizhou Industry 35 9 -- -- 38 130 16 35 7 University 3 USTB Baotou Iron & Steel -- -- -- 14 22 31 7 49 20 College 4 BIT Yan'an Educational College 23 7 1 1 4 9 4 11 5 5 BNU Northwest Normal -- 68 6 28 3 420 -- 470 -- University 6 PKUHSC Inner-Mongolia Medical 2,76 -- 3 -- 3 4 1 1 1 College 7 DLUT Dalian Nationalities 635 4 -- 11 -- 21 10 14 11 Institute 8 SEU Yancheng Engineering 13 18 10 66 28 54 9 21 6 College 9 FDAN Yunnan University 610 7 6 -- 24 23 5 36 -- 10 HIT Heilongjiang College of 205 12 15 81 23 60 37 82 41 Science & Technology 11 HUST Hebei Three Gorges 181 12 6 39 21 30 14 21 7 University 12 JLU Jilin Normal College 220 2 6 34 18 116 5 139 2 (Beihua University) 13 JUT Yanbian University -- 6 15 12 5 -- 6 -- 2 14 LZU Lanzhou Railway Institute; Qinghai Normal Univ\.; -- 1 18 15 351 42 -- -- -- Ningxia Univ\.; Xinjiang University 15 NJU Guangxi Normal University -- -- 34 3 44 28 10 22 8 16 NKAI Yunnan Normal University 6 13 33 3 21 -- -- -- -- 17 COU Liaocheng Teachers' 344 20 6 10 6 138 -- 254 1 College 18 TSING Yunnan Univ\. of Industry -- 8 57 75 34 600 80 250 1 (Kunming Univ\. of Tech\.) 19 SNNU Baoji Institute Of Liberal 60 20 25 2 125 160 20 22 8 Arts & Engineering 20 SJTU Xinjiang University 610 -- 3 2 8 7 4 64 8 21 SCU Xichang Agricultural 15,000 16 4 11 5 20 -- 32 -- College 22 TJU Inner Mongolia Polytechnic -- 11 2 12 64 50 4 13 2 University 23 WHU Yunyang Teachers' College 100 3 4 4 22 160 20 200 50 24 XJTU Ningxia Northwest Second -- 15 -- 25 25 10 -- 8 -- Minorities Institute 25 ZJU Qinghai Unversity -- 2 20 24 11 -- -- -- -- 26 CUST Anhui Normal University 226 25 31 13 6 98 7 91 6 27 CUMT Xuzhou Vocational 21,658 23 302 5 139 73 -- 102 -- University 28 CQU Chongqing Architecture -- -- -- -- -- -- -- -- -- University TOTAL 42,317 307 604 499 1,071 2,284 259 1,937 186 Average Source: MOE/FILO ICR PPIs for PUs, Table 5\. - 54 -  Additional Annex 9\. Partnership Implementation Issues Part of the implementation issues stemmed from the fact that the PIs were not included in the project launch workshop\. MOE/FILO, thereby, missed the opportunity to fully apprise them of the purpose and scope of the partnership program\. Some PIs mistook the program to be "charity activities" by the PUs (2004 draft APR, loc\. cit\.)\. The slow start of cooperative activities and the PIs' generally limited autonomy did not help to mitigate this misperception\. A key step to institutional reform was understanding what autonomy could do to help update/upgrade the management and administration of academic activities\. Generally, PIs being less developed tended to be more "rule-following" conforming institutions than "rule-breaking" innovative universities\. Their staff qualifications and exposure to modern international developments in higher education were very different from those of their PU counterparts\. While each partnership program had a joint committee to plan, prioritize and coordinate the development activities following the general partnership guidelines, actual implementation encountered difficulties arising from fundamental differences between project and partner institution\. For example, USTB reported (ICR, pp\. 17-18) that differences in general institutional orientation and staff and student backgrounds made it difficult for the partner, Baotou Iron and Steel College (BISC) to participate in the research and other activities in USTB's reform programs in teaching, curriculum content and course systems\. Consequently, USTB adjusted the program to focus on promoting its reform achievements by sending instructors to BISC to give demonstration lessons, using multimedia courses and donating courseware to the partner\. This had positive results\. Similarly, the original plan to open the new lab centers and library facilities to BISC students was impracticable because of the distance between the two institutions\. Discrepancies in the level of computer network development between the institutions made it impossible to use the Internet to teach\. Instead, USTB assisted in building a CAD (computer-assisted design) lab in BISC, seating 85 and equipped with intranet\. The lesson from this particular experience was that certain partnership programs tended to be rather idealistic, and, in certain aspects, such as level of institutional development and readiness for collaborative research, the feasibility of specific activities was not adequately assessed\. The partnership experience also highlighted the need to be flexible in adapting development programs to particular institutions\. The slow start of many partnership activities was due to many PUs being preoccupied in the initial project stage with their own implementation responsibilities\. The lack of urgency was compounded by poor communication between the partners, a condition which the Chinese Expert Panel (CEP) described as the "weak link" in the program\. Other problems included changes in PU personnel responsible for the program and "arbitrary" changing of partnership plans (CEP, "Work Review and Evaluation Report [WREP]", dated October 25, 2005, p\. 7)\. The Panel, which closed each year's work with a conference convened by MOE to review implementation problems, addressed the various issues as they visited individual institutions\. The accumulated implementation experience from the inspection visits provided the basis for a conference convened by the Panel in March 2004 in Yunnan University where the issues described above were resolved in part to smooth the way for the continuation and possible expansion of the partnership program in the post-completion period\. Perhaps the most challenging issue was the fact that traditional universities with vertical organization and hierarchical management were suddenly expected to establish lateral or horizontal communication and interaction\. - 55 -  Additional Annex 10\. Policy-Based Research Studies Developing a System for Quality Assessment The study yielded five sub-reports dealing with various aspects of quality assurance: (i) policy recommendations; (ii) proposal for an evaluation system; (iii) developing mechanisms for an evaluation system; (iv) developing an information system through a database on key indicators and evaluation experts; and (v) a comparative study of evaluation systems in North America, Europe and the Asia-Pacific region\. Outcomes of the study included: (i) establishment and implementation from 2003 of a five-year evaluation cycle; (ii) establishment of a system of a regular collection of data on undergraduate programs which would eventually be published; (iii) establishment of an evaluation agency under MOE; (iv) positive feedback from higher education institutions on the current evaluation system; and (v) development of a pool of evaluation experts and a task force for future undertakings\. Key indicators of quality included seven primary and 18 secondary indicators and 38 "observation points"\. They are used together to monitor and evaluate three key aspects of higher education: (i) operating conditions of higher education institutions; (ii) the teaching-learning process; and (iii) institutional efficiency\. The seven primary indicators deal with teaching staff, the curriculum, relative emphases on science and arts, campus culture, student achievement/performance (e\.g\., in language proficiency, computer skills, etc\.), and employment outcome of graduates\. Some necessary follow-up action included: (i) further improvement of the evaluation system by completing the relevant studies; (ii) extension of the evaluation system from its original conception as an external mechanism to an internally-motivated, self-generating agency; and (iii) development of evaluation specialists to carry out all key aspects of evaluation\. Since the inception of the five-year evaluation process, higher education institutions were preparing to review and institutionalize it\. There were also plans, based on comparative analyses, to move towards the establishment of an independent evaluation agency, but no further information was available at EOP\. Also, there was no reference to private tertiary institutions\. Establishment of a Textbook Renewal Mechanism The rationale for the study was the lack of an effective mechanism for textbook renewal for higher education and the need to establish a [new] mechanism in line with reforms in other sectors of the economy\. The three sub-studies were on: (i) the textbook renewal mechanism in the socialist market economy and in the present situation; (ii) recommendations on textbook development and reforms under the 10th Five-Year Plan; and (iii) a textbook evaluation system for higher education textbooks, especially in science, engineering, agriculture, medicine, humanities and the social sciences\. The study entailed an extensive survey made through seminars, questionnaire surveys for teachers and non-teachers, public opinion solicitation, and topic workshops\. A general summary report, based on 11 articles prepared by the research team in 2002, was published in 2003\. Five recommendations for a textbook renewal mechanism included the following: (i) re-definition of GOC's role and strengthening the role of publishers and publishing groups through decentralization of the responsibility for textbook development; (ii) increasing the choice of textbooks for various subjects to meet the need for multiple sets of learning materials; (iii) introduction of competition and incentives for open bids in the development of textbooks; (iv) exercising overall quality assurance by developing and applying appropriate indicators and establishing appropriate (social) institutions for textbook monitoring and evaluation; and (v) further diversification of textbook provision by developing electronic teaching-learning materials\. - 56 -  The recommendations were adopted by MOE, and some of the ideas were being implemented\. Many higher education institutions had replaced the textbook single-choice with a multiple-choice system\. For example, in Qinghua University, over 30% of courses use multiple textbooks\. Dissemination of the recommendations had been carried out through workshops\. A follow-up for extending the textbook evaluation system was the establishment of a web-based feed-back system\. Managerial Autonomy of Higher Education Institutions The study was carried out in three phases\. The first phase, a year-long exercise to design the study, involved a general survey and analysis of the present higher education management system in China and selected foreign universities\. The result was the design of a framework for higher education institutional reforms, with some pilot programs implemented in the universities and educational administrative organizations\. In the second phase, when reforms were introduced in 2000, it became clear that institutional autonomy could not be achieved without a major restructuring of the system\. During this phase, about 100 of the 200 institutions were taken over by the provincial authorities and the remainder remained under MOE\. The third phase, when the actual study was carried out, was completed in mid-2003 and the draft report was reviewed in mid-2004\. Issues arising from the study included: (i) the legacy of public ownership of higher education institutions and its attendant problems; (ii) the need to moderate the current centralized control with increased decentralization to promote institutional autonomy; (iii) the need to recognize that institutional reforms must be carried out within the framework of political reform; and (iv) the existing internal administrative mechanisms might hinder reforms\. Factors that hindered autonomy included the lack of: (a) an efficient mechanism for resource allocation; (b) institutional responsibility and accountability; and (c) management authority for hiring and firing staff\. However, the existing system of centralized financial control enabled the authorities to set national priorities\. There was a need to dispel the misperception outside China that GOC was still trying to retain central control, whereas the policy was actually to decentralize\. Two key recommendations were to privatize some of the public higher education institutions, and restructure resource allocation so as to give greater autonomy to institutions\. Information on the outcome of the recommendations was not available at EOP\. Graduate Tracer Study The model for this study was developed by Shanghai Jiaotong University and tested in all project institutions\. A general survey was first carried out of various existing tracer systems or studies used by higher education institutions (e\.g\., through their respective alumni associations)\. The plan was to develop, on completion of the survey, a questionnaire and a software for a student tracking system\. By early 2004, the study had accomplished three tasks: (i) a survey of graduate employment, with information from employers, had been carried out during the previous three years; (ii) the contents of the tracking system had been reviewed to identify/formalize the key indicators; (iii) and software was being developed for implementing the survey of graduates and employers\. The study was completed in July 2004\. The results of the evaluation that followed the study were integrated into the present evaluation system\. While no formal report was issued, several PUs reported results from their own surveys\. The findings of two PUs have been cited (para\. 4\.2 (a) (i) above)\. Additional information was provided by HUST, ICR pp\. 26; HIT, ICR pp\. 23-24\. For further details, see MOE/FILO ICR, Annex 4\. Assessment of Higher Education Financial Management The findings of the study, which was completed and the report reviewed in 2003, confirmed that the existing financial management system was appropriate in the context of current reforms\. The software, designed for the study had been tested and fulfilled MOE standards, was developed for use by higher - 57 -  education institutions\. It contained 38 key indicators to monitor and evaluate financial management\. The key indicators, developed with MOE involvement and participation of university financial management staff, were divided into three groups\. The first group, comprising eight indicators, measured the institution's financial strength; the second group, comprising 18 indicators, evaluated institutional efficiency; and the third group, comprising 12 indicators, assessed the institution's development potential and risks\. The key indicators dealt with the following: (i) total income of the system to be measured; (ii) operational efficiency (e\.g\., teacher-student ratios expenditure on equipment per student, expenditure for faculty research, etc\.); and (iii) risks, such as loans/borrowings by institutions, year-end balances, expenditure versus income, fixed assets versus liabilities, etc\. Following a trial run in Hebei Province to test its effectiveness, the software was being used by 76 institutions under MOE\. Several publications affirmed that the assessment system was being applied to various universities affiliated to the Ministry of National Defense, MOE and the Hubei Provincial Government\. - 58 -  Additional Annex 11\. Development of Textbooks and Electronic Materials The MOE target was for the project to produce 400 textbooks on 200 basic courses (PAD, dated April 14, 1999, p\. 39)\. To achieve this, the universities were invited to bid on a competitive basis for contracts to develop courses following MOE/HED guidelines and write textbooks based on the revised courses\. The competitive bidding initiated in July 1999, the first of its kind in China, elicited by early 2000, 963 proposals from over 320 universities, of which 773 were for science and engineering and 190 for medical sciences\. By end-June 2000, a 120 expert-member review panel approved 333 proposals from 170 higher education institutions from 31 provinces, regions and municipalities, using criteria based on guidelines in an open, transparent manner\. A significant development was the phenomenon of joint-university proposals (e\.g\., Fudan, Tsinghua and Zhejiang universities submitted a successful joint bid), a reflection of the emergence of independent lateral institutional cooperation\. Equally significant was that 22% of the successful bids were from universities in the disadvantaged western parts of China\. Thus, the awards contributed to the central government's Western Development Initiative (Aide Memoire, Supervision Mission, September 2000, para\. 22)\. Under MOE's leadership, the project universities succeeded in developing and implementing new curricula, textbooks, teaching-learning methods for undergraduate core foundation, compulsory and elective courses which are supported by a variety of multimedia software\. The achievements were complemented by the establishment/renovation of science and engineering laboratory centers and language and audiovisual learning centers, and the provision of new equipment\. The reformed undergraduate curriculum typically consisted of required common basic, specialized compulsory and optional courses, general education optional courses, and common optional courses\. During the Bank review missions in 2004 and 2005, interviews with students indicated that the reformed curricula were well received by them\. At the same time, project universities in varying degrees had facilitated the application of modern educational technology to teaching-learning, introducing multimedia into courses where conditions were appropriate\. At EOP, 4,203 key courses had been updated and 6,827 textbooks renewed or developed, approximately 126% and 157% respectively, of the targets\. At the same time, there were 9,434 examination-reformed courses, 120% of the project target\. (For details, see Annex 1, key performance indicators under Component 1, and MOE/FILO PPI, Table 2)\. The development of modern instructional technology was supported by computer-assisted instruction (CAI) development teams responsible for directing and coordinating software design and production\. In the more advanced universities, web-based international distance-learning courses were being developed\. For example, the PKUHSC had completed the development of 17 pre-clinical and nine clinical courses that could be accessed through the Internet\. At the same time, the leading universities, such as PKU and DLUT, had increased the proportion of courses delivered in English or bilingually (English-Chinese) as part of the strategy to further internationalize higher education in China\. While the reforms were focused on the teaching-learning in the first two years, attention was also given to the development of specialty courses at the third and fourth years of the academic program\. Students were free to select courses within the framework of the academic program which, in varying degrees, involved laboratory experimental research aimed at cultivating undergraduates' capacity for innovation\. Generally, the new and renovated science and engineering laboratories, equipped with the latest equipment, provided the necessary enabling environment for the reforms which involved the renewal or revision of subject matter, teaching-learning and evaluation methods, in both basic and advanced courses\. - 59 -  Other learning centers provided important logistical support for the reformed teaching-learning methods\. Advances in the development and application of new technologies and multimedia facilitated improvements in foreign language education\. Many young instructors had, on their own initiative, introduced important reforms in foreign language teaching-learning methods through the application of multimedia\. This led to an increased interest among students in foreign languages\. The establishment of multimedia and audio-visual centers in many project universities helped to stimulate reform in using English in bilingual teaching\. For example, the Peking UniversityAudio-Visual Education Center provides facilities for foreign language education to over 1,200 undergraduates and graduates, and nearly 10,000 undergraduates and graduates of 19 faculties of the School of International Studies\. All project universities were involved in the development of conventional textbooks as well as electronic textbooks and CAI course materials\. - 60 -  Additional Annex 12\. Lanzhou University Student Loan Pilot Scheme Funded by a PHRD grant of US$100,000 (RMB 830,000, which MOE/FILO erroneously assumed was part of World Bank project funding), the Student Loan Pilot Scheme was launched in November 1999, and the funds were disbursed by the end of December 1999\. The longest term was nine years; the shortest, six years\. As the table below shows, rural students and ethnic minority students were the major beneficiaries of the scheme\. The loans contributed to the successful completion of their higher education\. Although the scheme was designed specifically for students to repay after graduation when they were employed, the majority of borrowers repaid their loans before graduation\. Undergraduate population: 7,965 Loan Applications Loan Approvals No\. % No\. % Applicants 1,413 18\.4 614 43\.4 Female Students 1,378 17\.9 105 17\.1 Ethnic Minority 419 5\.4 37 6\.0 Students Rural Students 5,920 76\.9 524 85\.3 Science Students 4,765 61\.9 439 71\.5 Source: Lanzhou University Completion Report, pp\. 16-17\. Of those who received the loans at 2% per annum interest charge, students of 1999 comprised 94\.3%, those of 1998, 33\.4%, and those of 1997, 7\.4%\. The average loan amount was RMB 1,000 ­ 2,000\. Of all the approved applicants, 28 (4\.6%) took a loan of less than 7 years; 153 (24\.9%), of 8 years, and 433 (70\.5%), of 9 years\. Loan Repayment and Revolving Fund\. All the 28 students of 1997 cohort paid off their loans before graduation (July 2001); recovery was 100%\. Of the 1998 cohort, 113 of the 153 students paid off before graduation (July 2002); thus, recovery was 74%\. Of the 1999 cohort, 433 students paid off before graduation (July 2003)\. Up to July 2005, 518 students had paid off their loans; the recovery was 84%\. By July 2005, RMB 707,000 (including RMB 23,000 interest) had been recovered\. As the amount recovered was relatively small, the university, in order to save on administrative costs, merged the recovery loans into the Lanzhou University Special-Purpose Interest-Free Loans for the revolving loan fund, with the intention of using the funds independently for the revolving applications when the loans were fully recovered\. (Lanzhou University Completion Report, p\. 17\.) The report did not explain why students who took the loans repaid them before their graduation\. One assumption is that loan repayment was a condition for graduation\. If indeed students had no option but to repay their loans before graduation, the apparent outcome did not prove or disprove the pilot project's assumption that some students might prefer to take an interest-bearing loan which could be repaid after graduation when they were employed\. Without a detailed analysis, there appeared to be no basis for any policy recommendation\. (For additional information, see MOE/FILO ICR Annex 1\.) - 61 -  Additional Annex 13\. List of Project Universities and Partner Institutions Project University Partner Institution No\. Name Code Location & Name Location & Province Jurisdiction 1501 Peking University PKU Beijing, MOE Inner Mongolia University Hohhot, Inner Mongolia 1502 Beijing Univ\. of Aeronautics & BUAA Ministry of Natl\. Guizhou Industrial University Guiyang, Astronautics Sc\. & Industry Guizhou 1503 Beijing Univ\. of S &T (Univ of S & T BUST Beijing, MOE Baotou Iron & Steel College Baotou, Beijing) (USTB) 1504 Beijing Institute of Technology BIT Ministry of Natl\. Yan'an Educational College Yan'an, Sc\. & Industry Shaanxi 1505 Beijing Normal University BNU Beijing, MOE Northwest Normal University Xi'an, Shaanxi 1506 Peking University Health Science Center* PKUHSC Ministry of Public Inner Mongolia Medical College Hohhot, Inner Health Mongolia 1507 Dalian University of Technology DLUT MOE Dalian Nationalities Institute Dalian, Liaoning 1508 Southeast University SEU MOE Yancheng Engineering College Yancheng, Jiangsu 1509 Fudan University FDAN MOE Yunnan University Kunming, Yunnan 1510 Harbin Institute of Technology HIT Ministry of Natl\. Heilongjiang College of Science & Heilongjiang Sc\. & Industry Technology 1511 Huazhong Institute of Technology HUST MOE Hubei Three Gorges Institute Hubei 1512 Jilin University JLU MOE Beihua University Changchun, Jilin 1513 Jilin Univ\.of Tech\. ** JUT MOE Yanbian University Jilin 1514 Lanzhou University LZU MOE Guizhou Normal Univ; Lanzhou Lanzhou, Rly\. Institute; Xinjiang University; Guizhou Ningxia University 1515 Nanjing University NJU MOE Guangxi Normal University Guiling, Guangxi 1516 Nankai University NKAI MOE Yunnan Normal University Kunming, Yunnan 1517 China Ocean University COU MOE Liaocheng Teachers' College Liaocheng, Shandong 1518 Tsinghua University TSING MOE Kunming Univ\. of Technology Kunming, Yunnan 1519 Shaanxi Normal University SNNU MOE Baoji College of Arts & Baoji, Shaanxi Science*** 1520 Shanghai Jiaotong University SJTU MOE Xinjiang University Urumqi, Xinjiang 1521 Sichaun University SCU MOE Xichang Agric\.ultural College Xichang 1522 Tianjin University TJU MOE Inner Mongolia Polytechnic Hohhot, Inner University\. Mongolia 1523 Wuhan University WHU MOE Hubei-Yunyang Teachers' College Yunyang, Hubei 1524 Xi'an Jiaotong University XJTU MOE Ningxia Northwest Second Yinchuan, Minorities Institute Ningxia 1525 Zhejiang University ZJU MOE Qinghai University Xining, Qinghai 1526 China University of Science & Technology CUST China Acad\. of Anhui Normal University Wuhu, Anhui Science 1527 Mining and Technology University China MTUC State Bureau of Xuzhou Engineering Institute Xuzhou City, (China Univ\. of Mining and Technology) Coal Industry Jiangsu (CUMT) 1528 Chongqing University CQU MOE Chongqing Architecture University Chongqing; Chongqing Municipality * Formerly Beijing Medical University\. ** Merged with Jilin University, June 2000\. *** Formerly Institute of Liberal Arts & Engineering\. - 62 -  - 63 -

REVIEW

P101279

Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review CO Solid Waste Management Program Projec (P101279) Report Number : ICRR0020345 1\. Project Data Project ID Project Name P101279 CO Solid Waste Management Program Projec Country Practice Area(Lead) Colombia Social, Urban, Rural and Resilience Global Practice L/C/TF Number(s) Closing Date (Original) Total Project Cost (USD) IBRD-77420 31-Dec-2013 27,130,316\.00 Bank Approval Date Closing Date (Actual) 04-Aug-2009 31-Dec-2015 IBRD/IDA (USD) Grants (USD) Original Commitment 20,000,000\.00 0\.00 Revised Commitment 7,400,000\.00 0\.00 Actual 5,221,073\.17 0\.00 Prepared by Reviewed by ICR Review Coordinator Group Chaitri N\. Hapugalle John R\. Eriksson Christopher David Nelson IEGSD (Unit 4) 2\. Project Objectives and Components a\. Objectives The Project Development Objective (PDO) formulation in the Loan Agreement (LA, Schedule 1, page 5) was to support the implementation of the regional solid waste management component of the Borrower’s Program, which aims at improving the quality and coverage of integrated (1) solid waste management services in the territory of the Borrower\. The PDO statement in the PAD is virtually identical but does not include the word “regional” in its reference to the solid waste management component (PAD p\. 6)\. Page 1 of 20  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review CO Solid Waste Management Program Projec (P101279) IEG adopts the formulation of the PDO in the LA\. Note*(1) "Integrated" refers to considerations of financial, environmental, and social sustainability\. (ICR footnote 26, p\. 5)\. b\. Were the project objectives/key associated outcome targets revised during implementation? No PHEVALUNDERTAKENLBL c\. Will a split evaluation be undertaken? No d\. Components Actual costs for Component one and revised Component were based on updated numbers provided by the Region\. Component 1: Development of and Investment in Solid Waste Disposal Systems\. (US$20 million at appraisal; Actual US$ 4,389,564\.36) (1\.1) The construction of solid waste management infrastructure consisting of civil works, equipment and services in support of the rehabilitation, construction, and/or expansion of landfills and transfer stations\. (1\.2) Finance the rehabilitation and expansion of landfill sites that may currently be operating at sub sanitary levels\. (1\.3) Technical advisory services for the development of SWM Investments\. Component 2: Institutional Strengthening in Solid Waste Management\. (US$ 0 million at appraisal; Actual US$ 41,302\.15) (2\.1) Strengthening sector regulatory framework and capacity building\. (2\.2) Strengthening of SWM planning systems (though development of SWM plans and strategies)\. (2\.3) National assessment of recycling markets and strategy framework\. Component 3: Project Management (US$ 0 million at appraisal; Actual US$ 4,272,251) (3\.1) The component would finance costs associated with project management including goods, works, services, and operating expenses associated with financial audits and midterm and end-project evaluations\. (3\.2) Reinforce technical, environmental, community outreach, communications, administrative, and fiduciary capacity within the\. Ministry of Environment, Housing, and Regional Development (MAVDT)\. Revised Components Component 1: Development of and Investment in Solid Waste Disposal Systems\. (US$16,510,000; Actual amount US$ 4,389,564\.36) (1\.1) Carrying out and supervising investments in SWM infrastructure consisting of civil works, equipment, and services in support of the rehabilitation, construction, and/or expansion of landfills, waste treatment systems in selected sites, and the closing of unsanitary open-air landfills\. Page 2 of 20  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review CO Solid Waste Management Program Projec (P101279) (1\.2) Provision and supervision of technical advisory services for the development of SWM investments including with respect to their regionalization, engineering designs, environmental impact assessments, social assessments, and other related studies\. (1\.3) Development and implementation of social inclusion, skills building, and entrepreneurial programs for waste pickers\. Component 2: Institutional Strengthening in Solid Waste Management (US$1,430,000; Actual amount US$41,302\.15) (2\.1) Provision of advisory services to strengthen the technical, operational, and commercial capacity of SWM operators\. (2\.2) Carrying out studies to strengthen SWM at the national level\. Component 3: Project Management (US$2,060,000); Actual amount US$ 4,272,251\.130) (3\.1)\. Support the Ministry of Housing, City and Territory (Ministerio de Vivienda Ciudad y Territorio MVCT) technical, environmental, communication, administrative, and fiduciary capacity in managing the administrative and financial aspects of the Project, through the financing of goods, consultants’ services, training, and operating costs, including the financing of project audits, evaluations, and other related project management activities\. e\. Comments on Project Cost, Financing, Borrower Contribution, and Dates Project Costs - The project cost and component table (ICR annex 1 pp 29-30) took into consideration only project costs based on the World Bank contribution\. The Region confirmed the following disbursement rates but the final disbursement rate at project closure was not provided\. The disbursement rates (2) at the time of restructuring undertaken in 2013 were US$ 4\.56; US$ 5mn was disbursed during the second restructuring on 08/25/2014; and US$5 Mn disbursed during the third restructuring on 06/25/2015\. Financing and Borrower Contribution - The Borrower’s contribution at appraisal was to be US$ 5\.0 million but the actual contribution was US$0\.90 million at project closure\. The ICR did not provide disbursement rates, which were missing for the 2013, 2014 and 2015 restructurings\. The Region was not able to provide disaggregated data (ICR annex pp 29-30, team meeting and final audited numbers provided by the Region)\. Dates- The first restructuring was approved on 09/09/2013\. The closing date of the project was extended by 18 months to 06/30/2015\. Due to slow implementation progress, the Bank requested a reimbursement of US$1\.07m\. A second restructuring was approved by the Bank on 08/25/2014\. The key changes included a) changes to rectify design deficiencies in the project implementation arrangements, b) adjust scope of activities to more accurately respond to country demand, and c) reallocate funding so that components two and three would be financed by the Bank instead of the borrower\. Moreover, a retroactive waiver to the withdrawal conditions was provided to resolve inapplicable conditions, modify project indicators and target values to simplify the results framework, clarify ambiguities and accurately Page 3 of 20  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review CO Solid Waste Management Program Projec (P101279) reflect activities financed under the project and their outcomes\. (ICR pp\.8-9)\. A third restructuring formalized a second extension, which was approved after the Borrower’s request to (i) extend the closing date of the Loan by six months, from 06/25/2015 to 12/31/2015\. The total cumulative extension was 24 months and included a partial cancelation of US$ 12\.6mn (ICR pp\.8-9)\. Information provided by the team show that US$12\.6 million was cancelled as of 05/13/2015\. US$3,01 million was cancelled as of 08/23/2016\. Note * (2) Disbursement of funds from the Bank to the special account 3\. Relevance of Objectives & Design a\. Relevance of Objectives Historically, the disposal of solid waste in Colombia has always been a municipal responsibility\. Colombia's 1,122 municipalities produced approximately 28,800 tons of solid waste per day and was inadequately disposed in open-air dumps\. Limited waste minimization, source separation, and recycling were concerns\. Related to the not-in-my-backyard (NIMBY) factor, regionalization of municipalities with existing landfills was obstructed by local government and citizen groups\. Vulnerable waste pickers who depended on open-air dumps for their livelihoods also lacked access to basic services (PAD pp\. 1-3)\. The regionalization of solid waste management was a key priority for the Government of Colombia (GoC)\. Government initiatives had identified 130 potential regional landfill projects which were financed through public resources\. The National Strategy for Infrastructure Development, Solid Waste Sector issued by the Department of National Planning (DNP) in 2014 prioritized improvement of regional landfills, expansion of the lifespan of sanitary landfills, and closure of open dumpsites\. The Bank’s implementation assistance remained relevant to achieving the country's development goals\. The Project was strategically aligned to support the World Bank Group’s Country Partnership Strategy (CPS) 2012-2016\. The PDO reinforced a core strategic pillar; the Sustainable Growth with Enhanced Climate Change Resilience pillar\. Solid waste final disposal was one of the means identified to improve sustainable urban development\. (ICR p\.19)\. Rating High b\. Relevance of Design Both pre and post restructuring, the project included a clear statement of the PDO and was relevant for the challenges facing the sector\. (ICR p\.18)\. The PDO and its three sub-objectives (see Section 4 below) were to be achieved with; a) development of investments in solid waste disposal systems, b) institutional development and c) improved project management\. (ICR pp\.6-8)\. The expected intermediate results were the construction and operation of sanitary landfills, environmentally sustainable closure of open-air dumps cost recovery for final disposal in Bank financed landfills, formation of specialized utility companies and the transition to the Page 4 of 20  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review CO Solid Waste Management Program Projec (P101279) specialized operator model for solid waste disposal\. (ICR p\.5)\. However, the causal chain was of negligible to modest relevance\. (ICR p\.19)\. The original design and implementation were not relevant because the existing planning structure and subproject preparation capacity were not relevant to the unique challenges of solid waste management\. The PDO indicator was weak and subsequently modified (see section 10)\. While two components supported institutional and capacity building elements related to program outcomes, the PDO did not reflect this linkage\. (Team Interview)\. The 2014 restructuring addressed design deficiencies related to the inconsistency between Government and Bank and processes and to accommodate changes in demand in the sector due to increased private sector focus on medium size landfills\. (See Section 8a on Bank Quality at Entry)\. However, the PDO remained “unchanged and achievable, due to the broader scope and regional approach of the sub-projects to be implemented\.” (Report No: RES11773 p4)\. Under Component 1, eligible investments were expanded to include complementary investments in collection and treatment technologies and to cover investments in smaller landfills\. Components 2 and 3 were no longer to be funded solely by the borrower\. Component 2 included activities related to skill development for human resources, technical, and entrepreneurial strengthening for landfill operators and undertaking of studies on a national level, and Component 3 was focused on project management\. (ICR p 19)\. The project changed the approach to regionalization of disposal services to incorporate more municipalities into regional systems\. The project design re-focused on the unmet demand by building new regional landfills for medium and smaller landfills (Team Interview)\. Other changes included the expansion of the type of investments and reallocation of funds\. (ICR pp\. 7-9)\. “The restructured design was substantially relevant due to the following changes: the adoption of a planning and subproject execution process more adapted to the solid waste sector” (ICR p\.19)\. The subprojects financed under the loan were not limited by a geographic department’s “PDA” (Departmental Plans for Water and Sanitation) budget quota and thus not competing with water and sanitation projects\. The solid waste unit was more proactive in developing subprojects (ICR p\.13), which “enabled the financing of investments in existing regional facilities with a variety of administrative models and sizes; improved management; and final disposal solutions for isolated municipalities when regional landfills were not the appropriate solution”\. (ICR p\.19)\. Overall, the relevance of the design was less than optimal to fully demonstrate the achievement of the PDO\. While the modified PDO indicator (See M/E discussion) was overachieved, Bank funds had to be drawn to finance a consultancy to develop the plans in Ipiales and Grenada for social inclusion pilots\. While MVCT assigned budget to works under way, no budget was available for institutional strengthening, capacity building for operators, nor for sector and regionalization studies, which were not executed (ICR p 19)\. The ability to draw on carbon financing in the event funding shortfalls was noted during the appraisal stage, but limited progress in tariff reform related to composting prevented the ability draw on carbon financing to cushion the shortfalls\. (Team interview)\. Rating Modest 4\. Achievement of Objectives (Efficacy) Page 5 of 20  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review CO Solid Waste Management Program Projec (P101279) PHEFFICACYTBL Objective 1 Objective The overall objective of the Project was to support the implementation of the regional solid waste management component of the Borrower’s Program which aimed at improving the quality and coverage of integrated solid waste management services in the territory of the Borrower\. (LA, p\.5) The overall objective is divided into three sub-objectives as shown below\. To better assess the achievement of objectives, the PDO indicator was supplemented by outcome indicators developed ex-post specifically for the purposes of the ICR (ICR, p\. 20)\. Sub-objective 1 focused on improving the quality of solid waste management services in the territory of the Borrower\. Discussion in this section draws in part from the ICR (pp 20-22) Rationale For the PDO Indicator the target was for the solid waste of at least 400,000 beneficiaries to be adequately disposed of in sanitary landfills\. Achievement: this target was overachieved with 683,547 people benefitting\. This included investments completed in all the landfills reconstructed and upgraded and the populations of the 60 municipalities served by these landfills (ICR, p\. 20)\. However, the indicator had shortcomings as discussed in the M&E section\. Service quality was improved (in 6 of the 7 regional systems), benefitting 675,352 people through the construction of upgraded cells, treatment systems, and auxiliary infrastructure, ICR, p\.22, note 58)\. Additional information on the improvement in the technical and environmental quality of final disposal is provided in the ICR (p\.21)\. Capacity building for 6 operators (ICR p\.22) allowed previously open dumps or landfills with operational deficiencies to operate at higher standards\. Subprojects consisted of upgrading or reconstructing existing landfills rather than constructing greenfield sites\. As of 2016 more municipalities ended up using landfills than anticipated, which explains why this sub-objective was achieved in spite of the low percentage of disbursement (26%)\. (ICR p\.22, note 58)\. Rating Substantial PHREVDELTBL PHEFFICACYTBL Objective 2 Objective Sub-objective 2 focused on improving the coverage of solid waste management services in the territory of the Borrower\. Rationale The project completed seven sanitary landfill subprojects that served 60 municipalities incorporating 33 municipalities into regional landfill systems, providing a population of 683,547 with adequate solid waste Page 6 of 20  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review CO Solid Waste Management Program Projec (P101279) services (ICR p\.22 para 83)\. One target was that five landfills were to be expanded, optimized or upgraded\. This was achieved (5) and 33 municipalities were incorporated into regional disposal systems\. The latter represented an overachievement from a revised target of 15 municipalities and a baseline of zero\. Increased service coverage was provided for 42 municipalities with a population of 465,795 through expanded capacity in six of seven systems (ICR, p\. 20, note 54 and Annex 2)\. Sixteen municipalities benefited from an upgraded system that provided adequate disposal service not previously available\. The upgraded sites also provided the opportunity for 26 municipalities that had previously used open dumps to join the regional systems\. The number of inhabitants in 2016 that benefited from landfills with an increased useful life was 566,534\. This resulted from construction of additional disposal capacity, namely, 1,089,000 additional tons in six landfills: Ipiales- 5 years, Guaviare 10 years, la Dorada 12 years, Aguadas 21 years, Granada 3 years and Quichia 18 year (ICR, p\.20, note 55)\. Regarding waste collection, the results are not strictly comparable, but suggestive\.(3) The target was an “increase in the coverage of proper final waste disposal (number of inhabitants and percent of waste collected)\.” The achievement was that 465,795 inhabitants produced one percent of waste collected in the country (see Section 10a below for further discussion)\. Before the investment was undertaken, four percent of the waste collected in the country was not disposed of in sanitary landfills (ICR, p\.20)\. Note* (3) The region provided the following clarification\. The indicator of reference relates to disposal rather than collection services\. Colombia uses “ % of waste that is collected that is disposed in sanitary landfills” as their indicator for landfill service coverage\. To allow for comparison, the average waste production per person in Colombia was multiplied by the population provided this service under the project to get the waste that is now due to the project investments, disposed in a sanitary manner\. It was considered a more precise estimate than using the tons per day disposed in each of the new landfills as in some cases the population being served had already disposed in another sanitary landfill\. Rating Substantial PHREVDELTBL PHEFFICACYTBL Objective 3 Objective Sub-objective 3 focused on improving the coverage of an integrated system of solid waste management services in the territory of the Borrower, where “integrated” referred to financial, environmental, and social aspects (ICR, p\. 22)\. Rationale The Project partially achieved the integrated systems of solid waste management (financial, environmental and social)\. Page 7 of 20  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review CO Solid Waste Management Program Projec (P101279) Financial-With the exception of Milaflores, the project succeeded in assuring financial sustainability through the application of the tariff system of 2015 in all the systems and the associated capacity building\. However due to its size and lack of ability of the tariffs to cover costs, Milaflores had to rely partly on general municipality income to cover operational costs\. According to a supplemental PDO outcome indicator reported by the ICR, the population (680,078) of six of the seven landfill sites was by 2016 served by disposal systems with adequate cost recovery (ICR, p\.21)\. No target or baseline information was provided\. Environment-The Project’s environmental outcomes included compliance with environmental assessment policies and improved operation but the operational improvements were limited only to the Project investments\. Social- Five studies were completed for open-dump closure but had limited impact on the ground\. One study led to a closure and one other closure was completed in parallel with the investments in Ipiales\. Social inclusion plans were to incorporate informal recyclers in two landf ills (Ipiales and Granada), but due to lack of budget allocation and unclear legal mandates, the MVCT did not develop or implement these plans\. To overcome the situation, the Bank provided technical assistance to develop plans for the two sites\. Granada incorporated the plan in its municipal SWM plan (ICR, p\.17, para 66)\. Two regionalization studies were conducted\. (ICR p\.22, p\.83) Rating Modest PHREVDELTBL PHREVISEDTBL 5\. Efficiency The project focus shifted to restructuring smaller landfills with capacities of 4 tons, 13 tons and 16 tons, as well as three small-medium landfills with respective capacities of 56, 57 and 96 tons\. (Team Interview)\. Methodology-According to the PAD, the economic analysis assumed the tariff as a proxy for willingness to pay in the municipalities where appropriate final disposal service is provided and economic prices were assumed as financial prices without taxes\. (ICR annex 3 p 36-39)\. For the ICR, a financial rate of return was estimated by measuring its costs and benefits at market prices\. The ex post economic rate of return was estimated by converting financial costs into economic costs through the elimination of taxes and subsidies to remove some market distortions\. Economic benefits consisted of the population's surplus resulting when the open-air dumps were closed and regional landfills were constructed and operated\. Additional benefits, e\.g\. those related to public health and the environment, were not quantified\. Page 8 of 20  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review CO Solid Waste Management Program Projec (P101279) Cost-benefit Analysis - A financial and economic analysis was undertaken for each component\. Cost-benefit accounted for investment and operational costs as well as the benefits in terms of revenue (gate fee per ton times disposed tons)\. The same methodology was used to assess the ex-ante scenario (PAD) were used also to assess the ex post scenario\. (ICR annex 3 p 36-39) Key Findings - Overall, the ICR findings in the tables below show that the combination of revenues from the tariffs and the relatively low cost but high impact investments in upgrading of existing regional sites under the restructured project contributed to the financial and economic viability of all the investments except for the smallest landfill, Miraflores (1 ton per day) located in a remote area of Colombia (ICR, p 23)\. Findings show that the construction of regional landfills is financially and economically feasible for landfills with a capacity higher than 40 tons’ day (see Annex 9)\. Moreover, economic results, as shown in Tables 1-2 below, are generally greater than financial results\. Results were also tested against real-world uncertainties by conducting a sensitivity and risk analysis, which continued to show robust returns\. Conclusions - The updated project cost table provided by the team included project costs broken down by the Bank and counterpart funding, but the team had difficulty identifying the actual costs and disbursement rates (ICR, p 17 and lessons learned under “Legal Framework”)\. During missions the Bank detected differences in total amounts of money assigned to some contracts when comparing the records of MVCD and those of the Gestores (ICR p 17 footnote 46)\. The Region clarified the source and costs used for economic and financial analysis\. The costs used in the economic analysis were based on the costs found in official documents directly related to the contracts (final acts, agreements and contracts)\. These numbers were the same as those reported by the government after completion of the audit of the project in January 2017\. The differences in total amounts of money assigned to some contracts when comparing the records of MVCT and those of the Gestores detected during a supervision mission (ICR p 17, footnote 46) were subsequently resolved during implementation and confirmed through audits\. Table1\. Financial Results-Net Present Value and Internal Rate of Return, incl\. Investment and Operating Costs NPV IRR (US$)* (%) Regional landfill\. Municipality of Ipiales (Nariño)\. 417,073 49 Municipal landfill\. Municipality of Miraflores (Guaviare) - 322,277 10 La Doradita landfill\. Municipality of La Dorada (Caldas) 866,007 48 Los Eucaliptos landfill\. Municipality of Aguadas (Caldas) 568,557 45 Quinchia landfill expansion Municipality of Qunichia (Risaralda) Page 9 of 20  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review CO Solid Waste Management Program Projec (P101279) 10,453 15 La Guaratara landfill expansion\. Municipality of Granada (Meta) 179,077 44 NPV = Net Present Value; IRR = Internal Rate of Return; Exchange rate:1 US$=COP$3\.149 December 31th, 2015)\. Table 2: Economic Results - NPValue & Economic Rate of Return, incl\. Investment & Operating Costs, excl\. Taxes\. Solid Waste Systems NPV IRR (%) (US$)* Regional landfill- Municipality of Ipiales (Nariño) 792,784 72 Municipal Landfill\. Municipality of Miraflores (Guaviare) - 5,073 8 La Doradita landfill\. Municipality of La Dorada (Caldas) 1,543,098 67 Los Eucaliptos landfill\. Municipality of Aguadas (Caldas) 936,566 56 Quinchia landfill expansion Municipality of Qunichia (Risaraldra) 82,409 21 La Guaratara landfill expansion\. Municipality of Granada (Meta) 397,952 73 Note: ERR = Economic Rate of Return 1] In some cases the intervention will be limited to the construction of transfer stations that will direct waste to existing landfills\. In the case the financial viability of the transfer stations is ensured\. Efficiency Rating Substantial a\. If available, enter the Economic Rate of Return (ERR) and/or Financial Rate of Return (FRR) at appraisal and the re-estimated value at evaluation: Rate Available? Point value (%) *Coverage/Scope (%) 0 Appraisal  0 Not Applicable 0 ICR Estimate  0 Not Applicable * Refers to percent of total project cost for which ERR/FRR was calculated\. Page 10 of 20  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review CO Solid Waste Management Program Projec (P101279) 6\. Outcome This rating is moderately satisfactory for the following reasons: relevance of objectives is high; relevance of design is modest; efficacy of objectives is substantial, substantial and modest, respectively; and efficiency is substantial\. Therefore, Outcome is rated moderately satisfactory\. a\. Outcome Rating Moderately Satisfactory 7\. Rationale for Risk to Development Outcome Rating Institutional risk - At the time of project closure, with help from national budget allocated to the MVCT, the solid waste unit was managing a small but important set of investments and activities\. However, limited budget allocation to the unit and the sector, lack of World Bank (and other international institutions’) involvement may present a barrier to expanding their program to meet the country’s demand and to a lesser extent present a risk to the capacity built under the project\. (ICR p24) Financial and operational risks - Both technical and financial risks are higher in Guaviare due to their lower access to resources, difficulty in supervision, and lower financial sustainability\. (ICR p 25) a\. Risk to Development Outcome Rating Modest 8\. Assessment of Bank Performance a\. Quality-at-Entry The original project design adopted similar design and institutional arrangements used in the water sector (ICR, p\.1)\. The project appraisal conducted sector, poverty and economic analyses, identified safeguards issues, conducted financial analysis including fiduciary arrangements, and designed a results monitoring framework (ICR, p\. 25)\. The Project aligned its preparation and objectives with the sector reform that was under way in the country at the time of appraisal and was included in the country strategy and policy documents\. The design of the project took into consideration international best practices to promote the optimization of regional SWM systems\. But it failed to facilitate compatibility between the following Bank and Government processes: a) the approach to project evaluation, (b) the disbursement structure through the subnational accounts and (c) the requirement to implement social inclusion plans\. These were significant Page 11 of 20  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review CO Solid Waste Management Program Projec (P101279) deterrents at the outset of project implementation (ICR, p\. 25)\. But making the implied adjustments was considered impractical considering that: (a) the water sector institutional, financial and operational framework did not adapt to investments in the solid waste management subsector; b) the project did not anticipate technical advancements in the sector nor allow flexibility to adopt them; c) a pipeline of subprojects was not ready at the time of Board approval of the project; and d) the need for capacity building was underestimated by the different government levels involved in project implementation (paraphrased from ICR, pp\.10-11)\. The challenges of using the Ventanilla Unica (single window approach for subproject selection) (4) and the PDAs were underestimated along with the need for institutional capacity building of the MVCT and Gestores (geographic-level Department project management entities)\. (5) Risks were taken into account but underestimated as some risks such as the lack of pipeline of subprojects, implementation complexity through the PDA and entities not familiar with financial, management and procurement processes did materialize (ICR, p\. 11)\. The project shifted the approach to regionalization of disposal services in order to incorporate more municipalities into regional systems\. The project focus also changed to include the improvement of already existing regional facilities to reconstruct or upgrade them to allow for adequate disposal and to increase capacity to accommodate more municipalities\. The program broadened its scope allowing for operation through a variety of arrangements (not just specialized operators), and investments in smaller facilities including isolated municipalities when regional facilities were not feasible\. Notes * (4) The evaluation process, Ventanilla única, is an application-based process where the geographic Department-level Gestores would present projects to the MVCT who would ask for adjustments and, once approved would be presented to the Bank for No Objection (ICR, note 33, p\. 9)\. Notes* (5)The Department-level planning and budget structures (Planes Departamentales para el Manejo Empresarial de los Servicios de Agua y Saneamiento, PDA) were established under the MAVDT to be the primary means of channeling resources from the National Government to the subnational geographic Departments for investments in water, sanitation, and solid waste\. The PDA framework allowed for prioritization, investment screening, and execution of investments within a budget quota assigned to each Department (ICR, pp\. 2-3)\. Quality-at-Entry Rating Moderately Unsatisfactory b\. Quality of supervision The project was implemented over the period 2009-2015\. Bank missions coordinated closely with representatives from the Minister of Housing, Cities and Territory (MVCT)\. “No midterm review was held; instead each mission had the elements of a midterm review and involved senior staff, management, and experts” (ICR, p\. 26)\. The approval process for the restructuring and extensions was however delayed due to both the Bank and Government decision making and approval processes which did not affect the Gestores approval process directly\. In 2011, the Bank requested reimbursement of US$1\.07 million due to lack of execution, and discussed the options with the Borrower, including closure of the project and partial cancelation Page 12 of 20  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review CO Solid Waste Management Program Projec (P101279) of implementation, but agreed to restructure the project\. However, agreement was delayed due to complications resulting from changes, design issues, and perceived risks, which led to an increased number of Bank requirements that were not easy to negotiate in the context of national legal requirements (ICR, pp\.13, 26)\. The delays reduced time for implementation of the planned activities and disbursement of the loan amount and “accompaniment in technical, fiduciary and safe guard’s aspects was impactful for the project and sector” (ICR, p\.26)\. On the positive side, key decisions regarding the design, lack of project and institutional readiness were overcome\. The Bank worked with the MVCT to strengthen institutional capacity and funding\. During 2012, based on the progress made, the special account was increased, including for use of Bank funds to finance social inclusion plans\. (See lessons learned in section 13 for other key interventions\.) The Bank supported South-South exchange visits, clients in the field by conducting field visits with help from specialists and regional experts, and conducted a solid waste sector study to improve the capacity of the Government (drawn from ICR, p\.25)\. Owing to moderate shortcomings including delays related to complications resulting from changes, design issues, and perceive, an increased number of Bank requirements were not easy to negotiate in the context of national legal requirement the quality of supervision is Moderately Satisfactory\. Pursuant to the Harmonized Criteria agreed by IEG and OPCS, with Outcome rated Moderately Satisfactory, Quality at Entry rated Moderately Unsatisfactory and Supervision rated Moderately Satisfactory, Overall Bank Performance is rated Moderately Satisfactory\. Quality of Supervision Rating Moderately Satisfactory Overall Bank Performance Rating Moderately Satisfactory 9\. Assessment of Borrower Performance a\. Government Performance Strong borrower ownership was evident at the Appraisal stage\.The Government response to critical challenges facing the SWM subsector was comprehensive as demonstrated by its commitment to undertake legal reforms, policies, strategies and plans\. MVCT was given the mandate for the development, promotion, and optimization of regulatory, technical, financial, and capacity-building instruments, including promoting regional planning and provision of services\. National and sector planning was undertaken by the National Department for Planning (DNP)\. (ICR p 1-4)\. Commitment during the implementation phase was hindered by a weak legal framework, funding and capacity and working knowledge of Bank policies\. The slow pace of execution of some contracts by Departments delayed the pace of disbursement and highlighted the need for further capacity building within the MVCT and at subnational levels where high rotation of personnel was a key issue\. (ICR p12)\. Page 13 of 20  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review CO Solid Waste Management Program Projec (P101279) Government Performance Rating Moderately Unsatisfactory b\. Implementing Agency Performance The implementing agency was the Ministry of Housing, City and Territory ((MVCT); at the time of appraisal, the Ministry of Environment, Housing and Territorial Development (MAVDT)\. The MAVDT did not have the requisite stature and capacities, as well as relationships with the Departments to fulfill its role\. Moreover, the solid waste unit was limited by its relatively low political profile\. The activities of building this capacity were not considered as explicit activities and although Components 2 and 3 included capacity building\. These activities were not focused on these capacity constraints and these activities were overlooked in implementation in part because they were not in the LA nor financed by loan resources\. The MVCT staff used their own budget to enhance the regulation of operation by involving the Superintendencia and regional environment authorities; undertake low cost capacity building through exchanges with good operators; conduct supervisory technical visits by World Bank and MVCT experts; and develop capacity building consultancies through national funding (outside of the loan)\. The limited PDA Departmental budget quotas at the beginning of the Project and the overall limited budget allocated by the MVCT to the sector, led to subprojects that were designed or selected to be at a lower cost\. A bottleneck for the Gestores was the MVCT approval process and was not affected significantly by the Bank approval process for these investments\. (Comments made by the Region) Solid Waste Unit- The solid waste unit was established in the MAVDT with experienced staff but lacked the minimum staff stipulated by the LA, which was only reached by the end of 2011\. The unit did not have technical professionals working exclusively for the project, but rather relied on part-time consultants with other commitments\. The unit was at first limited by the lack of outreach to Departments\. But over time, it was strengthened and professionalized\. The unit disseminated good practices between municipalities, coordinated exchanges between service operators, and shared the Colombia experience globally\. The solid waste unit steadily improved its contract supervision and monitoring of the sub-projects through field visits and periodic contact with the technical staff of Gestores Departamentales\. Pursuant to the Harmonized Criteria agreed by IEG and OPCS, with Outcome rated Moderately Satisfactory, Government Performance rated Moderately Unsatisfactory and Implementing Agency Performance rated Moderately Satisfactory, Overall Borrower Performance is rated Moderately Satisfactory\. Implementing Agency Performance Rating Moderately Satisfactory Overall Borrower Performance Rating Moderately Satisfactory 10\. M&E Design, Implementation, & Utilization Page 14 of 20  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review CO Solid Waste Management Program Projec (P101279) a\. M&E Design A monitoring and evaluation (M&E) framework was developed to track progress and subsequently adjusted post restructuring\. (see details in PAD, pp\.17-18)\. According to the ICCR, a key weakness of the PDO indicator [the beneficiary population] was that measures of key intermediate indicators were lacking, including the pipeline of subprojects at appraisal and of its evolution during implementation, as well as the changing populations served year-to-year by regional landfills\. The absence of measurement of both factors resulted in “imprecise estimates of the project beneficiary population (the PDO indicator) which, combined with the lack of a good causal link to the intermediate indicators, provided an imprecise measure of PDO achievement\." (see ICR, p\. 15-16)\. “There was a weak causal chain between the intermediate indicators and the PDO indicator\. The PDO indicator, which focused on the number of beneficiaries, did not properly reflect the intended impact of the loan or the PDO description entirely\. Although the activities related to social inclusion, the financial sustainability and environmental benefits such as dumpsite closure were addressed by some intermediate indicators, they were not properly reflected in the PDO indicator\." (ICR, p\.15) The indicators did not, according to the ICR, properly consider several intermediate outcomes and outputs\. Activities related with capacity building were not adequately reflected in the indicators, even though a significant amount of time and effort was invested in capacity building, which proved to be essential to attain the Project outcomes\. Subprojects relied on studies that needed to be contracted and executed beforehand and were not reflected in the original M&E framework\." b\. M&E Implementation The original framework included several indicators that were not useful or no longer considered relevant post 2015 restructuring\. Of the 14 original intermediate results indicators, ten were eliminated, three were adjusted (leading to more flexible ones in terms of targets or scopes) and only one intermediate results indicator was maintained\. Seven new indicators were also included (three of them core indicators)\. The usefulness of the new set of indicators was limited by the delays in officially approving the restructuring, but increased during the last year and a half of the project when results were being achieved at a faster rate\. (ICR p15)\. c\. M&E Utilization While it was not mentioned under the M&E section, during the ICR stage, to better assess the achievement of objectives, the PDO indicator was supplemented by outcome indicators developed ex-post specifically for the purposes of the ICR\. (See ICR p20-22 for specific details)\. Activities related with capacity building were not adequately reflected in the indicators, even though a significant amount of time and effort was invested in capacity building and it proved to be crucial to attain the project outcomes\. Findings of the indicator performance were used as an input to draft country strategies and plans\. (Team interview)\. Page 15 of 20  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review CO Solid Waste Management Program Projec (P101279) M&E Quality Rating Modest 11\. Other Issues a\. Safeguards Two safeguards were reported at ICR stage\. OP 4\.01 – Environmental Assessment and OP 4\.12 – Involuntary Settlement\. During the PAD and ICR stages, the environmental safeguard was assigned an “A” category\. The compliance rating for OP 4\.01 varied during implementation cycle\. While no safeguard was triggered under OP 4\.12, a resettlement plan was developed despite any displacement and social inclusion plans were developed with technical assistance provided by World Bank funds\.(ICR pp16-17) b\. Fiduciary Compliance The following was noted in different parts of the ICR, but the Region confirmed the disbursement rates partially\. Financial Management- ICR findings show that financial management compliance ranged from Moderately Satisfactory to Unsatisfactory during the project implementation cycle\. The main issues were a) the inability to justify disbursements at the beginning of the project that led to the World Bank asking for reimbursement of US$1\.07 million due to lack of execution\. Legal barriers prevented MVCT from undertaking the process of retrieving or substituting expenses for the small amount of funds not expended in subnational accounts, the special account was able to be closed satisfactorily\. Limitations in the supervision at subnational level\. (ICR p17)\. The second of three restructurings (August 2014) was substantial and renegotiation necessitated the incorporation of updated Bank requirements and legal measures designed to reduce risks related to the disbursements to subnational accounts\. Three amendments to the disbursement letter took place (approved 03/31/2010, 12/13/2012 and 07/07/2015\. with delays in the last modification which limited its utility\. (ICR p15)\. Project reports were reviewed and found acceptable to the World Bank with some delays in contracting and presenting them (ICR p 17)\. Audit reports were not mentioned by the ICR\. Disbursements-The ICR noted the following but the Team was not able to verify disbursement figures\. The following information was pulled together from different parts of the ICR\. During the first three years of the Project, there was little to no disbursement of the loan\. The Bank disbursed US$2 million in December 2009 to the special account, which was then channeled into subnational accounts\. Two years later, less than 4 percent of that amount had been paid against contracts\. ICR findings show that disbursement arrangements necessitated adjustments during implementation, which led to significant delays\. For FY12, the disbursement ratio was only 6\.7 percent, while it climbed to 17 percent in FY13\. The Project did not disburse the full amount of the remaining loan amount, due to the cancellation of subprojects\. The limited PDA Departmental budget quotas at the beginning of the project and the overall limited budget allocated by the MVCT to the sector, led to Page 16 of 20  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review CO Solid Waste Management Program Projec (P101279) subprojects that were designed or selected to be at a lower cost\. The fact that the subprojects did not have the expected size reduced the magnitude and rate of disbursement\.(ICR p12, 15 and 17) Procurement-The procurement compliance rating at project closure was moderately satisfactory\. At the outset, procurement challenges were cited as one of reasons for delays during project implementation\. Bidding processes for US$ 3\.6 million (San Gil, Choco, and Pamplona were cancelled and the time was limited for rebidding\. (ICR p14)\. Delays were prevalent because the Bank’s procurement rules were not consistent with local procedures and practices and expectations\. One of the main issues was the weak capacity of Gestores, which had no experience with Bank procurement policies and as a result, three procurement processes failed\. (ICR p 17)\. c\. Unintended impacts (Positive or Negative) Institutional change/strengthening\. The Project also increased the interest and capacity of Departmental Gestores in the development of solid waste projects\. Strategy and policy- As a complementary activity, a sector study was launched in December 2015\. It incorporated the lessons learned from the implementation of the loan and highlighted the approach to recycling and resource recovery and informal recyclers\. The findings were used by the DNP in designing the Programmatic Development Policy Loan for Sustainable Development\. d\. Other Other unintended outcomes and impacts (positive or negative)\. The Project helped increase technical standards within the sector by providing examples of good practice including examples of concession agreements, operational contracts, public management of small landfills (Quinchia) and the Colombian tariff system (see references in annex 7) that were re-disseminated in Colombia and internationally\. 12\. Ratings Reason for Ratings ICR IEG Disagreements/Comment Given that Relevance of Objectives is rated High, Relevance of Design is rated Moderately Moderately Outcome Modest, Efficacy of the first Unsatisfactory Satisfactory two sub-objectives are each rated Substantial while Efficacy of the third sub- Page 17 of 20  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review CO Solid Waste Management Program Projec (P101279) objective is rated Modest, and Efficiency is rated Substantial, Outcome is rated Moderately Satisfactory\. Risk to Development Modest Modest --- Outcome Pursuant to the Harmonized Criteria agreed by IEG and OPCS, with Outcome rated Moderately Satisfactory, Moderately Moderately Quality at Entry rated Bank Performance Unsatisfactory Satisfactory Moderately Unsatisfactory and Supervision rated Moderately Satisfactory, Overall Bank Performance is rated Moderately Satisfactory\. Pursuant to the Harmonized Criteria agreed by IEG and OPCS, with Outcome rated Moderately Satisfactory, Government Performance Moderately Moderately rated Moderately Borrower Performance Unsatisfactory Satisfactory Unsatisfactory and Implementing Agency Performance rated Moderately Satisfactory, Overall Borrower Performance is rated Moderately Satisfactory\. Quality of ICR Modest --- Note When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate\. 13\. Lessons The ICR included seven lessons, several of which this Review adapted\. Some lessons were added that appear relevant given the significant design, implementation and funding issues encountered by the project\. 1\. Global, and regional lessons learned from the other operations in the sector are not always suitable for replication due to specific country, sector conditions and priorities\. The original design of this project adopted global and regional lessons learned (ICR pp9-11) and adopted similar institutional arrangements used in water and sanitation sector projects\. However, as pointed out in the ICR (p\. 27), the latter projects, owing to their long record, higher visibility and established procedures, tended to relegate solid waste investments to Page 18 of 20  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review CO Solid Waste Management Program Projec (P101279) lower budget priority in the PDA budget structure\. Restructuring highlighted the need to consider the solid waste sector separately and adapt investment financing frameworks accordingly\. 2\. A conducive legal framework should be in place prior to project implementation\. Prior to effectiveness, the Bank should understand the legal framework and be prepared to offer workable alternatives in the event that legal issues should arise during implementation\. Colombia has a highly regulated public sector with public audit and control functions established in the constitution and national regulations governing government activities at all levels including basic services\. (ICR p 1)\. A) Laws related to subnational accounts\. In 2011, the Bank requested reimbursement of US$1\.07 million of the loan from the Special Account due to lack of execution, and discussed the options of closure of the project and partial cancelation\. But it was determined by Colombian authorities that this would have raised legal barriers due to the Constitutional provision that requires money to be used for designated purposes in designated Departments)\. In this project an alternative solution was developed entailing an increase to the Special Account and an agreement to work toward project restructuring rather than closure (ICR, p\.13)\. B) Legal barriers related to social inclusion\. The Government did not prioritize the social waste pickers as their activities were not supported by the prevailing law and there was strong opposition to changing the law\. A subsequent Supreme Court ruling resulted in waste pickers being designated as within the public service\. Near project closure, the Bank used its own funds to provide technical assistance leading to incorporation on a pilot basis of informal recyclers in two sites of the system\. (Team Interview)\. 3\. The importance of committing funds in advance of project implementation to help obtain stakeholder consensus\. The regional landfill operations involved multiple municipalities and required extensive negotiation and consensus building across municipal parties which spanned a period of municipal elections and transition of administrations\. Political consensus could not be obtained until funding was assured\. (Team interview)\. 4\. The role and importance of performance targets to improve accountability and improve project implementation\. Project execution did not advance throughout 2010 and for a significant portion of 2011\.The GoC and Bank agreed on a set of performance targets, which played a catalyst role in incentivizing the MVCDT to take action to speed up the process\. (ICR p13)\. 5\. Importance of closer coordination and continuous oversight by the Bank and Borrower to identify and mitigate risks in a timely manner\. The project faced multiple risks at different levels, some of which were identified and mitigated better than others\. Some risks pertaining to budget and staff allocations at higher levels were perceived but also seen as being of limited scope for influence by the Bank or implementing agency\. There were two key risks that were not identified at appraisal\. The high staff turnover at Departmental-level management entities for the PDA (Gestores Departmentales) was not considered in the risk analysis and in consequence, the mitigation measures regarding capacity building were not effective\. The risk of using the subnational account structure and a ring-fenced project sub-account within a single national level (Patrimonio Autonomo) structure was not adequately identified and addressed\. (ICR p 11) 6\. Best practices related to technical standards merit dissemination\. The Project helped increase technical standards within the sector by providing examples of good practice including examples of concession agreements, operational contracts, public management of small landfills (Quinchia) and the Colombian tariff Page 19 of 20  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review CO Solid Waste Management Program Projec (P101279) system (as noted in Section 10d above; also see references in ICR, annex 7)\. These examples were re- disseminated in Colombia and globally\. (ICR p 24, footnote 59) 14\. Assessment Recommended? No 15\. Comments on Quality of ICR The report was concise; but was more an implementation narrative than an outcome based report\. Contrary to OPCS guidelines, a key shortcoming of the report was the substantial evidence found in different parts of the report which should have been organized under specific topics – relevance of design, quality of entry\. borrower performance, government performance\. Disbursement rates were partially confirmed\. However, there was a lack of discussion related to operational and administrative efficiency\. The indicators in the PAD were inadequate to demonstrate achievement of the PDO, but the ICR relied on new indicators identified ex post by the ICR team\. An interview with the project team was useful to clarify nuances related to design, implementation, funding issues, efficacy, efficiency and M/E discussions, and project costs, as well as inconsistencies between Bank and Government processes\. The comments sent by the region helped to rectify most of the discrepancies and clarify the nuances\. Another round of editing would have improved clarity and readability\. a\. Quality of ICR Rating Modest Page 20 of 20

REVIEW

P125425

 ICRR 14170 Report Number : ICRR14170 IEG ICR Review Independent Evaluation Group 1\. Project Data : Date Posted : 04/03/2014 Country : Kyrgyz Republic Is this Review for a Programmatic Series? Yes No Series ID : First Project ID : P125425 Appraisal Actual Project Name : Economic Recovery US$M ): Project Costs (US$M): 30 30 Support Operation (ERSO) L/C Number : Loan /Credit (US$M): Loan/ US$M ): 30 30 Sector Board : Economic Policy US$M ): Cofinancing (US$M): Cofinanciers : Board Approval Date : 08/02/2011 Closing Date : 06/30/2013 06/30/2012 Sector (s): Other social services (25%); General public administration sector (25%); General energy sector (20%); Public administration- Information and communications (15%); General finance sector (15%) Theme (s): Social safety nets (25%); Other public sector governance (25%); Other accountability/anti-corruption (25%); Macroeconomic management (15%); Infrastructure services for private sector development (10%) Evaluator : Panel Reviewer : ICR Review Group : Coordinator : Nils Fostvedt Clay Wescott Lourdes N\. Pagaran IEGPS2 2\. Project Objectives and Components: a\. Objectives: The ERSO - as per the Program Document (PD), paragraph 5 - supported policy actions implemented between April 2010 and June 2011 aimed at (i) stabilizing the economy, (ii) strengthening governance and (iii) safeguarding social protection \. There were thus three overall objectives \. The PD elaborates on these under two themes: Strengthened governance in management of public assets and revenues, and Safeguarding Social Protection and Supporting Conflict -Affected population (pp\.28-38, 58-9)\. b\. If this is a single DPL operation (not part of a series), were the project objectives/ key associated outcome targets revised during implementation? No c\. Policy Areas: The policy areas under each theme were as follows : Theme 1: Strengthened governance in management of public assets and revenues \. Assert budget control and transparency over management of public assets and revenues; Establish proper transparency and accounting practices of energy sector operations; and Maintaining financial sector stability \. Theme II : Safeguarding social protection and supporting conflict affected population Safeguarding essential social protection spending; and Re-establish livelihoods and provide social compensation in the south \.  There were eight prior actions under Theme I, and four under Theme II \. All were met as agreed\. There was no theme for economic stabilization, but two of the three policy areas under Theme 1 and several of the related policy actions supported the objective of stabilization, including those related to maintaining financial sector stability; and asserting budget control and transparency over the management of public assets and revenues \. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: This was a one-tranche operation (IDA credit plus IDA grant) based on the fulfillment of prior conditions \. The ERSO became effective in November 2011 and closed as scheduled June 30, 2012\. There were no concomitant adjustment/development policy operations, but a program for Programmatic Development Policy (PDP) operations (planned for three operations ) was initiated with the approval of PDP 1 in mid 2013\. That operation became effective in late 2013 and PDP2 is now under preparation\. 3\. Relevance of Objectives & Design: a\. Relevance of Objectives: The ERSO provided budget support (together with ADB, IMF and the EU) at a time when the country was coming out of political turmoil and ethnic conflict (that had erupted in 2010) that inflicted a serious burden on the economy and on the budget \. The operation addressed important short -term reform issues in the important areas of economic stabilization, governance and social safety nets \. In addition, some areas of support addressed longer-term perspectives as well\. For example, the ERSO-supported reforms in the electricity sector could serve as a subsequent basis for a longer -term reform and development strategy \. The focus on the objectives of economic stabilization, governance and social protection supported the implementation underway of Government reforms, linked to the planned Medium Term Development Program for 2012-2014 (Poverty Reduction Strategy Paper), and was closely aligned with the Bank's FY 12-13 Interim Strategy Note (ISN)\. The relevance of objectives was High \. b\. Relevance of Design: The ERSO provided a clear statement of high priority objectives \. There was a plausible causal chain between 12 specific prior conditions, all of which were implemented prior to Board presentation, and the objectives and targeted outcomes\. The design did not include any actions explicitly supporting the economic stabilization objective, but many of the actions indirectly contributed \. There were no significant, unforseen exogenous factors affecting or unintended effects from this operation \. Overall, the relevance of design was Substantial \. 4\. Achievement of Objectives (Efficacy): Objective: Help stabilize the economy (no indicators): Substantial \. The ICR reports that the ERSO funding, together with that of other development partners, provided resources to ensure that essential spending was protected \. The economy rebounded quickly in 2011 (to 5\.7 percent), with physical security and political stability largely restored \. But it then contracted in 2012 (by 0\.9 percent) due to a drop in gold output due to geological issues (a shift of ice and waste into the central pit of the Kumtur mine ) and a protracted conflict with the main producer \. There was also lower than expected growth in agriculture, although other sectors seem to have performed quite well \. Growth for 2013 has recovered to about nine percent as per early estimates, while medium-term growth is projected at around five percent per annum \. Fiscal consolidation is still "urgently" needed\. Thus significant economic stabilization has been achieved, but the picture is still fragile\. IMF (staff report May 21, 2013) notes that the authorities have implemented critical fiscal reforms, that financial sector reforms turned out to be more challenging than expected, and that – notwithstanding the deterioration of macroeconomic conditions in 2012 - policies have generally remained prudent \. Note that in a few cases, the indicators or their targets (discussed below) as presented in the ICR have been formulated slightly differently from the text in the Program Document matrix \. Such differences should be avoided, but in this case they do not seem to have any significant importance \. Objective: Strengthen governance\. Substantial \. Assert budget control and transparency over management of public assets and revenues \. Three targets mainly  achieved: (i) The government has restored accountability and responsibility for public investments to the Ministry of Finance\. (ii) The responsibilities for privatization have been clarified and the 2012-14 program has been approved, but it is not clear whether this improvement fully meets the original target : “privatizations implemented in line with best practiceâ€? (iii) The Kyrgyz Republic has been declared (since 2011) fully compliant with the Extractive Industries Transparency Initiative (EITI) and the target for company coverage has been exceeded (57 compared to a target of 46), but the ICR raises some doubt as to the sustainability of the EITI in the country for funding reasons \. Establish proper transparency and accounting practices in energy sector operations \. Six targets achieved: (i) Supervisory council set up in the Ministry of Energy and strategic decisions are being made with its input \. (ii) Power export proceeds are accounted for and used transparently \. (iii) Performance agreements between the regulator and the six energy companies are in place (but it is not explicitly clear in the ICR whether they are being followed)\. (iv) Loss reduction in the electricity sector is better than targeted \. (v) Electricity collection rate target reached in 2011\. (vi) Ministry of Energy has adopted revenue sharing rules (among generation, transmission and distribution sub -sectors) with transparent criteria\. However, the steps forward regarding improved data availability, greater public participation in decision making, and improved public accountability are still described as modest, and the principal challenges for the energy sector (financial viability, export potential, and the regulatory framework) still remain to be addressed\. Maintain financial sector stability \. Three targets achieved: (i) A major bank (AUB) was nationalized, split into a “goodâ€? and a “badâ€? bank, and the “goodâ€? bank (Zalkar) was privatized in 2013 - this was later than expected \. Some other banks remain under conservatorship \. Meanwhile, banking system indicators have begun to improve\. (ii) The central bank’s ability to supervise the banking sector has improved – but that is not quite the same as whether it is now equipped to supervise the sector, address vulnerabilities in a timely manner, and resolve troubled banks efficiently, as per the original target \. (iii) The Deposit Protection Agency has been reconstituted as an independent legal entity \. Overall, there are still deficiencies in the bank resolution legal framework, and weaknesses in the supervisory framework \. Some of these issues were to be addressed in an IDA financial sector development project (2012) that was not approved by Parliament (it was since restructured into a smaller operation)\. Objective: Safeguard social protection\. Substantial \. Safeguard essential social protection spending\. Two targets achieved: (i) The monthly benefits for poor families with children were increased\. (ii) Number of rights-based categories decreased to 25\. Overall, the social sector still requires consolidation and a more decisive shift towards poverty -targeted programs\. Re-establish livelihoods and provide social compensation in the south\. This was the area most affected by the ethnic unrest\. One target achieved: In the intermediate post-conflict period, the government provided significant support to affected people in the form of cash compensation and support to re -establish livelihoods\. The ICR rightly notes - with particular reference to the governance-related measures - that these were well advanced early in the preparation process, making difficult causal attribution-linkages\. But importantly it is also noted that the reforms were prepared largely by the government itself, are still in place and in some areas are being further advanced\. 5\. Efficiency (not applicable to DPLs): 6\. Outcome: This project supported 12 prior actions that all were met prior to Board presentation and there has been no back-sliding\. It addressed priority objectives and provided budgetary support at a time when the country was recovering from political and ethnic unrest and starting to reform under a new regime \. Progress is discernible in all areas addressed, although further improvements are needed \. The relevance of objectives was High, the relevance of design Substantial, and the achievement of the three objectives all Substantial \. a\. Outcome Rating : Satisfactory 7\. Rationale for Risk to Development Outcome Rating: The government has made a good start with its stabilization and reform program, but the Kyrgyz Republic is a  small, landlocked country, highly dependent economically on gold mining and remittances, with a recent history of political and ethnic unrest \. The transition to a more open, rules -based representative government has so far gone quite well but remains a work in progress \. Human and institutional capacity remains a concern \. a\. Risk to Development Outcome Rating : Significant 8\. Assessment of Bank Performance: a\. Quality at entry: This project was a timely response to the need for assistance following the crisis, and was prepared in a short time and addressed priority issues \. A three-year series of programmatic development policy operations had been added to the country program in late 2009, and the first such operation had been appraised prior to the outbreak of unrest in April 2010; the funds in the lending program were then reallocated to crisis response \. A multi-loan program has now been initiated with PDP 1\. The decision to go for a free-standing ERSO in 2011 was reasonable in light of the still unsettled conditions at the time and the absence of medium term development program, as explained in the ISN, with the prospects for a subsequent DPO program\. The program matrix should have explicitly addressed the objective of stabilizing the economy\. at -Entry Rating : Quality -at- Satisfactory b\. Quality of supervision: The prior actions were met prior to Board presentation, and the project closed as planned \. There was supervision as part of continued dialogue on economic policy and governance \. This included a formal supervision undertaken at the time of credit and grant effectiveness, and parallel supervision of related technical assistance operations \. Quality of Supervision Rating : Satisfactory Overall Bank Performance Rating : Satisfactory 9\. Assessment of Borrower Performance: a\. Government Performance: The program supported by ERSO was prepared in a short time period and with 12 prior conditions all implemented prior to Board approval\. The subsequent implementation of the program has gone well \. Government Performance Rating : Satisfactory b\. Implementing Agency Performance: The Ministry of Finance was responsible for coordinating donors' activities and was the Bank's counterpart for the ERSO implementation, as well as for the management and coordination of implementation of policy measures among other ministries and agencies, but the real counterpart was the government as a whole \. The ICR also does not discuss the performance of the ministry, so there are thus two reasons for not rating it separately here\.  Implementing Agency Performance Rating : Not Applicable Overall Borrower Performance Rating : Satisfactory 10\. M&E Design, Implementation, & Utilization: a\. M&E Design: The policy matrix (PD Annex 2) was well designed, except that it did not include any explicit targets regarding the objective to help stabilize the economy \. b\. M&E Implementation: The ICR includes updates on all the identified indicators - given the nature of the program most of the indicators were qualitative and thus presumably easier to track than more numerical indicators \. As mentioned in Section 4, a few indicators or their targets were formulated slightly differently in the ICR than in the PD \. Examples include; (i) The indicator on electric power in the PAD talked of collection rate of energy delivered to the internal market and in the ICR of per kWh billed; (ii) Target for AUB resolution in the PD matrix talked of “Major bank nationalized and restructured through a “good bank, bad bankâ€? split\. Other banks put under conservatorship, temporary administration, or direct supervision \. Stability and confidence in the banking sector partly restored \.â€? The first sentence was reformulated in the ICR without significant change in meaning, while second sentence was missing altogether\. c\. M&E Utilization: The indicators were used in the brief period of implementation \. M&E Quality Rating : Substantial 11\. Other Issues a\. Safeguards: Not applicable\. b\. Fiduciary Compliance: Not applicable\. c\. Unintended Impacts (positive or negative): There were no such impacts\. d\. Other: The operation helped paving the way for the subsequent Programmatic Development Policy program, for which the first operation has just become effective \. 12\. 12\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Risk to Development Significant Significant Outcome : Bank Performance : Satisfactory Satisfactory Borrower Performance : Satisfactory Satisfactory  Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate\. 13\. Lessons: A single-tranche operation can be an adequate response to a post -emergency situation, but it is preferable - as in this case - for such an operation to be prepared with the prospect of a subsequent development program\. An operation with high government ownership as in this case, where most of the specific prior actions were prepared largely by the government, may have better prospects for sustainability and for avoiding backsliding\. 14\. Assessment Recommended? Yes No 15\. Comments on Quality of ICR: The ICR discusses all relevant aspects of the project \. It could have avoided and /or noted the modest differences in the formulation of the indicators between the PD results matrix and subsequent formulations \. a\.Quality of ICR Rating : Satisfactory

REVIEW

P112312

 Document of The World Bank Report No: ICR00001909 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-75900) ON LOANS IN THE AMOUNTS OF 1\. US$200 MILLION (September 17, 2008) 2\. US$350 MILLION (June 24, 2009) TO THE REPUBLIC OF GUATEMALA FOR THE FIRST AND SECOND PROGRAMMATIC FISCAL AND INSTITUTIONAL DEVELOPMENT POLICY LOANS June 30, 2010 Central America Country Management Unit Poverty Reduction and Economic Management Latin America and Caribbean Region  CURRENCY EQUIVALENTS (Exchange Rate Effective December 31, 2010) US$1\.00 = QZ 8\.016 (Quetzales) FISCAL YEAR January 1st – December 31st ABBREVIATIONS AND ACRONYMS CCT Conditional Cash Transfer CPS Country Partnership Strategy DPL Development Policy Loan Guatecompras Government procurement system IEATAAP Temporary tax on business income (Impuesto Extraordinario de Apoyo a los Acuerdos de Paz) ISO Transitional “Solidarity taxâ€? on business income (Impuesto de Solidaridad) MoF Ministry of Finance SAQB’E Customs Management System SIAF Integrated Financial Management System SIB Banking Superintendency SME Small and Medium Enterprises Vice President: Pamela Cox Country Director: C\. Felipe Jaramillo Sector Manager: Rodrigo A\. Chaves Task Team Leader: David M\. Gould ICR Team Leader: Elizabeth Ruppert Bulmer  GUATEMALA FIRST AND SECOND PROGRAMMATIC FISCAL AND INSTITUTIONAL DEVELOPMENT POLICY LOANS IMPLEMENTATION AND COMPLETION RESULTS REPORT CONTENTS Data Sheet A\. Basic Information B\. Key Dates C\. Ratings Summary D\. Sector and Theme Codes E\. Bank Staff F\. Results Framework Analysis G\. Ratings of Program Performance in ISRs H\. Restructuring 1\. Program Context, Development Objectives and Design \. 1 2\. Key Factors Affecting Implementation and Outcomes \. 5 3\. Assessment of Outcomes \. 12 4\. Assessment of Risk to Development Outcome \. 17 5\. Assessment of Bank and Borrower Performance \. 18 6\. Lessons Learned\. 21 Annex 1 Bank Lending and Implementation Support/Supervision Processes\. 23 Annex 2\. Beneficiary Survey Results \. 25 Annex 3\. Stakeholder Workshop Report and Results \. 26 Annex 4\. Summary of Borrower's Comments on Draft ICR \. 27 Annex 5\. Comments of Cofinanciers and Other Partners/Stakeholders \. 29 Annex 6\. List of Supporting Documents \. 30 MAP   A\. Basic Information Program 1 GT Fiscal and Country Guatemala Program Name Institutional DPL Program ID P112312 L/C/TF Number(s) IBRD-75900 ICR Date 06/30/2011 ICR Type Core ICR REPUBLIC OF Lending Instrument DPL Borrower GUATEMALA Original Total USD 200\.00M Disbursed Amount USD 200\.00M Commitment Implementing Agencies Ministry of Public Finance Cofinanciers and Other External Partners Program 2 Second Fiscal and Country Guatemala Program Name Institutional Development Policy Program ID P114373 L/C/TF Number(s) IBRD-77360 ICR Date 06/30/2011 ICR Type Core ICR REPUBLIC OF Lending Instrument DPL Borrower GUATEMALA Original Total USD 350\.00M Disbursed Amount USD 350\.00M Commitment Implementing Agencies Ministry of Public Finance Cofinanciers and Other External Partners B\. Key Dates GT Fiscal and Institutional DPL - P112312 Revised / Actual Process Date Process Original Date Date(s) Concept Review: 07/30/2008 Effectiveness: 03/17/2009 03/17/2009 Appraisal: 09/12/2008 Restructuring(s): Approval: 10/21/2008 Mid-term Review: Closing: 12/31/2009 12/31/2009 i Second Fiscal and Institutional Development Policy - P114373 Revised / Actual Process Date Process Original Date Date(s) Concept Review: 05/11/2009 Effectiveness: 03/07/2010 12/17/2009 Appraisal: 06/10/2009 Restructuring(s): Approval: 07/28/2009 Mid-term Review: Closing: 12/31/2010 12/31/2010 C\. Ratings Summary C\.1 Performance Rating by ICR Overall Program Rating Outcomes Moderately Satisfactory Risk to Development Outcome Substantial Bank Performance Satisfactory Borrower Performance Moderately Satisfactory C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Overall Program Rating Bank Ratings Borrower Ratings Quality at Entry Satisfactory Government: Not Applicable Implementing Quality of Supervision: Satisfactory Not Applicable Agency/Agencies: Overall Bank Overall Borrower Satisfactory Moderately Satisfactory Performance Performance C\.3 Quality at Entry and Implementation Performance Indicators GT Fiscal and Institutional DPL - P112312 Implementation QAG Assessments Indicators Rating: Performance (if any) Potential Problem Quality at Entry Program at any time No None (QEA) (Yes/No): Problem Program at any Quality of No None time (Yes/No): Supervision (QSA) DO rating before Moderately Closing/Inactive status Satisfactory ii  Second Fiscal and Institutional Development Policy - P114373 Implementation QAG Assessments Indicators Rating: Performance (if any) Potential Problem Quality at Entry Program at any time No None (QEA) (Yes/No): Problem Program at any Quality of No None time (Yes/No): Supervision (QSA) DO rating before Satisfactory Closing/Inactive status D\. Sector and Theme Codes GT Fiscal and Institutional DPL - P112312 Original Actual Sector Code (as % of total Bank financing) Central government administration 60 60 General finance sector 20 20 Other social services 20 20 Theme Code (as % of total Bank financing) Other accountability/anti-corruption 14 14 Public expenditure, financial management and 14 14 procurement Regulation and competition policy 29 29 Social safety nets 14 14 Tax policy and administration 29 29 Second Fiscal and Institutional Development Policy - P114373 Original Actual Sector Code (as % of total Bank financing) Central government administration 35 35 General finance sector 20 20 General public administration sector 20 20 Other social services 25 25 Theme Code (as % of total Bank financing) Macroeconomic management 20 20 Other financial and private sector development 20 20 Other human development 20 20 iii  Public expenditure, financial management and 20 20 procurement Tax policy and administration 20 20 E\. Bank Staff GT Fiscal and Institutional DPL - P112312 Positions At ICR At Approval Vice President: Pamela Cox Pamela Cox Country Director: Carlos Felipe Jaramillo Laura Frigenti Sector Manager: Rodrigo A\. Chaves Rodrigo A\. Chaves David Michael Gould Task Team Leader: David Michael Gould Waleska Garcia-Corzo ICR Team Leader: Elizabeth N\. Ruppert Bulmer ICR Primary Author: Elizabeth N\. Ruppert Bulmer Second Fiscal and Institutional Development Policy - P114373 Positions At ICR At Approval Vice President: Pamela Cox Pamela Cox Country Director: Carlos Felipe Jaramillo Laura Frigenti Sector Manager: Oscar Calvo-Gonzalez Rodrigo A\. Chaves David Michael Gould Task Team Leader: David Michael Gould Rashmi Shankar ICR Team Leader: Elizabeth N\. Ruppert Bulmer ICR Primary Author: Elizabeth N\. Ruppert Bulmer F\. Results Framework Analysis Program Development Objectives (from Program Document) Program Development Objectives: I\. Promote macroeconomic stability and financial sector deepening and maintain fiscal space for priority spending\. II\. Improve governance and transparency of public financial management and expenditures\. III\. Strengthen the effectiveness of the Mi Familia Progresa Conditional Cash Transfer Program through improved execution and targeting\. IV\. Promote sustainable growth and productivity\. Revised Program Development Objectives (as approved by original approving authority) N/A iv (a) PDO Indicator(s) GT Fiscal and Institutional DPL - P112312 Original Target Formally Actual Value Baseline Values (from Revised Achieved at Indicator Value approval Target Completion or documents) Values Target Years Central Government fiscal deficit does not rise above 2\.2 percent of GDP on Indicator 1 : average for 2009-2011, as priority social spending increases\. Value 2\.2 percent of 2\.1 percent of GDP in 2\.8 percent of 3\.3 percent of GDP (quantitative or GDP average for 2007 GDP in 2010 in 2010 Qualitative) 2009-2011 Date achieved 12/31/2007 12/31/2010 12/31/2010 12/31/2010 Comments Fiscal reforms and tax modernization measures insufficient to offset higher (incl\. % spending and lower revenues during economic downturn\. achievement) Fiscal reform implementation contributes to additional revenues so that tax Indicator 2 : collection as a share of GDP rises to 12\.7 percent of GDP in 2011\. minimum Value 12\.7 percent in threshold of 10\.5 percent of (quantitative or 12\.3 percent in 2007 2011 10\.4 percent in GDP Qualitative) 2010 Date achieved 12/31/2007 12/31/2010 12/31/2010 12/31/2010 Comments (incl\. % Target achieved\. achievement) Consolidated supervision has been completed in at least half of the financial Indicator 3 : groups by assets and regular supervision completed for the majority of risk profiles under the new risk manual\. Consolidated Consolidated Value supervision in at supervision in 9 out (quantitative or 0 in 2007 least half of of 11 financial Qualitative) financial groups groups by assets\. Date achieved 12/31/2007 12/31/2010 12/31/2010 Comments (incl\. % Target exceeded\. achievement) v  Second Fiscal and Institutional Development Policy - P114373 Original Target Formally Actual Value Baseline Values (from Revised Achieved at Indicator Value approval Target Completion or documents) Values Target Years Central Government fiscal deficit does not rise above 2\.8 percent of GDP in Indicator 1 : 2010, as priority social spending increases, in the context of the global crisis and growth slow-down\. Value 1\.7 percent of GDP in 2\.8 percent of 3\.3 percent of GDP (quantitative or 2008 GDP in 2010 in 2010 Qualitative) Date achieved 12/31/2008 12/31/2010 12/31/2010 Comments Fiscal reforms and tax modernization measures insufficient to offset higher (incl\. % spending and lower revenues during economic downturn\. achievement) Fiscal reform measures mitigate the impact of the crisis so that Central Indicator 2 : Government tax collections do not fall below 10\.4 percent of GDP in 2010\. Central Value government tax 10\.5 percent of (quantitative or 11\.3 percent in 2008 collections do not GDP Qualitative) fall below 10\.4 percent of GDP Date achieved 12/31/2008 12/31/2010 12/31/2010 Comments (incl\. % Target achieved\. achievement) Consolidated supervision has been completed in at least half of the financial Indicator 3 : groups by assets and regular supervision completed for all four risk profiles under the new risk manual\. Consolidated Consolidated Value supervision in at supervision in 9 out (quantitative or 0 percent in 2007 least half of of 11 financial Qualitative) financial groups groups by assets\. Date achieved 12/31/2008 12/31/2010 12/31/2010 Comments (incl\. % Target exceeded\. achievement) Indicator 4 : Regular debt issuance by MoF starting the second half of 2008\. Value Only irregular and Ongoing regular Ongoing twice a (quantitative or sporadic issuance by issuance of debt by week issuance of Qualitative) MoF in 2007\. the MoF\. debt by the MoF\. Date achieved 12/31/2007 12/31/2010 12/31/2010 Comments (incl\. % Target achieved\. achievement) vi  Three percent financing volume increase generated with the use of garantías Indicator 5 : mobiliarias\. Three percent The use of movable financing volume Value asset guarantees led increase generated (quantitative or 0 percent in 2008 to a 4 percent with the use of Qualitative) increase in total garantías credit mobiliarias\. Date achieved 12/31/2008 12/31/2010 12/31/2010 Comments (incl\. % Target achieved\. achievement) Ministry of Finance and General Auditor's Office using annual audits and Indicator 6 : monthly financial and execution reports from at least ninety percent of the public trust funds to improve oversight and management\. At least ninety 2009 audits Value percent of the completed for 31 (quantitative or 0 in 2008 public trust funds out of 56 trust Qualitative) audited\. funds Date achieved 12/31/2008 12/31/2010 12/31/2010 Comments Target partially achieved, although the audits represent the largest trust funds (incl\. % and thus capture the majority of spending\. 2010 audits not yet available\. achievement) Specialized offices to facilitate access to public information have been Indicator 7 : established in at least 30 percent of Central Government agencies\. At least 30 percent Public information of Central offices have been Value Government established in 85 (quantitative or 0 in 2008 agencies have percent of Central Qualitative) public information Government offices\. entities\. Date achieved 12/31/2008 12/31/2010 12/31/2010 Comments (incl\. % Target exceeded\. achievement) Results indicators have been developed for fifty percent of Central Indicator 8 : Government's expenditures in order to introduce the results informed budget framework\. Results indicators Results indicators have been Value developed for 97 developed for fifty (quantitative or 22 percent in 2008 percent of Central percent of Central Qualitative) Government Government's expenditures expenditures\. Date achieved 12/31/2008 12/31/2010 12/31/2010 Comments (incl\. % Target exceeded\. achievement) vii  Co-responsibilities verified for 50 percent of the CCT beneficiaries, half of Indicator 9 : which are extreme poor, based on a framework for monitoring and evaluation\. Co-responsibilities Co-responsibilities verified for 100 verified for 50 Value percent of the CCT percent of the CCT (quantitative or 0 in August 2008 beneficiaries; beneficiaries, half Qualitative) cannot calculate of which are share of extreme extreme poor\. poor\. Date achieved 12/31/2008 12/31/2008 12/31/2010 Comments Target achieved\. In terms of extreme poor, share of beneficiaries in this group (incl\. % is likely to be high due to geographical targeting and proxy means test\. achievement) Tax declarations submitted through the internet have increased by 3 percentage Indicator 10 : points\. 37 percent of tax 42 percent of tax Value declarations declarations (quantitative or 34 percent in 2007 submitted through submitted through Qualitative) the internet\. internet\. Date achieved 12/31/2008 12/31/2010 12/31/2010 Comments (incl\. % Target exceeded\. achievement) Customs times for clearance and release of exported/imported goods has Indicator 11 : declined by 5 percent\. Time to export 19 days, Value Time to export 18 Time to export 17 time to import 18 days (quantitative or days, time to days, time to import in 2007; Doing Qualitative) import 17 days\. 17 days\. Business Report, 2008\. Date achieved 12/31/2007 12/31/2010 12/31/2010 Comments (incl\. % Target achieved\. achievement) (b) Intermediate Outcome Indicator(s) viii  GT Fiscal and Institutional DPL - P112312 Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Completion of enhanced or regular supervision of 3 out of 4 risk Indicator 1 : profiles under the risk-based consolidated supervision manual in all financial groups in the system Value (quantitative or Qualitative) Date achieved Comments (incl\. % achievement) Second Fiscal and Institutional Development Policy - P114373 Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Completion of enhanced or regular supervision of 3 out of 4 risk Indicator 1 : profiles under the risk-based consolidated supervision manual in all financial groups in the system Value (quantitative or Qualitative) Date achieved Comments (incl\. % achievement) G\. Ratings of Program Performance in ISRs GT Fiscal and Institutional DPL - P112312 Actual Date ISR No\. DO IP Disbursements Archived (USD millions) 1 12/30/2008 Moderately Satisfactory Moderately Satisfactory 0\.00 Second Fiscal and Institutional Development Policy - P114373 Actual Date ISR No\. DO IP Disbursements Archived (USD millions) 1 09/25/2009 Satisfactory Satisfactory 0\.00 2 02/27/2011 Moderately Satisfactory Satisfactory 349\.13 ix   1\. Program Context, Development Objectives and Design Guatemala has the largest economy in Central America but is plagued by very high rates of poverty and inequality\. Compared to other middle-income countries, social indicators in Guatemala are low, particularly among the geographically and economically marginalized rural indigenous population\. The institutional environment was hampered by decades of civil war, which contributed to weak governance and transparency and constrained the economic participation of large segments of the population\. Crafting and implementing sound public policies proved difficult in this restive environment, in turn inhibiting broad-based and sustained economic and social development\. 1\.1 Context at Appraisal Since the signing of the 1996 Peace Accords, the country has begun to make headway, focusing on social needs and building democratic institutions\. The peaceful transition to a new government in January 2008 is a clear illustration of progress to-date\. Nevertheless, serious challenges remain\. The series of Programmatic Fiscal and Institutional Development Policy Loans was initiated in 2008 during this period of political transition, but also at a time of great economic uncertainty with the emergence of the global financial crisis and subsequent growth slow-down\. At appraisal, Guatemala’s economy was growing at a robust 6\.3 percent (2007), following several years of steady growth rates of 3-5 percent\. This sustained economic performance – despite consecutive negative shocks in terms of natural disasters, commodity price fluctuations and a domestic banking crisis and bail-out – reflects a prudent macro policy stance\. Guatemala’s modest fiscal deficits (2-3 percent of GDP), relatively stable current account deficit (historically around 5 percent of GDP) and low levels of external debt (less than 25 percent of GDP) helped the economy to weather these shocks (see Table 1 below)\. In the period leading up to appraisal, Guatemala focused its trade policy on increased regional and global integration, with the signing of DR-CAFTA (which came into effect in 2006)\. These efforts were complemented by some improvement in the investment climate, although corruption and crime remain significant obstacles\. Nevertheless, Guatemalan competitiveness seems to have improved, reflected by a large inflow of FDI during this period\. Government accountability and transparency have also improved due to ongoing efforts to consolidate public financial management reforms through the integrated financial management system (SIAF) and a new public procurement system (GUATECOMPRAS)\. But perceptions of corruption and weak rule of law continue to plague day-to-day decision making and transactions\. Prior to appraisal, financial sector soundness saw concrete improvement, but supervision continued to fall short in some areas\. Legal and regulatory reforms in 2002 contributed to improve banking sector solvency and resilience to market volatility\. These reforms also contributed to designing an effective bank resolution framework, which led to the successful resolution of two significant banks (Bancafé and Banco del Comercio) in 2006-2007\. However, as noted in the 2006 FSAP update, further strengthening of 1 financial supervision was needed, in particular on the supervision of financial conglomerates which accounted for over 80 percent of total regulated financial system assets\. With regard to access to finance, although domestic credit to private sector firms increased from around 20 percent of GDP in 2000 to 30 percent in 2007, this figure was low compared to the Central American average of 47 percent\. Access to finance was particularly troublesome for small firms which had lower or no collateral and were serviced by non bank and mostly non regulated entities\. Table 1: Selected Economic Indicators 2004 2005 2006 2007 2008 2009 2010 Income and Prices GDP growth (% change) 3\.2 3\.3 5\.4 6\.3 3\.3 0\.5 2\.6 GDP per capita (% change) 0\.6 0\.7 2\.8 3\.7 0\.8 -1\.9 -0\.1 Inflation (CPI end of period % change) 9\.2 8\.6 5\.8 8\.7 9\.4 -0\.3 5\.4 Nominal exchange rate (average Quetzales/US$) 7\.9 7\.6 7\.6 7\.7 7\.6 8\.2 8\.1 Central Government Finance (% of GDP) Total revenues and grants 12\.3 12\.0 12\.7 12\.8 12\.0 11\.1 11\.3 Total tax revenues 11\.5 11\.2 11\.9 12\.1 11\.3 10\.3 10\.5 Total expenditure 13\.4 13\.7 14\.7 14\.3 13\.6 14\.2 14\.6 Central Government primary balance 0\.3 -0\.3 -0\.6 0\.0 -0\.3 -1\.7 -1\.8 Central Government overall balance -1\.1 -1\.7 -1\.9 -1\.4 -1\.6 -3\.1 -3\.3 Non Financial Public Sector total debt 22\.2 21\.1 21\.9 21\.6 20\.1 23\.0 24\.6 o/w External 15\.5 13\.2 13\.1 12\.4 11\.2 13\.1 13\.5 Balance of Payments (% of GDP) Current account balance -4\.9 -4\.6 -5\.0 -5\.2 -4\.3 0\.0 -2\.1 Trade balance -15\.2 -15\.4 -16\.1 -16\.1 -14\.2 -8\.9 -10\.4 Exports (f\.o\.b) 21\.3 20\.1 20\.1 20\.5 20\.0 19\.4 20\.8 Imports (f\.o\.b) -36\.5 -35\.5 -36\.2 -36\.6 -34\.3 -28\.2 -31\.3 Foreign direct investment 1\.2 1\.9 2\.0 2\.2 1\.9 1\.6 1\.7 Remittances 10\.8 11\.1 12\.1 12\.3 11\.3 10\.5 10\.1 Domestic Credit 21\.4 24\.3 28\.4 31\.1 29\.1 29\.1 30\.0 o/w Credit to Private Sector 20\.9 23\.2 27\.1 30\.0 29\.5 28\.7 28\.1 Memorandum item: Nominal GDP (billions of US$) 24\.0 27\.2 30\.2 34\.1 39\.1 37\.7 41\.2 Source: Ministry of Finance, Central Bank, IMF, and World Bank staff estimates\. Despite considerable progress across the policy spectrum and positive real per capita growth rates, institutional and development outcomes in Guatemala continue to signal the need for further reform\. The Colom administration, which came to power in January 2 2008, committed to a program addressing poverty and inequality through increasing growth, creating fiscal space through fiscal reform and better monitoring and evaluation to target needy sectors while maintaining macroeconomic stability, and improving governance and transparency at the central and local levels to raise accountability and improve service delivery\. The Bank has much to offer in these technical areas, and the Government requested both financial and technical support from the Bank through the Programmatic DPL series in order to help them address this development agenda\. The Bank team preparing the DPL series judged the macroeconomic policy framework to be prudent and the outlook for sustainable growth positive\. The resulting DPLs were designed to complement the broad objectives identified in the Country Partnership Strategy\. 1\.2 Original Program Development Objectives (PDO) and Key Indicators (as approved) The overall Program Development Objectives for both loans and the associated key performance indicators (outcomes expected for end-2010) are as follows: I\. Promote macroeconomic stability and financial sector deepening and maintain fiscal space for priority spending i\. Central Government fiscal deficit does not exceed 2\.8 percent of GDP in 2010 as priority social spending increases ii\. fiscal reforms mitigate the crisis impact so that Central Government tax collections do not fall below 10\.4 percent of GDP in 2010 iii\. consolidated supervision completed in at least half of financial groups by assets and regular supervision completed for all 4 risk profiles under the new risk manual iv\. regular debt issuance by MoF starting in the second half of 2008 v\. three percent increase in financing volume generated by use of garantías mobiliarias II\. Improve governance and transparency of public financial management and expenditures vi\. MoF and Auditor General’s Office use the annual audits and monthly financial reports of at least 90 percent of public trust funds to improve their oversight, management and efficiency vii\. specialized offices to facilitate access to public information established in at least 30 percent of Central Government agencies viii\. results indicators developed for at least 50 percent of Central Government expenditures to introduce a results-informed budget framework III\. Strengthen the effectiveness of the Mi Familia Progresa Conditional Cash Transfer Program through improved execution and targeting ix\. co-responsibilities verified for at least 50 percent of CCT beneficiaries, half of which are extreme poor, based on a monitoring and evaluation framework IV\. Promote sustainable growth and productivity x\. tax declarations submitted via the internet have increased by 3 percent relative to 2007 baseline 3  xi\. customs clearance times for exports and imports have declined by 5 percent compared to 2007 V\. The first DPL had an intermediate objective to meet the fiscal and financial needs during a period of economic slowdown (namely 2008-9)\. 1\.3 Revised PDO and Key Indicators The series of programmatic DPLs was originally designed to comprise 3 operations to span fiscal years 2009-2011, but the onset of a severe economic crisis during appraisal of the second operation led the Bank management to revise the series to two operations, shorten the timeline by 12 months, and enlarge the total DPL lending package to US$550 million to address evolving economic situation (an increase from the originally allocated US$500 million over three operations)\. The rationale for this change stemmed from the dire impact of the global crisis on tax revenues\. The Government adjusted its reform program to reflect accelerated actions in some areas, namely to increase private sector access to finance and address financial sector stability, and ensure that social expenditures were protected and that recent reductions in poverty rates were not reversed\. Other actions relating to tax reform were deferred to the post-crisis period and thus fell outside the scope of the DPLs\. No changes in the development objectives resulted, however, and the key indicator values in the 2nd DPL were defined to reflect weaker fiscal performance during 2009 (i\.e\., a less ambitious target for the fiscal deficit) and the shortened time-frame for expected outcomes which advanced from end-2011 to end-2010\. 1\.4 Original Policy Areas Supported by the Program (as approved) The original policy areas supported by the first and second DPLs were: I\. Promote macroeconomic stability and financial sector deepening and maintain fiscal space for priority spending Specific measures designed to promote macroeconomic stability are centered on fiscal reforms and modernizing tax administration methods in order to increase tax revenues above their very low base level\. This in turn helps to create the fiscal space necessary for priority spending in social sectors\. Measures to deepen the financial sector include extending banking supervision by risk category to capture financial conglomerates, extending prudential regulations to off-shore banks, and creating a moveable assets registry to facilitate credit access for firms lacking fixed capital\. Additional measures relate to standardizing the Central Bank’s short-term debt issuance\. II\. Improve governance and transparency of public financial management and expenditures Policy measures to increase transparency include the strengthening and/or creation of institutional structures to promote public accountability and reduce corruption, and the passage and implementation of an Access to Public Information law\. New measures aim at increasing scrutiny and control over public trust funds, as well as strengthening the 4 public financial management and procurement systems for central and local government entities\. III\. Strengthen the effectiveness of the Mi Familia Progresa Conditional Cash Transfer Program through improved execution and targeting The Government’s main program for expanding opportunities for vulnerable groups is Mi Familia Progresa, and measures to improve its effectiveness focus on better targeting and execution as the program is rolled out across the country\. IV\. Promote sustainable growth and productivity Measures for promoting growth and productivity have some overlap with the preceding thematic areas, given the correlation between economic growth and macroeconomic stability and labor productivity, inter alia\. Additional complementary measures focus on the business environment by accelerating customs clearance and reducing tax reporting requirements through more efficient electronic processes\. The broad range of policies supported by the DPLs stems from the goal to support the Country Partnership Strategy pillars\. The DPLs were in effect the primary Bank instrument for dialogue with the Government\. 2\. Key Factors Affecting Implementation and Outcomes In light of the country context and developments since the design of the 1st and 2nd DPLs, the project has proved to be a flexible instrument that helped the Government implement its reform program and achieve or make substantial progress toward other policy objectives, albeit with varying degrees of success\. The policy actions were designed to align with the Government’s program within a timeframe that was judged to maximize the potential for success\. This timeframe could not anticipate important exogenous shocks to the political and economic environments, however\. The World Bank Board approved the two DPL operations on time (October 2008 and July 2009)\. Effectiveness delays of 5 months resulted from delays in Congressional approval, but with no negative impact on implementation\. Both operations were single- tranche, such that prior actions triggered disbursement\. Appropriate sequencing of prior actions allowed for measurable progress in implementation\. All prior actions were met\. Two main adjustments were made to the original structure of the DPL series during implementation\. As mentioned above, the series was originally designed to comprise three operations, but this was truncated to two operations in the context of the economic crisis, and outcome indicators were adjusted accordingly to accommodate the shorter time-frame (i\.e\., the third operation would have closed later in the CPS cycle rather than the December 2010 closing date of the 2nd and final DPL)\. Secondly, the economic slowdown in the second half of 2008 and beginning of 2009 and the associated credit 5 crunch signaled the need to stimulate credit availability; as a result, measures were added to the policy matrix to ease credit access for micro- and SMEs\. The following section provides a summary of prior actions and a brief description of the policy measures supported by the two DPLs\. 2\.1 Program Performance First Development Policy Loan Prior Actions Status 1\. Government drafted and submitted for Congressional approval 1st phase of fiscal reform Met including modernization of indirect tax and customs systems and direct tax on business income to offset the expired IETAAP 2\. Banking Superintendency completed enhanced supervision of 2 risk profiles using new Met risk-based consolidated supervision manual in 3 large financial groups, and extended prudential rules to off-shore banks 3\. Government created the Vice Ministry for Fiscal Transparency and Evaluation at the Met MoF, and incorporated regular monthly financial reporting on public trust funds in the 2009 budget 4\. MoF expanded e-procurement to make detailed information on large Government Met contracts (including unit prices on regular purchases) publicly available and open to electronic competitive bidding 5\. Government designed and began pilot implementation of a transparent monitoring and Met evaluation mechanism for CCT program Mi Familia Progresa including proxy means test 6\. The Tax Administration Office developed and distributed software for electronic Met accounting and submission of income tax withholding for firms Second Development Policy Loan Prior Actions Status 1\. Government implemented a direct tax on business income, mandated electronic Met submission of income tax withholding declarations, and performs cross-checks between VAT declarations and income tax submissions 2\. Banking Superintendency completed supervision of at least 3 risk profiles in financial Met groups holding at least half of total bank assets of the domestic financial system 3\. Central Bank standardized its debt instruments and established regular debt issuance Met through weekly auctions coordinated with the MoF and the electronic issuance of 7-day securities 4\. Congress approved the Movable Assets Law (Decree 51-2007) and related reforms Met (Decree 46-2008) to provide micro- and SMEs with the possibility of using movable assets as collateral 5\. Government implemented monthly financial reporting of the main public trust funds to Met MoF and Auditor General and annual external auditing of public trust funds 6\. Congress approved an Access to Public Information Law and the MoF implemented it Met 7\. MoF issued and is implementing Executive Decree 394-2008 for MoF internal Met reorganization to absorb, operate and upgrade SIAF and Guatecompras, and included provisions and technical indicators in 2010 budget guidelines to start implementing results-informed budgeting in the Central Government 8\. Government is implementing a transparent M&E system for verifying eligibility of CCT Met beneficiaries, and received external evaluations of risks related to design, instruments, conditionality, information flows, beneficiary feedback and coordination with other institutions 9\. The Tax Administration Office implemented in at least 3 major ports a customs Met management system (SAQB’E) on imports and exports, accounting for at least 30 percent of Guatemala’s total customs traffic 6 Policy Measures Supported by the 1st and 2nd DPLs: Fiscal reform and tax administration comprise the first main policy areas supported by the DPLs\. Guatemala has long suffered from low revenue collection rates as a share of GDP, greatly restraining the Government’s capacity to deliver effective services\. A two- pronged strategy was adopted to remedy this weakness\. The first focused on modernizing tax administration by streamlining and digitizing tax declarations and fostering their use through user-friendly software and training\. Government began to require electronic submissions of income tax withholding for firms, and upgraded its administrative systems to perform electronic cross-checks between VAT declarations and income tax submissions to reduce tax evasion\. Reforms were also undertaken in the area of customs administration with the introduction of a new Customs Management System (SAQB’E) to modernize and digitize customs clearance processes in line with international practices\. The second part of the strategy targeted tax reform, namely by introducing a new gross revenue tax (ISO) on businesses to replace the expired IETAAP, a temporary tax\. The new ISO would be transitional by covering the revenue gap until passage of a new tax law revising both business profit tax rates and taxes on distribution of profits as well as measures to broaden the tax base and simplify the personal income tax regime (phase two of the proposed fiscal reform)\. In terms of financial market stabilization and deepening, the DPLs supported Government efforts to extend prudential rules to offshore banks, and helped strengthen supervision of financial conglomerates by moving to risk-based and consolidated supervision, a multi-year strategy that the Bank has supported through the Financial Sector Adjustment Loan (closed in March 2007) and the subsequent Financial Sector Technical Assistance Loan (closed in June 2009)\. The 2nd DPL also supported the elaboration and adoption of the Movable Assets Law (garantías mobiliarias) and establishment of the registry as an instrument to increase access to finance by micro, small and medium size companies which often lack real estate collateral to obtain financing\. In addition, the DPLs supported Central Bank standardization of debt instruments and regular issuance through weekly auctions coordinated with the Ministry of Finance in order to foster the development of an interest rate yield curve as a step towards secondary debt market development\. The Government’s program places strong emphasis on improving governance and increasing transparency, the third main policy area supported by the DPLs\. The policy actions to achieve these goals include monthly financial reporting and annual external audits of public trust funds for use by the MoF and the Auditor General, and the passage and implementation of an Access to Public Information law\. Measures to strengthen public financial management have been ongoing for several years; the 1st and 2nd DPLs specifically supported a system to make all Government procurement information publicly available, and establish an e-procurement system for electronic competitive bidding on large Government contracts\. The MoF committed to finance, operate and upgrade the financial management (SIAF) and procurement (Guatecompras) systems\. The DPLs also supported the implementation of results-informed budgeting in Central Government entities\. 7 In 2008, the Government launched, on a pilot basis, a conditional cash transfer program called Mi Familia Progresa\. Bank support – both through the 1st and 2nd DPLs and the Expanding Opportunities: CCT Institutional Establishment investment loan currently awaiting implementation – has assisted implementation of a transparent monitoring and evaluation system of the CCT program to allow verification of eligibility, i\.e\., verifying that beneficiaries have met the necessary health and education attendance conditions\. External evaluations of the program’s design, risks, management, and effectiveness are part of the assistance provided to the Government to ensure that benefits reach the targeted population through efficient and financially sustainable execution as the program is extended throughout the country\. 2\.2 Major Factors Affecting Implementation Implementation of the 1st and 2nd DPLs was very much affected by the economic and political environment, with both positive and negative implications\. The 2008 inauguration of President Colom represented a shift from prior administrations in that it was Guatemala’s first centre-left government in over fifty years, elected with the broad support of rural and indigenous populations\. The new Government’s program focused on (i) reducing poverty and inequality, (ii) better fiscal management to meet priority social spending and investment, (iii) improved governance and transparency, and (iv) promoting sustainable growth and productivity\. By aligning its policy support with the new Government’s pro-reform agenda, the Bank was able to help articulate and contribute positively to pro-poor, pro-development policies\. And because the 1st DPL coincided with the beginning of President Colom’s term, the Bank – along with many pro-reform constituencies in Guatemala – linked its policy agenda to the campaign’s reformist platform that could be implemented with the election mandate\. It was widely believed that by expending the necessary political capital early in his term, President Colom and his team could initiate significant and lasting reforms\. The CCT program was successfully launched, but the ambitious fiscal reform package – which had been developed with broad consultation including private sector input and support – lost momentum\. Numerous factors are to blame\. There was a major shift in political party allegiances in Congress within months of the election which undermined the President’s legislative support\. The global economic slowdown began to bite in Guatemala as growth rates fell sharply; the idea of paying higher taxes became increasingly unpopular among business owners\. And in 2009 a political crisis erupted that attracted international attention to Guatemala’s weak institutions and fueled the perception that the Government was simply conducting business as usual rather than promoting real improvements in transparency\. As support for the Government waned, the private sector withdrew its support for fiscal reform and the Government focused its energies on the rapid implementation of the CCT program\. Although this was successful on many fronts, benefiting hundreds of thousands of families, it attracted criticism from some political opponents that the CCT program was increasingly being used as a vehicle to buy the rural vote\. Whereas political factors undermined progress in certain policy areas, it facilitated the passage of a tide-changing Access to Public Information Law in part because of the new demand for increased transparency and public accountability\. 8 The political challenges reflect a combination of exogenous and endogenous factors\. On the one hand, the Government demonstrated a strong commitment to the agreed policy agenda and prior actions, in some areas reflecting a consensus approach with broad support from international financial institutions and civil society organizations\. But as its domestic support base slipped, the Government retreated from more aggressive fiscal reform – in part because it would counteract the needed fiscal stimulus at the height of the economic crisis\. Three types of risk were identified during preparation of the 1st and 2nd DPLs, all of which proved to be relevant during the 30-month life of the operations\. Mitigation measures were only partly successful in addressing political risk, but were largely effective in addressing other risks\. ï‚ Political risk is always significant in Guatemala, but particularly for President Colom’s ruling UNE party, which never secured a majority in Congress and in fact has lost congressional support\.1 To mitigate the risks to its reform agenda, the Government pursued wide consultation with stakeholders on fiscal reforms\. Whereas this strategy paid off for Phase 1 of the fiscal reform package, it was insufficient to overcome the growing opposition that was gaining momentum\. ï‚ The impact of the global economic downturn was another risk to the Government’s program as Guatemala tried to climb out of economic crisis\. Although growth started to recover in 2010, the external environment remained unstable as commodity price shocks and lower remittances threatened the fragile recovery\. Fiscal revenues continued to suffer, but the international financial institutions helped to fill the financing gap, in addition to the regular issuance of and sustained demand for domestic debt\. The Government did not need to access liquidity available under a precautionary Stand-By Arrangement with the IMF\. The CCT program helped to mitigate the impact on the poor\. ï‚ Guatemala is susceptible to natural disasters, and 2010 saw its share of external shocks: landslides, a volcanic eruption, Tropical Storm Agatha, and a large sink hole in the capital, resulting in loss of life and property\. In April 2009, the Bank approved a Catastrophic Risk Deferred Draw-Down operation to provide contingent financing following a natural disaster, which it drew on after a series of natural disasters due to hurricanes and flooding\. 2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization Nine out of the eleven outcome indicators defined in the policy matrix are easily measured indications of progress toward the Program Development Objectives\. For some of these outcome indicators, however, factors other than the policy measures of the DPLs may have contributed, such that outcomes are not uniquely attributable to the two DPLs\. For instance, tax reforms and tax administration improvements will affect the 1 UNE won 51 out of a total 158 congressional seats in the 2007 elections, but currently holds 40 seats\. 9 fiscal deficit, which is easily measured and monitored due to readily available data\. But other factors may also explain higher spending or lower revenues such as exogenous shocks that slowed economic activity, thus reducing VAT collections and import duties, inter alia\. Despite these measurement difficulties, the fiscal deficit is nevertheless indicative of the impact of fiscal reforms\. The DPL is confined to short-term measures due to its short time-horizon, but M&E arrangements are meant to assess achievement of long-term objectives\. This timing inconsistency raises issues for selecting appropriate outcome indicators as measures of progress toward long-term development objectives\. For instance, increasing transparency through a new Access to Public Information Law is an important step, but the real impact on transparency may take time to emerge\. In the DPL time-frame, however, progress is monitored by measuring the number of Government agencies that have opened public information offices within 18 months\. In another example, the customs administration reform was essential for updating Guatemala’s systems to international standards, and met its goals of facilitating and accelerating customs clearance procedures within 18 months\. But the reform was also expected to reduce corruption\. Focusing on digitizing systems does not address one of the fundamental drivers behind much corruption, namely the presence of customs officials and their personal interaction with traders\. Without addressing the roles of customs personnel within the new context of electronic processing, the positive impact of reform – which includes reduced opportunities for corruption – will be limited until these underlying impediments are addressed\. M&E utilization has been more positive in other components of the DPLs\. With respect to results indicators in the budgeting process, although they are in the early stages, it appears that these monitoring indicators are indeed being used to develop the new results- informed budget framework\. And in terms of the tax administration improvements, the Tax Administration Superintendency has calculated the additional revenue gained through modernization, controls and cross-checking measures and its contribution to overall revenue collections\. One indicator that poses measurement difficulties relates to the oversight of public trust funds\. The policy action requires monthly financial reports and annual external audits as tools to improve transparency, but the outcome indicator requires a measure of their use by the MoF and the Auditor General to improve trust fund management and efficiency, requiring a subjective assessment\. The preparation of financial reports and audits are crucial and certainly helped shed light on the operations of these public trust funds, but it is unreasonable to assume that the availability of these reports will automatically result in limits on the discretionary use of trust funds\. The other indicator that poses measurement problems relates to the targeting of the CCT program\. Verifying co-responsibilities is inherent to the benefit disbursement procedures, and confirming this will become easier with electronic monitoring that is currently being implemented\. But the data necessary to calculate the share of beneficiaries that are 10 extreme poor do not currently exist\. This evaluation will be feasible only after the new living standards survey is completed (a new survey expected to be launched in the coming months)\. The data requirements for the defined outcome indicators were manageable (with the exceptions cited above) and M&E has been for the most part carried out, not only by the Bank in its supervision functions, but also by various partners\. For example, the media has played a significant role in monitoring transparency by mining the publicly available data in Guatecompras; by calling attention to outliers such as large expenditures or examples of nepotism, the media draws attention to and thus fosters debate around government transparency and accountability issues\. Civil society groups play a central role in monitoring the implementation of the Access to Public Information Law; in particular, Acción Ciudadana tracks the ways in which Central Government entities respond to requests for information, and publish an index ranking agencies’ performance with respect to transparency measures\. In this way, the DPLs leveraged additional oversight by other entities\. The real challenge – for the DPLs as for all Bank operations – lies in stimulating the effective use of monitoring data to inform decision-making and resource allocation\. The example of Access to Public Information offices illustrates this difficulty\. The development objective behind this policy action was to increase transparency as well as to create the demand for greater accountability and efficiency in public spending by service users\. There is a high demand for transparency and accountability among the Guatemalan public, but weak political parties, tentative civil society networks and factions across various indigenous groups lead to a coordination failure\. The remaining challenge is how to catalyze this broad-based demand for transparency in order to create change\. 2\.4 Expected Next Phase/Follow-up Operation There are no new DPLs planned within the current CPS\. The Bank can continue to support the Government’s reform program through technical or analytical assistance, however, and the forthcoming Public Expenditure Review will be a useful tool to help the Government further deepen and institutionalize public financial management reform, tax reform, and the effectiveness of social spending, particularly through the CCT program\. With respect to the latter, disseminating Bank and other donor-prepared evaluations of Mi Familia Progresa in terms of its costs and benefits could provide the impetus for further strengthening the program (e\.g\., through better targeting), generating broad political support and securing adequate dedicated public resources to finance it in future\. The timing of the Bank’s analytical input would be most effective if it could contribute to the political debate surrounding the Presidential election cycle (first-round elections will take place in September 2011)\. Another aspect of the operation that could benefit from follow-up relates to customs reform and redefining the role of customs officials in order to further reduce corruption and accelerate customs clearance times\. Ongoing monitoring through the Bank’s Doing 11 Business Indicators based on investment climate surveys will help to track developments in this area\. In terms of consolidated banking supervision, although all the key profiles for risk-based supervision have been completed and applied to all financial groups, the unfinished agenda relates to supervision of economic conglomerates, which may de facto control financial institutions\. 3\. Assessment of Outcomes 3\.1 Relevance of Objectives, Design and Implementation The development objectives of the programmatic DPL series remain highly relevant today in the context of the ongoing challenges facing Guatemala\. These objectives were fully aligned with the Government’s development priorities as articulated in the August 2008 Country Partnership Strategy Report, namely to (i) enhance economic fundamentals, (ii) sustain growth and productivity, and (iii) expand opportunities for vulnerable groups\. Each of the policy areas supported by the 1st and 2nd DPLs falls under these three over- arching objectives\. The operations’ design was consistent with the stated program development objectives, and the DPLs’ implementation proved to make an important contribution toward implementing the Government’s program\. Numerous counterparts in Guatemala noted the vital role that the Bank’s development policy lending plays, not so much in setting the Government’s priorities, but rather in helping the Government achieve its priorities\. The policies reflected in the 1st and 2nd DPL prior actions were measures already identified by the Government as essential to their strategy; incorporating them into the framework of a DPL was effective in accelerating their implementation and helped the Government remain focused on its medium-term objectives and the near-term measures needed to reach them\. Although the number of components in the DPL matrix is large, they represent a sound and consistent framework with a strategically appropriate and achievable scope\. Because the DPLs were the Bank’s main instrument for country dialogue, it was important to cover the range of relevant policy areas rather than focusing more narrowly\. As mentioned above, a DPL is confined to short-term measures due to its short time-horizon\. But some reforms require more long-term input\. When assessing the DPLs’ outcomes, therefore, it is important to acknowledge when expected results are unrealistic within the given time-frame\. The Bank demonstrated its responsiveness to the changing economic environment by revising policy actions to address specific challenges stemming from the economic crisis\. The Bank also restructured its support to accommodate the Government’s greater financing needs, increasing the loan size of the 2nd DPL and eliminating the planned 3rd DPL in order to consolidate support at a critical time\. The Bank’s response was mirrored by greater financial support from the IMF and IDB as well\. By enlarging the overall 12 programmatic DPL lending package to US$550 million and accelerating the disbursement schedule, Bank support helped the Government to meet the demands of the economic crisis and ensure that social expenditures were protected despite a sharp decline in tax revenues\. The DPL series also responded to the need to help mobilize credit to micro- and SMEs because of the negative effect of the global economic downturn and credit crunch on the Guatemalan economy and, in particular, firms’ access to credit\. The scope of the 2nd DPL was expanded to support the creation of a Movable Assets Registry under which firms can use movable assets as collateral when borrowing\. 3\.2 Achievement of Program Development Objectives I\. Promote macroeconomic stability and financial sector deepening and maintain fiscal space for priority spending The series of programmatic DPLs helped to promote macroeconomic stability through the direct provision of budget financing to maintain fiscal space for priority spending areas, but also by assisting fiscal modernization to increase revenue collections and reduce tax evasion\. The improved tax administration system now requires electronic submission of business withholding taxes\. The shift to the digital format vastly improved accuracy and efficiency, and allows cross-checking among the profit tax, VAT and the ISO tax regimes and the associated exemptions, as well as performing other controls\. The combined impact of these administrative control measures added 0\.3 percent of GDP to fiscal revenues in 2010\. The implementation of the transitional Solidarity tax to replace the IETAAP also maintained revenues (equivalent to over 1 percent of GDP), which helped the Government to meet the revised targeted tax revenue outcome indicator for 2010 (total tax revenues were 10\.5 percent of GDP)\. Even though the fiscal target was eased under the 2nd DPL to account for the crisis- induced fall in revenues, and despite the shift in policy measures away from the envisaged tax increases (inappropriate during a downturn because it would counteract expansionary policies) to more immediate tax administration measures, the Government still missed the 2010 target deficit of 2\.8 percent of GDP\. The DPLs’ accommodative stance and the revenue gains from anti-evasion efforts proved insufficient to offset the effects of the crisis, as the fiscal deficit reached 3\.3 percent of GDP\. With respect to promoting financial sector stability and deepening, consolidated supervision has been implemented in 9 of the 11 financial groups licensed by the Banking Superintendency as of April 2011, and all four key profiles for risk-based supervision (institutional, financial, risk, and control environment) have been completed and applied to all financial groups, surpassing the outcome indicator\. The Banking Superintendency is in the process of finalizing a single matrix for consolidated risk-based supervision and determining one overall risk rating for each financial group (initially the work on risk- based and consolidated supervision started in parallel with two different manuals that are being merged)\. Central Bank efforts to standardize issuance of short-term debt reflects some progress toward financial market deepening, consistent with the targeted outcome indicators\. 13 However, weaknesses remain which limit the deepening of bond markets in line with longer-term objectives\. For example, banks are exempt from a tax on government bond transactions, which has concentrated 90 percent of domestic public debt holdings in four banks, thus limiting broader private sector participation\. The registry of movable assets had a directly positive effect on financial market development by increasing the amount of credit in the economy\.2 Although total credit stagnated in 2009-2010 under the global credit crisis, the registry increased the amount of movable guarantees so that the share of credit guaranteed by movable collateral reached 4\.1 percent of total credit as of December 2010, from a base of zero in 2008, exceeding the outcome target\. II\. Improve governance and transparency of public financial management and expenditures The step of institutionalizing the Government’s commitment to greater transparency by creating the Vice Ministry for Fiscal Transparency and Evaluation provided an important signal\. But this commitment was made more credible by the adoption of the Access to Public Information Law, which empowers citizens to hold Government accountable for its use of public resources\. Specialized offices have been created in 85 percent of Central Government agencies to facilitate access to public information, exceeding the outcome indicator\. This success contrasts with the continued challenge of making more transparent the operations of public trust funds to facilitate greater efficiency and accountability\. The policy measures supported by the DPLs introduced monthly financial reporting and annual external audits of trust funds\. Whereas this represents a significant improvement relative to 2008 when no financial oversight was performed, external audits are not available for all trust funds, and it is not possible to judge whether the reports are being used to improve their management\. Government commitment to transparency would have been more credible if, for example, the operations of publicly funded trust funds had not expanded so much during the lifetime of the operations without concomitant legal reforms to regulate their use\. Whereas trust fund oversight was strengthened with the support of the DPLs, their continued use has not been curbed, implying that progress vis- à-vis the development objective has been limited\. In terms of strengthening the public financial management and procurement systems, the MoF launched an internal reorganization to absorb, operate and upgrade SIAF and Guatecompras, but they have yet to fund the absorption of current staffing levels financed until now by external sources\. Whereas Guatecompras has to a degree increased 2 To isolate the impact of the registry, we measure the market share of credit supported by the registry in total credit\. We proxy the amount of credit supported by the registry by the amount of collateral registered\. Since the registry does not measure collateral by type of borrower (i\.e\., small vs\. large) we measure the effect on total credit\. 14 transparency through recording Government purchases on a public website, assessments of the effectiveness of Guatecompras show that only a small percentage of direct contracting occurs through Guatecompras Express, implying minimal success in expanding the use of competitive bidding\. Moreover, a large share of public contracting still occurs through pre-existing contracts, public trust funds and NGO purchases, iner alia, which are exempt from the procurement rules\. Real progress is being made, however, on the results-informed budgeting system\. Results indicators have been developed for three-quarters of all Ministries, representing 97 percent of Central Government expenditure, nearly double the outcome target\. The reality is that transparency in Guatemala has been very low but in recent years the Government has taken steps to improve it\. On balance, the DPL measures helped to improve transparency, albeit only moderately\. III\. Strengthen the effectiveness of the Mi Familia Progresa Conditional Cash Transfer Program through improved execution and targeting The policy actions supported by the 1st and 2nd DPLs had a very positive impact on the CCT program’s targeting and transparency, primarily through the introduction of proxy means testing to identify eligible beneficiaries\. The procedures for verifying co- responsibilities of beneficiaries (i\.e\., confirming school and health check attendance) are well established, and will soon be greatly improved through the use of scanning technology to digitize verification\. The Mi Familia Progresa program was extended into more than 270 municipalities to reach over 900,000 families in a very short period of time\. This rapid expansion raises questions about execution effectiveness, but the program’s simple design (e\.g\., flat benefit levels distributed to family units) and likely modest leakages (due to very high poverty rates in rural areas) mitigates these concerns\. The Government confirmed that co-responsibilities are being verified for all recipients through a network of local representatives, double the outcome indicator target of 50 percent\. It is not feasible to verify the exact proportion of extreme poor, however, due to lack of updated survey data on household living standards (a new survey will be launched in the coming months)\. IV\. Promote sustainable growth and productivity The tax modernization measures supported by the DPLs – in particular the development and distribution of software for web-based business tax withholding – has directly contributed to higher productivity by reducing the amount of time required to make tax declarations, and at the same time improving accuracy and reducing evasion through cross-checks\. The share of firms submitting tax declarations electronically has risen from 34 percent in 2007 to 42 percent in 2010, surpassing the targeted 37 percent\. Exporting and importing firms’ productivity has also been stimulated by the new Customs Management System, SAQB’E, which has been implemented in 15 ports (out of 18 in total)\. By digitizing the customs clearance documentation requirements, clearance 15 times for imports fell from 19 to 17 days (a 10 percent drop) and export clearance times fell from 18 to 17 days (a 5 percent decline), meeting the outcome target\. There remains room for further improvement, however, as opportunities for corruption continue to be present\. 3\.3 Justification of Overall Outcome Rating Rating: Moderately Satisfactory The overall outcome rating reflects two criteria for measuring success: the extent to which target outcome indicators were met, and the extent to which program development objectives were achieved\. As stated previously, most outcome indicators were met, with only minor shortcomings (and with respect to the fiscal deficit, these were largely exogenous)\. Progress toward certain development outcomes was more problematic, however, reflected by moderate shortcomings in implementation\. In particular, qualitative progress towards better governance and transparency in public financial management and expenditures was below expectations relating to public procurement and trust fund oversight\. The overall outcome rating is therefore moderately satisfactory\. 3\.4 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development This operation addresses poverty and welfare both indirectly – through more efficient use of public resources – and directly – through measures to improve social safety net targeting\. There have been no new measures of poverty since the inception of the 1st DPL, but the CCT program has rapidly increased its scope, currently providing income support to approximately one-third of the population\. Whereas the net impact on primary enrollment may be very small, there is some evidence to suggest that the program is helping to keep students enrolled in school longer, and there are almost certainly gains in physical health for beneficiary families\. Anecdotal evidence also suggests that rural women are benefiting through increased empowerment\. Otherwise, gender issues are mainstreamed rather than being targeted specifically\. (b) Institutional Change/Strengthening The programmatic DPL series has a strong focus on institutional development, with a majority of its measures aimed at strengthening Government’s institutional capacity\. For example, modernizing tax administration and streamlining its processes not only increases revenues and spreads the tax burden more equitably, but also helps to increase confidence in the Government and legitimize its tax and spending functions\. The Banking Superintendency has been highly successful in upgrading its supervision capacity by establishing more thorough criteria for overseeing the banking sector\. Further capacity building needs to focus on extending supervision to the conglomerates/economic groups which may control the financial groups and include non- financial companies that may create risks to financial entities\. Guatecompras, in contrast, has not achieved the goal of transparency and competition in Government contracting, implying the need for deeper institutional reform\. Nevertheless, the system provides the 16 framework for increased transparency and competitiveness in the future through on-line bidding capability and publication of data\. Regarding the registry for movable assets, the first two years have been successful in terms of development, but additional measures to increase its efficiency and effective targeting of SMEs will be essential to strengthen institutional capacity further\. Planned measures include a recently launched communications campaign to market itself to small businesses and financial institutions that usually service small businesses, such as cooperatives, and making the registration process available on-line\. With respect to the CCT program, the targeting and program execution procedures have been strengthened, and should improve further with the planned electronic verification platform and the forthcoming household survey to provide a new proxy means test for identifying eligible households and in particular the extreme poor\. The operations’ long-term development goals aim at strengthening more far-reaching institutions such as the rule of law and transparency\. The Access to Public Information Law provides a real impetus to civil society groups to mobilize pressure to hold Government accountable and make more efficient use of public resources\. And although the public trust fund operations remain somewhat obscure, they are at least on the radar screen and a majority is being monitored on an ex-post basis, the first step in recognizing the scope of the problem and the incentive challenges in trying to address it\. 4\. Assessment of Risk to Development Outcome Rating: Substantial The risk that development outcomes will not be maintained is substantial and stems from many sources\. The program objective to promote macroeconomic stability and enhance fiscal space for priority spending depends on both external and internal factors\. The Guatemalan economy is vulnerable to negative exogenous shocks in the global economic environment, affecting trade and domestic demand, which in turn affects available public financing\. Whereas the Government’s prudent macroeconomic policies will help to mitigate these effects, the impact of the recent economic crisis demonstrates that macro balances remain vulnerable\. Natural disasters represent another source of risk that threatens the macroeconomic environment\. Internal factors that present the largest risks derive from the political environment and Government ownership\. Fiscal reform efforts have stalled in the past, and the currently rancorous political climate and the upcoming Presidential elections have complicated meaningful policy debate and any potential consensus- building\. Although important gains have been made in improving the governance and transparency of public financial management and expenditures, with key systems in place to facilitate open and efficient management, the political will at the leadership level to embrace these processes and embed the concept of transparency into the institutional fabric depends upon the management teams in key ministries to implement transparency initiatives\. But 17 the degree to which these teams can achieve a lasting impact is hindered by the frequent personnel changes that characterize Guatemalan politics\. The Access to Public Information Law and the creation of information offices in most ministries can help to mitigate backtracking in this arena, but the demand for public information is relatively low and civil society networks are weak\. Long-term outcomes will depend on stakeholder ownership in terms of political will on the inside and citizen demand on the outside, both difficult factors to manage\. The Mi Familia Progresa Conditional Cash Transfer Program is well established throughout much of the country and execution and targeting continues to improve\. It has been financed through ad-hoc budget sources until now, pulling budget from other line items to fund the Mi Familia Progresa Trust Fund\. The program has broad support across the political spectrum, but its precarious financing situation and high cost (accounting for 2 percent of the budget) present a negative risk to its future operation\. The probability of the program being cut is low, but there is a small probability that targeting will suffer due to weak governance\. On the other hand, given that the program is geographically concentrated in areas of very high poverty, total leakage is likely to be small\. Improvements in the business environment have contributed to Guatemalan firms’ productivity and their ability to compete in global markets\. The customs clearance process is a fundamental component of the trading environment, and the new electronic system has successfully reduced the administrative burden on importing and exporting firms\. Nevertheless, corruption remains an issue\. Technical solutions can help to further automate the clearance process, but a lasting positive outcome will only emerge when person-to-person interface with customs officials is minimized\. 5\. Assessment of Bank and Borrower Performance 5\.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory The programmatic DPL series was prepared in close consultation with the Government and stakeholders such as civil society groups and international donors\. The policy measures were identified on the basis of extensive analytical work and in coordination with reforms being supported by other donors in order to maximize the development impact and at the same time provide complementary and therefore reinforcing mechanisms of support, constituting a strategic approach\. The operation was conceived to help the new Colom administration achieve an ambitious program of public sector reforms and strengthen public institutions in a way that also increased transparency\. The other key structural elements of the Guatemalan economy that needed to be addressed by the DPLs were poverty and social inclusion, and growth and productivity\. The Bank team designed the operations specifically to address the institutional environment with a view to strengthening institutional capacity in a sustainable way\. The Bank demonstrated a high degree of flexibility in adapting the DPL parameters – both policies and financing structure – to a changing country context\. Whereas overall 18 development objectives did not change, the policy actions to achieve them in a climate of macroeconomic and fiscal crisis needed to be revised\. Furthermore, additional budget support was needed to fill the financing gap, and the Bank, in conjunction with the IMF and the IDB, were able to meet these new demands\. The operations were prepared with a full appreciation and articulation of the risks to program outcomes, and included mitigation measures to address these risks (some more successfully than others)\. The overall implementation and M&E arrangements were broadly effective, although a few of the monitoring and evaluation criteria proved problematic in terms of measurement\. Recall, for example, that it is not feasible to verify the exact proportion of extreme poor in the CCT program due to the lack of updated survey data on household living standards\. Another indicator that is difficult to measure because it requires a subjective assessment relates to the oversight of public trust funds\. The indicator seeks to measure the use of monthly financial reports and annual external audits by the MoF and the Auditor General to improve trust fund management and efficiency\. The discussion above also acknowledges a degree of disconnect between the short-term outcome indicators and the long-term development objectives\. Some components of the policy matrix sought to embed the reforms by implementing them across agencies, thereby fostering inter-agency cooperation\. But effective cooperation is difficult in the best of times, even with the best intentions\. The DPLs have indeed resulted in increased cooperation, such as between the MoF and the Central Bank in issuing public debt, but if the objective is better coordination, then an explicit incentive mechanism may be more effective in encouraging it\. (b) Quality of Supervision Rating: Satisfactory As mentioned above, the operations’ design emphasized monitoring and evaluation of the reforms, both implicitly and explicitly\. Because the operations formed a programmatic series, sequencing the two operations enforced close supervision in that preparation of the 2nd DPL was contingent on the results of the 1st DPL\. Explicit attention to supervision is reflected not only in the target indicators but also was demonstrated by the Bank’s responsiveness to changing country circumstances and the Government’s request to alter the structure and magnitude of the loan\. The ISR prepared following the closing of the 2nd DPL was very candid and thorough in its performance assessments\. 19 (c) Justification of Rating for Overall Bank Performance Rating: Satisfactory Both quality at entry and quality of supervision were satisfactory, making the overall Bank performance rating satisfactory\. 5\.2 Borrower Performance3 (a) Government Performance Rating: Moderately Satisfactory The operation was designed to align fully with the Country Partnership Strategy and the incoming Government’s objectives\. The Government’s program resulted from a consultative process, including particular consultation with the private sector on fiscal reform\. Government ownership and commitment was strong from the outset\. The difficult political environment and resulting failure of the originally proposed fiscal reform package led the Government to scale back its reform proposal\. Nevertheless, significant progress was achieved, primarily through tax administration improvements which not only raised tax revenue and reduced evasion, but also built institutional capacity\. The macroeconomic environment in which the 1st DPL was prepared was characterized by strong growth and sound macro balances\. The global financial crisis and economic slowdown began to drag down Guatemalan growth in 2008 and 2009, with significant implications for Government service provision (tax revenues fell sharply) and poverty (remittances suffered a significant decline), which in turn helped to shape the 2nd DPL\. The Government maintained its prudent macroeconomic policy stance\. There have been moderate obstacles on the transparency front, in particular relating to Guatecompras and public trust funds\. The Guatecompras system has indeed increased transparency through recording Government purchases on a public website, but efforts to expand the use of competitive bidding have stalled; only a small share of purchases eligible for direct contracting occurs through Guatecompras Express\. Moreover, pre- existing contracts that can be renewed automatically do not need to be processed through Guatecompras\. Public trust funds also fall outside Government procurement rules\. This was the rationale behind increasing transparency through the introduction of monthly monitoring and annual external audits of trust funds\. Some audits remain to be completed, and it is unclear whether the monitoring reports are being used to improve trust fund management and efficiency\. The Government has met its commitment to establish information offices in a majority of Central Government agencies\. 3 For a Development Policy Loan providing budget support, the borrower consists of the government, which also acts as the implementing agency\. 20 Borrower performance has also been satisfactory vis-à-vis financial sector outcomes\. The registry for movable assets has made a strong impact in its two years of existence, and the Banking Superintendency has consistently expanded risk-based supervision and consolidated supervision\. Mi Familia Progresa remains the Government’s flagship program, reflected by its rapid expansion and consistently high profile\. The Government has been receptive to external advice on implementation and has sought timely resolution of implementation obstacles\. The Government has met most of the targeted outcomes, demonstrating drive for results except in the areas of governance and transparency in public financial management and expenditures, where results were below expectations\. Overall, Government performance merits a moderately satisfactory rating\. 6\. Lessons Learned The implementation challenges relating to the fiscal reform component of the 1st and 2nd DPLs illustrate the difficulties of achieving program objectives that depend on legislative approval, particularly in the area of tax reform\. Repeated attempts to increase revenue collections through raising tax rates and expanding the tax base have failed in the past, and continue to face stiff opposition\. Moreover, it is important to acknowledge the intrinsic difficulty of implementing redistributive tax reform in a highly unequal society and within a short time horizon\. The experience of the 1st and 2nd DPLs implies that the Bank could be more modest in its expectations, and could foster support for reform by identifying and helping build constituencies with shared interests or who stand to gain from reform\. Another related lesson that can be drawn from the DPLs is that although the planned fiscal reforms would have generated significant revenues, measures to improve tax administration can also generate large revenue gains, and are politically more palatable\. In Guatemala, introducing tax controls and modernizing tax systems not only increased efficiency but had a big pay-off through reducing evasion\. Another lesson that can be derived from the operation relates to the policy measures on increasing the transparency of public trust funds\. The stated objective was to increase transparency in the hope that eventually this would create pressure to increase oversight and efficiency\. But this result has yet to come to fruition\. The real objective was to ensure that all public resources are spent in a transparent way consistent with Government priorities in order to minimize leakages\. Although audits can potentially help in this regard, they do not address the underlying reasons for continued and expanding use of public trust funds (such as prohibitive procurement rules, for example)\. Designing policies that take into account these deeper impediments will have a greater impact\. Despite uneven progress in increasing transparency and accountability, even modest advances can have a significant impact, especially when starting from a very low level\. For example, the passage of the Access to Public Information Law overcame initial opposition precisely because of corruption scandals, which drew the ire of the public and thus provided the impetus for the law to pass\. In a similar vein, even though the 21 application of Guatecompras has been imperfect, it has provided access to information on unfair contracting practices that, once made public, generated support for greater transparency\. Success in strengthening the supervision of the financial sector was not achieved simply through the policies supported by the 1st and 2nd DPLs, but rather as a result of a larger program of Bank support that has been sustained over time\. The implementation of consolidated supervision is a long-term process reflecting the importance of financial groups in the financial system\. As highlighted in the CPS, complex institutional issues may require support across various instruments and over an extended period of time\. This complementarity of short-term and long-term support underscores the inherent limitations of DPLs to achieve long-term development goals because of the timing inconsistency between program development objectives and the short-term policy interventions designed to achieve them and, because of the short timeframe of DPLs, the short-term outcome indicators used to assess progress\. For example, real progress in transparency of Government purchases takes years of reform effort at the institutional level; it is unreasonable to expect results as a consequence of short-term policy interventions\. This timing paradox complicates program design and makes the selection of appropriate outcome indicators particularly challenging\. The final lesson drawn from the implementation experience of the DPLs stems from the request to increase financing in the 2nd DPL in order to address the demands of the economic crisis\. The DPL provided a lot of flexibility in a moment of need\. Specifically, the Bank’s flexible response helped to support pro-cyclical fiscal policy by enabling the Government to continue to function and at the same time protect priority spending\. Whereas this is not a fundamental objective of development policy lending – which by definition focuses on long-term structural issues – it nevertheless was effective in this case by sustaining progress in the long-term reform agenda in the face of negative shocks\. 22 Annex 1 Bank Lending and Implementation Support/Supervision Processes (a) Task Team members P112312 – First Fiscal and Institutional Development Policy Loan Responsibility/ Name Title Unit Specialty Lending Keisgner Alfaro Sr Procurement Specialist LCSPT Juan Belausteguigoitia Lead Environmental Economist LCSEN Enrique Fanta Ivanovic Sr Public Sector Specialist LCSPS Antonio Blasco Sr Financial Management Specialist LCSFM Sr Disaster Risk Management Armando Guzmann LCSUW Specialist Mariluz Cortes Consultant IEGCC Stephen Brushett Lead Transport Specialist LCSTR Cecilia Corvalan Sr Transport Economist LCSTR Martha Garcia Staff Assistant LCSPE Michael Geller Sr Program Assistant LCSPE Sr Private Sector Development Michael Goldberg LCSPF Specialist Yira Mascaro Lead Financial Sector Specialist AFTFE John Newman Lead Poverty Specialist SASEP Enrique Pantoja Sr Land Administration Specialist LCSAR Tova Solo Jose Eduardo Gutierrez Ossio Consultant LCSPE Alberto Leyton Representative LCCSV Manuel Salazar Sr Social Protection Specialist AFTSP Pierre Werbrouck Consultant LCSAR David Gould Lead Economist LCSPE Task Team Leader Carlos E\. Sobrado Senior Poverty Specialist EASPR David Varela Sr Public Sector Specialist LCSPS Waleska Garcia-Corzo Co-Task Team Leader P114373 - Second Fiscal and Institutional Development Policy Loan Responsibility/ Name Title Unit Specialty Lending Elizabeth Currie Lead Financial Officer BDM Enrique Fanta Ivanovic Senior Public Sector Specialist LCSPS Anna Fruttero Economist LCSHS Jose Eduardo Gutierrez Ossio Consultant LCSPE Alberto Leyton Representative LCCSV Manuel Salazar Sr Social Protection Specialist AFTSP Rashmi Shankar Senior Economist LCSPE Co-Task Team Leader 23 Ilias Skamnelos Special Assistant FPDVP Carlos E\. Sobrado Senior Poverty Specialist EASPR Supervision David Gould Lead Economist LCSPE Task Team Leader Lead Financial Officer/Sovereign Elizabeth Currie BDM Debt Barbara Cunha Economist LCSPE Enrique Fanta Ivanovic Senior Public Sector Specialist LCSPS Alejandro Alcala Gerez Sr Counsel LEGLA Anna Fruttero Economist LCSHS Maria Lucia Guerra Bradford E T Consultant LCSPE Jose Eduardo Gutierrez Ossio Consultant LCSPE Alberto Leyton Representative LCCSV Reynaldo F\. Pastor Chief Counsel LEGLA Manuel Salazar Sr Social Protection Specialist AFTSP Rashmi Shankar Senior Economist LCSPE Ilias Skamnelos Special Assistant FPDVP Carlos E\. Sobrado Senior Poverty Specialist EASPR Marie Georgiana J\. Valent Vidal E T Consultant LCSPE Ricardo Antonio Tejada Financial Officer BDM Elizabeth Ruppert Bulmer Sr\. Country Economist LCSPE ICR Team Leader Caroline Cerruti Financial Sector Specialist LCSPF Financial sector, ICR Christian Schuster ET Consultant LCCGT Transparency, ICR (b) Staff Time and Cost P112312 – First Fiscal and Institutional Development Policy Loan Staff Time and Cost (Bank Budget Only) Stage US$ Thousands (includes travel and No\. of Staff Weeks consultant costs) Lending FY09 22 90\.3 FY10 0 0\.0 Total: 22 90\.3 P114373 - Second Fiscal and Institutional Development Policy Lending FY09 23 113\.7 FY10 9 50\.7 Total: 31 164\.4 Supervision FY10 16 98\.3 FY11 8 76\.6 Total: 24 174\.9 24 Annex 2\. Beneficiary Survey Results (N/A) 25 Annex 3\. Stakeholder Workshop Report and Results N/A 26 Annex 4\. Summary of Borrower's Comments on Draft ICR [The following comments were translated from Spanish\.] Initially, the series of DPLs proposed in the Country Partnership Strategy with the World Bank comprised 3 operations for a total amount of US$500\.0 million\. However, only 2 operations were signed and disbursed\. The DPL series satisfactorily achieved the objective of contributing to the main policy objectives of the Government through: 1) support for strengthening governance, transparency and monitoring and evaluation of major public expenditure and investment; and 2) supporting macroeconomic stability and greater fiscal space for priority expenditures\. ï‚ The series of Fiscal DPLs was partially successful\. While in some areas supported by the DPL series the results were successful (strengthening tax administration, strengthening the administration and supervision of the financial sector, governance and transparency, improving the investment climate), the results were not very encouraging in the area of fiscal reform (increased public spending and modernizing public financing), due to the fact that a series of reforms pushed by the Government at the end of 2008 was not approved\. ï‚ This series of DPL operations helped to maintain a continuous dialogue between the country and the Bank\. The DPL series served as a two-way communication channel between the Government’s administration, the Bank and the international community on progress in the country’s development strategy and in the reform policies being encouraged\. ï‚ The resources of the 1st and 2nd DPLs were used to tend to budgetary requirements\. In this sense, they financed various actions in the sectors listed in the following table\. ï‚ Non-approval of the Fiscal Reform Initiative presented to Congress made it difficult to manage and negotiate a third Fiscal DPL\. At the end of August 2010, the World Bank informed the Government that the actions and reforms proposed for a 3rd DPL were insufficiently substantive to cover such an operation\. Moreover, it indicated that the total level of budget support granted to Guatemala had reached US$550\.0 million in the last two years\. In this regard, the World Bank – conscious of the additional costs the Government must incur to cover reconstruction needs – proposed financing under an emergency loan in the amount of US$100\.0 million for Education and Health (currently in Congress pending approval)\. 27  Préstamos de Apoyo Presupuestario   Sectores beneficiados  2009 2010 Desarrollo Rural Desarrollo Rural Agua  y saneamiento Agua  y saneamiento Mantenimiento y reconstrucción de red vial Mantenimiento y reconstrucción de red vial DPL 1 Sector agricola Sector agricola Catastro Catastro Servicio de Deuda Pública Medio ambiente, manejo de cuencas Construcción de escuelas Desarrollo Rural Desarrollo Rural Servicios de seguridad ciudadana Servicios de seguridad ciudadana Educación Educación Servicios de salud Servicios de salud DPL 2 Producción agricola Producción agricola Recursos naturales Recursos naturales Catastro Catastro Mantenimiento y reconstrucción de red vial Mantenimiento y reconstrucción de red vial Sistemas de comunicaciones Sistemas de comunicaciones 28 Annex 5\. Comments of Cofinanciers and Other Partners/Stakeholders N/A 29 Annex 6\. List of Supporting Documents Acción Ciudadana, 2010\. Ã?ndice de Acceso a la Información Pública del Organismo Ejecutivo del 2010, Guatemala City, 2010\. “Rendición de Cuentas 2010â€?, presentation by Mi Familia Progresa, Secretaría de Obras Sociales de la Esposa del Presidente (SOSEP), March 2011\. “Análisis del programa ‘Mi Familia Progresa’ con énfasis en al ámbito educativoâ€?, Empresarios por la Educación, Guatemala City, March 2011\. 30  IBRD 33413R1 91°W 90°W 89°W 88°W G UATEMA LA SELECTED CITIES AND TOWNS DEPARTMENT CAPITALS NATIONAL CAPITAL M E X I CO RIVERS GUATEMALA PAN AMERICAN HIGHWAY MAIN ROADS 18°N 18°N RAILROADS DEPARTMENT BOUNDARIES Paxbán INTERNATIONAL BOUNDARIES 92°W Carmelita n Pedro P E T É N Sa Tikal El Naranjo Melchor L\. Petén Itzá de Mencos BELIZE 17°N 17°N Flores Mopán Usum ac La Libertad i nt M EXI C O a To Tuxtla Gutiérrez n sió Pa Sayaxché lá q ui ha ac M Gulf Salinas San Luis of n Honduras cué 16°N Can 16°N n Sarstún Ixcá Barillas iyú Modesto Lívingston Ch Méndez uz Puerto HUEHUETENANGO A L TA V E R A PA Z ta Cr San Barrios \. Cahabón Sierra de I Z A B A L QUICHÉ á Mts ele Chajul Cham Ca habón El Estor L\. de S gu Izabal Morales a Cobán Cob Huehuetenango Polochic Sier egro N Los Amates SAN ra d e lo Mot agu a MARCOS s Ch u BAJA VERAPAZ Tajumulco TOTONICAPAN Santa Cruz a c ú s Z A C A PA Salam Salamá 15°N (4220 m) Quich Del Quiché EL 15°N San Marcos Totonicap Totonicapán Motagua PROGRESO Zacapa To To S El Progresso O Tonalá O i e G El Progreso AN NG Suchia N Quetzaltenango Sololá Solol GUATEMALA Chiquimula LLr r TE NA ZAT SOLOL SOLOLÃ? Chimaltenango CHIQUIMULA a TE ET te Jalapa HO NDUR AS AL QU Mazatenango L\.Atitlan GUATEMALA JALAPA SACATE- Antigua Esquipulas IM Retalhuleu M CH Ocós a d PEQUEZ Guatemala Z UE RETALHULEU r e Q PE Cuilapa Jutiapa TE Escuintla Champerico I CH JUTIAPA SU SANTA ESCUINTLA ROSA 14°N 14°N Sipacate San José Las Lisas SALVADO EL SA LVA DO R 0 20 40 60 Kilometers To La Unión 0 10 20 30 40 50 Miles To La Unión This map was produced by the Map Design Unit of The World Bank\. The boundaries, colors, denominations and any other information PA CIFIC O CEA N shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries\. 13°N 13°N 92°W 91°W 90°W 89°W 88°W NOVEMBER 2006

REVIEW

P008974

 ICRR 10393 Report Number : ICRR10393 ICR Review Operations Evaluation Department 1\. Project Data : OEDID : OEDID: L3177 Project ID : P008974 Project Name : Second Agricultural Extension and Applied Research Project Country : Turkey Sector : Agricultural Extension L/C Number : 3177-TU Partners involved : Prepared by : Madhur Gautam Reviewed by : Helen Abadzi Group Manager : Gregory K\. Ingram Date Posted : 06/30/1999 2\. Project Objectives, Financing, Costs and Components : Objectives : (i) to foster increased productivity and agricultural incomes through improved flows of information concerning their needs and problems from farmers to the Ministry of Agriculture, Forestry and Rural Affair's (MAFRA) extension/research services, and the transmission of improved technology from extension /research to the farmers\. (ii) contribute to the institution building and strengthening of the extension /research services of MAFRA, including a pilot program for women farmers\. (iii) pilot a program to improve the animal health services \. Components : (i) upgrade provincial agricultural extension services; (ii) strengthen extension-research linkages and support 14 research institutes to backstop the extension service; (iii) training and technical assistance to MAFRA for project implementation; and (iv) improving monitoring and evaluation of the provincial agricultural extension services \. Financing and costs : At appraisal, total costs were anticipated at US$ 145\.4 million, of which IBRD was to finance US$ 63\.0 million\. The loan was approved in March, 1990\. Final projects costs were US$ 69\.4 million, with IBRD financing US$ 47\.4 million\. The remainder of the IBRD loan was canceled at closing despite an extension of one year till June 30, 1998\. 3\. Achievement of Relevant Objectives : The project partially achieved its objectives \. Several features of the original project design were modified during implementation\. Based on a number of surveys, conducted for the completion report, the ICR notes increased production, and to a lesser extent in livestock production, during the project period and attributes these changes to improved extension services \. However, the changes made to the project design are not clear from the ICR, nor is it clear how the project contributed to the observed changes \. The majority of the gains accrued to medium and large farmers, who were better placed to provide feedback to research and extension \. The pilot program for women's extension services was not effective \. On the institutional development side, research -extension links were largely non-functional for lack of ownership by the research establishment; the extension service faced increasing fiscal difficulties over time; and implementation varied by provinces due to uneven managerial capabilities \. The sustainability of the extension system, both fiscally and politically, is uncertain \. Nevertheless, the extension service has shown flexibility in modifying the extension approach during implementation, and has actively sought a partnership with the private sector in the face of fiscal difficulties \. These are positive developments and likely had a positive impact towards the latter part of the project \. The project also provided significant training to extension staff, which is likely to have had some positive impact \. 4\. Significant Achievements : Institutionalization of monitoring and evaluation and MIS, including diagnostic and evaluation surveys \. Modification of the original project design once it was apparent that the original approach was neither effective nor fiscally sustainable\. Increasing realization by the public extension service of the benefits of collaboration with the private sector to deliver the services and the need to introduce cost -sharing\. 5\. Significant Shortcomings : Inability to institutionalize research -extension linkages; ineffective communication channels for the flow of information from small farmers to research /extension; lack of broadening the focus of women's extension services beyond the traditional home-economics orientation; the failure of the government to follow up on its agreements after the mid-term review to introduce pluralism in the delivery of extension services and to introduce cost -sharing mechanisms\. 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Marginally Satisfactory The ICR rates the project as marginally satisfactory in the text but as satisfactory in the ICR summary ratings table\. Institutional Dev \.: Partial Modest Same Sustainability : Uncertain Uncertain Bank Performance : Deficient Unsatisfactory Borrower Perf \.: Satisfactory Satisfactory Quality of ICR : Satisfactory 7\. Lessons of Broad Applicability : 1\. The fiscal implications of a project for public services need to be analyzed to ensure sustainability of the projects outcomes\. 2\. Blanket prescriptions for extension projects are not likely to be effective; project design must take into consideration the diversity in circumstances across beneficiaries and regions \. 3\. Farmer empowerment through farmer organizations or other institutional arrangements is critical to ensure that the extension service is demand -driven and responsive\. 4\. The follow-on phase of a project must be undertaken only after a thorough analysis of the implementation problems and effectiveness of the initial phase to properly incorporate emerging lessons \. 8\. Audit Recommended? Yes No Why? The contribution of the project towards the observed performance of agriculture is tenuous based on the information provided in the ICR \. At the same time, some positive developments during implementation offer potentially important lessons for future agricultural extension projects, e \.g\., a mid-stream change in the approach to extension to a seemingly more cost -effective one, and the progress towards a partnership with the private sector to deliver extension and research services \. 9\. Comments on Quality of ICR : The ICR is based on a concerted effort at establishing results on the ground through a series of stakeholder surveys \. It is candid in its discussion of the original design problems and other implementation issues \. However, the ICR is difficult to read in places and could have made better use of the available evidence and presented a more detailed analysis of the project's contributions to outcomes \.

REVIEW

P119077

Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review VN-Urban Water Supply and Wastewater (P119077) Report Number: ICRR0022197 1\. Project Data Project ID Project Name P119077 VN-Urban Water Supply and Wastewater Country Practice Area(Lead) Vietnam Water L/C/TF Number(s) Closing Date (Original) Total Project Cost (USD) IBRD-86210,IDA-49480,IDA-58170,TF- 30-Dec-2016 266,451,940\.87 56904 Bank Approval Date Closing Date (Actual) 24-May-2011 31-Dec-2019 IBRD/IDA (USD) Grants (USD) Original Commitment 200,000,000\.00 0\.00 Revised Commitment 295,371,577\.00 0\.00 Actual 266,452,159\.93 0\.00 Prepared by Reviewed by ICR Review Coordinator Group Cynthia Nunez-Ollero Fernando Manibog Ramachandra Jammi IEGSD (Unit 4) 2\. Project Objectives and Components DEVOBJ_TBL a\. Objectives According to the Financing Agreement (FA, p\.5) and the Project Appraisal Document (PAD, paragraph 12), the Project Development Objective (PDO) was to increase access to sustainable water services and environmental sanitation in selected urban areas in the Project Provinces\. This review assesses the achievement of the following objectives: Page 1 of 21  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review VN-Urban Water Supply and Wastewater (P119077) ï‚ to increase access to sustainable water services in selected urban areas in the project provinces\. ï‚ to increase access to sustainable environmental sanitation in selected urban areas in the project provinces\. Although the PDO outcome indicators were revised during restructuring, the level of ambition increased at significant levels that were commensurate with the approved Additional Financing (AF, see below)\. As a result, a split rating was not applied to the outcome\. b\. Were the project objectives/key associated outcome targets revised during implementation? Yes Did the Board approve the revised objectives/key associated outcome targets? No c\. Will a split evaluation be undertaken? No d\. Components Component 1\. Investments and Project Implementation (At appraisal: Cost: US$232\.4 million, of which IDA - US$ 197\.0 million and counterpart financing - US$35\.4 million; At Completion: Cost: US$345\.68 million, of which IDA - US$ 310\.28 million and counterpart financing - US$35\.4 million) Subcomponent 1A: Water Supply (US$109\.5 million at appraisal, revised to US$106\.6 million during the restructuring, and US$108\.13 million actual)\. This component would finance an expansion of the water networks, increase house connections for water, and increase in the water treatment and storage capacity in seven cities and towns across seven provinces\. These were Uong Bi town in Quang Ninh province, Ninh Binh city in Ninh Binh province, Tam Ky city in Quang Nam province, Da Lat city in Lam Dong province, My Phuoc in Binh Duong province, Duong Xoai town in Binh Phuoc province and Phu Quoc in Kien Giang province\. In addition, this component would finance technical assistance to design and prepare bidding documents, supervise construction, ensure compliance with environmental and social safeguards, and perform fiduciary functions of financial management and procurement\. This component would also finance consulting services to generate an Operational Improvement Plan for each water sub- project designed to strengthen each utility's management capacity and improve operations\. This component would also finance two surveys—one at the start of the project and another at project closing--to rate gender disaggregated consumer satisfaction on services delivered\. Subcomponent 1B: Environmental Sanitation (US$122\.9 million at appraisal, revised to US$233\.5 million during the restructuring, and US$237\.55 million at completion)\. This component included activities to increase wastewater collection and treatment capacity, expand drainage in flood prone areas, and increase the number of house connections to the sewer networks as contained in Strategic Sanitation Plans (SSPs) to be prepared for each participating city or town\. The cities and towns included were Ninh Binh city in Ninh Binh province, Tam Ky city in Quang Nam province, Da Lat city in Lam Dong province, Duong Xoai town in Binh Phuoc province, Bim Son town in Thanh Hoa province, Dong Ha city in Quang Tri province, and Thai Hoa town in Nghe An province\. The city of Di An town in Binh Duong province was added at the Additional Financing (AF) in May 2016\. In addition, this component would finance consulting services to prepare the SSPs and detailed design and bidding documents, supervise investments activities, ensure compliance with Page 2 of 21  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review VN-Urban Water Supply and Wastewater (P119077) environmental and social safeguards, and perform fiduciary functions such as financial management and procurement\. Similar to the water sub-projects supported under the first component, this component would also finance the preparation of an Operational Improvement Plan for each sub-project to strengthen management capacity, improve operations and conduct two customer satisfaction surveys—at the start and closing of the project\. Component 2: Technical Assistance (cost at appraisal: US$3\.8 million, of which IDA - US$3\.0 million and counterpart financing - US$0\.8 million; at completion: US$11\.10 million, of which IDA - US$10\.0 million and counterpart financing - US$1\.1 million)\. Subcomponent 2A\. Institutional Strengthening and Project Monitoring (US$2\.30 million at appraisal and at completion)\.This component would finance the Ministry of Construction's (MOC's) efforts to develop a sector database with associated regulations that would monitor the performance of companies; guide provinces in developing their respective SSPs; and help these provinces identify least- cost options in collecting and treating wastewater and establishing investment priorities for water and sanitation sector accompanied by financing plans\. This component would also finance a study tour to learn about best practices in water and sanitation service delivery and project monitoring to be conducted by the MOC\. Subcomponent 2B\. Improving the Efficiency of Investments and Operations (US$1\.5 million at appraisal and at completion)\. This component would finance consulting services delivered to the Ministry of Planning and Investment (MPI) to develop two circulars\. The first circular on wastewater tariff would help increase the financial viability of sanitation companies by applying cost recovery principles to their operations\. A second circular on Operational Improvement and Investments Needs would outline the role of the private sector to improve operational efficiency in the sector\. In addition, consulting services would facilitate the issuance of an MPI ministerial decision for private sector participation in project areas\. This ministerial decision would review options, identify a pilot province where a private sector transaction would be implemented, and prepare a “Private Sector Participation Tool Kit\.” Subcomponent 2C\. Water Sector Priority Investment Plan (US$7\.30 million added at restructuring; US$7\.30 million at completion)\. This component was added to the project scope at the Additional Financing in May 2016 for the preparation of investment studies related to water supply sources in six Mekong Delta provinces of An Giang, Soc Trang, Bac Lieu, Ca Mau, and Kien Giang, as well as the city of Can Tho\. These studies would identify options to improve water supply schemes that were vulnerable to climate change variability, sea level rise, and salinity intrusion to those that would address subsidence risk in the Mekong Delta\. e\. Comments on Project Cost, Financing, Borrower Contribution, and Dates Project Cost and Financing: The project cost at appraisal was US$236\.2 million with IDA credit of US$197\.0 million and US$35\.4 million as borrower contribution\. Additional financing in May 2016 added US$119 million comprising IDA credit of US$50 million and an IBRD loan of US$69 million\. At completion the cost was US$356\.68 million, comprising US$310\.2 million from IDA, US$10 million from IBRD, and US$36\.5 million from counterpart funding\. Dates and restructurings: The project was approved on May 24, 2011 and became effective on October 7, 2011\. A Mid-Term Review (MTR) was conducted on January 12, 2015\. The original IDA loan was closed Page 3 of 21  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review VN-Urban Water Supply and Wastewater (P119077) on December 31, 2017; one year after the original closing date of December 31,2016\. The IDA credit and International Bank for Reconstruction and Development (IBRD) loan approved at the Additional Financing (AF) in May 2016 closed on December 31, 2019\. In addition to the AF, there were two more Level 2 restructurings (ICR, paragraphs 20 and 34): ï‚ Additional Financing and First Restructuring (Level 1 - May 26, 2016): The first restructuring provided an e(US$50 million of IDA credit and US$69 million from IBRD loan) to finance (i) the cost overruns of US$20 million due to the appreciation of the US$ against the SDR; (ii) a new wastewater drainage project (US$92 million) in the town of Di An in Binh Duong Province; and (iii) the preparation of the Mekong Delta Water Supply Investment Plan (US$7 million)\. The project closing date for the AF was December 31, 2019\. Because of the increase in the project scope, the Results Framework was amended as follows: o Target values of three outcome-level indicators were revised: (i) number of new piped household connections from 42,628 to 65,872; (ii) number of people who have improved sanitation from 263,051 to 312,051; and (iii) the increase in the satisfaction rate of beneficiaries from a baseline of 72 percent to 80 percent, both of which were specified at the AF\. o Three new outcome-level indicators were added: (i) number of direct beneficiaries with a target value of 450,382; (ii) number of female beneficiaries with a target value of 51 percent of the total direct beneficiaries; and (iii) increase in the satisfaction rate of beneficiaries of wastewater and drainage services in Di An town from 25\.21 percent of baseline to 80 percent\. (This was an indicator specific to Di An town added to the project scope at the AF\.) o Two intermediate outcome indicators were revised: (i) the baseline of volume of water sold annually was defined as “zero” without a change in the target value of 21\.7 million cubic meter; and (ii) the target value of areas benefiting from increased drainage coverage and flood protection measures was increased from 12,564 hectare (ha) to 12,618 ha\. o Two new intermediate outcome indicators were added: (i) preparation of the Mekong Delta water supply investment plan; and (ii) volume of Biologic Oxygen Demand (BOD) mass— BOD is a water quality parameter measuring the amount of organic matter, or “food,” available in wastewater for oxygen-consuming bacteria; a lower BOD ratio means wastewater is less harmful to the environment—removed by the wastewater treatment plant in Di An town\. ï‚ Second Restructuring (Level 2 - December 26, 2016): The closing date of the original IDA credit loan was extended from December 31, 2016 to December 31, 2017\. The closing date of the AF remained at December 31, 2019\. According to the Task Team (email to IEG dated August 13, 2020), the legal agreement for the AF above indicated that the entire project would close on December 2019\. However, the Prime Minister's Office instructed that activities prior to the AF should maintain their original closing date of December 31, 2016\. Finally, due to delays in approving the AF financing agreement, and delays in accessing AF resources to complete the original activities, the original closing date was extended as requested\. ï‚ Third Restructuring (Level 2 - November 29, 2019): An unused credit of US$24\.42 million was cancelled, and some proceeds were reallocated among disbursement categories\. Funds were underutilized “because of delays in allocating Official Development Assistance (ODA) to provinces caused by the fiscal situation at the time as well as lengthy processing time for approval of additional project activities” (ICR, p\.15)\. Page 4 of 21  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review VN-Urban Water Supply and Wastewater (P119077) 3\. Relevance of Objectives Rationale The project development objectives (PDOs) were relevant to the country's development priorities as stated in “Vietnam 2035 Vision” and the country's Social Economic Development Plan (SEDP) for 2016-2020\. The PDO would contribute to the SEDP goals for 2020, where 95% of the urban population and 90% of rural population would have access to clean, sanitary water (Section III, Goals, Targets, and Breakthroughs)\. The PDO was also relevant to the Government's plan to construct improved infrastructure systems in urban areas (Section V, Tasks and Major Solutions, p\. 93) and respond to risks from climate change and natural disasters through enhanced natural resource management and environmental protection (p\.105)\. The PDOs were relevant to the country’s goal of achieving water security by contributing to sustainable management of its water resources\. A 2019 World Bank study, “Towards a Safe, Clean, and Resilient Water System” pointed out that by 2030, urban development, an increase in competing demand for water, and discharge of untreated wastewater would pose stresses to 11 of the 16 river basins in Vietnam\. For example, the country’s Ministry of Construction confirmed that only 46 percent of urban households were connected to the drainage system and only 12\.5 percent of domestic wastewater was treated\. If unchecked, these challenges to water quality and productivity, including the impact from climate change on water- related disaster risks such as subsidence and flooding could cost the country up to 3\.5 percent per year of its Gross Domestic Product by 2035\. The study suggested policy actions and roles for the public and private sectors in effective and sustainable water management\. The PDOs were relevant in addressing the development problem of achieving water security\. In addition, this project included a private sector participation (PSP) toolkit and a pilot PSP for the Binh Duong Water Supply, Sewerage, and Environmental Company (BIWASE) (see Section 4, Efficacy below)\. The PDO also remained relevant to the World Bank Group's (WBG) Country Partnership Framework (CPF) for FY18-FY22\. The CPF focused on the gains offered by urbanization, and aimed to increase productivity growth, competitiveness, and inclusiveness\. The WBG supported the Government’s efforts to strengthen urban planning, management, and governance\. The CPF looked to boost capacity to deliver high-priority infrastructure and strengthen the system of cities\. In particular, the engagement would strengthen institutional governance in the water sector, clarify roles and responsibilities, and promote integrated management of water resources\. In addition, the WBG support would strengthen private sector participation in the sector—both as a provider of water services and as an investor\. The PDO would contribute to achieving objectives under Focus Area 1 (enable inclusive growth and private sector participation), such as objective 1 (strengthened economic governance); objective 2 (promote private sector development); and objective 4 (improve planning, management, and delivery of infrastructure and land in cities)\. The PDO would also contribute to achieving goals under Focus Area 3 - Ensure Environmental Sustainability and Resilience through objective 9 (to promote low carbon energy generation, and reduce greenhouse gas (GHG) emissions (by way of the pollution management aspect of the PDO) and objective 11 (to strengthen natural resource management and improve water security (CPF, paragraph 83)\. At appraisal, the World Bank was already engaged in the water supply and sanitation sector in the country through the Vietnam Water Supply Development Project (P073763), which was a similar project with the objective to improve water and household sanitation services in selected district towns and large urban centers\. This current project benefited from the experience gained in the first project and targeted medium- Page 5 of 21  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review VN-Urban Water Supply and Wastewater (P119077) size towns with potential to grow in terms of population because of rapid urbanization\. Therefore, given the World Bank’s experience in the sector and the country, the project objectives were adequately challenging\. Rating Relevance TBL Rating High 4\. Achievement of Objectives (Efficacy) EFFICACY_TBL OBJECTIVE 1 Objective To increase access to sustainable water services in selected urban areas in the project provinces\. Rationale The Project Appraisal Document (PAD) did not present a theory of change (ICR, paragraph 6)\. However, the main causality chains leading to achievement of the PDO were provided in the Results Framework (PAD, Annex 1) and the description of the project components (PAD, paragraphs 22-33) as follows: First, the new piped water connections, the improved service availability, and the increase in treatment plants and storage capacity together were expected to lead to an increase in the volume of water sold to a number of urban households in the targeted project area\. This first causal chain represented the technical sustainability of delivering sustainable water services\. The second causal chain indicated that the piloting of a toolkit for private sector participation, and the functional roll-out of a sector database would be expected to result in the implementation of a Private Sector Participation sub-project and thereby also add new connections\. This second causal chain represented the institutional sustainability of delivering sustainable water services\. The third causal chain related to setting adequate tariffs that would cover operation & maintenance (O&M) and depreciation costs for water utilities, effect improvements in revenue collection, or reductions in non-revenue losses that would lead to financial sustainability of water utilities and water service delivery\. These activities, outputs, and intermediate outcomes would lead to two main final outcomes that signal the achievement of the PDO: (i) an increase in the number of direct beneficiaries with access to safe water and improved health and well-being; and (ii) lower costs of water access and sustainable water services\. The project’s Theory of Change (TOC) was premised on assumptions tested during implementation: (i) the government would expand the capacity of the water treatment plant and expand its distribution network; and (ii) at the central level, a ministerial level decision would be made for private sector participation\. The TOC was valid, with logical causality chains that included activities that were based on reasonable assumptions, and were comprehensive, adequately scaled and properly sequenced\. OUTPUTS: The following output targets were met or exceeded: New piped household water connections and direct beneficiaries: As a result of the completion of the water supply sub-projects in seven towns, i\.e\., water treatment facilities and distribution networks, 80,173 households (covering 358,324 direct beneficiaries) were provided with new piped household water Page 6 of 21  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review VN-Urban Water Supply and Wastewater (P119077) connections (baseline 4,366 households, original target 42,628 households, revised target 65,872 households/263,488 direct beneficiaries)\. The revised target was significantly exceeded despite the depreciation of the SDR against the US$, which was compensated by the AF and by utilities combining their funds from other sources (ICR, footnote 13)\. Early completion (by February 2016) of infrastructure construction and higher than expected availability of water enabled the utilities to shift focus to increasing household water connections that resulted in a higher number of connections (ICR, paragraph 45)\. Additionally, female beneficiaries constituted 40 to 52 percent of direct beneficiaries (target 51 percent, target achieved by one province (Tam Ky) and almost achieved in four provinces (Ninh Binh, Phu Quo, Da Lat, and Dong Xoal) while not achieved in two (Uong Binh and My Phuoc)\. According to the ICR (paragraph 93), the percentage of females living in the project service area was overestimated\. Females constituted 48 percent of beneficiaries according to the July 2017 survey and 44 percent in the March 2000 survey\. Private sector participation ï‚ The Ministry of Investment and Planning (MIP) adopted criteria for selecting Private Sector Participation (PSP) projects\. ï‚ A PSP toolkit was developed as targeted but a circular on the use of PSP in operating and managing water supply services was not yet issued at closing (ICR, paragraph 68)\. Planning and investment studies ï‚ The Ministry of Construction (MOC) developed a functional sector database\. ï‚ The Mekong Delta Water Supply Investment studies, which were added under additional financing covering the six Mekong Delta provinces of An Giang, Soc Trang, Bac Lieu, Ca Mau, Kien Giang, and the city of Can Tho, were not completed, but design options are available\. ï‚ Water security priority investments studies were prepared but not finalized at closing\. They are likely to be completed after closing\. OUTCOMES: Infrastructure service delivery targets were achieved or exceeded: ï‚ The water treatment capacity increased from 2,089,000 cubic meters per year (cu m/year) in 2011 to 27,605,000 cu m/year in 2017 (ICR, paragraph 45)\. There was no target set related to increase in water treatment capacity\. ï‚ Volume of water sold by the utilities: This increased to 27,605,000 cu m/year against a target of 21,731,000 cu m/year at AF, and a baseline of 2,089,000 cu m/year\. ï‚ 97\.80 percent of water supply service beneficiaries expressed satisfaction with the water supply services received (baseline 86\.3 percent, target 90 percent, target exceeded)\. Satisfaction with service delivery was expressed in terms of improved water pressure, continuity of service, water quality (no chlorine smell and no turbidity) and customer service (ICR, paragraph 46)\. Sustainability and efficiency indicator targets were achieved: Page 7 of 21  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review VN-Urban Water Supply and Wastewater (P119077) ï‚ All utilities achieved the target of less than 0\.9 financial working ratio (operating costs (excluding depreciation and amortization) divided by revenue collected), except Uong Bi, which was marginally higher at 0\.92\. Private sector participation ï‚ Based on the PSP criteria, the Ministry of Planning and Investments (MPI) selected the Binh Duong water supply sub-project to increase its water treatment capacity using a pilot private sector participation (PSP) arrangement with the Binh Duong Water Supply, Sewerage, and Environmental Company (BIWASE), a public company and a private firm from Binh Duong\. However, BIWASE was converted from a state-owned enterprise into a public corporation (or “equitized” in Vietnam's terms)\. Because the AF had limited resources for water sub-projects, BIWASE secured commercial funds for increasing water treatment capacity\. Tariffs collected from water sales were used to repay the private loan\. The Bin Duong water utility was the only water utility listed on the Vietnamese Stock Exchange (ICR, paragraph 68)\. Mekong Delta water supply investment: ï‚ At closing, following the completion of the water security priority investment studies for the six Mekong Delta provinces and the city of Can Tho, the Ministry of Construction (MOC) was still considering which option to implement – a regional or a provincial infrastructure\. The investment options have been submitted to the Prime Minister's Office for approval (project task team’s email to IEG dated August 13, 2020\.) The technical assistance would identify options to improve the present water supply schemes in the provinces of the region that relied primarily on systems vulnerable to climate change variability, sea level rise, salinity intrusion, and declining ground water levels\. These factors accelerated the subsidence risk of the Mekong Delta\. The efficacy of the achievement of Objective 1 was rated high; the project fully achieved or exceeded its intended outcome of increasing access to water services, while achieving financial sustainability parameters, and the PSP pilot resulted in Bin Duong water utility being listed in the stock exchange\. Rating High OBJECTIVE 2 Objective To increase access to sustainable environmental sanitation in selected urban areas in the project provinces\. Rationale Theory of Change: Capacity of wastewater treatment plants would be increased, sewer networks and drainage systems would be built, extended, and households connected to the sewer network\. The drainage system would be expanded, and urban residents in the target area were to be connected to improved sanitation\. A target area (expressed in hectares) would be provided with drainage and flood protection measures\. The AF financed the construction of the Di An Town Wastewater Treatment Plant, and a target volume of biological oxygen demand (BOD) would be removed from wastewater\. For sanitation sub-projects, Page 8 of 21  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review VN-Urban Water Supply and Wastewater (P119077) tariffs would be collected to recover at least O&M costs (ICR, paragraph 9)\. The project would develop two policy support circulars regarding cost recovery tariffs and financial management\. These factors would address the financial sustainability of delivering sanitation services in the target urban areas\. These activities would lead to the following outputs: increase in the capacity of wastewater treatment, increase in the capacity of the sewer network and drainage in flood prone areas, and increase in the number of households connected to the system\. These outputs would lead to intermediate outcomes such as increase in the volume of wastewater collected, increase in the volume of BOD removed from collected wastewater, increase in the number of residents benefiting from wastewater services, increase in the area covered by drainage and flood protection, and in Di An town only, an increase in the rate that beneficiaries were satisfied with the services\. The following assumptions were made in the wastewater sector: wastewater treatment plants and sewerage networks and drainage systems would be completed, and at the central level, circulars on wastewater tariffs, operation improvements, and investments needs would be developed\. Sustainability of the wastewater sub- projects was not part of the results framework nor were these added at restructuring but were discussed in the ICR (paragraphs 58-68; see also below under Outcomes)\. However, the theory of change did not include an intervention to facilitate household connections to the sewage system by supporting households to “change internal plumbing, move or build manholes, and repair interior floors” (ICR, paragraph 56)\. Additionally, the project did not include an information and education campaign to raise awareness about the benefits of household connections to sewage system\. OUTPUTS: The following targets for infrastructure provision were exceeded: ï‚ In Di An town, 6,268 new household connections were achieved (baseline, 0, target, 6,000) ï‚ The volume of Biological Oxygen Demand (BOD) mass removed at the WWTP reached at 1,600 kg/day (baseline 0, target 1,020 kg/day)\. The following targets for infrastructure provision were fully or partially achieved: ï‚ 152,928 urban residents benefited from improved sanitation (baseline 0, original target 263,051 residents, revised to 312,051 residents)\. The lower number of household connections were due to the following: (i) In some areas, constructing the treatment plants and sewer network was prioritized over establishing household connections – for instance, in Da Lat, the construction of the WWTP and sewer network was prioritized over establishing household connections, and the volume of wastewater collected and treated remains at about 45 percent of the total installed capacity; (ii) In others, wastewater would need to be pumped because houses were located below the sewer lines\. Therefore, households opted to continue to use their septic tanks instead; (iii) Although connecting to the sewer lines was free-of-charge, households would have to bear the cost of a change in internal plumbing, move or build new manholes, or repair floors; and (iv) In households with combined systems (drainage and sewer) that discharged wastewater to the public drains, they were reluctant to connect anew (ICR, paragraph 56)\. ï‚ In Di An Town, 25,072 residents directly benefited from the sub-project (baseline,0, target, 49,000) ï‚ Flood protection measures (with no targets provided) included raising river embankments, building drainage canals, pumping stations, and hardened embankments around storm water detention water bodies\. In Dong Ha, three large storm water detention ponds were created to capture a combined 140,000 cubic meter of storage\. This capacity addressed flooding across 369 hectares of urban land\. Page 9 of 21  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review VN-Urban Water Supply and Wastewater (P119077) Flooding occurred during the rainy season (September to December)\. Floods could be as high as 1\.5 meters\. This flooding level was reduced but no figure was reported\. Planned investment plans and studies were completed: ï‚ Strategic Sanitation Plans (SSPs) were completed for each sanitation sub-project to inform sub- project feasibility studies for proposed new connections\. ï‚ Sustainability of wastewater and drainage sub-projects (technical, financial, and institutional) were not included in the Results Framework\. However, the Monitoring and Evaluation (M&E) system established by the project helped central and local agencies monitor sector development to inform the sustainability aspects of the sanitation sub-project investments\. ï‚ The Ministry of Planning and Investments (MPI) prepared a circular on methods for estimating and implementing wastewater tariff\. The Ministry of Construction (MOC) issued this circular at the national level\. Seven of the eight Provincial People's Committees (PPCs) have agreed to charge all customers wastewater tariff\. OUTCOMES: Environmental services delivered exceeded targets: ï‚ 72 percent of customers expressed satisfaction with services received (baseline 60\.4 percent, target 70 percent)\. ï‚ 70 percent of Di An wastewater treatment plant customers expressed satisfaction with the drainage and wastewater services received (baseline 25\.21 percent, target 50 percent) Targets for environmental services were fully or partly achieved: ï‚ 8,582 hectares (or 68 percent of the revised target area) benefited from drainage coverage and flood protection measures (baseline 0, original target 12,564 hectares, revised target 12,618 hectares)\. According to the ICR (paragraph 57), the target was not achieved because even after being informed by the SSPs and discovering that the target area for drainage sub-projects was lower than determined at appraisal, the AF did not reduce the target\. However, the evidence supported the argument that the groundwork has been laid and therefore there is a likelihood that the target would be achieved after the project closed (ICR, Box 2), ï‚ The flood protection measures mentioned above were anecdotally reported to have reduced the risk of flood related damage, improved the drainage of storm water, and assumed an increase in property values in the project area\. In Dong Ha, the improved capacity from the storm water detention ponds addressed flooding during the rainy season (September to December) across 369 hectares of urban land\. The ICR did not provide the figure for the reduced flooding level\. In Dong Ha, polluted and visually unappealing marshlands were transformed by deepening the lake to improve the water storage function of the area and shoring up the sides\. The lake perimeter was developed with walking paths, roads, and parks resulting in 20 hectares of new public space, with handrails, landscaping and lighting around the lake\. Many of the amenities were financed by the city\. Land value surrounding the area were anecdotally reported to have increased by about 500 percent for plots around the lake and 10 percent for adjacent ones\. The public spaces were used for recreational activities (ICR, Box 2)\. ï‚ (i) Operations and maintenance (O&M) activities of the treatment plants: Two technological systems were implemented\. One was the simpler biological pond treatment technology, which removed BOD Page 10 of 21  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review VN-Urban Water Supply and Wastewater (P119077) load from domestic wastewater to comply with discharge standards\. Another was the more complex one, which required an anaerobic filtration system and activated sludge in sequencing batch reactors (SBRs)\. In this technology, wastewater was added to a single batch reactor, treated to remove undesirable components, then discharged\. Periodic activities were conducted, such as monitoring the components, measuring water quality at discharge points, and comparing volumes of inflows/outflows\. (ii) The quality of effluents from the wastewater treatment plants: All wastewater sub-projects met Category B discharge water quality standards defined by the Ministry of Natural Resources and Environment (MONRE)\. All were given permits to discharge effluents into the environment\. Results for financial and institutional sustainability were inconclusive: ï‚ Financial sustainability of wastewater and drainage sub-projects were to be supported by wastewater tariffs and available government subsidies\. The Da Lat sub-project had been charging wastewater tariffs since 2013 under a donor-funded project\. The remaining six wastewater utilities approved wastewater tariffs but have not collected these because wastewater treatment facilities commissioned these facilities only in 2018\. The Provincial People's Committee (PPC) first needed to revoke the 10 percent environmental surcharge to water supply customers\. This 10 percent surcharge represented cost recovery payment for wastewater treatment and drainage\. These fees were not collected by the wastewater provider; instead they were collected by the government and transferred to the provincial treasurer, which did not necessarily mandate its use for O&M needs\. The PPCs and City People's Committees (CPCs) committed to financing O&M of wastewater treatment plants and drainage systems\. Provinces allocated funds as part of their annual budget planning (ICR, paragraph 63)\. Financial sustainability could not be claimed at project closing\. ï‚ Institutional sustainability of wastewater and drainage sub-projects was supposed to have been provided through efforts to strengthen existing Urban Environmental Companies (URENCOs)\. These entities were originally assigned asset ownership and O&M of wastewater and drainage system\. With institutional changes introduced in 2016, PPCs and CPCs assigned asset ownership to a separate internal entity who then signed O&M service contracts with URENCOs\. In Di An and Thai Hoa, however, the water supply and sewerage utility, retained O&M functions for wastewater and drainage\. Most wastewater companies reported to or operated under a contract with a PPC and were responsible for O&M of the drainage system\. Institutional sustainability could not be claimed at project closing\. The outcome for this objective was rated modest because, although the targets for increasing access to environmental services—flood protection, drainage, and wastewater treatment—were partially achieved by project closing, results for financial and institutional sustainability were inconclusive\. The sustainability of wastewater and drainage services, although not defined at appraisal or AF (ICR, paragraph 58) were assessed using available information, including from the sector database that was last updated in 2015 (ICR, paragraph 53)\. Rating Modest OVERALL EFF TBL Page 11 of 21  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review VN-Urban Water Supply and Wastewater (P119077) OBJ_TBL OVERALL EFFICACY Rationale The project's efficacy in achieving the first objective was high, having met or exceeded the targets for the outcome indicators\. The project's efficacy in achieving the second objective was modest, based on important shortcomings in meetings targets as well as other weaknesses in performance\. The overall efficacy was rated substantial taking into account government commitments to address the shortcomings in relevant targets (e\.g\., the decision regarding the Mekong Delta water supply investment was in the Office of the Prime Minister, an agreement had been reached with the Provincial People's Committees regarding the implementation of the wastewater tariff, the provincial and city level People's Committees have allocated funds to finance O&M of wastewater treatment plants and drainage systems)\. Also, the capacity was established to support future water and sanitation connections, and foundations were put in place for the institutional, technical, and financial sustainability of the services\. These factors point to the shortfalls being addressed in the near term to justify the substantial overall efficacy\. Overall Efficacy Rating Substantial 5\. Efficiency Economic and Financial Efficiency: At appraisal, cost effectiveness, economic, and financial analyses were conducted to the water sub-projects while economic analyses were undertaken for the wastewater sub-projects\. Cost effectiveness was based on costs per beneficiary\. This measure was commonly used for assessing the economic and financial efficiencies of wastewater and drainage projects\. At appraisal, the project committed to a maximum of US$200 per capita\. For water sub-projects, the per capita cost effectiveness ranged from a low of US$72 (Da Lat) to US$196 (My Phuoc) while for wastewater sub- projects, the per capita cost effectiveness ranged from US$88 (Da Lat) to US$201 (Bim Son)\. At appraisal, benefits from the water sub-projects were reflected in the value of the incremental volume of water sold against the corresponding costs\. Tariffs paid were used as proxy for the value of water (PAD, paragraph 46)\. The economic rate of return (ERR) for water sub-projects ranged from 6\.3 percent (Dong Xoai) and 9\.4 percent (Phu Quoc) to 15\.3 percent (My Phuoc)\. Two of the 5 sub-projects had lower than 10 percent in ERRs because the cost of investments included a change in the water source and the building of a new transmission system (Dong Xoai) and upgrading the transmission system Phu Quoc (PAD, paragraph 47)\. At appraisal, benefits came from improved sanitation valued at a rate based on a 2008 World Bank/World Sanitation Program study called Environmental Impacts of Sanitation in Vietnam and was assumed to increase at 2 percent a year as the level of income increased\. The ERR for wastewater sub-projects ranged from 9\.5 percent (Dong Ha, Tam Ky) to 13\.7 percent (Ninh Binh)\. The ERR for wastewater sub-projects assumed: (i) US$0\.10 per cubic meter of wastewater treated to indicate the costs of investing and operating wastewater treatment plants, and (ii) US$28 as the annual per capita benefits of improved sanitation based on the earlier mentioned 2008 study\. Page 12 of 21  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review VN-Urban Water Supply and Wastewater (P119077) At closing, the average ERR for water sub-projects was at 17\.8 percent, ranging from 6\.2 percent (Tam Ky) to 26\.3 percent (My Phuoc)\. The average ERR for wastewater sub-projects stood at 22\.8 percent, ranging from 18\.2 (Tam Ky) to 31 percent (Dong Xoai)\. The ERR for wastewater assumed that by 2018 the per capita value of the benefits from improved health and water resource degradation would reach US$44 per capita\. At closing, cost effectiveness improved because of population growth and gains from project management\. For water sub-projects, cost effectiveness ranged from a low of US$52 per capita (Da Lat) to a high of US$112 (Tam Ky)\. For wastewater sub-projects, the per capita cost effectiveness ranged from US$39 (Da Lat) to US$196 (Di An)\. These figures were well within the US$200 cost effectiveness maximum that was committed at appraisal\. Operational and Administrative Efficiency: Delays during the early stages of implementation resulted in low disbursements\. This was due to a change in project design\. Target urban areas were changed from two large cities (Ho Chi Minh and Hanoi) to ten mid-size cities\. Implementing agencies lacked experience in managing wastewater treatment investments\. Each city was required to prepare a Strategic Sanitary Plan (SSPs) before implementing its wastewater and drainage sub-projects\. Additional steps such as establishing or updating master plans and conducting feasibility studies prior to undertaking detailed designs and bidding documents for sanitation sub-projects contributed to this delay and resulted in the modest outcome in household wastewater connections\. In 2016, the government restricted the use of Official Development Assistance (ODA) to reduce its public debt because the country has reached its borrowing ceiling from multiple multinational development institutions\. Sub-projects with limited funds could not pay their contractors on time, leading to a delay in project completion\. At closing, US$24\.42 million was cancelled due to delays introduced by internal government procedures requiring the inclusion of project funds in the Midterm Investment Plan\. Even with the operational and administrative shortcomings, overall efficiency was rated substantial because of the high ERRs for both the water and wastewater sub-projects, representing 96\.9 percent of total project cost at closing\. The figure used below refer to the average ERR of the wastewater sub-projects (reaching 22\.8 percent), covering US$237\.55 million of the total project cost of US$356\.78 million at closing\. There was no comparable average ERR for wastewater sub-projects at appraisal\. Efficiency Rating Substantial a\. If available, enter the Economic Rate of Return (ERR) and/or Financial Rate of Return (FRR) at appraisal and the re-estimated value at evaluation: Rate Available? Point value (%) *Coverage/Scope (%) 0 Appraisal 0  Not Applicable 66\.60 ICR Estimate  22\.80  Not Applicable * Refers to percent of total project cost for which ERR/FRR was calculated\. Page 13 of 21  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review VN-Urban Water Supply and Wastewater (P119077) 6\. Outcome The relevance of objectives was rated high\. The efficacy of the project in achieving first objective was rated high\. The project's efficacy for the second objective was rated modest\. The overall efficacy was rated substantial\. Efficiency was rated substantial\. The outcome is rated satisfactory\. a\. Outcome Rating Satisfactory 7\. Risk to Development Outcome The following pose risks to the development outcome: ï‚ Financial risk with regard to adequacy of financial flows and financial viability of wastewater utilities\. Only one of the eight wastewater utility was experienced in collecting established tariffs\. Tariffs for the remaining wastewater utilities, some of which were state-owned at the city level and some a subsidiary of a water utility, were approved by their respective PPCs before project closing\. These fees were earmarked for O&M needs of the wastewater utility assets\. Actual implementation may be delayed because current water user fees include environmental surcharges\. These need to be revoked first and then a separate wastewater tariff introduced\. The government anticipated continuing its subsidies to all wastewater companies\. ï‚ Stakeholder risk in connecting to wastewater services\. The slow progress in wastewater connections during implementation may continue\. Households that use septic tanks or public drains and appeared to be unaffected by wastewater discharge are not connected to the wastewater collection network\. In most sub-projects, project funds were used to connect households\. After closing, cities may not have funds to assist those households that are connected to the system\. To mitigate this risk, provincial and central governments would need to subsidize wastewater companies to expand wastewater connections, in addition to providing subsidies for O&M needs\. ï‚ Institutional support risk from a lack of instruments and regulatory oversight to accompany recently equitized water supply utilities\. Urban water utilities were equitized during project implementation\. The water utilities became public corporations that owned assets and could decide on investments, such as expanding its service\. However, there were no institutional arrangements or instruments established to accompany how these public corporations would meet the water utilities' obligations to deliver water services\. To mitigate this risk, the government may need to assign a government entity to supervise these water utilities, provide guidance regarding expansion plans for optimal and equitable water service delivery, and require them to report on their performance (see below)\. ï‚ Technical risk in the use of the M&E database\. According to the ICR, the database developed under the project was not regularly updated (ICR, paragraph 127)\. The last known update was made in 2015 (ICR, paragraph 53)\. When the water utilities were equitized, they were not provided incentives nor were they mandated to report on their performance\. This database was designed to link these capital projects to sector wide long-term planning\. With the information from this database, the government could determine appropriate investments and design actionable policies that promote accountability and transparency in the sector (ICR, paragraph 8)\. To keep the database useful, the Page 14 of 21  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review VN-Urban Water Supply and Wastewater (P119077) government could consider using its continuing subsidies as incentive for the water and wastewater utilities to regularly report on their performance or include the obligation in new policy directives\. 8\. Assessment of Bank Performance a\. Quality-at-Entry The Bank's project design responded to the government's request and was relevant to achieving the country's objectives for the urban water and wastewater sectors\. Project design included relevant lessons from six similar projects implemented in Vietnam\. Among the lessons that influenced the design were: (i) a lack of prepared sub-projects could lead to implementation delays; (ii) signing subsidiary legal agreements for sub-projects could face time lags; (iii) connecting households to services could take time; and (iv) decentralized implementation works well for providing water and wastewater services\. To avoid implementation delays, design included the following: (i) Provincial People's Committees (PPCs) approved sub-project feasibility studies prior to appraisal; (ii) subsidiary agreements for sub-projects were to be signed within 90 days after the signing of the Financing Agreement for inclusion in the project; (iii) the project would finance household connections for water and wastewater services; and (iv) implementation would be decentralized\. (PAD, paragraph 36)\. However, the project area was changed from two major cities (Ho Chi Minh and Hanoi) at concept to ten smaller cities (with populations between 58,000 and 212,000 residents) at approval\. All the new ten cities required Strategic Sanitation Plans (SSPs) for wastewater and drainage before approving these sub-projects\. Design did not include information and education campaign activities that could have been useful for persuading more households to connect to wastewater services\. Project components were reasonable to achieve the objectives stated\. Counterpart funds were committed\. At appraisal, a high risk was noted because provinces were unfamiliar with World Bank processes, the wide geographical spread of sub- projects, expected delays from land acquisition, and uncertainty in implementing tariffs for the services\. The risk that households would not connect to the wastewater services, the possibility that technical design may pose problems, or that the country would reach its borrowing ceiling and that the government would impose limitations in the use of Official Development Assistance (ODA) funds from all sources, were unforeseen risks that nevertheless became evident during implementation\. Quality-at-Entry Rating Moderately Satisfactory b\. Quality of supervision The Bank project team conducted 17 semi-annual supervision missions over the eight-year implementation period, Supervision inputs were adequate\. For example, in the case of environmental safeguards, the Bank team worked closely with the implementing entities to ensure that the clearance of Unidentified Ordinances (UXO) or explosive weapons that did not explode and posed risks of detonation, were completed before the sites were handed over to contractors (ICR, paragraph 109)\. The project components specified technical assistance directed at building the capacity of the implementing entities that were not familiar with Bank processes (see component 3 in Section 2 Project Objective and Components above)\. The Mid Term Page 15 of 21  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review VN-Urban Water Supply and Wastewater (P119077) Review (MTR) was carried out in January 2015, following delayed disbursements\. The MTR identified a US$20 million deficit due to exchange rate losses (from SDR to US$)\. A restructuring and additional financing (AF) covered the deficit and added a new wastewater treatment plant sub-project in Di An town\. Candor in reporting the quality of performance reporting was evident in the project team's efforts to avoid leaving funds unused because the provincial implementing entities could not meet the complex process, introduced by the government, of including approved funds for ongoing sub-projects in the Mid Term Investment Plan\. Nevertheless, at closing, the government requested the cancellation of US$24\.42 million (see Section 5, Efficiency above)\. Overall, while taking note of the minor shortcomings that were within the Bank team's control to resolve, the quality of supervision was rated satisfactory\. Quality of Supervision Rating Satisfactory Overall Bank Performance Rating Moderately Satisfactory 9\. M&E Design, Implementation, & Utilization a\. M&E Design The objectives were clearly specified\. The Results Framework showed valid links along a causal chain between inputs and outputs, leading to intermediate and final outcomes that can be attributed to the project's interventions\. The indicators were adequate to capture the achievement of the project outcomes\. However, there was a lack of indicators to address the sustainable delivery of services, particularly for sanitation services\. There were no specific indicators measuring the quality and the reliability of the water supply, but this was covered by the outcome indicator of “increase in the satisfaction rate of beneficiaries”; the customer satisfaction survey included questions related to water pressure, service continuity, and water quality, such as level of chlorine smell and turbidity (ICR, paragraph 46)\. There were no indicators, either, capturing the completion of project outputs of water supply systems and wastewater collection network and treatment plants in terms of kilometer or capacity, respectively\. Baselines for the outcome indicators were established as defined in the Results Framework; these indicators were specific, measurable, time-bound, achievable, and relevant\. The data collection arrangements were adequate; each project implementation unit would be responsible for data collection from each subproject, and the MOC would consolidate and report the data (ICR, paragraph 99)\. An M&E consultant was to be hired to support data verification and consolidation\. b\. M&E Implementation The Administration of Technical Infrastructure (ATI), an agency of the MOC, implemented the M&E system\. Each PMU contributed to the implementation of the M&E system\. Planned baselines were carried out\. Indicators provided in the Results Framework were measured and reported\. For the water sub-projects, the number of connections installed was monitored and verified through Page 16 of 21  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review VN-Urban Water Supply and Wastewater (P119077) indicators such as volumes of water sold, revenues, and costs\. For wastewater, new connections were the indicator of choice\. Outcomes in drainage improvement were monitored based on areas that benefited from improved drainage and reduced flood risk\. An M&E consultant regularly updated the Results Framework, but the water utilities and wastewater companies were not directly involved in the process, resulting in a missed opportunity for building capacity and institutionalizing the function (ICR, paragraph 104)\. Therefore, at project closing, utilities could not provide the task team consistent information on results achieved\. The AF resulted in new sub-projects and new indicators were introduced (e\.g\., volume of BOD removed from the wastewater plant in Di An, the number of direct beneficiaries, and level of customer satisfaction, disaggregated by gender) while some were revised upwards based on additional resources (e\.g\., increase in the number of new piped household water connections)\. The method used to calculate direct beneficiaries—the indicator added at the AF—was not clearly defined (ICR, paragraph 87)\. Reports did not show whether beneficiaries were involved in defining target indicators and assessing achievement of indicators\. The weakness in the M&E design measuring the progress in investment activities was not corrected\. c\. M&E Utilization The project used the M&E results to inform the implementing entities and the Bank's task team on the project's progress and informed the requirements of the Additional Financing (AF)\. M&E data was used to provide evidence of achievement of outcomes, and instances of sustainability of operations\. However, since the M&E function was carried out by a consultant rather than by the implementing entities, the M&E system introduced by the project may not be sustained\. The M&E system as designed and implemented was sufficient to assess the achievement of the project objectives and test the links in the result chain\. However, M&E quality was rated modest because of the missed opportunity in institutionalizing the M&E function at the level of the water and wastewater utilities, inconsistent information on results achieved provided at project closing (ICR, paragraph 104), linkages among some indicators were not strengthened at the AF stage (ICR, paragraph 93), and the lack of incentives for water supply utilities to regularly update the ATI so it could monitor sector performance\. M&E Quality Rating Modest 10\. Other Issues a\. Safeguards Environmental and Social Safeguards: The project was determined to require a partial assessment (environmental category B)\. The project triggered OP/BP 4\.01 Environmental Assessment, OP/BP 4\.12 Involuntary Resettlement, and OP/BP 4\.37 Safety of Dams\. At AF, two additional safeguards were triggered - OP/BP 4\.11 Physical Cultural Resources and OP/BP 7\.50 Projects on International Waterways\. The latter was triggered because treated water from the Di An WWTP was to be discharged to a local canal that flowed into the Dong Nai River of which Cambodia was a riparian state\. Page 17 of 21  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review VN-Urban Water Supply and Wastewater (P119077) An Environmental Management Plan was prepared for each sub-project identified at appraisal and disclosed on December 6, 2010\. Overall, there were no major environmental, health or safety issues\. The World Bank team and the Project Management Unit (PMU) closely monitored the implementation of UXO clearance prior to turning cleared sites over to contractors\. An independent consultant supervised the implementation of environmental safeguards on behalf of the MOC and its performance has been reported as acceptable (ICR, paragraph 109)\. The project did not finance construction of dams but triggered this safeguard because raw water would be supplied by reservoirs that have formed an existing dam\. At the 2015 MTR, an independent consultant carried out dam safety review and concluded that all dams were operational and safe with remedial actions for (i) Duong Dong Dam for seepage treatment; (ii) Phu Ninh dam for gate repair; and (iii) Dong Xoai dam for installation of monitoring instruments\. According to the ICR (paragraph 110), all remedial actions were completed\. World Bank management granted an exception to the riparian notification allowed under paragraph 7(c) of OP/BP 7\.50 since Vietnam was the lowest downstream riparian of the Dong Nai River, hence this river ran only in Vietnam and did not cause harm to other riparian states\. OP/BP 4\.11 Physical Cultural Resources was triggered because the project activities financed under AF would result in considerable amounts of earthworks\. Public consultations were carried out\. A Resettlement Policy Framework and 15 Resettlement Action Plans were prepared and disclosed\. Documentation of land acquisition was not adequately prepared by some sub-projects\. The World Bank team provided intensified guidance and shared templates to record land acquisition\. Land acquisition encountered some delays due to lengthy processes, weak project management capacity, timing constraints resulting from required approvals of lands appraised, and differences between resettlement policies of the government and the World Bank\. Compensation levels and assistance to project affected households were completed and issues resolved by project closing except in Thai Hoa and Ninh Binh sub-projects\. There were no outstanding unresolved grievances reported at project closing\. b\. Fiduciary Compliance Financial Management: The Ministry of Construction (MOC) and the implementing agencies complied with World Bank financial management policies and procedures\. All unaudited interim financial reports were submitted on time and met World Bank requirements\. The MOC submitted Independently audited financial reports on time, with the final one expected on June 30, 2020\. Privately operated water supply utilities submitted annual audited financial statements according to Vietnamese Accounting Standards\. The audits were unqualified (ICR, paragraph 116)\. Procurement: All project procurement activities complied with the World Bank's guidelines\. Contract management in some sub-projects were observed to be weak, leading to implementation delays and quality concerns\. These were addressed to the satisfaction of the World Bank\. There was one complaint related to a local company\. That bidder was sanctioned in accordance with national procurement laws and regulations, satisfactory to the World Bank requirements\. c\. Unintended impacts (Positive or Negative) Page 18 of 21  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review VN-Urban Water Supply and Wastewater (P119077) None d\. Other None 11\. Ratings Reason for Ratings ICR IEG Disagreements/Comment Outcome Satisfactory Satisfactory There were moderate shortcomings in Quality at Entry such as absence information and education campaign Bank Performance Satisfactory Moderately Satisfactory activities to raise awareness about the benefits of connection to the wastewater collection system, and insufficient risk analysis\. Quality of M&E Modest Modest Quality of ICR --- Substantial 12\. Lessons ï‚ Inexperienced implementing entities may require periodic, customized, technical assistance to build their capacity to achieve project objectives\. In this project, constructing wastewater systems was delayed because of the introduction of new processes for which the implementation entities were not prepared, such as the preparation of sanitation strategy plans before implementing the environment sanitation sub-projects\. In addition to the capacity building components of the project itself, additional technical assistance efforts were included in consulting packages to address capacity gaps of implementing agencies, particularly those unfamiliar with World Bank processes\. ï‚ Information and educational campaigns may influence behavioral change in households to address their reluctance to connect to wastewater systems\. In this project, the outcome indicator called for increasing the number of households connected to the wastewater system\. Households who used septic tanks or public drains and who did not appear to be negatively affected by wastewater discharge were disinclined to connect to the system without the incentives that other households received\. The project financed household connections to the wastewater systems and technical engineering solutions but did not devise educational campaigns or behavior change strategies to increase the level of household connections\. Page 19 of 21  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review VN-Urban Water Supply and Wastewater (P119077) ï‚ Engaging beneficiaries may improve the data productivity and utilization of a project's M&E system\. In this project, the quality of beneficiary information under the M&E system was inadequate\. The implementing agencies could not monitor performance of the utilities and outcome of the project interventions using beneficiary information\. Data disaggregated by relevant factors\. could not be collected\. Engaging beneficiaries through periodic customer surveys could strengthen the usefulness of an M&E system, refine beneficiary selection for outcome attribution, facilitate decision making, and bring transparency in sector service delivery\. 13\. Assessment Recommended? No 14\. Comments on Quality of ICR The ICR provided a comprehensive overview of the project\. The narrative was internally consistent and highly evaluative\. The ICR was adequately focused on the results of the project; it provided sufficient evidence to support the outcome of the project’s intervention, including the factors behind not meeting wastewater household connections\. The interrogation of evidence was adequate, and the analysis clearly linked evidence to findings\. The lessons were informed by the operation, particularly with regard to the benefit of adopting information and educational campaigns to boost household connections for wastewater services\. The annexes provided additional information to expound on the cost effectiveness of the project (see Annex 4 Efficiency Analysis)\. Boxes in the main text and footnotes were helpful in understanding technical concepts\. The ICR was also consistent with the Bank guidance\. In the section on Quality at Entry, paragraph 119 of the ICR stated that the number of household sanitation connections could have been used as an intermediate indicator\. Lastly, the ICR was substantially longer (39 pages) than recommended in the Bank guidance (15 or 20 pages)\. a\. Quality of ICR Rating Substantial Page 20 of 21 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review VN-Urban Water Supply and Wastewater (P119077) Page 21 of 21

REVIEW

P050601

 ICRR 12326 Report Number : ICRR12326 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 03/14/2006 PROJ ID :P050601 Appraisal Actual Project Name :Social Fund II (SFII) Project Costs 27\.7 36\.3 US$M ) (US$M) Country :Cambodia Loan/ US$M ) Loan /Credit (US$M) 25\.0 33\.8 Sector (s):Irrigation ): and drainage; US$M ) Cofinancing (US$M) TBD 2\.2 Primary education; Other social services; Roads and highways; Water supply L/C Number :C3179 FY ) Board Approval (FY) 99 Partners involved : American Assistance for Closing Date 12/31/2002 03/31/2005 Cambodia (AAfC), OPEC Evaluator : Panel Reviewer : Division Manager : Division : Anju Vajja Christopher D\. Gerrard Alain A\. Barbu IEGSG 2\. Project Objectives and Components a\. Objectives The project objectives were: (1) Provision of small scale, community-based sub-projects in the areas of social and economic infrastructure with an emphasis on the poor; (2) Creation of short-term employment opportunities to absorb the increase in unemployment associated with post-crisis reverse migration of workers from Thailand, and with the demobilization of Cambodian army units; (3) Strengthening of communities' capacity to implement development projects and sustain them; (4) Improvement of donor coordination and co -financing; (5) Improvement of poverty and district targeting \. In May 2001, a year before the expected closing of the SFII project, the Bank approved a Flood Rehabilitation Supplemental Credit (for US$10 million equivalent) which provided additional resources to the Social Fund of the Kingdom of Cambodia (SFKC) to address emergency needs in rebuilding small -scale infrastructure damaged in heavy flooding during 1999-2000\. There was no change to the SFII credit agreement, given the similar objectives of both credits, nor any changes in the original components since those of the supplemental credit mirrored those of the original project\. b\. Components (or Key Conditions in the case of Adjustment Loans ): The project had three components : Sub -project grants ($24\.4 million at appraisal, $31\.7 million actual) -- financed sub-grants for small-scale (a) Sub- infrastructure and services projects proposed by communities, local groups, NGOs, and other groups \. Eligible sub-project types included irrigation systems, bridges and culverts, water supply and sanitation systems, schools, vocational training centers and training, and health centers \. (b) Institutional support ($3\.0 million at appraisal, $4\.6 million actual) -- supported the costs of staffing, equipping, operating, training, and assessing the Social Fund \. (c) Unallocated : ($0\.31 million at appraisal; $0\.0 million actual) -- approximately 1 percent of the credit was left unallocated at appraisal to provide flexibility during implementation \. c\. Comments on Project Cost, Financing, Borrower Contribution, and Dates SFII was an immediate follow-on from the Social Fund I (SFI) project, and channelled funds through the same agency, the SFKC, as the first project \. IDA financed 91 percent of project costs and the Borrower less than 1 percent\. AAfC provided $2\.2 million of direct co-financing for schools and OPEC provided an additional $ 7\.8 million in a separate OPEC project which started in March 2001 and closed in December 2005\. Ten NGOs contributed an additional $ 4 million at the sub-project level\. The closing date of the project was extended by 15 months due to implementation delays at the beginning of the project, and by an additional year due to the approval of the supplemental flood rehabilitation credit \. Initial implementation was delayed due to political uncertainties and due to the introduction of new procedures, so that it was not until May 2000 -- ten months after project effectiveness -- that operations again reached the level achieved during SFI\. 3\. Relevance of Objectives & Design : Overall relevance is rated substantial \. The project is consistent with both the government and CAS objective of rural development\. Allocating at least two-thirds of total sub-project financing rural economic infrastructure -- irrigation, rural roads, water supply (PAD, p\. 3) -- is justifiable given other donor programs' focus on education and health \. Given the sustainability concerns regarding water supply sub -projects in SFI, SFII established a Sustainability Program Unit (SPU) and hired a sustainability advisor \. The current government and Bank Country Assistance Strategy emphasizes the importance of strengthening the capacity of government institutions, yet the project did not address this objective \. The project operated solely through an autonomous agency, SFKC\. 4\. Achievement of Objectives (Efficacy) : Overall efficacy is rated modest \. Objective (1) is rated substantial \. The project financed 1,416 small- to medium-sized economic and social infrastructure sub-projects throughout the country, which benefited over 5 million people according to SFKC estimates\. According to the Independent Technical and Beneficiary Assessment (ITBA) completed in late 2004, benefits included increased school enrollment, particularly among girls; safer school environments; improved access to schools and markets; decreased impacts from flooding; enhanced trade in agriculture and other local products; and added income from employment opportunities \. However, school construction was to be limited to less than one-third of total sub-project approvals in value terms, since other donors' programs focused on education and health, and at least two-thirds was to be allocated towards rural economic infrastructure (PAD, p\. 3)\. Instead, over 50% was allocated to schools and only 45% to rural economic infrastructure \. Objective (2) is rated modest \. The project did not include special incentives or provisions for hiring returning workers or former military personnel, and the backgrounds of employees hired were not tracked \. (ICR, p\. 4)\. Objective (3) is rated modest \. The ICR concludes that "the project appears to have had a positive impact " on community capacity to implement and sustain sub -projects, as evidenced by (a) high levels of ownership/community contribution (time, in kind, labor and money); (b) participation by 60% in other community development activities; and (c) use of skills gained through SFKC experience in other development activities by 80 percent (p\. 4)\. This conclusion is based primarily on the results of the ITBA, which interviewed over 1000 individuals, including in-depth interviews with Project Support Committee (PSC) members, local and national authorities, and over 500 randomly selected beneficiaries\. However, it not clear to what extent capacity enhancement can be attributed to the project without baseline surveys or with and without project comparisons \. For instance, that 60 percent of the members indicated that they went on to participate in other development projects does not demonstrate capacity enhancement unless one can specify how many of these had never before participated in development projects prior to SFKC \. Objective (4) is rated modest \. The project was able to improve the level of co -financing, but there is no indication in the ICR on improvements in donor coordination insofar as strategic consensus, procedures, and policy are concerned\. Objective (5) is rated modest \. The project proposed to improve poverty targeting, based on new poverty data (PAD, p\. 4)\. However, the poverty targeting objective was not met fully, according to the ICR, because of insufficient socioeconomic data for certain areas of the country and the lack of a coherent targeting mechanism \. The SFKC used a set of different and competing prioritization tools (ICR, p\. 5)\. 5\. Efficiency : There is insufficient information to rate efficiency\. No economic rate of return (ERR) was calculated at appraisal or at closure because "standard rate of return analysis is not readily applicable to a large number of small, demand -driven, and disparate sub-projects\." (ICR, p\. 6) However, while the ERR could not be calculated ex -ante because the sub-project investments are not known at appraisal, a sample of ERRs could should have been attempted for typical sub -projects supported by the project \. The PAD had also indicated (p\. 9) that relatively simple ERR calculations would be calculated for larger economic infrastructure sub-projects\. The ICR indicates that operational costs were contained to the agreed 8% of total project costs, lower than other public agencies and below the average of social funds included in a recent Bank comparative study (10-13%)\. The Bank's 2003 comparative study indicated that social funds ’ overhead expenses were similar among countries, falling within a range of 7–13 percent of total program costs (Source: Evaluating Social Funds: A Cross-Country Analysis of Community Investments )\. Thus the SFII was in the lower part of this range \. 6\. M&E Design, Implementation, & Utilization: M&E design was weak\. There was little emphasis on systematically measuring outcomes and impacts as evidenced by the lack of outcome and impact indicators, targets for key indicators, baseline surveys, and follow ups \. The ICR notes that "it should be acknowledged that at the time the SFII was prepared, the Bank in general was placing much less emphasis on indicators and mechanisms for monitoring and evaluation, compared to the strong focus the Bank now has on measuring outcomes and impact (p\. 9)\." However, even the few indicators that were mentioned in the PAD were monitored and tracked only sporadically (p\. 9)\. SFKC did not widely disseminate the lessons learned from its experience in local development, community capacity-building, governance, and partnerships until the end of the project (ICR, p\. 7)\. 7\. Other (Safeguards, Fiduciary, Unintended Impacts--Positive & Negative): According to the PAD, SFKC only rebuilds or rehabilitates existing structures and each includes an environmental assessment\. Further, if an assessment revealed substantial environmental impact, appraisal was to be halted and further impact studies were to be conducted \. However, no study was carried out on the cumulative impact of sub-projects, such as the cumulative impact on the water table of rehabilitating /rebuilding over 5000 water supply systems\. SFII created an Internal Audit Unit, and adopted local shopping procedures for sub -projects valued below US$250,000, etc\. in response to circumstantial evidence of procurement irregularities in mid -2000 (p\. 7)\. The ICR does not report on community capacity to undertake fiduciary management responsibility \. 8\. Ratings : ICR ICR Review Reason for Disagreement /Comments Outcome : Satisfactory Moderately Satisfactory [The ICR's current 4-point scale does not allow for a "moderately sat\." rating]\. Project achieved most of its major relevant objectives but with significant shortcomings\. Institutional Dev \.: Modest Modest Sustainability : Likely Non-evaluable The evidence provided in the ICR for sustainability of sub-projects is mixed and insufficient for a "likely" rating\. Bank Performance : Satisfactory Satisfactory Albeit marginally so, due to: (a) Lack of exit strategy for SFKC given the focus of the government strategy and CAS on building government capacity \. (b) Weak poverty targeting strategy, monitoring and evaluation design and dissemination of lessons learned \. Borrower Perf \.: Satisfactory Satisfactory But the implementing agency did not track all the M&E indicators specified during implementation\. Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - ICR rating values flagged with ' * ' don't comply with OP/BP 13\.55, but are listed for completeness \. 9\. Lessons: The ICR has extracted a number of relevant lessons from the experience with this project \. 1\. Monitor outcomes and evaluate impact to assess development effectiveness \. To assess development  effectiveness input and output indicators (amount disbursed, sub-projects completed) should be supplemented by outcome and impact (sustainability, benefits) indicators\. For projects benefiting a large proportion of the population, use of household surveys to monitor impact (for example capacity enhancement ) should also be explored\. 2\. Find mechanisms to ensure appropriate targeting \. Projects aimed at supporting poor communities and specific beneficiary groups should have a coherent targeting mechanism in place \. In addition, indicators that measure whether project benefits are reaching the target groups should be developed and monitored to facilitate adjustments during implementation\. 3\. Tackle transparency issues systematically especially for an effective procurement process \. Well-defined procedures, adequate training, rigorous internal monitoring, regular independent external evaluations, and appropriate and enforceable penalties and a commitment to invoke them is required as well as continuity of Bank staff, frequent site visits, and through country knowledge \. 4\. Communicate through regular and consistent dialogue with all stakeholders to achieve sustained impact \. For example, SFKC could have a substantial institutional impact on the capacity of government agencies had it communicated and collaborated more extensively with them through dialogue, data sharing, technical assistance and training sessions \. 5\. Plan for hand-over or exit strategy to ensure lasting institutional development impact \. For all Social Funds and especially for this one where the implementing agency enjoys a high degree of autonomy, it is important to include mechanisms to ensure that the valuable processes, skills, and systems which are developed can be adopted by and/or passed on to national and local institutions \. 10\. Assessment Recommended? Yes No Why? Post-conflict countries often face the urgent need of restoring basic services and infrastructure \. Given low government capacity, social fund projects address these needs through autonomous agencies, rather than build longer-term institutional capacity by working with the weak public entities /bodies\. However, in many cases this has resulted in unsustainable infrastructure \. It would be important to assess if by -passing the government provides a more effective and sustainable means of providing basic infrastructure and services than directly building up the government's institutional capacity, especially in those post -conflict countries where the Bank is increasing its aid \. 11\. Comments on Quality of ICR: The ICR is rated satisfactory overall, but it lacks : (a) Clear and systematic presentation of tables (for example, the number of different types of sub -projects, and the average unit cost of each type of sub-project on page 16)\. (b) ERRs for larger economic infrastructure sub -projects (as indicated in the PAD)\. (c) Beneficiary assessment questionnaire /analysis, which is typically an annex in ICRs for projects in which beneficiary assessments have been conducted \.

REVIEW

P076702

Document of The World Bank Report No\. 88547 PROJECT PERFORMANCE ASSESSMENT REPORT Democratic Socialist Republic of Sri Lanka RENEWABLE ENERGY FOR RURAL ECONOMIC DEVELOPMENT PROJECT (IDA-36731 IDA-36730 TF-51248) June 25, 2014 IEG Public Sector Evaluation Independent Evaluation Group  iii Currency Equivalents (annual averages, select years) Currency Unit = Sri Lankan Rupee (LKR) 2002 US$1\.00 LKR96\.7 2005 US$1\.00 LKR102\.0 2010 US$1\.00 LKR111\.1 2011 US$1\.00 LKR113\.9 2012 US$1\.00 LKR128\.2 2013 US$1\.00 LKR126\.9 Abbreviations and Acronyms AU Administrative Unit DFCC Development Finance Corporation of Ceylon GEF Global Environmental Facility IDA International Development Association IEG Independent Evaluation Group IFC International Finance Corporation kW Kilowatt MW Megawatt MWh Megawatt-Hour NCRE Non-Conventional Renewable Energy PCI Participating Credit Institution PUCSL Public Utilities Commission of Sri Lanka PV Photovoltaic RERED Renewable Energy for Rural Economic Development (Project) SEA Sustainable Energy Authority SHS Solar Home System SPPA Standardized Power Purchase Agreement VHP Village Hydro Project Fiscal Year Government: July 1 – June 30 Director-General, Independent Evaluation : Ms\. Caroline Heider Director, IEG Public Sector Evaluation : Mr\. Emmanuel Jimenez Manager, IEG Public Sector Evaluation : Ms\. Marie Gaarder Task Manager : Mr\. Varadarajan Atur  iv Contents Principal Ratings \. v Key Staff Responsible\. v Preface\. vii Summary \. ix 1\.Background and Context\. 1 2\. Renewable Energy for Rural Economic Development (RERED) project \. 7 Objectives, Design, and their Relevance \. 7 Implementation \. 11 Achievement of the Objectives \. 15 Efficiency \. 20 Ratings \. 21 3\. Lessons \. 29 Annex A\. Basic Data Sheet \. 31 Annex B\. List of WB Energy Projects in Sri Lanka \. 34 Annex C: Additional Data Tables and Figures \. 35 Annex D\. List of Persons Met\. 39 Figures Figure 1: Rate of electrification in Sri Lanka (1976-2012) \. 2 Figure 2: Structure of the Electricity Industry in Sri Lanka \. …3 Figure 3: Cost of Power Generation (LKR/kWh) from Various Power Plants \. 5 Tables Table 1: Evolution of Installed Capacity and Peak Demand (2000-12) \. 4 This report was prepared by Varadarajan Atur, who assessed the project in March 2014\. The report was peer reviewed by Raihan Elahi and panel reviewed by Robert Lacey\. Romayne Pereira provided administrative support\.  v Principal Ratings ICR* ICR Review* PPAR Outcome Satisfactory Satisfactory Risk to Negligible to Low Negligible to Low Development Outcome Bank Performance Satisfactory Moderately Satisfactory Borrower Satisfactory Satisfactory Performance * The Implementation Completion and Results (ICR) report is a self-evaluation by the responsible Bank department\. The ICR Review is an intermediate IEG product that seeks to independently verify the findings of the ICR\. Key Staff Responsible Project Task Manager/ Division Chief/ Country Director Sector Director Appraisal Subramaniam V\. Iyer Penelope J\. Brook Mariana Todorova Completion Abdulaziz Faghi Jyoti Shukla Gaye Diarietou  vi IEG Mission: Improving World Bank Group development results through excellence in independent evaluation\. About this Report The Independent Evaluation Group assesses the programs and activities of the World Bank for two purposes: first, to ensure the integrity of the Bank’s self-evaluation process and to verify that the Bank’s work is producing the expected results, and second, to help develop improved directions, policies, and procedures through the dissemination of lessons drawn from experience\. As part of this work, IEG annually assesses 20-25 percent of the Bank’s lending operations through field work\. In selecting operations for assessment, preference is given to those that are innovative, large, or complex; those that are relevant to upcoming studies or country evaluations; those for which Executive Directors or Bank management have requested assessments; and those that are likely to generate important lessons\. To prepare a Project Performance Assessment Report (PPAR), IEG staff examine project files and other documents, visit the borrowing country to discuss the operation with the government, and other in-country stakeholders, and interview Bank staff and other donor agency staff both at headquarters and in local offices as appropriate\. Each PPAR is subject to internal IEG peer review, Panel review, and management approval\. Once cleared internally, the PPAR is commented on by the responsible Bank department\. The PPAR is also sent to the borrower for review\. IEG incorporates both Bank and borrower comments as appropriate, and the borrowers' comments are attached to the document that is sent to the Bank's Board of Executive Directors\. After an assessment report has been sent to the Board, it is disclosed to the public\. About the IEG Rating System for Public Sector Evaluations IEG’s use of multiple evaluation methods offers both rigor and a necessary level of flexibility to adapt to lending instrument, project design, or sectoral approach\. IEG evaluators all apply the same basic method to arrive at their project ratings\. Following is the definition and rating scale used for each evaluation criterion (additional information is available on the IEG website: http://ieg\.worldbankgroup\.org)\. Outcome: The extent to which the operation’s major relevant objectives were achieved, or are expected to be achieved, efficiently\. The rating has three dimensions: relevance, efficacy, and efficiency\. Relevance includes relevance of objectives and relevance of design\. Relevance of objectives is the extent to which the project’s objectives are consistent with the country’s current development priorities and with current Bank country and sectoral assistance strategies and corporate goals (expressed in Poverty Reduction Strategy Papers, Country Assistance Strategies, Sector Strategy Papers, Operational Policies)\. Relevance of design is the extent to which the project’s design is consistent with the stated objectives\. Efficacy is the extent to which the project’s objectives were achieved, or are expected to be achieved, taking into account their relative importance\. Efficiency is the extent to which the project achieved, or is expected to achieve, a return higher than the opportunity cost of capital and benefits at least cost compared to alternatives\. The efficiency dimension generally is not applied to adjustment operations\. Possible ratings for Outcome: Highly Satisfactory, Satisfactory, Moderately Satisfactory, Moderately Unsatisfactory, Unsatisfactory, Highly Unsatisfactory\. Risk to Development Outcome: The risk, at the time of evaluation, that development outcomes (or expected outcomes) will not be maintained (or realized)\. Possible ratings for Risk to Development Outcome: High, Significant, Moderate, Negligible to Low, Not Evaluable\. Bank Performance: The extent to which services provided by the Bank ensured quality at entry of the operation and supported effective implementation through appropriate supervision (including ensuring adequate transition arrangements for regular operation of supported activities after loan/credit closing, toward the achievement of development outcomes\. The rating has two dimensions: quality at entry and quality of supervision\. Possible ratings for Bank Performance: Highly Satisfactory, Satisfactory, Moderately Satisfactory, Moderately Unsatisfactory, Unsatisfactory, Highly Unsatisfactory\. Borrower Performance: The extent to which the borrower (including the government and implementing agency or agencies) ensured quality of preparation and implementation, and complied with covenants and agreements, toward the achievement of development outcomes\. The rating has two dimensions: government performance and implementing agency(ies) performance\. Possible ratings for Borrower Performance: Highly Satisfactory, Satisfactory, Moderately Satisfactory, Moderately Unsatisfactory, Unsatisfactory, Highly Unsatisfactory\.  vii Preface This Project Performance Assessment Report, prepared by the Independent Evaluation Group (IEG), evaluates Sri Lanka’s Renewable Energy for Rural Economic Development Project (2002-2011)\. The project was approved on January 22, 2002 with an IDA Credit (IDA-36731) and GEF Grant (TF-51248) of US$ 75 million and $8 million respectively\. Additional IDA financing of US$ 40 million (IDA-36730) was approved in 2007 to meet the greater than expected demand for financing sub-projects\. The final IDA contribution was US$121 million, about 5 percent higher than planned, while the GEF grant was close to the planned amount of US$8 million\. The total project cost was US$254 million, about 10 percent higher than the original estimate of US$232 million\. The project was restructured twice – first, on October 18, 2010 to reduce the target for the ‘off-grid renewables’ component from 161,000 units to 113,500; and next on June 16, 2011 to extend the closing date by six months to enable ongoing investments to be completed\. The project was closed on December 31, 2011, three and a half years after the originally planned completion date of June 30, 2008\. The project supported the country’s priorities for providing sustainable electricity access to its unserved population, especially for improving the quality of life in rural areas, by utilizing off-grid renewable energy technologies and promoting private sector involvement in renewable energy resources for the main grid\. The project also sought to reduce atmospheric carbon emission by removing barriers and reducing implementation costs for renewable energy and removing barriers to energy efficiency\. IEG considered several factors in choosing this project for an assessment\. Sri Lanka is widely regarded as having made significant progress in improving generation capacity and electricity access over the last decade and as having effectively employed both off- grid and grid-connected renewable energy in the process\. In this effort, the role of microfinance institutions and the private sector is particularly noted\. Collectively, these efforts are seen to have placed Sri Lanka on the road to universal access to electricity, in sharp contrast to the other large countries in South Asia that lag behind in electrification\. The World Bank has played a significant role in supporting the electricity sector in Sri Lanka over the past fifteen years, providing nearly US$300 million for investment, policy reform and technical assistance\. Examining the performance of this project can add to our understanding of the Bank’s role and effectiveness in supporting Sri Lanka’s electricity sector, and can provide valuable feedback for future engagements of a similar nature in this country as well as in other country situations\. The findings and lessons from this assessment will also be an important input to the forthcoming IEG evaluation of the World Bank Group’s Support for Electricity Access\. IEG prepared this report based on an examination of the relevant Project Appraisal Documents, Implementation Completion and Results Report, legal agreements, project files and archives, as well as other relevant reports, documents, memoranda and working papers\. An IEG field mission visited Sri Lanka during March 2014\. Discussions were held with Bank staff in Washington, DC and in Colombo, and government and other  viii officials in Colombo and other locations in the country\. The mission discussed the project’s experience and the effectiveness of Bank assistance with other stakeholders including the project developers, commercial banks, think tanks, independent consultants, citizens, and the Asian Development Bank\. Site visits were undertaken in locations with mini-hydro, community-based micro hydro systems, Solar Home Systems (SHS) in the Ratnapura region\. The mission expresses its appreciation of the generous time and attention given by the Borrower and all concerned parties\. A list of persons met by the mission is in Annex D\. Following IEG practice, copies of the draft report were sent to government officials and implementing agencies, and no comments were received\.  ix Summary This Project Performance Assessment Report assesses the development effectiveness of Sri Lanka’s Renewable Energy for Rural Economic Development (RERED) project\. The project sought to (i) improve the quality of rural life by utilizing off-grid renewable energy technologies to provide energy services to remote communities; and (ii) promote private sector power generation from renewable energy resources for the main grid\. The project also sought to reduce atmospheric carbon emission by removing barriers and reducing implementation costs for renewable energy and improving energy efficiency\. Project performance and ratings The RERED project helped catalyze and scale up grid-connected and off-grid renewable energy with private sector participation\. The project built upon the foundation laid by the Bank’s previous Energy Services Delivery project (1997-2003) for Sri Lanka\. The project also benefited from the Bank’s experience with large renewable energy and energy efficiency projects in Africa and Asia\. The Overall Development Outcome of the project is rated satisfactory due to the improvements in social and economic welfare in rural areas through increased electricity access, and from increased private sector activity in renewable energy; as well as the substantial efficiency with which the project was implemented\. Risk to development outcome is rated low as there is significant on-going private sector activity in renewable energy; and continued use of the majority of solar home systems installed under the project, even alongside newly acquired grid-based electricity\. Bank performance is rated satisfactory based on generally good quality at entry and quick adaptation to changing project, market, and country circumstances\. Borrower performance is rated satisfactory due to steady commitment to the project objectives, and sound project implementation\. Lessons Local participation and involvement, suitably incentivized, is crucial to promoting distributed power generation activities\. Active local participation drove the momentum and successful implementation of the 68 mini hydro projects and the 173 community- based micro hydro projects supported by the project\. The participation came in the form of local political support and the newly-formed village level electricity consumer societies, which were incentivized by opportunities for selling a part of the generation to the grid through ‘net metering’\. Involving the private sector effectively in a decentralized developmental effort requires flexibility in implementation arrangements and space for adapting to market conditions\. In spite of past lessons informing the design of the project, almost all major aspects – financing and disbursement parameters, procurement policies and approach, SHS business model – had to undergo modifications to keep up the pace of implementation\. Without such adjustments, the project would likely have stalled /failed\. An appropriate feed-in-tariffs policy and its consistent and transparent application are crucial to spur growth of small scale and non-conventional renewable energy  x generation\. The low transaction costs enabled by attractive feed-in-tariffs crowded in project developers and investors, as well as commercial/investment banks to develop and invest in a variety of distributed generation projects\. Market confidence was enhanced by consistent and transparent application of the policy by the regulator / government\. Investments in off-grid electrification could be underutilized or even abandoned in the event of a faster than expected arrival of the electricity grid\. To mitigate this, the expansion of the grid should be coordinated with off-grid investments, and, where warranted, the off-grid facilities should be made grid-compatible to ensure their continued utility\. In Sri Lanka, as the electricity grid expanded faster than expected, the decreasing necessity and relevance of off-grid electrification was not foreseen early enough, resulting in some off-grid facilities falling into disuse or neglect\. This experience points to the need for planning ahead for a coordinated access rollout, and making policy and technical provision for making the off-grid facilities grid- compatible and economically viable\. Caroline Heider Director-General Evaluation  1 1\. Background and Context 1\.1 Sri Lanka has become a lower middle-income country, with GDP per capita reaching US$3,194 in 2013, putting the country ahead of others in the South Asia region in this respect\. The country is shifting from a predominantly rural-based economy to an urban economy oriented around manufacturing and services\. Currently, services account for 59 percent of the economy, followed by manufacturing at 30 percent and agriculture at 11 percent\. Growth in Sri Lanka has been inclusive, with poverty rates declining dramatically to 9 percent in 2010 from 22 percent in 2002\. Moreover, inequality in per capita consumption expenditure has declined as reflected by a drop in the Gini coefficient 1 from 0\.40 to 0\.36 between 2002 and 2010\. Sri Lanka notably outperforms the South Asia average on progress towards meeting the Millennium Development Goals\. While South Asia as a whole is on track or is an early achiever for only nine indicators, Sri Lanka manages this for 15 of the 22 Millennium Development Goal indicators\. (WDI 2013) 1\.2 The end of the civil war in 2009 and a well-educated workforce are expected to facilitate Sri Lanka’s economic growth in the coming years\. The Government’s vision for future development, as presented in its 2010 ‘Mahinda Chintanaya’ – Vision for the Future, has targeted GDP per capita of above US$4,000 by 2016 through sustained real growth of over 8 percent per annum\. While economic activity has been mostly private sector driven through strong private consumption and investment, public investment has contributed through large infrastructure projects, including post war reconstruction efforts in the Northern and Eastern provinces\. The economy’s growth is expected to drive up demand for energy, especially electricity\. Energy demand in the industry sector is expected to grow at 3\.0 percent through 2035 and electricity demand in particular may see an even higher rate of increase at 5\.5 percent per year (ADB 2013), driven also by increasing consumption by households\. POWER SECTOR 1\.3 In 2002, nearly 60 percent of the then 19 million population of Sri Lanka had access to electricity and the levels of access varied significantly among regions of the country\. The Western Province had about 80 percent access to electricity while other Provinces (e\.g\. Uva) had less than 30 percent\. 2 1\.4 Recognizing the importance of electrification to the expansion of the economy and for the country’s overall development agenda, the Government set a target of 75 percent electrification island-wide by the year 2007, which was achieved with a year’s delay in 2008\. By end-2012, the access rate had reached 94 percent of households in the country through aggressive grid expansion\. The Government plans to provide access to the remaining unconnected population within the next couple of years to reach universal 1 Gini coefficient measures the degree of inequality in the distribution income in a country\. The more nearly equal a country's income distribution, the lower its Gini index 2 Ministry of Finance; Ministry of Power and Energy\.  2 access status\. About 40,000 households in remote areas are identified for off-grid options, including solar, mini-/micro-hydropower\. Figure 2 Rate of electrification in Sri Lanka (1976-2012) 100 90 Households electrified (%) 80 70 60 50 40 30 20 10 0 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Year Source: Ceylon Electricity Board Institutional Structure 1\.5 The Power sector is overseen by the Ministry of Power and Energy (MPE), which is also responsible for policy making\. The Ministry of Power and Energy sets policy goals, targets and broad strategies periodically, including the institutional responsibilities for achieving the same\. The Sustainable Energy Authority (SEA) was established in 2007 under the Ministry of Power and Energy to plan, promote, facilitate and coordinate the development of non-conventional renewable energy (NCRE, e\.g\. solar, wind, biomass, mini- and micro-hydro)\. In 2013, the policy and oversight responsibilities for renewable energy were transferred to the Ministry of Environment and Renewable Energy (MERE); the Sustainable Energy Authority also moved under the MERE\. 1\.6 The power sector is regulated by the Public Utilities Commission of Sri Lanka (PUCSL)\. The PUCSL was set up in 2002 under an Act to regulate infrastructure sectors; currently electricity, water and petroleum industries are under the purview and responsibilities of PUCSL\. In the power sector, PUCSL has since gradually developed capacity to carry out its responsibilities covering several aspects, namely, consumer protection, tariff setting, dispute resolution, licensing, performance standards, grid code, etc\. The PUCSL also set feed-in-tariffs for non-conventional renewable energy, approved standard power purchase agreements and net-metering regulations\. These functions are typical and represent the core of regulations for a sector\. 1\.7 The electricity supply is dominated by the Ceylon Electricity Board, which is a vertically integrated utility responsible for generation, transmission and distribution\. The Ceylon Electricity Board is functionally organized into separate generation, transmission and several distribution entities within its corporate structure, which adopt power sales agreements for entity level activity and performance tracking\. Among the distribution entities, Ceylon Electricity Board also owns majority shares in the Lanka Electricity  3 Company (LECO), which is a private limited company established in 1983 to carryout retail sales to certain industry customers and large domestic customers\. Lanka Electricity Company distributes about 10% of Ceylon Electricity Board’s total sales\. In the generation, there are a number of independent power producers (IPPs) who supply to the Ceylon Electricity Board\. The Energy Policy of 2008 contemplated unbundling of the Ceylon Electricity Board into separate generation, transmission and several distribution companies and stops short of introducing competition in the electricity market\. The schematic of the current industry structure is shown in Figure 2 below\. Figure 2\. Structure of the Electricity Industry in Sri Lanka Source: PUCSL Annual Report, 2012 Demand-Supply Balance 1\.8 Sri Lanka is the only country in the region to have installed adequate generation capacity to meet demand\. The evolution of demand and supply capacity over the 2000- 2012 is summarized in Table 1 below for select years\.  4 Table 1: Evolution of Installed Capacity and Peak Demand (2000-12) 2000 2005 2010 2011 2012 Installed Capacity (MW) Major Hydro 1,137 1,207 1,207 1,207 1,357 Thermal 685 1,115 1,389 1,689 1,695 NCRE 16 89 221 244 315 Total (MW) 1,838 2,411 2,818 3,141 3,368 Maximum Demand (MW) 1,748 1,955 2,163 2,146 Gross Generation (GWh): Major Hydro 2,813 3,222 4,988 4,018 2,727 Thermal 3,512 5,339 5,063 6,896 8,416 NCRE 47 282 731 725 735 Total (GWh) 6,372 8,844 10,738 11,628 11,879 Sales (GWh) 5,443 7,253 9,209 9,990 10,407 System losses (%) 14\.6% 17\.2% 14\.2 14\.1% 12\.4% Ave\. Revenue (LKR/kWh) 4\.85 7\.99 13\.10 13\.42 15\.73 Ave\. Revenue (US cents/kWh) na 7\.83 11\.79 11\.78 12\.27 Source: SEA Statistics (2012) 1\.9 Sri Lanka’s power supply is heavily reliant on thermal power plants, mostly oil- based\. The share of oil-fired power gradually increased from 1995 and quickly reached 54\.2 percent in 2000, and has since stayed around 50 percent\. 3 Most of the country’s hydropower resources have already been developed\. The country has no domestic production of coal, crude oil, or natural gas, and as a result all the fossil fuel demand is met through imports\. The high reliance on oil-fired power, together with growing international oil prices, has pushed up the cost of electricity generation, whereas the tariff adjustments, though aggressive, lagged the levels required for full-cost recovery\. For example, in 2011 and 2012, the average revenue / tariff levels were approximately LKR 2\.20/kWh below the level that were necessary for the Ceylon Electricity Board to avoid operating losses 4\. The April-2013 tariff adjustment expected to result in average tariff of LKR 17\.73 to 18\.60/kWh 5, and hence the 2013 financial outcome for the Ceylon Electricity Board and the sector is expected to be positive\. 1\.10 In parallel with tariff adjustments, and in response to rising power generation costs, the Government supported the construction and operation of two coal-fired power stations with a total capacity of 1,400 MW, of which 300 MW in the first phase of the Norochcholai coal-fired power plant was already commissioned in 2011; an additional 600 MW of capacity is under construction\. Since a large part of the cost is attributed to oil-based generation to meet peak power demand, base load coal power plants are unlikely to lower the overall supply costs significantly, whereas non-conventional renewable energy plants should be able to replace the oil-based peak load power plants, thereby helping lower the costs of supply (see Figure 3 below)\. On the tariffs side, the average level for 2013 is estimated to exceed US cents 14\.0/kWh, the highest in South 3 International Energy Agency Statistics; IEA\.org 4 Author’s estimate using CEB operating statements 5 Based on CEB and PUSLK documents  5 Asia\. Increasing further to cover higher fuel costs would likely be difficult for socio- political reasons and Sri Lanka has opportunities to explore and realize cost reduction in electricity supply\. Therefore, the growth and diversification of sources of electric power generation that also lower average cost of supply is an urgent issue for Sri Lanka’s power sector\. Figure 3: Cost of Power Generation (LKR/kWh) from Various Power Plants Source: PUCSL Reliability and Quality of Supply 1\.11 Sri Lanka’s power system losses (see Table 1 above) indicate an improving trend and the level of losses at about 12\.4% in 2012 is not unusually high for a rapidly growing network in developing countries, but could be further improved\. According to Enterprise Survey (2011), the number of electrical outages in a typical month stood at 4\.1 (compared to 18 for South Asia) and the duration of a typical electrical outage was 1\.1 hours (compared to 1\.2 in South Asia)\. This is also corroborated by a survey by World  6 Economic Forum 6 which showed consistent improvement in quality of electricity supply from 2006 through 2013\. The index 7 was at 3\.8 in 2006 and improved to 5\.0 by 2012\. World Bank Group support for Sri Lanka’s electricity sector 1\.12 The World Bank has played a significant role in supporting the electricity sector in Sri Lanka over the past two decades providing nearly US$300 million for investment, policy reform and technical assistance\. The Energy Services Delivery project (1997- 2003) financed by the World Bank and Global Environment Facility (GEF) demonstrated that off-grid systems – such as solar home systems (SHS) and community-level independent grids – were a viable option to serve the population living in remote rural communities where the grid had not reached\. It also demonstrated that mini-hydro and other renewable energy technologies such as wind and biomass had potential to contribute to the energy mix in the grid and could add diversity to electricity generation\. As renewable energy technologies use indigenous resources, this would lead to a reduction in the import of fossil fuels for power generation\. The Energy Services Delivery project had also proven to be a catalyst for engaging the private sector to invest in renewable energy development\. 1\.13 IFC has contributed through a program called PADGO or Portfolio Approach to Distributed Generation Opportunity\. The IFC supported an innovative risk sharing facility with two commercial banks, in combination with advisory services, in supporting small hydro and wind power projects with total installed generation capacity of 65\.4MW thus far, enabling 72,000 MT GHG emissions reduction yearly\. IFC has also provided direct financing for wind power generation\. 1\.14 Building upon the earlier Energy Services Delivery project, the RERED project helped scale-up renewable energy with participation of private sector investors and financing in a significant way\. Across the stakeholders group, the RERED project remains the pioneer in establishing the framework for private sector led renewable energy development in Sri Lanka, institution and capacity building, and as a catalyst for critical policy development in the sector\. Deepening the liquidity in the financial sector for much longer-term financing that is more suitable for financing utility scale renewable energy projects is a pressing need in Sri Lanka\. Such financing would not only lower the annuitized tariffs, but also help Sri Lankan project developers to compete with international bidders for such types of power plants, e\.g\. large solar and wind farms being prepared\. 1\.15 In the following sections, the RERED project is assessed, followed by lessons drawn from the overall project experience\. 6 World Economic Forum (WEF): The Global Competitiveness Index data platform\. Available at http://www\.weforum\.org/issues/competitiveness-0/gci2012-data-platform/ 7 The index measured the response to: “How would you assess the quality of electricity supply in your country (lack interruptions and lack of voltage fluctuations)?”[1=insufficient and suffers frequent interruptions; 7=sufficient and reliable]\.  7 2\. Renewable Energy for Rural Economic Development (RERED) project Objectives, Design, and their Relevance OBJECTIVES 2\.1 According to the Project Credit Agreement (June 12, 2002), the project development objectives were to (i) improve the quality of rural life by utilizing off-grid renewable energy technologies to provide energy services to remote communities; and (ii) promote private sector power generation from renewable energy resources for the main grid\. 2\.2 The global environment objective as stated in the Project Appraisal Document was to reduce atmospheric carbon emission by removing barriers and reducing implementation costs for renewable energy and removing barriers to energy efficiency\. There is no statement of the global environment objective either in the Project Credit Agreement or the GEF Project Agreement 8 documents\. RELEVANCE OF OBJECTIVES 2\.3 Relevance of the project development objectives is rated High\. The objectives of the project were highly relevant to Sri Lanka’s priorities, the Bank’s partnership strategy, and global energy and climate concerns, both at the time of project appraisal and project completion\. 2\.4 The grid-connected renewable energy development under the project is in line with the Government’s October 2006’ National Energy Policy and Strategies of Sri Lanka’ 9 which sought to: (i) provide basic energy needs; (ii) improve energy security; and (iii) use indigenous resources for these purposes\. It is also consistent with the Government’s ‘Mahinda Chinthanaya – Vision for the Future’ which commits to increasing generation from renewable energy (excluding large hydro) to 20 percent of total generation by 2020 corresponding to about 4,000 GWh/year (or approximately 1300 MW in installed capacity)\. The off-grid effort under the project remains highly relevant to the Government’s priorities: to achieve a 100 percent electrification goal, the Government has been investing significantly in network expansion, including off-grid means to electrify roughly 40,000 customers who are “beyond the last mile,” and adding new generation capacity\. 2\.5 While the foundations had been laid for sustainable growth of the renewable energy industry in Sri Lanka – to which the Bank‘s earlier Energy Services Delivery project had contributed significantly – critical barriers still needed to be addressed to maintain the momentum: the relatively small size of the market; lack of a level-playing 8 The GEF Project Agreement refers to the “the objectives of the Project as set forth in Schedule 2 to the Development Credit Agreement’, but there is no statement to be found there\. 9 Government of Sri Lanka: Gazette Notification No\. 1553/10 – June 10, 2008  8 field for private sector participants; limited access to long term financing with domestic fund mobilization being mainly short term; integrating renewable energy in the country’s overall electrification strategy; and establishing a sustainable and transparent basis for subsidies for rural electrification\. 2\.6 The project continues to be relevant to the latest Country Partnership Strategy (FY2013-16) that supports sustained private and public investment; and improving living and standards and social inclusion\. The project was also consistent with the World Bank’s Country Assistance Strategy (FY97-99) which included promotion of sustainable private-sector led growth; increasing efficiency in delivery of infrastructure, especially in rural areas; preserving the environment; and working closely with communities and non- Governmental Organizations (NGOs) to generate development solutions\. The project objectives were also aligned with the GEF Operational Program 6 which covers promoting renewable energy by removing barriers and reducing implementation costs\. The development of grid-connected renewables responds to the 2009 Country Assistance Strategy goals of improving infrastructure provision, improving the business environment for stronger entrepreneurship and knowledge-based economy, and improving economic opportunities in North and East of the country\. DESIGN 2\.7 The project financed investments in renewable energy, energy efficiency and demand side management as well as technical assistance to support capacity building and implementation, and M&E surveys\. Component 1\. Grid-Connected Renewable Energy Power Generation (At appraisal: US$150\.3 million; At completion: US$204\.9 million): Continuation of refinancing support for mini-hydro projects provided under the preceding Energy Services Delivery Project, and support for two other commercially available renewable energy sources - wind and biomass, to result in an increase of nearly 85 MW of grid-connected small-scale renewable energy capacity\. • Mini Hydro Projects: In addition to a pipeline of eight projects, totaling 39 MW, in an advanced stage of development, an additional 20-25 MW\. • Wind Projects: Commercialization and up-scaling of wind development, including exploring the possibility of off-shore development\. Technical assistance would be provided for business development, feasibility studies, and off-shore resource assessment\. • Biomass: Support the marketing of viable grid-connected biomass projects\. Focus initially on small-scale co-generation/gasification projects in the coconut and tea-industry and on larger scale projects with potential biomass plantations\. Technical assistance for business development, feasibility studies, and regional trade shows, as well as longer term financing for developers through the Participating Credit Institutions (PCIs)\. Additional support for pilot biomass gasification investments was to be determined and implemented during the life of the project\. Subprojects anticipated were one 8 MW project (coconut-based) and about 4-5 smaller biomass generators in the range of 1-2 MW based on wood waste (from saw mills) and/or new plantations\.  9 Component 2\. Solar PV Investments (At appraisal: US$63\.7 million; At completion: US$43\.7 million): Credit and grant support for solar PV investments for household, commercial, and institutional use to enable the market to become fully commercial\. In particular, the Project's proposed refinance, grant, and technical assistance support would seek to solidify the existing middle-range solar home system market and expand service to other applications such as: (i) smaller systems accessible to poor households; and (ii) community applications for health clinics, schools, street lighting, etc\. Further capacity building would be provided in respect of micro-finance institutions and other household financing organizations serving limited communities to expand credit access\. These measures would enable Sri Lanka to achieve the indicated target of 85,000 solar systems\. Component 3\. Independent Grid Systems (At appraisal: US$5\.3 million; At completion: US$2\.6 million): Support further commercialization of village hydro and other community-based independent grid systems through refinancing and grant support for investments and project preparation support\. Additionally, technical assistance would address such issues as daytime electricity use for income generation activities and mechanisms for disposal of assets once an area served by an independent grid is connected to the national system (stranded assets)\. The status of independent grids within the sector reform agenda would also be emphasized in the broader sector technical assistance\. The indicative target was access for 15,000 new households and enterprises through independent grids - village hydro projects, as well as projects based on biomass and other technologies, where feasible\. Component 4\. Energy Efficiency and Demand Side Management (DSM) (At appraisal: US$2\.0 million; At completion: US$0\.3 million): Provide TA and limited credit support for further private sector development for provision of energy efficiency services, including a framework for integrating sustainable implementation of such programs into sector reforms\. It was envisioned that responsibility for energy efficiency/demand-side management (DSM)-related policy and regulatory issues, as well as implementation of public-policy type DSM programs would rest with the Government, regulator, or utility, while private sector enterprises such as Energy Service Companies (ESCOs) would implement commercially viable energy efficiency projects\. Component 5\. Cross-sectoral Energy Applications (At appraisal: US$4\.9 million; At completion: US$0\.04 million): Provide rural enterprises credit support for larger systems\. Provide TA to service institutions for the development of energy, and standardized energy packages to create awareness and to integrate energy provision into improved service delivery\. In addition, co-financing support would be provided for investments in selected areas\. Commercial/institutional support would include TA aimed at mainstreaming productive applications in off-grid systems\. The project sought to connect at least 1,000 institutional and commercial systems, spurring interventions that are critically important in restoring economic development in the country's northern and eastern areas\. Component 6\. Technical Assistance (At appraisal: US$5\.7 million; At completion: US$2\.3 million): In addition to the component-specific assistance described above, technical assistance under the Project was projected for the following activities: project administration/ promotion; subproject promotion/development support; technology/  10 market introduction/ promotion/capacity building related to renewable energy and energy efficiency; cross-sectoral energy applications; sustainability; and monitoring and evaluation\. 2\.8 Additional financing: Following a mid-term review in 2005, which noted an increase in demand for independent power projects, an additional financing of US$40 million was approved by IDA in 2007\. 2\.9 Project Restructuring: The first restructuring (level 2, implying that project objectives were not changed), which was carried out on October 18, 2010, revised the end-of-project target for component 2 (‘off-grid renewables) from 161,000 households, small and medium enterprises and public institutions to 113,500 as recommended by the Ministry of Power and Energy\. The Bank considered the reduced target was appropriate given the faster than anticipated pace of grid expansion, which reduced the demand for off-grid renewable solutions\. A second restructuring (level 2; June 16, 2011) extended the closing date by 6 months\. This was necessary to enable ongoing investments to be completed and to make up for the delay in effectiveness of the Additional Financing credit\. Relevance of Design 2\.10 Relevance of project design is rated Substantial\. The Project had two distinct objectives, the first to improve the quality of life in rural areas through provision of off- grid electricity, and the other to augment generation capacity for the grid through promoting private sector involvement in renewable energy resources for the main grid\. Both the objectives were united by the focus on renewable energy, and on augmenting the available generation capacity in the country\. The global development objective of decreasing Greenhouse Gas (GHG) emissions derived from the use of renewable energy to displace fossil fuels\. 2\.11 In tracing the results chain, provision of off-grid rural electrification was an appropriate choice based on the assessment – at appraisal – of the speed at which the grid was expanding to rural areas\. The provision of off-grid electricity would give a jump- start to the rural areas distant from the grid, to experience the expected social and economic benefits from rural electrification\. In retrospect, the pace of grid expansion turned out to be much faster than anticipated due to greatly increased emphasis on grid expansion by the Ceylon Electricity Board with the support of Government 10 during the project implementation period\. 2\.12 Given the limited options for expanding generation capacity (Sri Lanka has low indigenous fossil fuel resources and has exploited most of its large hydro potential) the choice or pursuing new renewable sources (Mini-hydro, Solar, Wind, Biomass) to feed the grid was appropriate, as these would help replace higher cost liquid fuel based power plants\. Also, because of the distributed nature of such resources, the potential for local development and savings in GHG emissions was significant\. 10 The AU pointed out that national integration was an important goal pursued by the Government, which also helped faster grid expansion\. e\.g\. during 2008-12, the access increased by nearly 20% (from 75% to 94% of households)  11 2\.13 The inclusion of energy efficiency as a small component was expected to help consumers through reduced consumption and bills, and the utility by rationalizing load management and supply\. In retrospect, this component did not fit into the overall design and objective, although a more broad-based intervention would still be necessary to effectively address the issues, institutions and processes for orienting consumer behavior towards energy efficiency, which is also borne out from experience with other Bank projects\. Implementation Planned vs\. Actual Costs 2\.14 The project cost at completion was US$254 million, about 10 percent higher than the planned US$232 million\. The increase resulted from revised output targets during implementation, and also due to exchange rate variations\. Almost all of the additional financing of US$40 million was provided to the grid-connected renewable generation and solar PV components\. The two components accounted for about 97\.5% of total expenditures\. The grid connected hydro and wind power investments incurred about 36% more total costs and corresponding allocation than was envisaged at appraisal\. 2\.15 The independent grid systems component was relatively small in terms of expenditures (approximately 1 percent)\. The expenditures under the remaining components were far lower than estimates\. The component on cross-sectoral energy applications was not implemented as the greater than expected grid expansion during the project implementation period made these activities either less useful or unnecessary\. Implementation Experience 2\.16 The project was approved on June 20, 2002 and became effective as scheduled on October 7, 2002\. The project was implemented through an Administrative Unit (AU) located in the DFCC Bank, a commercial entity, which continued the role that it had played under the prior Bank’s Energy Services Delivery project\. The project was ultimately extended by three and a half years – for reasons explained in the following paras – and closed on December 31, 2011\. 2\.17 A mid-term review was carried out in September 2005, which noted that the grid- connected renewable energy effort (component 1) was behind schedule, and that the independent grid systems (component 3) were facing constraints\. The delays related to dealing with sub-stations that had reached their maximum capacities, obtaining required approvals from the Central Environmental Authority and other agencies, and acquiring land\. The mid-term review made recommendations to overcome these constraints, which required the cooperation of the Ceylon Electricity Board and Central Environmental Authority\. Financing terms and procurement issues 2\.18 Following remedial actions through the mid-term review, the Participating Credit Institutions encountered problems with refinancing subprojects\. As per the participation agreements, a Participating Credit Institution to which refinance had been committed by  12 the Administrative Unit or AU located in the DFCC Bank, (which was the implementing agency for the project) would face cancelation of the refinance if there was no offtake for 12 months\. This long interval increased the prospect of other needy Participating Credit Institutions being blocked from refinance, and leaving them little time to apply after unused funds was released\. To address this issue, the Bank and the AU agreed in 2008 to allow refinancing requests on a first-come first-serve basis until the available funds were exhausted\. This modified approach resulted in an increase in disbursements and ensured that the IDA Credit would be fully disbursed by the closing date of the project or during the grace period\. 2\.19 Subsequently, the Participating Credit Institutions found that the interest rate stipulated by the project was not in line with prevailing market interest rates\. The original IDA Credit and GEF grant agreement stipulated an interest rate to Participating Credit Institutions that was based on a six-month average of the Average Weighted Deposit Rate (AWDR)\. After additional financing was approved, this was changed to a blend of AWDR and the Average Weighted Fixed Deposit Rate (AWFDR), with the intention of bringing the interest rates closer to market rates\. However, market interest rates began to rise soon after, putting upward pressure on the financing terms for renewable energy project loans, which resulted in a considerable decline in loan applications 11\. Even after market rates began to decline rapidly in the second half of 2009, the refinance was slow to adjust because it was adjusted only every six months\. To address this matter, the Bank agreed to speed up this adjustment to three month intervals\. This helped to improve the flow of loan applications and financing of sub-projects increased\. 2\.20 Many project sponsors and Participating Credit Institutions determined that the requirement to use International Competitive Bidding (ICB) procedures for small value projects resulted in delays and sometimes in cost overruns\. The thresholds set in 1997 under the previous Energy Services Delivery project were carried over to this project without taking into account the sustainable price increases since then\. Hence, the thresholds for the procurement of goods, works, and turnkey contracts was increased in mid-2009 from US$ 2 million, 3 million and 5 million respectively to US$ 6 million, 9 million and 15 million, above which ICB would apply\. Both Participating Credit Institutions and project sponsors met by the mission underscored this point and also expressed their appreciation of the Bank’s responsiveness in this regard\. Impact of grid expansion on solar PV component 2\.21 Under component 2, sales of SHS fell from 2,000 per month in 2005 to 800 per month in 2008\. The shrinking of the market was caused by a rapid expansion of the grid during project implementation and by a reduction or cessation of SHS loans from financial institutions as the rate of defaults on loans began to rise sharply\. Customers who had purchased SHSs stopped payments when they were connected to the grid, which offered functionally superior energy for their applications and needs\. The Participating Credit Institutions could not resell or salvage the repossessed SHSs effectively\. Responses to resuscitate this segment such as importing of more cost-effective systems, 11 Commercial Banks met by the mission indicated that project cash flows were sensitive to interest rates in many cases\.  13 and more radical changes to business model by shifting to cash sales and modification of the sales services networks were unsuccessful\. By 2009, the AU and the Bank realized that the targets for solar PV component sales would not materialize, and finally in late 2010 the target for the off-grid renewables component was reduced from 161,000 households, enterprises and institutions to 113,500\. Ultimately the number of solar PV vendors fell from 14 to 2 12 due to market forces\. The current vendors are supplying SHS systems on a cash basis or providing credit on their own to consumers\. Capacity issues with certain project developers 2\.22 Under the component for Independent Grid Systems (component 3) there were issues related to the quality and technical capacity of some of the village hydro developers and equipment suppliers\. Project preparation grants were made available for village hydro projects, to be released in instalments on reaching agreed milestones\. The Participating Credit Institutions found that many such grants made initially were not resulting in timely project preparation activities and/or viable projects\. This matter was addressed through the introduction of a pre-qualification process for all village hydro developers and suppliers, mandatory testing of equipment prior to installation, and stricter oversight\. This led to better utilization of grant funds, fewer number of incomplete projects and overall, a more efficient implementation of the village hydro component, as noted by the AU\. Poor uptake of energy efficiency and cross-sectoral energy applications 2\.23 There was little demand for Energy Efficiency and DSM (component 4) which sought to support energy efficiency sub-projects and awareness campaigns\. The main reason for this was that the Environmental Friendly Solutions Fund (E-Friends) supported by Japan International Cooperation Agency, offered similar support at better terms than the Bank\. The AU decided to focus its attention on the more significant components with potentially larger impacts on the achievement of the project development objectives and the global environmental objectives\. However, the allocation to this component was increased by US$0\.5 million at the time of additional financing\. 2\.24 The cross-sectoral energy applications (Component 5) also had limited demand\. The grid was expanding rapidly and most rural public institutions such as schools and hospitals were gaining access to grid electricity and, as such, a long term renewable energy-based solution was not a priority\. AU also did not push this component and devoted its attention to the main (larger) components, namely 1 and 2\. The allocation to this component was unchanged at the time of additional financing\. Counterpart funding by Government 2\.25 During project implementation, the Government requested that the percentage of expenditures financed for the technical assistance categories of the IDA Credit and GEF Grant be increased to 100 percent\. This was due to the difficult fiscal situation at that 12 One microfinance and guarantee company (Sarvodaya) and a solar company (Wisdom Solar) have been resilient and indicated their resolve to capture the remaining off-grid market, especially in the northern region of the country\. They also indicated the prospects for expanding solar street lighting with municipalities\.  14 time which was further aggravated by the global economic crisis\. At the height of the military conflict, solar subsidy payments were delayed by the Government, resulting in severe cash flow problems to SHS vendors\. This often resulted in payment delays to suppliers and reputational risks for the Bank\. The increased financing facilitated the implementation of a critical technical assessment of the power grid absorption capacity as well as capacity building activities and other technical assistance geared towards scaling- up investments in new renewable energy technologies such as wind and biomass\. The increase in expenditures was covered by a reallocation of non-utilized funds from other categories\. Restructuring and additional financing 2\.26 The Bank was generally responsive to the emerging implementation issues and helped resolve them as noted above\. The Bank also responded with additional financing of US$40 million to scale up the components in demand\. With an average gestation period of about two years from inception to commissioning, the Bank also approved a three-year extension to the closing date (up to June 30, 2011) to allow sufficient time for the additional financing credit to be committed and disbursed\. 2\.27 A second project restructuring was carried out in June 2011 to extend the closing date further by 6-months to December 31, 2011\. This was partly to make up for the delay in effectiveness of the Additional Financing credit, and generally to allow activities that were under implementation to be completed and to ensure satisfactory closure of the project\. 2\.28 Safeguards\. The project was placed in Category B under the Bank’s environmental and social safeguard policies\. The proposed project was expected to yield net positive environmental effects\. The off-grid electrification sub-projects would reduce use of kerosene and lead-acid automotive batteries\. No significant negative impacts were expected from the run-of-river village-hydro projects, as demonstrated by the 20 existing village hydro projects\. Because of their small size, the grid-connected mini-hydro sub- projects were also unlikely to cause significant environmental damage\. No resettlement was envisioned because the project did not involve land acquisition with settlements\. 2\.29 IDA had required prior review of: (i) all biomass projects; (ii) mini-hydro projects with a capacity of more than 5 MW; (iii) wind projects with a capacity of more than 10 MW; (iv) all projects involving land acquisition and/or resettlement; and (v) the first two environmental assessments of each Participating Credit Institution for mini hydro, biomass and wind power projects\. Mini-hydro subprojects would be reviewed by the Central Environment Authority for compliance with environmental policies\. Participating credit institutions would ensure that project sponsors obtain GOSL and IDA-mandated environmental clearances, where necessary\. 2\.30 Discussions with the project’s task team during the PPAR mission confirm that the AU followed these procedures diligently\. In addition, the AU contracted consultants to conduct environmental and social assessments of every grid connected sub-project before approval, and on a sample basis after commissioning, which also included site visits\. Based on these assessments, two projects were denied refinancing because of non-  15 compliance with environmental safeguards\. An environmental review for a Pilot Wind Farm confirmed that it would have minimal environmental impacts, entailed no relocation of local population and would be located more than one mile outside the Bundala and Yala wildlife reserves\. Overall, the task team reports that the project was in compliance with the Bank’s environmental and social safeguards requirements\. 2\.31 The discussions with the Participating Credit Institutions indicated that the project had enabled their institutions to develop knowledge, skills and approach to handling safeguards issues in energy projects\. One wind project sponsor felt that the paper work involved due to specific requirements of World Bank over and above the government regulations and requirements was excessive\. 2\.32 Financial Management\. The AU had well-established procedures for approval of disbursements of loan and grant resources and adequate financial management (FM) staff with sufficient capacity to undertake those responsibilities\. Participating credit institutions were required to submit refinancing application packages comprising a complete set of documents\. The Refinance disbursements were made only after providing proof that Participating Credit Institutions had already disbursed their loans to developers and such funds were utilized for the stated purpose\. Co-financing grants were disbursed on submission of proof of installation\. Other grant payments were generally based on reaching specified verifiable milestones\. Verification of installation of SHS was carried out on a sample basis\. The Task team reports that these verifications did not find any indication of unjustified payment requests\. The AU kept detailed records on all payments made\. To ensure adequate fiduciary controls, IDA reviewed: (i) the first two refinancing requests, irrespective of size, submitted by each Participating Credit Institution; (ii) refinancing applications above US$ 3\.5 million; (iii) each Participating Credit Institution’s first solar home system refinancing request; (iv) each Participating Credit Institution’s first grid-connected hydro, wind and biomass refinancing request; and (v) each Participating Credit Institution’s first village based hydro, wind and biomass refinancing request\. The task team confirmed that there were no qualified audits\. Achievement of the Objectives OBJECTIVE 1: IMPROVE THE QUALITY OF RURAL LIFE BY UTILIZING OFF-GRID RENEWABLE ENERGY TECHNOLOGIES TO PROVIDE ENERGY SERVICES TO REMOTE COMMUNITIES\. Rated Substantial\. Outputs 2\.33 The original target formulated at appraisal was to provide 161,000 households, rural small and medium enterprises and public institutions access to electricity services through off-grid renewable energy schemes\. In the following years, a greatly increased emphasis on grid expansion by the Government resulted in an increase of grid connected domestic customers from 2\.82 million in 2004 to 3\.96 million by 2010 – an increase of 1\.14 million\. Presently, grid electrification now serves 94 percent of households making off-grid less relevant than originally anticipated at Project Appraisal\. In response to these developments, the target was reduced to 113,500 based on the forecast demand for off- grid electrification\. The final accounting for off-grid electrification showed that the  16 project had provided access to electricity to 110,575 households through the sales of SHS while 6,220 households were electrified through independent grid systems, mainly village hydro\. In total the project provided 116,795 households access to electricity, which exceeded the revised target by a small margin\. 2\.34 Of the 110,575 SHS sold to rural households an estimated 20,000 had to be repossessed because households defaulted on their loans\. In general, the Participating Credit Institutions only repossessed the modules which were deemed as their only collateral\. The value of the repossessed modules was insufficient to recover the outstanding balance\. Further, a small number of SHS and village hydro systems are no longer used because the households have since been connected to the electricity grid\. On the other hand, while several village systems have now been connected to the grid, under a net-metering scheme similar to a Standardized Power Purchase Agreement but for smaller systems, the off-grid village systems connected to the grid can now sell power to the utility at an agreed tariff\. This is a win-win situation for the village-communities who have invested money and sweat equity into their off-grid systems as they can now benefit from the reliability of the national grid, while continuing to earn revenues from the sale of electricity generated by their village hydro schemes back to the utility at an agreed tariff\. Following the pilot scheme adopted by a village hydro (21 kW at Athuraliya village in Ratnapura), net metering spurred the growth of distributed renewable energy projects\. Outcomes 2\.35 Feedback to the IEG mission from beneficiaries in the field confirms that access to electricity for the first time – both from SHS and the grid – has had a transforming effect on their lives\. The more significant impacts on the quality of life appear to have come from better lighting and use of television, even though newly electrified households and small businesses activities have indicated little improvements in income\. 2\.36 The Bank team attempted to capture outcome data for the project during implementation through surveying 1,500 households, small/medium enterprises and public institutions targeted for electrification from the original IDA Credit (1,000) and the Additional Financing (500)\. The results of the surveys are summarized in the "Completion Report" which reports on achievements in the period September 2004 to September 2008\. 13 2\.37 The surveys had found that even in small quantities, electricity consumption brings about significant lifestyle changes in families, mainly by making home life more convenient and housework easier\. One finding from the surveys, which was confirmed by this mission’s conversations with beneficiaries, is that while access to electricity does not reduce the overall work load of women, it makes their work easier\. Off-grid electricity is also extensively used for watching television, leading to more awareness of the outside world, in addition to providing entertainment\. This is considered the next highest benefit of electricity as it serves to bring remote rural communities closer to the outside world\. 13 Resources Development Consultants (Pvt) Ltd\.: Monitoring and Evaluation of the Renewable Energy for Rural Development Project\. September 2004 - September 2008\. Completion Report submitted to RERED AU\.  17 Further, the level of social interaction within households and communities increase with electricity, which contributes in numerous ways to social capital development\. Men spent more time with the family (80 percent of the respondents in surveys) and reduced time spent outside of the house including alcohol consumption in the evening (20 percent of respondents)\. 2\.38 One home owner conveyed that the lighting has given a feeling of safety for her and her children\. This point was also found in the survey when villagers reported that they feel safer (60 – 87 percent of the respondents of different surveys) and an increase in socio-cultural activities resulting from the presence of electricity at religious places in the villages (80 percent of the respondents)\. The use of computers was also observed in a few houses electrified by village hydro schemes\. 2\.39 Contrary to expectation, the availability of electricity did not stimulate the development of new enterprises\. However, it improved operation of existing enterprises\. According to reports from Participating Credit Institutions and consultants, access to electricity improved economic activities of 742 (household) enterprises or 0\.6% of total number of electrified households\. Economic activities that benefited from access to electricity include grocery shops, bakeries, battery-charging stations, communication centers, computer training centers, grinding/rice milling and cinnamon processing\. 2\.40 Not all rural households using off-grid schemes have benefitted from the expansion of the national grid as approximately 40,000 households are expected to still remain without access to the national grid (including some who are on small islands\.) This is in addition to thousands who are still using off-grid schemes or other means such as kerosene for lighting today\. However, for those who have benefitted from faster than anticipated grid expansion this was a positive development as it provides a higher level of services and is more affordable for households\. Off-grid electricity supply provided access to electricity several years before the arrival of the grid to their communities, and for those households who have yet to receive grid power; the off-grid schemes are still very much valued\. On the whole, off-grid installations under the project have demonstrated that SHS and/or independent mini grids are a viable option for rural areas where the cost of grid extension would be prohibitive for the utility\. OBJECTIVE 2: PROMOTE PRIVATE SECTOR POWER GENERATION FROM RENEWABLE ENERGY RESOURCES FOR THE MAIN GRID\. RATED HIGH\. Outputs 2\.41 The target for this objective was the installation of 135 MW of small-scale renewable grid-connected power generation capacity (85 MW at appraisal and 50 MW added under the Additional Financing)\. At completion, the project had supported the installation of about 185\.3 MW grid-connected renewable energy sub-projects\. This included 2 wind projects (19\.8 MW total capacity), 1 biomass project (1 MW capacity) and 68 mini hydro projects (164\.5 MW of total capacity)\. All of these projects are reported to be functioning with the exception of the lone biomass project which stopped operations due to difficulties with fuel supply\. All these projects were promoted by  18 private sector developers, using loans provided by commercial banks participating in RERED\. The Participating Credit Institutions extended loans totaling US$ 122 million (LKR 12\.84 billion), which is on average 59\.5% of total project cost\. The total investment was about US$ 205 million (LKR 21\.55 billion)\. 2\.42 As of end-2013, there were 146 non-conventional renewable energy projects commissioned\. The total installed capacity from those was 367\.3 MW of which about 271 MW (~74%) were mini hydropower based\. In addition, there is a pipeline of about 73 projects for which a Standardized Power Purchase Agreement has been signed between private developers and the Ceylon Electricity Board, and are expected to add about 246 MW when completed\. The total energy generated during 2013 from non- conventional renewable energy capacity was 1169 GWh, which is about 9\.6% of total generation\. Please see Annex C for details\. Outcomes 2\.43 Since the close of the project, investments in new projects have continued as evidenced by the pipeline of projects mentioned in para 2\.42\. Developers have shown a continued desire to undertake private investment in renewable energy generation even after support from the project has ceased, since commercial banks continue to finance these investments\. Sources of funds include private equity, funds raised through stock markets, foreign equity investors and support from a small IFC loan guarantee facility\. The Participating Credit Institutions and IFC indicated to the mission that the project had helped create the momentum for non-conventional renewable energy projects in the country and that there is now competition among banks and investors to invest in these projects\. 2\.44 Feedback to the mission from government officials, Participating Credit Institutions and developers suggests that the project was instrumental in developing a vibrant renewable energy industry in Sri Lanka\. Greater demand for support services is noted, including project development, technical design, construction, equipment manufacturing, and financing, though no specific data was available in this regard\. The project has contributed to the formation of several developer associations, including for solar, wind, village hydro and small hydropower\. The IEG mission met with select developer associations that continue to be active today and play an important role in representing their industry in government, regulatory and other consultations\. The collective feedback from government officials, Participating Credit Institutions and developers supports the claim that Sri Lanka now has a viable renewable energy industry\. A significant number of developers, manufacturers, and financiers are venturing abroad to undertake investments in renewable energy projects in other countries in Asia and Africa\. A few examples include: five Sri Lankan mini hydro developers are now active in East Asia; Lanka Ventures, an equity financier, is investing in mini hydro projects in East Africa; VS Hydro undertakes its own contracting and manufacturing of turbines in Sri Lanka and has investments in Uganda, Tanzania and Kenya\. An 18 MW plant in Uganda uses three 6 MW turbines manufactured in Sri Lanka\. 2\.45 The AU and the Sustainable Energy Authority noted the value added from several technical assistance initiatives under the project\. The regulatory agency (Public Utilities  19 Commission of Sri Lanka) noted that the project had enabled a better understanding of structuring Power Purchase Agreements\. Across the stakeholder groups, the project is credited to have enabled knowledge sharing through periodic consultative meetings, which were reported to have helped many project sponsors and Participating Credit Institutions to fine tune their activities and interventions\. One independent consultant and energy expert noted that this was effective because of the relatively higher level of skills and absorption capacity among institutions in Sri Lanka\. 2\.46 As a result of increased renewable energy activity, rural communities have benefitted from both temporary and long-term employment opportunities from construction and operations of the sub-projects and overall improved infrastructure as Government has undertaken construction of new roads and/or repair of existing ones to facilitate the construction activities for some of these sub-projects\. A number of villages benefitted from piped water supply, construction of houses, school facilities, community centers and improved facilities at places of worship\. Developers carried out these improvements mainly to create goodwill among the villagers, while some were done as compensation payments to the villagers\. GLOBAL ENVIRONMENTAL OBJECTIVE GLOBAL ENVIRONMENTAL OBJECTIVE: TO REDUCE ATMOSPHERIC CARBON EMISSION BY REMOVING BARRIERS AND REDUCING IMPLEMENTATION COSTS FOR RENEWABLE ENERGY AND REMOVING BARRIERS TO ENERGY EFFICIENCY\. 2\.47 The indicators for achieving the global environmental objective were: (i) avoiding emissions of 1\.25 million tons of CO2; and (ii) promotion of the adoption of renewable energy by removing market barriers and reducing implementation cost\. 2\.48 The team’s estimates of CO2 avoidance are straightforward and credible\. Assuming an average carbon emission coefficient for Sri Lanka of 0\.8 kgCO2/kWh 14, the resulting avoided emissions of sub-projects commissioned to date is 1\.84 million tons CO2; surpassing the target of 1\.25 million tons of CO2 by 47 percent (the quantifiable indicator was not increased with the additional financing)\. By estimating the total expected generation from all plants commissioned in 2012 or those expected to be commissioned by year’s end, the volume of avoided CO2 emissions would be 2\.15 million\. The avoided emissions are calculated from the actual renewable electricity production and conservative estimates for the total annual electricity generation over the lifetime of the sub-projects\. The resulting reduction in carbon emissions can also be attributed to the off-grid schemes as well, though these are far smaller in volume than emissions avoided from the grid-connected sub- projects\. The coefficients used for estimates of CO2 evidence at appraisal continue to be valid at present\. Ongoing activity in grid-connected renewables and off-grid renewables following project completion continues to add proportionately to CO2 avoidance\. 14 This value is for marginal power plants which are diesel and fuel oil based, and can be displaced by the new renewables financed under the project\.  20 2\.49 The design of the project also included an engagement on energy efficiency through a small component; however, the limited resources allocated for energy efficiency and demand-side management (DSM) (US$ 2 million equivalent or 0\.9% of the total financing) made a significant impact unlikely\. Moreover, a low interest credit line for energy efficiency extended by the Japan International Cooperation Agency (JICA) made RERED funds far less attractive\. The project therefore did not result in any direct CO2 reductions from the energy efficiency and DSM component\. 2\.50 The removal of market barriers is evident from the additional installed capacity of grid-connected renewable energy, improved all-round sector capacity, and viable private sector activity in this area as describe in the discussion under objective 2 above\. In contrast to the situation prior to the project there is now far greater familiarity and willingness to lend by commercial banks for grid-connected renewable energy projects and the Ceylon Electricity Board is far more oriented to purchasing electricity from grid- connected renewable energy plants\. Efficiency 2\.51 The efficiency of the project in meeting its objectives is rated Substantial\. The economic and financial analysis was based on representative stylized sub-projects from the feasibility study at appraisal, compared with actual projects’ data at close\. Under the financial intermediary mode followed by this project, the verification of the financial viability of the sub-projects within the feed-in tariff regime was the responsibility of the lending commercial banks which also bore the full credit risk of the sub-projects\. 2\.52 Mini-hydropower plants\. Grid-connected mini- and micro-hydropower plants were the dominant investment in the “grid-tied” component\. A mini hydro sub-project was used as a representative project for the economic and financial analyses\. Post completion, the Economic Internal Rate of Return (EIRR) was 46 percent for a representative 2\.5 MW mini hydro plant with an investment cost of US$1,445/kW, a plant factor 15 of 38 percent and an avoided cost of US$0\.252/kWh based on Short-Run Marginal Cost (SRMC) of highest cost thermal plants offset by the mini hydro generation\. The economic analysis at Appraisal for a 1\.5 MW mini hydro plant showed an EIRR of 24 percent\. The higher EIRR is attributed to the higher avoided cost even though plant factor was lower and investment cost higher than at appraisal\. 2\.53 Solar Home Systems\. Households using a SHS save on kerosene for lighting and batteries and receive far superior and safer lighting services from electric lighting compared to kerosene lighting\. Based on a 40 Wp SHS for a representative analysis, the ICR estimated the EIRR at 88 percent when consumer surplus (attributed to the far superior electric lighting) is considered and 13 percent if consumer surplus is disregarded\. There was no EIRR calculated at appraisal for this component\. However, since about 20,000 SHSs were not used by beneficiaries (which is about 18% of all SHSs), spreading the cost of these over the remainder of the SHSs should reduce the EIRR\. 15 The ratio of the average power load of a plant to its rated capacity  21 2\.54 Village hydro plants\. A village hydro plant saves kerosene for lighting and batteries as well as providing far superior and safer electric lighting services compared to kerosene lighting\. Beyond meeting households’ basic electricity needs, they have the potential to meet other electricity needs in the community such as ironing, water pumping, and power for small enterprises\. The EIRR of a representative sub-project was calculated taking into account only savings due to avoided kerosene and battery use as well as consumer surplus gained from using superior electric lighting\. The EIRR for a representative sub-project with a capacity of 8 kW and serving 30 households is 54 percent when consumer surplus is considered and 9 percent if consumer surplus was not considered\. In comparison, the EIRR of a typical village hydro sub-project was reported as 12 percent at Appraisal\. 2\.55 The project cost increase of 10 percent (US$254 million vs\. the original estimate of US$232 million) is in line with the significant upward revision and achievement of targets for grid-connected renewable energy, while noting the decrease in targets and achievements for SHS\. The time overrun of three and a half years on top of the originally planned six and a half years implementation period was due to the increased targets and achievements, and the adjustments that were appropriately made in response to intervening political, financial and market conditions\. As noted in the mid-term review, there were also delays in activities relating to overloaded substations on the part of the Ceylon Electricity Board and granting required approvals by the Sustainable Energy Authority that also contributed to the delay\. Taking all these factors into consideration, efficiency is rated substantial\. Ratings OUTCOMES 2\.56 Overall project development outcome is rated Satisfactory\. Relevance of the project development objective is rated high because of Sri Lanka’ priority and the Bank’s supportive strategy to contribute to rural well-being through improved provision of electricity access and to reduce dependence on imported fossil fuels as a source of electricity\. Relevance of the project’s design is rated high because of its logical approach of leveraging renewable energy sources for both off-grid and grid-connected provision of electricity to improve access and therefore positively impact beneficiaries, especially in rural areas, while displacing the use of fossil fuels\. The Efficacy of the first objective of improving the quality of rural life through off-grid renewable technologies is rated substantial due to significant outcomes from the spread of SHS in unserved rural areas, though this process was overtaken to some extent by the parallel advance of the electricity grid\. The second objective of promoting private sector power generation from renewable energy resources is rated high from the higher greater than expected achievements from various renewable energy sources\. Efficiency of the project is rated substantial (rather than high) mainly due to the avoidable causes that contributed to the significant time overrun, even though the economic rate of returns are very favorable\. Overall Development Outcome of the project is rated satisfactory based on the ratings for relevance, efficacy and efficiency\.  22 2\.57 Global environment outcome\. CO2 emission reductions were greater than expected due the significant lowering of market barriers to renewable energy development and the overall achievement of renewable energy under the project being greater than originally planned\. RISK TO DEVELOPMENT OUTCOME 2\.58 The risk to the improved quality of life from utilizing off-grid renewable energy technologies to bring electricity to remote communities is considered low\. Also, the risk of communities no longer using the off-grid renewable energy technologies for reasons other than the arrival of the grid is low\. Once the users have experienced the benefits of off-grid electrification they are seen to make considerable efforts to maintain this service\. In many cases, the off-grid options may be maintained as a back-up or to reduce the grid electricity bill\. 2\.59 At Appraisal, the Governments’ rural electrification policy envisaged that 20 percent of the population would remain reliant on off-grid electricity supply\. At present, the Government expects to achieve full electrification by 2016, of which a relatively low number of 40,000 households would have to be served by off-grid means\. The Government also targets a share in generation capacity for non-conventional renewable of 15 percent by 2015 and 20 percent by 2020\. By 2013, the generation from non- conventional renewable energy sources had reached about 9\.6 percent\. Apart from the numerical targets, further addition of non-conventional renewable energy is critical for managing the peak load demand as well as replacing expensive oil-based power plants, thereby lowering the average costs of generation\. Hence the sustainability of the project’s outputs and outcomes are very important to the sector’s developmental priorities\. Role and support of Ceylon Electricity Board 2\.60 Stakeholders expressed mixed views to the mission about the Ceylon Electricity Board’s active support for grid-connected renewable energy, mainly attributing this to a lack of consensus among its key constituents and management\. However, there are signs that the Ceylon Electricity Board has emerged from its earlier reluctance towards grid- connected renewable energy\. For instance, the Ceylon Electricity Board has acknowledged that power purchased from small renewable energy plants had saved the utility LKR 2 billion in electricity generation costs in 2010 through reduced expenditure on imported heavy fuel oil and other fossil fuels\. Following the April 2013 tariff adjustments, the Ceylon Electricity Board estimates show that its average selling price could exceed the average purchase cost of energy from non-conventional renewable energy\. Ceylon Electricity Board’s projections indicate that non-conventional renewable energy would be a viable option to pursue in supply cost reduction\. Please see Annex C for details\. Project developers and the Ceylon Electricity Board both have a mutual interest in maximizing renewable energy production, particularly to minimize use of imported fossil fuel as the alternative for electricity generation\.  23 Continuing financing for NCRE projects 2\.61 One major criterion for measuring the impact of this project is the continued lending for renewable energy projects by commercial banks and the initial findings post project completion are very encouraging\. As noted (in para 2\.42) 73 new projects are in the pipeline and would add another 246 MW to non-conventional renewable energy capacity in the country\. 2\.62 Small hydro development is now considered a commercially viable activity by Participating Credit Institutions and developers\. Sufficient technical expertise for this purpose exists within the country\. All this is borne out by the large number of mini hydro projects in the pipeline\. However, development of village hydro without the type of support provided by this project is unlikely while the need is also declining due to rapid grid expansion\. Developers active in village hydro have moved to other areas and some are now providing consultancy services in India and Africa\. 2\.63 Biomass generation, and to a lesser extent wind and solar power generation, are still facing a number of barriers and support to overcome these barriers would be useful\. These barriers include technical (integration with grid issues), regulatory (feed-in-tariffs) and financing (suitable terms) barriers\. The Asian Development Bank is providing technical assistance support in this regard, and indicated its readiness to follow with financial support for investments\. 2\.64 The demand for SHS systems can be positively impacted by the net metering regulations introduced by the regulator (Public Utilities Commission of Sri Lanka) that allow individual SHS customers to offset their payments to the utility with electricity generated from their SHS systems at the retail tariffs\. A few of these schemes (limited to 42 kWp per facility) are now in operation as residential tariffs have recently been increased to as much as LKR 50\.4/kWh (including fuel adjustment surcharge for higher consumption category; currently about US$0\.38/kWh)\. As the Ceylon Electricity Board and the Public Utilities Commission of Sri Lanka continue to fine tune the net-metering regulations, they need to ensure that the boost these have provided to the SHS industry is sustained\. 2\.65 In respect of SHS, only two vendors are currently active out of the fourteen at the peak of sales\. Some of the technicians trained under the Energy Services Delivery and the RERED projects are providing independent after sales services in their areas and the remaining SHS vendors depend on their services to fulfill their obligations\. One vendor (Wisdom Solar) has shown resilience by marketing solar street lamps to municipalities, and capturing business in some remote areas in the northern part of the country, and indicated that their firm is well placed to implement the SHSs and off-grid solutions to the 40,000 homes identified by the Ceylon Electricity Board\. Power plant operating risks 2\.66 There is a risk that some of the grid-connected renewable energy sub-projects might stop operating (mainly for projects where power purchase agreements will be expiring and the tariff offered might be too low to sustain operations)\. For instance, a 1\.8  24 MW mini hydropower plant 16 commissioned in 1989 was reported to have shut down from being unable to meet operating costs due to low tariffs\. The Public Utilities Commission of Sri Lanka showed understanding in this situation and resolved this issue, after considering the impact it could have on the whole non-conventional renewable energy segment\. The risk that the private sector ceases to seek and develop new projects is considered low unless tariffs decline substantially to the point where the economics become unviable\. The Government has indicated its commitment to the participation of the private sector in electricity generation, especially from renewable resources\. These projects are financially viable and commercial banks are continuing to lend, even without refinancing\. Role and support of the Government 2\.67 Sub-projects refinanced by the project would continue to comply with the Government’s environmental requirements, including the required monitoring\. Some stakeholders from private sector and industry association however expressed reservations, but also the desire that the Sustainable Energy Authority needs to step up its efforts to meet the challenges, streamline bureaucratic requirements, and actually assist project developers to realize their projects and also contribute to national priorities of promoting non-conventional renewable energy\. The Government’s further endorsement of non- conventional renewable energy and support for its development should be sufficient incentives for the Sustainable Energy Authority, though its ability to attract skills remains an issue as market pay scales are far higher\. 2\.68 The activities supported by the project have transitioned from the AU to the Sustainable Energy Authority which will provide continuity for facilitating investments in the sector\. Sustainable Energy Authority officials indicated to the mission that they are now maintaining documentation from the project, which includes a wealth of analysis, data and information on the subject of renewable energy and related initiatives in the developing country context\. 2\.69 Based on the overall assessment of the key issues, the risk to sustainability of overall project development outcome is rated Low\. BANK PERFORMANCE 2\.70 The quality at entry for the project is rated Satisfactory\. The design of this project benefited from the Bank’s experience with the earlier Energy Services Delivery project – which received a satisfactory outcome rating – as well as rural and renewable energy projects in South and East Asia and Sub-Saharan Africa\. The guiding principles that emerged from the Energy Services Delivery project and other Bank projects were: (i) necessity of providing consumer choice; (ii) ensuring pricing which is cost-reflective; (iii) overcoming high start-up costs; (iv) encouraging local participation, tapping into private sector and civil society capabilities and potential; and (v) implementing sound sector policies\. 16 Daily Mirror, Sri Lanka, March 13, 2014, page A16 “Private Hydropower Plant Closed Without Notice”  25 2\.71 Design features of the project that derived from the above lessons contributed to effective project implementation, including: third-party administration of the credit and grant facility and overall project management; involvement of industry associations and advocacy groups in guiding industry growth and directions; the adoption of a standardized power purchasing agreement and ensuring tariff certainty; a bankable legal framework that assured availability of long term financing; and the importance of participation and commitment of the entire community on off-grid village electrification schemes for ensuring long term sustainability of these schemes, as well as adequate after sales service\. 2\.72 In retrospect, the project design underestimated the pace at which the electricity grid would expand in the country\. At the project preparation stage, the Bank in consultation with the Ceylon Electricity Board, estimated that existing technical and financial constraints would limit the coverage of the grid to 80 percent of the population leaving about 20 percent (or about 1 million households) reliant on off grid systems\. Subsequently, the Government moved aggressively to increase generation (2,483 MW to 3,312 MW during 2003-12) and expand the grid, with the result that only 40,000 households remained to be covered through off-grid options by 2013\. As the development of major hydro has remained stagnant at 1,207 MW since 2003, the growth in generation came mainly from an increase in thermal power (51%) as well as renewable energy (48%), the latter comprising small hydro, wind and biomass\. The faster than anticipated growth of the grid, while a welcome development, necessitated changes in strategy and targets for off-grid electrification\. 2\.73 The overall risk rating for the project at appraisal was substantial\. This is reasonable for the type and scale of interventions proposed under the project\. The demand for refinancing of loans for grid-connected renewable energy projects depends on a number of macroeconomic factors that are beyond the control of the project\. For example, when interest rates were substantially higher at certain periods during the implementation period – most notably at the height of the military conflict – the demand for refinancing loans reduced significantly\. Demand grew once more when interest rates dropped again\. On the other hand, the risk of an insufficient market for SHS was identified and considered moderate\. The impact of a saturated market for SHS or accelerated grid expansion was not analyzed in sufficient detail, which could have anticipated some of the challenges faced during implementation\. This is an important lesson for other countries that are undertaking or planning aggressive off-grid electrification schemes\. 2\.74 Again in retrospect, the inclusion of two relatively small components for energy efficiency/demand-side management and cross-sectoral energy applications did not fit well into the major thrust of the project\. These components did not yield expected results, and may even have diverted some focus and effort from the larger project components\. 2\.75 The Bank’s quality of supervision during the project is rated Moderately Satisfactory\. The Bank’s supervision was characterized by a strategic management role rather than day to day handholding of the implementing agency’s activities\. This was possible because of AU’s capacity and competence, and contributed greatly to its sense of  26 ownership of the project for both AU and the Government\. Feedback from the AU and the Government suggests that the Bank responded adequately and in a timely manner to requests for clearances and participated regularly in meetings with all project stakeholders\. Both AU 17 and other stakeholders credited the participatory approach and its approach to the Bank and the project\. 2\.76 The role of the Bank was highly valued as indicated by the feedback survey conducted at the end of the project\. This was confirmed by the mission from the feedback it received from the Government, AU, Participating Credit Institutions and other stakeholders\. Most respondents recognize the Bank as a key catalyst for grid- connected and off-grid renewable energy and energy efficiency interventions\. The Bank’s involvement increased the confidence of the Participating Credit Institutions to continue to provide long-term loans to private developers of renewable energy projects\. This was of particular importance because increasing the access to energy services from renewable energy was at the heart of the RERED design\. 2\.77 However, the Bank was less responsive in dealing with the implementation issues with solar PV, cross-sectoral energy applications and energy efficiency & demand side management components\. Despite the early onset of problems from 2006 onwards, it was not until late-2010 when Bank revised output targets for solar PV component, and also it is unclear if the Bank proactively examined the implications of potential risks of non- payment by SHS customers on the vendors, creditors and the refinancing by the project\. It is also unclear if the Bank enabled dialogue with Ceylon Electricity Board and the Government on these issues and possible coordination of grid expansion with off-grid options during this period\. Similar lack of proactivity is apparent concerning the other two components, as also noted by the absence of such discussion in the additional financing documents\. 2\.78 The Bank could have done more to encourage and assist the AU in making active use of the technical assistance component rather than relying on requests from the industry, beneficiaries, or other stakeholders\. The Bank could also have insisted on better transition arrangements from the AU to Sustainable Energy Authority including the digitizing and transfer of documentation\. 2\.79 Some stakeholders also pointed to the sometimes passive role of the Bank in critical issues (e\.g\. The Ceylon Electricity Board’s least cost development plan and implications for non-conventional renewable energy); while most expressed that the Bank seemed to have exited the sector too soon since many policies formulated and adopted during the project period were showing signs of stress and the absence of the Bank’s lead and convening forte was conspicuous\. Interestingly, the Public Utilities Commission of Sri Lanka shared the view that local economic gains from non-conventional renewable energy projects could now be integrated into a broader theme of rural economic development, and that the Bank’s presence could have facilitated this effectively\. 2\.80 Overall Bank Performance is rated Moderately Satisfactory\. 17 The AU noted that despite the value-added of such an approach, other financiers like the European Investment Bank had not included technical assistance in their ongoing projects and financing\.  27 BORROWER PERFORMANCE 2\.81 The government’s performance is rated Satisfactory\. The Government showed consistent support to the project objectives throughout appraisal and implementation\. During the project implementation period, in October 2007, the Government established the Sri Lanka Sustainable Energy Authority as an apex institution responsible promoting sustainability in energy generation and use through increasing the use of indigenous renewable energy resources and improving energy efficiency\. This underlined the commitment of the Government to renewable energy and complemented the activities of the project\. 2\.82 The Government ensured continuity in the implementation arrangements from the earlier Energy Services Delivery project by working through the same AU located in the DFCC Bank\. The Government also appropriately took a hands-off approach to the day- to-day implementation of the project and generally limited its own role to creating an enabling environment and providing counterpart funding\. It facilitated the implementation of the project by providing the required policy and regulatory support, and approving investments by the utility for upgrading substations\. The Government also provided considerable grant support for renewable energy through the Ceylon Electricity Board, directly to beneficiaries for SHS, and through provincial councils for village hydro schemes\. It established attractive tariffs for selling renewable electricity to the national grid and ensured that the Standardized Power Purchase Agreement terms and conditions were adhered to by all parties\. The Government was very responsive to the routine refinance-linked disbursement requests from the AU and was supportive in addressing problems that arose during the process\. The mid-term review noted that there were delays in some cases in granting necessary approvals on the part of the Central Environmental Authority (CEA), and in dealing with overloaded substations on the part of the Ceylon Electricity Board\. On balance, the Government’s performance is rated Satisfactory\. 2\.83 Implementing agency performance during the project is rated Highly Satisfactory\. The AU situated in the DFCC Bank was the implementing agency for the project\. The AU was well placed to work with the Participating Credit Institutions and private developers and administer the refinancing mechanism due to its experience in commercial banking transactions\. 2\.84 The AU displayed strong commitment and professionalism to the objectives of the project, and coordinated well with all major stakeholder groups including Participating Credit Institutions, MFIs, developers, SHS vendors, village hydro developers, industry associations, village electricity consumer societies, the Ceylon Electricity Board and other Government organizations\. In coordinating with stakeholders, the AU consolidated the consultative process that had been developed under the Energy Services Delivery project\. Feedback to the mission from stakeholders suggests that they generally hold favorable views about the AU and its helpful role during their interactions\. Some developers were very complimentary of the neutral role played by the AU; especially as it is also one among peer Banks and Participating Credit Institutions\. Other Participating Credit Institutions indicated that the AU was professionally staffed and managed\.  28 2\.85 The AU was administratively separated from the lending arm of DFCC Bank to minimize conflict of interest in the eyes of the other Participating Credit Institutions that were competing with DFCC Bank for refinancing of their loans\. Procedures were documented well in the AU, and detailed records of sub-projects were maintained well\. In retrospect, the AU could have done better in identifying more opportunities for technical assistance activities to support the various components, and in planning for a smoother transition after project completion, especially in the development of Sustainable Energy Authority’s readiness\. 2\.86 Overall, Borrower performance is rated Satisfactory\. MONITORING AND EVALUATION 2\.87 Monitoring & Evaluation Design\. The M&E framework employed appropriate outcome and output indicators that were well-defined and largely measurable\. The responsibility for collecting the M&E indicators lay mainly with the AU\. The objective of improving the quality of rural life by utilizing off-grid renewable energy technologies was to be measured through: (i) increase in income generating activities in communities that gain access to electricity; and (ii) increased electricity connections to households, rural small/medium enterprises and public institutions\. The number of households, small and medium enterprises and public institutions electrified was to be obtained from regular reporting under the project\. The increase in income generating activities would be assessed through surveys, though it was noted that attribution to the use of renewable energy technologies might be difficult\. 2\.88 The objective of promoting private sector power generation from renewable energy resources for the main grid would be measured by additional MW of small-scale renewable grid-connected power generation capacity\. The global environmental objective would be tracked through reduction of greenhouse gas emissions and the adoption of renewable energy and the trend in implementation cost as proxies for reducing market barriers\. The indicators were adequate to assess achievement of this objective\. 2\.89 M&E Implementation\. The AU contracted a consultant to monitor progress towards achieving objectives and meeting indicators\. M&E reports were submitted initially every quarter and bi-annually from 2006 onwards\. The AU collected the required information as part of its routine administration work and progress was monitored throughout the sub-project lifecycle\. The task team reports that the information provided was current and reliable\. The Bank also hired an expert consultant to help review the progress and issues with solar PV component, which was helpful in examining options to resuscitate this component\. 2\.90 M&E Utilization\. The M&E process helped in proposing and pursuing the various corrective actions that emerged as described in the section on “Implementation Experience”\. The AU also conveyed that it had replicated the M&E processes for this project in other ongoing donor supported projects\. 2\.91 Overall, M&E is rated High\.  29 3\. Lessons • Local participation and involvement, suitably incentivized, is crucial to promoting distributed power generation activities\. Active local participation drove the momentum and successful implementation of the 68 mini hydro projects and the 173 community-based micro hydro projects supported by the project\. The participation came in the form of local political support and the newly-formed village level electricity consumer societies, which were incentivized by opportunities for selling a part of the generation to the grid through ‘net metering’\. • Involving the private sector effectively in a decentralized developmental effort requires flexibility in implementation arrangements and space for adapting to market conditions\. In spite of past lessons informing the design of the project, almost all major aspects – financing and disbursement parameters, procurement policies and approach, SHS business model – had to undergo modifications to keep up the pace of implementation\. Without such adjustments, the project would likely have stalled /failed\. • An appropriate feed-in-tariffs policy and its consistent and transparent application are crucial to spur growth of small scale and non-conventional renewable energy generation\. The low transaction costs enabled by attractive feed-in-tariffs crowded in project developers and investors, as well as commercial/investment banks to develop and invest in a variety of distributed generation projects\. Market confidence was enhanced by consistent and transparent application of the policy by the regulator / government\. • Investments in off-grid electrification could be underutilized or even abandoned in the event of a faster than expected arrival of the electricity grid\. To mitigate this, the expansion of the grid should be coordinated with off-grid investments, and, where warranted, the off-grid facilities should be made grid-compatible to ensure their continued utility\. In Sri Lanka, as the electricity grid expanded faster than expected, the decreasing necessity and relevance of off-grid electrification was not foreseen early enough, resulting in some off-grid facilities falling into disuse or neglect\. This experience points to the need for planning ahead for a coordinated access rollout, and making policy and technical provision for making the off-grid facilities grid-compatible and economically viable\.  30 References 1\. IEG 2008\.The Welfare Impact of Rural Electrification: A Reassessment of the Cost and Benefits\. An IEG Impact Evaluation\. World Bank, Washington D\.C\. 2\. UNDP 2012\. Renewable Energy Sector Development: A Decade of Promoting Renewable Energy Technologies in Sri Lanka\. Case Study 11\. Environment and Energy\. January 2012\.Asian Development Bank 2013\. Energy Outlook for Asia and the Pacific 3\. Government of Sri Lanka 2012\. Energy Statistics 2012\. Sustainable Energy Agency, Colombo, Sri Lanka 4\. National Energy Policy and Strategies for Sri Lanka, GOSL Gazette Notification, dated June 10, 2008 5\. Ceylon Electricity Board\. Sector Statistics and CEB Annual Report 2011\. www\.ceb\.lk 6\. NCRE Feed-in Tariffs Announcement, August 2012; Annual Report 2012; and various other documents pertaining to sector regulation and performance\. Public Utilities Commission of Sri Lanka\. www\.pucsl\.lk 7\. Performance Report of Distribution Licensees, 2013, PUCSL 8\. Electricity Sector Cost Report, Jan-June 2013, PUCSL 9\. Off-grid electrification using micro-hydro power schemes – Sri Lankan Experience – A survey, 2012, PUCSL 10\. Stakeholder workshop meeting notes, Nov 24 and Dec 12, 2011: Small Hydropower Industry Association of Sri Lanka 11\. DFCC\. 2012\. RERED Financial Statements and Independent Audit Report (Ernst & Young) 12\. World Bank 2013\. Sri Lanka Development Update\. October 2013 13\. Resources Development Consultants (Pvt) Ltd\.: Monitoring and Evaluation of the Renewable Energy for Rural Development Project\. September 2004 - September 2008\. Completion Report submitted to RERED AU\. 14\. Quality of Electricity Supply – Survey Findings: World Economic Forum (WEF): The Global Competitiveness Index data platform\. Available at http://www\.weforum\.org/issues/competitiveness-0/gci2012-data-platform/  31 Annex A\. Basic Data Sheet RENEWABLE ENERGY FOR RURAL ECONOMIC DEVELOPMENT PROJECT (IDA-36731 IDA-36730 TF-51248) Key Project Data (amounts in US$ million) Appraisal Actual or Actual as % of estimate current estimate appraisal estimate Total project costs 231\.9 253\.9 110% Loan amount 115\.0 127\.4 118% Co-financing 7\.1 7\.0 99% Cancellation - - - Cumulative Estimated and Actual Disbursements (P076702) FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 Appraisal estimate (US$M) 15\.0 23\.5 40\.6 63\.7 81\.8 89\.6 97\.5 110\.0 115\.0 115\.0 Actual (US$M) 15\.0 23\.5 40\.6 63\.7 81\.8 82\.4 95\.5 103\.4 122\.3 127\.4 Actual as % of appraisal 100 100 100 100 100 92 98 94 106 111 Date of last disbursement: December 31, 2011 Cumulative Estimated and Actual Disbursements (P077761) FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 Appraisal estimate (US$M) 1\.6 3\.5 5\.2 5\.3 6\.1 6\.4 6\.6 6\.9 7\.1 7\.1 Actual (US$M) 1\.6 3\.5 5\.2 5\.3 6\.1 6\.4 6\.6 6\.8 7\.1 7\.0 Actual as % of appraisal 100 100 100 100 100 100 99 98 100 99 Date of last disbursement: December 31, 2011 Project Dates (P076702; P077761) Original Actual Appraisal 01/22/2002 01/22/2002 Board approval 06/20/2002 06/20/2002 Effectiveness 10/07/2002 10/07/2002 Closing date 06/20/2008 12/31/2011 ANNEX A 32 Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including No\. of staff weeks travel and consultant costs) Lending FY02 22\.63 70,966 FY03 0\.00 0 Total: 22\.63 70,966 Supervision/ICR FY03 25\.37 80,118 FY04 22\.77 64,358 FY05 18\.98 47,457 FY06 19\.63 67,250 FY07 16\.03 43,334 FY08 26\.47 85,307 FY09 27\.65 113,345 FY10 19\.16 85,112 FY11 20\.28 88,388 FY12 16\.01 100,271 Total: 212\.35 845,906 ANNEX A 33 Task Team Members Names Title Unit Responsibility Lending Subramanian V\. Iyer Team Leader Team Lead Supervision/ICR Abdulaziz Faghi Energy Specialist SASDE Team Lead Amali Rajapaksa Senior Infrastructure Specialist SASDT Procurement Boonsri Prasertwaree Kim Program Assistant SASDO Energy Economist Darshani De Silva Environmental Specialist SASDI Financial Management Deepal Fernando Senior Procurement Specialist ECSO2 Disbursement Donna Thompson Sr Financial Specialist OPCFM Resource Management Gevorg Sargsyan Program Coordinator SEGEN Financial Management Hiran Heart Consultant SASDI Procurement Jiwanka B\. Wickramasinghe Sr Fin\. Management Specialist SARFM Financial Management Lashantha H\. ayawardhana Consultant SASDI Env\. Safeguards Luis Alejandro Lopez Program Assistant SASDO Md\. Iqbal Senior Energy Specialist SASDE Mikul Bhatia Senior Energy Specialist SEGEN ESCO Specialist Miriam Witana Procurement Specialist EAPPR Energy Specialist Peter Johansen Senior Energy Specialist ECSS2 Energy Specialist Raihan Elahi Senior Energy Specialist AFTEG Energy Specialist Ravindra Anil Cabraal Consultant AFTEG Peter Johansen Senior Energy Specialist ECSS2 Energy Specialist Seenithamby Manoharan Sr\. Rural Dev\. Specialist SASDA Rural Development Shane Andrew Ferdinandus Program Assistant SASDO Shaukat Javed Program Assistant SASDO Sriyani De Alwis Team Assistant SACSL Sriyani M\. Hulugalle Senior Economist SASFP Environmental Sumith Pilapitiya Lead Environmental Specialist SASDI Specialist Supul Chamikara Wijesinghe Financial Specialist SARFM Financial Management  34 Annex B\. List of WB Energy Projects in Sri Lanka Table 1\. World Bank Lending for the Energy Sector in Sri Lanka (1992-Present) No\. Project Name Approval Closing Instrument Project WB ID FY FY Cost Commitment (US$M) (US$M) 1 P010386 Power Distribution 1992 1998 Specific Investment Loan 79 50 Private Sector 2 P010517 Infrastructure 1996 2007 Financial Intermediary Loan 232 77 Development 3 P039965 Energy Services Delivery 1997 2003 Specific Investment Loan 30 6 4 P010498 Energy Services Delivery 1997 2003 Specific Investment Loan 55 24 Renewable Energy For 5 P076702 2002 2012 Specific Investment Loan 166 115 Rural Economic Economic Reform 6 P077586 2003 2008 Technical Assistance Loan 19 15 Technical Assistance  35 Annex C: Additional Data Tables and Figures Non-Conventional Renewable Energy (NCRE) Development in Sri Lanka Figure 1 Figure 2  36 Table 1 Source: Figures 1, 2, and Table 1: Ceylon Electricity Board Table 2\. Average Revenue, Total Generation and NCRE Contribution (2000-2013) 2000 2005 2010 2011 2012 2013 Total Generation (GWh) 6629 8898 10801 11646 11896 12151 a/ of which: from NCRE (GWh) Na 280 727 722 730 1169 as % of total na 3\.2 6\.73 6\.20 6\.14 9\.62 Ave\. Rev\. (LKR/kWh) 4\.85 7\.99 13\.10 13\.42 15\.73 17\.73-18\.60 Ave\.Rev\. (US cents/kWh) na 7\.83 11\.79 11\.78 12\.27 13\.97-14\.66 a/ extrapolated estimate Source: Ceylon Electricity Board; and Sustainable Energy Agency Statistics, 2012  37 Figure 3 Source: Ceylon Electricity Board Annex D\. List of Persons Met Government of Sri Lanka Mr\. Upali Daranagama , Additional Secretary, Ministry of Power and Energy, Mr\. B\.M\.U\.D\. Basnayake, Secretary, Ministry of Environment and Renewable Energy Mr\. Noel Priyantha, Chief Engineer (Renewable Energy), Ceylon Electricity Board Mr\. Thusitha Sugathapala, Director General, Sustainable Energy Authority Mr\. M\.M\.R\. Pathmasiri, Deputy Director General, Sustainable Energy Authority Mr\. Damitha Kumarasinghe, Director General, Public Utilities Commission of Sri Lanka Dr\.B\.M\.S\. Batagoda, Deputy Secretary to the Treasury, Ministry of Finance DFCC Bank Mr\. Nalin Karunatileka Assistant Vice President, Project Management (AU) Mr\. Rohantha Seneviratne, Operations Manager Commercial Banks / Participating Credit Institutions Ms\. Sushara Vidyasagara, Senior Manager, Corporate Finance, Commercial Bank of Ceylon Mr\. Kapila Subasinghe, Vice President, Corporate Banking Mr\. Champal de Costa,Vice President / Manager, Ratnapura Branch Ms\. Dulani Rodrigo, Relationship Manager, Corporate Banking, NDB Bank Developers Associations / Advocacy Group / Think Tanks Ms\. Rekha S\. Karunaratne, Small Hydropower Developers Association; Mr\. Shakila Wijewardena, Sarvodaya, Vice President, Microfinance and Guarantee Company Mr\. T\.K\. Weerawardhana, Sarvodaya, Microfinance and Guarantee Company Mr\. Asoka Abeygunawardhana, Executive Director, Energy Forum Mr\. Bandula Chandrasekara, Programs Coordinator, Energy Forum Project Developers Mr\. Herath Dissanayake, Managing Director, Wisdom Solar Pvt\. Ltd\. Ms\. Rozanne Croos Moraes, Project Manager, Senok Wind Power (Pvt) Ltd Ms\. Praveena Sivamohan, Finance Manager, Senok Wind Power (Pvt) Ltd Mr\. Vishnu Vasanth, Managing Director, RenewGen Ventures Ms\. Rekha S\. Karunaratne, Director, Integra International Pvt\. Ltd\. World Bank / IFC / ADB Ms\. Francoise Clottes, Country Director, World Bank Mr\. Camilo Gomez Osorio, Country Economist, World Bank Ms\. Niluka Nirmalie Karunaratne, Team Assistant, World Bank Mr\. Abdulaziz Faghi, Senior Energy Specialist and Task Team Leader, World Bank Mr\. Kamal Dorabawila, Principal Investment Officer, IFC Mr\. Nishantha Jayasooriya, Associate Operations Officer, IFC Mr\. Milinda Wasalathantri, Investment Analyst, IFC Mr\. Ranishka Wimalasena, Project Officer (Energy), ADB Note: During project site visits, several persons – traders / merchants, operators of power plants, SHS owners at homes and shops, energy consultants and specialists – were met\. Conversations were facilitated through translators\.

REVIEW

P073904

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 31390-STP IMPLEMENTATION COMPLETION REPORT (IDA-34290) ON A CREDIT IN THE AMOUNT OF US$5 MILLION TO THE DEMOCRATIC REPUBLIC OF SAO TOME AND PRINCIPE FOR A PUBLIC RESOURCE MANAGEMENT TECHNICAL ASSISTANCE CREDIT June 29, 2005 Poverty Reduction and Economic Management 4 AFC15 Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  CURRENCY EQUIVALENTS (Exchange Rate Effective May 2005) Currency Unit = Dobra Db 1 = US$ 0\.000103 US$ 1 = Db 9699\.4 FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS AfDB African Development Bank ASYCUDA Automated System for Customs Data CEMAC Central African Economic and Monetary Community CET Common External Tariff EITI Extractive Industry Transparency Initiative EMAE Empresa de Agua e Electricidade (Utility Company) EMOLVE Palm-Oil Development Company ENAMED Empresa Nacional de Medicamentos (Public Drug Company) ENCAR Empresa Nacional de Carne (Public Meat Processing Company) ENCO Empresa Nacional de Combustivel e Oleos (Petroleum Distribution Company) EU European Union FIAS Foreign Investment Advisory Service FM Financial Management GCB-TA Governance Capacity Building Technical Assistance Credit GDP Gross Domestic Product HIPC Heavily Indebted Poor Countries IDA International Development Agency IDF Institutional Development Fund IMF International Monetary Fund INE National Institute of Statistics M&E Monitoring and Evaluation MoPF Ministry of Planning and Finance NGO Non-Governmental Organization PE Public Enterprise PER Public Expenditure Review PIP Public Investment Program PPIAF Public-Private Infrastructure Advisory Facility PRGF Poverty Reduction and Growth Facility PRSP Poverty Reduction Strategy Paper SAC Structural Adjustment Credit SDR Special Drawing Rights SPA Special Program of Assistance TTL Task Team Leader UNDP United Nations Development Program USD United States Dollar VAT Value Added Tax WAEMU Western African Economic and Monetary Union WCO World Customs Organization WTO World Trade Organization Vice President: Gobind T\. Nankani Country Director A\. David Craig Sector Manager Robert R\. Blake Task Team Leader/Task Manager: Dorsati Madani  DEMOCRATIC REEPUBLIC OF SAO TOME AND PRINCIPE PUBLIC RESOURCE MANAGEMENT TA CREDIT (PRM-TA) CONTENTS Page No\. 1\. Project Data 1 2\. Principal Performance Ratings 1 3\. Assessment of Development Objective and Design, and of Quality at Entry 2 4\. Achievement of Objective and Outputs 4 5\. Major Factors Affecting Implementation and Outcome 9 6\. Sustainability 10 7\. Bank and Borrower Performance 11 8\. Lessons Learned 13 9\. Partner Comments 14 10\. Additional Information 14 Annex 1\. Key Performance Indicators/Log Frame Matrix 15 Annex 2\. Project Costs and Financing 16 Annex 3\. Economic Costs and Benefits 17 Annex 4\. Bank Inputs 18 Annex 5\. Ratings for Achievement of Objectives/Outputs of Components 19 Annex 6\. Ratings of Bank and Borrower Performance 20 Annex 7\. List of Supporting Documents 21 Annex 8\. Outputs by Component 22 Annex 9\. Borrower's Evaluation Report 28  Project ID: P073904 Project Name: Public Resource Management - TA Team Leader: Dorsati Madani TL Unit: AFTP4 ICR Type: Core ICR Report Date: June 29, 2005 1\. Project Data Name: Public Resource Management - TA L/C/TF Number: IDA-34290 Country/Department: SAO TOME AND PRINCIPE Region: Africa Regional Office Sector/subsector: Central government administration (100%) Theme: Public expenditure, financial management and procurement (P); Tax policy and administration (P); Regional integration (P); Macroeconomic management (P); State enterprise/bank restructuring and privatization (P) KEY DATES Original Revised/Actual PCD: 05/04/2000 Effective: 02/21/2001 02/21/2001 Appraisal: 08/01/2000 MTR: Approval: 11/02/2000 Closing: 03/31/2003 12/31/2004 Borrower/Implementing Agency: GOVERNMENT OF SAO TOME AND PRINCIPE/MINISTRY OF PLANNING AND FINANCE Other Partners: Not applicable\. STAFF Current At Appraisal Vice President: Gobind T\. Nankani Callisto E\. Madavo Country Director: A\. David Craig Hasan A\. Tuluy Sector Manager: Robert R\. Blake Emmanuel Akpa Team Leader at ICR: Dorsati Madani Dorsati Madani ICR Primary Author: Dorsati Madani; Sati Achath; Madhu Nair 2\. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainability: L Institutional Development Impact: SU Bank Performance: S Borrower Performance: S QAG (if available) ICR Quality at Entry: U Project at Risk at Any Time: No  3\. Assessment of Development Objective and Design, and of Quality at Entry 3\.1 Original Objective: The Public Resource Management Technical Assistance Project (PRM-TA) (US$2\.5 million Credit) was to provide necessary technical support, training, goods and equipment to meet three distinct objectives: (i) implement the policy measures that were to be carried out under the government's reform program supported by the Public Resource Management Credit (PRMC); (ii) carry out sectoral, sub-sectoral and specific studies needed towards the preparation of its Poverty Reduction Strategy Paper (PRSP); and (iii) develop the agenda for macro-economic and sectoral policy reforms\. While the name of the credit (PRM-TA) suggests that all three objectives of the credit are fully associated with the reforms included in the PRMC, only the first objective of the PRM-TA directly supported the PRMC reforms\. Support for the development of the PRSP and the agenda for macro-economic and sectoral policy reforms were provided in conjunction with TA for the PRMC reforms to strengthen the overall policy environment of the country\. The objectives were important to the achievement of the country's economic and social development\. They were also clear, realistic, and timely for addressing the needs of the Borrower\. Sao Tome and Principe's economic and social indicators were negatively affected by some of the basic challenges that afflict many low income small island states\. These challenges include: remoteness and insularity, susceptibility to natural disasters, limited institutional capacity, a narrow resource base, vulnerability to external shocks, limited access to external capital, and entrenched poverty\. Given that Sao Tome and Principe's resource base and revenue potential were very limited and essentially tied to subsistence or informal sector activities and an export sector based on one major activity, cocoa, the government needed to develop and implement a medium-term program aimed at improving resource mobilization as well as the efficiency and equity of public resource allocation, within a solid macroeconomic framework and well-defined sector development priorities, with clear poverty reduction objectives\. On the other hand, the Memorandum of the President (MOP) for the joint credits PRMC/PRM-TA only dedicates one brief paragraph to the TA project, noting that it will finance a Study Fund to carry out policy reform studies; prepare sectoral strategies; and develop simulation models\. As a result, the objectives were not clearly translated in application in the sense that during preparation they were not programmed in a logical framework, with clear milestones, and sequencing of activities, that would match with the reform schedule supported by PRMC or the development of the PRS document\. The TA project was consistent with the Bank's Country Assistance Strategy (CAS) and the country's Interim Poverty Reduction Strategy Paper (I-PRSP)\. One of the components of the project aimed to support PRMC, which was complementing ongoing reforms financed under the Institutional Development Fund (IDF) and the International Monetary Fund (IMF) Poverty Reduction and Growth Facility (PRGF), and assist the São Tomean authorities to implement a set of first-generation policy reforms\. These reforms were needed to consolidate and accelerate the government's efforts and move Sao Tome and Principe towards a new phase of economic and social development\. The government recognized the Bank as a privileged partner, well positioned to provide sound advice and extend the dialogue to other development partners\. While no specific risk factors were identified for PRM-TA, the following risk factors were identified in the MOP that covered the joint credits PRMC/PRM-TA: (i) low institutional capacity; (ii) limited donor commitment and lack of coordination; and (iii) a narrow private sector\. To manage the above risks, the government planned to: (a) strengthen donor coordination including, holding a Donor Round Table meeting in October 2000; and (b) develop local institutional capacity\. - 2 -  While the borrower could identify the needs and program for them, the project was demanding for the Borrower in the area of procurement and financial management\. The Credit was responsive to the Borrower circumstances and development priorities\. For example, the Bank adjusted the programming of the project based on the assessment of the needs, and allocated US$500,000 of the credit to petroleum TA needs that arose half way through the implementation of the credit\. 3\.2 Revised Objective: The objectives were not revised\. 3\.3 Original Components: The project consisted of the following components: l Strengthening the Borrower's capacity, through the provision of technical advisory services and training and acquisition of equipment to implement expenditure management reforms, expenditure monitoring and control measures, civil service reforms and private sector development policies\. l Carrying out policy reform studies on the impact of structural reforms on the Borrower's economy, especially on trade liberalization, tax system, exchange rate policy, diversification of agriculture production, tourism, fisheries, public utilities, private sector development, fiscal reform, banking reform and financial sectors, social sector and poverty reduction measures l Carrying out research on further constraints to the growth of the Borrower's economy\. 3\.4 Revised Components: The components were not revised\. 3\.5 Quality at Entry: There was no official assessment of the quality at entry by the Quality Assurance Group (QAG)\. The ICR deems the quality at entry to be marginally unsatisfactory\. The project objectives were consistent with the CAS and the government priorities and met the critical needs of the macroeconomic sector\. During preparation, the Bank took into account the country's low capacity and incorporated flexibility in the project design in order to ensure that the country would be able to implement policy reform work, and undertake sectoral, sub-sectoral, and specific studies which would provide input to the PRSP, and also develop the agenda for macro economic and sectoral policy reforms\. The team developed a flexible design for the credit by assigning some US$500,000 as unallocated funds\. This feature became highly useful in assisting the country advance during implementation\. The ICR views these aspects as satisfactory\. On the other hand, the project was burdened by several weaknesses: l The preparation process did not include a logframe for the credit so that internal monitoring and evaluation were not well programmed in terms of project outputs and outcomes\. l While the project was aimed at assisting the government in implementing its reform program, the - 3 -  activities of the component supporting PRMC reforms were not fully aligned with the PRMC reform content and timing\. Some of the studies and other provision of TA (international and national) should have been conducted at the identification and preparation stages of PRMC in order to provide the necessary information and assistance needed to ensure timely, and well sequenced implementation of PRMC reforms and successful outcomes\. l The credit underestimated the extent of the capacity building needs of the administration and its reform program, which went beyond the capacities of the US$2\.5 million Study Fund\. l The Project Implementation Unit (PIU) was functional but weak in the early stages of implementation as its staff was not given adequate training on bank financial and procurement procedures at the launch of the project\. l The political risk and weakness in the civil service in undertaking the reforms were underestimated\. The flexibility of the credit compensated for some of the weaknesses listed above\. In light of these factors, the overall quality at entry is rated marginally unsatisfactory\. However, in the absence of `marginal' ratings for the ICR, the ICR team is constrained to give an Unsatisfactory rating in Section 2 (Principal Performance Ratings)\. 4\. Achievement of Objective and Outputs 4\.1 Outcome/achievement of objective: Satisfactory\. The project supported the government to meet the three distinct development objectives of the credit by providing technical support, training, goods and equipment\. Only the first objective of the PRM-TA directly supported the PRMC reforms\. The PRM-TA also provided support for the two other objectives (development of the PRSP and the development of an agenda for macro-economic and sectoral policy reforms) to improve the overall policy environment of the country\. With its flexible design, it also supported the government during the highly sensitive early period of the nascent petroleum sector by providing timely and responsive support to lay the early foundation for institutional capacity building in the sector\. The positive developments in the petroleum sector would not have materialized in the absence of the PRM-TA credit\. Overall, the credit became an important vehicle for policy dialogue and institutional capacity building in the framework of a small state\. These policy dialogues engaged the Ministry of Planning and Finance on public resource management, the poverty reduction strategy, and privatization of SOEs; the Ministry of Natural Resources on petroleum sector revenue management and transparency issues, telecommunications regulations and utilities reform and privatization; the Ministry of Justice on reform of the institutional and legal environments; the Ministry of Commerce on private sector development and business environment; and the national PRSP team on the overall poverty reduction approach, its goals, its associated costs and the methodology to monitor and evaluate its output and outcomes\. - 4 -  The major outcomes of the project are the following: Objective I: Helping the government implement policy measures under its reform program which was supported by the PRMC Marginally unsatisfactory The first objective of the PRM-TA was to support the PRMC reforms\. However, the implementation of the reforms included in the PRMC program was uneven due to political instability and lack of political will\. Consequently, PRM-TA could not be used to support the full spectrum of the PRMC program\. Where Government launched reform measures - such as in the fiscal reform and management and resource mobilization ­ the TA credit supported the reform process\. In other areas where reform efforts were never launched ­ such as the rural sector, and many of the private sector reforms ­ the TA was not used\. Fiscal reform and management, resource mobilization: The credit contributed to the development and implementation of reforms leading to improved economic management and revenue collection: l Overall, tax collection increased from 17% of GDP in 1999 to 20\.4% in 2004, through: (i) improved coordination in tax payer identification (ID numbers) and registration; (ii) implementation of reforms suggested by a study of the directorate of taxation to improve productivity and tax collection; and (iii) improved customs management and revenue collections due to ASYCUDA and better valuation methodology (import tax revenue collection increased from 7\.7% of total government revenues in 2001 to 11% in 2003) (see Annex 8)\. l The institutional and legal business environment of the country is expected to improve once the new tax and investment laws, currently at the National Assembly, become law\. As outlined in Annex 8, the credit supported fully or partially the update of these laws through Foreign Investment Advisory Service (FIAS) and national TA\. These laws will modernize the fiscal and investment framework of the country\. The delay in the adoption and implementation of these laws was political as multiple changes in governments did not facilitate the process of policy making, especially on such a sensitive issue\. It is now expected that the laws will be adopted and implemented as they are also part of a new IMF PRGF program\. l The public sector engagement in the economy was reduced by privatizing some public enterprises\. This allowed for better control of budget expenditures\. Several public sector enterprises were sold, liquidated or were in the process of being fully or partially privatized\. The TA funded assistance to the privatization working group to prepare and follow up on the `dossiers' for the privatization process\. It also funded a review of the electricity and water company to assess its viability and potential for privatization in the short to medium run\. l Economic management improved through better public expenditure planning (procurement and public investment program (PIP)), budget implementation, and fiscal management oversight\. The creation of a dedicated unit to debt management contributed to this progress\. The PRM-TA financed consultants to assist this review and reform process, including training for different services within the MoPF and Central Bank\. l The government continues to realign public expenditures to primary sectors (health and education) as - 5 -  part of the overall reform process of aligning government budget with PRSP goals\. To facilitate this process the credit financed public expenditure reviews in education and health to study the existing sectoral budget processes and expenditures and provide recommendations for better use of funds (see Annex 8)\. Objective II: Carrying out sectoral and specific studies needed for the preparation of the PRSP Satisfactory The credit supported the development of the first full PRSP document\. This support included financing the PRPS coordinating unit and consultants to prepare the five thematic studies and lead the thematic groups that are at the base of the five action pillars of the PRSP\. These five thematic studies, together with a poverty analysis ­ which was also partially financed by the PRM-TA credit- formed the analytical base for the assessment of the socio-economic and political situation in the country and provided policy suggestions that led to the formulation of the full PRSP\. The five thematic groups and the coordinating unit developed the complete document, the monitoring and evaluation indicators and methodology and provided an estimate of the cost of the strategy\. They led extensive consultations with all social groups in different regions of Sao Tome island and on Principe island (see Annex 8, Component 2 for a list of the studies)\. The first full PRSP was officially adopted by the government in a national forum in December 2002 and promulgated by the President in January 2003\. A new unit was created in 2004 in the Ministry of Planning and Finance (MoPF) to foster PRSP implementation and monitoring of its results\. To support its monitoring efforts, the PRM-TA has also funded expertise and training to INE to improve the data bases necessary for the PRSP M&E (see Annex 8)\. The document's strategic vision is viewed as the development strategy for the country\. Its policy priorities are being reflected in the regular budgetary and public investment decisions of the country since the budget year 2003\. The PRSP was presented to the Board of the World Bank on April 21, 2005, and garnered very positive support of the Directors who backed its approach and its goals and encouraged the government to implement it fully\. The Joint Staff Advisory Note (JSAN) considers that the PRSP provides a reliable framework for reducing poverty in Sao Tome and Principe\. They considered the document as a credible but highly ambitious strategy\. Objective III: Developing the agenda for macro-economic and sectoral policy reforms Satisfactory The project's flexibility and focus in accommodating the country analytical and capacity building needs in the petroleum and justice (legal and regulatory) sectors led to highly positive outcomes for the country\. In the nascent petroleum sector: In the absence of the PRM-TA the outcomes described below would most likely not have materialized\. The credit funded a number of international and national consultancies and provided material support to assist the government to address urgent policy, negotiations and capacity building needs permitting (see Annex 8): Better financial terms for STP in four existing petroleum contracts\. The credit funded consultants to help the government understand the economic ramifications of existing contracts and renegotiate four - 6 -  old contracts to reach better financial terms for the country\. More transparent and informed decisions related to the petroleum bid analysis for the nine blocs managed by the Joint Development Zone (November 2003-April 2004) to ensure best negotiation outcomes for the country\. The credit funded national and international consultants to assist the government in analyzing the geological information, develop economic and financial potentials of the sector, review bids and the qualifications of the bidding companies, thus making a more informed decision about which companies and bid offers to choose\. Adoption of a best practice law on Petroleum Revenue Management that will affect the future economic development of the country\. PRM-TA partially funded international consultants to develop, present and discuss a draft law with the National assembly, the Government and the National Petroleum Agency\. The law was approved by the National Assembly in November 2004, and was promulgated by the President of the Republic end 2004\. It is currently being implemented with the support of the new World Bank GCB-TA credit\. Establishment of the legal and institutional framework to manage the sector related activities\. PRM-TA financially supported the creation and activities of the original core team of national experts to deal with the sectoral issues in 2002\. This involved provision of international expertise, training for the national team, and materials\. This team was instrumental in analyzing and overseeing sectoral activities\. This ad hoc group was formalized by the decree law creating the National Petroleum Agency (promulgated in June 2004) to supervise and regulate sectoral institutions as well as create more cadres\. National officials are now better equipped to address legal and industrial issues related to petroleum\. Enhanced transparency and governance by building national capacity and supporting policy dialogue on the petroleum issue\. The PRM-TA co-sponsored (with UNDP) two 2-day petroleum training/capacity building seminars that informed and educated national and local policy makers as well as national and international Non-Governmental Organizations (NGOs)\. This involved funding international experts to provide studies and presentations at the conferences\. The first conference (held in December 2003) familiarized Sao Tomeans with the basic information about the petroleum industry, expectations regarding timing and cost of exploration, points and aspects to be covered in a petroleum contract, projections of time and amount of monies Sao Tome could hope to receive\. The second seminar (held in March 2004), informed Sao Tomeans on issues related to petroleum revenue management\. In the public sector (justice / regulations / governance): The credit supported the development of a strategy for the reforms of the state\. This new strategy will help the state change its overall administrative structure to become more efficient in advance of the new petroleum era\. It also financed the drafting of a new Code of Administrative Procedure\. Modernization of the overall institutional, legal and business framework of the country in view of the upcoming petroleum era\. The credit fully financed or co-financed updating a large number of outdated (often colonial) legal codes in the legal (criminal and civil), economic (and commercial) and institutional (local and electoral) areas\. The credit also facilitated training for some of the judges and court staffs, accounting tribunal, and office of the Attorney General (see Annex 8 ­ Component 3)\. This effort is continuing with the support of the new justice sector IDF\. - 7 -  l The newly adopted telecommunication laws and regulatory authority is the base for the supervision of the opening of the market to competition by end 2005\. PRM-TA funded technical assistance to help the government develop and implement the telecommunications regulatory authority\. Authority was created and its capacity was enhanced through training\. 4\.2 Outputs by components: See table in Annex 8 for the list of outputs and their impacts\. 4\.3 Net Present Value/Economic rate of return: Not applicable\. 4\.4 Financial rate of return: Not applicable\. 4\.5 Institutional development impact: Substantial\. The project resulted in substantial institutional development impact\. Perennial capacity has been strengthened in public resource management, justice, and basic capacity has been established in the nascent petroleum sector\. Public resource management and expenditure continue to be strengthened and made more transparent, especially with the government adopting the Petroleum Revenue Management Law and the principles of the Extractive Industry Transparency Initiative (EITI) petroleum revenue initiative in 2004\. The petroleum law is considered a best practice law\. The government has centralized the revenue and external financial proceeds (except for some grants), and has improved control over its expenditures\. The Government launched the Office of the Auditor General in mid-2003 to audit government budgetary performance (the credit provided some material support to facilitate the launch of this office)\. Review of the process of execution of the public investments (supported by the credit) has led to improvements in public procurement procedures of the Public Investment Program (PIP)\. This review has also led to the adoption of better mechanisms of control and follow up for the PIP\. The government has also improved tax and tariff collections by increasing tax collection (PRM-TA supported reviews of system and provided materials and training), by upgrading customs valuations (including ASYCUDA training) and by introducing new taxes, and improving methodology to identify tax-payers\. Reforms at the Finance Directorate have been taking shape\. Three new directorates: Tax, Budget and Treasury, were created and are functional\. All three directorates have received technical assistance from the Bank and other donors to assist them in capacity building (for instance advisory services, training and provision of materials) and the reform of their budget related procedures\. The budget is prepared following consultation with spending departments, but is still done on a yearly basis instead of within a medium-term expenditure framework\. The 2003 and 2004 budgets were linked to the policy priorities of the PRSP and the macro-economic targets were agreed to with international partners\. In the justice sector, the country has adopted of a number of revised laws affecting the institutional and legal framework\. This modernization was accompanied by training for the judicial clerks and some of - 8 -  the judges to improve their professional skills\. l Petroleum Sector development\. Section 4\.1, Objective II includes description of the institutional capacity building started with the assistance of PRM-TA\. 5\. Major Factors Affecting Implementation and Outcome 5\.1 Factors outside the control of government or implementing agency: The rapid developments in the nascent petroleum sector starting in 2002 crystallized the complete lack of national capacity and the urgent need to address critical policy, negotiations and analytical issues related to the sector\. The government requested assistance from the Bank\. The Bank responded rapidly and flexibly, allocating the PRM-TA's unallocated balance to the provision of international and national technical assistance and the building of sustainable domestic institutional capacity\. This assistance was further anchored in direct WB advisory support and continuous and open sectoral policy discussions\. 5\.2 Factors generally subject to government control: Limited capacity\. The implementation of the project experienced delays due to lack of institutional, technical and administrative capacity of the civil service\. Even though the project was meant to loosen this capacity constraint, it was not programmed closely enough from the onset to fully achieve this goal\. Unstable political environment\. A major constraint to achieving the Development Objectives (DOs) in a timely manner was the unstable political environment ­ with six changes of governments or government reshuffles since 2001 causing weeks or months of uncertainty and stalemate in the administration\. These ministerial changes and stalemate in turn made it more difficult to deliver TA and build capacity to achieve the three objectives of the credits, especially in relation to supporting the implementation of the PRMC reforms (first objective of the credit)\. Uneven government commitment to the reform program of the PRMC affected the performance of the TA component designed to support the reforms\. The government commitment was not consistent in all sectors\. The tendency on the part of the government was to focus on specific conditions for meeting PRMC tranches\. For example, while the commitment was strong in macroeconomics, on other areas such as land reform, rural development, and private sector development the commitment was lacking\. This in turn affected what would get done in the TA credit\. 5\.3 Factors generally subject to implementing agency control: Management Effectiveness\. While the coordinator of the project was capable, highly motivated and performed well, she was burdened by the fact that there was no sufficient staffing in the PIU\. In the early stages of the project, there was no procurement specialist in the PIU and the project coordinator had to be advised mid-stream during the credit about the updates needed in procurement/financial management procedures by the Banks' procurement/financial management specialists\. In the third year, the project coordinator and other relevant staff were trained in financial management and procurement in conjunction with the preparation of the Governance Capacity Building (GCB-TA) credit which became effective on February 3, 2005\. There were also some implementation problems due to delays in the delivery of reports by consultants\. - 9 -  5\.4 Costs and financing: As of February 28, 2005, the actual disbursement under the credit was US$2\.64 million (1\.95 million SDR) compared to the appraisal estimate of US$2\.5 million (1\.95 million SDR)\. The superior dollar value is due to the recent devaluation of the dollar against SDR, which is the legal currency of the credit agreement\. 6\. Sustainability 6\.1 Rationale for sustainability rating: Likely\. A number of components and subcomponents supported by the project are likely to be sustainable\. The newly launched Justice sector IDF and GCB-TA credit will provide further support to several of these ongoing activities, thus enhancing their sustainability: The revenue mobilization and management reforms have been absorbed into the institutional and procedural structure of the government\. For instance, the reforms at the Customs administration and tax directorates appear to have become embedded\. To a lesser degree, so have the basic tenets of expenditure management\. One major component of the new GCB-TA Credit is dedicated to continue to support the public finance management reforms and capacity building with a view to the upcoming petroleum era\. The envisaged reforms include new budgetary nomenclature, accounting plan and establishment of a new integrated computerized budgetary system\. The PRSP unit, whose creation was supported by the credit has been elevated to the PRSP observatory within the directorate of planning in the MoPF to strengthen the implementation of the PRSP\. The continued implementation of the PRSP goals and actions, its monitoring and future update of the PRSP (including an analysis of the impacts of "the petroleum economy") will be further supported by the GCB-TA Credit in coordination with UNDP\. Support for National Institute of Statistics (INE) comprised helping to complete surveys, providing material support and training staff in methodology\. This support is expected to impact the overall capacity of the directorate\. This activity is further supported in the GCB-TA Credit in tandem with support for PRPS implementation and evaluation\. The petroleum unit supported by the credit has evolved into the National Petroleum Agency (by decree law)\. The institutional capacity building in the sector continues to receive technical, advisory and material support through GCB-TA credit\. The petroleum capacity building and petroleum laws ­ adopted in late 2004- are also sustainable policy/economic components for the country\. During the drafting of the law, lengthy policy discussions took place with regards to the content and policy implications of the law between the government, the central bank and the National Assembly to ensure understanding by and agreement of policy makers\. The implementation of the petroleum laws and sector related capacity building will continue to be supported by the GCB-TA credit through technical and advisory assistance as well as training for policy makers\. The update of laws, which once finalized through promulgation of the new laws and implemented, will - 10 -  play a key role in creating a modern legal and institutional framework for the economy and private (domestic and foreign) investment\. The Ministry of Justice is now pursuing its reform program with the assistance of an IDF grant approved in October 2004\. The IDF will include: (i) capacity building for the magistrates and personnel working directly in the courts; (ii) updating further laws such as the civil/commercial laws; and (iii) improving conflict resolution methods\. 6\.2 Transition arrangement to regular operations: See Section 6\.1 7\. Bank and Borrower Performance Bank 7\.1 Lending: Marginally unsatisfactory\. The identification process correctly focused on critical gaps and opportunities for interventions in Sao Tome and Principe\. The project was consistent with the CAS and government's development priorities\. The Bank had a consistently good working relationship with the Borrower during preparation and appraisal\. On these counts, the Bank's performance in the identification, preparation, and appraisal of the project was satisfactory\. However, the Bank's overall performance in lending is rated marginally unsatisfactory, based on the following factors: (i) the credit was designed as a study fund with no direct connection between component (activities) and funds; (ii) a complete logical framework was not developed during the preparation process of the Credit for Monitoring and Evaluation (M&E) and to capture progress; (iii) the activities of the PRM-TA component supporting the PRMC were not programmed in close coordination with the policy measures included in the PRMC; (iv) on procurement and financial management (FM), the Bank should have done a better job of identifying the weaknesses and training the counterpart staff; and (v) the political risk and weakness in the civil service were underestimated\. 7\.2 Supervision: Satisfactory\. In spite of limited supervisory resources, the Bank's performance during the implementation of the project was broadly satisfactory\. Over the four years of project implementation, there were seven supervision missions, with an average of about two missions per year\. The Bank's client relationship was very cordial and productive\. Aide-memoires were regularly prepared and transmitted, flagging outstanding issues and underscoring benchmarks for actions\. These alerted the government to problems with project execution and facilitated remedies in a timely manner, in conformity with Bank procedures\. The Project Status Reports (PSRs) rated the performance of the project both in terms of achievement of development objectives and project implementation based on mission findings, updating ratings when deemed necessary\. In late 2002, the development in the nascent petroleum sector led to urgent advisory, technical assistance and capacity building needs in the country\. The supervision team responded quickly, and with flexibly to address the country's immediate needs through the end of the project\. Weak preparation of the PIU led to annual external audits identifying some problems in procurement and financial management\. The Task Team Leader (TTL) addressed these issues in coordination with - 11 -  the PIU and the WB audit team to ensure implementation satisfactory to WB\. As noted above, the preparation process did not include a logframe for the credit so that internal monitoring and evaluation were not well programmed in terms of project outcome and output\. Early monitoring and evaluation were based on inputs, outputs and financial reports provided by the coordinator and reviewed by the TTL\. Noting the weakness of this approach, in 2003 the TTL responded proactively by retrofitting some indicators to complement the early M&E approach\. In view of this M&E weakness, the TTL rated the M&E as unsatisfactory in the last two PSRs\. The TTL also developed guidelines for financing training, especially training abroad\. l Whenever delays in implementation occurred, the Bank's task team was able to define concrete steps and timetable to try and put the project back on track and pace\. The Bank paid sufficient attention to the project's likely development impact\. 7\.3 Overall Bank performance: Marginally Satisfactory\. Overall, the Bank performance was marginally satisfactory\. However, in the absence of `marginal' ratings for the ICR, the ICR team is constrained to give a Satisfactory rating in Section 2 (Principal Performance Ratings) and Annex 6\. Borrower 7\.4 Preparation: Satisfactory\. The performance of the Borrower was satisfactory during preparation of the project\. It was committed to the objectives of the project\. The government officials worked closely with the Bank's project team on a continual basis, with full cooperation\. 7\.5 Government implementation performance: Marginally Satisfactory On the positive side, when the government was clearly in need of TA in petroleum sector, it was very proactive in seeking help from the Bank to hire international consultants and provide training for nationals\. Further, in public finance, directors of budget, taxation, and customs were proactive in improving their services by applying for TA funds for purchasing equipment, providing training to their staff, and hiring international consultants\. On the other hand, the government was not consistent in its commitment to all sectors\. As mentioned in Section 5, the tendency on the part of the government was to focus on specific conditions for meeting PRMC tranches or in specific sectors\. This narrowly focused commitment, in turn, affected the use and outcome of the TA Credit\. Further, the delay in providing counterpart funds slowed down implementation\. 7\.6 Implementing Agency: Satisfactory The performance of PIU which coordinated the project was overall satisfactory in supervising the implementation of the project, programming activities and reporting results\. It operated in close coordination with the senior management of MoPF, and was receptive to the Bank's advice, and highly - 12 -  collaborative with respect to meeting demanding benchmarks and deadlines\. In the absence of a logframe and early FM/procurement training, the coordinator provided regular reports on inputs and outputs and financial status of the credit\. The process of launching audits experienced some delays for two of the audit years, but was eventually performed to the Bank's satisfaction\. The 2002 audit was launched late (in August 2003) due to political instability, especially the January constitutional dispute between the National Assembly and the Presidency, the April demonstrations and the July coup\. The process for the audit of the year 2003 was launched in December 2003\. However, due to lack of response by audit companies (only one response), the Bank recommended that a second bid be launched in March 2004\. This was promptly done by the project coordinator in April 2004, under the direct supervision of the Procurement team at the Bank\. The 2003 Audit was received in September 2004\. The Bank's specialists reviewed it and deemed it satisfactory\. The Audit for 2004 was received in June 2005 (within the appropriate six-month deadline) and is being reviewed by the WB audit team\. These audits flagged the weaknesses in FM and procurement already discussed above\. 7\.7 Overall Borrower performance: Marginally Satisfactory\. The overall performance of the Borrower was marginally satisfactory\. However, in the absence of `marginal' ratings for the ICR, the ICR team is constrained to give a Satisfactory rating in Section 2 (Principal Performance Ratings) and Annex 6\. 8\. Lessons Learned Program-related lessons This credit (unlike many typical TAs) gave the Bank the opportunity to engage the government on a large number of sectoral policy dialogues as well as to build institutional capacity, especially on petroleum sector issues, legal reforms, and public finance management issues\. This was due to the nature of the small economy and the large scope of the credit\. Taking the following two lessons into account will help ensure that future TA projects will have the same positive effect on sectors covered by the credit\. There should be flexibility in the provision of TA in order to adapt it to the changing needs of the government (in this case in the petroleum sector)\. As part of this flexibility, it is important to keep a certain percentage of credit as unallocated\. Flexibility of design is equally important when the project involves capacity-building activities, especially in terms of prioritizing capacity issues\. TA credit should be given within the framework of the government's reform and institutional capacity building programs, with well-defined overall vision, and not as one-time perfunctory, incremental assistance\. As capacity building usually takes many years, such TA credits should be viewed in terms of sequential credit arrangements that build upon the accomplishments of previous credits\. Implementation-related lessons Better preparation/training of the PIU from the beginning of the project would ensure an easier implementation process, especially on procurement and financial management\. As part of this, it is essential to put together a strong team in the beginning so that the burden does not fall on a single - 13 -  person\. Learning from this experience, the presence of this team was made a condition of negotiations for the new GCB-TA Credit\. M&E should be developed in the early stages of project development\. PIU should be made fully aware of expectations of them in terms of M&E of the project's outcomes and outputs\. This is addressed in the new GCB-TA Credit\. To ensure more complete supervision and ease the work load at the PIU, increased supervision funding would have been useful so that at least financial management and procurement specialists were taken on mission once a year\. This is addressed in the new GCB-TA Credit\. l During project preparation, special attention should be given to the project's content and how it fits within the context of prevailing weak institutional capacity and the level of political volatility\. More specifically, neither should be underestimated\. 9\. Partner Comments (a) Borrower/implementing agency: See Annex 9 (b) Cofinanciers: N/A (c) Other partners (NGOs/private sector): N/A 10\. Additional Information A\. The Bank's ICR Team consisted of the following members: (i) Dorsati Madani Task Team Leader (ii) Sati Achath Consultant (iii) Madhu Nair Consultant B\. List of Task Team Leaders of the project in chronological order: (i) Miguel Saponara (ii) Dorsati Madani C\. Persons interviewed for the preparation of the ICR: (i) A\. David Craig Country Director (ii) Robert R\. Blake Sector Manager (iii) Eleodoro Mayorga Lead Economist (iv) Simplice Zouhon-bi Consultant (v) Miguel Saponara Consultant - 14 -  Annex 1\. Key Performance Indicators/Log Frame Matrix Outcome/Impact Indicators: Indicator Projected in SAR/PAD Actual/Latest Estimate End of Project First Objective: Improved economic Continued broadly satisfactory Continued broadly satisfactory macroeconomic performance management and macroeconomic performance in first half of 2004, however, performance slipped during revenue collection Tax collections as share of GDP second half of 2004, leaving the budget in larger deficit than estimated at 20\.4 percent by anticipated\. The Government and the IMF came to an 2004\. agreement on a PRGF program in early 2005 that includes corrective budgetary measures and structural reforms\. Tax collections as share of GDP estimated at 20\.4 percent by 2004\. Customs administration has improved management due to ASYCUDA and better valuation methodology\. Second Objective: PRSP is adopted by Adoption of the PRSP\. PRSP adopted in January 2003, its principals the government and - PRSP guides budgeting process\. (emphasis on health, education, infrastructure) used in budgeting reflected in the 2003, 2004 budgets\. New unit to supervise implementation and follow up on PRSP created\. Five updated annexes in development to complement the 12/02 PRSP document presented to the WB boards in April 2005\. Third Objective: Government is Petroleum sector: Petroleum revenue management law was promulgated developing and - Capacity building: Petroleum by the President of the Republic in December 2004 implementing agenda revenue law promulgated\. and is in the implementation phase\. for macro-economic and sectoral reforms - Justice Sector: partially Several new laws drafted, in process of review, modernizing the legal and presented to National Assembly or approved\. (See institutional infrastructure of the Annex 8 for further details)\. country\. - Strategy on reform of the state: Strategy adopted, needs to be fully implemented\. adopted\. * Note: This table and its content were not available in the PAD\. More specifically, no outcome indicators were included\. Outcome indicators were added in Oct\. 2003 and for the ICR document\. Output/Outcome/Impact Indicators: See Annex 8\. - 15 -  Annex 2\. Project Costs and Financing Project Cost by Component (in US$ equivalent) Component Appraisal Actual/Latest Percentage of Estimate Estimate Appraisal Bank Government Bank Government Bank Government Goods/Equipment 512,820\.51 51,282\.05 604,350\.00 66,448\.45 24\.17 2\.66 Consultant services 1,474,358\.98 1,497,937,82 59\.92 training, studies, and audits Unallocated 512,820\.51 537,580\.73 2,185\.40 21\.50 0\.09 (Petroleum Sector) Total 2,500,000 51,282 2,639,868\.55 68,633\.85 105\.59 2\.75 Project Cost (in US$ equivalent) Project Component Appraisal Estimate Actual/Latest Estimate US$ US$ Goods/Equipment 512,820\.51 670,798\.45 Consultant services 1,474,358\.98 1,497,937,82 training, studies, and audits Unallocated 512,820\.51 539,766\.13 (Petroleum Sector) Total 2,500,000\.00 2,708,502\.40 - 16 -  Annex 3\. Economic Costs and Benefits N/A - 17 -  Annex 4\. Bank Inputs (a) Missions: Stage of Project Cycle No\. of Persons and Specialty Performance Rating (e\.g\. 2 Economists, 1 FMS, etc\.) Implementation Development Month/Year Count Specialty Progress Objective Identification/Preparation 12/1999 4 Team Leader (1), Director (1), IMF Mission Chief (1), Economist (1) Appraisal/Negotiation 07/26/2000 6 Economist (2), Director (1) Lawyer (1), Disbursement Officer (1), Consultant (1) Supervision 06/01/2001 4 Team Leader (1); Economist (2); Consultant (1) 11/15/2002 5 Team Leader (1); Economist (2); S S Consultant (1); Program Assistant (1) 05/26/2002 1 Task Team Leader (1) S S 04/28/2003 3 Economist (2); Lead Operations S S Officer (1) 10/19/2005 1 Task Team Leader (1) S S 05/08/2004 1 Task Team Leader (1) S S 09/21/2004 1 Task Team Leader (1) S S ICR 01/05/2005 3 Team Leader (1); 05/30/2005 Consultants (2) (b) Staff: Stage of Project Cycle Actual/Latest Estimate No\. Staff weeks US$ ('000) Identification/Preparation 18 45\.0 Appraisal/Negotiation 10 40\.0 Supervision 22 90\.5 ICR 8 30\.0 Total 58 205\.5 - 18 -  Annex 5\. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating Macro policies H SU M N NA Sector Policies H SU M N NA Physical H SU M N NA Financial H SU M N NA Institutional Development H SU M N NA Environmental H SU M N NA Social Poverty Reduction H SU M N NA Gender H SU M N NA Other (Please specify) H SU M N NA Private sector development H SU M N NA Public sector management H SU M N NA Other (Please specify) H SU M N NA - 19 -  Annex 6\. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6\.1 Bank performance Rating Lending HS S U HU Supervision HS S U HU Overall HS S U HU 6\.2 Borrower performance Rating Preparation HS S U HU Government implementation performance HS S U HU Implementation agency performance HS S U HU Overall HS S U HU - 20 -  Annex 7\. List of Supporting Documents 1\. Aide-memoire, Back-to-Office Reports, and Project Status Reports\. 2\. Project Progress Reports\. 3\. Consultant Study Reports financed under the Project\. 4\. Borrower's Evaluation Report dated February 28, 2005\. 5\. Report and Recommendation of the President of the International Development Association for the Democratic Republic of Sao Tome and Principe: Public Resource Management Credit, dated October 6, 2000 (Report No\. P07398)\. - 21 -  Additional Annex 8\. Outputs/Outcomes by Component Components Sector/ Domain Activities Impacts COMPONENT 1: Tax Reform The project financed a consultant to Recommendations made by the consultant Fiscal Reform and conduct a diagnostic study on were for the most part included in the draft Management, administrative, institutional, and of the new tax and investment code resource legislative dysfunctions in the tax currently at the National Assembly\. mobilization system\. It evaluated tax and tax incentives systems to help Government in making the necessary reforms to promote private investment\. Financed preparing draft proposals for: These laws are being reviewed by the laws on taxation of personal and government and are to be submitted to the company income - an income tax code National Assembly by mid-2005 as part of and a wage tax code\. Property taxation - the PRGF agreement with the IMF\. These regulations for the urban property tax laws will modernize and simplify the tax [Contribuição Predial Urbana]; structure of the economy, reduce ambiguity regulations for the registration tax and potential for arbitrary taxation, and [Contribuição de Registro] , transfer help bolster private sector growth\. (SISA), inheritance, and gifts); Rules for tax enforcement procedures: Tax Litigation Code and General Tax code\. The project financed a consultant to Reforms were undertaken within the analyze the structure of the directorate of directorate\. Tax collection has increased taxation, providing suggestions for from 17% of GDP in 1999 to 20\.4% of in-depth reform to improve productivity GDP in 2004\. and tax collection\. Directorate of The project financed training and Improved revenue performance through Customs Technical Assistance in ASYCUDA to better valuation and higher collection\. improve skills of employees working with the system, leading to better Import tax collections rose from 7\.8% of assessment of import categorization and total government revenues in 2001 to 11% values, tariff calculations and increased of total government revenues in 2003\. collection\. Financial Inspection Technical assistance was provided to Accounting systems were normalized, and Service train the inspectors to overcome fiscal management system improved deficiencies in the application of the (through better reporting)\. OCAM accounting plan in effect\. Basic notions of organization and record-keeping of the OCAM system were taught\. Workbooks of practical exercises in the OCAM system were prepared\. Public Enterprise A study was financed to focus on an Recommendations made for the reform: EMAE [São assessment of the company's present restructuring, price structure and Tomé Water and situation, the application of the proposed privatization of the firm, within the Power Company] tariffs, re-establishment of the purview of the PRMC privatization company's financial equilibrium, program\. investments, and prospects for privatization\. Some of the recommendations of the study were implemented: the company succeeded in improving its collection rate; management revised some of its pricing policy; management aggressively pursued - 22 -  new investment potentials and the privatization process was postponed until the firm was deemed more financially sound\. Public Enterprise Technical assistance was provided to the Dossiers for Public Enterprises (PE) were reform: Directorate of directorate to prepare the dossiers of the prepared, privatization process was Treasury and public enterprises to be privatized under launched and bids evaluated for several Patrimony the PRMC project\. companies\. Out of seven firms earmarked in the PRMC for privatization two were liquidated\. A hotel was sold while another firm was in the last stages of privatization (through government negotiations with private shareholders)\. A palm oil producing company was brought to the point of sale twice with no takers\. In the case of Air Sao Tome airline negotiations has deadlocked between the government (minority shareholder) and the majority shareholder (TAP Air Portugal)\. One firm (EMAE) was removed from the privatization list (see above)\. Public Expenditure A consultant was hired to do a detailed Planning study of procedures for executing public investment expenses\. Recommendations were provided to improve methodology and capacity in competitive bidding procurement, planning and follow-up mechanisms\. Central Bank Credit financed introductory courses in Improved Central Bank oversight\. finance for employees of the Central Bank were given during a two-week period, focusing primarily on two aspects: Financial Instruments and Bank Supervision\. Central Bank / MoPF Technical assistance was provided to Led to consolidation of the debt dossiers improve the debt data management\. under the supervision of a new specialized This included internal and international Debt Management directorate: unified data debt dossiers, improvement in the base and hard copy repository for debt production of TOFE and the payment documents and basic analysis\. system to be implemented by the Central Bank\. Better management of the debt dossier, affecting budget programming and accounting process\. Review of Public A consultant hired by the project Enabled the Ministry of Education and Expenditures / conducted a study on educational Culture to introduce and implement Education micro-planning aimed at introducing a planning with a view to reinforcing discussion of problems with the school institutional capacity (proposal for map [carta escolar] in the Sao Tomean implementation of school map, scenarios educational system\. for different school mapping development)\. Review of Public Financed a consultant to review the Recommendations were made for better Expenditures/ structure of public spending on education use of budgetary funds in view of the Education in the past five years and suggest better Government's decision to support use of funds from a macroeconomic education as a primary sector\. perspective\. Review of Public Financed a consultant to analyze Expenditures / available data (public and private - 23 -  Health expenditures associated with health projects and strategies already implemented, and their actual effect) and the relationship to poverty in Sao Tome e Principe\. Reviewed the structure of public spending on health in the past five years to suggest better use of funds from a macroeconomic perspectives\. COMPONENT 2: PRSP (National Supported the development of the PRSP PRSP adopted in early 2003\. Carry out sectoral Poverty Reduction document: Production of PRSP document through a and specific Strategy) highly consultative process\. studies needed to Financed consultants to develop the 5 WB board presentation in April 2005 was prepare the PRSP sub-themes studies and to coordinate 5 met with strong support by all Executive sub-theme working groups\. Also Directors\. financed the finalization of the poverty The Joint Staff Advisory Note (JSAN) analysis used in the PRSP and the considers the PRSP to provide a reliable writing of the PRSP\. framework for reducing poverty in São Tomé and Príncípe\. Studies (5 themes of the PRSP): 1\. Education , alphabetization, and professional education 2\. Health, nutrition and population 3\. Governance, descentralization, participation, communication and information\. 4\. Opportunities for income creation for the poor 5\. Potentials for STP economic growth, macro-economic framework\. Financed consultants to hold consultative provincial meetings to discuss the PRSP content during development and propose solutions for the issues concerning the need to implement the PRSP and the matrix of measurements, including the preparation of progress indicators to serve as quantitative and qualitative benchmarks for evaluation of the extent to which the PRSP has been fulfilled\. Financed consultants to establish a framework for financing the priority activities of the PRSP (2002-2005) and the costing of the PRSP\. National Forum Consultant produced a base document to Document facilitated national discussion provide thematic content for discussion about future of the country and during the Summer 2004 National development outlook\. Forum\. Provided summary of Forum recommendations\. INE [National Financed technical assistance for surveys New data will feed into the M&E process Statistics Institute] of the active population, employment of the PRSP implementation to improve and unemployment \. This data is basic economic and social sector considered fundamental for the areas of information\. labor, employment, wages, vocational training, and others\. - 24 -  Technical assistance also updated data bases providing more current and accurate information\. Staff were also trained through this support of data gathering and processing\. Provided technical assistance and training to complete the General Census of the Population and Housing\. INE [National Financed collecting basic statistical data Updated data bases providing more current Statistics Institute] to feed INE databases with updated and accurate information\. information (1998, 1999, and 2000) in order to prepare the national accounts\. New data will feed into the M&E process Partially supported annual harmonized of the PRSP implementation by providing survey of companies for 1999 and 2000, more accurate information on the status of enhancing the sectoral and geographic the economy, private sector activities and desegregation of the respective results\. national accounts\. Staff were also trained through this support of data gathering and processing\. COMPONENT 3: Developing the Agenda for macro-economic and sectoral policy reforms Petroleum Financed international expertise to Renegotiated contract tems for securing review all the problems contained in more financial gains for the country\. contracts signed with the oil companies and the problems arising from those contracts; to develop a strategy for handling the situation and to assist the government in negotiations with the oil companies\. Advised the government of the DRSTP in matters of petroleum negotiation\. Credit financed review of the evaluation Technical knowledge and advice of geophysical and geological data, helped government to have a more especially with respect to the recent transparent and economically acquisitions of seismic and other data for rational decision making\. use in promoting the blocks of the economic zones (Joint Development Zone Improved government's knowledge ­ JDZ) and the exclusive economic zone of economic potential of the sector (EEZ)\. This evaluation provided important and allowed them to negotiate input to economics consultant by better contracts\. furnishing data that will make it possible to correctly model the financial potential of the petroleum sector\. Co-financed (with UNDP) consultants that Promulgated in December 2004 drafted the petroleum resources and is now in the implementation management law\. phase\. The law is considered to be a best practice in the sector\. Financed consultants to do economic assessment (analyses) of the JDZ and the Technical knowledge and advice EEZ, and model the the petroleum sector helped government to take a more potential\. transparent and economically rational decision making\. - 25 -  Financed a workshop on : "Options for Education and raising of awareness among Better Resources Management\." Generic decision makers and civil society regarding subtopics were addressed, such as the petroleum helped a more informed national global trend toward transparency, the discussion and decision making regarding ability of OPEC to stabilize prices, and the petroleum sector and revenues\. earnings by petroleum exporter countries\. A "coach" advised and proposed different kinds of solutions to the national petroleum commission in the framework of the implementation of the national petroleum agency\. Telecommunications Technical assistance to help the Authority was created, its capacity was government develop and implement the enhanced through training\. telecommunications regulatory authority\. The telecoms laws were adopted and will be the base to supervise the opening of the market to competition by end 2005\. Administrative Reform Developed a comprehensive strategy for Draft of Code of Administrative reform of the State to improve Procedure\. effectiveness of the government\. Judicial System Financed consultants to revise certain laws The following laws have been been (in coordination with Portuguese approved by the National Assembly: assistance), namely: Law of Penalties Execution the Penal Code, Code of Criminal Basic Law of Judiciary Procedure, Law of Penalties Execution, Statute of the Judicial Magistrates Service Basic Law of the Judiciary System, and Statute of the Public Prosecutor other complementary legislation\. Amended Statute of the Judicial Secretariats the Statute of the Judicial Magistrates Service and the Office of the Public The following laws are still in draft (being Prosecutor and the Judicial Secretariats\. discussed by the government or at the Draft a Law on Professional Associations\. National Assembly): Also revised the following laws: the Local the Local Finances Law; Finances Law; the Political and the Political and Administrative Statute of Administrative Statute of Principe, the Príncipe\. Political and Administrative Statuts of Príncipe\. The objective was to modernize the overall institutional and legal framework of the country\. Judicial System / Credit financed a consultant to undertake New laws were submitted to the National National Assembly a comparative study on the effect of Assembly\. The Electoral Census Law and democracy on development in African Local Government Election Law were countries in general and in STP in approved\. particular, including evaluation of the percentage of the General State Budget Their implementation is aimed at allocated to financing legislative activity, improving transparency\. as well as a comparative study of the legislator-per-capita-of-population coefficient\. Revised draft electoral laws on activities and financing of political parties; financing of electoral campaigns\. Judicial System Financed training for personnel in the Improved quality of judicial system courts and in the office of the performance Government Prosecutor concerning the legal system, handling of cases, and the operations of the judicial secretariats\. This included training for the - 26 -  Accounting Court (Tribunal das Contas)\. Judicial System / Financed (partially) consultants to revise Private Sector the following bills of law: General Development/ Regime for the Pursuit of Commerce; Ministry of Model Statutes for Associations of Commerce Different Occupational Groups; Registration of Importers by Class; General Table of Commerce, Industry and Tourism; Law on Tourist Uses; Law creating a National Council on Tourism; Tourism Framework Law; Law on Operation of the Drive-Yourself Rental Car Industry; Draft a bill that would set up an autonomous fund to finance government actions in the realm of tourism; Draft a new consolidated and updated law on industrial licensing\. The objective was to facilitate and modernize the business environment associated with private sector activities (tourism, commerce, industry)\. Judicial System / Funded consultant to propose legislation Law was proposed and adopted\. Private Sector that responds to the need to protect São Development/Ministry Tomean entrepreneurs by reserving areas of Commerce of economic activity exclusively for them, or for others in partnerships with São Tomean citizens\. A legal instrument was created to formally Funded consultant to develop regulation establish the Single Service window\. for the new Investments Code to be enacted by the National Assembly and create the bases for functioning of a Single Service Window [Balcão Único]\. Private Sector Funded a consultant to analyze the Development/Ministry possibilities for implementing an of Commerce/ integrated program (PIAFE)\. Employment Strategy This analysis helped to identify economic opportunities to form and support business initiatives\. Private Sector Funded development of technical Development / procedures for organizing an office to Employment Strategy serve young micro-enterprises, conduct studies to set up incubators for services companies\. This was to help unemployed youth to start up micro-businesses through the center for information and communications technologies, incubators Developed a National Training, Employment and Housing Strategy for Young People, to present to the National Youth Forum\. - 27 -  Additional Annex 9\. Borrower's Evaluation Report Democratic Republic of Sao Tome e Principe Ministry of Planning and Finance PATGRP Evaluation Report (February 2001 / December 2004) I\. Objectives As a result of successes achieved in the implementation of macroeconomic policy beginning in 1998, the Government of the Democratic Republic of Sao Tome and Principe, in April 2000, reached agreement with the IMF on a program known as the Poverty Reduction and Growth Facility (PRGF) designed to lead the country to a reduction in its external debt as one of the HIPC (Heavily Indebted Poor Countries)\. Determined to execute this program, the Government, in a letter dated August 14, 2000 that described the plan of action, objectives, and policy measures intended to strengthen the management of public funds and improve the country's macroeconomic stability, asked the World Bank for assistance to support the PRGF during its execution\. Based on a loan agreement signed in November 2000 for the equivalent of SDR 1,950,000 (one million nine hundred fifty thousand SDRs), which at the time represented US$2,500,000, the Technical Assistance Project for Public Funds Management (PATRGP) enabled the Government of the Democratic Republic of Sao Tome and Principe to receive assistance in carrying out the policy measures contemplated in the PRGF Program by conducting the sectoral, sub-sectoral and specific studies necessary for preparation of its PRSP (Poverty Reduction Strategy Paper) and in the drafting of an agenda for macroeconomic reforms and changes in sectoral policy\. Throughout its existence, the PATGRP has helped reinforce the Government's institutional capacity\. It has ensured that technical assistance services were provided for managing the objectives of the Government's economic and financial policy\. It purchased various types of equipment for use in mobilizing public funds and managing them more effectively\. It financed training in the various arenas of Government activity and an analysis of public spending on health and education\. It supported initiatives to better define the policy objectives for private sector development and to strengthen the nation's performance in the area of statistics\. It also assisted in the reform of certain codes that comprise the legal framework of the country's judiciary\. II\. Evaluation of PATGRP Implementation Execution of activities planned by the PATGRP was heavily impacted by the political events that occurred in this country during the project period and provoked instability in the leadership of the ministries and continual changes in the work plans\. This troubled internal environment, coupled with a rather unfavorable economic and financial context, and the limited ability of the various project beneficiary sectors to respond, explain the delay experienced in carrying out the programmed activities\. - 28 -  Despite these difficulties, the Government believes that overall its objectives were met\. We have prepared the following table to give a better picture of project objectives for the principal beneficiary sectors, along with the impact and results of the key studies and/or technical assistance provided by the PATGRP\. Sectors/domains Objectives of the studies/technical assistance Impact The National Assembly Comparative study on the effect of democracy on Two draft bills were submitted: one on the development in African countries in general and in STP revision of the political parties law and in particular, including evaluation of the percentage of another on the political party financing the General State Budget allocated to financing law\. Their implementation will, among legislative activity, as well as a comparative study of other things, help combat corruption\. the legislator-per-capita-of-population coefficient\. Tax Reform The proposed study sought to evaluate fundamental A series of recommendations was made to aspects of the tax and tax incentives systems in order to improve the taxation system, the guide the Government in making the reforms necessary organizational structure of the Bureau of to promote private investment\. It also was intended to Taxes, and the tax incentives regime\. A diagnose administrative, institutional, and legislative logical sequence to be followed in tax dysfunctions in the tax system\. reform was also laid out\. Draft proposals for: laws on taxation of personal and Their enactment and subsequent company income - an income tax code and a wage tax implementation will increase tax fairness code\. Property taxation - regulations for the urban and help bolster the private sector\. property tax [Contribuição Predial Urbana]; regulations for the registration tax [Contribuição de Registro] (transfer (SISA), inheritance, and gifts); Rules for tax enforcement procedures: Tax Litigation Code and General Tax code\. Financial Inspection Technical assistance made it possible to train the The skills of the Inspection Service have Service inspectors so as to overcome deficiencies in the been bolstered; accounting systems application of the OCAM accounting plan now in effect standardized; presentation of the results in this country, even as applied by the State Auditing for the year is improved; application of the Agents [Agentes Fiscalizadores do Estado]\. Basic fiscal system was improved\. notions of organization and record-keeping of the OCAM system were taught\. Workbooks of practical exercises in the OCAM system were prepared\. Public Expenditure Detailed study of procedures for executing public When the proposed recommendations are Planning investment expenses in order to improve public implemented, the methodology of the competitive bidding procedures and adopt investment logical framework of project preparation control and follow-up mechanisms\. will have been integrated: evaluation from the project standpoint to the standpoint of PIP (Public Investment Program) preparation\. Review of Public A study in educational micro-planning aimed at Indicators of access and participation Expenditures introducing a discussion of problems with the school throughout the different levels of the map [carta escolar] in the São Tomean educational educational system were identified and system\. This will enable the Ministry of Education and calculated\. Organization of the school Culture to introduce and implement planning with a system and enumeration of the social and view to reinforcing institutional capacity\. economic factors that explain the present dynamic\. Proposals for implementation of the school map, identifying the phases, the human resources, the timetable, etc\. Proposals for different scenarios of school system development were presented\. Review the structure of public spending on education Review public spending in order to - 29 -  in the past five years and suggest better use of funds achieve better allocation of public funds\. from a macroeconomic perspective\. Review of Public Inventory and analyze available data (public and Develop a list of pertinent indicators with Expenditures private expenditures associated with health, projects, a view to following up on the objectives of and strategies already implemented, and their actual health policy\. Review public spending in effect) and the relationship to poverty in Sao Tome and order to achieve better allocation of public Principe\. funds\. Review the structure of public spending on health in the past five years and suggest better use of funds from a macroeconomic perspective\. Financial Management Provide the managerial staff of the districts in Sao The skills of the managerial personnel in Tome and Principe with a knowledge of financial and the districts of São Tomé and Príncipe personnel management practices, as well as were enhanced\. information technology\. Survey all the problems contained in contracts signed A legal and institutional framework was with the oil companies and the problems arising from designed for managing petroleum-related Petroleum those contracts\. activities in Sao Tome and Principe\. Develop a strategy for handling the situation and assist the Government in negotiations with the oil companies\. Advise the Government of the DRSTP in matters of petroleum negotiation\. Review the evaluation of geophysical and geological Improvements were made in managing the data, especially with respect to the recent acquisitions contracts to gather seismic and other data of seismic and other data for use in promoting the for use in promoting the blocks of the blocks of the economic zones (Joint Development Zone economic zones\. ­ JDZ) and the exclusive economic zone (EEZ)\. This review should include the regional geological scenario\. Advise the consultant for economics by furnishing data that will make it possible to correctly model the petroliferous potential of those areas\. Draft a petroleum resources management law\. Examine São Tomean officials are now better and propose alternatives to the fiscal arrangements equipped in legal terms to satisfactorily under the existing contracts and the proposals for manage the petroleum resources\. revising them\. Economic assessment (analyses) of the National capability to evaluate contracts in JDZ and the EEZ, and correct modeling of their the area of petroleum has improved\. petroliferous potential\. Presentation of the topic: "Options for Better Resources Skills reinforced on "Options for Better Management\." Generic subtopics were addressed, such Resources Management\."' as the global trend toward transparency, the ability of OPEC to stabilize prices, and earnings by petroleum exporter countries\. A coach will advise and propose different kinds of solutions to the national petroleum commission in the framework of the implementation of the national petroleum agency\. EMAE [São Tomé The study focused on an assessment of the company's If the recommendation made in the study Water and Power present situation, the application of the proposed is adopted, the financial situation of Company] tariffs, re-establishment of the company's financial EMAE will improve\. equilibrium, investments, and prospects for privatization\. Telecommunications Take steps to create a telecommunications regulatory Telecommunications Regulatory Authority authority\. created\. Judicial System Revise certain bodies of law, namely: the Penal Code, After passage of those laws, the judicial Code of Criminal Procedure, Law of Penalties system will be more expeditious\. Execution, Basic Law of the Judiciary System, and other complementary legislation\. Amend the Statues of the Judicial Magistrates Service and the Office of the Public Prosecutor and the Judicial Secretariats\. Draft a Law on Professional Associations\. - 30 -  Administrative Reform Reformulate the following laws: Electoral Census Law; Enhancement of local power\. the Local Government Elections Law; the Local Finances Law; the Political and Administrative Statute of Príncipe\. Draft a Code of Administrative Procedure, keeping in Regulate the organization and functioning mind the realities and specific characteristics of the of the public administration\. Avoid Republic of Sao Tome and Principe\. bureaucratization and bring services closer to the people\. Develop a comprehensive strategy for reform of the A document that serves as a guide for State\. actions to be taken to solidify plans to adapt and continually adjust the apparatus of the State to changes in the global context and the basic policies of the Government\. Judicial System Training for personnel in the courts and in the office of Skills of government employees improved\. the Government Prosecutor concerning the legal system, handling of cases, and the operations of the judicial secretariats\. Employment Strategy Develop technical procedures for organizing an office This should help consolidate the to serve young micro-enterprises, conduct studies to set initiatives for young people, particularly up incubators for services companies\. by creating young micro-enterprises, a center for new information and communications technologies, and incubators\. Develop a National Training, Employment and A National Youth Forum was held, Housing Strategy for Young People, to be presented to involving the sectors associated with the the National Youth Forum\. problems of job creation\. ENRP [National Develop an ENRP and propose solutions for the issues A document was drafted that constitutes a Poverty Reduction concerning the need to implement the ENRP and the reference tool for use in harmonizing the Strategy] matrix of measurements, including the preparation of sectoral and macroeconomic policies and progress indicators to serve as quantitative and in implementing the ENRP, in other qualitative benchmarks for evaluation of the extent to words ­ "Who will do what, when, and which the ENRP has been fulfilled\. Establish a with what resources?" framework for financing the priority activities of the ENRP (2002-2005) and the complete ENRP\. Analyze the possibilities for implementing an Sectors of activity in the national economy integrated program to support and form business were identified, as well as a commercial initiatives (PIAFE) in Sao Tome and Principe\. and industrial zone suited for implementation of a PIAFE\. Propose legislation that responds to the need to protect After approval, the country will be better São Tomean entrepreneurs by reserving areas of prepared to protect the São Tomean economic activity exclusively for them, or for others in entrepreneur\. partnerships with São Tomean citizens\. Reformulate the following bills of law: General Regime A legal foundation for organized for the Pursuit of Commerce; Model Statutes for commercial activity was created\. Associations of Different Occupational Groups; Registration of Importers by Class; General Table of Commerce, Industry and Tourism; Law on Tourist Uses; Law creating a National Council on Tourism; Tourism Framework Law; Law on Operation of the Drive-Yourself Rental Car Industry\. Draft a bill that would set up an autonomous fund to finance Government actions in the realm of tourism\. Draft a new consolidated and updated law on industrial licensing\. Regulate the new Investments Code to be enacted by A legal instrument was created for use in the National Assembly and create the bases for institutionalizing a Single Office for functioning of a Single Service Window [Balcão investment promotion\. - 31 -  Único]\. Central Bank Introductory courses in finance for employees of the Improvement of skills of Central Bank Central Bank were given during a two-week period, personnel\. focusing primarily on two aspects: Financial Instruments and Bank Supervision\. INE [National Conduct surveys of the active population, employment A diagnosis was made of the current Statistics Institute] and unemployment by interviewing families in order to status of statistics on labor, employment, gather and make available statistics that are considered wages, and vocational training\. fundamental for the areas of labor, employment, wages, Dissemination and subsequent publication vocational training, and others\. of data from the 2001 Census was Complete the General Census of the Population and completed\. Housing\. Gather basic statistical data to feed and update the INE Create posts in remote locations where databases with updated information (1998, 1999, and statistical data can be gathered\. 2000) in order to prepare the national accounts\. Annual harmonized survey of companies for 1999 and 2000, enhancing the sectoral and geographic desegregation of the respective results\. - 32 -  - 33 -

REVIEW

P039161

Document of The World Bank Report No: 33204 IMPLEMENTATION COMPLETION REPORT (SCL-44330 TF-29316) ON A LOAN IN THE AMOUNT OF US$101\.0 MILLION EQUIVALENT TO THE REPUBLIC OF CROATIA FOR A RAILWAY MODERNIZATION & RESTRUCTURING PROJECT December 28, 2005 Infrastructure and Energy Department Europe and Central Asia Region  CURRENCY EQUIVALENTS (Exchange Rate Effective June 2005) Currency Unit = HRK HRK1 = US$ 0\.174 US$ 1 = HRK5\.747 FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy DMU Diesel Multiple Unit EBRD European Bank for Reconstruction and Development ECA Europe and Central Asia ECU European Currency Unit EFSAL Enterprise and Financial Sector Adjustment Loan EMU Electric Multiple Unit ERR Economic Rate of Return EU European Union FRR Financial Rate of Return GDP Gross Domestic Product GPN General Procurement Notice HZ Hrvatske Zeljeznice (Croatian Railways) IBRD International Bank for Reconstruction and Development ICR Implementation Completion Report ILO International Labour Organization IMF International Monetary Fund ISA International Standards of Auditing MMATC Ministry of Maritime Affairs, Transport and Communications MOF Ministry of Finance MSTTD Ministry of Sea, Transport, Tourism, and Development NPV Net Present Value PAD Project Appraisal Document PAL Programmatic Adjustment Loan PPIAF Public-Private Infrastructure Advisory Facility PSO Public Service Obligation PSR Project Status Report PTL Project Team Leader QAG Quality Assurance Group SOE Statements of Expenditure Vice President: Shigeo Katsu, ECAVP Country Director Anand K\. Seth, ECCU5 Sector Manager Motoo Konishi, ECSIE Task Team Leader/Task Manager: Sunja Kim, ECSIE  CROATIA Railway Modernization & Restructuring Project CONTENTS Page No\. 1\. Project Data 1 2\. Principal Performance Ratings 1 3\. Assessment of Development Objective and Design, and of Quality at Entry 2 4\. Achievement of Objective and Outputs 7 5\. Major Factors Affecting Implementation and Outcome 12 6\. Sustainability 14 7\. Bank and Borrower Performance 14 8\. Lessons Learned 17 9\. Partner Comments 18 10\. Additional Information 22 Annex 1\. Key Performance Indicators/Log Frame Matrix 23 Annex 2\. Project Costs and Financing 24 Annex 3\. Economic Costs and Benefits 28 Annex 4\. Bank Inputs 30 Annex 5\. Ratings for Achievement of Objectives/Outputs of Components 33 Annex 6\. Ratings of Bank and Borrower Performance 34 Annex 7\. List of Supporting Documents 35 Map: IBRD No\. 29793  Project ID: P039161 Project Name: Railway Modernization & Restructuring Project Team Leader: Sunja Kim TL Unit: ECSIE ICR Type: Core ICR Report Date: December 30, 2005 1\. Project Data Name: Railway Modernization & Restructuring Project L/C/TF Number: SCL-44330; TF-29316 Country/Department: CROATIA Region: Europe and Central Asia Region Sector/subsector: Railways (65%); Other social services (35%) Theme: Infrastructure services for private sector development (P); State enterprise/bank restructuring and privatization (P); Access to urban services and housing (S); Rural services and infrastructure (S) KEY DATES Original Revised/Actual PCD: 06/11/1997 Effective: 06/09/1999 06/09/1999 Appraisal: 06/01/1998 MTR: Approval: 01/12/1999 Closing: 06/30/2003 06/30/2005 Borrower/Implementing Agency: GOVT\. OF CROATIA/CROATIAN RAILWAYS Other Partners: STAFF Current At Appraisal Vice President: Shigeo Katsu Johannes Linn Country Director: Anand K\. Seth Arntraud Hartmann Sector Manager: Motoo Konishi Eva Molnar Team Leader at ICR: Sunja Kim Enn Vasur ICR Primary Author: Agnieszka Grudzinska; Sati Achath; Madhu Nair; Yash Pal Kedia 2\. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainability: L Institutional Development Impact: M Bank Performance: S Borrower Performance: S QAG (if available) ICR Quality at Entry: S S Project at Risk at Any Time: Yes  3\. Assessment of Development Objective and Design, and of Quality at Entry 3\.1 Original Objective: The objective of the US$183 million project (Loan US$101 million) was to modernize and restructure Hrvatske Zeljeznice (HZ) in order to diminish its deficit and thus also its financial burden on the government budget while creating a company adapted to a competitive transport market\. The project objective was consistent with the Bank's Country Assistance Strategy (CAS) for Croatia (Document No\.14088-HR, April 04, 1995), as discussed by the Board on May 6, 1998\. This strategy emphasized: (i) strengthening public sector management by increasing efficiency and reducing fiscal expenditures; and (ii) promoting infrastructure and energy development as a basis for growth\. The project incorporated the following lessons learned from previous Bank-assisted projects in the transport sector in Croatia: (i) clear goals must be agreed regarding reduction of non-commercial functions of the railways and the staff employed by the railways\. Most transport projects had achieved their physical objectives, but had difficulties in achieving the financial objectives, especially in the railway sector, in the pre-independence projects\. Although usually successfully completed, economically justified and having resulted in operational improvements, the railway projects were only partly successful in improving railway's financial performance\. This was partly because of an underlying difference of view between the Government of the former Yugoslavia and the Bank about the function of the railways (the Government viewed the railways as serving important non-commercial functions which required continued subsidization) and partly because of the continuing bureaucratic culture which limited operational improvement, reluctance to reduce staff, and almost no incentives for increasing revenues or reducing expenditure; (ii) the implementing agency should be directly responsible for all implementation aspects of the project components, including procurement and disbursements; and (iii) the implementation unit should be fully staffed before loan effectiveness\. The project envisioned the following benefits from the project: (i) an improved financial situation for HZ through productivity increases and focus on core businesses, which will translate into a decreased burden on the Government's budget; (ii) beginning of the transformation of HZ into a commercially viable company in a market economy; (iii) reduced maintenance costs and derailment risks through the modernization of HZ's physical assets; (iv) higher productivity for HZ and lower labor costs resulting from staff retrenchment; (v) preparedness of HZ to meet the traffic demand foreseen in the medium-term, by increasing HZ services reliability, productivity and quality, and enabling HZ to provide services more adapted to the actual market requirement; and (vi) contribution to better environmental conditions in Croatia, resulting from modernized facilities and rolling stock, the same being less polluting than the present ones\. The objective was important to the country's economic and social development, especially in terms of reducing the government budget for railways\. The objective was also important for HZ as the Government's financial support to the HZ was diminishing and becoming irregular and thus the physical condition of the railway assets was progressively deteriorating\. However, the project objective, as stated, was subject to varied interpretation by the Borrower and HZ on one side and the Bank and EBRD on the other\. In particular, the Government and HZ chose to interpret the stated objective "to modernize" and to adapt "to a competitive transport market" to mean the creation of a modern high-speed, high-technology railway, despite the contradiction between such interpretation and the objective of reducing the deficit\. In retrospect, the project objective should have more clearly emphasized the priority of reducing the fiscal burden\. - 2 -  3\.2 Revised Objective: The objective was not revised\. 3\.3 Original Components: The project consisted of seven components, all related to achieving the project's objective\. HZ had reasonable technical, administrative and financial capacity for successful implementation of these components\. Following is a description of the project's components\. Component 1: Track Renewal and Maintenance of Core Routes: (US$24\.2 million: 13% of the total project cost) The project proposed a minimum level of track renewal of the "core" routes, which if not undertaken, would have jeopardized HZ's efforts to improve its financial and commercial performance, as a worsening track condition would have resulted in rerouting of part or all of the existing profitable transit traffic and would have strongly diminished the prospects of new traffic\. The project included the provision of: (i) 25,000 tons of rails, (ii) base plates and ring pads; (iii) components for the rehabilitation of 200 turnouts, (iv) 3-track maintenance cars; (v) a butt-welding machine; and (vi) miscellaneous track maintenance equipment and spare parts for rehabilitation of track maintenance equipment\. Component 2 Rehabilitation of Traction Units and Spare Parts: (US$57\.8 million: 31% of the total project cost) The project provided for rehabilitation and modernization of 40 mainline locomotives (30 diesel and 10 electric) and provision of additional spare parts (which would allow heavy repairs on 50 additional main line diesel locomotives and daily maintenance of the 80 rehabilitated diesel locomotives over a period of five years), as well as for the modernization of six Electric Multiple Units (EMUs)\. The project aimed at improving the daily availability of the rehabilitated traction units to reach at least 80 percent\. Component 3: Conversion of Freight Wagons: (US$3\.0 million: 2% of the total project cost) The freight wagon fleet was too large for prevailing requirements and there was a lack of suitable wagons\. The project financed the conversion of 100 standard covered 2-axle wagons to provide full side access and strengthened floors for pallets\. The conversion of these wagons would allow HZ to increase its presence on revenue generating segments of the freight transport market\. Component 4: Rehabilitation of Passenger Coaches: (US$10\.0 million: 5% of the total project cost) The project included provision for the rehabilitation and modernization of 120 coaches for international and inter-regional services\. This rehabilitation would preserve the availability of passenger cars for service through overhaul of these coaches to ensure that they remain serviceable for the years to come, with lower maintenance costs and improved comfort, which would provide the basis for a passenger tariff increase\. Component 5: Environment Protection: (US$1\.6 million: 1% of the total project cost) The project aimed to: (i) mitigate potential negative impacts on the environment resulting directly from program activities (such as closure of workshops, and fueling stations); and (ii) modernize, up to adopted environmental standards, those HZ facilities and activities, which were considered as having the worst effects on the environment\. Modernization included rolling stock rehabilitation (under the investment component of the program), improved water pre-treatment and collection to reduce used water pollution, - 3 -  supply of oil foils, construction of recycling yards and depots for fuel supply\. Component 6: Severance Payment: (US$82\.4 million: 46% of the total project cost) Two specific components were designed as part of the Staff Retrenchment Program in order to minimize the social impact of adjustment\. The first one was a severance payment component, which would compensate each redundant staff in accordance with the Bank's guidelines and Croatian Labor Law on severance payment; and (ii) the agreement reached by HZ to get, for each of its redundant staff, double of minimum severance payment per year of employment\. In addition, the second component provided support to laid-off staff in terms of training based on regional employment opportunities, job searching and outplacement\. Component 7: Efficiency Improvement: (US$3\.0 million: 2% of the total project cost) The implementation of efficiency improvement measures at the company's management and organizational levels was a key element in ensuring the success of project implementation\. Improvements were required in: (i) the management area, including the company's organizational structure, the decision-making processes, allocations of responsibilities and preparation of business plans; (ii) the handling of non-core businesses and uneconomic services; (iii) the financial management systems; (iv) the development of information systems; and (v) work processes and productivity\. In this respect, full time consultant services were to be provided to HZ management and the restructuring unit during the first two years of project implementation\. In addition, training would be provided to: (i) HZ senior staff, principally in the areas of management, marketing, performance evaluation, planning and commercial business approaches; and (ii) HZ staff, to improve working methods and to introduce them to accountability and results driven management\. 3\.4 Revised Components: The Loan Agreement was amended in August 2001 to provide for information technology systems not provided for in the original Loan Agreement\. To make the funds available, some items of track maintenance equipment and locomotive spare parts were dropped\. The Loan Agreement was amended in July 2003 to add ticket vending machines to Goods Category and increase allocation for track renewal equipment and passenger coach rehabilitation\. The additional allocation was made possible by reallocating the unallocated amount and reducing the allocation for several items in Goods Category and Consultant Services Category\. An international consulting firm, financed under a bilateral grant money, was engaged to assist HZ with tackling core issues such as non-economic lines, staff reduction, and privatization of non-core businesses\. This led to some savings in Consultant Services Category\. The Loan Agreement was again amended in April 2004 to increase allocation for track renewal and maintenance, the funds being made available from the environment category, the funds for which were provided internally by HZ's own resources together with the government subsidy\. The design of the drainage rehabilitation and fuel filling stations were delayed and sufficient time was not left for the implementing the designs, thus the funds were provided by HZ to make it easier to hire contractors on HZ's terms\. 3\.5 Quality at Entry: There was an official assessment of the quality at entry by the Quality Assurance Group (QAG)\. The project's overall quality at entry received a "Marginally Satisfactory" rating from QAG\. Since the current ICR template does not have the capability of rating "Marginally Satisfactory", we had to assign "S" rating\. This comprised Marginally Satisfactory ratings for the Project/Operation's Concept; Objectives and Approach; Technical and Economic Aspects; Poverty and Social Aspects; Financial Management Aspects; Institutional Capacity Analysis; Risk Assessment and Sustainability; and Bank Inputs and Processes\. Satisfactory ratings were given to Environmental Aspects and Readiness for Implementation\. - 4 -  QAG remarked that: "The major weakness in the project is the absence of a clearly articulated vision of the future of Hrvatske Zeljeznice (HZ), the related scope of restructuring and reinvestments necessary to get there, and the role of the restructuring under this project during the transition\. The project did not culminate with an explicit and shared vision between the Bank and the Borrower of the end goal of reform and a common understanding of the depth and cost of restructuring that would be necessary to achieve such an ultimate goal\. The final choice of a restructuring strategy to support under the project appears to have been driven more by political expediency than fundamental analysis of the needs of the railway\. In and of itself, this would have been acceptable provided that this project laid the groundwork for the much more ambitious restructuring dictated by the competitive and financial situation of HZ\. In the Panel's opinion the processes put in place under the project are inadequate to build a strong political constituency and technical capacity for effective implementation of the limited restructuring measures in the project let alone to lay the foundations for a much more ambitious program\. The project documents fail to adequately recognize the major political and economic and, ultimately, implementation risks confronted by the project\. Strengths: There is an undoubted need for the restructuring of a railway that is chronically and heavily dependent on the national treasury for its operating viability and that faces huge competitive challenges to its existence as a viable player in the regional transport sector\. The project team did an excellent job of laying some of the institutional foundations for a serious attempt at restructuring the railways\. Although not ultimately a centerpiece of the dialogue with the Borrower and the discussion of strategic choices within the Bank, the preparation of the project included a detailed development of restructuring options based on a thorough analysis of the system's capabilities relative to evolving market demand\. The fact that this work featured little in project design is, in the Panel's view, primarily due to failure in oversight and to a lack of incentives provided to the team to confront hard choices\. Specifically, the traditional review processes were in a state of flux and there appears to have been considerable pressure not to risk the delivery of operations to Croatia\. Weaknesses: There is a clear disconnect between the project objectives, the knowledge developed about the relative merits of different strategic options for achieving these objectives and the final choice of a strategy under the project\. The restructuring strategy to be implemented under the project was designed to be consistent with a ceiling on the level of operating subsidies to the railways under an adjustment operation\. This subsidy target was developed without the benefit of analysis to define the performance potential of the railways and the actions required to realize such potential\. It had the benefit of being politically acceptable to the Croatians\. But it clearly preempted serious discussion of the other restructuring scenarios that were developed during project preparation and based upon detailed technical and market studies\. These scenarios presented a clear view of the end goal of reform of the railway and the depth of restructuring necessary to achieve it\. Bank Processes\. This operation was prepared during a state of considerable flux in the organization of the ECA Region\. There was little oversight of the evolving quality of the operation\. While this failure was partly mitigated by the presence of an experienced Team Leader, the team nonetheless faced tough choices as to the strategic options to advance and the composition of Bank assistance best aligned with a chosen option\. The team would have been helped considerably if there were more discussion and managerial involvement more upstream in the preparation process\. As it is, by the time the internal organizational issues were adequately resolved, this project was well advanced and it became difficult to make substantive - 5 -  changes to its design\." The Regional response to QAG Review was the following: "The project was designed during a very difficult period of country relationships when major Bank shareholders did not support lending to Croatia due to the government's reluctance to adhere to the Dayton Peace Agreement\. During this period it was difficult for sector and country management to fully assess Croatia's commitment to the railway reform program\. The Project Team Leader (PTL) expressed full confidence in the commitment to the reform program by the Croatian railway management\. The PTL felt strongly that the project was well prepared and ready for implementation\. Both sector and country management was concerned about the status of preparation, and lack of up-front action\. Sector management sought advice of outside reviewers\. Guidance received was conflicted, with several reviewers insisting that a tougher and more defined program was needed\. Other advisors endorsed the gradual and flexible approach adopted by the business plan\. Sector and country management significantly tightened the program during negotiations and agreed to submit project for Board approval\. The QAG report wrongly reflects positions of country and sector management\. Country management did not want to have "an operation that could be delivered quickly to start addressing fiscal reform issues", as stated in the report\. Country management did not exercise pressure to deliver this project to the Board\. To the contrary, country management received pressure from shareholders not to submit projects for Croatia to the Board due to political reasons\. The assertion of the QAG report that "undue pressures by country management undermined solid preparation of an investment operation" is wrong\. Country management felt uneasy about the quality of preparation of the project and: i) requested change of PTL at appraisal stage; and ii) requested active involvement by sector management in quality control\. Sector management provided careful quality control at and after appraisal stage and made significant improvements to the project\. Sector management decided to change PTL only after Board approval to assure continuity in project preparation\. In the ECA matrix structure, quality control of project design and preparation rests with sector management\." In retrospect, the ICR agrees with the QAG judgment on overall quality at entry\. As mentioned in Section 3\.1, the project design did not take note of the varied interpretation of project objective and made some simplistic assumptions, which did not take into account the significant political capital required to implement the project as designed\. In particular: (a) the commitment of the Government towards staff reduction and discontinuation of loss-making passenger services became diluted during the initial stage of project implementation, partly due to a fragile majority enjoyed by the then-Government and its fear of losing the elections; (b) the Parliament and the local authorities were not prepared to face the discontinuation of loss-making passenger services; (c) the Government, while wishing the losses of HZ to come down, made no effort to dissuade HZ from making heavy investment in high speed technology; in fact made intensive modernization a Government policy for the transport sector\. However, according to the ICR team, the Quality at Entry was still marginally satisfactory based on the following factors: (i) The project objective was consistent with the CAS and met the critical needs of Croatia's railway - 6 -  sector\. (ii) Extensive discussions were held with the trade unions during project preparation in order to explain the project rationale and exchange views on the solutions proposed to resolve the difficult issues facing HZ\. (iii) Local governments had been informed of the services reduction component of the project, and negotiations were held with HZ during the preparation of proposals on how to handle service reductions\. These proposals were eventually submitted to the Government for approval\. Consultants were engaged to propose a variety of measures to increase productivity, reconfigure passenger services, and reduce staff\. (iv) The Ministry of Sea, Transport, Tourism, and Development, (MSTTD), (formerly known as the Ministry of Maritime Affairs, Transport, and Communications ­MMATC) as the Ministry in charge of HZ activities, the Ministry of Finance (MOF) as well as the Office for Restructuring and Economics of State Owned Enterprises were deeply involved in the preparation of the project through consultations and reviews\. The Croatian Office for Employment was mainly involved on an information-sharing basis\. (v) During project preparation, an alternative project design was considered which included an outright privatization of the company\. The project preparation team made a correct decision to pursue a more gradual approach\. In retrospect, it is even more clear that, a rapid and radical privatization was not acceptable politically and that there was little prospect of private investments in HZ in its prevailing condition\. In addition to the above considerations, it is important to note that the direct engagement of the Bank and other donor partners with the Government throughout the project has led to much better outcomes and reform progress than would have been the case without the project\. A tough stance in the beginning is unlikely to have yielded better results\. Railway restructuring is a complex operation and the accompanying staff reduction is a painful process, where the cost of waiting for every single factor to turn right before engaging can prove very high\. 4\. Achievement of Objective and Outputs 4\.1 Outcome/achievement of objective: Overall, the project objectives were partially achieved\. If we had the capability of the six-scale rating, we would have rated the actual outcome 'Moderately Satisfactory'\. The project has not achieved its stated objectives fully due mainly to lack of serious sector policy reform\. However, without the project, the financial situation of the Croatian railways would have been much worse\. The project contributed to developing a coherent restructuring program and maintaining the policy dialogue, but was not able to advance much needed policy reforms on its own\. Toward the end of the project implementation, the PAL played a significant role in furthering the reform of the railways sector\. Although during most of the six years of project period, achievement of Development Objective was rated as `Unsatisfactory', the rating thus improved by the end of the project due to significant progress with the reforms\. The following are some key outcomes to which the project contributed: (i) The Railway Law, an important step forward in the reform process, has been enacted and its implementation, though initially delayed, is expected to start in 2006; (ii) Basic concepts of restructuring have been accepted by the Government and HZ as demonstrated in the - 7 -  medium-term restructuring plan, adopted by the Government and currently under implementation by HZ; (iii) All of HZ's non-core businesses were separated and are now being prepared for privatization; (iv) Despite the real-term increase in railways wages to compensate for the past stagnation and failure to reduce passenger services, Government's operating budget support to HZ as a percentage of GDP has not increased; (v) Freight traffic (in net ton km) has increased by 48% in the last five years (2000-2004), and is expected to continue growing at an annual rate of 5% in the next five years\. The project facilitated the process of modernizing the Croatian Railways, over and beyond the direct financing provided by IBRD and EBRD\. During the project period, significant investments were made in track renewal and maintenance, modernization and remanufacture of locomotives, DMUs, EMUs, and rolling stock, automation of passenger ticketing systems, and upgrading of IT systems\. The overall level of investments in infrastructure in 2004 was US$175 million and is estimated to reach US$230 million, in 2005\. Major part of those funds was used for rehabilitation of corridor lines, while the rest of the funds was used for program of development activities for rail infrastructure in Zagreb, local and regional lines\. The availability and reliability of operating assets and infrastructure improved during the project period as the direct result of these investments, although the full impact is expected to be realized in future years\. Significant progress has been achieved in restructuring the railways\. The staff reduction targets as established under the project have been achieved: between 1998 and June 30, 2005, HZ reduced its staff by 8,429 on a net basis, from 22,908 to 14,479, with the majority of staff reductions (nearly 60%) achieved through a well executed voluntary and involuntary retrenchment program\. HZ has made major progress in streamlining its operations through spin-off of non-core businesses\. During the project implementation period, HZ created 9 new subsidiaries making a total of 16 subsidiaries, which are now earning about one third of their revenue from outside of HZ\. All subsidiaries are scheduled to be privatized and the process is expected to commence shortly with three subsidiaries slated for privatization in 2006, followed by at least another seven in 2007\. There has also been some progress in restructuring the core business\. In accordance with the EU directives and in preparation for the actual separation, HZ has already started maintaining separate accounts for the infrastructure, and freight and passenger services\. That separation has led to a bigger focus on the profitability of each business and has laid the ground for more effective cost control\. The implementation of the Railways Law in January 2006 will establish separate companies for the infrastructure, freight and passenger businesses, and for the locomotives and rolling stock holding\. This is expected to lead to improved accountability for performance, more autonomy and management effectiveness, reduced cross subsidization, and eventually improved profitability for the whole system\. Although the operating companies (freight and passenger) would be initially 100% owned by the Government, a consensus is emerging that the freight business will eventually be privatized\. McKinsey & Co, financed under the Public-Private Infrastructure Advisory Facility (PPIAF), is currently assisting HZ and MSTTD with refining the restructuring model, formulating a restructuring implementation strategy, developing a staff reduction strategy both in the context of restructuring as well as efficiency improvements and rationalization of operations, and facilitating privatization of non-core business including necessary regulatory and legislative steps\. The project has not achieved its stated objective of reducing railways financial burden on the budget: Government support for HZ is projected to reach HRK 3\.1 billion, or 1\.4% of GDP in 2005\. This level of financial support would make it difficult for the Government to achieve its target of reducing the fiscal deficit to less than 3% of the GDP in preparation for the accession to EU\. At the end-December 2005, the Government is planning to adopt a medium-term railway restructuring plan to improve HZ's productivity and financial performance and consequently to reduce its heavy dependence on financial support from the budget\. The implementation of the medium-term plan, to be developed with the assistance of the - 8 -  PPIAF-funded consultancy mentioned above, is expected to commence in January 2006\. HZ's financial deficit remained high due to the following: i) a decision to bring railways up to the national average, which required approximately 40% salary increases in real terms and counteracted most of the gains of staff reduction; ii) additional spending in order to catch up with the significant backlog of maintenance; (iii) contrary to the Bank's advice, HZ, with the approval of the Government, embarked on an expensive plan for introducing high-speed trains on the Zagreb-Split section, thus vastly increasing the level of investment and cost of operation and maintenance\. However, the most important reason for not meeting the project objective of reducing the financial losses was the failure to discontinue loss-making passenger services and branch lines\. It is important to note, however, that persistent efforts were made under the project to achieve this objective\. HZ's pilot proposal for the closure of a few lines was never approved by the Parliament\. Instead, the Parliament eventually approved a five-year process, by which responsibility for regional passenger services would be transferred to the local authorities\. The local authorities are expected to gradually takeover the financing of the services while the central Government will remain responsible for the rehabilitation of the infrastructure\. HZ has already initiated the dialogue with a number of local authorities but with limited success so far\. In part due to the above process, there has been very little progress with reaching transparent public service obligation agreements between HZ and the Government\. Even though the Government is providing substantial financial support to HZ for operating the passenger services, the financial support is not based on any specific formula or contract\. The Government has been reluctant to sign PSO contracts due to the following reasons: (a) the MOF considers the current financial support requirements too high and would like to see improved operating efficiency before committing to a contract; and (b) the Central Government wants the local authorities to take responsibility for supporting regional passenger services\. HZ's operating performance in 2005 and onwards will continue to improve based on the following actions envisioned by HZ Management: (a) conducting intensive studies to identify further staff surplus (b) defining clear targets for the reduction of the working ratio to 150-170% in 2007; (c) implementing recommendations of a locomotive and rolling stock productivity study, which suggests ways to increase productivity of the assets and thus reduce operating and maintenance costs Progress has been made in increasing the competitiveness of HZ\. After the initial drop in traffic due to factors described below (see section 5\.1), in the period 2000-2004, the freight traffic increased by approximately 19% in tons, and 48% in net ton km\. HZ's freight traffic (in net ton km) is expected to increase by 5% in the next five years\. Passenger traffic increased during 2000-2004 by 20% in number of passengers but only 7% in passenger km because of growing number of local and suburban passengers for short distance\. Passenger traffic is also forecast to increase in the next five years, by an annual rate of 3% in passenger km\. In collaboration with other regional railway companies, since 2004 HZ has engaged in the preparation of joint products designed to increase the railways share of regional traffic\. During the course of the projects, HZ implemented a number of efficiency improvement and institutional strengthening measures (described in under points 4\.2 Output by Component and 4\.5 Institutional Development Impact below) which laid necessary foundations for continuing improvements in competitiveness\. 4\.2 Outputs by components: Component 1: Track Renewal and Maintenance of Core Routes The project financed: (i) the rehabilitation of 37 km of track on the Dugo Selo-Vrbovec-Krizevci section of the Vb Corridor\. The rehabilitation was successfully carried out and finalised by mid 2003; and (ii) track maintenance machines, which included: 11 track maintenance cars, a set of track tamping machines, a wagon for transport of turnouts and a tracklayer machine and components for the butt-welding plant\. All - 9 -  the procured mechanisation activities considerably improved capacities and track maintenance\. Achievement of this component is satisfactory\. Component 2 Rehabilitation of Traction Units and Spare Parts The project provided for rehabilitation and modernization of traction units and spare parts, including: (i) spare parts for the overhaul and current maintenance of diesel locomotives, and 30 locomotives and normal current maintenance for all diesel locomotives in HZ's locomotive fleet; and (ii) the modernization of 20 diesel locomotives series 2062, the modernization of 15 electric locomotives series 1141, the procurement of spare parts for the modernization of 3 EMUs series 6111, 8 DMUs series 7121 and 15 shunting locomotives series 2132\. These activities were very successfully concluded in 2002 and 2003\. Achievement of this component is satisfactory\. Component 3: Conversion of Freight Wagons The project financed the procurement of equipment and material for the conversion of 130 worn-out 2-axle wagons type Gbs-z and RS-z into standard wagons type Hbis-z and Rils-z, which provide full side access and strengthened floors for pallets\. The delivery of the goods and the conversion of these wagons were completed in 2003\. All the wagons are in use with high availability, thereby enabling HZ to increase its presence on revenue generating segments of the freight transport market\. Achievement of this component is satisfactory\. Component 4: Rehabilitation of Passenger Coaches The project included provision for the rehabilitation and modernization of 38 coaches (12 type Aeelt and 26 type Bee) for international and inter-regional services\. The last coach was delivered in May 2005 and since then all 38 coaches are in use with high availability\. This rehabilitation preserved the availability of passenger coaches for service and will ensure that they remain serviceable for the years to come, with lower maintenance costs and improved comfort\. Achievement of this component is satisfactory\. Component 5: Environment Protection: During 2000-2004, HZ spent about HRK 5\.0 million of its own resources on various environment-related activities, the main ones being as follows (See Section 3\.4): § Elaboration of new Regulations for all kinds of waste from technological processes and waste water treatment processes for all technological units on HZ territory\. Elaboration of Regulations for station location; Rijeka, Zagreb shunting station, Zagreb main station § Elaboration of Regulations for treatment of waste (Regulation 620) § Elaboration of Guidelines for the Management of the Cadastre of Emissions into the Environment at HZ (Regulation 621) - 10 -  § Operative plans of intervention measures in case of unexpected pollution of water systems for all technological units on HZ territory (Osijek, Pula, Split, Rijeka, Varazdin, Vinkovci, Karlovac, Knin, Koprivnica, Zagreb shunting station and Zagreb main station) have been updated § Guidelines on the operation and maintenance of drainage facilities and devices for the treatment of waste water for all technological units on HZ territory have been updated § Supervision of obligations of Croatian Railways technological units according to legal provisions has been carried out\. § The drawing up of the Design documentation for the Rehabilitation of the drainage systems and devices for processing liquid waste\. § The rehabilitation and reconstruction of the drainage system and equipment for processing liquid waste has been carried out for: Zagreb shunting station; Vinkovci; Zabok; Rijeka § The drawing up of the Study for the acquisition of water management permits and the necessary technical documentation for the locations of: Zagreb shunting station, Zagreb main station, Bjelovar, Varazdin, Koprivnica, Rijeka, Virovitica, Vinkovci, Moravice, Krizevci, Karlovac, Knin, Botovo, Split, Novska, Pula, Zabok, Osijek\. § Works arising from the permission orders of the acquired water management permits and inspector's supervision have been realized under Rehabilitation construction\. § Improvements in regard to treating waste from technological procedures\. Approximately 100 pieces of containers for hazardous and non-hazardous waste have been procured\. § The procurement and mounting of flow gauges on 12 testing shafts of connectors of internal drainage systems into public drainage systems on Croatian Railways territory\. Achievement of this component is satisfactory\. Component 6: Severance Payment: The program for the reduction in the number of employees consisted of severance payments, which were paid as compensation to employees in accordance with the Bank guidelines, domestic laws and Decisions of the HZ Management\. Under this approach, from 1998 to June 2005, Croatian Railways reduced their number of staff by 8,429\. Of this number, 3,995 employees were partially financed from the Bank funds (43%) and the rest (57%) from the State Budget\. The Bank also financed severance payments for 787 employees from HZ subsidiaries\. Achievement of this component is satisfactory\. Component 7: Efficiency Improvement The implementation of efficiency improvement measures at the company's management and organizational levels ensured the success of project implementation\. Improvements were made in: (i) the management area, including the company's organizational structure, decision-making processes, allocations of responsibilities and preparation of business plans; (ii) the handling of non-core businesses - 11 -  and uneconomic services; (iii) the financial management systems; (iv) the development of information systems; and (v) work processes and productivity\. In this respect, full time consultant services were provided to HZ management and the restructuring unit during the first two years of project implementation\. In addition, training was provided to HZ staff at the International Training Centre of the ILO in Torino as follows: (i) in 2000, an employee in the Restructuring Project Unit in HZ, attended the seminar for the procurement of IT equipment; (ii) in 2002, some of the relevant staff in HZ attended the seminar for Equipment Procurement Management according to World Bank procedures; and (iii) in 2004, an employee in the Restructuring Project Unit in HZ, attended the seminar for Works Procurement Management based on the Bank procedures\. Achievement of this component is satisfactory\. 4\.3 Net Present Value/Economic rate of return: Economic analysis has been undertaken on the basis of comparing the results under the "With project" and "Without project" scenarios, the latter based on lower investment and no pressure to reduce staff\. The Economic Rate of Return (ERR) is currently estimated at 45% and NPV at HRK 1,233 million, which is lower than the 54% ERR and NPV of HRK 2,157 million estimated at appraisal but still satisfactory\. The detailed assumptions and calculations for ERR and FRR can be found in Annex 3\. 4\.4 Financial rate of return: The financial rate of return (FRR) is estimated at 28% compared with a FRR of 26% calculated at appraisal\. The NPV is estimated at HRK 750 million compared to HRK 684 million of appraisal estimates\. The high FRR is driven by significant increases in staff salaries in real terms ­ without the project-driven retrenchment, HZ financial losses would have been significantly worse\. Furthermore, staff reductions are very likely to continue contributing to further improvements in HZ's financial performance\. 4\.5 Institutional development impact: The Project's institutional development impact is rated Modest based on the following factors: Rolling Business Plan\. At the operating level, HZ has developed a culture of long-term planning and the 5-year rolling business plans have become a regular part of its planning process\. The planning process has resulted in the development of skills in various departments in the areas of forecasting, costing, operations planning, and operations optimization\. Despite this progress, HZ recognizes that there is considerable room for improvement in this area and further strengthening is highly likely\. The Staff Retrenchment Process and the Mobility Centers\. In 2001, four mobility centers staffed with 18 counselors were created in Zagreb, Split, Rijeka, and Vinkovci to assist redundant employees of Croatian Railways and its subsidiaries with the process of finding an alternative employment\. HZ demonstrated high commitment to this program spending 1 million of its own resources for operation of the mobility centers, in addition to a modest contribution from the state budget (22,000)\. A program for an internal employment agency was set in motion with the aim of enabling greater internal mobility of the work force, including all HZ's subsidiaries\. A complementary program entitled "MC Incubator" was focused on creating new jobs inside the HZ system to engage the now unproductive staff from the surplus list awaiting retrenchment\. However, the utility rate of these centers was disappointingly low as the majority of the retrenched staff opted to get their severance package rather than seeking an alternative employment\. HZ closed the Mobility Centers in December 2004 as the rate of staff retrenchment had fallen but absorbed key staff in order to maintain the residual activities and experience gained in the process\. The - 12 -  retrenchment process as implemented under the project has built cooperative relations with the unions and smoothed the way for further staff retrenchments in the future\. 5\. Major Factors Affecting Implementation and Outcome 5\.1 Factors outside the control of government or implementing agency: The financial situation of HZ continued to deteriorate in 1999 due, in part, to difficult external conditions such as the Kosovo crisis which led to a GDP decline by 2% and an increase in inflation\. The freight traffic fell 3% and average traffic unit revenue decreased by 12-14%\. The Government was not able to close any loss-making passenger services or branch lines, due to political opposition from the Parliament\. Since 2000, traffic volume has continued to increase\. 5\.2 Factors generally subject to government control: Despite the overall satisfactory performance of the Government (see section 7\.4), more decisive actions in the following areas would have contributed to higher outcomes: The Implementation of the Railway Legislation\. The Railway Law, passed by the Parliament in July 2003, was expected to come into force on January 1, 2005 and to be preceded the restructuring of HZ including the separation of infrastructure, freight and passenger services\. However, the budget proposal for 2004, accepted by the new Government had reduced the amount of subsidies to HZ and at the same time, eliminated the fuel taxation as a dedicated source for railway infrastructure financing\. These decisions of the Government cut the financial basis needed for the implementation of the Croatian Railways Restructuring and Modernization Program\. Consequently, the Government accepted to postpone the Program as well as the implementation of the Law for one year\. Privatization of Non-Core Subsidiaries\. It was not clear whether the generic privatization law for the privatization of public sector entities was also applicable to the subsidiaries of HZ\. MSTTD did not initially pursue a clarification of the existing Privatization Law, which would have provided a legal basis for the immediate privatization of the non-core subsidiary companies\. Although the clarification has since been obtained, the privatization of subsidiaries had to be delayed until 2006\. Fiscal Discipline and Public Service Obligation (PSO)\. The MOF could also have forced some hard constraints on capital expenditure and assisted HZ in controlling the expenditure and improving the working ratio\. The Government's readiness to support a very ambitious modernization program for the railways and to finance the deficit in general also left little incentive for HZ to accelerate the staff reduction program and take other measures for reducing deficit\. There has also been no progress with negotiating and signing PSO agreements as explained in section 4\.1 above\. 5\.3 Factors generally subject to implementing agency control: HZ was and is still keen to maintain control of some of the non-core subsidiaries and to absorb the proceeds from the privatization of all subsidiaries\. The reluctance to relinquish control is explained by the management by the fear that some of the non-core subsidiaries may strive to extract monopoly rents from HZ after becoming independent\. In some cases such anxiety is justified, as some of the subsidiaries mix core, and strategically significant for HZ, functions with non-core activities\. However, this issue could be resolved by separating and re-integrating with HZ some of these core activities during the divestiture process, rather than slowing down the entire process of separation and privatization of non-core subsidiaries\. In other cases, when the non-core subsidiary may enjoy a monopolistic position in the short to medium term, medium (up to three-year) term contracts can be used to protect HZ's commercial interests until the markets become more competitive\. - 13 -  5\.4 Costs and financing: The total cost of the project was about US$170\.6 million compared with the PAD estimate of US$183\.0 million, due to the change in the exchange rate US$/EUR in the course of the project\. The Bank financed US$94\.4 million (55\.5%), European Bank for Reconstruction and Development (EBRD) financed US$35\.0 million (20\.5%), and the HZ contributed US$ 40\.6 million equivalent in local costs (24%)\. 6\. Sustainability 6\.1 Rationale for sustainability rating: Likely\. The results of the project are sustainable\. In particular, HZ will continue to benefit from the well implemented retrenchment program and lessons learned during its implementation\. The Government and HZ have agreed that the Business Plan for 2006-2010 would have detailed strategies and plans for the restructuring of HZ pertaining to: privatization of HZ's subsidiaries and core businesses; closure, discontinuation, or curtailment of the uneconomic lines and services; implementation of the Railway Law; and staff reduction\. The Bank has mobilized grant funds under PPIAF to finance external consultants to help develop these detailed plans and strategies\. The PPIAF will allow the Bank to continue with the dialogue after the closure of the on-going project\. The Bank also financed international consultants to assist HZ with a study to determine the optimal levels of investment based on cost-benefit analysis\. Railways reform is also included in the series of three PALs, the preparation of which started in mid 2004\. Under the PAL program, the Bank is following up with the Government and HZ to keep the reform momentum, in particular with regard to improving financial performance of HZ and privatization of non-core subsidiaries\. The Government and HZ have committed themselves to improving the working ratio to 220% by the end of 2005, 190% by the end of 2006, and 150-170% by the end of 2007 through staff retrenchment, restructuirng and productivity improvements\. The restructuring strategy developed under the PPIAF grant mentioned above will assist in reaching these targets\. On December 15, 2005, the Parliament passed the law necessary to proceed with the separation of infrastructure from operations as required by EU directives\. The new law will be implemented in 2006\. 6\.2 Transition arrangement to regular operations: No transition to regular operations is needed, as the railways have continued to operate throughout the project\. 7\. Bank and Borrower Performance Bank 7\.1 Lending: Satisfactory\. The Bank's performance in the identification, preparation, and appraisal of the project was satisfactory\. On one hand, the Bank's presence and support contributed to the development of a coherent restructuring program\. The Bank was able to provide a reasonable framework as well as adequate tools to prepare a program which would permit the restoration of HZ financial viability with lower Government contributions\. The presence of the Bank significantly contributed to the fact that market-oriented principles had been accepted by the Government as the principles to be followed in the preparation of this program\. The Bank had a strong role in the increasing quality and realism of HZ business plans, and was recognized as the - 14 -  independent authority which would assess the quality of future business plans over the life of the project\. In addition, given the size of the investments required by the implementation of the program, the loan had already provided and continued to provide a strong incentive for the Borrower to comply with the requirements of the program\. Finally, through the Bank's involvement in this program, grants from Japan and Canada in the amount of almost US$1 million for project preparation, and a US$0\.5 million grant from the Government of the Netherlands for assistance in project implementation were arranged, in addition to parallel project financing from the EBRD in the amount of US$35 million\. On the other hand, as mentioned in Section 3\.5 and as opined by the QAG Panel, the Bank could have made more efforts to ensure that: (i) the Government was fully committed to project objective; (ii) quality of design took into consideration the amount of political capital required to implement both a far reaching staff retrenchment program and discontinue loss making passenger services; and (iii) the target working ratio was developed with in-depth analysis of the performance potential of the railways and the actions required to realize such potential\. While there is no doubt that better preparation would have yielded better project results, one has to balance the marginal improvements in quality and the additional time required for preparation\. The political situation in Croatia was quite volatile and delaying the project in order to build stronger commitment from the Government could have easily backfired\. 7\.2 Supervision: Satisfactory\. The Bank's performance during the implementation of the project was satisfactory\. Sufficient budget and staff resources were allocated, and the project was adequately supervised and closely monitored\. During supervision, the task team tried to overcome the drawbacks of project design\. Over the six years of project implementation, there were 11 supervision missions, with an average of about two missions per year\. The Bank's client relationship was very cordial and productive\. Review teams included specialists in railways, financial analysis, project management, financial management, and procurement\. External consultants were used for specific aspects of project components\. Aide-Memoires were regularly prepared and project implementation progress was adequately reported; Implementation problems were identified early and addressed proactively\. Regular discussions were held with MOF, line ministries, and HZ\. The Project Status Reports (PSRs) realistically rated the performance of the project both in terms of achievement of development objectives and project implementation\. The Bank paid sufficient attention to the project's likely development impact\. The quality of advice and the follow-up on agreed actions were mostly adequate\. Loan covenants and remedies were enforced effectively\. The Bank Team effectively balanced the need to urge the Management to take some hard decisions in order to cut costs and reduce the financial deficit with the objective to maintain a trusting relationship with the Management\. Without an adequate relationship the progress of implementation would likely have stalled\. The Bank Team did succeed in building a constructive relationship with both the new and old managements\. 7\.3 Overall Bank performance: Satisfactory\. Overall, the Bank performance was satisfactory during project preparation, appraisal and implementation\. Borrower 7\.4 Preparation: - 15 -  Satisfactory\. The Borrower's performance in the preparation of the project was satisfactory\. During the whole of the project preparation cycle, and in the numerous exchanges of letters between the Bank and the Prime Minister and the Minister of Sea, Transport, Tourism and Development, both HZ and the Government had shown strong commitment to the project\. The project documents produced during project preparation were reviewed and agreed to in principle by both the Government and Parliament, and had also been extensively discussed with the trade unions and in the media\. Furthermore, each preparation mission was conditioned on the Croatian authorities taking specific actions, as identified in the Action Plan, to demonstrate Croatia's commitment to this project\. The actions taken on the Croatian side, included: (i) reduction of staff by about 2,000 in 1998; (ii) reduction of uneconomic services by 700,000 passenger train kms in the 1998-99 timetable; (iii) first organizational changes in HZ implemented on March 1, 1998; (iv) a resolution of 32 percent of HZ arrears; (v) a decision to fully implement the Law on Croatian Railways as of January 1, 1999; and (vi) the creation of a working group at the MMATC level to clarify and interpret the Law on Croatian Railways\. The Croatian authorities had, in a Letter of Development Policy, confirmed their commitment to HZ modernization and restructuring, and agreed to the series of annual benchmarks to be reached over the project implementation period, as proposed by the Bank\. 7\.5 Government implementation performance: Moderately Satisfactory\. The most important reason for not meeting the project development objective of reducing the financial losses was the failure to discontinue loss-making passenger services and branch lines\. Persistent efforts were made under the project to achieve this objective by the Ministry and HZ\. The pilot proposal for the closure of non-economic lines was not approved by the Parliament\. Instead, the Parliament eventually approved a five-year process by which responsibility for regional passenger services would be transferred to the local authorities\. During implementation, a number of differences in opinions emerged between the Bank and the Borrower\. These differences pertained to the level of investments, track standards, hiring of new staff, and slower than initially envisioned rate of retrenchment, but genuine effort was made by the Borrower to address and resolve such differences\. The HZ's Management was keen on getting and implementing the Bank's advice and to meet the Project targets\. The Ministry of Transport attended key mission meetings and took the opinions of the Bank seriously\. The Ministry of Transport could have done better in terms of scrutinizing HZ's Business Plans, setting guidelines for the track standards, assisting in the analysis of the passenger services and finalization of PSO contracts, establishing clear norms for the financing of infrastructure, reviewing HZ's efforts to improve productivity and operating efficiency, putting pressure on and assisting in the privatization of subsidiaries\. However, the Ministry had seriously limited capacity and depended upon the Supervisory Board to perform all the above-mentioned functions\. The Bank suggested that the loan funds be used to engage consultants but there was a marked reluctance to use loan funds for technical assistance\. The project was declared a problem project soon after effectiveness because of delays on the part of the Government and HZ in preparing and initiating implementation of programs which included: (a) involuntary staff separations; (b) service reductions and line closures, or the introduction of Public Service Obligation (PSO) payments; and (c) privatization of HZ subsidiaries\. Consequently, no procurement action other than items already identified at that point of time was allowed to be taken for the first two years\. This eventually resulted in the extension of the closing date\. The project's closing date was extended three times, and it was finally closed on June 30, 2005, two years later than originally planned\. The project was first extended for a period of one year, from June 30, 2003 to June 30, 2004, in order to: (i) compensate for the delay at the start of the project and permit the - 16 -  completion of all programmed procurements as well as staff retrenchments; (ii) ensure further reduction of staff, improve the working ratio, strengthen project outcomes, and advance the newly developed objectives of restructuring the railways and deal with passenger services and preparing the subsidiary companies for privatization; and (iii) continue the dialogue with HZ management to make the business like, professional and commercial management culture, a durable feature of the railways\. The closing date was extended for the second time by six more months to December 31, 2004 in order to enable HZ to complete the procurement of the urgently needed track maintenance machines and the Bank team to continue focusing on railway reforms\. The project was extended for the third time by another six months to June 30, 2005 with a limited purpose of enabling HZ to utilize about EUR1\.8 million of undisbursed amounts in Category 2 (Labor Restructuring) of the Loan to finance about 200 to 300 further voluntary layoffs from the HZ\. 7\.6 Implementing Agency: Satisfactory\. HZ's Management was committed to complete the restructuring of the railways and putting it on a sound financial footing\. HZ's Management fully embraced the project objectives and considered the project as their own rather than being primarily Bank-driven\. Representation of the different key ministries on HZ's Supervisory Board led to harmonization of sectoral and national policies and priorities and a much better relationship between HZ and the Government but also led to a serious diminishing of the oversight roles of the Ministries\. HZ's management developed a healthy partnership with the labor unions and all restructuring decisions were preceded by intense consultations with the unions and thus a solid foundation had been laid for receiving the unions' cooperation in deepening and implementing the restructuring process\. HZ's Management team was dedicated and professional and was alive to the need for increasing traffic, improving safety, maintaining good relations with labor, developing cooperative ties with the neighboring countries, and improving HZ's performance\. There was, however, a general adherence to the philosophy of a modern railway with the accompanying need for high investments\. Additionally, the management felt that infrastructure was the responsibility of the Government and improving the financial performance was certainly not its top priority\. The compliance with the loan covenants was not fully satisfactory\. The targets for the working ratio were not achieved due to reasons stated above\. While HZ also fell short of the debt service coverage target, over 90% of its debt service obligations was covered by the state budget as they pertained to infrastructure loans\. HZ was able to generate sufficient cash to service their share of debt service\. The audit reports were timely and unqualified, and the financial management was satisfactory\. 7\.7 Overall Borrower performance: Satisfactory\. The overall performance of the Borrower was satisfactory\. All project components were satisfactorily completed\. 8\. Lessons Learned The implementation of far reaching restructuring of the railways, particularly when staff retrenchment and reduction in passenger services is required, is a complex and time consuming process, which requires a significant amount political capital and can be greatly affected by political instability\. The following are some specific lessons learned from this project: As noted in OED's Country Assistance Evaluation, the Bank should lend to assist Croatia's - 17 -  infrastructure development only where government support for reforms is adequate and faulty past policies are replaced by more appropriate policies, and this change is being implemented in the current CAS, with investment lending for railways and roads included only in the high case, for which implementation of sector reforms are a trigger\. The Bank and the IMF need to maintain consistent focus and pressure on the reform in order to assist the Government with weathering political pressures and prevent backsliding\. For this project, the Programmatic Adjustment Loans, which put the railways reform issues at the center of policy dialogue, were very effective\. Consensus with the labor unions helps the retrenchment process\. Discussions with the labor unions should take place at an early stage with exchange of views on the intended restructuring model\. Views of the labor unions must be seriously considered and the labor unions should get a genuine feeling of participation\. It is also essential to go into details of the labor contracts and the assurances that might have been given in the past\. Despite the particularly difficult political and social environment, the retrenchment process was successful and strengthened the partnership between the management and the labor unions\. The requirement to sign and honor PSO agreements for loss making passenger services, ideally signed with the level of Government most closely linked to the beneficiaries, should precede efforts to discontinue services; the public opinion needs to be prepared gradually for the curtailment of most expensive services\. Although there was a genuine commitment to the project by both the Borrower and the Implementation Agency there were also differences in opinions with the Bank about how to interpret project development objectives, which affected the implementation\. The following lessons should be addressed in future projects: It is important for the Bank to get a clear agreement from the Government on the kind of railways the country wants to have and can afford\. The incumbent railways cannot reasonably be expected to drive the process without strong Government leadership\. When higher Government functionaries are made members of the Supervisory Board of the railways, their position should be treated "ex officio"\. Otherwise, the presence of these representatives can seriously diminish the capacities of the Ministries to provide oversight and to provide critical comment\. 9\. Partner Comments (a) Borrower/implementing agency: (a) Borrower/implementing agency: I\. Loan Overview The year 1999 saw the start of the modernisation and reconstruction of Croatian Railways\. The Project was financed from IBRD loan 4433 HR, EBRD loan 733 and the State Budget\. The starting value of the entire Project expressed in USD amounted to 183 mil\. USD\. The World Bank participated in this amount with 101 mil\. USD, EBRD with 35 mil\. USD and the Republic of Croatia with 47 mil\. USD\. The World Bank loan was converted into EUR prior to loan utilisation and this remained the currency in use\. The objective of the Project was the modernisation of the company, in an effort to make it competitive on the transportation market, to increase revenues and ultimately to ensure that it was less of a burden on the State Budget\. The Croatian Government, aware of the problems Croatian Railways were having, attempted to create a framework for the restructuring of the railways and defined an action plan consisting of the main tasks - 18 -  performed in the course of the Project\. The Project's tasks were created to solve the following problems: - modernise the physical assets of HZ; - increase labour productivity; - increase traffic volume; - decrease staff numbers; - solve the issue of non-economic lines; - privatise the subsidiaries; - increase financial performance and thus decrease the burden on the Budget; and - implement the new Railways Act\. II\. Components The financial support for the Project was aimed at seven components which were connected to the modernisation of assets and the reduction of the labour force\. The components were as follows: (i) track renewal and maintenance of core routes; (ii) rehabilitation of traction and procurement of spare parts; (iii) conversion of freight wagons; (iv) rehabilitation of passenger coaches; (v) environment protection; (vi) severance payments; and (vii) efficiency improvement\. All technical, administrative and financial capacities were available for Project implementation\. (i) Track renewal and maintenance of core routes The complete material for 37 km of track on the Dugo Selo-Vrbovec-Krizevci section of the Vb Corridor was procured and the rehabilitation was successfully carried out\. Machines for track maintenance and necessary spare parts were procured\. (ii) Rehabilitation of traction and procurement of spare parts The rehabilitation of traction units was for the most part financed from the EBRD loan and this was very successfully realised\. Availability was significantly increased, as was the reliability of the traction units\. Much valuable experience was acquired in the course of the Project which we shall be able to apply in similar projects in the future\. (iii) Conversion of freight wagons; and (iv) Rehabilitation of passenger coaches Capacities, quality and traffic safety were increased with the conversion of freight wagons and the modernisation of passenger wagons and of course greater comfort was provided to passengers\. (v) Environment protection Activities in connection to environment protection resulted in the drawing up of various regulations and guidelines for water protection; the design documentation for the rehabilitation of drainage systems was drawn up; drainage systems at several stations were reconstructed and rehabilitated; containers for hazardous and non-hazardous waste were procured; flow gauges for 12 testing shafts were procured, etc\. All this was financed with HZ's own funds\. (vi) Severance payments The reduction in the number of employees proceeded at a very slow pace; however, the system of severance payments enabled the departure of a large number of employees without the social upheavals and disturbances which almost always accompany loss of employment\. - 19 -  (vii) Efficiency improvement In the area of efficiency improvement, the training of PIU staff was financed from loan funds in order for them to acquire knowledge and skills connected to the procurement of goods and services according to World Bank procedures and auditing services\. Also financed under this component was the procurement of ticket vending machines and the IT system, as well as consulting services linked to the components for the rehabilitation of tracks and wagons\. In regard to the IT system, the procurement of a Unisys 1100/73 central computer with a Clear path system was carried out\. The contract included the education of users and equipment maintenance for a period of seven years\. The system serves to monitor and operate the traffic-transportation technological processes of HZ and according to its technical characteristics it can be incorporated in the future computer network of HZ with the task of integrating data in the data base in the field of planning and execution of transportation\. The system enables savings on direct operating costs, improves information systems, organisation of operations and advances operating processes\. The allocation of funds per components, with the agreement of the Bank, changed as the Project progressed, in accordance with the possibilities and needs of HZ, so that in categories, such as environment protection, where it was evident that funds were more than sufficient, these funds were transferred in order for ticket vending machines and track reconstruction equipment to be procured\. The total costs of the project amounted to 170\.6 mil\. USD\. If we rank the expended sums according to categories then we see that the major part was spent on severance payments (71\.4 mil\. USD), followed by rehabilitation of traction units (38\.9 mil\. USD), track renewal and maintenance (28 mil USD) and rehabilitation of passenger coaches (22\.1 mil\. USD)\. The rest went to ticket vending machines, IT equipment and consulting services\. The difference in funds which occurred in regard to the amount of 183 mil\. USD, as was envisaged in the original document, is the result of constant changes in the currency rate between EUR/USD\. The World Bank loan was spent in full, as was the 35 mil\. USD of the EBRD loan\. In the severances category, State Budget funds participated in the amount of 40\.4 mil\. USD\. Expressed in percentages, this is 57% of the total funds for severances as was envisaged in the original document and contract\. III\. Conclusion All Project activities were for the most part realised by the end of 2004 and all that remained in the first half of 2005 were the payments for severances and auditing of the Project and HZ as a whole\. Thus the financial part of the Project was concluded\. All the envisaged funds were expended\. As far as social policies are concerned, the part which was solved through the Project was also concluded but the programme of severance payments as incentive measures continues from the State Budget\. The Project was extended three times, that is, the implementation of the Project was delayed by two years, due to delays in the preparation at the start of the Project\. a) Main Objectives In the course of the Project, the main objectives were not revised; however, we were unable to fully achieve all the objectives such as staff separation, closure of uneconomic lines and the privatisation of HZ subsidiaries\. These issues are to be solved in the scope of the process of the restructuring of Croatian Railways which has not stopped with the completion of this Project\. On January 1 2006 the new Railways Act shall take effect which presumes a different organisation, that is, the physical separation of infrastructure from operations, which has already been accomplished on the accounting basis\. Such an approach has enabled each sector to be more focused on its own revenues and costs\. - 20 -  HZ has also taken on the obligation of adjusting to EU guidelines and the World Bank is present in this process through the PAL programme which envisages intensive programmes of structural reform, with the previous completion of agreed activities, that is, the above mentioned unachieved objectives\. b) Future Activities In terms of a better approach and execution of all tasks, HZ regularly draws up the yearly and medium term business plans, analyses and projections and constantly keeps in mind the planned restructuring objectives\. The measuring unit set by the Bank is the working ratio and this year it is at the requested level\. HZ is, in agreement with the Bank and according to PAL conditions, committed to a continued reduction of the working ratio in the upcoming years\. As for problems concerning uneconomic lines and the cancellation of some passenger services, HZ has drawn up and sent to the Croatian Government for their approval a draft plan to solve this issue\. The activities connected to the process of the privatisation of the subsidiaries owned by HZ began in 2005\. HZ has drawn up a programme and a schedule according to which these subsidiaries are to be privatised by the spring of 2006 and a further seven subsidiaries by the end of 2007\. All the improvements which we expected, including the formation of a commercially viable company, the reduction of maintenance costs, higher productivity and lower labour costs were not achieved at the level originally conceived at the beginning of the Project\. This is the result of continued high maintenance costs and labour costs which increased despite a reduction of employment levels\. Namely, employee wages had to be equalised with the state average which, in effect, caused labour costs to remain at the same level\. However, now that wages are at a satisfactory level, it is to be expected that all further staff reductions shall have a direct effect on the reduction of costs and thus the working ratio\. HZ is also committed to further decrease staff numbers and in this effort is using the valuable experience of the Mobility Centre which, apart from severance payments as a method of resolving surplus employees, offered alternative employment opportunities\. The unions, whose opinions and points of view are seriously taken into consideration, are also included in the process of reducing staff numbers\. Currently at HZ, a new job classification is underway which should identify surplus staff and thus in due course improve efficiency\. c) Cooperation between Project Partners and Project Evaluation The cooperation between all participants was successful\. Taking part in the Project through their financing were the Croatian Government, IBRD, and EBRD and Croatian Railways as the Borrower\. Cooperation was carried out on all levels, from the physical implementation of the Project to the implementation and control of business plans and key indicators\. The Bank's Project team always endeavoured to understand and accept the problems which arose in the course of the Project and to support HZ's plans and proposals at the Government level\. To the satisfaction of all sides, the relationship between partners was from the very beginning open and transparent\. The Bank's Project team was always ready to cooperate and aid in terms of advice and support both from HZ and the Government\. In terms of the most efficient way to execute tasks and cooperation with the Bank, individual PIU members took courses in World Bank procedures\. The actual implementation of the Project enabled the acquisition of knowledge, skills and experience which will certainly increase the efficiency of employees and have an effect on the future success of HZ activities\. To conclude, we evaluate this Project as satisfactory and our cooperation with the World Bank as very successful\. - 21 -  (b) Cofinanciers: (b) Cofinanciers: Comments from EBRD: Project Implementation: As part of rolling stock rehabilitation programme, in 1999, Croatian Railways signed a sovereign guaranteed loan with the EBRD to finance the modernisation of 20 diesel locomotives series 2062 and 12 electric locomotives series 1141 in the total amount of US$ 35 mil\. (loan no\. 733)\. The final list of financed project components included: 1\. Modernisation of 20 diesel-electric locomotives series 2062 (Turner, TZV-Gredelj, EMD) 2\. Modernisation of 15 electric locomotives series 1141 (Konar-Elektrine lokomotive) 3\. Procurement of a new type diesel engine CAT 3412 E to replace the old engine for shunting locomotives series 2132 (Teknoxgroup) 4\. Procurement of assemblies for the modernisation of 8 DMUs series 7121: - 16 diesel engines with cooling system and elements for increasing power (Voith Turbo) - 16 sets for hot air heating of passenger area (Liebherr) - 16 sets of devices for indicating travelling destination (Belise) 5\. Procurement of 12 traction motors and gear boxes for 3 EMUs series 6111 (Konar- Generatori i motori, Voith Turbo) 6\. Contract with the Canadian company Canarail for the provision of consulting services in the realisation of the projects financed by the EBRD\. There were no cost overruns and the project was completed successfully within the agreed timeschedule reaching its physical objectives\. Covenant Compliance/Sector Reform: Not fully satisfactory\. There continues to be lack of a comprehensive reform strategy for the railway sector\. It maintains its reliance on excessive state subsidies\. Delays in implementation of the new railway law and absence of a clear decision on the funding mechanisms for rail infrastructure investments and the financing of passenger service losses has had a detrimental effect on the competitiveness of the sector\. Introduction of the open access, required if Croatia becomes an EU member state, will thus have extremely negative effect on the railway operations in the medium term\. EBRD fully concurs with Lessons Learned section above\. Comprehensive plan for the sector's future is long overdue\. (c) Other partners (NGOs/private sector): N/A 10\. Additional Information A\. The Bank's ICR Team consisted of the following members: Agnieszka Grudzinska (Senior Infrastructure Finance Specialist) Yash Pal Kedia (Railway Specialist, Consultant) Sati Achath (Consultant) Madhu Nair (Consultant) Lorraine McCann Kosinski (Program Assistant) B\. List of Task Team Leaders of the project in chronological order: - 22 -  (i) Enn Vasur (ii) Peter Parker (iii) Sunja Kim - 23 -  Annex 1\. Key Performance Indicators/Log Frame Matrix Outcome/Impact Indicators: Indicator Projected in SAR/PAD for Actual/Latest Estimate end-2002 Working ratio 155% 220 % (estimate for excluding subsidy 2005) Debt service 1\.3 1\.1 (estimate for 2005) coverage ratio Staff productivity 217 299 (estimate for 2005) (TU per employee) Reduction of 6 1/ uneconomic passenger services (train kms, million) Working ratio 77% 98% (estimate for 2005) Including operating subsidy Output Indicators: Indicator Projected in SAR/PAD Actual/Latest Estimate 16,000 (as of December 14,362 (as of Oct\. 31, HZ staff reduction 31, 2002) 2005) Kms of rail lines either closed or 100 100 under PSO (p\.a) 1/ Under the ongoing PAL operation, HZ will prepare a proposal to reduce services along or close uneconomic lines in 2006-2009, and submit the proposal to the MSTTD and the Bank by end-January 2006\. Based on such proposal, the MSTTD will prepare a program and, after consultation with local authorities, submit the program to the Government for approval by end-March 2006\. Implementation of such program will start no later than May 2006\. - 24 -  Annex 2\. Project Costs and Financing Annex 2a : Project Costs by Components (US$ million equivalent) Project Component Appraisal Estimate Actual/Latest Estimate Percentage of Appraisal A\. Goods Track Renewal and 20\.7 28\.0 135\.3 Maintenance Rehabilitation of 49\.3 38\.9 78\.9 Traction Units and Spare Parts Conversion of Freight 2\.6 1\.7 65\.4 Wagons Rehabilitation of 8\.5 22\.1 260\.0 Passenger Coaches Environment 1\.4 Protection B\. Severance 70\.3 71\.4 101\.6 Payment C\. Efficiency 2\.5 1\.14 45\.6 Improvement Total Baseline Cost 155\.3 169\.16 108\.9 Physical Contingencies 14\.1 Price Contingencies 12\.6 Frontier-end Fee 1\.0 0\.9 90\.0 Total Project Cost 183\.0 170\.6 92\.9 - 25 -  Annex 2b\. Project Costs by Procurement Arrangements (US$ million equivalent) Appraisal Estimate Project ICB IS Other NBF Total Cost Component (including contingencies) 1\. Goods 23\.2 1\.0 24\.2 (23\.2) (1\.0) (24\.2) (a) Construction materials Track Renewal and Maintenance Environment 0\.8 0\.7 0\.1 1\.6 Protection (0\.8) (0\.7) (0\.1) (1\.6) (b) Equipment and machinery Rehabilitation 13\.0 1\.0 8\.8 35\.0 57\.8 of Traction (13\.0) (1\.0) (8\.8) (22\.8) Units and Spare Parts Conversion of Freight Wagons 3\.0 3\.0 (3\.0) (3\.0) Rehabilitation of Passenger 10\.0 10\.0 Coaches (10\.0) (10\.0) 2\. Severance 35\.4 47\.0 82\.4 Payment (35\.4) (35\.4) Consultancies Technical Assistance 3\.0 3\.0 (3\.0) (3\.0) Total Baseline Cost Frontier-end Fee 1\.0 1\.0 (1\.0) (1\.0) Total Project 50\.0 2\.7 48\.3 82\.0 183\.0 Cost (50\.0) (2\.7) (48\.3) (101\.0) - 26 -  Actual Project ICB IS Other NBF Total Cost Component (including contingencies) 1\. Goods (a) 26\.33 1\.67 28\.0 Construction materials Track Renewal and Maintenance Environment Protection (b) Equipment and machinery Rehabilitation 3\.70 35\.20 38\.90 of Traction Units and Spare Parts Conversion of Freight Wagons 1\.70 1\.70 Rehabilitation of Passenger 21\.85 0\.25 22\.10 Coaches Passenger Transport 3\.40 3\.40 IT 2\.52 2\.52 2\. Severance Payment 31\.0 40\.4 71\.4 Consultancies Technical Assistance 1\.14 1\.14 Total Baseline Cost Frontier-end Fee 0\.90 0\.90 Total Project Cost 53\.28 38\.66 75\.60 170\.6 - 27 -  Annex 2c\. Project Financing by Component (in US$ million equivalent) Componen Appraisal Estimate Actual/Latest Estimate Percentage of Appraisal t Bank EBRD HZ Bank EBRD HZ Bank EBRD HZ Goods Track 24\.2 0\.0 28\.0 116 Renewal and Maintenan ce Rehabilitat 22\.8 35\.0 0\.0 3\.7 35\.0 0\.2 16 100 ion of Traction Units and Spare Parts Conversio 3\.0 0\.0 0\.0 1\.7 57 n of Freight Wagons Rehabilitat 10\.0 0\.0 0\.0 22\.1 221 ion of Passenger Coaches Environme 1\.6 0\.0 0\.0 nt Protection Passenger 3\.4 Transport IT 2\.52 Severance 35\.4 00\.0 47\.0 31\.0 40\.4 88 86 Payment TA 3\.0 0\.0 0\.0 1\.14 38 Frontier-e 1\.0 0\.0 0\.0 0\.9 90 nd Fee Total 101\.0 35\.0 47\.0 94\.46 35\.0 40\.6 94 100 -6\.4 Project Cost - 28 -  Annex 3\. Economic Costs and Benefits Economic Cost Benefit Analysis (Amounts in HRK million, base year: 1999) Present Value of Flows Economic Analysis Financial Analysis Appraisal Latest Estimates Appraisal Latest Estimates NPV HRK 2,157 m HRK 1,233 m HRK 684 m HRK 750 m IRR 54% 45% 26% 28% Until now, the full economic benefits of the project have not been achieved mainly because there has not been enough time for the Bank-financed investments to fructify\. HZ is now set to continue increasing traffic and revenue at 2% per annum, reducing staff on the basis of mechanization and use of locomotives, wagons and maintenance equipment rehabilitated and retrofitted under the Project\. Because of heavy staff reduction, HZ will need to procure more services and the variable cost/unit will increase gradually from HRK0\.33/traffic unit to about HRK0\.41/traffic unit\. It is also quite certain that "without project" transport capacity building would have suffered and traffic would have increased by 2% per year for five years or so and then stagnated at that level, staff reduction would have not taken place except that due to natural attrition of 1% per year\. On the other hand, staff wages would have risen as they have, due to union pressure and the national policy on wages\. Economic analysis has been undertaken on the basis of comparing the results under the "without project" and "with project" scenarios, the assumptions under the two scenarios are indicated below\. Assumptions behind the "without project" scenario include the following: a) The investment in the railways will be restricted to HRK 400 million per year due to budgetary constraints; b) The traffic carrying capacity will slowly decline and as a result the freight traffic will increase only by 2% per year for five years and then remain at that level; c) While traffic will increase slowly, the staff will continue except for natural attrition, which rate has been assumed as 1% per year; d) Variable cost has been assumed to be HRK 0\.33 per traffic unit, this cost not including staff costs but only fuel, services, and spare parts; e) Fixed cost has been assumed to be HRK 360 million per year; f) Average tariff has been assumed as HRK 0\.38 per traffic unit; and g) Economic cost of staff has been computed on the assumption that HZ will like to manage the railways with 15,000 staff; Assumptions behind the "with project" scenario include the following: h) The investment in the railways will be made by the Government being HRK 400 million per year plus the investment made under the Project; i) The traffic carrying capacity will sharply improve and as a result the freight traffic will increase by - 29 -  40% in the first five years and thereafter at 5% per year for the next five years, and 2% per year thereafter; j) The staff will reduce until it reaches the level of 8,000 or so; k) The average salary has risen at a sharp rate due to national policy but been assumed to remain constant, i\.e\., will increase only by the rate of inflation; l) Variable cost has been assumed to increase gradually to HRK 0\.41 per traffic unit due to gradual increase in services as staff is reduced; m) Fixed cost has been assumed to remain the same; n) Average tariff has been assumed to remain the same; o) About 25% of the retrenchment benefits will be invested by the staff and that will generate an income of 10% per annum; and p) About 45% of staff leaving HZ was reemployed, mostly in the subsidiary companies until the year 2004 by which date the process of subsidiary formation had been completed\. After 2004, the rate of reemployment of fresh retrenchment has been assumed as 10%\. WithoutProject WithProject Fin\. Econ\. Variable Fin\. Econ\. Total Total Variable Total Retrenched Interest Freight Total Change Change staff staff &fixed total total Capital Total fiscal econ\. Staff &fixed Capital Total fiscal staff from user econ\. Croatian Govt Year cost cost cost cost cost cost revenue surplus surplus cost cost cost rev surplus AltIncomealt\.income savings surplus Econ\. Fiscal 1 1,265 886 1,345 2,610 2,231 400 1,117 (1,893) (1,514) 1,265 1,345 478 1,117 (1,971) 32 2 0 (1,937) (44) (78) 2 1,253 886 1,365 2,617 2,251 400 1,139 (1,878) (1,511) 1,193 1,441 510 1,190 (1,954) 57 3 31 (1,864) (46) (76) 3 1,314 939 1,385 2,699 2,324 400 1,162 (1,937) (1,562) 1,206 1,581 543 1,306 (2,025) 92 2 87 (1,845) (16) (88) 4 1,392 1,005 1,405 2,798 2,410 400 1,185 (2,012) (1,625) 1,217 1,661 582 1,352 (2,108) 161 0 101 (1,845) (8) (95) 5 1,420 1,035 1,426 2,846 2,461 400 1,209 (2,037) (1,652) 1,109 1,807 639 1,464 (2,092) 202 2 154 (1,734) (8) (55) 6 1,504 1,107 1,448 2,952 2,555 400 1,233 (2,118) (1,722) 1,100 1,859 617 1,477 (2,100) 241 1 147 (1,711) 4 18 7 1,489 1,107 1,448 2,937 2,555 400 1,233 (2,103) (1,722) 1,045 1,976 470 1,550 (1,941) 247 2 191 (1,501) 159 163 8 1,474 1,107 1,448 2,922 2,555 400 1,233 (2,088) (1,722) 993 2,100 400 1,628 (1,865) 252 1 238 (1,375) 233 223 9 1,459 1,107 1,448 2,907 2,555 400 1,233 (2,074) (1,722) 943 2,233 400 1,709 (1,867) 256 1 287 (1,322) 235 207 10 1,445 1,107 1,448 2,892 2,555 400 1,233 (2,059) (1,722) 896 2,327 400 1,795 (1,828) 261 1 339 (1,227) 283 231 11 1,430 1,107 1,448 2,878 2,555 400 1,233 (2,045) (1,722) 851 2,425 400 1,885 (1,792) 265 1 393 (1,133) 333 253 12 1,416 1,107 1,448 2,864 2,555 400 1,233 (2,030) (1,722) 809 2,466 400 1,922 (1,753) 269 1 416 (1,067) 356 278 13 1,402 1,107 1,448 2,849 2,555 400 1,233 (2,016) (1,722) 768 2,508 400 1,961 (1,716) 273 1 439 (1,003) 379 300 14 1,388 1,107 1,448 2,835 2,555 400 1,233 (2,002) (1,722) 730 2,551 400 2,000 (1,681) 277 1 463 (941) 403 321 15 1,374 1,107 1,448 2,821 2,555 400 1,233 (1,988) (1,722) 693 2,595 400 2,040 (1,649) 280 1 487 (881) 427 340 16 1,360 1,107 1,448 2,808 2,555 400 1,233 (1,974) (1,722) 659 2,640 400 2,081 (1,618) 283 1 511 (823) 451 357 17 1,347 1,107 1,448 2,794 2,555 400 1,233 (1,961) (1,722) 626 2,685 400 2,122 (1,589) 286 1 536 (765) 475 372 18 1,333 1,107 1,448 2,781 2,555 400 1,233 (1,947) (1,722) 595 2,732 400 2,165 (1,562) 289 1 562 (710) 499 386 19 1,320 1,107 1,448 2,767 2,555 400 1,233 (1,934) (1,722) 565 2,779 400 2,208 (1,536) 289 0 588 (658) 521 398 20 1,307 1,107 1,448 2,754 2,555 400 1,233 (1,921) (1,722) 565 2,828 400 2,252 (1,540) 289 0 615 (636) 543 381 21 1,294 1,107 1,448 2,741 2,555 400 1,233 (1,908) (1,722) 565 2,877 400 2,297 (1,545) 289 0 642 (613) 566 363 22 1,281 1,107 1,448 2,728 2,555 400 1,233 (1,895) (1,722) 565 2,927 400 2,343 (1,549) 289 0 670 (590) 589 346 23 1,268 1,107 1,448 2,715 2,555 400 1,233 (1,882) (1,722) 565 2,979 400 2,390 (1,553) 289 0 698 (566) 613 329 24 1,255 1,107 1,448 2,703 2,555 400 1,233 (1,869) (1,722) 565 3,031 400 2,438 (1,558) 289 0 727 (542) 637 311 25 1,243 1,107 1,448 2,690 2,555 400 1,233 (1,857) (1,722) 565 3,085 400 2,487 (1,563) 289 0 756 (517) 662 294 NPV 1,233 750 IRR 45% 28% - 30 -  Annex 4\. Bank Inputs (a) Missions: Stage of Project Cycle No\. of Persons and Specialty Performance Rating (e\.g\. 2 Economists, 1 FMS, etc\.) Implementation Development Month/Year Count Specialty Progress Objective Identification/Preparation 07/15/1997 5 Transport Economist (1); Financial Analyst (1); Transport Engineer (1); Counsel (1);Procurement Specialist (1) 01/07/1998 5 Transport Economist (1); Financial Analyst (1); Transport Engineer (1); Counsel (1);Procurement Specialist (1) Appraisal/Negotiation 06/26/1998 6 Transport Economist (1); Financial Analyst (1); Transport Engineer (1); Counsel (1); Disbursement Officer (1); Procurement Specialist (1) 11/12/1998 6 Transport Economist (1); Financial Analyst (1); Transport Engineer (1); Counsel (1); Disbursement Officer (1); Procurement Specialist (1) Supervision 11/05/1999 3 RAILWAY SPECIALIST (1); S U FINANCIAL ANALYST (1); TRANSPORT SPECIALIST (1) 03/26/2000 2 SR\.TRANSPORT ECONOMIST U U (1); TRANSPORT SPECIALIST (1) 06/06/2000 5 TEAM LEADER (1); U U TRANSPORT ENGINEER (1); FINANCIAL ANALYST (1); RAILWAY SPECIALIST (1); PROJECT OFFICER (1) 11/20/2000 5 TEAM LEADER (1); U U TRANSPORT SPECIALIST (1); FINANCIAL ANALYST (1); LEAD RAILWAY ENGINEER (1); SR\. OPERATIONS OFF\. (1) 06/01/2001 5 TEAM LEADER (1); U U TRANSPORT SPECIALIST (1); FINANCIAL ANALYST (1); - 31 -  LEAD RAILWAY ENGINEER (1); SR\. OPERATIONS OFFICER (1) 06/01/2001 5 TEAM LEADER (1); S S TRANSPORT SPECIALIST (1); LEAD RAILWAY ENGINEER (1); FINANCIAL ANALYST (1); SR\. OPERATIONS OFFICER (1) 06/01/2001 5 PROGRAM TEAM LEADER S S (1); TRANSPORT SPECIALIST (1); LEAD RAILWAY ENGINEER (1); SR\. FINANCIAL ANALYST (1); SR\. OPERATIONS OFFICER (1) 10/01/2002 4 SR\.OPERATIONS OFF\. (1); S S SR\.FINANCIAL ANALYST (1); FINANCIAL ANALYST (1); CONSULTANT (1) 02/28/2003 4 SR\.FINANCIAL ANALYST (2); S S LEAD RAILWAY ENGINEER (1); CONSULTANT (1) 09/15/2003 4 SR\. FINANCIAL ANALYST S S (1); RAILWAY SPECIALIST (1); INFRASTRUCTURE SPECIAL (1); PROJECT OFFICER (1) 02/27/2004 4 SR\.FINANCIAL ANALYST (1); S U RAILWAY SPECIALIST (1); INFRASTRUCT\.SPECIALIST (1); PROJECT OFFICER,ZAGREB (1) 09/24/2004 4 TEAM LEADER (1); S U RAILWAY SPECIALIST (1); TRANSPORT ADVISER (1); PROJECT OFFICER,ZAGREB (1) ICR March 2005 5 TEAM LEADER (1); PROJECT OFFICER , ZAGREB (1); TRANSPORT SPECIALIST (2); RAILWAY SPECIALIST (1) - 32 -  (b) Staff: Stage of Project Cycle Actual/Latest Estimate No\. Staff weeks US$ ('000) Identification/Preparation N/A 305\.00 Appraisal/Negotiation N/A 220\.27 Supervision N/A 785\.17 ICR N/A 30\.0 Total N/A 1340\.44 *SAP no longer provides information on staff weeks\. 1/ Also includes Bank-financed and trust fund consultants\. - 33 -  Annex 5\. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating Macro policies H SU M N NA Sector Policies H SU M N NA Physical H SU M N NA Financial H SU M N NA Institutional Development H SU M N NA Environmental H SU M N NA Social Poverty Reduction H SU M N NA Gender H SU M N NA Other (Please specify) H SU M N NA Private sector development H SU M N NA Public sector management H SU M N NA Other (Please specify) H SU M N NA - 34 -  Annex 6\. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6\.1 Bank performance Rating Lending HS S U HU Supervision HS S U HU Overall HS S U HU 6\.2 Borrower performance Rating Preparation HS S U HU Government implementation performance HS S U HU Implementation agency performance HS S U HU Overall HS S U HU - 35 -  Annex 7\. List of Supporting Documents 1\. Aide Memoires, Back-to-Office Reports, and Project Status Reports\. 2\. Project Progress Reports\. 3\. Consultant Study Reports financed under the Project\. 4\. Borrower's Evaluation Report dated October 2005; and 5\. Project Appraisal Document for Croatia: Railway Modernization and Restructuring Project, dated December 8, 1998 (Report No: 18553-HR) - 36 -  IBRD 29793 14° 15° 16° 17° 18° 19° A U S T R I A To Pragersko Lendava ^ ^ ^ Mursko Sredisce C R O A T I A Sredisce Cakovec To Grobelno Kotoriba To Budapest H U N G A R Y RAILWAY MODERNIZATION AND Varazdin Murakeresztur To Budapest To Stranje Rogatec Golubovec Gyekenyes RESTRUCTURING PROJECT ITALY Durmanec Koprivnica Imeno Kumrovec ^ 46° ^ To Pécs 46° S L O V E N I A To Ljubljana Gornja Krizevci Savski Zabok Klostar Stubica Marof Dobova ZAGREB RAILROADS: Bjelovar Magyarboly ^ Beli To Pivka MAIN LINES Dugo Selo Odvojnica ^ To Presnica To Ljubljana Manastir Pcelic ^ BRANCH LINES V\. Gorica Belisce To Subotica RAILROAD TRACK RENEWAL AND REHABILITATION: Ilirska Metlika Kamanje Osijek Erdut 1998 PROGRAM Bistrica ^ Bizovac Rakitovec Karlovac Banova Velika Dalj Bogojevo 1999 PROGRAM Sisak/Caprag Nasice Jaruga Buzet Moravice Vukovar 2000 PROGRAM Lupoglav Vinkovci Rijeka Sunja Novska 2001 PROGRAM Nova Ogulin ^ Glina Kapela/ Slavonski 2002 PROGRAM Ostarije Batrina Brod ^ Slavon Odvojnica Volinja Tovarnik Sid ^ Samac Rasa Dobrljin Zupanje 45° Bosanski Beograd MAJOR TOWNS Brod ^Bosanski Drenovci Samac To NATIONAL CAPITAL To Bosanski Novi Pula ^ RIVERS To Sarajevo Brcko To Bosanski Novi INTERNATIONAL BOUNDARIES ^ To Banovici Ripac Loskun Kulen Vakuf Gospic Martin Brod ^ Licko Dugo Polje B O S N I A A N D Strmica H E R Z E G O V I N A Zadar 44° 44° Benkovac Knin A Sibenik d r Perkovic iatic Split S e To Sarajevo a Capljina PloceMetkovic ^ 43° FED\. REP\. 43 ° OF YUGOSLAVIA (SERB\./ This map was produced by Dubrovnik MONT\.) the Map Design Unit of The World Bank\. The boundaries, colors, denominations and 0 25 50 75 100 Kilometers any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the 0 25 50 75 100 Miles legal status of any territory, or any endorsement or a c c e p t a n c e o f s u c h boundaries\. 14° 15° 16° 17° 18° 19° DECEMBER 1998

REVIEW

P088716

Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BR Health Network Formation & Quality Im (P088716) Report Number : ICRR0020349 1\. Project Data Project ID Project Name P088716 BR Health Network Formation & Quality Im Country Practice Area(Lead) Brazil Health, Nutrition & Population L/C/TF Number(s) Closing Date (Original) Total Project Cost (USD) IBRD-76320 30-Jun-2014 676,800,000\.00 Bank Approval Date Closing Date (Actual) 29-Jan-2009 31-Dec-2015 IBRD/IDA (USD) Grants (USD) Original Commitment 235,000,000\.00 0\.00 Revised Commitment 170,000,000\.00 0\.00 Actual 93,852,870\.04 0\.00 Sector(s) Health(87%):Public Administration - Health(13%) Theme(s) Health system performance(100%) Prepared by Reviewed by ICR Review Coordinator Group Judyth L\. Twigg Soniya Carvalho Joy Behrens IEGHC (Unit 2) 2\. Project Objectives and Components a\. Objectives According to the Loan Agreement (p\. 5), the project's objectives were: "(i) to improve the quality and efficiency of the Borrower's Sistema Único de Saúde (unified health system, SUS) regional health care networks (RHCNs) with emphasis on secondary-level health care, specialty, diagnostic and emergency centers, and logistical systems serving the Borrower's territory and population; and (ii) improve the effectiveness of the Borrower's SUS RHCN's delivery system to prevent, detect and treat priority health conditions in the Borrower's territory and population\." The project was originally intended as the first phase of a two-phase, ten-year Adaptable Program Loan (APL)\. The overall APL program objectives were to: "(a) improve the quality, efficiency and effectiveness of the SUS-financed delivery system, through the development of integrated regional health care networks, with emphasis on the integration among basic health care and high and medium-complexity health  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BR Health Network Formation & Quality Im (P088716) care providers, support services (e\.g\., diagnostics), and logistical systems (e\.g\., transport); and (b) contribute to improving the continuity of care by strengthening the prevention, detection, and treatment of diseases and conditions with the greatest impact on the country's disease burden, including hypertension, diabetes, and cancer" (Project Appraisal Document, PAD, p\. 7)\. The second phase of the APL is no longer contemplated\. b\. Were the project objectives/key associated outcome targets revised during implementation? No c\. Components The project contained three components: 1\. Development of regional health care networks and strengthening of health care facilities (appraisal, US$ 646\.1 million, with IBRD financing of US$ 205 million; actual US$ 409\.6 million)\. This component was to support two related categories of activities\. The first involved the development and implementation of regional and organized arrangements for coordinated or integrated health care (the RHCNs)\. The second consisted of upgrading, quality enhancement, organizational reform, and strengthening of management practices in facilities within the RHCNs\. Both types of activities were to be incorporated into up to 15 demand-driven RHCN subprojects aimed at developing and implementing RHCNs in a subset of the country's states to raise the effectiveness of care provision and strengthen the performance of health and support services\. These subprojects were to finance works, goods, training, and technical assistance, including upgrading and equipping existing health facilities and procurement of medical and non-medical equipment\. Each participating state was to select interventions based on a diagnosis of population needs, local conditions, and implementation capacity\. Emphasis was to be placed on both "fundamental" areas (development of network and facility policies for establishing RHCNs; network configuration; network and facility governance, management, and financing/payment mechanisms; monitoring and evaluation systems; and support and logistics) and "functional" areas (development of evidence-based care practices or clinical guidelines; disease and care management; organized management of referrals, bed assignments, diagnostic exams, specialty consultations, and urgent/emergency care; contracting arrangements; patient communication and health promotion; continuous quality improvement; efficiency enhancement; continuing education for professional and auxiliary staff; information and communication systems; and change management)\. 2\. Systems development for performance enhancement (appraisal, US$ 26\.3 million, with IBRD financing of US$ 26\.3 million; actual, US$ 32\.7 million)\. This component was to support the creation of an enabling institutional and systems environment to support the implementation of RHCNs to improve quality and care management, promote alternative payment systems, and strengthen monitoring and impact evaluation\. It was to have a national focus and be implemented directly by the Ministry of Health (MOH)\. Supporting studies, consultancy services, goods, training, and travel expenses, the component was to support network formation, the development of clinical pathways in support of care coordination, quality enhancement activities, studies in support of technological innovation and assessment, development of mechanisms related to health financing and performance, and monitoring and impact evaluation\. 3\. Project management (appraisal, US$ 3\.8 million, with IBRD financing of US$ 3\.1 million; actual, US$ 8\.0 million)\. This component was to strengthen MOH capacity to implement and supervise the project\. It intended to finance full-time consultants to support MOH staff in procurement, financial management, and administrative tasks associated with daily project implementation, as well as facility upgrading and operating expenses\. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates Project cost: Total estimated project costs were US$ 676\.8 million, including a front-end fee of US$ 0\.6 million and physical and price contingencies of US$ 143\.8 million\. Actual total costs were US$ 450\.9 million\. Financing: The project was to be financed by a US$ 235 million IBRD loan\. Actual financing was US$ 93\.9 million\. The project incorporated a pooled financing approach, with loan proceeds under the first component channeled through the MOH's financial subsystem in which grants were transferred to sub-national entities to co-finance health programs and service delivery\. The arrangement was to incorporate a performance-based financing scheme that was to reward states for achieving agreed benchmarks related to results and implementation at specified intervals, while reducing (or even canceling) financing for non-performers (PAD, p\. 24)\. Borrower contribution: The government made US$ 357 million of an expected US$ 441\.8 million contribution\. Dates: The project was approved on January 29, 2009 and became effective on February 29, 2010\. The mid-term review took place as scheduled in late May 2012\. There were three Level 2 restructurings\. The first, on June 23, 2014, extended the closing date from June 30, 2014 to December 31, 2014, and cancelled US$ 65 million of loan proceeds\. The second, on December 1, 2014, extended the closing date by an additional twelve months to December 31, 2015\. Both of the 2014 restructurings were done with the expectation that a Level 1 restructuring, including a revision of the project's objectives, would soon follow\. In view of the proximity of the closing date,  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BR Health Network Formation & Quality Im (P088716) however, the Bank decided not to proceed with a Level 1 restructuring\. Instead, a third Level 2 restructuring, on June 19, 2015, revised the results framework to align with government indicators and data availability, reallocated funds across categories, and revised some project activities to reflect delays in implementation and changes in government priorities\. 3\. Relevance of Objectives & Design a\. Relevance of Objectives The objectives were relevant to country conditions at the time of appraisal\. At that time, Brazil had made significant progress in improving the health status of its population\. Because health care was a highly political issue and a large component of public spending, increasing efficiency and effectiveness in the use of health resources were perceived to be the country's most important health challenges\. Non- communicable diseases and injuries had become the leading causes of mortality, threatening accelerated burdens on health care spending without aggressive actions to improve coordination of health services promotion and delivery\. In addition, neonatal mortality remained a challenge, reflecting the need for effective health care referral systems and improvements in the quality of hospital care\. Initially, the objectives were also relevant to World Bank and government strategy\. A new set of government reforms launched in 2006 set regionalization as the foundation of the health care delivery system and mandated the creation of RHCNs, along with corresponding inter- municipal government structures to support network formation (Regional Management Councils)\. The Bank's more recent Country Partnership Strategy (2012-2015) called for improvement in the provision of public services for low-income households, as well as the expansion of those services through both public and private channels\. In 2011, however, the MOH assigned high priority to primary health care, with specific emphasis on maternal/child health and emergency care, out of synch with the project's objectives, although there was continued focus on regional health networks as the preferred delivery model\. The objectives have therefore not remained relevant to current government strategy\. Rating Modest b\. Relevance of Design The project's planned activities were logically and plausibly connected to achievement of its objectives\. Quality and efficiency of the RHCNs was to be enhanced through demand-driven subprojects, with specific elements linked to local needs and implementation capacity\. The capacity to prevent, detect, and treat priority health conditions was to be increased through studies, technical assistance, and institution- building\. The APL instrument was selected due to the long-term nature of the proposed activities, the need for a phased approach given the complexity of the envisioned interventions, and the long-term commitment of the health ministry to health network formation\. However, the project was far too complex given available capacity and time, and some key foundational elements were not specified during preparation: sequencing of capacity-building at the federal level prior to using that built capacity to support regional development, and criteria for selection of subprojects\. Rating Modest 4\. Achievement of Objectives (Efficacy) PHREVISEDTBL Objective 1 Objective Improve the QUALITY of the Borrower's SUS RHCNs with emphasis on secondary-level health care, specialty, diagnostic and emergency  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BR Health Network Formation & Quality Im (P088716) centers, and logistical systems serving the Borrower's territory and population Rationale Outputs: Regional subprojects were approved for 16 states and the Federal District, under the framework of 15 approved RHCN subprojects prepared by State Secretariats of Health\. These subprojects focused on anywhere from one to all five of five priority areas: primary health care, thematic networks (maternal and child health or emergency care), diagnostic and therapeutic support systems, logistical support systems, and regional governance strengthening\. Nine subprojects were for RHCNs in metropolitan areas, three were for interstate RHCNs, two addressed coordination with the indigenous health system, and one was in a border area\. All of the participating regions implemented new governance mechanisms to support regional coordination and collaboration, surpassing the target of 80%\. The project helped establish the legal framework for RHCN formation through a series of directives, guidelines, policy, and legislation covering organizational structure, action plans, maternal and child health care, emergency/urgent care, home care, HIV and syphilis testing, and quality assurance\. Five planned national studies aimed at developing strategic guidance for the establishment of RHCNs were never carried out due to delayed in procuring the studies and issues with following Bank procurement guidelines\. Instead of these five studies, the MOH issued a special publication through the Unified Health System to provide analysis and guidance to state Secretariats of Health on the topic of regional network formation\. Nine of Brazil's states and the Federal District contributed to the publication, encompassing 295 research projects (mostly from universities) in the areas of regionalization, networks, and planning; health care delivery; human resources; monitoring and evaluation; and financing\. Of the 15 approved RHCN subprojects, three were never implemented, and none of the remaining 12 was implemented in its entirety\. Overall, only 34\.5% of resources committed to RHCN subprojects were disbursed\. Of those resources that were disbursed, almost half (45\.02%) were spent on medical equipment, with other significant expenditures on capacity building/training (13\.9%) and appliances and vehicles (10\.73%)\. Training and seminars were conducted in the areas of architectural/engineering design for health facilities, transport systems for elective care, hospital cost management, management of medical technologies in hospitals, pharmaceutical management, and basic health care information systems\. 64 architects and engineers were trained in parameters and technical criteria for construction and renovation of hospital units, exceeding the target of 50\. Outcomes: 88% of participating regions had at least 70% of their primary care teams certified by external evaluation of the Improvement of Care and Quality Program, not reaching the target of 100% of participating regions\. The percentage of participating regions with at least 80% mobile emergency care coverage increased from 50% in 2010 to 67% in 2015, not reaching the target of 90%\. However, some of this progress was made in regions that did not use project funding\. 36% of participating regions implemented a rapid test for diagnosing syphilis in pregnant women and their sex partners, not reaching the target of 80%\. Many factors other than activities financed by the project contributed to this outcome\. Rating Modest PHREVISEDTBL Objective 2 Objective Improve the EFFICIENCY of the Borrower's SUS RHCNs with emphasis on secondary-level health care, specialty, diagnostic and emergency centers, and logistical systems serving the Borrower's territory and population Rationale Outputs: In addition to the outputs listed above: All of the project's participating regions implemented a new pharmaceutical management system, covering 198 municipalities\. In another 84 municipalities, staff have been trained on the system and its introduction is in progress\. 4,680 professionals were trained on the system, exceeding the target of 2,420\. However, only 45% of participating regions had at least 85% of their municipalities implement the system, not meeting the target of 100% of participating regions reaching that level of municipal implementation\. Only 9% of hospitals in the project's participating regions introduced a planned hospital cost management system intended to identify and manage health care costs according to standard parameters, not meeting the target of 15%\. Only three RHCNs implemented patient transportation systems\. An additional nine planned to do so, but the systems were never  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BR Health Network Formation & Quality Im (P088716) implemented due to delays in execution and difficulties in coming to agreements on cost sharing and management\. 45% of participating regions procured equipment to implement regional referral and counter-referral systems, not meeting the target of 70%, and even those that did establish the technical infrastructure are not yet operational\. 88% of municipalities (430 municipalities) in the participating regions now use a system of electronic medical records in primary health care\. 17 additional municipalities are in the advanced stages of rolling out this system\. Only 5% of municipalities in the participating regions have not begun processes to adopt this system\. Outcomes: No outcome data are provided on efficiency of the RHCNs, though it is plausible that some of the training and capacity development provided could have contributed to some modest level of institutional and network efficiency\. Rating Modest PHREVISEDTBL Objective 3 Objective Improve the EFFECTIVENESS of the Borrower's SUS RHCN's delivery system to prevent, detect and treat priority health conditions in the Borrower's territory and population Rationale Outputs: National legislation and policy were developed on regional health care networks, maternal/infant care, and emergency care\. The MOH, through a special publication issued through the SUS's Research Program, provided analysis and guidance to state Secretariats of Health on regional network formation and the implementation of relevant legislation and directives\. Nine states and the federal district contributed to this publication\. 295 other research studies were completed in the areas of regionalization, networks, and planning; health care delivery; human resources; monitoring and evaluation; and financing\. Outcomes: No outcome data are provided specifically for this objective\. No results chain is articulated linking any progress in developing and implementing RHCNs with the prevention, detection, and treatment of health conditions\. Rating Negligible 5\. Efficiency The PAD (Annex 9) estimated that the project would save over 10,000 lives representing 281,000 years of life over a ten-year horizon, producing direct economic benefits of reduced hospital admissions alone valued at US$ 44\.2 million (before discounting)\. During the implementation period (five years), the calculated Net Present Value (NPV) was negative (US$ - 278\.32 million), but under the full ten-year period of analysis and most likely scenario, the NPV becomes positive at US$ 97\.55 million, with an Internal Rate of Return (IRR) of 6\.5% and benefit:cost ratio of 1\.18\. The main factors seen as contributing to the economic impact of the project under this scenario were the scale of the subprojects and the definition of outcome variables directly related to target conditions\. The assumptions underlying these calculations are explicit and reasonable, and the PAD (p\. 104) presents a reasonable sensitivity analysis\. The ICR does not conduct a formal economic analysis, stating that insufficient information was collected (p\. 27)\. The ICR points out that much of the loan was not disbursed, and most of the allocated funds were spent on covering ad hoc equipment needs prioritized by individual RHCNs, making it impossible to specify benefits in economic terms\. There were major implementation inefficiencies, including start-up delays, shifts in government policy, and failure to restructure to match project focus with changing government priorities\.  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BR Health Network Formation & Quality Im (P088716) Efficiency Rating Negligible a\. If available, enter the Economic Rate of Return (ERR) and/or Financial Rate of Return (FRR) at appraisal and the re-estimated value at evaluation: Rate Available? Point value (%) *Coverage/Scope (%) 100\.00 Appraisal  6\.50 Not Applicable 0 ICR Estimate 0 Not Applicable * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome Relevance of objectives is rated Modest due to a mismatch that developed, and was not corrected, between government strategy and the project's objectives\. Relevance of design is also rated Modest due to the project's complexity in relation to its time frame and implementation capacity\. Achievement of objectives is rated Modest for development of effectiveness and efficiency in the RHCNs in the area of secondary care\. The RHCNs' contribution to diagnosis, prevention, and treatment of major health conditions was Negligible\. Efficiency was also Negligible given multiple delays and few achieved outcomes\. Overall, although the project assisted with conceptualizing regional health care networks and putting in place their legal and institutional basis, no meaningful, measurable outcomes were observed\. These ratings are indicative of major shortcomings in the project's preparation and implementation, resulting in an Outcome rating of Unsatisfactory\. a\. Outcome Rating Unsatisfactory 7\. Rationale for Risk to Development Outcome Rating Minimal outcomes were achieved\. In keeping with IEG/OCPS harmonized guidelines, this section assesses the risk that this little outcome will be knocked off by a shock (rather than maintained)\. That risk is rated as Substantial\. Support for health care network development in Brazil is being funded entirely by the government, producing important financial risks due to the current economic downturn and resulting fiscal constraints\. The project's contribution to MOH guidelines regarding the regionalization process for delivery of health care is likely to be sustained, but according to the ICR (p\. 28), institutional capacity development under the project was minimal, and therefore effective implementation of those guidelines is uncertain\. a\. Risk to Development Outcome Rating Substantial 8\. Assessment of Bank Performance a\. Quality-at-Entry The project drew a number of lessons from prior experience with health reform in Brazil, including the need to limit the number of subprojects to avoid resource dispersion, the importance of substantial technical assistance to participating states, the need for a pre-investment phase of capacity building, the prioritization of managerial and organizational change over investment in hardware, the importance of specific links  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BR Health Network Formation & Quality Im (P088716) between investment financing and the achievement of performance targets, and the appropriateness of using independent groups/commissions to review subproject proposals and assess subproject performance (PAD, pp\. 19-20)\. The project's design drew on four analytic studies prepared by the Bank in response to the government's request for support in improving the efficiency and quality of public services, and its focus emerged logically from other Bank-financed work in the health sector\. Risk assessment acknowledged several significant risks: overly complex network design, political interference in subprojects, weak performance of subprojects, over-emphasis on hardware investments, lack of experience with Bank-financed projects, and weak technical and fiduciary capacity\. After mitigation measures were considered, the only risk still considered substantial was that of political interference with the planning and implementation of subprojects that might produce pressure to finance investments outside the project's scope\. Although the project was prepared at a two-phase APL, the government approved only the first phase; the ICR (p\. 10) states that it would have been prudent for the Bank team to have adjusted the project for implementation in one phase only\. Overall, the approach during preparation was "overly positive" (ICR, p\. 11), underrating several key risks and not taking into account lessons from prior projects about the need to put in place adequate M&E systems during preparation\. Project design was quite complex, with capacity-building that would enable the federal MOH team planned to occur simultaneously with the selection and roll-out of regional-level subprojects that would depend on that capacity having already been built at the federal level\. The planned five years was a short time period to expect this to happen\. Overall, the project was not ready for implementation upon approval by the Board: the Operational Manual had not been finalized, critical staffing at the MOH was not in place, M&E arrangements (including baseline data) were not complete, and criteria for selection of subproject proposals had not been elaborated and adopted\. Finally, the Bank's Task Team Leader changed in the final stages of preparation and was no longer based at the Country Office\. Quality-at-Entry Rating Moderately Unsatisfactory b\. Quality of supervision The Bank team worked closely and continuously with the MOH to accelerate implementation and keep the project's activities in line with government priorities and guidelines\. Nonetheless, the project's legal framework, definition of criteria for selecting participating states, contracting of consultants to work on subproject preparation, and communication with state-level health secretariats about the project were completed over two years after approval\. There were extensive delays in submitting and approving a request for a Level 2 restructuring, and the project's objectives were never brought in line with changing government priorities\. Monitoring and reporting on formal project indicators did not take place, and Implementation Status Reports did not reflect ongoing challenges\. Implementation support for the first several years of the project was provided by a Headquarters-based Task Team Leader, resulting in inadequate "hands-on" support (ICR, p\. 35); this situation was rectified with a handover to a country-based Task Manager for the project's final stages\. Quality of Supervision Rating Unsatisfactory Overall Bank Performance Rating Unsatisfactory 9\. Assessment of Borrower Performance a\. Government Performance The government was not committed to the project throughout most of the preparation and implementation periods\. Project preparation took a relatively long time (over three years) because of changes in the government's technical team\. Preparation was carried out by the Executive Secretariat of the MOH supported by three external consultants; this limited buy-in by the various MOH technical departments that had roles in implementation\. Effectiveness was also delayed (more than one year after approval by the Board) because of a lengthy process ratification by the Senate (impacting all projects in the country) and because of MOH reconsideration of implementation arrangements (eventually the original arrangements were adopted)\. Upon a change in federal government administration in January 2011, priorities shifted in the health sector to primary care, reducing the relevance of the project's focus at the secondary level\. The MOH issued new guidelines on regionalization in December 2010 that shifted counterpart funding from regular transfers to participating states and municipalities for higher-complexity services -- the focus of the project's objectives -- instead to transfers to thematic health care networks focusing on maternal/infant health and emergency care\. As the project progressed, the MOH worked closely with the states to improve the implementation of subprojects, but eventually it agreed to finalize the subprojects without a Level 1 restructuring to reorient the project\.  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BR Health Network Formation & Quality Im (P088716) Government Performance Rating Moderately Unsatisfactory b\. Implementing Agency Performance The majority of project activities, under the first components, were implemented by the states, with the second component implemented by the MOH Executive Secretariat\. The states varied considerably in their capacity to formulate and implement subprojects, and the Executive Secretariat displayed little commitment to the project\. A formal Project Execution Unit was established only two years after approval\. Although this Unit attempted to improve project performance during its final stages, it could not overcome initial delays (including the completion of some important bidding procedures) and the mismatch between project and government priorities\. Implementing Agency Performance Rating Moderately Unsatisfactory Overall Borrower Performance Rating Moderately Unsatisfactory 10\. M&E Design, Implementation, & Utilization a\. M&E Design The PAD (p\. 9) acknowledged the intrinsic difficulty of measuring the impact of health care networks and care coordination practices\. Most of the key project indicators were therefore process indicators that were proxies for more robust outcome indicators, but were not geared toward measuring true progress toward achievement of the development objectives\. It was also acknowledged that most existing data collection was oriented toward programs, facilities, and broad population-based data; regional and patient-level information related to care coordination and case management across multiple providers did not exist\. The project therefore proposed to put in place processes such as standardized clinical pathways, risk classification systems, and continuous patient monitoring, as well as information systems and institutional structures to capture the impact of RHCNs on service quality, effectiveness, and efficiency and, ultimately, health status\. Process indicators were specified for the overall system of RHCNs, for each specific RHCN, and for capacity development at the federal MOH\. Specifically, the M&E system was to collect, analyze, and act upon six sets of data: project performance indicators included in federal-state agreements, performance indicators not included in those agreements, MOH institutional capacity indicators, fiduciary indicators, environmental indicators, and baseline and ex-post survey data for impact evaluation\. This was a highly complex results framework\. Participating states were to be financed in relation to implementation and results at specified intervals\. Support was to be provided to the MOH for technical assistance to the RHCNs to monitor performance, including the collection of baseline data\. b\. M&E Implementation Few of the indicators in the formal results framework were ever monitored or reported in Implementation Status Reports, as the required monitoring and reporting systems were never put in place at the subnational or federal level\. Baseline data were compiled only in June 2014\. At the June 2015 restructuring, the results framework was revised to align with government indicators, to acknowledge the project's limitations in influencing the quality and efficiency of the RHCNs, and to reflect the government's decision to prioritize thematic health care networks focused on maternal/child health and emergency care\. c\. M&E Utilization With little to no data collected and reported, there was no opportunity for the project's M&E to impact implementation or policy development\.  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BR Health Network Formation & Quality Im (P088716) M&E Quality Rating Negligible 11\. Other Issues a\. Safeguards The project was environmental category "B" and triggered three safeguard policies: Environmental Assessment (OP/BP 4\.01), Physical Cultural Resources (OP/BP 4\.11), and Indigenous Peoples (OP/BP 4\.10)\. An Environmental Assessment was prepared to identify potential environmental impacts\. It proposed activities to enhance environmental management, particularly under the RHCN subprojects\. All RHCNs were required to incorporate the establishing or strengthening of an organized sanitary and transport system for medical waste that serves all municipalities and units within their regions\. A project Environmental Framework (EF) was also established to guide the selection, screening, construction, and monitoring of health networks and units\. In order to address the Physical Cultural Resources safeguard, the EF included "chance find" rules and procedures, as well as screening procedures to identify any known cultural resources requiring special attention during renovation activities\. An Indigenous Peoples Planning Framework was incorporated, through which states whose subproject catchment areas included indigenous communities would develop Indigenous Peoples Plans\. At the time of the mid-term review in May 2012, a review of compliance with safeguard policies was carried out, but given the lack of subproject implementation at that time, there was only a review of plans\. The project team later confirmed that there was full compliance with the Bank's safeguard policies\. b\. Fiduciary Compliance Financial management presented no major issues during implementation, although internal controls at the state level were weak\. Corrective actions included the use of state- and federal-level systems and the information technology system developed for another Bank-financed project\. However, there were extensive procurement delays, as state and municipal capacity to handle procurement varied widely\. The ICR (p\. 19) states that little (if any) training on Bank procurement guidelines was carried out\. Ultimately, because of operational delays during implementation, several states were unable to complete contracts included in their procurement plans\. The project team later confirmed that there was full compliance with the Bank's fiduciary policies\. c\. Unintended impacts (Positive or Negative) None reported\. d\. Other --- 12\. Ratings Reason for Ratings ICR IEG Disagreements/Comment Outcome Unsatisfactory Unsatisfactory --- Risk to Development Outcome Substantial Substantial --- The project's objectives were not Bank Performance Moderately Unsatisfactory Unsatisfactory brought in line with changing government priorities, monitoring  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review BR Health Network Formation & Quality Im (P088716) and reporting on formal project indicators did not take place, and Implementation Status Reports did not reflect ongoing challenges\. Borrower Performance Moderately Unsatisfactory Moderately Unsatisfactory --- Quality of ICR Substantial --- Note When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate\. 13\. Lessons The following lessons are derived from the ICR (pp\. 33-35): Government policy shifts can render existing projects less relevant, or even irrelevant\. In this case, a project whose buy-in was tenuous from the beginning suffered fatal blows when government priorities changed\. Continuous dialogue and attention is necessary so that the need for restructuring is identified early and accurately\. Sequencing is important\. When enhanced institutional capacity is essential to project implementation, it must be adequately planned and provided\. In the case of this project, MOH required capacity development in order to support the subnational levels in design and implementation of subprojects, but the required phasing of activities was not put in place\. Candor in Implementation Progress Reports is a prerequisite for mid-course adjustment\. In this case, lack of candor in ratings for progress toward development objectives and implementation support translated into lack of urgency regarding corrective action and restructuring\. 14\. Assessment Recommended? No 15\. Comments on Quality of ICR The ICR is analytical, concise, and candid in its reporting of the challenges with the project's preparation and implementation\. Its provides a thorough assessment of attribution of observed outcomes to the project's interventions\. Lessons are insightful and well derived from project experience\. However, the ICR is repetitive at points, and there are numerous mismatches in outcome data between the Data Sheet and main text\. a\. Quality of ICR Rating Substantial

REVIEW

P008204

Document of The World Bank FOR OFFICIAL USE ONLY IMPLEMENTATION COMPLETION REPORT (Core ICR) ON A Report No: 19838 LOAN IN THE AMOUNT OF US$100\.0 MILLION TO THE REPUBLIC OF VENEZUELA FOR A SOCIAL DEVELOPMENT PROJECT PROJECT ID: P008204 L/C NUMBER: 32700; 3270A; 3270S January 13, 2000 Country Management Unit for Colombia, Ecuador and Venezuela Human Development Sector Management Unit Latin America and the Caribbean Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  CURRENCY EQUIVALENTS (Exchange Rate Effective November 30, 1999) Currency Unit = Bolivar (B) B 637\.00= US$ 1\.00 US$ 0\.0016 = B 1\.00 FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS CORDIPLAN Ministry of Coordination and Planning ICR Implementation Completion Report IEC Information, Education and Communication INN National Institute of Nutrition FONVIS Venezuelan Fund for Social Investment FUNDAESCOLAR School Fund (Fundaci6n Escolar) MINFAM Ministry of the Family MOE Ministry of Education MOH Ministry of Health NGO Non-Governmental Organization OCEI Central Office of Statistics and Information OTC Technical Coordination Office (Ministry of the Family) PAHO Pan-American Health Organization PAMI Expanded Maternal-Child Health Care Program SAL Structural Adjustment Loan Vice President: David de Ferranti Country Manager/Director: Andres Solimano Sector Manager/Director: Xavier Coll Country Sector Leader: Constance Corbett Task Team Leader/Task Manager: Willem Struben  FOR OFFICIAL USE ONLY VENEZUELA SOCIAL DEVELOPMENT PROJECT (Loan 3270-VE IMPLEMENTATION COMPLETION REPORT CONTENTS Page No 1\. Project Data 1 2\. Principal Performance Ratings 1 3\. Assessment of Development Objective and Design, and of Quality at Entry 2 4\. Achievement of Objective and Outputs 3 5\. Major Factors Affecting Implementation and Outcome 6 6\. Sustainability 8 7\. Bank and Borrower Performance 8 8\. Lessons Learned 11 9\. Partner Comments 12 10\. Additional Information 20 Annex 1\. Key Performance Indicators/Log Frame Matrix 21 Annex 2\. Project Costs and Financing 22 Annex 3\. Economic Costs and Benefits 25 Annex 4\. Bank Inputs 26 Annex 5\. Ratings for Achievement of Objectives/Outputs of Components 28 Annex 6\. Ratings of Bank and Borrower Performance 29 Annex 7\. List of Supporting Documents 30 Annex 8\. Beneficiary Assessment Results 31 Annex 9\. Supplementary Project Data 45 This ICR was prepared by Mr\. Willem Struben (consultant, LCSHD), with the help of Messrs\./Mmes\. Federico Joubert, Bethania Blanco, Maria Elena Anderson and Pablo Schneider (consultants), with production assistant from Mr\. Cesar Granados (LCSHD)\. The Beneficiary Assessment was carried out by local consultants with the help of Ms\. Ximena Traa (consultant)\. It was reviewed by Ms\. Constance Corbett (Country Sector Leader, LCC4C) and Mr\. Bruce Carlson (Task Manager, LCCVE)\. A Bank completion mission took place in November/December 1998\. The report is based on the findings of this mission, as well as on material in the project file, discussions with representatives of the Borrower and the Bank, and a beneficiary assessment carried out in 1999\. The Borrowed contributed to the preparation of the ICR by preparing the comments presented in Section 9, and supplementary data presented in Annex 9, compiling statistical data, commenting on the draft ICR, and contributing to the preparation of the Beneficiary surveys (Annex 8)\. Final comments were delayed because of the change in Government and some senior project managers in February /March 1999 and the need to complete the beneficiary assessment\. This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.   Project ID: P008204 Project Name: SOCIAL DEVT Team Leader: Constance A\. Corbett TL Unit: LCC4C ICR Type: Core ICR Report Date: January 11, 2000 1\. Project Data Name\. SOCIAL DEVT L/C Number: 32700; 3270A; 3270S Country/Department\. VENEZUELA Region: Latin America and Caribbean Region Sector/subsector: HB - Basic Health KEY DATES Original Revised/Actual PCD: 07/13/89 Effective: 03/01/91 09/30/91 Appraisal: 05/07/90 MTR: Approval: 11/29/90 Closing: 12/31/96 06/30/99 Borrower/lmplementing Agency: Republic of Venezuela/Ministry of the Family; Ministry of Health; Ministry of Education; Ministry of Planning and Coordination (CORDIPLAN); Central Office of Statistics and Information (OCEI); Venezuelan Fund for Social Investment (FONVIS) (Financial Administration) Other Partners: United Nations Development Programme (UNDP) (Procurement/Administrative Assistance to Borrower) STAFF Current At Appraisal Vice President: David de Ferranti S\. Shahid Husain Country Manager: Andres Solimano Ping Loh Sector Manager: Xavier E\. Coll Robert Drysdale Team Leader at ICR: Bruce Carlson Cecilia Valdivieso ICR Primary Author: Willem Struben 2\. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: U Sustainability: UN Institutional Development M Impact: Bank Performance: U Borrower Performance: U QAG (if available) ICR Quality at Entry: U Project at Risk at Any Time: Yes  3\. Assessment of Development Objective and Design, and of Quality at Entry 3\.1 Original Objective: To assist the Borrower in developing a social sector strategy to redirect its social expenditures into well-targeted and efficient programs within the framework of the Social Sectors Action Program (SSAP)\. The SSAP had the following objectives: (a) improve the living conditions of the poor and vulnerable population, specifically pregnant and lactating women and children under six years of age, while mitigating the potential adverse impact of the adjustment program; (b) replace indirect subsidies with targeted social programs, while improving their efficiency and rationalizing their distribution; and (c) promote institutional development by improving the planning and management capacity of the Ministry of Health and Education, as well as the capacity to target, develop and monitor social programs in the Ministry of the Family\. 3\.2 Revised Objective: No change\. 3\.3 Original Components: Rating Component Sector Cost U Primary Health Care HY 231,300,000 S Pre-School Development EP 54\.900,000 Infonnation, Education & U Communications XX 10,100,000 S Institutional Development xx 9,700,000 Total 306,000,000 3\.4 Revised Components: n/a 3\.5 Quality at Entry: ICR rating: Unsatisfactory\. With hindsight, the scope of the project was too broad and its development objectives overly ambitious in light of the political context at the time and the Borrower's lack of experience with Bank policies and procedures\. A more narrowly focused objective and simpler design minimizing the need for complex inter-institutional coordination would seem to have offered a better chance of success\. This might have been done through a series of separate single-sector projects\. A second alternative might have been a social fund-type approach, such as that taken in other Latin American countries at that same time\. With respect to composition of project design and thoroughness of analysis, project preparation lacked adequate definition of the institutional arrangements for project execution and financial management of this complicated multi-sector project\. As the project was intended to mitigate the social impact of adjustment, there was a strong perception on the part of both the Borrower and the Bank that initiation of project activities, in parallel with the implementation of the SAL, was extremely urgent\. It was thought that detailed management arrangements could be worked out at the start of the project\. This turned out to be a mistake, and project implementation was hampered throughout execution by organizational, managerial and financial problems\. A public administration/management specialist should have been involved in project design and appraisal, as well as throughout supervision\. Both the Borrower and the Bank were overly optimistic about the ability of the MOF to coordinate and facilitating a complex project involving two other major actors, MOE and MOE, each of which had their own agenda that frequently took precedence over -2 -  those of the project\. An attempt was made to compensate for the lack of readiness of implementation arrangements by incorporation of a condition of effectiveness\. However, arrangements presented in compliance with the condition proved inadequate\. The Loan Agreement specified that progress under the Government's Social Sectors Action Program would be reviewed annually as the basis for setting spending targets in the following year\. This provision proved insufficient; Bank financing, as well as Government counterpart spending were included in the overall budget, and overall spending on the social sectors fell short of projected levels during the project period\. Provision for a Mid-Term Review was not included\. While formal economic analysis was not included in the project documentation, quantitative estimates of expected benefits were provided\. Coverage of the pre-school component was overestimated, leading to overestimation of overall benefits\. Risks\. The SAR identified the Borrower's lack of experience with international bidding in general, and Bank procedures in particular, as the major risk facing the project\. Provision of technical assistance and seminars in procurement and disbursement procedures were considered adequate to overcome these weaknesses\. Much was left to intensive supervision as a way of overcoming inherent weaknesses\. In the event, frequent turnover of ministerial and project management staff nullified the effect of the project launch assistance provided early on\. The complexity of project design itself, and the additional burden it would place on the weak institutions involved in implementation was not mentioned as a risk\. This proved to be the major obstacle to project implementation\. 4\. Achievement of Objective and Outputs 4\.1 Outcome/achievement of objective: The project objective of helping the Government refocus and improve its social policies and operational programs aimed at vulnerable groups, in particular programs in pre-school education and health and nutrition for pregnant and lactating women and children up to six years of age, was only partially achieved\. In particular: * Improved Living Conditions\. Although the project's supplemental food component was substantial and did have an initial positive impact on the malnutrition coefficient, the other components did not make a substantial difference, and the country's current social indicators are generally worse today than at the start of the project\. Despite the minimal physical impact, however, the pre-school component has established a basis for a realistic and potentially substantial and sustainable development of pre-school education, particularly with the help of NGOs and the beneficiary communities themselves\. In addition, a large number of health centers has been provided with adequate equipment, again helping the poor\. * Targeted Subsidies\. The Government did increase its targeted social programs at the expense of in direct subsidies, but the targeting was broad-ranging and far from perfect\. It is true that supplementary nutrition, health center equipment, and pre-school education efforts were all aimed at the poor, by definition, but it is also true that the policies did not achieve the targeting of the Government's limited resources to the relatively most vulnerable groups and regions\. Nutrition - 3 -  programs were only in more recent years channeled through the health centers, and medical equipment was only very recently allocated to under-served health centers\. Pre-school classrooms have been established using targeting mechanisms developed on the basis of a study carried out in 1993\. This should also be of use for future efforts\. a Institutional Development The project's aim to strengthen the planning and management capacity of MOH and MOE, as well as MOF's capacity to design, plan, implement, and monitor social programs, was only partially achieved\. MOH was not affected, mainly because the substantial PAMI program was outside its control, because the medical equipment component managed by MOH was relatively minor, and because of a seeming lack of interest on the part of both MOH and MOF in having the OTC components provide policy and operational efficiency advice to MOH\. MOE was barely affected\. Again, there was very little project advice on the more efficient operation of MOE's project activities coming from OTC, seemingly also because of MOF's own pre-school activities\. In addition, the initial cooperation between FUNDAPREESCOLAR and MOE's responsible directorate-general was poor, and the component was relatively small to begin with\. However, this component did eventually have some impact on MOE's pre-school policies and an agreement that future sub sector activities should aim at the substantial involvement of communities and NGOs\. MOF itself was strengthened, particularly in its role as the technical secretariat of the Social Cabinet, including the new directorate-general for social development and recent government moves to reach out to NGOs and involve the mayors in social policy setting and operation\. 4\.2 Outputs by components: Pre-School Component\. This component, managed by the Preschool Fund (FUNDAPREESCOLAR), aimed to provide about 112,000 children between the ages of 4 and 6 from low-income families with access to pre-schools through the construction and equipping of 1,600 formal classrooms and 185 non-formal classrooms, the latter with community and NGO participation\. However, only 804 formal and eight non-formal classrooms were completed, providing access to only an additional 27,000 children each year, or two percent of pre-school age children without access to pre-school education\. The marginal increase in access was partly the result of an over-estimation during appraisal of the number of children per classroom; the appraisal projected 57 children for formal classrooms and 152 children for non-formal classrooms, the actual figure turned out to be 34\. In addition to the issues mentioned in the previous paragraph, construction and equipping were also affected by high inflation during most of the implementation period, with extraordinary increases in construction costs\. This was compounded by the substantial and time-consuming land acquisition problems experienced by the component, and the long delay in reaching agreement on a non-formal classroom approach\. On the positive side, the pre-school policy has now been properly designed and is officially endorsed by the Ministry of Education (MOE), both formal and non-formal classrooms, targeted to serve children of low-income households, are operating, and the non-formal pre-schools managed by the communities and NGOs are a good model for sustainable development\. In addition, over 52,000 participants benefited from training programs for pre-school teachers, and the various sector-related studies proposed under the project were completed (Annex 1)\. Primary Health Component This component, managed by the Ministry of Health (MOH) and the Expanded Maternal Child Health Care Program (PAMI), aimed to fund medical equipment, vaccines, food (milk), and nutritional supplements, as well as contraceptives for 955 rural and urban health centers\. In addition, it was to finance the rehabilitation and construction of warehouses, vehicles for supervision, computer equipment for the health centers, and training for health center personnel\. During 1992 and - 4 -  1993, about US$15 million in equipment was acquired for the health centers, but was partly diverted to small hospitals\. In 1994 and 1997, the project provided vaccines, medicines, and other health center inputs\. It also helped carry out a campaign in 1994 to eradicate measles, covering all children between the ages of 9 months and 15 years\. In 1997, the component was redesigned, and it was agreed to target US$22 million in new equipment, medicines, contraceptives, vehicles, and other inputs to 303 health centers in 10 states, to be procured with the help of UNDP\. By late- 1998, this was mostly achieved\. PAMI was responsible for food distribution, which was fully financed from Government funds\. PAMI reports to have spent US$409 million (excluding the cost of warehouse rehabilitation and personnel), or more than double the amount estimated at appraisal\. The program reached a peak in 1992 and 1993, and resulted in increased health center attendance, but its budget (and consequently, its coverage) was substantially reduced in 1998\. Contrary to agreements reached at negotiations, food distribution was not targeted to high-risk groups in a limited number of states, leaving some very poor areas without coverage, despite the high spending levels\. Training of health center personnel only started in 1997, when the Government signed an agreement with the Pan-American Health Organization (PAHO)\. There was some progress in improving recording of health services, but this was done by the Ministry of the Family (MOF), not by MOH\. Overall, despite increased commitment on the part of MOH in recent years, the project did not succeed in increasing health care coverage and nutritional interventions\. Health indicators for 1995, the last year for which statistics are available, show a higher number than projected for pre-natal services and infants less than two years old, but a very low level of post-natal services and coverage of pre-school-aged children\. Immunizations did not increase as projected\. Family planning services are up, but cover only 12 percent of the population demanding those services (Annex 1)\. Information, Education and Communication (IEC) Component This component, managed by the Technical Coordination Office (OTC) under the Ministry of the Family, experienced substantial delays and other problems\. The OTC, in its capacity as project coordinator and facilitator, aimed to carry out studies and provide technical assistance for improving the impact of the implementation of the pre-school and primary health care components\. However, during the first six years of the project, the component provided only for basic studies to help design appropriate communication strategies, as well as some learning materials for preventive health education\. Only during the last two years was an IEC concept developed\. Nevertheless, the concept (labelled "family values") is quite general and does not provide the implementing agencies with a concrete and operationally useful communication strategy\. The component never focussed on the specific needs of the MOE and MOH with regard to pre-school, health, and nutrition policies and practices aimed at the most vulnerable groups\. On the positive side, the component did provide pre-school books, and some learning materials on education, nutrition, and family strengthening (Annex 1)\. Institutional Development Component This component, also managed by the OTC, in cooperation with the Central Office of Statistics and Information (OCEI) and the Ministry of Coordination and Planning (CORDIPLAN), has shown more positive results\. Particular achievements include various studies, definition of the role of MOF as technical secretariat for the social cabinet, and recent Government efforts to involve the mayors and NGOs as representatives of their communities, in reviewing the objectives and results of crucial social sector Government programs\. The studies have provided useful data on the social sectors in general and poverty in particular and are a basis for future social sector program targeting\. The project also helped to strengthen the Venezuelan Social Investment Fund (FONVIS), which was contracted to manage the project accounts, and provided equipment for OCEI, MOL, and MOF\. Therefore, despite the lack of impact on the implementation capacity of MOE and MOLT the component can be considered to have been reasonably successful\. -5 -  4\.3 Net Present Value/Economic rate of return: n/a 4\.4 Financial rate of return: n/a 4\.5 Institutional development impact: Public Sector\. As mentioned above, the project's contribution to institutional development was marginal at best\. In MOE, the creation of a separate foundation ( FUNDAPREESCOLAR) to implement its component seemed a good solution at project design to by-pass some of the bureaucratic restrictions of the Ministry itself However, although this did facilitate funding, it also created problems, stemming partly from resentment on the part of MOE's Pre-School Directorate, which felt that FUNDAPREESCOLAR was encroaching on its territory\. Early on, there was little or no technical coordination between these units on educational materials, studies, and technical assistance\. Moreover, there was little help from OTC, since it was felt that FUNDAPREESCOLAR was competing with MOF's own non-formal pre-school program\. Eventually, a better relationship was established, and the component has contributed to a somewhat better set-up in MOE\. This is not the case in MOH\. At project design, it was decided to set up a separate foundation, PAMI, to overcome some of the major bureaucratic hindrances anticipated\. This was resented by the Ministry itself, however, and resulted in the separation of food distribution under PAMIN from the health service provision activities under MOH itself, with little coordination between the two\. Although the number of health center beneficiaries increased in response to the increased provision of food, this was not paralleled by a corresponding increase in health services\. In addition, despite a somewhat better focus of PAMI's program at the end of the project, there are still major inefficiencies in the country's food distribution to the poor\. In addition to the small, long-term improvement in MOE, the project also contributed to the strengthening of MOF, OCEI, and FONVIS, both through equipment and technical assistance\. In MOF, in the context of the last Government's Agenda Venezuela, there is now an experienced department dealing with social programs, as well as a recent outreach to mayors and NGOs\.* These, combined with the collection of relevant social sector data, should assist the Government in designing an effective long-term follow-up aimed at the poorest\. Private Sector\. As mentioned above, the pre-school component contributed to gaining at least some experience with non-formal classrooms managed by NGOs and communities\. Despite the limited number of classrooms established so far, this approach appears promising and sustainable\. * The current Government has placed coordination of the social sectors under the new Ministry of Health and Social Development, eliminating the MOF\. 5\. Major Factors Affecting Implementation and Outcome 5\.1 Factors outside the control of government or implementing agency: The MOE component experienced significant cost increases in civil works due to high rates of inflation during most of the project years\. All components were affected by changes of leadership and management at all levels\. The MOH had five different Ministers during the project period\. The health component was also seriously affected by several lengthy strikes by health service personnel, which had a serious impact on - 6 -  the provision of primary health care\. Project implementation was definitely affected by lack of adequate attention from the Bank\. Departmental responsibility for Venezuela shifted three times during the project period\. The resulting frequent turnover in Bank managers responsible for Venezuela resulted in loss of institutional memory and contributed to inadequate oversight from senior Regional Management within the Bank\. 5\.2 Factors generally subject to government control: A number of problems and delays could have been prevented by timely decisions and/or action on the part of the Government\. During the initial years, all staff showed a lack of knowledge of Bank procurement procedures\. The changes of Minister mentioned above were frequently accompanied by turnover of managerial and technical staff, resulting in loss of any knowledge developed in this area\. In addition, the Government's own cumbersome budget and contract procedures greatly contributed to delays and cost overruns; budgets were cut and contract approvals and payments were extremely time-consuming\. Moreover, the Government did not allow the implementing agencies direct access to the Special Account, nor did it permit direct payment by the Bank of local contracts\. (This was greatly alleviated in 1997, when UNDP was contracted to manage the procurement of goods and services for PAMI and OTC\.) Combined with the impact of inflation, these delays contributed to an almost six-fold increase in the unit cost of classrooms, rising from an estimated US$9,500 at appraisal to US$54,000 in late-1998\. Both the education and health components were negatively affected by the institutional jealousy between staff in the respective line ministry and the semi-autonomous agency set up to carry out key activities (FUNDAPREESCOLAR and PAMI, respectively)\. In both cases, attention from the minister and his senior staff could have helped solve the problem, but no action appears to have been taken by either MOE or MOH management on this matter\. 5\.3 Factors generally subject to implementing agency control: n/a 5\.4 Costs andfinancing: At the Government's request, the project was restructured in April 1997, at which time the closing date was extended by 24 months and US$15\.0 million was cancelled from the original loan amount of US$100 million\. The closing date was subsequently extended twice, for a cumulative total of 30 months\. The final closing date was June 30, 1999\. At closing total disbursements reached US$84\.6 million (of which about US$84\.0 million was fully documented by the date of this report)\. Total project costs amounted to about US$501 million, compared to about US$321 million projected at appraisal (Annex 2)\. Most of the increase is accounted for by a more than doubling in the food purchase and distribution program managed independently by PAMI and Government funded\. Excluding food purchases and distribution, however, total spending averaged only 71 percent of appraisal estimates\. Bank financing was estimated to account for about 31 percent of total costs at appraisal (77 percent excluding food)\. At project completion, Bank financing represented about 17 percent of total costs (91 percent excluding food)\. - 7 -  6\. Sustainability 6\.1 Rationale for sustainability rating: As designed and implemented, the project would only be partly sustainable\. The prospects of the MOE component look most positive: there have been no problems in getting pre-school teachers assigned to the new classrooms, thus ensuring adequate educational services, and classrooms were designed and built with materials requiring low maintenance\. The main achievements have been: (a) the design and operation of workable formal and informal pre-school models, including in the latter NGOs and communities; (b) the development, with the help of local universities, of a successful teacher-training model, which the MOE has now adopted for primary teacher training as well; and (c) the design and implementation of a methodology to target pre-school investments, which can also be used for other social sector planning\. In contrast, the prospects of sustainability of the MOH/PAMI component are doubtful\. Much will depend upon the current administration's interest, as well as recent efforts aimed at decentralization\. For the limited progress to be sustained, however, would require at least an increase in the work hours of medical personnel (currently only 1\.4 hours daily for doctors and 2\.2 hours for nurses) as well as proper funding of equipment provided for the health centers\. 6\.2 Transition arrangement to regular operations: Possible follow-up activities depend upon the new administration's interest in the social sectors in general and the more successful Government project components in particular\. There is a clear need for the type of activities funded by the project; the social indicators are as poor as, if not worse than, those of a decade ago\. As mentioned above, MOE now has a good design and some good experience with pre-school education for the poorest populations, particularly with non-formal classrooms run by indigenous communities with the help of NGOs\. In addition, MOF now has a relevant social sector database for the identification of the needs of the poorest that would make feasible better definition and targeting of needed social assistance\. Based on the difficult coordination problems and disappointing experience with multi-sector project implementation, however, any future Bank support should be provided in a much simpler insitutional framework\. Alternatively, if the Government and the Bank were to choose a multi-sector approach, a social fund such as FONVIS could provide an efficient, cost-effective vehicle for channeling such investments\. FONVIS has gained substantial experience in recent years, and, like all social funds, operates under the guidelines set by the line ministries; at the same time, it is exempt from many of the bureaucratic constraints unavoidably experienced by government line ministries\. 7\. Bank and Borrower Performance Bank 7\.1 Lending: Bank performance in project identification was highly satisfactory\. The need for comprehensive social sector action was identified during the preparation of the SAL, and this was further analyzed and confirmed at the identification stage\. -8 -  Although the sector requirements were reviewed in great detail, project preparation lacked an adequate assessment of the necessary technical and financial management of this complicated, multi-sector project\. In view of the urgency of the project activities, in parallel with the implementation of the SAL, it was decided that detailed management arrangements could be worked out at the start of the project\. This turned out to be a mistake, and project implementation was hampered throughout the years by organizational, managerial, and financial problems\. A public administration/management specialist should have been involved from the preparation stage to assist the Borrower in designing adequate institutional arrangements for project execution and financial management\. Appraisal utilized a great deal of detailed sector information, but was deficient with respect to assessment of institutional arrangements and project management\. In addition, the number of students per pre-school classroom was overestimated, resulting in a significant overestimate of the benefits of the pre-school component\. 7\.2 Supervision: Apart from the project management issue, which was never fully resolved, and which would have benefited from participation by a public administration specialist throughout project implementation, supervision was hampered by the frequent turnover in responsibility for both Venezuela and the project in the Bank\. As a result, the Bank lacked the senior-level institutional knowledge and interest necessary for "hard" project decisions\. On the other hand, the assignment of supervision responsibility to the Resident Mission in 1997 led to much more Bank involvement and accelerated project implementation and Loan disbursement\. 7\.3 Overall Bank performance: Despite improvements in both task management and the involvement of senior Regional Management in the last years of project execution, this was not sufficient to compensate for the lack of attention of earlier years or the failure to ensure adequate provision for project management and institutional coordination\. Therefore, overall Bank performance was less than fully satisfactory\. Borrower 7\.4 Preparation: During project preparation, the Borrower did not decide upon the critically important management details, and showed an unrealistic optimism about the possibility of MOF's coordinating and facilitating a complex project involving two other major actors (MOE and MOH), each with their own agendas that took precedence over those of the project\. 7\.5 Government implementation performance: The Borrower's implementation performance was less than satisfactory, although this varied among components and improved in recent years\. All components suffered from the poor organizational/managerial set-up of the project and the ongoing, major contract processing and budget hurdles\. The Borrower followed agreed Bank procurement procedures, but a lack of knowledge and the internal -9-  and external clearance process resulted in major delays in contracting and, with the high rate of inflation, in project costs\. This was somewhat improved in 1997 with the delegation of responsibility for project supervision by the Bank to its resident mission, and to the use of UNDP for the procurement of goods and services by OTC and PAMI\. Procurement data are provided in Annex 2\. Disbursement of loan proceeds was slow, reflecting delays in implementation of the project\. Disbursements accelerated with the contracting of UNDP and the subsequent deposit of substantial amounts in its account\. Disbursement data are provided in Annex 2\. Funding\. The Government's practice of including international loan proceeds in its regular budget made both loan and counterpart funds subject to the same severe budgetary constraints and increased the likelihood that the loan substituted for regular funding, rather than providing incremental financing\. Government priorities led to sharp increases in the PAMI-executed food component, while the core health and education services components were reduced\. Government restrictions, such as refusal to allow the implementing agencies direct access to the project's Special Account in the Central Bank and prohibition of direct payment of local contracts by the Bank, added to the funding problems for these core components\. Accounting and Auditing\. The institutional complexity of the project led to difficulties with respect to timely and accurate consolidation and report of financial accounts\. In 1993/94, MOF attempted to address this problem by assigning overall responsibility for project financial administration and accounting to the Venezuelan Fund for Social Investment (FONVIS), which was to work in coordination with the OTC and the other implementing entities\. (FONVIS was also given responsibility for execution of financial management training activities)\. However, FONVIS' effectiveness as financial administrator was hampered by the same budgetary and procedural constraints that slowed project implementation overall\. Its accounting was generally accurate, though slow\. In 1997, an agreement was signed with UNDP for provision of assistance in procurement and administration of funds for the purchase of goods and contracting of services\. While effective in providing more direct access to project funds and in handling procurement procedures, UNDP was also slow in providing reports on financial accounts\. The diffusion of responsibility for financial management and accounting among entities and slowness in accounting by all parties combined to make consolidation of the project accounts very difficult\. Financial audits by private auditors were carried out, but generally behind schedule\. In audit reports since 1995, the auditors consistently flagged weakness in overall project financial management\. (Although this is a problem flagged by auditors in nearly all projects in Venezuela, it was a particular problem in this project because of its complexity)\. Legal Covenants\. The Borrower substantially complied with the technical covenants of the legal agreement\. 7\.6 Implementing Agency: Unfortunately, the weaknesses in the organizational set-up of the project prevented MOF from playing the coordinating and facilitating role needed for a successful implementation of the project\. In addition, ministers and senior project staff changed frequently, and with them, commitment to the project's objectives and knowledge of agreed procedures and practices, were lost\. In general, senior staff received standard or even below-standard Government remuneration\. Some of the implementing agencies did overcome some of these hurdles, in particular FUNDAPREESCOLAR, which showed dynamic leadership in later years\. MOF also became more proactive in the last two years\. To assist the OTC in project management, it established elaborate procedures to ensure adherence to the Bank's rules and regulations, including an - 10-  agreement with FONVIS to screen the procurement/reimbursement requests from all of the implementing agencies; this did ensure adequate procedures and documentation, but also caused further delays\. On balance, implementing agency performance is considered unsatisfactory\. 7\.7 Overall Borrower performance: Despite improved performance in the last years of implementation, Borrower performance overall was unsatisfactory\. 8\. Lessons Learned The relatively limited success of the project can be ascribed to a variety of factors already mentioned before\. The problems included: The perceived urgency to complement the SAL quickly with an investment operation intended to alleviate the social impact of adjustment, which led to haste in project preparation and lack of specificity in the design of project components and project management (even more serious in a country where there had been no Bank-assisted sector operations for many years); A complicated organization, with MOF trying to coordinate the policies and activities of the major ministries of MOE and MOH through a relatively small OTC; The lack of experience of, and incentives for, implementing agencies' management and technical personnel to pursue project objectives\. This was mainly due to the frequent change in ministers and consequent turnover of project management and to the relatively low remuneration of project staff; The limited health and education budgets (with Loan funding included in overall government budget allocations and, thus, restrictions), restricted access to the Loan's Special Account, and the prohibition by the Government against use direct payments for local contracts (this was partly alleviated since 1997 by the use of UNDP as a contracting agency); The high rate of inflation in the country and consequent escalation of project costs; Lack of specific targeting of project activities, especially during the initial years of the project; Frequent labor problems in the health sector, affecting the operations of the health centers; Initial difficulty with the purchase of land for pre-school classrooms; and Lack of involvement of public administration specialists from the Bank during project design and follow-up, and the limited attention by the Bank's senior management until late in project execution\. The above problems suggest several features of project design, institutional context and implementation arrangements that could improve the probability of a successful project outcome: A simple project design and organization\. In most cases, this implies a single-sector design, minimizing complex inter-institutional coordination; Policies, rules and regulations, practices, and definition of institutional roles worked out and agreed in detail prior to Board approval; Agreement at the country level, prior to project preparation, on the general terms and conditions for project implementation, including how counterpart funding would be budgeted and disbursed, the incremental nature of Bank financing, and the management of Special - 1 1-  Accounts; * Agreement with the Government, as part of project design, on overall priorities and funding levels for priority programs and services in the relevant sectors; * Appointment (and maintenance over time) of experienced, appropriately project management and staff, with the proper incentive structure; * Sufficient and accessible project funding and adequate provision for financial management and accounting; * Maximum involvement of the communities and local governments in all stages of the project cycle; and * Close monitoring by the Bank, with adequate participation by appropriate subject matter specialists, as needed; The generally positive experience with social investment funds around the world suggests that a semi-autonomous, well-managed social fund may offer an appropriate vehicle for channeling funds to investments in several social sectors\. In Venezuela, FONVIS may offer such a vehicle\. 9\. Partner Comments (a) Borrower/implementing agency: Introduction (written following the change in Government) During execution of the Social Development Project (SDP), the institutions in charge of social issues suffered a full-blown crisis\. There was a complete lack of national, intersectoral, or intergovernmental perspective, and a dearth of legitimate policies, effective plans, clear priorities, and coherent organization\. While political discourse repeatedly referred to economic and social policy, in practice there was evidence of more or less coherent economic measures, but, as far as social issues were concerned, a series of erratic, spot, and even marginal actions\. Government authorities were, it is true, totally convinced that economic growth alone would suffice to eradicate poverty and mitigate inequality\. Economic and social indicators reveal the deterioration in Venezuelan society in the past two decades: International reserves fell by approximately US$10,000 million between 1975 and 1997\. Oil exports declined in constant value terms from US$24,000 million in 1975 to US$13,000 million in 1995\. Real Gross Domestic Product grew, albeit erratically, at an average year-to-year rate of 1\.9%, at the mercy of shifts in oil prices: in 1988 GDP grew 5\.82%; in 1989 it fell 8\.57%; in 1991 it grew 10\.96%; and in 1998 it dropped 0\.67%\. Inflation was 81% in 1989; 70\.8% in 1994; 103% in 1996; and 30% in 1998\. The open unemployment rate is estimated to have fluctuated between 16% and 25%\. * Roughly half the economically active population works in the informal sector\. {Under these new circumstances, in which work in the formal sector ceases to be the principal port of entry into organized society, the poor became not so much exploited as excluded and increasingly displaced and removed from the nerve centers of society\.} - 12 -  * The Gini coefficient was 42\.4% in 1992 and 46\.5% in 1995\. The percentage of the population living below the poverty line increased from 33% in 1975 to 67\.2% in 1997\. In 1975 the income gap (minimum financing required to eradicate poverty) was equivalent to 1\.9% of GDP, 6\.2% of oil exports, and 7% of fiscal revenue from oil; in 1997 the gap was equivalent to 13% of GDP, 31 % of oil exports, and 48% of fiscal revenue from oil (Ruitort, 1999)\. Malnutrition among pregnant women was back at levels registered in the 1950s\. Forty-one percent of pregnant women treated in outpatient centers in the metropolitan Caracas area were anemic and 47\.3% suffered from iron deficiency\. The percentage of children under two years of age who were underweight or generally undernourished rose from 13\.8% in 1995 to 14\.5% in 1998\. The rate for malnutrition in children aged between 2 and 6 also increased, from 23\.8% to 24\.6% in the same period\. In 1997, the infant mortality rate was 21\.4 per thousand and the maternal mortality rate 59\.6 per thousand\. The year-on-year rate of growth for official enrollment at pre-school level was 8\.3% in the 1996-1997 school year\. A year later the growth rate had dropped to 2\.4%\. Social expenditure has decreased in real terms in recent years\. {ECLAC considers social expenditure high when it exceeds 15% of GDP and low when it is equivalent to less than 9% of GDP\.} Furthermore, no progress has been made either in improving its redistribution potential or in directing it towards vulnerable sectors\. Real social expenditure reached a historic peak in 1992, at 9\.7% of GDP, but fell thereafter, to 7\.6% of GDP in 1994\. Since then, with the exception of a slight upturn in 1997, when it rose to 8\.5% of GDP, it has leveled off at approximately 8% of GDP\. A more detailed look at the shares of education and health in social expenditure reveals how far outcomes fall below standards set by UNESCO and the World Health Organization\. Thus, in the decade between 1988 and 1998, expenditure on education and health averaged 3\.2% and 1\.4% of GDP, respectively, or 14\.36% and 5\.92%, respectively, of total public sector expenditure\. The social sectors did not always fare that badly\. Indeed, the constitution of the modern Venezuelan state was a process accompanied by relatively effective implementation of social protection mechanisms based on applying universal standards, which helped shape political life, created a sense of citizenship, and enhanced social equity\. This social protection model, made possible by oil revenue and sustained economic growth and geared to formal sector employment, began to break down at the beginning of the 1980s, as the debt crisis and external sector difficulties set in\. Objective The project aimed to direct part of the State's social expenditure in such a way as to offset the effects of macroeconomic stabilization and structural adjustment policies, although the latter were never applied systematically and continuously\. So priority was attached to focusing on what were considered to be the most vulnerable groups -- pregnant and nursing mothers and children under six, and to improving the social sector's managerial and organizational capabilities\. The project's four components (primary health care; pre-school development; information, education, and communications activities; and institutional development) were conceived from an intersectoral standpoint, without, moreover, being subsequently reevaluated and/or reformulated\. - 13-  Analysis of the technical and political consistency of the project At this stage, and in light of recent findings in action research, strategic planning, and social management in general, one can say that the objective was based on a positivist, reductionist, and technocratic approach\. Positivist: because it was founded upon empirical measurement of the effects of the social crisis without any reference to etiological aspects (in other words, it was based on data and not on relations between the players)\. Reductionist: because it attached excessive importance to meeting established targets without regard to intersectoral, intergovernmental, and local factors that not only combined and conspired to thwart execution of the project as such, but also undermined its medium and long-term sustainability\. Technocratic: because it overestimated the intuition and opinions of experts, to the detriment of the real interests of other key players, and, above all, the beneficiaries\. That may partly have been due to the paradigm governing World Bank actions at that time and perhaps to the personal convictions of the national team acting as the Bank's counterpart in negotiations and in the final design of the project\. If, instead, a more heuristic, holistic, and participatory approach had prevailed, the project's objectives and components would have been technically and politically more coherent, and that, in turn, would have led to swifter implementation and much greater mobilization of regional government and beneficiary interest in expected outcomes\. Of the heurism, holism, and participation trilogy, the participation factor is the most important, since it is, in a sense, the instrument which leads, first, to the heuristic dimension by opening up and ultimately generating knowledge and innovation, and, second, to the holistic dimension, particularly since, by definition, participation makes it possible to both apprehend the whole and handle the diversity of the component parts\. A priori, the advantage of participation is that it generates knowledge, applies it in action, and, in addition, makes it possible for project execution to become a real learning process\. It broadens insight into the context surrounding projects and their impact and facilitates possible changes in structure that may need to be made to improve implementation, not to mention a total redrafting or outright abandonment of the project\. The approach underlying the project's design and its approval was clearly shaped by the Washington Consensus, which preached above all the need to eliminate the fiscal deficit, rein in public spending, deregulate markets and free up investment, privatize state-owned enterprises, and then look after the victims of such measures through compensation mechanisms\. In this view, any more or less complete social protection network is perceived as a cost and/or rigidity factor obstructing the normal workings of the market and of business\. That led to over-emphasis on adopting centralist and reductionist policy formulae, under which inordinate power was granted to the traditional sector ministries and the success of the project gauged in terms of changes in global indicators, with complete disregard for the context in which the project unfolded at the regional level: states, municipalities, local communities\. Even acknowledging that the decision to go ahead with the Social Development Project could not depend exclusively on first disentangling relations between national, state, municipal, and community bodies, it remains undoubtedly true that if key actors at those levels had been actively involved in designing and executing the project, it would have generated a very intensive learning and institution-building process\. It would also have meant that the necessary changes could have been made in time\. - 14 -  Achievement of the Objective and Project Outcomes Poverty mitigation A glance at recent statistics suffices to show that, generally speaking, the circumstances that gave rise to the project have deteriorated markedly in the last few years\. The project managed to have only a marginal mitigating impact on the effects of the pervasive (and ongoing) crisis in the social sector\. The results are, to say the least, unsatisfactory\. Project outcomes Primary Health Care (PHCQ: Infant mortality, maternal mortality, and the mortality rate for children aged I to 4 continue to have a decisive impact on the overall maternal and child health situation\. In fact, these factors generate so much activity that they accounted for 88% of all preventive health care interventions in this sector in 1996\. The figure is higher than that for 1990, which goes to show that progress in this area has been limited\. Separately, it is worth noting that insufficient attention was paid to the capabilities of the institutional and individual actors involved in execution of this component\. Pre-School Development (PSD): Low pre-school education coverage continues to be a top priority concern in the educational sector\. Pre-school attendance in the 1996-1997 school year (41\.6%) was barely 0\.88% higher than in 1992-1993 (40\.28%), an indication of how little progress has been made in this area\. Information\. Education, and Communication Activities (IEC): An integrated support program for implementation of the PHC and PSD components was not achieved\. Nevertheless, a set of relevant data were generated with respect to nutrition, health, and education, which will help to enhance the promotional and training activities of social sector executing agencies\. Institutional Development (ID): It was not possible: § to establish mechanisms guaranteeing maternal and child health care coverage; § to calculate real coverage of the maternal-child health care program; § to ensure monitoring of nutrition levels; § to introduce PAMI [Maternal-Child Health Care Program Foundation] targeting mechanisms; § to sustain an extension of non-conventional pre-school education programs\. These problems proved to be key factors in limiting attainment of the coverage ratios contemplated in the project\. Principal factors affecting project execution and the achievement of objectives The one-way and rigid nature of the project Despite the fact that the project was not producing the results expected of it, both the World Bank and the Venezuelan Government pressed on with its implementation, sticking dogmatically to the original design set forth in the Staff Appraisal Report (SAR)\. For that reason, there was no room for on-the-spot learning\. The project was implemented in linear fashion, without all the interested parties being involved in making sure its objective and targets were - 15-  achieved\. Those parties (governors' offices, regional directorates of sector ministries, municipalities, and civil society) were generally spectators witnessing implementation\. As a result, the project's components (PHC, PSD, IEC, and ID) were unable to establish real channels of communication with what was presumably their immediate and mediate environment\. Thus, maternal-child health care, for instance, was restricted to quantitative targets, with no regard for its potential role as a catalyst in promoting changes, such as the empowerment of women, enhancement of the quality of life, productive development, etc\. Once again, involving interested parties in the design and execution of the project would have made it possible to detect and/or specify the relations between each component and the (educational, epidemiological, community, administrative, and so on) system in which it was embedded\. It would also have been possible to identify the necessary (sectoral, intergovernmental, State-civil society) channels to work through, not just to ensure more pluralistic and synergetic implementation of the project, but also in order to pass on more know-how and power to the target groups, instead of reserving them for the exclusive benefit of the executing agencies\. The institutional context Three shortcomings in particular affected project execution and the achievement of its objectives, namely: the lack of intersectoral coordination, the lack of intergovernmental cooperation, and weak drafting, monitoring, and evaluation of plans and programs (not to mention the nonexistence of any real focusing mechanisms)\. It is true that Venezuela never had, and still does not have, a national social policy system in the sense of a set of definitions, regulations, institutions, and fundraising mechanisms geared to broad, medium and long-term social objectives\. Not even at the time when the State fostered national integration by extending citizenship, democratizing education and culture, and funding health, housing, and social security systems, etc\. More recently, the bodies in charge of drafting social policies have been singularly low-profile\. That explains why, at the time the project was drawn up, Venezuela lacked explicit social policies and, consequently, relevant and coherent social programs, whereby social policy is understood as an agreed-upon, structured and forward-looking set of government, private, or community measures in the political, economic, and cultural spheres, whose objective is to enhance the quality of life of the population from an endogenous development perspective\. {The not only weird but also paradoxical fact of the matter is that it has been the multilateral organizations that have called upon the government to pay more heed to social issues, with their influence largely being exerted in the form of selective program designs; never, however, in the form of a comprehensive social policy\.} When the SDP was drawn up, the dismantling of the State apparatus had been going on for some time\. As it became increasingly insolvent, it was forced to abandon its role as the leading force behind social development, a development which paved the way for the partial privatization of health and educational services that has been taking place\. That was the institutional context at the time the SDP was drawn up\. Under such circumstances, the idea was to channel the few available resources toward solving the severest manifestations of poverty\. At the same time, power structures "at the top" began to undergo a decentralization process that favored political power distribution at the expense of the specifically technical design of the project\. As a result, it proved impossible to define the different spheres of competence of the various government entities\. Nor were formal mechanisms for intergovernmental coordination and cooperation established\. That was the objective reason why the SDP was developed and placed under the sector ministries, because lower or regional levels lacked both the technical capability and the authority needed to figure as front line stakeholders in its design and execution\. - 16-  Toward the end of SDP execution, in light of the assessment of results for each component in the project carried out by project staff and of the evaluation of beneficiaries, it became clear that the crucial factors that prevented the project from attaining its objective had been institutional and organizational\. The mediocre performance of the health and education ministries, where the SDP's main executing entities (PAMI and Fundaescolar) were located, is due to: § a cumbersome, inert, corrupt, and incompetent bureaucracy; § the interests of professional associations and unions; § the discrepancy between the information available to senior management and the information at the disposal of administrative, professional, and technical staff, on the one hand, and the recipients of the services rendered, on the other; § the lack of sufficient incentives to rouse the enthusiasm of all those involved; § the nonexistence of mechanisms for the general public to exercise control over the way hospitals, outpatient clinics, and educational institutions of any kind are run\. Sustainability of the Project As regards the SDP's main components, namely PHC and PSD, a priori sustainability is out of the question, given that in practice they were not the most desirable ways to attend to maternal and child health care problems or the pre-school education needs of the most vulnerable sectors, respectively\. Furthermore, the expenditure that would be required today just to mitigate the worst aspects in these areas could not be financed with public sector funds\. Nevertheless, the SDP did yield positive results in the Institutional Development component, which should be reinforced: § The project served to create awareness of the need for clear intersectoral and intergovernmental policies and strategies in the social sector and for broad national consensus regarding how social services should be delivered; § It laid the preliminary foundations for an integrated, performance-oriented and decentralized social policy management system covering research, projections, the development of statistics, planning, monitoring, and evaluation\. § It defined criteria and preliminary mechanisms for directing the State's social sector activities toward the alleviation of extreme poverty\. To consolidate these achievements, a vast program geared to strengthening the social sector would be required\. Its principal projects would be: - 17-  Establishment of a Social Sector Authority\. This body would the guide social policy in the required direction; which means, first and foremost, redefining the sphere of competence of todays Social Cabinet Office\. The idea is to create a permanent body, with powers to formulate policy, allocate resources, and determine how social programs are to be executed, monitored, and evaluated\. The Social Sector Authority shall determine which areas merit priority attention based on key social problems that have been properly analyzed and quantified by studying their root causes, not on the basis of technocratic or bureaucratic intuition\. The Social Sector Authority would also be responsible for publishing the Social Sector Yearbook and drawing up the consolidated social sector budget\. Setting up a System for Monitoring and Evaluating Social Sector Problems, Policies, and Programs\. This system could become the main tool for monitoring key social problems and devising public sector measures to solve them\. A blueprint for such a system is almost ready and only requires supplementary studies to consolidate its socio-demographic and epidemiological data base and become operational\. The monitoring system would constitute a fundamental instrument for the Social Sector Authority to carry out its government functions\. Such a system makes it possible to pinpoint priority areas for social development activities and thereby construct a comprehensive agenda of social sector problems, policies, and programs\. It is a computerized information system which throws light on overall social trends, facilitates analysis of cost-benefit differentials in Latin American countries, and at the same time exercises operational control over the different programs\. Essentially the system measures: Basic needs The situation of vulnerable groups Inequalities Context Setting up a National Beneficiaries System (SISNABE)\. Conceived as a system offlexible, modern, transparent, and decentralized mechanisms for channeling resources to vulnerable/poor families or households, SISNABE is an indispensable vehicle for improving the selection of foci employed in poverty reduction programs\. A draft blueprint for SISNABE has been drawn up, outlining administrative, financial, informational, and legal aspects of the system's general orientation, along with basic elements needed for its future implementation\. This preliminary design envisages three types of targeting: Program-based Geographical Case-by-case Once the design of SISNABE is completed, including data on current beneficiaries of social programs, the methodology applied to weight different poverty levels, and the software used for gathering, ordering, updating, and consolidating data at the national, state, and municipal levels, the next step will be to define institutional and operational aspects, and spheres of competence\. -18 -  Developing a social sector statistics system\. One of the core social sector activities that the current government should engage in is gathering and updating coherent sets of statistics on the social sector to feed into the decision-making process\. A Social Sector Statistics Committee {Comprising representatives of the following entities: Cordiplan, the Ministry of the Family and Labor, the Ministry of Health and Social Development, and the Ministry of Education, Culture and Sports} comprising various subcommittees already exists, run by the Statistics and Information Office (Oficina de Estadistica e Informatica - OCEI)\. {The subcommittees are on: Social Statistics, Social Programs, Poverty, the Family Food Basket, Nutrition, Core Statistics, and Employrnent\.} In 1998, through the SDP, the Ministry of the Family made a decisive contribution to the development and consolidation of the Social Sector Statistics System by conducting the following surveys jointly with OCEI and the Venezuelan Central Bank: * 1998 Social Survey * 1998 Population and Family Survey * National Family Budgets Survey Supplementary Survey on Child Care Thus, a fairly complete set of instruments is already in place, which, when properly analyzed, provides the bulk of the information needed to measure poverty in all its dimensions: patterns, incidence, geographical distribution, consumption patterns, inequality, and a wealth of general data on the living conditions of the poor\. The next steps will be to formally establish how often those instruments are to be applied, and the schedule for setting up social sector statistics systems in all the states and municipalities, not to mention the process of updating the administrative records kept by the Ministry of Health and Social Assistance\. Establishment and Consolidation of the Single Social Fund [Fondo Unico Sociall - SSE The SSF is a source envisaged in the program of funding for large-scale activities designed to benefit the poor\. Currently the SSF restricts its role to improving the basic health, nutrition, educational facilities, and productive activities of the poorest segment of the population, although, eventually, it could broaden the scope of its funding to cover basic social infrastructure\. The SSF program guidelines take into account the already existing institutional framework (with which it should preferably coexist) and the gravity of the problems besetting the poor, as well as the effectiveness and cost of possible alternative solutions\. Those analyses, based, as mentioned earlier, on a study of underlying causes, have made it possible to define the following programs and projects: * The Minimum Family Income Program (MFI) * The Single Nutrition Program Daily Care Households and Multiple Households * The National Young People's Job Training Program * The Extramural School Support Program - 19 -  The Single Social Fund's Flagship Program: the Minimum Family Income Program (MFI)\. Improving public education is the only way to ensure the sustainable participation of our country in a globalized world\. From that perspective, education is being regarded not just as the key to personal development, but also as a determining factor for economic development, reduction of inequalities, and the elimination of poverty\. Moreover, it has been shown that there is a close correlation between a country's level of income per capita and the proportion of the population completing sixth grade in primary school\. In other words, a high level of enrollment in basic education contributes to economic growth\. The inefficiency of the basic education system is the prime cause of declining incomes in the poorest households, because those who drop out of primary school earn on average 56\.8% less than those who complete that level\. In addition, the deterioration associated with insufficient means is well known, with respect to both skills and performance\. In view of that evidence, the program proposes adopting a flexible and transparent mechanism for making cash payments to women living in extreme poverty as an incentive for having their children complete their basic education\. The scheme has additional spin-offs, including positive effects on health, nutrition, and fertility\. The MFI's sole objective is to increase the number of children of poor families who complete their basic education, by improving access to the system and reducing drop-out ratios\. Drawing up a Strategic Plan for the Social Sector The structure, scope, and essence of social development have not traditionally been considered of fundamental importance\. That situation must now be reversed, by doing everything possible to re-forge the links between the economic and social spheres, by treating them as part of a duo, as two sides of the same coin\. That implies drawing up a Strategic Plan for the Social Sector, as the linchpin of a system of target selection, action, and accountability in social issues\. Based on extensive consultation with civil society regarding sectoral and selective policies, and on a legitimate technical and political process of defining the State's social objectives, the Plan will establish social priorities in accordance with key problems pinpointed by the System for Monitoring Social Sector Problems, Policies, Programs, and Plans\. The Plan will also make it possible to implement social policy through intergovernmental cooperation and coordination with civil society\. Being both action- and performance-oriented, the Plan will usher the various institutional players in the social sector in the same direction\. It will direct activity toward priority aspects agreed upon by the social sector as a whole, including regional public bodies and NGOs working on social issues\. The key to strategic planning is precisely to ensure that organizations remain in sync with their changing environment\. Hence the suggestion that it is necessary to concentrate only on matters of strategic importance, disregarding, among other things, any courses of action that are not related to key social problems\. (b) Cofinanciers: N/A (c) Other partners (NGOs/private sector): See Annex 8: Beneficiary Survey Results 10\. Additional Information N/A -20 -  Annex 1\. Key Performance Indicators/Log Frame Matrix Outcome Impact Indicators: The SAR and other available project documentation did not establish impact indicators\. Output Indicators: HEALTH SERVICE COVERAGE EXPECTED AT PROJECT COMPLETION ACTUAL 1995 a/ TARGETS (PER YEAR) IN 1995 Pre-Natal Women 422,000 623,699 Post-Natal Women 359,000 93,035 Infants (up to 24 months old) 641,000 757,114 Preschool Children (2-6 years old) 916,000 490,082 Family Planning 251,300 680,000 bI Breastfeeding for 6 months n/a Cervical Cancer Screening 375,000 477,076 (1997) Immunization Coverage (for children under 90% 79% (1997) three) ACTUAL 1998 PRESCHOOL DEVELOPMENT New Classrcoms (formal system) 1,506 804 Non-formal Centers Opened 184 8 Increased Attendance - Formal 85,300 27,000 Increased Attendance - Non Formal 28,020 240 Note: The population requiring services from the health centers reportedly increased dramatically because of the country's economic deterioration; therefore, the percentage of the target population served by the health centers declined\. a/ Last year for which health statistics were processed at the MOls Statistics Unit b/ Represents only 12 percent of the population requiring family planning services Sources: MOH (Health Statistics) FUNDAESCOLAR (Education Statistics) End of project -21 -  Annex 2\. Project Costs and Financing Pr6ect Cost by Com onent (in US$ million e uivalent) Primary Health Care (including food)* 185\.50 446\.10 232 Pre-School Development 42\.50 28\.30 59 Information, Education, Communication 12\.60 17\.40 44 Institutional Development 3\.80 2\.60 53 Unallocated (disbursed, but final accounting of UNDP on 6\.60 allocation by project component not yet available) Total Baseline Cost 244\.40 501\.00 Physical Contingencies 12\.20 Price Contingencies 64\.30 Total Project Costs 320\.90 501\.00 Total Financing Required 320\.90 501\.00 - Appraisal estimate included US$ 143\.1 million equivalent of food (excluding contingencies), to be financed entirely from Government sources\. Actual figure includes food purchase and distribution of US$409\.0 million, as reported by PAMI\. Source: FONVIS (Responsible for Financial Management) Project Costs by Procurement Arrangements (Appraisal Estimate) (US$ million equivalent) 1\. Works 0\.00 16\.80 0\.30 0\.00 17\.10 (0\.00) (14\.90) (0\.20) (0\.00) (15\.10) 2\. Goods 29\.60 9\.50 6\.50 191\.60 237\.20 (26\.60) (8\.60) (5\.50) (0\.00) (40\.70) 3\. Services 0\.00 0\.00 19\.10 0\.00 19\.10 Including Consulting (0\.00) (0\.00) (19\.10) (0\.00) (19\.10) Services 4\. Training 0\.00 0\.00 10\.30 0\.00 10\.30 (0\.00) (0\.00) (10\.30) (0\.00) (10\.30) 5\. Operating Costs 0\.00 0\.00 37\.20 0\.00 37\.20 (0\.00) (0\.00) (14\.80) (0\.00) (14\.80) Total 29\.60 26\.30 73\.40 191\.60 320\.90 (26\.60) (23\.50) (49\.90) (0\.00) (100\.00) - 22 -  Projct ost byProuree tArrangements (Actual/Latest Estimate) (US$ million equivalent) Procurement Method Expenditure Category ICB N\.B\.F\. Total Cost NCB other _____ 1\. Works 0\.00 18\.30 0\.00 0\.00 18\.30 (0\.00) (16\.40) (0\.00) (0\.00) (16\.40) 2\. Goods 37\.10 2\.50 0\.40 409\.00 449\.00 (36\.60) (0\.00) (0\.00) (0\.00) (36\.60) 3\. Services 0\.00 0\.00 22\.80 0\.00 22\.80 Including Consulting (0\.00) (0\.00) (22\.80) (0\.00) (22\.80) Services 4\. Training 0\.00 0\.00 6\.20 0\.00 6\.20 (0\.00) (0\.00) (5\.50) (0\.00) (5\.50) 5\. Operating Costs 0\.00 0\.00 4\.70 0\.00 4\.70 (0\.00) (0\.00) (2\.70) (0\.00) (2\.70) Total 37\.10 20\.80 34\.10 409\.00 501\.00 (36\.60) (16\.40) (31\.00) (0\.00) (84\.00) Source: FONVIS\. Notes: I\. Goods includes US$409\.0 million of food, as reported by PAMI\. 2\. Total disbursement of Bank loan proceeds amounted to US$84\.6 million, US$0\.6 million more than shown in table\. US$0\.2 million is due to rounding, and further US$0\.4 million disbursed, but category breakdown awaiting final data from UNDP and Borrower Figures in parenthesis are the amounts to be financed by the Bank Loan\. All costs include contingencies 2 Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units\. Project Financing by Component (in US$ million equivalent) The SAR presented the detailed financing plan by category of expenditure, rather than by component\. Therefore, a comparative table is presented below\. - 23 -  Project Financing by Category of Expenditure Actual as % of Appraisal Appraisal Estimate Actual Estimate IBRD as IBRD as % of % of Govt IBRD Total Total Govt IBRD Total Total Govt IBRD Total (%) (%) (--- % --- Civil works 2\.1 15\.0 17\.1 87\.7 1\.9 16\.4 18\.3 89\.6 90 109 107 Equipment furniture, & materials 6\.6 42\.0 48\.6 86\.4 3\.4 36\.6 40\.0 91\.5 52 87 82 Food 191\.6 - 191\.6 0\.0 409\.0 - 409\.0 0\.0 213 213 Consulting services & studies - 7\.1 7\.1 100\.0 - 22\.8 22\.8 100\.0 - 321 321 Training - 10\.3 10\.3 100\.0 0\.7 5\.5 6\.2 88\.7 - 53 60 Operating costs 20\.6 13\.6 34\.2 39\.8 2\.0 2\.7 4\.7 57\.4 10 20 14 IEC services - 12\.0 12\.0 100\.0 - - - - - - - Total 220\.9 100\.0 320\.9 31\.2 417\.0 84\.0 501\.0 16\.8 189 84 156 Total, less food 29\.3 100\.0 129\.3 77\.3 8\.0 84\.0 92\.0 91\.3 27 84 71 Sources: Food expenditures as reported by PAMI\. All other: FONVIS, Responsible for Financial Management\. Note: Figures are preliminary pending documentation of final expenditures by FONVIS and UNDP (total disbursements, including advances to UNDP, total US$84\.6 million)\. - 24 -  Annex 3: Economic Costs and Benefits Neither the SAR nor available project documentation reflected quantitative analysis of costs and benefits\. The project did not systematically maintain records sufficient to quantitatively assess costs and benefits at completion\. -25 -  Annex 4\. Bank Inputs (a) Missions: Stage of Project Cycle No\. of Persons and Specialty Performance Rating (e\.g\. 2 Economists, I FMS, etc\.) Implementation Development Month/Year Count Specialty Progress Objective Identification/Pre paration 5 Education Specialist, Health 06/89 Specialist Appraisal/Negotiation 11/89 5 Education (Pre-Appraisal) 05/90 Health Public Administrator Supervision 06/91 6 Procurement Specialist, S S Auditing Specialist, Educator, Legal, Disbursement Specialist, Civil Works 05/92 5 Educator, Social Survey, U S Education Specialist, Procurement Specialist, Health Specialist 11/92 5 Health Specialist, Educator, U S Social Survey, Education Specialist 04/93 5 Educator, Operations Analyst, U S Public Health & Nutrition, Education Specialist 08/93 2 Operations Specialist U U 04/94 5 Educator, Operations Specialist, U U Public Health & Nutrition, Communications Spec\. 08/94* S S 02/95 6 Operations Specialist, Resident S S Representative, Public Health & Nutrition, Communications, Educator 06/95* S S 02/96* S S 06/96* U S 12/96 2 Public Administrator, Resident U S Representative 04/97 3 Resident Representative, U S Institutional Development Specialist, - 26 -  03/98 4 Public Health & Nutrition, S S Institutional Development, Educator, Public Administrator ICR 12/98 5 Public Health & Nutrition, U U Institutional Develepment, Education Specialist, Public Administrator * Updates (b) Staff: Stage of Project Cycle Actual/Latest Estimate No\. Staff weeks US$ (,000) Identification/Preparation 75\.5 128,004 Appraisal/Negotiation 18\.8 39,363 Supervision 254\.2 538,419 ICR 3\.1 9,922 Total 351\.6 715,708 - 27 -  Annex 5\. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating Z Macro policies O H OSUOM * N O NA i Sector Policies O H OSUOM O N O NA I Physical O H OSU*M O N O NA Z Financial O H OSUOM O N * NA X Institutional Development 0 H 0 SU * M 0 N 0 NA rzEnvironmental O H OSUOM O N * NA Social Z Poverty Reduction O H OSU*M O N O NA Z Gender O H OSUOM O N O NA Z Other (Please specify) O H OSUOM O N * NA Z Private sector development 0 H O SU O M * N 0 NA 2 Public sector management 0 H O SU O M * N 0 NA El Other (Please specify) - 28 -  Annex 6\. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6\.1 Bank performance Rating L Lending OHS OS *U OHU El Supervision OHS OS *U OHU El Overall OHS OS * U O HU 6\.2 Borrower performance Rating O Preparation O HS O S * U O HU EL Government implementation performance 0 HS 0 S * U 0 HU CL Implementation agency performance 0 HS 0 S 0 U 0 HU El Overall OHS Os *u O HU Notes: Both Borrower implementation and Bank supervision improved in the last few years, partly due to substantial Resident Mission involvement in supervision\. - 29 -  Annex 7\. List of Supporting Documents 1\. Venezuela-Social Development Project-SAR, IBRD, October 30, 1990 2\. Informe de Avance-Asistencia T&cnica en Planificaci6n y Control, Cynner Consultores, November 1998 3\. FONVIS: Experiencia y Perspectiva, Lourdes Alvarez, April 1, 1998 4\. Cuarto Informe de Seguimiento de los Programas Sociales del Componente de Proteccion Social de la 5\. Agenda Venezuela, Primer Semestre, 1998 6\. Programa Fortaleciendo la Familia, Informe Final, Burston-Marteller, June 1998-January 1999 7\. Evaluacion del Impacto del Componente de Educaci6n, September 1999 8\. Evaluaci6n del Impacto sobre los Beneficiarios de los Componentes de Salud; Informaci6n, Educacion y Comunicaci6n; y Fortalecimiento Institucional, August 1999 - 30 -  Annex 8\. Beneficiary Assessment Results Background Following a completion mission for the Social Development Project (SDP) late 1998, the closing date of the loan was extended twice to conclude various priority activities including the Beneficiary Assessment (BA)\. The terms of the BA were discussed with GOV officials and members of the project's Technical Coordination Unit (OTC) in late 1998 and the assessment was carried out by local NGOs between May and August, 1999\. The BA was planned around the objectives of the Social Development Project, which were to: (a) improve the living conditions of a large and poor segment of the population, especially pregnant and lactating women, and children under six years of age, while mitigating the potential adverse impact of the adjustment program, (b) replace indirect subsidies with targeted social programs, while improving their efficiency and rationalizing their distribution, and (c) promote institutional development by improving the planning and management capacity of the Ministry of Health (MOH), and Ministry of Education (MOE), as well as the capacity to target, develop, and monitor social programs of the Ministry of Family (MOF)\. The need for consultations with beneficiaries became even more important because the project performance seemed to fall short of targets, initial baseline data were unclear, and there had been an absence of evaluations through the life of the project\. Also, some subprojects (i\.e\. primary health care program, PAMI) were started long ago, while others (i\.e\. most Information and Education (IEC) and Institutional Development (ID) activities) were recent activities thus making impact difficult to measure\. Finally, there were difficulties with the identification of direct beneficiaries of the ID component, as the country experienced substantial staff turnover with the installation of the new government\. This assessment was intended to be a qualitative assessment of beneficiaries' perceptions of the project and its benefits\. Beneficiary Assessment (BA) Given the heterogeneous nature of the four components of the SDP, it was agreed that four different BAs would be carried out by NGOs\. Cahas, Turmedo and Associates were responsible for the IEC assessment; LACSO was contracted for the ID and the Primary Health Care Network components; and the Department of Education of the University of Venezuela assessed the Fundaescolar component\. The assessments would seek to evaluate the four components: (a) rehabilitation and development of the primary health care network; including provision of basic health and nutrition services for pregnant and lactating women and children under six years of age, (b) development and expansion of pre-school education, focused on lower-income rural and urban areas, (c) information, education, and communications (IEC) services for health, nutrition, and education promotion, and (d) improvement of the Government's capacity to design, plan, and implement social programs and to monitor the effect of such programs\. Objectives of each BA To promote an open forum for dialogue and discussion among policy-makers, stakeholders and beneficiaries on the social pertinence of the SDP, and its relevance in poverty reduction in Venezuela\. - 31 -  To identify the actual beneficiaries and stakeholders of the sub-projects, 1991-1999\. To assess beneficiaries' satisfaction with the goods and services received through the project\. To assess beneficiaries' perceptions of effectiveness of the project to respond to their needs and demands; to assess the appropriateness of mechanisms used to deliver the project; and to draw lessons learned\. To document, if possible, the perceived impact of the project on improving living conditions in health, education and knowledge management\. Methodology and Instruments Participatory urban/rural assessments were used for all the components\. Triangulation was used to cross-reference information\. Methods included short surveys, structured and semi-structured interviews with selected beneficiaries and stakeholders, focus groups and observation visits\. The instruments were formulated by each research firm in consultation with the TCU to conform with the goals of each assessment\. Probing aimed at providing answers to the questions of: (a) social and economic pertinence of the subproject; (b) effectiveness; (c) stakeholder/ beneficiary satisfaction; and (d) recommendations\. PRIMARY HEALTH CARE NETWORK COMPONENT The objective of the component was to provide health care and nutrition to pregnant and lactating women and to children under six years of age suffering from poverty, as a means of replacing indirect subsidies by targeted programs\. This component was managed by the Ministry of Health and the Primary Health Care Network (PAMI), a foundation established by the Ministry of Health\. It had two subcomponents: PAMI and National Training Program (PNC)\. PAMI ($409 million) managed two programs since 1991: (a) distribution of food (milk and lactovisoy) through selected health centers; and (b) provision of medical equipment ($37 million) in peri-urban health centers since 1992\. The executing agencies were PAMI, Regional Health Centers and Governor Offices, Mayors Offices, and the Red Cross (in Estado de Lara)\. In general, the goods and services were delivered by urban and rural ambulatory health units types I, II and III and by MOH hospitals types I and II\. The project became reasonably well known as it responded efficiently to a break out of chickenpox between 1994 and 1997 with the purchase of $3 \.4 million in vaccines, covering 94 percent of children between ages of nine months and 15 years\. Sampling for the BA One state per region was selected for sampling of distribution centers\. Sampling of beneficiaries was proportional to population in each state\. According to PAMI, in 1999 there were 1190 stores which distributed goods to 2,454 health units in the five regions of the country (Caracas DF, Miranda/Central/De Los Llanos, Center/West/Zuliana, de Los Andes, and North East/Inland/Guayana)\. The states selected in agreement with TCU were Monagas, Carabobo, DF, Lara and Tachira\. Thus six municipalities in Monagas, eight in Carabobo, two in DF, three in Lara, and 17 in Tachira were included\. A stratified sample of 162 PAMI centers participated in the BA\. The stakeholders and beneficiaries participating in the survey were 752 mothers, 378 local health care team members, 125 PAMI promoters and distribution center staff, and 71 participants in the training program (PNC)\. Triangulation was used for cross-reference\. Focus groups were conducted with milk and lactovisoy recipients\. Interviews were carried out with high and intermediate officials of health units and distribution - 32 -  stores\. Survey instruments were applied to all the participants\. Results Who are the beneficiaries of PAMI? 1\. The socio-demographic and socio-economic surveys were conducted with the purpose of analyzing the targeting of the PAMI program\. The socio-demographic survey shows that 85 percent of recipients were between 21-40 years old and only 18 percent were single mothers\. There was some correlation between education level and employment\. The less educated were typically unemployed\. More than half of the recipients had finished elementary school and one fifth had a high school diploma\. The number of children (from one to seven) per family seemed to be evenly spread irrespective of education attainment\. Half of the mothers had a child between six months and six years of age\. Two thirds of mothers had one child benefiting from PAMI and the other third had at least two benefiting from the program\. The PAMI products collected were usually distributed by mothers to all their children, not only to those qualified by the program\. 2\. The socioeconomic survey aimed at identifying the financial status of the beneficiary mothers in order to assess social pertinence\. It shows that 23 percent of women have a family income below 80,000 Bs\., the family income of 34 percent of mothers ranged between 80,000 Bs and a minimum salary; that of 20 percent was equivalent to two minimum salaries, and that of 3 percent was equivalent to more than two minimum salaries\. In other words, 57 percent of beneficiaries declared a family income lower than the minimum salary\. This bracket included all illiterate women (6 percent) and most unemployed\. In terms of the living conditions, 70 percent lived in houses with zinc/metallic roof and 85 percent had cement floors\. Seventy percent of households had electricity and garbage collection\. Some 89 percent had piped water and solid waste disposal system in pocetas or cloacas\. In terms of occupancy per household, in 80 percent of households bedrooms were occupied by one to three persons, which showed there was no overcrowding\. In short, according to LACSO, in the context of Venezuela, PAMI was appropriate in terms of targeting\. About the services provided by the Program Most PAMI recipients had been in the program at least two years\. Some 65 percent of them joined the program between 1994-98, and 35 percent since 1989\. The overall rating of satisfaction among recipients of milk and lactovisoy in 1998 indicated that 50 percent of women interviewed were moderately satisfied, 27 percent were neither satisfied not dissatisfied, 15 percent were dissatisfied and only 8 percent were very satisfied\. Major reasons for dissatisfaction were: (a) infrequency of product availability and distribution; (b) insufficient knowledge about the services provided by PAMI -mode of distribution, goals of the program and characteristics of the products; and (c) lack of mechanisms (promotion, targeting) to include extremely poor women and children\. Although most women did not think the program improved mortality rates, 56 percent believed it improved their children's daily nutrition\. Quantity and quality of products and of the program in general were also assessed\. Most recipients were happy with the amounts of milk and lactovisoy received in 1998\. Some 37 percent received both, 34 percent only milk and 28 percent lactovisoy\. Monthly installments of two kilos were received by 70 percent of milk recipients, and 56 percent of them agreed that the quality of the product was good\. About 30 percent of the mothers received two kilos of lactovisoy and 46 percent of them thought the quality was good\. When asked if they had received educational information on PAMI from the center, 60 percent mentioned that they had not, but 32 percent of those receiving the information rated it very good\. In terms of the quality of the program over time, 30 percent of milk recipients thought the quality of the program - 33 -  had remained constant since 1995, but 28 percent believe it had deteriorated in the past few years\. On the other hand, 48 percent of lactovisoy recipients believed product deterioration had increased lately\. Beneficiaries rated highly those community participation programs promoted by PAMI\. Sixty-two percent of beneficiaries benefited at least once from educational activities promoted by PAMI (training)\. Most people were moderately satisfied with the interaction and services provided by PAMI distribution staff in general\. Rating of human resources in ambulatory health units Beneficiaries were asked to identify services and service providers (e\.g\. doctors, nurses, social workers), and to assess the quality of those services, and of the equipment being used\. It was quite difficult for patients to identify and list the types of services being offered at ambulatory units\. However, half of patients interviewed thought services provided by doctors and nurses had improved in the past two years, 40 percent thought they remained the same and 6 percent believed they had deteriorated\. Usefulness and quality of equipment had also improved according to 40 percent of patients\. As far as the work done by social workers, 18 percent thought services improved, 20 percent said they remained the same and 30 percent did not know\. In terms of the physical conditions of the units, 52 percent thought they improved, 42 percent thought they were the same and 4 percent thought they had deteriorated\. In general, about 50 percent of beneficiaries believed services had improved over the past few years, and 30 percent thought services had remained the same overtime\. Slightly 10 percent of beneficiaries thought most services had deteriorated\. Assessment of PAMI by distribution center staff Perceptions by distribution center staff did not differ greatly from beneficiary perceptions\. Local PAMI distribution centers are stakeholders and indirect beneficiaries\. Some 125 middle-age employees, mostly women, most of whom have high school or technical education, were interviewed to evaluate the program as a whole\. Turnover of staff was small\. Only 40 percent of them had been hired since 1997, and the rest had job security at PAMI since 1990\. Around 30 percent of interviewed distributors made household visits at least weekly\. Around 95 percent of them had been trained mainly through workshops, courses, conferences on maternal & child health, health education, nutrition, and mostly community participation\. Most believed the key problem lay in the logistics of the distribution chain of products\. The lack of systematized and timely delivery schedules created anxiety among beneficiaries and workers\. The main problem was the distribution from PAMI centers to distribution centers\. Delivery from distribution to ambulatory centers was better organized and rated satisfactory\. The istribution mechanisms of milk seemed to have deteriorated further than those of lactovisoy\. The mode of final distribution to users was good, and the coordination and cooperation between distribution centers and ambulatory centers was good and very good respectively\. Perceptions were gathered around the question 'Has PAMI improved living conditions of Venezuelan family?' Some 72 percent of distribution center employees felt this goal was only partially met\. However, 90 percent of them agreed that PAMI had contributed to reduce child morbi-mortality rates\. Again, community outreach and participation was one of the main achievements identified by the entire group of indirect beneficiaries\. PANG triggered the creation of a health network between distribution centers and participating CBOs, such as Neighborhood and Parish organizations\. These networks were - 34 -  being used for other community enrichment programs\. Assessment of PAMI by local health center staff Some 378 local health professionals were interviewed in their ambulatory units\. They included medical doctors (32 percent), nurses (38 percent), nutritionists, social workers and nurse assistants\. As with distribution centers, almost 90 percent were female\. Turnover of these staff was equally low\. Some 42 percent were hired on or before 1992, and only 12 percent in 1998\. This was the only group which knew about the professional services supplied by PAMI, such as family planning, cancer screening, control of acute diarrhea infections (ADI), and acute respiratory infections (ARI), infant growth controls and immunizations, sexually transmitted decease controls, health promotion and education and community participation activities\. Thirty percent of the staff asserted to have had training in one or more of the above fields\. Only 23 percent of interviewed staff believed PAMI had contributed significantly to the reduction of morbi-mortality, while 34 percent believe the aim had been met only in part\. 45 percent believed PAMI had improved living standards of mother-child groups of the population\. Most of the medical staff interviewed thought the amount of medical equipment and supplies provided by PAMI was insufficient\. Although 47 percent of the ambulatory centers were equipped by PAMI, only 16 percent of medical staff believed the equipment met the needs and requirements of the center\. Equipment was over-sophisticated\. The physical improvements carried out by PAMI in 1998 seemed to have improved the services, according to 70 percent of interviewed\. BA of the National Training Plan (PNI) executed by PAMI A separate survey was applied to 71 trainees (mostly middle-age females) of PNC modules\. Some 43 percent were trained in all modules, while 18 percent only in epidemiology and 17 percent in the mother-infant module\. Modules typically lasted between 4 and 15 days\. Trainees rated modules very high in terms of scientific as well as cultural relevance of content and application to their work\. Most staff were equally satisfied with the trainers and physical settings of training sessions\. Among the participating organizations were MOR, Health Regional Office, PAHO, Research and Teachers Departments, Epidemiology, Mother-Infant Care, Social and Health Promotion Department\. The level of satisfaction with the quality of training was high among regional offices, central GOV offices, and local health authorities\. Beneficiaries and stakeholders' observations on the PAMI Program Most beneficiaries and stakeholders interviewed were moderately satisfied with the quality of the goods and services provided by PAMI\. However, they mentioned the need to "redefine" the strategy of the program, the targeting mechanisms to reach those who need the services most, the quality of the products delivered, and the logistics of delivery\. It is recommended that a "less cumbersome" bidding system be put in place to allow for a more dynamic program\. Once the strategy is articulated, an information dissemination campaign should be implemented\. - 35 -  * Medical staff at the local, regional and central levels suggested medical equipment supplied to ambulatory units should be "based on a diagnosis" of equipment needed\. It should respond to demand, not to supply\. In this particular situation, equipment was "too sophisticated" to meet clients needs\. On the other hand, the ambulances needed for health centers were not supplied\. * Establish monitoring and evaluation mechanisms to control and improve coordination at the central, regional and local levels\. Involving the community in the monitoring of indicators of nutrition, health, and community participation would help improve the image of PAMI\. Improving supervision services by district staff was also recommended\. PAMI staff at ambulatory centers recommended inter-institutional coordination to maximize services to the poor\. They also recommended an increase in the number of services offered at the health units based on an adequate assessment of community needs\. With regard to the PNC training modules, both trainers and trainees recommended more emphasis on health promotion\. They also recommended to extend training time per module, to improve the quantity and quality of training materials, and to take into account trainees evaluations of each module\. All evaluating agencies recommended to maintain and expand this program as the targeted population is in fact receiving the services intended in the food distribution as well as Primary Health Care Program\. * Finally, decision-makers should bear in mind that, according to the BA surveys, most women benefiting from PAMI goods and services also subscribe to other social programs, e\.g\. 53 percent to Public Food Stores (PROAL), 52 percent to School Uniforms, 43 percent to Food Grants, 35 percent to Daily Family Care, 22 percent to School Milk Program, 27 percent to School Supplies, 28 percent to School Meals, 13 percent to Transportation subsidy, 21 percent to School Food, 31 percent to Medication Supply, and 3 percent to Training for Employment\. THE INFORMATION AND EDUCATION COMPONENT This component was managed by the OTC of the Ministry of the Family (MOF)\. The objective was to study and publish topics which would improve the implementation of the health and education components of the project by means of increasing beneficiaries' awareness of primary health, basic education, nutrition and family strengthening practices\. Except for the Joint Editorial Plan of MOF and Social Management School which initiated in 1991, all IEC efforts were implemented since 1996\. The present BA seeks to assess the impact of six sets of publications produced and disseminated by this component, such as (1) the IEC Kit; (2) Food Guides; (3) Manuals of Child Development for ages 0 to 6 years old; (4) Family Strengthening Program; (5) Breastfeeding Kit; and (6) MOF Joint Editorial Plan\. It sought to assess behavioral changes triggered by the above publications\. Survey instruments and semi-structured interviews were used for data collection\. From a universe of 11,212 publication recipients, 371 primary and 384 secondary beneficiaries were selected with weights proportional to number of issues published per type\. Results were corroborated with an opinion poll of 100 respondents carried out in Caracas\. The IEC Kits\. The TCU was in charge of organizing the production and distribution of publications to SDP executing agencies\. The IEC Kits present the evolutionary cycle of an individual; it includes five - 36 -  manuals on Mother-Child Health, Mother-Child Nutrition, Adolescence, Sexuality and Teenage Pregnancy, Psychological Aspects of Infancy, and Community Education\. In 1997, 16,000 copies were published and 70 percent of them distributed among the SDP executing agencies, groups and individuals\. Food Guides (pamphlets)\. Only 22 percent of the 350,000 copies published in 1995 were distributed by the National Nutrition Institute\. The rest was in storage\. Child Development Manuals for children 0-6\. Since 1998 the Preschool Department of the Ministry of Education distributed only 7 percent of the 65,000 copies edited by the TCU to Integrated Preschools and the Family Program\. The rest was in storage\. "Strengthening the Family " Program\. With the purpose of improving the quality of life of the Venezuelan family, the Social Strengthening Fund of the MOF carried out a national sensitivity campaign in 1998\. It was aimed at rescuing and restoration of family values\. Some 95 percent of the 50,000 kits produced were distributed to members of community circles formed by 173 NGOs\. The rest was in storage\. Breastfeeding Kit\. The National Breastfeeding Commission (CONALAMA) developed this Kit in 1998 aimed at health and nutrition professionals and promoters\. Joint Editorial Plan\. Since 1991 the MOF and the Social Management School have developed a series of publications aimed at the institutional strengthening of MOF\. Publications explore MOF achievements, and discuss ideas and proposals\. All 31 issues with 300 copies of each have been distributed\. Results The quality of publications in general was rated high by users\. It should be stressed, however, that publications would not have had the desired impact without the intervention of health and education promoters in charge of disseminating, discussing and maintaining the dialog among health and education network users\. The implementation of the component went beyond the change of habits of community groups, to the promotion of an integrated concept of health which included biological-psychological-social aspects of an individual\. With regard to the quality of materials, users reported general satisfaction with vocabulary, content, relevance of information, quality of paper and illustrations\. The component promoted higher levels of community organization\. Promoters used community resources, multi-disciplinary teams (priests, mayors, teachers, neighborhood committee members, etc\.) to disseminate messages\. Community participation in knowledge dissemination was higher in rural communities\. According to primary beneficiaries, the biggest deficiency of the component was the failure of GOV to distribute publications\. In some cases distribution did not even reach promoters\. Materials remained in storage rooms\. They urged GOV agencies to complete distribution\. Another beneficiary of this component was CONALAMA\. The 40-hour program designed under the component was incorporated into the curriculum of the Nutrition and Dietetics School of - 37 -  Central University of Venezuela\. Recommendations by beneficiaries A national IEC plan of this nature should not be an isolated effort, but should be part of the plans of the line ministries of Health, Education and MOF\. This plan should include a distribution strategy, training for usage, and monitoring and evaluation\. * Also, it was recommended that distribution be contracted in the private sector\. THE INSTITUTIONAL DEVELOPMENT (ID) COMPONENT This component was managed by the TCU, in cooperation with the Central Office of Statistics and Information (OCEI) and the Ministry of Coordination and Planning (CORDIPLAN)\. The goal was the strengthening of the institutions involved in the planning, implementation and evaluation of social programs\. It included technical assistance and training, elaboration of studies, equipping of facilities of OCEI, Ministry of Health, Ministry of Family, improvement of information systems, etc\. The BA shows that some of the goals of the ID component were not reached due to inadequate planning and provision of needed tools and mechanisms\. Some of the studies planned were satisfactorily finished, others only partially finished, and most of them took longer than expected\. Recent involvement of the mayors and NGOs (representatives of the communities) in reviewing the results of crucial government programs added a new dimension to this component\. The studies provided useful data on the social sectors in general and poverty in particular\. SDP also funded the strengthening of the Venezuelan Social Fund (FONVIS)\. Identification of beneficiaries was a challenging task for LACSO (NGO carrying out the BA)\. Direct beneficiaries of this component (policy makers, GOV agencies, social protection entities) involved in planning and implementation of social programs could not be easily identified by LACSO; therefore, agencies which carried out the studies were interviewed instead\. Only 40 percent of beneficiaries of training, equipment and technical assistance were located and interviewed\. Mayors and attendees to Local Board Events (public and private sector officials) were identified and interviewed as beneficiaries of the Local Board subproject\. Methods and instruments of data collection included interviews and focus groups, questionnaires and opinion polls\. Strengthening and equipping OCEI was one of the main objectives of this component\. This was done through the following five special subprojects: (1) Support to Normative Reorganization of the National Statistical System (SEN) and the creation of a National Statistics Plan (PEN); (2) Institutional Development of OCEI; (3) Modernization of the Geographic and Statistics Information System (SIGE); (4) Physical and technical support to Computational Capacity for the 2000 Census, and (5) National Platform of Automatic Official Information (PLATINO)\. Also, the strengthening of the National Statistics Network (RENE) was in the original plan\. - 38 -  Results * According to GOV officials interviewed, the support of SDP to OCEI was significant not only in terms of the strengthening of that institution, but in terms of the potential impact on the national statistics system and its potential contribution to policy making\. The overall assessment indicated OCEI's strengthening was adequate and pertinent to empower the institution with the tools for efficient planning, monitoring and evaluation of the statistical processes in the country\. However, many of the processes and activities within each subproject were developed in the past two years only and were incomplete\. Further funding would be needed to achieve the initially established goals\. The following surveys carried out by OCEI and the MOF: (1) Social Survey (ENSO 98), (2) Survey of Family Budgets (ENPF), and (3) National Survey of Population and Family (ENPOFAM) were satisfactorily completed but dissemination was still pending\. The social survey was intended to identify which social programs were effective and whether or not they were reaching the targeted population\. The Family Budget and Family and Population surveys sought to analyze income and expenditures of the Venezuelan family, as well as demographic growth\. The three surveys were deemed important for the formulation of social policy and the design of social programs\. Potential beneficiaries were to be found in the public and private sectors\. The Strategic Program of Human Resource Training and Development (PEDRHU) was a joint initiative of MOF and the Social Management Foundation (FEGS) seeking to train public servants in areas of social management\. This inter-institutional effort also ranked high because of its effectiveness in opening a dialog among institutions\. Trainers and trainees assessed this program as successful in meeting its goals, and recommended expansion of the program to private institutions dealing with social programs\. - SDP financed two subprojects aimed at institutional strengthening of NGOs\. First of all, an Internet communications network for institutional strengthening of NGOs and CBOs\. Beneficiary organizations were satisfied with this effort and recommended more training on Internet use and applications to be delivered through the network\. The network allowed interaction of the civil society with the public sector\. The second subproject, institutional strengthening of Micro-Finance NGOs, did not go beyond planning and diagnosis\. SDP also financed the First and Second Stage of Basic Education Teacher Training Program for the use of School Food Guides developed by the National Institute of Nutrition (INN), MOE, CENAMEC and Fundaci6n CAVENDES since 1990\. The implementation of the training program was contracted out to two other agencies\. The stakeholders who participated in planning, implementation and evaluation of the subproject were interviewed\. They suggested this nutrition program be continued for its educational value for teachers as well as students\. No direct beneficiaries were interviewed\. One of the roles of MOF was the coordination of Local Social Boards (Gabinetes Sociales)\. The Social Boards were an operational arm of the Social Protection Component of the Agenda Venezuela in the areas of education, health, housing, social security and labor policy\. The eleven events carried out since April 1997 called "Municipality and Social Management" aimed at the coordination between the central, regional and local GOV agencies to allow for the decentralization of decision making\. High rank representatives of the public and private sectors attended these events, including the President of Venezuela, Ministers, and representatives of Foundations, - 39 -  mayors, and Social Development Agencies of Municipalities and Governor Offices\. Social Boards were successful in establishing agreements with mayors to allow municipalities to have access to resources available in the 14 social programs of the Agenda Venezuela\. In most mayors' opinions, although the studies funded by SDP recommended demand-driven projects be prioritized in the ministerial agendas, they felt those recommendations had no impact at higher levels of decision-making in the ministries\. Recommendation To consolidate and evaluate the studies and monitoring/ evaluation tools (statistics) created by this component in the different GOV agencies\. It is equally important to validate conclusions, results and recommendations and to bring them to the attention of policy-makers of the new government\. This should prevent unnecessary efforts to repeat the studies, and should allow the GOV and donors to capitalize on lessons learned\. DEVELOPMENT AND EXPANSION OF PRESCHOOL EDUCATION COMPONENT The Preschool Education component was implemented by Fundaescolar (1991 to 1999), a foundation established by the Ministry of Education to replace FundaPreescolar which operated in Venezuela since 1990\. The objective of this component was to expand coverage of preschool education to 3-to-6 year old children in urban and rural lower-income regions\. Services were to be supplied through conventional and non-conventional settings\. Some 812 classrooms out of the planned 1,600 conventional classrooms were built\. These accommodated 27,000 out of the 96,000 children projected at appraisal\. Eighty-five non-conventional community-based schools to serve 16,000 children were originally planned; only eight of these were achieved\. The BA sought to assess perceptions on the effectiveness of the program from 1991 to 1999 by means of a Participatory Appraisal in four target areas: peri-urban, rural, bordering, and indigenous territories\. The component was to include construction, provision of equipment, teacher training and research\. The sample for assessment included 24 preschools located in eight regions of the country (Amazonas, Anzoategui, Apure, Carabobo, Lara, Merida, Miranda y Zulia) Parents, teachers, school principals and community members participated in 24 workshops with direct beneficiaries\. Also, eight other workshops with executing agencies of the program included members of the Preschool MED Department, Regional MED staff, trainer teams, builders, and suppliers of school equipment and teaching materials, and groups of the civil society associated with the Preschools\. Results In general, beneficiaries and stakeholders showed satisfaction with the quality of the infrastructure, the equipment, the school supplies, and the training provided by the project\. It was widely recognized that political and economic instability (inflation and unemployment), added to the heavy institutional bureaucratic procedures (MED, Fundaescolar, World Bank), slowed down the project\. High turnover of staff at MED, Fundaescolar, administrators and directors required constant program adjustments\. Lack of inner- and inter-institutional coordination and planning among the MED Preschool Department, Fundaescolar, contractors, and service providers made the operation of the subprojects slow and cumbersome\. As far as construction of infrastructure was concerned, approximately 50 percent of classrooms were not - 40 -  built due to increasing costs of building materials, undefined building sites, and unclear goals and objectives of the program\. Equipment and school supplies were delivered despite problems of untimely articulation between supply and demand of building materials, delivery of furniture and school materials, and class schedules\. Praise was given by beneficiaries to Fundapreescolar, Preescolar Office at MED and the program management\. But most dissatisfaction was expressed with regard to the lack of recreational grounds, illumination and ventilation of the buildings and inadequate sanitary facilities\. One of the goals of the subproject was to graduate those unlicensed teachers and directors already in service without a Preschool Teaching diploma\. Some of them had a university degree, but lacked Preschool specialization\. This goal was not met\. However, 52,200 people were trained throughout the life of the project, in different topics and at different times\. Training did not seem to be carefully planned\. Most problems with regard to training concerned the inefficient coordination of MED and Fundaescolar for determining training priorities, formulating training plans and adequately delivering them\. The training quarters of the Central Preschool Education Office were fully equipped, but those of the regional offices were only partially equipped\. Increase of preschool student enrollment (26 percent in 1991) was one of the goals of this component\. This increase did not take place, although infrastructure and equipment were supplied\. One of the reasons was that much of the infrastructure included the rehabilitation and replacement of buildings\. Redistribution of the old enrollment into new buildings took place, but new enrollment was limited\. Although beneficiaries were happy with very small classes, the facilities were underutilized\. Another factor identified for stagnation of enrollment was the non-existence of school nutrition programs in those schools\. Finally, new enrollment of some schools was not registered at the MED as they include unconventional programs; i\.e\. Fundaci6n del Nifio serves 1,077 children in 41 classrooms\. Other preschools were not registered at MED\. Some of the main strengths of the subprojects were the community participation component and the opportunities created for job generation and social capital\. Links were established among community members, local governments, civil groups, teachers, universities and NGOs for discussion of educational issues in open fora\. Those events were highly regarded as community strengthening achievements\. One of the biggest accomplishments cited by beneficiaries was the provision of school services to remote indigenous areas of the country, such as Amazonas and Anzoategui\. These indigenous communities were characterized by a strong community organization and high social controls which promoted program sustainability\. However, their special needs for teacher training, and culturally appropriate teaching materials required more attention than that dispensed\. A perceived weakness of MED was the lack of a National Plan for Preschool Education which would provide a strategy, norms, and operational plans to schools and their communities\. Sound supervision, monitoring and evaluation systems were also assessed as urgent needs\. Recommendations A general recommendation of all stakeholders was that education projects should be demand-driven\. A diagnostic analysis and needs assessment must be made with MED staff, teachers, NGOs, CBOs and communities to ensure coordination and commitment of stakeholders and beneficiaries\. The following recommendations were made for a successful continuation of the project: - 41 -  * To analyze the real supply and demand of preschool infrastructure and teachers of preschool age children in rural and urban areas\. Special attention must be given to under-served and isolated (indigenous) areas with high demand of education but with special needs, i\.e\. bilingual and culturally-appropriate instruction\. Use of existing facilities should be optimized by the MOE in response to community demands, i\.e\. double-shifts for classes, use of facilities for meetings of civil society groups\. To provide the Preschool Department of the MED with an institutional strengthening program which would empower MED staff with knowledge and expertise to assist schools\. To establish a National Preschool Education strategy which supports the decentralization of administration and decision-making power to schools and communities\. School programs must be able to run smoothly, irrespective of turnover in MED and GOV authorities\. To provide Fundaescolar with an institutional strengthening program to improve efficiency, and plan strategically; e\.g\. land tenure titles should be secured before construction plans are made; maintenance plans for infrastructure and equipment should be an important part of project\. To ensure preschool teachers are trained in the use of materials delivered by MED\. To incorporate training for training mothers (Lara y Merida) and unlicensed indigenous teachers in indigenous areas\. Indigenous teachers in Anzoategui and Amazonas have requested training in bilingual education\. To establish a project monitoring and evaluation system for Fundaescolar and preschools, to be implemented systematically by Fundaescolar, by the schools themselves, and by the MED\. To incorporate permanent school feeding programs, especially in areas of extreme poverty such as the indigenous areas\. General Conclusions of the BA 1\. The BA went beyond the expected qualitative assessment of project stakeholders and beneficiaries\. It opened many windows of dialogue and debate among stakeholders, social analysts in line ministries and the private sector, to evaluate the effectiveness and social relevance of the SDP\. 2\. The assessment was carried out in eight states of Venezuela between May and August, 1999 by three agencies (LACSO; Canias, Turmedo and Associates; and the Department of Education, Central University of Venezuela)\. A total of 162 PAMI centers, 1,326 people (mothers, local health care staff, promoters, PNC trainees) were consulted in focus groups and interviews for the PAMI assessment\. Over 800 beneficiaries were surveyed for the IEC component\. No direct beneficiaries (i\.e\. policy-makers in GOV agencies or private sector) were interviewed for the ID component; instead, OCEI and the agencies which implemented the studies were interviewed\. Parents, teachers, CBOs, students of 24 preschools and eight civil society groups in eight regions of the country (including Amazonas and Anzoategui with indigenous population) participated in focus groups and interviews for the assessment of Fundaescolar\. 3\. Most beneficiaries and stakeholders interviewed were moderately satisfied with the quality of the goods and services provided by PAMI\. However, they emphasized the need to "redefine" the strategy of the - 42 -  program, to up-date the targeting according to poverty maps in order to reach those who need the services most, to assess the quality of the products delivered, and the logistics of delivery\. They recommended that a "less cumbersome" bidding system be put in place to allow for a more dynamic program\. Once the strategy is articulated, an information dissemination campaign should be implemented\. 4\. Beneficiaries acknowledged the improvement of medical services due in part to newly distributed medical equipment among health centers\. However, medical staff at the local, regional and central levels suggested medical equipment supplied to health centers should be "based on a diagnosis" of equipment needed\. In this case, the quipment provided was too sophisticated\. An increase in the number of ambulances in primary health centers is also a priority not met yet\. 5\. According to GOV officials interviewed, the support of SDP for the institutional strengthening of OCEI was of significant importance to potentially improve national statistics and policy making nationwide\. It provided OCEI with tools for efficient planning, monitoring and evaluation of the statistical processes in the country\. Half of the studies carried out under this component (Social Survey -ENSO 98-, Survey of Family Budgets -ENPF-, National Survey of Population and Family -ENPOFAM- were only completed in the past two years and proper dissemination had not been done at the time of the BA\. It was strongly recommended that "public" dissemination of these documents be done to the public and private sectors to provide policy makers with the tools for well-informed decisions\. 6\. The Strategic Program of Human Resource Training and Development (PEDRHU), institutional strengthening of NGOs through internet, and other training programs, e\.g\., the PNC training program under PAMI, the Basic Education Teacher Training Programs for the use of School Food Guides were interagency efforts recommended by beneficiaries to be continued\. Municipal strengthening through the "Municipality and Social Management" program (Gabinetes Sociales) made Agenda Venezuela programs accessible to municipalities and their communities\. Consequently, mayors and communities interviewed suggested this program also be continued for demand-driven projects\. 7\. Fundaescolar did not meet the goals established at project appraisal\. Only 50 percent of the infrastructure and 26 percent increase of preschool enrollment took place\. However, beneficiaries are quite satisfied with the quality of infrastructure, equipment and school supplies distributed\. In most regions of the country, new school construction allowed for redistribution of enrollment in smaller classes; unfortunately, much space went under-utilized\. It was recommended that under-utilized schools be made available to double-shift schedules and other civil society activities\. Major accomplishments of Fundaescolar was felt in other regions such as Amazonas and Anzoategui which are indigenous communities suffering from high illiteracy rates\. In those areas, Fundaescolar provided preschool education to children not previously enrolled\. This resulted in frequently high levels of participation and ownership of the projects\. 8\. A major problem identified by all stakeholders was the unrealistic and over-enthusiastic goals set for the projects in general without a layout of mechanisms to achieve them\. Equally stressed was the lack of coordination of GOV agencies to carry out activities to achieve outputs, and lack of monitoring and evaluation systems to measure progress, performance and impact\. 9\. In general, there was an overall lack of a communications strategy to consult and inform beneficiaries of the goals, targets and mechanisms of project implementation\. There were few cases of community networks created through the years, eg\. Primary Health Care and Fundaescolar components which - 43 -  promoted inclusion and ownership of the projects\. Creation of those health and education networks were identified by beneficiaries as important benefits of the project\. 10\. A monitoring and evaluation system, as well as periodic evaluations would have improved the possibilities of success of this project\. Unfortunately, no evaluations were carried out during the life of the project\. 11\. Timely and systematic technical assistance from the World Bank would have been needed for a successful implementation of the project\. - 44 -  Annex 9\. Supplementary Project and Sector Data BASIC SOCIAL INDICATORS 1\. Population: 23,242,435 inhabitants, of whom 11,699,249 are male and 11,543,186 are female\. (Source: Population Estimates and Projections, 1998, Central Statistics and Information Office, [OCEI])\. 2\. Total population living in poverty: 11,401,853 inhabitants, of whom 5,067,095 (44\.4 percent) live in extreme poverty\. (Source: Social Information Office, Ministry of Family Affairs, 1998\. Method used: unmet basic needs assessment\.) 3\. Life expectancy, 1997: Men, 69\.8 years; women, 75\.5 years\. 4\. Maternal mortality rate, 1997: 59\.62\. 5\. Overall crude death rate, 1997: 4\.66\. 6\. Crude birth rate, 1997: 24\.50\. 7\. Total fertility rate: average of 2\.6 children per woman\. (Source: ENPOFAM, 1998\.)\. 8\. Infant mortality rate, 1997: 18\.74\. 9\. Average annual per capita increase in GDP, 1970-1980: 0\.5 percent; 1980-1990: -1\.9 percent; 1990-1997: 1\.7 percent (in 1990 dollars)\. 10\. Average annual increase in social expenditure for 1988-1998: 1\.3 percent (base year: 1984)\. 11\. Social expenditure as a percentage of GDP: 1988, 7\.3 percent; 1998, 8\.1 percent (base year: 1984)\. 12\. Average annual rate of per capita real social expenditure: 1988-1998: -1\.0 percent\. 13\. Education expenditure, 1988-1998: * As a percentage of GDP: 3\.2 percent * Percentage per capita: * Annual rate of growth: -1\.0 percent * As a percentage of social expenditure: 39\.6 percent * As a percentage of the national budget: 14\.36 percent\. 14\. Health expenditure, 1988-1998: * As a percentage of GDP: 1\.4 percent * Percentage per capita: * Annual rate of growth: -1\.6 percent * As a percentage of social expenditure: 16\.2 percent * As a percentage of the national budget: 5\.92 percent\. -45 -  Year/indicators Year Indicator Year Indicator Population (millions) 1988 18\.8 1999 23\.2 Per capita GDP (US$) 1988 3,230 1997 2,681 Average annual rate of growth of per capita GDP 1988 -0\.9 1997 2\.8 Income of poorest quintile (20 percent) - percentage 1988 3 Population living in extreme poverty (percent) 1988 22\.3 Population living in critical poverty (percent) 1988 31\.4 Crude birth rate (per thousand) 1987 30\.6 1997 24\.5 Crude death rate (per thousand) 1987 5\.4 1997 4\.66 Crude population growth rate 1988 2\.7 1997 19\.84 Fertility rate 1987 3\.8 1998 2\.6 Maternal mortality rate (per 10,000) 1980-87 65 1997 59\.62 Infant mortality rate (per thousand) 1987 36 1997 21\.4 Life expectancy at birth 1987 70 1998 72\.8 Health expenditure as a proportion of national budget (per\.) 1985 9\.3 1998 5\.9 Health expenditure as a proportion of GDP (percent) 1985 2\.6 1998 1\.4 Daily calorie consumption 1986 2,494 1997 1,942 Children with low birth weight (percent) 1982-87 9 1997 13\.4 Consumption of calorie requirements (percent) 1986 114 - 46 -

REVIEW

P048522

 ICRR 11252 Report Number : ICRR11252 ICR Review Operations Evaluation Department 1\. Project Data: Date Posted : 06/11/2002 PROJ ID : P048522 Appraisal Actual Project Name : Emergency Flood Project Costs 35\.00 31\.59 Rehabilitation Project US$M ) (US$M) Country : Yemen Loan/ Loan US$M ) 27\.84 /Credit (US$M) 27\.44 Sector (s): Board: RDV - Irrigation and Cofinancing drainage (24%), Flood US$M ) (US$M) protection (24%), Water supply (24%), Roads and highways (24%), Central government administration (4%) L/C Number : C2932; CQ016 Board Approval 97 FY ) (FY) Partners involved : UNDP Closing Date 07/31/2000 12/31/2001 Prepared by : Reviewed by : Group Manager : Group : Ridley Nelson William B\. Hurlbut Alain A\. Barbu OEDST 2\. Project Objectives and Components a\. Objectives The objectives of the project were : (i) to help restore the countries essential economic infrastructure (roads, agriculture, rural water supply) and domestic food production capability damaged by the heavy rains and flooding and to facilitate access to production centers, markets and social services; (ii) to strengthen Yemen's institutional capacity to manage disaster recovery programs and develop programs to mitigate the country's vulnerability to flood damage; and (iii) to serve as a catalyst for donor financing and coordination of the reconstruction effort \. b\. Components Investments were directed towards the most affected areas including Shabwa, Marib, Hadramaut, Al -Jafw, and Abyan\. Main components were: (a) agricultural infrastructure including rehabilitation of embankments, irrigation systems, service roads, and installation of secondary canals, wells, bunds, and weirs (base costs: US$13 million); (b) transport infrastructure, including rehabilitation of main roads and associated structures (US$13 million); (c) water supply infrastructure, including rehabilitation of urban and rural water supply facilities through the supply of equipment such as pumps, generators, chlorinators, and pipes (US$1\.1 million); (d) consulting services and studies, including assistance in the design and implementation of civil works, contract management and construction supervision, and preparation of studies, including a flood preparedness and mitigation study (US$2\.2 million)\. c\. Comments on Project Cost, Financing and Dates The project closed 18 months later than the original schedule with close to 100 percent of funds disbursed \. This project funding followed closely behind the reallaocation from existing credits of US$ 14\.5 million to finance initial rehabilitation\. The failure of a parallel financier, UNDP, to implement a US$ 1 million dollar component for a flood preparedness and mitigation component impacted on the implementation of the overall program and is likely to have some impact on sustainability\. 3\. Achievement of Relevant Objectives: With respect to objective (i), related to agricultural infrastructure, this was substantially achieved with particular success in wadi rehabilitation achieving well beyond the appraisal targets \. The reconstruction of a diversion weir and wadi course rehabilitation protected the historical city of Shibam \. Ten major Irish crossings/roads and four major bridges damaged by floods on major road arteries were reconstructed \. With respect to objective (ii), related to strengthening Yemen's institutional capacity to manage disaster recovery, the impact is reported to have been significant apart from the failure by a cofinancier to carry out the anticipated flood preparedness and mitigation component, which affected the achievement of this objective \. First, the project succeeded in building local contractor capacity in building bridges to high standards of construction \. Second, the project provided an opportunity for a large number of new small contractors to emerge and to acquire experience with small works \. Third, the project's use of community participation developed ownership and maintenance capacity for the works as well as creating substantial employment\. With respect to objective (iii), related to catalyzing donor financing and coordination of the reconstruction effort, the evidence in the ICR is less clear and success appears to have been mixed \. The failure of the UNDP-funded component impacted negatively on this objective \. However, the generally effective performance of the PIUs probably had a postive impact on coordination \. 4\. Significant Outcomes/Impacts: Apart from the Marib subcomponent, the project substantially achieved the infrastructure outputs \. The targets for the transport infrastructure component are reported to have been fully achieved, and, in some cases, exceeded \. There appears to be some evidence that unit costs in the transport infrastructure component were close to or, in some cases, better than those projected at appraisal \. The building of both large and small contractor capacity is a significant outcome with likely positive benefits in the longer -term\. The introduction of new flood protection technologies in some areas will also have positive longer -term benefits\. The early establishment of the interministerial Steering Committee chaired by the Deputy Prime Minister and Minister of Planning appears to have provided strong political and implementation support \. The direction of project support not simply to affected areas but to those affected areas with receptive communities appears to have had a positive impact on outcomes and efficiency and probably future sustainability \. Whether it had a positive impact on poverty and equity is unclear from the evidence\. 5\. Significant Shortcomings (including non-compliance with safeguard policies): An 18 month delay in completion of what was planned as a project of just over three years is a significant delay especially in an emergency project \. Other significant shortcomings include : the failure to carry out the preparedness and mitigation component and startup delay in works for the rehabilitation of the Marib Irrigation Scheme \. 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory But it is not entirely clear how satisfactory the achievement of objective (iii) was\. Institutional Dev \.: Substantial Substantial Sustainability : Likely Likely But, depending on how frequently such events are likely to occur, this is a marginal call given the failure to complete the preparedness component during the life of the project\. Bank Performance : Satisfactory Satisfactory Partly supported by the fact that the project quality at entry was rated Satisfactory by QAG\. Borrower Perf \.: Satisfactory Satisfactory Quality of ICR : Satisfactory NOTE ICR rating values flagged with ' * ' don't comply with OP/BP 13\.55, but are listed for completeness\. NOTE: 7\. Lessons of Broad Applicability: 1\. Emergency projects, in particular, require strong political commitment and high -level oversight and coordination \. 2\. Selectivity is important in emergency projects, and although directing support to affected areas is necessary, community receptivity is also important for rapid implementation and sustainability \. 8\. Assessment Recommended? Yes No 9\. Comments on Quality of ICR: A satisfactory ICR with no major shortcomings and sound lessons \. The achievements of objective (iii), related to catalizing donor funding and coordinating reconstruction were not sufficiently addressed in the ICR \. The argument that, because no ERR is estimated ex ante in an emergency project - due to the time constraint, there is no case for an ERR analysis ex post - when there is no time constraint, is one that is often used but is not convincing \. An ERR analysis could still have been attempted, perhaps on a sample basis \. But it would probably have shown high ERRs given the rehabilitation nature of the investment \.

REVIEW

P010417

 ICRR 10729 Report Number : ICRR10729 ICR Review Operations Evaluation Department 1\. Project Data: Date Posted : 08/03/2000 PROJ ID : P010417 Appraisal Actual Project Name : Balochistan Primary Project Costs 120\.00 86\.75 Education Program Project US$M ) (US$M) Country : Pakistan Loan/ US$M ) 106\.00 Loan /Credit (US$M) 78\.80 Sector (s): Primary Education Cofinancing US$M ) (US$M) L/C Number : C2482 Board Approval 93 FY ) (FY) Partners involved : None directly, several in Closing Date 12/31/1999 12/31/1999 parallel interventions\. Prepared by : Reviewed by : Group Manager : Group : 2\. Project Objectives and Components a\. Objectives Under the Government's long-term Balochistan Primary Education Program (BPEP), the project was to implement special measures to improve girls' education, including : 1\. improving access, equity and efficiency; 2\. improving the quality of the learning environment; 3\. improving the organizational framework, planning and management \. b\. Components 1\. Access, equity and efficiency would be increased by: establishing new girls' schools which boys are allowed to attend; providing classrooms and facilities to mixed shelterless schools; introducing a scholarship program for girls in urban slum areas to attend privately -run schools; and introducing a new policy to permit double -shifts where needs arose\. 2\. Quality would be improved by: establishing appropriate pre-service and in-service teacher training system geared to multi -grade school conditions; developing core student-activity books and other instructional materials suitable for multi -grade teaching and learning; institutionalizing an instructional support system using learning coordinators \. 3\. The organizational framework, planning and management would be improved by: establishing a Directorate of Primary Education (DPE) separate from the secondary school administration at provincial and district levels; establishing a monitoring and evaluation unit within the DPE; continuing development of the management information system (MIS)\. Beneficiary participation would be used to achieve all of the objectives by setting up parent committees and involving them in school establishment and supervision \. The project's scope was amended in September 1997, 1997 in part to align it with the ongoing programmatic Social Action Plan projects covering management and budgetary planning and management countrywide \. Objectives were not amended but component scope was broadened to include middle schools; inclusion of mentoring and peer-training for primary school teachers; provision of funds for piloting innovations such as new training approaches and early childhood education; requirement of the Borrower to expand the supply of female primary school teachers; and development of a student learning assessment system; inclusion performance indications; five new conditionalities; revision of the program agreement on procurement, withdrawals, reallocation of credit proceeds and more frequent audit reporting\. c\. Comments on Project Cost, Financing and Dates The credit financed construction, furniture and equipment, educational materials, specialist services, fellowships and training, and incremental recurrent costs for additional staff and operations and maintenance during the project's implementation\. In February 1996, the BPEP Development Credit Agreement and project legal agreement were amended with new conditionalities and conditions to address generic problems of weak administrative capacity and deficient provincial governance; excessively centralized management and unclear accountability; delays in budgeting and release of funds; frequent manager transfers, hiring of unqualified teachers, and staff absenteeism; refusal by the Government of Balochistan (GOB) to place qualified counterparts for the TA or retain contract staff; and difficulties with procurement and logistics\. NGO involvement was included\. In December 1999, a decision was made to cancel the remaining credit, ($8\.5 m\.)\. 100% depreciation of Rupee against US dollar partially explains non -tulized proceeds from credit, according to ICR (p\.11)\. 3\. Achievement of Relevant Objectives: BPEP was successful in achieving targets for : access and equity; development of learning inputs (teacher training and instructional materials); development of the MIS; and establishment of partnerships with NGOs to mobilize communities in establishing and overseeing the effectiveness of primary schools \. School Construction, rehabilitation and teacher selection and deployment \. Over 4,000 schools and nearly 1,500 classrooms were constructed, though the ratio of 70/30 of girls' to boys' schools was reversed with a ratio of 40/60 at completion\. Furniture was procured though chairs and desks were unsuitable in design for teaching -learning activities\. The numbers of female teachers in rural areas increased, including in 1,500 community schools, though merit-based criteria for recruitment allowed unqualified and untrained teachers to be hired instead of the available qualified teachers\. In community schools, teacher absenteeism was far less frequent than elsewhere where the problem remains rampant\. Improving the Learning Environment \. Altogether, 8,600 untrained teachers including 1,500 community school teachers were trained and certified through BPEP effectively clearing a backlog of untrained teachers \. Accelerated in-service training was implemented for 2,500 teachers and pre-service training was implemented through the government college and, for community schools, a mobile female teacher training unit\. In-service training for trained teachers was implemented in multi-grade teaching, hygiene and sanitation and learning coordinator skills \. The DPE's teacher training and support cell successfully developed and delivered innovative needs -based training for 3,300 girls in remote rural areas\. The college based training, however, continued in a traditional mode \. The mentoring program benefited 10,000 teachers in monthly workshops, and UNICEF -funded health and early childhood workshops were conducted through the program \. The Primary Education Improvement Program, a complementary initiative funded by the Netherlands, provided inputs to improve teaching and community involvement in school management \. Improving the organization framework, planning and management \. About 22% of positions were filled by female managers compared with 2% at project launch\. All officers were trained\. New joint management arrangement for classes K to 8 that were expected to emanate from the separation of the DPE from secondary and higher education management was not completed\. The MIS was established by USAID prior to the project and was one of the brightest achievements of BPEP\. It is in use province-wide for annual school censuses, planning (school sites and construction, textbooks and teachers )\. However, analysis of data is a huge task still required but with potential use for targeting and impact evaluation \. When a Assessment Monitoring and Performance Evaluation Cell was established in 1996, it began to monitor and textbook availability and school management committees and developed student progress reports for parents \. But the methods it used for assessment of student learning do not so far yield reliable and valid information and have not proved useful for policy and planning \. The community schools demonstrate considerable success and potential if problems in the partnership between the government, NGOs and communities could be resolved, especially the full inclusion of communities in decision-making\. At credit closing, 1,300 schools enrolled 60,000 students and they have lower rates of absenteeism, dropout and repetition and encourage greater demand for girls' education overall \. Village Education Committees did not consider that they could support the schools without government help \. In 1996, the GOB decreed that all new schools should follow the community model but without the involvement of NGOs \. About 10,000 school management committees were established, over 2,000 were trained and validated by NGOs and 4,700 opened bank accounts and received operating funds \. The more successful committees were those established with adequate preparation and participation and not under abrupt central directives \. Their potential benefits are at risk unless the community support experience can be built on and adequate operational funds are made available \. 4\. Significant Outcomes/Impacts: Fellowships for girls' to attend low-tuition private schools helped increase access for 6,654 girl students in 40 urban schools by covering fees for tuition, books and educational materials \. Implementation was undertaken by an NGO and later the Balochistan Education Foundation \. It continues to enjoy parental support even when subsidies have ended and the enrollment of girls continues to increase \. The rural scheme provided the means for about 1,000 girls to attend school for 30 schools in remote and sparsely populated rural areas \. By the completion, 21 schools converted to community schools, one became private and 8 failed, probably due to unrealistic assessment of the community's capacity to support the schools \. 5\. Significant Shortcomings (including non-compliance with safeguard policies): Satisfactory institutional capacity was developed in the DPE to manage the program but this has dissipated since 1996 due to deterioration of the political environment, frequent staff turnover and transfer of the teacher training support and the materials development functions out of the dedicated units to inexperienced agencies, and to exclude NGOs\. Due to the changes, the risk is considerable that teaching and learning practices and the use of materials will revert to pre-project behavior\. 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Institutional Dev \.: Negligible Modest During implementation, institutional development was achieved from a low base and with moderate success --in primary education organization, planning and management; in teacher training; and in community/NGO support for schools\. The impact was less than substantial because of post-project government actions in transferring functions and denial of funding\. Sustainability : Unlikely Unlikely ICR judges that recurrent and investment budgets and structural arrangements inadequate and overall sustainability unlikely, therefore\. ICR observes that, in the schools established under BPEP, community schools and urban fellowships for girls are likely to be sustained in the short-term because of demand\. Bank Performance : Satisfactory Unsatisfactory The ICR points out that task teams made great efforts with too few resources under difficult country conditions but also comments on important deficiencies of Bank performance overall\. The project as presented to the Board was not ready for implementation and is judged over-complex and unrealistic about project management skills, financial and procurement arrangements, implementation capacity, use of TA and borrower commitment\. Frequent staff changes in supervision led to lack of attention to financial, management, educational and sustainability issues, and this led to disruptions of which the Borrower complains\. Borrower Perf \.: Unsatisfactory Unsatisfactory Despite the satisfactory performance of some technical agencies and the successful completion of most components, the Government demonstrated lack of commitment to maintaining funding and staffing for project institutions; allowed the project to suffer from political interference; and failed to comply with financial and other covenants\. Furthermore, the management of TA was grossly inadequate \. These deficiencies damaged the project's ability  to make a lasting developmental impact, despite its relevance and innovative focus\. Quality of ICR : Exemplary NOTE ICR rating values flagged with ' * ' don't comply with OP/BP 13\.55, but are listed for completeness\. NOTE: 7\. Lessons of Broad Applicability: Among the many lessons for the Pakistan context, several are of broad applicability and are not frequently mentioned in ICRs (OED's emphasis in italics)\. Lessons for Education Complementing targeting priorities with appropriate targeting mechanisms have been shown to improve equity \. Toward ensuring sustainability beyond completion, project processes and outcomes and, in particular, the implementation of agreed exit strategies should receive more attention from supervision missions from mid-term\. Taking to scale successful interventions need to consider the time required to build additional capacity to ensure appropriate follow up and quality in the delivery of interventions \. Too much too soon leads to serious operational drawbacks\. Demand-driven interventions involving community participation in managing school -related issues have proved effective worldwide in reducing teacher absenteeism and in increasing access to schools ---in this case, for girls, as well as boys\. Needs-based teacher training activities involving periodic peer interaction and on-site follow up have proven effective to change teaching practices in the classroom \. Ensure the involvement of qualified NGOs in the design and implementation of project-related interventions for which they have shown expertise \. Among lessons learned for the Bank 's management , the most important are that management should ensure that supervision missions avoid frequent changes in tactics, priorities and unwarranted design changes, and that they are backed appropriate budgets, sufficient time for field visits and adequate skills to address relevant issue\. Among lessons learned by the Borrower , the most important are: planning should be undertaken at the start to ensure adequate financial resources for new structures and activities beyond the completion of the project; permanent staff should act as counterparts to technical experts to ensure that capacity -building remains within the DPE; the fees for experts should not be changed during implementation, local experts should used except in dire necessity, only qualified persons should be engaged, and TA costs should be controlled at 5% of total costs rather than the 10% in this project\. 8\. Assessment Recommended? Yes No Why? In a country social sector review as a cluster with other basic education projects and the SAPs in Pakistan when all are near completion in 2--3 years\. Successful innovations in girls' education and teacher training should be evaluated for their durability and replicability \. 9\. Comments on Quality of ICR: The ICR is exemplary because the evidence is presented clearly and fully, the evaluation of findings is balanced and convincing, and the conclusions drawn are well -grounded\. In particular, the discussion of educational issues shows an exceptional level of appreciation for the technical aspects ---a quality that is often missing from ICRs in education \. The 18 lessons learned are clearly divided between the preparation -appraisal stage and the implementation stage, and demonstrate appreciation for factors important for relevance, efficacy and efficiency and fiduciary issues, as well as sustainability OED's evaluation led to some variance in ratings of Bank and Borrower performance and somewhat different focus for institutional development

REVIEW

P054937

Document of The World Bank Report No\.: 78275 PROJECT PERFORMANCE ASSESSMENT REPORT DOMINICAN REPUBLIC EARLY CHILDHOOD EDUCATION PROJECT (P054937) June 27, 2013 IEG Public Sector Evaluation Independent Evaluation Group ÿþCurrency Equivalents (annual averages) Currency Unit =Dominican Peso 2002 US$1\.00 DOP$18\.60 2003 US$1\.00 DOP$30\.83 2004 US$1\.00 DOP$42\.11 2005 US$1\.00 DOP$30\.51 2006 US$1\.00 DOP$33\.25 2007 US$1\.00 DOP$33\.31 2008 US$1\.00 DOP$34\.87 2009 US$1\.00 DOP$36\.12 2010 US$1\.00 DOP$37\.30 2011 US$1\.00 DOP$38\.23 Abbreviations and Acronyms ECD Early Childhood Development EYE Early Years Evaluation IDB Inter-American Development Bank ICT Information Communication Technology IEG Independent Evaluation Group IRR Internal Rate of Return ISR Implementation Status and Results Report M&E Monitoring and Evaluation PAD Project Appraisal Document PPAR Project Performance Assessment Report PREAL Programa de Promoción de la Reforma Educativa en América Latina y el Caribe TTL Task Team Leader Fiscal Year Government: January 1 - December 31 Director-General, Independent Evaluation Ms\. Caroline Heider Director, IEG Public Sector Evaluation Mr\. Emmanuel Jimenez Manager, IEG Public Sector Evaluation Mr\. Mark Sundberg Task Manager Ms\. Susan Ann Caceres ii Contents Principal Ratings\. \. v Key Staff Responsible\. \. v Preface\. vii Summary \. ix 1\. Background and Context\.1\. Socio-Economic Context of Dominican Republic \. \. 1 Education in the Dominican Republic \. 2 Early Childhood Education in the Dominican Republic\. \. 3 Early Childhood Education: International Evidence \. \. 4 2\. Objectives, Design, and Their Relevance\. \.6 Objectives\.6 Relevance of the Objectives\. \.6 Design\.7 Relevance of Design\.9 3\. Implementation\.11 Implementation Experience\.12 Safeguards\. 13 Fiduciary\. 14 Implementation of Monitoring and Evaluation\.15 4\. Achievement of the Objectives\. 16 Increasing Access to Early Childhood Education with a Particular Focus on the Poor\. \.16 Strengthening the Quality of Early Childhood Education with a Particular Focus on the Poor\. 23 5\. Efficiency\. 27 6\. Ratings\. 29 Outcome \. 29 Risk to Development Outcome \. 29 Bank Performance \. \.30 Borrower Performance \. 33 This report was prepared by Susan Ann Caceres who assessed the project in October 2012\. The report was peer reviewed by Michelle J\. Neuman and panel reviewed by Christopher D\. Gerrard\. Viktoriya Yevsyeyeva provided administrative support\. R skto Dve pmen Outome\. \.12 Monitoring and Evaluation \. \. 34 7\. Lessons\. \. 35 References \. \. 37 Annex A\. Basic Data Sheet\. \. \. 39 Annex B\. Mapping Classrooms with Provincial Poverty \. 43 Annex C\. Mapping Classrooms with Municipal Poverty \. 44 Annex D\. List of Persons Met\. 55 Annex E\. Borrower Comments \. 57 Tables Table 1\. Dominican Republic, Selected Economic Variables \.1 Table 2\. The Poverty Rate in the Dominican Republic (percent) \. \. 2 Table 3\. Spending on Public Education per student for each Level (US$) \. 2 Table 4\. Activities within each Component and Planned Costs\. \. 8 Table 5\. Project Results Chain\. 10 Table 6\. Appraisal and Actual Cost of the Project by Component ($ million)\. 11 Table 7\. Grant Fund Amount Planned and Actual Execution (RD) 2004-20 10 \. 19 Table 8\. Priorities Established by Grant Fund \. 19 Table 9\. Summary of Grantee Survey Responses (n=19)\. 20 Table 10\. Enrollment Rate of Five Year-Olds (Public and Private) (percent), 2003-2010\. \. 21 Table 11\. Pre-primary Enrollment Number of Students by Sector, 2003-2011\. 21 Table 12\. Expected and Actual Enrollment in Model Centers, 2012 School Year \. 22 Table 13\. Classroom, Poverty and Population\. 44 Table 14\. Grantee Respondents to IEG Survey \. \. 53 Figures Figure 1\. Model of Early Childhood Development \. 5 Figure 2\. Relationship between Number of Classrooms Built and Municipal Poverty Rate \. 18 Figure 3\. Relationship between Number and Classrooms and Number of Poor Peopl e\. 18 Figure 4\. Project's Theory of Action to Support Early Childhood Development\. 23 Figure 5\. Pre-primary Classroom\. \. 24 Figure 6\. Children Utilizing Objects and Play to Learn \. 25 Figure 7\. Percentage of Poor Households and Number of Classrooms Built by the Project by Province \. 43 iv Principal Ratings ICR* ICR Review* PPAR Outcome Moderately Satisfactory Moderately Satisfactory Moderately Satisfactory Risk to Development Low or Negligible Low or Negligible Moderate Outcome Bank Performance Moderately Satisfactory Moderately Satisfactory Moderately Satisfactory Borrower PerfomanceModerately Satisfactory Moderately Satisfactory Moderately Satisfactory Performance * The Implementation Completion and Results (ICR) report is a self-evaluation by the responsible Bank department\. The ICR Review is an intermediate IEG product that seeks to independently verify the findings of the ICR\. Key Staff Responsible Division Chief/ Project Task Manager/Leader Sector Director Country Director Appraisal Alberto Rodriguez Marito H\. Garcia Orsalia Kalantzopoulos Completion Karla McEnvoy Chingboon Lee Franqoise Clottes v IEG Mission: Improving World Bank Group development results through excellence in independent evaluation\. About this Report The Independent Evaluation Group assesses the programs and activities of the World Bank for two purposes: first, to ensure the integrity of the Bank's self-evaluation process and to verify that the Bank's work is producing the expected results, and second, to help develop improved directions, policies, and procedures through the dissemination of lessons drawn from experience\. As part of this work, IEG annually assesses 20-25 percent of the Bank's lending operations through field work\. In selecting operations for assessment, preference is given to those that are innovative, large, or complex; those that are relevant to upcoming studies or country evaluations; those for which Executive Directors or Bank management have requested assessments; and those that are likely to generate important lessons\. To prepare a Project Performance Assessment Report (PPAR), IEG staff examine project files and other documents, visit the borrowing country to discuss the operation with the government, and other in-country stakeholders, and interview Bank staff and other donor agency staff both at headquarters and in local offices as appropriate\. Each PPAR is subject to internal IEG peer review, Panel review, and management approval\. Once cleared internally, the PPAR is commented on by the responsible Bank department\. The PPAR is also sent to the borrower for review\. IEG incorporates both Bank and borrower comments as appropriate, and the borrowers' comments are attached to the document that is sent to the Bank's Board of Executive Directors\. After an assessment report has been sent to the Board, it is disclosed to the public\. About the IEG Rating System for Public Sector Evaluations IEG's use of multiple evaluation methods offers both rigor and a necessary level of flexibility to adapt to lending instrument, project design, or sectoral approach\. IEG evaluators all apply the same basic method to arrive at their project ratings\. Following is the definition and rating scale used for each evaluation criterion (additional information is available on the IEG website: http://ieg\.worldbankgroup\.org)\. Outcome: The extent to which the operation's major relevant objectives were achieved, or are expected to be achieved, efficiently\. The rating has three dimensions: relevance, efficacy, and efficiency\. Relevance includes relevance of objectives and relevance of design\. Relevance of objectives is the extent to which the project's objectives are consistent with the country's current development priorities and with current Bank country and sectoral assistance strategies and corporate goals (expressed in Poverty Reduction Strategy Papers, Country Assistance Strategies, Sector Strategy Papers, Operational Policies)\. Relevance of design is the extent to which the project's design is consistent with the stated objectives\. Efficacy is the extent to which the project's objectives were achieved, or are expected to be achieved, taking into account their relative importance\. Efficiency is the extent to which the project achieved, or is expected to achieve, a return higher than the opportunity cost of capital and benefits at least cost compared to alternatives\. The efficiency dimension generally is not applied to adjustment operations\. Possible ratings for Outcome: Highly Satisfactory, Satisfactory, Moderately Satisfactory, Moderately Unsatisfactory, Unsatisfactory, Highly Unsatisfactory\. Risk to Development Outcome: The risk, at the time of evaluation, that development outcomes (or expected outcomes) will not be maintained (or realized)\. Possible ratings for Risk to Development Outcome: High, Significant, Moderate, Negligible to Low, Not Evaluable\. Bank Performance: The extent to which services provided by the Bank ensured quality at entry of the operation and supported effective implementation through appropriate supervision (including ensuring adequate transition arrangements for regular operation of supported activities after loan/credit closing, toward the achievement of development outcomes\. The rating has two dimensions: quality at entry and quality of supervision\. Possible ratings for Bank Performance: Highly Satisfactory, Satisfactory, Moderately Satisfactory, Moderately Unsatisfactory, Unsatisfactory, Highly Unsatisfactory\. Borrower Performance: The extent to which the borrower (including the government and implementing agency or agencies) ensured quality of preparation and implementation, and complied with covenants and agreements, toward the achievement of development outcomes\. The rating has two dimensions: government performance and implementing agency(ies) performance\. Possible ratings for Borrower Performance: Highly Satisfactory, Satisfactory, Moderately Satisfactory, Moderately Unsatisfactory, Unsatisfactory, Highly Unsatisfactory\. Vi Preface This is a Project Performance Assessment Report of the Early Childhood Education Project in the Dominican Republic, financed through IBRD Loan No\. 7144-DO in the amount of US$42\.0 million equivalent and a Government contribution of US$20\.07 million equivalent\. The loan was approved on September 5, 2002, became effective on December 2, 2003 because of the delay in obtaining Congressional approval, and was closed on August 30, 2011, three years after the original closing date\. This report was prepared by Susan Caceres, Senior Education Specialist, IEG\. The findings are largely based on a one-week mission to the Dominican Republic from October 21-26, 2012 conducted by Susan Caceres and Erik Bloom, Senior\. Economist, IEG, as well as on survey data collected by a local researcher, Marie Claire Vasquez Duran, from October 22 to November 12, 2012\. Ms\. Vasquez Duran also mapped the project's civil works to the respective municipalities and gathered enrollment data from the Ministry of Education\. The report was enriched by the contributions of Mr\. Bloom and Ms\. Vasquez Duran\. The mission met with education authorities in the implementing agency, the Ministry of Education, and representatives of nongovernmental organizations\. The mission visited schools and organizations in Santo Domingo, Azua, and San Cristobal, while meetings in Monte Plata were cancelled due to Tropical Storm Sandy\. The list of persons met is in Annex D\. The mission also examined: (a) World Bank project files, (b) project related reporting documents and evaluations, and (c) education studies with data from the government and other development partners, as well as the relevant research literature\. The IEG team gratefully acknowledges the logistical assistance and support of the staff in the Santo Domingo Office of the World Bank and the support from the Ministry personnel, including the Implementing Agency\. Following standard IEG procedures, a copy of the draft report was sent to the relevant government officials and agencies for their review and feedback\. Their comments are presented in Annex E\. vii  Summary In the Dominican Republic there is inequitable access to education between urban and rural areas, at the initial (pre-primary) level (ages zero to six) and at the secondary level (grades 9 to 12)\. The net enrollment rate is similar at the basic level of education (grades 1 to 8) in rural and urban areas (89 percent)\. In contrast, there is a fifteen percentage point difference between the secondary enrollment rate in the urban (50 percent) and rural areas (35 percent)\. In 2004, 51 percent of the poorest five year-olds were enrolled in pre-primary, while the overall rate was 71\.8 percent\. These gaps in enrollment are strongly related to poverty\. Similarly, districts with lower levels of poverty have a higher percentage of children attending private schools at the initial, basic, and secondary level\. Early Childhood Education Project The objective of the $62 million Early Childhood Education Project (2002-2011), as stated in the Project Appraisal Document (p\. 2), was to "increase access to early childhood development services for all children ages zero to five, as measured by pre-primary enrollment rates and the expansion of nonformal services provided by communities and agencies, and to strengthen the quality of early childhood education that is available to children ages zero to five\." While similar, the objective noted in the Loan Agreement (p\. 18), also emphasized focusing on educational services for the poor, stating, "to increase the access to, and strengthen the quality of, Early Childhood Education in the Borrower' s territory with a particular focus on the poor\." The activities to attain the objective of increasing access to early childhood development included constructing new classrooms/Centers, conducting information campaigns, educating parents, and providing grants to innovative projects\. Several complementary activities were conducted to improve the quality of early childhood development services, particularly related to pre-primary education for five year-olds, including: establishing Education Resource Centers; providing training to teachers, district and regional coordinators, and principals; offering a standard set of pedagogical supplies and materials in every classroom; renovating 409 existing pre-primary classrooms; and improving cross-sectoral coordination\. The relevance of the objectives is high given that the Government's development strategy stressed early childhood development as part of the long-term strategy to alleviate poverty\. The Bank's current Country Partnership Strategy (2010-2013) emphasizes access to better quality education at all levels and promotes increasing early childhood development enrollment of the poorest children\. The Ministry updated its pedagogical model during the project\. Teacher training was provided to 3,931 teachers, fostered implementation of the pedagogical model, and changed teaching practices in terms of schedules and use of time and space\. Every pre-primary classroom received the standard supplies\. The pedagogical groups and the monitoring by district and regional coordinators supported the consistent application of the model\. There was a reduction in the repetition rate by three percentage points at grade three for those children who attended pre-primary, compared to the rate for the total population in grade three\. There was a reduction in the repetition rate by five percentage points at grade four for ix children who attended pre-primary, compared to the rate for the total population in grade four\. While the project created 19,500 new spaces for pre-primary students, there was a modest increase in enrollment and an underutilization of classrooms in Model Centers\. The project outcome rating is moderately satisfactory, based upon high relevance of the objectives, substantial relevance of design, substantial achievement in improving the quality of early child education, but modest achievement of greater access\. Efficiency was also modest\. The risk to development outcome is moderate, given that the government has a strong commitment to universalizing pre-primary education\. The performance of the Bank is rated moderately unsatisfactory at entry, moderately satisfactory during supervision, and moderately satisfactory overall\. There were strong efforts during supervision to counteract weaknesses at entry, but there could have been better coordination between the Bank's technical and procurement staff\. The borrower's performance is rated moderately satisfactory\. The Government remained committed to the early childhood subsector, but there was frequent turnover in staff, which negatively impacted implementation and slowed the pace of disbursements\. Both Government and implementing agency performance were moderately satisfactory\. Lessons Based on the experience of this project, several lessons can be drawn: * Lack of attention to country context in project design can lead to considerable delays and inefficiencies\. In the case of this project, there was a long delay in project effectiveness (15 months) linked to the need for legislative approval of the loan, followed by extensive delays in implementation tied to low procurement capacity and frequent turnover of staff linked to the political cycle\. There was no specific action taken to mitigate the well-known risks from the political system with respect to delays and turnover\. The solutions proposed by the Capacity Assessment conducted at appraisal were inadequate to mitigate the well known shortfall in procurement capacity, particularly in light of frequent staff turnover\. * Greater proximity to pre-primary education is necessary but not sufficient for poor parents to enroll their children\. The project built new pre-primary classrooms in areas with large numbers of poor parents and launched a communications campaign - though it is unclear whether the latter targeted the poor\. It also introduced quality improvements in public pre-school education\. Yet, even though fewer classrooms were built than planned, there was under-enrollment of 5-year-olds in the new capacity\. This suggests that there remain significant constraints to poor parents for the enrollment of their 5-year olds in pre-primary education\. Informants noted that the fact that public pre-school is only half a day may be a factor: private schools provide all day programming either through a full day at school or combined with after school care, which is more convenient for working parents\. This points to the importance of a good understanding of the most critical constraints affecting pre- primary enrollment\. x * In the absence of strong selection criteria and explicit mechanisms for evaluating new approaches, learning from innovation funds will be limited\. As designed and implemented, the Grant Fund was not a vehicle for innovation, learning, or sustained access\. Without strong monitoring and evaluation, there was no way to identify projects worthy of replication and scaling-up, as well as to learn from the Fund\. * Providing teachers with training, the necessary classroom supplies, and ongoing support from pedagogical groups, coupled with monitoring the implementation of the pedagogical model can improve quality in pre-primary classrooms\. In this project, pre-primary teachers were provided with classroom supplies, a new curriculum, and peer-to-peer learning from pedagogical groups, as well as follow-up support\. Some teachers observed classrooms in Model Centers\. Coordinators and pedagogical leaders visited teachers' classrooms to monitor quality\. This resulted in teachers using the supplies and applying what they learned from the professional development in their classrooms\. Caroline Heider Director-General Evaluation Xi  1\. Background and Context 1\.1 This report assesses the Dominican Republic Early Childhood Development Project, which was approved on September 5, 2002, and became effective on December 2, 2003 because of the delay in obtaining Congressional approval\. The project was financed by an International Bank Reconstruction and Development (IBRD) loan of US$40\.2 million equivalent, with a government contribution estimated at US$20\.07 million equivalent\. This project was selected for assessment because it was a free-standing early childhood education project, which was recently completed\. This is the first assessment that IEG has done of an early childhood education project\. Socio-Economic Context of Dominican Republic 1\.2 The Dominican Republic is a middle income country that has been able to maintain a good economic trajectory in recent years\. There was an economic downturn in 2003 and 2004, which was overcome by 2005 (Table 1\.)\. Direct investment declined in 2003 and 2004 during the economic downturn, and increased in subsequent years\. Gross Domestic Product has grown at high annual rates in recent years, among the highest in Latin America, although it slowed during the global crisis of 2008 and 2009\. In recent years inflation rates have been low, and lower than most Latin America and the Caribbean Region countries\. Unemployment did not rise during the 2008 downturn, and has remained steady around five and six percent during this time period\. Remittances as a percentage of Gross Domestic Product ranged from a high of 11\.4 percent in 2004 to a low of 6\.5 percent in 2010 (World Development Indicators 2012)\. Table 1\. Dominican Republic, Selected Economic Variables Net Direct Investment (US$ Year GDP (%) Inflation (%) mlin million) 2002 4\.2 10\.5 2,156 2003 -1\.8 42\.7 613 2004 -0\.2 28\.7 909 2005 7\.7 7\.4 1,123 2006 9\.1 5\.0 1,085 2007 6\.9 8\.9 1,667 2008 3\.8 4\.5 2,870 2009 2\.1 5\.8 2,165 2010 7\.5 6\.2 1,626 Source: World Development Indicators 1\.3 The rapid economic growth has implications for poverty reduction\. Growth, aggregate demand resulting from remittances, and low rates of inflation have contributed to modest reductions in the poverty rate (Acosta 2007), from 47 percent in 2002 to 41 percent in 2009 (Table 2)\. However, a reduction in the poverty rate of only six percentage points, in the face of rapid economic growth, is low compared to recent Latin America standards, which may be explained by growing inequality\. The Dominican Republic has a high concentration of income and a Gini coefficient that is one of the largest in the region, increasing from 0\.537 1 in 2002 to 0\.574 in 2009, while it decreased in all other countries in the region except in Guatemala and Costa Rica\. Table 2\. The Poverty Rate in the Dominican Republic (percent) Year Total Urban Rural 2002 47\.1 42\.4 55\.9 2008 44\.3 42\.0 49\.5 2009 41\.1 39\.3 44\.7 Source: ECLAC (20 10) 1\.4 Poverty is more concentrated in rural areas, as well as in provinces such as Elias Pina, Bahoruco, San Juan, Independencia, Monte Plata, and El Seibo\. The poverty rate in these provinces is more than 70 percent of poor households (Focalizacion de Pobreza 2005)\. However, rural poverty is less pronounced in the touristic areas of Puerto Plata, La Romana, and Samana\. Poverty is much deeper in the areas near Haiti, where the majority of these populations fall far below poverty thresholds\. Localities near the Haitian border have lower human capital, poorer infrastructure, and are more prone to risks from natural disasters (World Bank 2006)\. In contrast, provinces at or near the large population areas of Santo Domingo and Santiago have the lowest percentage of poor households (19 and 27 percent) (Focalizacion de Pobreza 2005)\. Education in the Dominican Republic 1\.5 The education system in the Dominican Republic is comprised of four levels: Initial, Basic, Secondary, and Tertiary education\. Initial relates to services for children age zero through six years\. Within this level, pre-primary educational services provided to five year- old children in preparation for their entrance into the first cycle of basic education is compulsory\. Early childhood education includes non-mandatory services for three and four year-olds of which there is no public provision\. Basic education includes the first cycle (grades one to four) and second cycle (grades five to eight)\. Secondary education also has two cycles: general (grades nine and ten), which is compulsory, and specialized (grades eleven and twelve)\. Expenditures per student for public education vary considerably for each level as shown in Table 3\. Reports have not analyzed the spending, but one explanation for the higher per pupil spending at the initial, technical, and tertiary levels could be the lower teacher-student ratios and/or the use of specialized equipment\. Table 3\. Spending on Public Education per student for each Level (US$) Initial Basic Secondary Technical Tertiary Amountpe567 474 376 1,072 876 student (US$) Source: Programa de Promocion de la Reforma Educativa en America Latina y el Caribe [PREAL 2010] 1\.6 There is inequitable access to education between urban and rural areas\. The net enrollment rate is similar at the basic level of education in rural and urban areas (89 percent), but there is a fifteen percentage point difference between the secondary enrollment rate in the urban (50 percent) and rural areas (35 percent) (Programa de Promocion de la Reforma Educativa en America Latina y el Caribe [PREAL] 2010)\. The rural secondary enrollment 2 rate is one of the lowest in the Latin American and Caribbean region\. The gap in enrollment and attainment is strongly related to poverty\. In 2007 the number of years of schooling completed by the population of 15-24 year-olds is much lower in rural areas (8\.7 years) than urban areas (10\.2 years), although there are no gender differences in the amount of schooling completed (PREAL 2010)\. 1\.7 The supply of private schools at the initial, primary, and secondary levels varies by district wealth\. The percentage of students at all levels attending private schools in districts ranges from 2 percent in Bahoruco to 42 percent in Santo Domingo' (Ministry of Education, 2010)\. The municipalities with more than 20 percent private school enrollment are San Cristobal, San Pedro de Marcoris, Santiago, Santo Domingo, Puerto Plata, and Higuey, which are areas with lower rates of poverty\. Barhouco, Monte Plata, Monte Cristi, and San Juan de la Maguana, which are areas with higher poverty rates, have five percent or fewer students attending private schools at all levels\. Only middle and upper-income families can afford private education; however, attendance at private schools may also be facilitated by the inflow of remittances\. It has been suggested that as the wealthy have exited public schools, this has lessened the incentives for this group to demand better quality public education at the initial, basic, and secondary levels (Di John 2007)\. The poor who attend public school have fewer means to pressure the Government to improve public education\. This has created a reason for upper-income families to demand more funding be devoted to higher education, which their sons and daughters attend, and less reason to for them to pressure the government to reform the public education system (Di John 2007)\. 1\.8 The government spends approximately 2\.4 percent of its Gross Domestic Product on education, which is lower than the Latin American average (PREAL 2010)\. The largest percentages of government expenditures are directed to primary and tertiary, with smaller amounts destined for initial education (WDI)\. However, according to the government, it has allocated four percent of gross domestic product towards education this year\. Early Childhood Education in the Dominican Republic 1\.9 A 1990 law (Ley General de Educacion, No 66-97) made the final year of initial education, pre-primary, mandatory for five year-olds\. The law has been gradually implemented and enrollment has not become universal, despite being compulsory\. According to project records, in 2004, 51 percent of the poorest five year-olds were enrolled, while the 2 overall enrollment rate for 5-year-olds was 71\.8 percent\. 1\.10 The resources devoted to initial education are low, particularly when compared to other middle income countries in the Latin American region (PREAL 2010)\. The Dominican Republic has the second lowest enrollment rate for early childhood education (i\.e\. 3-5 year- olds) in the Latin American region, which is more than 30 percentage points behind the regional average (PREAL 2010)\. Enrollment in initial education increased from 35 percent in 2002 to nearly 40 percent in 2007 (PREAL 2010), which was mainly the result of the private 1 District 15 in Santo Domingo has 42 percent, while District 10 in Santo Domingo has 38 percent\. 2 Ministry data show a lower overall rate (68\.8 percent)\. 3 sector\. During this time, there was an additional 21,000 students in the private sector, while the growth from the public sector was only 8,000 students (PREAL 2010)\. 1\.11 Public schools operate two shifts for pre-primary, as well as the other education levels\. In contrast, private schools run a full-day program, or a half day combined with child care, which makes it convenient for working parents who do not need to drop-off and pick up their children during working hours\. Private schools also offer programs for children as young as three years old, while the public pre-primary classes are for five year-olds\. 1\.12 The low spending and limited access to initial education are seen as contributing to weaknesses within basic education\. Students from poor families enter first grade lacking the requisite readiness skills, since few of them are provided services to stimulate development\. As a result, many students often repeat or drop out, with only 80 percent of students completing basic education\. The low repetition rate (5\.6 percent) for basic education is largely related to the automatic promotion policies in first and second grade\. As a result, these rates are kept low, but then rise sharply in third grade to 12\.3 percent, when the automatic promotion policy is no longer applicable\. Early Childhood Education: International Evidence 1\.13 Early childhood development (ECD) or early childhood care and education refer to the learning and development of the whole child from zero to eight years of age, according to the World Health Organization\. This is the time of greatest opportunity, since interventions directly shape young children's future and they are most able to benefit from them\. Early childhood development outcomes are measured in the cognitive, language, social, emotional, and physical areas\. At the pre-primary level (five year-olds), this implies skills such as learning letters, basic mathematics, language, and social skills; children three and four years old are expected to listen and move to music, develop language, share, and draw\. Infants (one and two year-olds) should explore and interact with the environment safely with caring adults\. 1\.14 The outcomes for young children depend on the influences of the family, early health, nutrition, and care, educational settings, as well as the community\. Poverty, socio-cultural factors and psychosocial and biological risk factors all work together to influence child development and subsequent long-term adult productivity (Walker and others 2007)\. Figure 1 depicts a comprehensive model of early child development showing the multiple factors that affect a child's development, which itself is composed of age-appropriate goals relating to physical health, socio-emotional, language, and intellectual development\. 4 Figure 1\. Model of Early Childhood Development Family Well-Being *Socioeconomic Stalus Health and *Demographics Nutriton - Family Functoning Programs *Parental HeaHh [i Physical Health [iSocial and Emolional Development suppo[sLangu nd Intelledual Develo 14i ~~Communityl NeighborEhood j aqaeadItleta eeomr *Malerial Resources Child Care *Cultural Resources and *-Salely EducationI Source: Author adopted from Child Trends, Inc\. 2006 1\.15 Early childhood education is an effective investment in human capital\. Early childhood services devoted to education, health, and nutrition affect future education attainment and labor market outcomes (Smith 2009; Cunha and Heckman 2009)\. Low weight at birth and poor health during childhood, which can be prevented by adequate prenatal care and early childhood interventions, lead to future poor health during adulthood and low occupational status (Case and Paxson 2006)\. Children in the United States who participated in good quality pre-school programs had higher annual earnings and higher levels of employment at age 40, than those who did not attend pre-school (Schweinhart 2007)\. There is empirical evidence on the detrimental effect that vitamin and iron deficiencies during childhood have on subsequent cognitive ability and school desertion (Politt 1997; 2001)\. It has been estimated that the elimination of malnutrition in Sub-Saharan Africa would lead to increasing its annual growth rate between 0\.34 and 4\.63 percentage points (Arcand 2001)\. In low-income and middle-income countries high quality early childhood interventions have the greatest impact with disadvantaged children (Engle et al 2011)\. Integrated early childhood development programs may be one of the most effective interventions for helping poor children, families, and communities, and nations break the intergenerational cycle of poverty (Young 1996)\. 1\.16 There are other benefits to good quality early childhood programs\. Programs targeted to the poor or disadvantaged can help address inequalities\. Long-term studies of pre-schools in the United States demonstrate that children who attended these programs (in comparison to those who did not attend) were better prepared for school, demonstrated better commitment to school at age 14, and had higher graduation rates from high school 5 (Schweinhart 2007)\. In developing countries3 pre-school participation contributed to an increase in lifetime earnings by five to ten percent, not controlling for measurement error (Engle and others 2007)\. Belfied and others (2000) computed the benefits of the Perry Pre- school Program in the United States to be $150,000 (in 2000 dollars) per child through age 40, as a result of crime reduction\. Donahue and Siegelman (1998) have estimated that early childhood development programs could pay for themselves through reduced crime rates alone\. Increasing the pre-school enrollment rate in every low-income and middle-income country to 25 to 50 percent was estimated to have a benefit-to-cost ratio ranging from 6\.4 to 17\.6 (Engle and others 2011)\. 2\. Objectives, Design, and Their Relevance Objectives 2\.1 The objective of the Early Childhood Education Project, as stated in the Project Appraisal Document (p\. 2), was to "increase access to early childhood development services for all children ages zero to five, as measured by pre-primary enrollment rates and the expansion of nonformal services provided by communities and agencies, and to strengthen the quality of early childhood education that is available to children ages zero to five"\. The objective noted in the Loan Agreement (p\. 18), while similar, also emphasized focusing on the poor and the educational services, stating, "to increase the access to, and strengthen the quality of, Early Childhood Education in the Borrower's territory with a particular focus on the poor"\. Given the substantive difference in these two versions of the objectives, this report will assess the project against the objective in the legal agreement, as they are legally binding\. Relevance of the Objectives 2\.2 The relevance of project objectives is rated high\. At the time of appraisal, only 80 percent of children completed basic education (grades 1-6), and lack of access to early childhood education was viewed as a major contributor to this low rate\. The government promoted early childhood education services as a long-term strategy to reduce poverty in its Strategic Development Plan (Plan Estrategicio de Desarrollo de la Educacion Dominicana, 2010), since low educational attainment among the poor is one of the main obstacles to reduce poverty in the Dominican Republic\. Attending pre-school has the potential to increase a child's earning capacity and income as an adult (World Bank 2002)\. The Government's most recent education plan (2008-2018) also emphasized increasing the coverage in early childhood education to improve education quality, as well as revising the curriculum to make it more relevant, increasing the resources devoted to education, and increasing civil society participation (PREAL 2010)\. ' Based on longitudinal data of 1471 Guatemalan adults and 152 Brazilian males, which included standardized assessments of preschool development and schooling attainment, as well as controls for maternal schooling, parental income and socio-economic status\. 6 2\.3 Given the low enrollment rate among the poor, the project's objective focused upon access to quality early childhood education for the poor\. Both enrollment and quality were emphasized, since effective early childhood services have been shown to prepare students for school and are related to long-term outcomes and benefits to society such as: reduced repetition in school, increased cognitive achievement, higher likelihood of completing additional years of schooling, and decreased criminal behavior (Montie and others 2005)\. 2\.4 The objective was consistent with the current Country Partnership Strategy (2010- 2013) which emphasized access to better quality education at all levels and promoted increasing ECD enrollment of the poorest children (p\. 15)\. While the Government's priority was five year-old children in pre-primary education, it was interested in increasing early childhood development to those under five years old\. Thus, the objective was highly relevant to the Bank and Government's strategies during appraisal and continued to be until project closure\. Design COMPONENTS 2\.5 The project contained four components (Table 4)\. The first component was to expand pre-primary education enrollment by establishing 18 Regional Model Centers and creating new classrooms to serve five year-olds, with a focus on poor children\. However, the appraisal document did not explain how underserved areas would be selected nor specify a strategy to ensure the poorest children were reached\. During appraisal these activities were estimated to provide 40,000 new spaces to educate five year-olds\. 2\.6 The second component was aimed at improving the quality of pre-primary education\. Quality was enhanced through teacher professional development, implementation of curriculum, establishment of regional resources centers in the Model Center, provision of education materials, and upgrading the lighting, ventilation, and sanitary facilities in existing classrooms (e\.g\. improving classrooms already in use)\. There were activities to increase public awareness of the importance of early childhood education and educate parents and caregivers in how to promote curiosity and learning\. The Ministry of Education was to decentralize teacher training through the Regional Model Centers\. Training was to be based on observation, reflection, demonstration, and discussion, which comprise the principles of adult learning (Garet and others 2001)\. These Centers were also meant to serve as laboratories for learning in modeling correct implementation of curriculum and instructional practices\. Peer learning groups, which were called pedagogical groups, were formed to ensure continuity across the region through periodic observation of area classrooms\. Administrative staff were also to be involved in the training, to ensure their development as instructional leaders in pre-primary education\. Educational Resource Centers in each Regional Model Center also provided didactic materials and technology for teachers to borrow and use in their classrooms\. Parent committees were strengthened to involve parents in the schools and Centers and advise school personnel on regional early childhood needs\. 2\.7 The third component promoted greater collaboration between the education sector and non-governmental organizations (NGOs), municipal governments, and the private sector 7 in relation to early childhood development\. A grant program was established to fund projects to benefit children ages zero to five living in poor communities, as well as indirect beneficiaries, such as parents and caregivers, teachers, or public health promoters\. Grants were awarded to NGOs, associations, community organizations, private sector, and municipal governments\. The aim of the Grant was to identify and support community-based integrated early childhood development models that could be replicated on a larger scale (World Bank 2002)\. An independent Board, comprising public and private institutions, evaluated and selected proposals for funding\. The criteria for funding projects were based on the institutional capacity of the organization, as well as technical and financial feasibility of the proposal\. This was designed to promote local solutions to the shortage of early childhood services\. Table 4\. Activities within each Component and Planned Costs Component 1: Expanding Component 2: Increasing Component 3: Institutional Component 4: Project Pre-primary Education ECD Education Quality Strengthening in Administration and Services (US$25\.19 million (US$20\.30 million Education Sector (US$7\.44 Monitoring (US$2\.42 equivalent) equivalent) million equivalent) million equivalent) la\. 18 Regional Model 2a\. Professional 3a\. Studies, workshops, and 4a\. Project Coordination Centers for pre-primary development activities to seminars to build cross- Unit education to provide benefit 50 percent of pre- sectoral coordination and additional coverage for more primary teachers\. cooperation among than 4,000 children annually\. providers of ECD services\. lb\. Builds 600 new pre- 2b\. Implement pre-primary 3b\. Innovative projects, 4b\. Project monitoring and primary classrooms to benefit curriculum in Regional targeting educational evaluation activities, 36, 000 children,a with a Model Centers and pre- quality, health, or other including an impact focus on rural areas and the primary teachers involved in social services to benefit evaluation\. most needy children\. pedagogical groups\. children ages 0-5 in poor communities\. 2c\. Education Resource Center in each Regional Model Center\. 2d\. Equip every pre-primary classroom with materials to implement curriculum\. 2e\. Renovate 600 existing pre-primary classrooms\. 2f\. Media campaigns to educate parents and strengthens parent committees\. a\. This is based on 600 new classrooms serving 30 children per classroom with double shifts\. Source: World Bank 2002 2\.8 The fourth component supported the project administration and monitoring\. This provided resources not only to the ongoing project management and monitoring through the implementation unit, but also to evaluation activities\. 2\.9 None of the components were revised during the project\. 8 IMPLEMENTATION ARRANGEMENTS 2\.10 The Ministry of Education was the implementing entity with a Project Coordination Unit (Office of International Cooperation) within the Ministry\. The Unit oversaw all activities under the project, with the assistance of five Technical Coordinators for the areas of: Education, Educational Infrastructure, Monitoring and Evaluation, Administration and Finance, and the Grant Program\. Within the Office of International Cooperation, there were units in charge of procurement and finance\. A Board was established to oversee the Grant Program\. MONITORING AND EVALUATION DESIGN 2\.11 The evaluation unit with the Office of International Cooperation was responsible for M&E activities\. 2\.12 The original M&E system was designed to track outcomes and outputs related to improvement in access and quality for pre-primary (five year-olds)\. One measure (i\.e\., decreasing the percentage of time during which children in pre-primary classrooms were not actively engaged) was not clear and difficult to measure\. The target established for the overall increase in the pre-primary enrollment (86 percent) was appropriate, given the baseline and the number of spaces that the new classrooms would provide\. However, the same target (86 percent) was set for increasing the enrollment rate of the poorest five year- olds, which was unrealistic given the trajectory from its baseline (51 percent)\. 2\.13 With respect to improving the access and quality to early childhood development for 0-4 year-olds, the M&E design was inadequate\. There were no outcome measures to show if the activities to educate parents were effective\. There was no tracking of the activities of the projects awarded grants by the Grant Fund to ensure alignment with the development objective, and there were no outcome measures to determine if the Fund resulted in improved access and quality to nonformal early childhood services\. There would also be no way to identify projects worthy of replication or scaling-up, which was its intent\. The output measures of the Grant Fund simply tracked the number of grants awarded and beneficiaries, without monitoring geographical dispersion to ensure that the poor in rural communities were appropriately targeted\. Relevance of Design 2\.14 The relevance of project design is substantial\. Consistent with the government's priorities, there was a comprehensive design to improve pre-primary education through classroom/Center construction, classroom materials, teacher training, and strengthening parent committees\. The activities were adequate to achieve the objectives of improving access and quality to early childhood education for 0-5 year-olds\. However, the design did not specify a strategy for targeting and reaching poor children\. As well, design did not consider other approaches outside of construction to increase access 2\.15 The design included activities to benefit both public and private providers\. The project design did not focus entirely on the public sector, and included private sector and 9 non-governmental organizations, because the government would not have sufficient resources to provide early childhood services for all children birth to five\. Moreover, the private sector was already playing a large role in the delivery of pre-primary education, since 91\.5 percent of private schools offering basic education also provided pre-primary services, while only 40\.4 percent of public schools had pre-primary services (World Bank 2002)\. Private sector and local community participation were also consistent with the Government's efforts\. 2\.16 The design focused on the education sector and education services to impact child development\. This seems reasonable, given the government's focus on pre-primary education and on the existing services provided in public elementary schools such as health services and daily snack with milk\. A multi-sectoral approach was employed in the design through the Mesa Consultiva, a roundtable group composed of high-level stakeholders\. This group met annually to build greater cooperation among providers, bring attention to the sub-sector, and increase collaboration within this cross-sectoral group\. Moreover, innovative projects targeting education quality, health, or other social services to benefit children from birth to five years old living in poor communities were part of the design through the Grant Fund\. Activities to educate and influence the behaviors of parents were also included, which was important given the large role parents play in their child's development\. As well, the Ministry's assessment pointed to lack of parental awareness of the benefits of pre-primary education as the primary obstacle to services (World Bank 2002)\. Thus, the combination of inputs was appropriate to achieve the objective\. 2\.17 Overall, the Results Framework (described schematically in the Table 5) was adequate to achieve the objectives of improving access and quality of pre-primary education, but had shortcomings with respect to measuring improvements in the objective for those under five years and contained poorly defined measures\. Project activities in relation to pre- primary education had a clear mapping to the objective and outcome measures\. Outcome measures were lacking for institutional strengthening, grant program, family education initiatives, and parent committees, thus not permitting obtaining an understanding of their effectiveness or impact, as well as whether project activities resulted in expansion of nonformal services for those under five years old\. Table 5\. Project Results Chain Access Quality Outcomes * Increase the pre-primary enrollment rate of poorest 9 Increased socio-emotional and language five year-olds from 51% to 86%\.a development of children, as measured by the * Increase net pre-primary enrollment rate from 71% Early Years Evaluation (EYE) instrument\. to 86%\.b * Achieve significant difference in grade repetition and dropout rates in grades three and four for children that attended Regional Model Centers, as compared to those rates for the total population in grades three and four\. Intermediate * Decrease the percentage of time during which Outcomes children in pre-primary classrooms are not actively engaged, by five percentage points\.c * Pedagogical model in use in 100% of Regional 10 Access Quality Model Centers and 50% of all pre-primary classrooms\. Outputs * Carry out 200 initiatives involving cross-sectoral 9 Fully equipped and operational Educational and public-private collaboration in the provision of Resource Center\. early childhood services, benefitting 20,000 directly 9 All pre-primary classrooms in the country and 80,000 indirectly and benefitting 80% of the possess a minimum amount of classroom municipalities classified as poor or extremely materials\. poor\.d All Regional Model Centers and 50% of pre- * 36,000 new spaces created from construction of primary classrooms will have a functioning 600 classrooms and construction of 17 Regional committee or association\. Model Centers\.e 9 1,700 teachers (all teachers in Regional Model * 36,000 improved spaces from rehabilitating 425 Centers and 50% of pre-primary classrooms) existing classrooms and 18 classrooms in regional receive professional development\. model centers\.f 9 Activities to strengthen parent committee and 5 activities to enhance cross-sectoral collaboration\. parent education campaign\. a\. The target was lowered to 69% b\. This indicator was dropped because of difficulty attributing it to project activities\. c\. This indicator was dropped, since it was poorly defined and difficult to measure and replaced with another\. d\. The targets on this indicator were revised to only track the number of direct (50,000) beneficiaries and indirect beneficiaries (100,000) and not number of projects\. e\. Due to increased construction cost, this target was lowered to 18,600\. f\. This target was revised downward (26,580) due to increased construction cost\. Source: Derived by author from the Project Appraisal Document and ISRs 3\. Implementation 3\.1 The project was approved on September 5, 2002 and became effective 15 months later, on December 2, 2003\. The delay was the result of the time it took to obtain approval from the Lower Chamber of the Legislature\. This delay has been observed in other Bank loans in the Dominican Republic, and was not due to project issues\. Given the lengthy delay, some preparatory activities were begun earlier, which demonstrated the high level of commitment from the Ministry of Education given to this project\. For example, two pilot pre- primary teacher Centers were established in 2003\. Table 6\. Appraisal and Actual Cost of the Project by Component ( million) Appraisal Actual Actual as a Percent of the Cooue n bEstimate Cost Appraisal Cost Expanding pre-primary education 25\.19 23\.31 92\.1 services Increasing early childhood 20\.32 27\.20 133\.8 quality Institutional strengthening 7\.44 6\.72 90\.3 Project management and 2\.42 4\.42 182 monitoring Contingencies 6\.21 Total Project Cost 62\.00a 62\.07 a Includes a front-end fee ofw$ 6\.42\. Source: World Bank 2002, 2012\. Tabe \. ppaisl ndAcua Cot f heProec b C mpnen ( mllon 3\.2 Throughout most of implementation, the project was rated moderately satisfactory or satisfactory for implementation progress in the Implementation Status Reports\. The exceptions were the reports in 2004 due to the lack of stable project management personnel and the lack of counterpart funds and so the rating was unsatisfactory, and one report on December 20, 2009 downgraded the project to moderately unsatisfactory at the recommendation of the region-wide portfolio review\. Ratings for progress on the development objective were satisfactory across the life of the project, with ratings of moderately satisfactory in some of the reports in 2009 and 2011\. Implementation Experience 3\.3 Disbursements were slower than expected throughout the project, which were related to procurement problems and personnel changes within the Project Coordinating Unit\. These changes mainly coincided with the changes in Governments and Ministers\. 3\.4 Project objectives remained the same throughout, but during the first year of the project the Government emphasized that its priority was universalizing the enrollment of five year-olds and attaining this goal by 2008\. The Government initiated its own parallel civil works projects to increase the access and enrollment of five year-olds\. The number of additional classrooms created outside the project could not be confirmed\. The Government on its own also created campaigns to stress the importance of pre-primary education\. The World Bank was the only donor involved in nonformal early childhood development\. Although the Inter-American Development Bank (IDB) was also involved in pre-primary education, there was no coordination with the IDB in this project, since the IDB did not have a project addressing early childhood development during this time (World Bank 2002)\. 3\.5 Government counterpart funding, expected to be RD$40 million, was constrained during the first year of the project but in the context of tight macroeconomic constraints on public spending due to the economic downturn, only RD$ 16 million was allocated within the 2004 national budget\. This constrained implementation and disbursements for the first year, since this amount was less than half of what was needed to complete the planned annual activities\. In subsequent years, adequate counterpart funding was provided, demonstrating the strong commitment by the Government to the early childhood education sub-sector\. 3\.6 Another factor negatively impacting implementation was personnel changes at all levels of the project\. There were three different Governments\. Each election brought a new Minister and changes in key project personnel, as well as Ministry staff\. For example, from the start of the project until the mid-term review in 2008, the Coordinator of the Implementation Unit changed three times, the Project Coordinator (Director of ECD in the Ministry) changed three times, and the Procurement Officer changed four times\. The Minister of Education changed four times\. The resulting firing of personnel negatively impacted the project, since the replacements needed training or initiated new procedures or processes\. Time was needed during staffing transitions to get back to existing levels of capacity\. The effects of the rotation of staff were directly evident upon project disbursements, as measured by their slow pace\. 12 3\.7 Because giving pubic money from the Grant Fund to private organizations was a controversial topic, a Board with multiple high-level stakeholders oversaw the Fund, instead of the implementing agency or Ministry\. This enhanced its transparency\. The Board took the selection of projects seriously, since only 60 projects were funded out of 230 submitted proposals (Grupo Gestion Moderna 2011)\. 3\.8 Between August 23-31, 2005 there was a tropical storm in the Bahamas, which subsequently turned into Hurricane Katrina in the Gulf Coast of the United States\. While the Dominican Republic was not in the direct path of Katrina, there were significant impacts of this storm on the civil works activities of the project, since materials from the United States were not exported outside due to the Gulf Coast rebuilding\. This resulted in a significant rise in the cost of materials\. The unit cost of constructing a new classroom increased from the appraisal estimate of US$20,000 to $45,000 and rehabilitating a classroom rose from $5,500 to $12,000 (Secretaria de Estado de Educacion 2007)\. Additional financing to achieve PAD targets was needed, which was not possible for the Government\. Thus, these higher per-unit costs lowered the number of classrooms built and rehabilitated\. 3\.9 There were two activities not originally envisioned that were implemented by the project\. The Ministry implemented a pilot program on Information Communication Technology (ICT) that it established ICT Corners in selected pre-primary classrooms to promote technology use at this level\. Teachers were trained in the technology (computer and software) and in using it for learning activities\. The pilot was designed to see if this technology could be integrated into the pedagogical model and to determine its impact in education quality\. The other activity was the inclusion of first and second grade teachers with the pre-primary teachers in the professional development activities\. This served the purpose of familiarizing primary teachers of the pre-primary methodology so that they could incorporate these techniques in their classroom\. 3\.10 The mid-term review occurred in June 2007, at which time about 18 percent of the project had disbursed (Secretaria de Estado de Educacion 2007)\. Given the low disbursements and the procurement delays, it was suggested to add personnel to the Implementing Agency and strengthen its coordination with the technical unit with the Ministry of Education\. Given the price escalation in materials, a plan was developed to reduce the number of classrooms constructed\. Strategies to promote sustainability of the Grant Fund and Mesa Consultiva were also discussed\. 3\.11 The project closed three years later than originally planned\. There were three extensions\. The reasons for the first two were the slow pace of disbursements due to procurement difficulties and the longer than expected time period for firms to complete construction activities \. The final extension was needed because construction began later and went into the rainy seasons, and because new awards were halted by the new Procurement Committee until its review was completed\. Safeguards 3\.12 The project was classified category B for Environmental Assessment (Operational Policy 4\.01)\. During preparation a social and environment assessment was carried out\. A 13 Bank consultant monitored compliance with the environmental safeguard during construction\. New classrooms were placed in existing school sites and no new land was needed\. As well, school principals monitored construction activities to ensure student safety\. The project adhered to Bank environmental guidelines\. Satisfactory ratings for compliance were noted in each implementation report\. Fiduciary 3\.13 Financial Management was rated satisfactory or moderately satisfactory throughout the project in Implementation Status Reports\. The implementing agency performed according to Bank financial guidelines and had acceptable financial management arrangements\. During the first two years, there were delays in processing the Bank's disbursements from the Central Bank to the Project Coordination Unit\. The competency and skill of staff varied because they were reallocated and at times was replaced with less experienced staff\. The implementing agency failed to update the counterpart funding between 2008 and 2011, which was remedied in the last months of the project, allowing for all funds to be spent\. 3\.14 Procurement management was weak throughout the project\. There were slow bidding and contracting processes, which were the main reasons for project extensions\. From 2009 through 2011, procurement was rated moderately unsatisfactory\. Ratings in the prior years were either moderately satisfactory or satisfactory\. Shortcomings were due to a turnover of committee members and significant delays with internal approval processes, which led to delays in awarding and signing contracts, as well as a general lack of willingness to effect the changes necessary to make the procurement process more efficient\. 3\.15 Bank actions contributed to delay in the procurement process\. Project records indicated that during the early phase of the project the Bank did not respond within the two- week time period to "no objection" certification\. This issue was eventually resolved\. However, a larger issue occurred when the Bank required the Borrower to rebid a solicitation which it had already evaluated\. When the Bank's procurement staff reviewed the government's request, the staff found that the Borrower had limited the number of contracts that firms could be awarded, which did not comply with the Bank's international competitive bidding procedures\. The Borrower did this because the Bank issued the no objection to a document, where it had inserted the clause to limit the number of contracts each firm could be awarded, after it had a discussion with the Task Team Leader (TTL) and consultant\. However, the Bank's procurement staff did not participate in this discussion with the Borrower\. The Borrower did not alert the Bank's procurement staff of the inserted clause, and the procurement staff of the Bank did not fully read the document before giving the no objection\. The rationale for making this change was to address the problem of firms not being able to complete the classrooms on time because of being awarded multiple contracts\. Respondents estimated the Bank's decision resulted in three to nine months of time delay for the Borrower to re-do and re-evaluate the bid\. 3\.16 During the first two years of the project and the final year, the Project Coordination Unit requested an exemption for international competitive bidding of civil works procurement to accelerate implementation\. With the approval of the Bank, the local shopping 14 method4 was used to select contractors\. Contracts were able to be processed more efficiently by the Project Coordination Unit, in comparison to international competitive bidding\. Firms were selected based on their previous experience of timely completion\. 3\.17 Other performance weaknesses were inadequate internal control mechanisms and delays in submitting audit reports for FY2007 and FY2008 because of lack of timeliness in hiring the audit firm\. Audit reports highlighted errors such as co-mingling of Bank and Government contributions and incorrect categorization of Bank disbursements\. All issues were resolved before the end of the project\. Implementation of Monitoring and Evaluation 3\.18 During the course of the project, some changes were made to the design of the M&E\. A poorly defined outcome measure was replaced and two others were modified\. Targets related to civil works were lowered because of the higher cost of materials\. One outcome indicator (i\.e\., enrollment rate of five year-olds) was dropped, because it was not clear if it was also tracking children enrolled in first grade or just those in pre-primary\. The target for one outcome measure - increasing the enrollment rate of the poorest five year-olds - was lowered from 86 percent to 69 percent\. These changes were documented during two separate level two restructurings\. 3\.19 M&E was rated moderately satisfactory or satisfactory throughout the project, except for the first year when it was rated unsatisfactory because of the delay in conducting the Baseline Study\. Even though Bank staff provided support to the evaluation unit (e\.g\. conceptualizing the design and developing the terms of reference), this study took considerable time and was not completed until 2006\. 3\.20 A large number of evaluations was completed\. These included: * Baseline for the Impact Evaluation; * Final Evaluation of Component 1 - Expanding Pre-primary Education Services; * Final Evaluation of Component 2 - Increasing ECD Education Quality; * Final Evaluation of the Grant Program for Inter-Institutional Support; * Evaluation of Implementation of the Information Communication Technology (ICT) Corners; * Evaluation of the Systemization of the Implementation Process for the Project; and Financial Evaluation of the Project to Strengthen Pre-primary Education\. 3\.21 A supply and demand study was conducted during preparation, and two additional supply and demand studies were done during project implementation, one at the beginning of the project and the other when there were discussions about additional financing by the government to meet the PAD classroom targets\. The Baseline Report was completed by consultants of the Bank's Human Development Team, which laid the foundation for an impact evaluation to track improvements in access and quality at the pre-primary level\. Consultants hired by the Office of International Cooperation prepared the final report to 4 The Implementing Agency selected firms, not based on competitive bidding\. 15 assess improvements in quality, but this was not an impact evaluation\.' Project indicators were regularly updated and tracked in the Bank's supervision reports\. 3\.22 The project undertook additional evaluations of each of the project components (Pre- primary Coverage, Pre-primary Quality, Grant Fund), which overcame some of the previously noted shortcomings, since these evaluations provide some information about the results and effectiveness of project activities\. However, it was envisioned that the project would conduct an impact evaluation with a longitudinal cohort design to collect the initial data from a sample of five year-olds attending pre-school and those that did not, and that subsequent data from these two samples would be able to attribute improvements in outcomes to the project (e\.g\. reduced drop-out, reduced repetition, and improved child development)\. 4\. Achievement of the Objectives Increasing Access to Early Childhood Education with a Particular Focus on the Poor 4\.1 The objective of increased access to early childhood education services was modestly achieved\. Activities to attain this objective were the construction of new classrooms/Centers, information campaigns, parent education, and the Grant Fund to provide innovative projects for early childhood development services for those 0-5 years old\. Outputs 4\.2 Communication Campaign\. Multiple activities were conducted to raise parents' awareness to counteract what was assumed to be the main barrier to access and attendance, lack of parental awareness of the importance of enrolling their child in pre-primary (World Bank 2002; Peguero 2011)\. Materials were disseminated by the Ministry about the importance of early childhood education, national policies, and educational options available to families\. Information campaigns were conducted to give knowledge on how parents could improve learning and nurture their children's curiosity, as well as a national radio campaign "Take your five year-old to school"\. The Escuelas de Padres (Parents' School) program was revitalized, which school directors noted was helpful to teach parents about child development, addressing learning obstacles, and getting fathers to become more caring with their children\. These are important activities, since parents are an important vehicle for improving child development\. However, there was no tracking of the number of radio campaigns, their reach, or the number of materials distributed\. Interviewees reported that some parents still did not understand the importance of sending their child to school for pre- primary\. It is not clear how targeted or effective the campaigns were among the poor\. The extent to which other constraints also hindered access is unknown\. The evaluation was not clear on the sample selection criteria, nor the process to assure similarities between the groups, nor method to control for differences to assess the counterfactual\. It did not calculate the double difference between the treatment and comparison group\. 16 4\.3 Classroom Construction\. Because of price escalation, 245 of the planned 600 new classrooms were constructed\. The project's civil works activities created 19,500 new spaces, rather than the planned 36,000\. Observations by the IEG mission showed that classrooms provided good illumination and ventilation, and were furnished to children's size (tables, book shelves, sinks, lockers)\. Data were not available on the existing number of pre-primary classrooms and thus, it is not possible to determine what percentage of total supply these new classrooms represented\. 4\.4 One Center was constructed in each education district, which was expected to create spaces for 4,140 additional students annually\. Construction was completed on all of the Centers\. The Centers provided access for five-year olds, as well as established areas within each district for teachers to observe best practices\. 4\.5 Ministry of Education respondents reported that the criteria to select schools were: poverty; population density; and schools with space to add a new classroom\. Most of the new classrooms were built in the provinces of Santo Domingo (84), San Cristobal (18), Distrito Nacional (17), San Juan de la Maguana (16), and San Pedro de Marcosis/La Romana (14) (See Annex B for distribution of new classrooms in relation to provincial poverty rates)\. All of these areas are near Santo Domingo, the capital, except for San Juan\. 4\.6 New classroom construction was mapped to each respective municipality to see if school sites were concentrated in municipalities with higher poverty\. Municipal poverty rates were examined, since there are large differences in the poverty rate within provinces\. For example, within the poor provinces of San Juan, Bahoruco and Azua, differences in municipal poverty rates reach up to 30 percentage points (World Bank 2006)\. At the municipal level, the five areas that had more classrooms built were Santo Domingo Este (29), Santo Domingo Norte (24), Distrito Nacional (17), San Pedro de Macoris (12), and La Romana (10) - all being areas where poverty is low (see Annex B)\. The correlation coefficient between the number of classrooms built and poverty rate at the municipal level was negative (r = -0\.52), as shown in Figure 2\. In other words, more classrooms were built in municipalities with lower poverty rates\. 4\.7 However, classroom construction was focused in the municipalities with the largest number of poor people\. As Figure 3 shows, there was a positive relation between the number of classrooms built and the number of poor people residing in the municipality\. The mapping exercise was not able to identify whether the classrooms were in the poorest areas of the municipality\. Based on this evidence, the project focused on the poor in relation to civil works activities\. 4\.8 Innovation Fund\. The Fund for Early Childhood Development Innovations was established by the project, which was the main activity to improve access for children under five years old\. 54 organizations received grants and implemented 60 projects (Grupo Gestion Moderna, 2011)\. Grants ranged from RD$1\.9 million (approximately US$48,000) to 8\.3 million (approximately US$212,000), with most being funded around RD$3-4 million\. Table 7 displays the annual planned and actual execution for the Grant Fund, which shows that each year a much lower amount disbursed than was planned\. 17 Figure 2\. Relationship between Number of Classrooms Built and Municipal Poverty Rate The number of classrooms built was 1oo inversely related to the poverty rate\. 80 4 60 40 20 0 I 0 5 10 15 20 25 30 Source: Annex C Figure 3\. Relationship between Number and Classrooms and Number of Poor People \.but directly related to the number of poor people 50000 45000 o 40000 35000 30000 4- 25000 20000 15000 4 10000 5000 0 0 5 10 15 20 25 30 Number of classrooms built per municipality Source: Annex C 18 Table 7\. Grant Fund Amount Planned and Actual Execution (RD) 2004-2010 Year Planned Actual Percentage 2004 2,765,955 1,887,399 68\.3 2005 5,109,138 3,531,985 69\.1 2006 8,336,650 3,440,261 41\.3 2007 11,308,890 7,148,141 63\.2 2008 11,971,139 6,433,881 53\.7 2009 20,451,431 5,370,516 26\.3 2010 13,604,357 7,375,149 54\.2 Source: Grupo Gestion Moderna 2011 4\.9 While projects were implemented in 22 provinces, approximately 42 percent of the funding was awarded for projects in the capital and nearby provinces\. The provinces that received a higher percentage of funding were: Santo Domingo/Districto Nacional (20\.86 percent), San Pedro de Macoris (10\.72 percent), Santiago (10\.34 percent), San Juan Maguana (8\.44 percent), and Monte Plata (7\.79 percent) (Grupo Gestion Moderna, 2011)\. The IEG Mission was told by grantees that their projects focused on the poor in the neighborhoods they operated\. 4\.10 The Grant Fund's operational manual established eight priority areas for which organizations could be funded (Table 8)\. While all of the topics relate to children, there were three areas (creative/recreation in community spaces, understanding rights of children, and strengthening community organizations) that do not appear to directly assist in achieving the project's development objective\. When adding the number of proposals relating to the first four lines of action and the number related to parent education training, three quarters (41 of the 54 projects) supported the attainment of the project's development objective\. Table 8\. Priorities Established by Grant Fund Number of Projects Line ofActionFudd Funded Increase access and/or quality of initial education 23 Implement community services for children or parents 8 Services for children with special needs 3 Public health services for children 1 Strategies to give creative expression or recreation in community spaces 5 Parent education/training 6 Understanding of rights of children 2 Strengthening community organizations 6 Source: Grupo Gestion Moderna 2011 4\.11 The IEG mission distributed surveys to 48 grantees\. From the analysis of 19 grantees 7 who responded to IEG's survey (Annex B), nearly all of the activities implemented were 6 The Evaluation of the Grant Fund describes 54 projects, rather than 60 (Grupo Gestion Moderna 2011)\. 19 relevant to the project development objectives\. Projects either provided direct services to children, their parents, or a combination of the two\. Some projects also implemented training activities for the teachers working with the children\. Parent education related to health, sanitation, nutrition, or violence reduction to improve children's development\. Several grantees used funds to make physical infrastructure changes to their buildings\. Organizations reported that the projects positively contributed to the beneficiaries' development, which were primarily the poor (Gestion Moderna, 2011) and reported similar results to the IEG Mission\. 4\.12 The 19 grantees that completed IEG's survey reported that 7,098 children were provided early childhood services that would not otherwise have received it without the grant\. An evaluation of the Grant Fund estimated the number of direct beneficiaries from the grants to be 61,000 and indirect beneficiaries such as parents and teachers 195,735 (Grupo Gestion Moderna 201 1)\.These figures are much higher than what survey respondents reported\. This may be because IEG asked grantees the number of children (0-5) who were provided services that would not have been provided without the resources from the Fund\. According to survey respondents, most children who received services were 3-5 years of age since fewer organizations addressed children 0-2 years of age\. However, eight grantees also provided services to basic education age children (or adults), which was not the objective of this project\. 4\.13 The overall sustainability of the Grant Fund cannot be determined, as several grantee organizations no longer existed\. Ten had no working website, email, or phone number\.8 This suggests that 10 out of 48 projects were not sustained\. However, among those reached and still in operation, nearly every organization (18 out of 19) that responded to IEG's survey noted that some or all the activities of the project were continuing (Table 9), which was similarly reported in the project's evaluation of the Grant Fund (Grupo Gestion Modema, 2011)\. Organizations have been able to continue the activities with other sources of funding, such as from the private and public sector, international organizations or by charging fees to parents\. However, one consequence of charging a fee to parents is that financial resources will be a barrier for the poor\. Table 9\. Summary of Grantee Survey Responses (n=19) Sustainability at end ofgrant: Number of Respondents All activities continued 12 Some activities continued 6 All activities ended 1 Source: IEG Survey 4\.14 One reason that these organizations sustained all or some of the activities might be related to the fact that more developed organizations were the ones most often selected by the 7The survey was sent to 48 grantees where there was contact information\. From the 48, 10 were not able to be reached, since they appeared to no longer exist\. The response rate was thus 40 percent\. 'Multiple efforts were made by the local data collector for the survey, as well as the Bank's Santo Domingo office, to set up interviews for the Mission\. 20 Board of the Grant Fund, since their proposals typically received higher ratings (Grupo Gestion Moderna, 2011)\. Outcomes 4\.15 The overall pre-primary enrollment rate was expected to increase from 71 percent to 86 percent as a result of the civil works and other activities of the project\. The Ministry's goal was to universalize pre-primary education by 2008, through the efforts of this project, along with its additional efforts to build classrooms\. No data were available on the number of classrooms constructed by the Government outside of the project\. Labor survey data from the Central Bank estimated that the enrollment rate of five year-olds increased from 77 percent in 2008 to 84 percent in 2010 (Peguero 2011)\. Similarly, the public and private enrollment rate of five year-olds increased from 59\.8 percent in 2003 to 80\.4 percent in 2010, according to data supplied by the Ministry of Education\. Table 10 shows the steady improvement in the rate of five year-olds enrolled from the start of the project until 2010, which is the most recent data\. However, it should be pointed out that the Bank stopped collecting and monitoring the enrollment rate of five-year olds, given its concern that data may not solely reflect children in pre-primary, but could also include those in first grade\. Table 10\. Enrollment Rate of Five Year-Olds (Public and Private) (percent), 2003-2010 Source 2003 2004 2005 2006 2007 2008 2009 2010 Ministry of Education 59\.8 68\.8 65\.4 67\.9 68\.3 74\.9 75\.4 80\.4 Central Bank Labor Survey 77 84 Source: Ministry of Education and Peguero 2011\. 4\.16 The number of children enrolled in pre-primary, as reported by the Ministry conflicts with its own enrollment rate for five-year olds (Table 11)\. The number of children in pre- primary leveled off in 2007 and then declined\. The data also suggest that pre-primary enrollment has been increasing in the private sector, rather than the public sector, despite construction of additional public classrooms by the project and other government efforts\. Public sector enrollments decreased by more than 10,000 students and the private sector enrollment increased by 17,822 students\. It is not clear why data from the Ministry show two different patterns\. Table 11\. Pre-primary Enrollment Number of Students by Sector, 2003-2011 Public Private Semi-official Total 2003-04 121,660 2004-05 125,449 2005-06 98,020 33,653 2,536 134,209 2006-07 82,129 45,272 2,852 130,253 2007-08 100,546 43,933 2,598 147,077 2008-09 95,585 48,321 3,246 147,152 2009-10 87,118 51,776 3,015 141,909 2010-11 87,414 51,475 3,208 142,097 Source: Ministry of Education 21 4\.17 Lower than expected enrollment was noted in schools with new classrooms visited, particularly the Model Centers\. In talking with school principals, the IEG Mission was able to confirm this year's enrollment in 14 of the 18 Model Centers\. Table 12 shows the expected and actual number of pre-primary students enrolled in Model Centers\. Table 12\. Expected and Actual Enrollment in Model Centers, 2012 School Year Model Center Expected Number of Actual Number ofPre- ActualExpected (%) Pre-primary students primary Students A 240 155 65 B 240 130 54 C 240 141 59 D 240 120 50 E 240 74 31 F 240 160 67 G 240 163 68 H 180 115 64 I 240 233 97 J 180 62 34 K 240 180 75 L 240 145 60 M 240 114 48 N 240 89 37 Total # Students 3,240 1,881 58 Source: Principals' report to IEG via interview or telephone call 4\.18 If these 14 Centers had been fully enrolled, there would have been 3,240 five year- olds attending pre-primary\. Instead, only 1,881 children were enrolled, 58 percent of capacity\. Thus, some of the new classrooms were vacant or under-utilized\. The Ministry did not have enrollment data for the new classrooms constructed and thus, the total enrollment increase attributed to the project's civil works could not be determined\. Considering all the evidence, it appears that there were modest increases in enrollment, but significant under- enrollment, which was similarly reported by teachers (Peguero 2011)\. 4\.19 Principals reported that there were often other private or public schools near the Centers and so parents had options\. The Mission was told that working parents preferred private schools because these schools operated for a full day or provided after school care\. 4\.20 The target for enrollment of the poorest five year-olds was initially 86 percent, but was revised downward to 69 percent in 2010 at restructuring\. An evaluation reported that the project increased the pre-primary enrollment rate of poor five year-olds from 51 percent in 2002 to 71 percent in 2011 (Peguero 2011)\. This was an estimate based on a change in enrollment between the years 2006-20 10 in a sample of 150 education centers where poor children attend\. During this time and in these schools, the enrollment increased 20\.26 percentage points\. This number was then added to the project's baseline figure (51 percent), to arrive at the conclusion that enrollment among the poor had increased to 71 percent, despite the fact that the baseline utilized a different sample\. Since schools do not collect demographic data, no other data were found to compare with this finding\. In the schools 22 visited, it was reported that all the students were poor: "only the poor attend this school or enroll in public schools" was the answer provided\. Strengthening the Quality of Early Childhood Education with a Particular Focus on the Poor 4\.21 The achievement of this objective is rated as substantial\. Several complementary activities were conducted to improve the quality of pre-primary education (five year-olds), including: establishing Education Resource Centers; providing training to teachers, district and regional coordinators, and principals; offering a standard set of pedagogical supplies and materials in every classroom; renovating 409 existing pre-primary classrooms; involving and educating parents; awarding grants; and improving cross-sectoral coordination\. Figure 3 depicts the project's theory of action related to pre-primary education to show how the inputs worked together to support teachers, since what teachers do (or how they instruct) is what improves children's development\. The subsequent discussion relates to improving quality for five year-olds in pre-primary education\. Given that all pre-primary classrooms received supplies, schools serving the poor benefited\. 4\.22 As Figure 4 shows, teachers were provided with curriculum (pedagogical model), received training on the model, and given a set of pedagogical materials/supplies\. Training was also provided to principals and district/regional coordinators so that they would be instructional leaders and monitor quality\. The pedagogical model required assessing what students know three times a year\. Literature suggests that monitoring students' progress or evaluating students is a classroom practice that raises achievement (Slavin 1986; Fuchs and Fuchs 1993)\. All of these activities worked together to support what the teacher did in the classroom to motivate and engage children, which would be expected to lead to improvement in social, emotional, physical, and language development\. IEG (2011) found in its review of education projects, fewer Bank projects were able to substantially attain objectives of improving education quality in comparison to objectives related to access/enrollment\. Figure 4\. Project's Theory of Action to Support Early Childhood Development Gum~cuIun Principal Leadership Professional DevelpmentPhysical, Social, What eachEs DoStimulate and Emnoional, Language What Teachers Do En4Gti PedgogcalEngage Children and Intellectual Materials Dvlpet Monitoring Student Quality Evaluation Source: Author 23 Outputs 4\.23 A pedagogical model was updated during the project\. The model contained a schedule that breaks the day into activities to address language, gross motor, and other skills within various groupings, making the model easier for teachers to apply\. The model reflected the principles of how young children learn, emphasizing freedom for children to move, organizing the classroom into activity comers, such as dramatization, art, mathematics, science, and giving children time to play and make choices\. Teachers also received a guidebook to be able to implement the pedagogical model\. Figure 5 shows the typical organization of a pre-primary classroom\. Figure 5\. Pre-primary Classroom Source: IEG mission, October 2012 4\.24 Teacher training was provided to all teachers in regional Model Centers and in over half of the pre-primary classrooms, which included 3,931 teachers\. Training comprised pedagogical groups, classroom observations, reviewof classroom plans, coaching, and demonstration\. This model of ongoing training is reflective of how adults learn and consistent with the characteristics of effective professional development (Garet and others 2001), where learning occurs via discussion, observation, and dialogue about subsequent applications\. A total of 326 pedagogical groups were held, covering every district, except for one, over the course of the project\. Each pedagogical group had approximately 10 participants\. Teachers had favorable impressions of the usefulness of the pedagogical groups, which have continued after project closure (Grupo Gestion Modema 2011), based on IEG Mission interviews\. During sessions, topics such as developmentally appropriate child- centered curriculum and teaching methods were discussed and modeled\. Three hundred and eighty (380) pre-primary teachers completed a specialization in early childhood education in the Teacher Training Institutes\. 24 4\.25 The training was successful in fostering implementation of the pedagogical model, and achieving changes in teaching practices in terms of schedules and use of time and space (Grupo Gestion Moderna 2011)\. There was evidence that the pedagogical model was implemented in the twelve classrooms selected9 by the IEG Mission for observation, and was also reported in a project evaluation (Grupo Gestion Moderna 2011)\. Children were active and engaged (Figure 6)\. There were interactions between teachers and students\. Teachers bent down to talk with students to be at their level\. They spoke warmly to children\. Music and singing were often used by teachers\. The activities focused on content such as: letters, sounds, fine motor skills, and numbers\. However, no reading activities were observed - either teachers reading aloud or children interacting with books\. Teachers adhered to the schedule, which provided time for large-group, small-group, and individual activities\. There were times allocated for children to select different educational activities\. There were opportunities for indoor and outdoor play\. The IEG Mission also visited first and second grade classrooms by way of comparison\. The first and second grade classrooms visited operated in a traditional teacher-directed manner, in contrast to the new pedagogical model being implemented in pre-primary classrooms\. Figure 6\. Children Utilizing Objects and Play to Learn Source: IEG mission, October 2012 4\.26 Every pre-primary classroom in the country received the standard minimum amount of classroom materials over the course of the project\. This included classroom furniture and supplies, consumable materials, teacher resources, and didactic materials such as puzzles, games, blocks, books, and a CD of songs\. These were vital to improving education quality, since children this age benefit from these resources\. The project also financed the design and distribution of technical materials, which teachers reported to be important in supporting their training and implementation of the curriculum (World Bank 2012)\. A total of 625,276 workbooks for pre-primary were distributed and 3,519 sets of classroom education material were distributed (World Bank 2012)\. Observations showed that the materials reached classrooms and were being utilized\. Centers were more fully equipped than classrooms and there were instances where not everything was received, but the missing items did not compromise quality\. Consumable supplies were being replenished annually by the Ministry\. 9 IEG selected new and renovated classrooms to visit in Santo Domingo, San Cristobal, and Azua\. Observations in Monte Plata and San Cristobal were not possible because of Tropical Storm Sandy\. 25 Teachers effectively and creatively utilized the materials to develop hands-on learning experiences for the children\. 4\.27 Teachers had a protocol for evaluating pre-primary students three times each year\. It is not clear how the results were shared with parents so that they would be able to interpret and understand them, since the evaluation had many groupings of knowledge and skills that were similar\. In the literature, efforts to assess student's progress have been found to assist teachers in better diagnosing children's needs and informing their instruction (Slavin 1986; Fuchs and Fuchs 1993)\. 4\.28 Training was also provided to 18 regional and 105 district education staff with the initial education unit of the Ministry\. This allowed everyone working at the various levels of the Ministry to have a full understanding of the pedagogical model\. Conversations with regional and district coordinators showed that they had technical knowledge of early childhood education\. The strategy of training at all levels ensured that the coordinators and directors who monitored the implementation of the pedagogical model and assisted teachers were adequately trained\. Thus, they appeared to provide a vital role of quality assurance\. 4\.29 A pilot project was implemented to use Information Communication Technology (ICT) Corners in 330 pre-primary classrooms (World Bank 2012)\. Teachers were provided training in basic aspects of the computer and the pedagogical use of it (Peralta, Riqelme, and Rivas 2010)\. Teachers reported that the computers were highly motivating for children and this was the first time they had used computers (Peralta, Riqelme, and Rivas 2010)\. However, the Mission observed in the twelvelo classes it visited that many computers were not connected to the electricity, and none were connected to the internet\. In two classroom observations the computers were being utilized by children to play educational games or by the teacher to write lesson plans\. Based on the Mission observations and the basic level of application noted in project evaluation (Peralta, Riqelme, and Rivas 2010), the ICT corners did not appear to have improved the quality of pre-primary classrooms\. Outcomes 4\.30 In terms of outcomes, a project evaluation reported that children who enrolled in public pre-primary education (five year olds) had significantly higher scores on the areas tested by the Early Years Evaluation (EYE) (that is, language and communication, self- knowledge and understanding, cognitive, social skills, and physical development) than those who did not attend public pre-primary (Grupo Gestion Moderna 2011 This evaluation examined a group of students within a national sample of districts and schools that included 1,482 boys and girls from 187 teachers\. However, the evaluation did not control for differences between the two groups of children so that other factors (such as family income, mother's education, parental involvement in education, or the nutritional status of children), 10 ICT corner was not present in every classroom visited\. 26 could also be responsible for the observed differences\. It did not control for factors affecting for self-selection of children to attend pre-primary by their parents\." 4\.31 Principals and teachers reported to the IEG Mission that differences were evident in primary school between children who had attended pre-primary and those who had not\. Students who had participated in pre-primary had better fine motor skills and knew the alphabet, sounds, and numbers, while those who began school in the first grade had limited or no exposure to these skills\. Principals, regional and district coordinators found pre-primary education to be a great investment, since it prepared students for first grade, which had an impact on subsequent learning\. 4\.32 Another evaluation conducted by the project found a reduction in the repetition rate by three percentage points at grade three for those children who attended pre-primary, compared to the rate for the total population in grade three (Peguero 2011)\. Similarly, there was a reduction in the repetition rate by five percentage points at grade four for children that benefited from the project, compared to the rate for the total population in grade four (Peguero 2011)\. These findings seem plausible, given the differences in readiness skills between those who had participated in pre-primary education and those who had not, as reported by school principals, which is also consistent with international evidence (Montie, Xiang, and Schweinhart 2006; Schweinhart and others 2005)\. 5\. Efficiency 5\.1 Efficiency is rated as modest\. 5\.2 Benefit-cost analysis\. Interventions in the early years of life generate substantial economic and social benefits, such as increased school attainment, reduced dropout and repetition rates, improved health status and decreases in criminal activity (Montie, Xiang, and Schweinhart 2006; Schweinhart and others 2005)\. The economic benefits anticipated at appraisal for this project included: (a) reduction in grade repetition from increased school readiness, which limits inefficiencies in the education system and lowers household schooling expenses, (b) maximization of resources through integration of health, nutrition, and education, and (c) participation of mothers in income-generating activities and (d) enabling older siblings to attend school (World Bank 2002)\. 5\.3 During appraisal, the internal rate of return IRR of the project was estimated to be 7\.5 percent\. This figure did not include the non-monetary benefits associated with a more educated Dominican population12 (World Bank 2002) and was based on an expected 25 percent reduction in grade repetition and a 30 percent reduction in the dropout rates in the 11 It did not take into effect the differences in background of parents who elected to enroll their children in pre- primary education, which may be systematically different than parents who do not enroll their children\. 12 The PAD proposed that including this would double the calculated IRR to 15 percent, but this calculation was not done\. 27 first cycle of basic education\. The total net present value of US$2\.9 million was derived first, from "in school benefits" of lower expenditures per student due to lower repetition rates, and second from "out of school benefits" of higher labor market earnings when additional children reach adulthood due to lower repetition and lower dropout rates\. The calculation included all project costs, which is not an accurate assumption, since some project costs attended children under five years old\. However, the increased public enrollment was estimated to be 200,000 students annually, which is much higher than observed enrollment of both private and public pre-primary in any year\. 5\.4 The internal rate of return was recalculated at the end of the project, which was 8 percent, based on adjusted assumptions (for example, diminished impact per beneficiary, the increase in the number of beneficiaries, new labor market information, and the costs per student outside of pre-primary level) (World Bank 2012)\. These assumptions were adjusted since implementation extended beyond the original five years, which increased the number of project beneficiaries, as well as the infrastructure costs that reduced the number of new and rehabilitated classrooms\. The updated estimate assumed a reduction of 12\.5 percent in repetitions and 15 percent in the dropout rate between grades one to four\. 13 This calculation also assumed that students exposed to the project would have an increase in 0\.7 years of schooling, in comparison with those not exposed to early childhood education (World Bank 2012)\. Because of the increased human capital accumulation, it was assumed that these students would perform better in the labor market and thus increase their lifetime earnings by US$320\. Decreasing the repetition and dropout rates was assumed to reduce the public costs in the education system by 3 percent (World Bank 2012)\. However, the number of children benefiting was assumed to be 1\.37 million (over the course of the project), which is much higher than actual number of children enrolled in both public and private schools of the project and more than double actual public enrollment over the course of the project\. 5\.5 It is likely that both calculations overestimate the return, since the enrollment assumptions used in both were unrealistically high\. It should also be noted that the actual enrollment includes the spaces created by the Government's own parallel construction program, thus, the benefits associated with this project are lower\. However, the assumed benefits from the improved quality resulting from lower repetition and dropout rates are valid\. 5\.6 Cost-effectiveness\. The examination of multiple rounds of competitive bidding revealed that the civil works cost more than double the original estimates (the unit cost for new classrooms was US$45,000 rather than US$20,000 and the unit cost for rehabilitated classrooms was US$12,000 versus US$5,500) (Secretaria de Estado de Educacion 2007)\. As previously noted, the rebuilding efforts in the Gulf Coast in 2005 after Hurricane Katrina meant that essential materials were no longer supplied from the United States, thus making these materials more scarce and costly\. Higher fuel costs also drove up construction costs, which greatly affected construction prices\. With the delays, contractors reported that they " The original estimates were reduced by 50 percent to accommodate for the lower project expenditure per student given that the project was extended for three years longer, which raised the number of project beneficiaries\. 28 were not able to finish the contract for their offer price and so the Government paid additional costs to some firms, outside of project resources and counterpart funding\. 5\.7 Classrooms included equipment and materials that were designed to reduce the recurrent maintenance cost to the schools\. The project utilized toilets, sinks, partitions, windows, and roof materials that were 20-25 percent higher in costs, but were reported to reduce the replacement recurrence by three to five years, instead of each year\. This would have positive financial benefits for the schools\. However, the IEG mission observed problems with non-functioning toilets and lack of running water in 4 out of 7 schools\. There were other deficiencies such as water damage to ceilings and cabinets\. A stakeholder group of parents also expressed concerns with the quality of some of the construction materials (World Bank 2012)\. 5\.8 The inefficiencies and bureaucracies within the implementing agency resulted in longer bidding processes and longer contract implementation\. Project administrative costs were nearly double than what had been anticipated\. This was due to the fact that the project was extended for three more years compared to the originally planned five years\. The implementation unit hired more staff than previously planned to reduce procurement bottlenecks\. It also conducted additional evaluations than were originally planned\. When considering the total cost for project management divided by the number of project years, annual project management costs were US$68,500 higher each year than estimated at appraisal\. 6\. Ratings Outcome 6\.1 The project outcome rating is Moderately Satisfactory\. This is based on high Relevance of Objectives; substantial Relevance of Design; modest achievement of the objective to increase access to early childhood education, especially among the poor, and substantial achievement of the objective to enhance the quality of early childhood education\. Efficiency was modest\. The project contributed to improving the quality of pre-primary education through teacher training, provision of materials, renovation of classrooms, and implementation of the new pedagogical model\. Activities were also targeted to engage civil society and enhance the awareness of parents to get them more involved in their children's education\. While new pre-primary classroom construction focused on the poor, there were only modest increases in enrollment and underutilization in Model Centers\. Risk to Development Outcome 6\.2 The Risk to the Development Outcome is rated as Moderate because the Government has sustained many of the project activities and demonstrated a high commitment to early childhood education\. Despite Government changes and replacements of the Education Ministers, there has been a consistent commitment from the Ministry of Education to universalize five year-old enrollment and support nonformal early childhood services from birth to four year-olds\. 29 6\.3 Many of the activities undertaken by this project to improve the quality of pre- primary education for five year-olds, have been sustained\. District and regional coordinators visit pre-primary classrooms to monitor the application of the pedagogical model\. Since October 2012, pedagogical groups have operated in 9 out of 18 districts\. A local teacher training institute now offers the training course initiated under the project\. The project has institutionalized a national forum, Mesa Consultiva, where 20 national and international, governmental and non-governmental institutions continue to work together to address early childhood development needs in regions with low access\. 6\.4 There has also been an emphasis by the Government to involve parents in the education process and create opportunities for children aged zero to five\. The educational campaigns developed under the project are still being used, which is a way of continuing to bring awareness to parents\. However, it is not clear how effective these campaigns were in removing, parental lack of awareness of the importance of pre-primary education, as a constraint to enrollment\. It is not clear what other factors also constrain pre-primary enrollment among poor families\. 6\.5 The Board of the Grant Fund is still in existence has sought funding from other sources, and continued to fund 18 projects after the project closed(World Bank 2012)\. However, IEG's survey found a mixed picture in relation to the sustainability of funded projects\. Out of 48 organizations for which contact information was available, there were 10 organizations which appeared to have closed, since there was no working phone, email, or website\. Even though sustainability was not a part of the selection criteria, a number of projects have continued either all their activities (12 out of 19) or some of their activities (6 out of 19), and only one reported that the project ended when the funds stopped\. The projects have been able to continue with other sources of funding, such as from the private and public sectors, international organizations, or by charging fees to parents\. 6\.6 While many of the risks to the development outcome are likely to be minimized by actions undertaken to continue project activities, there is a moderate risk related to adequate future resources to maintain the benefits achieved in access and quality at the initial education level (0-5 year old)\. The Ministry reported that there are discussions that the upcoming budget will allocate resources for a Grant Fund, as well as more resources devoted to the subsector\. Bank Performance QUALITY AT ENTRY 6\.7 Quality at entry is rated Moderately Unsatisfactory\. 6\.8 The strategic relevance of the project was high and there was an analytical assessment of the subsector on which the preparation was based\. There was adequate time allotted for the preparation phase and the creation of a good working relationship between the Bank and Borrower\. However, there were a number of shortcomings that impacted subsequent project implementation\. 30 6\.9 One of the shortcomings in preparation was low ratings of known risks (e\.g\., procurement capacity and frequent personnel changes in the PCU)\. The Procurement Capacity Assessment identified weaknesses (e\.g\., personnel hiring based on political influence, lack of in-house capacity to prepare bidding documents for international competitive bidding, reliance on shopping method for procurement, inadequate use of procurement plan, etc\.), which were evident from the Bank's experience with the previous education project\. However, the recommendations of the Capacity Assessment were inadequate to address these shortcomings\. As well, the project appraisal document stated, "no special procurement problems are anticipated while implementing this project\. Satisfactory technical capacity already exists in the Project Coordination Unit" (World Bank 2002)\. Yet, procurement capacity was the reason for the slow project disbursement and project extensions\. 6\.10 The risk of instability and rotation of staff in the Project Coordination Unit was assessed as low, since it contained experienced financial management personnel and had a clear organizational structure\. Yet, given the timing of the next election, there was a very high likelihood that personnel changes would occur, as well as a restructuring of the unit, which had been the pattern with the previous education project (World Bank 2003)\. 6\.11 Given the above noted factors, the amount of planned civil works was ambitious and unlikely to be completed within five years\. Instead, it was likely to require an extension to be able to complete\. Parallel preparation with the Project Coordination Unit and Ministry was not done, which would have facilitated more rapid implementation (e\.g\. training of staff on Bank procurement procedures, developing bidding documents, identifying school sites for civil works, and developing terms of reference)\. 6\.12 There were few details provided in the appraisal document about the Grant Fund\. The aim of the program was to provide early childhood services to three-five year-olds, and identify and support community-based integrated early childhood development models that could be replicated on a larger scale (World Bank 2002)\. Yet, the PAD lacked details to give a strategy for how the program was to achieve its intent of expanding services and reaching the poorest children aged 0-5 years who were without care (World Bank 2002)\. The criteria noted in the program description were: (1) the amount of grants (80 percent of projects funded were $25,000 or less), and (2) the capacity and feasibility of the applicants to carry out the proposal\. There was no description of the priorities of the program, description of calls for proposals, or strategy to reach poor and rural communities\. Annex 11 (Social and Beneficiary Assessment) and Annex 12 (Poverty Assessment) indicated that this program would be prioritized to municipalities classified as poor or extremely poor to expand services to the most difficult to reach poor children, but this information was not included in the description of the program, nor was there an allocation of the amount of funding to the poorest provinces\. Moreover, without appropriate M&E for the Grant Fund, it was not possible to identify promising early childhood development models worthy of replication and scaling up\. 6\.13 There were other shortcomings\. The basis for determining that the planned number of spaces (40,000) would lead to the pre-primary enrollment target (86 percent) was not clear, since the PAD lacked details\. The PAD did not specify the stock of existing 31 classrooms in each educational district or municipality, as well as census of five-year olds in municipality\. It also did not state areas where pre-primary classrooms were over or under enrolled\. The Ministry completed a Supply and Demand Study, which identified the lack of awareness among parents of the benefits of early childhood services as the primary obstacle to services (World Bank 2002)\. However, the PAD did not describe how the project's two pronged approach (i\.e\., educating parents on physical and emotional child development through the Escuelas de Padres program and strengthening the parent and community committees) addressed the main constraint\. The weaknesses in M&E Design were addressed during supervision, as well as by the Borrower commissioning additional evaluation reports\. QUALITY OF SUPERVISION 6\.14 Quality of supervision is rated Moderately Satisfactory\. 6\.15 Bank supervision was highly involved\. The task team leaders tried to resolve problems, as well provide more structure to some of the areas not well defined in the PAD\. For example, the TTL and the implementing agency developed an operational manual for the Grant Fund, to minimize applications for grants from "ghost organizations" and provide some structure in the use of resources and how the Fund would operate\. The Bank TTL reviewed resum6s of potential Directors for the Fund and worked with the Implementing Agency to select a candidate who was not politically tied to either party, so that the person would be able to maintain the position and make independent decisions when the Government changed\. As a result, the Fund was noted to be transparent in its operation (Gestion Moderna 2011)\. 6\.16 The Bank provided consultants related to improving Ministry collaboration/ communication, monitoring civil works, and early childhood development, among others\. The Bank TTL reviewed the Supply and Demand Study, which was the basis for selecting schools for the civil works\. Appropriate transition arrangements were made between the four TTLs over the course of the project\. The first TTL was based in Santo Domingo, which allowed for close contact with the Implementing Agency and Ministry\. The remaining TTLs were based in Washington\. Regular missions occurred throughout the project, as well as video conferences\. Strong technical guidance was provided by each of the TTLs\. Project restructuring was used to improve project performance and enhance design weaknesses in the Results Framework\. 6\.17 Because of the slow disbursements and procurement difficulties, much of the supervision was focused on resolving procurement bottlenecks\. Bank procurement staff provided training on procurement regulations and process\. Given the revolving staff within the implementing agency, this training was provided at least two times each year\. However, the Bank technical and procurement team could have worked more closely to come up with joint solutions to resolve the procurement problemsl4 6\.18 Bank performance is rated Moderately Satisfactory\. 14 See the fiduciary discussion in Chapter 3\. 32 Borrower Performance GOVERNMENT PERFORMANCE 6\.19 The Government's performance is rated Moderately Satisfactory\. The Government exhibited strong commitment to early childhood education and to the project's development objective that lasted across the changes in Governments and Ministers of Education\. The Government provided counterpart funds in a timely manner every year, except the first, when there was an austerity budget\. 6\.20 There were some weaknesses in the Government's performance\. There was a fifteen month delay in Congress approving the loan, which resulted in the Government paying additional commitment commissions\. With each change in Government or Minister, several staff in the Ministry and Implementing Agency were removed; the infrastructure technical team was reorganized four times\. There was a political component to the hiring and firing of personnel, which had a negative impact on project implementation\. As well, the new administration taking office in the spring of 2011 introduced personnel changes in the Procurement Committee, which froze all contracts for further review\. This resulted in delaying the construction and as a result, the final classrooms were not completed before the rainy season and not all civil works were completed by the closing date (World Bank 2012)\. There were inefficiencies in the Ministry, which made it difficult to expedite contract awards\. IMPLEMENTING AGENCY PERFORMANCE 6\.21 The Implementing Agency's performance is rated Moderately Satisfactory\. The Department of Initial Education within the Ministry of Education was the technical leader of the project and provided project execution in conjunction with the Office of International Cooperation, which managed the fiduciary and project implementation\. The Director of Early Childhood Education and the Minister were actively involved in the monitoring and supervision of implementation of key milestones\. They also revised the line of communication between the Ministry and Project Coordination Unit and Ministry to have clearer communication\. 6\.22 The Implementing Agency exhibited strong leadership throughout the project, even with the director of the Office of International Cooperation changing several times\. It worked closely with the Bank team of procurement specialists, consultants, and the five TTLs from preparation to closure\. There was a strong commitment to monitoring and evaluation\. A large number of evaluations were conducted, which were used to inform project implementation\. There was adherence with environmental guidelines\. 6\.23 The main performance weakness related to slow disbursements, resulting from frequent changes in personnel in the implementing agency\. Disbursements were slow in relation to civil works and the Grant Fund\. 6\.24 There were several difficulties encountered with the implementation of the civil works\. Bundling of procurement packages meant that some awarded firms had to complete schools in various parts of the island, which was inefficient\. There was insufficient staff to 33 monitor and supervise the civil works activities\. Some firms without the financial and logistical capacity to complete contracts were granted awards, since the bidding requirements were set too low\. Some firms did not have the cash flow and so stopped working, which delayed the completion of classrooms\. There were some instances where the implementing agency was late in paying contractors, which added to their cash flow problems\. There were long, internal processes within the Ministry and implementing agency\. The frequent turnover of staff in the implementing agency also had a negative impact, since replacements did not understand international competitive bidding procedures\. 6\.25 Borrower performance is rated Moderately Satisfactory\. Monitoring and Evaluation 6\.26 The quality of M&E is rated Substantial\. 6\.27 M&E Design: There were shortcomings in the design of the monitoring and evaluation\. The original M&E system was designed to track outcomes and outputs related to improvement in access and quality for pre-primary (five year-olds)\. An impact evaluation was planned\. With respect to improving the access and quality for 0-4 year-olds, the M&E design was inadequate, since there were no outcome measures for this age group\. Outcome measures were lacking for institutional strengthening, grant program, family education initiatives, and parent committees\. 6\.28 M&E Utilization: Data from the M&E system were regularly used by the Borrower and the Bank\. The Ministry routinely tracked the project-related indicators\. Outcome indicators were tracked by consultants who prepared the evaluations\. Information from all of these reports was the basis for reporting project outcome indicator data and assisted in measuring the achievement of the development objectives\. As well, the findings from the evaluations were used by the government to make evidence-based policy decisions and improve the quality of the pre-primary model\. For example, it was reported to the IEG Mission that the evaluation of the Quality of Pre-primary Education was very useful and helped them understand the importance of investing early\. It was also stated that the indicators and the various studies helped internal discussions in the Ministry about policies related to initial education and other levels\. 34 7\. Lessons 7\.1 Based on the experience of this project, several lessons can be drawn: 1\. Lack of attention to country context in project design can lead to considerable delays and inefficiencies\. In the case of this project, there was a long delay in project effectiveness (15 months) linked to the need for legislative approval of the loan, followed by extensive delays in implementation tied to low procurement capacity and frequent turnover of staff linked to the political cycle\. There was no specific action taken to mitigate the well- known risks from the political system with respect to delays and turnover\. The solutions proposed by the Capacity Assessment conducted at appraisal were inadequate to mitigate the well known shortfall in procurement capacity, particularly in light of frequent staff turnover\. 2\. Greater proximity to pre-primary education is necessary but not sufficient for poor parents to enroll their children\. The project built new pre-primary classrooms in areas with large numbers of poor parents and launched a communications campaign - though it is unclear whether the latter targeted the poor\. It also introduced quality improvements in public pre-school education\. Yet, even though fewer classrooms were built than planned, there was under-enrollment of 5-year-olds in the new capacity\. This suggests that there remain significant constraints to poor parents for the enrollment of their 5-year olds in pre- primary education\. Informants noted that the fact that public pre-school is only half a day may be a factor: private schools provide all day programming either through a full day at school or combined with after school care, which is more convenient for working parents\. This points to the importance of a good understanding of the most critical constraints affecting pre-primary enrollment\. 3\. In the absence of strong selection criteria and explicit mechanisms for evaluating new approaches, learning from innovation funds will be limited\. As designed and implemented, the Grant Fund was not a vehicle for innovation, learning, or sustained access\. Without strong monitoring and evaluation, there was no way to identify projects worthy of replication and scaling-up, as well as learn from the Fund\. Providing teachers with training, the necessary classroom supplies, and ongoing support from pedagogical groups, coupled with monitoring the implementation of the pedagogical model can improve quality in pre-primary classrooms\. In this project, pre- primary teachers were provided with classroom supplies, a new curriculum, and peer-to-peer learning from pedagogical groups, as well as follow-up support\. Some teachers observed classrooms in Model Centers\. Coordinators and pedagogical leaders visited teachers' classrooms to monitor quality\. This resulted in teachers using the supplies and applying what they learned from the professional development in their classrooms\. 35  References Acosta, P\. 2007\. "The Impact of Remittances on Poverty and Human Capital: Evidence from Latin America Household Surveys\." World Bank Policy Research Working Paper No\. 4247\. World Bank, Washington, DC\. Arcand, J\. L\. 2001\. Undernourishment and Economic Growth - The Efficiency Cost ofHunger\. Rome: Food and Agriculture Organization\. Belfield, C\. R\., M\. Nores, S\. Barnett, and L\. Schweinhart\. 2006\. "The High/Scope Perry Pre-school Program: Cost-Benefit Analysis Using data from the Age-40 Follow-up\." Journal ofHuman Resources 41(1):162-190\. Case, A\. and C\. Paxson\. 2006\. "Stature Status: Height, Ability, and Labor Market Outcomes\." Working Paper No\. 12466, Cambridge, Massachusetts: National Bureau of Economic Research\. Cunha, F\. and J\. Heckman, 2009\. "The Economics and Psychology of Inequality and Human Development\." Working Paper No\. 14695, Cambridge, Massachusetts: National Bureau of Economic Research\. Di John, J\. 2007\. "Albert Hirschman's Exit-voice Framework and its Relevance to Problems of Public Education Performance in Latin America\." Oxford Development Studies, 35(3): 295-327\. Donahue, J\. and P\. Siegelman\. 1998\. "Allocating Resources among Prisons and Social Programs in the Battle Against Crime\." The Journal ofLegal Studies 27:1-44\. ECLAC\. 201 1a\. "Panorama Social de Am6rica Latina 2010\." Report\. Economic Comission for Latin America and the Caribbean, Santiago, Chile\. -------\. 201 1b\. "Estudio Econ6mico de Am6rica Latina y el Caribe, 2010-2011\." Report\. Economic Comission for Latin America and the Caribbean, Santiago, Chile\. Engle, P\., Black, M\., Behrman, J\., Cabral de Mello, M\., Gerler, P\., Kapiri, L\., Marortel, R, Young, M\. and the International Child Development Steering Group 2007\. "Child development in developing countries: Strategies to avoid the loss of developmental potential in more than 200 million children in the developing world\." Lancet 369:229-242\. Engle, P\., L\. Fernald, H\. Alderman, J\. Behrman, C\. O'Gara, Al Yousafzai, M\. Cabral de Mello, M\. Hidrobo, N\. Ulkeer, I\. Ertem, S\. Illtus, and the Global Child Development Steering Group\. 2011\. "Strategies for reducing inequalities and improving development outcomes for young children in low-income and middle-income countries\." Lancet 378:1339-1353\. Fuchs, L\., and D\. Fuchs\. 1993\. "Formative Evaluation of Academic Progress: How much growth can we expect\." School Psychology Review 22(1): 1-30\. Garet, M\., A\. Porter, L\. Desimone, B\. Birman, and K\. Yoon\. 2001\. "What makes professional development effective? Results from a National Sample of Teachers"\. American Educational Research Journal 38(4):915-945\. Grupo Gestion Moderna\. 2011a\. "Evaluacion Final de los Fondos Concursables para el Desarrollo de Innovaciones Educativas\." Secretaria de Estado de Educaci6n: Santo Domingo, Dominican Republic\. -------\. 201 1b\. "Estudio sobre la evaluaci6n de la calidad de la educaci6n inicial Componente Mejoramiento de la Calidad del Grado Pre-Primario\." Secretaria de Estado de Educaci6n: Santo Domingo, Dominican Republic\. IEG\. 2011\. World Bank Support to Education Since 2001\. A Portfolio Note\. Washington, DC: World Bank\. Montie, J\., S\. Xiang, and L\. Schweinhart\. 2006\. "Pre-school Experience in 10 Countries: Cognitive and Language Performance at Age 7\." Early Childhood Research Quarterly 2:313-331\. Peralta, A\., C\. Riqelme, and G\. Rivas\. 2010\. "Evaluacion de los Rincones Technologicos del proyecto de educaci6n inicial\." Ministerio de Educacion: Santo Domingo, Dominican Republic\. Politt, E\. 1997\. "Iron Deficiency and Educational Deficiency", Nutritional Review 55:133-140\. 37 -------\. 2001\. "The Development and Probabilistic Nature of the Functional Consequences of Iron Deficiency Anemia in Children\." The Journal ofNutrition 131:669-675\. Programa de Promocion de la Reforma Educativa en America Latina y el Caribe [PREAL]\. 2010\. "El reto es la calidad: Informed de Progreso Educativo Republica Dominicana\." Santo Domingo, Dominican Republic\. Peguero, M\. 2011\. "Consultoria para la Evaluacion Final del Componente Amplicacion de la Cobertura del Grado Preprimerio"\. Secretaria de Estado de Educacion: Dominican Republic\. Schweinhart, L\., J\. Montie, Z\. Xiang, W\. Barnett, C\. Belfield, and M\. Nores\. 2005\. Lifetime Effects: The High/Scope Perry Pre-school Study through Age 40\. Yssilanti, Mich: High/Scope Press\. Schweinhart, L\. 2007\. "Outcomes of the HighScope Perry Pre-school Study and Michigan School Readiness Program\." In Early child development: From measurement to action, ed\. M\. Young and L\. Richardson\. World Bank: Washington, DC\. Secretaria de Estado de Educaci6n\. 2007\. "Proyecto de Fortalecimiento de la Educaci6n Inicial: Evaluaci6n de Medio Termino\." Santo Domingo, Dominican Republic\. -------\. 2010\. "Boletin Estadistico Educativos Aio Lectivo 2008-2009\." Santo Domingo, Dominican Republic\. Slavin, R\. 1986\. "The Lesson\." In Educational Psychology: Theory into Practice, ed\. E\. Cliffs\. NJ: Prentice- Hall\. Smith, J\. 2009\. "The Impact of Childhood Health on Adult Labor Market Outcomes\." The Review ofEconomics and Statistics 91(3):478-489\. UNDP\. 2005\. "Focalizaci6n de la Pobreza en Republica Dominicana\." Santo Domingo, Dominican Republic\. Walker, S\., T\. Wachs, J\. Garner, B\. Lozoff, G\. Wasserman, E\. Pollit, and others\. 2007\. "Child development: risk factors for adverse outcomes in developing countries\." Lancet 369(9556): 145-157\. World Bank\. 2002a\. "Project Appraisal Document on a Proposed Loan of US$42 million to the Dominican Republic for an early Childhood Education Project"\. Report No\. 24558\. Washington, DC\. -------\. 2002b\. "Brazil: Early Child Development - A Focus on the Impact of Pre-schools\." Report No\. 22841- BR\. Washington, DC\. -------\. 2006\. "Dominican Republic Poverty Assessment: Achieving More Pro-Poor Growth"\. Caribbean Country Management Unit, Latin American and the Caribbean Region\. Report No\. 32422-DO\. Washington, DC\. -------\. 2011\. "Republica Dominicana\. Revisi6n del Desempeio de la Cartera de Proyectos financiados por el Banco Mundial\." Presentation 7-8 June 2011\. Santo Domingo, Dominican Republic\. ------\. 2012\. "Implementation Completion and Results Report for an Early Childhood Education Project in the Dominican Republic\." Report No\. ICR00002039\. Washington, DC\. Young, M\. 1996\. Early Child Development: Investing in the Future\. Directions in Development, No\. 15318\. Washington, DC: World Bank 38 ANNEX A Annex A\. Basic Data Sheet EARLY CHILDHOOD EDUCATION PROJECT (P054937) Key Project Data (amounts in US$ million) Appraisal Actual or Actual as % of estimate current estimate appraisal estimate Total project costs 62\.00 62\.00 100\.00 Loan amount 42\.00 41\.99 99\.97 Cancellation - 0\.90 - Cumulative Estimated and Actual Disbursements FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 Appraisal estimate 1\.16 6\.11 16\.20 27\.16 34\.94 42\.00 42\.00 42\.00 42\.00 42\.00 (US$M) Actual (US$M) 0\.00 0\.92 3\.32 6\.84 11\.48 18\.86 23\.99 32\.63 38\.58 41\.99 Actual as % of appraisal 0\.00 15\.05 20\.49 25\.18 32\.85 44\.90 57\.11 77\.69 91\.85 99\.97 Date of final disbursement: 01/20/2012 Project Dates Original Actual Initiating memorandum 08/24/1999 01/08/2002 Negotiations 07/01/2002 07/01/2002 Board approval 09/05/2002 09/05/2002 Signing 12/05/2002 12/06/2002 Effectiveness 12/02/2003 12/02/2003 Closing date 06/30/2008 08/30/2011 39 ANNEX A Staff Time and Cost Stage of Project Cycle Staff Time and Cost (Bank Budget Only) US$ Thousands (including Lending travel and consultants costs) FY04 12 133\.85 FY05 - 0\.98 Total: 12 134\.83 Supervision/ICR FY05 6 45\.89 FY06 13 56\.79 FY07 31 104\.98 FY08 31 114\.96 FY09 45 166\.55 FY10 37 126\.68 FY11 14 22\.14 Total: 177 637\.99 TOTAL 189 772\.82 Task Team Members Names Title Unit \.Responsibility Specialty Lending Alberto Rodriguez Senior Education Specialist LCSHE Task Team Leader Martha Laverde Education Specialist LCSHE Education, Institutional Analysis/Implementation arrangements Blanca Hermosilla Early Childhood Education Consultant Early Childhood Education Specialist Catherine Gibbons Community-based Consultant Community-based Development Specialist Development Tatiana Romero Rey Early Childhood Education Consultant Social issues Wendy Cunningham Economist LCSHS Economic Analysis Joshua Gallu Project Preparation Associate LCSHS Mission logistics and support Monica Penuela Social Sector Specialist Consultant Social and Beneficiary Assessments Veronica Jarrin Program Assistant LCSHE Operational Lending I I_ Support 40 ANNEX A Responsibility! Names Title Unit specilty Specialty Evelyn Jorge Team Assistant DR Operational Lending Country Support in the Dominican Office Republic Mary Lucy Giraldo Procurement Specialist LCOPR Procurement Patricia Hoyes Financial Management LOAG3 Financial Management Specialist Edward Daoud Disbursement Officer LOAG3 Disbursements Reynaldo Pastor Senior Legal Counsel LEGLA Legal Pilar Gonzalez Legal Counsel LEGLA Legal Rajeev Swami Financial Management LOAG3 Financial Management Specialist Kirsten Oleson Environmental Specialist Environmental Engineer Jackson Morrill Environmental Specialist, Environmental Analysis Consultant Marito Garcia Senior Education Specialist Peer Reviewer Elizabeth King Senior Education Specialist Peer Reviewer Mary Eming Young Early Childhood Specialist Peer Reviewer William Experton Senior Education Specialist Country Sector Leader Supervision/ICR Samuel Carlson Sr\. Social Protection Spec\. LCSHS Task Team Leader Raja Bettaouet Kattan Senior Operations Officer LCSHE Task Team Leader Cynthia Hobbs Sr\. Education Specialist LCSHE Task Team Leader January 2010 - September 2011 Martha Laverde Education Specialist LCSHE Institutional and Implementation Arrangements Karla McEvoy Social Protection Specialist LCSHD Task Team Leader ICR Luis Gazoni Consultant Erika Dunkelberg Monitoring and Evaluation Consultant Monitoring and evaluation Specialist Mariana Montiel Senior Counsel LOA Legal Counsel Fabiola Altimari Senior Counsel LOA Legal Counsel Fabienne Mroczka Financial Management Spec LCOAA Financial management Svetlana Klimenko Financial Management Spec LCOAA Financial management Guido Paolucci Senior Procurement Specialist LCSPT Procurement 41 ANNEX A Responsibility! Names Title Unit specilty Specialty Maritza Rodriguez Financial Management LCSFM Financial Management de Pichardo Specialist (DR Country Office) Catherine Abreu Procurement Specialist LCSPT Procurement (DR Country Office) Maria Elena Paz Language Program Assistant LCSHE Mission logistics support Judith Marcano Project Assistant LCSHE Project support Williams Javier Luque Senior Education Economist LCSHE Economic Analysis Patricia Hoyes Senior Financial LCSFM Financial management Management Specialist Javier Acosta ECD Specialist Consultant Early Childhood Development Jorge Mesa Architect Consultant Civil works and environmental safeguards Viviana Gonzalez Program Assistant LCSHE Operations Support Julie B\. Nannucci Sr\. Language Program LCSHE Operations Support Assistant 42 ANNEX B Annex B\. Mapping Classrooms with Provincial Poverty Figure 7\. Percentage of Poor Households and Number of Classrooms Built by the Project by Province 3 5 3 17 9 2 LA a5 6 1002 20 5 14 21is 1 0 7 % Hogares Pobres 0-20 6 ggg 20 -40 - 03-70 -70-80 - -s 80s - 100 Source: Targeting Poverty in Dominican Republic 2005 43 ANNEX C Annex C\. Mapping Classrooms with Municipal Poverty A process was used to map renovated and constructed classrooms to their respective municipal or municipal district to determine the disaggregated poverty and population size\. This was needed since there are 95 school districts and 155 municipalities\. Google map was used to find the exact location of schools\. If the online search did not yield results, newspaper clips, blogs, government documents, yellow pages were consulted\. In a few cases, where the location could not be precisely pinpointed the municipality that matched the school district was then assigned\. Table 13\. Classroom, Poverty and Population Number Number of\. NurNumber \.ube \.f Absolute % mn % mn N b of class- classrooms \. Munici- A bsolute Extreme 0xine Popula- Younger of rooms rehabil- pality, DM Rolute Poverty extreme tion than 5 CMEls Bul ttdpoverty poverty Built itated 1 1 3 Azua Azua Valdesia 10,453 53\.4 2,446 12\.5 56,453 6,622 0 0 1 Azua Estebania Valdesia 1,309 74\.7 653 353 7,677 1,001 0 0 3 Azua Pueblo Viejo Valdesia 1,618 64\.5 261 10\.4 7,056 869 Villa Tabare Valdesia 0 0 2 Azua Arriba 1,718 61\.9 407 14\.7 3,709 361 Total Azua 1 1 9 29,485 62\.0 10,282 21\.6 208,857 25,281 0 2 1 Bahoruco Galvan Enriquillo 2,605 80\.3 994 30\.6 12,064 1,620 1 0 0 Bahoruco Neiba Enriquillo 3,895 70 1,988 35\.7 25,420 3,265 0 2 2 Bahoruco Tamayo Enriquillo 1,511 64\.7 527 22\.6 6,609 830 0 1 0 Bahoruco Villa Jaragua Enriquillo 2,117 82\.5 1,153 44\.9 11,437 1,628 Total Bahoruco 1 5 3 15,785 75\.6 6,606 31\.6 91,480 12,373 Santa Cruz 1 1 2 Barahona Enriquillo de Barahona 9,605 54\.3 2,588 14\.5 72,924 9,349 0 0 3 Barahona Cabral Enriquillo 2,442 73\.5 990 29\.8 13,907 1,888 0 0 3 Barahona Enriquillo Enriquillo 2,359 71\.4 835 25\.3 10,564 1,437 0 1 2 Barahona Jaquimeyes Enriquillo 549 57\.8 71 7\.5 3,013 388 44 ANNEX C Number Number Number of Absolute % in % in of of class- classrooms Province Munici- Region P absolute Extreme extreme Popula- Younger rooms rehabil- pality, DM Poverty tion than 5 CMEls Bul ttdpoverty poverty Built itated Total Barahona 1 2 10 26,411 63\.3 9,011 2\.6 179,239 23,009 Cibao 0 1 1 Dajabon Dajabon Noroeste 3,120 47 518 7\.8 23,244 2,720 Cibao 0 1 1 Dajabon El Pino Noroeste 1,012 58\.3 274 15\.8 4,485 455 Total Dajabon 0 2 2 8,969 56\.2 2,430 15\.2 62,046 6,980 San Francisco de Cibao 1 3 0 Duarte Macoris Noreste 15,231 38\.3 1,650 4\.1 138,167 14,764 Cibao 0 2 0 Duarte Villa Riva Noreste 3,099 63\.3 508 10\.4 9,488 984 Total Duarte 1 5 0 36,087 49\.6 4,933 6\.8 283,805 30,184 0 0 1 El Seibo El Cedro Yuma \. \. \. \. 7,639 957 0 2 7 El Seibo El Seibo Yuma 12,853 74 4,931 28\.4 50,432 5,813 0 0 5 El Seibo Miches Yuma 2,904 55\.6 572 10\.9 10,545 1,348 San Francisco 0 0 2 El Seibo Vicentillo Yuma \. \. \. \. 2,829 276 0 0 1 El Seibo Santa Lucia Yuma \. \. \. \. 10,423 1,418 Total El Seibo 0 2 16 16,697 40\.9 5,882 24\.7 89,261 10,617 0 1 1 Elias Pina Comendador El Valle 4,297 74\.8 2,115 36\.8 18,936 0 1 2 Elias Pina El Llano El Valle 1,586 85\.5 899 48\.4 8,151 1 2 3 Elias Pina Hondo Valle El Valle 2,158 89\.5 1,217 50\.5 7,213 Pedro 0 0 2 Elias Pina Santana El Valle 728 81\.5 583 65\.3 4,043 0 0 1 Elias Pina Sabana El Valle \. \. \. \. 1,966 45 ANNEX C Number Number Number of Absolute % in % in of of class- classrooms Province Munici- Region P absolute Extreme extreme Popula- Younger rooms rehabil- pality, DM Poverty tion than 5 CMEJs Bul ttdpoverty poverty Built itated Larga Total Elias Pina 1 4 9 11,962 82\.4 6,911 47\.6 63,879 o 3 4 Hato Mayor El Valle Higuamo 1,529 69\.7 566 25\.8 7,966 934 Guayabo 0 1 2 Hato Mayor Dulce Higuamo 1,423 71\.6 399 20\.1 7,600 838 0 0 3 Hato Mayor Hato Mayor Higuamo 6,035 54 1,716 15\.4 43,544 4,623 Sabana de la 0 2 5 Hato Mayor Mar Higuamo 2,474 61\.6 707 17\.6 14,676 1,576 0 0 1 Hato Mayor Yerbabuena Higuamo 722 83\.7 272 31\.5 3,397 315 Total Hato Mayor 0 6 15 14,675 63\.5 4,574 19\.8 87,631 9,669 0 3 0 Independencia Jimani Enriquillo 1,831 70\.2 502 19\.2 5,901 794 La 0 1 0 Independencia Descubierta Enriquillo 1,180 71\.1 408 24\.6 6,939 888 Total Independencia 0 4 0 7,820 70\.2 2,665 23\.9 50,833 6,812 1 3 4 La Altagracia Higuey Yuma 17,991 45 3,056 7\.6 128,120 15,413 San Rafael 0 1 2 La Altagracia de Yuma Yuma 3,354 70\.1 1,056 22\.1 14,983 1,668 Veron-Punta 0 1 1 La Altagracia Cana Yuma \. \. \. \. 15,241 1,668 Total La Altagracia 1 5 7 25,345 49\.1 4,849 9\.4 182,020 21,694 0 0 1 La Romana Cumayasa Yuma \. \. \. \. 8,738 1,200 0 1 0 La Romana Guaymate Yuma 3,185 68\.1 1,027 22 17,324 2,467 0 10 7 La Romana La Romana Yuma 21,836 40\.8 2,500 4\.7 130,842 14,562 46 ANNEX C Number Number Number of Absolute % in % in of of class- classrooms Province Munici- Region P absolute Extreme extreme Popula- Younger rooms rehabil- pality, DM Poverty tion than 5 CMEJs Bul ttdpoverty poverty Built itated Villa 0 3 3 La Romana Hermosa Yuma \. \. \. \. 59,372 7,907 Total La Romana 0 14 11 25,021 43\.0 3,527 6\.1 219,812 26,507 0 1 2 La Vega Jarabacoa Cibao Sur 7,035 49\.9 1,611 11\.4 42,395 4,376 Concepcion 1 9 9 La Vega de La Vega Cibao Sur 21,152 38\.4 1,934 3\.5 210,736 21,855 Total La Vega 1 10 11 41,463 43\.2 5,221 5\.8 385,101 40,402 Maria Arroyo Cibao 0 1 1 Trinidad Salado Noreste Sanchez 1,057 56 146 7\.7 7,253 787 Maria Trinidad Noreste 0 0 8 Sanchez Cabrera 1,474 41\.2 226 6\.3 12,994 1,129 Maria Trinidad Noreste 0 0 3 Sanchez El Pozo 1,690 56\.8 235 7\.9 11,970 1,290 Maria Trinidad Noreste 1 2 5 Sanchez Nagua 7,447 49\.6 1,352 9 31,881 2,997 Maria Cibao Trinidad Noreste 0 2 4 Sanchez Rio San Juan 2,408 56\.7 472 11\.1 15,092 1,574 Total MTS 1 5 21 19,683 54\.2 3,348 9\.2 135,727 13,928 5Monsenor Bonao Cibao Sur 0 Nouel 9,363 32\.7 991 3\.5 75,879 Monsenor Cibao Sur 0 1 2 Nouel Maimon 2,071 48\.7 314 7\.4 17,439 0 1 3 Monsenor Piedra Cibao Sur 1,560 51\.4 261 8\.6 12,174 47 ANNEX C Number Number Number of Absolute % in % in of of class- classrooms Province Munici- Region P absolute Extreme extreme Popula- Younger rooms rehabil- pality, DM Poverty tion than 5 CMEls Bul ttdpoverty poverty Built itated Nouel Blanca Total Monsenor Nouel 0 7 12 15,574 37\.7 2,010 4\.9 167,618 Cibao 1 0 0 Monte Cristi Monte Cristi Noreste 3,885 53\.5 729 10 25,776 2,567 Total Monte Cristi 1 0 0 17,951 57\.1 4,278 13\.6 111,014 11,690 0 2 3 Monte Plata Bayaguana Higuamo 6,348 68\.4 2,240 24\.1 33,122 3,955 0 0 1 Monte Plata Los Botados Higuamo 2,939 82\.9 580 16\.4 13,950 1,973 1 0 6 Monte Plata Monte Plata Higuamo 6,580 64\.8 1,506 14\.8 24,863 2,773 0 1 4 Monte Plata Peralvillo Higuamo 3,385 80\.9 1,132 27 17,284 2,103 Sabana Grande de Higuamo 0 2 1 Monte Plata Boya 4,684 73\.8 1,699 26\.8 24,357 3,075 0 1 8 Monte Plata Yamasa Higuamo 6,949 75\.3 2,405 26\.1 37,453 4,756 Total Monte Plata 1 6 23 34,682 73\.3 11,061 23\.4 180,376 21,969 0 3 14 Peravia Bani Valdesia 12,089 45\.6 2,112 8 87,941 10,097 0 0 2 Peravia Matanzas Valdesia 1,686 45\.5 136 3\.7 14,783 1,840 0 0 1 Peravia Paya Valdesia 1,462 46\.3 287 9\.1 13,090 1,555 0 1 0 Peravia Santana Valdesia 679 41\.5 89 5\.4 6,426 880 Villa 1 0 0 Peravia Fundacion 1,092 51\.6 158 7\.5 8,550 1,029 0 0 1 Peravia Sabana Buey Valdesia 360 60\.9 67 11\.3 2,217 187 Total Peravia 1 4 18 19,013 45\.7 3,062 7\.4 169,865 20,104 1 0 0 Puerto Plata Puerto Plata Cibao 14,936 36\.7 2,105 5\.2 122,186 12,252 48 ANNEX C Number Number Number of Absolute % in % in of of class- classrooms Province Munici- Region P absolute Extreme extreme Popula- Younger rooms rehabil- pality, DM Poverty tion than 5 CMEJs Bul ttdpoverty poverty Built itated Norte Total Puerto Plata 1 0 0 39,258 44\.7 7,462 8\.5 312,706 32,515 Cibao 0 0 1 Samana Las Galeras Noreste \. \. \. \. 6,305 764 Cibao 0 1 1 Samana Las Terrenas Noreste 1,943 56\.9 246 6\.3 13,869 1,744 Santa Barbara de Cibao 0 1 1 Samana Samana Noreste 7,598 58\.1 1,330 10\.2 30,973 3,554 Cibao 0 3 3 Samana Sanchez Noreste 3,902 56\.2 530 7\.6 26,505 2,808 Total Samana 0 5 6 13,443 56 2,106 8\.8 91,875 10,492 0 2 5 San Cristobal \.aosd Valdesia Hama 6,606 32\.1 478 2\.3 80,841 10,624 0 0 1 San Cristobal Caballero Valdesia \. \. \. \. Cambita Cambita Valdesia 0 1 4 San Cristobal Garabitos 5,057 71\.4 1,905 26\.9 20,533 2,597 0 1 1 San Cristobal Hato Damas Valdesia \. \. \. \. 11,602 1,615 0 1 0 San Cristobal Los Cacaos Valdesia 1,422 81\.8 751 43\.2 8,822 958 Sabana Grande de Valdesia 0 0 1 San Cristobal Palenque 1,174 31\.5 72 1\.9 15,691 1,927 0 5 8 San Cristobal San Cristobal Valdesia 22,137 41\.9 2,238 4\.2 209,165 25,598 Villa Valdesia 0 4 6 San Cristobal Altagracia 11,201 57\.9 1,814 9\.4 50,957 7,372 0 4 10 San Cristobal Yaguate Valdesia 5,285 55\.6 654 6\.9 39,594 5,045 Total San 0 18 36 59,583 45\.9 8,331 6\.4 532,880 68,714 49 ANNEX C Number Number Number of Absolute % in % in of of class- classrooms Province Munici- Region P absolute Extreme extreme Popula- Younger rooms rehabil- pality, DM Poverty tion than 5 CMEls Bul ttdpoverty poverty Built itated Cristobal San Jose de San Jose de 0 0 7 Ocoa Ocoa Valdesia 5,090 57\.4 1,777 20\.1 24,032 2,686 Total San Jose de Ocoa 0 0 7 10,643 66\.2 3,990 24\.8 62,368 7,177 San Juan de la 0 4 9 Maguana El Cercado El Valle 4,873 87\.7 2,400 43\.3 15,348 1,908 San Juan de la Las Matas de 0 4 11 Maguana Farfan El Valle 6,242 68\.8 2,592 28\.6 35,497 4,061 San Juan de la 0 0 1 Maguana Pedro Corto El Valle 1,318 84\.1 521 33\.2 6,699 742 San Juan de la San Juan de 1 8 14 Maguana la Maguana El Valle 19,918 63\.5 7,553 24\.1 89,931 10,277 Total SJdLM 1 16 35 40,766 70\.4 16,900 29\.2 241,105 27,929 San Pedro de 0 1 6 Macoris Consuelo Higuamo 4,194 51\.9 678 8\.4 31,405 3,798 San Pedro de San Jose de 0 1 2 Macoris los Llanos Higuamo 4,299 73\.6 1,130 19\.3 18,282 2,276 San Pedro de San Pedro de 1 12 8 Macoris Macoris Higuamo 23,477 41\.6 2,244 4 205,091 23,612 Total SPdM 1 14 16 37,847 47\.8 5,562 7 301,744 35,875 0 0 3 Sanchez Angena Cibao Sur Ramirez AC\. \. \. 12,014 Sanchez Cibao Sur 0 1 3 Ramirez Cevicos 1,687 72\.8 554 23\.9 9,475 Sanchez Cibao Sur 1 5 9 Ramirez Cotui 9,398 52\.1 2,254 12\.5 61,845 0 0 6 Sanchez Fantino Cibao Sur 2,462 45\.9 257 4\.8 22,675 50 ANNEX C Number Number Number of Absolute % in % in of of class- classrooms Province Munici- Region P absolute Extreme extreme Popula- Younger rooms rehabil- pality, DM Poverty tion than 5 CMEJs Bul ttdpoverty poverty Built itated Ramirez Sanchez Hernando Cibao Sur 0 0 2 Ramirez Alonzo \. \. \. \. 5,851 Sanchez Sanch\. Cibao Sur 0 1 1 Ramirez La Bija C S\. \. \. 9,323 Sanchez Cibao Sur 0 3 2 Ramirez La Mata 5,128 54\.2 568 6 13,368 Sanchez SanchezCibao Sur 0 1 0 Ramirez Platanal C S\. \. \. 4,030 Sanchez Cibao Sur 0 0 1 Ramirez Quita Sueno \. \. \. \. 3,197 Total Sanchez Ramirez 1 11 27 19,510 53\.4 3,849 10\.5 151,179 Cibao 0 1 1 Santiago Guayabal Norte \. \. \. \. 10,908 1,080 Cibao 0 2 1 Santiago Janico Norte 2,387 62\.6 566 14\.8 9,376 907 Cibao 1 7 6 Santiago Santiago Norte 32,217 19\.9 2,373 1\.5 553,091 58,091 Villa Cibao 0 3 1 Santiago Gonzalez Norte 3,415 44\.4 402 5\.2 24,542 2,675 Total Santiago 1 13 9 64,601 27\.6 7,282 3\.1 908,250 95,964 0 9 12 Santo Boca Chica Ozama Domingo 10,891 41\.2 965 3\.6 60,844 8,076 Santo 0 1 2 Domingo Guerra 6,158 64\.2 796 8\.3 31,292 3,919 Santo Los Alcrrios Ozama 0 6 7 Domingo Alcarrizos 18,636 37\.7 1,528 3\.1 171,074 23,644 51 ANNEX C Number Number Number of Absolute % m % in of of class- classrooms Province Munici- Region P absolute Extreme extreme Popula- Younger rooms rehabil- pality, DM Poverty tion than 5 CMEls Bul ttdpoverty poverty Built itated Santo Ozama 0 6 3 Domingo Pedro Brand 5,827 50\.1 721 6\.2 26,493 3,751 Santo Santo Domingo Ozama 1 29 42 Domingo Este 38,081 19\.1 1,676 0\.8 732,593 82,572 Santo Santo Domingo Ozama 0 24 22 Domingo Norte 24,833 30\.9 1,912 2\.4 321,178 40,595 Santo Santo Domingo Ozama 0 9 12 Domingo Oeste 14,984 20\.7 582 0\.8 284,376 3,445 Total Santo Domingo 1 84 100 184,011 \. 8,936 \. 1,821,218 220,917 Cibao 0 1 1 Valverde Esperanza Noroeste 6,380 51\.6 1,106 8\.9 44,218 Cibao 1 0 1 Valverde Mao Noroeste 5,391 42\.1 823 6\.4 49,475 Total Valverde 1 1 2 21,370 51\.3 4,497 10\.8 158293 Distrito Distrito 1 17 26 Nacional Nacional Ozama 48,405 19\.7 2,845 1\.1 910,076 88,541 Total Distrito Nacional 1 17 26 48,405 19\.7 2,845 1\.1 910,076 88,541 Source: Classroom Construction/Renovation from Ministry of Education; Poverty Rates: UNDP's Focalizacion de la Pobreza en Repulica Dominicana 2005; Population: 2002 Census of the National Office of Statistics 52 ANNEX C Table 14\. Grantee Respondents to IEG Survey Survey 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Respondent Santo Santo San Santo Santo San La Monte Azua de Santiago San San Santiago Monte Santo SAnchez Santia- Santo Monte Province/ Domin- Domin- Pedro Domin- Domin- Pedro Vega Plata y Composte- y San Juan Cristo- Plata Doming, Ram- go Domingo Plata Municipality go go de go go de Santo la Cristo- de la bal Distrito irez Maco- Norte Maco- Domin- bal Magu- Nacional ns ris go ana Grant Amount, RD$ 3,500 8,380 3,439 2,368 N/A 6,410 3,423 3,449 1,984 5,917 7,793 2,441 3,139 2,999 2,846 3,290 4,166 4,905 1,219 (000) hien 3-4,5 0-5 3-4 3-4, 5 2-5 0-7+ 5,6 3-4 0-5 5-7+ 5 0-5-7+ 5, 7+ 5-7+ 3-4 3-4 0-5 3-5 0-2,3- Beneficiary: Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes parents Teachers Yes Yes Yes Yes Yes Yes Yes Yes No Yes Yes Yes N/A Yes Yes Yes Yes Yes Yes Increase in number of children received ECD No Yes Yes Yes Yes Yes Yes Yes No Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes services because of the grant Nhir 0-2) 0 250 0 10 - 0 0 Yes 0 0 0 932 0 0 0 0 0 0 27 Nhir 3-4) 0 300 253 50 - - 84 - 0 0 0 764 0 0 200 1040 695 - 54 Nhildr ) 0 550 0 30 - - 221 0 0 200 582 102 0 0 0 0 0 0 59 When the grant ended, did all the Yes No Yes Yes Yes Yes Yes Yes Yes No No No No Yes Yes No No Yes Yes activities continue? Source: IEG Survey 53  ANNEX D Annex D\. List of Persons Met World Bank Staff and Consultants Eduardo Velez Bustillo, Sector Manager Raja Bentaouet Kattan, Senior Education Specialist Cynthia Hobbs, Senior Education Specialist Samuel Carlson, Senior Human Development Economist Jorge Mesa, Consultant McDonald Benjamin, Country Manager Catherine Abreu Rojas, Procurement Specialist Myrna Machuca-Sierra, Education Specialist Ministry of Education Staff Fernando Ogando, Director International Cooperation Office [Oficina Cooperaci6n Internacional] Evelyn Paula Bonifacio, Interim Director Early Childhood Development Ministry of Education Clara Baez, Director Early Childhood Development Ministry of Education Guadalupe Valdez, Former Vice Minister Ministry of Education and Director Grant Program Ministry of Education District and Regional Staff Ximara Calzado, Coordinator Region 15 Raquel Vallejo, District Technical Region 15 Alba Estela Segura, Coordinator Region 03 Andrea Palmero Casillo, Coordinador Regional 04 Pedro de la Cruz, SubDirector District 04 Dignora Cabrera Criquet, Director Region 04 Center and School Staff Deyamina Souano Beltre, Coordinator Model Centerl Barolome Olegario Perez 55 ANNEX D Yselsa Margarita Ramirez Pereyra, Librarian Model Center Barolome Olegario Perez Maribel Diaz Castello, Model Center Barolome Olegario Perez Denny Agramente, Orientadora, Model Center Barolome Olegario Perez Berkis Nidia Orozco Aybar, Teacher Model Center Barolome Olegario Perez Rosa Margarita Nunez Jimenez, Teacher, Model Center Barolome Olegario Perez Olga Lidia Diaz Filpo, Teacher Model Center Barolome Olegario Perez Rosangela Melo Hidalgo, Secretary Model Centerl Barolome Olegario Perez Teresa del Jesus de los Santos Pineda Fabio Antonio Cordero de Leon Cruz Maria Rodriguez, School Principal Rotary Flaria Valquez, School Principal Basica Sterling Ana Octavia Segura, School Principal Basica Jose Pena Gomez, Francisca Jimenez Payano, School Principal Escuela Jesus Maestro Ivelisse Cruz Reinoso, Teacher and Coordinator Pedagogical Groups Grantee Organizations Lenor Brito, Financial Coordinator Azua Organization Ana Fabal Rivera, Accountant Azua Organization Santo Hipolito Guerrero, First Advocate Azua Organization Altagacia Biltie, Vice President Azua Organization Eunice Feliz Perez, Coordinator for the Dominican Rehabilitation Association Dora Peralta, Arts Program for the Dominican Rehabilitation Association Esleivin Martinez, Occupational Therapist for the Dominican Rehabilitation Association Dario Carvajal Urena, Coordinator Aide et Action Julio Cesar Benitez, President Agricultural Association Jose Antonio Munoz, Education Coordinator Agricultural Association Marcelino Cruz Perez, Secretary Agricultural Association Ramonita Dominguez, Pedagogical Institute 56 ANNEX E Annex E\. Borrower Comments J1=Mttrao dF-Euracirz REPUBLICA DOM NICANA Oficina de Cooperacd n Internaional OCi-M)NERD44M400 Sano Domingo, 11 N 17 de junio de 2013 SeAro Napin Gishanar Gerente Inrino Encargada Divisi6n de Evaluadn Sectorial Oficina de Ewluaci6n Principal Banco Mindial Sit Despacho Distinguida Senora Girishankar: Agradecemos su comvnicaid6n df 11 de junio de 2013, ep la cual nos remite el Borradar de hybrme de EvaluaciOn de Resultados del Proyecto para el Fornalecimiento de la Educocibn nicial (IRF 7144\. En ete sentido, no tenemas obervacidn alguna a/ inforne, excepio, lamar su alencin sobre el acdpie 1\.8 de la pdgina 15 sobre el establecimiento del 4% para la Educacin, que ya us una realidadpare este ago, Arenramenre, FAG01cj ,1 ht f Ay Mk&*m G6nw No i9 esq sdNw saioDdgo, RfiaOcmkram T&1 'V9A65*16) 09M6-700 ell 7050 * \.09485 3790 * URLVMwnIrd\.gahdo Translation: We acknowledge your communication dated June 11, 2013 where we received the Project Performance Assessment Report for the Early Childhood Education Project\. In this sense, we have no comments about the information, except that we would like to call your attention to the fact that the government has in fact allocated four percent of GDP to education this year (paragraph 1\.8)\. 57

REVIEW

P008503

Document of The World Bank Report No: 25346 IMPLEMENTATION COMPLETION REPORT (SCL-433 10; PPFB-P33 10) ON A LOAN IN THE AMOUNT OF US$15 MILLION TO THE KAZAKHSTAN FOR AN AGRICULTURAL POST-PRIVATIZATION ASSISTANCE PROJECT JANUARY 31, 2003 Envionmentally and Socially Sustainable Development Unit Central Asia Country Unit Europe and Central Asia  CURRENCY EQUIVALENTS (Exchange Rate Effective 1/29/2003) Currency Unit = Kazahk Tenge I KZT = US$ 0\.006 US$ I = 153\.3 KZT FISCAL YEAR January I - December 31 ABBREVIATIONS AND ACRONYMS APL Adaptable Program Lending APPAP Agricultural Post Privatization Assistance Project CAS Country Assistance Strategy EBRD European Bank for Reconstruction and Development ESW Economic Sector Work GOC Group of Consultants GOK Govemment of Kazakhstan LAS International Accounting Standards ICR Implementation Completion Report IFC International Finance Corporation IFI Intemational Financial Institution ISA International Standards on Auditing KZT Kazakh Tenges MIS Marketing Information System MOA Ministry of Agriculture MOF Ministry of Finance MTR Mid Term Review NBK National Bank of Kazakhstan PCD Project Concept Document PFI Participating Financial Institution PIU Project Implementation Unit PPF Project Preparation Facility QAG Quality Assurance Group RAC Rural Advisory Centers Vice President: Johannes F\. Linn Country Director: Denniis de Tray Sector Director: T aura Tuck Task Team Leader: Hoonae Kim  KAZAKHSTAN KAZAHSTAN AGRICULTURAL POST-PRIVATIZATION ASSISTANCE PROJECT CONTENTS Page No\. 1\. Project Data 1 2\. Pnncipal Performance Ratings 1 3\. Assessment of Development Objective and Design, and of Quality at Entry 2 4\. Achievement of Objective and Outputs 5 5\. Major Factors Affecting Implementation and Outcome 14 6\. Sustainability 16 7\. Bank and Borrower Performance 16 8\. Lessons Learned 17 9\. Partner Comments 19 10\. Additional Information 24 Annex 1\. Key Performance Indicators/Log Frame Matrix 25 Annex 2\. Project Costs and Financing 28 Annex 3\. Economic Costs and Benefits 30 Annex 4\. Bank Inputs 32 Annex 5\. Ratings for Achievement of Objectives/Outputs of Components 34 Annex 6\. Ratings of Bank and Borrower Performance 35 Annex 7\. List of Supporting Documents 36 Annex 8\. Aggregate Information of PFI Portfolio 37 Annex 9\. PFI Financial Standing and Portfolio Quality 38 Annex 10\. Comparison of Market Interest Rates 40 Map: IBRD 29505R   Project ID: P008503 Project Name: KAZAHSTAN AGRICULTURAL POST-PRIVATIZATION ASSISTANCE PROJECT Team Leader: Hoonae Kim TL Unit: ECSSD ICR Type* Core ICR Report Date: January 31, 2003 1\. Project Data Name: KAZAHSTAN AGRICULTURAL L/C/TFNumber: SCL-43310; POST-PRIVATIZATION ASSISTANCE PROJECT PPFB-P3310 Country/Department: KAZAKHSTAN Region: Europe and Central Asia Region Sector/subsector: General finance sector (82%); Central government administration (15%); Capital markets (3%) KEY DATES Original Revised/Actual PCD: 09/16/1994 Effective: 08/24/1998 10/23/1998 Appraisal: 02/0411998 MTR: 02/28/2000 06/26/2002 Approval: 06/02/1998 Closing: 01/31/2002 07/31/2003 Borrower/lImplementing Agency: REPUBLIC OF KAZAKHSTAN/MINISTRY OF AGRICULTURE Other Partners\. British Know How Fund, European Union STAFF Current At Appraisal Vice President Johannes F\. Linn Johannes F\. Linn Country Manager: Dennis de Tray Kiyoshi Kodera Sector Manager: Laura Tuck Laura Tuck Team Leader at ICR: Hoonae Kim ICR Primary Author- Dara Lengkong 2\. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainability- L Institutional Development Impact: SU Bank Performance: S Borrower Performance: S QAG (if available) ICR QualityatEntry- S S Project at Risk at Any Time: Yes  3\. Assessment of Development Objective and Design, and of Quality at Entry 3\.1 Original Objective: Background The Government of Kazakhstan (GOK) requested Bank support for the Agricultural Post Privatization Assistance Project (APPAP) during the period when the agricultural sector in Kazakhstan was experiencing a prolonged crisis\. Agricultural production was at its lowest in 30 years, a significant number of farms were facing mounting losses, and rural income levels were steadily declining\. To counter these trends, the GOK had introduced key policy reforms in the areas of farm privatization, land code, and registration laws, and eliminated state controls on agricultural trading, as well as on prices and marketing\. Yet these measures did little to improve the condition of the agricultural sector, as fundamental weaknesses still remained\. Most noteworthy was the poor outcome of farm privatization due to the lack of transparency, which led to the concentration of farm ownership in the hands of relatively few, larger owners\. And although some reforms were introduced, the overall legal and institutional framework was still weak\. Furthermore, post-privatization farmers were not able to revitalize their farms, as a rural financial system, providing farmers' needs for working capital and medium term investments, was virtually nonexistent\. Against this background, the GOK requested multi-phased Adaptable Program Lending (APL) support over 10 years with a total indicative financing plan of US$85 million to address the medium term development agenda of the sector\. The first phase of the APL for US$15 million was approved on June 2, 1998, the Loan Agreement was signed on June 23, 1998, and it became effective on October 23, 1998\. The first phase was to focus on building institutional and human capacity and on creating an environment where private farms can properly function\. Building upon lessons learned in the first phase, the two subsequent phases would intensify and expand the Program agenda\. Project Objectives This Project is the first phase of a three phase Program\. The Program objectives are to: (a) maintain the policy framework for development of private rural enterprises and strengthening of the market economy; (b) improve the flow of information, advice and training to newly emerging rural enterprises; (c) support the development of rural financial markets and improve the access of rural enterprises to commercial financial services; and (d) introduce further legal and institutional reforms to improve the rural financial system and strengthen bankruptcy procedures\. Within these Program objectives, the main objectives of the Project are to: (a) facilitate commercialization of rural enterprises aimed at increasing farm productivity and incomes; (b) assist commercial-banks for financing; and (c) strengthen the legal and institutional framework for agricultural lending and for bankruptcy procedures of agricultural enterprises\. These project objectives would be achieved by providing support for: (i) establishment of rural advisory and information services; (ii) development of a sound legal and institutional framework for secured lending and the protection of creditor rights; and (iii) facilitating commercial bank lending for working capital and medium term financing for restructured farms and other rural enterprises\. According to the PAD, the APPAP to be implemented over five years would focus on the establishment of the legal framework, institutions and procedures to support improved performance of rural enterprises and provide credit to commercially viable restructured enterprises\. The subsequent second phase, APL II, would build upon results from the first phase by expanding into additional oblasts the coverage of advisory -2-  services, increasing the amount of financing for rural enterprises, and introducing other rural business supporting measures as required\. The APL III would expand the Program nationwide, while promoting increased availability of credit from the banking sector's own resources and further development of rural advisory services\.These objectives were highly relevant to the country's needs for development of the rural sector, where most of the country's population lives, and consistent with the Bank CAS goal of completing Kazakhstan's transition into a market economy\. 3\.2 Revised Objective: The overall Project and Program objectives remain unchanged despite some modifications made in Project design and implementation arrangements, as discussed in Section 3\.4 below\. 3\.3 Original Components: The Project had four main components: (a) Rural Advisory Services; (b) Credit; (c) Institutional Development; and (d) Project Implementation Unit Support\. The Rural Advisory Services Component was to provide advisory and information services to rural enterprises, and to build a business infrastructure for the delivery of advice and training on technical and commercial practices\. Through these services, the component was designed to enable rural business people to undertake necessary changes in ownership structure, as well as management, commercial and technical practices through two Rural Advisory Centers (RACs) in Almaty and Akmola regions\. The Credit Component was to provide critically lacking investment and working capital financing through eligible participating financial institutions (PFIs) to rural enterprises with viable business plans and demonstrated repayment ability\. TA and training were also to be provided to improve PFIs' capacity in rural lending\. The Institutional Development Component was to provide technical assistance (TA) and training for the implementation of bankruptcy proceedings, and to develop an institutional and legal framework that facilitates the use of a wide range of assets including land and moveable property as collateral to help build a sustainable financial system\. The Project Implementation Unit (PIM) Component was to provide TA, training and establishment support for a PIU under the Ministry of Agriculture (MOA), which has the primary responsibilities for coordinating all activities under the Project\. In addition, a Project Preparation Facility (PPF) was provided to support initial preparation activities, including the early start-up costs associated with establishment of PIU and advisory centers, initial training of staff, and assessment of potential PFIs to ensure they meet the eligibility criteria\. 3\.4 Revised Components: During the implementation, per request of the Borrower, several important changes were made to the component designs and implementation arrangements\. - 3-  Rural Advisory Component\. The two regional RAC as noncommercial entities proved to be neither effective nor sustainable for the provision of advisory services to rural enterprises\. In July 2001, the RAC concept was abolished under the Project and instead, a competitive tendering scheme to provide demand-driven and small-scale contracts through private consultants was introduced, along with a grant co-financing scheme to support the preparation of business plans for loans up to US$150,000\. Credit Component\. While the component objectives and implementation arrangements remain unchanged, several changes to terms and conditions were introduced to expedite the implementation; (a) expansion of geographical coverage to six additional oblasts (The additional oblasts were East Kazakhstan, Pavlodar, North Kazakhstan, Kostanai, West Kazakhstan and South Kazakhstan\.); (b) introduction of leasing with the maximum leasing exposure up to US$1\.5 million; (c) increase of the maximum sub-loan limit to US$750,000; (d) amendment of the procurement threshold for "commercial practices procurement" to US$ I million; and (e) increase of Bank financing of subloan to 100%\. Institution Development Component\. This component remains unchanged although altemative sources of funds were used to implement the component (see section 4\.2)\. Project Implementation Unit Component\. As part of the Govermment's overall efforts to integrate the management of development projects into line ministries, all independent PIUs (for all IFIs projects) were abolished and their functions were integrated into respective line ministries\. For APPAP, in March 2000, consultants hired under a special unit Group of Consultants (GOC), which reports directly to a Vice Minister of Agriculture, were substituted for PIU\. Other changes\. To realize the above changes: (a) several reallocations were made across disbursement categories; (b) the Project closing date was extended from January 31, 2002 to July 31, 2003; and (c) the deadline for submission of sub-loan applications was extended from June 30, 2001 to January 31, 2003\. 3\.5 Quality at Entry: APPAP was reviewed by the Quality Assurance Group (QAG) in early 1999, and rated as marginally satisfactory\. While QAG noted the Project's competent social assessment and good sector analysis, it pointed out several areas of concem, most of which were mitigated during implementation (see table below): Issues raised by QAG Comments The Project appeared to place great Farm privatization was almost completed before the Project was in emphasis on financial interventions place and Government had limited options to directly affect the without adequately addressing the restructuring of post privatization farms other than implementing ineffective Government-led farm more efficient bankruptcy procedures, which the Project supported\. restructuring process; Recognizing the limited options, the Project was deliberately designed to induce credit-led incentives for post privatization farmers to become more efficient\. A Bank study subsequently conducted found that profound, positive impacts had resulted under the Government-introduced bankruptcy procedures\. Services for family farms were not APPAP facilitated provision of commercial credit to newly emerged, specifically designed; yet commercially viable rural enterprises including family farms\. At completion, 49 percent of credit recipients and more than 80 percent of beneficiaries of the rural advisory services were family farms\. -4 -  The credit component was designed The credit component has been fully implemented as appraised with without adequate analysis of PFIs, over 98 percent repayment rates\. Out of 119 loans made, only 2 have was too narrowly targeted, had a experienced difficulties\. Seven PFIs fully maintained the eligibility high geographical concentration and criteria and National Bank's prudential norms and the same set of had unmitigated currency risks, the banks are also serving EBRD, IFC and other international credit posing high risks to PFls; facilities\. Two also have floated bonds in international capital markets\. Furthermore, PFIs performances were closely monitored by the task team\. Geographical limitations for lending were removed\. Training and field operations for With the transformation of the RAC model to a competitive advisory networks were not tendering scheme, a total of 258 training workshops were held with adequately phased; more than 10,000 participants, and the pace of establishing an advisory network for provision of commercial advice remains strong\. The Project development objective The Project was designed to build the initial foundation and of 20 loans to corporate farms and momentum for a sustainable rural financial system that could be 70 loans to family farms was very enhanced under following stages of APL\. At the time of ICR limited\. preparation, total of 119 sub-loans were made or in the pipeline, of which 61 were for corporate farms and 58 were for family farms\. The D proportion of the family farms is rapidly increasing\. 4\. Achievement of Objective and Outputs 4\.1 Outcome/achievement of objective: The Project objectives were satisfactorily achieved and are consistent with meeting the overall Program objectives\. The first phase APPAP was to develop the foundations and refine institutional and operational procedures needed to accelerate the commercialization of rural enterprises, by establishing an advisory services network, creating a legal and institutional environment conducive to rural lending, and providing means, both financial and capacity building, for commercial banks to increase lending to rural enterprises\. Although perhaps modest quantitatively in terms of the number of loans made, the outcome and impact resulting from the Project have been significant: (a) farm restructuring is being implemented through disciplined and well executed bankruptcy procedures; (b) a legal foundation for moveable collateral and warehouse receipts is in place with active support by IFIs; (c) the institutional and operational structure for delivering private sector rural advisory services is in place; and (d) commercial lending to rural clients through private commercial banks has begun expanding\. The Project has established a solid foundation for a sustainable rural financial system\. There was a near absence of agricultural credit being extended through commercial banks when the Project started\. At completion, seven commercial banks are active, the loan portfolio is growing, and the share of family farms reached 49 percent of the total number of loans made and continued to grow\. Of the loans disbursed during 2002 alone, the share of family farms was as high as 62 percent\. In addition to making long-term agricultural credit available, the Project has also reduced commercial banks' general bias for making large loans to large-scale corporate farms\. The average subloan size has significantly declined to less than US$74,000 in 2002 and the average loan size for family farms is even smaller at around US$37,000\. The relative shares of PFIs and borrowers' own equity contributions are also increasing\. Through injecting credit and necessary institutional capacity building support, and demonstrating that credit to agricultural clients, particularly to private family fanns can be viable, the Project has contributed towards the - 5 -  increasing confidence in rural economic activities held both by lenders and borrowers\. The injection of competitively priced, long-term investment funds under the Project has fnally allowed post-privatization farmers to invest in productive assets, which in turn improved their productivity and income\. Field visits and the beneficiary survey results demonstrated that APPAP financing had an immediate, direct, and positive impact on productivity and employment generation, and facilitated the diversification into other non-agricultural business activities\. In addition, the availability of rural advisory services was introduced and the network's capacity in supporting the rural business community continued to strengthen\. A substantial part of the rural community has had experience with the various services of the network through infornational campaigns, technical workshops, business-plan preparation, and loan application assistance\. High satisfaction was expressed by the recipients as to the quality and applicability of the services provided -some even indicated their willingness to pay market level fees in retur-and the demand for services continues to increase (A survey done under an independent consultant assessment report conducted in July 2002 confirmed the rural community's satisfaction on quality of rural advisory services and continuing demand for such services)\. Assessment of APL Trigger Points In line with APL procedures, results from APPAP need to be assessed before preparation of APL II can be initiated\. The first phase had five trigger points: (a) Institutional capacity of RACs and PIU evaluated as sufficient to expand the program; (b) RACs performing satisfactorily in terms of initial contracts, on-going client support, establishment of supporting consultant network, and ability to earn fees (achieving at least 75 percent of performance indicators); (c) At least 75 percent of credit component committed for a balanced portfolio of small family farms, larger corporate farms, and associated enterprises with at least four PFIs that are interested in participating in a second phase and can demonstrate sufficient capacity to handle an expanded program of lending; (d) Less than 10 percent of total outstanding balance of Project financed sub-loans classified as non-performing; and (e) Bankruptcy procedures in use and laws on registration of pledges of moveable property enacted\. All of the triggers for moving into APL II were met (see Annex IC for more details), with the exception of those related to RACs which became irrelevant after the Rural Advisory Component was revised and RACs were replaced with private advisory consultants\. Although credit coverage and outreach can be broadened further, the credit line was performing satisfactorily while carrying commercial conditions, offering positive real interest rates, and maintaining exceptionally high repayment rates\. Significant capacity building was undertaken within the Government, PFIs, advisory providers and beneficiaries, to promote a vibrant rural economy\. During the ICR mission, all stakeholders expressed strong interests to pursue APL II to further enhance the Program's outreach\. The Government in particular had confirmed its strong commitment for APL II, which is encouraging considering GOK declaration that it will significantly reduce borrowing from the Bank and its cancellation of several other Bank projects in the lending pipeline (The Healthcare Project, which was under implementation, and the Rural Roads Development Project, which was under preparation, were both canceled by the Government)\. While doing so, GOK also included counterpart funds in the 2003 budget to support the preparation for APL II\. APPAP gained strong momentum, particularly towards its end\. A timely APL II could capitalize on APPAP achievements and address areas still outstanding on the - 6 -  development agenda\. 4\.2 Outputs by components: A\. The Rural Advisory Component (Bank Financing at Appraisal: US$ 0\.94 million; Bank Financing at Completion: US$ 1\.09 million) was to finance TA, training and establishment of RA Cs, for a sustainable consulting network thatprovidesfarmers with access to information, technical and commercial advice and training\. Overall, APPAP had successfully established the initial foundation for a private rural consulting network\. APPAP introduced for the first time a range of consulting services proven to be beneficial in commercializing rural business activities and in nurturing the process of diversification into non-traditional rural activities\. A beneficiary survey confirmed that there is a high unfulfilled demand for rural credit and the consulting services\. More than US$1 million was provided to facilitate the capacity building of a large number of rural consultants who in turn assisted rural entrepreneurs previously lacking sound business concepts and basic business skills\. The original design of the Rural Advisory Component was to establish independent, non-profit RACs that would identify and accredit advisory organizations, assist in their capacity building, and provide referrals for farmers to access appropriate advisory services\. Approximately US$265,000 was spent for TA, office hardware procurement, and other initial start-up costs in the establishment of two RACs in Almaty and Astana oblasts\. During their tenure, 94 information campaigns and 13 training seminars were carried out, initial credit consultations were held with 1000 prospective borrowers, 67 business plans were prepared, of which 15 were granted with actual credit by PFIs\. Despite these results, the RAC concept which was based on public institutions providing commercial services to private farmers proved to be inefficient and unsustainable\. The original approach also created an unfair competitive environment for private consultants that did not receive support from the RACs\. Hence in July 2001, the RAC concept was transformed to a competitive small contract tendering model with participation of private consulting firms\. This revision has set the initial groundwork for commercialization of rural consulting services, and has enhanced sustainability of the system through strengthening institutional, technical, commercial management capacity of the private service providers\. Eight consultancy contracts were awarded to carry out 40 information campaigns and 111 training seminars in different regions of the country to provide support to farmers in broad areas, including tax and bankruptcy laws, agro-technical issues, and assistance in business plan preparation and credit applications\. Credit consultations were held with more than 570 interested borrowers, 73 business plans were prepared, of which 36 were approved by PFIs\. Under the revised approach, the provision of advisory support to farmers was substantially improved, in terms of both quantity and quality\. Within just over one year, the number of seminars held was accelerated, coverage in geographic areas and number of participants were significantly increased, and the success rate for loan approval was also improved from 22 percent to 49 percent\. Feedback received from the participants on the quality of seminars held was very positive and most reiterated the continuing demand for such support (as confirmed by the July 2002 assessment report done by an independent consultant)\. Attached table below provides summarized the component outputs\. - 7 -  Total Contacts with Clients during RACs Tenure and Consultants Contract (1998-2002) RAC Consultant (1998- Contracts TOTAL mid 2001) (mid 2001-2002) Number of Seminars and Information 107 151 258 Camnpaigns held Number of Seminar Participants 4,960 5,108 10,068 Number of Initial Credit Consultations held 1,000 570 1,570 Number of Business Plans Prepared 67 73 140 Number of Loans Approved 15 36 51 Percentage of loans approved to business 22% 49% 36% plans prepared I B\. The Credit Component (Bank Financing at Appraisal: US$ 12\.29 million; Bank Financing at Completion: US$ 12\.29 million) was to provide financing through PFIs to private farmns and associated enterprises, and to strengthen PFIs capacity in commercial rural lending\. Overall review of the banking sector and PFIs\. The adverse effects of the Russian crisis in 1998 had been contained and significant growth was experienced since early 2000\. Domestic deposits grew rapidly, reflecting enhanced depositor confidence, and banks expanded their lending to domestic firns, albeit mostly in the form of short-term and fully collateralized working capital financing\. Overall, the banking sector was relatively stable and well regulated, continuously moving towards intemational standards, and foreign investments were substantial\. (The following foreign banks operated in Kazakhstan: CitiBank, HSBC, Bank of China, Demir Bank, and National Bank of Pakistan\. Foreign investors, including EBRD, IFC and others, have also invested in the banking sector\.) Nevertheless, the level of broad money and bank credit in proportion to GDP was still much lower than that in other emerging markets, indicating that the banking sector is still at an early stage of development\. Also, general confidence in the legal environment was evidently still low, prompting banks to lend more shorter-term loans and require full collateralization\. The country has a two-tier banking system - the National Bank of Kazakhstan and 37 commercial (second-tier) banks\. As of November 1, 2002, total consolidated assets amounted to KZT 1,009 billion (US$6\.6 billion) and total lending to KZT 620 billion (US$4\.05 billion), whereas total capital reached KZT 126\.3 billion (US$0\.83 billion)\. The seven PFIs were systematically important banks, which altogether accounted for 68 percent of system wide banking assets, as indicated in the table below, and maintained capital adequacy ratios between 9-30 percent, above the Basel minimum required ratio of 8 percent\. All PFIs met the Project eligibility criteria for credit line operation and complied with the provisions of the Subsidiary Loan Agreement and Rural Credit Guidelines\. (The PFI eligibility criteria were: valid banking license, certificate of compliance issued by NBK, IAS standard accounting and financial statements, audit by intemational auditor in accordance with ISA, adequate rural branch network, acceptable governance body, expressed interest and experience in agricultural lending, acceptable internal control systems, and willingness to participate in capacity building programs)\. - 8 -  Assets System System System PFI (As a % of ranking by ranldng by ranking by total banking size of size of size of loan sector) assets capital portfolio Kazkommertsbank 21\.6% 1 1 1 Bank Turan Alem 18\.8% 2 2 2 Halyk Bank 15\.5% 3 3 3 AlmatyMerchant Bank 5\.2% 4 5 5 Bank CenterCredit 4\.0% 5 8 4 Temirbank 2\.6% 8 10 7 Tsesnabank 0\.8% 17 22 15 Component Scale at Completion\. At appraisal, the credit component cost was expected to be around US$19\.47 million and amounted to US$18\.96 million at completion\. The Bank financing of this component remained unchanged at US$12\.29 million, which was fully disbursed\. While the appraisal target of a total of 90 sub-loans was relatively low and therefore criticized by QAG, the actual number at the time of the ICR preparation was higher at 119\. Portfolio\. At closing, the key information of the portfolio was as follows: * Seven private commercial banks are actively participating\. * Total outstanding loan portfolio amounted to US$13\.19 million (net of repayment)\. * A total of 119 sub-loans was issued\. * Investtnent loans accounted for 64 percent of the portfolio, while 36 percent was for working capital\. * The number of family farms receiving the sub-loans was 58\. * The average sub-loan size for the entire portfolio was US$110,821\. * The average interest rate was about 12\.3 percent for US dollar denominated loans\. * The average repayment term was 3 years, with the longest term being 4\.8 years\. * Repayment rate was over 98 percent\. PFI r~~~~Nub of Number of LonPrflo Average Size Average Average PFI r ofe Family Farm Loan Potfolio of sub4oans InterestRate Tenor s%ub beneficiaries Amount (US$) (USS) (%) (years) Kazkommertsbank 6 0 2,161,100 360,183 12\.6 4\.8 Bank Turan Alem 19 10 2,220,152 116,850 13\.5 2\.3 Halyk Savings Bank 18 14 874,027 48,557 10\.7 3\.1 Kazakhstan Temir Bank 19 7 2,088,372 109,914 12\.9 3\.0 Center Credit Bank 10 4 1,349,834 134,983 12\.0 3\.6 Almaty Merchant 22 12 1,965,479 89,340 12\.3 2\.1 Bank Tsesna Bank 25 11 2,528,675 101,147 11\.8 1\.8 TOTAL 119 58 13,187,639 110,821 12\.3 3\.0 Types of activities supported\. Loans were provided at commercial terms and at interest comparable to prevailing market rates, across different rural business activities, including non-agricultural rural entrepreneur businesses\. Agricultural production in both crops and livestock received the largest - 9-  portion of funds (55 percent and 14 percent respectively), followed by agro-processing (23 percent), and other non-farming activities (8 percent)\. KZ APPAP Division of Funds by the Types of lnvestm ents C attle and other breading Processing a X 14 % 2 3 % H 1 Crop production 55% Increasing outreach, diversification of beneficiaries, and declining average loan size\. The number of sub-loans has been steadily increasing\. Starting with the modest number of 5 in 1999, the number of sub-loans made in 2002 significantly increased to 69, particularly after the MTR of June 2002\. While the total number of 58 family farms receiving the credit (for US$ 2\.2 million) is below the appraisal target of 70 family farms, the trend is promising\. Until 2001, an average of 5 family farms annually had access to credit, which in 2002, jumped to 43\. This healthy trend is continuing (see graph below)\. KZ APPAP Lending to Fam ily Farm s s 60 20 't8 :r fmT o tyl N~~~~ ~n ber of 4 0ans 2 0 ta0 - fomN 0~~~~~ CD 0N During Year The average sub-loan size steadily declined, particularly after the MTR was conducted\. After the maximum loans limit of sub-loans was raised in 2001, the average size jumped substantially from about US$150,000 to US$214,000\. However, through productive dialogue among the task team, PFIs and GOK to extend credit to more borrowers, particularly to small-scale borrowers, the sub-loan size has been significantly reduced to about US$74,000 in 2002, and the trend is likely to continue\. - 10-  KZ APPAP Average Loan Size and Number of Loans Disbursed 200 -"Ar16'7 60 \. 150 '-\.' 4 \.~6 ap 50 U i\.0 20 E 1999 2000 2001 2002 During Year Average loan size - Nurnber of oans| PFIs\. All PFIs were assessed carefully against the agreed set of eligibility criteria before they were allowed to participate\. At closing seven private commercial banks were active\. The same set of banks also intermediate EBRD, IFC and other IFI sourced credit lines, and two of the banks have successfully floated bonds\. At completion, two additional banks have expressed interest in participating, but due to the limited time before the loan closing, their participation will be considered under APL II\. PFIs maintained full autonomy in the selection of beneficiaries\. Access to the credit line was on a 'first come first serve' basis to encourage competition among PFIs\. Lending decisions were commercially based on the borrowers' demonstrated viability, sufficient collateral, and repayment capacity, all of which contributed to the good quality of loan portfolio and high repayment rate\. Interest Rates and Maturity Period\. The APPAP funds were on-lent to PFIs by the Ministry of Finance in US dollars\. PFIs signed subsidiary loan agreements which stipulate all terms and conditions\. The interest rates to PFIs were based on the formula LIBOR plus 50 basis points (The interest rate level was reviewed and set by the government on a semi-annual basis), which remained positive in real terms throughout implementation\. GOK has stated upfront that APPAP credit funds would be provided to PFIs at a rate relatively lower than those prevailing for commercial funds (about 1-2 percent lower than other credits for industrial clients) to encourage private commercial banks to lend to small-scale, agricultural clients\. This is, in fact, equivalent to transaction cost support, which had an impact on triggering commercial banks' lending to the sector\. Whether such transaction support should be continued in the subsequent Project needs to be carefully reviewed during the preparation\. PFIs in turn on-lent the funds to ultimate borrowers at rates ranging from 10\.7 percent to 13\.5 percent, which were significantly positive in real terms and compatible to prevailing market rates\. Although there were higher interest rates in the market, they were not directly compatible to APPAP sub-loans\. Still, the interest rate differences were declining as the banking sector continued to mature (see Additional Annex 10 & 11 for interest rates data)\. Funds were provided to PFIs "back-to-back" according to the maturity of sub-loans they make\. The average maturity period was relatively stable at 3 years, of which an average maturity period for working capital loans was 1\.2 years\. Simplification of Sub-loan Approval Procedures and TA for PFI Capacity Building\. During implementation, several changes were made to sub-loan approval procedures\. Initially, PFIs' capacity for loan appraisal was weak and therefore, the agreed prior review requirements had to be augmented while hands-on TA for loan appraisal was provided\. In addition, PFIs in general were still reluctant to lend to farmers due to insufficient collateral, high "perceived" risks and relatively high administrative expenses associated with making small loans\. As a result, the disbursements were initially slow\. By end 2000, only 22 percent of the credit line had been disbursed\. To overcome these shortcomings, substantial training was provided to strengthen PFI capacity in sub-loan analysis, including more emphasis on cash-flow based loan - 1 1 -  risk assessment; loan approval procedures and document requirements were streamlined; a revolving account was opened by MOF for handling the credit reflows from PFIs; and procurement procedures were also simplified\. GOC, on behalf of GOK, also developed a methodology for rating PFI performances and followed up with more regular monitoring of PFIs\. With these measures, the pace of disbursements was significantly accelerated while maintaining a quality portfolio\. Initially, average approval period was as long as 7 months, which was reduced to less than 30 days\. C\. The Institutional Development Component (Bank Financing at Appraisal: US$ 0\.48 million; Bank Financing at Completion: US$ 0\.29 million) was to provide through TA and training support for the implementation of bankruptcy proceedings, and development of an institutional and legalframework that facilitates the use of a wide range of assets including land and moveable property as collateral\. Overall, the institutional development component objectives were largely met, but through the use of altemative grant funds obtained by GOK except for the development of a Marketing Information System\. Nonetheless, the Project provided an important catalyst role in initiating the important institutional changes\. The Bank conducted a sector study (Economic Sector Work/ESW) in 1999 on results and assessment of: (a) financial restructuring of former state and collective farms, including farn bankruptcy proceedings; (b) the potential for insurance/guarantee schemes for crop financing; (c) constraints in marketing, processing and input supply; and (d) role of Government in the provision of agricultural services\. The study found that the agricultural bankruptcy procedures appeared to be well understood and widely applied in general, thereby having a profound impact on farm ownership, structure, and management\. Thus, support in bankruptcy proceedings was no longer relevant, and staff decided that the collateral issue needed to be more emphasized\. Most cormmercial banks preferred to accept only property assets situated in large cities as collateral\. The use of farm land or equipment as collateral was still problematic because most ownership was only in the form of long-term leases instead of outright ownership titles, liquidation by banks through mandatory auctions limited recovery value, and the market for farm land was virtually non-existent\. Thus, even if commercial banks did accept farm land collateral, which was very unlikely, the valuation would be very low\. In attempt to address these issues, donor support was provided in the adoption of a Grain Law in January 2002, which provides the legal basis for using grain receipts as collateral\. In addition, a new land code was enacted\. Significant work is still needed to ensure wide application of these new laws, and other possible options to address the collateral issue need to be explored further under APL II\. Marketing Information System (MIS)\. The component financed a MIS to provide market orientation support for restructured farms and associated enterprises\. The system was a part of efforts to consolidate inforTnation from agricultural state and non-state agencies into a unified network and to maintain a flexible and timely database on the updated status of the sector, trends and opportunities\. Specifically, the component supported: (a) the design of the system; (b) staffing and training requirements; and (c) procurement of hardware equipment\. At completion, the MIS hardware has been purchased and installed, and efforts to develop the system further and promote wide usage by farmers were ongoing\. A total of US$ 315,747 was provided for these purposes, of which US$ 78,000 was co-financed by GOK to fund related activities\. Leasing\. In October 2001, the APPAP Loan Agreement was amended to provide leasing services\. However, there were still outstanding issues with the legal and regulatory framework and the supervision of leasing companies, including a need to close existing legal loopholes surrounding leasing\. The National Bank of Kazakhstan is currently developing prudential norms for leasing operations\. Thus, during the Midterm Review of APPAP in June 2002, GOK and the Bank jointly concluded that the leasing will be - 12-  initiated under APLII\. D\. The PIU Component (Bank Financing at Appraisal: US$ 0\.43 million; Bank Financing at Completion: US$ 0\.37 million) was to provide technical assistance, training and equipment to assist in the management of the Project under the Ministry of Agriculture\. APPAP was the first agricultural credit operation supported by the Bank in Kazakhstan\. Initially, a consolidated External Debt Department under the Ministry of Finance was managing day-to-day Project implementation and management matters\. Since then, GOK decided to eliminate project based PLUs for all IFI projects and merge the project management functions with the relevant line ministry, in an attempt to foster strengthened project ownership and control, and to limit the duplication of tasks within the same sector\. While this was a sound decision, establishing the Project management functions in the Ministry of Agriculture took longer than expected and impeded implementation of the Project during the early phase\. In March 2000, MOA hired a group of local consultants (GOC) to take over the responsibilities for coordinating Project implementation\. In addition, different functions were distributed more clearly to different departments across the Ministries of Agriculture and Finance\. GOC was designated with a clear set of responsibilities for coordinating Project implementation, monitoring and supervision through site visits, and handling Project accounting and financing in collaboration with MOF\. The Project provided significant TA and training to build the GOC capacity in Project management, monitoring and evaluation, and financial management\. It also financed substantial Project-related equipment and operational costs\. Having such support and as well as designated staff enabled the expansion of the rural advisory and rural finance components despite high staff tumover within MOA\. The pace of APPAP implementation accelerated significantly thereafter, particularly under the professional and dynamic leadership of the GOC team in place at the time of the ICR (Since the appointment of the current GOC team in early 2001, Project disbursements accelerated by more than 80 percent and the number of sub-loans increased by 94)\. 4\.3 Net Present Value/Economic rate of return: Because of the largely demand driven nature of the Project, it was not feasible to estimate a priori rates of return for the Project at appraisal\. Likewise, it was not attempted at closing\. Instead the Project emphasized strengthening the risk assessment capacity of loan officers and required PFIs to make only those sub-loans that demonstrated sufficient rates of return\. Due to very limited distortion in the economy, there were no significant distortions between the economic and financial returns\. Findings from a beneficiary survey and field visits conducted at the time of ICR demonstrated that significant economic benefits have resulted under the Project\. The Project predominantly supported agricultural production activities, followed by agricultural processing and non-farming business activities, and enabled the build up of inputs necessary for commercial activities and encouraged necessary vertical integration\. This was particularly noted in the increased livestock, agricultural machinery, and fixed assets, which led to an increased level of productivity and employment generation as confirmed by the results of the beneficiary survey (see Annex 3)\. Moreover, as banks diversify their portfolio, the credit line also promotes some non-traditional business entrepreneurship in rural areas (APPAP financed some new agricultural-related activities, such as camel milk production, bakery, hotel and greenhouse)\. 4\.4 Financial rate of return: PIIs maintained their autonomy and applied purely commercial standards in their lending\. The high repayment of sub-loans, at a rate of over 98 percent, and the positive real term interest rates indicated that the sub-projects were commercially viable and able to generate sufficient returns for timely repayments\. During field visits, it was also found that most farmers were able to improve their income and living - 13-  standards, and some were even able to play an important role in building up the local community economic and social activities\. All of the Project beneficiaries visited expressed high level of satisfaction with the availability of credit lines and rural advisory services, without which their access to commercial credit would be unlikely and/or costly\. Moreover, the Project had initiated the foundation for instituting a credit culture in both commercial banks and borrowers\. For more information on the beneficiary survey results, refer to Annex 3\. 4\.5 Institutional\.development impact: The Project's institutional development impact was substantial\. Through the provision of a credit line and training, the capacity of conmmercial banks for appraisal and monitoring of rural lending was significantly increased\. The Project enabled banks to tap the new rural market through "learning-by-doing" and made the banks less averse towards rural lending thereafter\. Over a relatively short period of time, commercial banks managed to build a sound rural loan portfolio and their interest in maintaining commercial business relationships with the rural community continued\. Whilst the disbursed APPAP credit line was relatively small, PFI proportion of agricultural lending outside the Project was substantially increased as of ICR time\. Evidently, as their capacities strengthened, PFIs were lending to the agricultural sector using their own alternative funds outside the Project\. At the same time, PFIs were able to manage the associated risks and maintained capital adequacy ratios above the Basel minimum requirement of 8 percent\. Similarly, the borrowers were given the opportunity to learn and strengthen accountability and responsibility in credit, build business viability, and develop credit history for future borrowing needs\. The capacity of both the rural community and public administering institution was also significantly expanded\. The establishment of an independent rural advisory services network enabled the rural community to identify and prioritize their own capacity building needs and to foster the commercial exchange of professional business advisory services\. The Project helped in delegating the MOA role to a group of capable consultants in the day-to-day Project management, thereby enabling MOA to focus more on substantive policy issues\. The national consultants' skills in design, procurement and monitoring of rural finance projects were significantly improved through the provision of TA, training, and equipment, thereby enabling them to take on more responsibility in managing the subsequent phases\. An agricultural market knowledge sharing system that enabled an effective and efficient exchange of business information across the rural community was also established under the Project\. 5\. Major Factors Affecting-Implementation and Outcome 5\.1 Factors outside the control of government or implementing agency: Drought and poor harvest\. Most farms in Kazakhstan underwent drought during years 1996-1999\. The most severe year was 1998, when almost all areas were exceptionally dry, and crop failures were widely spread throughout the country\. As a result, many farms became bankrupt or un-creditworthy, which has impeded the already limited flow of credits to the sector\. Regional crisis\. The 1998 Russian financial crisis had a major impact on the regional banking sector, including in Kazakhstan\. This exacerbated the commercial banks' hesitance in all lending, but particularly in agricultural lending\. Commercial banks' participation in the Project during the initial phase was thus more limited and slower to evolve than originally expected\. 5\.2 Factors generally subject to government control\. New Government initiative in agricultural restructuring\. Since 1998, the Government adopted a new - 14-  approach in agricultural bankruptcy proceedings, which profoundly affected the sector, leading to substantial changes in farm ownership, control, and management\. While this was welcomed progress, during the transition period, it created substantial uncertainties and affected the initial performance of the Project\. Delayed transfer of PIU\. The delay in resolving the PIU issue had undermined the Project performance during the first one and a half years\. Since establishment, the new GOC tasked with day-to-day Project management responsibility proved to be effective, but even GOC performance was hampered from time to time by the lack of an operational budget\. Other Government rural finance programs\. In 2001 the Government established an Agrarian Credit Corporation, which received zero percent financing from the state budget and offered 5 percent on-lending rates to farmer groups\. In addition, the Government announced its plan to allocate a significant portion of the 2003 state budget for rural finance prograrns\. Because these initiatives are still at the inception stage, the actual impact on the Project has been limited thus far, but these initiatives may conflict with the overall development objectives of the Program and the ultimate long-term goal of developing a sustainable rural finance system\. This issue will need to be addressed during the preparation of the APL II\. Complicated credit approval mechanism\. While PFIs were given full autonomy, administrative steps undertaken by MOA and MOF during post-approval were very complicated, sometimes involving as many as 25 steps\. The pace of implementation picked up tremendously after the streamlining of the review procedures, as described in section 4\.2\.B\. 5\.3 Factors generally subject to implementing agency control: PIU/GOC\. To a large extent, achievements under APPAP were due to the effective managerial capability of the GOC\. As discussed in section 4\.2\.4, during the first half of the Project life, implementation was in disarray due to an ineffective PIU\. With the appointment of a strongly committed and active GOC, the pace of Project implementation accelerated significantly\. PFIs\. While agricultural lending was significantly increased and the perception of PFIs towards the sector has been altered somewhat, by and large, rural finance has not been fully integrated into PFI overall business strategies\. Banks, in general, still tend to rely more on full collateralization rather than sound business concepts and cash flows and still prefer to lend to large-scale borrowers\. This, together with the PFIs initially weak capacity in sub-loan analysis, contributed to the slow disbursements and larger borrowers' dominance in the credit line\. Nevertheless, with increased exposure to rural lending business, capacity building in both PFIs and beneficiaries, and active supervision by the Bank and GOC, the trend at the ICR time was promising\. 5 4 Costs andfinancing: The total project cost at completion is estimated to be very close to the appraisal estimates at around US$23\.36 million\. Out of the US$15 million APPAP loan, US$ 12\.29 million allocated for the Credit line is expected to be fully disbursed by closing date\. While the PPF utilization was only 12% of the planned amount, the final component costs and financing for institutional development were increased more than three folds from US$0\.5 million at appraisal to US$1\.67 million, mostly from donor and government's own resources\. Substitution of the loan funds with grants under the rural advisory and institutional development components is expected to result in about US$ 800,000 unutilized funds, which the Borrower will request to be cancelled\. - 15-  6\. Sustainability 6\.1 Rationale for sustainability rating: Given the positive trends that emerged particularly since the MTR, the Project's sustainability is likely\. Initial foundations for sustainable institutional, operational and legal framework are in place\. On-lending interest rates were positive in real terms, PFIs were able to generate profits from the credit line and continued to increase lending to agriculture sector through their own resources\. Most of the beneficiaries visited during the ICR field mission expressed high sense of ownership and satisfaction with the Project and some of them are likely to "graduate" into pure commercial credit relationship with banks, reinforcing the high expectation for sustainability\. A pool of private consulting firms with strengthened capacity had emerged, and the rural community's awareness and demand for their services continued, indicating that the foundations for a competitive rural consulting network has been established\. The GOC, which played a key role in the Project's achievements, was effectively carrying out its tasks of managing the Project activities\. 6\.2 Transition arrangement to regular operations: Since APPAP was the first of a three phase APL and was intended largely as a learning experience, transition arrangements into regular operations will involve preparation and implementation of the subsequent phases\. The second phase APL has already been listed as a FY04 operation\. The Government has submitted a written request reconfimning its intention to pursue the second phase APL and has also earmarked budgetary resources to support the preparation activities, which will commence during the second half of FY03\. Discussions of the subsequent phase have already begun at the tirne of ICR\. A timely APL II could capitalize on the APPAP achievements to date\. Based on the lessons learned in APPAP, a number of measures will need to be taken to ensure long-term sustainability\. For one, the APL II would need to expand the outreach of rural finance services, particularly to smaller-sized rural enterprises\. It should also strengthen the legal and institutional framework for rural lending, addressing the issues of leasing, collateral and insurance\. And considering that the rural finance business has yet become the mainstream business for commercial banks, the possible involvement of non-bank microfinance institutions in the subsequent APLs should also be explored\. 7\. Bank and Borrower Performance Bank 7\.1 Lending: As noted by QAG, the preparation of APPAP required substantial resources and time\. Because of the prolonged delay, a number of issues that prevailed during appraisal, such as the farm restructuring, became less relevant during implementation\. The change in Bank task management team during the early phase of preparation may have also contributed to the prolongation of the preparation process\. Nonetheless, the Project identification and overall design were based on quality assessment of preliminary needs with competent sector and social analysis\. 7\.2 Supervision: Until mid-year 2000, there was frequent supervision by the Bank team consisting of various specialists\. Since then supervision has become less frequent with a smaller and less diverse team\. In 2001, there was - 16 -  only one supervision in May, at which time several important legal and operational amendments were introduced to accelerate the pace of implementation (see Section 3\.4)\. This unfortunately coincided with Bank staff movements and resulted in a supervision gap during a critical period\. This also led to delay in the Mid-term Review (MTR), which took place in May 2002 and very close to the ICR mission held in October 2002\. Still, MTR was able to address various implementation issues, and since then significant progress has been noted, particularly in terms of an increased number of loans, and a scaling down of the average size of loans\. Damage control was possible, due in part to effective field supervision by the Bank's local office team, which filled the supervision gaps during the task manager changeover period\. 7\.3 Overall Bank performance: The overall performance of the Bank was satisfactory\. Borrower 7\.4 Preparation: The Government had expressed their commitment to developing the agricultural sector and actively participated in the preparation of APPAP\. With the assistance of international consultants, the Government reviewed all the work carried out during preparation, provided considerable input in the reviews, and liaised well with the consultants and Bank preparation missions\. Considerable efforts were also made to meet APPAP conditions for effectiveness\. 7\.5 Government implementation performance: APPAP implementation was significantly hampered during most of 2000-2001, as the transfer of the Project implementation functions to MOA was delayed\. However, the performance was tremendously improved with the appointment of GOC\. Moreover, the PFIs were appropriately left with autonomy in executing their lending activities, which contributed to the satisfactory overall performance of the sub-loan portfolio\. 7\.6 Implementing Agency\. As discussed m sections 4\.2 and throughout this report, the performance of GOC, PFIs and rural advisory consultants in implementation was satisfactory\. 7 7 Overall Borrower performance The overall performance of the Borrower was satisfactory\. 8\. Lessons Learned APPAP provides the following relevant lessons that should be taken into account for subsequent APL phases and other rural finance operations in the future: > Ownership and effective management of the Project is critical for a successful outcome\. The hiring of GOC, consisting of qualified and dedicated consultants, proved to play a very important role in accelerating the slow implementation and moving the Project towards achieving the development objectives\. Future operations should ensure that there will be qualified staffing and adequate funding support for Project management and implementation\. > PFI autonomy in the selection of sub-projects and beneficiaries led to the sound loan portfolio - 17 -  quality, as only commercially driven criteria were used\. Yet this also indirectly led to the high dominance of large borrowers, who were often at an advantage over the smaller ones because of their ability to present adequate collateral and economies of scale\. > Addressing the gaps in lending to the smaller, underserved rural clients - including issues of collateral, high administrative costs and high risks-- needs to be further emphasized in order to broaden the scale of rural lending\. A possible remedy, which will be explored in the second phase of APL, includes support for microfinance through non-bank financial institutions\. > To enhance credit operational sustainability, capacity building of PFIs - through informational campaigns and specific TA and training -- should be more emphasized to lower the high risk, high costs perception of rural lending\. Areas that need to be improved further are risk management, asset and liability management, intemal control, etc\. > Multiple PFIs and flexible terms and conditions of on-lending credit fostered competition across banks\. Yet PFI participation should be expanded and the possibility for non-bank financial institution participation should be explored in order to increase competition and broaden the rural business community's access to commercial credit\. > The supervisory and regulatory role of the National Bank of Kazakhstan was critical in ensuring the sustainability of the Project and in reducing the Government burden in monitoring the PFIs under the credit line\. > The streamlining of procedures and requirements, without violating the rules, led to significant improvement in the Project\. For instance, having the World Bank prior review for all credit applications created a long bottleneck in the Project initially\. Moreover, applying the procurement requirements up to the sub-loans level was excessive, making the use of the credit line unattractive to banks\. > There needs to be a clear distinction between the institutions carrying out the non-public, commercial and supervisory roles\. A mixture of these roles created huge conflicting interests, leading to the failure of the initial RACs\. P The revision in the rural advisory component demonstrated that smaller scale consulting work, rather than centralization of work under a public institution, resulted in much more effective needs identification and greater participation by the rural business community\. D While the private consultants were charging market level fees for their services to rural clients in the preparation of business plans, the seminars and training were conducted free of charge\. These capacity building initiatives have proven to be effective in the dissemination of information and strengthening of farmers' agricultural skills and have led to increased interest in comrnercial financing\. A financing mechanism for these activities needs to be determined for longer-term sustainability\. )> There was a direct correlation between the pace of Project implementation and timely, hands-on Bank supervision\. Changes in Bank task management should be better anticipated so as to ensure continuity of Project supervision, minimal transition gaps and continued delivery of high quality service to the client\. The irnplementation of the Project showed a direct correlation between the intensity of supervision efforts by the Bank and progress in achieving Project objectives\. - 18-  9\. Partner Comments (a) Borrower/implementing agency: The following section was prepared by the Ministry of Agriculture of the Republic of Kazakhstan\. 9\.1\. Overal Conclusion\. In general the Government and the Ministry of Agriculture agree with the assessment of Project effectiveness presented in the ICR and express deep interest in continuing a fruitful cooperation with the Bank in the implementation of the second stage of APPAP\. The Ministry believes that all the necessary prerequisites for implementation of the second APL are already in place, and that it is able to strengthen the success achieved during the first stage and continue the work on strengthening the agricultural crediting system stability, on the basis of the market principles, over the whole rural territory of the Republic\. On its part, the Ministry of Agriculture is willing to do everything possible in order to speed up the preparation of APL II\. Thus, the funds for grant co-financing of the second stage preparation are already included in the budget for 2003\. 9\.2\. Evaluation of Project Design and Development Targets Some aspects of the Project's original design, approaches and procedures were changed due to drastic economic changes that took place in the country\. The Project coped with these changes and established an energetic beginning of the participation of commercial banks and local consulting companies in the agrarian sector\. Analysis of the experience accrued during the Project was crucial for setting the priorities of subsequent phases of the Adaptable Program Loans (APL) throughout the territory of Kazakhstan\. The Project's design was based on the review of the agriculture sector's situation during the period when fundamental changes were occurring in the country\. The Ministry notes that the conceptual content of the first stage of the Project was correct and passed the time test\. However, during implementation of the Project, significant changes happened in the economy of the country, which could not help but influenced the APPAP\. To the certain extent, it justifies the fact that the Bank and the Ministry were not able to implement planned measures for introduction of crediting through the system of warehouse receipts\. Reform of the consulting component model should have been done earlier, which would appropriately increase the effectiveness of the component and expending of the loan funds\. However, the Bank tended to appreciate the changes in the situation, and speeded up the process of project implementation\. One of the initiatives which was not planned in the initial design and yielded positive result was the purchase of computers for IMS\. Lately the Ministry successfully continued the work on this project independently\. Also, changes made to the Loan Agreement in order to simplify procedures of the credit component, had large importance\. 19  9\.3\. Achievement of Project Objectives The Project turned out to be an energetic impulse in turning commercial banks to the agriculture and raising banks' interest in funding of agricultural entrepreneurs\. The number of subloans more than tripled in 2002 compare to 1998 and seven commercial banks were actively participating\. The Project provided the only opportunity for a farmer to obtain a long-term credit, and it served its purpose: 70% of the loan funds were allocated for investments, and an average term of credit was about 3 years\. Of all the subloans provided, almost a half was provided to farmers\. The credit line, especially at its final stage, made a tangible contribution in the development of a market-based agricultural credit system\. Even though the share of the loan in the banks' credit portfolio is not large, the Project led to dynamic changes in composition of the banks' beneficiaries\. At the initial period, in 1998-2000, only relatively large or medium-size enterprises were able to obtain a credit\. As the rural sector was strengthening, banks' attitude towards agricultural enterprises changed and the number of farmers obtained the access to credits was increased\. The Project demonstrated that agriculture borrowers can obtain credit and successfully repay\. Total rate of repayment for credit funds was equal to approximately 99%\. Final interest rate for the borrowers of the credit line tended to decrease from 16-18% in 1998-99 to an average of 12\.2% by the end of 2002\. This decrease was consistent with the declining markets rates during this period, and in part due to the development of agriculture as a viable sector and the competition among the banks as they searched for prospective borrowers\. The Project made a direct and positive influence upon the increase of the economic stability and profitability of its beneficiaries\. Survey of the Project beneficiaries illustrated an increases of the number of workplaces by 18%, crop yield by 10%, fleet of vehicles by 13%, livestock by 3\.5 times, production of processed goods in money terms - by 1\.62 times\. At the same time, 70% of the loan funds was obtained by agricultural enterprises, 21 % - by processing enterprises, and 9% was allocated for other types of activity associated with the rural area\. This indicator is significantly higher than average growth rates for the country's agricultural sector as a whole\. Commercial banks' institutional capabilities for work with borrowers, primarily with farmers, also increased\. TA support by international experts on training of loan officers yielded positive results in terms of quality of credit applications, which resulted in significant reduction of approval period for credit applications\. Changes made lately to the approval procedures were a significant step in decreasing the role of the Ministry of Agriculture and the Ministry of Finance as monitoring bodies during development of the credit line\. - 20 -  9\.3\.1\. Credit Line Component The project's main goals to support rural entrepreneurs by providing credit through local commercial banks, and to strengthen capacity by training of credit officer were achieved\. The implementation of the credit line through local commercial banks as an agent, authorized by the Government (GOK), proved to be viable and may be used during subsequent stages of the Project\. Despite several problems, outlined in the Concluding Report on the Project, which slowed down the pace of implementation, the Government is pleased to note that by the time of project completion, the credit component was fully disbursed\. Besides, in addition to the component budget, another US$ 2 million were provided from a special revolving account from the reflows\. 9\.3\.2\. Rural Advisory Component The component tested two models to establish sustainable consulting infrastructure to provide quality technical and financial assistance to farmers\. Initially, in accordance with the design, consulting network was established based on two Rural Advisory Centers (RACs) in pilot regions, fully funded from the Republican budget\. When the initial two years' work of Almaty RAC was proven to be unsatisfactory, a different model to develop consulting network was introduced, which involved existing local consulting companies and independent consultants into participation in the Project\. This new initiative established competitive environment and increases of commercial interest by private consultants to provide services to rural entrepreneurs, primarily farmers\. The consultants were selected through open competition for the right to undertake information campaigns and training seminars for farmers\. The Government noted positive results of the new approach\. The involvement of local independent companies and consultants resulted in significant increase of the amount of funding on farmers' projects, supported by quality business plans\. The first competition between consulting companies, which was held during fall of 2001, resulted in their energetic activities, initially in pilot regions, on informing and providing consultations to farmers\. In 2002 the second stage of work has began, which will result in selection of 8 consulting companies for organization of farmers' training in 6 oblasts of the Republic\. The first model failed due not only to certain subjective reasons, but also to the conflict of interests, built-in during the development of functions of consulting centers\. Practical experience shows that the model where a consulting body implements public, commercial and monitoring tasks at the same time, being completely funded from the Project, results in conflict of interests and lost of stimulus to the main task\. The new design of the rural advisory component allowed the establishment of a basis for consulting agricultural network and increased the institutional capacities of local consultants\. In total, approximately 10 thousand people took part in 258 seminars and informational campaigns, 11 Kazakhstan consulting companies (out of 30 companies participating in the tender) as well as independent consultants, specialists of local akimats m the area of agriculture were involved in the work\. A large amount of brochures, articles and manuals was published\. The efficiency of consulting support to local farmers was increased\. In their own opinion, the local consulting companies, which mainly did not work with farmers before, have obtained a necessary work experience and expressed desire to work with the Project and the overall sector in the future\. 9\.3\.3\. Institutional Development - 21 -  The Ministry, as an admninistrator, also gained a significant work experience with banks, consultants, specialists of the local administrative bodies, in the area of concourse procedures\. Technical tasks, format of contracts and conditions for efficiency monitoring were developed by the Group of Consultants and technical advisors of the Project, with the Bank's support\. 9\.4\. Assessment of Project Effectiveness and Sustainabiity The project's effectiveness is rated by the Ministry of Agriculture as rather satisfactory, taking into account that this project was a pilot one and its implementation during the inception stage was delayed due to some objective factors\. These factors include: a few years of rather unfavorable weather conditions for the sector, which resulted in mass bankruptcy of newly privatized farms; the banking system of the Republic suffered through the impact of a financial crisis in Russia and the agrarian sector turned out to be poorly serviced in the financial system; and the privatization processes in the sector were not yet finished and slowed down the new farm owners' perception of the need for access to investments\. 9\.5\. Bank and Implementation Agency's Performance 9\.5\.1\. World Bank Performance In general the Ministry is satisfied with the Bank's supervision over the implementation of the APPAP\. At the initial stage of the project the Bank used to send evaluation missions every 3-6 months\. At certain period, related to the re-organization of PIU, supervision from the headquarters was less, but it was supplemented by the supervision by a local World Bank staff in charge\. Mission in May of 2001, which approved several serious new initiatives, jointly developed by local project managers and the Bank, was a breaking point, which allowed rapid increase in the pace of implementation\. Between May 2001 until March of 2002, when there was a transition of the Bank's team, supervision was successfully provided by the local World Bank staff\. The new World Bank project team also demonstrated high activity and intention to solve all issues quickly\. The dynamism achieved during the last stage of the project implementation is apparent\. 9\.5\.2\. Implementation Agency's Performance Initially, the protracted process of project management reform in the country and difficulties in attracting highly skilled local consultants have negatively affected the project implementation\. However, in the last two years the Group of Consultants (GOC), hired by the Ministry on a contractual basis, performed large amount of work and achieved the expected results\. The Ministry is interested to keep these highly professional consultants, and the only possible way to do so is to begin as soon as possible work on the APL II\. 9\.6\. Main Lessons Learned Project design, including the credit component, should be developed taking into account significant differences in agrarian sector development in Kazakhstan\. To ensure that the Project would contribute towards development of a sustainable rural crediting system, a balanced approach should be applied to development of target criteria, as well as restrictive clauses\. The World Bank's concem that the largest part of subloans was provided to large borrowers who do not need preferential crediting, is based on insufficient understanding of certain features of regional agricultural development\. - 22 -  - The problem of a collateral liquidity still remains the main obstacle in access to credit for agricultural producers, especially for small ones\. Financial leasing (buy-back lease agreement) would be an effective solving of this problem\. Including it into the second APL would strengthen the institutional capacity of the credit line and the financial system of the republic as a whole\. * Only few farmers were able to obtain funds through the Project, and even for those who could do so, it required certain organizational efforts made by the Project managers from the Ministry, as well as the Bank\. The Project should include special conditions to ensure access to credits by farmers\. Such conditions might include a special program of farmers' credit, which would decrease institutional barriers, especially with regard to collateral, as well as development of a non-banking credit line for micro-crediting of small farmers and personal subsidiary plots through non-banking institutions\. * Procedures for implementation of the credit component should be simplified and clarified\. In particular, the World Bank credit line procedures require large amount of intermediary steps, including obligatory prior-review compared to programs of other international donors\. However, during the Project implementation, most of the obstacles was eliminated through joint efforts of all participants of the Project\. Competition among participating banks is essential\. In order to achieve this under the APL II, the number of PFI should be increased, possibly through involvement of non-banking micro-crediting institutions\. The first phase of the APL has established the foundation of a viable rural advisory services infrastructure\. The new design of the component should encompass extensive international experience of development of a multi-layer consulting network, able to provide continuous support not only to individual farmers, but also to the rural community as a whole\. The experience shows that implementation mvolving many ministries and agencies was complicated\. Lengthy reconciliation procedures could not be avoided, due to the absence of clear understanding of the level of involvement of each ministry into the model\. This was the main reason for incomplete usage of loan funds issued for implementation of the component\. The APL II should more clearly determine authority and responsibilities of each participant\. Establishment of efficient consulting network requires continuous increase of institutional capacities of local consultants, which implies an establishment of a full-time training program for the consultants themselves\. Dissemination of skills necessary for farmers in their day-to day activities is possible also through the Information Marketing System (IMS), recently developed by the Ministry of Agriculture\. Possibly, the APPAP II will review the possibility of using the IMS for this purpose, and suggest a list of measures to involve it in the development of the consulting network\. (b) Cofinanciers N/A (c) Other partners (NGOs/private sector): N/A 10\. Additional Information - 23 -  Annex 1\. Key Performance Indicators/Log Frame Matrix 1\.A\.Project Achievement of Development Objectives Program Objectives Results Summary Performance Indicators Status Program Development Objective • Accelerated commercializathon Corporate form of farns shifts from By April 2002, the number in newly pnvatized agricultural production co-ops to individual private of state-owned and enterpnses in two key farms, partnerships and joint stock cooperative farms was agricultural oblasts of companies\. Percentage of farms registered decreased to half of that in Kazakhstan - Astana and Almaty as cooperatives reduced by 20 percent by 1997\. - leading to increased rural program completion\. productivity and incomes • Phase I - advisory and rural Profitability increased in at least 70 Incremental increase in infrastructure established and percent of the rural enterprises assisted by profitability has resulted operational procedures tested program from credits provided by APPAP, but not monitored\. * Phase II - sustainable advisory Yields per hectare increased by an average Beneficiary surveys and financial infrastructure fully of 30 percent on farms assisted by demonstrate that under the operational in the two project program\. Project productivity of oblasts\. crop production was increased by 10 percent and number of livestock by 252 percent\. -24 -  1\.B\. Project Outcome/Impact Indicators Indicator/Matrix Projected In last PSR Actual/Latest Estimate At least 1,000 contacts and referrals for Project recorded more than 1,000 contacts In total, 258 seminars and the Advisory network and referrals information campaigns were held by RACs and consultants, with more than 10,000 participants\. At least 300 clients supported by advisory 71 loans already approved under the Project, The seminars held led to 1,570 centers or accredited network advisors\. based on business plans prepared with credit consultations and assistance of Project-supported advisory services\. Total number of business plans assistance with preparation of prepared is estmated to be 10 tmes more 140 business plans; 51 sub-projects were ultimately financed by banks\. At least 15 network advisors in each oblast RACs abolished No Oblast Advisors Same as that in last PSR\. certified to provide services by RACs\. Network established At least 40 percent of cost of the advisory Partially met\. Business Plan preparabon Same as that in last PSR services is recovered through fees by end of services recover costs through fees, often phase one\. subject to credit approval\. At least 70 loans to family farms and 20 Because of drought and poor harvests in 97, artially met\. A total of 119 loans to corporate farms, cooperatives, or 98 and 99, following privatizabon many farms sub-loans were made, of which became bankrupt and were not creditworthy partnerships There were almost no loans issued dunng 58 were for family farms\. these years\. 71 loans were approved, but the number of family farm loans was lower than expected, only 27 Less than 10 percent of outstanding Less than one percent of total outstanding Same as that in last PSR sub-loans classified as problem loans loans considered problematic, involving two sub-loans PFIs were in process of liquidating collateral to recover principal amounts - 25 -  1\.C\.Triggers for APL II Phase I Output Indicators: advisory and rural Infrastructure established and o )erational procedures tested IndicatorlMatrix Projected In last PSR Actual/Latest Estimate Institutional capacity of RACs and PIU Two RACs established and abolished, Both the consulting service providers evaluated as sufficient to expand the local consulting fiums were used to network and GOC have sufficient capacity Program provide advisory services\. to expand the Program\. PIU abolished, GOC created instead and has sufficient capacity\. RACs performing satisfactorily in terms of Local consultant (informal) networks Local consultants were able to charge initial contracts, on-going client support, were being established to carry out market level fees for their services In establishment of supporting consultant functions onginally prescribed to business plan preparation, based on network, and ability to earn fees RACs\. success in obtaining bank financing (Achievement at least 75 percent of performance indicators) At least 75 percent of credit component This trigger will be met - 77 percent Credit component has been fully committed for a balanced portfolio of small of the credit component is already committed until Project closing date\. family farms, larger corporate farms, and committed; 7 PFIs are registered, and Family farms account for 58 out of associated enterprises with at least 4 PFls 2 more are currently being registered the total 119 sub loans, or 49%\. AlI that are interested in participating in a to participate\. PFIs met NBK prudential norms and second phase and can demonstrate had improved credit procedures, sufficient capacity to handle an expanded In regard to the "balanced" portfolio - thereby demonstrating sufficient program of lending this will only be achieved partially, as capacity to handle an expanded discussed above\. lending program\. Less than 10 percent of total outstanding Less than one percent of total Same as that in last PSR\. Repayment balance of Project financed sub-loans outstanding loans are considered rate was at 98 percent\. \. classified as non-performing; and problematic, involving two sub-loans, and PFIs are in the process of liquidating collateral to recover the principal amounts\. Bankruptcy procedures in use and laws on Has been met, but outside of the Same as that in last PSR registration of pledges of moveable Project\. property enacted\. -26 -  Annex 2\. Project Costs and Financing Project Cost by Component (in US$ million equivalent) -; \. 'Appraisal :\. ActuallLatest Percentage of \.stimatO \. Estimate - Appraisal Component :US$million US$ miDlion ; Rural Advisory Services 2\.00 2\.18 91 Credit 19\.45 18\.96 97 Institutional Development 0\.45 1\.67 334 Project Implementation Unit 0\.44 0\.45 95 Refinancing of the Project Preparation Facility (PPF) 0\.85 0\.10 11 Total Baseline Cost 23\.19 23\.36 Physical Contingencies 0\.22 Price Contingencies 0\.37 Total Project Costs 23\.78 23\.36 Total Financing Required 23\.78 23\.36 -27 -  Project Financing by Component (in US$ million equivalent) \._______ \._\._-_\._ :_Perce'ntage of Appraisal Component Appraisal Estimate - Actual/Latest Estimate Ban - Gv\. Bank Govt\. ECoF\. Bank '\.Govt, CoF\. Bank Gov\. \. Rural Advisory Services /I 0\.94 0\.20 1\.26 1\.09 0\.02 1\.07 116\.0 10\.0 84\.9 Credit /2 12\.29 0\.21 6\.97 12\.29 0\.00 6\.67 100\.0 0\.0 95\.7 Institutional Development 0\.48 0\.01 0\.01 0\.29 0\.08 1\.30 60\.4 800\.0 13000\. /3 0 Project Implementation 0\.43 0\.13 0\.00 0\.37 0\.08 0\.00 86\.0 61\.5 010 unit Refinancing of PPF 0\.85 0\.00 0\.00 0\.10 0\.00 0\.00 11\.8 0\.0 0\.0 1\. The British Know How Fund was the main cofinancier for the Rural Advisory Component 2\. The participating financial institutions and farn beneficiaries were the main cofmanciers under the Credit Component 3\. The EU-TACIS was the principal cofinancier for the Institutional Development Component - 28 -  Annex 3\. Economic Costs and Benefits At the time of appraisal, it was not feasible to set out a priori the sub-projects to be financed under the credit line because of the Project's demand driven nature\. Instead, a series of farm models were developed in the Project Appraisal Document (Annex 4)\. Six models were developed, including a large-scale wheat farm, a mixed crop farm, a small vegetable farm and three livestock farms\. An overall economic analysis was carried out by aggregating the farm and enterprise models, resulting in ERR ranging from 37 percent to 100 percent\. These models were not comparable with the actual sub-projects financed under APPAP\. The APPAP credit line was commercially driven, thereby encouraging PFIs to lend only to sub-projects with sound business concepts and sufficient rates of returns\. All PFIs were able to build up their rural lending portfolios through the increase of lending to new, first time borrowers, while maintaining prudent operational standards\. This was confirmed by the high repayment rate of sub-loans and the overall sound financial performance of PFIs\. With access to a credit line, the productivity of the rural borrowers was substantially increased, thereby increasing their incomes and generating employment opportunities\. Rural borrowers were able to initiate business relationships with commercial banks, develop credit history, and borrow again outside of APPAP\. A beneficiary survey was conducted in September 2002, as an alternative to fann models\. Questionnaires were distributed to the sub-borrowers, of which 88 sub-borrowers -- with total loans of US$10\.7 million -- replied\. The survey confirmed that the APPAP funds led to substantial improvement in productivity levels and employment generation, as demonstrated below\. Most noteworthy was the increase in number of livestock for breeding, husbandry, and processed dairy products\. Agricultural Post Privarization Assistance Project, Achievement of the Phase I\. Num ber of analysed projects 88\. The Level for com parison (before Project) - 1 Processing 1\.62 Agricultural 1 \.13 Equipm ent Livestock 3\.52 Yield (toniha) 1\.10 Employment Ml 18 Generation 0 0\.5 1 1\.5 2 2\.5 3 3 5 4 The survey demonstrated that the largest use of sub-loans was for investment activities, followed by a mix of investment and working capital, and working capital\. Agricultural production activities (including crops and livestock) account for the largest portion of the outstanding sub-loans, at 69 percent, followed by agricultural processing and non-farming activities\. - 29 -  Type of Credits 22% t3 Investment 46/ o Working capital 0 Mixed 32% Usage of Credit Lines Agricultural production Processing *23% Non-farming \. 0% 20% 40% 60% 80% - 30 -  Annex 4\. Bank Inputs (a) Missions: Stage of Project Cycle No\. of Persons and Specialty Performance Rating (e\.g\. 2 Economists, I FMS, etc\.) Implementation Development Month/Year Count Specialty Pr-oress Objective Identification/Preparation September 1993 4 Agricultural Economist, Agribusiness & Credit Specialist, Agronomist, Land Tenure & Privitization Specialist September 1994 6 Agribusiness & Credit Specialist, Extension Specialist, Project Advisor, Agronomist, Land Reform Specialist, Land Registration Specialist February 1995 7 Agribusiness & Credit Specialist, Land Reform Specialist, Local Economist, 4 Land Specialist consultants June 1995 7 Agribusiness & Credit Specialist, Land Reform Specialist, Local Economist, 4 Land Specialist consultants July 1996 4 Agricultal Economist, Local Economist, Agriculturalist, economist consultant October 1996 2 Agriculturalist, economist consultant February 1997 7 Social Specialist, Local Economist, project consultant, 4 Land Specialists June 1997 5 Agriculture Economist, Social Specialist, Local Economist, project consultant, Agriculturalist September 1997 1 Agriculturalist December 1997 7 Senior Economist, Economist, Procurement Specialist, Senior Social Scientist, Principal Agricultural Economist and 2 Consultants Appraisal/Negotiaffon March 1998 7 Senior Economist, 2 Economist, Senior Social Scientist, Principal Agricultural Economist and 2 Consultants August 1998 1 Principal Agricultural Economist Septemer 1998 7 2 Senior Economists, Principal (pre-effectiveness) Agricultural Economist, Economist, Senior Social -31 -  Scientist, Procurement Specialist and Consultant Supervision 10/17/1998 6 TEAM LEADER (1); BANKING S S SPECIALIST (1); SECTOR LEADER (1); SOCIAL ASSESSMENT (1); PROCUREMENT (1); BANKING, FINANCE (1) 04/20/1999 3 RURAL FINANCE (2); TEAM S S LEADER (I) 04/20/1999 5 TEAM LEADER (1); RURAL S S FINANCE (1); BANKING (1); PROJECT OFFICER (1); TEAM ASSISTANT (1) 04/21/2000 4 TEAM LEADER (1); RURAL S S FINANCE (1); PROJECT OFFICER (1); BANK (I) 07/15/2000 2 TEAM LEADER (1); PROJECT S S OFFICER (1) 05/16/2001 4 TEAM LEADER (1); LEAD S S FINANCIAL ECONOMI (1); PROCUREMENT SPECIALIST (1); PROJECT OFFICER (1) 10/11/2002 4 TEAM LEADER (1); S S FINANCIAL SECTOR (I); RURAL BANKING (1); INSTITUTIONAL DVLP (1) ICR (b) Staff: Stage of Project Cycle Actual/Latest Estimate No\. Staff weeks US$ ('000) Identification/Preparation n/a 521\.9 AppraisalUNegotiation n/a Supervision n/a 518\.1 ICR n/a 36 2 Total n/a 1076\.2 Note: Differentiation between Identification/Preparation and Appraisal/Negotiation and staff week informnation are no longer possible in SAP\. The only differentiation available is between lending and supervision\. - 32 -  Annex 5\. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating FMacro policies O H OSU*M O N O NA FSector Policies O H OSU*M O N O NA 2 Physical O H OSUOM O N O NA F Financial O H * SU O M O N O NA F Institutional Development 0 H * SU O M 0 N 0 NA DEnvironmental O H OSUOM O N * NA Social Z Poverty Reduction O H OSU*M O N O NA I Gender O H OSU*M O N O NA O Other (Please specify) O H OSUOM O N O NA 6 Private sector development 0 H * SU 0 M 0 N 0 NA El Public sector management 0 H O SU O M 0 N 0 NA M Other (Please specify) O H *SUOM O N O NA Outreach - 33 -  Annex 6\. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6\.1 Bankperformance Rating CJ Lending OHS*S OLU OHU ? Supervision OHS OS O U O HU F Overall OHS OS O U O HU 6\.2 Borrowerperformance Rating • Preparation OHS OS OU O HU F Government implementation performance O HS O S 0 U 0 HU F Implementation agency performance OHS OS O U O HU Z Overall OHS OS O U O HU - 34 -  Annex 7\. List of Supporting Documents 1\. Project Appraisal Document -Republic of Kazakhstan: Agricultural Post-Privatization Assistance Project - Report No: 17789-KZ - May 08, 1998 2\. Agreed Minutes of Negotiations between the World Bank and the Government of the Republic of Kazakhstan 3\. Loan Agreement - Republic of Kazakhstan: Agricultural Post-Privatization Assistance Project (Loan number 4331-KZ) - June 23, 1998 4\. Amendments to Loan Agreement - Republic of Kazakhstan: Agricultural Post-Privatization Assistance Project (Loan number 4331 -KZ) - June 23, 1998 5\. Rural Credit Guidelines - 1998 6\. Subsidiary Loan Agreements between the MOF and the PFI 7\. MOA Group of Consultants Quarterly Progress Reports 8\. Mid-term Review Report 9\. Technical Assistance to APPAP - Financial Expert's Final Report - October 2000 10\. ABG Consultant Report "APPAP - Assessment Report" - August 2002 11\. Audited Financial Statements for Agricultural Post-Privatization Assistance Project for Years Ending 1999, 2000, 2001 12\. Audited Financial Statements for the Project PFIs for Years Ending 1998, 1999, 2000, 2001 13\. Country Assistance Strategy - July 31, 1997 - Report No\. 16989-KZ 14\. Economic Sector Work "Kazakhstan - A Review of Farm Restructuring" - March 2000 15\. Social Assessment of Privatization in Agriculture in Akmola and Former Taldy-Korgan Oblasts: Report on the Results of the Household Survey - December 1997 16\. Akmola Oblast Agricultural Department - Recommendations on Restructuring Privatized Agricultural Enterpnses - 1997 17\. Survey of the APPAP Beneficiaries, 2002 18\. Environmental Assessment - 1998 19\. APPAP Implementation Progress Monitoring Report, Astana , 2002 -35-  Additional Annex 8\. Aggregate Information of PFI Portfolio AMB CCB HSBK KKB TB TsB BTA Date SLA signed 10/12/00 11/3/00 8/12/99 2/8/99 9/19/00 10/16/98 2/8/99 Total number of borrowers 22 10 18 6 19 25 19 Total APPAP loan amount 1,966 1,350 874 2,161 2,088 2,529 2,220 disbursed (in US$'000) Average loan size(in US$'000) 89 135 49 360 110 101 117 Average interest rate (%) 12\.3 12\.0 10\.7 12\.6 12\.9 11\.8 13\.5 Average maturity (years) 2\.1 3\.6 3\.1 4\.8 3\.0 1\.8 2\.3 Number of family farms 12 4 14 0 7 11 10 Loans for investment purposes 40% 89% 75% 91% 81% 48% 75% as a % of total disbursed Non-performing loans as a % 0 0 0 0 3\.7% 0 0\.6% of total disbursed Source: MOA GOC Reports and PFIs AMB Almaty Merchant Bank CCB Center Credit Bank HSBK Halyk Savings Bank Kazakhstan KKB Kazkommertsbank TB Temir Bank TsB Tsesna Bank BTA Bank Turan Alem - 36 -  Additional Annex 9\. PFI Financial Standing and Portfolio Quality-A Brief Analysis (KZTmallIons) KKB BTA HSBK TB CCB AMB TsB Income Statement Interest income 16,364 20,611 11,283 2,062 3,500 3,753 777 Interest expense 8,161 12,450 5,466 917 1,634 1,693 248 Net interest income 8,203 8,161 5,817 1,145 1,866 2,060 529 Provision for losses 2,671 8,495 2,588 773 1\.026 687 148 Net interest after provision for losses 5,532 (334) 3,229 372 840 1,373 381 Non-interest income 5,922 13,440 5,707 1,780 1,518 1,153 294 Non-interest expense 6,646 7,648 1,877 1,895 1,495 444 Profit before taxation 4,808 13,106 1,288 275 463 1,031 231 Taxation 403 188 80 - 249 26 => Net profit 4,405 13,106 1,100 195 463 782 205 Balance Sheet Cash and due from NBK 9,767 10,950 10,672 1,255 2,186 3,864* 1,695 Due from credit institutions (net of provisions) 34,454 10,344 15,582 4,308 4,487 - 76 Dealing securities 13,634 31,931 23,534 1,600 4,257 - 961 Loans to customers (net of provisions) 169,743 102,677 102,518 17,515 30,139 29,639 5,661 Securities & derivatives 257 28,904 - - 88 12,451 - Investments in associates 1,749 665 269 26 464 - - Other assets 15,566 20,552 17,334 1,342 3,553 1,919 477 => Total assets 245,170 206,023 169,909 26,046 45,174 47,873 8,870 Owed to MOF and NBK - 2,861 3,003 382 729 982 281 Owed to credit institutions 50,853** 27,525 15,892 4,698 2,022 9,704 163 Owed to customers 120,449 117,346 125,395 15,658 31,653 29,801 6,959 Securities sold for repurchase 8,437 - - - - - Other liabilities 15,982 6,936 13,090 1,364 6,041 503 460 Debt securities & subordinated debt 28,506 22,929 - 1,487 729 1,551 - Minority interest 86 - - - - 28 - Total liabilities 165,023 186,034 157,380 23,589 41,174 42,569 7,863 Fully paid up share capital 3,500 17,034 - 7,673 1,400 2,934 3,100 531 Reserves 25,794 2,955 4,856 1,057 1,066 2,231 476 Total shareholders' funds 29,294 19,989 12,529 2,457 4,000 5,331 1,007 => Total liabilities and shareholders' funds 194,317 206,023 169,909 26,046 45,174 47,900 8,870 Analysis of loan portfolio Loan provision Loans to customers - gross 180,469 104,060 104,655 17,695 31,362 31,299 5,876 Loans to customers - provisions 10,726 6,472 2,137 643 1,223 1,660 215 Loans to customers - net of provisions 169,743 102,677 102,518 17,052 30,139 29,639 5,661 Loans to customers - provisions, % 5 9% 6 2% 2 0% 3 6% 3\.9% 5 3% 3\.7% Analysis of loan by sector Agriculture & food processing 37,997 32,858 27,032 4,244 1,275 2,075 1,431 Other 142,472 71,202 77,623 13,451 30,087 27,566 4,445 - 37 -  Loans to customers - gross 180,469 104,060 104,655 17,695 31,362 29,641 5,876 Agriculture & food processing, % 21\.1% 31\.6% 25\.8% 24\.0% 4\.1% 6\.6% 24\.4% Analysis of profltability and efficiency Return on equity employed, % 15\.0% 8\.6% 8\.8% 7\.9% 11\.6% 14\.7% 20\.4% Administrative efficiency, % 5\.2% 11\.8% 9\.8% 15\.0% 9\.3% 7\.0% 10\.1% Number of branches 21 23 20 17 19 10 5 Number of sub-branches 66 - 147 - - - - Number of staff 2,400 3,300 8,250 900 1,200 700 220 Number of lending staff 340 197 302 140 198 118 28 Net profit per staff 1\.8 4\.0 0\.1 0\.2 0\.4 1\.1 0\.9 Net profit per lending staff 13\.0 66\.5 3\.6 1\.4 2\.3 6\.6 7\.3 Interest income Interest expense 2\.0 1\.7 2\.1 2\.2 2\.1 2\.2 3\.1 Interest income assets excl\. other assets 7\.1% 11\.1% 7\.4% 8\.3% 8\.4% 8\.2% 9\.3% Interest expense: liabilities excl\. other liabilities 5\.5% 7\.0% 3\.8% 4\.1% 4\.7% 4\.0% 3\.3% Source: PFIs Financial Statements Note: KKB Kazkormmertsbank BTA Bank Turan Alem HSBK Halyk Savings Bank Kazakhstan TB Temir Bank CCB Center Credit Bank AMB Almaty Merchant Bank TsB Tsesna Bank * Includes all cash and its equivalents ** Includes the amounts due by MOF and NBK - 38 -  Additional Annex 10\. Comparison of Market Interest Rates, APPAP, 1998-2002, Currency: USD 1998 1999 2000 2001 2002* Average cost of funds from MOF to APPAP PFIs, o%O _- 5\.86 6\.70 4\.27 2 11 Average interbank borrowing rate, %, OECD currencies (longest term) 10\.6 11\.70 11\.50 8\.40 5\.80 Average deposit rate in commercial banks, %, OECD currencies (longest term) 8 6 7\.90 8\.00 8\.20 7\.90 Average on-lending rate to clients under APPAP, % 11\.86 10\.70 12\.56 12\.00 Comparison of Market Interest Rates, APPAP, 1999-2002, Currency: USS 12 P~~~~~~~~~~~~~~~~~4- Average cost of funds from MOF to - ~,, -W- -Average interbank borrowing rate, 0 8 \.~ \. ,OECD curr encies (longest term) Average deposit rate in commercial 6 ~ ~ ~ ~ ~ ~~ ~ ~banks, %, OECD currencies (longest term) 4 -3 K - Average on-lending rate to clients 4 2 I under APPAP, % 1999 2000 2001 2002' Year - 39 -  Kazakhstan Agricultural Post-Privatization Assistance Project - On-lending Rates vs\. Cost of Funds 1a 16 - - - 14 - --f; - 12 - > IB- -O~- -BTA H5 2x -X- : \. - - -- - -T- -- ------ -- - - - - --- - ccs 6 \. _ ' , \. d\. 4\. 2 - 0-~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~- 1998 1999 4000 2001 2002 -40 -    500 600 To 700ze 800 900 KAZAKHSTAN fR U S S I A N AGRICULTURAL POST-PRIVATIZATION el i ,- _> c- k - Nooosbirsk FE D E R A T I O N ASSISTANCE PROJECT_ KOTANAJ ~\. 1, , Il'_,\. ~~ r ~~~ ASTA NA \. -, MOSTANAI - - \. A *' -rOSKE/ E \ 4' WEST, %~~~~~~~-- STN Y~o i'< ,< MAGHYSAU ' rONkus | ia E 0t>Y 'SK S - -~ 4-- >i MoI,) i ! K\.- LR KYZYlORDA ' !AkHAN(e ST |)ERBa t I 0 jKARAGHAN Y Bel ~~~~~~~~~~~~Tretam 1 4-~990 level \ ZHAMBYL CHINA' I ~~~~~~ jraTor , T-* 14960 level K2i)PD§SOJTHj,~-*- MoTU N T To A- A* 7 '- j e , -- I AZERThBAIJAN ~ I * N i\.- Wori fSn hooudnr OJi--\.1 ( ~~~~~~~~~~~~~~~~~~~~~~~~~ / ~~~~~~40- Totol N On Disbursed Number ofTraining J- oUSD, millions) osEerSeminars Jm sA*; STAN TURKMENISTAN PROJECT REGIONS D ohnzo '\.k m ROADS \.~~~b4 T * -i--i-- RAILROADS the Mop oevge UnW of Th\. Dishanbe TAJI K I S T A N Woild Bonk Th\. hoodeo-, ® NATIONAL\. CAPITAL -ol\., doeno\.-t-oe mid - - 0 REGION CAP'ITALSthptoliW o J Z 0 SELECTED CITIES Group, on judg e \._ - 0 * 100 200 300 400 Kilometers , i > kW\. ssiu s ofooyesootioy _ * * I I I I I m - - * ~ REGION BOUNDARIES or onfy -oorseeeot or "O INTERNATIONAL BOkNDAIE FG ANITAN 70occep once of tor0MesU/ * - - INTERNATIONAL BOUNDARIES h0trisrones AFGHANISTAN 700 \. \.' * 0 100 200 Miles 0 toL __ _ _ _\._ _ _ _ __ I 1 I / I _    Report No\.: 25346 Type: ICR

REVIEW

P085133

Document of The World Bank Report No: ICR00003795 INTENSIVE LEARNING IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD 4762 – IND/IDA 4026 – PHRD TF053556) ON A LOAN & CREDIT IN THE AMOUNT OF US$65 MILLION (IBRD 4762: US$55 million; IND/IDA 4026: SDR 3\.14 million (equivalent to US$5 million) IDA credit; PHRD: US$5 million) TO THE REPUBLIC OF INDONESIA FOR GOVERNMENT FINANCIAL MANAGEMENT AND REVENUE ADMINISTRATION PROJECT (GFMRAP) June 21, 2016 Governance Global Practice East Asia and Pacific Region  CURRENCY EQUIVALENTS (Exchange Rate Effective as of April 15, 2016) Currency Unit = Rupiah (IDR) US$1\.00 = Rp13,500 FISCAL YEAR January 1 – December 31 Exchange Rate at Appraisal (November 19, 2004): US$1 = Rp8,997 Exchange Rate at First Restructuring (June 5, 2009): US$1 = Rp9,961 Exchange Rate at Second Restructuring (December 19, 2013): US$1 = Rp12,116 Vice President: Victoria Kwakwa Country Director: Rodrigo A\. Chaves Practice Manager: Robert R\. Taliercio Task Team Leader: C\. Bernard Myers ICR Co-authors: Hannah Kim, Lina Lo, and Carlos D\. C\. Ferreira ii  Abbreviations and Acronyms ADB Asian Development Bank APL Adaptable Program Loan AusAid Australia Agency for International Development Bappenas National Development and Planning Agency BER Bid Evaluation Report BI Bank Indonesia BPK Supreme Audit Agency BPKP Finance & Development Supervisory Agency CAS Country Assistance Strategy CIDA Canadian International Development Agency COTS Commercial-Off-The-Shelf CPF Country Partnership Framework CPS Country Partnership Strategy CTF Child Trust Fund DIPA Approved budget allotment document DO Development Objective DPR` House of Representatives or Parliament DG Director General DGB Directorate General of Budget DGT Directorate General of Tax DGCE Directorate General of Customs and Excise EIRR Economic Internal Rate of Return EPP Economic Policy Package ERP Enterprise Resource Planning FMIS Financial Management Information System FOA Final Operational Acceptance FPO Fiscal Policy Office FY Fiscal Year GAAP Government and Accountability Action Plan GDP Gross Domestic Product GFS Government Financial Statistics GFMRAP Government Financial Management and Revenue Administration Project GGP Governance Global Practice GOI Government of Indonesia HR Human Resources IBRD International Bank for Reconstruction and Development ICR Implementation Completion and Results ICT Information and Communication Technology IDA International Development Association IEG Independence Evaluation Group IG MOF Inspector General of the Ministry of Finance IMF International Monetary Fund IP Implementation Progress ISR Implementation Status and Results Report ITB Invitation to Bid IT Information Technology IV&V Independent Verification and Validation JBIC Japan Bank for International Cooperation JICA Japan International Cooperation Agency iii Kanwil State Treasury Regional Office KSAP Public Sector Accounting Committee KPPN State Treasury Local Services Office or Local Treasury Branches (LTB) LKPP National Public Procurement Agency MDTF Multi Donor Trust Funds M&E Monitoring & Evaluation Menpan-RB Ministry of State Apparatus and Bureaucratic Reform MOF Ministry of Finance MPN State Revenue Module MIS Management Information System MTEF Medium Term Expenditure Framework NOL No Objection Letter NPPA National Public Procurement Agency (LKPP) NPV Net Present Value OM SPAN On Line Monitoring SPAN PAD Project Appraisal Document PBB Performance Based Budgeting PCN Project Concept Notes PDO Project Development Objective PEFA Public Expenditure and Financial Accountability PFM Public Finance Management PHRD Policy and Human Resources Development PIU Project Implementation Unit PINTAR Project for Indonesian Tax Administration Reform PMQA Project Management Quality Assurance PPF Project Preparation Facility PSC Project Steering Committee PSSU Project Services and Support Unit QAG Quality Assurance Group QEA Quality at Entry QER Quality Enhancement Review QSA Quality of Supervision RF Result Framework RPJMN Medium Term Development Plan RTM Requirement Traceability Matrix SAKTI Spending Unit Financial and Accounting Application Secgen Secretary General SPAN State Treasury and Budget System SPIRIT Scholarships Program for Strengthening Reforming Institutions Project for Indonesia SIL Specific Investment Loan SU Spending Units TA Technical Assistance TF Trust Fund TOR Terms of Reference TSA Treasury Single Account USAID United States Agency for International Development iv  INDONESIA GOVERNMENT FINANCIAL MANAGEMENT AND REVENUE ADMINISTRATION PROJECT (GFMRAP) CONTENTS Abbreviations and Acronyms \. iii Data Sheet \. vi Intensive Learning ICR Abstract \. xvi 1\. Program Context, Development Objectives and Design \. 1 2\. Implementation and Outcomes \. 6 4\. Assessment of Risk to Development Outcome\. 21 5\. Assessment of Bank and Borrower Performance \. 22 6\. Lessons Learned \. 29 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners \. 33 Annex 1\. Project Costs and Financing \. 34 Annex 2\. Outputs and Activities by Components\. 36 Annex 3\. Assessment of Achievements by Objective \. 45 Annex 4\. Economic and Financial Analysis \. 51 Annex 5\. Bank Lending and Implementation Support/Supervision Processes \. 54 Annex 6\. Beneficiary Survey Results \. 56 Annex 7\. Inputs from Consultations with Stakeholders \. 58 Annex 8\. Borrower’s Completion Report and/or Comments on Draft ICR \. 61 Annex 9\. Comments of Co-financiers and Other Partners/Stakeholders\. 75 Annex 10\. List of Supporting Documents \. 76 Annex 11\. Online Monitoring SPAN Module \. 77 Annex 12\. Map of Indonesia\. 78 v Data Sheet A\. Basic Information Government Financial Management and Country: Indonesia Project Name: Revenue Administration Project IBRD-47620,IDA- Project ID: P085133 L/C/TF Number(s): 40260,TF-53556,TF- 90047,TF-91414 ICR Date: 06/06/2016 ICR Type: Intensive Learning ICR REPUBLIC OF Lending Instrument: APL Borrower: INDONESIA Original Total USD 60\.00M Disbursed Amount: USD 59\.97M Commitment: Revised Amount: USD 60\.00M Environmental Category: C Implementing Agencies: Ministry of Finance Cofinanciers and Other External Partners: Government of Japan - Ministry of Finance DFATD European Union Government of the Netherlands SECO USAID B\. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 11/18/2003 Effectiveness: 10/27/2005 10/27/2005 06/05/2009 Appraisal: 09/14/2004 Restructuring(s): 12/20/2013 Approval: 12/21/2004 Mid-term Review: 11/30/2012 02/01/2013 Closing: 06/30/2009 12/31/2015 C\. Ratings Summary C\.1 Performance Rating by ICR Outcomes: Moderately Satisfactory Risk to Development Outcome: Substantial Bank Performance: Moderately Satisfactory vi Borrower Performance: Moderately Satisfactory C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Moderately Quality at Entry: Government: Moderately Satisfactory Unsatisfactory Implementing Quality of Supervision: Moderately Satisfactory Moderately Satisfactory Agency/Agencies: Overall Bank Overall Borrower Moderately Satisfactory Moderately Satisfactory Performance: Performance: C\.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments (if Indicators Rating Performance any) Potential Problem Project Quality at Entry Yes None at any time (Yes/No): (QEA): Problem Project at any Quality of Supervision Yes None time (Yes/No): (QSA): DO rating before Satisfactory Closing/Inactive status: D\. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Central government administration 93 97 Law and justice 7 3 Theme Code (as % of total Bank financing) Judicial and other dispute resolution mechanisms 14 3 Other public sector governance 29 1 Public expenditure, financial management and 29 96 procurement Tax policy and administration 14 Trade facilitation and market access 14 E\. Bank Staff Positions At ICR At Approval Vice President: Victoria Kwakwa Jemal-ud-din Kassum Country Director: Rodrigo A\. Chaves Andrew D\. Steer Practice Robert R\. Taliercio M\. Helen Sutch Manager/Manager: vii Project Team Leader: C\. Bernard Myers Amitabha Mukherjee ICR Team Leader: C\. Bernard Myers ICR Primary Author: Hannah Kim Lina Lo Carlos D\. C\. Ferreira F\. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) To strengthen efficiency, governance and transparency in public financial management and revenue administration\. It will provide medium-term support for two of the three pillars of the Economic Policy Package (EPP), namely (i) macroeconomic stabilization, and (ii) increasing investment, exports, and employment\. Revised Project Development Objectives (as approved by original approving authority) To improve efficiency, governance, integrity and transparency in public financial management\. (a) PDO Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years National government policy priorities are reflected in a Medium Term Expenditure Indicator 1 : Framework and annual budgets Mostly Achieved\. MOF issued its regulation No\. No MTEF\. An elaborate 143/2015, which Value planning process was in will "obligate" line quantitative or place but the link between ministries to submit Qualitative) planning and budgeting their3-year forward was weak\. estimates along with the annual budget proposals\. Date achieved 06/01/2004 12/14/2015 Comments This new regulation will increase the compliance of the line ministries in (incl\. % submitting MTEF information to be included in the financial note documents\. achievement) Reduced leakage in expenditure flows to end-users as measured by Public Indicator 2 : Expenditure Tracking Surveys Value Mostly Achieved\. N/A quantitative or TSA is now viii Qualitative) operational in all MOF Treasury offices, with all state receipts deposited in and all state expenditures withdrawn from the TSA, through electronic transfer to ensure reduction of leakage in expenditure flows to end-users\. Date achieved 12/16/2015 Comments (incl\. % achievement) Automated treasury payment system enables accurate and timely financial Indicator 3 : reporting, reduces incidence and size of idle cash balances, and reduces corruption in payments Achieved\. Rollout of SPAN was completed by February 2015 to all Value 222 locations across No automated treasury quantitative or Indonesia\. SPAN payment system Qualitative) now manages100% of all financial transactions of over 24,000 government spending units\. Date achieved 12/10/2015 Comments This indicator represents the core of the GFMRAP operation\. The completion of (incl\. % SPAN signifies a major achievement, underscoring the difficulties and complexities achievement) of this type of interventions\. Indicator 4 : Improved customs revenue performance and time-for-release performance Value quantitative or N/A N/A Qualitative) Date achieved Comments Per the first project restructuring effective Jun 30, 2009, the revenue (incl\. % administration related component was dropped\. Disbursement under this achievement) component was negligible with less than 0\.1% of the project amount\. Demonstrable evidence of improved performance of tax and customs collection and greater transparency in implementation of tax and customs regulation, as Indicator 5 : indicated by increased ratio of revenues to GDP, increase in registered tax payers and filer, reduced ix  This tax administration sub- Value component of the quantitative or N/A GFMRAP operation Qualitative) spun off as a SIL called PINTAR in 2009\. Date achieved Comments Per the first project restructuring effective Jun 30, 2009, the revenue (incl\. % administration related component was dropped\. Disbursement under this achievement) component was negligible with less than 0\.1% of the project amount\. (b) Intermediate Outcome Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Increase policy development capacity within the Fiscal Policy Office as verified by Indicator 1 : the completion of several high-quality policy analysis products Achieved\. 37 officers trained from FPO: (a) 12 Value Masters degrees (quantitative 0 4 completed; (b) 7 or Qualitative) PhD degrees completed; (c) 18specialized training\. Date achieved 02/12/2005 12/31/2015 01/02/2012 Indicator reformulated during the first project restructuring\. Scholarship Comments programs have contributed a lot in the policy development capacity within FPO\. (incl\. % Some staff who completed the scholarship programs were promoted to produce achievement) high quality analysis\. First Medium Term Expenditure Framework endorsed by the Government of Indicator 2 : Indonesia and forward estimates presented to the DPR Value Mostly Achieved\. (quantitative No MTEF MTEF operational or Qualitative) Date achieved 06/01/2004 12/14/2015 Comments This indicator was dropped during the first restructuring\. MTEF was introduced in (incl\. % 2011\. Further fine-tuning of the implementation of MTEF will be needed for achievement) decision making purpose\. SPAN Stage I evaluated with user input with respect to content, timeliness and Indicator 3 : verifiability; specified periodic financial reports prepared for concerned entities Value Treasury system did not SPAN fully Achieved\. SPAN (quantitative enable accurate and functional fully functional or Qualitative) timely financial reporting x  and could not be used for accordance with accordance with ITB reducing incidence and ITB specifications specifications size of idle cash balances, and reduce corruption in payments Date achieved 06/01/2004 12/10/2015 Comments SPAN now manages 100% of all financial transactions of over 24,000 government (incl\. % spending units across Indonesia\.2015 will be the 1st year of using SPAN and the achievement) 2015 financial reports are being audited with results in mid 2016\. TSA system functioning with acceptable parameters: all on-budget central Indicator 4 : government bank accounts and own-revenue bank accounts of line ministries are brought into the TSA system A baseline of greater than Mostly Achieved\. Value 18,000 government cash TSA has been fully (quantitative operations with no cash implemented since or Qualitative) management standards FY 2009 Date achieved 06/01/2004 03/31/2013 Comments While significant progress has been made, there remains challenges: optimizing (incl\. % idle cash, cash forecast, electronic money products, and link between cash and achievement) debt management\. Central Government financial statements meet Government Accounting Standards through Regulation and the consolidated management reports produce by the DG Indicator 5 : Treasury include financial assets, liabilities, cash-based reports ofextra-budgetary funds Mostly Achieved\. Value full accrual-based (quantitative cash-based accounting accounting being or Qualitative) implemented in 2015 Date achieved 06/01/2004 12/14/2015 Comments Preparation for accrual accounting started in 2010\. MOF implemented full accrual (incl\. % accounting in 2015 that will be audited in mid-2016\. achievement) An evaluation of the MOF e-procurement pilot is completed and an action plan is Indicator 6 : adopted by the MOF for wider rollout Partially Achieved\. An e-procurement system, which was developed by LKPP for mandatory use Value 0% of MOF procurement by all government (quantitative through e-procurement agencies, is being or Qualitative) system implemented for MOF\. An Echelon 2 unit responsible for e-procurement was established under xi  the MOF Secretariat General\. Date achieved 06/01/2004 12/14/2015 Comments This indicator was dropped during the first restructuring\. After restructuring, (incl\. % support to this subcomponent with LKPP as the implementing agency has been achievement) under the PFM MDTF\. Indicator 7 : A survey of procurement prices relative to international benchmarks is completed Value (quantitative N/A N/A N/A or Qualitative) Date achieved Comments (incl\. % This indicator was dropped during the first restructuring\. achievement) The DGCE has adopted a comprehensive and consultatively prepared Indicator 8 : modernization action plan with inputs from stakeholders Value (quantitative N/A N/A N/A or Qualitative) Date achieved Comments (incl\. % This indicator was dropped during the first restructuring\. achievement) The DGCE has institutionalized an annual survey of stakeholders, and annually Indicator 9 : published a summary of the results Value (quantitative N/A N/A N/A or Qualitative) Date achieved Comments (incl\. % This indicator was dropped during the first restructuring\. achievement) The DGCE has implemented Web-based filing for about 75 percent of trade Indicator 10 : transactions Value (quantitative N/A N/A N/A or Qualitative) Date achieved Comments (incl\. % This indicator was dropped during the first restructuring\. achievement) The DG Tax has adopted a Results-oriented Modernization Strategy and Plan Indicator 11 : towards a redesign of single tax payer account lines based on the results of the pilot re-engineering of one rep district office Value A roadmap was (quantitative N/A developed and DG or Qualitative) Tax is geared for the xii  next wave of reforms Date achieved 12/14/2015 Comments This indicator was dropped during the first restructuring\. This subcomponent to (incl\. % support DG Tax spun off as a SIL operation named PINTAR that came on line in achievement) 2009\. Indicator 12 : Verification of strengthened basis for ICT development in the DPR Not Achieved\. ICT Value related (quantitative N/A consultancies never or Qualitative) took off Date achieved 12/14/2015 Comments This indicator was modified as the result of the first restructuring and was (incl\. % eventually dropped during the second restructuring\. achievement) Annual surveys of stakeholder satisfaction with Tax Court administration and case Indicator 13 : management established; an action plan has been adopted to address systems weaknesses Partially Achieved\. A first survey on user satisfaction Est\. user satisfaction > with the Tax Court Value 10% as no formal surveys, administration and (quantitative no website or case case management or Qualitative) management and tracking system was system etc\. completed in December 2009\. 68%indicated satisfaction\. Date achieved Comments (incl\. % This indicator was dropped during the second restructuring in 2013\. achievement) Indicator 14 : Tax case decisions are accessible to the public through the Tax Court website Achieved\. The Tax Est\. user satisfaction > Court started to Value 10% as no formal surveys, digitize its decisions (quantitative no website or case with about 4,700 or Qualitative) management and tracking decisions available system etc on line in 2010 Date achieved 12/31/2004 Comments This indicator was dropped during the second project restructuring\. The Tax Court (incl\. % is currently thinking of developing a web-based application for managing and achievement) accessing database of Tax Court decisions\. Verification of effective project governance, external oversight, change Indicator 15 : management and implementation Value No GAAP, PSC or Achieved\. Project (quantitative investigation unit governance and xiii or Qualitative) activities are consistent with the GAAP; Project procurement has been consistent with procurement plan; PSC and PSSU and the investigation unit are all operational and functioning well\. Date achieved 06/01/2004 12/14/2015 Comments As of November 2008, an investigation unit in IG-MOF was established and fully (incl\. % operational\. achievement) G\. Ratings of Project Performance in ISRs Actual Date ISR No\. DO IP Disbursements Archived (USD millions) 1 06/27/2005 Satisfactory Satisfactory 0\.00 2 06/01/2006 Satisfactory Satisfactory 4\.16 3 12/11/2006 Moderately Satisfactory Moderately Satisfactory 4\.86 4 08/09/2007 Moderately Satisfactory Moderately Satisfactory 4\.86 5 05/10/2008 Moderately Satisfactory Moderately Unsatisfactory 4\.86 6 02/18/2009 Satisfactory Moderately Satisfactory 4\.86 7 03/02/2009 Satisfactory Moderately Unsatisfactory 4\.86 8 03/24/2010 Satisfactory Moderately Satisfactory 11\.07 9 07/30/2010 Moderately Satisfactory Moderately Satisfactory 11\.07 10 10/05/2011 Moderately Satisfactory Moderately Satisfactory 25\.30 11 04/04/2012 Moderately Satisfactory Moderately Satisfactory 25\.30 12 11/19/2012 Moderately Satisfactory Moderately Satisfactory 25\.30 13 06/03/2013 Moderately Satisfactory Moderately Satisfactory 26\.19 14 12/14/2013 Satisfactory Satisfactory 26\.19 15 06/30/2014 Moderately Satisfactory Moderately Satisfactory 46\.19 16 01/13/2015 Moderately Satisfactory Moderately Satisfactory 51\.06 17 07/30/2015 Moderately Satisfactory Satisfactory 59\.26 18 12/30/2015 Satisfactory Satisfactory 59\.97 H\. Restructuring (if any) xiv  ISR Ratings at Amount Board Restructuring Disbursed at Restructuring Reason for Restructuring & Approved PDO Restructuring Date(s) Key Changes Made Change DO IP in USD millions 06/05/2009 Y S MU 4\.86 To streamline scope 12/20/2013 N S S 26\.19 to extend project closing date If PDO and/or Key Outcome Targets were formally revised (approved by the original approving body) enter ratings below: Outcome Ratings Against Original PDO/Targets Highly Unsatisfactory Against Formally Revised PDO/Targets Moderately Satisfactory Overall (weighted) rating Moderately Satisfactory I\. Disbursement Profile xv  Intensive Learning ICR Abstract GFMRAP has been instrumental in improving the PFM landscape in Indonesia by providing the foundation for reforms in budget planning, budget execution, reporting, accounting, tax administration, and e-procurement at a critical time in its development history, when economic growth lingered below 4 percent, poverty reduction remained a challenge, and governance concerns continued to overshadow its achievements\. GFMRAP provided the necessary long-term financing platform and convening power necessary to lock in important PFM reforms\. The core achievement of GFMRAP was the deployment of an FMIS system as the primary tool to reduce informality, curb opportunities for corruption, slash transaction costs, and optimize management of public resources at the center of government\. Government banking was consolidated through a Treasury Single Account and the roll out of SPAN, the FMIS system, helped bring financial discipline and transparency to 182 local treasury offices, 33 regional treasury offices, and 8,000 Treasury staff\. GFMRAP also generated substantial efficiency gains, including $300 million in interest savings from TSA, productivity savings from reduced printing and internal communication costs, direct deposits of wages for 1\.62 million central government civil servants, improved predictability of budget execution, and reduced payment errors to unintended recipients\. SPAN triggered the introduction of an electronic state revenue management system, an online monitoring and reports generation tool, and a feeder module to link expenditure data from all 24,000 spending units\. These applications are anchored around SPAN and signal ownership and sustainability of GFMRAP\. Daily cash balances and comprehensive transaction data of central government treasury offices are captured on a real time basis and used for informed decision making, including by President Joko Widodo, showing a strong sense of ownership beyond the Directorate General of Treasury\. However, implementation of GFMRAP presented significant challenges to the Government and to the Bank\. While the project’s broad scope responded to the Government’s need to lock in major PFM reforms at the time of project preparation, it took time for the reforms to take place\. Pockets of resistance were identified upfront but building consensus among a large group of stakeholders took time\. Challenges remain to ensure sustainability of the investment made and to promote further use of SPAN, including the creation of cadre of knowledgeable ICT staff to continue to support the maintenance, operational support, and system enhancements needed to ensure other modules can be fully integrated\. That said, the broad-based reforms envisioned in the original 12- year APL design yielded benefits mostly on the expenditure side of public financial management by helping modernize the core Treasury functions\. Moreover, the areas of reform that GFMRAP first identified—budget formulation, tax administration, customs, support to Parliament, training of auditors, and e-procurement—while pursued through different funding mechanisms, still remain relevant to this day\. As a result, the overall project outcome is Moderately Satisfactory\. This overall outcome rating is based on substantial relevance, efficacy, and efficiency achieved after the first restructuring in 2009\. The original results framework was reorganized in Annex 3 in order to include unanticipated results and to strengthen the results chain supporting the theory of change underlying the GFMRAP operation\. The real economic internal rate of return over a 15-year period is 50 percent, and the project has a positive economic net present value of US$632 million at a 15 percent discount rate\. Performance of both the Bank and the Borrower was moderately satisfactory\. In this xvi Intensive Learning ICR, the team derived lessons learned that may be applicable to other PFM operations in the Governance Global Practice\. xvii 1\. Program Context, Development Objectives and Design 1\. The theory of change underlying the Government Financial Management and Revenue Administration Project (GFMRAP) was that improved expenditure and revenue management would make a substantial contribution to sound public financial management (PFM), which in turn would contribute to better governance and increase the potential for economic growth and poverty reduction\. 2\. The revenue side of GFMRAP was dropped halfway through the project cycle with the tax administration subcomponent, which was originally envisioned as the third phase of the APL, converted into the Project for Indonesian Tax Administration Reform (PINTAR) Specific Investment Loan (SIL) operation\. Implementation of GFMRAP continued with a focus on the expenditure side\. Within this reduced scope, GFMRAP’s key achievements on public expenditure were: (a) implementation of new budget classification system and chart of accounts conforming to international standards; (b) design and successful rollout of an automated system (SPAN) for budgeting, payment processing, accounting, and reporting functions of the central treasury offices serving 24,000 spending units across the country; and (c) consolidation of Government banking through a Treasury Single Account\. 3\. This section of the Intensive Learning ICR provides a synopsis of the overall context, development objectives and project design\. An overview of the project costs and financing is given in Annex 1, whereas outputs achieved by components is given in Annex 2 with assessment of achievements by objectives in Annex 3\. Annexes 6 and 7 provide insights from beneficiary surveys on the functionalities and use of SPAN and stakeholder consultations on how key reforms on public expenditure took place\. List of supporting documents on file is given in Annex 10\. 1\.1 Context at Appraisal 4\. At the time of project preparation in 2003, Indonesia was continuing its transition from an autocratic, centralized state, to a democratic, decentralized one\. While it successfully regained macroeconomic and political stability following the 1998 Asian Monetary Crisis, economic growth remained below 4 percent, poverty reduction remained a challenge, and governance concerns continued to cloud its achievements\. 5\. The Government had recognized that weak governance was at the heart of Indonesia’s poverty and development challenges and future prospects were clouded by perceptions of corruption in financial management practices\. Knowing that the manual, paper-based systems created high risk of informality and discretion, a reform-minded Minister of Finance capitalized on reforms to the public finance law to pursue a long-term partnership with the World Bank to finance reform and to sustain reform across future changes of government\. They launched actions to address critical issues\. The Ministry of Finance was reorganized so that better focus could be brought to bear on core standard functions to ensure fiscal discipline, efficient resource allocation and reliable fiscal reporting\. 6\. The Minister of Finance was well aware of potential obstacles and resistance to a broad- based PFM reform agenda and put forth the concept of creating efficient nuclei and islands of integrity to roll out reforms in stages\. Those units more ready for reform would proceed first and 1 serve as role models for the others\. It was envisioned by senior officials that a World Bank- financed project would provide the basis for the eventual expansion of governance, transparency and accountability throughout the government, starting with the Ministry of Finance\. Accordingly, the World Bank was requested to support the government to “lock in” and implement its long-term PFM reform agenda in October 2003\. 1\.2 Program Development Objectives, Key Indicators (as approved), and Beneficiaries 7\. GFMRAP’s Project Development Objective (PDO) was to improve efficiency, governance, integrity and transparency in public financial management and the revenue administration\. 1 Key indicators were: (a) National government policy priorities are reflected in a Medium Term Expenditure Framework and annual budgets (b) Reduced leakage in expenditure flows to end-users as measured by Public Expenditure Tracking Surveys (c) Automated treasury payment system enables accurate and timely financial reporting, reduces incidence and size of idle cash balances, and reduces corruption in payments (d) Improved customs revenue performance and time-for-release performance (e) Demonstrable evidence of improved performance of tax and customs collection and greater transparency in implementation of tax and customs regulation, as indicated by increased ratio of revenues to GDP, increase in registered tax payers and filers, reduced tax arrears, and reduced clearance time in customs Revised objectives (as approved by original approving authority) and Key Indicators, and Reasons/Justifications: 8\. The PDO was revised to the following in 2009: to improve efficiency, governance, integrity and transparency in the Borrower’s public financial management\. Accordingly, only the three PDO indicators related to expenditure management remained (7\.a-7\.c), while the two related to revenue administration were dropped (7\.d-7\.e)\. 1 Slight inconsistencies were identified in the wording of the PDO within and across documents\. For the purpose of this ICR, we have adopted the project objective as stated in Schedule 2 of the Loan Agreement because the sub- objectives—efficiency, governance, integrity, and transparency—remain the same throughout the subsequent restructuring exercises\. Below are three other versions of the PDO\. • Loan Agreement second paragraph (para\. (A): “The objective of the Project is to implement policies and reforms to strengthen efficiency, governance, and accountability in public financial management and revenue administration\.” • Main text of the PAD, section B\.3: “The objective of GFMRAP-I is to strengthen efficiency, governance and transparency in public financial management and revenue administration\.” • Annex 3 of the PAD, Results Framework: “Strengthened effectiveness, efficiency, accountability and transparency in public financial management and revenue administration\.” 2 Primary beneficiaries of the project: • Directorate General of Treasury and Treasury offices at the local and regional level\. Processes were improved to enhance efficiency for budget preparation, execution, reporting, and accounting\. • Ministries, line departments and agencies at the central government level across the country in 24,000 spending units receiving support in budget preparation, execution, accounting, reporting, and auditing\. • Central government civil servants, suppliers, cash transfer recipients who benefit from improvements in PFM through enhanced efficiency and transparency in the payment process\. • Citizens, elected representatives, civil society, and development partners who can access timely budget execution information made public on the MOF website\. Secondary beneficiaries of the project: • Directorate General of Budget in terms of enhanced budget preparation with performance targets and annual ceilings imposed to spending units fully integrated with SPAN\. • Fiscal Policy Office through capacity building of staff who benefited by receiving updated training facilities, formal degree scholarships, and programs of internationally accepted professional standards\. • Inspectorate General through the establishment of a special investigations unit to handle corruption allegations involving MOF staff\. • Tax Court through the design of a case management system and related training\. • Bappenas through improving the transparency of the Medium Term Expenditure Framework (MTEF) • Office of the Secretariat General of the Parliament (DPR) through support with improved capacity for budget analysis and oversight\. 1\.3 Original and Revised Components (as approved) 9\. GFMRAP underwent two restructuring processes\. At the time of the first, a Level 1, restructuring in June 2009, component activities were revised and the component related to revenue administration was dropped\. At the time of the second restructuring the component related to governance and accountability was dropped\. Table 1 below summaries the original and revised components: Table 1: Original and Revised Components 2 Intermediate Indicators (II) Action per 1st Restructuring Action per 2nd Restructuring Component A: Public Financial Management A\.1: Policy Capacity Development Policy capacity development (particularly in tax policy and trade/tariff policy) within FPO II-1: Survey feedback (including from Modified Unchanged Minister) verifies the completion of at Increase policy development least four high-quality policy analysis capacity within the Fiscal Policy products in the priority areas (tax policy, Office as verified by the trade policy), published on the web site completion of several high-quality (silent in the loan agreement) policy analysis products 2 There are two parts to the numbering format of these intermediate indicators separated by a hyphen\. The first part II signifies Intermediate Indicator, and the second part is the indicator number\. 3 Intermediate Indicators (II) Action per 1st Restructuring Action per 2nd Restructuring A\.2: Budget Planning and Development Strengthened budget planning and development (closer links between policy, planning and budgeting) through reformed budget process and unified budget preparation, signifying implementation of law and regulations on state finances II-2: First Medium Term Expenditure Dropped Framework endorsed by the Government This sub-component was closed as of June 30, 2009 of Indonesia and forward estimates presented to the DPR A-3: Budget Implementation and Treasury Modernization Design and implementation of a KPPN-based automated treasury payment and budget system (SPAN), establishment of a treasury single account in the central bank, and the production by treasury of comprehensive accounting reports consistent with international standards on both cash and commitment basis, all signifying implementation of the Law on State Treasury II\.3: SPAN Stage I (as such is described Unchanged Unchanged in the invitation for bids for the contract for the procurement thereof) evaluated with user input with respect to content, timeliness and verifiability; specified periodic financial reports prepared for concerned entities II-4: A Treasury Single Account (TSA) Unchanged Unchanged system functioning with acceptable parameters: all on-budget central government bank accounts and own- revenue bank accounts of line ministries are brought into the TSA system II-5: Central Government financial Modified Unchanged statements meet Government Central Government financial Accounting Standards as promulgated statements meet Government by the MOF, and the consolidated Accounting Standards as management reports produce by the DG promulgated by Government Treasury include financial assets and Regulation and the consolidated liabilities, and cash-based reports of management reports produce by extra-budgetary funds the DG Treasury include financial assets and liabilities, and cash- based reports of extra-budgetary funds A\.4: Procurement Reform Implementation of pilot e-procurement system in the MOF II-6: An evaluation of the MOF e- Dropped procurement pilot is completed and an This sub-component was closed as of June 30, 2009 action plan is adopted by the MOF for wider rollout II-7: A survey of procurement prices Dropped relative to international benchmarks is This sub-component was closed as of June 30, 2009 completed Component B: Revenue Administration B\.1: Customs Modernization Improved compliance, revenue collection and stakeholder consultation II-8: The DGCE has adopted a Dropped comprehensive and consultatively This sub-component was closed as of June 30, 2009 prepared modernization action plan with inputs from stakeholders II-9: The DGCE has institutionalized an Dropped annual survey of stakeholders, and This sub-component was closed as of June 30, 2009 4 Intermediate Indicators (II) Action per 1st Restructuring Action per 2nd Restructuring annually published a summary of the results II-10: The DGCE has implemented Dropped Web-based filing for about 75 percent of This sub-component was closed as of June 30, 2009 trade transactions B\.2: Tax Administration Improved collection, compliance and adoption of a Plan for nation-wide rollout II-11: The DG Tax has adopted a Dropped Results-oriented Modernization Strategy This sub-component was closed as of June 30, 2009 and Plan with measurable performance indicators, aimed at the eventual redesign of processes along single taxpayer account lines and based on the results of the pilot re-engineering of one representative district office Component C: Governance and Accountability C\.1: House of Representatives (DPR) Strengthened capacity and transparency (a) in the Budget Committee for budget analysis and oversight, and (b) for oversight of budget execution II-12: Survey verifies strengthened Modified Dropped capacity of the Budget Committee of the Verification of strengthened basis This sub-component was closed DPR for ICT development in the DPR as of December 31, 2013 C\.2: Tax Court Efficient and transparent resolution of revenue disputes II-13: Annual surveys of stakeholder Unchanged Dropped satisfaction with Tax Court This sub-component was closed administration and case management as of December 31, 2013 have been established; an action plan has been adopted to address systems weaknesses II-14: Tax case decisions are accessible Unchanged Dropped to the public through the Tax Court This sub-component was closed website as of December 31, 2013 Component D: Project Governance and Implementation Verification of effective project governance, external oversight, change management and implementation II-15: Periodic reviews verify that: Modified Unchanged • Project governance and all project Periodic reviews verify that: activities are consistent with the • Project governance and all Governance and Accountability Project activities are consistent Action Plan (GAAP), and project with the Governance and procurement is consistent with the Accountability Action Plan and Procurement Plan project procurement is consistent • The Project Steering Committee (PSC) with the Procurement Plan is strengthening project governance • The Project Steering Committee and oversight (PSC) and the Secretary General • An investigation unit is established of the Ministry of Finance are and fully operational in the Office of strengthening project the Inspector General of MOF, governance and oversight including the establishment of the necessary legal powers to investigate fully allegations of misconduct and/or corruption against MOF staff 5 1\.4 Other Significant Changes 10\. The project was adaptive to conditions on the ground and was accordingly restructured twice during implementation: • First restructuring\. With US$4\.86 million or 8 percent of the total loan plus credit disbursed by first quarter of 2009, a Level 1 restructuring was completed in June 2009 to reduce the scope of the PDO, change the lending instrument from APL to SIL, and to extend the closing date from June 30, 2009 to December 31, 2013\. This allowed the project to focus on the rollout of the new treasury system (SPAN), as well as support to the Tax Court and DPR, and to exclude other project components related to revenue administration that would be funded through different sources\. • Second restructuring\. Level 2 restructuring of the project was done in December 2013 to extend the project closing date from December 31, 2013 to December 31, 2015\. Project activities related to Component C–Governance and Accountability–supporting the Tax Court and DPR were dropped during this restructuring\. • Adaptability\. Most of the subcomponents dropped as a result of restructuring— including the budget planning and development, tax revenue administration, legislative oversight, and procurement reform—were adapted in scope and financed in part through the PFM MDTF (see Annex 1)\. 2\. Implementation and Outcomes 2\.1 Project Preparation, Design, and Quality at Entry 11\. Lessons learned incorporated\. As documented in the PAD, the task team recognized lessons from the implementation of similar financial management information system (FMIS) in Kazakhstan, Mongolia, Pakistan, Ukraine, and Vietnam, which included the need for high level government commitment to project objectives consistent with the country’s absorptive capacity; thorough needs assessment; intensive TA support with close monitoring of project preparation actions; and rigorous supervision to handle challenges throughout the project cycle\. GFMRAP incorporated these lessons by: (i) focusing first on areas the government was committed to at appraisal (public expenditure); (ii) building on the government’s efforts in these areas; (iii) providing TA to support the government’s project preparation efforts; and (iv) anticipating intensive supervision\. 12\. Design features\. GFMRAP was a response to the government’s objective to realize its poverty reduction goals through increased resource mobilization and more effective public resource management as articulated in the 2002 White Paper\. 3 3 The White Paper was a key output from the MOF which laid out the rationale behind the public financial management reforms in Indonesia\. It states that transparency in government budget preparation and accountability in treasury management would strengthen the responsive, efficient and effective allocation and use of resources, and constitute an essential element of Indonesia’s anti-poverty program\. 6  • A phased operation: The operation was envisioned to be a three-phased Adaptable Program Loan (APL) covering a period from 2004 to 2015 at a total cost of about US$250 million to lock in the government’s entire PFM reform agenda in one instrument\. The core of Phase I was to roll out an automated treasury payment and budget preparation information system (SPAN) aimed to revamp resource management and mobilization\. Phase II was to start in 2006, when Phase I was still ongoing, to focus on the improvement of the customs administration\. The last phase would start in 2010, or earlier depending on the government’s achievements of predefined triggers, to concentrate on the modernization of tax administration\. • Maximizing stakeholders’ involvement to sustain government’s commitment: In order to lock in commitment of all relevant stakeholders in PFM reforms, it was crucial to involve DG Treasury, DG Budget, DG Tax, DG Customs and Excise, Fiscal Policy Office, Tax Court, Parliament, and Bappenas in the project Steering Committee\. Phase I of GFMRAP started with an ambitious agenda to maximize coverage of the intended PFM improvements, which in turn required the involvement of a wide range of stakeholders and multiple implementing units within and outside the Ministry of Finance\. • Introducing an owner’s agent to safeguard the single large information system procurement package: An independent verification and validation (IV&V) consultancy was introduced to support the MOF and other stakeholders to handle the complex procurement, contract management and implementation processes\. • Partnerships: The government of Japan provided US$5 million as a co-financing PHRD grant\. A US$20 million multi-donor trust fund 4 was under discussion at loan signing and became effective in 2007 to complement and broaden the PFM scope envisioned in the GFMRAP design\. About US$4\.8 million of the trust fund was executed directly by the GOI\. This trust fund is still ongoing in its second phase since mid-2014, with some donors having departed and new ones joining\. Roughly 50 percent of the first phase of the trust fund was used to support the SPAN development\. 13\. Risk mitigation\. GFMRAP was considered to be a high-risk, high-reward project because of its potential to transform core government systems for a rapidly growing nation\. An almost exhaustive list of risks to the PDO and component results were carefully considered and presented in the PAD with risk mitigation measures identified\. 14\. Design shortcomings\. • Ambitious and ambiguous PDO: There were three sub-objectives in the PDO— efficiency, governance, and integrity and transparency\. 5 These are at once ambitious 4 The PFM MDTF Phase I with total fund of about US$20 million was established at the World Bank in 2007 with initial funds pooled from the government of the Netherlands and the European Union (EU)\. Switzerland joined the trust fund in 2009, followed by the United States Agency for International Development (USAID) in 2011\. The Canadian Department of Foreign Affairs, Trade and Development (DFATD) joined up during the phasing out of the PFM MDTF Phase I in 2014\. PFM MDTF Phase II is funded by the government of Canada, the European Union, and the government of Switzerland since 2014\. 5 Integrity and transparency were grouped together into a single PDO sub-objective as these were more difficult to unpack and separate from each other than efficiency or governance\. 7  and ambiguous end goals for PFM reforms\. GFMRAP had four components and a total of nine subcomponents covering both sides of the PFM equation, including support to the parliament and the tax court to strengthen the checks-and-balances of the overall public financial management system\. However, the original results chain linking the project’s activities, intermediate results, and PDO sub-objectives was weak\. Therefore, it was necessary for the purpose of the ICR to reconstruct the results framework to determine the achievements of this operation (see Section 3 and Annex 3)\. • Procurement strategy: Procurement of the SPAN information system, which represented 70 percent of project disbursements, was appropriately identified as high risk and it took almost five years to complete\. A number of other procurement packages that were not related to SPAN were cancelled midway due to failure to resolve procurement issues between the Bank and the government teams\. The rigorous fiduciary safeguards and mitigation measures that were built into the procurement processes were not conducive to expediency\. These processes were further hindered by the difficult political and governance climate related to public procurement (for example, risk aversion due to concern over ex-post audits) that almost led to project failure\. • Implementation arrangements: GFMRAP was designed with each of the nine subcomponents having its own Project Implementation Unit (PIU) to manage its day- to-day agreed activities needed to achieve the subcomponent objectives\. PIU-Treasury also served as the Project Services and Support Unit (PSSU) to coordinate all PIUs\. 6 However, over time, the convening power of the PSSU under the Directorate General of Treasury waned\. As a result, the PSSU was eventually moved under the Secretariat General, and a new PIU was set up to service the subcomponent under the Directorate General of Treasury in 2009 as part of the first restructuring\. • Institutional readiness: The readiness of the revenue administration institutions— Directorate General of Customs and Excise (DGCE) and Directorate General of Tax (DGT)—to undertake major reforms was overestimated at appraisal\. This resulted in negligible progress and led to the first restructuring in 2009, when both subcomponents on revenue administration strengthening were removed and one was pulled into a separate stand-alone operation (PINTAR)\. • Unrealistic costing and scope of FMIS turnkey contract: The appraised cost of the SPAN turnkey solution was US$42\.4 million covering design, supply, installation, training, and post-implementation services\. Actual costs were US$57 million, of which US$42 million was funded by the loan and the balance by the GOI, 7 an overrun of about 36 percent\. Computer hardware infrastructure technically depreciates in about four years\. The procurement of the hardware infrastructure and SPAN application as one procurement package, and the miscalculation in the timing of the completion of the development of the SPAN application resulted in the premature delivery of the hardware infrastructure\. As a result, by the time the SPAN application was ready to be 6 As stated in the PAD, GFMRAP implementation arrangements utilized existing government structures and processes with PSSU set up within DG Treasury initially and then the SecGen’s office after the first restructuring, to provide administrative, logistical, procurement, and financial management support for the overall project implementation, and to coordinate with the various designated subcomponent leaders\. PIUs were set up within each unit responsible for its corresponding subcomponent\. PSSU and PIUs were staffed entirely by government officials from the respective units\. 7 The GOI portion also fully covered operating costs such as maintenance\. 8  piloted and rolled out, the hardware infrastructure, while still operational, was already outdated\. Furthermore, server capacity was significantly underestimated\. Even though the Bank supervision team advised the MOF of the original underestimations, the ministry did not want to take a quick decision to procure new servers without factual evidence supporting the capacity shortage due to fear of negative ex-post audits\. This indecisiveness led to severe delays\. It took the MOF 1½ years to finally request and obtain the Bank’s no-objection for a tenfold increase in server capacity after the SPAN pilot had to be stopped due to lack of server capacity to manage the current volume of transactions\. Moreover, in spite of the significant cost overrun, the SPAN contract failed to include activities essential to support the FMIS professional operation such as: system security, ICT audit, independent testing prior to final acceptance, risk management, and legal advisory services to support implementation and changes in business processes\. 2\.2 Implementation 15\. The GFMRAP operation was originally envisioned to be a 12-year operation addressing both sides of the PFM equation—public resource management and revenue generation\. It eventually took 11 years, from the initial conceived 4-1/2 years, to complete the budget planning and execution parts of the operation\. The overall implementation of GFMRAP was wrought with delays, though both the government and the Bank committed to working through the numerous challenges to bring it to completion\. Missions were conducted regularly, and the government produced semi-annual monitoring reports through the PSSU\. The GFMRAP operation was financed through a combination of US$55 million IBRD loan, SDR 3\.14 million (equivalent to US$5 million) IDA credit, US$5 million PHRD Japan Grant, about US$12 million of the PFM MDTF (both Bank and recipient executed portions), and about US$30 million in government’s own resources\. The operation was signed on December 22, 2004, and became effective in October 2005 after two extensions\. As part of the Level 1 restructuring, the closing date of the operation was extended from June 2009 to December 2013, with the scope significantly streamlined\. The second, Level 2, restructuring in December 2013 further extended the closing date to December 2015 to facilitate the SPAN rollout across Treasury offices\. 16\. Implementation highlights\. • Major scope reduction to focus project goals: The loan included eight effectiveness conditions that had to be completed within 90 days after loan signing\. 8 It took the government almost ten months to complete these effectiveness conditions and some were waived\. Once the SPAN contract was signed in July 2009, GFMRAP was 8 These were complicated undertakings\. They included finalizing a project management manual and establishing structural units within the Ministry of Finance, Bappenas, and Secretariat General of the Parliament (totaling nine PIUs) to implement the various components of the project\. They also included the issuance of Specific Procurement Notice and Request for Proposals for two key procurement packages—change management and communications services consultancy and the US$45 million SPAN information system—and signing of a contract for the independent verification and validation (IV&V) consultancy\. Furthermore, a new Minister of Finance, who did not have the institutional memory and ownership of the government’s PFM reform agenda, was sworn in around the time of project negotiation\. This affected project implementation during the entire effectiveness period until another Minister, who embraced the reforms on the outset, came on board\. 9  streamlined to focus on the development and implementation of the SPAN system\. This realignment was formalized by a Level 1 restructuring in June 2009 that removed the entire revenue administration component and shifted most of the remaining components under the PFM MDTF\. • Top management commitment resolved the SPAN procurement impasse: The SPAN contract was originally planned to be awarded in 2006 but it took more than twice the amount of time anticipated\. Of the 25 firms that purchased the bid documents, only four bids were submitted under the first stage of the SPAN procurement\. After careful evaluation, the procurement committee determined that only one bidder was qualified to advance to the second stage of the procurement process\. The Bank disagreed with the committee’s decision to disqualify one of the bidders, and this impasse was not resolved until the then Minister of Finance intervened\. • Project management support through PMQA: The PMQA consultancy was mobilized and played a large role in assisting the government with project management and quality assurance needed to implement the design and roll out of SPAN\. The initial phase of the PMQA consultancy was not very effective because it started six months after the SPAN contract and a number of implementation conditions had already been agreed\. It was critical during customization of the commercial off-the-shelf software (COTS) 9 when most technical experts were brought on board, it provided much- needed advice and guidance to the structural unit established to lead the SPAN implementation\. • PFM MDTF provided additional funds and a convening platform to broaden the scope of the PFM reform envisioned in the original GFMRAP design: In 2007, the public financial management multi donor trust fund (PFM MDTF) became effective, which allowed the Bank to assign full-time senior advisors in treasury, budget, revenue, and information systems to support the government’s PFM reform agenda\. Over time, a number of capacity building activities, particularly those with the Directorate General of Budget and Bappenas, were shifted to the trust fund, allowing more loan resources to be channeled to SPAN implementation\. The PFM MDTF has been instrumental in supporting performance-based budgeting, initial adoption of a medium-term expenditure framework, TSA, and design of the tax court’s case management information system and e-procurement portal\. It also helped spur bureaucratic reform covering MoF, Bappenas, and the Ministry of State Apparatus and Bureaucratic Reform (Menpan-RB) and the development of a national single window to facilitate trade\. • Multiple change requirements during SPAN implementation: Continuous changes were requested during the design of SPAN\. Business process improvements were constantly introduced due to the broader PFM reforms underway, and new features that were 9 Commercial-off-the-shelf (COTS) Enterprise Resource Planning (ERP) are software packages offered by commercial vendors that support core administrative processes such as budgeting, accounting, procurement, performance and human resource management by integrating the data required for these processes in a single database\. COTS ERP systems are based on the premise that the software vendor can support common business processes more effectively and efficiently than customer organizations\. Because ERP software is maintained by the vendor and is based on a reference model of business processes defined by the vendor, total cost savings and return on the buyer’s investment are predicated on the organization adopting the vendor’s model\. While ERP software supports limited customization through changes to configuration settings, unsupported modifications to the software only serve to increase maintenance costs, thereby reducing the overall return on the buyer’s investment\. 10  originally not anticipated were requested\. The contract with the SPAN developer never specified a date by which system requirements should be frozen, resulting in more change requests well after the developer requested a freeze\. At the same time, the MOF project team believed that the SPAN contractor lacked technical experience specific to COTS implementation, had high turnover of key staff, and had difficulty understanding user needs\. 10 2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 17\. M&E design\. The core of the M&E design was the results framework (RF) with original indicators in Annex 3 of the PAD\. The RF provided the basis for the government to monitor progress in meeting the project implementation objectives\. The PSSU submitted semi-annual reports providing progress status of all indicators throughout the entire operation on a timely basis\. Significant progress was made due to the commitment of the Bank team and the implementing agencies\. Outcomes that were not originally envisioned when the project was prepared were achieved\. Accordingly, the results framework was reformulated with the PDO indicators and intermediate outcome indicators rearranged in Annex 3 against each of the three sub-objectives— efficiency, governance, and integrity and transparency—to capture the full achievements at the time of the ICR\. 18\. M&E implementation\. No management information system or any system was set up to systematically collect data\. The PSSU engaged an M&E consultant on a peripatetic basis to conduct M&E reporting when semi-annual reports were due\. Starting in May 2008, three different M&E consultants were engaged, a practice not conducive to preserving institutional memory\. However, the PSSU was able to retain a full-time project manager, who remained with the project through its completion\. 19\. M&E utilization\. The government’s semi-annual reports, with mostly qualitative monitoring of progress against pre-defined indicators, were not the basis to inform decision- making and resource reallocation\. Mid-course adjustments were done based mainly on the day-to- day interactions between members of the Bank’s task team and their respective government counterparts\. Bank’s ISRs did not report against M&E indicators\. Project adjustments were formalized through periodic supervision missions\. 20\. The overall rating for M&E is modest\. 2\.4 Safeguard and Fiduciary Compliance 21\. The GFMRAP operation was rated as an environmental category C with no resettlement or displacement of communities or indigenous peoples encountered during the course of the project\. 10 The relationships between the SPAN contractor and the ministry deteriorated to the point that at end-2013, the SPAN contractor submitted a case for adjudication with a US$18\.7 million compensation claim\. This was eventually resolved when both MOF and the SPAN contractor agreed to accept the adjudicator’s decision to continue completing the project and stop seeking additional compensation from one to the other since both parties contributed to the cause of delays\. 11 22\. The primary implementing agency was the Ministry of Finance\. Other implementing agencies included Bappenas, Tax Court, Procurement Agency, and the Office of the Secretariat General of the DPR\. Both project procurement and financial management capacity assessments were completed at appraisal\. The project complied with fiduciary covenants during implementation with internal control arrangements in place\. 23\. GFMRAP employed satisfactory financial management systems overall, though there were a few problems at the beginning of project implementation, particularly at the PIU level\. The PSSU adopted a verification checklist and used it prior to issuing payment requests sent to the treasury office (KPPN)\. In addition to reviewing and verifying supporting documents, the financial staff also reviewed and verified the substance of the payment requests and requested additional documents from requesters when necessary\. In general, financial staff assigned to GFMRAP had adequate knowledge and background to manage the financial management aspects of the project\. PSSU was also agile in rectifying deficiencies\. Auditors expressed an Adverse Opinion for the FY2013 project financial report due to a dispute on accounting principles and adequacy of supporting documents\. PSSU took immediate actions by providing all needed supporting documents and improving its financial management system\. Since then, auditors have expressed unqualified or clean opinions on all project financial reports up to project closing\. 2\.5 Post-completion Operation/Next Phase 24\. The tax administration component, which was originally envisioned as Phase III of the APL, was converted into the PINTAR SIL\. There were other activities funded by the PFM MDTF that provided the basis for ongoing work in tax administration, which was included as a major pillar under an ongoing DPL\. The Directorate General of Treasury recognizes there remains work to be done in system enhancements and operational support for the SPAN system and is exploring options to finance these activities\. 25\. As pointed out above under “Design Shortcomings” sustainability of SPAN is affected by post-implementation challenges\. These deficiencies would not be unusual for Phase I of an APL operation because they would be naturally addressed in subsequent phases of the APL\. The change of this project to a SIL with no additional contingency funding left these issues unattended\. However, Treasury, recognizing the problem, has signaled to the Bank it would welcome a follow- up project\. 3\. Assessment of Outcomes 26\. The scope of GFMRAP was extremely broad, covering virtually all aspects of public financial management, including budget preparation, budget execution, tax administration, customs, e-procurement, accounting, and reporting\. The outcome indicators that were developed in 2004 could not have anticipated the full extent and scope of PFM reforms, so new indicators have been introduced in the analysis below to fully capture extent of the benefits of the project\. 12 3\.1 Relevance of Objectives and Design Relevance Rating: Substantial Relevance of Objectives: High (Pre-restructuring: High, Post-restructuring: High) 27\. The Level 1 restructuring that took place in 2009 reduced the scope of the PDO by dropping the work related to revenue administration\. The analysis on the ratings for relevance, efficacy, and efficiency will be given pre-restructuring and post-restructuring\. However, since the amount disbursed pre-restructuring was about 8 percent of the loan amount, the post-restructuring ratings will be given a much higher weighting\. 28\. The original project objectives focusing on public financial management and revenue administration remain highly relevant at project closing\. GFMRAP’s objectives mirrored the government of Indonesia’s development priorities\. Weak institutional capacity continues to be one of Indonesia’s key development constraints, and good governance remains a key ingredient in the Government’s National Medium-Term Development Plan 2015-2018 (RPJMN)\. In the World Bank’s 2016-2020 Country Partnership Framework (CPF), collecting more and spending better is one of the core engagement areas\. 29\. The revised project objective focusing only on the Borrower’s public financial management remains highly relevant as well\. The 2016-2020 CPF acknowledges a number of positive outcomes in the Bank’s support for public financial management, including development of medium-term budget forecasting tools, M&E processes to inform future budget allocations, regulations for accrual-based accounting policies and chart of accounts, and the roll out of the automated treasury payment and budget preparation information system\. Relevance of Design: Modest (Pre-restructuring: Negligible, Post-restructuring: Modest) 30\. Various aspects of the design had shortcomings, including the choice of lending instrument, scope of the development objective, and results chain\. 31\. The original program was overly ambitious and the choice of lending instrument reflected this\. The project was originally envisioned as a three-phased Adaptable Program Loan, covering a period of 11 years that would provide a platform to lock in major reforms related to public financial management in the first phase, customs in the second phase, and tax administration in the third phase\. The project was designed this way given the challenging governance environment, uncertainty over elections, and lack of strong ownership and commitment of the Directorate General for Tax and Directorate General for Customs and Excise (DGCE) for reforms\. While a better approach would have been to implement individual, inter-related but self-standing Specific Investment Loans (SILs), the flexibility of the APL instrument gave the Bank a strategic entry point to engage with the Ministry of Finance on many key public sector reforms\. 32\. The framing of the development objective was broad-based in order to allow for flexibility needed for the APL\. However, about half way into the project life cycle, the tax reform component was converted into the Project for Indonesian Tax Administration Reform (PINTAR), as a SIL, which was considered a more appropriate instrument for the Borrower to establish a focused 13 project implementation structure independent from the broad-based program\. Customs administration reform was dropped after the Government decided to implement this component without donor assistance\. To accommodate this change in scope, a Level 1 restructuring took place where the revenue administration portion of the PDO objective, components, and indicators were all dropped and the project was converted to a SIL\. The work with the Tax Court and DPR were later dropped in the Level 2 restructuring that took place two years later\. 33\. The restructuring was a good opportunity for the project to rework the results framework given the reduced scope of the PDO objective, but this was not done, making it harder to establish a clear and convincing causal results chain between funding and outcomes\. 11 The statement of objectives would have been made clearer and better linked to intermediate and final outcomes\. 3\.2 Achievement of Project Development Objectives 34\. GFMRAP has been a major contributor to an improved PFM landscape in Indonesia, bringing basic financial discipline and transparency to 182 local treasury offices, 33 regional treasury offices, and 8,000 Treasury staff\. The roll out of the automated treasury payment and budget preparation information system (SPAN) improved the efficiency of the central government’s operations\. However, progress on revenue administration was modest\. Activities intended to modernize DGCE were barely executed\. A national single window to facilitate trade was established with funding from the PFM MDTF but without the participation of DGCE\. Although registered taxpayers increased from 19 million in 2010 to 30 million in 2014, the compliance rate of tax return filing is still low at 59 percent and there is no evidence of increased tax revenue to GDP\. 35\. The PDO contained several compound objectives and these were unpacked into three sub- objectives: (a) To improve efficiency in the Borrower’s public financial management (b) To improve governance in the Borrower’s public financial management (c) To improve integrity and transparency in the Borrower’s public financial management 36\. The project results framework with PDO indicators and intermediate outcome indicators was reconstructed in Annex 3 order to better reflect the unanticipated results of GFMRAP and to strengthen the results chain that supports the project’s theory of change\. (a) Improved efficiency in the Borrower’s public financial management Rating: Substantial 37\. SPAN has helped contribute to timely and transparent payments, which has discontinued the informal “fees” that were given to expedite payments\. Salaries of 1\.62 million civil servants 11 There was uncertainty whether GFMRAP was to be continued given that the award of the SPAN contract was a critical path activity\. With the project end date approaching and award of the SPAN contract becoming more imminent, the task team then quickly prepared the restructuring package\. The M&E arrangement was not considered to be critical to finalize the restructuring process to ensure reform momentum and project continuity\. 14 and payments to 300,000 suppliers are processed through direct deposit\. As a result, approximately US$55 million is saved in printing and internal communication costs per year\. The Treasury also developed OM-SPAN, an online monitoring system for payment transactions that can be accessed to check on payment status on a real-time basis\. Furthermore, with a TSA fully implemented since 2009, over US$300 million is saved in interest earnings as a result of having consolidated cash balances\. Cash balances have been consolidated, off-budget accounts have been brought into compliance, and existing miscellaneous accounts of line ministries have been closed\. New accounts can only be opened after MOF authorization\. SPAN has enabled senior government officials (including President Joko Widodo) to see their budget execution progress in almost real time, when previously this was a cumbersome task that involved the reconciliation of multiple reporting systems from multiple databases\. (b) Improved governance in the Borrower’s public financial management Rating: Modest 38\. GFMRAP also helped enhance legislative scrutiny and oversight of the annual budget by improving the capacity of members of Parliament through analytical support to the budget formulation process\. The review undertaken by Parliament covers Indonesia’s macroeconomic framework, main fiscal policies and expenditures and revenues\. A detailed discussion of the annual work plans of line ministries takes place directly with the relevant parliamentary sectoral budget commissions\. The budget review is undertaken over a period of about seven months\. Parliament has some 8-10 weeks (compared to 6-8 weeks before) to review the draft budget once it is tabled in mid-August until it is formally adopted in October\. 39\. While the medium-term expenditure framework (MTEF) was introduced in the 2011 budget, further fine-tuning of its implementation along with the operationalization of performance- based budgeting (PBB) remains a priority to fully unleash potential benefits of these governance strategies\. The medium-term expenditure framework takes the performance indicators from the previous year as a baseline for the subsequent year\. On performance-based budgeting, outputs are defined for each program area every year and progress against each output is reported\. 40\. GFMRAP also supported training and professionalization of 37 Fiscal Policy Office staff, of which 7 completed PhD programs, 12 completed aster’s programs, and 18 completed specialized training\. GFMRAP also helped set up a special investigation unit in the Office of the Inspector General in order to investigate allegations of corruption against MOF staff, including tax officers\. In addition, the PSSU has been successful in ensuring project activities are consistent with the government’s anti-corruption plan and that project procurement activities are consistent with the Procurement Plan\. The project steering committee and the Secretary General of the MOF have been consistently carrying out project governance and oversight with frequent and regular meetings\. 15 (c) Improved integrity and transparency in the Borrower’s public financial management Rating: Substantial 41\. SPAN helped curb corruption by reducing the opportunities for discretion and informality that are more common in manual, paper-based systems\. In addition, it reduces leakages due to erroneous payments or over-spending by budget users\. SPAN introduced a new module called the supplier database in order to reduce payment errors to unintended recipients\. As a result, manual checks of payments for 300,000 suppliers has been replaced with regular system reporting and fiscal discipline over payments has increased\. Commitment control has also been significantly strengthened\. Annual budget ceiling data is integrated with SPAN so spending units cannot disburse beyond this limit, helping strengthen expenditure control\. However, discrepancies in the recording of certain transactions still exist (e\.g\. intergovernmental revenues, non-tax oil and gas revenue, and foreign exchange debt) but these are all within the internal auditor’s materiality threshold of 0\.5%\. Individual line ministers have their own internal auditors and these audits have been on time and cover all ministries and agencies\. 42\. The Treasury has also made progress transitioning from cash-based accounting to accrual based accounting\. The processing and recording of government transactions in a single database has also helped ensure financial data integrity\. Monthly budget execution reports are generated on time and the reconciliation mechanism between regional and local Treasury offices is now done electronically\. Progress has also been made in terms of ensuring greater access to the semi-annual budget report and to contract awards above a threshold of IDR 50 million on the website of agencies\. 43\. The overall achievement of objectives given above is assessed as Substantial\. 3\.3 Efficiency Rating: Substantial (Pre-restructuring: Negligible, Post-restructuring: Substantial) 44\. A comparative study of FMIS implementation among countries shows that Indonesia’s investment per user on FMIS is in line with its comparators with equivalent or better utilization of features\. 12 Another study shows that FMIS implementation time (2009-2015) 13 under GFMRAP is comparable to the average period to implement an FMIS (7\.9 years) and that 80 percent of the Bank projects financing FMIS were extended\. 14 On the benefits side, examples shown in Section 3\.2 demonstrate that operational and administrative efficiencies were derived through proactive results oriented implementation approaches adopted under the project\. The project has improved 12 Ali Hashim, A Handbook on Financial Management Information Systems for Government – A Practitioners Guide for Setting Reform Priorities, Systems Design and Implementation (World Bank, 2014) 13 FMIS implementation was mainly completed from 2009 to 2015\. This excludes the initial period up until 2009 spent on policy and institutional reforms and includes the period for which GFMRAP supported the design and roll out of SPAN, systems and applications upgrades, capacity building aimed at sustainability of operation of these systems, and enhancing the functionality of SPAN\. 14 Cem Dener, Joanna Watkins and William Dorotinsky, Financial management information systems: 25 years of World Bank experience on what works and what doesn't (World Bank, Apr 2011) 16 the efficiency of Indonesia’s public financial management system through the provision of comprehensive, reliable, timely, and accurate data for informed decision-making\. 45\. Aimed at strengthening of financial management and revenue administration, GFMRAP- inspired investments allow for more effective public resource management benefits\. As such, the project’s successful implementation results in a number of important economic benefits, including the following: a) Improved predictability of budget execution and reductions on payment errors to unintended recipients\. Invoice payments to 300,000 suppliers are issued by SPAN per year through direct payments to individual employee accounts instead of manual checks\. SPAN requires suppliers to be registered and recorded in a supplier database before payments can be processed, reducing the number of payments wrongly made to unintended recipients\. b) Direct deposits of civil service wages\. Salaries of 1\.62 million government employees are now paid electronically by SPAN directly to each individual account\. This has helped increase governance and control over accuracy of staff salary payment details and reduced the number of bank accounts being managed for payment of salaries from 750 to 3 banks\. The volume of staff salaries has also doubled not due to staff increase but due to inflation\. c) Reduction in cash balances\. US$300 million saved per year since 2007 on interest earned or remuneration given by the Central Bank from consolidation of cash balances and reduction of idle cash with the Treasury Single Account\. d) Increased administrative efficiency\. Automation created savings on wage bill as the total number of Treasury staff during the last decade remained the same while government budget and expenditure increased three times and the number of transactions doubled\. Online real-time data availability has also reduced the staff time and effort to manually collect and aggregate data from local offices\. e) Improved collection and access to information\. Utmost reliance on SPAN information by MOF to make expenditure authorization decisions in the capacity of the financial adviser for various ministries\. f) Full reconciliation of audited financial statements\. In 2006, the Supreme Audit Agency (BPK) reported that tax revenues as determined by DG Tax were higher than those reported by the Treasury by Rp1\.9 trillion (approximately 0\.5 percent of aggregate revenues) and considered this discrepancy a cause for recording a disclaimer\. Through the revenue collection module introduced in SPAN this discrepancy disappeared and BPK reported that the tax revenue data recorded is clean with an unqualified opinion\. g) Increase transaction processing capacity\. Increased processing volume from 32 million revenue payment transactions being processed in the amount of Rp590 trillion in 2008 to 44 million transactions with Rp1,400 trillion in 2013\. h) Better coordination between cash and debt management\. Improved coordination between DG Treasury and DG Debt Management leads to greater efficiency in debt issuance, redemption programs, and use of cash\. Having a consolidated balance in the TSA helps DG Debt Management and DG Treasury to decide on the borrowing strategy, cash plan and placement\. This can also support efficient cash management by altering the profile of debt redemptions through buy-backs or swapping securities of different maturity structures\. While DG Debt Management used to set a schedule for bonds issuance in a particular year, the issuance of bonds was usually seen as a “front loading” policy, since DG Debt Management based the schedule around securing its own financing needs at the 17  beginning of year without consultation with DG Treasury on their cash needs\. This imposed unnecessary carrying costs resulting from the increase in the idle cash under management at the beginning of the fiscal year\. i) Reduction in corruption\. The elimination of thousands of government bank accounts through the consolidation of balances in the TSA has reduced the potential for corruption resulting from the authorities managing large cash balances in commercial bank accounts\. Since the TSA has been in place, the local treasury branches (LTBs) and spending units have had much less discretion than before, because of the direct disbursements and minimal balance kept in their accounts\. Furthermore, it is not possible for a public agency or unit to open an unauthorized bank account\. 46\. The economic benefits derived from these administrative improvements alone would suffice to derive economic feasibility\. However, as many financial aspects have proven difficult to quantify, a much narrower economic analysis is being presented\. 47\. Such an economic analysis, based solely on the calculation of NPVs derived from project costs net of (i) interest savings and opportunity savings from centralized cash accounts held in the Treasury Single Account at the Central Bank; and (ii) productivity savings from decreased reliance on manual checks and paper documentation and staff time saved, 15 confirms that the returns to investment under GFMRAP are substantial\. The rates of return on investment over a 15-year period, applying a 15-percent discount rate, 16 are estimated at 50 percent, with a positive economic NPV of US$632 million\. High rates of return are mostly due to savings from consolidated cash accounts through the creation of a Treasury Single Account and efficiency gains of local and regional Treasury offices through automation\. Costs include actual project costs, including government co-financing, implementation support costs, as well as support provided by the PFM MDTF\. Low and high scenarios are considered for benefits and costs\. Details on assumptions and calculations are presented in Annex 4\. The value added arises mainly from the Bank’s technical input based on international experience, particularly on the FMIS implementation\. 48\. Nevertheless, in spite of all the difficulties, SPAN was implemented and deployed throughout the country including the most remote Treasury offices\. It is being used by DG Treasury every day, and GOI is reaping most of the benefits anticipated for the project\. GFMRAP APL design called for a second phase of SPAN implementation to integrate it with many of the other MOF systems and bring its benefits to all areas of the MOF\. The MOF is considering alternatives for this expansion\. 49\. The broad-based positive impact of the project given above benefits is assessed as Substantial\. 15 E-transmittal of salary slips and payments is expected to save millions of dollars on paper, printing, communication, and postage\. This impact is expected to increase each year, once regulations are changed to no longer require paper forms be dropped off (including SAKTI connection to line ministries)\. The calculations used in this economic analysis assumes this gradual increase in savings from 2015 to 2019\. See Annex 4 for more details on assumptions\. 16 GFMRAP has a positive net present value even for a very high discount rate\. The NPV ranges from $413 million when applying a 20-percent discount rate to $1\.6 billion applying a 5-percent discount rate\. The economic analysis uses a high discount rate of 15% given the project’s long implementation period and because assumptions behind productivity gains will need to be confirmed in the next few years\. 18 3\.4 Justification of Overall Outcome Rating Overall Outcome Rating: Moderately Satisfactory 50\. The justification for ratings of relevance, efficacy, and efficiency are elaborated in subsections 3\.1, 3\.2, and 3\.3, respectively\. All ratings were either Modest (M) or higher, with a High (H) rating for relevance of objectives and efficiency\. Pre-restructuring Relevance Efficacy Overall Integrity and Efficiency Objectives Design Efficiency Governance Outcome Transparency High Negligible Modest Negligible Negligible Highly Negligible Modest Negligible Unsatisfactory Post-restructuring Relevance Efficacy Overall Integrity and Efficiency Objectives Design Efficiency Governance Outcome Transparency High Modest Substantial Modest Substantial Moderately Substantial Substantial Substantial Satisfactory Combined Rating Against Original Against Revised Overall Comments PDO PDOs 1 Rating Highly Moderately Significant Unsatisfactory Satisfactory improvement 2 Rating Value 1 4 3 Weight (% disbursed 8% 92% 100% before/after PDO change) 4 Weighted value (2 0\.08 3\.68 3\.76 x 3) 5 Final rating Early revision Moderately (rounded) preserves an MS Satisfactory rating 3\.5 Overarching Themes, Other Outcomes and Impacts 51\. The GFMRAP operation was prepared at a time when Indonesia’s annual economic growth was stalled at less than 4 percent, and future prospects were clouded by perceptions of corruption in financial management practices\. Though designed with a very inclusive set of stakeholders, GFMRAP’s originators were aware that some functions were more ready to embrace reform than others\. DG Customs and Excise and DG Tax, for example, quickly revealed an ambivalence toward the project as it was structured\. In turn, the government pushed ahead at the opportunity 19 to develop a modern budget and treasury system that could be a foundation for other reforms promoting transparency and efficiency\. Built into an FMIS is an automatic audit trail that reduces room for discretion in payments\. While some reforms such as the TSA, accrual accounting, MTEF, PBB, e-procurement, and other PFM policies could have been developed without Bank financing, the project provided a convening platform to rally multiple stakeholders within and outside of the Ministry of Finance to dialogue on PFM issues and a focal point for trust fund resources that had been mobilized in parallel from donors\. The generous trust fund resources in turn enabled the Bank to leverage the impact of Development Policy Lending (DPLs) and to support other institutional and policy reforms of the Government\. (a) Poverty Impacts, Gender Aspects, and Social Development 52\. Strengthened PFM systems introduced under GFMRAP ensured that money was spent within established annual budget ceilings\. Enhanced commitment control in turn contributed to services being delivered more efficiently\. While there are many other factors at play, strengthened PFM institutions and systems helped encourage transparency and accountability in budget execution\. In addition, transparent financial reporting, which leads to informed decision-making, economic viability, and credibility of the state, provides a conducive environment to attract direct and indirect private investment\. Because of the project, payments to suppliers and salaries of government employees are now directly deposited to individual bank accounts\. This has resulted in reducing petty corruption as well as providing a convenient facility for beneficiaries\. The project was also instrumental in identifying ghost vendors and workers, which has helped save millions of rupiahs for the government\. (b) Institutional Change/Strengthening 53\. The project set the foundation for enhanced capacity in PFM\. While the legal and regulatory framework was in place before SPAN was designed, business processes were constantly changing and it was difficult for Treasury to envisage how they could fit into a COTS package\. In turn, this resulted in significant delays in freezing the business requirements, increased costs of the supplier, and lengthened SPAN development time\. Nevertheless, over time officials from DG Budget and Treasury became better informed of international good practice and were able to steer institutional changes within their departments, helping to ensure the SPAN was rolled out successfully\. GFMRAP led the way for better tracking expenditures, enhancing commitment control, increasing efficiency of payment systems, and reducing corruption\. Furthermore, SPAN is a catalyst for the ministry’s ICT integration\. Without the GFMRAP operation, individual units within the ministry would continue to develop their own standalone and in-house applications and a single integrated database would not be realized\. (c) Other Unintended Outcomes and Impacts 54\. The development of SPAN triggered the introduction of three applications—MPN, OM- SPAN, and SAKTI—developed by DG Treasury at the same time as SPAN development to enhance the usability of SPAN\. MPN, the electronic state revenue management system, was developed to collect state revenues, generate timely revenue collection reports, and provide a more complete picture of Treasury’s financial position\. OM-SPAN was developed to ease the load of SPAN to allow for online monitoring and reports generation\. SAKTI, the institutional-level 20 financial application system, scheduled to be rolled out to all spending units in 2017, was developed as a feeder module to link all currently standalone systems used by the more than 24,000 spending units across Indonesia to the SPAN system\. All these applications anchor around SPAN, expand its utility, and signal ownership and sustainability of the investment\. 3\.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops 55\. Insights from stakeholders showed that while a number of reforms were initiated in the early 2000s, it took time for these reforms to be fully internalized\. It took time for the regulations to be translated and incorporated into business process improvements, which in turn led to many report customizations required of the COTS system\. Pockets of resistance were identified upfront but building consensus among a large group of stakeholders took time\. Inputs from different outcomes of the reform can be found in Annexes 6 and 7\. 4\. Assessment of Risk to Development Outcome Rating: Substantial 56\. The key output of the GFMRAP operation is SPAN, a fully operational budget preparation and treasury payment system\. SPAN has transformed how budget execution is carried out to such an extent that the potential of going back to the former business processes and previously discrete standalone legacy systems is minimal\. There has been overwhelming enthusiasm from key stakeholders that its sustained use is indisputable\. The President of Indonesia officially launched SPAN in front of his cabinet showing a strong sense of ownership beyond the Directorate General of Treasury\. There is newly acquired skill sets within the DG Treasury, as evident in its in-house development of the report-generating application OM-SPAN to ease the load of SPAN\. However, the development of OM-SPAN could also be interpreted as a risk that Treasury lacks the knowledge and experience with SPAN’s full functionalities and could lead to the development of parallel modules outside SPAN\. 57\. Pusintek, the information system department of the Ministry of Finance, has significantly increased its capacity and capability to become a reliable information communications technology (ICT) service provider for the ministry\. It now manages a multi-site disaster recovery center and was successful in developing a case management system for the Tax Court after a failed procurement under the GFMRAP operation\. Pusintek’s role in integrating ministry-wide databases and providing ICT needs is likely to continue to broaden, which in turn would lead to strengthened and concentrated ICT capacity in Pusintek to service the rest of the ministry, one of the unspecified benefits of the operation\. 58\. However, there are some serious sustainability issues set at the Ministry of Finance level that directly affect DG Treasury: (i) the lack of an HR Policy that creates a solid basis for staff expertise to be developed and retained; (ii) the inability to establish a strategic long-term (multi- year) relationship with providers of the technologies being used to ensure proper maintenance, care, and continuous enhancement of SPAN and the infrastructure that supports it; (iii) lack of 21 information security management which could potentially put SPAN at high risk; and (iv) no business continuity plan in place in case of a natural disaster\. 5\. Assessment of Bank and Borrower Performance 5\.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Moderately Unsatisfactory 59\. GFMRAP was prepared at the request of a reform-minded Minister of Finance who was keen to lock in major PFM reforms before elections\. Project preparation borrowed heavily on the results of technical assistance that the IMF had been providing to the MOF, particularly in relation to modernization of the Treasury and implementation of SPAN\. However, the Bank recognized early on that availability and quality of strategic analyses to support the GOI development objectives for the project’s various components varied significantly\. Moreover, the clear recognition of the need for institutional reforms at the top level of the MOF was not fully shared by DG Customs and Excise and DG Tax, nor by lower echelons of the same ministry\. Bank management recognized from the outset that this would be a high-risk operation and the project team reflected these risks in a well-prepared risk matrix\. The Bank made excellent use of its ability to mobilize resources to promote increased quality at entry: a PHRD grant was obtained in record time, as well as a PPF to increase the MOF capacity to prepare the project and to create the conditions for successful implementation\. The adoption of the APL investment instrument was important to mitigate the unevenness of strategic approach to and interest in the reforms in the different MOF directorates general\. The project design considered international best practices and lessons learned by the Bank in the implementation of PFM, Customs and Tax projects\. A candid QER process provided extensive guidance to the Bank team\. Project preparation seemed to have been conducted under considerable time pressure to support the GOI need to lock-in and implement its long-term public financial management and revenue administration reform agenda\. 17 Project components were aligned with the PDO’s intended outcomes, and the outcomes responded to the government’s development priorities at time of appraisal\. The project design also included an extensive analysis of related risks and a thorough evaluation of fiduciary capacity, sustainability, and safeguards issues\. However, project indicators did not adequately capture how project activities were contributing to the PDO\. 60\. Although project design fit well with the PDO, the project scope was over-ambitious even for an APL\. 18 The preparation of each component—Treasury, Customs and Tax—required highly specialized experts to guide the preparation process and define their development impact\. In addition, the project called for heavy investments in information technology, an area repeatedly 17 The PAD indicated “Solid progress in economic policy-making, yet limited strengthening of governance and public institutions, has characterized Indonesia’s continuing transition from an autocratic, centralized state to a democratic, decentralized one\.” 18 Peer reviewer Bill Dorotinsky, noted: “The areas of focus and reform seem appropriate, and likely to add value\. Treasury reform, customs and revenue administration, and improving oversight\. However, this is a big agenda, and larger, more developed MOF’s would be challenged to see this broad agenda through to successful completion\. 22 flagged in the Bank for procurement difficulties\. Moreover, from the outset the agents responsible for two project subcomponents—DG Customs and DG Tax—were reluctant to engage in open dialogue during preparation and failed to demonstrate ownership and commitment\. Guidance to the team, at PCN and QER stages, that these two components should be dropped under these circumstances and that the packaging of planned IT investment on SPAN be broken into smaller packages was not heeded\. 19 As a result, these two subcomponents were prepared but barely executed and had to be subsequently cancelled through project restructuring\. Procurement and implementation stages of SPAN were plagued with problems\. The Monitoring and Evaluation system included several indicators with no baseline or clear targets and could not be adequately monitored by the MOF\. As a result, little attention was paid to M&E by the GOI during implementation or by Bank missions as part of supervision\. Detailed milestones and triggers were prepared before negotiations but were of little value during implementation because they were so numerous and so detailed that non-observance became a common and acceptable occurrence\. Cost estimation was overly optimistic\. By the second year of implementation, it was already clear there was a need for additional financing to cover the difference between original cost estimates of US$48 million and revised estimates of US$66 million, a 37\.5% increase\. (b) Quality of Supervision Rating: Moderately Satisfactory 61\. Adequacy of supervision inputs and processes\. During the almost 12-year implementation period, the Bank conducted 18 regular implementation support review missions and completed a mid-term review in 2009\. Given its wide scope and complexity, the project was placed under intensive supervision from the outset\. The Bank’s implementation support review missions were frequent and helpful in identifying and proposing alternative solutions to key implementation challenges that plagued all project activities with no exception\. Bank management provided excellent support to these missions\. Support missions were fully staffed bringing to the fore subject matter expertise in public financial management, customs administration, tax administration, and the key area of procurement: information technology\. Bank management also facilitated access to the top authorities in the Ministry of Finance as needed to address implementation road blocks and encourage the Borrower to put in place the necessary structures, processes and procedures needed for the MOF to carry out its project implementation responsibilities\. A well-endowed Multi Donor Trust Fund (PFM MDTF of approximately US$20 million) was put in place to supplement the loan resources and aid the MOF with project execution\. Implementation support missions invested substantially in the coordination with the many initiatives financed by other donors\. 20 Generous resources were provided to the implementation support teams 21 to ensure implementation\. Twice Bank management restructured the project to add focus on the key objective of implementing a modern Treasury system (SPAN) and extended the loan closing date\. Intensive Bank supervision was often required to delve in-depth on key project management, procurement and contract management issues and continuously proposed 19 Project preparation missions noted repeatedly the difficulties in getting DG Tax and DG Customs to prepare their components or even agree to receive the mission for meetings\. 20 For example, a 2006 donor meeting included representatives of the ADB, AusAid, Australian Treasury, CIDA, GTZ, IMF, Japanese Embassy, JICA JBIC, the Netherlands Embassy, and USAID\. 21 For example, in 2008 the team had three international staff resident in Jakarta supporting project implementation (and development of GFMRAP-II aka PINTAR) in addition to three local staff dedicated to the same activity 23 refined and improved project management methods and technical solutions to the MOF\. Fiduciary responsibilities of the Borrower were often verified following Bank guidelines\. 62\. The project implementation period must be seen as two very different periods\. The first period from loan approval by the Board in 2004 through 2009 was very difficult for the implementation team which had to face the consequences of a hastily prepared project, with a broad scope, and lacking in strong ownership by some of the MOF Directorates General being reformed\. In 2009 the project was fundamentally restructured with the Tax Administration and Customs components being dropped after having practically no disbursement over the period, cancellation of the Budget Preparation, e-Procurement activities and reduction of the scope of intervention in the Fiscal Policy Office\. The second period from 2010 to loan closing in 2015 had the implementation team focus on the key objective of improving Treasury operations through the implementation and deployment of SPAN\. 63\. The following deficiencies were noted during project implementation: a) Failure to maintain commitment\. Supervision missions failed to convince key stakeholders responsible for the implementation of several components and subcomponents to maintain their commitment to the project resulting in cancellations of all activities other than Treasury’s either at the first or the second restructuring\. b) Misunderstanding of Bank procurement guidelines\. DG Treasury, DG Tax and DG Customs and Excises had weak capacity to fulfill their implementation responsibilities in project management and procurement management in particular, which often led to misunderstandings of Bank procurement guidelines and conflict with Bank missions\. A much improved and successful project management structure was agreed and put in place for the second period of the project\. Yet, management of the large SPAN contract was contentious, with MOF and the contractor having conflicting interpretations of contract clauses, which almost led to contract cancellation\. c) Bundling of software and hardware in a single contract\. This led to delivery of a technology infrastructure that was insufficient in capacity and near obsolescence\. Procurement of a tenfold increase in hardware capacity to overcome problems with initial estimates took a year and a half which contributed to delays\. d) Lack of focus on development impact\. Significant deficiencies were also noted in the arrangements for M&E with lack of baseline data and weak systematic monitoring of results\. Although the government prepared semi-annual monitoring reports, baseline data were missing for several PDO and intermediate indicators\. In fact, aide memoires and regular ISRs paid little attention to the formal tracking of the indicators\. Furthermore, the results framework was not re-worked during the first restructuring and no M&E specialist was engaged as part of the restructuring process\. e) Candor and quality of performance reporting\. The IP ratings did not accurately and realistically reflect the procurement challenges the project faced during the selection of the SPAN contractor as well as the PMQA consultancy\. f) Failure to address sustainability issues\. Post-implementation challenges were well known to the supervision teams but could not be addressed and still remain as problems to solve: (i) instability of ICT staff caused by the government’s HR staff rotation policy; (ii) lack of technical strength to continue improving SPAN toward a full FMIS due to inability to issue international contracts to improve quality of operation, system maintenance, and develop 24  additional functionalities; (iii) lack of technical knowledge to execute professional testing and acceptance of SPAN, which caused significant delays because Treasury management became reluctant to take the responsibility for the action fearing the position of auditors; (iv) weak security management against hacking type of threats; (v) lack of business continuity plans in the case of disasters (Jakarta is considered high risk of natural disasters); and (vi) insufficient ICT infrastructure capacity to deal with monthly peaks in SPAN usage\. 64\. These issues were identified timely by the supervision team, but were not easy to address\. Some issues like the loss of IT skills due to rotation policies and international procurement constraints would require policy changes effected above the level of our direct Treasury counterpart\. Other issues were due to faulty project preparation, including lack of planning and support for post-implementation arrangements, as well as insufficient budget resources\. These deficiencies were pointed out and were the main reason for the MU rating for the Bank at Entry\. Moreover, these deficiencies were difficult to mitigate during the supervision period due to lack of support in the Loan Agreement for policy exceptions (the alternative of having top Bank management to intervene at high levels of the government was not contemplated), and lack of available financing for significant investment in consulting, computer infrastructure, and technical services because loan funds had already been fully committed\. 65\. Rating of Bank supervision activities is an unusually complicated case: On one hand Bank management allocated a generous amount of resources to the supervision effort and the supervision teams provided significant day-to-day technical assistance that allowed Treasury to complete the implementation of SPAN and put it in operation countrywide\. On the other hand it is a legitimate expectation that the lengthy and costly supervision activity would deliver a cleaner outcome\. The rating becomes therefore highly dependent on contrasting the weight given to the supervision effort made by the Bank and the direct outcome of SPAN implementation against the weight given to the problems left on the table\. The ICR team also considered that at entry and for the first five years of the project, the supervision team was running an APL and therefore, the expectation would be that the second phase of the APL would have taken care of outstanding post-implementation issues\. All things considered Bank supervision is rated as Moderately Satisfactory\. (c) Justification of Rating for Overall Bank Performance Rating: Moderately Satisfactory 66\. The Bank Performance in Ensuring Quality at Entry was Moderately Unsatisfactory and Quality of Supervision was Moderately Satisfactory\. Given the overall outcome is Moderately Satisfactory, the Overall Bank Performance for the GFMRAP project is considered to be Moderately Satisfactory with respect to IEG’s Harmonized Ratings Criteria\. 25 5\.2 Borrower Performance (a) Government Performance Rating: Moderately Satisfactory 67\. The Ministry of Finance demonstrated a strong commitment to GFMRAP at preparation and implementation\. Six Ministers were involved during the life of GFMRAP and all recognized its importance in supporting Indonesia’s transition towards improved public financial management, improved revenue collection, and reduced levels of corruption\. A significant effectiveness delay of ten months, mostly due to a large number of difficult effectiveness conditions that had to be addressed by a new government appointed soon after Board approval of the project, reduced the enthusiasm for the project among the core DGs responsible for implementation\. Faced with serious project start-up difficulties and delays on the procurement process, the MOF carried out a review of GFMRAP to decide whether or not to continue the implementation of SPAN\. As a result, GOI’s interest in the SPAN project was reconfirmed in 2008, and a new and improved Steering Committee structure was put in place\. The government demonstrated continued strong support for the project, even when the project had to be restructured twice\. 68\. After the second restructuring in 2009, special attention was given to the SPAN component\. A new directorate of Treasury Transformation was established under DG Treasury to undertake responsibility for the SPAN component of the project, with about 100 dedicated staff\. Higher level MOF officials frequently participated in Steering Committee meetings to assess progress and address issues\. The MOF Internal Auditor (MOF-Inspectorate General) assisted implementation through a financial integrity review to ensure the reliability of SPAN to produce high quality financial statements and a thorough administrative due diligence through the RTM (requirements traceability matrix), to guarantee that all suppliers’ obligations had been delivered\. 69\. However, despite these areas of noteworthy commitment, top echelons of the Government, particularly the Ministers of Finance, had mixed success in compelling the core MOF Director- Generals in charge of the execution of the Customs and Tax Administration components to fulfill their responsibilities as defined in the loan agreement and project appraisal documents, which eventually resulted in the cancellation of these activities\. 70\. In retrospect, GFMRAP’s focus on Treasury modernization and the implementation of SPAN proved to be a very important and sensible decision\. Dropping the other GFMRAP components created the space for reallocation of loan funds to finance the higher than anticipated cost for the SPAN contract, which incurred an overrun of about US$17 million mostly to procure additional servers\. GFMRAP reached a total disbursement rate of over 99%, of which about 96% corresponded to SPAN implementation\. This allowed SPAN to be fully implemented and deployed to 182 local Treasury offices across Indonesia\. Nevertheless, it has been noted during the ICR mission that the integration with the budget preparation system is weak, and that Treasury is having difficulties ensuring the long term sustainability of SPAN because: (a) the organizational needs for staff promotion and rotation force DG Treasury to rotate its ICT cadre out of the SPAN unit resulting in a continuous loss of technical expertise and experience; and (b) the government’s 26 procurement framework makes it difficult for the MOF to enter into multi-year contracts with reputable solution providers that are critical for a reliable operation of SPAN\. (b) Implementing Agency or Agencies Performance Rating: Moderately Satisfactory 71\. As indicated above, the project implementation period must be seen as two very different periods\. During the first period from the loan signing in 2004 to the first restructuring in 2009, the project, designed as a complex APL, had many implementation agencies 22 involved: FPO, DG Treasury, DG Budget, DG Tax, DG Customs and Excise, Inspectorate General, and Secretariat General\. Subcomponent A1-Fiscal Policy Office made some progress, but planned technical assistance was cancelled as FPO decided instead to concentrate on a scholarship program to send its staff to PhD and Masters degree programs both locally and internationally\. Subcomponent A2- Budget Reform also made some progress in the implementation of the MTEF and Performance Based Budgeting using government funding, the PFM MDTF, and assistance from other donors\. DG Budget requested cancellation of this GFMRAP activity\. Subcomponent A3-Treasury Modernization (SPAN) showed good progress, albeit slowly, in the execution of the SPAN procurement before the contract was finally signed in July 2009\. Subcomponent B1-Customs Reform was executed for very minimal amount and B2-Tax Administration Reform left the GFMRAP umbrella\. 23 Subcomponent C1-Parliament was shifted to being financed under the PHRD grant and the multi-donor trust fund\. Subcomponent C2-Tax Court had slow progress\. Minor subcomponent C3-Inspectorate General implemented the planned training\. Overall, very little was accomplished in this first period of the project with many of the core MOF Directorates cancelling their participation in the project\. Accordingly, the performance of the implementing agencies during this period of implementation is considered to be Unsatisfactory\. 72\. The second implementation period started in 2009 following project restructuring to concentrate primarily on the implementation of SPAN\. Three minor activities remained: DPR ICT development capacity verification, FPO scholarship program, and the Tax Court case management system\. DPR activities were partly executed but the funding shifted from the PHRD grant until the end of 2012 and then to the MDTF\. FPO scholarship program was effectively executed, which provided a model for the subsequent lending operation SPIRIT (Scholarships Program for Strengthening Reforming Institutions Project for Indonesia)\. The Tax Court requested cancellation because of its lack of procurement success and the component was dropped at the end of 2013\. However, the Tax Court benefited from the case management specifications developed by GFMRAP consultants and eventually developed a case management system using government’s own resources\. Accordingly, the performance of the three implementing agencies responsible for the three minor components during this period of implementation is considered to be Moderately Unsatisfactory\. 73\. The concentration of GFMRAP on Treasury Modernization and the implementation of SPAN proved to have been a successful decision with the system fully implemented and deployed\. 22 Agency being used here as the MOF Directorate with immediate decision making authority\. 23 Activities of this subcomponent were to be financed from DGCE’s own resources\. DG Tax asked instead for a separate project and hence APL Phase III was prepared as a new SIL called PINTAR in 2009\. 27 SPAN development, including testing, piloting, acceptance, and roll-out, was much more difficult and complex than anticipated as reflected in the Lessons Learned section of the ICR\. Contractual disputes almost derailed the implementation effort\. An additional two-year extension of the closing date was necessary due to delays\. Delivery of an obsolete infrastructure equipment, in spite of conforming to the terms of the contract, by the contractor was another serious source of delays and conflict\. Despite the difficulty faced by the team, along the way, all required tests (Unit Test, Integration Test, and User Acceptance Test) were concluded to ensure the reliability of the system in meeting the government requirements\. The SPAN deliverable was finally “accepted” in June 2015, and the full hand over from contractor to MOF started soon thereafter, yielding the planned benefits as the government’s core public financial management system\. At the time of the ICR, SPAN is being fully used by 182 local Treasury Offices, 33 regional Treasury Offices, and MOF headquarters to serve over 24,000 Spending Units\. The launch of SPAN by Indonesia’s President Joko Widodo in April 2015 at the Presidential Palace reflected the importance of SPAN as a landmark achievement for the country to improve its public finance management\. 74\. Although SPAN has proven to be a comprehensive system to integrate GOI’s tasks of budget preparation, budget allocation, budget execution and reporting in one integrated database system, it has been noted during the ICR mission that the integration between the Treasury and the Budget Preparation module remains a challenge\. While Custom Web (for budget allotment process including virements) is being fully used, the future of Hyperion (for budget formulation analytics, versioning and monitoring evaluation) is questionable because of the need for modifications to comply with the continued changes in budget formulation business processes\. 75\. In spite of its implementation success, Treasury faces difficulties ascertaining the long term sustainability of SPAN because: (i) the government’s HR staff rotation policy makes it difficult for DG Treasury to retain trained staff with technical knowledge and experience in SPAN; and (ii) the government’s procurement framework makes it challenging for the MOF to continue upgrading its ICT infrastructure and enhance existing SPAN applications (including the improvement of quality of operation, system maintenance, and development of additional functionalities) all of which are impossible to achieve without the procurement of highly qualified international contractors at international salaries, in foreign currency, and multi-year contracts\. DG Treasury is seeking support from the PFM MDTF for immediate needs and considering a possible new loan to cover the long term needs\. Accordingly, the performance of the implementing agency, DG Treasury, during this period of implementation is considered to be Moderately Satisfactory\. 76\. In summary, the implementation performance of the three minor implementing agencies, namely DPR, FPO, and Tax Court in the second period of implementation was Moderately Unsatisfactory\. The performance of the implementing agency DG Treasury in the second period of implementation was Moderately Satisfactory\. Considering that DG Treasury’s component was critical to the achievement of the planned revised PDO’s and corresponded to 92% of disbursements, the overall implementing agency performance for the second period is rated Moderately Satisfactory\. 28 Justification of Rating for Overall Borrower Performance Rating: Moderately Satisfactory 77\. As Government Performance was Moderately Satisfactory, Implementing Agency Performance during the first period was Unsatisfactory, and during the second period was Moderately Satisfactory, the Overall Borrower Performance for the GFMRAP project is considered to be Moderately Satisfactory with respect to IEG’s Harmonized Ratings Criteria\. 6\. Lessons Learned 78\. Context\. There have been three presidents, six finance ministers, and four World Bank task team leaders over the life of GFMRAP\. Successful completion of this 12-year operation is owed singularly to top management commitment with a collective belief that failure would not be an option, and to the PFM MDTF that financed extensive and remedial technical assistance that DG Treasury and DG Budget required for effective execution of the project\. Even with high staff turnover, project champions remained stable with the same head of PSSU since project inception, stable management of SPAN in DG Treasury, and stable core specialists at the Bank, which is unusual in Bank projects globally\. Lessons from the GFMRAP operation are viewed from the project design and implementation aspects and may be generally applicable for similar operations\. 6\.1 Design 79\. Scope of Design\. The APL was not an appropriate instrument given treasury, tax, and customs are very distinct systems operating under different political economy contexts\. GFMRAP was designed as an ambitious multi-stakeholder multi-component APL operation\. At preparation, the APL instrument was considered necessary to lock in the entire scope of the government’s PFM reform program as requested by GOI\. All potential stakeholders were allotted a seat at the onset of the envisioned three-phased GFMRAP operation to provide the Bank with a platform for dialogue\. The inclusion of all stakeholders, totaling nine PIUs, was cumbersome and led to a sluggish decision-making process\. Supervision of nine PIUs and their programs proved to be a challenge\. Eventually, 4½ years later and faced with severe execution problems, GFMRAP was streamlined to concentrate primarily on the implementation of SPAN, managed by a single directorate general\. The Tax Administration component was developed as a SIL (PINTAR), during the second year of implementation of GFMRAP\. The Customs Administration decided to carry out its modernization separately with its own resources\. It is recommended that reforms of revenue and expenditure agencies be executed separately, each supported by specialized Bank staff, particularly when complex reforms are envisaged\. 80\. Implementation Timing\. Front-load procurement activities prior to Bank approval to speed up procurement implementation\. Approval of bidding documents, including all technical specifications, for the core IT contract should be a condition for going to the board when the contract is planned for the first year of implementation\. Funding for the preparation of the bidding documents could be financed either through the state budget or through an RETF set up to support the project\. Average time to complete a World Bank FMIS projects is 7\.9 years with the longest taking over 13 years\. Phase I of GFMRAP was planned for 4½ years of implementation, but it 29 took that long just to procure SPAN\. This prolonged procurement time was not anticipated\. In addition to the need for ensuring accuracy and completeness of the technical requirements before bids are invited, it is also essential, particularly in the case of large and complex contracts such as SPAN, that a project procurement strategy be devised early in the project preparation process to form the basis for putting in place fit-for-purpose procurement arrangements to meet the project’s needs and objectives and help achieve value for money\. The strategy would guide the most suitable market approach, selection method, and selection arrangement for the particular contract, based on the operating context, market analysis, the implementing agency’s procurement and contract management capacity, and risks\. For example, in large and complex contracts, this could justify the use of non-traditional selection arrangements, such as Competitive Dialogue, where appropriate\. Neither was the fact that in an environment where the business processes were in a state of change, it will take longer to reach an agreement on the technical requirements\. While the procurement contract required both parties to the contract to agree on the “freeze,” but with a number of procedural and policy changes happening at once (performance-based budgeting, accrual accounting, electronic system of state revenue), the government might have been reluctant to agree on a deadline to stop system requirements\. The extent of the customization of the COTS was not originally envisioned and the volume of changes contributed to the delays seen in the project\. Once it was clear that evolving changes of business process improvements would take more time to implement, the length of the programming (or application development) should have been adjusted\. Customizing an off-the-shelf solution to support the complex and evolving requirements of treasury and budget preparation of a large country like Indonesia takes a significant amount of time\. Testing, piloting ensuring the accuracy of accounting, and finally deploying the system was equally a complex and lengthy process, taking almost two years\. As a result, SPAN implementation took about 10½ years from bid preparation to deployment\. It is recommended that future FMIS projects be realistically programmed in terms of time span and fully considerate of Bank experience\. 81\. Change Management\. If the change management consultancy was deployed as planned to support the entire GFMRAP operation, relevant stakeholders would have been better prepared for the project\. A change management consultancy was planned to support the entire GFMRAP and it was appropriately included as an effectiveness condition\. Its goal was to establish a two-way flow of information throughout the project cycle\. The initial consultancy for the entire three-phased program of GFMRAP was never procured and the conditionality waived\. As a result, no change management initiative supported the early management of SPAN within the MOF\. A consultancy was later brought onboard for a limited duration but was not extended when SPAN development and deployment was delayed\. This consultancy was not well utilized and the contract was discontinued, which coincided with the delay of the development of software deployment\. It is likely that delays in piloting, user readiness, and roll out of SPAN by DG Treasury could have been better mitigated if the activities were supported by experienced change management support\. It is recommended that (i) the Bank makes a greater effort to convince governments of the need for a substantial investment in change management to support major institutional reforms; (ii) that Change Management includes the establishment of capacity and resources to implement and sustain the reforms; and (iii) that the Bank insists that Change Management is in place early on to provide cradle to grave support to the transformation process\. 30 6\.2 Implementation 82\. Championing Modernization\. Early establishment of a dedicated structural unit within the Directorate General of Treasury to champion the modernization effort was key to project success\. The roles and responsibilities of government officials assigned to this unit were geared towards developing, testing, and rolling out the SPAN system\. Unit staff had no other duties besides implementing SPAN, a departure from normal Bank projects managed by civil servants who are often part of the PIU but still have regular functional responsibilities\. Unfortunately, this was not the same for other DG units\. For example, the Directorate General of Budget did not establish such a unit dedicated to modernization, which could be a contributing factor for why the budget module of SPAN is still not fully functional\. 83\. Overcoming Knowledge Gaps\. The establishment of the PFM MDTF provided the additional fund to bridge knowledge gaps\. GFMRAP charged the MOF with significant responsibilities in the preparation of policies and regulations for the implementation of SPAN\. MOF did not lack commitment to improving financial management or willingness to fulfill its responsibility, but rather, lacked knowledge and experience in implementing an integrated financial management\. However, this knowledge gap was successfully overcome thanks to a trust fund created specifically to support the implementation of the GFMRAP\. The PFM MDTF was established in 2007, more than two years after the GFMRAP loan was signed\. It augmented the loan resources through grant funds to retain full-time senior experts and several overseas study tours specifically to gain FMIS knowledge to support the government in preparing the necessary policy options related to adopting an FMIS and developing the SPAN system itself\. The PFM MDTF is still ongoing and has proven to be critical to GFMRAP’s success\. 84\. Bundling Application Software and Hardware\. For SPAN it would have been better to sequence the delivery of hardware after the assessment phase of the application software was completed\. GFMRAP procurement plan called for the procurement of SPAN in a single package that included the design, customization, development, installation, and implementation of a very complex application and delivery of the hardware infrastructure to support the application\. The procurement document was based on requirements prepared in 2004 for functionality and transaction load\. The MOF did its best to provide accurate information to the Bank but that information originated from weak legacy systems and staff with little knowledge of full-fledged FMIS\. Nevertheless, the SPAN contract was designed as a turnkey solution in 2004 with the contractor providing hardware, the application software, and networking solutions\. Once the SPAN contract was signed, hardware was delivered\. By the time the application software was deployed four years later, the hardware was already obsolete\. Moreover, the hardware infrastructure capacity had to be increased tenfold due to severe underestimation of the number and complexity of transactions during preparation of the technical requirements and the subsequent functionality creep-up\. It is recommended that in the case of complex applications, which may take a year or more to develop or customize, and considering that hardware technical depreciation occurs in about four years, the delivery schedule of the contract should take into account the need for sequencing the supply of application software before hardware infrastructure so that a more accurate estimation of capacity and more up-to-date technical specifications can be used, thus minimizing total cost\. 31 85\. Avoiding Procurement Conflicts\. Increase training of state auditors on Bank procurement to reduce risk of conflicting interpretations\. Procurement policies of the Bank and the Borrower are often not aligned resulting in procurement gridlocks and project failures\. GFMRAP design included a good procurement framework, but many times during implementation it conflicted with the country procurement system\. On the single-sourced consultancy package in the procurement of a Case Management system for the Tax Court, auditors from the Finance and Development Supervisory Agency (BPKP) disregarded the Bank’s advice and no-objection, thus signaling that country procurement rules overrode Bank procurement guidelines\. This component of the project was eventually cancelled due to this procurement failure\. Throughout project implementation, all GFMRAP procurement evaluation committees were very conservative because of the personal liability of committee members on procurement decisions, which in turn led to significant delays in implementation, disqualification of potentially well qualified bidders, and re-do of the second stage of procurement\. Procurement issues dominated the first five years of the GFMRAP and potentially could have resulted in the operation being cancelled had it not been for MOF top management intervention\. The risks under such operating context could have been better recognized and addressed during project preparation if a project procurement strategy had been prepared\. It is recommended that the Bank work proactively with the government and the auditors through training to help understand the full scope of Bank procurement guidelines to avoid delays and potential disqualification of qualified bidders as a result of differing interpretations\. Over the last two years, the Indonesian team has been conducting a procurement capacity building program for national auditors\. 86\. Planning for Sustainability\. All projects should build in an exit strategy at design stage to ensure project sustainability post implementation\. GFMRAP PAD design for the section on “Change Management, Monitoring, Oversight and Sustainability” was silent on Sustainability Planning and no technical assistance was planned to assist the Borrower in the preparation of such plans\. The PMQA consultancy developed a post-implementation report that included a sustainability plan\. The plan confirmed findings of the ICR mission that the following is lacking: (i) information security management against hacking; (ii) human resource management plan to retain knowledge and experience; and (iii) the ability to sign multi-year contracts with key technology providers\. It is recommended that in the case of complex applications the sustainability issue be well covered in the PAD and that resources be provided in the project for the preparation of a sustainability plan\. Moreover, consideration should be given to include in the Loan Agreement conditions to make it feasible for the implementing agency to put in place said plan\. It would have helped if the Loan Agreement would have required that the counterpart funding would include not only the maintenance (which it did), but also the operational support and system enhancement in place after delivery through multi-year funding support\. 87\. Adaptive Learning\. Project teams should anticipate the need to be adaptable, and to redirect resources to address newly emerging threats to project outcomes\. Changing political economy and client capacity to manage the project cannot always be accurately anticipated – especially years in advance\. GFMRAP was able to achieve the project development objectives by cancelling portions that had limited support, and refocusing resources to areas that had stronger project champions\. The Bank mobilized the PFM MDTF and built flexibility into the trust fund itself in order to leverage additional policy reform instruments such as DPLs and to offer just-in- time consulting services to plug knowledge gaps on the part of the Treasury\. 32 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners 88\. The PSSU provided a full government completion report of the GFMRAP operation\. This is included in Annex 8\. 33 Annex 1\. Project Costs and Financing (a) Project Cost by component PHRD PFM MDTF IBRD 4762 IDA 4026 Total Component TF053556 TF090047 24 US$ US$ (equiv) US$ US$ US$ A\. Public Financial Management A\.1 Policy Capacity 757,320 851,487 1,608,807 Development A\.2\.a Budget Planning and Development 98,561 91,404 187,764 377,729 (Bappenas) A\.2\.b Budget Planning and Development (DG 138,521 58,438 226,708 423,666 Budget) A\.3 Budget Execution and Treasury 51,608,637 1,639,761 4,445,103 1,002,110 58,695,611 Modernization A\.4 Procurement 14,700 61,335 76,035 Reforms B\. Revenue Administration B\.1 Customs 11,651 42,251 53,902 Modernization B\.2 Tax Revenue 204,104 204,104 Administration C\. Governance and Accountability C\.1 Legislative 153,458 344,993 498,451 Oversight C\.2 Resolution of Tax 526,375 56,997 583,372 Dispute C\.3 Internal 277,845 277,845 Accountability D\. Project Governance and Implementation D\.1 Project Governance 893,676 1,420,875 544,820 2,859,370 and Accountability Refund of Prefinancing 616,095 616,095 Advances Front-end Fee 275,000 275,000 Total Disbursements 25 54,414,161 4,969,772 4,598,561 2,567,494 66,549,988 24 An amount of about US$1\.2 million under TF090047, one of the PFM MDTF child trust funds (CTF), is not included in this table\. This amount was allocated to support Pusintek, which was not part of the original scope for GFMRAP\. Also not included here is an amount of US$1\.06 million disbursed under TF091414, another one of the PFM MDTF CTFs\. This CTF supported the establishment of a national single window that was implemented by the Coordinating Ministry for Economic Affairs, and was also not part of the original scope for GFMRAP\. Both CTFs were administratively linked to the GFMRAP operation and were executed by the government\. There were a number of other child trust funds under the PFM MDTF umbrella that were not directly linked to GFMRAP and were executed by both the government and the Bank\. These funds provided additional support to the government’s broader PFM reform agenda beyond the scope of the GFMRAP\. 25 The Bank disbursed a total of US$54,998,965 of the IBRD fund to the government’s special account\. Actual spending by the government was US$54,414,161 as recorded in the table\. The government is in the process of refunding the unspent balance to the Bank\. (b) Financing Appraisal Estimate Actual/Latest Percentage of Source of Funds (US$ or equivalent) Estimate (US$) Appraisal Borrower 15,000,000 30,000,000 200\.00 IBRD 4762 55,000,000 54,414,161 98\.93 IDA 4026 5,000,000 4,969,772 99\.40 PHRD TF053556 5,000,000 4,598,561 91\.97 TF not available at PFM MDTF TF090047 2,567,494 appraisal Total 65,000,000 96,549,988 148\.54 35 Annex 2\. Outputs and Activities by Components There were 30 original intermediate outcome indicators 26 listed in Annex 3 of the PAD but only 15 in the loan agreement (14 in Schedule 6 plus one implied in Schedule 2 as part of the project description)\. This ICR will address these 15 indicators listed in the loan agreement to assess the overall efficacy of the GFMRAP program\. Intermediate Outcome Indicators • Component A: Public Financial Management o A\.1: Policy Capacity Development  Survey feedback (including from Minister) verifies the completion of at least four high-quality policy analysis products in the priority areas (tax policy, trade policy), published on the web site (silent in Schedule 6 of the loan agreement, though “Strengthening the policy research capacity of MOF was mentioned in Schedule 2 of the loan agreement) o A\.2: Budget Planning and Development  First Medium Term Expenditure Framework endorsed by the Government of Indonesia and forward estimates presented to the DPR  A comparative study of pilot and non-pilot line ministers (via circulars) verifies progress in reform agenda (silent in the loan agreement) o A\.3: Budget Implementation and Treasury Modernization  SPAN Stage I (as such is described in the invitation for bids for the contract for the procurement thereof) evaluated with user input with respect to content, timeliness and verifiability; specified periodic financial reports prepared for concerned entities  A Treasury Single Account (TSA) system functioning with acceptable parameters: all on-budget central government bank accounts and own-revenue bank accounts of line ministries are brought into the TSA system  Central Government financial statements meet Government Accounting Standards as promulgated by the MOF, and the consolidated management reports produce by the DG Treasury include financial assets and liabilities, and cash-based reports of extra-budgetary funds  A survey of end-users of SPAN verifies increasing knowledge (functional and technical) and satisfaction with the system (the system is being used to inform planning and decision-making)\. The system enables line ministries and other users of treasury resources 26 Schedule 6 of the loan agreement refers these Intermediate Outcome Indicators as Performance Indicators\. All intermediate indicators in this section are listed with a remark if they are silent in the loan agreement\. Some of the indicators listed are worded differently in the loan agreement and the PAD\. This list retains the wordings as in the loan agreement\. 36  to access and process financial information, and compile reports on their operations (silent in the loan agreement) o A\.4: Procurement Reform  An evaluation of the MOF e-procurement pilot is completed and an action plan is adopted by the MOF for wider rollout  A survey of procurement prices relative to international benchmarks is completed  Percent of MOF procurement of common office supplies (by value) through e-procurement systems (silent in the loan agreement) • Component B: Revenue Administration o B\.1: Customs Modernization  The DGCE has adopted a comprehensive and consultatively prepared modernization action plan with inputs from stakeholders  The DGCE has institutionalized an annual survey of stakeholders, and annually published a summary of the results  The DGCE has implemented Web-based filing for about 75 percent of trade transactions  Additional revenue from compliance activities (excluding additional revenues recovered of post clearance audits) expressed as percent of total revenue collected (silent in the loan agreement)  The DGCE has reviewed the consultants’ report on the integrated Customs information system, and adopted an action plan to implement the key recommendations arising from the report (silent in the loan agreement) o B\.2: Tax Administration  The DG Tax has adopted a Results-oriented Modernization Strategy and Plan with measurable performance indicators, aimed at the eventual redesign of processes along single taxpayer account lines and based on the results of the pilot re-engineering of one representative district office  Revenue growth from Large Taxpayer Office (silent in the loan agreement)  Survey instrument institutionalized and administered, and summary of the results published (silent in the loan agreement) • Component C: Governance and Accountability o C\.1: House of Representatives (DPR)  Survey verifies strengthened capacity of the Budget Committee of the DPR  Increased transparency of Budget Committee/Commissions’ functioning through telecast of proceedings and other broadcast programs – consistent increase in viewer numbers and satisfaction (silent in the loan agreement) o C\.2: Tax Court 37   Annual surveys of stakeholder satisfaction with Tax Court administration and case management have been established; an action plan has been adopted to address systems weaknesses (the second part was silent in the PAD)  Tax case decisions are accessible to the public through the Tax Court website  Reduction in time required to process and resolve revenue disputes (silent in the loan agreement)  A baseline survey of tax-payer satisfaction with tax court administration and case management is completed by December 2005 (silent in the loan agreement)  Percent of Tax Court decisions published online (silent in the loan agreement) o C\.3: Inspectorate General of MOF (silent in Schedule 6 of the loan agreement though strengthening “the Office of the Inspector General of MOF” was mentioned in Schedule 2 of the loan agreement)  An investigation unit is established and fully operational in the IG MOF, vested with the necessary legal powers to fully investigate allegations of corruption against MOF staff (moved to Component D in the loan agreement)  Number of investigations initiated per annum (silent in the loan agreement)  Number of investigations with a successful outcome (censure, administrative action, penalties or prosecution) as a proportion of the total number of investigations (silent in the loan agreement) • Component D: Project Governance and Implementation o Periodic reviews verify that: (i) Project governance and all project activities are consistent with the Governance and Accountability Action Plan (GAAP), and project procurement is consistent with the Procurement Plan; (ii) the Project Steering Committee (PSC) is strengthening project governance and oversight; (iii) an investigation unit is established and fully operational in the Office of the Inspector General of MOF, including the establishment of the necessary legal powers to investigate fully allegations of misconduct and/or corruption against MOF staff; and (iv) project monitoring and evaluation information (including stakeholder/user feedback survey results) is publicly available (this last part was silent in the loan agreement) Achievements by PDO Indicators 27 PI-1: National government policy priorities are reflected in a Medium Term Expenditure Framework and annual budgets 27 There are two parts to the numbering format of the PDO and intermediate indicators separated by a hyphen\. The first part PI or II signifies PDO Indicator and Intermediate Indicator, respectively, and the second part is the indicator number\. 38 In June 2009, DG Budget and Bappenas jointly launched a new manual on MTEF and PBB that provided guidance to line ministries on new formats for submission of work plans and annual budget documents\. Since then, MTEF was implemented with temporary set ceilings\. For FY2011, budget was formulated in the medium term revised program structure with measurable results and targets that were aligned with organizational structure in the National Medium Term Development Plan (RPJM) for 2010-2014\. There has also been some progress on improving the transparency of the MTEF process\. A table is shown in the financial note of the state budget setting out, at a high level, how the budget compares to the forward estimate from the prior year’s financial note\. In the 2013 financial note there were significant details provided on both the methodology used to determine bottom up costings and medium-term projections by both ministries and functions\. It would be beneficial, from both transparency and a budgetary control perspective, in providing more detail of the medium-term plan to show the multi-year costs of major policy changes that would be introduced in the annual budget and to re-introduce the level of details on methodology and departmental ceilings provided in 2013\. MOF issued its regulation No\. 143/2015, which will “obligate” line ministries to submit their 3- year forward estimates along with the annual budget proposals\. This 3-year forward estimate is a rolling plan to be updated every year to fit with the current macro-economic assumptions and the latest national government policy priorities set in the annual government work plan (RKP)\. This new regulation will increase the compliance of the line ministries in submitting MTEF information to be included in the financial note documents\. PI-2: Reduced leakage in expenditure flows to end-users as measured by Public Expenditure Tracking Surveys GOI completed the implementation of the Treasury Single Account towards achieving consolidation of all government bank accounts\. The regulations issued in 2007-2009 authorized MOF to bring all accounts held by line ministries in various commercial banks into the TSA held at Bank Indonesia\. TSA is now operational in all MOF Treasury offices, with all state receipts deposited in and all state expenditures withdrawn from the TSA, through electronic transfer to ensure reduction of leakage in expenditure flows to end-users\. In April 2012, the World Bank and MOF jointly released a report from a study on public expenditure tracking survey (a DIPA tracking study)\. This study aimed to support the MoF in identifying new reform initiatives to improve budget execution, and to reduce leakage in expenditure flows to end-users\. The study included surveys to gather information from key stakeholders, such as spending units, the local treasury offices (KPPNs), and contractors\. Policy recommendations were formulated by drawing upon the analysis from the field surveys as well as broader analysis undertaken by the WB Jakarta\. Based on the findings, the government issued two regulations: (i) Finance Minister Regulation 190/2012 requiring DG Treasury to process all requests for payment in one day at maximum; and (ii) Government Regulation 45/2013 requiring the payment of contractor’s invoices within a maximum of thirty (30) calendar days after the invoice supported by proof of delivery is received\. At the end of 2015, DG Treasury signed an MOU for Technical Assistance with the US Treasury Office\. The US Treasury OTA (in collaboration with the World Bank Jakarta team) will assist MoF on: (i) a study of electronic money (debt card/credit card/mobile phone account bank/virtual account) for government expenditure payments both to the suppliers and individual social aid 39 beneficiaries; and (ii) a review of the government’s policy, strategy, and progress with regards to implementing a Treasury Notional Pooling (TNP)\. The results of these planned studies are expected to (i) further reduce the leakage in government expenditure flows to the end-users by limiting “cash in hands” of the spending unit; and (ii) support a less cash society\. PI-3: Automated treasury payment system enables accurate and timely financial reporting, reduces incidence and size of idle cash balances, and reduces corruption in payments This indicator represents the core of the GFMRAP operation\. The completion of SPAN, an automated treasury payment and budget preparation system, signifies a major achievement, which also underscores the difficulties and complexities of this type of interventions and that it takes longer to complete than other WBG operations\. The SPAN system is meant to cover not only transactions on the budget execution side, but the entire budget cycle from budget planning to reporting\. SPAN, as a crosscutting reform initiative, is expected to increase the timeliness, reliability and transparency of budget disbursement and financial reporting as well as improve the capability of the government to efficiently manage public resources and reduce corruption in payments\. The design and implementation of an automated treasury payment and budget preparation system (SPAN) by a turnkey contractor commenced in July 2009\. Benefits of FMIS such as SPAN are well documented\. They include: (i) improved business processes with fully automated operations to effectively control budget allocation, expenditure commitments, and spending limits; (ii) availability of centralized databases; (iii) reduced human errors and potential frauds through data capture at source; (iv) comprehensive reports on government financial transactions that are generated online, with real-time reporting and full accrual accounting; (v) improved cash flow forecasts and planning with a reliable cash management system; (vi) audit trail capability; and (vii) efficient submission and access of public finance information\. The design and development of SPAN by a turnkey contractor commenced in July 2009\. The development of the SPAN was completed, including user acceptance testing (UAT), at the end of 2013\. Additional time was needed to pilot and gradually roll out the SPAN system to all users’ locations across Indonesia\. Roll-out of SPAN was completed by the end of Feb 2015\. SPAN was launched by the Indonesia’s President Joko Widodo in April 2015\. Final payment for SPAN was made in June 2015\. SPAN is now being used by the Ministry of Finance at DG Budget and DG Treasury headquarters, in addition to the 182 Treasury local services offices (KPPNs) and 33 Treasury regional offices (Kanwils) all over Indonesia serving over 24,000 spending units of the central government line ministries\. SPAN is managing 100 percent of all government financial transactions, using electronic transfer as the method of payment with less than 1 percent payments made through petty cash for office operations\. No other cash payment is processed\. Achievements by Intermediate Indicators There were 30 original intermediate outcome indicators listed in Annex 3 (Results Matrix) of the PAD\. Only 15 of these were included in the loan agreement dated Dec 22, 2004 (14 in Schedule 6, which refers these Intermediate Outcome Indicators as Performance Indicators, plus one implied in Schedule 2 as part of the project description)\. GFMRAP underwent two restructuring processes with the first a Level One Restructuring that was approved by the Board in May 2009 with new project closing date set to Dec 31, 2013\. The second restructuring effort was a simpler Level Two Restructuring approved by the Board on December 20, 2013 primarily to extend the final closing 40 date to Dec 31, 2015\. The scope of the GFMRAP was significantly reduced as the result of project restructuring\. The entire Component B related to revenue administration was dropped as the result of the first restructuring in May 2009\. Since negligible amount, less than US$54,000, was disbursed to Component B, the corresponding 4 indicators for Component B became irrelevant in the assessment of results of this GFMRAP project\. Accordingly, only 11 of the 15 intermediate indicators will be assessed in this ICR\. Component A: Public Financial Management Sub-Component A\.1: Policy Capacity Development II-1: Increase policy development capacity within the Fiscal Policy Office as verified by the completion of several high-quality policy analysis products Formulation of this indicator is based on the Amendment dated May 22, 2009 for the first project restructuring\. The original formulation, which is silent in the original loan agreement dated Dec 22, 2004, but included in the Results Matrix (Annex 3) of the PAD, states: "Survey feedback (including from Minister) verifies the completion of at least four high-quality policy analysis products in the priority areas (tax policy, trade policy) published on the web site\." As the project progressed, GFMRAP funding for advisory technical assistance was shifted to support post-graduate scholarships\. There have been indications that BKF through PhD and Masters scholarship programs funded by GFMRAP have contributed a lot in the policy development capacity within the BKF\. Some staff who completed the scholarship programs were promoted into higher ranked positions, more research papers were produced with high quality of policy analysis\. The MoF and other line ministries have utilized these papers for policy decision in strategic area\. Each scholars was required to produce a quality policy analysis product at the end of their study\. Accordingly, more than 4 targeted policy analysis products were achieved\. Sub-Component A\.2: Budget Planning and Development II-2: First Medium Term Expenditure Framework endorsed by the Government of Indonesia and forward estimates presented to the DPR This indicator was dropped per the first project restructuring in 2009\. PEFA PI 12 is a proxy to measure overall budget information transparency and the use of MTEF\. Since the 2011 PEFA review, there has been some progress on improving the transparency of the MTEF process\. A table is now included in the financial note showing forward budget estimate from prior year including the methodology used to determine the bottom up costings and medium-term projections\. There has not been a PEFA review since 2011\. MTEF and PBB were introduced with forward estimates included for the first time in the FY2012 budget documents, decrees issued to streamline budget documents, and treatment of performance based budgeting’s new initiatives within the budget\. However, there remains considerable development and refinement required over the next few years\. Sub-Component A\.3: Budget Implementation and Treasury Modernization II-3: SPAN Stage I (as such is described in the invitation for bids for the contract for the procurement thereof) evaluated with user input with respect to content, timeliness and verifiability; specified periodic financial reports prepared for concerned entities Rollout of SPAN was completed as of the end of February 2015 to all 222 locations, including 181 treasury branch offices, 33 provincial treasury offices, and 8 treasury directorate units across 41 Indonesia\. SPAN now manages 100% of all financial transactions of over 24,000 government spending units across Indonesia\. FOA was issued and SPAN contractor completely paid\. On Nov 11, 2015, a SPAN conference was conducted to (i) heighten awareness of SPAN within and beyond MoF to maximize usage and system potential; (ii) provide a platform for knowledge exchange on Indonesia's FMIS implementation and its relationship to broader PFM reform; and (iii) exchange ideas on how to build on the SPAN to improve government effectiveness in service delivery\. MoF-IG also conducted thorough administrative due diligence through the RTM (requirements traceability matrix) in which the actual deliverables from the supplier were compared with the initial requirements stated in the bid documents\. With the final payment made in June 2015, which marked the complete system delivery, there is no other supplier’s obligation remained\. II-4: A Treasury Single Account (TSA) system is functioning with acceptable parameters: all on-budget central government bank accounts and own-revenue bank accounts of line ministries and spending units are brought into the TSA system TSA enforced with consolidation of government funds with no material exceptions\. TSA for expenditure has been in operation since October 2007\. MoF has continued the expansion and extension of the TSA, and it now covers all expenditure accounts of all treasury offices in the country\. Cash management reform is one of the PFM reform pillars in Indonesia\. Cash balances are consolidated in a TSA\. The result has been lowered financing costs and improved control of both revenue and expenditures\. While significant progress has been made, DG Treasury is still facing several challenges, mainly in terms of how to optimize idle cash, integrate system environment to ensure comprehensiveness and accuracy of cash forecast, manage the electronic money products, and establish an institutional link between cash and debt management\. II-5: Central Government financial statements meet Government Accounting Standards as promulgated by Government Regulation and the consolidated management reports produce by the DG Treasury include financial assets and liabilities, and cash-based reports of extra- budgetary funds Preparation for accrual accounting started in 2010, which included regulation issuance, capacity building, system development, and transitioning from cash to accrual based accounting processes\. The MoF is in the process of implementing full accrual accounting in 2015, which is mandated by the state finance law (No\. 17/2003)\. The Government Financial Report for 2015, which will be audited in mid-2016, will be full accrual-based accounting\. Sub-Component A\.4: Procurement Reform II-6: An evaluation of the MoF e-procurement pilot is completed and an action plan is adopted by the MoF for wider rollout This indicator was dropped with the corresponding subcomponent closed on Jun 30, 2009 as the result of the first project restructuring in 2009\. Bappenas, which was the initial implementing agency for this subcomponent withdrew from GFMRAP in April 2008\. Subsequent implementing agency became the newly established National Public Procurement Office (LKPP), the agency tasked to develop the regulatory framework, including e-procurement system, for public procurement in the country\. After restructuring, support to this sub-component with LKPP as the counterpart/implementing agency has been under the PFM MDTF\. At GFMRAP closing, an e- procurement system, which was developed by LKPP for mandatory use by all government 42 agencies, is being implemented for MoF\. An Echelon 2 unit responsible for e-procurement was established under the MoF Secretary General\. II-7: A survey of procurement prices relative to international benchmarks is completed This indicator was dropped with the corresponding subcomponent closed on Jun 30, 2009 as the result of the first project restructuring in 2009\. Component B: Revenue Administration Sub-Component B\.1: Customs Modernization Intermediate indicators II-8 to II-10 under this subcomponent were dropped as the result of the first project restructuring in 2009\. Sub-Component B\.2: Tax Administration II-11: The DG Tax has adopted a Results-oriented Modernization Strategy and Plan with measurable performance indicators, aimed at the eventual redesign of processes along single taxpayer account lines and based on the results of the pilot re-engineering of one representative district office This indicator was dropped with the corresponding component closed on Jun 30, 2009 as the result of the first project restructuring in 2009\. This sub-component to support DG Tax spun off as a SIL operation named PINTAR that came on line in the last quarter of 2009\. PINTAR was eventually cancelled in 2014 due to negligible disbursement\. After GFMRAP was restructured, DG Tax continued to receive technical and capacity building support under the PFM MDTF towards its second wave of tax administration reforms focusing on improving taxpayer services, increasing taxpayer enrollment, providing support for ICT, and increasing taxpayer compliance as part of the overall implementation support to PINTAR\. Tax administration reform remains a priority area for the government and the WBG continues to engage through the on-going PFM MDTF program and the programmatic fiscal DPL operation\. Another investment project is in the pipeline as well\. Component C: Governance and Accountability Sub-Component C\.1: House of Representatives (DPR) II-12: Verification of strengthened basis for ICT development in the DPR This indicator was from the Amendment dated May 22, 2009 per the first project restructuring\. The original indicator stated: "Survey verifies strengthened capacity of the Budget Committee of the DPR\." This indicator was dropped on Dec 31, 2013 as a result of the second project restructuring\. After a reprogramming of this subcomponent in 2007, most of the funding was shifted from the PHRD grant to the PFM MDTF\. Focus of activities also shifted to building research capacity to support parliamentary budget review, capacity building in budget analysis, and strengthening of administrative support functions by the DPR Secretary General’s office\. When GFMRAP was re- structured in June 2009, the remaining activities budgeted under the PHRD grant were further reprogrammed to focus on two small consultancies related to ICT development and two related to the strengthening of the administrative support function within the DPR Secretariat General\. However, the two ICT related consultancy activities were eventually cancelled because the 43 procurement activities could not be completed in time to meet the closing date of the PHRD grant on December 31, 2010\. 44  Annex 3\. Assessment of Achievements by Objective PDO outcome indicators Baseline Target Actual Comments Objective 1: To improve efficiency in the Borrower’s public financial management (Rating: Substantial) 1\. Automated treasury payment Achieved\. system enables accurate and timely • Various reforms under GFMRAP financial reporting, reduces size of have significantly contributed to idle cash balances, and reduces timely payments, which has incidence of corruption in discontinued “illegal fees” that were payments given to expedite payments\. 1\.1 Transparency and duration of No time limit Less than one • SPAN introduces new workflow payment processing time for to process day (1-2 processes (front/middle/back supplier invoices payment hours) to offices) so that once a payment invoices process request is processed, the status of payments in the request can be known, thereby KPPN eliminating the justification for “fees” to expedite payments\. 1\.2 Payroll slips issued by Manual Direct deposit • $4 million worth of checks issued system through direct payments issuance of through system and suppliers’ checks checks made payable direct to bank accounts of 300,000 suppliers 1\.3 Cost savings from paperless Manual Direct deposit • Salaries of 1\.62 million government printing, phone/fax checks and and electronic employees paid through direct communications, and courier fee paper transactions electronic bank transfer transactions • $55 million saved in printing and communications costs\. OM-SPAN is an online monitoring system for payment transactions that can be accessed to check on status on a real-time basis 2\. Strengthened cash management Achieved\. 2\.1 A Treasury Single Account A baseline of TSA TSA has been • Full interface that integrates (TSA) system is functioning with >18,000 operational, fully expenditure (SPAN) and revenue acceptable parameters: all on- government government implemented collection (MPN) data from all 182 budget central government bank cash funds since FY KPPNs provides full picture of the accounts and own-revenue bank operations consolidated 2009 government’s cash position on a accounts of line ministries and with no cash with no real time basis spending units are brought into management material the TSA system standards exceptions 2\.2 Consolidation of cash IDR 3\.6 2% current • Off-budget accounts have been balances trillion in account brought into compliance daily cash deposit rate • Existing miscellaneous accounts of balance held on IDR 3\.6 line ministries have been closed by KPPN and trillion saved • New accounts can only be opened Kanwil after MOF authorization 45 PDO outcome indicators Baseline Target Actual Comments 2\.3 Savings from TSA No TSA in TSA $377 million • $300 million of interest earned on 2008 established in USD saved as consolidated cash balance centrally 2009 a result of held in Treasury Single Account at income the Central Bank generated • $47 million saved from revenue from TSA daily sweep into Treasury Single Account to reduce idle floating cash previously held in commercial banks • $30 million saved from consolidated cash accounts previously held in commercial banks 2\.4 Full picture of government’s Multiple Full picture • TSA covers all expenditure cash position from central sources of cash accounts of all treasury offices in government treasury offices consulted to position on the country captured on real time basis obtain cash real time • Daily cash balance of IDR80 trillion position basis • Daily sweeping of revenue accounts into TSA fully implemented • TSA for revenue developed (2010) Objective 2: To improve governance in the Borrower’s public financial management (Rating: Modest) 3\. Improved legislative scrutiny of No legislative Strengthened Achieved\. the annual budget law scrutiny of legislative • The review undertaken by annual budget oversight of Parliament covers macroeconomic 3\.1 Improved capacity of law annual budget framework, main fiscal policies and members of Parliament in law expenditures and revenues\. A providing oversight over the detailed discussion of the annual budget formulation process work plans of line ministries and AGAs takes place directly with the 3\.2 Enhanced analytical support relevant parliamentary sectoral during budget formulation budget commissions\. process to members of • The budget review is undertaken Parliament over a period of about seven months\. Parliament has some 8-10 weeks (compared to 6-8 weeks before) to review the draft budget once it is tabled in mid-August until it is formally adopted in October 4\. National government policy No MTEF in MTEF in MTEF in Partially Achieved\. priorities are reflected in a Medium place place place but • The medium-term expenditure Term Expenditure Framework and poor framework was introduced in the annual budgets reliability of 2011 budget and performance from forward previous year is taken as a baseline 4\.1 Medium-term budget estimates of for the subsequent year\. forecasting tools line ministries • All line ministries prepare detailed forward estimates for two out-years, 4\.2 Change in budget reflecting the government’s priority\. classification However, the first forward estimate of last year’s MTEF is not yet relied on as the basis for calculating 46 PDO outcome indicators Baseline Target Actual Comments indicative ceilings of next year’s budget\. • DG Budget has set up a Medium Term Budget Framework at an aggregate level by economic classification but without detail by expenditure units/program/activity • On performance-based budgeting, outputs are defined for each program area every year and progress against each output is reported • Moving forward, further fine-tuning of the implementation of MTEF and PBB will be required, including ensuring that performance made on outputs can be used for decision making on budget allocations\. 5\. Increased policy development 0 4 Returned Partially Achieved\. capacity within the Fiscal Policy scholars • 37 officers trained from FPO: (a) 12 Office as verified by the produced Masters degrees completed; (b) 7 completion of several high-quality reports as PhD degrees completed; (c) 18 policy analysis products policy specialized training analysis • PhD and Masters scholarship products programs funded by GFMRAP have contributed a lot in the policy development capacity within the FPO\. Some staff who completed the scholarship programs were promoted into higher ranked positions, more research papers were produced with high quality of policy analysis\. The MOF and other line ministries have utilized these papers for policy decision in strategic area\. 6\. Verification of effective project No GAAP, GAAP, Project Achieved\. governance, external oversight, PSC or Procurement governance • Fully operational investigation unit change management and investigation Plan, PSC, and activities in the Office of the Inspector implementation unit\. PSSU, are consistent General of MOF established in Investigation with the November 2008, with adequate Unit in MOF- GAAP; legal powers for investigating IG all in Project allegations of corruption against place and procurement MOF staff, including tax officers\. operational has been • PSSU has been successful in with positive consistent ensuring project governance and results\. with activities are consistent with the procurement GAAP; project procurement plan; PSC activities were also consistent with and PSSU the Procurement Plan\. The PSC and and the the SecGen of MOF have been investigation consistent in carrying out project 47 PDO outcome indicators Baseline Target Actual Comments unit are all governance and oversight with operational frequent and regular meetings\. and functioning well\. Objective 3: To improve integrity and transparency in the Borrower’s public financial management (Rating: Substantial) 7\. Reduced leakage in expenditure 1% of Almost zero Virtually zero Achieved\. flows and effective corruption payments error or error or • SPAN introduces new module reducing measures related to paid to wrong incidence in incidence in called supplier database to prevent accounts and budget control accounts transfer transfer payments to suppliers whose applied payment payment with account information is not fully multi-layered verified\. Payment requests with 7\.1 Reduced payment error to screening inaccurate account information are unintended recipients due to (supplier blocked before transfer is attempted\. inaccurate data database of • Some payments are rejected due to SPAN and new data entry requirements 7\.2 Manual checks replaced with Real Time introduced with SPAN\. regular system reporting Gross • Manual checks and reconciliation Settlement of between regional and local Treasury 7\.3 Increased in fiscal discipline the banking offices now done electronically over payments system) • SPAN also has a commitment module which allows spending units 7\.4 Auditors perform audits to spend against these contracts using transaction data in an • Audit reports prepared using efficient manner transaction data on real time basis 8\. Strengthened commitment Weak Commitment Achieved\. control commitment control is control by applied by • Annual budget ceiling is allotted 8\.1 Annual budget ceilings MOF, limited reserving the and established for each of the established to checking budget ceiling 24,000 spending units and ceiling the in the system data uploaded to SPAN database\. availability of for any Once budget ceiling data is funds left signed integrated with SPAN, spending from budget contracts so units cannot disburse beyond this only when that the ceiling processing budget ceiling 8\.2 Budget execution falls requests for that has been • SPAN has a budget commitment within annual ceilings payments committed management module, in which any cannot be signed contract is recorded as used for other commitment that will reduce budget purposes through an encumbrance journal • Information on the payment schedule for the commitment and the amount from encumbrance journal are inputs for the cash plan and payment management • Discrepancies in the recoding of certain transactions still exist (e\.g\. intergovernmental revenues, non- tax oil and gas revenue, and foreign exchange debt) but these are all 48 PDO outcome indicators Baseline Target Actual Comments within internal auditor’s materiality threshold of 0\.5% 8\.3 Coverage of timely internal • Individual line ministries have their audit (% of ministries/agencies) own internal auditors (Inspectorate General) as an Echelon 1 level position below the Minister\. Inspectorate General as the Internal Auditor assists all units to comply with all prevailing regulations within ministries and agencies\. 9\. Improved quality and timeliness Mostly Achieved\. of financial reporting • Accrual based accounting is expected to ensure better cash 9\.1 Application of International Cash-based Full accrual Full accrual- forecasting and provide a full Public Sector Accounting accounting based based picture of activity costs Standards for revenues accounting accounting • Preparation for accrual accounting and (compliant started in 2010\. The MOF started to expenditures, with IPSAS) implement full accrual accounting but accrual being in 2015, which is mandated by the basis for implemented state finance law (No\. 17/2003)\. assets, since 2015 The Government Financial Report liabilities, and for 2015, which is being audited and equity will be published in mid-2016, will be full accrual-based accounting\. • Indonesia Government Accounting Standard adopted full accrual accounting of IPSAS with only small gaps 9\.2 Processing and recording of No single Single • SPAN applies a single database to government transactions in a database for database to reduce data inconsistencies single database financial data record all previously occurring from financial data extracting data from multiple sources 9\.3 Quality of annual financial • Supreme Audit Institutions review reports (extent of coverage and of audited financial statements for completeness and consistency FY2015 still on-going and expected with generally accepted to be released to the public in late accounting principles) June 2016 10\. Improved budget and fiscal SPAN fully Achieved\. information that the government functional • MOF-IG conducted thorough makes available to the public accordance administrative due diligence with ITB through the RTM (requirements 10\.1 SPAN Stage I (as such is specifications traceability matrix) in which the described in the invitation for actual deliverables from the supplier bids for the contract for the were compared with the initial procurement thereof) evaluated requirements stated in the bid with user input with respect to documents\. With the final payment content, timeliness and made in June 2015, which marked verifiability; specified periodic the complete system delivery, no 49 PDO outcome indicators Baseline Target Actual Comments financial reports prepared for other supplier’s obligation concerned entities remained\. 10\.2 Timely disclosure of central 1-2 months 2 weeks after • Reduction in the time taken for government monthly budget the end of central government monthly budget realization data (in days or each month realization data to be publicly weeks) available from 1 month to 2 weeks after the end of the month 10\.3 Public access to key fiscal Upon request Key fiscal information only figures are • Monthly budget execution reports available on generated on time\. Reconciliation MOF website mechanism between regional and local Treasury offices now done electronically\. • Progress has been made with greater access to the semi-annual budget report and to contract awards above a threshold of IDR 50 million on the websites of agencies\. 50 Annex 4\. Economic and Financial Analysis Economic analysis confirms that GFMRAP generated positive returns of 50 percent over a 15-year period, applying a 15-percent discount rate, with positive economic NPV of US$632 million due to efficiency gains in the process of modernizing Indonesia’s public financial management\. While direct attribution of economic and financial benefits of PFM reform is challenging and many of the interventions are difficult to quantify in monetary terms, there are some elements of the reforms that GFMRAP supported for which a financial assessment has been conducted\. The assumptions for these calculations are the following: • General economic and project parameters: o Financial and economic analysis conducted in US dollars assuming US$ inflation rate of 2 percent, IDR inflation rate of 3 percent and nominal exchange rate tracking purchasing power parity over project life starting with a 2015 exchange rate of Rp13,500/US$ o Real economic growth rates follow IMF World Economic Outlook estimates through 2019 and then 8 percent per annum thereafter o Project costs are based on actual costs over implementation during 2005- 2015 and projections for 2016-2019\. A general real increase in costs of 2 percent per annum is included in cost projects, additional real increases in specific costs items are noted below and a 10 percent cost overrun contingency is provided for o All Net Present Value and Internal Rate of Return estimates are based on constant price net cash forecasts over a project life time of 15 years, from 2005-2019 • SPAN implementation o Average base salary of Treasury staff is $5,600 per year (which does not include stipends and other remuneration) and 40% of their staff time was previously spent to do manual verification and reconciliation of accounting data o Costs are actual project expenditures provided by the PSSU\. These have been indicated at the relevant cost line o Treasury staff capacity building, change management, training, sensitization, and other workshops stay constant after 2015 51  o Project Management, operation and maintenance, and Helpdesk stay constant after 2015 o Full opportunity cost of the delays incurred during implementation has not been included in this analysis\. Technical specifications for COTS were developed almost a decade before the pilots were rolled out and during that time the volume of transactions that SPAN was intended to handle was underestimated significantly\. This resulted in increased hardware costs which were later incorporated into the contract\. • GFMRAP implementation costs o Average annual supervision costs, valued at approximately $2\.3 million from 2005-2015 o PFM MDTF, both Bank-executed and Recipient-executed, in the amount of $12\.3 million from 2007-2015 was used to support implementation o Government co-financing of $30 million from 2005-2015, in addition to staff time of the Ministry of Finance Project Services and Support Unit and other PIUs o Project preparation advance of $616,095 used to prepare TORs used for SPAN turnkey contract and for the IVV/PMQA consultancies o Fixed front-end IBRD loan origination fee of $275,000 Three benefit streams that accrue both financially to the Government of Indonesia and to the economy as a whole: • Cost savings from TSA: Based on a conservative estimate of interest earnings from consolidated cash balances now kept at the Central Bank through the Treasury Single Account with daily cash balance of IDR 80 trillion with a remuneration of 65% x 7% BI rate per year\. This also includes opportunity savings from (tax and nontax) revenue daily sweep into TSA of about IDR 4\.2 trillion, daily floated for 3 days at a cost of 7% BI as well as opportunity savings from consolidated cash accounts previously held by KPPN and Kanwil commercial banks, assuming a daily cash balance of IDF 3\.6 trillion x 2% current account deposit rate per year\. Finally, it also includes income from Treasury Notional Pooling of 24,000 spending unit’s petty cash accounts, assuming average annual balance is IDR 200 million remunerated at a 6% savings rate\. • Productivity savings: These have been estimated on the basis of efficiency gains in administrative costs calculated from the introduction of the FMIS in local and regional Treasury offices in Indonesia, including savings from reduced printing as a result of paperless transactions and internal communication costs\. These calculations assume a gradual increase in the rate of savings from reduced printing, 52  transport and communications costs\. Full benefits are expected to be reached by 2018-2019 once regulations catch up with system capacity\. It also includes efficiency gains from time saved of Treasury staff who previously spent 40% of their time to do manual verification and reconciliation of accounting data\. Treasury spends $45 million per year on staff salaries, so this amounts to $18 million saved per year\. Based on these assumptions of the economic costs and benefits of the project, the real EIRR over a 15 year period is 50 percent and the project has a positive economic NPV of US$632 million (and at a 15 percent discount rate the NPV)\. It is noted that a number of potential economic benefits were not estimated\. These include: (a) reductions in transaction costs of contractors and suppliers in using the e-procurement system and being reimbursed through the reformed FMIS; and (b) efficiency gains from increased tax collection\. The table below presents different scenarios to illustrate how the NPV changes under different discount rates and using alternative assumptions related to costs and benefits\. The IRR stays consistent\. Scenario 1: IRR and NPV applying 50% of MDTF amount as part of the costs 15% 25% 40% productivity productivity productivity gains gains gains IRR 50% 50% 51% NPV at 15% $635 million $644 million $658 million Scenario 2: IRR and NPV applying 100% of MDTF amount as part of the costs 15% 25% 40% productivity productivity productivity gains gains gains IRR 50% 50% 49% NPV at 15% $632 million $642 million $656 million The added value arises mainly from the Bank’s technical input based on international experience, particularly on the FMIS implementation\. The World Bank’s task team’s advice on the Terms of Reference and hands-on advice on the bidding documents for the FMIS with the internal best practices will provide potential cost and time savings\. 53 Annex 5\. Bank Lending and Implementation Support/Supervision Processes (a) Task Team Members Name Title Unit Task Team Leaders Amitabha Mukherjee Lead Public Sector Specialist GGO15 (2003-2005) William Wallace (2005- Lead Economist PREM 2006) Jens Kromann Kristensen Lead Public Sector Specialist GGO19 (2006-2010) Theo Thomas (2010-2013) Economic Adviser OPSPQ Bernard Myers (2013-2016) Senior Public Sector Specialist GGO14 Supervision/ICR Achmad Zacky Wasaraka Procurement Analyst GGO08 Ahsan Ali Lead Procurement Specialist GGO08 Carlos Ferreira Consultant GGO15 Corry Huntangadi Program Assistant EACIF Hannah Kim Young Professional GGOOS Hari Purnomo Senior Public Sector Specialist GGO14 Imad Saleh Operations Advisor OPSPQ James Sheppard Consultant PREM Lina Lo Consultant GGO14 Lynn Yeargin Senior Program Assistant GGO18 Mark Ahern Program Leader MNC04 Nina Herawati Program Assistant EACIF Ramesh Siva Lead Information Officer GTI09 Sandra Buana Sari Team Assistant EACIF Sarah Horrigan Consultant PREM Sebastian Eckardt Senior Economist GMF02 Suresh Gummalam Adviser GGO14 Tatong Permana Consultant GGODR Unggul Supriyatno Senior Financial Management Specialist GGO20 Vijay Ramachandran Senior Public Sector Specialist PREM Yash Gupta Senior Procurement Specialist GGO08 Yogana Prasta Operations Adviser EACIF 54 (b) Staff Time and Cost Staff time and cost (Bank Budget only) Stage of Project Cycle US$ (including travel and No\. of Staff Weeks consultant costs) Lending FY04 58\.88 583,398\.32 FY05 44\.97 251,473\.98 Subtotal 103\.85 834,872\.30 Supervision/ICR FY06 63\.43 346,529\.20 FY07 45\.82 397,613\.74 FY08 88\.58 370,145\.83 FY09 14\.64 198,756\.11 FY10 14\.08 115,961\.65 FY11 16\.04 114,652\.91 FY12 17\.18 117,210\.41 FY13 11\.62 105,374\.37 FY14 15\.99 126,332\.73 FY15 37\.36 252,575\.08 FY16 (as of April 2016) 6\.90 104,309\.35 Subtotal 331\.64 2,249,461\.38 Total 28 435\.49 3,084,333\.68 28 This amount does not include TA and advisory services funded under the PFM MDTF since 2007 totaling an amount around US$12\.3 million\. 55 Annex 6\. Beneficiary Survey Results The contents in this section were taken from User Satisfaction Level Survey of the Implementation of SPAN conducted by MOF in December 2015\. The objective of the SPAN User Satisfaction Survey is to measure the level of satisfaction of the users of the SPAN application\. There were 3,145 respondents were surveyed from local treasury offices (KPPN), Kanwil, and MOF headquarter staff from all over Indonesia\. The SPAN User Satisfaction Survey was conducted using the SERVQUAL Methodology, a quality management framework first published in 1977 by Valarie Zeithaml, A\. Parasuraman & Leonard Berry to measure quality in the service sector\. It highlights the main components of high quality service in terms of five factors or dimensions, namely, tangibles, reliability, responsiveness, assurance, and empathy\. A total of 22 variables were established for the SPAN User Satisfaction Survey in accordance with the SERVQUAL methodology\. The 22 variables were grouped into the five service quality dimensions: • Tangibles (6) - The appearance of physical facilities, equipment, personnel and communication materials • Reliability (5) - The ability to perform the promised service dependably and accurately • Responsiveness (4) - The willingness to help users and to provide prompt service • Assurance (4) - The knowledge and courtesy of employees and their ability to convey trust and confidence • Empathy (3) - Caring, individualized attention provided to the users The results from the various data analysis methods are as follows: 1\. The average performance score that shows the highest level of user satisfaction is in the OM-SPAN application (3\.91, good level of user satisfaction), followed by Custom Web (3\.75, good) then SPAN (3\.54, adequate), from which the overall performance score for all applications is 3\.69 (good) 2\. The service quality dimension with the highest performance score is Tangibles (3\.81), followed by Responsiveness and Assurance (both 3\.70), then Reliability (3\.63) and Empathy (3\.62) 3\. The average importance score that shows the highest level of importance or expectation is in the SPAN application (4\.47, high level of importance), followed by Custom Web (4\.46, high) then OM-SPAN (4\.41, high), from which the overall importance score for all applications is 4\.45 (high), with Reliability (4\.49, high) having the highest expectation Based on the survey results, it is recommended that improvements be done in: - Data access speed of the application - Ability of the application to generate reports quickly - Promptness of the response of the service desk when complaints are submitted 56 - Consistency in the quality of the networks during normal conditions as well as during disruptions in the primary networks - Clarity of information provided in problem/error messages - Promptness of the response of the service desk when complaints are submitted - Availability of adequate supporting infrastructure facilities (computers, printers, etc\.) - Ease in identification of mistakes and performing correction in the applications\. 57 Annex 7\. Inputs from Consultations with Stakeholders How did change happen? Analysis shows that changes were triggered when reform champions took ownership in operationalizing regulatory reforms\. Insights from stakeholders show that while a number of reforms were initiated in the early 2000s, it took time for these reforms to be fully incorporated into business process improvements\. Pockets of resistance were identified upfront but building consensus among a large group of stakeholders took time\. Change aspect Automated payment system Cash to accrual accounting Cash management Commitment control of spending units Issues Changing business process Technical support High level support Setting up a system Reform challenge How to shift from repetitive How to improve the How to get a consolidated view How to ensure spending is manual processes for payment comprehensiveness in the of government cash balances? within annual budget ceilings and receipts to an automated coverage of government and the progress of activity can process? accounting report? be monitored? How the reform An automated treasury payment The 2003 state finance law and The State Finance Law and the Introduction of encumbrance was initiated system was one of the main 2004 state treasury law called State Treasury Law provide for concept to record commitment components of SPAN\. for the move from cash toward daily sweeping of government by spending units\. This was accrual to full accrual revenues into the TSA, zero added by the shift of accounting\. based accounts for expenditure, responsibility for the ratification and treasury notional pooling and management of annual for petty cash accounts of over budget ceilings (DIPA) from DG 24,000 spending units\. Treasury to DG Budget so that a “single” budget office undertakes full cycle of the budget process from formulation and appropriation to allotment and virement\. Timeframe The pilot was launched in 2014 Accrual accounting was meant Implementation of TSA for DG Budget established as the and the full system was rolled to be implemented by 2010, but revenue happened during 2007- single budget office in 2012\. out in 2015\. it was then extended to 2015 2010 while for expenditure was Budget ceiling for 24,000 given the recognition that more during2009-2012\. Between spending units integrated into detailed accrual policies 2008 and 2011, 9,275 illegal or Custom Web module of SPAN required to be developed and extra budgetary fund accounts in 2015 to ensure better control more training was needed to were closed\. While 40,248 of budget execution\. The change the way line ministries bank accounts are still commitment module is part of recorded their transactions\. maintained by spending units, the SPAN that has been these were retained as implemented since 2015\. operational accounts with very minimum balance kept in each account Outputs SPAN is now used in 182 local Full accrual accounting applied Budget execution of 24,000 Treasury offices and 33 for transactions of all 24,000 TSA is fully implemented with spending units does not exceed regional Treasury offices spending units of the central no other account kept outside of individual spending ceilings\. serving 24,000 spending units\. government as well as the local TSA in Central Bank of government agencies\. Indonesia Outcomes Enhanced accountability, Improved comprehensiveness Better accountability through Increased commitment control timeliness, and efficiency of of financial position transparency in the and fiscal discipline payments management of state cash receipts and expenditures Senior leader Automated payment system Cash to accrual accounting Treasury Single Account Commitment control of spending units How did you Strong commitment and Accrual accounting was already Strong commitment from the The integration of budget manage the politics ownership from the Minister of built into the design of SPAN\. Minister of Finance\. It is added ceilings with budget execution of the reform? Finance created an opportunity There are still some aspects that by an MOU signed between data has helped maintain for change\. A steering are not fully recorded on an MOF and Bank Indonesia to spending within spending committee of representatives accrual basis, but increased agree on the remuneration of ceilings\. Regional Treasury from different parts of the training of new processing the government’s cash balance offices have also played an Ministry of Finance helped procedures is expected to kept in TSA\. important oversight role to keep convince members of the improve quality of consolidated track of the spending units project’s benefit and why it financial statements\. performance on disbursement\. should be delivered\. Implementers Automated payment system Cash to accrual accounting Treasury Single Account Commitment control of spending units What elements Demand-driven\. SPAN generated key accrual Task was led by the Minister of The strong motivation to equally made your reform All stakeholders were on board\. based accounting principles\. Finance distribute the disbursement successful? Training and dissemination to pattern within a year\. Greater all over 24,000 spending units buy-in from spending units of of line ministries the value of real-time budget execution data Which Regulations were not updated Accrual based accounting still a Consolidation of government Keeping spending in check implementation as business process fairly new concept and the bank accounts meant spending became a challenge when challenges did you improvement changed, and vice practice of recording accrued units would no longer have spending units knew in advance need to address? versa\. Implementing a system tax and non-tax revenue for oil direct control of their financial the budget ceiling for the next when both of these aspects and gas as well as foreign position\. Some people are felt year would be reduced\. Add a were in flux made the full roll currency remains a challenge of losing “power” since they new requirement for the out difficult\. are no longer able to control the spending units to register and cash in bank accounts inform the commitment to MOF before the payment is made\. How did you A steering committee with all The Public Sector Accounting A steering committee with Commitment module is collaborate across the DGs within the Ministry of Committee (KSAP) helped to relevant DGs within the embodied in SPAN that will be units within your Finance was the main develop full accrual accounting Ministry of Finance was the required to be followed by the 59 agency or across mechanism used for policies and technical guidelines main mechanism used for spending unit when they submit multiple agencies? coordination and to ensure buy which is required to be followed coordination and to ensure buy request for payment in from all stakeholders\. by both central and local in from all stakeholders\. It is government’s agencies added by a close coordination with Central Bank of Indonesia Beneficiaries Automated payment system Cash to accrual accounting Treasury Single Account Commitment control of spending units How was Socialization workshops were Deadline to implement accrual State Treasury Law and Spending units informed of communication part of the change management accounting was set for 2015 government regulations on cash annual budget ceilings from DG during the reform strategy\. and this was the expectation\. It management set the framework Budget that is used as reference period? is added by intensive training needed to establish the TSA\. before making any commitment and socialization to all over that is recorded in SPAN\. 24,000 spending unit staff What is the most Real-time monitoring of budget Improved the Cost savings from idle Smooth and consistent spending valuable thing to execution helped ensure timely comprehensiveness of balances, improve interest patterns through the year instead come from the and accurate payments government financial statement earnings from consolidated of bunching towards the end of reform? report accounts in TSA, and reduction the fiscal year of borrowing cost by having an accurate information on daily cash balances available in TSA 60 Annex 8\. Borrower’s Completion Report and/or Comments on Draft ICR 62  A\. Background 1\. Indonesia was one of several Asian countries hardest hit by the Asian financial crisis of 1997- 1998\. Many in Indonesia considered it a “total crisis” which called for comprehensive and wide ranging reforms\. Recognizing that the nation-wide call for reforms could become the trigger for broad- based reforms in the public sector, then Minister of Finance Boediono issued Ministerial Decree No 196/KMK\.01/2001 establishing the Financial Management Reform Committee with the task to formulate the White Paper on the “Reform of Public Financial Management System in Indonesia” and to draft the laws on state finance, state treasury and state audit, thereby providing the legal basis for institutionalizing the reforms\. 2\. Following the finalization of the White Paper in 2002, the enactment of the State Finance Law No 14 on 5 April 2003, and the prospect of the near term enactment of the law on State Treasury, the Government issued an Economic Policy Package in September 2003 which called for significantly increasing efficiency, transparency and accountability in public financial management and resource use on one hand, and on resource mobilization through revenue administration on the other\. 3\. Recognizing that managing change of the magnitude envisioned in the finance laws would require high-level support and attention, dedicated human and financial resources, sustained technical support and a strategy that goes beyond the medium term, Minister Boediono approached the World Bank and the International Monetary Fund to get their support to ensure the realization of the envisioned reform goals\. Thus, on 22 December 2004, the Ministry of Finance (MOF) signed with the World Bank a package of loan, credit and grant agreements for the Government Financial Management and Revenue Administration Project which was designed to lock-in the commitment of MOF and other central agencies to the reform agenda\. The project was envisaged as a 3-phased Adaptable Program Loan (APL) covering (i) public financial management (PFM) reforms, (ii) customs administration reforms, and (iii) tax administration reforms\. The loan, credit and grant package that was signed on December 22, 2004 only covered the first phase for the APL\. B\. Project Funding Ceiling in Disbursed in Original Closing Final Closing Source USD USD Date Date IBRD 4762-IND 55,000,000 54,414,161 June 30, 2009 Dec\. 31, 2015 IDA 4026-IND 5,000,000 4,969,772 June 30, 2009 Dec\. 31, 2015 TF 053556 - Japan Grant for GFMRAP 5,000,000 4,598,561 Dec\. 31, 2008 Dec, 31, 2010 Total 65,000,000 63,982,494 Signing Date December 22, 2004 Effectiveness Date October 27, 2005 Directorate General of Treasury, MOF (2004-2009) Executing Agency Secretariat General, MOF (2009-2015) C\. Overall Project Management-Government of Indonesia (GOI) 4\. GFMRAP was administered by the Project Support and Services Unit (PSSU), which was established initially under the Directorate General (DG) of Treasury, and subsequently under the Secretariat General, MOF as executing agency\. Its functions included managing the allocation of GFMRAP funds, coordinating the planning and implementation of activities, as well as monitoring 63 and evaluating the activities of implementing agencies\. It also served as liaison between the Project Implementation Units (PIUs) in each implementing agency and the World Bank\. From 2005-2009, a Project Steering Committee was formed to oversee all project components, but it proved to be ineffective\. Starting in 2009, a more focused Project Steering Committee composed of key Echelon I level MOF officials was established solely for the purpose of providing guidance and direction, and making major decisions in connection with the implementation of the Treasury and Budget System (Sistem Perbendaharaan dan Anggaran Negara or SPAN)\. This arrangement proved to be more effective\. 5\. To ensure the availability of dedicated full-time staff to manage and implement the SPAN, in 2008, a new Echelon II unit called the Directorate for Treasury Transformation was established at DG Treasury primarily to manage the treasury reforms under GFMRAP and to oversee all activities related to the development and implementation of SPAN\. Furthermore, the governance structure for SPAN was developed with roles defined, which included the Steering Committee, the Project Director (Director of Treasury Transformation), a number of Technical Coordination teams, and a Change Control Board that evaluated all change order proposals before they are submitted to the Steering Committee for approval, and a PIU\. It became a policy of the SPAN teams to hold weekly meetings among key project officials, consultants and other stakeholders to monitor project progress and address new as well as pending issues\. 6\. All subcomponent implementing agencies set up their own PIUs to administer their fund allocations and expenditure, and to manage agency project activities\. The governance structure for each Implementing Agency included among others, an Echelon II level official-in-charge of the project supported by a technical working team responsible for the project output, an Echelon III level PIU Head in charge of project administration, a procurement team, a finance team, and a secretariat\. D\. World Bank Performance 7\. Over the duration of the GFMRAP, there were five (5) Task Team Leaders (TTLs) who worked with the project\. The style of leadership of these TTLs have evolved over the years, with the first three TTLs being more deeply involved with project supervision, while the last two TTLs were not as involved, due mainly to the diminishing complexity of procurement issues, and the government project management teams becoming more mature and developed\. This change in the Bank’s leadership style has not adversely affected the effectiveness and quality of Bank supervision over the project\. 8\. Although there had been strains in the relationship between the World Bank Team and their GOI Counterparts, mostly in connection with the procurement of SPAN and the Case Management and Court Administration System of the Tax Court, both sides have successfully found ways to resolve differences and improve cooperation as the project progressed\. The provision of continuing Bank advisory support to the project made possible through the PFM MDTF has considerably facilitated better communication and understanding between the GOI project management and the Bank, and has helped speed up necessary approvals and agreements on critical issues, especially during the last few years of project implementation\. E\. Project Components and Design 9\. The table below provides the complete list of the project components and subcomponents, the dates when the subcomponents closed, and the total disbursement of each subcomponent\. 64  Implementing Closing Date Disburse- Percent of Components/Sub-components Agency per LA ment in USD Total A\. PUBLIC FINANCIAL MANAGEMENT A\.1 Policy Capacity Development Fiscal Policy Office 31 Dec 2013 1,608,807 2\.51% A\.2\.a Budget Planning and Development Nat’l Planning and Dev\. Agency (BAPPENAS) 30 June 2009 189,965 0\.30% A\.2\.b Budget Planning and Development DG Budget (DG) MOF 31 Dec 2015 196,959 0\.31% A\.3 Budget Execution and Treasury Modernization DG Treasury, MOF 30 June 2009 57,693,502 90\.17% A\.4 Procurement Reforms BAPPENAS 30 June 2009 76,035 0\.12% B\. REVENUE ADMINISTRATION B\.1 Customs Modernization DG Customs, MOF 30 June 2009 53,902 0\.08% B\.2 Tax Revenue Administration DG Taxes, MOF 30 June 2009 - - C\. GOVERNANCE AND ACCOUNTABILITY C\.1 Legislative Oversight Secretariat General DPR 31 Dec 2010 153,458 0\.24% C\.2 Resolution of Tax Dispute Tax Court, MOF 31 Dec 2013 526,375 0\.82% C\.3 Internal Accountability Inspectorate General, MOF 30 June 2009 277,845 0\.43% D\. PROJECT GOVERNANCE AND IMPLEMENTATION D\.1 Project Governance and PSSU, Secretariat Accountability General, MOF 31 Dec 2015 2,314,551 3\.62% Refund of Prefinancing Advances 616,095 0\.96% Front-end Fee 275,000 0\.43% Total Disbursements (Loan+Credit+Grant) 63,982,494 100\.00% 10\. The wide range of PFM reform initiatives covered in GFMRAP, and the participation of many implementing agencies (eleven in all) seem very ambitious, especially if viewed in retrospect\. However, the Minister of Finance, senior MOF officials, World Bank and IMF officials who were involved with project planning when the project was originally designed, considered this design to be the best approach to guarantee an across-the-board participation in the reform effort by key MOF and central agencies performing PFM and revenue administration functions\. Furthermore, since a new government was to be installed by October 2004, those involved in designing the project considered that packaging the GFMRAP program in this manner was one way of ensuring that PFM and revenue administration will be pursued in a comprehensively\. 11\. Notwithstanding the fact that the project covered many components and involved eleven (11) Echelon I level agencies, the project was designed and approved in what could be considered record time, which was just about one year\. Due to the need for speed, many of the concepts and programs incorporated in the design where ideas that came from the World Bank team, with modest buy-in or limited understanding on the part of the GOI counterparts\. 12\. DG Customs and the DG Taxes eventually withdrew from GFMRAP\. While the DG Tax component spun off to become the Project for Indonesia Tax Administration Reform (PINTAR)\. The PINTAR project was also ultimately cancelled before it could start implementation\. It is possible that the cancellation of these two major components of GFMRAP was in part due to the fact that the White Paper and the laws that were enacted did not cover customs and tax revenue administration, thus reducing the pressure for institutional reforms in these agencies\. 65 13\. The subsequent withdrawal from the project of other sub-components before their goals could be achieved can be attributed to one or more of the following factors which are not necessarily related with project design: a\. Changes in the leadership in key Echelon I and Echelon II units involved in GFMRAP implementation has resulted in a decline in the degree of commitment of some agencies to the reform initiatives envisioned in GFMRAP\. b\. For some agencies, the availability of grants from PFM MDTF became a more attractive source of funding for their activities compared with the GFMRAP loan and credit\. c\. Rigorous procurement procedures and sometimes overly restrictive audit practices have resulted in implementation issues which discouraged some agencies from further pursuing involvement in the project\. 14\. The withdrawal by some subcomponents in the end proved to be a blessing in disguise since funds which were not used for these subcomponents were subsequently reallocated to finance the requirements of the most important PFM component, namely the Budget Execution and Treasury Modernization sub-component, whose funding allocation for its major activity, the State Treasury and Budget System (Sistem Perbendaharaan dan Anggaran Negara or SPAN) was significantly under estimated\. F\. Budget Execution and Treasury Modernization – the Primary Project Subcomponent 15\. Of the ten (10) project subcomponents, the Budget Execution and Treasury Modernization sub- component eventually received the biggest allocation which amounted to 90% of the total GFMRAP funding\. This subcomponent encompassed the core of the reforms embodied in the State Treasury Law (Law 1/2004) and parts of the State Budget Law (Law 17/2004)\. The main activities under this subcomponent included: a\. Supply and installation of the SPAN, including recurrent cost b\. Independent Verification and Validation (IVV) Consultancy Services c\. Business Process Improvement Consultancy Services (for DG Treasury and DG Budget) d\. Change Management and Communication Consultancy Services e\. Project Management and Quality Assurance Consultancy Service (PMQA) 16\. The key objectives of the SPAN project are fully articulated in the Project Appraisal Document (PAD) as summarized below: • Establish a core financial management system for budget planning and budget execution of the Government of Indonesia • Allow for increased transparency in all aspects of financial management • Improve the efficiency of business processes thus improving quality and efficiency of budget planning and budget execution – improved payment cycles, reduced errors in payment, ease of operations for end users • Assist in transformation of the budget planning and budget execution business units through increased structure and discipline of daily operations, improved compliance with existing standards and regulations and reduced operating cycles of activities and tasks • Improve accuracy and reliability of financial reporting and ensure that budget execution was well aligned with budget plans 17\. The SPAN system had been successfully implemented and is now fully operational at the MOF\. All contract components have been delivered based on the revised project time frame\. The major components included in the SPAN contract and the completion date of each component are as follows: 66  Component Operational Acceptance Date 1\. DC/DRC Fit out 24-06-2011 2\. Cable Installation 25-11-2011 3\. WAN Installation 10-10-2011 4\. CE (Collaboration Environment) Implementation 29-11-2011 5\. COTS (Budget Execution and Budget Preparation 13-01-2014 to 12-06-2015 Solution) – Accepted in stages 6\. Budget Preparation Custom Web Solution 22-02-2014 7\. Server Scale up for EBS Solution 16-12-2014 8\. Operations Support for ITSU (IT Support Unit) 31-12-2015 9\. Final Operational Acceptance 20-06-2015 18\. The performance indicators for the Budget Execution and Treasury Modernization subcomponent as stated in the Loan Agreement, and the implementation outcomes is shown in the Table below: Performance Indicators Outputs/Outcomes 1\. SPAN Stage I (as such is An independent evaluation and administrative due diligence was done by the described in the invitation Inspectorate General, MOF to determine if the SPAN and other outputs for bids for the contract for delivered by the supplier (LG CNS) conformed to the requirements stated in the procurement thereof) the bid documents, and subsequent amendments thereto\. The evaluation evaluated with user input showed that all deliverables have been satisfactorily complied with by the with respect to content, supplier\. Final Operational Acceptance was signed off on June 30, 2015\. timeliness and verifiability; SPAN was launched by the President of the Republic pf Indonesia on April specified periodic financial 29, 2015\. SPAN users, at the MOF head offices, the regional offices and the reports prepared for field treasury offices attest to the countless benefits they have enjoyed with concerned entities the implementation of SPAN and the SPAN On-line monitoring (OM- SPAN)\. The Office of the President, Office of the Minister of Finance and line ministries, from the spending units to the Minister’s Office, can now access information regarding their accounts through the OM-SPAN\. SPAN has completely replaced the silo-type legacy systems previously implemented in the DG Treasury\. On budget preparation at the DG Budget, the custom-web solution is now fully operational\. However, the hyperion solution which is to be used for the state budget formulation continues to face challenges due to the frequent changes in government policies which impact on the system’s configuration\. 2\. A Treasury Single Account The TSA system for all bank accounts for expenditure under the MOF was (TSA) system functioning implemented starting in 2007\. with acceptable parameters: The TSA system for bank accounts for revenue under the control of the all on-budget central MOF and of line ministries was implemented starting in 2009\. government bank accounts The Treasury Notional Pooling of the bank accounts of expenditure and and own-revenue bank revenue treasurer’s in all line ministries was implemented starting in 2011\. accounts of line ministries are brought into the TSA Balances of accounts deposited in Bank Indonesia earn interest at system negotiated rates\. Modified in 2009: Government financial statements using accrual-basis accounting standards 3\. Central Government promulgated by Government Regulation have been prepared using SPAN financial statements meet starting in 2015\. With the implementation of the TSA, there are no longer Government Accounting extra-budgetary funds operating outside the State Budget\. Standards as promulgated by Challenges remain with regards to the accuracy of the SPAN generated Government Regulation and financial statements, due mainly to the following reasons: (i) reservations 67  the consolidated on the accuracy of the beginning balances of balance sheet accounts carried management reports produce forward from the legacy system, and (ii) discrepancies between the SPAN by the DG Treasury include generated consolidated financial statements and the consolidated financial financial assets and statements derived from consolidating the financial statements prepared by liabilities, and cash-based line ministries which still use the legacy agency accounting system\. reports of extra-budgetary However, it is expected that these issues can be resolved over time with the funds implementation of a new agency financial management system (SAKTI) which is now being piloted in a number of DG Treasury spending units\. G\. SPAN Implementation Challenges and Lessons Learned 19\. In the course of the GFMRAP implementation, particularly of SPAN and SPAN related activities, numerous challenges were faced, not only by government teams but also by the SPAN supplier other contractors, as well as the World Bank\. As mentioned in preceding sections, some of these challenges have resulted in the withdrawal of some sub-components from the GFMRAP\. However, the strong commitment of the Project Sponsors and Project Owners, the hard work of MOF officials and team members, the continuing support of the World Bank, and the perseverance of the SPAN supplier and other project consultants all contributed to the successful completion and implementation of the SPAN\. Some of the challenges and lessons learned during the SPAN implementation are described below\. G\.1 Project Design 20\. As stated in earlier, GFMRAP was designed to cover a wide range of reform initiatives involving multiple agencies\. Furthermore, the planning of the project was accelerated to put in place the reform agenda with assured funding, before the change in government took place in 2004\. Due to the need to finalize the loan agreement as soon as possible, activities planned for some components were firmed up without adequate understanding of the project’s goals, and with half-hearted agreement from key stakeholders\. This could be one of the factors for the eventual withdrawal of some components before they have achieved their goals\. 21\. There is a need to strike a balance between the desire to “lock-in” a long term reform agenda and the need to ensure acceptance of project plans from stakeholders, especially from senior and middle management level officials\. Without adequate “buy-in”, the commitment of stakeholders to project implementation diminishes over time, especially where there is frequent rotation of senior officials\. G\.2 Project Leadership: 22\. From the time planning for GFMRAP was initiated in 2003, until project closure in December 2015, MOF had been through six (6) Ministers, five (5) Director Generals (DirGen) of Treasury, and five (5) DirGens of Budget\. Generally, the Ministers, as well as the DirGens had sufficient knowledge and appreciation of the project and were able to provide the leadership, guidance and motivation to those involved in the SPAN implementation\. However, there were a few cases where the Ministers/DirGens did not give enough attention to the project, either because they had limited knowledge of the project and its objectives, or because there were other emergent and urgent concerns that they needed to focus attention on\. During these times, there were perceived slow-down in the progress of the project implementation 23\. As champion and sponsors of SPAN, it is crucial that the Minister and Director Generals provide the leadership needed to steer the project in the right direction and to promote acceptance by all stakeholders\. One way of enhancing the commitment to the project of newly appointed Ministers and DGs is through the transfer of vision and knowledge sharing from a previous leader to the in-coming 68 leader\. Another way of doing it is for the Project Manager/Director to ensure that the new leader is given adequate and timely briefing on the nature, objectives, goals and status of the project\. G\.3 Project Management 24\. The active involvement of the Project Steering Committee and some high ranking officers across echelon I units at MOF, including the IG had significant contibution towards effective project management\. Likewise, the establishment of the Directorate for Treasury Transformation at the DG Treasury, with the task to manage the implementation of Budget Execution and the Treasury Modernization subcomponent is one of the key factors in the successful implementation of the project\. Headed by an Echelon II level official and staffed with some of the most qualified young and energetic full time staff, the unit was given the mandate to manage the SPAN project, recommend the necessary changes in the Treasury’s business processes, draft the implementing regulations and oversee the work of all contractors and consultants involved with the project\. 25\. Three other factors that have influenced implementation of SPAN are: (i) The appointment by Minister of Finance Sri Mulyani of a full-time IT Expert Staff with the rank of an Echelon I official to oversee and monitor the project, provide guidance to the Project Director, project teams and consultants, and to maintain direct communication links with Echelon I and Echelon II officials who had a stake in the project; (ii) the appointment of an IT expert with extensive experience in the implementation of huge IT projects in the Indonesian banking sector as World Bank Advisor to the project, and (iii) the engagement of the PMQA Consultant which provided overall project management and coordination support as well as assistance in project documentation\. Together, these three provided the experience, maturity and understanding of the complex nature of the project that members of the MOF team lacked, thereby facilitating better decisions and faster resolution of issues\. G\.4 Procurement 26\. The SPAN procurement could possibly be considered one of the longest procurement processes ever experienced in the Ministry of Finance\. It took almost four (4) years to complete from the procurement, from the time the bidding document was approved until the contract was signed\. Some of the reasons for the long delayed procurement are follows: a\. The SPAN project was a complex ICT project which called for the procurement of a commercial off-the-shelf (COTS) solution in the form of an ERP system, a completely new concept for which the MOF teams had no experience\. b\. The SPAN procurement called for the use of the two-stage bidding process for which the procurement team had also very negligible knowledge and experience, c\. During the procurement process there were several disagreements between the MOF procurement team and the WB task team due to differences in the interpretation of the certain provisions in the bidding document and in the Bank guidelines\. Resolution of these differences took a long time\. 27\. However, the involvement of the IVV consultant in the procurement process helped a great deal in providing guidance and advice to the MOF teams\. Furthermore, the abovementioned challenges can be further mitigated through the following measures: (i) enable the MOF teams to observe/study systems implemented by other countries which make use of COTS solutions, before they start the procurement process; (ii) ensure that the procurement teams are supported by procurement experts with sufficient experience in the procurement method being used, and (iii) there should be closer face- to-face communication between the government teams and the WB teams to address differences in a timely manner\. 69 G\.5 Business Process Improvement (BPI) 28\. The BPI Consultancy contract was finalized only two months before the SPAN contract was signed\. The reason for this was because the BPI Consultancy was not part of the original project design\. While urgent need for this activity was identified in the early years of the project implementation, funding was only available after the withdrawal by some GFMRAP subcomponents\. 29\. One of the limitations of the BPI process was the fact that the consultant’s team had insufficient knowledge and understanding of the existing business processes at MOF\. That was also the case with the MOF counterpart, since many were staff who were newly assigned to the project with limited experience and understanding of what could be the future MOF business processes\. As a result, even though the BPI Consultancy team members were experienced in the Oracle EBS solution, it was not always possible for the Consultant to recommend, or for the MOF team to agree on the ideal business processes which would minimize customization\. Both teams had to go through a slow learning process\. G\.6 Implementation 30\. Some of the challenges faced during the implementation of the SPAN include the following: a\. As stipulated in the SPAN contract, the hardware and software were procured and deployed two (2) years before the SPAN was ready for piloting and rollout, resulting in some degree of obsolescence before the SPAN roll-out\. b\. There was weak coordination and interaction between the BPI Consultant, Change Management Consultant and the SPAN Contractor during the early stages of the Consultancy and the SPAN development\. c\. There was limited participation by the SPAN users during the business process improvement stage\. Most decisions and dealings with consultants were done by the MOF technical teams\. d\. Changes in the business processes continued even after systems requirements have been frozen\. e\. The MOF technical teams as well as the Consultants/Contractors did not appear to have a good appreciation of the dependencies between the work they did and work other teams were doing\. f\. Some members the SPAN contractor’s team did not have adequate knowledge and understanding of the functionalities of the Oracle EBS solution\. 31\. In due time, most of the abovementioned challenges have been identified and overcome by the project, while others can be considered as lessons learned for future consideration\. H\. Plans to Ensure Continued SPAN Sustainability 32\. The recommendations to sustain to the SPAN solution in the near term include the following, among others: 70  a\. The need for continuous Operations Support for SPAN through (i) Contracting an external firm to provide operations support and maintenance; and (ii) Development of and sustaining the capabilities of ITSU and Management of Data References (PDR)\. b\. Implementation of the highest-priority Change Requests for the Budget Preparation and Budget Execution Solutions c\. Establishment of ongoing governance and controls to ensure that MOF is ready for and can sustain the necessary support and maintenance requirements to address changes in business processes and ongoing improvements\. d\. Allocation of sufficient training budget to maintain the level of proficiency of SPAN users, and to familiarize new staff joining DG Budget and DG Treasury offices as a result of expansion or regular staff turnover\. e\. Development of Business Continuity Plans 33\. The recommendations to further enhance the SPAN Solution in the medium-term include the following, among others: a\. Budget Preparation Solution i\. Implementation of enhancements from duly prioritized Change Requests ii\. Upgrade of the Budget Preparation Solution infrastructure iii\. Improvements of the analytical capabilities of Hyperion Planning and Custom Web and tightening the controls around the budget approvals b\. Budget Preparation and Budget Execution Solution i\. Implementation of enhancements from Change Requests duly prioritized based on business process needs ii\. Improvements in budget execution vis-à-vis the budget preparation business processes, and vice versa, to consistently and optimally use SPAN’s functionality for recording and reporting non-financial/statistical information to support performance-based budgeting iii\. Budget execution through Oracle EBS technology and Budget Preparation using the Hyperion and Custom Web systems should be seamlessly integrated and streamlined to support the end to end processes from DG Budget to DG Treasury iv\. Adopt a quality improvement program that promotes improvement of state budgeting at every stage of the cycle from planning to reporting through stronger monitoring and evaluation and increased transparency\. v\. Development of the datawarehouse and implementation of the plan to link SPAN with national procurement system (LKPP), asset management and debt management systems\. 71  I\. Component Indicators, Outputs and Outcomes – Secondary Project Subcomponents 34\. The performance indicators for the other GFMRAP subcomponents as stated in the Loan Agreement as amended, and the outputs and outcomes from these sub-components are as follows: Sub-component Performance Indicators Output and Outcomes A\.1 Policy Capacity Increase policy development The project succeeded in providing much needed Development capacity within the Fiscal education and training for 7 Fiscal Policy Office (BKF) Policy Office as verified by the staff who obtained PhD degrees, 12 staff who earned completion of several high- Master’s degrees, 16 staff who underwent training through quality policy analysis products twinning/on the job training in 4 countries, and 2 staff participating in short courses\. A number of these graduates now occupy Echelon II positions and have produced high quality research papers which became the basis for a number of policy decisions in MOF\. A\.2\.a Budget Planning and First Medium Term GFMRAP funds were used mostly for benchmarking Development Expenditure Framework studies and training on MTEF and PBB, and limited (Closed on June 30, 2009) endorsed by the Government of technical assistance during the early stages of GFMRAP Indonesia and forward implementation\. The knowledge gained by those who went estimates presented to the DPR on training provided valuable inputs in the development of the initial framework for MTEF and PBB implementation\. MTEF was initially piloted in the line Ministries in 2008- 2009\. It formally became part of the budgeting process starting in 2011\. The central government has started to implement PBB but operationalizing it still remains a challenge\. A\.3 Budget Execution and Treasury Modernization Discussed in a separate section A\.4 Procurement Reforms An evaluation of the MOF e- MOF established the Center to Support Electronic (Closed June 30, 2009) procurement pilot is completed Procurement (LPSE) in 2009\. It now operates in all 33 and an action plan is adopted provinces and supports electronic procurement not only in by the MOF for wider rollout all MOF offices nation-wide but also in 25 other non-MOF central and local government agencies\. The establishment and operations of the LPSE did not receive funding support from GFMRAP but it received support in the form of training from PFM MDTF\. B\.1 Customs The DGCE has adopted a This subcomponent implemented only a few of the Modernization comprehensive and activities that it planned to undertake with very (Closed on June 30, 2009) consultatively prepared insignificant disbursements\. The development of the modernization action plan with modernization action plan was not initiated by the time it inputs from stakeholders withdrew from GFMRAP in 2009\. B\.2 Tax Revenue The DG Tax has adopted a • DG Tax’s initial reform of its tax administration system Administration Results-oriented Modernization (mainly the rollout of modernized tax offices and (Closed on June 30, 2009) Strategy and Plan with formulation of a strategic plan) was done without measurable performance GFMRAP funding\. indicators, aimed at the • With funding from a PHRD grant, DG Tax developed a eventual redesign of processes transformation roadmap focused on streamlining along single taxpayer account business processes, modernizing IT systems, and re‐ lines and based on the results of aligning human resources\. Implementation of this plan the pilot re-engineering of one was to be funded by the Project for Indonesian Tax representative district office 72  Sub-component Performance Indicators Output and Outcomes Administration Reform (PINTAR)\. This project was eventually cancelled C\.1 Legislative Oversight From: Survey verifies The activities of the Secretariat General DPR consisted (Closed December 31, strengthened capacity of the mostly of study visits, staff training and consultancy\. 2013) Budget Committee of the DPR Not long after the indicator was revised in 2009, there was To: Verification of a change in the priorities of the Office of the Secretary strengthened basis for ICT General, DPR, from ICT development to the development development in the DPR of the capacity of DPR Secretariat staff to support DPR budgetary functions\. Funds from the PHRD grant and PFM MDTF grant were used to provide a wide range of training and TA activities aimed at improving the staff’s competence in producing quality analytical reports for members of Parliament\. The capacity of the Secretariat General’s staff to do analytical work to support DPR’s budgetary functions has improved significantly such that members of Parliament are now requesting the Secretariat General’s staff to do more studies for them\. C\.2 Resolution of Tax Annual surveys of stakeholder Support for the Tax Court included the following: Dispute satisfaction with Tax Court  Training of Tax Court staff on taxation and customs\. (Closed December 31, administration and case This was deemed very useful by the Tax Court because management have been it provided the staff with basic understanding of the tax 2013) established; an action plan has and customs regulations and procedures\. been adopted to address  Procurement of equipment used in piloting the Tax systems weaknesses Court website\.  Consultancy for the development of the Case Management and Court Administration System (CMCAS) enterprise architecture, technical specifications and bidding documents\. (The contract for the development and implementation of the CMCAS did not materialize due to procurement issues with the Bank, and audit issues with BPKP, which eventually lead to Tax Court’s withdrawal from the project\.) The Tax Court proceeded to develop internally its ase Administration System, with the help of MOF’s own Center for Information and Technology (Pusintek), utilizing to a large extent the technical specifications recommended by the GFMRAP funded Consultancy\. C\.3 Internal Accountability An investigation unit is When GFMRAP started, the Investigation Unit was newly (Closed June 30, 2009) established and fully established with inadequate furniture and equipment, and operational in the Office of the with staff who were not trained to do investigation work\. The indicator for this Inspector General of MOF, By December 2007, the investigation unit has been subcomponent was including the establishment of operational and fully equipped with furniture, computers erroneously placed under the necessary legal powers to and office equipment provided by GFMRAP, and was sub-component D\.1 investigate fully allegations of manned by staff who had undergone foreign, as well as misconduct and/or corruption domestic training in the conduct of investigation work in against MOF staff all aspects of the Ministry’s operations\. The unit was given adequate legal powers for investigating allegations of corruption against staff from all MOF units\. 73  Sub-component Performance Indicators Output and Outcomes D\.1 Project Governance Periodic reviews verify that: • Periodic reviews conducted by the World Bank and Accountability • Project governance and all supervisory teams showed that project activities are Project activities are consistent with the GAAP and procurement is consistent with the consistent with the Procurement Plan\. Governance and • The project Steering Committee established during the Accountability Action Plan first five (5) years of the project was not very effective\. and project procurement is Thus, in the second half of the project, from 2009 on- consistent with the wards, the role of the Project Steering Committee was Procurement Plan modified to provide guidance and oversight only over • The Project Steering the SPAN implementation\. This proved very effective Committee (PSC) and the in steering the SPAN project towards completion\. Secretary General of the • Project implementation methodically followed the Ministry of Finance are guidelines in the Project Management Manual prepared strengthening project by the PSSU and PIUs, and approved by the World governance and oversight Bank\. 74 Annex 9\. Comments of Co-financiers and Other Partners/Stakeholders Not applicable\. 75 Annex 10\. List of Supporting Documents • Project Implementation Plan • Project Appraisal Document • Aide Memoires, Back-to-Office Reports, and Implementation Status Reports\. • Project Progress Reports\. • Borrower's Evaluation Report dated May 2016 76 Annex 11\. Online Monitoring SPAN Module The Online Monitoring SPAN (OM-SPAN) module is a web-based application developed by DG Treasury to monitor and present transactional information processed by SPAN\. Information from OM-SPAN can be accessed by all spending units, based on their authorized access level, through the internet anytime, anywhere, using any electronic devices, including mobile phones, PCs, laptops, and tablets\. Data available from OM-SPAN include: Flash Report Managerial (dashboard), budget allotment ceiling, status of payment request (any approval or rejection due to inadequate ceiling or other administrative non-compliance will be shown), budget realization report/absorption for national total and/or individual Ministry, Echelon 1 level, spending unit detailed by activity, authority, source of funds, and regional area of spending\. OM-SPAN can also provide data on the funds availability left/unutilized budget from the contract that has been committed but not yet disbursed\. Furthermore, in almost real time, OM-SPAN provides information on the balance of the state (tax and non tax) revenue collected\. Below is a screen shot of the OM-SPAN: 77 Annex 12\. Map of Indonesia

REVIEW

P042266

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 35265 IMPLEMENTATION COMPLETION REPORT (IDA-28810) ON A CREDIT IN THE AMOUNT OF SDR44\.0 MILLION (US$64\.1 MILLION EQUIVALENT) TO THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA FOR A TEACHER EDUCATION AND TEACHER DEPLOYMENT PROJECT June 16, 2006 Human Development Unit South Asia Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  CURRENCY EQUIVALENTS (Exchange Rate Effective October 2005) Currency Unit = Sri Lanka Rupee (LKR) LKR 1\.00 = US$ 0\.00986 US$ 1\.00 = LKR 101\.42 (September 2005) FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS ADB Asian Development Bank AusAID Australian Agency for International Development CCTE Chief Commissioner for Teacher Education DCA Development Credit Agreement ESDFP Education Sector Development Framework and Program GEP General Education Project GOSL Government of Sri Lanka MEHE Ministry of Education and Higher Education MOE Ministry of Education NATE National Authority on Teacher Education NCOE National College of Education NEC National Education Commission NIE National Institute of Education SAR Staff Appraisal Report SIDA Swedish International Development Agency TC Teacher Center TEI Teacher Education Institute TETD Teacher Education and Teacher Deployment Project TTC Teacher Training Colleges Vice President: Praful C\. Patel Country Director: Peter C\. Harrold Sector Manager: Michelle Riboud Task Team Leader/Task Manager: Helen J\. Craig  SRI LANKA Teacher Education and Teacher Deployment CONTENTS Page No\. 1\. Project Data 1 2\. Principal Performance Ratings 1 3\. Assessment of Development Objective and Design, and of Quality at Entry 2 4\. Achievement of Objective and Outputs 4 5\. Major Factors Affecting Implementation and Outcome 11 6\. Sustainability 12 7\. Bank and Borrower Performance 13 8\. Lessons Learned 15 9\. Partner Comments 16 10\. Additional Information 17 Annex 1\. Key Performance Indicators/Log Frame Matrix 18 Annex 2\. Project Costs and Financing 22 Annex 3\. Economic Costs and Benefits 24 Annex 4\. Bank Inputs 27 Annex 5\. Ratings for Achievement of Objectives/Outputs of Components 30 Annex 6\. Ratings of Bank and Borrower Performance 31 Annex 7\. List of Supporting Documents 32 Annex 8\. Borrower's Contribution to ICR 33  Project ID: P042266 Project Name: Teacher Education and Teacher Deployment Team Leader: Helen J\. Craig TL Unit: SASHD ICR Type: Core ICR Report Date: June 16, 2006 1\. Project Data Name: Teacher Education and Teacher Deployment L/C/TF Number: IDA-28810 Country/Department: SRI LANKA Region: South Asia Regional Office Sector/subsector: Tertiary education (97%); Sub-national government administration (3%) Theme: Education for all (P); Social analysis and monitoring (S) KEY DATES Original Revised/Actual PCD: 06/22/1995 Effective: 08/27/1996 08/27/1996 Appraisal: 04/18/1996 MTR: 11/01/1999 11/01/1999 Approval: 06/13/1996 Closing: 12/31/2001 10/31/2005 Borrower/Implementing Agency: GOVERNMENT OF SRI LANKA/MINISTRY OF EDUCATION Other Partners: STAFF Current At Appraisal Vice President: Praful C\. Patel Mieko Nishmizu Country Director: Peter C\. Harrold Roberto Bentjerodt Sector Manager: Michelle Riboud Barbara Herz Team Leader at ICR: Helen J\. Craig Albert E\. Aime ICR Primary Author: Venkatesh Sundararaman 2\. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainability: L Institutional Development Impact: SU Bank Performance: S Borrower Performance: S QAG (if available) ICR Quality at Entry: S Project at Risk at Any Time: Yes  3\. Assessment of Development Objective and Design, and of Quality at Entry 3\.1 Original Objective: The overall project objectives were to improve the quality, cost-effectiveness, and coverage of education in Sri Lanka\. Specifically, the project was designed to: (i) improve educational attainment and equity by ensuring that better trained teachers were widely available in schools; (ii) improve system efficiency by rationalizing teacher recruitment, training, and deployment policies; (iii) make more effective use of education expenditure by using resources freed up through rationalization to increase non-teacher schooling inputs; (iv) improve the quality of teacher education and training by modifying coordination and certification procedures; and (v) make the teacher training system more cost effective through institutional rationalization and the streamlining of their functions\. The project substantially achieved its stated development objectives\. The objectives were realistic as they accurately addressed the major education sector issues relating to: (i) about 50,000 mostly untrained teachers recruited during 1989-1995; (ii) a teacher deployment system that did not make teachers available in teacher shortage areas; (iii) a weak teacher training system; and (iv) the limited content and type of education provided at primary and secondary levels\. The objectives were appropriate in that they responded to Government's priorities, as identified in the framework for national educational reform by the National Education Commission (NEC), and were also aligned with the World Bank's Country Assistance Strategy of 1996\. These priorities focused on improving the quality, equity, internal and external efficiency and financing of the education system\. Government and IDA agreed in 1995 to address the proposed education reforms through two related projects\. Teacher issues were to be addressed through the Teacher Education and Teacher Deployment Project (TETD), and other issues related to improving education quality and equitable access were to be addressed through the Second General Education Project (GEP2, Cr 3014-CE)\. However, the project objectives were overly ambitious in terms of trying to achieve many substantial reforms within the five year project period, especially considering the range of policy and institutional improvements that were sought across a national project\. 3\.2 Revised Objective: The objectives were not revised during the life of the project\. 3\.3 Original Components: The total project costs were estimated at US$79\.3 million equivalent of which the IDA contribution was US$64\.1 million equivalent\. A summary of the costs by component is provided in the following table\. - 2 -  Component Appraisal Estimate (US$ million) Total IDA % Bank Allocations financed A\. Rationalization of Teacher Deployment 0\.2 0\.2 100\.0 B\. Rationalization of Structure and Organization 0\.9 1\.0 111\.0 C\. Upgrading of Teacher Education Programs 3\.7 3\.1 83\.8 D\. Strengthening of Staff and Management 11\.8 11\.3 95\.7 E\. Strengthening and Upgrading of Teacher Training Institutions 49\.4 48\.1 97\.4 F\. * Strengthening Management and Administration of Teacher (0\.6) Education Institutions G\. Studies and Monitoring 0\.3 0\.3 100\.0 H\. Project Coordination 1\.4 0\.1 7\.1 TOTAL PROJECT COSTS 79\.3 64\.1 80\.8 Note: Total project costs include additional US$11\.6 million for price and physical contingencies\. * This component is listed as a separate component in the text, but not in the financing schedule of the Staff Appraisal Report (SAR)\. The cost of US$11\.8 million for Component D, includes US$ 0\.6 for Component F, as noted in Annex 11 of the SAR\. The components were appropriately designed to address the project objectives\. The project design is rated satisfactory\. The rating is based on the project activities being clearly linked to the objectives and the Borrower's priorities and implementation capacities as assessed at project preparation\. The priorities included policy measures to improve teacher deployment, rationalization of teacher training institutions, and improving the quality of teacher educators and teacher training facilities\. The policy measures involved substantial risks, given Sri Lanka's political climate where policies can change rapidly\. Extensive stakeholder participation at central and decentralized levels was undertaken during project preparation to minimize the risks\. The project design was influenced by experience in implementing the first IDA-financed Sri Lanka social sector projects whose lessons were taken into account during project preparation\. The lessons included the need for: (i) strong borrower ownership at both central and provincial levels, and (ii) securing up-front commitments to implementing policy reforms, while making allowance for a complex bureaucracy operating in a potentially volatile political environment\. The project had eight original components which are summarized here: Component A: Rationalization of Teacher Deployment aimed to improve the quality, equity and cost-effectiveness of school staffing by: (i) controlling teacher recruitment; (ii) relating projected teacher demand to teacher supply; (iii) linking the cadre entitlement for each province to the budget allocation for salaries; and (iv) requiring all teachers entering the service to have successfully completed an accredited teacher education program\. Component B: Rationalization of Structure and Organization of Teacher Education aimed to establish a national framework for an integrated and cost-effective system of teacher education, with a coordinating mechanism that covered all institutions involved in training teachers\. Component C: Updating Teacher Education Programs aimed to upgrade the initial and continuing teacher education programs, to create a better learning climate in the schools by raising the quality of teaching, and to make the teacher education program more cost-effective\. Component D: Strengthening of Staff and Management aimed to strengthen both academic and administrative staff capabilities\. Component E: Strengthening and Upgrading of Teacher Training Institutions aimed to rationalize the number and location of teacher education institutions to improve regional equity and to meet the projected needs for initial and continuing education; and also improve the quality of facilities and equipment\. Component F: Strengthening Management of Teacher Training Institutions aimed to give teacher education institutions the opportunities and training for self-management, including management of their budgets\. Component G: Studies and Monitoring supported studies for monitoring the progress and impact of policy initiatives and associated strategies central to project implementation\. Component H: A Project Coordination Unit was - 3 -  established to coordinate the implementation and monitoring of the project\. Notwithstanding the above rating, there were nevertheless three design shortcomings: (i) the design of the project could have been simplified by organizing the components under three main themes matching the three project objectives to improve the quality, cost-effectiveness, and coverage of education; (ii) the initial five year time frame to implement substantial policy reforms was too ambitious for the complexity of these reforms; and (iii) TETD and GEP2 were linked both as part of the broader national education reforms, as well as through the specific provision of support for quality inputs (GEP2), subject to satisfactory performance on teacher employment and deployment (TETD)\. Initially, there was a strong incentive for the provinces to set and pursue targets\. However, as the funding for quality inputs was on a sliding scale and, in fact, cut out prior to project completion (to be replaced by Government funds), the incentive was no longer effective\. Making the provision of support for quality inputs in GEP2 conditional upon TETD's satisfactory teacher employment and deployment complicated project implementation\. 3\.4 Revised Components: When the project was first designed in 1996, all parts of the country were included as beneficiaries\. However, with the increase in civil conflict from 1997-2001, implementation was adversely affected, especially in the North East Province where the greatest impact of the conflict was experienced\. After an extension of the Closing Date from December 2001 to December 2002 to accommodate this slow implementation, the project underwent a restructuring in December 2002, and an additional two year extension was made to December 2004\. New components were developed because: (i) with the cessation of the civil conflict in 2002, opportunities opened up again to undertake activities in the conflict-affected areas; (ii) Government's new priorities also included encouraging greater social unity and stronger work force development across the country which lead to the promotion of English and IT education; and (ii) considerable savings were made from the slow implementation period in the initial years\. These savings increased further with the depreciation of the Sri Lankan Rupee\. No new funding was required for the new components\. The original objectives remained unchanged\. A further 10 month extension to October 2005 was made to complete implementation of the three new components\. The new components were: (i) Reconstruction for Conflict-affected Areas (estimated at US$4\.55 million)\. This component was introduced to support efforts to enhance education quality in the conflict-affected areas, primarily in the North East Province\. The component consisted largely of civil works projects for teacher education institutions and teacher centers; (ii) English Language Competence (estimated at US$4\.2 million)\. This component aimed to train English teachers and teacher educators, and to strengthen teacher education programs, and (iii) Information Technology (IT) Based Education (estimated at US$2\.38 million)\. This component aimed to improve the IT competencies of teacher educators, provincial and zonal officers and teachers; and to equip eight provincial IT Centers\. The quality of design for the new components is rated satisfactory as the components accurately reflected the Borrower's priorities and capacities\. Also, while not a component of the Project, US$1\.01 million was transferred to the Tsunami Emergency Recovery Program in 2005\. 3\.5 Quality at Entry: This is rated satisfactory\. Even though no formal Quality at Entry criteria were available at project preparation, the project followed standards consistent with quality assurance practices\. The project was aligned with the Country Assistance Strategy, and was prepared by a national committee under the leadership of the Ministry of Education (MOE) with a broader consultative process to ensure the Borrower's ownership, commitment, participation and readiness for implementation\. Consistency with national and regional priorities in education reform strategies was ensured during the preparation of the project by linking with the priorities of the National Education Commission framework\. Implementation - 4 -  strategies also drew upon the recommendations of the Education and Training Strategy Review (June 1994) and the report on Policies and Strategies for Teacher Education and Teacher Development (1995)\. During project preparation, a range of risks ­ design, implementation, financial and political -- were identified and analyzed, and it was deemed that ignoring or avoiding the issues in teacher education would be more risky than attempting the changes proposed\. Comparative analyses were made of various scenarios of modifying student-teacher ratios and salary costs, as well as various ways of providing cost-effective teacher education and training\. The design chosen, while very ambitious, was deemed both feasible and cost-effective\. Despite the overall appropriateness of the project's focus and the targeting of specific issues, impediments to ensuring complete implementation readiness included: (i) absence of Project Coordination Unit personnel with sufficient experience in handling financial management and procurement activities of Bank-funded Projects; (ii) lack of an effective mechanism to systematically collect and evaluate monitoring data; (iii) too many output performance indicators, with insufficient focus on outcomes\. 4\. Achievement of Objective and Outputs 4\.1 Outcome/achievement of objective: This is rated satisfactory, in the absence of a `moderately satisfactory' rating option\. The satisfactory rating is justified on the grounds of the substantial achievements of the original quantitative targets and qualitative objectives, despite political instability during the earlier years of project implementation\. Nevertheless, while the achievements were substantial, they were also uneven\. It should also be noted that certain aspects of some components were rated as unsatisfactory because of shortfalls against the original objectives in some outputs\. These were due largely to policy shifts by changing governments over the nine-year project period\. These output shortfalls masked achievements in other aspects of the components\. The project substantially achieved its objective of improving education quality through: (i) increasing educational attainment and equity with a much larger stock of well trained teachers across the country, as evidenced by the decline in the average repetition rate for Grades 6-10 from 3\.2% in 1996 to 0\.8% in 2002 (thus reducing education cycle cost) and in the average drop out rate for Grades 1-10 from 3\.2% in 1996 to 2\.2% in 2002\. While performance in learning outcomes for Grade 5 in 1994 and 1999 have remained constant in terms of literacy (average rate of 61%), it has improved in numeracy from 45% in 1994 to 50% in 1999\. Grade 4 data in 2004 showed that 57\.2% of students scored above 61% in their first language, and 56\.8% scored above 61% in mathematics\. Moreover, the primary cycle completion rate increased from 78\.3% in 1996 to 95\.7% in 2004; (ii) improving the quality of teacher education by: (a) establishing a National Teacher Educator Service to strengthen teacher educator qualifications, with emphasis on content knowledge and pedagogical skills; and (b) upgrading teacher training programs by developing, with support from the National Education Institute, 24 courses for preservice and 20 core courses for inservice, to respond to the revised curriculum; (iii) improving teaching practice with the adoption of child-friendly and interactive learning approaches, and the application of teaching techniques learned in training to teach the revised curriculum; (iv) contributing to intensive training of untrained teachers, with the result that by project-end, 98% of teachers in service were trained; - 5 -  (v) training teachers, in accordance with Government's new priorities, in teaching/learning of the English language and information technology-based education; and (vi) supporting the newly established, independent National Education Research and Evaluation Center (NEREC) at the University of Colombo in carrying out educational research and evaluation studies\. Substantial progress was also made in regard to the objective of improving education coverage\. Access to teacher education widened considerably, especially for the primary program, with the country-wide establishment and upgrading of teacher training institutions, i\.e\. 100 Teacher Centers for inservice training; and 17 National Colleges of Education for preservice and inservice training\. The equity in coverage led to an improved learning environment for teachers, with the provision of physical infrastructure across the country, together with the needed equipment, materials and furniture, including for educating teachers in the government priorities of English language and IT-based education proficiency\. Further, provision of infrastructure in conflicted areas, which included National Colleges of Education (NCOEs) in Jaffna and Batticaloa and Teacher Centers greatly improved access to preservice and inservice, especially for Tamil-medium teachers\. This is important to address the continuing teacher shortages in Tamil medium\. However, much less progress was made in achieving the objective of improving cost-effectiveness in education,especially in rationalizing teacher recruitment and deployment, teacher education institutions and educational expenditures\. Employment of excess teachers increased rather than decreased salary costs, and failure to rationalize the varied assortment of teacher education institutions added to the cost of operating and maintaining the system\. However, Government did increase the education budget, by 33% in 2006, for both capital and recurrent expenditures to meet this increased expenditure\. It is also commendable that there was no reduction in Government's contribution for quality inputs\. Despite these shortcomings, reasonable progress in improving cost-effectiveness was made in the following areas: (i) the upgrading of skills of teacher educators substantially improved the management capacity and quality of the teacher education system, with many teacher educators having completed degrees mostly as targeted: 0\.2% PhDs (target - 10%); 59% Master's (target ­ 45%); 89% Post Graduate Diploma in Education (target ­ 35-40%); and 89% with first degrees (target -10-15% with first degree only)\. Moreover, 72% of long-term fellowships were completed (168 Masters and 12 Doctorates); (ii) the student teacher ratio improved by project-end in NCOEs to 13\.4:1 (89% of target), as opposed to 9:1 in Teacher Training Colleges and 13:1 in Colleges of Education in 1994; and (iii) the implementation of national training policies helped rationalize training expenditures, especially through improved needs assessments geared towards the revised curriculum\. In addition, it is to be noted that until 2004, the goal of rationalizing teacher recruitment and deployment was within reach by applying a comprehensive set of guidelines on teaching staff requirements using a formula, generally referred to as the Ready Reckoner, to achieve the agreed Student/Teacher ratio of 25\.4:1 for primary education and 21:1 for secondary; however, this was vitiated by the recruitment of 17,000 new graduates in 2005, without regard to the agreed policy and targets, and the Ready Reckoner formula\. In addition to the above achievements under TETD, the MOE over the last decade, has also successfully overcome enormous education challenges, encompassing system-wide reforms in curriculum and textbook development, (including a revised curriculum policy framework, and an updated national book policy which has introduced competitive processes with the private sector); a rationalized school structure reorganized - 6 -  into Junior (grades 1-9) and Senior (grades 10-13), and increased efficiency, equity and transparency in the distribution of educational financial resources, including for school managed quality inputs\. These have been accomplished as part of the Second General Education Project, which began implementation a year after TETD\. Both projects continued implementation concurrently\. 4\.2 Outputs by components: The following is a summary of the outputs by component (see Annex 1 for details)\. Component A: Rationalization of Teacher Deployment\. This component is rated unsatisfactory because changes in Government policy in the last extended year of the project to employ an additional 17,000 graduates effectively undermined the original objective, even though satisfactory progress was made to contain teacher employment by 2004\. This rating should be balanced against the positive achievements reached earlier in more equitable deployment of teachers between and within most provinces, which were facilitated by Transfer Boards established in all provinces\. Also, by 2004, the target for student teacher ratios was met for Secondary schools (22:1), and virtually met for primary schools (actual 25\.4:1 versus the target 26:1)\. While the final student teacher ratios were difficult to firmly establish at the time of project closure in 2005 since the appointments of the additional 17,000 graduates were still in progress, it was estimated that the national ratios were more likely to be around 19:1 with the range across districts from 17-26:1\. Attempts to institute an incentives scheme for staffing remote schools by the end of project closure were less than successful due largely to shortage of funds\. The target to have all teachers fully trained before entering the teaching service was mostly achieved, with only 2% of teachers remaining untrained at project closure\. However, this does not account for the new 17,000 graduates to be employed, most of which have no teaching credentials\. Government was preparing an intense three month teacher training induction for these graduates\. Component B: Rationalization of Structure and Organization\. This component is rated as unsatisfactory because the objectives were largely not met at end of project\. The reasons are as follows: (i) The National Authority on Teacher Education (NATE), established in 1998, proved to be only partially effective, due largely to limited leadership status and experience, together with claims of duplication with other agencies\. The abolition of NATE in 2002 created a void in the national governance structure of teacher education because without a main coordinating and leadership authority, key functions of policy development, planning and monitoring (including accreditation of programs) remained fragmented and without adequate leadership\. Action to establish an alternative structure was slow and, at project closure, incomplete\. (ii) During the project, a number of activities were undertaken to strengthen the Office of the Chief Commissioner for Teacher Education, but there is little evidence of its effectiveness because of frequent changes of incumbents\. However, since project closure, Government has made new and expanded appointments of senior and educationally experienced staff to this office\. (iii) There was no realization of the project's intention to organize teacher training institutions into a national integrated system, although since project closure, attempts to address the structural issues have progressed, including the drafting of a new Teacher Development Act to replace the former NATE and College of Education Acts\. Action has also been taken to establish an Accreditation Council with external representation, with a view to institutionalize accreditation, including for academic programs\. These issues have been taken up in the new Education Development Sector Framework and Program (EDSFP) (2006-2010)\. Component C: Upgrading of Teacher Education Programs\. This component is rated satisfactory as the key objectives to improve both inservice and preservice teacher education programs have been met: 24 courses, 19 original and 5 new ones were revised and developed respectively by teams working under the supervision of the National Institute of Education\. By late 2001, all upgraded curriculum materials had been delivered to the NCOEs\. Initial syllabus implementation problems were identified and appropriate - 7 -  evaluation procedures developed\. Under the supervision of National Institute for Education, 20 core inservice courses were developed for use in the 100 Teacher Centers, and, following needs analyses, additional courses were developed to cater to the ongoing professional and academic needs of teachers and principals\. During the last year of the project, there was an increase in the utilization of the Teacher Centers, and they had begun to extend their role to include school-based training\. Annual training is now provided to 18% of teachers (target was 20%)\. Component D: Strengthening of Staff and Management\. This component is rated satisfactory as the objective of improving staff capability and managerial skills has been achieved\. The target was to maintain a Teacher Educator Service comprising about 10 percent of staff with PhDs, 45 percent with Masters degrees, 35/40 percent with advanced diplomas and 10/15 percent with only a first degree\. By project closure, 0\.2 percent had PhDs, 58 percent Masters degrees, 84 percent a PGDip\.Ed and 85 percent a first degree\. Against a scheduled total of 250 long-term fellowships, 180 were taken up (168 Masters and 12 Doctorates)\. Teacher educators (332) were selected to undertake up to three month visits to OECD countries to gain experience of modern teacher education methods, and 531 teachers were selected to visit regional countries for about four to six weeks\. English language bridging courses were instituted to prepare several candidates with poor English proficiency for overseas visits\. Component E: Strengthening and Upgrading of the Teacher Training Institutions\. This component is rated unsatisfactory because of its failure to rationalize the number of institutions as part of the agreed project objectives, notwithstanding the fact that considerable progress had been made in providing physical facilities and in upgrading the teacher education network country-wide\. At project closure, there were four universities offering teacher education, a National Institute of Education (NIE), 17 NCOEs, 10 Teacher Training Colleges and 100 Teacher Centers\. The original objective was to reduce the number of institutions from 31 to 19 to use more efficiently the facilities for preservice and inservice education\. Instead, at project close, there were 32 institutions, ostensibly to meet increased training needs, but it is unclear whether increased efficiency in facilities utilization has been achieved\. In terms of sustainability, there is a significant cost in operating and maintaining those institutions in excess of the plan developed under the project\. Despite these under-achievements in cost-effectiveness in this component and also Component A, Government has honored its commitment to not reduce its financial contribution for quality inputs\. Component F: Strengthening Management and Administration of Teacher Education Institutions\. This is rated moderately satisfactory, because it had only partially achieved improved governance and self-management for NCOEs\. The study on Unit Cost Resource Allocation Mechanism and Budgetary Authority for Teacher Education Institutes was completed in March 2003\. As well as formulating a unit cost mechanism, the report drew attention to the legal impediments to extending a measure of financial autonomy to the institutions and offered a number of options to address the problem\. Introduction of the new funding mechanism had been scheduled for 2005, but is not likely to happen until 2006, at the earliest, as implementation will be dependent on the revision of the Teacher Development Act referred to in Component B\. Despite this slow implementation, there were some encouraging initiatives by the Office of the Chief Commissioner for Teacher Education in the last months of the project, including: (i) the conduct of a number of short courses, designed to empower senior management to accept greater responsibility; (ii) action to revise the NCOE operations manual; (iii) the introduction of a college-based self evaluation regime; and (iv) an action research initiative in some colleges\. Component G: Studies and Monitoring\. This component is rated satisfactory, as the objectives for monitoring the progress and impact of policy initiatives were largely achieved\. Six studies (100% of target) were completed which covered issues ranging from teacher deployment in difficult schools, - 8 -  developing a cost mechanism for funding teacher education institutions, evaluating the effectiveness of some training and assessment programs, and undertaking national assessments of learning outcomes\. These studies provided a vital link between the TETD and GEP2 projects and the future education sector program (see Annex 1 for further details)\. Component H: Project Coordination Unit\. The achievements of the Project Coordination Unit to coordinate project funds as well as the monitoring and reporting of project activities are rated satisfactory as these functions were largely met\. Short-term training took place as planned\. Despite many challenges including difficulties to recruit and retain trained procurement and financial management staff, the Project Coordination Unit did provide the needed link between the central agencies and Provincial Education Authorities to assist with the required implementation and monitoring of the project activities\. Output by Revised Components Education Reconstruction in the Conflict-affected Areas\. This component is rated satisfactory\. The specific expenditures focused on the two NCOEs in Jaffna and Battacaloa, the construction of six teacher centers in the North East Province and refurbishment of an additional 23 teacher centers in the conflict-affected areas\. Implementation progress on all these components was satisfactory, despite the lack of building materials, difficulties in finding appropriate contractors, and cash flow limitations with contractors\. At Credit closing, there was problem of inadequate budget allocation for facilities maintenance\. However Government increased their budget in 2006 (33%) to meet the accumulated sector needs of infrastructure, maintenance and quality inputs\. Promotion of English Language Teaching and Learning\. This component is rated satisfactory\. Key achievements include: (i) 178 NCOE lecturers and 298 student teachers were trained in English at certificate/diploma level; (ii) 1,368 Specialist teachers (nearly 137% of the 1,000 target) completed their Diploma training; (iii) 3,080 English-medium teachers completed their certificate/diploma training; and (iv) 1,831 (183% of the 1,000 target) of Grade 1 and 2 primary school teachers completed their diploma training\. An additional program to train 25,000 teachers for better English proficiency was underway at project closure\. With regard to the broader objective of supporting peace-building and social cohesion through investments in curriculum revision, English-medium instruction and educational materials including English media cassettes, and the emphasis on promoting the English language has reportedly fostered equity, tolerance and understanding among Sinhalese and Tamil-speaking students\. While the training events were successfully completed, anecdotal evidence suggests that further reinforcement for English proficiency is needed\. Information Technology-Based Education\. This component is rated satisfactory since all the targeted outputs were fully attained: (i) managers and lecturers for the eight provincial IT centers were identified and trained to operate the centers; (ii) 1,000 teachers (100% of target) completed certificate level training in universities in the use of IT in education; (iii) 300 non-graduate teachers (100% of target) have undertaken diploma level courses in IT-based education; and (iv) 11 teachers (100% of target) completed an M\.Sc\. in IT\. In addition, an unexpected benefit of the IT-based education program was that it enabled the Government to introduce a new technology stream into the GCE A-Level curriculum from 2006\. While it is too early to assess the impact of the objective of enhancing employment and labor market opportunities for school completers, anecdotal evidence from some schools with IT centers suggests that students' employment prospects improved, with possibilities of not only obtaining jobs faster, but also better quality ones\. While the above training events have been successful, anecdotal evidence suggests that further reinforcement for IT proficiency is needed in some locations\. - 9 -  4\.3 Net Present Value/Economic rate of return: A pre-project analysis demonstrated that investment in TETD was efficient in the objectives it had set out for itself\. While detailed rate of return estimates were not made at the time of appraisal, component-wise calculations of expected direct and indirect costs and benefits demonstrated the potential overall cost savings from some of these activities\. 4\.4 Financial rate of return: Not Applicable\. 4\.5 Institutional development impact: The impact is substantial\. First, it is evident that many new graduate teachers are using more updated content and active teaching/learning methodologies in classrooms\. This is the result of teacher educator capacities having been built up to: (i) utilize new teaching/learning methodologies in teacher training courses; (ii) undertake action research; and (iii) develop and produce improved curricula and teaching materials, particularly at the National Institute for Education (NIE), the lead curriculum agency\. Staff from the provincial NCOEs have also played a significant role in the development of such materials and delivery of new programs with the NIE\. There was also nation-wide enhancement of English language skills and the development of IT-based education as a result of the establishment of successful teacher education programs and the upgrading of teacher and teacher educator skills\. Second, upgrading the physical facilities, including laboratories, IT centers and Teacher Centers, including those in the conflict-affected areas, has increased access to both initial and ongoing teacher education programs\. The developments in the physical infrastructure of the teacher training network and in the upgrading of the qualifications of teaching staff are likely to have significant downstream benefits for future cohorts\. Third, the capacity to plan and project teacher demand and supply and to regulate teacher deployment with the aid of a planning formula i\.e\. the Ready Reckoner, was strengthened\. The fact that political decisions were made without necessarily considering these projections and plans was beyond the control of the educational planners\. Fourth, as a result of the project, greater attention is now being placed on addressing some of the inequities of the past, including the more strategic planning, training and placement of trained teachers in the relevant medium-of-instruction and subject areas\. While funds available for implementation were a constraint, this planning included the provinces preparing incentive schemes to deploy teachers in difficult areas, and Provincial Transfer Boards contributing to improved deployment in several provinces\. Fifth, in efforts to develop great social cohesion across the country, themes of respect for diversity, inter-cultural understanding and national unity were incorporated into education policy documents, curricula revision and training programs\. Opportunities were provided to break down language-based segregation in schools, develop peace-building training modules for teachers and principals, and promote social cohesion awareness and knowledge exchange through research\. However, institutional development for management capacity of teacher education institutions remains modest\. Some of the actions undertaken include: (i) provision of a number of short courses designed to empower senior management to accept great responsibility; (ii) steps taken towards revising the NCOE operations manual; (iii) introduction of a college-based self-evaluation regime; and (iv) an action research initiative undertaken in some colleges\. Nevertheless, there is still no comprehensive strategy for progressively according greater autonomy to NCOEs, and there is still no coordinating, leadership authority for teacher education i\.e\. replacement to NATE\. These are now being taken up by the new ESDFP (2006-2010)\. - 10 -  5\. Major Factors Affecting Implementation and Outcome 5\.1 Factors outside the control of government or implementing agency: The civil conflict had an adverse impact on project implementation during the period 1997-2001 since it prevented the implementation of project activities in and around the North East Province including construction of the Jaffna NCOE and Teacher Centers\. However, significant progress was made in the last three years of implementation when tensions diminished\. 5\.2 Factors generally subject to government control: Factors which had a positive effect on the project included: (i) the leadership and guidance provided by the President's Task Force on Education from 1996-1998, and (ii) the strong commitment to have greater involvement of provincial officials in teacher deployment planning and the provision of teacher training programs\. Factors which were largely under the control of the Government that adversely affected the project included: (i) too frequent changes in the position of Secretary of MOE (six secretaries between 1996 and 2005); and (ii) overturning of teacher recruitment policies in 1998 and 2004/05 contrary to planning agreements\. However, despite decisions that appeared to disregard ongoing cost-effectiveness sustainability, Government did honor the agreements that non-teacher schooling/quality inputs to the education system would not be curtailed as a result of increased expenditure for additional teacher salaries\. 5\.3 Factors generally subject to implementing agency control: Factors that positively impacted the project included: (i) MOE holding periodic meetings with implementing units to assess progress against agreed next steps after IDA implementation review missions; and (ii) having provincial education authorities participate in wrap-up meetings with missions\. Factors that impeded implementation included: (i) not ensuring that adequate senior staffing was made for the Office of the Chief Commissioner for Teacher Education, which hindered the leadership in championing teacher-related issues; (ii) the inability to recruit, on time, key staff such as procurement and financial management officers in the Project Coordinating Unit\. This was exacerbated by high turn-over of procurement and engineering staff within the Unit; (iii) delays in procurement processing noted throughout the project period, particularly in the preparation of bidding documents; (iv) difficulty in monitoring the implementation of civil works and regularly updating procurement plans; and (v) an ad hoc approach to staff development over the project period diffused its impact, which would have been enhanced with a strategic Human Resource Development (HRD) Plan\. The HRD approach is now being taken up under the new ESDFP (2006-2010)\. 5\.4 Costs and financing: The total project cost was estimated at appraisal to be US$ 79\.3 million equivalent\. The Government contribution to the project was envisaged to be about 10% (US$ 7\.9 million), the ADB committed itself to cover 6\.2 % (US$ 4\.9 million) while SIDA had committed itself to cover 3% (US$2\.4 million) and the remaining 80\.8% was IDA's contribution amounting to US$64\.1 million equivalent\. However, although ADB and SIDA had discussed and agreed at appraisal to co-finance the project, they did not do so\. At project closure, the total project cost was US$ 68\.3 million made up of US$61\.9 million equivalent from the IDA Credit (plus US$1\.01 million transferred to the Tsunami credit bringing the total to US$ 62\.9 million) and US$6\.4 million equivalent from the Government contribution\. At project closure, the project achieved 97% disbursement of the IDA Credit\. The project expenditure, by category of the IDA Credit was as follows (appraisal estimates in parenthesis, for comparison): (a) US$32\.9 million in civil works (US$34\.7 million); (b) US$7\.4 million for furniture, - 11 -  equipment and vehicles (US$8\.2 million); (c) US$2\.1 million for books, educational materials and printing contracts (US$4\.0 million); (d) US$5\.5 in technical assistance and technical studies (US$8\.1 million); (e) US$13\.6 million for training, fellowships and studies (US$8\.9 million); and (f) US$0\.4 million for project management and recurrent costs (US$0\.2 million)\. Savings of expenditures resulted mainly from the exchange rate depreciation\. The savings were applied towards the three new priority components\. US$1\.01 million was transferred to the Tsunami Emergency Recovery Program\. Overall, financial management performance has been rated satisfactory with proper accounting of project funds expended on designated components\. For periods in 2003 and early 2004, when the post for a senior finance manager was vacant in the Project Coordination Unit, there was a serious lack of capacity for the government to prepare withdrawal applications and to handle the special account correctly\. After this vacancy was filled, the project began to perform satisfactorily again\. Project financial reports and audited financial statements have generally been of acceptable quality although some have experienced delays\. The key outstanding issue faced by the implementing agency at the close of the project was effective asset management\. Positive developments included compilation of a new fixed assets register which listed each asset by group, location, and serial number to improve physical verification, tracking, and control\. Two areas that still need improvement based on the audit findings are: (i) careful management of plant and equipment assets while under warranty; and (ii) adequate budgetary allocation for the maintenance of fixed assets\. Project disbursement was slow in the initial project years due to a slower than planned pace of procurement\. However, once the pace of procurement increased, disbursements also increased\. Much of the civil works costs were based on designs for the country as a whole and did not take into account local conditions in the conflict-affected areas\. This pushed costs up further than initially expected, particularly in the conflict-affected areas\. For example, the shortage of sand and skilled contractors in the conflict-affected areas led to significantly higher than expected costs\. Notwithstanding this, for a project that was somewhat weighed towards civil works through the construction of new facilities and the refurbishment of old ones, cost over-runs were minimal\. 6\. Sustainability 6\.1 Rationale for sustainability rating: Overall sustainability is rated as likely\. The most important factor is Government's commitment, and the high priority it has assigned to implementing its new ESDFP (2006-2010) which commenced in January 2006\. This program has been undertaken in part to sustain the achievements made under TETD, including continued support for: (i) the establishment of a more coordinated system of teacher education providers in order to increase responsiveness to teacher needs, and to reduce duplication; (ii) provide teachers in locations where they are most needed, and (iii) expedite the professional training of newly appointed graduates\. The Government of Sri Lanka is fully cognizant of the challenges, and considers continued investment in people as an overarching objective in reducing poverty\. The human capital built under TETD with all the training and institutional support will likely remain within the sector, contributing to ongoing institutional stability\. The capacity building component of the new ESDFP will also focus on further strengthening governance, management and decentralization in the sector\. Sustainability is further supported by two other key factors: (i) project implementation was carried out by the MOE's established administrative units that were involved in project preparation; and (ii) local ownership of the project through more decentralized functions to the provincial and zonal education offices was emphasized\. The administrative capacity built up under TETD would help ensure effective - 12 -  post-completion management of the investments made under the project However, there are two concerns regarding fiscal sustainability\. First, more than half of the TETD investments were spent on the construction and rehabilitation of 17 National Colleges of Education and 100 Teacher Centers, together with some university infrastructure\. The sustainability of these civil works depends on providing a sufficient recurrent budget for operation and maintenance expenditure\. During the first two years, physical infrastructure maintenance should be minimal on the assumption that the civil works and related facilities were properly executed\. On this basis, it is not unreasonable to allocate a relatively low maintenance budget in the first two years of operating the facilities, provided the allocation is progressively increased thereafter to the prescribed budgetary level\. However, in 2005, operations and maintenance allocations for the teacher training institutions were less than one-third of what was needed\. The revised education budget for 2006 included a significant increase (33%) from 2005 in both recurrent and capital expenditure reflecting the Government's commitment to meet the accumulated sector needs of infrastructure, maintenance and quality inputs\. Government projections also show that the budget is expected to increase further by 12 percent in 2007 and 2008\. The new budget would provide more resources for operations, maintenance and quality inputs, and would increase the chances of sustainability of the teacher training institutions at an adequate level\. Second, Government's continued teacher recruitment beyond the planned limits, does add significantly to the costs to the recurrent budget\. However, Government has, to date, honored its commitment to increase its education budget to be able to cover increased teacher salary costs as well as the other needed quality elements for the education system\. 6\.2 Transition arrangement to regular operations: The closure of TETD in October 2005 enabled a smooth transition to the implementation of Government's new ESDFP which became effective in January 2006\. Most of TETD's activities were already integrated into the regular operations of the MOE, which has minimized the need for special transition arrangements\. The same units/agencies involved in TETD, also implement ESDFP, under the guidance of a Steering Committee chaired by the Secretary, MOE\. This is with the help of a Consultative Group with broad representation from the central government and provincial councils, education academics, stakeholders such as parents, principals, teachers, and development partners\. In addition, ESDFP places a strong focus on monitoring and evaluation mainly by government education agencies\. Support for enhanced provincial and zonal responsibilities would continue from the central agencies such as the Office of the Chief Commissioner for Teacher Education, the National Institute for Education, the Educational Publications Department, the Examinations Department and the Finance Commission\. 7\. Bank and Borrower Performance Bank 7\.1 Lending: Satisfactory\. The Bank had close, supportive dialogue with the Borrower from preparation through to the closure of the project\. The experienced Bank team displayed good analysis and knowledge of the sector issues facing the country\. The project design, while ambitious, was closely aligned to the needs of the country as well as the Country Assistance Strategy, and sought to accommodate identified political risks\. Extensive consultations were held with a wide range of stakeholders prior to the design of TETD\. These included civil society, teachers' unions, government and school principals and teachers\. Information gathered from this consultation process was fed back into project preparation\. However, preparation would have been enhanced with attention to the following two areas\. First, staff who were knowledgeable in procurement and financial management, should have been established in the Project Coordination Unit at the start of the project with some sustained training in related World Bank procedures\. Second, a stronger focus should have been placed during project preparation on establishing the needed - 13 -  monitoring system for data collection and evaluation, including how to direct this information back into the education system for required actions\. 7\.2 Supervision: Satisfactory\. Bank supervision was supportive, diligent, and focused with the aim to provide needed implementation assistance to the Government\. The supervision efforts did include regular and consistent support from staff based locally and at headquarters, and regular visits of missions to Sri Lanka\. The mission teams consisted of staff and consultants with key areas of expertise to ensure effective technical assistance to the project\. Extensive dialogue and discussions between the Bank and Government continued on issues, constraints and other implementation issues of this demanding project, at both the central and provincial levels and with other stakeholders at the local level including teachers, and teacher educators\. Field visits to project sites to gain first-hand experience and to collect feedback were an essential part of the Bank's supervision\. The project was proactively supervised, with the task team identifying problems and acting to correct them\. Another positive aspect of Bank performance was its flexibility in the three extensions of the project, including the project re-structuring in 2002, which was responsive to the changing Government priorities\. Two areas needing greater attention were the following\. First, while monitoring indicators were identified during project preparation, various documents, including the Quality of Supervision Assessment (QSA6) in October 2004 highlighted difficulties in establishing an effective system to collect related data on the key performance indicators\. Because this was not pursued more diligently before the midterm review, it exacerbated efforts to update the indicator data in the later years of the project\. However, each supervision mission provided a well-documented aide-memoire, including current status of implementation, issues to be addressed and recommendations\. Second, there were at times lengthy delays in procurement clearances, which were further exacerbated by the recurrent difficulty experienced by the implementing agency in accurately preparing procurement and other documentation, resulting in the necessary but time-consuming corrective work\. The Bank did strengthen operational support from the Colombo Office, especially in procurement issues, in the later years of the project\. 7\.3 Overall Bank performance: Satisfactory\. The primary factors for this rating are: (i) the project design was closely aligned to country needs and built on lessons learned from other projects; (ii) comprehensive teams fielded with several members were maintained throughout the project period; (iii) effective, supportive supervision was maintained including extensive field visits, meetings and consultations with stakeholders and beneficiaries, which assisted in understanding issues and jointly resolving implementation blockages; (iv) there was flexibility in addressing Government's priorities; and (v) an excellent ongoing rapport with Government maintained the momentum of the required activities and ongoing dialogue\. Borrower 7\.4 Preparation: Satisfactory\. The high level of Government commitment facilitated project identification and preparation\. There was close Government-Bank cooperation in the project design, and intensive level of discussions with all key stakeholders were held during the whole preparation process\. This helped ensure that the project was in accordance with the needs of Sri Lanka and fitted the priorities of the education sector\. Since it followed closely after GEP I, a number of lessons learned in the implementation of that project were transferred to the design and implementation of TETD\. 7\.5 Government implementation performance: Moderately Satisfactory\. Rapid staff turn-over at the Secretary level meant that during the early years of - 14 -  implementation, there was a growing uncertainty about Government commitment to implementing the agreed reforms\. The lack of leadership due to at least five changes of incumbents in the last six years of project implementation in the position of Chief Commissioner for Teacher Education was a major factor in the uneven performance of some of the project components, including Component B: Rationalization of Structure and Organization, Component E (Strengthening and Upgrading of Teacher Training Institutions), and Component F (Strengthening Management and Administration of Teacher Education Institutions)\. Also, Government decisions beyond the control of the MOE not to adhere to the agreed policies on teacher recruitment and institution rationalization undermined efforts to achieve the cost-effectiveness development objectives\. However, despite these shortcomings, education officials took proactive steps to try to keep on track many of the other project activities, especially those dealing with the new priority components\. Government has also honored the agreement that quality inputs to the education system would not be curtailed as a result of increased expenditure for additional salaries and additional costs of operating all teacher education institutions\. 7\.6 Implementing Agency: Satisfactory\. The various MOE units, the Provincial Education Authorities, and the Finance Commission, tasked with implementing the project, carried out their respective responsibilities satisfactorily\. Implementation was facilitated by the Project Coordination Unit whose responsibility was to coordinate and monitor project activities\. Regular meetings, particularly during the later part of the project, between the Project Coordination Unit, and the various line units under the leadership and coordination of the Additional Secretary for Policy, Planning and Monitoring, kept project activities on track\. MOE, via the Project Coordination Unit, prepared and delivered to the Bank regular project implementation progress reports, and close dialogue was maintained to deal with implementation problems, especially those concerning procurement\. Major concerns that were noted throughout the project period were regarding the high turn-over of procurement staff within the Project Coordination Unit; poor monitoring of procurement activities and little attention to updating the procurement plans; delays in procurement processing, particularly in the preparation of bidding documents including technical specifications, and in the bid evaluation process\. While there were no serious findings from a Fiduciary Review of Accounts carried out in 2003 under the guidance of INT, shortcomings in maintenance of supporting documentation were noted\. It was only in the final year of implementation that some efforts to expedite implementation, update the plans and keep track of expenditures on contracts were observed\. 7\.7 Overall Borrower performance: Satisfactory\. The MOE demonstrated commitment to the project overall, and a consistent willingness to work towards the achievement of its targets\. 8\. Lessons Learned Project Preparation (i) Successful project implementation depends crucially on ensuring that adequate trained staff in project and financial management, and procurement are in place prior to commencing implementation, preferably staff selected from within the established MOE systems\. If capacity does not exist prior to implementation, this should be built through technical assistance (para\. 3 of Section 3\.5, Section 5\.3, para\. 2 of Sections 7\.1 and 7\.2)\. (ii) To ensure successful implementation of policy reforms which depend upon completion of prior inputs, broad stakeholder consultations are needed as well as sufficient time provided for sequencing - 15 -  critical implementation activities and, such as in the present case, linking teacher employment and deployment to teacher supply-demand, provision of physical facilities, and strengthening management capacity (para\. 3, Sections 3\.1 and 3\.3; para 1 of Section 3\.5)\. (iii) Successful project implementation requires the establishment, at project start, of an effective monitoring and evaluation system with a clear delineation of responsibilities for collecting, processing and dissemination of data on the key performance indicators at specified periods, with special attention to project outputs and outcomes\. This lesson is drawn from the project being deprived of such strategic support because no working monitoring and evaluation system was in place for the greater part of its implementation (para\. 3, Section 3\.5; para\. 2 of Sections 7\.1, 7\.2 and 7\.6)\. Project Implementation (i) In certain political settings, where government commitment to implementation of policy reforms depends upon political stability, contingency plans should be part of project design, based on risk assessment at appraisal, to respond to any policy change so as to minimize disruption to project implementation and compromizing of project objectives\. This lesson is derived from the project experience of policy commitments being changed or abrogated as a result of changes in political leadership (para\. 2, Sections 3\.3 and 5\.2, and para\. 1, Section 4\.2)\. (ii) Effective project planning and implementation depends upon keeping key staff (including decision-makers and administrative staff, especially experienced procurement and financial management personnel) at their posts for as long as possible to ensure strong and consistent leadership and effective project implementation\. This lesson is taken from the project's experience of too many changes in key staff reducing the impact of development activities through disruption of the project's vision, priorities, and implementation (para\. 2 of Sections 4\.2, 5\.2 and 7\.6; Section 5\.3; para\. 3 of Section 5\.4; Section 7\.5)\. (iii) Before a functioning strategic entity is dismantled, a replacement institutional structure should be established to ensure continuity of sector or project policy, planning, coordination and implementation\. This lesson is derived from the project experience of the untimely abolition of NATE which had no replacement during the life of the project, despite the Government's declared intention (para\. 2 of Section 4\.2, para\. 1 of Section 6\.2)\. (iv) Long-term sustainability of investment projects is likely when existing government structures are mobilized for project implementation, reinforced by commitment and ownership at zonal, provincial and central levels secured through participatory project preparation and appraisal (para\. 2, Sections 6\.1 and 6\.2, and para\. 1, Section 7\.6)\. 9\. Partner Comments (a) Borrower/implementing agency: MOE has informed IDA on June 15, 2006 that it has reviewed the Draft Implementation Completion Report, and agreed with its content\. Below are MOE's comments and a brief summary of its contribution to the ICR (a full assessment is in Annex 8)\. The Ministry of Education is satisfied and agreeable about the comments written in the IDA-prepared ICR on TETD\. Teacher education in Sri Lanka was at a critical juncture in 1997, with the recruitment of about 50,000 untrained teachers\. The project's objectives were largely achieved, with key results as follows: (i) the reduction in the percentage of untrained teachers to 2%; (ii) pre-service education for almost all - 16 -  teachers; establishment and maintenance of a highly qualified teacher educators service; (iii) development of physical infrastructure, and provision of adequate equipment and materials; (iv) establishment and maintenance of 17 full-fledged National Colleges of Education for pre-service and continuing education, and 100 Teacher Centres for Continuing Teacher Education; and (v) the establishment of a National Education Research and Evaluation Centre at the University of Colombo\. The implementation of the teacher deployment scheme has resulted in a significant decrease in the excess of Sinhalese-medium teachers in Provincial and National schools\. However, the Ministry had to honor the decision taken by the Government in 2005 to appoint 15,000 graduate teachers\. Project performance was hampered by the abolition of the National Academy for Teacher Education, staff transfers in the PCU, and civil disturbances in the North East\. The project was fully disbursed, with 100% disbursement against the IDA Credit\. (b) Cofinanciers: Not Applicable\. (c) Other partners (NGOs/private sector): Not Applicable\. 10\. Additional Information Not Applicable\. - 17 -  Annex 1\. Key Performance Indicators/Log Frame Matrix Outcome/Impact Indicators Indicator Projected SAR Targets Actual/Latest Estimate Student achievement scores, Grade Not set, but increase expected\. Performance in learning outcomes from Grade 5 in 5 1994 and 1999 remained constant in terms of literacy (average rate 61%), but numeracy increased from 45% in 1994 to 50% in 1999\. Grade 4 data in 2004 showed that 57\.2 % of students scored above 61% in their first language, and 56\.8% scored above 61% in mathematics\. Primary Cycle completion rates Not set, but increase expected\. Increased from 78\.3% in 1996 to 95\.7% in 2004\. Average drop out rate for grades 1- 10 Not set, but decreases expected\. 3\.2% in 1996 to 2\.2% in 2002 Decline in average repetition rate Not set, but decreases expected\. 3\.2 % in 1996 to 0\.8 % in 2002 for Grades 6-10 (thus reducing education cycle cost) The presentation of indicators in this ICR delineates between outcomes and outputs\. It should be noted that no outcome indicators were especially established in the SAR at the time of preparation\. For the purposes of this ICR, outcome data have been distilled from information available\. Also, the output indicator table below is a summary of key performance indicators with their actual/latest estimates\. The full set of indicators and their updates are available in the project files\. Output Indicators Indicator Projected SAR Targets Actual/Latest Estimate Component A\. Rationalization of Teacher Deployment A\.1 Annual number of Teacher recruitment controlled By 2004, teacher recruitment was controlled recruited teachers by matching intake and output according to revised planning estimates\. of NCOEs designed to reach However, changes in Government policy by about 1,600 teachers by 2001, 2005 to employ 17,000 more graduates and 750 teachers from negated gains made in earlier years\. university graduate annually\. A\.2 Student-Teacher By 2001: Primary STR: 26:1 Primary STR was 25\.4:1 in 2004 (24:1, Ratios (STRs) increased and Secondary STR: 22:1 Sinhala medium; 31:1 Tamil medium) and annually to reach targets (including collegiate)\. Secondary STR was 22:1 in 2004 (20:3 by 2001 Sinhala medium; 26\.8:1 Tamil medium)\. A\.3 Level of under and All provinces; schools to attain RR utilized, with some deviations\. Provincial over-staffing in approved cadre entitlement by Transfer Boards contributed to improved provinces/schools 2001 through a consistent deployment in most provinces, but target not application of the Ready fully achieved\. Reckoner (RR)\. A\.4\. Number of qualified By 1998, all teachers entering An intake of fully trained teachers was mostly teachers entering the the service would be pre- achieved\. By the end of the project only about service qualified and pre-trained (at 2 % of teachers remained untrained, down min\. 3 months for graduates)\. from an estimated 30% at the beginning of the project\. - 18 -  Indicator SAR/MTR Targets Actual/Latest Estimate Component B\. Rationalization of Structure and Organization B\.1 NATE established and NATE to be fully established and NATE was established in 1999 and discharging all functions operational by 1996\. then abolished in 2002\. A paper on an alternative to NATE was submitted to Cabinet before project closure\. B\.2 NCOEs (including TCs) Integrated national system to be With the closing down of NATE, the NIE, and other teacher formulated in 1996 and be fully integrated national system did not education operational in 1998 when new NCOEs eventuate\. However, the issue is being institutions/universities to have been completed\. taken up again under the new comprise national teacher education sector program (is related to education system the paper on an alternative to NATE)\. Component C: Upgrading of Teacher Education Programs C\.1 Initial training - Revisions to be completed by 1997; - 24 programs (19 original revised with programs - About 8000 initial training places to be 5 new preservice programs of NCOEs revised and provided in NCOEs (Yr\.1 & Yr\.2); introduced); accredited by NATE; and - A full-degreed graduate teacher input -5,281 initial training places provided number of final year places by 2003\. in NCOEs (Yr\.1 & Yr\.2) for students in initial -While not all teachers have B\.Ed\., training, as a percentage of 98% are now trained\. projected annual demand C\.2 Development of Plan Plan to be completed by 1996; training to Continuing inservice courses offered for continuing teacher be determined on survey and actual within cycle of 5 years\. It is estimated education; Courses available needs; 20% of teachers trained annually\. that 18% of teachers have been trained as percentage of planned annually against the 20% target\. 20 courses; annual participation core inservice courses were developed\. of teachers in courses Component D: Strengthening of Staff and Management D\.1 (i) No\. of staff (i) 250 fellowships during project; (i) 180 long-term fellowships taken up completing long term (ii)10-15% first degree only, during the project (168 masters and 12 internships/study visits; (ii) 35-40% PG Diploma, 45% Masters doctorates) percentage of staff with first 10% PhDs\. (ii) 89%first degree degrees, PG Diplomas, 89% PG Diploma Masters, PhDs 59% Masters 0\.2% PhD; (iii) 332 teacher educators undertook short term training up to 3 months duration; and (iv) 531 teachers were selected to visit regional countries for 4-6 weeks\. Component E: Strengthening and Upgrading of Teacher Institutions E\.1 Total number of -NCOEs: 14 (5 new) -NCOEs: 17 (11 COEs upgraded to institutions involved in -Universities: 4 NCOEs, 6 new) teacher education and -NIE retained -Universities: 4 location of these in relation -Phase out 15 Teacher Training Colleges -NIE retained to demographic and (TTCs) -10 TTCs not yet phased out enrollment needs -Establish 84 Teacher Centers and reduce -100 Teacher Centers established the number of centers run by NIE and according to demographic needs, but Universities e\.g\. field centers, etc\. other centers, such as, field centers not reduced\. - 19 -  Component F: Strengthen Management and Administration of Teacher Education Institutions\. F\.1 NCOEs receive direct Details determined by January 1997 as Unit cost mechanism formulated through budget allocation; schedule part of budget analysis, and piloted in a study completed in March 2003, but not of financial delegation to 1997 and fully operational by 1998\. implemented by project closure\. NCOEs operational F\.2 Define quality inputs Define quality targets for subject, Targets were not met as specified, but and set standards and lists of student, classroom and teacher by completed in March 2003\. Unit cost essential and operational January 1998 and implement unit cost allocations yet to be implemented as inputs by level and subject to allocation for the institutions by stated above\. arrive at unit cost allocations January 1999\. Component G: Studies and Monitoring To provide feedback to Six studies were proposed over the - NEREC completed four studies on: (i) policy-makers, course of the project, but were Teacher Deployment in Difficult administrators and IDA on understood to be flexible as needs Schools in Non-Preferred Areas, (ii) project progress, outputs and arose\. Five would relate directly to Effects and Effectiveness of Training impacts monitoring the progress and impact of Provided for School Principals; (iii) An policy initiatives\. The sixth (which Investigation of the Effectiveness of would comprise a number of smaller Implementation of Reforms at Key studies) would focus on areas relevant Stage 1 of the Primary Cycle in Sri to the planning of a future project\. Lanka; and (iv) An Evaluation of the Implementation of School Based Assessment in Post-Primary Classes\. - The fifth study to develop a unit cost mechanism for the funding of Teacher Education Institutions was also completed\. - Other main studies by NEREC for future planning were: (i) The national assessment of learning outcomes in Grade 4 in Sinhalese, Tamil, English and Mathematics; (ii) The data collection of the national assessment of learning outcomes in Grade 8 and 10 in Sinhalese, Tamil, Science and Mathematics; and (iii) The studies of Grade 4, 8 and 10 learning outcomes provided the baseline information for the future GOSL ESDFP\. This provided a vital link between the GEP2 and TETD projects and the future GOSL education program\. Component H: Project Coordination Unit Support for rehabilitation, -Maintain a PCU during the whole - PCU maintained (provision of office, funding, equipping of PCU project implementation period\. equipment and facilities) office, monitoring, and -Provide training to staff\. - All staff provided training short-term training of staff\. - There were difficulties to find and retain qualified procurement and financial officers\. - 20 -  New Components: Reconstruction in Conflict-affected Areas New construction and - Construct Jaffna COE (stages 2 and 3) All completed,\.resulting in greater refurbishment completed - Refurbish Battacaloa NCOE (stage 2)\. access to quality teacher education - Provide additional works to 23 Teacher facilities in the conflict-affected areas\. Centers, including construction of 3 new ones in Killinochchi and Mulathiev Districts\. New Components: Promotion of English Language Training and Learning: Training of teacher educators and teachers Trained teachers and teacher Trained annually as per comprehensive Nos\. trained (Dec\.2005): educators in English plan based on survey results and actual needs - 250 Lecturers 178 Lecturers - 750 Student teachers 297 Student teachers - 5,000 Specialist teachers 5,062 Specialist teachers - 2,000 English medium teachers 4,667 English med\. teachers - 5,000 Primary teachers ­ABOE 17,500 Primary teachers - ABOE New Components: IT-based Education Trained teacher educators - Managers and lecturers for the eight Completed as per targets\. and teachers provincial IT centers identified and trained to operate the centers; In addition, an unexpected benefit of - 1,000 teachers to complete certificate the IT-based education program under level training in universities in the use of the project was that it has enabled the IT in education; Government to introduce a new - 300 non-graduate teachers to undertake technology stream into the GCE A- Diploma level courses in IT-based educ\. Level curriculum from 2006\. - 11 teachers to get M\.Sc\. in IT\.s - 21 -  Annex 2\. Project Costs and Financing Project Cost by Component in US$ million Equivalent Appraisal Actual/Latest Percentage of Component Estimate Estimate Appraisal US$ million US$ million % A\. Rationalization of Teacher Deployment 0\.2 0\.2 100 B\. Rationalization of Structure & Organization 0\.9 0\.6 67 C\. Upgrading of Teacher Education Programs 3\.7 4\.4 119 D\. Strengthening of Staff and Management 11\.8 11\.1 94 E\. Strengthening & Upgrading of Teacher Inst\. 49\.4 50\.2 101 F\. Studies and Monitoring 0\.3 0\.4 133 G\. Project Coordination 1\.4 1\.4 100 Total Baseline Costs 67\.7 68\.3 101 Physical Contingencies 5\.3 Price Contingencies 6\.3 TOTAL PROJECT COSTS 79\.3 New Components *Reconstruction in the CAA 4\.55 4\.0 *English Language Training 4\.20 3\.6 *IT-based Training 2\.38 2\.0 * These new components, which were created in December 2002, were funded from project savings under the original components\. Therefore, the indicative costs above for these three components are already subsumed in the costs of the original components\. Project Costs by Procurement arrangements in US$million equivalent - Appraisal Estimate Expenditure ICB NCB Other Consulting N\.B\.F\. Total Cost Category Services 1\. Civil Works 33\.2 7\.4 0\.00 0\.00 2\.6 43\.2 (28\.4) (6\.3) (0\.00) (0\.00) (34\.7) 2\. Furniture, 4\.6 3\.3 0\.8 0\.00 0\.9 9\.6 Equipment, Vehicles (4\.6) (2\.9 (0\.7) (0\.00) (8\.2) 3\. Books, 0\.00 0\.00 4\.0 0\.00 0\.0 4\.0 Educational (0\.00) (0\.00) (4\.0) (0\.00) (4\.0) Materials , Printing 4\. Technical 0\.00 0\.00 0\.3 7\.8 1\.5 9\.6 Assistance, and (0\.00) (0\.00) (0\.3) (7\.8) (8\.1) studies 5\. Training 0\.00 0\.00 11\.3 0\.00 0\.00 11\.3 (0\.00) (0\.00) (8\.9) (0\.00) (0\.00) (8\.9) 6\. Project 0\.00 0\.00 0\.00 0\.00 0\.9 0\.9 Coordination Unit (0\.00) (0\.00) (0\.00) (0\.00) (0\.0) 7\. Recurrent Costs 0\.00 0\.00 0\.2 0\.00 0\.5 0\.7 (0\.00) (0\.00) (0\.2) (0\.00) (0\.2) TOTAL 37\.8 10\.7 16\.6 7\.8 6\.4 79\.3 (33\.0) (9\.2) (14\.1) (7\.8) (64\.1) Note: Figures in Parenthesis are the respective amounts financed by IDA\. - 22 -  Project Costs by Procurement Arrangements (Actual/Latest Estimate)* Expenditure Category ICB NCB Other Consulting N\.B\.F\. Total Services Cost 1\. Civil Works 27\.2 1\.4 8\.9 0\.00 0\.00 37\.5 (24\.7) (1\.1) (7\.1) (0\.00) (0\.00) (32\.9) 2\. Furniture, Equipment, 3\.7 0\.2 4\.2 0\.00 0\.00 8\.1 Vehicles (3\.7) (0\.2) (3\.5) (0\.00) (0\.00) (7\.4) 3\. Books, Educational 0\.00 0\.00 2\.2 0\.00 0\.00 2\.2 Materials , Printing (0\.00) (0\.00) (2\.1) (0\.00) (0\.00) (2\.1) 4\. Technical Assistance, and 0\.00 0\.00 0\.00 5\.5 0\.00 5\.5 studies (0\.00) (0\.00) (0\.00) (5\.5) (0\.00) (5\.5) 5\. Training 0\.00 0\.00 13\.6 0\.00 0\.00 13\.6 (0\.00) (0\.00) (13\.6) (0\.00) (0\.00) (13\.6) 8\. **Project Coordination 0\.00 0\.00 1\.4 0\.00 0\.00 1\.4 Unit (0\.00) (0\.00) (0\.4) (0\.00) (0\.00) (0\.4) 9\. Recurrent Costs 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) TOTAL 30\.9 1\.6 30\.3 5\.5 0\.00 68\.3 (28\.4) (1\.3) (26\.7) (5\.5) (0\.00) (61\.9) Note: (i) *Information is only approximate since only partial data were available\.(ii) Figures in Parenthesis are the respective amounts financed by IDA\. * * Includes recurrent costs\. Project Financing by Component (in US$million equivalent) Appraisal Estimate Actual/Latest Percentage of Appraisal IDA GoSL ADB SIDA Total IDA GoSL Other Total IDA GoSL Other A\. Rationalization of 0\.2 - - - 0\.2 0\.2 - - 0\.2 100 - - Teacher Deployment B\. Rationalization of 1\.0 \.03 - - 1\.0 0\.6 - - 0\.6 60 - - Structure & Organization - C\. Upgrading Teacher 3\.1 - 1\.2 - 4\.3 4\.3 0\.1 - 4\.4 139 79\.7 - Education Program - - D\. Strengthening or Staff & 11\.3 - - 2\.4 13\.7 11\.0 0\.1 11\.1 97 71\.4 - Management\. - E\. Strrengthening & 48\.1 6\.4 3\.7 - 58\.2 45\.1 5\.1 50\.2 94 - Upgrading T\. Institutions - F\. Studies and Monitoring 0\.3 - - - 0\.3 0\.3 0\.1 - 0\.4 100 G\. Project Coordination 0\.1 1\.4 - - 1\.5 0\.4 1\.0 1\.4 400 TOTAL COST 64\.1 7\.9 4\.9 2\.4 79\.3 61\.9 6\.4 68\.3 96\.6 81\.0 - Revised Components - -Reconstruction in CAA 4\.6 - - - 4\.6 4\.0 - 4 88 - - -English Language Teaching 4\.2 - - - 4\.2 3\.6 - 3\.6 86 - - Information Technology 2\.4 - - - 2\.4 2\.0 - 2\.0 84 - - Note: - Component costs above includes physical and price contingency allocations\. - 23 -  Annex 3\. Economic Costs and Benefits I Rate of Return Calculations The SAR projects a detailed analysis of costs, and a less detailed analysis of benefits to justify the project at entry and prior to the implementation\. Furthermore, the SAR presents in Annex 8, the cost-effectiveness of this proposed program ex ante\. Although, estimates of the Internal Rate of Return are not specified in the document prior to the start of the project, based on more recent data, compulsory education is still clearly a profitable investment with both high social and private rate of returns, and thus implying that there is a strong rationale for Government investments in education\. The Table below is based on data from a 2002 Labor Force Survey (LFS) and illustrates that benefits of education are highest at the Compulsory and Secondary School level\. While the emphasis on these rates of return is on educational attainment, other studies have illustrated that when information on achievement is available (and education quality information is directly incorporated into the regression equations), these figures also contain the rates of return to a good quality education\. Although such data was not contained in the LFS from which the below estimates were produced, it is not difficult to imagine the import of both attainments and achievements\. The latter provides a direct link with one of the key project development objectives of TETD ­ quality improvements\. Table 3\.1\.1 Social and Private Rates of Return to Education Social Rates of Private Rates of Return Return Men WomenMenWomen Compulsory Education 15 20 Senior Secondary 20 18 University 11 1019 25 2625 22 24 Source: World Bank Estimates (World Bank 2005) Among men, social rates are highest at the Senior Secondary level and for women it is at the Compulsory level\. The policy implications that stem from the above is that scarce Government resources are best spent on investments at the Compulsory and Senior Secondary levels, leaving University education to private investment\. The fact that social rates are high even after an intervention such as TETD does not reflect directly on the success or failure of the project, but merely highlights the need for further investments in this critical sector\. Furthermore, given the higher rates of return for women in Compulsory schooling, this suggests that investments in girls education is even more warranted\. A key weakness of this method of course is that the IRR calculations are based on past relationships between the costs and benefits of programs, and need not reflect future trends\. Secondly, in countries such as Sri Lanka, the public sector accounts for a sizeable part of the `labor market' and hence the basis of using rates of return for investments in education do tend to be indicative in nature\. While have access to rates of return based on pre-project data is not avialable, it is reasonable to assume that the patterns evident in the 2002 data might be similar to earlier rounds\. - 24 -  II Effectiveness The key difficulty with a cost-benefit analysis lies in the ability to estimate ex ante project costs and in assigning dollar values to the numerous, difficult to quantify, benefits of education\. Given these difficulties it may be more appropriate to attempt to analyze the cost-effectiveness with which the project achieves its stated educational objectives\. These objectives in TETD correspond to the various Components of the project and described in the main text\. While trying to assess whether the project was effective in reaching the Project Development Objectives would be an important way to begin, as described in the Annex, this is extremely difficult given that assumptions would have to be made that are too rigid and cannot be justified\. The key difficulty in analyzing the project effectiveness lies in the inability to attribute strictly the relationship between outcomes and project interventions, given that there may be many external factors influencing the results and not necessarily project inputs\. The closeness in the objectives of TETD and GEP 2 further mire the evaluation landscape in trying to determine the specific effectiveness of these components\. Component A: Rationalization of Teacher Deployment\. This component was intended to support the MOEs policies on recruitment and deployment of teachers in an effort to respond to the demand for teachers, while simultaneously meeting the equity considerations, cost-effectiveness issues, and education quality\. The initial target in terms of teacher excess and deficits combined was 24,000 persons to be addressed\. At the end of the project, there still remained excess and deficits of 12,583\. Therefore the project spent $200,000 to rationalize 11,417 persons\. Component B: Rationalization of Structure and Organization of Teacher Education\. Measuring the cost effectiveness of this component is not possible since this focused on the creation of an institutional structure\. The institution was created in 1998 and then abolished in 2002 on the grounds that the functions performed by this institution were duplicated by other existing institutions\. The expense incurred as a process of this must be seen as a sunk cost\. Component C: Updating Teacher Education Programs\. The key indicators for this component are the number of NCOE programs that have been revised, the number of teachers who were untrained at the start of the project and who have been trained since then and the number of teachers that were to be trained annually\. Once again the SAR does not distinguish between the costs of revising training curriculum, initial teacher education, and continuing ducation programs\. Assuming that the costs for revising curriculum is $0\.2 million, training of untrained teachers is $1 million and continuing education training is $2\.5 million given the number of teachers needing to be trained, we find that 100 percent of the course curriculum was revised at a unit cost of $8300 per course\. Component D: Strengthening of Staff and Management\. Based on the projected number of intakes into existing and new NCOEs by 2005, and a prescribed STR of 15:1, the per pupil average cost of teacher-trainer upgradation through local and foreign training comes to about $1700 per person\. This seems particularly cost effective\. However, the per student expenses for foreign training was very high averaging about $30,000 per person based on an evaluation of the various letters of interest from overseas universities\. This is inclusive of boarding and lodging and not merely tuition fees\. Given the vast differences in costs in local and foreign training, it may be more cost-effective to consider local training with foreign experts as was carried out under the restructured phase of this project\. Component E: Strengthening and Upgrading of Teacher Training Institutions\. This is the single largest component of this project\. While the utilization rate under this component was about 88% of total - 25 -  outlay at the start of the project, the project failed to achieve its objective of institutional and structural rationalization\. This makes it difficult to assess the cost-effectiveness of this component\. - 26 -  Annex 4\. Bank Inputs (a) Missions: Stage of Project Cycle No\. of Persons and Specialty Performance Rating (e\.g\. 2 Economists, 1 FMS, etc\.) Implementation Development Month/Year Count Specialty Progress Objective Identification/Preparation 4/24/1995 3 Sr\. Education Planner (1); Economist (1); Consultant (1) 07/09/1995 3 Sr\. Education Planner (1); Educ\. Spec\. (1); Architect (1) 04/04/1996 4 Sr\. Education Planner (1); Economist (1); Consultants (2) Appraisal/Negotiation 10/01/1995 7 Sr\. Education Planner (1); Economist (2); Operations Officer (1); Consultants (3) 04/23/1996 7 Sr\. Education Planner (1); Legal Counsel (1); Disbursement Officer (1); Economist (1); Operations Officer (1); Resident Rep\.(1); Consultant (1) Supervision 11/27/1996 2 Sr\. Education Planner (1); S S Economist (1) 04/09/1997 1 Task Manager (1) S S 07/23/1997 2 Administrative Assist\. (1); Task S S Manager (1) 02/02/1998 4 Sr\. Edu\. Spec\. (1); HR Economist S S (1); Admin Assistant (1); Sr\. Education Planner (1) 09/15/1998 9 Mission Leader (1); Economist S S (1); Financial Analyst (1); Consultants (4); Prin\. Oper\. Officer (1); DFID Consultant (1) 01/07/1999 9 Ed\. Spec\./ TTL (1); Team Leader U U (1); Economist (1); Operations Analyst (1); Procurement Spec\. (1); Team Assistant (1); Financial Mgt\. (1); Education Spec\. (1); Assessment & Eval\. (1); Teacher Training Insts\. (1) 05/14/1999 7 Team Leader (1); Economist (1); U U Consultants (4); Sr\. Impl\. Spec\. (1) 11/30/1999 9 Team Leader (1); Economist (1); U U Consultants (3); Procurement Spec\. (1); Fin\. Mgt\. Spec\. (1); Sr\. Eduic\. Spec\. (1) - 27 -  08/02/2000 8 Sr\. Education Spec\. & Team S S Leader (1); Economist (1); Oper\. Analyst (1); Procurement Spec\. (1); Fin\. Mgt\. Spec\. (1); Educ\. Spec\. (1); Assessment & Eval\. Spec\. (1); Teacher Training Spec\. (1) 04/17/2001 9 Sr\. Educ\. Spec\. & Team Leader S S (1); Economist (1); Operations Analyst (1); Consultants (4); Proc\. Spec\. (1); Fin\. Mgt\. Spec\. (1) 06/30/2001 6 Sr\. Ed\. Spec\. & Team Leader (1); S S Sr\. Econmist (1); Eval\. & Exams Spec\. (1); Education Spec\. (1); Operations Analyst (1); Imple\. Spec\. (1) 02/12/2002 13 Lead Impl\. Spec\. (1); Lead S S Health Spec\. (1); Sr\. Economist (1); Sr\. Educ\. Spec\. (1); Oper\. Analyst (1); Impl\. Spec\. (1); Educa\. Spec\. (1); Team Assistant (1); Educ\./Eval\. (Cons\.) (1); Educ\. Planner (Cons\.) (1); GIS Sspec\. (Cons) (1); Mon/Eval\. Cons\. (1); DFID Regional Mgt\. (1) 06/13/2003 7 Sr\. Ed\. Spec\. & Team Leader (1); S S Sr\. Econmist (1); Sr\. Educ\. Mgt\. Spec\. (1); Educ\. Spec\. (1); Operations Analyst (1); FM Spec\. (1); Sr\. Impl\. Spec\. (1) 12/13/2004 7 Sr\. Ed\. Spec\. & Team Leader (1); S S Sr\. Econmist (1); Sr\. Educ\. Mgt\. Spec\. (1); Sr\. Constr\. Mgt\. Consultant (1); Proc\. Spec\. (1); FM Spec\. (1); Operations Officer (1) 06/13/2004 6 Sr\. Ed\. Spec\. (1); Sr\. Economist S S (1); Sr\. Ed\. Mgt\. Cons\. (1); Sr\. Constr\. Mgt\. Consultant (1); Procurement Spec\. (1); Fin\. Mgt\. Spec\. (1) 12/14/2004 7 Sr\. Ed\. Spec\. (1); Sr\. Economist S S (1); Sr\. Ed\. Mgt\. Consultant (1); Sr\. Constr\. Mgt\. Consultant (1); Procurement Spec\. (1); Fin\. Mgt\. Spec\. (1); Operations Officer (1) - 28 -  ICR 10/03/2005 10 Sr\. Educ\. Spec\. (1); Sr\. Mgt\. S S Spec\. (1); Sr\. Econ\. (1); Oper\. Off\. (2); Economist (1); Sr\. Constr\. Spec\. (1); Proc\. Spec\. (2); Fin\. Mgt\. Spec\. (1) Note: Since the 4 point system does not allow for MS, ratings for PDO and IP are shown as S when infact the ICR mission has rated them as MS\. (b) Staff: Stage of Project Cycle Actual/Latest Estimate No\. Staff weeks US$ ('000) Identification/Preparation 70 190,000 Appraisal/Negotiation 25 95,000 Supervision 317 950,000 ICR 12 30,000 Total 424 1,265,000 * Lending costs have been estimated based on duration of preparation, composition of missions and prevailing staffweek costs conversion to US$\. - 29 -  Annex 5\. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating Macro policies H SU M N NA Sector Policies H SU M N NA Physical H SU M N NA Financial H SU M N NA Institutional Development H SU M N NA Environmental H SU M N NA Social Poverty Reduction H SU M N NA Gender H SU M N NA Other (Please specify) H SU M N NA Private sector development H SU M N NA Public sector management H SU M N NA Other (Please specify) H SU M N NA - 30 -  Annex 6\. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6\.1 Bank performance Rating Lending HS S U HU Supervision HS S U HU Overall HS S U HU 6\.2 Borrower performance Rating Preparation HS S U HU Government implementation performance HS S U HU Implementation agency performance HS S U HU Overall HS S U HU Note: ICR assessment of Government performance: Moderately Satisfactory\. - 31 -  Annex 7\. List of Supporting Documents Government of Sri Lanka: Mid-Term Review Second General Education Project (GEP2)(Credit 3014-CE)\. Ministry of Education, January 19, 2001\. Government of Sri Lanka, Evaluation of Continuing Teacher Education Programmes conducted in Teacher Centres, Teacher Education and Teacher Deployment Project:, 25 May 2001\. Government of Sri Lanka, ICR, Teacher Education and Teacher Deployment Project, January 2006\. National Education Research and Evaluation Centre, A Study to Investigate the Effectiveness of Implementation of Reforms at Key Stage I of Primary Cycle in Sri Lanka, University of Colombo, December 2002\. National Education Research and Evaluation Centre, National Assessment of Achievement of Grade 4 Pupils in Sri Lanka: Achievement After Four Years of Schooling\. National Report, University of Colombo, 2004\. National Institute of Education\. What Children Have Learnt After Five Years of Schooling\. Evaluation Department, 1995\. Perera, W\.S\., and D\. Gunaratne, Teacher Education and Teacher Deployment Project ­ Mid-Term Review Report\. Colombo\. 1999\. Perera, D\.A\., D\. Gunaratne, and G\.E\. Wijesuriya, Audit of Teacher Deployment in a Sample of Provincial and National Schools\. Final Report\. Colombo\. 2001\. Various correspondence during the project implementation between the World Bank, MEHE and MOE, 1995-2002, and various Minsitry of Education EMIS documents and reports (school census), 1998-2002 World Bank, Staff Appraisal Report, Sri Lanka, Teacher Education and Teacher Deployment Project, Report No\. 15282-CE, May 10, 1996\. World Bank, Statement of Mission Objectives, Aides-Memoire, Back-to-Office Reports, Management Letters, Project Status Reports, Implementation Status Reports of all the Supervision Missions, April 1998-November 2005\. World Bank, Country Assistance Strategy, Sri Lanka, 1997\. World Bank, ICR, General Education Project I, Report No\.16654\. June 9, 1997\. World Bank\. Quality of Supervision Assessment (QSA6) Summary Assessment Sheet, October 2004\. World Bank, Treasures of the Education System in Sri Lanka: Restoring Performance, Expanding Opportunities and Enhancing Prospects, February 2005\. World Bank, Project Appraisal Document, Education Sector Development Project, Report No\. 33481-LK\. November 15, 2005\. - 32 -  Additional Annex 8\. Borrower's Contribution to the Implementation Completion Report 1\. Project Design and Quality of Teacher Education at Entry (1) Project design The Teacher Education and Teacher Deployment Project was designed to implement the Government's policies and strategies for teacher education and teacher deployment, identified by the National Education Commission (NEC) in their first report in 1992\. In August 1995, the NEC formulated a National Education Strategy and a Teacher Education Strategy, which identified number of priorities in the field\. The Project had two areas: the first to involve in the rationalization of teacher numbers and their deployment, and the second included the strengthening and rationalization of teacher education programs, institutions, staff and management to meet the demand and supply of teachers while improving quality and cost-effectiveness of teacher education\. The project was carefully designed with a view to successfully addressing these issues\. (2) Quality of Teacher Education at Entry Teacher education in Sri Lanka was in a critical situation at the time of the implementation of the project\. Recruitment of 50,000 untrained, less qualified (mostly OIL qualified) teachers during 1989 and 1993 had resulted in bringing the total number of teachers in the system to nearly 190,000\. Massive recruitment drive created a large influx of teachers in urban and semi urban areas and an acute shortage in disadvantaged rural area schools thus affected the quality of teaching and learning processes\. From the total recurrent budget of the PEAs about 76% was incurred on teachers' salaries leaving only less than 24% for other items like office consumables, welfare bursaries, school uniforms, travel, communication expenses etc\. The capacity of teacher education institutions to train the teachers in classroom teaching and curricular methods was inadequate and not demand driven\. Briefly, (1) high teacher salary budget; (ii) inconsistency within the province and between provinces; (iii) inadequate distribution of resources on teacher education; (iv) problems of deploying teachers to difficult area schools; (v) low teacher productivity; (vi) lack of a teacher incentive system to motivate them; (vii) lack of a sound training system for teacher educators, were the main problems that the teacher education system in the country had been facing at the implementation of TETD\. 2\. The Project The range of TETD project objectives proved to be very extensive and ambitious, with the setting of difficult timeline to achieve within a highly politicized, decentralized and an uncoordinated atmosphere, with a heavy bureaucratic system of administration\. However, the project objectives were achieved to a large extent during the project period, of which the results will be extensively used by the Sri Lankan policy-makers to benefit the total system\. Human and physical resources developed by the project will benefit the present generation as well as future generations\. - 33 -  Component-wise Achievements 3 Component A ­ Rationalization of Teacher Deployment (1) Context of Rationalization l The improvement of teacher deployment policies and mechanism through introducing an improved Ready Reckoner formula was a central Goal of this multifaceted component, which was central to most other objectives and activities of the TETD project\. Improving the quality and equity of education by strictly implementing a new RR formula and linking the funds saved from teacher salaries, as a result of decreasing teacher demand, to be spent on quality inputs in developing disadvantaged rural area schools was the intention of the component\. (2) Encouraging Results Achieved By 1996 there had been a teacher surplus of 14,153 (9% of available) Sinhala medium teachers and a deficit of 9485 (27% of available) teachers in Tamil medium\. In collaboration with the PEAs, MOE the excess numbers in Sinhala medium teachers, and shortage of Tamil medium teachers were brought down\. As a result the number of teachers declined from 180,500 in 1996 to 127,000 in 1997, by 2500\. IDA, was pleased over the progress and observed that: "Overall progress on teacher deployment within provinces has been satisfactory"\. Some provinces have made greater progress than others (Supervision Mission, June 10 to July 4th 2000)\. Table 1- Student Teacher Ratio by Cycle and Provinces, 1997 and 1998 Province STR in Primary level STR in Secondary Level 1997 1998 1997 1998 Western 31\.4 30\.5 232 21\.3 Central 27\.4 28\.4 21\.7 19\.3 Southern 26\.7 25\.6 20\.4 19\.0 Northern 46\.7 33\.4 29\.3 29\.3 Eastern 35\.4 34\.0 27\.9 24\.6 NWP 25\.7 29\.9 20\.2 18\.8 NCP 26\.9 27\.1 22\.5 20\.4 UWA 27\.0 29\.2 20\.0 19\.9 Sabaragamuwa 27\.1 27\.2 21\.5 19\.3 Total 29\.2 28\.8 22\.3 20\.5 The reason for the reduction of STR in the secondary cycle in 1997-1998 has to be attributed to the increase of teachers in a relatively large number, while the increase of the student population was only 0\.74 during the same period\. The haphazard recruitment of teachers without taking in to consideration the prevailing needs of the school system severely affected the fluctuation of STR across provinces\. However, MOE was able to maintain the STR of 26:1 in the primary and 22:1 in the secondary levels except in the conflict areas of North and East during the period 2000 to 2002, but there had been a significant change in the STR afterwards\. - 34 -  Table 2 - Student Teacher Ratio by Cycle and Provinces, 2000 and 2004 Province Primary level Secondary Level 2003 2004 2003 2004 Western 22 22 23 23 Central 18 17 20 20 Southern 21 20 20 20 Northern 24 22 27 26 Eastern 22 20 25 24 NWP 17 17 23 22 NCP 15 15 24 24 Uva 16 15 22 21 Sabara: 18 18 21 21 National 19 19 22 22 By June 2002, some provinces have made considerable amount of progress over the issue of teacher deployment\. NWP, for example, did go to the extent of passing legislation for greater control over deployment, which included applying a ranking system for teachers who could be sent to difficult and very difficult schools\. NWP also took steps to set up three member Medical Board to assess claims of teachers who were supposed to evade the transfer on medical grounds\. (3) Vigilance of IDA in maintaining RR Formula Donor agency not only kept a close tab on monitoring the implementation of RR formula, but also, very vigilant in curbing the attempts made by MOE and PEAs to vary the agreed policy on teacher employment and deployment\. 4\. Component B ­ Rationalization of Structure and Organization\. (1) Establishment of NATE The undertaking given by the MOE to establish NATE to plan, coordinate and appraise all teacher education programs in the country, by November 1996 was honored only in March 1998 through an Act of Parliament in December 1997\. The delay caused due to the reasons such as, (i) delay occurred in implementing the Teachers Service Minute, (ii) the staffing of NCOEs and TCs and (iii) the short supply of staff to run the NATE\. This delay in its professed operation, adversely affected on the effectiveness of the NATE, as well as the policy operations of the TETD\. (2) NATE Performances The NATE which was established as a semi autonomous body responsible to the Minister of Education, to provide professional leadership and inspiration to national system of teacher education, was assigned with the functions (SAR, Annex 16) of: (i) coordination of teacher education, (ii) Planning of teacher education at national level, (iii) facilitating the implementation of national teacher education system, (iv) monitoring and research and (v) public information on teacher education\. With the establishment, the NATE started its forward march having meetings, conferences, developing software packages for the establishment of an integrated national planning system and preparing required manuals, educating the provincial authorities, - 35 -  conducting training programs, preparing guidelines for staff evaluation and appraisal etc\. (3) Formulation of a National Teacher Education Policy The successful formulation of a National Teacher Education Policy (September 2001), which was mandatory on all teachers in the island, is considered a valued contribution by the NATE\. This policy document focuses on number of long standing issues such as: (i) teacher recruitment and placement, (ii) structure and governance of teacher education, (iii) teacher education programs, (iv) continuing education, (v) staffing and staff development, (vi) facilities and equipment, and cost and financing\. These policies, if implemented effectively, will invariably have a direct impact on achieving the quality, equity and cost-effectiveness of teacher education in the country, forecast by the TETD\. (4) Demise of NATE NATE was abolished in 2002\. The validity of the explanation given, by the MOE to justify the action, saying that the other agencies like NEC, NIE, CCTE and UGC are already covering the NATE functions was partially accepted by IDA \. However, the failure of NATE in playing its role effectively and efficiently was an allegation that had been leveled against it at the beginning of 2002\. While registering its displeasure, IDA complained that the abolition of NATE was a policy decision taken only by the Government of Sri Lanka\. 5\. Component C ­ Upgrading Teacher Education Programs (1) Component Objectives This component was designed to create a better learning climate in the schools, by raising the quality of teaching, and making the teacher education more cost effective\. The objective of the component was two fold: (i) to prepare all teachers prior to their entry through initial (pre-service) teacher education and, (ii) to improve the quality of trained teachers in the teaching service through continuing (in-service) teacher education programs\. Under this component both initial and continuing teacher education programs were to be improved, to create a better learning climate in schools, by raising the quality of teaching\. (2) Initial (pre- service) Training Prior to the appointment as a teacher, completion of a pre-service program provided by Universities/ NIE/ NCOE, was made a pre-requisite to all selected candidates\. The intake to NCOEs every year was based on the projected teacher cadre requirement\. For instance, 2005 intake was gazetted based on teacher cadre projections for 2009 (Government Gazette, 03\.06\.2005)\. The target of the project, to have a teacher force in the country with degree qualification, mainly by upgrading the NCOE courses to the level of Bachelor of Education, is yet to be implemented\. (3) Continuing Education This policy to improve the quality of all teachers serving in the system, within a cycle of 5 year period through continuing education, was successfully implemented through out the project period\. The project intention was to make available the continuing education to about 170,000 teachers over the period of five year project cycle, through direct contact mode or distance training mode\. Large number of teachers did under go training at TCs and NCOEs and in distance training mode\. - 36 -  (4) Massive Training Program to Clear backlog of untrained Teachers\. The objectives of this restructuring process: (1) coordination of all teacher education programs in the country, (2) meeting the national needs for adequate number of trainees, were achieved to a great extent during the lifetime of the project\. However, a setting up of a main body responsible for planning, implementation and appraisal of teacher education programs is yet to be established\. The program launched to train 23024 (in 1997) untrained teachers was successful, to a great extent, reducing the number of untrained teachers in the system to 2\.492% (School Censes, 1997 and 2004), inclusive of new recruits\. Successful completion of training of a backlog of 35,000 untrained teachers by the SIDA funded 'Distance Education Training Program (1994-1998) by the NIE, is the massive training program ever implemented in the country\. With the establishment of 100 teacher centers representing almost all 92 zones in the country, the opportunities are now available to all teachers to improve their professionalism through such TCs\. This is one of the groundbreaking achievements of the TETD\. (5) School- based (in-service) Teacher Development Training This is a program designed jointly by NCOEs and TCs to implement in all the schools in zonal level\. A group of 35/40 teachers from a school was selected to be trained jointly by TCs and NCOE\. Generally, 3 NIE trained resource persons visited the selected school to impart training\. If the trainee number was less than 35 in a school, then the number of teachers from close by schools were selected and organized as a "Family" for training\. This 2 day practical training program involved all school management procedures from morning assembly till the end of the school session for the day\. After the school is closed for the day, they all gathered and held a post training discussion session to evaluate the pros and cons of their practical training and other related matters\. Occasionally, Zonal Director also took part as an observer and evaluator\. This was considered a very effective program which should continue even after the project is over\. A 5 day training program designed by the NIE and Universities conducted during the week ends, vacation or on weekdays by the NCOEs with the approval of the College Academic Board has been proved successful one in the context of school improvement\. This school-based development training program conducted for 9 hours a day with 1 1/2 hours each spent on physical fitness and aesthetic activities, was a massive training program implemented in NCOEs, TTCs, TCs , NIE and zonal level\. It was planned to train 97,920 teachers island-wide\. (6) Provincial Level Service Providers' Directory for Teacher Education On the initiative of the TETD/IDA, the office of the Chief Commissioner for Teacher Education has recently (September, 2005) developed provincial level directories of Resource Persons (except Southern province) for the use of provincial trainers\. The analysis being done by the CCTE to assess the capacity at zonal level to support school teacher development programs would no doubt yield good results, provided it is followed by a comprehensive action plan\. A pilot project has already been launched in three zones namely, Elpitiya in the Galle District, Homagama in the Colombo District and Dehiovita in the Kegalle District\. (7) Teacher Education Curriculum Development (TECD) Curricular and related materials for the use of NCOEs have been developed for all the subjects by the NIE\. Such materials prepared by the local and international consultants are now being used by NCOEs in their teaching-learning processes\. This is one of the very successful achievements gained by TETD\. The process - 37 -  of translating those syllabi into Tamil language was also successfully concluded\. 6\. Component D ­ Staffing and staff Development for Teacher Education\. (1) Component Objectives This component was introduced for the rationalization of the staff of teacher education institutions and the upgrading of staff qualifications\. The objectives of the component were (i) to rationalize the teacher education staff to give more equitable resources and lower the unit cost, and (ii) to implement a staff development plan to provide opportunities for staff to improve their teacher education qualification and experience\. It was further intended to (i) streamline the staffing structure within a period of 2 years of the commencement of the project and, (ii) to make the adjustments by using the available (excess) cadres at COEs, TTCs and Study Centers\. Staff in NCOEs and TCc needed the teacher educators to fill the requirement\. (2) The Overseas Training Program Towards achieving the above objective, number of foreign and local trainings was proposed and implemented satisfactorily with TETD funds\. Instead of 160 teachers proposed (SAR) 163 officers got opportunities to follow 3 months short term courses in foreign countries\. 12 Doctorates were awarded to 5 university and 2 NCOE lecturers, and 5 NIE project officers\. 168 Master Degrees were awarded to 125 NCOE, 6 TEls, 15 TC and TTC and 4 University lecturers and16 NIE Project Officers and 2 MOE officers\. Furthermore, 3 weeks study visits were offered to 531 young school teachers selected from all parts of the country\. 7\. Component E ­ Strengthening of Staff and Management - Physical Facilities for Rationalized Teacher Education (1) Component Objectives The component was introduced with the intention of rationalization of teacher training institutions to improve the cost effectiveness of teacher education by reducing the number of such institutions\. The component objectives were to: (i) rationalize the number and location of teacher education institutions to meet the projected needs for initial and continuing teacher education and, (ii) to improve the quality and facilities in such institutions\. (2) Rationalization of Teacher Training Institutions The proposed rationalization of existing training institutions by upgrading 9 NCOEs to the status of NCOEs and establishing another 4 new NCOEs, upgrading of 4 universities and the NIE, to make the total number of institutions to 19 in place of 31 institutions, could not have been implemented as projected\. With the concurrence of IDA, MOE established another 3 new NCOEs\. Through the proposed rationalization, the intention was to reduce the unit cost operation, improve access and reduce the proportion of residential facilities allocated for initial training\. Reacting to this new development IDA was of the opinion that some TTCs may be required for a short term to train the existing untrained teachers; but their retention beyond that is inconsistent with the arrangement of developing NCOEs and TCs\. Island wide\. But finally the end result of the proposed rationalization was to have 32 such institutions with 1 added to the original 31 centers\. The objective of proposed reallocation of the - 38 -  institutions to increase the number of day students was only partially achieved\. The 3 TEls proposed to run as residential institution with an intention of catering for both day and residential students to conduct sessions in contact and distance mode, was also dropped with the failure to rationalize the TTCs\. All 17 NCOEs are committed to implement continuing teacher development programs\. However, to realize the project intention to develop them as provincial centers for academic leadership to the province, both parties should get together and evolve a sound mechanism\. (3) Functioning of 100 Tcs All 100 TCC are now implementing continuing teacher development programs in a useful manner\. TCs have now become useful resource centers for teachers in the area\. This is a remarkable progress that the project was able to achieve\. 8\. Component F- Strengthening Management and Administration of Teacher Education institutions\. (1) The Objective of the Component The objective of this component was to rationalize the number and location of teacher training institutions through a range of activities that are incorporated into various project components\. To improve regional equity, meet needs for initial and continuing education, and to improve the quality of facilities and equipment, could be considered as sub objectives of the component\. (2) NCOE Contribution to in-service Training: Some NCOEs are offering in-service education courses on campus\. But very little information is available about the NCOE facilities that had been used for in-service training\. With the diminishing population trend and with a lesser number of students enrolling, the NCOEs may in future be able to provide in-service education training\. 9\. Component G: Studies and Monitoring NEREC The National Education Research and Evaluation Center, which was set up in 1999 at the University of Colombo with the consent of the then Minister and in accordance with the by-laws of the university is progressing well\. The institute completed six studies (at national level)\. 10\. Components under Re-Structuring of the Project (1) Components Amid some implementation difficulties, TETD were able to achieve some satisfactory results at the end of the proposed period (by June 2002)\. There were some sizable savings through competitive bidding, implementation delays and depreciation of the Sri Lankan Rupee\. IDA/MOE decided to restructure the project by utilizing those saved funds, which provided an opportunity to address three emerging priorities fully consistent with project objectives (Dec\. 2002)\. The three priority areas identified by the government are: - 39 -  l Education in conflict affected areas\. l Promotion of English language teaching and learning\. l Support for IT in the education system\. (2) Education Development in Conflict Affected Areas\. The objective of this new component was to provide classroom spaces, basic education facilities and libraries in conflict affected area, jointly by GEP 2 and TETD projects\. The main component of the restructured TETD project was to provide Infrastructure to Jaffna NCOE and the NCOE, Aluthgama\. It was planned to provide new buildings and refurbish existing buildings\. By the end of September, 2005, TETD with the help of the construction consultancy firms, completed the civil works in Jaffna (with a cost of Rs\. 284 m) Batticlloa and Aluthgama (with a cost of Rs\. 25\.6 m) NCOEs satisfactorily\. Construction of 16 TCs island-wide, additional works at TCs in conflict affected areas and construction of new TCs were satisfactorily completed\. (3) Promotion of English language teaching and learning (1) Introduction Under the restructuring program, the improvement of English Education, which was seen as a social link to help bridge the ethnic differences and as a capital to gain employment, was considered a national priority and TETD funds were made available mainly to train personnel on English Education\. (2) Progress in Activity Based Oral English (ABOE) Training Program It has been reported that 1831 teachers were trained up to June, 2005 and another program launched to train 25,000 teachers is being in progress\. This progress is as at 30th August 2005\. 10,000 cassette pieces produced by the NIE have also been distributed to provinces\. (3) Training of English Teachers in Language and Methods NIE has undertaken to train primary teachers, Key stage 2 and 3, with an allocation of Rs\. 4\.5 m\. In a Diagnostic Placement Test administered by the Open University teachers were categorized into 3 batches: (1) high scorers (2) medium scorers and (3) low scorers\. High scorers were given a university diploma program\. Training program for low scorers originally planned to be implemented by the private sector was carried out by the provinces\. Progress is satisfactory\. The medium scorers were given a ten day Continuing Teacher Education training at Peradeniya English Teachers' College by the NIE and 1200 teachers were thus trained\. (4) Training of Subject Teachers in A/L This activity was done with moderate success by training of 1744 teachers in 6 provinces with a cost of Rs\. 3,046,207\. (5) Quality Assessment of English Education Programs A mixed group of beneficiaries who have undergone different kinds of English training programs was interviewed by the officers of the TETD and the Department of English (MOE) for the purpose of - 40 -  estimating the benefit they have accrued as a result of their training\. The group consisted of beneficiaries of: English medium training, Provincial training, General English training, Continuing teacher education and DETE\. Their responses were summarized below: Responding to a questionnaire administered to them on the effects of above programs, more than 90% of teachers were of the opinion that they were immensely benefited\. A group of teachers appraising the benefits, they accrued from the DETE program, stated the following: l Gained confidence in using the language effectively\. l Helped to enhance the integrated language skills in listening, speaking, reading and writing\. l Was very helpful to create a better teaching/learning environment in the classroom\. l The quality of the package was commendable\. l Techniques learned are being effectively used in classroom teaching and learning process\. l Gained confidence to solve the problems, which arises during pair work and group work promptly\. l The planning and organization of classroom activities were made easier\. Time allocation on literature slots was not adequate\. Programs in future should be enriched with modern technology such as ICT,CAL etc\. A group of teachers who were benefited as a result of participating in the Activity Based Oral English (ABOE) training program had the following comments: l ABOE program was very helpful for primary teachers to do the Environmental Related Activities (ERA) lessons with fun and joy\. l Confidence in how to use the classroom language with grades 1 and 2 students was developed\. l Students not only improved their vocabulary, but their learning and listening techniques were also developed\. l Students were able to try to speak simple English words\. l The duration of the programs was not sufficient\. l Provision of audio and video cassettes was very much in need\. (4) IT Based Education Being a top priority program of the Sri Lankan Government IT education was given a special emphasis under the restructuring of TETD\. The objective of the program was to enhance learning achievement and human capital, through the introduction of IT and utilization of IT as a tool for learning-teaching process and to improve employment and labor market opportunities for school completers\. One million US$ from TETD was set apart under the TETD restructured program to support IT education\. (1) Progress Establishment of IT Centers in 80 schools, at the rate of 10 per province, has been successfully completed\. At an evaluation session, it had been rated as one of the successful programs highly popular and heavily utilized\. But the problem of shortage of competent and full time teachers has to be solved immediately for accruing the maximum benefit of the program\. However, IT trained teachers, attached to these centers, are performing in an exemplary manner\. - 41 -  11\. Sustainability of the Project The sustainability of project activities will largely depend on future commitments of the Sri Lankan Government to support the sector in terms of investment and financing recurrent and capital costs\. It will also depend on the interest and commitment of individuals, policy makers, government officers, principals, teachers and parents\. In mid 2002, the issue of sustainability was addressed and since then different efforts were made to make it a reality\. At a workshop held at Hotel Blue Waters, Wadduwa from 5th to 7th April 2002, a plan for ensuring the sustainable development of the quality of education, bringing about system-wide efficiency and cost effectiveness etc\. was prepared\. All workshop participants were unanimous in agreeing that the TETD did its best to provide useful inputs of physical material and technical support to improve the quality and efficiency of teacher education\. The common agreement was that the inputs for human resource development were hardly sufficient to guarantee the project sustainability\. 12\. Lessons Learned l Adequate and trained staff specially selected from among the established MOE staff would ensure successful implementation of a project\. l Continuation of the same senior staff (decision making and administrative level) would support and ensure strong and consistence leadership and effective project implementation\. l Long-term sustainability of investment projects is likely when existing government structures are mobilized for project implementation, reinforced by commitment and ownership at Zonal, Provincial and Central levels secured through participatory project preparation and appraisal\. 13\. IDA Performance During the period of implementation of the TETD project, IDA was very cooperative and their support was satisfactory\. - 42 -  - 43 -

REVIEW

P005810

 ICRR 10909 Report Number : ICRR10909 ICR Review Operations Evaluation Department 1\. Project Data: Date Posted : 06/15/2001 PROJ ID : P005810 Appraisal Actual Project Name : Nat\.agric\.sect\.mgmt Project Costs 22\.00 16\.23 US$M ) (US$M) Country : Yemen Loan/ US$M ) 14\.40 Loan /Credit (US$M) 9\.38 Sector (s): Board: RDV - Agricultural Cofinancing 3\.00 5\.05 extension and research US$M ) (US$M) (80%), Central government administration (20%) L/C Number : C2299 Board Approval 92 FY) (FY) Partners involved : Netherlands Government Closing Date 12/31/1999 06/30/2000 Prepared by : Reviewed by : Group Manager : Group : Ridley Nelson Andres Liebenthal Alain A\. Barbu OEDST 2\. Project Objectives and Components a\. Objectives The original objectives were to: (a) develop the management basis for a modern agriculture sector by upgrading staff, strengthening policy analysis, modernizing management, and improving links between departments; and, (b) strengthening research training and extension and research /extension linkages to accelerate the development and adoption of appropriate technologies \. Following a restructuring, the second objective was somewhat revised and became: "to strengthen the management capacity of key staff in the Agricultural Research and Extension Authority (AREA), train and provide technical assistance in agricultural research \." b\. Components (a) planning and administration in the Ministry of Agriculture and Irrigation, including policy planning, commodity analysis, M&E, budget and personnel management, and human resource development; (b) agricultural research, including management and organization support, and priority research programs; (c) extension and training, including setting up the National Agricultural Training Center and the Multi -Media Center\. c\. Comments on Project Cost, Financing and Dates The project was formally restructured in May 1995 mainly due to slow initial implementation\. The IDA credit was reduced from US $14\.40 million to US $9\.38 million\. 3\. Achievement of Relevant Objectives: Overall the objectives of the project were partially achieved \. With respect to the main objectives : (a) systems were developed and computerized for financial management and budget control, and a project programming, appraisal and monitoring system was developed \. These resulted in improved budget management and monitoring \. However, while the tools provided the needed information the ICR notes that they have yet to become part of the resource management process; (b) the project was successful in raising skill levels, however training achievement was distorted due to the selection of politically favored candidates and the operation of this component was suspended; (c) the Rapid Impact Program achieved more focus on farming systems work and on rainfed and livestock systems and developed a problem-solving approach on applied research and demonstrations done in partnership with farmers and the extension service \. 4\. Significant Outcomes/Impacts: The Rapid Impact Program for Research and Extension established a program of field demonstrations and trials in partnership with farmers initially starting with existing technology and later with innovations \. This shifted research towards a farming systems approach \. Coordination with extension was improved \. There is no evidence of production outcomes presented in the ICR but it is probably too early to expect that \. With respect to outputs, a project accounting system was developed and the ministry accounts computerized \. A number of working papers were produced for policy planning and preparation of policy options for a reform agenda - the Aden Agenda\. A restructuring proposal was developed which provided the basis for the restructuring of the Ministry of Agriculture and Irrigation in 1995\. A national research strategy was produced in 1997 and a medium-term research plan in 1998\. Once staff had returned from overseas training, a national extension strategy, a system of program budgeting and a joint research/extension team concept was operationalized in three pilot extension areas \. 5\. Significant Shortcomings (including non-compliance with safeguard policies): There were significant delays in implementation related to procurement and inadequate authority at the appropriate levels\. There were questions over political commitment as evidenced by the failure to meet the resource allocation requirements and by the distortions in the training management system \. The training system is reported as not being in use as designed\. In some cases, political factors overrode technical needs in decision making \. A brief but disruptive civil war in 1994 caused problems with implementation\. Quality at entry was rated by the ICR unsatisfactory partly because the project was unduly complex \. The new financial management information was used to improve budget structure and several redundant projects were closed but that progress was reversed in 2000\. 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Moderately Satisfactory While, after a slow start,there were significant input achievements, there is limited evidence in the ICR of technology outputs or outcomes\. There were significant shortcomings in achievement of objectives including substantial early delays which raise questions about efficiency\. The important training component was eventually halted \. Institutional Dev \.: Modest Modest Sustainability : Likely Likely This is a marginal call given the level of dysfunctionality of the civil service \. However, external support is anticipated under a follow-on project, another donor is expected to provide strong support for capacity building in the sector, the needed budget restructuring is underway and supported by IDA through annual public expenditure reviews, and there is an IDA-supported civil service reform program underway\. Bank Performance : Satisfactory Satisfactory Quality at entry was unsatisfactory due to lack of realism, however supervision was fully satisfactory and was able to adapt to changing circumstances, including the macroeconomic crisis and the civil war \. We give weight here to the challenge to implementation of these difficult circumstances\. Borrower Perf \.: Satisfactory Satisfactory We agree with the ICR which rates borrower implementation performance as unsatisfactory during the first half of the project but satisfactory during the second half and borrower appraisal performance as satisfactory - giving satisfactory overall\. Quality of ICR : Satisfactory NOTE: NOTE ICR rating values flagged with ' * ' don't comply with OP/BP 13\.55, but are listed for completeness\. 7\. Lessons of Broad Applicability: 1\. Careful analysis at appraisal of institutional capacity and capacity to provide counterpart funding is very important \. 2\. Ownership is vital in a capacity building project, but such a project can also build ownership \. 3\. Institutional development is a longer-term challenge than capacity building \. 4\. Close supervision enabled by field offices can contribute particularly to capacity building projects \. 8\. Assessment Recommended? Yes No Why? There are a number of potentially useful lessons related to scale and project design with a weak civil service\. Also there are questions about impact and sustainability which could be better answered after about another two years of operation \. 9\. Comments on Quality of ICR: Thoughtful lessons and satisfactory overall, but with some significant weaknesses \. There is no evidence presented on any outcomes or impact from the improved management, monitoring, research or extension \. While the project was predominantly a capacity building project some evidence beyond inputs and outputs should have been possible \.

REVIEW

P002779



REVIEW

P009544

 ICRR 10128 Report Number : ICRR10128 ICR Review Operations Evaluation Department 1\. Project Data : OEDID : OEDID: C2246 Project ID : P009544 Project Name : National Minor Irrigation Development Project Country : Bangladesh Sector : Irrigation & Drainage L/C Number : C2246 Partners involved : EEC Prepared by : Anthony J\. Blackwood, OEDST Reviewed by : Hernan Levy Group Manager : Roger Slade Date Posted : 08/13/1998 2\. Project Objectives, Financing, Costs and Components : An IDA credit of US$54 million was approved in FY91 and closed as planned in FY 98, with US$52\.1 million canceled\. The EEC/EU provided a grant of US$88 million, of which US$19\.1 million was drawn and financed technical assistance\. The main objective of the project was to promote faster agricultural growth through increased private sector development of minor irrigation \. Main components were: (a) Irrigation and drainage development by deep tubewells (DTW) where needed, low lift pumps (LLP) and pontoon mounted pumps for surface irrigation in coastal areas, and upgrading of drainage channels; (b) Demonstrations of irrigation systems; (c) Environment protection (studies, monitoring and data management, rehabilitation of domestic water supplies and training ); (d) Training and information dissemination; (e) Institutional development (transitional support for privatization of tubewell operations); and (f) Project implementation support via technical assistance \. After joint reviews with EEC in 1995, the project scope was reduced by de -emphasizing DTWs in favor of shallow tubewell pumps lowered into open pits (pit wells), dropping or greatly reducing the size of other irrigation components, but expanding promotional activities to include the whole tubewell industry, increasing the cost of the TA component, and handing over most monitoring and support functions to government agencies \. Actual project costs came to US$25\.2 million, mostly for technical assistance funded by the EEC grant, compared to estimated costs at appraisal of US$ 171\.1 million (incl\. US$35 million for TA)\. 3\. Achievement of Relevant Objectives : During a start up delay of over 19 months, caused by the late arrival of the technical assistance team financed by the EEC, there were changes in prices, which - with other factors as in 5\. below - resulted in very low farmer demand for DTWs or surface irrigation expansion in coastal areas \. Agricultural production growth from minor irrigation continued strongly, however, since during the period shallow tubewell development maintained the high average growth rate of the late 1980s of 23 percent\. The ICR attributes most incremental tubewells to high returns and supportive policies, enhanced by a broad range of promotional activities under the project \. On that basis it reestimated the economic rate of return at 12 percent, compared with 57 percent (corrected for error) at appraisal\. Thus the ICR attributes this outcome to the project TA component, about which it has reservations on technical contributions, and to policy changes which had also been supported by two companion projects (Loan 1045 and Credit 2253)\. Environmental activities were less than planned and had limited results, but a start was made on ecological monitoring \. 4\. Significant Achievements : Deregulation of minor irrigation is a substantial achievement which has allowed a dynamic private sector irrigation industry to expand and flourish, with significant positive equity impacts, but this was underway before the project was approved\. Sector dialogue and support from two companion projects, one approved a year earlier, in cooperation with other development partners, was successful in achieving the withdrawal of government from most tubewell operations and the removal of distorting subsidies \. Farmers and entrepreneurs responded to general deregulation of minor irrigation more vigorously than anticipated, which made project activities of less significance \. 5\. Significant Shortcomings : The project concept and design were ambitious and complex and then proved flawed during a period of rapid change\. Farmers did not adopt deep tubewells but aided by liberalization of minor irrigation (under the two companion projects) were able to expand groundwater use with their own resources \. There was very little demand for surface irrigation development, and the pontoon scheme and demonstration components were dropped \. Reasons given for the failure of the project's deep tubewell strategy are a mixture of project design deficiencies and changed conditions including the high investment costs for DTWs; difficulty for farmers to operate and maintain DTWs because of their complex technology and the absence of local repair shops; sharply increased fuel costs and lower rice prices; the difficulty of forming farmer groups for joint investment and management; lack of credit, and the highly profitable shallow tubewell technology in the dynamic and recently deregulated private market \. At appraisal the profitability of DTWs was exaggerated by over -optimistic assumptions on service areas, and also the capability of farmers to innovate with pit wells for deeper watertables was not foreseen\. The surface water and demonstration components were hampered by institutional constraints and lack of farmer interest \. The extraordinarily large technical assistance team, which was increased at the MTR, exceeded reasonable levels for such a project and is hard to justify\. Moreover, it failed to provide the technical support needed on tubewell specifications, gave inadequate technical support to IDA supervision and (unusually) reported to the cofinancier rather than to the borrower\. (Comments received from the cofinancier after the ICR was completed do not question the ICR's criticisms of the technical assistance component \.) 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Marginally Satisfactory Attribution is tenuous Institutional Dev \.: Partial Substantial Broader definition than ICR Sustainability : Likely Likely Bank Performance : Satisfactory Unsatisfactory Underestimated private sector potential, slow to take remedial action and did not deal with excessive TA component \. Borrower Perf \.: Satisfactory Satisfactory Quality of ICR : Satisfactory 7\. Lessons of Broad Applicability : (i) Implementation rates of projects that depend on farmer and community initiatives are difficult to predict, and hence a start is best made with flexible small scale initiatives which can be adapted and expanded according to demand; (ii) Social organizers are needed in projects that require beneficiaries to take new community initiatives to obtain project benefits; (iii) Appointment of key implementation staff should be a condition of board presentation or effectiveness to avoid the risk of long delays; and (iv) Where benefits depend greatly on technical innovations, adequate arrangements should be made for appropriate technical support \. 8\. Audit Recommended? Yes No Why? (a) Examine need for and use of extraordinarily large TA resources, incl \. why this did not ensure that adequate technical advice and appropriate technology was made available; (b) Review benefits and attribution issues relating to the ERR reestimate \. 9\. Comments on Quality of ICR : The ICR is rated of satisfactory quality, but the absence of comments from the EU on the surprisingly large TA component it financed leaves some unanswered questions which the ICR does not explore adequately \. The ICR probably overstates the impact of the project on the growth of minor irrigation during the period \.

REVIEW

P125961

Document of The World Bank FOR OFFICIAL USE ONLY Report No: ICR00005610 IMPLEMENTATION COMPLETION AND RESULTS REPORT IDA H7920 and TF 13093 ON A GRANT IN THE AMOUNT OF SDR 82\.8 MILLION (US$125 MILLION EQUIVALENT) AND AN ARTF GRANT IN THE AMOUNT OF US$312 MILLION TO THE ISLAMIC REPUBLIC OF AFGHANISTAN FOR THE AFGHANISTAN RURAL ACCESS PROJECT September 8, 2021 Transport Global Practice South Asia Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\. Official Use  CURRENCY EQUIVALENTS (Exchange Rate Effective September 8, 2021) Currency Unit = Afghani (AFN) AFN 86\.87 = US$1 US$1\.43 = SDR 1 FISCAL YEAR December 21 – December20 Regional Vice President: Hartwig Schafer Country Director: Melinda Good Regional Director: Guangzhe Chen Practice Manager: Shomik Raj Mehndiratta Task Team Leader(s): Mohammad Ajmal Askerzoy, Abdul Hameed Khalili ICR Main Contributor: Muhammad Bilal Paracha Official Use  ABBREVIATIONS AND ACRONYMS AF Additional Financing ANDS Afghanistan National Development Strategy ARTF Afghanistan Reconstruction Trust Fund ARAP Afghanistan Rural Access Project ANPDF Afghanistan National Peace and Development Framework CBI Cost per Beneficiary Index CDC Community Development Council EIRR Economic Internal Rate of Return ESMF Environmental and Social Management Framework ESMP Environmental and Social Management Plan FCV Fragility, Conflict, and Violence FM Financial Management GIS Geographic Information System GRM Grievance Redress Mechanism HDM-4 Highway Development and Management Model ICR Implementation Completion and Results Report ISM Implementation Support Mission ISN Interim Strategy Note ISR Implementation Status and Results Report M&E Monitoring and Evaluation MPW Ministry of Public Works MMRD Ministry of Rural Rehabilitation and Development MTR Midterm Review MOT Ministry of Transport NEEP National Emergency Employment Program NPV Net Present Value NRAP National Rural Access Program OHS Occupational Health and Safety PCC Plain Cement Concrete PDO Project Development Objective PIU Program Implementation Unit RMS Road Management System ToC Theory of Change TPM Third-Party Monitoring UNOPS United Nations Office for Project Services Official Use  TABLE OF CONTENTS DATA SHEET \. 1 I\. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES \. 5 A\. CONTEXT AT APPRAISAL \.5 B\. SIGNIFICANT CHANGES DURING IMPLEMENTATION \.9 II\. OUTCOME \. 11 B\. ACHIEVEMENT OF PDOs (EFFICACY) \.12 C\. EFFICIENCY \.15 D\. JUSTIFICATION OF OVERALL OUTCOME RATING \.17 E\. OTHER OUTCOMES AND IMPACTS \.18 III\. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME \. 19 A\. KEY FACTORS DURING PREPARATION \.19 B\. KEY FACTORS DURING IMPLEMENTATION \.20 IV\. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME \. 21 A\. QUALITY OF MONITORING AND EVALUATION (M&E) \.21 B\. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE \.22 C\. BANK PERFORMANCE \.24 D\. RISK TO DEVELOPMENT OUTCOME \.25 V\. LESSONS AND RECOMMENDATIONS \. 25 ANNEX 1\. RESULTS FRAMEWORK AND KEY OUTPUTS \. 27 ANNEX 2\. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION \. 37 ANNEX 3\. PROJECT COST BY COMPONENT \. 39 ANNEX 4\. EFFICIENCY ANALYSIS \. 40 ANNEX 5\. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS \. 44 ANNEX 6\. SUPPORTING DOCUMENTS \. 45 ANNEX 7\. PROJECT PICTURES \. 46 ANNEX 8\. SUMMARY OF BENEFICIARY SURVEY \. 47 Official Use  The World Bank Afghanistan Rural Access Project (P125961) DATA SHEET BASIC INFORMATION Product Information Project ID Project Name P125961 Afghanistan Rural Access Project Country Financing Instrument Afghanistan Investment Project Financing Original EA Category Revised EA Category Partial Assessment (B) Partial Assessment (B) Related Projects Relationship Project Approval Product Line Supplement P149597-Additional 13-Jun-2017 Recipient Executed Activities financing for Afghanistan Rural Access Project Organizations Borrower Implementing Agency Ministry of Transport, Ministry of Rural Reconstruction Islamic Republic of Afghanistan and Development Project Development Objective (PDO) Original PDO The project development objective is to enable rural communities to benefit from all-season road access to basic services and facilities\. Revised PDO The PDO is to enable (a) rural communities to benefit from all-season road access to basic services and facilities and (b) an earlyemergency response in the event of an eligible crisis or emergency\. Page 1 of 48 Official Use  The World Bank Afghanistan Rural Access Project (P125961) FINANCING Original Amount (US$) Revised Amount (US$) Actual Disbursed (US$) World Bank Financing P125961 IDA-H7920 125,000,000 125,000,000 121,422,008 P125961 TF-13093 312,000,000 282,000,000 274,576,225 Total 437,000,000 407,000,000 395,998,233 Non-World Bank Financing 0 0 0 Borrower/Recipient 0 0 0 Total 0 0 0 Total Project Cost 437,000,000 407,000,000 395,998,233 KEY DATES Project Approval Effectiveness MTR Review Original Closing Actual Closing P125961 26-Jun-2012 12-Aug-2012 15-Sep-2015 31-Mar-2018 31-Dec-2020 RESTRUCTURING AND/OR ADDITIONAL FINANCING Date(s) Amount Disbursed (US$M) Key Revisions 04-Mar-2018 327\.79 Change in Loan Closing Date(s) 06-Mar-2020 393\.34 Change in Components and Cost Change in Loan Closing Date(s) Cancellation of Financing Reallocation between Disbursement Categories Change in Implementation Schedule KEY RATINGS Outcome Bank Performance M&E Quality Satisfactory Satisfactory Substantial Page 2 of 48 Official Use  The World Bank Afghanistan Rural Access Project (P125961) RATINGS OF PROJECT PERFORMANCE IN ISRs Actual No\. Date ISR Archived DO Rating IP Rating Disbursements (US$M) 01 16-Dec-2012 Satisfactory Satisfactory 5\.00 02 09-Jun-2013 Satisfactory Satisfactory 10\.50 03 09-Nov-2013 Satisfactory Satisfactory 19\.58 04 17-Jun-2014 Satisfactory Satisfactory 61\.63 05 31-Jul-2014 Satisfactory Satisfactory 70\.94 06 30-Jan-2015 Satisfactory Satisfactory 127\.93 07 06-Aug-2015 Satisfactory Satisfactory 160\.87 08 18-Nov-2015 Satisfactory Satisfactory 186\.49 09 16-May-2016 Satisfactory Satisfactory 238\.68 10 10-Nov-2016 Satisfactory Satisfactory 261\.00 11 26-Jun-2017 Satisfactory Satisfactory 279\.48 12 02-Jan-2018 Satisfactory Satisfactory 327\.79 13 17-Jul-2018 Satisfactory Moderately Satisfactory 327\.79 14 31-Jan-2019 Satisfactory Moderately Satisfactory 346\.12 15 22-Aug-2019 Satisfactory Moderately Satisfactory 385\.38 16 05-Feb-2020 Satisfactory Moderately Satisfactory 393\.34 17 13-Aug-2020 Satisfactory Moderately Satisfactory 393\.33 SECTORS AND THEMES Sectors Major Sector/Sector (%) Transportation 100 Public Administration - Transportation 5 Rural and Inter-Urban Roads 95 Page 3 of 48 Official Use  The World Bank Afghanistan Rural Access Project (P125961) Themes Major Theme/ Theme (Level 2)/ Theme (Level 3) (%) Social Development and Protection 100 Fragility, Conflict and Violence 100 Conflict Prevention 50 Post-conflict reconstruction 50 ADM STAFF Role At Approval At ICR Regional Vice President: Isabel M\. Guerrero Hartwig Schafer Country Director: Robert J\. Saum Melinda Good Director: John Henry Stein Guangzhe Chen Practice Manager: Binyam Reja Shomik Raj Mehndiratta Mohammad Ajmal Askerzoy, Task Team Leader(s): Mesfin Wodajo Jijo Abdul Hameed Khalili ICR Contributing Author: Muhammad Bilal Paracha Page 4 of 48 Official Use The World Bank Afghanistan Rural Access Project (P125961) I\. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES A\. CONTEXT AT APPRAISAL Context 1\. In 2002, the Government of Afghanistan launched the National Emergency Employment Program (NEEP), which focused on job creation and livelihood restoration through the maintenance of rural infrastructure\. This was followed in 2005 by the National Rural Access Program (NRAP)\. Over 15,000 km of rural roads were rehabilitated under NRAP/NEEP, that is, 10 percent of the rural road network\. These projects were financed through IDA, the Afghanistan Reconstruction Trust Fund (ARTF), and other funds managed by various international donors, and their scope also included capacity development of the Ministry of Public Works (MPW) and the Ministry of Rural Rehabilitation and Development (MRRD) for better administration of rural roads\. 2\. At the time of project preparation, road infrastructure in Afghanistan was in a dilapidated condition due to decades of civil war and political unrest\. Natural calamities, including droughts, snowstorms, landslides, and flash floods, further aggravated the condition of the network\. About half of the rural road network (50,700 km) was in fair to bad condition and over one-third (33,800 km) was barely accessible\. Hence, accessibility to basic services, including workplaces, markets, education, and health facilities, was limited\. Besides, the cost of transportation remained a huge burden due to the lack of connectivity and transport services\. The formal maintenance regime was also practically nonexistent\. However, in some cases the communities mobilized their own resources to develop and maintain a few roads\. 3\. The project was a follow-up to the World Bank’s earlier engagement to support rural roads, accessibility, and institutional development in the country—the National Emergency Rural Access Project (P103343) 1\. Improving rural access was also expected to enhance the overall impact of the World Bank’s support for the health and education sectors\. The success of the predecessor project provided the rationale to continue the World Bank’s involvement in the sector\. 4\. This project was aligned with the Government’s national priority programs with a broader vision of enhancing human security and equitable economic growth and integrating the rural economy to the regional market, through the provision of sustainable rural access to basic services\. The project was also in line with the World Bank’s ISN 2009–2011, which focused on promoting the growth of the rural economy and improving rural livelihoods, and ISN 2012–2014, which focused on institutions and programs that can sustainably ensure equitable delivery of basic services across the country and for all Afghans\. Theory of Change (Results Chain) 5\. The project’s theory of change (ToC), as depicted in figure 1, was prepared by the Implementation Completion and Results Report (ICR) team based on the available project documents\. 1 As envisaged in the World Bank’s Afghanistan Interim Strategy Notes (ISNs) for 2009–2011 and 2012–2014 Page 5 of 48 Official Use The World Bank Afghanistan Rural Access Project (P125961) Figure 1\. Retrofitted ToC Prepared at ICR Stage Note: PIU = Program Implementation Unit, Km = Kilometers, m= meters, IC= institutional capacity, Component-D was not triggered during the project implementation\. Project Development Objectives (PDOs) 6\. At the time of the project design the PDO was to enable rural communities to benefit from all- season road to access basic services and facilities\. Key Expected Outcomes and Outcome Indicators 7\. The key expected outcomes of the project were • [65%] percent of rural population living within 2 km of all-season roads in the project area; • [30%] percent reduction in travel time by a 4-wheel drive vehicle along roads improved under the project; and • Increased frequency of trips to the nearest essential services (including town markets, schools, and health facilities) connected by the roads improved under the project\. Components 8\. At the time of Board approval the project had three components\.2 2 As outlined in Schedule 1 of the ARTF Grant Agreement (ARTF Grant Number TF013093)\. Page 6 of 48 Official Use The World Bank Afghanistan Rural Access Project (P125961) Component A: Improvement and maintenance of secondary roads 9\. This component was implemented by the MPW and required carrying out road works for (a) Improvement of unpaved secondary roads to paved standards; (b) Upgrading of paved secondary roads to bituminous surface; (c) Construction of bridges on secondary roads; (d) Periodic maintenance of unpaved secondary roads; (e) Periodic maintenance of paved secondary roads; (f) Routine maintenance of paved and unpaved secondary roads; and (g) Emergency maintenance of secondary roads\. 10\. Strengthening the capacity of the MPW PIU for day-to-day implementation of the project, including compliance with financial, environmental, and procurement management; reporting requirements; and monitoring and supervision activities\. Component B: Improvement and maintenance of tertiary roads 11\. This component was implemented by the MRRD and required carrying out road works for (a) Rehabilitation of tertiary roads; (b) Periodic maintenance of tertiary roads; (c) Routine maintenance of tertiary roads; (d) Emergency maintenance of tertiary roads; and (e) Construction of bridges on tertiary roads\. 12\. Strengthening the capacity of the MRRD PIU for day-to-day implementation of the project, including compliance with financial, environmental, and procurement management; reporting requirements; and monitoring and supervision activities\. Component C: Program planning and development, institutional strengthening, and program coordination support 13\. This component was proposed in continuation of activities launched under the National Emergency Rural Access Project for capacity-building initiatives of the MPW and MRRD in the areas of financial management (FM), road maintenance contracting, and outsourcing of maintenance\. It had the following subcomponents: (a) Setting up a rural roads planning and management system, including (i) Establishing a rural road network inventory system and carrying out the first cycle inventory; Page 7 of 48 Official Use The World Bank Afghanistan Rural Access Project (P125961) (ii) Developing a comprehensive set of rural road design standards, including improvement of cost estimation system and productivity norms, and updating the technical specifications; and (iii) Establishing a network planning, development, and management system, including a mechanism for the definition of appropriate service levels and appropriate techniques for economic appraisal, a system for the short-, medium- and long-term rural road maintenance, and a system for preparing a rolling five-year investment plan for rural roads\. (b) Institutional strengthening and capacity building in the rural road sector, including (i) Carrying out a study of the laws, regulations, organizational structure, and the human resource capacity of the rural road sector and proposing necessary changes and strengthening measures; (ii) Preparing and implementing a comprehensive capacity development plan for public sector staff responsible for NRAP; (iii) Providing six (6) months on-the job training for some fifty (50) fresh graduates per year from engineering and social science fields; (iv) Support to some one hundred and forty (140) internship students of engineering and social science universities per year through the provision of incentives during their research and practical period; (v) Sponsoring Master’s Degree programs for about twenty (20) program staff through national and international academic institutions; (vi) Capacity building of the domestic construction industry through specialized publications, seminars, workshops, and training programs; and (vii) Constructing regional functional buildings and material laboratories in eight (8) regions and enhancing the program library and archive consolidation\. (c) Program coordination support, including (i) Financing the operating costs of the National Coordination Unit; (ii) Supporting the monitoring and evaluation (M&E), baseline and follow-up survey, technical support for the midterm review (MTR), technical and financial audits, and fiduciary and safeguard control measure for the MPW and MRRD; (iii) Preparing a public relations program and implementation; and (iv) Support for the establishment of a road agency, study tours, and sector studies\. Page 8 of 48 Official Use The World Bank Afghanistan Rural Access Project (P125961) B\. SIGNIFICANT CHANGES DURING IMPLEMENTATION 14\. The project was provided additional financing (AF) effective July 20, 2017, to cover a financing gap of US$155 million 3 (after the reallocation of US$7 million from project management support to civil works)\. This gap developed due to (a) a cost increase of US$72 million to include all-weather resilience in road designs and the change in the value of the Special Drawing Rights (SDR) in relation to the US dollar 4 and (b) the scaling-up of activities under the respective project components, amounting to US$83 million, to increase the all-season road access coverage\. 15\. The project received AF and was restructured twice, to make the following changes: (a) a 23- month extension in the ARTF grant closing date from March 31, 2018, to March 15, 2020; (b) the addition of a contingency emergency response component 5 and a change in the PDO to reflect this additional component; (c) the revision of two PDO indicators relating to gender-disaggregated data and increased beneficiaries from the scale-up; 6 (d) a subsequent extension of the IDA grant closing date from March 31, 2018, to March 15, 2020; 7 (e) extension of the IDA grant closing date from March 15, 2020, to December 31, 2020; and (f) cancelation of US$30 million under uncommitted funds\. 8 In addition, a Level 1 restructuring was also processed along with the AF due to the triggering of a new safeguards policy (OP/BP 4\.11 Physical Cultural Resources)\. Revised PDOs and Outcome Targets 16\. The language of the PDO was modified slightly under the AF to better reflect the additional component and the assessment of indicators, that is, the addition of an emergency response mechanism as a fourth component to allow a quick response to potential major natural and man-made disasters\. The revised PDO 9 is to enable (a) rural communities to benefit from all-season road access to basic services and facilities and (b) an early emergency response in the event of an eligible crisis or emergency\. 3 US$155 million was requested and approved under the AF and was termed Scenario 2\. However, only US$105 million was released and made available (termed Scenario 1, confirmed)\. See tables 2\.5 and 2\.6 of the AF Project Paper\. 4 Of which, US$69 million for revised designs to meet site and climate resilience requirements and US$3 million for SDR depreciation\. 5 Added to enable the Government to mobilize adequate resources and funds in response to any emergencies and/or natural disasters\. 6 (a)–(c) processed under the AF\. 7 (d) processed under the first restructuring (March 2018)\. 8 (e)–(f) processed under the second restructuring (March 2020)\. 9 According to the restructuring paper (March 2020)\. Page 9 of 48 Official Use The World Bank Afghanistan Rural Access Project (P125961) Revised Components 17\. The changes to each component are detailed in the following paragraphs\. Component A: Improvement and maintenance of secondary roads 10 18\. The scope of this component was increased as follows: improvement of secondary roads and construction of bridges—an increase of 100 km 11 of asphalt roads—and the construction of an additional 700 m 12 of bridges\. 19\. The roads under the AF focused on enhancing the secondary road network connectivity by filling the network’s basic connectivity gaps because of unpaved roads and upgrading roads with large traffic volumes to paved standards to sustain proper service levels\. Priority was given to the provinces that were affected the most due to the conflict and were not part of previous development initiatives\. These include the provinces of Bamyan, Nuristan, and Badaskhan\. 20\. The roads and bridges were identified, selected, and prioritized based on a robust multi-criteria analysis (see annex 4)\. The secondary roads proposed for upgrading to a higher standard, including paving, were required to have a traffic volume of at least 300 vehicles per day as a matter of MPW policy\. In addition, the proposed investments should either have an economic rate of return that is at least equal to or greater than the opportunity cost of capital or a net present value (NPV) that is positive at a discount rate of 12 percent\. 21\. Bridges were prioritized based on the population that was provided year-round access and the likely traffic volumes, relative to the investment cost of the bridge\. For example, priority was given to the bridges that connect villages to roads that are already improved but also considering the population served\. Component B: Improvement and maintenance of tertiary roads 22\. The scope was increased as follows: (a) Rehabilitation of 1,300 km of tertiary roads\. An additional 300 km 13 of roads was added with an estimated cost of US$34 million\. (b) Construction of 1,600 m of bridges (600 m 14 was added)\. (c) Routine maintenance of about 2,000 km (1,800 km 15 of roads was added)\. (d) Project management and implementation support\. 10 Figures according to the AF Paper page 11 and annex 1\. 11 Scenario 1 [US$105 million]: No increase, Scenario 2[US$ 155m]: 100 km\. 12 Scenario 1: No increase, Scenario 2: 700 m\. 13 Scenario 1: 120 km, Scenario 2: 300 km\. 14 Scenario 1: No increase, Scenario 2: 350 m\. 15 Scenario 1: 3,750 km, Scenario 2: 5,000 km\. Page 10 of 48 Official Use The World Bank Afghanistan Rural Access Project (P125961) 23\. The estimated saving of US$1\.5 million was reallocated to the subcomponent on rehabilitation and maintenance of tertiary roads due to the increase in the scope of works (additional roads and supervision)\. 24\. The AF supported tertiary road network accessibility by extending the network coverage to isolated villages and improving road conditions to support agricultural products and rural development\. This helped in improving road conditions and travel time\. The roads and bridges were identified, selected, and prioritized based on a robust multi-criteria analysis mostly covering social aspects (details are provided in annex 4)\. Component C: Program planning and development, institutional strengthening, and program coordination support 25\. The following subcomponents were scaled up: (a) Setting up a rural roads planning and management system\. An additional US$5 million was proposed for the Kabul-Jalalabad-Torkham-Peshawar expressway feasibility study and for local road network planning in the Kabul-Jalalabad-Torkham-Peshawar corridor\. (b) Institutional strengthening and capacity building\. An additional US$2 million was provided to sponsor vocational training and other support for technical capacities, including assistance for key studies for sector reform and public-private partnerships\. (c) Program coordination support\. About US$3 million was added to address the financial loss due to the SDR-US dollar exchange rate changes\. Component D: Contingency emergency response 26\. This zero-dollar component was added as part of the AF to enable a quick response to potential major natural and man-made disasters\. It would be activated under a predetermined criterion if the need arose\. Rationale for Changes and Their Implication on the Original Theory of Change 27\. As indicated earlier, the AF and the restructurings were processed to cover the financing gap due to the cost overrun and to scale up activities\. These changes are reflected in the ToC\. II\. OUTCOME 16 A\. RELEVANCE OF PDOs 28\. Relevance of the PDO is rated High\. 16Due to COVID-19 travel restrictions, no site visit was conducted\. The project has been assessed based on the available official documents and discussions with the team members\. Page 11 of 48 Official Use The World Bank Afghanistan Rural Access Project (P125961) Assessment of Relevance of PDOs and Rating 29\. At the time of project closing in December 2020, the PDO remained highly relevant to the World Bank Group’s Afghanistan Country Partnership Framework (CPF) for FY17–FY20 (Report No\. 108727-AF)\. The PDO is aligned with Pillar 2: Supporting Inclusive Growth and Pillar 3: Social Inclusion\. The project is consistent with the CPF Objective 2\.2: 17 improved domestic and regional integration, Objective 3\.1: improved human development, and Objective 3\.3: improved government and community capacity to manage and respond to natural disasters\. In addition, the PDO is aligned with Pillar 3: Economic and Social Development of the Afghanistan National Development Strategy (ANDS) 18 and the Afghanistan National Peace and Development Framework (ANPDF)\. 19 Both ANDS and ANPDF aimed to provide all-weather connectivity between the communities and to the urban centers, resulting in reduced transport costs and thus improving livelihoods\. In addition, improved access to health and education would improve human development\. Climate-resilient infrastructure would help the communities better respond to natural disasters\. B\. ACHIEVEMENT OF PDOs (EFFICACY) Assessment of Achievement of Each Objective/Outcome 30\. The PDO is to (a) to enable rural communities to benefit from all-season road to access basic services and facilities and (b) an early emergency response in the event of a crisis or an emergency\. However, this assessment of efficacy is based only on PDO (a), as PDO (b) was not triggered\. As indicated in the ToC, all components and subcomponents of the project contributed significantly toward achievement of the PDO\. 31\. Component A: Improvement and maintenance of secondary roads\. At completion, the project successfully improved and maintained 890 km (89 percent of the target) of gravel and 289 km (116 percent of the target) of asphalt roads with respect to the original scope of works and constructed 1,480 m (110 percent of the target) of bridges, thus improving mobility and connectivity between rural communities\. In addition, routine and periodic maintenance work was also completed on 2,150 km of roads (115 percent of the target) contracted out to local communities\. To ensure all-weather serviceability of the network, 43 emergency and post-disaster maintenance contracts 20 were implemented\. 32\. Component B: Improvement and maintenance of tertiary roads\. At completion, the project successfully improved and maintained 1,550 km (109 percent of the target) of roads with respect to the original scope of works and constructed 1,980 m (110 percent of the target) of bridges, thus improving mobility and connectivity between rural communities\. In addition, routine and periodic maintenance work on 5,635 km of roads contracted out to local communities was also successfully completed\. To ensure all- weather serviceability of the network, 895 emergency and post-disaster maintenance contracts 21 were implemented\. 17 World Bank Group’s Afghanistan Country Partnership Framework (CPF) for FY17–FY20 (Report No\. 108727-AF)\. 18 Economic and Social Development - Transport: ANDS 1387–1391 (2008–2013)\. 19 Section 5\.5: Economic Growth and Job Creation and 5\.6: Poverty Reduction and Social Inclusion of ANPDF (2017–2021)\. 20 Client Project Closure Report, June 2020\. 21 Client Project Closure Report, June 2020\. Page 12 of 48 Official Use The World Bank Afghanistan Rural Access Project (P125961) 33\. Component C: Program planning and development, institutional strengthening, and program coordination support\. Under this component, the geographic information system (GIS)-based road inventory, along with a condition survey, was completed in 33 out of 34 provinces\. This is an important milestone, which would support sustainable maintenance of existing assets and would provide guidance for strategic interventions, especially while planning new infrastructure\. The institutional strengthening subcomponent helped train 500 staff of the respective PIUs and offered internships to 2,000 fresh graduates, including 20 female graduates\. A beneficiary satisfaction survey 22 carried out under this component rated overall satisfaction at 3\.95 out of 5; female respondents were more satisfied compared to male beneficiaries\. 34\. The achievement of PDO indicators and intermediate outcome indicators for the project are presented in table 1\. Table 1\. Achievement of PDO Indicators and Intermediate Outcome Indicators PDO Outcome indicators Target 23 Baseline at Project Achieved at 24 Project Start Completion Indicator description Percent of rural population living 65 percent 58 percent 89 percent within 2 km of all-season roads in the project area Percent reduction in travel time by a 30 percent reduction • Public clinic - 1 • Public clinic - 0\.5 4-wheel drive vehicle along improved hour hour [50 percent roads under the project • Public hospital - 2 reduced 25] hours • Public hospital - 1\.4 • District centers - hours [30 percent 1\.8 hours reduced] • Provincial centers - • District centers - 6\.4 hours 1\.4 hours [22\.2 • Closest market - percent reduced] 1\.4 hours • Provincial centers - 2\.1 hours [67\.1 percent reduced] • Closest market - 1\.25 hours [11 percent reduced] Increased frequency of trips to Male Male Male nearest essential services (including • 48 percent travel • 42 percent travel • 63\.1 percent travel town markets, schools, and health daily to/from daily to/from daily to/from facilities) connected by the roads village district village district village district improved under the project centers centers centers [50\.2 percent increased 26] 22 Final report, December 2020\. Summary under annex 7\. 23 According to annex 1 of the AF Paper\. 24 According to annex 1 of the Aide Memoire for Virtual Mission (November 9–23, 2020)\. 25 With reference to Baseline at project start\. 26 With reference to Baseline at project start\. Page 13 of 48 Official Use The World Bank Afghanistan Rural Access Project (P125961) PDO Outcome indicators Target 23 Baseline at Project Achieved at 24 Project Start Completion Indicator description • 45 percent travel • 39 percent travel • 60\.8 percent travel to/from to/from provincial to/from provincial provincial and and other and other locations other locations locations within within the province within the the province [55\.8 percent province increased] Female • 23 percent travel Female Female daily to/from • 20 percent travel • 17\.2 percent travel village district daily to/from daily to/from centers village district village district • 18 percent travel centers centers [14 percent to/from • 16 percent travel reduced] provincial and to/from provincial • 20\.6 percent travel other locations and other to/from provincial within the locations within and other locations province the province within the province [28\.7 percent increased] Intermediate outcome and output indicators Km of gravel surfaced secondary 1,000 — 890 roads rehabilitated Km of asphalt surface secondary 250 — 289 roads rehabilitated Construction of bridges on secondary 1,351 — 1,480 roads (meters) Km of secondary roads under routine 1,870 — 2,150 and periodic maintenance Km of gravel surface tertiary roads 1,420 — 1,550 rehabilitated Construction of bridges on tertiary 1,800 — 1,980 roads (meters) Km of tertiary roads under routine 3,750 — 3,500 and periodic maintenance Complete road inventory 100 percent Inventory available 95 percent complete but outdated and does not provide essential information Improved network management System in place No reliable system in System in place system in place place Design standards developed and Standard being Incomplete design Design standards adopted adopted standards adopted Cost estimation system developed System in place No reliable system in System in place and and fully functional place functioning Page 14 of 48 Official Use The World Bank Afghanistan Rural Access Project (P125961) PDO Outcome indicators Target 23 Baseline at Project Achieved at 24 Project Start Completion Indicator description FM system in MRRD and MOT System in place No reliable system in System in place and developed and functional place functioning Road sector organizational study To be conducted Not conducted Dropped prepared Justification of Overall Efficacy Rating 35\. The overall efficacy of the project is rated Substantial\. The project was able to achieve, and in some cases exceeded, the targets for construction, rehabilitation, and maintenance of the road network and bridges\. It helped rural communities improve and increase their accessibility to important basic services and urban centers, reduced the climate vulnerability of the network; and provided technical and financial support to better respond to emergency situations\. Setting up the network management system under the project was a significant milestone toward the sustainability of the network and for optimum utilization of available financial resources\. The impact of the COVID-19 pandemic in 2020 did not affect project completion due to the adoption of timely mitigation measures as advised by the relevant local authorities and there being few ongoing contracts to complete\. Further, the remaining works involved construction in open areas/sites where safe distances could be maintained\. 36\. The project helped connect provincial capitals and access more than 97 percent of district centers with four-wheel motor vehicles\. Most of the country’s 45,000 villages were made accessible through four- wheel vehicle roads, except for about 4,800 villages that have no motor vehicle access\. 27 Improved connectivity and network conditions contributed to an overall improvement (2011–2016) 28 of 3\.4 percent in the literacy rate 29 and 14\.4 percent in access to skilled antenatal care 30 across the country\. The bridges constructed and rehabilitated under the project were pivotal in providing all-weather connectivity among rural communities and enabling them to access public facilities and urban centers (see annex 7)\. Overall, achievements under the project (original and AF) were significant, despite Afghanistan being a fragile country with a volatile security situation\. C\. EFFICIENCY Assessment of Efficiency and Rating 37\. Economic efficiency\. The project involved the rehabilitation and maintenance of mostly unpaved secondary and tertiary roads, with the primary objective of providing reliable and all-weather access to essential services\. Motorized traffic on these roads was not substantial\. Hence, it is not feasible to carry out a traditional cost-benefit analysis for these roads and bridges\. For unpaved roads (secondary and 27 AF Paper\. 28 World Bank Afghanistan Time-Series Dashboard\. 29 Percentage of the total population ages 15 years and older who are literate, that is, able to read and write\. 30 Percentage of women ages 49 years and younger, ever married, who during their last pregnancy reported at least one visit to a skilled medical staff\. Page 15 of 48 Official Use The World Bank Afghanistan Rural Access Project (P125961) tertiary), the economic viability was evaluated based on the cost per beneficiary index (CBI) 31 for the original project and AF\. There are no well-established criteria for determining the ‘opportunity cost’ threshold when ranking is based on the CBI\. However, compared with other World Bank rural road projects, the overall CBI of project roads at appraisal and completion were found economically justifiable, that is, lower than the US$490 per beneficiary 32 set as the threshold in a 2006 World Bank-funded project in Morocco\. 38\. At appraisal, the overall CBI for secondary roads after detailed design with new cost estimates remained in the range of US$120 to US$240 per beneficiary, 33 with an average of US$207 per beneficiary, 34 which is well below the threshold\. At completion, the CBI reduced by almost US$99, with an average of US$108 per beneficiary, 35 due to the (a) appreciation of the US dollar against the Afghani 36 and (b) reduction in costs because of site requirements\. 39\. The average CBI for tertiary roads (paved and unpaved) and bridges after detailed design with new cost estimates varied in the range of US$44 (unpaved) to US$62 (paved) per beneficiary, 37 with an average of US$94 per beneficiary which is well below the threshold\. At completion, the average CBI (using costs at completion) reduced by US$50, with an average of US$44 per beneficiary\. 40\. For a few roads, the CBI at completion crossed the threshold but met the criteria and principles set both in the parent project and the AF to connect rural communities and improve all-weather accessibility\. Keeping in view the lack of security, the underdeveloped construction industry, the capacity constraints of PIUs, and currency devaluation, the CBIs at completion are about what can be expected in an FCV country such as Afghanistan\. Table 2\. Average CBIs Type of Road Average CBI (US$) At Appraisal At Completion Secondary roads (unpaved) 207 108 Tertiary roads (paved and 94 44 unpaved) and bridges 41\. For paved secondary roads, economic viability was evaluated using the Highway Development and Management Model (HDM-4)\. Despite a cost increase after detailed design, the EIRRs for these roads at appraisal remained at least 18\.3 percent 38 and increased by 48 percent at completion with the lowest value of 27 percent\. The total NPV at appraisal was US$276 million and increased by 10 percent at completion, that is, to US$305 million\. The EIRRs at project completion are higher than those estimated at appraisal primarily because of an overall reduction in contract costs\. All the contracts were in the local 31 CBI is the estimated cost divided by the estimated number of beneficiaries to establish cost effectiveness with respect to the number of beneficiaries served\. 32 The Caisse Pour le Financement Routier, with the Guarantee of the Kingdom of Morocco, for a Second Rural Roads Project\. Report No: 351 18-MA\. 33 AF Project Paper, annex 3\. 34 According to the data sheet available\. 35 According to the revised costs received from the PIUs\. 36 The contracts were made in local currency\. 37 AF Paper, annex 3\. 38 AF Paper, annex 3\. Page 16 of 48 Official Use The World Bank Afghanistan Rural Access Project (P125961) Afghani, which depreciated with respect to the US dollar during project implementation, and thereby resulted in savings\. Table 3\. EIRR and NPV Type of Road Minimum EIRR (percent) NPV (US$, millions) At Appraisal At Completion At Appraisal At Completion Secondary roads (paved) 18\.3 27 276 305 Note: EIRR = Economic Internal Rate of Return\. 42\. Design and implementation efficiency\. The project components were designed appropriately, with a focus on rehabilitation maintenance (routine and periodic) of secondary and tertiary roads, as well as new construction of bridges\. The roads and bridges were designed to enhance basic connectivity and upgrade roads with larger traffic volumes to paved standards 39 to address the needs of motorization\. The technical standards adopted for the construction and maintenance of roads and bridges conformed to the standards outlined by the American Association of State Highway and Transportation Officials (AASHTO)\. Cost-effective innovative options were adopted for durability and climate-resilient road surfacing 40 and causeways and culverts were also provided, which met the geographic and climatic needs of the country\. Despite the prevailing security conditions, as well as political challenges, construction progressed ahead of expectations and significantly improved the network condition\. 43\. Project costs increased due to scaling up, the lack of availability of reliable cost data during the preparation of appraisal estimates in Afghanistan’s FCV context, and an enhanced focus on climate resilience during implementation\. The project was extended thrice, for a total of 23 months, to complete the original scope of works as well as works under the AF\. There was a cancelation of US$30 million in uncommitted funds, which was largely the result of savings due to the depreciation of the Afghani against the US dollar\. At completion, a combined US$7\.63 million 41 of the ARTF grant and the IDA grant remained undisbursed due to (a) currency devaluation, 42 (b) payment of retention monies for the completed works, and (c) balance works 43 for which the payment was pending\. It is expected that this undisbursed amount will be disbursed by the end of the financial closing period, which was extended from April 2021 to June 2021\. 44 This surplus amount would be processed for cancelation at final closing\. 44\. Based on the above discussion, the efficiency of the project is rated Substantial\. D\. JUSTIFICATION OF OVERALL OUTCOME RATING 45\. Based on the ratings of relevance (High), efficacy (Substantial), and efficiency (Substantial), the overall outcome of the project is rated Satisfactory\. 39 Example: gravel road upgraded to asphaltic roads\. 40 Emulsified asphalt, fog seal, and otta seal\. 41 As of August 31, 2021 (operations portal)\. 42 Afghani versus US dollar\. The committed amount was in US dollars while the contracts were made in local Afghani\. 43 Six contracts were under implementation, that is, two contracts from the MRRD and four contracts from the MPW\. 44 Further information on processing of balance payments and submission of necessary documentation could not be made due to the absence of PIU staff owing to the deteriorating security situation and temporary pause on the Bank’s operations\. Page 17 of 48 Official Use The World Bank Afghanistan Rural Access Project (P125961) E\. OTHER OUTCOMES AND IMPACTS Gender 46\. The project (original and AF) was designed to ensure gender mainstreaming by strengthening the involvement of women at all stages, from community mobilization to consultation, implementation, and capacity building\. The project conducted 280 consultations with women (where around 6,800 women participated) and the PIUs established 348 female grievance redress committees\. During implementation, the project directly and indirectly hired 32 women who worked as gabion weavers, eight female engineers, 20 female interns, six female road cleaners, and two female bakers\. The project set up and maintained separate rest rooms for women\. In addition, 194 women filed grievances\. Through the beneficiary satisfaction survey, almost 36 percent of women confirmed that they were invited during the consultation phase\. 45 Female respondents were also found to be more satisfied with the project outcomes than male beneficiaries\. Institutional Strengthening 47\. One of the most significant achievements of the project was the success in developing implementation capacity in the client, which facilitated seamless transition of project management from the United Nations Office for Project Services (UNOPS)\. 46 The PIUs gradually took over implementation of the project from UNOPS within 18 months\. Almost 500 professionals received professional training under the project, and 11 staff were sponsored for a master’s degree program\. The technical capacity of the staff improved significantly and some of the PIU staff were promoted to high-level government positions (Deputy Minister of Public Works 47 was in the PIU earlier)\. Due to these trainings and close World Bank support, there was a gradual transfer of FM responsibilities to the relevant PIUs\. At project completion, FM staff in the PIUs had the lowest turnover among the Afghanistan PIUs, due to which disbursements were made on time and all covenants were complied with\. 48\. The project also helped in setting up a GIS-based road management system (RMS), which was previously nonexistent\. This will help the respective ministries plan and implement sustainable maintenance of the road network\. In addition, the project helped in the construction of nine regional offices and the development and installation of the project management information system\. The project unlocked business opportunities for local contractors and the allied construction industry\. During project implementation, the contractors were also provided technical trainings related to the environment, safeguards, gender, health, and safety\. Poverty Reduction and Shared Prosperity 49\. The project mitigated the potential impact of climate change through (a) route realignments to avoid areas with slopes/hydraulic sections vulnerable to climate risks, (b) enhanced slope protection and 45 Final report, December 2020\. 46 At project effectiveness, UNOPS was hired by the Government as the implementation consultant to fill the essential skill gaps for project implementation, for example, project management and fiduciary management, including procurement and FM\. 47 Who remained as Finance Manager at the PIU\. Page 18 of 48 Official Use The World Bank Afghanistan Rural Access Project (P125961) drainage structures, (c) changes in design standards for pavements that reflect a higher level of climate resilience, and (d) a decision to seal previously graveled roads for climate resilience\. 50\. The roads and bridges improved under the project (original and AF) provide rural communities (which comprise mostly poor people) year-round access to public facilities, markets, and workplaces\. Livelihoods have improved due to better connections between farms and marketplaces, and land values have appreciated\. The project has helped connect various communities and villages which were separated because either the roads and bridges were nonexistent or were damaged due to climate and political vulnerabilities\. The project helped generate 4\.5 million labor days of work despite a challenging FCV environment, which has seen an increase in the overall levels of conflict and poverty during the project period\. Innovations 51\. The project empowered the local communities and women by involving them in the process of identifying the roads for improvement and, in some cases, by involving them in construction activities (for example, gabion weaving by women) and community maintenance contracts\. Community mobilization during project preparation and implementation was one of the key factors for the project’s success\. Some of the areas under the project were not under the administrative control of the Government but were either controlled by various tribes or the opposition\. Hence, local elders and tribal leaders were consulted in all phases of the project\. This helped in overcoming the security and violence challenges in the project areas and created a sense of ownership among these communities\. In addition, continuous technical assistance under the project met the needs of the officials of the MPW and MRRD and helped set up a GIS-based network planning system\. 52\. At project completion, over 1,500 km of secondary roads and 3,500 km of tertiary roads were contracted to local communities for routine maintenance\. Periodic maintenance, which required mechanical equipment, was undertaken by local small- and medium-size contactors\. The project involved the use of emulsified asphalt, fog seal, and outer seal to help prevent gravel erosion, surface runoff, and dust\. In addition, the project also piloted the use of plain cement concrete (PCC), which proved to be cheaper and more efficient compared to asphalt roads\. 48 The project employed an independent third- party monitoring (TPM) consultant to collect additional evidence from sites and ensure that the project delivered the envisaged outputs and outcomes\. Community participation in all phases of the project, despite the FCV environment, was among the key factors for successful implementation of the project\. III\. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME A\. KEY FACTORS DURING PREPARATION 53\. The project was declared effective within three months after its approval\. It was designed carefully, keeping in mind national priorities (as outlined in the ANDS), the World Bank CPF, the capacity constraints of the MPW/MRRD, the dynamic political and security situation, and local culture\. The project 48PCC was found to be more effective due to availability of local skills, material, and machinery\. Besides this, the type of pavement was also suitable for the terrain and weather conditions\. Page 19 of 48 Official Use The World Bank Afghanistan Rural Access Project (P125961) ensured the participation of beneficiaries, including women, during project preparation\. The prioritization criteria for the selection of potential roads and bridges were pragmatic and simple and met the huge demand for maintenance and rehabilitation\. The scaling-up of activities under the AF reflected the project’s success and the needs of the country\. 54\. Initial cost estimates were not accurate due to the lack of reliable information at the time of appraisal\. However, due to the timely approval of the AF, this did not affect overall project implementation\. The project helped in developing an RMS but could not develop a bridge management system despite the construction of 3,900 m of new bridges under the original project and AF\. 55\. Risks were appropriately assessed at appraisal and remained the same for the AF\. All identified risks were well mitigated to facilitate effective implementation\. B\. KEY FACTORS DURING IMPLEMENTATION 56\. The AF was processed to cover the financing gap and scale up the original scope of works\. The closing dates of the IDA grant and the ARTF were extended thrice, mainly to allow sufficient time for the completion of the expanded works\. Factors Subject to the Control of the Government and/or Implementing Entities 57\. Project implementation was affected initially due to the delay in the finalization of designs and i procurement of civil works\. Consultants could not be appointed to conduct the feasibility for the Kabul- Jalalabad-Torkham-Peshawar expressway (under Component C of the project) despite the best efforts of the project agencies\. The study was subsequently dropped by senior government leadership\. 58\. The performance of the PIUs was affected by the turnover of project staff and in some cases due to delays in appointing their replacements; however, continuous capacity development and support to the PIUs helped in delivering the intended outputs\. This also facilitated seamless transition of project management from UNOPS\. FM performance was Moderately Satisfactory at completion due to the identification of expenses, which were not related to the project, and non-traceable vehicles and cameras\. However, these issues were resolved to the satisfaction of the World Bank\. The project had the least turnover of FM staff among donor-funded projects in the country and complied with all FM covenants\. Factors Subject to the World Bank Control 59\. World Bank support was proactive in the resolution of issues that emerged and provided timely guidance to the respective PIUs\. Due to security issues, the team mostly relied on field information collated by the supervision consultants, the respective PIUs, and an independent TPM consultant\. Findings of the regular Implementation Support Missions (ISMs) were appropriately recorded in the Implementation Status and Results Reports (ISRs)\. Factors outside the Control of Government and/or Implementation Entities 60\. Lack of adequate security was the biggest challenge that affected project implementation\. It resulted, in some cases, in the loss of lives of PIU staff\. Page 20 of 48 Official Use The World Bank Afghanistan Rural Access Project (P125961) 61\. The appreciation of the US dollar in relation to the SDR resulted in a US$3 million reduction in US dollar availability under the original IDA grant\. This was addressed as part of the AF\. The depreciation of the Afghani against the US dollar contributed to a part of the final undisbursed balance under the project, because the construction contracts were in local currency\. IV\. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME A\. QUALITY OF MONITORING AND EVALUATION (M&E) M&E Design 62\. The PDO and intermediate results indicators were generally well designed with baselines and realistic end targets to assess progress toward the achievement of the envisaged PDO and intermediate results\. The project, however, lacked indicators to measure the quality aspects of works, for example, indicators to measure the roughness of road surfaces\. Indicators pertaining to institutional strengthening and capacity building were broadly reflected in the Results Framework of the original project\. The AF added new indicators (for example, on job creation and people trained), but these did not capture the enhanced ability to deal with environmental and social safeguards\. Climate resilience could not be assessed well from the indicators in the Results Framework\. Moreover, the sustainability of the assets created and improved under the project were not captured well in the Results Framework\. 63\. The project adopted a three-tiered structure for M&E: (a) consultants were engaged for field-level supervision/implementation, (b) dedicated M&E units were established in the PIUs, and (c) an independent TPM consultant was engaged by the World Bank\. An Inter ministerial Steering Committee provided overall supervision and guidance throughout project implementation\. M&E Implementation 64\. The M&E was implemented as designed, and progress was monitored through the respective sources as outlined in the Results Framework Matrix\. The project M&E system evolved throughout the project implementation period through continuous improvements under AF and respective restructuring\. Due to security challenges, there were some delays in data collection, and field reporting relied on reports submitted by the supervision consultants, the TPM consultant, and the respective PIUs\. Considering, Afghanistan being a fragile country these delays were inevitable but didn’t affect the overall progress of works\. Both the PIUs prepared and submitted monthly, quarterly, and annual reports consistently until project closure\. 65\. The World Bank tracked progress on the PDO and key intermediate indicators as part of regular ISMs\. In addition to reporting on the Results Framework Matrix, these missions adequately covered the status, progress, and issues related to FM, procurement, safeguards, and disbursements\. The findings of these missions were candidly reflected through Aide Memoires, Management Letters, and ISRs\. Regular follow-ups were conducted by the project team to resolve any outstanding issues\. Page 21 of 48 Official Use The World Bank Afghanistan Rural Access Project (P125961) M&E Utilization 66\. The M&E reports and information were used to help the Government and World Bank management make informed decisions\. The robust monitoring system in place, along with the close involvement of the World Bank staff, helped in timely identification of issues during implementation, including the financing gap due to the changes in scope and the associated time extensions\. Timely decisions ensured smooth implementation, despite the social, political, and security challenges\. The project’s M&E system generated periodic reports for different stakeholders during project implementation\. In 2018, the project’s M&E team reported that the MPW would not be able to complete the planned works on secondary road rehabilitation by the closing date\. 49 The project management team discussed the issue at the highest levels and with the World Bank team, and a strategic decision was made to move some of the contracts from the MPW to the MRRD\. This resulted in the successful completion of work on secondary roads by using the available capacity at the MRRD to procure and complete those road packages\. Overall, M&E was an important part of project implementation and was used effectively to monitor progress and resolve issues as they emerged, including through restructurings\. Justification of Overall Rating of Quality of M&E 67\. Based on the discussion above, the overall quality of M&E is rated Substantial\. B\. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE Environmental Safeguards 68\. The project was classified as Environmental Assessment Category B, as no major and irreversible environmental and social impacts were envisioned\. This rating remained unchanged under the subsequent restructurings and the AF\. The project developed an Environmental and Social Management Framework (ESMF), which listed the specific requirements, processes, and responsibilities for ensuring that activities implemented by the project would not have negative impacts on the environment and people\. The ESMF was revised for the AF\. The original and revised ESMFs were cleared by the World Bank and were disclosed in-country and on the World Bank’s external website\. A Level 1 restructuring was also processed along with the AF due to the triggering of a new safeguards policy (OP/BP 4\.11 Physical Cultural Resources)\. 69\. The two PIUs established were adequately staffed for environmental safeguards implementation\. The environmental safeguards rating for the project varied during project implementation, as instances of noncompliance were noted during supervision missions and were reported in the findings of the third- party monitors\. The main issues pertained to poor occupational health and safety (OHS) arrangements at subproject sites and several subproject sites also lacked the required Environmental and Social Management Plans (ESMPs)\. The project also recorded two incidents: an insurgent activity during a field visit resulted in the loss of life and injuries to project staff and the lack of adequate safety measures in one of the subproject sites resulted in the loss of life of a community member\. Both incidents were 49 The MPW was overworked due to other projects under implementation\. In addition, the ministry, under its rules of business, procured civil works through National Competitive Bids (NCB), which was time-consuming and required a minimum six months\. On the other hand, the MRRD has some surplus capacity in taking over these projects and implemented community-based contracting, which was swift and efficient\. Page 22 of 48 Official Use The World Bank Afghanistan Rural Access Project (P125961) formally notified to the World Bank, according to the guidelines of the Environment and Social incident response toolkit (ESIRT)\. The project staff prepared the incident reports and drafted corrective action plans to respond to the noncompliance on OHS matters\. The project’s safeguards staff were also provided training on OHS\. These resulted in an improvement in the implementation of OHS arrangements at the subproject sites\. The project’s environmental safeguards compliance was rated Moderately Satisfactory in the final ISR\. Social Safeguards 70\. The project was generally compliant with the World Bank’s social safeguard requirements, as confirmed by the ISMs\. The World Bank Involuntary Resettlement Policy (OP/BP 4\.12) was triggered because of possible small-scale land acquisition impacts\. The project decided that subprojects affecting more than 200 persons (project-affected persons) and/or land acquisition above 10 percent of the total land holdings of any project-affected person would not be funded\. Land donation was the main approach initially used for taking private land for tertiary road subprojects\. However, due to its negative socioeconomic impacts, especially on poor and vulnerable land donors, this approach was replaced by a community-based compensation approach\. Under this method, the project beneficiaries contributed to compensate the affected people\. This innovative method of compensation could be considered for other similar projects in Afghanistan\. 71\. Grievance redress mechanism (GRM)\. The standardized GRM registered 947 complaints, of which 194 complaints were registered by females\. Most complaints related to employment issues, late payment of wages, contractor operations, land/asset disputes, and design issues\. All complaints were successfully resolved, and there were no pending grievances at project completion\. 72\. Beneficiary satisfaction surveys\. The project conducted two beneficiary satisfaction surveys, the first in January 2015 and the second in December 2020\. The overall satisfaction scores for the Afghanistan Rural Access Project (ARAP) averaged 3\.95 out of a possible 5, with satisfaction scores of 3\.84 for relevance, 3\.85 for effectiveness, 3\.74 for efficiency, 4\.60 for impact, and 3\.83 for sustainability\. Procurement 73\. At appraisal, both the MPW and MRRD had PIUs, which had implemented NRAP, with the requisite staffing and capacity to take care of procurement under the project\. The World Bank provided close support to the PIUs on procurement and conducted trainings for the PIU staff\. Almost all civil works contracts were procured under National Competitive Bidding and direct contracting with Community Development Councils (CDCs)\. Procurement performance was rated Satisfactory during implementation, with the usual challenges and delays expected in an FCV country\. The key issues that required World Bank monitoring and support were delays, the absence of proper documentation, staff turnover, and weak contract management\. Overall, the experience was positive and most of the planned procurement time lines were achieved\. Some procurement issues were noted and were resolved on time with the World Bank’s support\. There were no unresolved procurement-related issues at project completion\. Page 23 of 48 Official Use The World Bank Afghanistan Rural Access Project (P125961) Financial Management 74\. The project maintained adequate FM arrangements, and the FM rating remained Moderately Satisfactory or above, except in one ISR when it was rated Moderately Unsatisfactory because of an unaddressed audit issue\. The project submitted interim unaudited financial reports on time, except on a few occasions\. The World Bank received the last three years’ audit reports with an average delay of four months due to delays on the part of the government auditors, which was beyond the project’s control\. No significant issues were noted by the external auditors, and the project complied with most of the recommendations made by the auditors\. 75\. In 2019, the World Bank noted a few instances of staff being hired by the MPW for the project without adhering to proper recruitment processes\. As a result, the MoPW refunded the salaries paid to these staff from the project funds\. The Statement of Expenditure review by the TPM agent reported issues with regard to the procurement of a few contracts, staff allowances, and expenditure documentation for CDC contracts\. The MoPW team resolved a significant portion of these issues\. The only weak area of compliance was the internal audit\. The financial closing of the project was extended till June 30, 2021, to facilitate the disbursement of the retention monies of the recently completed subprojects\. C\. BANK PERFORMANCE Quality at Entry 76\. The project was prepared considering the experiences of earlier World Bank-financed projects, including NRAP and NEEP\. It was relevant to the emerging needs of the country for the improvement and reliability of its rural road infrastructure\. The PDO was fully aligned with the World Bank’s CPF and the country’s priorities\. Experience from the previous projects helped in designing the involvement of local communities through performance-based maintenance contracts and participation of beneficiaries, including women, in all phases of the project\. The identification and prioritization criteria for the potential roads and bridges selected for rehabilitation/improvements were robust\. The technical, fiduciary, and environmental and social safeguards aspects of the project were appraised with the required due diligence\. The World Bank team assisted the PIUs through specialized consultants during preparation of the project\. Implementation and M&E arrangements were finalized keeping in view the prevailing security, political, and social conditions of the country\. However, the costs for roads and bridges were underestimated at appraisal due to the non-availability of field data\. Project restructuring and the AF addressed the cost issues, while the additional scope under the AF reflected the needs of the sector\. An RMS was incorporated in the project design to ensure sustainable maintenance of the existing and new road and bridge assets\. Quality of Supervision 77\. The World Bank team, along with specialized consultants (including the TPM consultant), remained proactively engaged with the PIUs throughout project implementation and helped in resolving various issues\. The World Bank conducted 17 ISMs, including the project completion mission, and effectively recorded progress and issues through ISRs, Aide Memoires, and Management Letters\. During these missions, rigorous checks and audits were performed to ensure compliance with fiduciary, environmental, and social safeguards policies\. Any identified/reported noncompliance on fiduciary and Page 24 of 48 Official Use The World Bank Afghanistan Rural Access Project (P125961) safeguards aspects subsequently resulted in the downgrading of the corresponding ratings\. These issues were resolved according to the agreed actions plans, and there were no significant unresolved issues at project completion\. 78\. The World Bank team discussed the operational and maintenance sustainability of the assets constructed and improved under the project with the relevant government agencies\. In particular, the availability of the required funding and ring-fencing to meet the maintenance needs were discussed; however, this issue remains unresolved, in part due to the uncertain political environment in Afghanistan\. 79\. The project was extended twice to allow additional time to complete the original and scaled-up scope of works\. The 2015 MTR identified delays in procurement and issues with FM, which subsequently led to the downgrading of the ratings\. A detailed action plan was prepared, adopted, and supervised to improve overall project implementation\. 80\. The World Bank’s ratings of FM performance were candid, issues were highlighted and followed up, and the project was provided the requisite implementation support\. The audit reports were reviewed on time and action plans were agreed to implement audit recommendations\. During the COVID-19 outbreak, the World Bank continued periodic supervision and transaction reviews based on scanned copies of documents\. In addition, the World Bank employed a TPM agent to conduct transaction reviews and certify Statements of Expenditure during the pandemic\. All fiduciary issues were tracked through the World Bank’s Compliance Management System during the last year of implementation\. Justification of Overall Rating of Bank Performance 81\. Based on the discussion above, the World Bank’s overall performance is rated Satisfactory\. D\. RISK TO DEVELOPMENT OUTCOME 82\. The timely availability of funds to preserve the project-supported roads and bridges (as well as other assets) remains uncertain at project completion\. Retention of staff trained under the project is another challenge, as the PIUs would dissolve, and their staff would look for opportunities elsewhere in the Government or in other agencies outside the Government\. In addition, roads and bridges have been a high target during conflicts in Afghanistan and are likely to bear heavy losses in case of conflicts\. Keeping the above in view, the risk to development outcomes at project completion is High\. V\. LESSONS AND RECOMMENDATIONS 83\. Simple project design and the involvement of local communities play a critical role in the successful implementation of development projects in FCV countries\. The ARAP design was simple and clear and met the needs of the country in improving all-weather infrastructure and connecting rural communities to essential services\. Community engagement during the selection of roads, especially during maintenance, helped in smooth implementation of the project\. This helped in developing a sense of responsibility and ownership and created livelihood opportunities\. The unstable political situation in the project areas was offset by consulting the local elders in all phases of the project cycle\. Community- based compensation for land acquisition was a successful project innovation that helped in avoiding land- Page 25 of 48 Official Use  The World Bank Afghanistan Rural Access Project (P125961) related disputes\. Such an approach may be adopted as an integral part of future projects in Afghanistan and possibly in other FCV contexts\. 84\. Develop the local construction industry and the capacities of implementation agencies\. In an FCV environment, an underdeveloped construction industry and capacity-constrained implementation agencies lead to higher costs and delays in implementation\. Investment in building local capacity in all tiers of government and in the local contractors enabled this project to perform well, with limited reliance on international consulting inputs\. The PIUs comprised permanent staff of the relevant ministries and contributed to the achievement of results, ensured their sustainability, and reduced staff turnover during implementation\. This also helped the relevant ministries retain the core capacities of the PIUs and resulted in the elevation of their staff to key leadership positions\. The gradual transfer of implementation, including FM, from UNOPS to the respective PIUs reflects the success of continued professional training under the project\. Technical trainings for the local contractors on the environment, safeguards, gender, health, and safety resulted in compliance with the World Bank’s guidelines and unlocked business opportunities for the local construction industry\. This was particularly helpful, as the participation of international contractors was a challenge because of Afghanistan’s FCV environment\. 85\. Third Party Monitoring\. The use of TPM to conduct many visits to various project sites for observations and reporting proved to be successful as it helped World Bank staff carry out effective due diligence in an environment where site monitoring by World Bank staff was not possible\. 86\. Contract packaging\. The scope of the project, its geographic spread, and the limitation on contract sizes resulted in hundreds of contracts, which led to a large workload for procurement, implementation, and monitoring\. Task teams should consider increasing the size of contracts to the extent possible in the FCV context, by geographic clustering for more efficient project management and to optimize resources for monitoring\. \. Page 26 of 48 Official Use  The World Bank Afghanistan Rural Access Project (P125961) ANNEX 1\. RESULTS FRAMEWORK AND KEY OUTPUTS A\. RESULTS INDICATORS A\.1 PDO Indicators Objective/Outcome: to enable rural communities to benefit from all-season road access to basic services and facilities Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Share of rural population with Percentage 58\.00 65\.00 89\.00 access to an all-season road 15-Dec-2012 04-Aug-2021 04-Aug-2021 Number of rural people with Number 13500000\.00 15080000\.00 20,648,000\.00 access to an all-season road Comments (achievements against targets): Targets exceeded\. Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Percent reduction in travel time Percentage 0\.00 30\.00 36\.00 Page 27 of 48 Official Use  The World Bank Afghanistan Rural Access Project (P125961) by a 4-wheel drive vehicle 04-Aug-2021 04-Aug-2021 04-Aug-2021 along roads improved under the project Comments (achievements against targets): The original reduction target of 30% for accessibility has exceeded for public clinic (50%), provincial centers (67%), met for public hospitals (30%), while for district center (22%) and closest market (11%) remained underachieved\. Improved access to provincial centers (offering more opportunities) has reduced the need to travel to district centers\. Actual achieved at completion 36% is computed as a mean of the respective achieved values\. Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Increased frequency of trips to Percentage 0\.00 15\.00 30\.00 nearest essential services (including town markets, 04-Aug-2021 04-Aug-2021 04-Aug-2021 schools and health facilities) connected by the roads improved under the project Comments (achievements against targets): The percentage targets for male citizens are achieved\. The targets for female citizens for trips to provincial centers is achieved, however for district centers is reduced\. Improved access to provincial centers (offering more opportunities) has reduced the need to travel to district centers\. Actual achieved at completion 30% is computed as a mean of the respective achieved values\. Page 28 of 48 Official Use  The World Bank Afghanistan Rural Access Project (P125961) A\.2 Intermediate Results Indicators Component: Component A - Improvement and maintenance of secondary roads Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Km of gravel surfaced Kilometers 0\.00 1000\.00 890\.00 secondary roads rehabilitated 04-Aug-2021 04-Aug-2021 26-Jul-2021 Comments (achievements against targets): 89% of the target has been achieved\. Remaining roads are under completion\. The target is expected to be fully achieved\. Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Km of asphalt surfaced Kilometers 0\.00 250\.00 289\.00 secondary roads rehabilitated 04-Aug-2021 04-Aug-2021 26-Jul-2021 Comments (achievements against targets): Targets exceeded\. Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Page 29 of 48 Official Use  The World Bank Afghanistan Rural Access Project (P125961) Roads constructed, Rural Kilometers 0\.00 2670\.00 0\.00 2,729\.00 04-Aug-2021 04-Aug-2021 26-Jul-2021 Comments (achievements against targets): Targets exceeded\. Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Construction of bridges on Meter(m) 0\.00 1351\.00 1,480\.00 secondary roads 04-Aug-2021 04-Aug-2021 26-Jul-2021 Comments (achievements against targets): Targets exceeded\. Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Km of secondary roads under Kilometers 0\.00 1870\.00 2,150\.00 routine and periodic maintenance scheme 04-Aug-2021 04-Aug-2021 26-Jul-2021 Comments (achievements against targets): Page 30 of 48 Official Use  The World Bank Afghanistan Rural Access Project (P125961) Targets exceeded\. Local communities were also contracted for the maintenance works\. Component: Component B - Improvement and maintenance of tertiary roads Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Km of gravel surfaced tertiary Kilometers 0\.00 1420\.00 1,550\.00 roads rehabilitated 04-Aug-2021 04-Aug-2021 26-Jul-2021 Comments (achievements against targets): Targets exceeded\. Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Construction of bridges on Meter(m) 0\.00 1800\.00 1,980\.00 tertiary roads 04-Aug-2021 04-Aug-2021 26-Jul-2021 Comments (achievements against targets): Targets exceeded\. Page 31 of 48 Official Use  The World Bank Afghanistan Rural Access Project (P125961) Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Km of tertiary roads under Kilometers 0\.00 3750\.00 3,500\.00 routine and periodic maintenance scheme 04-Aug-2021 04-Aug-2021 26-Jul-2021 Comments (achievements against targets): 93% of the target has been achieved\. Remaining roads are under completion\. The target is expected to be fully achieved\. Component: Component C- Program Planning and Development, Institutional Strengthening and Program Coordination Support Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Complete Road Inventory Percentage 0\.00 100\.00 95\.00 04-Aug-2021 04-Aug-2021 26-Jul-2021 Comments (achievements against targets): 95% of the target has been achieved\. Field visits to roads located at few provinces could not be accessed due to volatile security situation\. The target is expected to be fully achieved\. Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Page 32 of 48 Official Use  The World Bank Afghanistan Rural Access Project (P125961) Improved Network Yes/No No Y Yes Management system in place 04-Aug-2021 04-Aug-2021 26-Jul-2021 Comments (achievements against targets): Targets achieved\. This would help in strategic planning of additional roads and maintenance of existing assets\. Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Design standards developed Yes/No No Y Yes and adopted 04-Aug-2021 04-Aug-2021 26-Jul-2021 Comments (achievements against targets): Targets achieved\. This would help in upgrading the existing unpaved roads\. Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Cost estimation system Yes/No No Y Yes developed and fully functional 04-Aug-2021 04-Aug-2021 26-Jul-2021 Comments (achievements against targets): Page 33 of 48 Official Use  The World Bank Afghanistan Rural Access Project (P125961) Targets achieved\. This would help in strategic planning of additional roads and maintenance of existing assets\. Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Financial Management System Yes/No No Y Yes in MRRD and MPW developed and functional 04-Aug-2021 04-Aug-2021 26-Jul-2021 Comments (achievements against targets): Targets achieved\. This would ensure financial sustainability of the respective Ministries\. Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion No\. of Jobs created along the Number 0\.00 2800000\.00 4,500,000\.00 project roads (labor days) 04-Aug-2021 04-Aug-2021 26-Jul-2021 Comments (achievements against targets): Targets exceeded\. Component: Component D: Contingency Emergency Response Page 34 of 48 Official Use  The World Bank Afghanistan Rural Access Project (P125961) Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion No of emergencies addressed Number 0\.00 0\.00 0\.00 04-Aug-2021 04-Aug-2021 29-Jul-2020 Comments (achievements against targets): Not activated\. Page 35 of 48 Official Use The World Bank Afghanistan Rural Access Project (P125961) B\. KEY OUTPUTS BY COMPONENT Objective / Outcome: (a) Enable rural communities to benefit from all-season road access to basic services and facilities; (b) and an early emergency response in the event of an eligible crises or emergency Outcome Indicators Achieved Percent of rural population living within 2 km of 89% all-season roads in the project area Percent reduction in travel time by a 4-wheel • Public clinic - 0\.5 hour drive vehicle along improved road under the • Public hospital - 1\.4 hours project • District centers - 1\.4 hours • Provincial centers - 2\.1 hours • Closest market - 1\.25 hours Increased frequency of trips to nearest essential Male: services (including town markets, schools, and • 63\.1% travel daily to from village district centers health facilities) connected by the roads • 60\.8% to from provincial & other location within improved under the project\. province\. Female: • 17\.2% male travel daily to from village district centers • 20\.6% to from provincial & other location within province\. Component-A: Improvement and maintenance of secondary roads Km of gravel surfaced secondary roads 890 km completed, remaining under implementation\. rehabilitated Km of Asphalt surface secondary roads 289 km rehabilitated Construction of bridges on secondary roads 1,480 m Km of secondary roads under routine and 2,150 km periodic maintenance Component-B: Improvement and maintenance of tertiary roads Km of gravel surface tertiary roads rehabilitated 1,550 km Construction of bridges on tertiary roads 1,980 m Km of tertiary roads under routine and periodic 3,500 km completed, remaining under implementation\. maintenance Component-C: Program planning and development, institutional strengthening, and program coordination support Complete road inventory 95 percent completed, remaining under implementation\. Improved network management system in place System in place Design standards developed and adopted Design standards adopted Cost estimation system developed and fully System in place and functioning functional FM system in MRRD and MOT developed and System in place and functioning functional Road sector organizational study prepared Dropped due to political reasons Page 36 of 48 The World Bank Afghanistan Rural Access Project (P125961) ANNEX 2\. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION A\. TASK TEAM MEMBERS Name Role Preparation Mesfin Wodajo Jijo Task Team Leader Luquan Tian Team Leader (Additional Financing) Nazaneen Ismail Ali, Aimal Sherzad Procurement Specialist (s) Asha Narayan Financial Management Specialist Abdul Hameed Khalili Team Member Abdullah Noorzad Team Member Adenike Sherifat Oyeyiola Team Member Ahmed Shah Ahmadzai Team Member Faly Diallo Team Member James Orehmie Monday Team Member Janardhanan Ramanujam Team Member Juan Carlos Alvarez Counsel Khalid Boukantar Team Member Mohammad Asif Qurishi Team Member Mohammad Yasin Noori Safeguards Specialist Mohammad Ajmal Askerzoy Team Member Obaidullah Hidayat Safeguards Specialist Rachel S\. Palmer Team Member Tema Alawari Kio-Michael Team Member Victor Ordonez Team Member Supervision/ICR Mohammad Ajmal Askerzoy, Abdul Hameed Khalili Task Team Leader(s) Aimal Sherzad, Muhammad Abbass Rahimi Procurement Specialist(s) Ahmed Shah Ahmadzai Financial Management Specialist Mohammad Yasin Noori Social Specialist Page 37 of 48  The World Bank Afghanistan Rural Access Project (P125961) Najla Sabri Team Member Syed Waseem Abbas Kazmi Team Member Sayed Mujtaba Shobair Environmental Specialist Ahmad Shakeeb Safai Counsel Zakia Bakhtari Team Member B\. STAFF TIME AND COST Staff Time and Cost Stage of Project Cycle No\. of staff weeks US$ (including travel and consultant costs) Preparation FY11 0 2,960\.00 FY12 40\.650 232,480\.62 Total 40\.65 235,440\.62 Supervision/ICR FY12 0 180\.78 FY13 57\.522 132,934\.22 FY14 62\.341 136,153\.22 FY15 69\.345 193,226\.07 FY16 61\.927 181,577\.54 FY17 56\.917 179,730\.10 FY18 44\.729 138,614\.32 FY19 38\.432 101,584\.48 FY20 50\.501 193,921\.65 Total 441\.71 1,257,922\.38 Page 38 of 48 The World Bank Afghanistan Rural Access Project (P125961) ANNEX 3\. PROJECT COST BY COMPONENT Components Amount at Amount Total Amount Actual at Percentage Approval Approved under (US$, Project Closing of Approval (US$, AF (US$, millions) millions) (US$, millions) millions) Component A: Improvement 186\.00 105\.00 291\.00 243\.00 130\.64 and maintenance of secondary roads Component B: Improvement 128\.00 40\.00 168\.00 143\.00 111\.71 and maintenance of tertiary roads Component C: Program 18\.00 10\.00 28\.00 21\.00 116\.67 planning and development, institutional strengthening and program coordination support Component D: Contingency 0\.00 0\.00 0\.00 0\.00 0\.00 emergency response Total 332\.00 155\.00 487\.00 407\.00 125\.60 Note: The project was provided AF to cover a financing gap of US$155 million 50 (after a reallocation of US$7 million from project management support to civil works)\. This gap developed due to (a) a cost increase of US$72 million to include climate resilience in road designs and the change in the value of the SDR in relation the US dollar 51 and (b) the scaling-up of activities under the respective project components (amounting to US$83 million) to increase all- season road access coverage\. 50 US$155 million was requested and approved under the AF and was termed Scenario 2\. However, only US$105 million was released and made available (termed Scenario 1, confirmed)\. See tables 2\.5 and 2\.6 of the AF Project Paper\. 51 Of which, US$69 million was for revised designs to meet site and climate resilience requirements and US$3 million was for SDR depreciation\. Page 39 of 48 The World Bank Afghanistan Rural Access Project (P125961) ANNEX 4\. EFFICIENCY ANALYSIS 1\. The project involved the rehabilitation and maintenance of mostly unpaved (gravel surface) secondary and tertiary roads\. In addition, it included the construction of new bridges for the secondary and tertiary road network for linking rural communities\. The primary aim of these roads and bridges was social development, that is, to provide reliable and all-weather access to essential services\. The motorized traffic on these roads was not substantial\. Hence, the roads and bridges under the project were not subject to a formal economic cost-benefit analysis\. However, a robust multi-criterion (tables 4\.1 and 4\.2) was adopted for the identification, selection, and subsequent prioritization of roads and bridges\. Table 4\.1\. Detailed Scoring for the Prioritization of Rural Access Roads Table 4\.2\. Detailed Scoring for the Prioritization of Bridges Page 40 of 48 The World Bank Afghanistan Rural Access Project (P125961) 2\. For unpaved roads (secondary and tertiary), economic viability was evaluated based on the CBI\. 52 The same criterion was followed both for the original project and AF\. There are no well-established criteria for determining the ‘opportunity cost’ threshold when ranking on the basis of the CBI\. However, compared with other World Bank rural road projects, the overall CBI of project roads at appraisal and completion were found to be economically justifiable, that is, lower than US$490 per beneficiary\. 53 3\. At appraisal, the overall CBI for secondary roads after detailed design with new cost estimates was in the range of US$120 to US$240 per beneficiary, 54 with an average of US$207 per beneficiary, 55 which is well below the threshold\. At completion, the CBI 56 reduced by almost 48 percent, at an average of US$108 per beneficiary, 57 due to the (a) appreciation of the US dollar against the Afghani 58 and (b) reduction in costs because of site requirements\. 4\. The average CBI for tertiary roads (paved and unpaved) and bridges after detailed design with new cost estimates varied in the range of US$44 (unpaved) to US$62 (paved) per beneficiary, 59 with an average of US$94 per beneficiary, which is well below the threshold\. At completion, the average CBI was lower by 53 percent at an average of US$44 per beneficiary\. 5\. The CBIs at completion are acceptable, keeping in view the FCV context, that is, the lack of security, the underdeveloped construction industry, the capacity constraints of the PIUs, and currency devaluation\. 6\. Economic analysis using HDM-4 was performed for roads with traffic more than 300 vehicles per day that exceeded the minimum scoring (table 4\.3)\. These roads were also considered for upgrading to a higher standard, including paving\. The same criteria were used for the roads identified and selected under AF\. The results of economic analysis and CBI at appraisal and at completion are presented in table 4\.4\. All roads exceeded the minimum threshold for CBI, NPV, and EIRR\. Table 4\.3\. Prioritization Criteria for Higher Standard Construction 52 The CBI is the estimated cost divided by the estimated number of beneficiaries to establish the cost effectiveness with respect to the number of beneficiaries served\. 53 A World Bank project in Morocco, this threshold was set to be US$490 per beneficiary\. 54 AF Paper, annex 3\. 55 According to the data sheet available\. 56 Due to the lack of updated survey, the number of beneficiaries at completion was assumed to be the same as available at appraisal\. 57 According to the revised costs received from the PIUs\. 58 The contracts were made in local currency\. 59 AF Paper, annex 3\. Page 41 of 48 The World Bank Afghanistan Rural Access Project (P125961) 7\. For paved secondary roads, economic viability was evaluated using HDM-4\. 60 Despite a cost overrun after detailed design, the EIRRs for these roads at appraisal remained at least 18\.3 percent 61 and increased by 48 percent at completion, 62 with a least value of 27 percent\. The NPV at appraisal was US$276 million and increased by 10 percent at completion (that is, US$305 million)\. Table 4\.4\. Results of the Economic Analysis of Roads Road Section Based on Costs at Based on Costs after Based on Costs at Completion Appraisal Design NPV EIRR NPV/Co NPV EIRR NPV/Cos NPV EIRR NPV/Cost st t Farah-Lashjoyan 8\.4 199\.0 7\.0 7\.7 >100 6\.4 8\.6 >100 6\.4 Qarabagh-Istalif 5\.4 89\.7 4\.5 4\.9 >100 4\.1 5\.5 >100 4\.1 Zar Shakh Pagman- 11\.4 87\.9 4\.5 10\.3 >100 4\.0 11\.6 >100 4\.1 Shakardara District Bangi-Ishkamish Lot 1 63\.5 200\.0 20\.0 56\.3 >100 17\.8 63\.8 No 18\.2 Solution Taluqan-Namak Aab 13\.3 80\.3 4\.5 12\.3 >100 4\.1 13\.3 94\.7 3\.8 Road Zaranj to Charborjak 5\.1 50\.8 1\.9 3\.8 32\.3 0\.9 5\.4 67\.7 1\.8 Emaran Kot to 1\.4 30\.9 0\.9 0\.6 18\.3 0\.3 1\.5 38\.5 0\.9 Nowkhiz Grishk to Nawzad- 15\.7 200\.0 7\.0 14\.5 >100 4\.4 31\.3 96 5\.8 Phase 1 and 2 63 28 3\.7 (DBST 64) Haji Mohammad Shah 9\.9 200\.0 7\.2 9\.1 >100 4\.3 9\.9 >100 6\.0 village (Kandahr-Spen Boldak highway to Zayarat e Zakar Sharef 8\.8 3\.8 Pol-e-Kama to Bar Kash 3\.7 34\.2 1\.1 2\.3 22\.5 0\.5 4\.1 42\.0 1\.1 Kot Shibirghan to Darzab 34\.9 119\.8 6\.4 29\.3 >100 5\.5 33\.2 >100 5\.5 road Daykundi to Shahrstan 0\.95 24\.4 0\.7 1\.0 31\.1 0\.9 2\.1 27\.1 0\.7 - Phase 1 and 2 65 Chardara to Qala-e-Zal 11\.4 73\.3 4\.4 10\.2 91\.2 4\.0 11\.6 84\.1 4\.1 Lot 1 Safid Sang to Kabul 3\.0 38\.0 1\.8 2\.4 37\.6 1\.5 2\.9 41\.2 1\.6 Gardiz Road Sayed to Feroz 6\.8 90\.9 5\.0 6\.2 >100 4\.6 7\.0 >100 4\.7 Nakhcher 60 Rerun on the available files, with only updated costs at completion\. Other factors remained unchanged\. 61 AF Paper, annex 3\. 62 Due to the lack of an updated survey, traffic at completion was assumed to be the same as available at appraisal\. 63 At completion, evaluated in total according to the available HDM-4 files\. 64 Double Bituminous Surface Treatment 65 At completion, evaluated in total according to the available HDM-4 files\. Page 42 of 48 The World Bank Afghanistan Rural Access Project (P125961) Road Section Based on Costs at Based on Costs after Based on Costs at Completion Appraisal Design NPV EIRR NPV/Co NPV EIRR NPV/Cos NPV EIRR NPV/Cost st t Sya Sang to Cement 0\.9 64\.4 3\.2 0\.8 96\.8 2\.9 0\.9 76\.3 3\.0 Khana Kunduz-archi Lot 2 17\.6 107\.4 5\.3 14\.3 >100 4\.8 16\.0 >100 4\.8 Zaranj City-Sharshila- 11\.2 >100 – 11\.7 >100 5\.9 Kang District 10\.7 4\.0 Qala-e-Now to 9\.1 >100 10\.4 >100 4\.4 Abkamari Zarghon Shahr - Waza 3\.2 28\.6 3\.6 31\.8 1\.1 Khaw Lot 1 and 2 Noburja to Rashidian 1\.7 28\.7 1\.7 28\.7 0\.7 and Nawara Dare-e-Pich to Chapa 40\.6 >100 40\.6 >100 7\.3 Daraa Nili to Sharistana 8\.9 40\.7 8\.8 40\.7 1\.6 Total 213 276\.0 305\.0 Note: a\. Completion cost was not available, hence evaluated on cost at design\. Page 43 of 48 The World Bank Afghanistan Rural Access Project (P125961) ANNEX 5\. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS 1\. Afghanistan is a landlocked and mountainous country\. Most of its population live in rural areas, and the rural areas are located in valleys and on the banks of rivers\. Rural people are mostly involved in agricultural activities\. The rural areas are isolated and mostly disconnected from the districts and capital of the country\. Therefore, people of the rural areas are mostly suffering from lack of connectivity\. They are not connected to the health and education centers and market areas\. It is difficult and expensive for people in rural areas to transport their agricultural products to local markets\. One of the main factors contributing to poverty in the rural areas is accessibility\. 2\. NEEP and NRAP were able to provide safe and all-year-round/all-season roads to thousands of households who are living in isolated rural areas\. Rehabilitation/construction of rural roads and rural bridges are vital for rural communities, especially for those who are living in mountainous and valley areas\. Rural roads reduced travel time, increased the number of trips of rural people, and enhanced their livelihood\. 3\. ARAP is the only national project of the country that constructed rural roads in Pamir of Badakhshan at a latitude of 4,600 m from sea level and Nuristan Province at a latitude of 4,000 m from sea level\. No other project of a government entity has been able to construct roads for the needy rural people of these provinces\. 4\. ARAP, as one of the Afghanistan Government’s national projects, covered 34 provinces of Afghanistan\. ARAP is one of the projects that has been implemented successfully\. Before ARAP, none of the projects of NEEP/NRAP was implemented in 34 provinces\. This was due to the accurate design of the project as lessons from previous projects were considered during the design of ARAP\. Moreover, the human and technical and managerial capacity, which was embedded and enhanced in the program, was used properly and efficiently for the implementation of ARAP\. Support, technical assistance, and cooperation of the World Bank task team was also good during implementation of the project\. The World Bank task team and PIUs had good and supportive relations during project implementation\. 5\. The team at the PIU level established good relations with the Ministry of Finance and Parliament commissions, especially the Finance and Budget Commission of Parliament, and this relationship was maintained throughout implementation of the project\. Relationships with Community Development Councils (CDCs), Districts Development Agencies (DDAs), and districts and provincial governments was good throughout implementation of the project\. Timely updates and reports were provided to all stakeholders\. The support of implementing ministries was strong throughout project implementation\. All these relations and support resulted in successful implementation and completion of the project\. 6\. The technical, managerial, and institutional capacity, which was established, developed, and maintained in the implementing ministries, was tangible and useful for the ministries\. 7\. The maintenance procedures, guidelines, and practices, which were initiated by the ARAP team, are the most effective, accountable, and reliable system in the road sector of the country\. Page 44 of 48 The World Bank Afghanistan Rural Access Project (P125961) ANNEX 6\. SUPPORTING DOCUMENTS • Project Paper for Afghanistan Rural Access Project (ARAP), June 11, 2012 • Project Paper for ARAP (Additional Financing), June 13, 2017 • Restructuring Paper for ARAP, March 4, 2018 • Restructuring Paper for ARAP, March 6, 2020 • Country Partnership Framework for Islamic Republic of Afghanistan, October 2, 2016 • Afghanistan Reconstruction Trust Fund Grant Agreement • Afghanistan National Development Strategy (2008–2013) • Survey Report on the Follow-up Assessment of the ARAP, September 14, 2017 • Draft Final Report ARAP Beneficiary Satisfaction Survey, December 2020 • Draft Client Project Closure Report (PCR) for ARAP, June 2020 • Aide Memoires and Implementation Status and Results Reports for ARAP, 2012–2020\. Page 45 of 48 The World Bank Afghanistan Rural Access Project (P125961) ANNEX 7\. PROJECT PICTURES 66 Figure 7\.1\. Bridge Connecting Communities Figure 7\.2\. Bridge Providing All-Weather Connectivity Figure 7\.3\. All-Weather Paved Road Figure 7\.4\. All-Weather Paved Road Figure 7\.5\. Communities Inaugurating a Completed Figure 7\.6\. Consultation Sessions with Females Road 66 Source: World Bank project team Page 46 of 48 The World Bank Afghanistan Rural Access Project (P125961) ANNEX 8\. SUMMARY OF BENEFICIARY SURVEY 1\. This survey was carried out by an independent consultant and covered all nine regions of Afghanistan, where at least two subprojects in each region were selected for beneficiary survey\. A total of 108 interviews, or 6 interviews per subproject, and 18 focus group discussions, or 2 per subproject were conducted in all nine regions\. 2\. The survey results were disaggregated by gender, age, and project-affected persons versus ordinary beneficiaries\. The distribution of female to male respondents was 21 percent and 79 percent, respectively\. Female beneficiaries were found to be more satisfied compared to male beneficiaries\. From the age point of view, the results showed that older beneficiaries are the most satisfied, while the younger beneficiaries were the least satisfied age group\. Project-affected persons made up at least 26 percent of the interview respondents\. The affected people were slightly less satisfied compared to ordinary beneficiaries\. Overall Satisfaction of Beneficiaries Figure 8\.1\. Overall Satisfaction Scores 67 5\.00 4\.60 3\.95 3\.84 3\.85 3\.83 4\.00 3\.74 3\.00 2\.00 1\.00 - Overall Relevance Effectiveness Efficiency Impact Sustainability Satisfaction Score Satisfaction by Gender Figure 8\.2\. Distribution of Male and Female Respondents 21% 79% Male Female 67 Afghanistan Rural Access Project Beneficiary Satisfaction Survey – Final Report, December 2020 Page 47 of 48 The World Bank Afghanistan Rural Access Project (P125961) Figure 8\.3\. Satisfaction Scores by Gender 5\.00 4\.53 4\.85 3\.93 4\.06 3\.81 3\.92 3\.88 3\.73 3\.71 3\.87 3\.80 3\.91 4\.00 3\.00 2\.00 1\.00 - Overall Relevance Effectiveness Efficiency Impact Sustainability Satisfaction Male Female Page 48 of 48

REVIEW

P128208

Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review SL-Public Sector Pay & Performance(FY12) (P128208) Report Number: ICRR0021636 1\. Project Data Project ID Project Name P128208 SL-Public Sector Pay & Performance(FY12) Country Practice Area(Lead) Sierra Leone Governance L/C/TF Number(s) Closing Date (Original) Total Project Cost (USD) IDA-51220 31-Oct-2015 13,970,761\.52 Bank Approval Date Closing Date (Actual) 31-May-2012 30-Jun-2018 IBRD/IDA (USD) Grants (USD) Original Commitment 17,000,000\.00 0\.00 Revised Commitment 17,000,000\.00 0\.00 Actual 13,970,761\.52 0\.00 Prepared by Reviewed by ICR Review Coordinator Group Hjalte S\. A\. Sederlof Robert Mark Lacey Malathi S\. Jayawickrama IEGEC (Unit 1) 2\. Project Objectives and Components DEVOBJ_TBL a\. Objectives According to the Financing Agreement (page 4), the Project Development Objective (PDO) of the Public Sector Pay and Performance Project (PSPP) was to improve competitiveness in pay, performance management and accountability of, and increase staffing of middle and senior staff in, the Civil Service in the territory of the Recipient\. The Project Appraisal Report (PAD) has the same PDO (page 10 of the PAD)\. Page 1 of 13  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review SL-Public Sector Pay & Performance(FY12) (P128208) Achievement of the PDO will be assessed against four sub-objectives: (i) improvements in the competitiveness of civil service pay; (ii) improvements in performance management of the civil service; (iii) improvements in the accountability of the civil service; and (iv) increased staffing of middle- and senior levels in the civil service\. b\. Were the project objectives/key associated outcome targets revised during implementation? No c\. Will a split evaluation be undertaken? No d\. Components There were two components: Component 1: support to the government’s public sector reform program (cost estimate at appraisal US$15 million; actual cost US$11\.97 million)\. The component supported the three reform areas specified in the PDO: pay reform, recruitment and staffing, and performance management and accountability\. Disbursements on the component were to be made against the achievement of selected “milestones” (disbursement-linked indicators, DLIs) attached to each reform area\. Each DLI was part of a step-by-step sequential reform path to achieve the objectives of its respective reform area and the PDO\. The project initially had 15 DLIs at US$1 million each, with the option of disbursing 50 percent in advance against each DLI\. Reform area 1 - pay reform\. In order to attract and retain key professional and managerial staff, a more equitable and competitive pay structure for the civil service was to be introduced\. It was to be based on a remuneration survey for establishing salary ranges for each grade, and supplements to be paid for specific jobs\. The survey would also offer a perspective on the evolution of demand for skills in the civil service over the longer term\. Three DLIs supported progress in this area: completion of the survey; all civil service jobs evaluated and assigned to an approved pay structure; and all civil servants in Grade 6 and above (middle and high level civil servants, representing some 12 percent of the civil service) paid in accordance with the approved pay structure\. Reform area 2 – recruitment and staffing\. The objective was to right-size and right-skill the civil service\. To this end, the government’s Human Resources Management Office (HRMO) was to develop open, competitive, and competency-based recruitment procedures, as well as explicit criteria for recruitment into managerial, professional, and technical grades\. Processes were to be established to identify and develop current civil servants who had the potential to take on greater responsibilities in the future\. The processes were to be accompanied by a development scheme for high potential junior and mid-level professionals, as well as new promotion procedures\. Six DLIs supported progress in this area: recruitment procedures designed and approved; seven staff recruited and trained to manage the recruitment and selection process; at least 60 percent of priority vacancies filled in Project year 1 according to approved recruitment procedures; at least 80 percent in Page 2 of 13  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review SL-Public Sector Pay & Performance(FY12) (P128208) Project year 2; and at least 90 percent in Project year 3; and donor-recruited local technical assistants (LTA) integrated into the civil service\. Reform area 3 – performance management and accountability\. In order to improve performance in the civil service, increase citizens’ trust in government, and strengthen accountability of ministries to the executive and to citizens\. To this end, guidelines for performance contract management were to be developed and applied to annual output-based performance targets and work plans; regular performance reports were to be generated; and corrective action taken to bring actual performance closer to targeted performance\. Individual performance appraisals were to be piloted and subsequently rolled out in all ministries\. Human resource and performance management units in all ministries were to be fully staffed and trained to facilitate the introduction of performance appraisals\. The HRMO was to have completed the design, guidelines, and database on the functioning of the new processes in each ministry, and provided them with feedback\. Managers were to be trained in setting individual targets and undertaking effective appraisal discussions\. Six DLIs were to support progress in this area: guidelines approved for performance contract management for civil servants at the senior level (Grade 11 and above); one annual cycle of the performance appraisal process for civil servants at the middle level (Grade 7 and above) completed in pilot ministries; at least 80 percent of annual performance appraisal reports for CY 2014 for civil servants in Grade 11 and above, respectively, in pilot ministries are of appropriate quality; and all ministries’ performance against performance targets evaluated, and results published\. Component 2 – technical assistance (estimate at appraisal US$2\.0 million; actual cost US$2\.0 million)\. The component was to finance a communications program, set up a website for disclosing reform- related information, conduct job evaluations and labor market surveys, and provide technical advisory services on project implementation\. Three adjustments were made in March, 2014, to the DLI time frame and the content of some DLIs due to implementation delays: the evaluation of all ministries' performance against performance targets, and the annual performance appraisal reports for civil servants in grades 7 to 10, were dropped, and the retention of recruits to priority vacancies was added\. e\. Comments on Project Cost, Financing, Borrower Contribution, and Dates Project cost and financing\. At appraisal, the total cost of the project was estimated at US$17\.0 million to be financed through an IDA Credit of US$17\.0 million equivalent\. Actual project cost at completion was US$13\.97 million\. For Component 1, U$15 million had been allocated (US$1 million for each of the 15 DLIs)\. At closure, US$11\.97 million had been disbursed for Component 1 - US$10 million against 10 completed DLIs\. In addition, advances of US$1\.5 million against incomplete DLIs, and US$0\.5 million against one of the two dropped DLIs, were disbursed\. (As noted in Section 2d above, each DLI was valued at US$1\.0 million, with an option to disburse 50 percent of that value as an advance\.) The ICR (page 13) states that tracking of the advances for the three unachieved and one dropped DLI was inadequate; subsequent adjustments were not made (see Section 8b below for further details)\. The allocated US$2\.0 million for Component 2 was fully disbursed\. Borrower contribution\. No Borrower contribution was planned or materialized\. Page 3 of 13  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review SL-Public Sector Pay & Performance(FY12) (P128208) Dates\. The project was approved on May 31, 2012\. It became effective on October 23, 2012\. The original Closing Date of October 31, 2015 was extended three times: (I) to October 31, 2016 due to significant delays in achieving the Year 2 targets; (ii) to October 31, 2017, since many key activities were proceeding at a slower pace due to an Ebola epidemic; and (iii) to June 30,2018, to provide more time to complete the project in the aftermath of the Ebola crisis\. The total implementation period was 73 months, nearly 80 percent longer than the originally planned 41 months\. 3\. Relevance of Objectives Rationale The project objectives remain relevant to the country situation, government policy and World Bank strategy\. Coming out of a decade-long civil war and facing serious development challenges, there was a need to rebuild a civil service badly weakened during the conflict, and with severe gaps especially among middle level professional and technical staff\. To address the issue, the government drew up a medium term public sector reform program covering the years 2011-2015 and focusing on pay reforms, skills gaps, institutional capacity, and performance management\. The World Bank’s Country Assistance Strategy Progress Report for Sierra Leone (FY10-13), still valid at project closure, emphasized the need to build capacity for improved governance and service delivery within government\. While it did not explicitly address public sector reform, it recognized the need for such reform – it was a cross-cutting issue that concerned the whole administration, and it was likely to be critical as government resources increased with rising iron ore exports\. It was also important for improving performance across the Bank’s portfolio: according to the ICR, task teams were signaling capacity problems in public services as a key constraint in delivering operations\. As a consequence, the Bank operation was designed to support the last three years of the government's public sector reform program\. Rating Relevance TBL Rating High 4\. Achievement of Objectives (Efficacy) EFFICACY_TBL OBJECTIVE 1 Objective improved competitiveness of civil service pay (pay reform) Rationale Page 4 of 13  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review SL-Public Sector Pay & Performance(FY12) (P128208) The objective was to be achieved by pay reform that would ensure civil servants are paid more equitably and competitively\. Pay reform was to include a reevaluation of civil service jobs, development of a new pay structure, and application of the new pay structure to civil servants\. Planned remuneration and job evaluation surveys were completed, albeit with delays in the hiring of consultants for the job evaluation survey\. However, translation of survey results into a new pay structure has been held up for fiscal reasons\. The necessary fiscal space, which was expected to be generated by rising iron ore exports, has not yet materialized\. The IMF and other development partners have also been calling for greater control of the wage bill, reducing room to maneuver on pay reform\. Consequently, this objective has not been met\. Rating Negligible OBJECTIVE 2 Objective Improved performance management in the civil service Rationale The objective was to be achieved by the introduction of performance appraisal and contract management processes focused on mid- and higher level civil servants; by setting performance targets for all ministries; and by introducing a performance appraisal and performance contract management process for civil service managers; setting performance targets in all ministries; and evaluating staff performance with that of relevant non-state actors\. The following rules-based performance management tools at the ministerial and individual levels were introduced: ï‚ Guidelines for performance appraisal of civil servants in grades 7 to 10, and for contract management for civil servants at grade 11 and above; ï‚ Supervisors in pilot ministries at central, regional and district level were trained in performance appraisal skills; and ï‚ All pilot ministries have agreed annual performance targets for individual civil servants in grade 7 and above\. Some elements of a performance management system have been introduced\. However, there is no evidence provided that they have contributed to improved human resource management or of tangible enhancements in civil service performance or productivity\. Rating Modest Page 5 of 13  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review SL-Public Sector Pay & Performance(FY12) (P128208) OBJECTIVE 3 Objective Improved accountability in the civil service Rationale The objective was to be achieved by publishing ministries’ performance targets and their achievements, as well as comparing performance to that of relevant non-state actors\. However, the primary activities under this objective – evaluation of ministry staff performance and comparing the results with the performance of comparable non-state actors - was dropped during the May 2014 restructuring, as was the DLI on publication of such performance targets\. Rating Negligible OBJECTIVE 4 Objective Increased staffing of middle and senior levels in the civil service Rationale The objective was to be achieved by developing appropriate recruitment procedures, filling Grade 6+ vacancies in accordance with annual recruitment plans, and integrating local technical assistants (LTA) into the civil service system\. Open, competitive, merit-based recruitment procedures were put into place, drawing on a human resource plan based on the medium-term expenditure framework, and on annual recruitment plans for the period 2013- 2015\. Seven staff were recruited to the Public Services Commission to manage recruitment and selection, meeting the outcome target\. LTAs were integrated into the civil service system\. Although the vacancies were filled in accordance with procedures that had been put into place under the project to enable competitive recruitment, there is no direct evidence regarding the qualifications and quality of the recruits\. Rating Substantial OVERALL EFF TBL OLD Rationale Efficacy of the first and third objectives is rated negligible - a more competitive pay structure could not be introduced due to fiscal constraints, while the key activities that were to lead to improved civil service accountability were dropped\. The second objective is rated modest - performance appraisal and contract management processes were put in place, but there is no evidence of tangible changes in performance or Page 6 of 13  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review SL-Public Sector Pay & Performance(FY12) (P128208) productivity\. Efficacy of the fourth objective - increased staffing of middle and senior levels - achieved its targets and is rated substantial\. Overall Efficacy Rating Primary reason Modest Low achievement 5\. Efficiency Neither an ex ante, nor an ex post, quantitative analysis of project costs and benefits was undertaken\. There were considerable operational and administrative inefficiencies\. First, US$2 million was disbursed as 50 percent advances against DLIs that were not achieved\. The advances were not recovered\. While advances of up to 50 percent were allowed by the Financing Agreement, the latter stipulates that withdrawals would be conditional on satisfactory evidence that DLIs are achieved in order to be deemed eligible expenditures\. The advances were not systematically tracked to prevent ineligible expenditures from occurring\. Second, there were serious delays, amounting to nearly 80 percent of the original time allowed for implementation\. These were partly due to political and macroeconomic factors, and to the consequences of the Ebola epidemic\. However, they also reflected design deficiencies\. There were fifteen DLIs divided into four sets, each set linked sequentially - there would be no disbursements against a DLI until the indicators for the previous one had been met\. Confronting this encouraged the advances already alluded to\. Despite the advances and the delays, 12 percent of the IDA credit remained undisbursed at closure\. Third, efficiency was negatively affected by a lack of strategic leadership on the part of the Authorities\. Leadership Team meetings that were to be chaired by the Minister of Finance occurred infrequently, thereby impeding adaptability to changing circumstances\. Numerous implementing agencies reported that sufficient funds to enable them to engage in project activities were not made available (ICR, page 30) Efficiency Rating Negligible a\. If available, enter the Economic Rate of Return (ERR) and/or Financial Rate of Return (FRR) at appraisal and the re-estimated value at evaluation: Rate Available? Point value (%) *Coverage/Scope (%) 0 Appraisal 0  Not Applicable 0 ICR Estimate 0  Not Applicable * Refers to percent of total project cost for which ERR/FRR was calculated\. Page 7 of 13  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review SL-Public Sector Pay & Performance(FY12) (P128208) 6\. Outcome The project's objectives addressed a significant development challenge that was recognized both by the government and the Bank, and their relevance is rated high\. Efficacy is rated modest: Achievements under the first and third sub-objectives - a more competitive pay structure and improved civil service accountability - were negligible\. Under the second sub-objective - enhanced performance management - procedures were put in place, but there is little tangible evidence as yet that they have led to better performance management; efficacy is, therefore, rated modest Under the fourth sub-objective - increased staffing of middle and senior levels - the targets were achieved, and efficacy is rated substantial\. Efficiency is rated negligible: there were grave operational deficiencies, including US$2 million of unrecovered advances for DLIs that were not achieved\. Overall, shortcomings are considered major, and outcome is assessed as unsatisfactory\. a\. Outcome Rating Unsatisfactory 7\. Risk to Development Outcome Based on the mostly incomplete record of achievement of important elements of the reform targets under the project, it does appear that there still is significant risk to reaching satisfactory outcomes in key areas – compliance and quality, the recruitment process, and pay reform\. Here, the absence of strategic leadership of the reform process probably represents the greatest risk\. The team believes that the achievements, such as elements of a performance management system, and recruitment procedures, are unlikely to be reversed\. 8\. Assessment of Bank Performance a\. Quality-at-Entry The project was strategically relevant in that it recognized the need to build capacity in the civil service to better manage expected growth in public resources\. The results framework embodied a reasonably robust causal chain linking activities to expected outcomes\. M&E design developed key indicators that were measurable and relevant to outcomes\. There were, however, a number of major weaknesses in Quality at Entry\. First, preparation and design did not sufficiently factor in the need for training and guidance in the implementation of DLI-based disbursements and related advance payments\. This lending modality had only recently been introduced to World Bank operations in the Africa Region, and for Sierra Leone, an institutionally challenged country, it was completely new\. The PAD and other documents contained inadequate practical guidelines, while provision for training, both for Bank and client staff, was insufficient\. The PAD assumed that there would be frequent and intense supervision, but this did not materialize (see Section 8b below)\. Second, the results-based financing model would also contribute to implementation delays, as many activities proceeded at a slower pace than anticipated, in turn holding back others that could have gone ahead in the absence of sequencing\. It did not, therefore, fulfill expectations that it would reduce the risk of slow Page 8 of 13  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review SL-Public Sector Pay & Performance(FY12) (P128208) and uneven progress in a weak institutional environment\. Third, risks related to the uncertain political climate and macroeconomic situation were not fully factored in or mitigated\. They were to have a serious negative impact on project achievements\. Fourth, the three year implementation period was chosen to fit the government’s reform timetable rather than the country's institutional and capacity constraints\. It proved to be far too short\. Quality-at-Entry Rating Unsatisfactory b\. Quality of supervision While the Ebola epidemic caused significant disruptions, there were also major shortcomings in the Quality of Supervision\. It was seriously under-resourced\. Not only did the more than usually intensive effort foreseen in the PAD not materialize, but resources were only marginally increased (by seven percent) to cope with almost three additional years of implementation\. This had a number of consequences\. First, advance disbursements against DLIs were not systematically tracked, so that ineligible expenditures (expenditures that should not have been made under the DLI system) arose from non-achievement of some indicators (see Section 5 above)\. Second, the supervision team could have been more proactive in discussing with the government the need for a level one restructuring, after key assumptions made at appraisal (for example, concerning the fiscal space needed for the establishment of a competitive pay scale) proved to be no longer valid\. Third, although changes to the results framework were captured in the Project Paper and Amendments to the Financing Agreement following the March 2014 level two restructuring, they were not formalized into the Bank’s monitoring system\. All subsequent Implementation Status and Results Reports (ISRs), therefore, continued to use the initial results framework, thereby further complicating the systematic tracking of the 50 percent advances against achievements of the DLIs\. Fourth, again as part of the March 2014 restructuring, the number of DLIs was reduced from 15 to 13, but without any corresponding adjustments to the “value” of each DLI\. Fifth, while the supervision team drew attention in ISRs to implementation challenges, there is little indication of action taken to address them\. Quality of Supervision Rating Unsatisfactory Overall Bank Performance Rating Unsatisfactory 9\. M&E Design, Implementation, & Utilization a\. M&E Design A detailed results framework and monitoring plan were developed during preparation\. Six outcome indicators were to be tracked, two covering each of the reform areas\. All indicators were relevant to their Page 9 of 13  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review SL-Public Sector Pay & Performance(FY12) (P128208) purpose and included targets; no baselines were calculated, as the project was introducing new processes\. Responsibility for overall monitoring of the results framework lay with the project implementation agency, the Public Sector Reform Unit (PSRU)\. The PSRU was to coordinate the reporting of four key implementing agencies, each one responsible for a reform area\. b\. M&E Implementation The PSRU produced progress reports of varying timeliness and quality (ICR (page 33)\. However, there were significant weaknesses in this process: The PSRU's capacity was weak; monitoring by the government's leadership team, intended to be quarterly, was irregular and infrequent; and the results framework and monitoring plan were not updated following disruptions to the timetable\. As noted in Section 8b above, the results framework was not updated following the March 2014 restructuring, and Bank supervision reports continued to rely on the original one\. According to the ICR, the PSRU did not use the results framework, and their quarterly reports did not include updates on its status\. Throughout implementation, the Unit focused on the attainment of DLI targets\. Nonetheless, DLI achievements against advances were not properly tracked\. The project's gender target (30 percent of direct project beneficiaries should be women) was not monitored, and at project closure, no gender breakdown was available (it was subsequently estimated by the ICR team)\. c\. M&E Utilization Neither project management nor government decision-makers appear to have made use of the M&E system (ICR, page 34)\. M&E Quality Rating Negligible 10\. Other Issues a\. Safeguards No social or environmental safeguard policies were triggered by the project, which was classified as a Category C project for purposes of environmental assessment\. b\. Fiduciary Compliance Financial management\. Portfolio and Risk Management (PRIMA) assessments during preparation and implementation consistently rated the project’s financial management as satisfactory\. Still, financial management does raise some questions: Page 10 of 13  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review SL-Public Sector Pay & Performance(FY12) (P128208) ï‚ the ICR notes that the Bank did not track progress on advances to DLIs; still, advances were made against four DLIs that were either never achieved or cancelled during the first restructuring\. ï‚ the annual external audit only covered expenditures undertaken within the TA Component of the project\. ï‚ The Audit Service of Sierra Leone reported on the project, but it did not make a distinction between disbursements recorded as advances against non-achieved DLIs and disbursements recorded as reimbursements on achieved and verified DLIs\. Procurement\. A procurement assessment during appraisal found that the PSRU had inadequate experience and capacity to conduct procurement activities under the project\. The hiring of a part-time procurement specialist mitigated this risk, but a May 2017 Procurement Risk Assessment and Management System (PRAMS) rated project procurement Moderately Unsatisfactory\. Procurement delays also contributed to a delay in activities, such as the hiring of the consultant for the job evaluation survey\. c\. Unintended impacts (Positive or Negative) None noted\. d\. Other Gender\. Based on analysis undertaken by the ICR team, the gender target was not met\. Female beneficiaries of the recruitment process averaged 18 percent\. Only in the case of human resources officers did female recruitment exceed the target, reaching 32 percent\. In fact, there appears to have been a deterioration - an analysis undertaken by the Public Service Commission , noted that, in 2015, a quarter of appointees were women\. 11\. Ratings Reason for Ratings ICR IEG Disagreements/Comment Efficacy was modest, with two Moderately out of four objectives rated Outcome Unsatisfactory Unsatisfactory negligible\. Efficiency is also rated negligible\. There were major shortcomings Moderately Bank Performance Unsatisfactory in both Quality at Entry and Unsatisfactory Quality of Supervision\. There were major weaknesses in M&E implementation\. The Quality of M&E Modest Negligible results framework was not utilized\. Quality of ICR --- Substantial Page 11 of 13  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review SL-Public Sector Pay & Performance(FY12) (P128208) 12\. Lessons The first three lessons are taken from the ICR, with some adaptation of language, and the fourth is drawn by IEG: ï‚ Alertness to incentives can influence collaboration in results-based lending\. Teams need to assess the incentive effects of individual DLIs on agency collaboration\. In the Sierra Leone case, the client noted that the pay-off was a public good and achieving DLIs was unlikely to result in any proportionate budget increase for the agencies concerned\. ï‚ Changing country circumstances can affect project outcomes\. Teams need to assess the economic and political circumstances that may disrupt project design and require adjustments, for instance during mid-term reviews\. In Sierra Leone, the project could have benefited from an early realization of the implications on civil service reform of changing fiscal space\. ï‚ While focusing on DLIs, the results framework is also relevant\. An exclusive focus on DLI sequencing when managing a DLI-based project may not sufficiently define the reform path\. In Sierra Leone, a greater focus on the results framework and intermediate indicators might have better brought forth issues on the feasibility of certain reforms\. It might have better focused the team's attention to changes in the results framework as DLIs were being adjusted (during the 2014 revisions)\. ï‚ Introduction of new lending modalities, with which Bank staff are also unfamiliar, is best avoided in institutionally challenging contexts\. If, nonetheless, they are utilized, then project outcomes require provision for adequate training on both the Bank and Borrower sides, and by enhanced resource availability for supervision\. In this case, the use of the DLI model was not accompanied by sufficient training, and the allocations made for supervision would have been barely adequate even without the DLI model, given the difficulties of the operating environment\. 13\. Assessment Recommended? No 14\. Comments on Quality of ICR The ICR provides a thorough assessment of the project\. It covers most sections in sufficient detail, providing enough evidence-based information and analysis to allow the ICRR to be completed\. It draws some good lessons, but in many instances they raise issues that don’t appear to be tackled in the text\. This is notably the case in reviewing the supervision process and (absence of) revisions to the results framework\. Likewise, an explanation of the external auditing arrangements would have been useful\. The document is internally consistent, but at 41 pages, it is too long\. Page 12 of 13  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review SL-Public Sector Pay & Performance(FY12) (P128208) a\. Quality of ICR Rating Substantial Page 13 of 13

REVIEW

P096711

Document of The World Bank Report No: ICR00001882 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD 7651-YF, IBRD 7825-YF) ON A PROGRAMMATIC PRIVATE AND FINANCIAL DEVELOPMENT POLICY LOANS IN THE AMOUNTS OF 1\. US$50 MILLION EQUIVALENT 2\. US$100 MILLION EQUIVALENT TO THE REPUBLIC OF SERBIA June 17, 2011 Private and Financial Sectors Development Unit (ECSPF) South East Europe Country Unit (ECCU4) Europe and Central Asia (ECA)  CURRENCY EQUIVALENTS (Exchange Rate Effective June 16, 2011) Currency Unit =Serbian Dinar (RSD) RSD 1\.00 = US$ 0\.01 US$ 1\.00 = RSD 67\.417 FISCAL YEAR 1 January – 31 December ABBREVIATIONS AND ACRONYMS BEEPs Business Environment and Enterprise MoJ Ministry of Justice Performance Survey CAR Capital Adequacy Ratio MoP Material Support to Families CPS Country Partnership Strategy MoU Memorandum of Understanding DDOR DDOR Insurance Company MTPL Motor Third Party Liability DIA Deposit Insurance Agency NBS National Bank of Serbia DIF Deposit Insurance Fund NPL Non-performing loans DIS Deposit Insurance Scheme PA Privatization Agency DPL Development Policy Loan PDMA Public Debt Management Authority EBRD European Bank for Reconstruction and PDO Program Development Objectives Development EPS Elektroprivreda Srbije (Electric Power PEDPL Public Expenditure Development Policy Company of Serbia) Law EU European Union PFDPLs Programmatic Private and Financial Sector Development Policy Loans FDI foreign direct investments PFSAC Private and Financial Sector Adjustment Credit FSSP Financial Sector Support Program PFSPBG Private and Financial Sector Policy Based Guarantee GoS Government of Serbia PPFDPC Programmatic Private and Financial Development Policy Credit ICS Implementation Completion and Results PR Privatization Registry Report IDF Institutional Development Fund RIA Regulatory Impact Assessment ISR Implementation Status and Results RoS Republic of Serbia Report JSC Joint Stock Company SAA Stabilization and Association Agreement LLCs Limited Liability Companies SAI State Audit Institution LOLR Lender of Last Resort SBRA Serbia Business Registers Agency M&E Monitoring and Evaluation SIDA Swedish International Development Agency MOERD Ministry of Economy and Regional SOB state-owned banks Development MoF Ministry of Finance SOEs socially owned enterprises Vice President: Philippe H\. Le Houreou Country Director: Jane Armitage Sector Manager: Lalit Raina Task Team Leader: Irina Astrakhan ICR Team Leader: Gordana Popovikj Friedman  REPUBLIC OF SERBIA PROGRAMMATIC PRIVATE AND FINANCIAL DEVELOPMENT POLICY LOANS CONTENTS Data Sheet A\. Basic Information B\. Key Dates C\. Ratings Summary D\. Sector and Theme Codes E\. Bank Staff F\. Results Framework Analysis G\. Ratings of Program Performance in ISRs H\. Restructuring 1\. Program Context, Development Objectives and Design \. 1  2\. Key Factors Affecting Implementation and Outcomes \. 4  3\. Assessment of Outcomes \. 8  4\. Assessment of Risk to Development Outcome \. 22  5\. Assessment of Bank and Borrower Performance \. 23  6\. Lessons Learned\. 24  Annex 1\. Bank Lending and Implementation Support/Supervision Processes\. 26  Annex 2\. Beneficiary Survey Results \. 28  Annex 3\. Stakeholder Workshop Report and Results \. 29  Annex 4\. Summary of Borrower's ICR and/or Comments on Draft ICR \. 30  Annex 5\. Comments of Cofinanciers and Other Partners/Stakeholders \. 31  Annex 6\. List of Supporting Documents \. 32  A\. Basic Information Program 1 Second Programmatic Country Serbia Program Name Private Financial Sector Development Program ID P096711 L/C/TF Number(s) IBRD-76510 ICR Date 06/24/2011 ICR Type Core ICR REPUBLIC OF Lending Instrument DPL Borrower SERBIA Original Total USD 50\.0M Disbursed Amount USD 48\.8M Commitment Implementing Agencies The Ministry of Finance Cofinanciers and Other External Partners Program 2 Programmatic Private Country Serbia Program Name Financial Development Policy Loan 2 Program ID P115958 L/C/TF Number(s) IBRD-78250 ICR Date 06/24/2011 ICR Type Core ICR REPUBLIC OF Lending Instrument DPL Borrower SERBIA Original Total USD 100\.0M Disbursed Amount USD 99\.7M Commitment Implementing Agencies The Ministry of Finance Cofinanciers and Other External Partners B\. Key Dates Second Programmatic Private Financial Sector Development - P096711 Revised / Actual Process Date Process Original Date Date(s) Concept Review: 05/09/2006 Effectiveness: 06/24/2009 06/24/2009 Appraisal: 09/25/2008 Restructuring(s): Approval: 03/05/2009 Mid-term Review: Closing: 03/31/2010 03/31/2010 i Programmatic Private Financial Development Policy Loan 2 - P115958 Revised / Actual Process Date Process Original Date Date(s) Concept Review: 05/26/2009 Effectiveness: 01/15/2010 01/15/2010 Appraisal: 07/06/2009 Restructuring(s): Approval: 11/17/2009 Mid-term Review: Closing: 12/31/2010 12/31/2010 C\. Ratings Summary C\.1 Performance Rating by ICR Overall Program Rating Outcomes Satisfactory Risk to Development Outcome Moderate Bank Performance Satisfactory Borrower Performance Satisfactory C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Overall Program Rating Bank Ratings Borrower Ratings Quality at Entry Satisfactory Government: Satisfactory Implementing Quality of Supervision: Satisfactory Satisfactory Agency/Agencies: Overall Bank Overall Borrower Satisfactory Satisfactory Performance Performance C\.3 Quality at Entry and Implementation Performance Indicators Second Programmatic Private Financial Sector Development - P096711 Implementation QAG Assessments Indicators Rating: Performance (if any) Potential Problem Quality at Entry Program at any time No None (QEA) (Yes/No): Problem Program at any Quality of No None time (Yes/No): Supervision (QSA) DO rating before Satisfactory Closing/Inactive status ii  Programmatic Private Financial Development Policy Loan 2 - P115958 Implementation QAG Assessments Indicators Rating: Performance (if any) Potential Problem Quality at Entry Program at any time No None (QEA) (Yes/No): Problem Program at any Quality of No None time (Yes/No): Supervision (QSA) DO rating before Closing/Inactive status D\. Sector and Theme Codes Second Programmatic Private Financial Sector Development - P096711 Original Actual Sector Code (as % of total Bank financing) Banking 13 13 Central government administration 12 12 General industry and trade sector 63 63 Non-compulsory pensions and insurance 12 12 Theme Code (as % of total Bank financing) Public expenditure, financial management and 12 12 procurement Regulation and competition policy 25 25 State-owned enterprise restructuring and privatization 63 63 Programmatic Private Financial Development Policy Loan 2 - P115958 Original Actual Sector Code (as % of total Bank financing) Capital markets 10 10 Central government administration 20 20 General energy sector 10 10 General finance sector 30 30 General industry and trade sector 30 30 Theme Code (as % of total Bank financing) Other financial and private sector development 33 33 Regulation and competition policy 33 33 State-owned enterprise restructuring and privatization 34 34 iii E\. Bank Staff Second Programmatic Private Financial Sector Development - P096711 Positions At ICR At Approval Vice President: Philippe H\. Le Houerou Shigeo Katsu Country Director: Jane Armitage Jane Armitage Sector Manager: Lalit Raina Lalit Raina Task Team Leader: Irina Astrakhan Irina Astrakhan ICR Team Leader: Gordana Popovikj Friedman ICR Primary Author: Gordana Popovikj Friedman Second Programmatic Private Financial Sector Development - P096711 Positions At ICR At Approval Vice President: Philippe H\. Le Houerou Shigeo Katsu Country Director: Jane Armitage Jane Armitage Sector Manager: Lalit Raina Lalit Raina Task Team Leader: Irina Astrakhan Irina Astrakhan ICR Team Leader: Gordana Popovikj Friedman ICR Primary Author: Gordana Popovikj Friedman F\. Results Framework Analysis Program Development Objectives (from Program Document) The PFDPL series was designed to support the Government of Serbia (GoS) structural reform program through improvements in the business environment, continued reform in the enterprise sector and public utilities and building a more efficient and stable financial sector\. Revised Program Development Objectives (as approved by original approving authority) N/A (a) PDO Indicator(s) iv  Second Programmatic Private Financial Sector Development - P096711 Original Target Formally Actual Value Baseline Values (from Revised Achieved at Indicator Value approval Target Completion or documents) Values Target Years Reduced regulatory compliance costs of business measured by BEEPs (9\.6% of Indicator 1 : management time in 2005), ICS and other enterprise surveys\. Value (quantitative or 9\.6% Qualitative) Date achieved 12/31/2005 BEEPS 2008 indicates that compliance costs were 14% of management time, Comments however based on a larger sample size than in BEEPS 2005\. BEEPS 2008 (incl\. % (published in 2010) is the latest survey and no information is available for the achievement) relevant period after 2008\. Unique business identification number is introduced and assigned to all Indicator 2 : businesses by end 2010\. Unique business Unique business Value identification identification (quantitative or None number to all number to all Qualitative) businesses\. businesses\. Date achieved 12/30/2005 12/31/2010 12/31/2010 Comments (incl\. % 100% achievement\. achievement) Increase of private sector share in GDP from 55% (end 2005) to above 60% by Indicator 3 : the end of the program in 2010, increase in priva te sector share in empl\. from 58% (end 2005) to 65% by the end of program in 2010\. private sector private sector share Value private sector share share above 60% of 60% in GDP and (quantitative or 55% in GDP and 58% in GDP and 65% 56% in Qualitative) in employment in employment employment\. Date achieved 12/30/2005 12/31/2010 12/31/2010 Comments 50% of achievement\. However, if informal employment is to be considered in (incl\. % the private sector share in employment, the targ et of 65% is to be likely achievement) achieved\. The Government of Serbia's ownership stake in the banking sector and its Indicator 4 : holdings in financial assets reduced from 24% i n 2005 to 15% in 2008, and expected to go below 10% in 2010\. Value 24% of GoS ownership 15% in 2008 and (quantitative or in the banking sector below 10% in 15% Qualitative) and its holdings 2010\. Date achieved 12/30/2005 12/31/2010 12/31/2010 Comments (incl\. % Level of achievement 50%\. achievement) v  Programmatic Private Financial Development Policy Loan 2 - P115958 Original Target Formally Actual Value Baseline Values (from Revised Achieved at Indicator Value approval Target Completion or documents) Values Target Years CAR of the banking system is maintained at the level of at least 12% and the Indicator 1 : required recapitalizations are conducted using t ransparent criteria allowing the use of public funds only where there is no private sector alternative\. CAR 20\.1% in the entire banking Value sector and three (quantitative or banks were Qualitative) recapitalized using transparent methods\. Date achieved 12/31/2010 Comments (incl\. % Target achieved and exceeded\. achievement) Legal and implementation framework for crisis preparedness fully operational Indicator 2 : and banking sector resilience to shocks strength ened\. Legal and regulatory framework for Value crisis preparedness (quantitative or fully operational Qualitative) and banking sector resilience strengthened\. Date achieved 12/31/2010 Comments (incl\. % 100% achievement\. achievement) (b) Intermediate Outcome Indicator(s) vi  Second Programmatic Private Financial Sector Development - P096711 Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years State share in insurance sector decreased from 63\.4% in insurance Indicator 1 : premium written in 2006 to 35% in 2010\. Value (quantitative or 63\.4% 35% below 35% Qualitative) Date achieved 12/29/2006 12/31/2010 12/31/2010 Comments 100% achieved\. (incl\. % achievement) Programmatic Private Financial Development Policy Loan 2 - P115958 Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years A bank diagnostic and triage exercise is completed for the entire Indicator 1 : banking sector in Serbia and all banks\. Value Bank diagnostic and (quantitative or triage exercise was Qualitative) completed\. Date achieved 12/31/2010 Comments 100% achievement\. the bank diagnostic and triage exercise is now (incl\. % achievement) regularly conducted every six months\. G\. Ratings of Program Performance in ISRs Second Programmatic Private Financial Sector Development - P096711 Actual Date ISR No\. DO IP Disbursements Archived (USD millions) 1 03/24/2010 Satisfactory Satisfactory 48\.67 H\. Restructuring (if any) vii 1\. Program Context, Development Objectives and Design The Programmatic Private and Financial Sector Development Policy Loans (PFDPLs) to the Republic of Serbia were a series of two operations during the period 2009-2010, totaling EUR 105\.7 million (US$150 equivalent) of World Bank funding\. The PFDPL series was designed to support the Government of Serbia (GoS) structural reform program through improvements in the business environment, continued reform in the enterprise sector and public utilities and building a more efficient and stable financial sector\. The PFDPL series was originally envisaged to include three operations, however, the plan for a Third PFDPL was changed to allow for the use of a Policy Based Guarantee in the amount of EUR 300 million, upon request from the Government of Serbia\. As a policy based guarantee is not a Development Policy Loan (DPL) option under current Bank policies, the PFDPL series had to be terminated after PFDPL 2, and PFDPL 3 was transformed into a stand-alone Policy Based Guarantee operation, with the same policy matrix as the originally envisaged PFDPL 3\. 1\.1 Context at Appraisal Serbia began its transition to a market economy late and under difficult circumstances\. The 1990s was a lost decade for Serbia\. Its economy was devastated by regional conflicts, international sanctions, and trade shocks following the break-up of the former Yugoslavia in 1991\. These effects were compounded by delayed transition and poor economic management\. By 2000 recorded GDP had fallen to below one-half of its 1989 level, while other central and eastern European countries had made significant progress on the transition path\. In January 2001, the new Government launched an ambitious reform program for a rapid transition to a more market oriented economy, normalization of relations with foreign creditors, and integration with regional, EU and world markets\. Fiscal balance was achieved in 2004, as structural reforms began to have impact and expenditure commitments were reduced, and a surplus of 0\.8 percent of GDP was achieved in 2005\. The Serbian economy grew rapidly during the first decade of the century and until 2008, fuelled by capital inflows, exports and domestic demand, and supported by the economic reforms mentioned above\. GDP growth averaged 5\.4 percent per year during 2001-08, with exports growing at an average annual rate of around 30 percent, albeit from a low base\. Output rose in real terms by nearly 50 percent between 2000 and 2008, as the corporate sector started to post profits and the banking sector restructured\. About 80 percent of growth was attributed to non- tradable sectors (financial, telecoms, retail)\. Strong economic growth was, however, accompanied by a widening external current account deficit, rapid credit growth, increasing private sector debt and non-performing loans in the period immediately preceding the financial crisis\. Imports grew faster than exports and the trade deficit reached 22\.8 percent of GDP in 2008\. The external current account deficit increased from 8\.7 percent in 2005 to 18\.3 percent in 2008, driven by a widening private sector savings-investment imbalance (about 90 percent of the deficit in 2008)\. The contraction of global demand and 1 spending largely impacted the real sector and the competitive position of private sector companies\. The economy also faced the remnants of the previous systems in the forms of cumbersome, business-unfriendly regulations with legislation not compatible with the European Union, slow public administration and large number of “socially-owned” enterprises in the portfolio of the Privatization Agency (PA)\. The business regulatory environment, a key factor for sustainable and stable private sector growth and job creation, needed improvement to facilitate firm entry and growth and approximation to the business regulations of the European Union\. The Government started a comprehensive reform program in business entry, adoption of key elements of business legislation, enhancement of access to finance and introduction of Regulatory Impact Assessment (RIA) in the legislative process\. The new Government in 2008-2009 demonstrated commitment to deepen the reforms and further enhance the business climate in the country, by streamlining the business registration procedures, improving the legal framework for corporate governance, commencing the implementation of a comprehensive regulatory review called “regulatory guillotine”, institutionalizing RIA and strengthening its role, simplifying the process of issuance of construction permits and strengthening the framework for enforcement of contracts\. For the remaining socially owned enterprises (SOEs), the GoS developed a program to strengthen financial discipline, as instrumental for facilitating the restructuring, privatization and/or bankruptcy of remaining of SOEs\. In the energy sector, for integration into the regional and pan-European oil, power and gas markets and ensuring energy security, the Government introduced sector reforms including modernization of the energy infrastructure, restructuring, cost-effective tariffs and private sector participation\. In the financial sector, substantial reforms were undertaken to deal with the state ownership in the banking and insurance sectors, develop the capital markets, improve the legal framework for supervision and introduce measures to insure stability in the sector during and following the financial crisis\. The banking sector faced the global financial crisis in a healthy situation, with high liquidity and capital buffers due to conservative policies by National Bank of Serbia (NBS)\. However, the magnitude of the international crisis revealed some challenges\. A fast withdrawal of over 15% of deposits by depositors took place amid false media reports and rumors in late 2008\. The GoS adopted then a set of measures for crisis preparedness\. The measures aimed at maintaining consumer confidence and stability in the banking sector and included the launching of a financial sector support program (FSSP) under the auspices of the “Vienna initiative (with 10 foreign banks and their home supervisors) and with support from the IMF”\. In addition, a comprehensive program for restructuring and consolidation of state-owned banks, strengthening of the insurance supervision and development of capital markets legal framework (Securities Law and Law on Business Entities)\. 2 The economy picked up in 2010, despite the fact that it was severely hit by the global crisis\. Strong exports and the adoption of timely and appropriate measures were key in re-establishing macroeconomic stability\. 1\.2 Original Program Development Objectives (PDO) and Key Indicators (as approved) The objective of Programmatic Private and Financial DPL series is to support the Government of Serbia reform actions in three policy areas: (i) enhancing business environment to encourage new business and attract foreign direct investments (FDI); (ii) strengthening financial discipline by enhancing hard budget constraints in the enterprise sector through continued reform of SOEs and restructuring of public utilities; and (iii) building a more efficient and stable financial sector through continuing the divestment of state ownership in the banking and insurance sectors, strengthening prudential supervision of banking and encouraging development of the capital markets\. 1\.3 Revised PDO and Key Indicators, and Reasons/Justification There were no revisions of the PDOs\. 1\.4 Original Policy Areas Supported by the Program (as approved): The objective of the PFDPL series was supposed to be achieved through supporting reforms carried out by the GoS in three pillars of policy areas under the three consequent operations: Pillar I: Enhancing business environment ï‚ Further simplification of business entry through implementation of a single agency approach to business registration; ï‚ Improving the legal framework for strengthening corporate governance and facilitating business entry and operations; ï‚ Streamlining regulations of business operations and reducing business compliance costs; ï‚ Improving legal and institutional framework for competition; ï‚ Improving effectiveness of contract enforcement\. Pillar II: Strengthening financial discipline ï‚ Improving financial discipline in the socially-owned enterprise (SOE) sector; ï‚ Privatization, restructuring and bankruptcy of socially-owned enterprises; ï‚ Continuing reforms in the energy sector\. Pillar III: Building a more efficient and stable financial sector ï‚ Privatization and divestment of state-owned banks (SOB) and financial assets (non- performing loans (NPLs), insurance companies, equities, etc\.); ï‚ Enhancing crisis preparedness and market confidence; ï‚ Strengthening insurance sector regulation and resolution regime; ï‚ Enhancing prudential supervision of the banking sector; and ï‚ Strengthening capital markets regulatory and supervisory regime\. 3 1\.5 Revised Policy Areas N/A 1\.6 Other significant changes The PFDPL series was initially envisaged to consist of a series of three regular development policy loans to support the structural reform agenda of the Government of Serbia\. However, as the international crisis hit Serbia, it was necessary to adjust the scope and refocus the design of the operations to include measures aimed at maintaining stability in the banking sector\. Furthermore, on request from the GoS, the PFDPL series was terminated after the completion of the Second PFDPL operation, whereas the planned Third PFDPL in the series was transformed into a [stand-alone] Private and Financial Sector Policy Based Guarantee (PFSPBG) in the amount of up to 300 million EUR (not exceeding an equivalent of 400 million USD)\. The cancelation of the third PFDPL was deemed consistent with the overall support to the original objectives of the PFDPL\. The PFSPBG followed up on the implementation of the reforms supported by the PFDPL1 and PFDPL2\. Use of the policy based guarantee allowed Serbia to benefit from access to the international capital markets at lower costs and longer maturities, driven by the need to match the country’s debt portfolio management and reduced funding costs\. 2\. Key Factors Affecting Implementation and Outcomes 2\.1 Program Performance Table 1 shows the disbursement dates of PFDPL 1-2\. The total amount of Bank financing was US$150 million equivalent\. Each of the two operations was a single tranche loan\. Table 1: PFDPL 1-2 Amounts (US$ million) and Release Dates Tranche # Amount Expected Actual Release Release Release Date Date PFDPL-1 48\.8 04/30/2009 06/24/2009 Regular PFDPL-2 99\.7 11/30/2009 01/26/2010 Regular Table 2: Prior Actions for PFDPL PRIVATE AND FINANCIAL DEVELOPMENT POLICY LOAN (PFDPL) Prior actions from Program Document Status Pillar 1: Enhancing business environment The GoS will adopt the Principles of consolidating business registration Completed procedures related to issuance of tax, pension and social security identification numbers in the Serbia Business Registers Agency (SBRA)\. Strategy for implementation of comprehensive regulatory review (regulatory Completed guillotine) is approved by the GoS\. 4 Pillar 2: Strengthening financial discipline GoS will offer for sale, or initiate the search for a strategic partner for the core Completed assets of two largest recipients of state subsidies\. The amendments to the Privatization Law are enacted, setting end-December Completed 2008 as the deadline for launching privatization of SOEs\. Starting on September 1, 2007, the PA will: (i) offer for sale no less than [40] Completed SOEs and sell at least [15] through its tender program; (ii) offer for sale through auctions no less than [350] socially-owned enterprises, and sell at least 40% of them; (iii) offer for sale no less than [7] SOEs from the list of companies under restructuring, or significant parts thereof, and sell at least [4] SOEs from the same list\. The budget allocation for SAI as a separate line item in the Budget of the Completed Republic of Serbia has been adopted by the Parliament\. Pillar 3: Building a more efficient and stable financial system Strategy for banks and insurance companies with Republic of Serbia (RoS) Completed ownership is finalized and approved by GoS\. GoS has transferred funds for initial capitalization of Deposit Insurance Scheme Completed (DIS)\. SECOND PRIVATE AND FINANCIAL DEVELOPMENT POLICY LOAN (PFDPL2) Pillar 1: Enhancing business environment The new Competition Law is approved by GoS and submitted to Parliament for Completed adoption\. Pillar 2: Strengthening financial discipline The Law on State Aid is approved by GoS and submitted to Parliament for Completed adoption\. The new Bankruptcy Law is approved by GoS and submitted to Parliament for Completed adoption\. The sale of shares of socially owned enterprises in the Privatization Registry (PR) Completed shall be conducted in accordance with the procedures established by the Ministry of Economy and Regional Development (MOERD)\. Pillar 3: Building a more efficient and stable financial system A diagnostic process is launched, including approval of: (i) satisfactory Completed methodology; and (ii) decision tree that takes into account capital, earnings and liquidity\. A liquidity framework is adopted, including: (i) approval of rules regulating Completed lender of last resort function and other liquidity lending; and (ii) legal authority to permit GoS to guarantee LOLR financing from NBS to solvent banks\. Strategy for banks with RoS ownership is approved by GoS, including the Completed decision on merger of RoS majority owned banks or other alternatives outlining a proposed timeline\. Motor Third Party Liability (MTPL) Law is approved by GoS and submitted to Completed Parliament for adoption\. 5 2\.2 Major Factors Affecting Implementation Government Priorities and Commitment: The GoS put private sector development at the center of its strategy to promote growth and income convergence of European level\. To increase the private sector contribution to growth, the GoS implemented a series of policy measures to increase productivity and investment, upgrading the physical infrastructure and its quality, improving the business environment, privatizing non-private enterprises, and promoting financial sector policies and FDI promotion\. In fact, the core of GoS’s growth agenda was composed of improvements in the business environment, financial discipline/divestment of non-private enterprises and financial sector development\. Although, by the second PFDPL, emphasis was placed on the financial sector in order to reduce macroeconomic/financial risks and prepare the country to better cope with a global financial crisis\. The Government has expressed commitment to deepen the reforms in the following areas which the PFDPL (1 and 2) supported: Further enhance the business climate in the country, by streamlining the business registration procedures, improving the legal framework for corporate governance, implementing a comprehensive regulatory review called “regulatory guillotine”, by simplifying the process of issuance of construction permits and strengthening the framework for enforcement of contracts; In relation to the remaining socially owned enterprises (SOEs), the GoS facilitated the restructuring, privatization and/or bankruptcy of remaining of SOEs, by enacting amendments to the Privatization Law, continuing with the privatization/resolution of SoEs and enacting the new Law on Bankruptcy Further, in response to the global financial crisis, the Government adopted a set of measures aimed at strengthening crisis preparedness by maintaining consumer confidence and stability in the banking sector and by launching a financial sector support program (FSSP) under the auspices of the “Vienna initiative” (with 10 foreign banks and their home supervisors) and with support from the IMF\. In addition, a comprehensive program for restructuring and consolidation of state-owned banks, strengthening of the insurance supervision and development of capital markets legal framework (Securities Law and the Company Law)\. EU Accession: A major factor affecting implementation was Serbia’s desire to accede to the EU\. Around such desire, major forces seemed to have coalesced\. EU accession has come to be perceived as the key driver of Serbia’s economic reforms, and to some extent as a source of stability in a region with a history of political instability\. The objective of EU accession was particularly influential in the number of Laws which were developed with the PFDPL support as well as of other laws and by-laws, which complied with EU requirements\. In April 2008 the Government Serbia signed a Stabilization and Association Agreement (SAA) and in December 2009, submitted its application for EU membership\. In February 2010, the Interim Agreement on Trade and Trade-related issues between Serbia and the EU (part of the SAA) entered into force\. The importance of EU accession in the commitment of Serbia to the key reforms supported by the PFDPL (and other World Bank operations) could not be underestimated\. History of successful cooperation in policy reforms with the World Bank: The reforms supported by the PFDPL series built upon (and continued) previous budget support policy 6 operations financed by the World Bank which the GoS implemented with a good degree of success since the early 2000s\. The operations included the Programmatic Private and Financial Development Policy Credit (PPFDPC-1) and a successful series of two consecutive Private and Financial Sector Adjustment Credits (PFSACs)\. The PFSAC-I focused on initial reform measures in five areas: (i) banking sector reform, (ii) reform of socially owned enterprises; (iii) bank asset and enterprise workouts; and (iv) financial sector regulatory and supervisory framework\. The PFDPL is, to a large extent, a continuation of the PFSAC\. The Serbian institutions designing and implementing the reforms developed a fluid and constructive cooperation with the World Bank teams\. Global financial crisis: The global financial crisis severely affected Serbia and impacted also the focus of the PFDPL program\. First, the pace of SOE privatization slowed down considerably due to lack of interested FDI\. Moreover a number of already signed privatization contracts had to be cancelled due to lack of investments by the buyers\. As a result, the PFDPL program with respect to SOEs focused more on the introduction of a new, more efficient bankruptcy framework for all companies, including SOEs\. Secondly the program supported by the PFDPL had also to be modified to take into account the impact of the global crisis on the banking sector\. This meant that the financial sector pillar had to include a new focus on bank diagnostics, crisis preparedness and bank resolution\. Collaboration and coordination with the IMF and Other Donors: Reforms in Serbia were supported by the World Bank and other key international development partners in a collaborated and coordinated approach\. The Bank maintained close working relations with the IMF and other donors (such as EAR, SIDA, USAID, DFID) assisting the GoS for the purposes of harmonizing policy reforms, seeking synergies among the respective operations and avoiding overlaps\. The international support has been substantial and required intensive coordination\. 2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization: At the Government level, the Ministry of Finance was responsible for the overall implementation of the proposed operation and for reporting process and coordinating actions among other concerned ministries and agencies\. At the same time, the Bank has been monitoring actions and reviewing progress of the implementation of the proposed operation, as well as the subsequent actions of the GoS program by using [the short term] reform benchmarks and the overall program outcomes outlined in the Policy Matrix\. The results achieved by the development policy loan series was documented in the respective appraisals, aide memoires, Government and EU progress reports and from intensive communications/interviews with the key counterparts\. A good set of indicators and benchmarks was initially developed to monitor the achievement of results\. The (only) ISR so far produced did not include existing information on progress as all outcome targets were established for the end of year 2010\. This lack of formal reporting seemed associated with the fast turn of events, particularly the acceleration of the Second PFDPLs on request from the Government in the context of global financial crisis (within a period of six months from the delivery to the Board of the First PFDPL)\. 2\.4 Expected Next Phase/Follow-up Operation: On request by the Government of Serbia, in the aftermath of the global economic crisis, the PFDPL series (1-2) was followed by a Private and Financial Sector Policy Based Guarantee, 7 instead of a Third PFDPL as originally planned\. The PFPBG advanced the reforms in the business environment, enterprise sector and financial sector envisioned by the PFDPL series, while helping the Government of Serbia to borrow at more favorable terms from the international capital markets\. A World Bank Trust Fund funded by the Swedish International Development Agency (SIDA) supported the regulatory reform process\. Going forward, a World Bank’s Institutional Development Fund (IDF) grant will support the creation of a permanent government body in charge of regulatory reform and regulatory impact assessment\. A second IDF grant is assisting the GoS with pilot incorporation of Serbian Post (which owns Postal Bank and Telekom), a process which should enhance corporate governance\. Under the Capital Markets Development technical assistance, assistance has been provided to the Public Debt Management Authority (PDMA) to identify key issues in the area of government securities market development, provide support in initiating their resolution, and strengthen the PDMA’s technical capacity\. Finally assistance in upgrading the crisis framework for the financial sector, and in particular on strengthening the DIA and bank resolution framework, has been provided under the regional World Bank funded Western Balkans Facility\. As we can see, the PFDPL is clearly inserted in a longer term strategy to contribute to Serbia’s reforms\. The GoS remains committed to completing the substantial reform program implemented thus far in private and financial sector areas\. While, the GoS has made considerable progress in the business environment, privatization/restructuring/bankruptcy of non-private enterprises, and in financial sector development, the reform agenda has not yet been completed\. In the short term, the GoS is committed to advancing the businesses environment reforms into further improving construction permits and completing the implementation of the regulations of business activities recommendation\. As far as privatization and restructuring is concerned, the GoS plans to proceed with the incorporation of Railways and Post, two large state owned enterprises, and with the privatization of Telekom\. Finally regarding the financial sector, the GoS plans to divest its minority stakes in banks and privatize the last state owned insurance company, Dunav\. On the regulatory front, the NBS is planning implementation of Basel 2 by the end of 2011\. The current four-year Country Partnership Strategy covers the period FY08-FY11, so that Serbia and the World Bank will soon reassess priorities and cooperation for the next CPS period\. However, it is certain that support to the EU agenda and deepening of the reforms will be the essence of the Strategy\. 3\. Assessment of Outcomes 3\.1 Relevance of Objectives, Design and Implementation The objectives of the PFDPL were consistent with major challenges for the economy and reflected in the first priority area of the Serbia Country Partnership Strategy 2008-2011: “Dynamic Private Sector Led Growth to Ensure Incomes Converge with Europe\.” The PFDPL series addressed a set of objectives outlined under this priority area: (i) further improving the business environment, particularly cumbersome licensing and permit arrangements; (ii) strengthening the financial sector intermediation; (iii) completing divestiture of socially-owned 8 enterprises; (iv) strengthening enforcement of bankruptcy and other mechanisms to ensure the assets of insolvent socially-owned enterprises unable to be sold can be freed up for productive use; (v) continuing the process o f privatizing and restructuring of large state-owned enterprises; and (vi) strengthening the competitiveness of the enterprise sector\. 3\.2 Achievement of Program Development Objectives The OVERALL PFDPL PROGRAM OBJECTIVES were to: ï‚ Improve the business environment so as to facilitate start-ups and stimulate new investments, thus economic growth and job creation; ï‚ Minimize fiscal outlays through substantially reducing direct and indirect subsidies, complete the privatization of socially-owned enterprises, and further restructure state enterprises and public utilities; and, ï‚ Improve efficiency, governance and divestiture of the government’s holdings in the banking and insurance sectors, strengthen crisis preparedness and sector resilience, and improve the regulatory and supervisory regimes so as to reduce vulnerabilities\. Key reforms supported by PFDPL 1 and 2: PFDPL 1: ï‚ Establishment of a one-stop shop for business registration, e-registration and introduction of a unique business registration number\. ï‚ Adoption of a GoS strategy on implementation of a comprehensive review of regulations of business activities\. ï‚ Enactment of amendments to the Privatization Law that set a time limit for the completion of the process\. ï‚ Continuation of privatization of SOEs (as a result some 300 socially owned enterprises were sold)\. ï‚ Capitalization of the DIF\. ï‚ Privatization of DDOR\. PFDPL2: ï‚ Adoption of the Law on Protection of Competition, Law on Bankruptcy, Law on State Aid\. ï‚ Sale of residual shares held in the Privatization Registry\. ï‚ Diagnostic assessment of all the banks in the system\. ï‚ Adoption by the NBS of a liquidity framework\. ï‚ Strategy of consolidation of state owned banks\. ï‚ Adoption of Law on Mandatory Traffic Insurance (related to motor third party liability)\. All core and non-core benchmarks under PFDPL 1 and PFDPL 2 were implemented and the expected outcomes of the program have been largely accomplished, particularly in Pillar I (Enhancing Business Environment) and Pillar III (Building a More Efficient and Stable Financial System)\. While several reforms in Pillar II (Strengthening Financial Discipline of SOEs) were implemented, some expected outcomes particularly in the energy sector and related to 9 privatization of state –owned enterprises have not been achieved partly due to longer-term processes and because of the market conditions during and following the global economic crisis\. Summing up, 27 Outcomes indicators had been identified, out of which: ï‚ 17 expected outcomes were Achieved, or 63% of the total number of outcomes\. ï‚ 5 were Not Achieved, or 18 %\. ï‚ 3 were Partially Achieved, or 11 % \. ï‚ For 2 objectives, the information was insufficient to form a judgment\. It should be stressed that the outcome indicators were designed for a series of three development policy loans, but the third loan was cancelled due to the GoS desire to avail of a policy based guarantee instead\. Table 3: Status of achievement of outcomes Pillar I: Enhancing Business Environment Policy Area Outcome Status of Comments Outcome 1\.1\. Further 1\. Reduction of the business registration time from 23 Achieved simplification of days in 2006 to 5 days in 2010 business entry through 2\. Unique business identification number is introduced Achieved implementation of a and assigned to all businesses in 2010 single agency approach 1\.2\. Improving legal 3\. Enhanced legal framework for improvement of Achieved framework for corporate governance and attraction of foreign and strengthening corporate domestic investments governance and facilitating business 4\. The Doing Business Investor Protection Index Not Achieved operations increased from 5\.3 in 2007 to exceed the OECD average of 6\.0 in 2010 1\.3\. Streamlining 5\. Priorities for the regulatory reform established, Achieved regulations of business mechanisms for their implementation defined, activities and reducing transparency of the legislative process increased\. business compliance 6\. Reduced regulatory compliance costs of business No information costs measured by BEEPs (9\.6% of management time in available for the 2005), ICS and other enterprise surveys\. relevant period 1\.4 Simplifying the 7\. Procedures for obtaining planning and construction Partially process of obtaining permits simplified, related compliance costs Achieved construction permits reduced: duration decreased from 204 days in 2006 by at least 25% in 2010, and compliance cost reduced from 3,300 (% of income per capita) in 2006 by at least 50% in 2010 1\.5\. Improving legal and 8\. Improved competition framework creating level Achieved institutional framework playing field for business and conducive for foreign for competition investments 1\.6\. Improving 9\. Improved enforcement of contracts: duration of Not Achieved effectiveness of enforcement procedures reduced from 635 days in contracts enforcement 2008 to approximate to the regional average of 425 days Pillar II: Strengthening Financial Discipline 10 2\.1\. Improve financial 10\. Expected Outcome: Substantial reduction in the Not Achieved discipline in the SOE direct and indirect MOE subsidies to the SOE sector sector over the duration of the program\. 2\.2\. Privatization, 11\. Increase in private sector share: in GDP from 55% Partially At least first Restructuring and (end 2005) to above 60% by the end of the program achieved part (50%) on Bankruptcy of Socially- in 2010 (EBRD data), and in employment from share of GDP Owned and State-Owned 58% (end 2005) to 65% by the end of the program is achieved; the Enterprises in 2010 (IMF data)\. second part does not have sufficient data\. If informal economy is counted, it is likely achieved\. 2\.3\. Energy sector 12\. Increase in private investments in power generation Not achieved Implementation reform assets (In 2007: no private investments in energy in progress, sector) deadline for bids for private participation was extended\. 13\. Full competition in petroleum products or Achieved Interpretation Government commitment made to a date for full that meant non- competition extension of the ban of import on petroleum products\. 14\. Power and gas tariffs have increased from covering Not Achieved about 80%percent of costs in 2006 to 100 percent in 2010 15\. EPS and Serbiagas have improved financially and Insufficient are on a path to eliminating fiscal and quasi-fiscal information deficits 16\. EPS is operationally more efficient and has been Achieved restructured to facilitate private sector participation in the power sector Pillar III: Building a more efficient and stable financial sector 3\.1\. Strengthening crisis 17\. CAR of the banking system is maintained at the Achieved preparedness, including level of at least 12% and the required development of liquidity recapitalizations are conducted using transparent framework, capital criteria allowing the use of public funds only where adequacy assessment, there is no private sector alternative (no special bank resolution rights given to minority shareholders) framework 18\. Legal and implementation framework for crisis Achieved enhancement, and preparedness fully operational and banking sector Deposit Insurance resilience to shocks strengthened payout functions 19\. Increased efficiency of bank resolution system Achieved strengthening 20\. Deposit insurance scheme that fulfills the following Achieved conditions: (i) fast payout and (ii) availability of extra funding if needed 3\.2\. Restructuring and 21\. Banks with majority RoS ownership fully Achieved divestment of state- capitalized (CAR 12%) owned banks and 22\. The Government of Serbia’s ownership stake in the Achieved financial assets banking sector and its holdings in financial assets has been reduced from 24% in 2005 to 15% by 2010\. 11 3\.3\. Strengthening 23\. A new MTPL regime has been introduced to Achieved insurance sector resolve existing legitimate claimants and put new regulation and resolution MTPL regime on fiscally secure basis going regime forward 24\. Resolution of failed insurers complies with EU Achieved insurer wind up requirements as featured in new law amendments 25\. Decrease of the state share in insurance sector - Achieved from 67% in insurance premium written in 2006 to 35% in 2010 3\.4\. Strengthening 26\. Adequate regulatory framework facilitates more Achieved capital markets rapid capital market development regulatory and 27\. Reference point/benchmark for issuance of Not achieved supervisory regime municipal, corporate and infrastructure bonds provided The status of the individual expected outcomes is as follows: Pillar I: Enhance Business Environment Policy area 1\.1\. Further simplification of the business entry through implementation of single agency approach for business registration\. Outcome: Reduction of the business registration time from 23 days in 2006 to 5 days in 2010\. Status: Achieved and exceeded\. The GoS transformed the SBRA into a one-stop-shop for business registration\. The one-stop- shop system for registering a company has been in place since May 2009\. The number of steps to register a business was reduced from 11 to 8\. It now takes on average 5 instead of 23 days to register a business\. According to the EU Progress Report 2010 for Serbia, the number of registered companies stood at 113,000 in May 2010, up from 106,000 in April 2009\. Approximately 225,000 entrepreneurs were registered with the Serbian Business Registry Agency, i\.e\. around 5,000 more than a year earlier\. The Agency has also further extended the number of registers, including the Registry for Financial Statements\. A single form is now used to register new workers to the Pension Fund or the Health Fund\. This reform represents a considerable reduction in business compliance costs resulting in annual savings of approximately EUR 15 million, calculated according to the standard cost model\. Outcome: Unique business identification number is introduced and assigned to all businesses in 2010\. Status: Achieved\. Phase 2 of the one-stop shop reforms, introduced a unique business identification number for all purposes\. The SBRA implemented this reform by (i) establishing cooperation with all relevant institutions; (ii) commissioning feasibility study and technical needs assessment for establishing interconnection of all relevant public databases; and (iii) commencing unification of registration procedures for entrepreneurs on a pilot basis\. Policy area 1\.2: Improving legal framework for strengthening corporate governance and facilitating business operations 12 Outcome: Enhanced legal framework for improvement of corporate governance and attraction of foreign and domestic investments\. Status: Achieved\. To strengthen corporate governance and facilitate business operation, a new Law on Business Entities was approved by the Parliament\. The new law, in compliance with new EU directives, includes provisions to: (i) harmonize presently conflicting provisions of the Law on Business Entities and the Law on Securities Market; (ii) regulate entrepreneurs (at the same time the existing Law on Private Entrepreneurs will be abolished); (iii) regulate existing business associations (i\.e\. Association of Banks), which have been omitted in the existing Law on Business Entities; (iv) regulate the establishment, operations and closure of branch offices of foreign legal entities, and (v) define the duties and responsibilities of management and improve corporate governance by allowing the option of choosing between one- or two-tier corporate governance system for Limited Liability Companies (LLCs) and JSCs\. Reforms under (ii) alone should lead to a reduction in administrative costs for businesses estimated in approximately EUR 6 million per year\. Outcome: The Doing Business Investor Protection Index increased from 5\.3 in 2007 to exceed the OECD average of 6\.0 in 2010\. This outcome has not been achieved yet, however good progress has been made in that direction\. The Strength of Investor Protection Index, as measures by Doing Business, has remained 5\.3 throughout the reform period until 2010\. It is not clear whether the type of reforms which were implemented largely driven by the EU agenda were related to the range of the measurement of the strength of investor protection index\. This complex index is the average of the extent of disclosure index, the extent of director liability index and the ease of shareholder suits index, as measured by the Doing Business\. The new Law on Business Entities was adopted on May 24th 2011\. It includes improvements in the area of investor protection and corporate governance in line with the EU directives, which should help with achieving the outcome by the end of 2011\. Policy Area 1\.3: Streamlining regulations of business activities and reducing business compliance costs\. Outcome: Priorities for the regulatory reform established, mechanisms for their implementation defined, transparency of the legislative process increased\. Status: Achieved\. The GoS introduced a Regulatory Impact Analysis (RIA) requirement in the legislative process in 2004 to improve the quality of new regulations\. The implementation of the RIA will ensure that new regulations (i\.e\. the legislative flow) are based on a clear rationale and adequate analysis of costs and benefits\. To reduce compliance costs of existing business regulations (legislative stock), a comprehensive regulatory review was completed in accordance with the Government Strategy adopted under the PFDPL1\. The regulatory review was initiated in early 2009 and consisted of four phases: inventory, analysis, recommendations, and implementation\. As a result of the inventory, 2,000 laws and regulations were identified as impacting economic activity\. The Council for Regulatory Reform also formed ten working groups chaired by a representative of the private sector to further analyze the 2,000 laws and regulations and recommend simplification 13 actions\. It is estimated that the measures already adopted at recommendations of the review resulted in annual cost savings to businesses of around EUR 50\.8 million\. The work on regulatory amendments continues\. If all recommendations of the review are adopted, the savings for the business are estimated at EUR 200 million\. Outcome: Reduced regulatory compliance costs of business measured by BEEPs (9\.6% of management time in 2005), ICS and other enterprise surveys\. Status: No information available for the relevant period\. Information on the savings measured by management time is not available for the relevant period\. The latest BEEPS was conducted in 2008\. BEEPS 2008 indicates that 12% of management time in all firms was spent in dealing with public officials or public services, an increase from 10% in 2005\. However, impact in monetary terms was assessed using standard cost model as EUR 50\.8 million and is expected to reach EUR 200 mil once all recommendations of the legal review are implemented\. Policy area 1\.4: Simplify the process of obtaining construction permits\. Outcome: Procedures for obtaining planning and construction permits simplified, related compliance costs reduced: duration decreased from 204 days in 2006 by at least 25% in 2010, and compliance cost reduced from 3,300 (% of income per capita) in 2006 by at least 50% in 2010\. Status: Partially achieved\. In July 2009 Serbia adopted a new Law on Spatial Planning and Construction\. This Law formally reduced the time and costs associated with obtaining construction permits by setting deadlines for municipalities to prepare and adopt urban plans and general regulation plans and by eliminating certain redundant steps in the process\. However, the legal amendments have not translated into better results in Doing Business\. Serbia dropped by two places in 2010 as compared to the position in 2009\. Furthermore, according to Doing Business 2011 (measuring indicators as of June 1, 2010), now it takes longer (279 days as opposed to 205 days in 2005) to obtain a construction permit, despite the reduction of one step in the process\. There has been a significant improvement in the reduction of the cost of obtaining a construction permit from 4,209 percent of income per capita in 2005 to 1,821 percent in 2010\. The EU Progress Report 2010 for Serbia also notes that the process of obtaining construction permits remains to be a long and difficult for businesses\. One reason for this may be the fact that the reforms are not yet effectively implemented at the local level\. Policy Area 1\.5: Improving legal and institutional framework for competition\. Outcome: Improved competition framework creating level playing field for business and conducive for foreign investments\. Status: Achieved\. This was a legal-institutional outcome\. In the summer of 2009, the GoS enacted a new Law on Protection of Competition which overcame the deficiencies of the previous Law of 2005\. In addition, GoS adopted eight new regulations required to implement the new Law on Protection of Competition\. These regulations had been originally included in PFDPL 3\. The new Law on 14 Protection of Competition addressed all major business concerns, removed the disincentives to foreign direct investment, strengthened the independences of the Commission for Protection of Competition and is fully in line with EU standards\. Policy Area 6: Improving effectiveness of contracts enforcement\. Outcome: Improved enforcement of contracts: duration of enforcement procedures reduced from 635 days in 2008 to approximate to the regional average of 425 days\. Status: Not achieved (as of June 2010)\. Enforcement mechanisms remain a stumbling block for business operations\. According to the Doing Business 2011 indicators on enforcing contracts, Serbia ranks 94th in the world, with 635 days necessary for enforcement\. Therefore, there is no indication of improvement\. To speed up enforcement processes, a new Law on Enforcement and Security was recently adopted by the Parliament\. The new Law will enhance the enforcement of court decisions as well as enforcement based on authentic documents, such as contracts and invoices\. To this end, the Law introduced the concept of professional enforcement officers (i\.e\. private bailiffs) licensed and supervised by the Ministry of Justice\. On the basis of the new legislation, it is expected that Serbia will improve its ranking in enforcing contracts in Doing Business 2012 (to be issued in the fall of 2011)\. Pillar II: Strengthening Financial Discipline Policy area 2\.1: Improving financial discipline in the SOE sector\. Outcome: Substantial reduction in the direct and indirect MOE subsidies to the SOE sector over the duration of the program\. Status: Not achieved\. Most non-private enterprises benefit from both direct and indirect subsidies\. Despite restructuring and privatization, the direct subsidies in the period 2008-2010 remained at the same level, around 0\.8 percent of GDP\. FY10 direct subsidies to the sector amounted to approximately EUR 241\.1 million (0\.8 percent of GDP), compared to EUR 287\.4 million (0\.86 percent of GDP in 2008)\. Under the PFDPLs series, the subsidies were measured in Serbian Dinars\. Initial decrease was observed in 2009 compared to 2008, in absolute terms as well as in % of GDP\. However, the global economic crisis caused the need for introduction of additional subsidies to all enterprises, including SOEs\. Moreover the GDP contracted, thus leading to an increase in the ration\. The indirect subsidies are in the form of non-payment or partial payment of taxes; arrears to state-owned utilities (e\.g\. EPS), arrears on pension, social security, and unemployment contributions\. No data is available on indirect subsidies, but based on a 2004 assessment of sixty socially-owned enterprises, they are estimated to be more than three times the size of direct subsidies\. Consequently, this is an area that would demand additional work in the future, particularly as the impact of the global crisis subsides\. Policy area 2\.2: Privatization, Restructuring and Bankruptcy of Socially- Owned and State- Owned Enterprises\. 15 Outcome: Increase in private sector share: in GDP from 55% (end 2005) to above 60% by the end of the program in 2010 (EBRD data), and in employment from 58% (end 2005) to 65% by the end of the program in 2010 (IMF data)\. Status: Partially achieved\. According to EBRD Transition Report 2010, the private sector share in GDP was estimated at 60% in mid 2010, whereas the share of private sector in formal employment was estimated at 56%1\. Progress in selling socially owned companies was limited, while the number of revoked privatization deals increased\. Finalization of the process of privatization and/or liquidation of socially and state-owned enterprises remains one of the key priorities of the European partnership for Serbia\. Amendments to the Privatization Law were enacted setting end-December 2008 as the deadline for launching privatization of SOEs\. As of September 2007 the Privatization Agency (i) offered for sale over 40 SOEs and sold over 15 through its tender program; (ii) offered for sale through auctions more than 350 socially-owned enterprises, and sold over 40% of them; offered for sale 7 SOEs from the list of companies under restructuring and sold over 4 of the companies of this list\. By the end of 2009, the total number of companies privatized through tenders and auctions, since the start of the process in 2002, had risen to over 2,300\. However, the least attractive companies remained unsold\. Privatization of the socially owned companies in 2009 slowed down due to the global crisis\. This affected some of the larger companies which were in restructuring\. As for smaller SOEs, bankruptcy procedures became a priority in the context of the crisis\. A new Bankruptcy Law with a number of advanced provisions in line with the EU directives was adopted\. Process of bankruptcy of some 9,500 entities with blocked accounts for over three years was completed and they were erased from the business register\. At the same time, however, the number of annulled privatizations— due to non-compliance with the contracted obligations — rose to almost one quarter of the firms initially scheduled for privatization\. Policy areas 2\.3: Energy sector reform Outcome: Increase in private investments in power generation assets (In 2007: no private investments in energy sector)\. Status: Not achieved, but positive conditions created\. The conditions for entry of private investors (for steam power plants Kolubara B and Nikola Tesla (TENT B3) were created and a tender for strategic partners was launched by the Elektroprivreda Srbije (EPS, electric power company of Serbia) and GoS\. However, the evaluation and selection process is still ongoing due to extension of deadlines on request from the investors\. Total value of the project is estimated at over 2 billion Euro\. 1 Staff calculations based on Employment Developments 2008-2010 data (Labor Force Survey, Statistics Office, Serbia)\. The private sector share excludes informal employment and employment in the socially-owned enterprise sector\. 16 Outcome: Full competition in petroleum products or Government commitment made to a date for full competition\. Status: Achieved\. The government formally removed the barriers for import of oil derivatives, thus liberalizing the market\. Only one particular type of fuel of lower quality still enjoys excise tax that is lower than on any other fuel, The Government has committed to the European Commission to resolve the issue in May 2011\. Outcome: Power and gas tariffs have increased from covering about 80percent of costs in 2006 to 100 percent in 2010\. Status: Not achieved\. Further efforts are needed for market opening in power and gas which would go together with a consistent (market oriented) pricing policy\. Despite 2 tariff adjustments in 2010 and 2011, tariffs are still under cost recovery levels\. Outcome: EPS and Serbiagas have improved financially and are on a path to eliminating fiscal and quasi-fiscal deficits\. Status: Insufficient information\. The available information is not sufficient to assess this outcome\. Outcome: EPS is operationally more efficient and has been restructured to facilitate private sector participation in the power sector\. Status: Achieved\. The EU Progress Report 2010 notes that EPS, Serbia’s electricity transmission system operator, has, to a large extent, become financially sustainable\. While EPS remains in state ownership it has launched a tender for private sector investor partner in two new power plants\. Pillar III: Building a more efficient and stable financial sector Policy area 3\.1: Strengthening crisis preparedness, including development of liquidity framework, capital adequacy assessment, bank resolution framework enhancement, and Deposit Insurance payout functions strengthening\. Outcome: CAR of the banking system is maintained at the level of at least 12% and the required recapitalizations are conducted using transparent criteria allowing the use of public funds only where there is no private sector alternative (no special rights given to minority shareholders)\. Status: Achieved\. The Serbian banking sector is well-capitalized, with average capital adequacy ratio of 20\.1 percent\. At the end of 2010, only 6 out of total of 33 banks had a capital adequacy ratio under 15 percent\. To ensure that the system was well capitalized to withstand the shock of the crisis, a bank diagnostic and triage exercise was implemented\. In December 2009, the NBS completed the stress testing for the entire banking sector (i\.e\., 34 banks)\. As a result, Metals Banka was recapitalized by the Province of Vojvodina, while Komercijalna Banka, a state owned bank with EBRD minority ownership, raised more equity from existing and new shareholders, including the 17 IFC\. Further, Credy Bank was recapitalized by Nova KBM from Slovenia\. The NBS repeats the stress testing exercise every six months\. Outcome: Legal and implementation framework for crisis preparedness fully operational and banking sector resilience to shocks strengthened\. Status: Achieved\. As a response to the global financial crisis, GoS adopted a set of measures aimed at maintaining consumer confidence and stability in the banking sector\. In particular, by amending relevant laws (Law on Deposit Insurance, Law on Deposit Insurance Agency, Law on Bankruptcy and Liquidation of Banks and Insurance Companies) and adopting specific decisions the GoS has: (i) increased the level of insured deposits from EUR 3,000 to EUR 50,000 per deposit and extended the coverage to small and medium enterprises and entrepreneurs; (ii) empowered the Deposit Insurance Agency (DIA) to purchase the shares of any bank endangering financial stability, at the request of GoS and NBS; (iii) ensured that, in case of a bank liquidation, the depositors are treated as priority creditors and are to be compensated from the liquidation proceed; and (iv) signed a Memorandum of Understanding with the NBS and DIA committing to increased coordination and sharing of information and creating a financial stability committee\. Finally, the NBS has also adopted a Decision on Temporary Measures for preserving Financial Stability in the Republic of Serbia specifying prudential rules to limit the effect of the crisis on the banking sector\. Outcome: Increased efficiency of bank resolution system\. Status: Achieved\. The existing bank resolution framework was overhauled in order to deal with problem banks in a more effective and less costly manner\. The previous bank resolution framework included only liquidation and bankruptcy as resolution tools\. Under the new framework, purchase and assumption and bridge bank on a closed bank basis have been added, as well as financial assistance for these tools on a least cost basis\. Finally, to ensure that the DIA has access to emergency funding for bank resolution/payout, the implicit government guarantee included in the existing DIA and the Law on Deposit Insurance Fund (DIF) has been made explicit with the approval of 2011 budget law\. RSD 110 million (approximately EUR 1 million) have been allocated to cover the commitment fee for a EUR 100 million stand-by credit line from commercial banks to the DIA for contingency purposes\. By doing so the implicit GoS’s guarantee to the DIA was made explicit\. Outcome: Deposit insurance scheme that fulfills the following conditions: (i) fast payout and (ii) availability of extra funding if needed\. Status: Achieved\. The deposit insurance fund has been strengthened\. The fund increased in size to around EUR 140 million at Q3 2010 as a result of an initial capitalization by the GoS and raising of premium\. In line with best practices, the DIF current size is adequate to cover the failure of a mid-size bank\. The capacity of the fund to deal with large payouts has been strengthened by developing payout procedures, introducing a payout software, adopting a Memorandum of Understanding (MoU) on information sharing between the DIA and the NBS\. Amendments to the legal framework to specifically provide for extraordinary funding and equate the depositors of banks in liquidation with those of banks in bankruptcy have also been approved\. 18 Policy area 3\.2: Restructuring and divestment of state-owned banks and financial assets\. Outcome: Banks with majority RoS ownership fully capitalized (CAR 12%)\. Status: Achieved\. To ensure that the banking sector is well capitalized a bank diagnostic and a triage exercise is regularly conducted for the entire banking sector in Serbia\. So far three banks have been recapitalized\. Outcome: The Government of Serbia’s ownership stake in the banking sector and its holdings in financial assets has been reduced from 24% in 2005 to 15% by 2010\. Status: Achieved\. The GoS has continued the divestment program for state owned banks\. To consolidate the state- owned banking sector and reduce likely capital injections, the GoS adopted a strategy in May 2009, which called for the reduction of majority state owned banks from four to two over the next two years\. Of the four majority state owned banks, Credy Banka was sold to a foreign group, Postanska and Privedna Pancevo were merged, and Srpska Banka will remain as is\. As a result the number of majority state owned banks has decreased from 4 to 2\. Policy area 3\.3: Strengthening insurance sector regulation and resolution regime\. Outcome: A new motor third party liability (MTPL) regime has been introduced to resolve existing legitimate claimants and put new MTPL regime on fiscally secure basis going forward\. Status: Achieved\. The regulatory framework in the insurance sector has also been enhanced\. The Law on Mandatory Traffic Insurance which introduced the MTPL insurance, satisfactory to the Bank, was enacted\. Prior to this, the motor third party liability segment, the main class of non-life insurance business, was not sufficiently regulated\. Outcome: Resolution of failed insurers complies with EU insurer wind up requirements as featured in new law amendments\. Status: Achieved\. Run-off MTPL liabilities of bankrupt insurers were assessed and an action plan to fund the liabilities was developed\. Outcome: Decrease of the state share in insurance sector - from 67% in insurance premium written in 2006 to 35% in 2010\. Status: Achieved\. In Serbia, the insurance market was dominated by state owned insurers DDOR and Dunav\. After privatization of DDOR under the PFDPL 1, by 2010, Dunav accounted for 28 percent of the market that is below the 35% targeted\. Dunav is considered to introduce market distortions in view or its effective power\. The GoS is committed to commencing privatization of Dunav\. 19 Policy area 3\.4: Strengthening capital markets regulatory and supervisory regime\. Outcome: Adequate regulatory framework facilitates more rapid capital market development\. Status: Achieved\. The Parliament has adopted a new Law on Securities Market, which was harmonized with the Law on Business Entities and aligned with relevant EU Directives\. Outcome: Reference point/benchmark for issuance of municipal, corporate and infrastructure bonds provided\. Status: Not achieved\. No municipal or infrastructure bonds have been issued\. To promote capital market development, and under the PFSPBG, the GoS has gradually extended the maturities of T-bills from 3 months to up to 2 years\. To increase domestic savings mobilization, the GoS is committed to developing capital markets\. The establishment of a yield curve is essential in this respect\. ================================================================== 3\.3 Justification of Overall Outcome Rating Rating: Satisfactory The objectives of this operation have been highly relevant to the strategic priorities of the country\. Priority actions were well selected and contributed to the operation’s outcomes\. All prior actions for PFDPL1 and PFDPL2 were completed\. This operation assisted Serbia to cope with the global crisis, while supporting longer term measures to strengthen the financial sector and improve the business environment\. Areas where least progress was achieved pertain to the privatization and/or improvement in the financial situation of SOEs\. Slower progress in this area has to be attributed to impact of the global economic crisis, which led to the cancellation of many privatization contracts already awarded and no response to new tenders organized after the crisis struck\. As a result the PFDPL2 placed a bigger emphasis in the adoption of a legal framework that would facilitate the bankruptcy of companies, including SOEs\. The results of the PFDPL, summarized above, suggest that a great deal of the expected outcomes had been achieved (63% of the outcomes, concentrated in measures to improve the financial sector and, to a lesser extent, business environment)\. If Pillar III is given a weight of 50% in the rating, business environment a 30% and SOE reforms 20%, the PFDPL achieved about 70% of the intended outcomes\. In almost all aspects of this operation, the country has moved in the right direction notwithstanding that the cancellation of the PFDPL3 and the global crisis meant that the achievement of expected outcomes may have to wait in some cases, particularly in relation to SOEs\. 3\.4 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development 20 There were no measured poverty impacts specifically related to this operation\. Poverty and unemployment have increased in Serbia since the onset of the crisis\. There had been a significant poverty reduction between 2006 and 2008 when the share of households in poverty declined from 8\.8 to 6\.1 percent (equivalent to more than 230,000 people being lifted out of poverty)\. In 2009 the poverty rate rose again to 6\.9 percent\. Similarly, according to labor force survey data, the unemployment rate which had decreased to 14\.9 percent as of April 2008, reached 18\.8 percent in October 2009 and it as estimated to exceed 19 percent recently\. There are no recent data on poverty but until higher growth rates are achieved, let’s say over 5 percent per year, poverty and unemployment are likely to increase\. A thorough impact assessment of enterprise reforms was done by the World Bank PREM team; this clearly showed that the proposed privatization and bankruptcy measures did not affect employees negatively, but rather ensured their fair payment from the bankruptcy proceeds\. The GoS provides social assistance, including cash benefits and services, to poor households, in addition to special purpose social programs\. The main social assistance benefits are: (i) material Support to Families (MOP in its Serbian acronym) for families whose income is lower than the guaranteed “social security level”, and (ii) child allowances - cash transfers to poor households with children, including the families of redundant workers\. Targeting under the programs is being strengthened by policies supported by Pillar 3 of the parallel PEDPL series\. (b) Institutional Change/Strengthening The PFDPL introduced some changes in the institutional framework and strengthened a number of existing institutions\. Given the long-term nature of institution building, the full institutional benefits of the PFDPL reforms are expected in the medium to longer-term\. Among the key institutions strengthened by the PFDPL, the following could be highlighted: Serbian Business Registers Agency (SBRA) - one-stop shop for business and employment registration, e-registration and coordination with social insurance funds\. SBRA hosts more than 20 type of business registries, in total\. Ministry of Economy and Regional Development— regulatory review and regulatory impact assessment functions established National Bank of Serbia and Ministry of Finance – crisis preparedness framework and development of bank resolution system Deposit Insurance Fund – payout functions strengthened\. Serbian institutions developed a large body of new legislation in compliance with the European Union which has improved the business environment and functioning of the financial system\. This has been associated with the streamlining and elimination of redundant, inefficient regulations\. (c) Other Unintended Outcomes and Impacts 21 The global economic crisis negatively impacted the process of privatization of the socially owned enterprises and the search for strategic private partners in the energy sector, as discussed earlier in the analysis of the outcome status\. Therefore, the program with respect to SOEs was shifted to the introduction of more efficient regimes for bankruptcy and contract enforcement\. Moreover, to support the banking sector at a time of stress, new emphasis on crisis preparedness was added\. 3\.5 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops N/A 4\. Assessment of Risk to Development Outcome Ratings: Modest Reforms already introduced, as well as those that must be introduced in the near future, have been widely accepted in Serbia\. In fact, there is a strong commitment to reforms as a path to access the EU\. Such commitment seems to percolate the whole political and societal spectrum\. Risks to the sustainability of reforms are therefore modest, particularly now that some economic growth is taking place\. The donor community continues to support this process\. The degree of coordination among donors is substantive and contributes to ameliorate risks\. Several ongoing projects complement the PFDPL and contribute to its sustainability\. These include an Institutional Development Fund (IDF) grant for capacity building of newly established RIA Unit of the Government of Serbia, IDF grant for public enterprises corporatization\. New IMF program is being negotiated and expected to be in place shortly\. The main risks which have been identified relate to the macroeconomic situation in Serbia\. Macroeconomic risks remain substantial\. Serbia went into the financial crisis with a high (balance of payments) current account deficit, aggravated by rapid foreign currency credit growth and large cross-border borrowing of domestic enterprises\. Specific risks include: ï‚ The global economic outlook remains uncertain\. Furthermore, potential fallout from weaknesses and risks in eurozone economies could have a significant impact on Serbia; Greece in particular has been the second largest investor in Serbia since the beginning of the transition\. A New IMF program is being negotiated\. ï‚ Serbia faces considerable balance of payments financing needs over the next few years\. Risks are mitigated by Serbia’s pursuit of a robust agenda of policy reform, and by the size of the multilateral support package\. ï‚ Vulnerabilities of the banking sector remain in the context of substantially reduced profitability and stable but high NPLs (17\.1 percent2)\. Key mitigating factor is the very high capitalization and liquidity of the system\. As of March 2011, the aggregate CAR was 20\.4 percent and the banking system’s liquid assets covered 36\.9 percent of short term liabilities\. An increase in the rate of NPLs could pose a risk to the solvency of the system\. 2 Status as of end March 2011, quoted by NBS\. 22 Mitigation of overall risks is ensured by GoS’s long term commitment to reforms\. Serbia has a good record of continuous reforms and commitment to EU accession\. Such a record creates solid environment for cooperation and confidence with the donor community and allows stakeholders to focus more intensively on results\. 5\. Assessment of Bank and Borrower Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory The Bank followed good practices in building the program on the findings of AAA activities and lessons learned in other transition economies\. Moreover complimentary grants and investment operations supported the implementation of the PFDPL program\. Finally donor coordination was ensured throughout\. The result was a program design that was consistent with the national development strategy and focused on EU accession priorities, bes practices in crisis preparedness and on sound business environment\. (b) Quality of Supervision Ratings: Satisfactory The Bank devised an effective approach to work with counterparts and with other donors in their respective pillars of the reform program\. The Bank cooperated closely and effectively with the MOF, which was the coordinator of activities on the client’s side, maintained close cooperation with the MOERD and NBS \. Supervision was also enhanced by the continuity of the Bank team, particularly the task manager who did not change throughout almost the entire PFDPL series\. The Bank Team collaborated effectively with the EC, SIDA and USAID and effectively used the SIDA Trust Fund\. The Bank assisted through a number of challenging reforms with persistence and delivering high level support in all policy areas, particularly in the areas of business regulatory environment (Pillar I) and the financial sector (Pillar III)\. By all indications, the counterparts in the Government of Serbia were very satisfied with the technical support and systematic approach to reforms provided by the Bank Team\. The Bank provided regular reports on the progress towards achieving reforms benchmarks\. The system of outcome indicators was developed in accordance with the requirements that existed at the time of the series design and was focused on final outcome indicators that were supposed to be achieved via three DPL loans by the end of the 2010\. The on-going monitoring was based on a set of reform benchmarks (not only the core ones) which served as intermediary results indicators\. (c) Justification of Rating for Overall Bank Performance The overall performance is rated Satisfactory since the Bank performance in Ensuring Quality at Entry and the most relevant aspects of supervision were satisfactory\. 23 5\.2 Borrower Performance (a) Government Performance Ratings: Satisfactory The Government developed the institutional and regulatory framework in place to improve the public sector governance, the business regulatory environment and the financial sector stability\. The readiness and openness for reforms was evident all the time and the cooperation with the Bank Team was very strong\. They completed all prior actions and met most of the non-core benchmarks, readily shared information with the Bank team and continue to implement reforms\. Serbia has been very proactive\. For example in making sure that the financial sector was given strong emphasis in view of the crisis circumstances and by requesting the replacement of the PFDPL3 for a new guarantee operation to enhance financial leverage of the Bank resources\. The Government showed strong commitment to the consultation process (i\.e\. consultation with stakeholders on important legislative amendments, now a mandatory requirement, broad involvement of business community in the regulatory review process)\. (b) Implementing Agency or Agencies Performance Ratings: Satisfactory In general the implementing agencies performed well\. Most agencies followed through on the program reforms and handled well the challenge of preparing substantial amounts of new legislation\. The Ministry of Economy and Regional Development performed well in leading work on privatization and bankruptcy, preparation and implementation of the regulatory guillotine, reviewing a substantial amount of legislation, and establishing new practices such as the regulatory impact assessment\. Both the PFDPL and the EU accession agenda played a critical role in driving the pace of the reforms\. In implementing agreed upon measures, the professionalism and dedication of the Government Team proved to be determinant factors\. (c) Justification of Rating for Overall Borrower Performance Ratings: Satisfactory The performance of the Government and implementing agencies were both satisfactory, therefore the overall rating is satisfactory\. 6\. Lessons Learned Three important lessons were learned during the implementation of this operation: ï‚ It is important to maintain flexibility of the DPL series to adapt to current realities/priorities and to respond to economic crisis by focusing on the important sectors\. As the operation was implemented and the global crisis enfolded, it was necessary to enhance the focus on the strengthening the financial 24  sector and business environment to be able to withstand the shocks of the crisis\. This adjustment was in response to the unexpected economic realities and it proved to be effective\. ï‚ Good coordination with other partners acquires increased importance in time of crisis\. The cooperation among international agencies (i\.e\. WB, IMF) and with other donors, in particular the EU, was decisive since large amounts of assistance have been necessary\. This cooperation was underscored by the central role played by the Government of Serbia through the Ministry of Finance\. ï‚ The program supported by the PFDPL series has also benefitted from Bank engagement in banking sector restructuring in Serbia and Bank’s previous experience in financial crises\. The Bank work and experience in the financial sector was of particular importance\. It allowed adapting quickly acquired tools to the country’s reality\. In the PFDPL, the financial sector pillar addressed banking/financial issues by supporting aspects of crisis management in which the Bank has traditionally had a comparative advantage\. Borrower/Implementing Agencies/Partners (a) Borrower/Implementing agencies (b) Cofinanciers (c) Other partners and stakeholders (e\.g\. NGOs/private sector/civil society) 25 Annex 1\. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members P096711 - Second Programmatic Private Financial Sector Development Responsibility/ Names Title Unit Specialty Lending Irina Astrakhan Country Program Coordinator AFCZA Itzhak Goldberg Consultant ECSPF Bjorn Hamso Sr Energy Econ\. SASDE Rodney Lester Consultant MNSED Alexander Pankov Sr Private Sector Development EASFP Anna Sukiasyan Resource Management Officer CFRPA Supervision Tijen Arin Sr Environmental Econ\. ECSS3 Dominique Bichara Special Rep\. to The United Nat EXTUN Nicholay Chistyakov Senior Finance Officer CTRFC Aurora Ferrari Sr Private Sector Development ECSF1 Itzhak Goldberg Consultant ECSPF Eugene N\. Gurenko Lead Financial Sector Speciali GCMNB Bjorn Hamso Sr Energy Econ\. SASDE Ardo H\. Hansson Lead Economist EASPR Ronald D\. Hood Lead Economist ECSP2 Arvo Kuddo Senior Labor Economist HDNSP Alexander Pankov Sr Private Sector Development EASFP John Daniel Pollner Lead Financial Officer ECSF2 Andrej Popovic Private Sector Development Spe ECSF1 Lazar Sestovic Economist ECSP2 P096711 - Second Programmatic Private Financial Sector Development Responsibility/ Names Title Unit Specialty Lending Irina Astrakhan Country Program Coordinator AFCZA Dominique Bichara Special Rep\. to The United Nat EXTUN Rinku Chandra Senior Strategy and Operations ECAVP Nicholay Chistyakov Senior Finance Officer CTRFC Aurora Ferrari Sr Private Sector Development ECSF1 Itzhak Goldberg Consultant ECSPF Eugene N\. Gurenko Lead Financial Sector Speciali GCMNB Bjorn Hamso Sr Energy Econ\. SASDE 26 Lewis Raymond Hawke Sr Financial Management Specia ECSO3 Arvo Kuddo Senior Labor Economist HDNSP Smita Kuriakose Economist AFTFE Sanja Madzarevic-Sujster Sr Country Economist ECSP2 Andrej Popovic Private Sector Development Spe ECSF1 Lazar Sestovic Economist ECSP2 Marina Wes Lead Economist ECSP2 Supervision (b) Staff Time and Cost P115958 - Programmatic Private Financial Development Policy Loan 2 Staff Time and Cost (Bank Budget Only) Stage USD Thousands (including No\. of staff weeks travel and consultant costs) Lending FY06 245\.32 FY07 146\.23 FY08 279\.16 Total: 670\.71 Supervision FY09 140\.75 FY10 0\.00 FY11 6\.29 Total: 147\.04 27 Annex 2\. Beneficiary Survey Results N/A 28 Annex 3\. Stakeholder Workshop Report and Results N/A 29 Annex 4\. Summary of Borrower's ICR and/or Comments on Draft ICR 30 Annex 5\. Comments of Cofinanciers and Other Partners/Stakeholders N/A 31 Annex 6\. List of Supporting Documents  Program Document, Second Programmatic Private and Financial Sector Development Policy Loan (PFDPL), February 2009\.  Program Document, Programmatic Private and Financial Sector Development Policy Loan Two (PFDPL2), October 2009\.  Implementation Status Report (ISR), PFDPL2, March 2010\.  Serbia Country Partnership Strategy for FY08-FY11\.  Program Document, Private and Financial Sector Policy Based Guarantee (PFPBG), January 2011\.  Aide Memoire, PFDPL Pre-Appraisal Mission – Deferred Drawdown Option, December 2007  Aide Memoire, PFDPL2 Appraisal Mission, July 2009  Aide Memoire, Insurance Sector Technical Assistance Mission, March 2009  Aide Memoire, Capital Markets Technical Assistance Mission, April 2009  Aide Memoire, PFDPL2, May 2009  Evidence of Second Programmatic Private and Financial Development Policy Loan Core Conditions Realization of PFDPL, Memo from Ministry of Finance of Serbia, July 2009  IBRD Results Brief, Private and Financial Sector Policy Based Guarantee Briefing  Serbia - Enterprise Surveys, available at: http://www\.enterprisesurveys\.org/ExploreEconomies/?economyid=206&year=2009  BEEPS At-A-Glance 2008 Serbia available at:  http://siteresources\.worldbank\.org/INTECAREGTOPANTCOR/Resources/704589- 1267561320871/Serbia_2010\.pdf  Doing Business, Serbia, available at:  http://doingbusiness\.org/data/exploreeconomies/serbia  Serbia 2010 Progress Report, European Commission, available at: http://ec\.europa\.eu/enlargement/pdf/key_documents/2010/package/sr_rapport_2010_en\.pdf  EBRD Transition Report 2010: Recovery and Reform: Serbia Country Assessment, available at http://www\.ebrd\.com/pages/research/publications/flagships/transition/serbia\.shtml  Zakon za zaduzivanje kod Societe Generale uz garanciju Svetske Banke, Official Gazette 478/11  Interviews and consultations:  Ms\. Irina Astrakhan, Task Team Leader, PFDPL1-2  Ms\. Aurora Ferrari, Private Sector Development Specialist, PFDPL Team Member, ECSPF  Mr\. Andrej Popovic, Private Sector Development Specialist, PFDPL Team Member, ECSPF, WB Belgrade office  Mr\. Arturo Salvador Rivera, Lead Energy Specialist and PFDPL Team Member, ECSS2  Council for Regulatory Reform, Belgrade  Serbian Business Registers Agency, Belgrade  National Bank of Serbia  Privatization Agency of Serbia, Bankruptcy Unit  European Commission, Belgrade  European Bank for Reconstruction and Development, Belgrade  Websites:  Ministry of Economy and Regional Development: www\.merr\.gov\.rs  Ministry of Finance: www\.mfin\.gov\.rs  National Bank of Serbia: www\.nbs\.rs  Privatization Agency: www\.priv\.rs  Council for Regulatory Reforms: www\.srp\.gov\.rs  Elektroprivreda Srbije http://www\.eps\.rs/  Parliament of Serbia http://www\.parlament\.gov\.rs/ 32

REVIEW

P106355

Document of The World Bank Report No: ICR00003693 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-45460) ON A CREDIT IN THE AMOUNT OF SDR 16\.8 MILLION (US$25 MILLION EQUIVALENT) TO THE REPUBLIC OF MOZAMBIQUE FOR A COMPETITIVENESS AND PRIVATE SECTOR DEVELOPMENT PROJECT June 30, 2016 Trade and Competitiveness Global Practice Mozambique Country Department (AFCS2) Africa Region  CURRENCY EQUIVALENTS (Exchange Rate Effective February 8, 2016) Currency Unit = New Mozambique Metical (MZN) US$1\.00 = MZN 42\.50 US$1\.00 = SDR 0\.72 FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS AENOE Spanish National Standards Body AIDSI Asian Institute of Development Studies APPSA Agriculture Productivity Program for Southern Africa CAS Country Assistance Strategy CFF Fruits Training Center in Nampula CMU Country Management Unit CPF Country Partnership Framework CPS Country Partnership Strategy CREE Commission for Foreign Economic Relations DASP National Directorate for Private Sector Support DB Doing Business DFID Department for International Development of the United Kingdom EMAN Strategy for the Improvement of the Business Environment ERR Economic Rate of Return ESHTI Inhambane Tourism Higher Training School ESMF Environmental and Social Management Framework FM Financial Management GDP Gross Domestic Product GIZ German Development Agency GP Global Practice ICF Investment Climate Facility ICPAI Institute of Certified Public Accountants of Ireland ICR Implementation Completion and Results report IDA International Development Association IDF Institutional Development Facility (referring to the Mozambique Tourism Institutional Capacity Strengthening Project) IEG Independent Evaluation Group IFAC International Federation of Accountants IFC International Finance Corporation IFRS International Financial Reporting Standards IGPP Mozambique Integrated Growth Poles Project IIAM National Institute of Agriculture Research INNOQ National Institute of Standardization and Quality IP Implementation Progress IPAC Portuguese Accreditation Institute IPEME Institute for the Promotion of SMEs IPEX Institute for the Promotion of Exports ISR Implementation Status and Results report M&E Monitoring and Evaluation MASA Ministry of Agriculture and Food Security MCPSD Competitiveness and Private Sector Development Project or ‘PACDE’ MESE Matching Grant Program or ‘Mecanismos de Subsídios Empresariais’ MIC Ministry of Industry and Commerce MICULTUR Ministry of Culture and Tourism MoU Memorandum of Understanding MSMEs Micro, Small and Medium Enterprises MTR Mid-Term Review MZN New Mozambican Metical NAC National Advisory Committee NPV Net Present Value OCAM Order of Professional Accountants and Auditors OSS One-Stop-Shops or ‘Balcão de Atendimento Público’ (BAU) PAD Project Appraisal Document PARP Poverty Reduction Action Plan PARPA Poverty Reduction Support Strategy PDO Project Development Objective PIU Project Implementation Unit PMP Pest Management Plan PODE Enterprise Development Project PPP Public-Private-Partnership PRSC Poverty Reduction Support Credit Operations PSWG Private Sector Working Group RPF Resettlement Policy Framework SCM Standard Cost Model SDR Special Drawing Rights SEW Electronic Single-Window for trade SMEs Small and Medium Enterprises T&C Trade & Competitiveness TA Administrative Court TTL Task Team Leader UEM Eduardo Mondlane University USAID United States Agency for International Development USD United States Dollars (US$) WB World Bank WBG World Bank Group Senior Global Practice Director: Anabel Gonzalez Sector Manager: David Bridgman Project Team Leader: Mazen Bouri ICR Team Leader: Michélle Souto  Republic of Mozambique Competitiveness and Private Sector Development Project (MCPSD) CONTENTS DATASHEET \. v  A\. Basic Information \. v  B\. Key Dates \. v  C\. Ratings Summary \. v  D\. Sector and Theme Codes \. vi  E\. Bank Staff \. vi  F\. Results Framework Analysis \. vii  G\. Ratings of Project Performance in ISRs \. xi  H\. Restructuring (if any) \. xii  I\. Disbursement Profile \.xii  1\. Project Context, Development Objectives and Design \. 1  2\. Key Factors Affecting Implementation and Outcomes \. 5  3\. Assessment of Outcomes \. 10  4\. Assessment of Risk to Development Outcome \. 22  5\. Assessment of Bank and Borrower Performance \. 25  6\. Lessons Learned \. 27  7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners \. 28  Annex 1\. Project Costs and Financing \. 30  Annex 2\. Outputs by Component \. 31  Annex 3\. Economic and Financial Analysis \. 39  Annex 4\. Bank Lending and Implementation Support/Supervision Processes \. 44  Annex 5\. Beneficiary Survey Results (Matching Grant Component) \. 46  Annex 6\. Beneficiary Survey Results (Nampula Component)\. 53  Annex 7\. Results Evidence for Primary and Secondary Outcomes \. 56  Annex 8\. Summary of Borrower's ICR and/or Comments on Draft ICR \. 61  Annex 9\. List of Supporting Documents \. 63   DATASHEET A\. Basic Information Competitiveness and Country: Mozambique Project Name: Private Sector Development Project ID: P106355 L/C/TF Number(s): IDA-45460 ICR Date: 06/30/2016 ICR Type: Core ICR Republic of Lending Instrument: SIL Borrower: Mozambique Original Total XDR 16\.80M Disbursed Amount: XDR 16\.80M Commitment: Revised Amount: XDR 16\.80M Environmental Category: B Implementing Agencies: Ministry of Industry and Commerce (MIC), National Institute of Standardization and Quality (INNOQ), Order of Professional Accountants and Auditors (OCAM) Co-financiers and Other External Partners: Irish Aid, International Finance Corporation (IFC) B\. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 10/25/2007 Effectiveness: 11/30/2009 10/28/2009 Appraisal: 10/29/2008 Restructuring(s): 07/23/2013 Approval: 02/12/2009 Mid-term Review: 06/30/2011 08/20/2012 Closing: 11/30/2014 11/30/2015 C\. Ratings Summary C\.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Development Outcome: Moderate Bank Performance: Satisfactory Borrower Performance: Moderately Satisfactory C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Moderately Satisfactory Implementing Quality of Supervision: Satisfactory Moderately Satisfactory Agency/Agencies: Overall Bank Overall Borrower Satisfactory Moderately Satisfactory Performance: Performance: C\.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating Performance (if any) Potential Problem Project Quality at Entry No None at any time (Yes/No): (QEA): Problem Project at any Quality of No None time (Yes/No): Supervision (QSA): DO rating before Satisfactory Closing/Inactive status: D\. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Agricultural extension and research 12 35 Credit Reporting and Secured Transactions 3 0 General industry and trade sector 28 25 Other industry 11 26 Public administration- Industry and trade 46 14 Theme Code (as % of total Bank financing) Micro, Small and Medium Enterprise support 34 25 Other Private Sector Development 34 26 Other rural development 15 35 Regulation and competition policy 7 5 Trade facilitation and market access 10 9 E\. Bank Staff Positions At ICR At Approval Vice President: Makhtar Diop Obiageli Katryn Ezekwesili Country Director: Mark Lundell Michael Baxter Practice Manager: David Bridgman Gerardo M\. Corrochano Project Team Leader: Mazen Bouri Mazen Bouri ICR Team Leader: Michélle Souto ICR Primary Author: Michélle Souto F\. Results Framework Analysis Project Development Objectives (PDO) The PDO is to improve the business environment and enhance enterprise competitiveness in Mozambique, by: (a) reducing the cost of doing business in the country; (b) building technical capacity at public sector agencies; (c) strengthening the ability of local intermediaries to enable them to deliver business services to Small and Medium Enterprises (SMEs); and (d) developing region specific interventions in the tourism and horticulture sectors\. Revised Project Development Objectives No revisions to the PDO throughout the project’s implementation\.  (a) PDO Indicator(s) Actual Value Original Target Formally Revised Achieved at Indicator Baseline Value Values (from Target Values Completion or PAD) Target Years Sales growth for businesses benefitting from the matching grant program Indicator (1): compared to that in control group 20% rate of annual 10% overall annual sales growth for Value: 0% sales growth for 23\.5% SMEs supported in SMEs supported Years One to Five Date: 23-Jul-2013 15-Jan-2009 23-Jul-2013 30-Nov-2015 On results (reported at ICR): Target of 10% sales growth exceeded by 100%\. The beneficiary survey preferred estimation suggests an average impact of 23\.5% (between 20% and 27%) on annual sales\. Comments: On the methodology: The indicator measures a rate following the impact evaluation design that starts with no difference between firms1\. Evidence: Impact Evaluation of the Matching Grant, February 2016 (Annex 5) Indicator (2): Value of incremental sales in supported businesses Value: 0 US$4 million - US$12 million Date: 15-Jan-2009 15-Jan-2009 - 15-Nov-2015 On results: Target of US$4 million exceeded by 200%\. On the methodology: The indicator was set out to measure both domestic and international sales generated from trainee businesses\. Note that reported results Comments: are based on the following proxies -‘sales estimates’ and ‘sales projections’- instead of ‘realized sales statistics’\. (see details in Section 3)\. Evidence: Impact Note on the Fruits Training Program, (Annex 6) Indicator (3): Number of days to issue commercial license Value: 42 50% reduction 112 7 Date: 24-Jun-2015 15-Jan-2009 14-Nov-2012 31-Oct-2015 On results: The PAD objective ‘to achieve at least a 50% reduction in the number of days’ was overachieved and a commercial license can now be obtained within a week (7 days)\. On the methodology: The 42 days baseline was established based on the Comments: Standard Cost Model (SCM) methodology used by the IFC complementary technical assistance project\. Calculation reduction table included in Annex 7\. Evidence: Commercial Licensing Regulations approved by the Council of Ministries Decree n° 34/2013 of August 2\. Indicator (4): Number of days to issue industrial license Value: 32 50% reduction 203 13 Date: 24-Jun-2015 15-Jan-2009 14-Nov-2012 31-Oct-2015 1 The project Restructuring Paper informs that the final evaluation will use the updated figures and hence the baseline measures was adjusted from the original ‘US$’ amount baseline to ‘0%’\. 2 Despite the change in the baseline value from ‘42’ from ‘22’ in ISR #12 (June 2015) based on the IFC SCM evaluation, the target remained the same ‘11’ taking into account the previous baseline value of ‘22’\. 3 Despite the change in the baseline value from ‘40’ from ‘32’ in ISR #12 (June 2015), the target remained the same ‘20’ taking into account the previous baseline value of ‘40’\.  On results: As for the previous indicator, the PAD objective ‘to achieve a 50% reduction in the number of days’ was overachieved\. Industrial companies can now obtain a license in 2 weeks (about 13 days) depending on the level of risk involved\. Calculation reduction table included in Annex 7\. Comments: On the methodology: The 32 days baseline was established based on the average time it took for all types of industries to get a license (large, medium, small)\.4 Evidence: Industrial Licensing Regulations approved by the Council of Ministers Decree n° 22/2014 of May 16\. (b) Intermediate Outcome Indicator(s) Original Target Actual Value Values (from Formally Revised Achieved at Indicator Baseline Value approval Target Values Completion or documents) Target Years Number of project supported trainees using acquired skills in tourism related Indicator (1): businesses Value: 0 800 - 1,316 Date: 15-Jan-2009 15-Jan-2009 - 30-Nov-2015 On results: Original target exceeded by 65%\. A total of 1,316 people were trained of which 899 are from the private sector\. On the methodology: Results are based on trainee statistics provided by the Comments: Project Implementation Unit (PIU) and the consultant\. Note – a survey of graduated students was not carried out (as per the established methodology)\. Evidence: Training statistics (included in Annex 7)\. Number of trainees using the acquired techniques and quality standards to Indicator (2): improve horticultural products Value: 0 800 - 695 Date: 15-Jan-2009 15-Jan-2009 - 30-Sep-2015 On results: Mostly achieved as the project met 87% of set target of which 449 are from the private sector\. On the methodology: Results are based on trainee statistics provided by the Comments: Nampula Fruits Training Centre and the consultant\. Note – a survey of graduated students was not carried out (as per the established methodology)\. Evidence: Training statistics (included in Annex 7)\. Indicator (3): Reduction in number of days to clear imports and exports 26 – Exports 13 – Exports 21 – Exports Value: - 32 – Imports 16 - Imports 25 - Imports Date: 15-Jan-2009 15-Jan-2009 - 31-Oct-2015 4In the case of the industrial license the project did not adopt a baseline based on the SCM methodology since available data only covered large and medium enterprises\.  On results: According to Doing Business (DB) data, the country reduced in 19 percent (from 26 to 21 days) and in 22 percent (from 32 to 25 days) the number of days required for export and import\. Given this, the project did not achieve the intended results related to the PAD objective of achieving a 50% reduction in the number of days to export and import\. On the methodology: The baseline was set using DB2009 data and results Comments: derive from DB2014\. During implementation the project recognized the limited relevance of DB data for measuring results and proposed the use of Customs Records and Firm Surveys\. This change in methodology did not take place resulting in a limited attribution link between the project activities and reported results\. Evidence: http://www\.doingbusiness\.org/Custom-Query/mozambique\. Indicator (4): Volume of Bank Support: Institutional Development - SME5 Value: 0 US$3 million - US$3\.5 million Date: 01-Jul-2009 01-Jul-2009 - 30-Nov-2015 On results: Achieved since the US$3\.5 million grant available was fully disbursed\. Methodology: Indicator refer to total value of International Development Comments: Association (IDA) financed grants for Micro, Small and Medium Enterprises (MSMEs)\. Evidence: Project financial data (see also Annex 5 – Beneficiary Survey)\. Number of standards introduced for which standard setting has been initiated Indicator (5): by the private sector Value: 0 9 - 12 Date: 15-Jan-2009 15-Jan-2009 - 30-Nov-2015 On results: Achieved with a total of 12 standards and norms developed based on private sector demand\. Comments: Methodology: INNOQ records\. Evidence: List of standards and norms (included in Annex 7)\. Percentage of financial statement prepared by Large and Medium enterprises Indicator (6): in accordance with IFRS6 Value: 0 200 75% NA Date: 15-Jan-2009 15-Jan-2009 23-Jul-2013 30-Nov-2015 On results: Data not available\. On the methodology: A review of 10% of the total financial statements submitted by Large and Medium firms was not carried out due to lack of Comments: resources\. Information available ‘on the number of firms that submitted financial statements to the Tax Authority’ not considered a relevant proxy\. (see details in Annex 2)\. Evidence: Not available\. Indicator (7): Number of linkages contracts between SMEs and tourism establishments Value: 0 50 - 78 Date: 15-Jan-2009 15-Jan-2009 - 31-Oct-2015 5 This is a corporate Bank wide indicator added after the project started and included by default in the project ISRs\. It was reported on but not included in the PAD, the Restructuring Paper or the project legal amendment\. 6 The International Financial Reporting Standards (IFRS) indicator was revised and the new methodology informed that ‘10% of total financial statements submitted by Large and Medium firms will be reviewed’\.  On results: Overachieved as target was exceeded by 56%\. However, there is a decrease in the reported number of linkages (14) at project closure as some have been discontinued during project implementation\. On the methodology: In most cases the evidence is based on payments made Comments: (related to the purchase of horticultures) as few contracts have been established\. Evidence: Linkages statistics – control made by the greenhouses manager company (Moçambique Organicos) (included in Annex 7)\. (c) Intermediate Outcome Indicator not included in the World Bank (WB) system Note: The indicator below is included in the PAD but not in the WB system\. Tracking is only done through Aide Memoirs and using the client’s manual system\. In representative organizations supported under Categories 1& 2, increase in Indicator (8): revenue from members after project support7 10% for organizations Value: 0 - 140% supported in Years One to Five Date: 15-Jan-2009 15-Jan-2009 - 30-Nov-2015 On results (reported at ICR): The matching grant program also aimed at building the capacity of business associations to better serve their members resulting in an average income increase of 140%\. Methodology: Results are based on independently conducted surveys for a sample Comments: representing about 1/3 of supported business associations (9 out of 30)\. Income of the representative organizations include members’ fees and revenues from seminars, training programs, sales of publications, etc\. Evidence: Analysis conducted by the matching grant team8\. G\. Ratings of Project Performance in ISRs Actual Date ISR No\. DO IP Disbursements Archived (USD millions) 1 05/14/2009 Satisfactory Satisfactory 0\.00 2 12/12/2009 Satisfactory Satisfactory 0\.53 3 06/26/2010 Satisfactory Moderately Satisfactory 0\.79 4 03/26/2011 Satisfactory Moderately Satisfactory 3\.42 5 12/25/2011 Moderately Satisfactory Moderately Satisfactory 5\.61 6 05/04/2012 Moderately Satisfactory Moderately Satisfactory 8\.96 7 12/22/2012 Moderately Satisfactory Moderately Satisfactory 11\.24 8 06/26/2013 Moderately Satisfactory Moderately Satisfactory 13\.96 9 12/25/2013 Moderately Satisfactory Satisfactory 15\.42 7 Please note this indicator measures revenue of representative organizations/business associations (not their individual associated members)\. 8 Not disclosed since it contains information pertaining the financial performance of representative organizations\.  10 06/21/2014 Satisfactory Satisfactory 20\.30 11 12/19/2014 Satisfactory Satisfactory 20\.30 12 06/24/2015 Satisfactory Satisfactory 23\.46 13 11/29/2015 Satisfactory Satisfactory 25\.31 H\. Restructuring (if any) Date Board ISR Ratings at Amount Reason for Approved Restructuring Disbursed at Restructuring & PDO DO IP Restructuring Key Changes Made Change July 23, Not Moderately Moderately US$13\.96 A level II restructuring 2013 applicable Satisfactory Satisfactory million was approved to allow: (i) a 12 month extension of the closing date; (ii) a reallocation of financing proceeds; (iii) modify and update the results indicators; (iv) modify the eligibility criteria for business organizations applying for grants\. I\. Disbursement Profile 1\. Project Context, Development Objectives and Design 1\.1 Context at Appraisal Country and sector background 1\. During the design of the Mozambique Competitiveness and Private Sector Development Project (MCPSD), in 2007-2008, the country showcased a solid economic performance and political stability\. Poverty levels decreased from 69 percent in 1997 to 54 percent in 2003, and since then, have remained essentially the same, with rural poverty (57 percent) increasing slightly9\. The country’s development was mainly characterized by a return to political and macroeconomic stability, a first generation of structural reforms, reconstruction, strong donor support, and foreign investment in isolated mega-projects\. Agriculture was the second largest contributor to Gross Domestic Product (GDP) growth and employed about 80 percent of the country’s workforce, mostly in subsistence activities\. Tourism was an emerging and important sector and the industry grew particularly well between 2003 and 2010\. 2\. With a population growth of 2\.8 percent in 2008, a key challenge for the country was to expand employment opportunities through a more diversified economy and linkages with mega-projects\. Despite a high growth rate (averaging 8 percent of GDP between 1993 and 2010), both new investors and existing firms were having to cope with a weak business environment10\. Analytical work carried out by the World Bank Group (WBG) identified as top private sector constraints: informal sector competition, access to finance, tax rates, crime, corruption, electricity and transportation11\. Rationale for Bank assistance 3\. The WBG engagement in private sector development in Mozambique had been long- standing and in the form of investment operations building on each other\. The preceding Enterprise Development Project (PODE, P049874), a multi-donor intervention implemented with IDA support from 2000 to 2006, served to broaden private sector participation in the country’s growth by promoting access to services and finance; providing a market for training and capacity building services; establishing linkages; and strengthening the institutional capacity of public sector agencies\. The PODE would form the foundation for the MCPSD as a new operation also aimed at improving both the business environment and enterprise competitiveness - while adopting a more concentrated approach through the selection of key economic sectors (agriculture and tourism), and geographic areas with proven potential for these sectors development (Nampula and Inhambane Provinces)\. 4\. Additionally, the first Country Partnership Strategy (CPS, 2007-2012) demonstrated the WBG continued engagement in private sector development and was aimed at supporting the Government Poverty Support Strategy (PARPA II) vision towards a more sustainable and broad-based growth in Mozambique\. In this context, the MCPSD would help Government develop some of the key economic sectors, improve the 9 Source: 2008-2009 household survey\. 10 In 2008, Mozambique position in the Doing Business (DB) ranking was 141st out of 181 economies\. 11 Source: Enterprise Survey (2007) and the Investment Climate Assessment (2009)\. 1  business environment, stimulate exports and develop SMEs\. At the same time, the project would also contribute to achieving a number of the CPS outcomes 12 and complement other WBG projects covered under the CPS\. 5\. More specifically, the Bank assistance through this project would support Government to implement: (i) the Rural Development Strategy (2007), through promoting the production and processing of value-added export-oriented agricultural products in rural areas; (ii) the Strategy for Improving the Business Environment (EMAN I, 2008-2012), through streamlining the commercial and industrial licenses and reducing the number of days required for import and export; and (iii) the SME Development Strategy (2007), through improved private sector competitiveness, the establishment of linkages, and the setup of vocational training institutes and training programs\. 1\.2 Original Project Development Objectives (PDO) and Key Indicators 6\. The Project objective was ‘to improve the business environment and enhance enterprise competitiveness in Mozambique by: (a) reducing the cost of doing business in the country; (b) building technical capacity at public sector agencies; (c) strengthening the ability of local intermediaries to enable them to deliver business services to SMEs; and (d) developing region specific interventions in the tourism and horticulture sectors’\. 7\. The original key PDO indicators were: Indicator One: Number of days to issue industrial and commercial licenses; Indicator Two: Rate of sales growth in supported businesses; Indicator Three: Value of exports in supported businesses\. 1\.3 Revised PDO and Key Indicators, and reasons/justification 8\. The PDO remained unchanged during the implementation period, however the PDO indicators were formally revised in 2013, as part of a level II restructuring, as follows: Table 1\. Revisions to Key Outcome Indicators PDO Indicator(s) Original PDO Indicators Revised PDO Indicators Reasons/Justification (from PAD) ï‚ Rate of annual sales growth ï‚ Sales growth for SMEs The ‘20% annual rate of sales growth’ for SMEs benefiting from the benefitting from the matching was replaced by an overall ‘10% sales matching grant program grant program compared to the growth rate’\. The new target, even compared to the control control group (10 percentage though easier to measure, was group (20% higher rate than points above the percentage rate considered to be more demanding\.13 the rate of the control group)\. of growth of the control group)\. 12 The MCPSD would contribute to the following CPS outcomes: # 7) promoting the development of skills; # 10) improving the business environment through simplified starting a business procedures; # 11) facilitating access to finance linked to technical support for SMEs; and # 15) increasing local participation in the tourism sector and improving government capacity to regulate and oversee this sector\. 13 Under the new target, beneficiary firms have to have greater sales growth than the control group\. The original target was a rate of a rate – so if control group grew by 10% the target would be 20% of 10% which is 2% or 12% sales growth of beneficiary firms\. The target was revised to be 10% greater sales growth than control group – so if the control group grew by 10%, beneficiary firms’ sales should grow by 20%\. 2 ï‚ Value of incremental exports ï‚ Value of incremental sales The value of incremental ‘exports’ was generated in businesses generated in businesses changed to the value of incremental benefiting from Nampula benefiting from Nampula ‘sales’ to reflect that the businesses Training Centre over the life Training Centre over the life of benefitting from the Nampula Training of the project the project Centre would also be selling domestically as well as internationally\. Intermediate Outcome Indicator(s) Original Indicators Revised Key Indicators Reasons/Justification (from PAD) ï‚ Number of quality financial ï‚ Percentage of financial The focus on SMEs changed to Large statements prepared by a statements prepared by Large and Medium Firms because it was not randomly selected sample of and Medium enterprises in realistic to expect SMEs to adhere to corporate entities and SMEs accordance with IFRS the IFRS and also there was no established criteria to determine “quality” financial statements\. ‘Number’ was changed to ‘Percentage’ to reflect broader coverage and more clarity\. Target was set to 75%\. 1\.4 Main Beneficiaries 9\. According to the PAD, the project would benefit the following groups: ï‚ Private sector, including: MSMEs, business associations and service providers supported by the matching grant; tourism and tourism-related businesses in the province of Inhambane; fruits producers and workers in the province of Nampula\. ï‚ National and local government agencies, including: the MIC and its agencies: the National Directorate for Private Sector Support (DASP), One Stop Shops (OSSs or BAUs), the National Institute of Standardization and Quality (INNOQ), and the Institute for the Promotion of Exports (IPEX)\. It also supported the Ministry of Culture and Tourism (MICULTUR) and its agencies; the Ministry of Agriculture and Food Security (MASA) and its agencies; the Order of Professional Accountants and Auditors (OCAM); Customs; and the Governorates of Nampula and Inhambane as well as local public training institutes\. 1\.5 Original Components 10\. The Project funded two technical components, designed to be mutual reinforcing and complementary, as well as one administrative component\. 11\. Component One - Improving Enterprise Competitiveness: To enhance the competitiveness of SMEs and promote broad based growth, through the following three sub-components: (i) Promoting access to business development services, through a matching grant program to finance the costs of technical assistance and training to: (a) maximize the rate of sales growth for MSMEs; and (b) to strengthen the administrative and technical capacities of business associations\. (ii) Promoting the tourism sector in Inhambane, with a focus on two areas of intervention: (a) improving public sector service provision in the tourism sector, through support to the design and implementation of a tourism strategy and capacity development for the OSS; and (b) expanding the tourism-related private sector supply chain, through the rehabilitation of training facilities, the 3  recruitment of trainers and the provision of legal and business advisory services to the private sector to enhance their competitiveness\. (iii) Establishing a fruits training center in Nampula, consisting of: (a) setting up a national training center specialized in tropical fruits’ operations; and (b) a demonstration farm to serve as the training grounds for the center\. 12\. Component Two - Improving the Business Enabling Environment: The focus was to support Government’s effort in improving the business environment, to build the capacity of agencies playing a catalytic role in export services and to strengthen the accounting profession\. To be achieved through the following three sub-components: (i) Supporting the Business Environment Strategy, through three areas of intervention: a) trade facilitation; b) licensing reforms including the capacitation of OSSs; and b) public-private dialogue\. (ii) Supporting the Quality/Standards Infrastructure, through the establishment of a twinning arrangement for the provision of standard-related services that at the same time promote the increase of exports\. (iii) Strengthening the Accounting Profession, through the establishment of a twinning arrangement with a member institution of the international federation of accountants to enhance the delivery of OCAM’s professional services\. 13\. Component Three - Project Management, Monitoring, and Evaluation: To support the establishment of a PIU in charge of the overall fiduciary and reporting of the project while the technical implementation would be the responsibility of the various beneficiary agencies\. The exception was the matching grant to be implemented by a team of individual consultants based in the PIU\. 1\.6 Revised Components 14\. The project components remained unchanged\. However, throughout implementation, some activities were dropped (i\.e\., support for the establishment of the trade electronic single window), and others added (i\.e\., the Mocuba Industrial Zone study), based on the context and conditions found, and also on Government requests for Bank support14\. 1\.7 Other significant changes 15\. In July 2013, the Project was formally restructured to allow: (i) An extension of the closing date by 12 months (from November 30, 2014 to November 30, 2015), due to implementation delays for the following reasons: - Structural issues including the cumbersome process for clearing contracts by the Government Administrative Court (TA) and by the Commission for Foreign Economic Relations (CREE); - The need for longer lead time to prepare and procure large contracts\. 14Initially the project intended to support Customs in the implementation of the Electronic Single-Window (SEW) system\. However, soon after the project was effective in 2009, the Customs informed that it no longer requires WB financing for the implementation of the SEW as this would be fully financed under the PPP arrangement and the system went live in 2012\. Alternatively, the project provided training and a number of studies (listed in Annex 2)\. During implementation the Government requested support for a study on the establishment of industrial parks in Zambezia Province\. 4  (ii) A reallocation of financing proceeds mainly due to the fact that the Nampula Training Centre component proved to be more costly than originally envisaged\. (iii) Modification of the eligibility criteria for business organizations applying for grants since this was limiting the project ability to support the development of business organizations\. (iv) Changes to the results framework, including modifications of PDO and intermediate indicators\. 2\. Key Factors Affecting Implementation and Outcomes 2\.1 Project Preparation, Design and Quality at Entry 16\. Soundness of Rationale for the Bank’s Intervention\. The WB engagement in private sector development had been long-standing and oriented towards medium-term to long- term results, as confirmed under the WBG CPS approved in 2007\. In addition, the Government needed donor support to take forward the goals of poverty reduction and reforms for broad-based growth outlined in the PARPA II\. And finally, there was the expectations by the Government and other donors for the WBG, with its prominent role as leading partner in the policy dialogue, to support the Government efforts in developing the private sector and improving the business environment\. 17\. Soundness of Background Analysis\. The project was designed to address market failures and needs identified through WBG analytical work and through extensive engagement with the Government, leading donors, private sector representatives and financial institutions\. A donor mapping exercise undertaken by the Private Sector Working Group (PSWG) served to ensure complementary and leverage with other donor initiatives 15 \. Also, the economic and financial analysis conducted at project appraisal served to emphasize the incremental benefits expected from the project in relation to: (i) increased output of firms in the SME sector; (ii) improved efficiency of Government institutions, (iii) rationalization of business licensing that would help improve the business environment\. (see Annex 3 for more details)\. 18\. Adequacy of Government Commitment\. The project was designed following a Government request upon the closure of the PODE\. The MIC, as the lead implementing agency as well as the Government focal point for business environment reforms, was actively involved in the project preparation and implementation even following the 2010 and 2014 Presidential elections, which resulted in a change of Ministers and other key high level officials\. 19\. Risk Assessment and Mitigation\. Based on prior experience the project was expected to face weak implementation capacity, including in procurement and financial management, and this was highlighted as a substantial risk during project preparation\. Building on lessons learned from the previous Country Assistance Strategy (CAS), and with the purpose of promoting Government ownership, it was initially foreseen that the 15 The PSWG is a forum of dialogue among donors, government, private sector and civil society to jointly analyze, discuss and monitor policy- related issues pertaining private sector activities in Mozambique\. 5  PIU would be integrated and mainstreamed into the Ministry by mid-term, and have two mandates: to carry out the project management functions and to build the Ministry’s capacity (especially in procurement and financial management)\. 20\. Incorporation of Lessons Learned\. The project design was largely influenced by lessons learned from PODE\. Most importantly it took into account the need to: (i) focus business support services around key value chains and on sectors with growth and export potential (such as tourism and agribusiness), (ii) expand the geographic outreach of business support services; and (iii) plan for sustainability at the outset\. Furthermore, the project drew from the conclusion that stand-alone credit lines had not achieved the goal of promoting sustainable access to finance by SMEs, and the subsequent Independent Evaluation Group (IEG) recommendation for future interventions to consider both the financing and technical assistance aspects of access to finance\. 21\. Soundness of Project Design\. The PAD clearly articulated the strategic relevance of the project, based on the WBG country engagement strategy at the time and analytical work conducted\. The PAD also provided a coherent explanation for the project geographic and sector focus, and the intended synergies between the various interventions (i\.e\., business services, financial services, business environment reforms)\. The team took on board guidance provided during preparation as to simplify the project design by, for example, taking out initially intended additional activities related to a proposed partial credit guarantee component and support to the establishment of a private credit bureau\. 2\.2 Implementation 22\. The Project was implemented over a period of 6 years, from effectiveness in October 2009 until closing in November 2015 (following a one-year extension)\. Implementation support was provided by a single PIU Coordinator and a single Task Team Leader (TTL), based in Mozambique for 2 years\. However, it took the project longer than the six-month prescribed in the legal covenants to fill all key PIU positions\. 23\. Despite the original plan and the significant training provided by the project to Ministry staff, the intended mainstreaming didn’t take place and it was ultimately decided to maintain a separate PIU which rented its own premises due to space constraints at MIC\. The PIU informed this was due to the high turnover of Ministry personnel following changes at leadership level in 2010\. 24\. A project National Advisory Committee (NAC)16 was established in early 2011 with the objective of overseeing the project implementation, mitigating problems and ensuring good inter-institutional coordination\. However, the PIU informed that the NAC did not function as intended, i\.e\., meetings were not held on a regular basis and there was limited participation from its members, which can be partially explained by the high turnover of personnel at Government level\. 16NAC was chaired by the Minister of Industry and Commerce with representatives from the Ministry of Economy and Finance, MICULTUR, MASA, Central Bank, IPEME and private sector representatives\. 6 25\. The project Mid-Term Review (MTR) was carried out in November 2012, more than 1 year later than the scheduled time at approval (30 June 2011) analogue to the delayed project start\. At that time, some key components, such as matching grant and tourism, were not yet far advanced given that implementation of activities had only started in earnest since mid-2011\. The MTR rated most project performance indicators ‘Moderately Satisfactory’ with the exception of Financial Management (FM) and Counterpart Funding which were considered ‘Satisfactory’\. The overall disbursement rate was low at 34 percent (with a lag of 10 months in relation to the original disbursement estimates)\. 26\. A key challenge identified by the MTR was the extended timelines required for contract approvals by the TA and CREE which caused serious implementation delays (see section 2\.4 on Procurement)\. In addition, the following needs were identified: - To modify some of the project indicators (for greater clarity and taking into account ground conditions since design); - Cost reallocation among project categories to take into account larger than originally estimated expenses (such as the rehabilitation works in Nampula); - To adjust the matching grant business association eligibility criteria; and - To intensify supervision given the complex nature of the project\. 27\. A Project Restructuring completed in July 2013 addressed these issues, and Implementation Progress (IP) regained momentum and was upgraded to ‘Satisfactory’\. In mid-2014 progress towards the PDO was also upgraded to ‘Satisfactory’\. 28\. Project interventions related to the development of training facilities in Nampula and Inhambane Provinces faced similar challenges, including: (i) a tight timeline for implementation due to start-up delays17; (ii) limited sequencing of activities building on one another in the theory of change18; and (iii) funding constraints emerging towards the end of the project\. Despite these difficulties, training activities were successfully conducted (especially in Inhambane) and remaining works not completed will be covered by other already identified sources of funding\.19 29\. During the last year of the project implementation, the SDR devaluation against the Dollar led to a financing gap of about US$1 million\. This amount was still due at project completion for works and services provided20\. While some savings were identified, most activities were already underway in the final year of the project when this issue arose, impeding more significant cuts\. (see also section 2\.4 below)\. 17 For example, the implementation of the training center in Nampula was curtailed from the initially foreseen 3 years to 2 years due to the long lead time needed to secure two large contracts, one for the rehabilitation of the premises and the other for the implementation and early management of the Center\. 18 The delay in starting the rehabilitation works impacted: on the delivery of the subsequent training program (done using temporary facilities); and on the knowledge transfer to government\. 19 Going forward, the IDA-funded Agriculture Productivity Program for Southern Africa (APPSA) will support the completion of the works in the Nampula Fruits Training Center, while the works in the Inhambane Tourism Training Center will be concluded by the Inhambane Tourism Higher Training School (ESHTI)\. 20 The December 2014 WB FM review recommended the PIU to closely monitor the SDR/USD fluctuations to avoid over-commitments given the risk of the project not being able to fulfil its obligations as the committed amounts then were just under the remaining balance\. 7 2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 30\. Design\. The PDO consisted of two broadly stated ‘primary objectives’\. These are supported by a set of four ‘intermediate outcomes’, largely stated as activities, contributing to the achievement of the PDO21\. This particular aspect complicates the analysis of the project results chain and framework (see the logical results chain presented in section 3\.2 – Achievement of PDO)\. In addition, the project monitoring system was based on a standard Results Monitoring Plan which basically comprised information available in the PAD\. This Plan lacked detailed guidance on how to set and collect baseline data and how to measure results for many of the customized project indicators\. Since M&E is not an embedded function in many agencies in Mozambique, the Government had limited capacity to comply with the project and the WB requirements at this level\. In this context, having a more detailed M&E Manual would have helped ensure better quality information, more consistent reporting over time, and also better understanding and tracking by the PIU, beneficiaries and other parties22\. 31\. Implementation\. The initially designed M&E framework was updated and improved during the project restructuring in 2013 since the team realized that some indicators were no longer appropriate and had to be modified\. Missing baselines were added around the MTR and the restructuring as applicable, and the team involved expressed difficulty in identifying appropriate baseline data for some indicators\. Most reported results can be fully attributed to project activities\. This is the case for all PDO indicators and others including: a) Component 1 - sales increase for matching grant beneficiaries and in the Nampula horticulture sector (PDO indicators); training delivered in the tourism and horticultural sectors and linkages generated (intermediate indicators linked to the region-specific interventions); and b) Component 2 - licensing streamlining (PDO indicators); and norms supported (intermediate indicators)\. Nevertheless, the project was not able to report results for one Component 2 intermediate indicator, despite the relevance of activities supporting the creation of OCAM23, since a survey was not carried out due to lack of resources (see Section 3 and Annex 2 for details)\. 32\. Utilization\. M&E data gathered, as well as the findings and recommendations from a number of initial studies, were used to help the project team channel more efforts and resources where needed to ensure the project successful implementation\. The risk of social and environmental impacts was also regularly assessed and actions taken in response to the recommendations presented during the course of project implementation\. While the indicators have not been formally reformulated to mention women beneficiaries, the project included gender disaggregated data as much as possible in data collection\. 21 The PDO two ‘primary objectives’ are: to improve the business environment and enhance enterprise competitiveness\. The four ‘secondary outcomes’ implied on the PDO are: (a) reducing the cost of doing business in the country; (b) building technical capacity at public sector; (c) strengthening the ability of local intermediaries to enable them to deliver business services to SMEs; and (d) developing region specific interventions in the tourism and horticulture sectors\. 22 An issue often raised in ISRs was that data collection and results reporting was not done in a systemic way by the PIU\. On the other hand, the PIU largely depended on the beneficiaries to provide information needed for M&E purposes\. 23 This is the case for Indicator (6) in the Datasheet: Percentage of financial statements prepared by Large and Medium enterprises in accordance with IFRS\. 8 2\.4 Safeguard and Fiduciary Compliance Financial Management\. 33\. The project was considered to have a ‘Satisfactory’ financial management performance throughout implementation\. It remained adequately staffed with the one or other relatively smooth staff replacement\. There were no overdue Interim Financial Reports, as well as audited reports\. The FM personnel benefitted from several trainings in financial management and disbursement procedures and participated in fiduciary clinics\. The project generally had unqualified audit reports, particularly the last several audit reports24\. 34\. Whereas the SDR/USD exchange rate fluctuation was pointed out as a single cause for the shortage of resources, it is also important to take note of the MZN/USD devaluation as a factor that would have weighted into the opposite direction\. Therefore, while the SDR exchange rate affected negatively the project amount available in USD, the Metical devaluation resulted in more purchasing power for contracts paid in local currency\. Thus, a better and more strategic financial management would have likely have avoided the shortcomings faced at the end\. At the time of closure, the outstanding amount due to a number of consultants and contractors was about US$1 million\. The WB team identified alternative funding sources for approximately US$800,000 from other related WB projects in Mozambique; the remainder amount would be the Government’s responsibility to settle\. Procurement 35\. Compliance with procurement guidelines was ‘Moderately Satisfactory’ throughout the project\. This rating was mostly attributed due to delays in the implementation of the procurement plan and deficiencies in the filing system\. 36\. However, a major bottleneck the project faced was related to the Government process for clearing all contracts by the TA\. This caused significant delays to the project implementation and was a main cause leading to the Level II restructuring in 2013\. It is important to note that this was not a project specific issue but one which affected the entire Mozambique portfolio\. The WB Country Management Unit (CMU) was working with support from the various projects task teams in resolving this issue\. A consultant hired by the WBG to evaluate the impact of the TA procedures in project delays could not conclude that the established procedures were the main issue\. The study further informs that a problem was in the quality and completeness of the documents and information required for the TA to be able to approve promptly25\. It is also important to note that a lawyer was hired by the PIU to help address these requisites\. Despite this, it was clear during the ICR assessment that this problem persisted until the project end\. 24 It is important to note that the first two project audit reports were qualified\. However, the PIU adequately addressed all comments raised by the WB during the audits\. 25 In this regard, the PIU noted that the TA often provided qualified audit reports based on the lack of supporting documents regardless of whether the documents were later provided or not\. 9 Safeguards 37\. The project was classified as a Category B as a result of the light infrastructure activities related to the rehabilitation of the Fruits Training Center (CFF) and the establishment of a demonstration farm in Nampula, and the tourism and horticulture activities in Inhambane Province\. Safeguards policies triggered include: OP 4\.01 Environmental Assessment, OP 4\.09 Pest Management, and OP 4\.12 Involuntary Resettlement\. To address these issues, an Environmental and Social Management Framework (ESMF), including a Pest Management Plan (PMP); and a Resettlement Policy Framework (RPF) were prepared\. 38\. The task team upgraded the Safeguards rating to ‘Satisfactory’ during the last supervision mission based on the information that the recommendations from past supervision missions were followed upon\. However, during the ICR assessment mission to Nampula in February 2016, it was noticed that some roofing plates (containing asbestos) removed from existing warehouses were still present in the premises of the Training Center given a shortage of funds to conclude the removal services\. The WB APPSA Project will fund the conclusion of the rehabilitation works and the final removal and appropriate disposal of the asbestos plates in 2016\. 39\. During the final supervision mission to Inhambane in November 2015, the team identified a number of errors in the practical training kitchen of the Tourism Training Center, in terms of set up and the lack of adequate ventilation or exhaust system causing a potential hazard to the students and staff\. The ESHTI, the Government agency responsible for the Center management will rectify this as part of the remaining works to be concluded (see Section 2\.2 – Implementation)\. 2\.5 Post-completion Operation/Next Phase 40\. Although no phase-II MCPSD is envisaged at this stage, the WBG is in the process of formulating follow-up support for the development of the private sector through the upcoming Country Partnership Framework (CPF)\. 41\. Nevertheless, the outcomes of the MCPSD in the business environment are currently being sustained and built on through continued direct support from the Irish Aid to MIC and to OCAM, and through the WB Mozambique Integrated Growth Poles Project (IGPP) in collaboration with the IFC\. Additionally, the WB and the MICULTUR have agreed on furthering support to the Inhambane Tourism Training Center, through a WB Institutional Development Facility (IDF) Project to ensure the operationalization of the Center and the capacitation of the ESHTI to manage the facilities\. Lastly, the WB APPSA Project will build on the support for the Nampula Training Center\. 3\. Assessment of Outcomes 3\.1 Relevance of Objectives, Design and Implementation Overall Rating: Substantial 42\. Relevance of Objectives: High\. At the project’s inception, the PDO primary objectives’ of ‘improving the business environment and enhancing enterprise competitiveness’ were highly relevant and remain so at completion\. The project expanded scope was 10  consistent with the WBG FY08-FY11 CPS, especially Pillar III goal of ´promoting sustainable and broad-based growth´\. During implementation, the project interventions were also reflected in the CPS covering the FY12-FY15 period, contributing specifically to Pillar I – Competitiveness and Employment – where the WBG aimed to help improve the regulatory environment, enhance agricultural productivity and employment in key sectors\. Moreover, the project rational was also aligned with the Government´s third Poverty Reduction Action Plan (PARP, 2011-14) recognizing that boosting production and productivity and promoting employment depended on an improved business climate\. Lastly, the project targeted sectors (horticulture and tourism) remain a priority in the Five Year Plan of the Government for 2015-2019\. 43\. Relevance of Design: Substantial\. The project two components: ´enhancing enterprise competitiveness ´ and ´improving the business environment´ are fully aligned with the two primary PDO outcomes, and reflect the Government and the WBG priority areas\. Proposed activities under these components were also well aligned with country policy and underpinned by WBG analysis carried out during the project preparation phase\. Furthermore, the project design recognized the need for the identified spectrum of activities to provide the necessary platform for broad-based and inclusive growth\. 44\. Relevance of Implementation: Substantial\. The MCPSD supported Government implement: a) the business environment strategies (EMAN I and II, covering the 2008 - 2017 period), through streamlining the commercial and industrial licenses, supporting the OSSs and the e-BAU (an automated platform for government service delivery to citizens), in partnership with the Irish Aid and the IFC; b) the Rural Development Strategy (2007), through promoting the production and processing of value-added export-oriented agricultural products in rural areas; and c) the SME Development Strategy (2007), through implementation of the matching grant scheme for SMEs aimed at improving private sector competitiveness, and the provision of vocational training\. Moreover, the project’s approach, especially as it evolved during implementation is particularly pertinent\. By recognizing the horticulture industry potential for production and importance of diversification, the project expanded its initial focus of the Nampula Tropical Fruits Institute, to include produce other than bananas, and also incorporated both domestic sales and exports in the revised indicators\. In Inhambane, recognizing the potential for greater linkages, the project added a focus for greenhouses as part of the tourism related value chain development\. 3\.2 Achievement of Project Development Objectives 45\. The PDO consisted of two ‘primary objectives’ (“to improve the business environment and enhance enterprise competitiveness in Mozambique”) to be achieved through a number of contributing ‘intermediate outcomes’ (“(a) reducing the cost of doing business in the country; (b) building technical capacity at public sector agencies; (c) strengthening the ability of local intermediaries to enable them to deliver business services to SMEs; and (d) developing region specific interventions in the tourism and horticulture sectors”)\. 11  46\. The PDO was to be measured through a set of PDO-level and intermediate indicators\. The project successfully achieved the two PDO outcomes, as detailed below\. The Table presents the PDO level and intermediate indicators along the four ‘intermediate outcomes’, given that these contribute to the PDO ‘primary’ outcomes\. Table 2: The MCPSD Logical Results Chain PDO outcomes PDO Clusters of intermediate Activities/ Project Indicator Description and Level outcomes Components Component One: Improving Enterprise Competitiveness ï‚ Matching - Sales growth for - PDO (1) Ability of grants to businesses benefitting Indicator 1 local MSMEs from the matching grant intermediaries program to deliver ï‚ Matching - Increase in revenue from - Intermediate business grants to members of Indicator 8 services to representative business SMEs associations organizations benefitting strengthened from project support ï‚ Establishing a - Value of incremental - PDO fruits training sales in supported Indicator 2 Enhanced center in businesses enterprise Nampula - # of trainees using the - Intermediate competitiveness (2) Region acquired techniques and Indicator 2 specific quality standards to interventions in improve horticultural the tourism and production horticulture ï‚ Promoting the - # of project supported - Intermediate sectors tourism sector trainees using acquired Indicator 1 developed in Inhambane skills in tourism-related businesses - # of linkages contracts - Intermediate between SMEs and Indicator 7 tourism establishments Component Two: Improving the Business Enabling Environment ï‚ Supporting the - # of days to issue - PDO (3) Cost of Business commercial license Indicator 3 doing business Environment - # of days to issue - PDO in the country Strategy industrial license Indicator 4 reduced - # days to clear imports - Intermediate and exports Indicator 3 Improved ï‚ Supporting the - # of standards introduced - Intermediate business Quality/ for which standard Indicator 5 environment Standards setting has been initiated (4) Technical Infrastructure by the private sector capacity at public sector ï‚ Strengthening - % of financial - Intermediate agencies built the statements prepared by Indicator 6 Accounting Large and Medium Profession enterprises in accordance with IFRS 12  PDO 1: Enhanced enterprise competitiveness Rating: High 47\. PDO outcomes are associated with the demonstration of ‘increased sales’ for supported beneficiaries, and include: - Enhanced MSMEs sales, and representative organizations revenues, through the financial support provided by the matching grant program (sub-component 1\.1); - Incremental sales of businesses and producers supported in the Nampula Province based on improved horticulture skills (sub-component 1\.3)\. 48\. Associated to this, key intermediate outcomes achieved include: - Improved skills through tourism related training leading to job creation in the Inhambane Province (sub-component 1\.2); - Establishment of linkages with local farmers involved in the greenhouses production program (sub-component 1\.2); 49\. The PDO target for ‘sales growth for businesses benefitting from the matching grant program’ was exceeded by a significant margin (23\.5 percent average annual sales growth against a target of 10 percent)26\. The matching grant program (sub-component 1\.1) was designed to introduce SMEs to business service providers and to build the capacity of business providers to serve SMEs\. In turn, the expected primary outcome was an increase in beneficiaries’ sales and to achieve this, the US$3\.5 million grant available was fully absorbed in the delivery of business services\. The main activities supported were design of promotion materials, website development, training of employees, and quality certification\. A total of 852 activities were supported, reaching 363 unique beneficiary firms/associations in the country with the majority of the funds allocated to microenterprises (81 percent)27\. In terms of results achieved, the average annual sales growth for businesses benefitting from the matching grant program is 23\.5 percent (against the initial target of 10 percent)\. In dollar terms, the estimated impact per firm is US$17,515 of annual sales while for the total of 333 firms supported this refers to gains in annual sales estimated at US$5\.853 million\. The changes in sales are associated with better business practices, mainly marketing, which is one area where the matching grant program supported a large number of firms\. 50\. Additionally, the matching grant program also aimed at building the capacity of business associations to better serve their members\. The US$300,000 grant available for this purpose resulted in an average income increase of 140 percent 28 for representative organizations (against a target of 10 percent)\. The income derived 26 Results reported contribute to the ‘intermediate outcome’ (1): Ability of local intermediaries to deliver business services to SMEs strengthened, indicated in the Table 2\. 27 This is measured under Intermediate Indicator #4: Volume of Banks support: Institutional Development – SME (target: US$3 million), a corporate indicator not included in the logical results chain table\. 28 Evidence presented in a beneficiary survey carried out by the Matching Grant team for a sample representing about 1/3 of supported business associations (9 out of 30)\. The survey results shows that while some associations had declining revenues from members over time, others had increasing ones, some of them by a significant amount, and the average reflects these differences\. 13  mostly from members’ contributions but also from revenues from seminars, training programs, and sales of publications29\. 51\. Attribution: The impact of the project support on the sales growth is traceable since the beneficiary survey was designed to compare the effects of the project against what would have happened in its absence\. For that effect, it compares beneficiary firms with a control group of other enterprises that face similar challenges and opportunities over time\. (see Annex 5 for details)30\. 52\. The PDO target for ‘incremental sales in supported businesses’ in the Nampula Province horticulture sector was also exceeded by a significant margin (US$12 million against a target of US$4 million)31\. The project supported the setting up of a national training center specialized in tropical fruits’ operations (sub-component 1\.3) through the rehabilitation and equipping of existing facilities and the mobilization of experts and staff for managing the Center operations and delivering the training courses\. While the project delivered training to a large numbers of producers and stakeholders (see Annex 7 for details), key to the achievement of the PDO is the GlobalGAP certification delivered and that served to prevent the spread of the Panama disease currently affecting the banana production in this region\. The Global GAP accreditation was granted to a 300 hectares area (in February 2015) and this also created the opportunity for the sector to sell the produce to more markets, including Europe\. About US$11 million ‘estimated sales’ alone derive from the banana production sector\. Additionally, about US$1 million incremental sales are estimated, based on ‘future sales projections’, for a number of small producers, over a longer time horizon (2-5 years)\. (see Annex 6 for details)\. 53\. Attribution: Except for the banana sector, the link between the project activities and the productivity of local farmers, expected to generate a sales increase is of longer term\. The proxy used, ‘sales projections’ is based on the fact that at closure, the project was unable to assess actual sales for most trainees since the effect of the additional training will take time to be realized due to the longer periods required for establishing a new plantation and for fruit gestation\. This aspect also impacted the project ability to promote the establishment of linkages between some of the domestic producers and exporters by project end date\. Achievement of associated intermediate outcomes: 54\. In Mozambique, the shortage of quality workforce and of technical training programs is consistently pointed in Government policies and existing analytical work as a major bottleneck to private sector development\. To address this, the project supported the delivery of vocational training and the setup of two vocational training institutions 29 This is measured under Intermediate Indicator #8: Increase in revenue from members of representative organizations benefitting from project support, included in the logical results chain table\. 30 The WB supervision team gratefully acknowledges funding and technical support from the WBG’s Umbrella Facility for Gender Equality and Africa Gender Innovation Lab for supervising the matching grant impact evaluation, including in the baselintarget e and follow-up surveys that were carried by a local firm contracted by the project\. 31 Results reported contribute to the ‘intermediate outcome’ (2): Region specific interventions in the tourism and horticulture sectors developed, indicated in the Table 2\. 14  through its region specific interventions in the tourism and horticulture sectors (implemented in Nampula and Inhambane Provinces)\. 55\. While the target related to the ‘number of trainees’ in the Inhambane Province was largely exceeded (1,316 against a target of 800), the target in the Nampula Province was largely achieved (695 trainees against a target of 800)32\. 56\. Given the delay in starting up the Nampula Fruits Training Center (sub-component 1\.3), the project was able to support the training of 695 trainees during a 2 year period (instead of 800 over a 3 year period as initially foreseen)\. (see Annex 7 for evidence)\. Even though the usage made of acquired skills by trainees was not measured, its impact can indirectly be assumed positive given the results related to the increase of incremental sales of supported horticultural producers (see PDO indicator 2)\. It is also important to note that given the success of this pilot project, the Government is now envisaging the replication of the approach by establishing similar training centers in other regions of the country to facilitate access by the private sector and local producers to this type of services as to help promote the development of agriculture in the country\. 57\. In the Inhambane Province (sub-component 1\.2), the project contributed to overcoming the vocational training gap by training people in tourism related skills through over 40 different courses and workshops\. Cumulatively, this sub-component delivered training for a total of 1,316 trainees of which 899 are from the private sector33\. Particularly successful was the training provided through the Tourism Training Center curriculum developed with project support\. In terms of impact, the training delivered contributed to youth employment with 74 percent of students (590 out of 800 who achieved certification) absorbed by the local labor market at the time of the graduation in November 201534\. This fact demonstrates not only the demand/need for this type of training but also the high quality of the training delivered\. (see Annex 7 for details)\. 58\. Attribution: Results in the area of vocational training both in Nampula and Inhambane Provinces are attributable to the project and made possible through the strong engagement and contribution of Government counterpart agencies\. In Nampula, the National Institute of Agriculture Research (IIAM) provided the facilities for the establishment of the CFF and acquired the land for the demo farm\. In Inhambane there was strong support and engagement from the Eduardo Mondlane University (UEM), represented by ESHTI at the local level, and the MICULTUR that also contributed monetarily to the equipping of the newly established training center\. 59\. The ‘number of linkages’ created (78) surpass the target set (50) 35 \. In the Inhambane Province, the project delivered technical assistance and capacity building 32 Results reported contribute to the ‘intermediate outcome’ (2): Region specific interventions in the tourism and horticulture sectors developed, indicated in the Table 2\. 33 The total of private and public sector participants in the various training is 1,465\. However 149 participants have not achieved certification, hence the total of trainees accounted for is 1,316\. 34 Employment numbers shared by ESHTI as part of the internship program established with hotels and other establishments that accommodated intern students\. 35 Results reported contribute to the ‘intermediate outcome’ (2): Region specific interventions in the tourism and horticulture sectors developed, indicated in the Table 2\. 15  activities aimed at expanding the tourism-related private sector supply chain (sub- component 1\.2)\. Recognizing the potential for greater linkages, the project added a focus for greenhouses as part of the tourism related value chain development\. As part of this process, the project contracted a private operator with the responsibility of providing training to local producers, developing the greenhouses, and serving as an intermediary distributing the local production to the market\. As a result, a total of 78 linkages were established between these horticulture producers (21) participating in a greenhouse management program\. (see Annex 7 for details)\. 60\. These local producers are now engaged in meeting the demand for fresh quality products by the tourism industry and local markets\. In the interview conducted, local producers highlighted two important benefits of the project support: a) an increased household income through additional revenues; and b) the capacity to produce more with less losses through the use of this type of technology (greenhouses and irrigation)\. 61\. Attribution: Results in this area are fully attributable to the project and possible through the strong support and engagement from the IIAM\. Contributing to the success of this pilot program is the type of model adopted – a Public-Private-Partnership (PPP) established through a Memorandum of Understanding (MoU) signed between the local government and a private operator\. Towards the end of the project the Irish Aid provided limited support during the last phase of the project\. PDO 2: Improved business environment Rating: High 62\. The reduced cost of doing business in the country, stated in the PDO, was expected to be achieved through streamlined licensing procedures and a reduction in export and import clearance requirements\. Results related to project interventions in both areas (licensing and trade) are presented below\. 63\. The target to reduce by 50 percent the ‘number of days to issue commercial licenses’ and the ‘number of days to issue industrial licenses’ was exceeded36\. In support of the Government efforts in the implementation of the business environment strategy (sub-component 2\.1), the project provided technical assistance, equipment, works and training to streamline business licensing and to build the capacity of OSSs\. (see Annex 2 for details)\. On the regulatory reform side, these efforts culminated in the approval of new streamlined licensing regulations by the Council of Ministers as described below\. Ultimately, and as stated in the PDO, these reforms are expected to reduce the cost of doing business in the country by lessening the administrative burden for the private sector\. 64\. Commercial licensing: An average 83 percent reduction in the number of days to issue commercial licenses was achieved (from about 42 days to 7 days) as per the new regulations passed by the Council of Ministers in 2013 (Decree n° 34/2013 of August 2)\. Further strides include: automated licensing procedures (through the launch of the 36Results reported contribute to the ‘intermediate outcome’ (3): Cost of doing business in the country reduced, indicated in the Table 2\. 16  e-BAU platform); reduced number of procedures (from 9 to 6); reduced fees for certain comercial licenses; the elimination of pre-inspection for activities that do not involve risk to the environment, safety, hygiene and public health; decentralization of licensing powers; and making most commercial licenses valid indefinity\. (see Annex 7 for details)\. 65\. Industrial licensing: An average 59 percent reduction in the number of days to issue industrial licenses was achieved (from a baseline of 32 days to 13 days) as per the new regulations passed by the Council of Ministers in 2014 (Decree n° 22/2014 of May 16)\. This regulations also served to: eliminate pre-inspection for many industries37; simplify requisites and reduce the number of procedures; reduce in 45 percent the costs for medium-sized industries not requiring pre-inspection (from US$1,013 to US$557); and decentralize competencies to provincial and district levels\. (see Annex 7 for details)\. 66\. Atribution: The project attribution to both the licensing outcomes is shared with the Irish Aid and the IFC\. By capitalizing on the parallel Irish Aid funding and the IFC complementary technical assistance, the project contribution to improving the business environment was larger than initially envisaged through the development and capacity building of the OSSs network offering a range of services related to starting a business38, and the implementation of the e-BAU39 (see section 3\.5 - Overarching Themes, Other Outcomes and Impacts)\. Achievement of associated intermediate outcomes: 67\. In addition to the PDO level indicators, there was a set of intermediate level indicators for improving the business environment presented as follows: 68\. The ‘number of standards introduced’ (12) surpass the target set (9)40\. The INNOQ, the beneficiary agency, successfully developed these 12 standards with project support from the project by entering into a one-year intensive twinning arrangement with a consortium consisting of the Spanish National Standards Body (AENOE) and a Portuguese consultancy firm\. INNOQ adhered to the project principles for standard setting in a market-led way by studying the demand for its services and taking into account the Mozambican context when developing standards rather than simply attempting to import international standards\. (see Annex 7 for details)\. 69\. Attribution: The introduction of new standards are fully attributable to the MCPSD support through the coaching and training of staff in demand assessment and policy making\. Another implied objective for this component, as stated in the PAD, was to help promoting export in key sectors\. According to INNOQ, this has not been achieved 37 Pre-inspection is now only required for large industries or SMEs with the potential risk to cause health, safety or environmental problems and required to hold an environmental license\. 38 Specific support provided by the project include developing the OSSs corporate design, equipment and refurbishments, staff training, and communication of reforms\. 39 The e-BAU received technical assistance from the Investment Climate Facility (ICF) and the MCPSD support was in the form of training, equipment, digitalization of licensing databases\. 40Results reported contribute to the ‘intermediate outcome’ (4): Technical capacity at public sector agencies built, indicated in the Table 2\. 17  by the fact that INNOQ’s certification is still not recognized in other countries\. At the moment INNOQ is receiving support from the European Union to bridge this gap\. It is expected that until the end of the year INNOQ’s certification by IPAC (the Portuguese Accreditation Institute) is concluded allowing for international recognition of local exporting companies certified on management systems\. 70\. The target related to achieving a 50 percent reduction in the ‘number of days to clear imports and exports’ was not achieved41\. According to DB data, the country reduced in 19 percent (from 26 to 21 days) and in 22 percent (from 32 to 25 days) the number of days required for export and import42\. Noting the sequencing of events, the project reports these partial results before the reform recommendations were potentially adopted by the Government\. While this was due to the fact that the project was following the DB methodology, the MTR recommended in 2012 for a change in the measurement methodology since the DB data was considered no longer appropriate\. (see Annex 2 for list of activities delivered by the project in this sub-component 2\.1)\. 71\. Results related to the ‘percentage of financial statements preepared by Large and Medium enterprises in accordance with IFRS’ are not traceable43 \. The project provided technical support to OCAM by means of a twinning arrangement between with the Institute of Certified Public Accountants of Ireland (ICPAI), a member of the International Federation of Accountants (IFAC)\. Despite the major institutional development achievement that is the establishment of OCAM, data for the validation of this indicator are not available since a survey was not carried out due to lack of resources\. 72\. Lastly, given that an implied PDO intermediary outcome refers to building the capacity of public sector agencies 44 , it is important to highlight the following institutional strengthening aspects achieved with project support: - Improved Government capacity to champion and implement business environment reforms and to develop norms and standards, i\.e\., the Government passed important licensing reforms (PDO outcomes) led by MIC, and the INNOQ is now able to develop and offer demand-driven services in the fields of standardization, certification and metrology; - The establishment of OCAM - a modern professional accountancy body - counting with over 3,000 members already; 41 Trade activities fall under the ‘intermediate outcome’ (3) aimed at reducing the cost of doing business in the country, indicated in the Table 2\. 42 The baseline is established based on DB2009 data and the results derive from the DB2014 report published October 2013\. 43Activities to strengthening the accounting profession fall under the ‘intermediate outcome’ (4) aimed at building institutional technical capacity, indicated in the Table 2\. 44 The strengthened institutional capacity (stated in the PDO) is transversal for the achievement of the two project primary outcomes related to ‘improved business environment’ and ‘enhanced enterprise competitiveness\. It refers to: i) support given directly to public sector agencies (MIC, INNOQ, IPEX, Customs, etc); ii) support for the establishment of OCAM; as well as iii) support for the creation of the Nampula Fruit Training Center and the Inhambane Tourism Training Center\. 18  - The creation of two public ‘Centers of Excellence’ - the Nampula Fruit Training Center and the Inhambane Tourism Training Center\. The positive results of this capacitation is clearly visible in the indicators related to the number of trainees; - The emergence of a second generation of ‘OSSs’ with a corporate image, automated procedures and better service delivery to citizens\. - Furthermore, numerous project activities were directed at strengthening the capacity of IPEX and Customs, playing a catalytic role in trade facilitation, and the public sector at Inhambane Province (see Annex 2 for details)\. 3\.3 Efficiency Rating: Substantial\. 73\. The same economic and financial analysis undertaken at the project conclusion (Annex 3) yielded returns higher than the estimated in the design stage, with a Net Present Value (NPV) of US$80\.07 million and Economic Rate of Return (ERR) of 93 percent\. As done at Appraisal, Component 1 activities where benefits are quantifiable (i\.e\., matching grant; and the sector focused interventions in Inhambane and Nampula), the analysis covers 63% of project costs\. This positive and significant higher results can be attributed to the beneficiaries achieving higher sales than anticipated for matching grants, the greater value of achieved by the Nampula horticultural production companies (especially the banana producing sector), and higher tourism receipts in Inhambane Province\. Table 3 below shows the aggregate estimates of economic cost- benefit analysis calculated in the PAD and the actual figures\. Table 3\. Economic Analysis – Component 1 Present values of Flows Net economic –Financial PAD Actual Benefits ( US$ mn) 44\.9 92\.7 Costs ( US$ mn) 10\.3 12\.745 Net Benefits (US$ mn) 34\.6 80\.1 ERR (%) 48% 93% 74\. Even including all project costs (i\.e\., for Components 1, 2 and 3), Component 1 benefits still yield a positive NPV, and the ERR of 49 percent is just above the Appraisal estimate\. The sensitivity analysis using a higher discount rate and shorter time horizon of benefits yield similar positive results in both cases (i\.e\., including only Component 1 costs and when including all project costs)\. (see details in Annex 3)\. 75\. In terms of the overall cost-benefit analysis, as seen from Annex 1, the total costs at project closure were US$25\.33 million, representing 101 percent of estimated costs at appraisal of US$25 million\. On top of this, the cost overruns (about US$1 million), represents 4 percent of the estimated costs at appraisal\. (discussed in section 2\.4 – FM)\. 45 The total cost of Component 1 is US$15\.94 million, and US$12\.67 million is the present value of the total Component 1 costs in a 10-year period with a 12% discount rate\. 19  Table 4\. Economic Analysis - Including all Components costs Present values of Flows Net economic –Financial Actual Benefits ( US$ mn) 92\.7 Costs ( US$ mn) 20\.1 Net Benefits (US$ mn) 72\.6 ERR (%) 49% 76\. The project management costs were 25 percent higher than the appraisal estimates (US$4\.56 million compared to US$3\.66 million)\. This is explained by the one year project extension, and unforeseen additional costs related to the translation of all procurement materials from English to Portuguese to meet TA prior review requirements, plus the 15 percent tax on all consulting contracts\. On covering the project costs it is important to note the Irish Aid contribution since it also covered the contract cost for the project Coordinator throughout the project lifetime\. 77\. In terms of individual components, it is worth highlighting the following: - The Nampula Fruits Training Center component shows the highest variance with appraisal estimates since actual costs were US$5\.24 million against the initially foreseen US$2\.92 million (about 79 percent higher)\. This design inefficiency contributed to the project restructuring as to allow the re-distribution of budget between components\. - With regards to the matching grant, the project originally allocated US$3 million for SMEs (US$1 million for Micro and US$500,000 for associations)\. At design, the project assumed an average of US$10,000 grant size for SMEs (with planned 300 grants in total), an average US$5,000 grant size for micro (for 200 grants in total), and US$15,000 in association grants (resulting in 33 planned grants)\. However, during the course of the project, there was much higher demand from micro than SMEs, resulting in lower grant sizes than initially envisaged\. At project closing the project supported a total of 847 grants (against the initially foreseen 533 grants) with an average grant size of approximately US$4,000\. The project allocated more grants than initially envisaged and the returns for this component - based on the 23 percent average growth sales achieved against the initially foreseen 10 percent increase - helps outweigh the project higher costs due to its extended implementation timeline\. - The project effectively leveraged on other donor’s resources through the partnerships established with the Irish Aid and the IFC for implementation of the licensing reform component\. While the IFC led the reform work through technical assistance, the Irish Aid parallel funding amounted to a total of € 1,065,000\. 3\.4 Justification of Overall Outcome Rating Rating: Satisfactory 78\. The overall outcome rating of the project is assessed to be ‘Satisfactory’ based on the ‘Substantial’ rating for relevance of objectives, design and implementation; on the 20  ‘High’ rating for efficacy in achieving in achieving the PDO outcomes; and on the ‘Substantial’ rating for efficiency\. 79\. Note that a split rating was not calculated for the project based on the fact that there were no revisions to the PDO and no substantial changes to the original key associated targets, f\.e\. the two indicators changed still measured the same - sales increase – by using a more demanding target\. (see Section 1\.3 – Revised PDO and Key Indicators, and reasons/justification)\. 3\.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development 80\. The project interventions in Inhambane and Nampula contributed to broad-based growth and are therefore likely to have also contributed to poverty reduction\. It is expected that fruit plantations established in Nampula, as part or after the training provided, will positively impact on the nutrition of the population in this region\. The assessment included in Annex 6 estimate that fruit available for family consumption will increase from 50 to 150 tons per year (valued at US$20,000 and US$120,00046 respectively)\. Additionally, training provided to 24 local producers, as part of a World Vision social development program, is expected to result in US$3,900 annual sales for a single producer, corresponding to US$325 per month, or about five times the established minimum wage for the agriculture sector (US$66)47\. Lastly, as part of its corporate social responsibility, the Center plans to promote the engagement of local communities in the fruit business (i\.e\., through the development of 100 hectares by smallholder producers for fees or profit share)\. Similarly, in the Inhambane region, the inclusion of 21 subsistence farmers, most of them women, in the greenhouse management and the horticultural linkages program resulted in additional household income for their families\. The project also contributed to the employment of about 590 students through the implementation of quality tourism vocational training courses designed to address the needs of the local labor market\. 81\. Overall, the project did not have specific gender objectives except for the matching grant component that identified women-owned businesses as a priority group\. According to the beneficiary survey only 27 percent of the businesses supported were owned by women (about 85 firms)\. This low percentage is likely due to the fact that women are more prevalent in the informal economy while the program targeted formal established firms\. Disaggregated statistics show that 29 percent of the trainees in Nampula were women (205) and a similar proportion is estimated for Inhambane48\. (b) Institutional Change/Strengthening 82\. Main outcomes regarding institutional strengthening, an area of main focus for the project, are presented in Section 3\.2 – Achievement of PDO\. 46 Valued at 1 million to 6 million meticais at the exchange rate of 1 US$/50 MZN\. 47 The minimum salary for the agriculture sector in Mozambique is MZN3,298 valid from April 2016\. 48 The project did not collect disaggregated gender information for all training conducted in Inhambane\. 21 (c) Other Unintended Outcomes and Impacts (positive or negative) 83\. The project derived important benefits and efficiencies from the established partnerships with other donors\. As already mentioned, with all the available resources the Project was able to provide support beyond its initial scope of work and contribute more efficiently to improving the business environment\. A clear example is the project contribution to the e-BAU platform allowing the automation of licensing procedures\. Through a team of consultants based at MIC, the project also contributed to the review of the simplified licensing regime (Decree 5/2012) that served to simplify even further the licensing of economic activities in 9 economic sectors (agriculture, commerce, industry, civil construction, communications, culture, fishing, services and tourism) and resulting in cost savings for the private sector of about US$170\.000 per year\. As a result a larger number of MSMEs now benefit from easier and less costly start-up procedures as recognized by the DB assessment\. 3\.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops 84\. A beneficiary survey was carried out for the matching grant, as part of an impact evaluation study to understand the effects of the program and provide lessons for similar programs\. A detailed account of the survey results is incorporated in Annex 5\. 4\. Assessment of Risk to Development Outcome Rating: Moderate 85\. The risks of the project development outcomes not being maintained are rated moderate, and predominantly related to institutional capacity to sustain the project achievements\. Key vulnerabilities relate to: (i) completion and maintenance of infrastructure; (ii) financial sustainability and operational capacity of the training centers; (iii) political commitment and government capacity to continue improving the business environment; and (iv) institutional capacity to promote the development of SMEs\. 86\. Throughout the course of implementation, the project was able to develop partnerships or establish mechanisms to mitigate some of these sustainability risks\. For example: (i) While the bulk of rehabilitation activities have been carried out by the project, going forward remaining items in Inhambane and Nampula (i\.e\., electricity and gas hook-ups, removal of remaining asbestos sheets from site, completion of external illumination and ventilation) will be concluded with support from the WB APPSA Project in Nampula and the ESHTI in Inhambane\. (ii) The Inhambane Training Center was officially established by the UEM and the ESHTI is responsible for its management in the long run while the UEM will cover its running costs\. In the short term, the MICULTUR will provide support to the Center operations through the WB IDF Project implemented in collaboration with the MICULTUR 49 \. Additionally, the ESHTI is already 49 WB IDF funds for building institutional capacity in the tourism sector will be used to ensure the continued engagement of a private sector operator to operationalize the Center and transfer to ESHTI the necessary know-how for manage the facility in the longer run, and to provide further training (given the high demand from local youth and the private sector)\. 22  engaging with other donors to continue the process of training of trainers (through French Aid)\. (iii) With regards to the greenhouse incubator in Inhambane, a public – private partnership has been established between IIAM and Mocambique Organicos, by means of a MoU allowing the continued use by the private sector of the greenhouses for farm training and market expansion as well as the use of the refrigerator vehicle for produce delivery\. Additional support has been received from Irish Aid with prospects for more funding in 2017\. (iv) The IIAM is committed to support the Nampula Training Center running costs and is taking forward the development of a 142 hectare demo farm through a synergetic relation with Amarula Farms, a private sector operation\. The demo farm is an important requirement for the Center sustainability since it will serve both as training grounds and as a source of revenue from the sales of produce\. (v) OCAM financial sustainability depends on its membership base and on the delivery of services supporting the development of the accounting profession\. Current revenues are sufficient to keep its internal structure running\. However, to make a real change in the accountancy profession, OCAM is still much dependent on external support\. With support from the Irish Aid OCAM was able to provide training on accounting, auditing and ethical standards to more than 1,500 members\. Additionally, OCAM was recently accepted as a member of Pan African Federation of Accountants and the Federation is supporting the preparation of a 5 year strategic plan aimed at ensuring OCAM longer term sustainability\. However, to ensure the quality of the profession and compliance with current international standards, a number of key fundamental issues remain to be addressed: (i) a deep review of the stale legislation governing the accounting profession; (ii) a change of the curriculum offered by universities and institutes since these are not aligned with international best practices\. (vi) On the investment climate side, the Government is committed to continue improving the country’s regulatory framework as evidenced by the approval of a DB focused reform action by the Council of Ministers in February 2016\. The WBG is still engaged through technical assistance provided by the IFC and the WB IGPP Project ending in 2019\. Moreover, other donors50 are also active in this area while the Irish Aid is now providing funding resources directly to MIC\. As for the licensing reforms achieved, it is important that the Government: (i) ensures the good functioning of the automated system; (ii) ensures regulatory quality by avoiding the introduction of policies reversing or undermining the impact of established reforms\. (vii) The Government would like to continue delivering competitiveness enhancing programs directed at SMEs\. IPEME, the Institute for the Promotion of SMEs, was designated as the implementing agency of future similar programs\. During the matching grant implementation, IPEME role was mainly as a focal point at provincial level and was not fully engaged in the day-to-day management of the program\. IPEME is a relatively new institution and has limited capacity, 50 Other donors include the United States Agency for International Development (USAID), the German Development Agency (GIZ) and the Department for International Development of the United Kingdom (DFID)\. 23  implying that the management of a similar program would likely need to be outsourced\. MCPSD proceeded with the handover of the final implementation report to ensure that institutional memory is kept in the Ministry\. Table 5\. Summary of Key Risks to Development Outcome Risk Probability Impact Mitigation measures Overall risk assessment 1\. Technical/financial Conclusion of Significant Limited contribution of Funding from other WB Moderate infrastructure the Centers operations projects to conclude (e\.g\. training to generate income for works at Nampula and centers in financial sustainability\. ensure the operations in Nampula and Limited institutional Inhambane; Financial Inhambane) and capacity to deliver support from the UEM Establishment of quality training\. and IIAM budgets for the the Demo Farm Centers operations; in Nampula\. Future income deriving Financial from future training sustainability of programs, the rendering of local training tourism related services, institutions and the sales of products Financial Moderate Ability of OCAM to Continued support from Moderate sustainability of advocate and support the Irish Aid; the Pan OCAM regulatory and African Federation of curriculum changes to Accountants; registration improve quality of the of OCAM as an IFAC accounting profession\. member\. Sustainability Moderate Discontinuation of PPP for the management Negligible and replication private sector of the greenhouses of the involvement in the established; Government Greenhouses training of local funding to expand the Management producers and their model with the Model inclusion in greenhouse participation of local management scheme producers associations\. 2\. Legal/regulatory/infrastructure Continued Significant Poor functioning of e- Training of BAU staff, Moderate improvement of BAU; purchase of ICT the business Introduction of negative equipment, reforms environment reforms communication\. 3\. Political/Governance/Social Political tension, Significant Flight of foreign Significant security threat, investment; Increased and debt crisis violence; Reduced tourism; Reduced government capacity to maintain the Centers running costs; Negative impact on investment climate\. OVERALL Moderate 24 5\. Assessment of Bank and Borrower Performance 5\.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory 87\. The section (2\.1) on ‘Project Preparation, Design and Quality at Entry’ provides details demonstrating satisfactory quality at entry, but key aspects are summarized here from an assessment perspective\. The WB carried out significant preparatory work, and held extensive consultations with various stakeholders, which informed the architecture of the project and ensured buy in\. Technical design aspects were also grounded in sound background and economic analysis carried out during the appraisal period, and on lessons from past experiences\. The project objectives were aligned with high-priority issues in the CPS and the PARPA II and the preparation process leveraged the input and collaboration from the highest levels of government\. The selection of the regions and the sectors were also aligned with the government strategic development plans and supportive of its overarching agenda to promote broad-based growth\. (b) Quality of Supervision Rating: Satisfactory\. 88\. The Bank team was able to forge exemplary strategic partnerships with the IFC and other development partners; undertook regular implementation support missions with a broad range of expertise with clear action-plans in the aid-memoirs; and the TTL was based in the country for 2 years to offer day-to-day implementation support\. Additionally, the WB involved a wide-range of specialists supporting the project supervision as to ensure technical quality (see Annex 4 for list of specialists involved)\. 89\. Additionally, the supervision of fiduciary and safeguard aspects during implementation were strong\. Procurement and financial reviews were routinely carried out and their findings reflected in the overall supervision reporting\. Mission reports were thorough and pro-active in identifying weaknesses (e\.g\. internal control) and presenting recommendations to address them51\. The Bank team closely supervised environmental and social safeguards, provided detailed reports and recommendations in the Aide Memoirs and adjusted the ISR rating to reflect compliance\. 90\. The project MTR was deferred to mid-2012 (despite the credit agreement indicating that it should occur by June 2011), in light of the fact that the project was launched in December 2009, and that some key components such as matching grant and tourism were only then beginning their activities in earnest\. Subsequently, a level II 51In December 2014 the WB FM review recommended the PIU to closely monitor the SDR/USD fluctuations to avoid over-commitments given the risk of the project not being able to fulfil its obligations as the committed amounts then were just under the remaining balance\. 25  restructuring was approved to allow a 12 month extension of the closing date; a reallocation of financing proceeds; modify and update the results indicators; and to modify the eligibility criteria for business organizations applying for grants\. 91\. A weakness found relate to the lack of a dedicated M&E expert in the project team and some inconsistencies in the monitoring and reporting for some intermediate indicators - due to adequacy of methodology (i\.e\., trade) or quality of source data (i\.e\., IFRS)\. (c) Justification of Rating for Overall Bank Performance Rating: Satisfactory\. 92\. The ‘Satisfactory’ rating is justified on the basis of a technical well prepared project at entry, and a satisfactory rating for supervision taking into account the strong team of specialists involved and the partnerships forged with other donors\. 5\.2 Borrower Performance (a) Government Performance Rating: Moderately Satisfactory\. 93\. The Government was closely involved in project preparation and during implementation (as most beneficiary agencies were government institutions) and there was a good rapport and frequent communication with the WB supervision team during the project lifetime\. 94\. Through Government engagement and leadership, the project contributed to the approval of two simplified licensing regimes; the establishment of two vocational training institutes as ‘Centers of Excellency’ in key sectors – tourism and agribusiness; the establishment of a linkages program to which the government is now providing s monetary support to local producers associations to develop more greenhouses to promote horticultural production in Inhambane; and lastly the development of quality standards and norms in a demand-driven way\. 95\. On the other hand, weaknesses inherent in government performance include: - The advisory committee did not meet on a regular basis and was therefore not a useful mechanism to review progress and collectively agree on corrective measures\. - There was a great turnover of personnel at the Ministry in areas such as UGEA (Procurement) and DAF (Finance Department)\. This made it harder for the PIU to transfer skills to those critical areas and did not allow for the mainstreaming of the PIU in the Ministry\. - Delays in contract approvals by the TA and the CREE caused an overall implementation delay leading to the project restructuring\. (b) Implementing Agency or Agencies Performance Rating: Moderately Satisfactory\. 96\. The PIU succeeded in following through the achievement of the project PDOs despite the delays impacting on the time available for implementing activities in a logical sequence as well as the subsequent shortage of funding to conclude certain activities\. 26 97\. The project had limited presence outside Maputo, with only a regional PIU located in Inhambane, but worked efficiently with the local government and stakeholders in Nampula\. Despite limited capacity for national level outreach, the matching grant team was able to generate high visibility and interest from the private sector resulting in excess demand towards the end of the project\. 98\. In terms of hiring staff for the PIU, it took the Project longer than the 6-month prescribed in the legal covenants to fill all key PIU positions reflecting the low capacity available and constraints this type of project has to face\. 99\. In terms of fiduciary compliance, following from Section 2\.4: - The SDR/USD resulted in significant cost overruns and should have been monitored more properly by the project\. - On the E&S side, health and safety risks not addressed during the project closure relate to unfinished services and works due to shortage of funding (i\.e\., collection and safe disposal of the asbestos plates in Nampula, and the lack of an adequate ventilation system in the practical kitchen in the Inhambane Training Center)\. (c) Justification of Rating for Overall Borrower Performance Rating: Moderately Satisfactory 100\. This rating is justified on the basis of the ‘Moderately Satisfactory’ rating of government performance and on the ‘Moderately Satisfactory’ rating of the PIU\. 6\. Lessons Learned 101\. Fiduciary Aspects\. The differences in WB and Government (TA) requisites and procedures for approval of procurement processes and financial auditing hindered the project performance\. To avoid the need for dual reporting using two different sets of rules a greater harmonization of procedures is needed\. This would help ensure not only better compliance with pre-established requisites, but also help fast-tracking the implementation of projects\. 102\. M&E\. Good M&E is necessary for good project management\. The M&E weaknesses pointed out in section 5 above, make it difficult to attribute some of the reported intermediate outcomes to project activities (i\.e\., trade) or to measure results (i\.e\., IFRS)\. Amendments made during restructuring were not comprehensive to fully rectify identified shortcomings\. 103\. Development Partners\. There were important benefits and efficiencies derived from the established partnerships with other donors\. With all the available resources, the Project was able to provide support to the Government beyond its initial scope of work and contribute more efficiently to improving the business environment\. Moreover, partnership-driven implementation can enhance sustainability by promoting shared responsibility for project outcomes\. 104\. Sequencing of activities\. The project effectiveness can suffer if activities are not properly sequenced or if implementation timelines are curtailed by a delayed project start up\. In this project, mis-sequencing affected the project training components, 27  especially the Inhambane Training Center, which ran courses using adapted temporary facilities, and the project ability to transfer the knowledge required to strengthen the institutional capacity to manage these facilities in the longer run\. 105\. Matching Grant\. The successful implementation of the matching grant provides valuable lessons for future WBG programs\. (see Annex 5)\. A few key lessons include: - While the WB considers the ‘closed window’ approach to have been a determining factor contributing to the success of the program52, the PIU indicated that a ´first come first served´ approach would have worked better specially towards the end of the Program since this would allow more control over the number of applications versus the remaining available funds\. - Proactive measures - like close monitoring, establishing price ranges per service type, audits, and setting up a green line for complaints - helped mitigate identified risks related to financing activities that were found to be either: (i) overcharging for the type of services rendered; (ii) not fully completed; or (iii) not of full value for the beneficiary firms\. - Teams need to be sufficient in number and capacity to ensure the program has the capacity for handling demand properly and performing all its duties (such as coaching, mentoring and quality control) while still keeping in mind the cost- benefit of implementing a program like this\. - Outreach and working with firms at the provincial level would have been more efficient if the project had properly trained staff available on the ground, instead of focal points with little ownership and knowledge about the program\. - Future programs should create a database of service providers and black list the non performing ones to avoid poor quality of deliverables\. 106\. Key lessons that were emphasized by the PIU relate to the importance of: - Ensuring the fast tracking of contract approvals by the TA given the experienced delays impacting the project implementation; - Making provisions for contingencies to avoid exchange rate risk, such as the SDR/USD that the project experienced; - Making provisions to ensure key PIU positions remain active until the disbursement deadline (4-months after the project closure date)\. 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies See Annex 8 for full set of Borrower’s comments\. (b) Cofinanciers 107\. The Irish Aid provided parallel funding to the project since its early stages\. Comments shared include the fact that the project was a good opportunity to get 52These are the advantages of the ‘closed window’ approach from the perspective of the WBG team: (i) allowing for a better organization of the Unit’s time with a well-defined division between promotion, screening and intervention stages, and (ii) helping understanding the volume of demand early on during the process and adjust accordingly\. 28  involved in the private sector development space\. The project offered the platform for Irish Aid to link up with government in its efforts to improve the business environment\. Beyond the project end date the Irish Aid continues its direct support to MIC and to OCAM contributing to further institutional development\. On the downside, Irish Aid expressed concerns with the delayed start of some key project activities making it more difficult to measure impact by project end date\. (c) Other partners and stakeholders 108\. The implementation of the IFC Project benefited greatly from its close collaboration with the WB MCPSD project\. Under this symbiotic relationship: (i) both projects objectives and activities were aligned to achieve a common goal; (ii) the WB benefited from the IFC’s experience and technical expertise available locally and in the region; (iii) the IFC leveraged from access to a wider pool of funds and resources made available by the WB to the government in support of the IC reform agenda\. In parallel, both projects were able to benefit from the WB’s political leverage by having common reform targets set as prior actions for financial support to the State budget through the WB Poverty Reduction Support Credit Operations (PRSC) series\. 109\. In this context, the WB MCPSD and the IFC Moz IC Program pioneered the Trade & Competitiveness (T&C) Global Practice (GP) operational model before its implementation by the WBG\. At completion, the results achieved by both projects demonstrate the benefits of WBG teams moving from interaction to integration\. The materialization of the T&C GP came to allow for a better alignment of WBG resources and portfolio supporting private sector development and investment climate reforms\. Furthermore, it has served to facilitate and formalize the integration of WB and IFC teams working together in Mozambique towards common goals\. Benefits of working together under this operational model include: - A broader view of issues and challenges across different sectors and the development of a larger and more diversified stakeholders networks; - Increased effectiveness and sustainability of WBG operations through the availability and application of different tools\. 29 Annex 1\. Project Costs and Financing (a) Project Cost by Component (in USD Million equivalent) Appraisal Actual/Latest Estimate Estimate Percentage Components (USD (USD of Appraisal millions) millions) Component 1: Improving Enterprise Competitiveness 1\.1 Promoting Access to Business Development Services 6\.46 5\.5 85% 1\.2 Promoting Tourism Sector in Inhambane 5\.01 5\.2 104% 1\.3 Establishing a Tropical fruits training center in Nampula 2\.92 5\.24 179% Sub-total Component 1: 14\.39 15\.94 111% Component 2: Improving the Business Enabling Environment 2\.1 Support to Business Environment Strategy 4\.2 3\.3 79% - Trade Facilitation 3\.5 2\.2 63% - Licensing Reform 0\.5 0\.7 140% - Public-Private Dialogue 0\.2 0\.4 200% 2\.2 Support to Quality/Standards Infrastructure 0\.5 0\.55 110% 2\.3 Strengthening the Accounting Profession 0\.6 0\.65 108% Sub-total Component 2: 5\.30 4\.50 85% Component 3: Support to Project Implementation Total Component 3: 3\.66 4\.56 125% Total Baseline Cost: 23\.35 25\.00 107% Unallocated funding 1\.50 0\.00 0\.00 Front-end fee PPF 0\.60 0\.33 55% Total Project Costs 25\.00 25\.33 101% Note: The appraisal estimates are taken from Annex 5 of the PAD and the costs estimated by the Bank (since these were not made available by the Client)\. (b) Financing Appraisal Actual/Latest Type of Co- Percentage of Source of Funds Estimate Estimate financing Appraisal (USD millions) (USD millions) Borrower/Private Sector In-kind 4\.66 1\.80 39%53 IDA Credit 25\.00 25\.33 101% Irish Aid Parallel 0\.00 1\.3554 53 Latest estimate based on Government in-kind contribution to the Nampula Center (US$500,000) and to the Inhambane Center (US$200,000); and the Private Sector contribution to the matching grant (US$1\.1 million)\. 54 The Irish Aid annual contribution to the project amounted to € 1,065,000 for the implementation of the Licensing Reform Component\. The exact USD amount cannot be estimated due to exchange rate variation over the years\. The estimate is based on an average figure for the 2009-2015 period\. 30 Annex 2\. Outputs by Component 1\. Following from Section 3, this Annex presents the project outputs supporting the achievement of the key results, while also describing some factors contributing to or constraining the project implementation\. Component One: Improving Enterprise Competitiveness Figure 1\. Component 1 - Expected impact and related outcomes Sub-component 1\.1\. Promoting access to business development services 2\. The matching grant program catalyzed the delivery of business services to SMEs by promoting access to services providers for the delivery of technical assistance, training and advisory services\. All funds allocated to the component were implemented, initially with some delays, and later with excess demand\. The main activities supported by the project were design of promotion materials, website development, training of employees, and quality certification\. A total of 852 activities were supported, reaching 363 unique beneficiary firms/associations in the country\. Each grant was on average of US$4,100\. Each beneficiary completed on average 2\.34 activities\. The average accumulated grant for each beneficiary was of US$9\.600\. (see Table 1 below and Annex 5 for more details)\. 3\. While the matching grant program was designed as a demand driven activity, without any specific quota or allocation of resources based on regions or sectors, it endeavored to reach three priority groups: SMEs in the manufacturing sector, enterprises operating outside Maputo and women-owned businesses\. Despite this, the results show that: a) the program grabbed most interest among firms in services and commerce sectors and from microenterprises and only 13 percent of the supported firms were from industrial and agro-processing sectors; b) the majority of the companies supported were located in Maputo despite intensive promotion and outreach undertaken across all provinces; and c) only 27 percent of the businesses supported were owned by women (this low 31  percentage of women is likely to be due to the fact that women are more prevalent in the informal economy while the program targeted formal established firms)\. Table 1: Activities and Number of Firms By Size of Business55 Size of Number of % of Amount % of Number of % of business completed completed amount businesses businesses activities activities Associations 70 8% 293,368 8% 30 8% Micro 692 82% 2,788,997 81% 281 78% SME 85 10% 380,132 11% 47 13% Total 847* 3,462,497 358* Source: Impact Evaluation of the Matching Grant, February 2016 Sub-component 1\.2\. Promoting Tourism Sector in Inhambane 4\. This sub-component focused on the following areas of intervention: a) Rehabilitation of Tourism Training Facilities: The project supported the rehabilitation works for the creation of the new Tourism Training Center using an existing building made available by the Government\. The Center is still not operational due to some missing final works (i\.e\., gas and vent system), but all equipment, furniture and main works has been acquired by the project with some funding also provided by the MICULTUR\. Despite this, the Center will become operational during the course of 2016 with further support from the WB and the MICULTUR\. On the other hand, the ESHTI will ensure the conclusion of the remaining works mentioned\. b) Expanding the tourism-related private sector supply chain, through the establishment of a linkages program: The project contracted a private sector company, Mocambique Organicos, to construct 9 greenhouses in 2 districts (Inhacongo and Massinga), to provide training to local producers (21 in total), and to serve as an intermediary buying and distributing the local production to the market\. The project also financed a refrigerated delivery car for products delivery\. c) Improving public sector service provision in the tourism sector: Most activities related to public sector services provision in planning, statistics and institutional capacity building were successfully undertaken in the earlier part of the project between 2012 and 2014\. Training activities undertaken focused mainly in building capacity of the private sector, nevertheless selected transversal trainings were extended to the public sector stakeholders (a total of 566 people trained) such as solid waste management, tourism planning and management and marine biodiversity\. Key outputs include: - Development of a Provincial Tourism Strategy; 55The total of completed activities and number of businesses does not reach the total achieved in the program of 852 activities and 363 beneficiaries, due to some missing information on disaggregated data of 5 firms\. 32  - Creation of a land registration database for the Jangamo District; - Tourism signage in the main tourism routes in Inhambane Province; - Statistics and data collection capacitation\. Sub-component 1\.3\. Establishing a Tropical fruits training center in Nampula 5\. This sub-component focused on the following two areas of intervention: a) Setting up a national training center specialized in tropical fruits operations: The Project supported the rehabilitation of the facilities using existing facilities made available by the IIAM, mobilized project management experts (AIDSI) and staff for the development and implementation of training courses on fruits\. While some final rehabilitation works could not be completed by project end date56, the project was able to fully equip the Center with equipment, office and house/dormitory furniture allowing the Center to host part of the training activities in its premises\. The project also developed demo plots and a master plan for the site\. The newly established Center hosted the First National Fruit Forum conducted in November 2015\. The event was crucial to promote the Center services to both the private and public sectors involved in fruit production nationwide\. During this event, a working group was established as a forum to monitor and coordinate the Center activities\. In terms of the Center institutional set up, the PAD foresaw the establishment of the Center as a non-profit, public-private partnership based on the premises that a well-functioning training institute requires strong management, financial autonomy, and ongoing support and input from the private sector\. During the project implementation, the Government opted instead for implementing a “Center of Excellence”, a public institute aimed at offering experiential-based training and development services to the fruit industry (i\.e\., human resource and business development, and networking)\. It is important to note that, at project closure, the Center special by-laws was still not created due to the restructuring of the Ministry of Agriculture following the institution of the new Government in 2015\. Lastly, it is also important to note the following two industry-specific factors affecting the fruit industry in the region and the envisaged operational model for the Center: (i) the exit from the country of Chiquita, a major player in the Mozambican fruit industry, with whom the Project intended to work closely with in starting up the Center operations; and (ii) the emergence of the Panama disease in the region affecting Mozambique’s banana production and exports in this region\. b) Establishment of a Demonstration Farm as a venue for practical training and generation of income for the CFF: Notwithstanding the time delays and limited resources which have inhibited the full demo farm development, the project was able to start the early preparatory phase for the farm development in close partnership with the IIAM (i\.e\., dike repair, pump house and opening of roads along 56 The rehabilitation works will be concluded with support from the WB APPSA project\. 33  the periphery) and to develop a business plan both for the Center and the demo farm\. A challenge faced was the need to identify and prepare another location for the demo farm since the first area identified was deemed unsuitable given the lack of water for irrigation\. Alternatively, the IIAM was able to secure a larger area nearby\. c) Development of Training Modules: The CFF developed 31 training modules covering topics along the following main themes: A- General training on business management, quality, and logistics; B-Banana; C-Pineapple; D-Mango; and E- Papaya\. The material is available both in English and Portuguese\. Environmental and Social Safeguards Aspects: 6\. During project implementation certain activities (as civil reconstruction works), required compliance with good practices of environmental and social management\. Despite a few unconcluded E&S related activities (i\.e\., asbestos removal and ventilation system)57, the project had an acceptable record of compliance with both Mozambique’s environmental requirements as well as Bank’s safeguards policies\. 7\. Throughout the project implementation recommendations from supervision missions were followed upon consistently and satisfactorily, namely the management of solid waste in the Nampula Training Center (through placement of eco-points, removal of roofing materials from the old buildings, a sports areas, etc\.); preservation and building of a Mausoleum for the resting place of the Régulo, or community leader, of Namialo; pesticides management in the greenhouse seedling in Nhacongo\. Particular attention was also given to the need to incorporate issues such as gender and vulnerable groups’ empowerment in line with environmental and social management sustainability\. Component Two: Improving the Business Enabling Environment Sub-component 2\.1\. Support to Business Environment Strategy Figure 2: Component 2 - Expected impact and related outcomes 57 To be followed through with support from Government or other WB interventions upon project closure\. 34 Trade Facilitation – Customs: 8\. In order to achieve a reduction in import and export days by 50 percent, the PAD foresaw support for the implementation of the SEW between Government and a private operator\. However, soon after the project was effective in 2009, the Customs Agency informed that it no longer requires WB financing for the implementation of the SEW as this would be fully financed under the PPP arrangement\. 9\. Alternatively, Customs requested a number of technical assistance activities that would serve to build broader capacity at Customs and help oversee and implement this new automated system\. It was in this context that the project focus changed and funded instead a large technical assistance assignment that delivered a series of recommendations and training through 10 different activities (listed in the Table 2 below)\. 10\. Another important aspect to take into consideration is that the Time Release Study (listed above, submitted to Government in November 2014), actually informs that it takes more time to process clearances on the new internet based electronic customs management and single window system compared to the old system\. The study further recommends the implementation of a number of reforms considered vital for the achievement of the project trade facilitation objectives (i\.e\., risk based scanning, establishment of a dedicated cargo clearance terminal, a bypass road and the One-Stop Border Post)\. Table 2\. List of Activities Delivered to Customs Source: Project Aide Memoir Dated June 2015 35 Trade Facilitation – IPEX: 11\. One of the project goals was to build the capacity of agencies playing a catalytic role in exports services\. In this context, main outputs related to the technical assistance and capacity building provided to IPEX include: - Design and implementation of a management information system for exporting companies (this system generates updated statistics on the country exports); - Equipment supporting the implementation of the exports information system\. - Elaboration of foreign trade operators manual and exporters directory; - Studies on market research, and the pre-assessment of producers (mango, pineapple and bean) for certification; - A multitude of capacity building activities mostly aimed at improving the level of Government services to assist SMEs in the aspects related to exports, fair organization and business missions; - Production of promotion material for fair participation, IPEX promotion, etc\. 12\. Furthermore, following a Government request, the project supported the development of a study for the establishment of industrial parks\. Due to timing and funding constraints, only Phase I was carried out providing the recommendation for selection of one specific site in the Mocuba District\. Licensing Reform: 13\. Key activities and outputs related to the project contribution to the licensing streamlining and to the development and capacity building of the OSSs were provided to DASP from primarily through the Irish Aid parallel support\. These include: - Implementation of the new corporate design in BAUs in several provinces; - Equipping for the front office OSS in Maputo City, and in several provinces; - Training to OSSs staff in areas of attendance to improve services, reformed licensing procedures, the commercial law, and English language; - Training in Cape Verde in matters of infrastructure, installation, configuration and administration of computer networks, related to the instalaton of the e-BAU; - Deployment of the BAÚ Clinic with a corporate image that will, at the same time, accumulate functions of a Business Information Centre, to provide and disseminate reliable information of business interest; - Acquisition of promotional material for the OSSs and the BAU Clinic; - Acquisition of computer equipment and consumables for the DASP and OSSs; - Digitalization of licencing information in support of the e-BAU; - Establishment of a new model for public private dialogue at central and provincial level to identify important and priority reforms that contribute to promote the business environment in Mozambique; - Sponsorship for the Ease of Doing Business Initiative (EDBI) Regional Conference held in 2014 in Maputo gathering about 150 delegates from 17 African countries\. - Hiring of various consultants (economists, lawyers, executive secretary) to strengthen the capacity of DASP to manage the OSSs and develop business regulatory reforms including support for the completion of a licensing inventory covering 700 plus licenses; - Learning exchange visits to Rwanda and Mauritius on Doing Business Reforms\. - Surveys were to determine the level of satisfaction of OSSs users\. 36 Sub-component 2\.2\. Support to Quality/Standards Infrastructure 14\. Associated with the development of standards and norms, additional project inputs and outputs include the purchase of ITC equipment (i\.e\., professional printer); and a large number of training and certification sessions were provided to private sector businesses (see Table below)\. In terms of people trained, major outputs are: - 15 training courses – trained 227 people coming (62 private companies, 14 from public agencies and 150 INNOQ staff); - 6 seminars on certification and standardization - with the participation of 326 participants (125 private, 119 public and 82 INNOQ staff)\. 15\. Private sector reported satisfaction both with the quality of training, materials and affordability of training\. It also appreciated the fact that the training was carried out in Portuguese and that all the material were also in this language\. Furthermore, another advantage for the private sector is that having this type of certification available in Mozambique reduces costs\. Table 3\. List of Activities and Number of Trainees – INNOQ Source: INNOQ Third Periodical Report dated August 2012 Sub-component 2\.3\. Strengthening the Accounting Profession 16\. This sub-component was aimed at supporting the financial reporting infrastructure for the private sector and overcome the shortage of qualified accountants, as well as a deficiency of reliable financial statements\. In this regard, the OCAM was successfully 37  established in 2012 with the overall goal to help develop and serve professional and technician accountants working both in private and public sector institutions and influence Government in accountancy profession related matters\. At project closing date in November 2015, OCAM had already 3,006 members: 91 auditors and 2815 accountants\. 17\. The project provided technical support to OCAM by means of a twinning arrangement between OCAM and the ICPAI a strong member of the International Federation of Accountants (IFAC), to provide technical assistance, training, and goods\. The twinning organization used a wealth of experience and practices in their institute to develop a large amount of manuals and procedures related to the OCAM operations\. 18\. Despite this major institutional development achievement, the rate of success related to the quality of the financial statements being produced could not be established since a results measurement survey was not carried out by the project\. OCAM concurred that the only way to assess whether companies were making use of the training provided on updated IFRS would be through a sample survey\. As general information, OCAM shared statistics on the number of large and medium companies that have submitted financial statements in 2014 and 2015 (see Figure 3 below)\. Figure 3\. Number of financial statements submitted by companies58 Source: OCAM shared statistics, April 2016 19\. Factors affecting implementation include: - The twinning arrangement did not fully yield the intended benefits to OCAM as ICPAI used external consulting firm to deliver most of the project components; - Delays in the enactment of legislation related to the accountancy profession and the establishment of OCAM (2012) in relation to the contracting of the consultancy (2011) impacted on the start of some deliverables; - Institutional creation delays hindering the ability of ICPAI to transfer skills to the OCAM new Board and Secretariat; - Timely engagement with stakeholders and language barriers due to the fact that ICPAI was not based in the country, deliverables produced did not take into account Mozambique specifics, and most of the deliverables were written in English or poorly translated\. 58The 2105 number is drastically low compared to the previous year (599) due to the fact that the submission period only ends in June 2016\. 38 Annex 3\. Economic and Financial Analysis Introduction 1\. The MCPSD Project was designed to facilitate private sector growth and increased competitiveness and enhancing Mozambique’s business environment through a combination of financing instruments, capacity building initiatives and technical assistance to different government agencies and SMEs\. The overall objective of the project would be achieved by: (i) reducing the cost of doing business, through support to Government reforms and capacity building of key public sector agencies; (ii) developing and strengthening the capacity of local intermediaries to deliver business services to SMEs; and (iii) piloting region specific intervention in tourism and horticulture sectors\. The project addresses both supply and demand issues constraining the SME sector with an expected positive impact on the overall growth of the private sector, employment and broad based-growth\. 2\. The component aimed at improving enterprise competitiveness was designed in a manner that, on one hand, it would result in tangible economic benefits such as improved sales growth of SMEs, increased growth in tourism revenues and increased exports proceeds due to horticulture production training\. On the other hand, this component would yield intangible benefits such as enhancing the ability of SMEs to develop specialized and innovative skills in different segments of the production chain, creating a sustainable market for providers of business development services, expanding the tourism related private sector supply chain capacity, and developing human resources necessary to export tropical fruits\. Owing to these benefits, this component would also help in achieving the broader development objective of increased employment and income generation in the local economy\. Restatement of Economic Analysis Estimates at Project Appraisal 3\. In order to contextualize the team’s analysis, the PAD had noted that the economic analysis of this type of private sector development project faces some difficulties particularly where there is indirect relationship between the technical assistance provided under the project on its stream of benefits\. Therefore, in keeping with common practices in the appraisal of a project of this type, a mix of quantitative and qualitative techniques has been used to analyze the economic benefits and costs of the project, as follows: - A quantitative economic and financial analysis was undertaken for the activities under component one - improving enterprise competitiveness - which include rehabilitation activities and catalytic interventions in the private sector; - A qualitative analysis was conducted for the activities under component two which provide technical assistance and advice to improve the overall enabling environment\. 4\. With that caveat, the Component One activities, were expected during appraisal to result in a NPV of US$34\.60 million (for a 12 percent discount rate) and an ERR of 48 percent\. Component two activities were expected to result in a better business climate for business expansion and job creation\. 39  Table 1\. Economic Analysis per Sub-component at Appraisal 5\. In order to arrive at a quantitative assessment, following the PAD, a conventional methodology was used to carry out the economic analysis by estimating future stream of costs and benefits and deriving net benefits to calculate the NPV and ERR, in a “with” and “without” project framework, based on 10-year forecast time frame\. NPV is positive when ERR is greater than the assumed discount rate\. The NPV is the decision criteria\. ICR Update of the Project’s Economic Analysis 6\. Component 1 - Improving Enterprise Competitiveness: The same economic and financial analysis undertaken at the project conclusion yielded returns higher than the estimated in the design stage, with a NPV of US$80\.07 million and ERR of 93%\. This positive and significant higher results can be attributed to the project restructuring that contributed to higher revenues than initially targeted for under the matching grant program, the greater value of achieved by the Nampula horticultural production companies (especially a large banana producing company), and higher tourism receipts in Inhambane Province\. Table 2 below shows the aggregate estimates of economic cost- benefit analysis of component 1 calculated in the PAD and the actual figures\. Table 2\. Economic Analysis – Component 1 Present values of Flows Net economic –Financial PAD Actual Benefits ( US$ mn) 44\.9 92\.7 Costs ( US$ mn) 10\.3 12\.759 Net Benefits (US$ mn) 34\.6 80\.1 ERR (%) 48% 93% 7\. Similarly, the re-estimated ERR and NPV figures calculated per sub-component indicate the same positive collective estimation presented above\. These are estimated as follows: (i) Matching Grant sub-component: At project closure, the NPV is US$11\.09 million and the ERR of 20 percent against NPV and ERR figures calculated at the design stage of US$3\.66 million and 31 percent respectively\. This estimate was based on 59 The total cost of Component 1 is US$15\.94 million, and US$12\.67 million is the present value of the total Component 1 costs in a 10-year period with a 12% discount rate\. 40  the impact evaluation study information that annual sales growth per firm supported by the project are between 20-27 percent against the comparison group and which is higher than the growth of 10% estimated at the PAD\. (ii) Tourism Sector in Inhambane sub-component: The ERR and NPV figures calculated at the design stage were 36 percent and US$14\.24 million\. These estimated figures vary considerable from the actuals calculated, particularly for the ERR (over 36 percent estimated versus the actual of about 131 percent)\. For the NPV, the actual is almost the double of what was projected (US$28\.02 million versus US$14\.24 million)\. The actual higher returns can be attributed to the fact there were more tourism receipts in Inhambane than anticipated\. (iii) Fruits Training Center in Nampula sub-component: The actual ERR is 72 percent, or three percent higher than the value estimated at the design stage (69 percent) and the actual NPV is US$28\.019 million (higher than the initial amount estimated at US$16\.69 million)\. The actual higher returns and NPV can be attributed to the changes of the project results measurement methodology as the original analysis of the project was focused on banana exports, but the project was restructured to reflect not just exports but sales from a range of different supported fruits (such as pineapple, mango, litchi, and papaya) that had positive impact on increasing the results of this component\. Additionally, the estimated incremental sales achieved were greater than originally envisaged\. Table 3\. Economic Analysis per Sub-component at Conclusion Present Value of Cashflows Benefits Costs Net Benefits ERR (%) Component 1: Improving Enterprise 92\.743 12\.669 80\.07 93% Competitiveness (i) Matching Grant Sub-component 15\.46 4\.371 11\.09 20% (ii) Promoting Tourism sector in Inhambane 32\.15 3\.61 28\.019 131% (iii) Tropical fruits training Centre in Nampula 39\.74 3\.83 35\.904 72% 8\. Even including all project costs (i\.e\. Components 1, 2 and 3)60, and limiting benefits to just Component 1, the project still yields a positive NPV and an ERR of 49 percent just above the Appraisal estimate61\. 60 Remainder project costs were allocated to each sub-component of Component 1 weighted to their relative costs within the overall Component (ie Matching Grant costs were US$5\.5 million out of US$15\.94 million Component 1 costs were allocated 34\.5 percent of the remainder costs of US$9\.39 million; similar process for Inhambane which was allocated 32\.6 percent of remainder costs and Nampula which was allocated 32\.9 percent 41  Table 4: Economic Analysis Including All Project Costs Present values of Flows Net economic –Financial Actual Benefits ( US$ mn) 92\.7 Costs ( US$ mn) 20\.1 Net Benefits (US$ mn) 72\.6 ERR (%) 49% Project’s Sensitive Analysis 9\. The project sensitivity analysis consists of adopting a more aggressive discount factor (18 percent) in acknowledgement of the fact that in the event of interest rates rise combined with exchange rate depreciation, the discount rate of 12 percent is not sufficiently conservative\. 10\. The results of the sensitivity analysis indicates that under both scenarios (the component on aggregate basis and also the subcomponents), positive NPVs and ERR are greater than discount\. This implies that results will still be positive even with a higher discount factor\. Table 5\. Results by Sub- Component - Sensitivity Analysis (18% discount rate) Present Value of Cashflows Benefits Costs Net Benefits ERR (%) Component 1: Improving Enterprise Competitiveness 66\.64 11\.463 55\.18 83% (i) Matching Grant Sub-component 10\.07 3\.955 6\.12 14% (ii) Promoting Tourism sector in Inhambane 23\.35 3\.22 19\.61 120% (iii) Tropical fruits training Centre in Nampula 28\.09 3\.5 24\.593 64% Table 6\. Results by Sub-Component - Sensitivity Analysis (8 years forecast horizon) Presenter values of Flows Benefits Costs Net Benefits ERR (%) Component 1: Improving Enterprise Competitiveness 56\.68 12\.66 44\.01 90% (i) Matching Grant Sub-component 6\.937 4\.37 2\.257 9% (ii) Promoting Tourism sector in Inhambane 19\.92 3\.61 15\.77 130% (iii) Tropical fruits training Centre in Nampula 24\.43 3\.83 20\.59 69% 11\. Similar sensitivity analysis was conducted when including all Project Costs and only Component 1 benefits\. In the case of a higher discount rate of 18 percent, the resulting NPV is US$66\.6 million and ERR of 41 percent\. In the case of shorter time horizon of 8 years, the resulting NPV is US$52\.1 million and ERR 39 percent\. Assumptions: 12\. Based on the results from the monitoring and evaluation framework, information from field visits and experiences from similar projects in other African countries, the following assumptions were made: 42  i\. It is assumed that the financial costs and benefits can be equated with the economic costs and benefits of the project sub components\. ii\. The discount rate used is 12 percent based on the standard assumption that the opportunity cost of capital is 10 percent in most WB projects\.62 iii\. The project impact is expected to start materializing during project implementation, the maximum impact of the project will be reached once the relevant capacity, institutions and investment climate are strengthened\. Keeping this in view, a 10-year forecast time frame is used\. iv\. The additional output created by assisted firms is defined as the difference between the level of output achieved by firms assisted by the projects and the level of output these same firms would have achieved otherwise\. v\. For the sub component on support to tourism sector in Inhambane it is assumed that, owing to capacity building efforts and creation of linkage contracts with SMEs, the tourism receipts of the province would grow at an estimate of 0\.5 percent annually from year 2 onward\. The estimate is in line with the current long term average growth rate of tourism in Mozambique\.6364 vi\. A stable macroeconomic environment with price and exchange rate stability is also assumed\. 62Hand book on Economic Analysis of investment Operations , OPBR, May 2006 63Source UN WTO Tourism Highlights , 2014 Edition 64Second Strategic plan for the development of tourism in Mozambique, Volume 1 Core Report SNV, Baseline Study on tourism and socio-Economic Development in Inhambane , Maputo, December 2007 43 Annex 4\. Bank Lending and Implementation Support/Supervision Processes (a) Task Team Members Name Title Unit Responsibility/S pecialty Lending Mazen Bouri Senior Financial Sector Specialist GFM01 Eduardo Brito - Elias Evaristo Enoque - Edeltraut Gilgan-Hunt - Kabifya Edard Gondwe - Friis Michael Jensen Consultant GTC02 Munzele Samuel Maimbo Practice Manager GFM3A Shaun Mann Senior Investment Policy Officer GTCCS Herminia Martinez Consultant AFCF2 Rita Ramalho Manager DECDB Anna Spenceley - Dileep M\. Wagle Consultant GFM01 Lala Elias Aly Consultant GGODR Antonio L\. Chamuco Senior Procurement Specialist GGO07 Laura Herrera Cordero - Yeshareg Dagne - Laure Yvette Djachechi - Joseph Thomas Doyle - Kabifya Edward Gondwe - Zachary A\. Kaplan - Uzma Khalil Senior Financial Sector Specialist GFM01 Isabel Maria Nkassengo Massingue - Jonathan Nyamukapa - Rajagopalan Kuttalam Ramamoorthy - Guilherme Jose Reis Practice Manager GTCTC Devinder Sood - Ahmet I\. Soylemazoglu - Anna Spenceley - Niraj Verma Practice Manager GFM06 Faarbaek Karen De Andrade Lima - Numa F\. De Magalhaes Senior Private Sector Development GTCIC Specialist Delia Rodrigo Enriquez Consultant GTC03 Andres F\. Garcia Senior Economist GTC02 Leonardo Iacovone Senior Economist GTC04 Nasiru Musa Driver AFCW2 Beatriz Jacqueline Veloz Lockward Paralegal LEGLE Ke Yuan Consultant AFREC Mulungo Samate Victor - Celio Brasil - Leitao Maraes Francisco Campos Senior Economist GTC13 Olavi Michael Engman Senior Economist GTC06 Deborah Porte Consultant GTCDR Zubaidur Rahman Consultant GGODR Cheikh A\.T\. Sagna Sr\. Social Development Specialist GSU01 Ahmad Furqan Saleem Sr\. Financial Management Specialist GG013 44  Zhihua Zeng Senior Economist GTC01 Patrick Kabuya Sr Financial Management Specialist GG013 Manuel Rosario Marapusse - Maika Watanuki - Michael Corlett Senior Operations Officer GFM01 Ross Alan Hall Consultant GTCDR Vasco John Emerson Siquice Program Assistant GTCS2 Supervision/ICR Mazen Bouri Senior Financial Sector Specialist GFM01 Francisco Moraes Leitao Campos Senior Economist GTC13 Irene de Almeida Rego F\. Chagasteles Resource Management Analyst BPSGP Eden Gabriel Vieira Dava Consultant GSU01 Eneida Herrera Fernandes Senior Private Sector Development GTC13 Specialist Jorge Joao Faria E T Consultant GFM01 Paulo Jorge Temba Sithoe Environmental Specialist GEN01 Alan Ross Hall Consultant GTCDR Patrick Kabuya Sr Financial Management Specialist GG013 Cheikh A\.T\. Sagna Sr\. Social Development Specialist GSU01 Emerson John Vasco Siquice Program Assistant GTCS2 Paulo Jorge Temba Sithoe Environmental Specialist GEN01 Zhihua Zeng Senior Economist GTC01 Michelle Souto Gomes Operations Officer GTCA2 Tanangachi Ngwira Operations Analyst GTC07 Barbara Weber Sr\. Operations Officer GTC07 Alfredo Ricardo Zunguze Consultant GPSQP (-) Not listed in people page (b) Staff Time and costs Staff Time and Cost (Bank Budget only) Stage of project cycle No\. of staff weeks USD thousand (including travel and consultant costs) Lending FY2008 33\.23 166,671\.37 FY2009 57\.78 273,733\.02 Total Lending 91\.01 440,404\.39 Supervision/ICR FY2010 51\.43 111,946\.60 FY2011 61\.85 99,214\.71 FY2012 19\.10 78,466\.55 FY2013 16\.92 112,040\.02 FY2014 32\.99 182,909\.93 FY2015 27\.91 186,650\.26 Total Supervision 210\.2 771,228\.07 45 Annex 5\. Beneficiary Survey Results (Matching Grant Component) Impact Evaluation of the Matching Grant (Summary)65 Introduction 1\. PACDE’s Component 1\.1 managed and financed a matching grant program for MSMEs in Mozambique named Mecanismos de Subsídios Empresariais (MESE)\. The Component amounted to US$3\.5 million post mid-term review\. MESE financed 70 percent of business development services for micro-enterprises and 50 percent for SMEs\. In addition, the program supported business associations with 75 percent of the costs of investments in capacity building, new services, and commissioned studies\. 2\. All funds allocated to the component were implemented, initially with some delays, and later with excess demand\. The main activities supported by the project were design of promotion materials, website development, training of employees, and quality certification\. The majority of the funds were allocated to microenterprises\. Given at design it was expected a higher demand from SMEs, this required adjusting twice the categories of the lending agreement towards these microenterprises\. The majority of the companies supported with the matching grant were located in Maputo, reflecting the relatively importance and sophistication of the enterprises in the capital\. The program grabbed interest among firms in services sectors – a relatively low proportion were in retail/commerce, suggesting that a matching grant program is mostly oriented towards more innovative sectors such as those in services and manufacturing\. 3\. The component incorporated an impact evaluation from the outset\. This impact evaluation is important for both understanding the effects of the program, as well as provide lessons for other similar programs\. Given it was not possible to complete a randomized controlled trial due to ethical concerns of randomizing out eligible applicants, the impact evaluation design incorporated a comparison between participants and control groups of similar firms\. Beneficiary Survey Findings and Results 4\. When controlling for initial differences between enterprises and general economic development over time, the impact evaluation identifies that MESE had positive effects on sales of enterprises\. Our preferred estimation suggests impacts between 20-27 percent against a comparison group, although these effects are not statistically significant due to limited statistical power\. These impacts are above the target set by PACDE of 10 percent\. The changes in sales are associated with better business practices, mainly marketing, which is one area where MESE supported a large number of firms as well as increased market access, better usage of technology, and business investment and likely access to finance\. However, the impacts on profits are not clear, and in most variables they are not always statistically significant, which in part is related to the small sample size of beneficiaries in the impact evaluation\. 65 Note that the complete report provides extensive information on the methodology followed\. 46 5\. A total of 852 activities were supported by MESE through matching grants, reaching 363 unique beneficiary firms/associations in the country\. Each grant was on average of US$4,100\. Each beneficiary completed on average 2\.34 activities\. The average accumulated grant for each beneficiary was of US$9,600\. 6\. While at project design, two thirds of the grants were expected to be directed to SMEs and just 22 percent were expected to be used for micro firms, the reality showed that the majority of the firms in the country were micro (as defined by the decree No\. 39/2003), and the proportion of funds had to be reallocated inversely\. In the end, US$2\.8 million were spent in grants with micro firms and US$400,000 were spent with SMEs\. This is presented in detail in Table 3\. 7\. In terms of activities supported by the project, Table 1 ranks them according to the number of approved individual grants\. These can be interpreted as a response to the needs raised by firms – at the baseline of the survey used for this report, firms in Mozambique raised issues of limited sales, excess competition, and workers productivity as the main constraints for business development\. 8\. Approximately 40 percent of the activities completed under MESE were linked directly with access to markets, namely through the design of promotion materials, websites, market research, and trade fair participation\. Other activities completed have a less linear relation with sales, and can perhaps have effects on the beneficiary firm through other mechanisms, including productivity (eg: workers training, production efficiency), innovation (eg: product development), and business practices (eg: new IT, accounting systems)\. About 10 percent of the activities – notably business plans, short-term management, M&A - may have impacts through multiple mechanisms of firm development\. Table 1: Number and amount of grants by type of activities supported Type of activities Number % of activities Amount (US$) % of amount Design of promotional materials 186 22% 546,893 16% Websites and e-commerce 156 18% 424,868 12% Employee training 153 18% 653,807 19% Quality certification 97 11% 541,691 16% Business plan 87 10% 548,759 16% Trade fair participation 64 8% 248,303 7% IT systems 26 3% 118,829 3% Accounting, internal auditing 20 2% 60,429 2% Short term management contracts 18 2% 79,366 2% Market research 10 1% 68,873 2% M&A, partnerships, investors' search 9 1% 19,327 1% Product development research 8 1% 65,014 2% Improvement of production efficiency 7 1% 51,511 1% Packaging design 6 1% 23,737 1% Total* 847 3,451,409 9\. The Government of Mozambique had identified three priority groups for targeting: manufacturing, women-owned businesses, and enterprises operating outside of the Province of Maputo particularly in the Northern and Central Regions\. In that vein, special effort were made to promote within these groups through workshops with sector 47  associations and enterprises of these sectors/locations\. The other groups were not excluded from promotion but increased effort was provided with those groups\. 10\. Table 2 shows the distribution by sector of operations of the firm of number of activities and firms receiving grant\. It shows that commerce and services represent the large majority of the sectors that received support\. In terms of manufacturing, a total of 13 percent of the firms are from industrial and agro-processing sectors\. This is a higher proportion than the 10 percent of firms that are in manufacturing in Mozambique, according to the Statistical Office Census of Enterprises\. Table 2: Number and amount of grants by type of activities supported Sectors of operation Number of firms % of firms Amount (US$) % of amount Services 136 45% 1,251,157 43% Commerce 42 14% 458,853 16% Hotels and Tourism 21 7% 147,678 5% Industrial 20 7% 176,334 6% ICT 19 6% 210,711 7% Agriculture 17 6% 196,836 7% Construction 14 5% 134,987 5% Agro-Processing 11 4% 95,049 3% Finance 10 3% 168,368 6% Transportation 10 3% 102,120 3% 11\. In terms of gender, given the program targets especially formal established firms, while women are more prevalent in the informal economy, the results reflect to some extent the composition in the country\. 12\. In terms of location of the business, the program was able to attract half of the applications to come from outside of Maputo but it was also in these other Provinces that the program faced higher proportion of applicants not completing the activity\. This can partly be explained by the characteristics of the firms outside of Maputo: firms outside of Maputo are smaller than those in Maputo, and hence expected to be more constrained in completing applicable activities\. The lower uptake may perhaps also be due to the easier access of the project team based in Maputo to the firms located in the region\. Although the project had identified focal points in all Provinces (typically IPEME or district level officials), these were not part of the core project team and were often not performant in following up on applications\. 13\. Overall, this study seems to suggest that a matching grant program may be an important mechanism of driving private sector development in a country such as Mozambique with a relatively dense formal MSME sector\. The lessons from the implementation of the matching grant in conjunction with the findings from this impact evaluation provide an opportunity for designing future programs in Mozambique and in other countries in the region – there are important lessons on organization of teams, targeting, awareness campaigns, selection processes, follow-up in implementation, and mechanisms of changing impacts, that can be very relevant for future projects\. While MESE had its strengths, it had its weaknesses, and future programs should learn from both\. 48  Figure 1: Number of firms that received grant by gender and location 67% 73% 27% 8% 8% 7% 10% Male Female Matching Grant Program – Approach and Lessons 14\. In order to structure the process of awareness campaigns, selection of approvals, and follow-ups on implementation, the matching grant was structured around closed window periods of applications\. These application window periods were a novelty introduced in this program – not common in previous World Bank matching grant programs in Africa, which were typically run on a first come first serve basis – and had the advantage of allowing for a better organization of the Unit’s time with a well- defined division between promotion, screening and intervention stages\. They were also helpful for understanding the demand for MESE early on\. 15\. The implementation of approved activities included 4 windows of applications with follow-up over a period up to 6 to 12 months for implementation of approved activities\. The first window period of applications was from March to June 2011\. This was followed by window periods in 2012, 2013, and 2014\. The process of attributing grants to associations did not follow the window period selection as the number of applicants is relatively small by the nature of the applicants\. 16\. The Unit prepared individual Logistical Plans per Province around the launch of the Window Periods\. The Logistical Plans aimed to outline for each Province the target number of applications for the Window Period and explain how MESE envisages reaching that target both in terms of promotion and logistics\. The main focus of the logistical plans were to prepare carefully the collection of applications particularly in remote districts\. 17\. During the window periods, MESE was pro-actively promoted\. The primary instrument for this promotion were presentations in workshops or seminars with the business communities of the country\. In addition, other outreach instruments included advertisements on various media (newspapers, radio, etc), and leaflets to be distributed widely through associations, financial institutions, among others\. The Unit also worked in the promotion with different organizations including Provincial Divisions of the Ministry of Industry and Trade, IPEME, Provincial Departments of Rural Development, Local Districts, Agencies of Local Economic Development, Business and Sector Specific Associations, Women’s Entrepreneurs Associations, Microfinance and other Financial Institutions, etc\. 49 18\. Purchases of hardware, even if exclusively required for the activity being assisted, would not be eligible for grant support\. Similarly, expenditures on internal costs, such as on the employment of staff, would not be eligible\. Firms were allowed to receive multiple grants\. No firm or group of firms under common control were allowed to receive more than $70,000 in grants in total\. All grants were approved by the internal committee of advisors chaired by the Matching Grant Manager\. Any grant approved by the committee that would take the cumulative total of grants received by that beneficiary firm over $35,000 would require a “No Objection” by the World Bank\. 19\. Although the beneficiary firm was responsible for selecting the service provider (or provide three quotes), the Unit prepared lists of service providers specialized in typical activities supported by the program including those developing websites, preparing quality standards assessments, performing training programs, preparing business plans, etc\. This would be provided to firms when needed\. After gathering some experience, the Unit also prepared a reference price for activities requested seldom by clients\. 20\. The approval of grants had to consider the following aspects: - That the beneficiary firm is legally entitled to operate its business in Mozambique; - That the special conditions applying to start-up’s are met; - That a Plan for Business Growth developed by the firm is realistic, and appropriate to the firm’s current realities; - That each service supplier specified in the application is technically qualified to carry out the grant-assisted activity specified; and - That the fees, expense budgets, days of work, etc\., are in line with market realities\. 21\. The initial idea was for payment of grants to be on a re-imbursement basis\. But as this raised issues in terms of liquidity of the beneficiary firms and in doing payments to firms directly instead of services providers, it was decided to accept direct payment to service providers after a confirmation by the beneficiary firms and evidence of a successful completion\. 22\. To achieve the figure of 363 beneficiaries supported, the program received applications from 819 individual enterprises/associations\. A significant share of them did not reach the stage of completing activities with the support of the matching grant\. Less than 50 percent of the firms that have applied initially ended up receiving the matching grant\. This happened for different reasons: (1) in window 1 and 2, the Unit had limited capacity to conduct due diligence visits in all firms that had applied; (2) some firms did not submit an eligible request for support, leading to not agreeing activities with advisors; and (3) enterprises were dropped during the process of approval or implementation due to lack of responsiveness to requests for documentation or due to internal challenges66\. Very few firms had processes taken to the committee’s approval and were fully rejected – typically the processes with problems were sent back for further improvement\. 66Some firms alleged lack of funding for their share of the activity to explain not being able to complete an activity\. This lack of funding sometimes was associated with other aspects becoming a priority for the firm like dealing with a fire in their premises, dealing with more difficult economic environment, etc\. 50  Figure 2\. From applications to completed activities (as a % of firms that have applied – data of program implementation up to mid-2014) 100% 80% 60% 40% 20% 0% Applicants Applicants visited Applicants with Applicants with approvals activities completed Maputo Outside Maputo Table 3: Statistics on MESE beneficiaries (using program administrative data) Summary Grant Disbursement Female Male Owned ACTIVITIES COMPLETED Statistics (USD) Owned Obs % US$ % Obs % Obs & ACTIVITIES Accounting, internal auditing 20 2% 60,429 2% 12 2% 8 4% Business plan 87 10% 548,759 16% 53 10% 16 8% Design of promotional materials 186 22% 546,893 16% 115 21% 46 22% Employee training 153 18% 653,807 19% 91 17% 42 20% IT systems 26 3% 118,829 3% 17 3% 9 4% Improvement of production efficiency 7 1% 51,511 1% 6 1% 1 0% M&A, partnerships, investors' search 9 1% 19,327 1% 7 1% 2 1% Market research 10 1% 68,873 2% 8 1% 2 1% Packaging design 6 1% 23,737 1% 2 0% 0 0% Product development research 8 1% 65,014 2% 6 1% 1 0% Quality certification 97 11% 541,691 16% 70 13% 13 6% Short term management contracts 18 2% 79,366 2% 14 3% 1 0% Trade fair participation 64 8% 248,303 7% 27 5% 34 17% Websites and e-commerce 156 18% 424,868 12% 114 21% 31 15% Total 847 3,451,409 542 206 PROVINCE Cabo Delgado 11 1% 53,142 2% 11 2% 0 0% Gaza 10 1% 30,600 1% 8 1% 1 0% Inhambane 36 4% 112,588 3% 26 5% 9 4% Manica 22 3% 108,804 3% 15 3% 1 0% Maputo 583 69% 2,478,099 73% 373 69% 163 79% Nampula 40 5% 115,125 3% 18 3% 10 5% Niassa 5 1% 30,562 1% 5 1% 0 0% Sofala 56 7% 185,554 5% 41 8% 7 3% Tete 10 1% 25,840 1% 5 1% 5 2% Zambezia 68 8% 258,573 8% 42 8% 11 5% Total 841 3,398,887 544 207 51  BUSINESS SIZE Associations 70 8% 293,368 8% 55 10% 6 3% Micro 692 82% 2,788,997 81% 430 79% 182 88% Small/Medium 85 10% 380,132 11% 58 11% 19 9% Total 847 3,462,497 543 207 SECTOR Agriculture 50 7% 196,836 7% 45 9% 5 2% Agro-Processing 26 4% 95,049 3% 16 3% 10 5% Commerce 106 15% 458,853 16% 62 12% 44 21% Construction 33 5% 134,987 5% 28 5% 5 2% Finance 33 5% 168,368 6% 26 5% 7 3% Hotels and Tourism 46 6% 147,678 5% 15 3% 31 15% Manufacturing 35 5% 176,334 6% 27 5% 8 4% Services 330 45% 1,251,157 43% 238 46% 92 45% ICT 48 7% 210,711 7% 45 9% 3 1% Transportation 21 3% 102,120 3% 21 4% 0 0% Total 728 2,942,092 523 205 YEAR 2011 25 3% 138,065 4% 18 3% 5 2% 2012 168 20% 621,133 18% 115 21% 47 23% 2013 298 35% 1,158,814 33% 193 36% 85 41% 2014 316 37% 1,333,113 38% 194 36% 65 32% 2015 38 4% 228,726 7% 21 4% 3 1% Total 845 3,479,851 541 205 Total 852 3,479,851 52 Annex 6\. Beneficiary Survey Results (Nampula Component) Project Note on Impact of Training Program on Fruits As of 30 September 2015, the Center had conducted 22 seminars and 13 training events attended by 695 participants\. Among the total participants, 205 were female and 490 were male while 246 participants are from the public sector and 449 participants are from the private sector\. The target number of participants had been attained but the increment in sales as a result of the training cannot be attained due to reasons beyond the control of the project\. Given the longer gestation period in fruit business and establishing fruit plantation, the sales indicators expected for the project will be difficult to attain if not unrealistic in a short period of time (two years) but can be realized given longer time horizon and favorable investment condition\. Monitoring tools for the training participants was formulated and was pre-tested to the training participants on pineapple production (training 26-28 March 2014)\. Out of the 23 participants, there were six (6) who attempted to make a proposal to establish a three (3) hectare plantation but did not push through due to lack of capital\. One participant had established about 3,000 pineapple plants in August 2015\. It is expected that after 18 months (February 2017), these plants will produce at least 2,700 fruits valued at MZN54,000 (at MZN20/fruit) and 16,200 suckers valued at MZN81,000 (MZN6/sucker)\. There were 18 participants of the series of seminars conducted in 2013-2014 that responded to the monitoring interview and indicated that after the seminar they have tried planted few trees of mango, papaya, avocado, and citrus in their farm but not yet for commercial purposes but for family consumption\. They also indicated that beside CFF, they get information about fruit production from other sources such as television, technicians and friends\. Jacaranda requested CFF to conduct a seminar on Global Warming and Fruit Production on 26 October 2013 as a part of the company efforts to orient the plantation staff and workers on global warming and what fruit production can help to mitigate it\. The seminar was attended by 26 workers and supervisors including the Farm Manager\. After the seminar, tree planting was done\. As a part of the company's community relation program, the seminar was re-echoed to the community within the periphery of the banana plantation\. As per feedback from the Farm Manager, about 300,000 seedlings of assorted trees including fruit trees (eg mango, sugar apple, and citrus) were distributed to the community in 2014 and planted within the periphery of the plantation\. Although these fruit trees are not intended for commercial purposes, this will have an impact on the nutrition of the population\. With at least 5,000 fruit trees surviving and will bear fruit after three (3) years of at least 10 kilos and increasing to 30 kg per tree in five years, fruit available for family consumption will be increasing from 50 to150 tons per year which can be valued at one million to six million meticais\. There were 39 extensionist from Zambezia and Cabo Delgado that had been trained on mango and lichi production last 18-29 August 2014 as sponsored by the Fundo Desenvolvimento Agraria (FDA)\. FDA started the distribution of seedlings of lychee and mango in September 2015\. With 10,000 seedlings of mango due for distribution in the two 53 provinces, these can be translated to about 300 tons of fruits after five (5) years which can be conservatively valued at MZN60 million\. The FDA is expanding its program on fruit production and the CFF implements its training component\. Two batches of training on mango and pineapple production had been conducted for the 44 extensionists from the Provinces of Nampula, Niassa and Cabo Delgado on 3-7 and 10-14 August 2014\. There were 24 smallholder producers and 4 students that had been trained on papaya and pineapple production on 23-28 February 2015 as a part of the project of World Vision- Nampula\. However, the establishment of papaya and pineapple is still yet to be implemented as well\. As planned, each of the small producers will plant 50 seedlings of papaya and intercropped with 3,000 suckers of pineapple\. The 50 papaya trees are expected to produce 1,500 marketable fruits with an average weight of 1\.2 kg per fruit or about 1,800 kg valued at about MZN36,000 during the first fruiting season (12 months after planting) and another 1,200 kg of fruits during the second fruiting season (18 months after planting) valued at MZN24,000\. The 3,000 pineapple is expected to produce MZN54,000 worth of marketable fruits after 18 months and marketable suckers valued at MZN81,000\. In 18 months a small producer with Papaya intercropped with pineapple can produce MZN195,000 worth of fruits and planting materials\. Thus with at least 15 producers involved in the project, will produce at total value of sales MZN2,025 million\. There were 100 workers and supervisors of Matanuska that had been trained on the basic of GlobalGAP on 25-26Nov and 2-3 Dec 2014 as part of the requirements for the banana plantation to be accredited for GlobalGAP\. The training also provided protocol to the workers and the supervisors to prevent the spread of Panama disease from Farm 2 to Farm 4\. The GlobalGap accreditation had been granted to Farm 4 (300 hectares) of Matanuska in February 2015\. With the Global GAP certification, Matanuska had the opportunity to sell the produce from the Farm 4\. It was estimated that about 45,000 kg of banana per hectare or about 4,100 boxes (11 kg/box) can be produced at Farm 4\. At a conservative price of US$9 per box, this would translate to about US$11 million value of fruits produced in the 300 hectares of banana in Farm 4\. The CFF established a one- hectare MD2 pineapple nursery in October 2015\. About 40 workers were trained to do the selection, treatment and planting of MD2 pineapple suckers\. One-half hectare was established as a joint venture with Amarula Farms\. The CFF provided about 30,000 suckers and will pay for the cost of production while Amarula Farms provided the land and irrigation water\. Amarula farms will be given a share of 10 percent of the suckers that will be produced wherein the CFF will have the first option to buy if Amarula Farms will sell instead of planting them\. About 180,000 suckers are expected to be produced after 12 months valued at MZN1\.8 million\. Another 30,000 suckers of MD2 pineapple were planted at one-half hectare area at CFF Campus, which are also expected to produce MZN1\.8 million worth of suckers\. However, CFF is not planning to sell those suckers of MD2 pineapple but rather expand its MD2 pineapple nursery to about 6 hectares in 2017 to realize a potential revenue of MZN21\.6 million in 2018\. With increasing interest from the public and private sector to invest in fruits, it is expected that there will be more efforts to promote the expansion of fruit production in the country\. Capacity building is a critical component but has to be done in conjunction with the effort to ensure the availability of quality planting materials, capital, logistics, and other 54  requirements to develop the fruit industry\. With this, CFF will strive to continue its effort to develop the training, research and development services capability to support the fruit industry in Mozambique\. Table\. Projected value of sales indicators resulting from training activities of CFF TRAINING PARTICIPANT BASIS OF ESTIMATE PROJECTED VALUE OF SALES Seminar on Global 26 Farm workers At least 5,000 fruit trees Fruit production Warming and Fruit and supervisors surviving and will bear fruit after valued at one million Production , 26 three (3) years of at least 10 kilos to six million meticais October 2013 and increasing to 30 kg per tree after five (5) years in five years\. Fruit available for family consumption will be increasing from 50 to150 tons per year\. Pineapple 23 Farm workers one participant planted 3,000 MZN135,000 in 18 Production suckers that can produce 2,700 months Training , 26-28 fruits and 16,200 suckers after 18 March 2014 months Mango Production 20 Extension 5,000 mango seedlings MZN30 million in 5 Training – Cabo workers distributed producing 150 tons of years Delgado, 18-22 Aug fruits after 5 years 2014 Mango and Lichi 19 Extension 5,000 mango seedlings MZN30 million in 5 Production Training- workers distributed producing 150 tons years Zambézia, 25-29 after 5 years Aug 2014 Introduction to 100 Farm Farm 4 with 300 hectares banana US$11 million per Global GAP workers and plantation producing 45 tons of year Training- supervisors banana per hectare per year Matanuska, 25- 26Nov and 2-3 Dec 2014 Pineapple and 24 Producers and 15 producers producing 2,700 kg MZN2 million in 18 Papaya Training- 4 Students of papaya fruits, 2,700 pineapple months World Vision, 23- fruits and 16,200 suckers after 18 28Feb 2015 months MD2 Pineapple 40 workers 60,000 plants producing 360,000 MZN3\.6 million in 18 Nursery Production, suckers for one hectare nursery months 22 October 2015 in 18 months to be expanded to 6 MZN21\.6 million after hectares after 3 years\. 3 years 55  Annex 7\. Results Evidence for Primary and Secondary Outcomes This annex complements Section F – Results Framework Analysis and Section 3\.2 – Achievement of PDO, by presenting evidence for reported results\. PDO Outcome: Enhanced enterprise competitiveness Intermediate Indicator #2: Number of trainees using the acquired techniques and quality standards of improve horticultural production (target: 800)\. Main beneficiaries of the training included managers and workers from private sector companies, Government officials working in extension services, local producers funded by NGOs active in the agriculture sector, students and teachers from universities and other higher training institutes as well as from primary schools (Table 1)\. Table 1\. List of Activities and Number of Trainees - Nampula CFF Sex Sector Institution/Training Date Group F M Total Public Private 14 Aug 2013 Students 18 32 50 0 50 Namialo Primary School 21 Sept 2013 Teachers 20 25 45 45 0 Nacala Secondary School 23 Aug 2013 Teachers 7 30 37 37 0 Students 21 26 47 0 47 Agriculture Institute of 05 Oct 2013 Teachers 0 7 7 7 0 Ribaue Students 12 32 44 0 44 Agriculture Institute of 06 Oct 2013 Director 1 1 2 2 0 Nacucha Provincial Directorate of 23 Sept 2013 Officials 6 9 15 15 0 Agriculture (DPA) – Cabo Delgado Meconta District 18 Oct 2013 Officials 1 1 2 2 0 Government Farm Producers of Namialo 05 Aug 2013 Producers 17 53 70 0 70 Training on Global warming 26 Oct 2013 Farm 6 20 26 0 26 and the Role of Fruits- workers, Jacaranda supervisors Seminar on Banana Disease 23 Mar 2014 Farm 6 28 34 15 19 Management workers, supervisors Pineapple Production 26-28 Mar 2014 Farm 9 14 23 0 23 Training workers Mango Production Training 18-22 Aug 2014 Extension 1 19 20 20 0 – Cabo Delgado workers Mango and Lichi 25-29 Aug 2014 Extension 1 18 19 19 0 Production Training- workers Zambézia Namialo Primary School 11 Nov 2014 Students 19 21 40 40 0 Introduction to Global GAP 25-26 Nov and Farm 18 82 100 0 100 Training- Matanuska 2-3 Dec 2014 workers and supervisors Pineapple and Papaya 23-28 Feb 2015 Producers 4 24 28 0 28 Training- World Vision Students 56 The Role of Women in 07 Apr 2015 Students 30 30 30 Agriculture and the importance of fruits Internship program on fruits April-June 2015 Students 2 8 10 0 10 Internship program on fruits July-Sept 2015 Students 1 1 2 0 2 Training on Mango and 03-07 Aug 2015 Extension 3 22 25 25 Pineapple Production technician Training on Mango and 10-14 Aug 2015 Extension 2 17 19 19 Pineapple Production technician TOTAL 205 490 695 246 449 Source: 3rd Quarterly Report, July-September 2015, Management and Operation of Nampula Training Center and Demonstration Farm, Asian Institute of Developmental Studies, Inc\. (AIDSI) Intermediate Indicator #1: Number of project supported trainees using acquired skills in tourism-related businesses (target: 800) Following up from Section 3\.2, Tables 2 and 3 below shows the breakdown related to tourism vocational training provided to the private sector (899) and the public sector (566)\. Table 2\. List of Activities and Number of Trainees from the Private Sector - Tourism Training in Inhambane Training 2011/12 2013 2014 2015 Final Train the Trainer 21 20 41 Kitchen and Pastry 14 14 Restaurant and Bar 16 16 Front Desk 14 14 Housekeeping 9 9 Stocks and Cost Control 12 12 Dive Masters 4 4 long duration vocational training 110 Tourism/Hospitality technical 153 0 242 Refresher courses 242 Tourism/Biodiversity workshops 319 71 476 547 Total Training Courses 472 92 807 899 Source: ESHTI and Consultant Statistics shared with the team in September 2015 Table 3\. Inhambane Component – Training provided to the public sector ANO CURSO TOTAL 2011/2 2013 2014 2015 1\. Formação Formadores 0 0 42 0 42 1\.1\. Componente Pedagogia 0 0 24 0 24 1\.2\. Componente prática 0 0 18 0 18 Cozinha e Pastelaria 0 0 4 0 4 Restaurante e Bar; Economato e Controlo de Custos 0 0 6 0 6 Serviços de Andares 0 0 3 0 3 Recepção 0 0 5 0 5 1\.4\. Cursos de curta duração 0 54 0 91 145 Restaurante e Bar 0 0 0 6 6 57  Serviço de Andares e Lavandaria 1ª Edição 0 0 0 1 1 Serviço de Andares e Lavandaria 2ª Edição 0 0 0 0 0 Gestão de Alojamentos 0 0 0 10 10 Gestão de Restaurantes 0 0 0 5 5 Serviços de Recepção 0 0 0 10 10 Agências de Viagens 0 0 0 7 7 A arte de Pastelaria 0 0 0 0 0 Enologia 0 0 0 12 12 Guias de turismo 0 0 0 7 7 Marketing 0 0 0 5 5 Informática I 0 0 0 2 2 Informática II 0 0 0 7 7 Inglês níveis I e II 0 12 0 15 25 Inglês níveis III 0 0 0 4 4 GIS 0 42 0 0 42 2011/12 2013 2014 2015 Total 1\.5\. Seminários de Capacitação 323 0 20 36 379 Biodiversidade Marinha I 0 0 13 0 13 Biodiversidade Marinha II 0 0 0 3 3 Gestao de Residuos Sólidos 0 0 0 19 19 Gestão e Planeamento do Turismo 0 0 0 2 2 Noções básicas de gestão de negócios 1 0 0 0 1 Obrigações Fiscais no Sector de Hotelaria 7 0 0 0 7 Estatísticas do Turismo 67 0 0 0 67 Enologia 0 0 0 12 12 Marketing Turístico com recurso a TICs 0 0 7 0 7 Licenciamento 112 0 0 0 112 Gestao de Recursos Naturais e Ambiente 132 0 0 0 132 Concessoes Turisticas 4 0 0 0 4 Grande Total Sector Público 323 54 62 127 566 Source: Project Aide Memoir dated June 2015 Intermediate Indicator #7: Number of linkages contracts between SMEs and tourism establishments (target: 50) Table 4\. Number of Linkages established in Inhambane Linkages Nº of Type of Type of contract Proof Linkages Services A\. Seedlings 12 Goods and Payment, contract and Receipts and cash sales Services informal agreement B\. Supermarkets 9 Buy and Weekly / monthly Receipts; Registration Sell payments of the company C\. Hotel, Lodges and 11 Clients Weekly / monthly Receipts; Registration Restaurants payments of the company D\. Local Market 46 Informal Cash sale N/A Sector Total Linkages 78 Source: Company Moçambique Orgânicos Lda\. 58  PDO Outcome: Improved business environment PDO Indicator 3: Number of days to issue commercial license (target: 50% reduction) Table 5\. Commercial Licensing Reform – Reduced Number of Days Baseline (based Result (based on Reduction Business type on SCM67) approved Decree) (%) Foreign representation - Delegation 19 10 or 8 59% Foreign representation - Agency 19 10 or 8 59% Bulk commerce 78 10 or 8 90% Retail commerce 78 10 or 8 90% Services Provider 78 8 90% International trade operator - import 11 3 73% International trade operator - export 11 3 73% Average Baseline and Result 42 7 76% Source: IFC Results Development Matrix, Mozambique Investment Climate Project PDO Indicator #4: Number of days to issue industrial license (target: 50% reduction) Table 6\. Industrial Licensing Reform – Reduced Number of Days Baseline (based Result (based on Reduction Business Type on old Decree) approved Decree) (%) Obs\. Large 45 31 27% 45 17 62% risk Medium 45 7 84% no risk 27 17 37% risk Small 27 7 74% no risk Micro 1 1 0% Average Baseline and Result 32 13 47% Source: Based on analysis of old and new industrial licensing regulation 67SCM is a time and motion study methodology to estimate the private sector's cost of complying with regulatory obligations\. It strives to describe the actual procedures and costs of private companies, rather than the official descriptions of how things should be\. This makes information collection from private firms a crucial component of the analysis\. 59 Intermediate Indicator #5: Number of standards introduced for which standard setting has been initiated by the private sector (target: 9) Table 7\. Standards developed by INNOQ68 Source: Project Aide Memoir dated June 2015 68 INNOQ is continuing to develop standards using the project (market-led) approach\. Subsequent standards and norms developed are not accounted for in the ICR\. 60  Annex 8\. Summary of Borrower's ICR and/or Comments on Draft ICR Borrower’s Implementation Report (ICR) The Government of Mozambique’s (GoM) second Poverty Reduction Support Strategy (PARPA II) placed the private sector as the main engine for investment, growth, and employment\. Realizing the vision set out in the PARPA II entails improving the business environment, stimulating exports, promoting growth in sectors where Mozambique has a comparative advantage, and targeting small and medium enterprises (SMEs), which generate the greatest number of jobs\. To that end, the Ministry of Industry and Commerce (MIC) requested the World Bank (WB) support for a new Private Sector Development (PSD) operation which would assist in the business environment reform efforts, in implementing the strategy to deal with greater international and regional competition, and in strengthening the small business sector\. In this context, the Mozambique Competitiveness and Private Sector Development (MCPSD) project goal was to improve the business environment and enhance the competitiveness of targeted SMEs trough implementation of activities across various sectors including tourism and tropical fruits\. The project consisted of two main technical components (improving enterprise competitiveness and promoting the business enabling environment) and a third project implementation component\. It started in October 2009 and closed in November 2015\. The initial close date was November 2014\. A Project Implementation Unit (PIU) was responsible for the implementation of the project\. It liaised with the WB mainly through the TTL and on specific project matters with the WB fiduciary experts on procurement and financial issues\. The relationship between the PIU and the WB was good and professional\. Overall, project indicators were met during the project life and, some not fully completed are likely to be materialized in follow up activities based on the foundations built by the project\. Most activities will be continued by the beneficiaries of the project major components\. Based on this project experience, general lessons learned and recommendations are indicated below: a) Country performance portfolio reviews should be a common practice because they are instrumental in addressing possible bottlenecks at institutional level\. b) Government and WB should make provision for contingencies during negotiation of credit agreement to avoid exchange rate risk, such as the SDR/USD that the project experienced\. c) The objective of creating a professional accounting body was fully accomplished with the creation of the Order of Professional Accountants (OCAM)\. Besides, 61  OCAM has now gained enough autonomy to negotiate directly financial support based on the foundation laid by the project\. In regards to the matching grant component, a program locally known as MESE, the most important lessons are recommendations are: a) The program was implemented in a “window” system as opposed to the “first come first served” approach adopted in previous programs like PODE\. The adherence at the initial stage was slow due to lack of knowledge of the benefits of the program despite the wide advertisement campaign made in the media and through the provincial and district contact points\. During the 4th and last window the number of eligible and approved applicants was greater that the funds available\. As a result the project had to suspend any further approvals and, in the case of a service provider covering 10 grant supported activities where there were delays in submission, only a third of the grant was paid\. In order to avoid such situations it is recommend that towards the end of the program the ´first come and first served´ approach is adopted\. This would enable the program to control the number of applications versus the remaining available funds and avoid the exercise of looking for additional funds\. b) The number of business advisers should be increased in future programs in order to enable the handling of increased demand from SMEs\. This would also enable the program to perform all its duties such as coaching and mentoring\. c) Future programs should create a database of service providers to ensure that only qualified and credible service providers are selected\. d) More resources should be allocated in future programs to enable the field work (due diligence)\. e) Programs such as MESE should not be discontinued\. Since the Government has designated IPEME to be the implementing agency of future matching grant programs, negotiations should have taken place with the WB, or other donors, to ensure continuity and thus gain on the momentum created\. f) Results of the impact survey should be made available sooner in order to assist both the Government and funding agencies design better similar programs\. To conclude, the MIC has reviewed the World Bank ICR, shared with the Government for comments and contributions\. On this report, the MIC would like to state its agreement with the following three key ICR evaluation criteria: - Relevance: Substantial\. The relevance of the project objectives and core activities remained relevant throughout its lifetime\. - Efficacy: High\. Most project indicators, especially at Project Development Objective (PDO) level were met, and the project had a prominent role in building the capacity of numerous Government agencies - Efficiency: Substantial\. Based on the economic and financial analysis carried out at project appraisal and closure showing and ERR of 93%\. Lastly, the MIC is also in agreement with the ‘Moderately Satisfactory’ performance rating attributed to the Implementing Agency based on the reasons presented under Section 5\.2 related to the Borrowers Performance\. 62 Annex 9\. List of Supporting Documents Project Files: Project Concept Note; October 25, 2007 Project Appraisal Document; January 15, 2009 Development Credit Agreement; April 02, 2009 Restructuring Paper; July 23, 2013 Aide Memoires and Implementation Status Reports; December 2009 – November 2015 Other Documents: Republic of Mozambique\. 2007\. Rural Development Strategy\. Republic of Mozambique\. 2007\. Strategy for the Development of SMEs\. Approved by the Council of Ministers, August 21, 2007\. Republic of Mozambique\. 2008\. Strategy for the Improvement of the Business Environment (2008-2013)\. Republic of Mozambique\. 2006\. Poverty Reduction Support Strategy (PARPA II) 2006- 2009\. Approved by the Council of Ministers on May 2, 2006\. Republic of Mozambique\. 2011\. Poverty Reduction Action Plan (PARP) 2011-2014, Approved by the Council of Ministers, May 3, 2011\. World Bank\. 2007\. Enterprise Surveys - Mozambique: Country Profile 2007\. Washington, DC\. World Bank Group\. World Bank\. 2008\. Doing Business 2009\. Washington, DC: World Bank Group\. World Bank\. 2008\. Mozambique Investment Climate Assessment 2008\. Washington, DC\. World Bank Group\. World Bank\. 2012\. Mozambique - Country Partnership Strategy for the period FY2012 - FY2015\. Washington, DC: World Bank World Bank\. 2012\. Mozambique - Country Partnership Strategy for the period FY2008- FY2011: IEG CPSCR review\. Washington, DC: World Bank Group\. World Bank\. 2013\. Doing Business 2014: Understanding Regulations for Small and Medium-Size Enterprises\. Washington, DC: World Bank Group\. World Bank\. 2018\. Mozambique - Country Assistance Strategy for the period FY2008- FY2011\. Washington DC: World Bank Group\. 63 64

REVIEW

P096840

 ICRR 13127 Report Number : ICRR13127 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 06/24/2009 PROJ ID : P074181 Appraisal Actual Project Name : Competitiveness And US$M ): Project Costs (US$M): 500\.0 506\.4 Employment Development Policy Loan (cedpl) Country : Turkey Loan/ US$M ): Loan /Credit (US$M): 500\.0 506\.4 Sector Board : FPD US$M): Cofinancing (US$M ): Sector (s): General industry and trade sector (54%) Central government administration (15%) Banking (13%) Housing finance and real estate markets (13%) Sub-national government administration (5%) Theme (s): Regulation and competition policy (33% - P) Personal and property rights (17% - S) State enterprise/bank restructuring and privatization (17% - S) Tax policy and administration (17% - S) Export development and competitiveness (16% - S) L/C Number : L7469 Board Approval Date : 06/28/2007 Partners involved : Closing Date : 09/30/2008 09/30/2008 Evaluator : Panel Reviewer : Group Manager : Group : Robert J\. Anderson Rene I\. Vandendries Ismail Arslan IEGCR 2\. Project Objectives and Components: a\. Objectives: The CEDPL supported legal, institutional, and structural reforms that promote growth and the creation of more and better jobs in Turkey by helping : (a) maintain the currently enabling macroeconomic framework; (b) improve the investment climate - including a large program of privatization of state owned enterprises (SOEs); (c) set the foundations for overhauling labor market regulations in the future; (d) increase access to investment capital; and  (e) promote the generation of knowledge and innovation, the adoption of new technologies, and upgrading the skills of the labor force\. b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components (or Key Conditions in the case of DPLs, as appropriate): In line with the objectives, the CEDPL supported the government's program in five policy areas : (a) maintaining an adequate macroeconomic framework; (b) improving the investment climate, through action in the areas of privatization, taxation and tax administration; (c) laying the foundation for labor market reform, through inclusion of the objective of labor market reform in the ninth development plan; (d) strengthening credit and capital markets through a reduction of state ownership in the banking sector and improvements in residential real estate mortgaging; and (e) increasing the capacity of the private sector to innovate and adopt new technologies and quality standards, and promoting labor skills development \. There were eight core policy actions taken prior to Board presentation, covering all five of the above policy areas, except for: (c) labor reform: 1\. A satisfactory macroeconomic framework was maintained \. 2\. Privatization revenues from the sale of state -owned companies and assets amounted to US$ 17\.7 billion during 2005 and the first six months of 2006\. 3\. The maximum corporate income tax bracket was reduced from about 30 to 20 percent of taxable profits and corporate income tax allowances were eliminated \. 4\. A functional restructuring of the tax administration was carried out \. 5\. An initial public offering for about 25 percent of the outstanding shares of HALK Bank was completed \. 6\. A new law on residential real estate mortgaging was enacted \.  7\. A law on adoption of the Agreement on Amendment of the European Patent Convention was enacted \. 8\. The Turkish Accreditation Agency (TURKAK) has been accepted as a signatory of European cooperation for Accreditation - Multilateral Agreement, as part of efforts to improve quality standards \. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: This was a one-tranche operation, fully disbursed upon effectiveness \. The loan was denominated in Euros, hence actual disbusement in US$ differs from the appraisal estimate \. There was no cofinancing\. The loan was closed on schedule on September 30, 2008\. 3\. Relevance of Objectives & Design: The objectives and design of the CEDPL were specifically linked to selected central elements of the government's Ninth Development Plan (NDP) for 2007-1013, and highly relevant to that program \. The CEDPL was also well aligned with the expected achievements of outcomes outlined in the 2003 CAS and 2005 CAS Progress Report, and was underpinned by a substantial body of Bank and other analytical work, particularly on employment and competitiveness \. While the intention was that the operation could become the first of a series of DPLs, it was designed as a free standing operation because of political uncertainties at the time of approval \. As a result the design did not include concrete triggers for the next operation, only a list of possible future policy actions \. The design was also weakened by the nature of the results indicators, which related largely to higher -level and longer-term country outcomes, rather than being directly related to the loan, implying that as long as macro -developments were positive the loan would succeed, when judged by the chosen indicators \. This complicated monitoring and evaluation\. 4\. Achievement of Objectives (Efficacy): Key conditions of the operation were met well before the loan was presented to the Board \. As noted in the ICR, progress in implementing specific institutional and policy reforms in these areas is continuing and is being supported by follow-on operations (CEDPL 2, approved by the Board in December 2008, and CEDPL 3 under preparation)\. Indicators of achievement of the broader development objectives supported by the operation are mixed, but overall many show progress in at least some dimensions \. With regard to macroeconomic stability, although  inflation remained higher than targeted, progress was made in reducing the ratios of the current account deficit and public debt to GDP\. Investment and business climate indicators also showed progress, with increases in the volume and ratio of FDI to GDP, a reduction in days to register a business (although number of procedures remained constant) and declining SOE participation in the economy \. Labor market flexibility indicators are mixed, with decreases in the share of informal employment and increasing employment rates, although unemployment rates were stable\. Capital market stability and access indicators are also mixed, with some deterioration in soundness indicators and some increase reflected in access indicators \. Finally, indicators of innovation show some modest increase in innovative activity \. 5\. Efficiency (not applicable to DPLs): NA ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re- re -estimated value at evaluation : Rate Available? Point Value Coverage/Scope* Appraisal % % ICR estimate % % * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: The policies supported by the operation were highly relevant to the government's Ninth Development Plan \. The core policy actions to be taken prior to Board presentation were complied with, and these reforms have been followed-up -- with Bank support -- by further reform measures\. As discussed in Section 4 above, there has been mixed but overall good progress on the broad results indicators covering the five policy areas pursued by the operation: macro-stability, an improved investment climate, labor market reform, strengthened capital markets, and innovation\. The ICR is correct in noting that CEDPL reforms will exert their effects only over time and in conjunction with additional supporting reforms \. a\. Outcome Rating : Satisfactory 7\. Rationale for Risk to Development Outcome Rating: There is little risk of reversal of the policy reforms that have been taken to date, especially because of the  government's strong commitment to the reform program \. At the same time in the key area of labor market reform and labor market flexibility, CEDPL achieved little beyond laying some ground work for future reform \. While some labor reforms were undertaken under CEDPL 2, in particular some geared to lower non -wage labor costs, the politically most difficult reforms in this area were deferred to CEDPL 3: especially measure to increase labor market flexibility, and income-protection for un-employed workers; given the expected adverse impact of the global crisis on the Turkish economy, there reforms may be further deferred, or perhaps not implemented \. a\. Risk to Development Outcome Rating : Significant 8\. Assessment of Bank Performance:  CEDPL (as well as CEDPL 2 and the proposed CEDPL 3) was based on an extensive body of AAA and was well linked to key elements of the government's program \. It was also well aligned with the objectives of the 2003 CAS and the 2005 CAS Progress Report\. Substantive supervision took place leading up to CEDPL 2\. A formal supervision report was, however, not archived \. There are a couple of issues worth raising pertaining to the quality at entry of this operation \. First, lending development and supervision costs, at close to US$ 1\.5 million were exceedingly high, the highest of all DPLs approved and closed over the period FY 06-09\. Second, the monitoring and evaluation indicators and results framework relate primarily to higher level development outcomes, as distinguished from outcomes more proximately related to the specific policy reforms embedded in CEDPL \. In view of the substantial AAA and lending preparation that preceded CEDPL, it should have been possible to formulate a results framework and indicators more closely tied to the specific measures supported by the Bank \. at -Entry :Satisfactory a\. Ensuring Quality -at- b\. Quality of Supervision :Satisfactory c\. Overall Bank Performance :Satisfactory 9\. Assessment of Borrower Performance: The government exhibited strong commitment to a complex reform program in difficult political circumstances\. It has maintained and extended the CEDPL reforms in part supported by the follow -on CEDPL 2\. All loan agreement implementation conditions appear to have been met, and – together with the Bank – monitoring indicators maintained\. IEG also notes the borrower’s contribution to the ICR, which adds important perspective concerning both the substantive achievements of the operation as well as design and relationship factors that promote partnership and facilitate satisfactory implementation \. a\. Government Performance :Satisfactory b\. Implementing Agency Performance :Satisfactory c\. Overall Borrower Performance :Satisfactory 10\. M&E Design, Implementation, & Utilization: As the ICR notes, targets for monitoring indicators were not as specific as they might have been \. More generally, indicators and targets more closely related to specific measures supported by the Bank should have been chosen\. For example, the share of GDP originating in and budgetary subventions associated with the SOEs privatized in 2005 and 2006 could have provided more specific benchmarks for assessing economy wide values of these indicators\. In view of the extensive spending directly on the development of this operation as well as substantial AAA work, more might have been expected at appraisal \. a\. M&E Quality Rating : Modest 11\. Other Issues (Safeguards, Fiduciary, Unintended Positive and Negative Impacts): None 12\. 12\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Risk to Development Moderate Significant Uncertainty with regard to the  Outcome : government’s ability to carry forward with reforms to increase substantially labor market flexibility\. Bank Performance : Satisfactory Satisfactory Borrower Performance : Satisfactory Satisfactory Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate \. 13\. Lessons: IEG concurs with the lessons drawn in the ICR, particularly the appropriateness of proceeding as the Bank did in this case in the face of political uncertainty at the time of CEDPL \. As stated by the ICR, the basis for supervision of CEDPL would have been enhanced, and the basis for dialogue and design of future operations strengthened, had more attention been placed at appraisal of CEDPL on the design of a monitoring and evaluation framework linked more directly to actual and, conditionally, to potential measures supported by the Bank\. 14\. Assessment Recommended? Yes No Why? As part of an assessment of the series of DPLs \. 15\. Comments on Quality of ICR: The ICR is complete in its review of the implementation of the operation and in its follow up on monitoring indicators\. It could have been strengthened by some additional discussion of the political context and issues surrounding the decision to proceed on a non -programmatic basis with CEDPL, the costs of the operation, and to evaluate the contributions of the CEDPL operation in light of subsequent and planned developments under CEDPL 2 and CEDPL 3\. a\.Quality of ICR Rating : Satisfactory

REVIEW

P045182

Document of The World Bank Report No: ICR0000750 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-33680 IDA-3368A) ON A CREDIT IN THE AMOUNT OF SDR 15\.1 MILLION (US$20\.0 MILLION EQUIVALENT) TO THE REPUBLIC OF RWANDA FOR A RURAL WATER SUPPLY AND SANITATION PROJECT June 26, 2008 Water and Urban 2 Country Department 9 Africa Regional Office  CURRENCY EQUIVALENTS (Exchange Rate Effective 12/31/2007) Currency Unit = RWF 1\.00 RWF = US$ 0\.00184 US$ 1\.00 = 544 RWF FISCAL YEAR: January 1 ­ December 31 ABBREVIATIONS AND ACRONYMS AfDB African Development Bank CAS Country Assistance Strategy CDC Community Development Committee CDP Community Development Plan CRDP Community Reintegration and Development Project DEA Directorate of Water and Sanitation (Direction de l'Eau et de l'Assainissement) EIRR Economic Internal rate of Return GTZ German Technical Cooperation (Gesellschaft für technische Zusammenarbeit) HAMS School Hygiene and Sanitation (Hygiène et assainissement en milieu scolaire) IDA International Development Association ICR Implementation Completion and Results Report IP Implementation Progress LIL Learning and Innovation Loan M&E Monitoring and Evaluation MINERENA Ministry of Energy, Water and Natural Resources (Ministère de l'Énergie, de l'Eau et des Ressources Naturelles) MINITERE Ministry of Land, Environment, Forestry, Water and Natural Resources (Ministère des Terres, de l'Environnement, des Forêts, de l'Eau et des Ressources Naturelles) MTR Mid-term Review N/A Not applicable NGO Nongovernmental Organization NPV Net Present Value OA Partner Organization (Organismes d'appui) PAD Project Appraisal Document PCU Project Coordination Unit PDO Project Development Objective PEAMR Rural Water Supply and Sanitation Project (Projet d'alimentation en eau et d'assainissement en milieu rural) PIM Project Implementation Manual PRA Participatory Rural Appraisal PRSC Poverty Reduction Support Credit PPP Public-Private Sector Partnership  QAG Quality Assurance Group QEA Quality at Entry RURA Rwanda Utilities Regulatory Agency RWF Rwandese Franc RWSS Rural Water Supply and Sanitation WSP-AF Water Supply and Sanitation Program - Africa WSS Water Supply and Sanitation WUA Water Users Association Vice President: Obiageli Katryn Ezekwesili Acting Country Director: C\. Sanjivi Rajasingham Sector Manager: Eustache Ouayoro Project Team Leader: Christophe Prevost ICR Team Leader: Christophe Prevost  RWANDA Rural Water Supply and Sanitation Project CONTENTS Data Sheet A\. Basic Information\.i B\. Key Dates\.i C\. Ratings Summary\.i D\. Sector and Theme Codes\.ii E\. Bank Staff\.ii F\. Results Framework Analysis\.ii G\. Ratings of Project Performance in ISRs\.v H\. Restructuring \.vi I\. Disbursement Graph\.vi 1\. Project Context, Development Objectives and Design\. 1 2\. Key Factors Affecting Implementation and Outcomes \. 5 3\. Assessment of Outcomes\. 9 4\. Assessment of Risk to Development Outcome\. 13 5\. Assessment of Bank and Borrower Performance \. 14 6\. Lessons Learned \. 16 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners \. 17 Annex 1\. Project Costs and Financing\. 18 Annex 2\. Outputs by Component \. 19 Annex 3\. Economic and Financial Analysis\. 24 Annex 4\. Bank Lending and Implementation Support/Supervision Processes \. 27 Annex 5\. Beneficiary Survey Results\. 29 Annex 6\. Stakeholder Workshop Report and Results\. 30 Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR\. 31 Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders\. 42 Annex 9\. List of Supporting Documents \. 43 MAP IBRD 25927R  A\. Basic Information Rural Water Supply and Country: Rwanda Project Name: Sanitation Project Project ID: P045182 L/C/TF Number(s): IDA-33680,IDA-3368A ICR Date: 12/17/2007 ICR Type: Core ICR RWANDESE Lending Instrument: SIL Borrower: REPUBLIC Original Total XDR 15\.1M Disbursed Amount: XDR 15\.1M Commitment: Environmental Category: B Implementing Agencies: MINITERE Cofinanciers and Other External Partners: B\. Key Dates Process Date Process Original Date Revised / Actual Date(s) Concept Review: 10/13/1998 Effectiveness: 09/07/2000 01/30/2001 Appraisal: 04/10/2000 Restructuring(s): Approval: 06/06/2000 Mid-term Review: 06/30/2003 05/12/2004 Closing: 12/31/2006 12/31/2007 C\. Ratings Summary C\.1 Performance Rating by ICR Outcomes: Highly Satisfactory Risk to Development Outcome: Low to Negligible Bank Performance: Satisfactory Borrower Performance: Satisfactory C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Highly Satisfactory Quality of Supervision: Highly Satisfactory Implementing Agency/Agencies: Satisfactory Overall Bank Overall Borrower Performance: Satisfactory Performance: Satisfactory i  C\.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Performance Indicators (if any) Rating Potential Problem Project No Quality at Entry Satisfactory at any time (Yes/No): (QEA): Problem Project at any Quality of Yes None time (Yes/No): Supervision (QSA): DO rating before Satisfactory Closing/Inactive status: D\. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Sanitation 38 15 Water supply 62 85 Theme Code (Primary/Secondary) Rural services and infrastructure Primary Primary Water resource management Primary Secondary E\. Bank Staff Positions At ICR At Approval Vice President: Obiageli Katryn Ezekwesili Callisto Madavo Acting Country Director: C\. Sanjivi Rajasingham Emmanuel Mbi Sector Manager: Eustache Ouayoro Letitia A\. Obeng Project Team Leader: Christophe Prevost Richard Verspyck ICR Team Leader: Christophe Prevost ICR Primary Author: Richard Verspyck F\. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The objectives of the project are to assist the Borrower in: (i) increasing the availability and sustainability of water supply and sanitation (WSS) services in rural areas; (ii) strengthening the capacity of (a) communities to plan water supply and sanitation investments and manage water supply and sanitation services and (b) agencies in charge of water supply services, communes, water users and the private sector to carry out their respective responsibilities under the Borrower's water sector strategy; and (iii) mobilizing community support for (a) the rehabilitation or expansion of the major regional water systems, and (b) their operation by the private sector\. ii  Revised Project Development Objectives (as approved by original approving authority) Not applicable (a) PDO Indicator(s) Original Target Formally Actual Value Indicator Baseline Value Values (from Revised Achieved at approval Target Completion or documents) Values Target Years Indicator 1 : Average per capita consumption of water from facilities constructed under the project exceeds 10 liters/cap/day (lpcd) Value Average Spring catchments: (quantitative or Average consumption of consumption of 10 8\.5 lpcd (7 districts) qualitative) 5 lpcd lpcd in 16 Piped systems: 10- communes 13 lpcd (7 districts) Date achieved 01/30/2001 12/31/2007 12/31/2007 Comments (incl\. % The average consumption (springs and piped systems combined) is 10\.7 lpcd, achievement) i\.e\. 107 % of the PAD target Indicator 2 : Percentage of water systems fully covering their operation and maintenance expenditures Value (quantitative or 35% 80% 100% qualitative) Date achieved 01/30/2001 12/31/2007 02/28/2008 Comments (incl\. % 125% of the PAD target achievement) Indicator 3 : Percentage of school sanitation facilities maintained in accordance with national standards Value (quantitative or No school latrines 80 % More than 80 % qualitative) Date achieved 01/30/2001 12/31/2007 12/31/2007 Comments (incl\. % PAD target fully achieved achievement) Number of CDCs able to program and execute WSS investments, number of Indicator 4 : partner organizations able to assist communities in programming and executing investments Value Number of CDCs: 0 Number of CDCs: Number of (quantitative or Number of partner 9 districts: 7 qualitative) organizations : 0 Number of partner Number of partner organizations: 6 organizations: 4 Date achieved 01/30/2001 12/31/2007 12/31/2007 Comments Due to the redrawing of communes/districts, the figures are not directly (incl\. % comparable\. However, expressed in percentage of the total number of local achievement) governments, 23% of the total number of districts has acquired the required capacities, vs\. only 8% expected at appraisal\. iii  Indicator 5 : Number of additional people with access to improved water services (excluding Mayaga) Value (quantitative or 0 250,000 408,000 qualitative) Date achieved 01/30/2001 12/31/2007 12/31/2007 Comments (incl\. % 163 % of PAD target achievement) Indicator 6 : Number of people with access to water services from the Mayaga system Value (quantitative or 30,000 120,000 120,000 qualitative) Date achieved 01/30/2001 12/31/2007 12/31/2007 Comments (incl\. % 100 % of the PAD target achievement) (b) Intermediate Outcome Indicator(s) Original Target Formally Actual Value Indicator Baseline Value Values (from Achieved at approval Revised Completion or documents) Target Values Target Years Indicator 1 : Mayaga system rehabilitated with participation by beneficiaries in the rehabilitation design, planning, financing and implementation\. Value System System (quantitative System not rehabilitated rehabilitated and rehabilitated and or qualitative) operational operational Date achieved 01/30/2001 12/31/2005 12/31/2007 Comments The PAD target was fully achieved\. The rehabilitation of the main production (incl\. % and transmission system was completed in May 2006 and the secondary achievement) networks in December 2007\. Indicator 2 : Private sector operator assures continuous service with respect to Mayaga system and collects revenues System managed by Value private operator in (quantitative or No private operator accordance with Private operator selected\. qualitative) contractual performance indicators Date achieved 01/30/2001 08/01/2006 02/28/2008 Comments (incl\. % The private operator has been selected, and the contract is to be signed shortly\. achievement) Indicator 3 : Completion of investment and assessment studies for Lava Region system Value (quantitative No study available Studies completed Studies completed or qualitative) iv  Date achieved 01/30/2001 12/31/2003 09/30/2004 Comments The PAD target was fully achieved\. The detailed design studies and bidding (incl\. % documents were completed in September 2004\. They helped attracting funding achievement) for the execution of works, which are currently implemented under AfDB and Dutch financing\. Indicator 4 : Identification and establishment of a sustainable management of the Lava Region systems Value Management Management (quantitative No sustainable solution identified solution identified or qualitative) management and implemented and implemented Date achieved 01/30/2001 12/31/2007 12/31/2007 Comments The PAD target was fully achieved\. The Lava Region systems are operated by a (incl\. % local private operator (Aquavirunga) in the Western part and by Electrogaz in the achievement) Eastern part\. Number of regional offices of Ministry in charge of Water able to deliver Indicator 5 : contract management, community development, accounting and monitoring services Value (quantitative 0 Number of Number of or qualitative) regional offices: 4 provincial offices: 4 Date achieved 01/30/2001 12/31/2003 12/31/2004 Comments The PAD target was fully achieved\. The provincial engineers recruited under the (incl\. % project have been further contracted under the AfDB-financed project and achievement) provide assistance to all RWSS operations in their respective provinces\. G\. Ratings of Project Performance in ISRs Actual No\. Date ISR Archived DO IP Disbursements (US$ millions) 1 12/11/2000 Satisfactory Unsatisfactory 0\.00 2 12/20/2000 Satisfactory Unsatisfactory 0\.00 3 02/13/2001 Satisfactory Satisfactory 0\.00 4 08/21/2001 Satisfactory Satisfactory 0\.54 5 04/02/2002 Satisfactory Satisfactory 1\.35 6 10/10/2002 Satisfactory Satisfactory 1\.54 7 04/30/2003 Satisfactory Satisfactory 1\.93 8 11/06/2003 Satisfactory Unsatisfactory 2\.63 9 05/18/2004 Satisfactory Unsatisfactory 2\.96 10 12/06/2004 Satisfactory Satisfactory 3\.92 11 04/25/2005 Satisfactory Satisfactory 5\.38 12 11/21/2005 Satisfactory Satisfactory 10\.15 13 05/15/2006 Satisfactory Satisfactory 13\.14 14 11/15/2006 Satisfactory Satisfactory 14\.99 15 05/14/2007 Satisfactory Satisfactory 16\.63 16 11/13/2007 Satisfactory Satisfactory 18\.69 v  H\. Restructuring (if any) Not Applicable I\. Disbursement Profile vi  1\. Project Context, Development Objectives and Design 1\.1 Context at Appraisal Country and Sector Background\. By the time of appraisal, the rural water supply and sanitation (RWSS) sector in Rwanda faced many challenges stemming from top-down investment programming, poor cost recovery, low sustainability and high per-capita investment costs for system construction\. Early attempts (starting in 1987 with the Bank- financed Second Water Supply Project, Cr\. 1783-RW) to introduce community participation and transfer the responsibility and ownership of RWS facilities to the communes failed in the absence of a strong governmental commitment to actual decentralization and continued governmental insistence to keep investment decisions centralized\. These issues had been compounded by deep community-level distrust engendered by the 1994 genocide and by the demands of post-war reconstruction, which placed immediate emergency relief ahead of considerations for longer-term sustainability in investment decisions\. Only 44 percent of the total population had access to a water delivery point\. The hilly landscape covering most of the country increased the hardships associated with fetching water\. Similarly, the sanitary situation of the rural population was problematic\. Traditional pit latrines were available to 85 percent of the population, but the latrines were generally poorly maintained and safe hygienic practices were not prevalent\. Government Strategies\. To foster reconciliation and community reintegration, in 1998, the Government of Rwanda embarked upon a decentralized, participatory approach to development\. Local structures, the community development committees (CDCs), were elected in March 1999\. CDCs were provided with administrative and financial autonomy to ensure participation of the local population in the decision-making process\. Participatory Rural Appraisals (PRAs) were carried out with the assistance of various donors which helped 40 communes to define local development priorities and prepare Community Development Plans (CDP)\. An institutional and financial framework for community level development activities was developed and tested in a Bank-financed Learning and Innovation Loan (LIL), the Community Reintegration and Development Project (CRDP, Cr\. 3138-RW)\. A new RWSS strategy was developed at the same time, which was based on the following key elements: Promoting a demand-responsive approach through which communities decide whether to participate, identify their preferred service level based on willingness to pay, contribute to a portion of investment costs and pay the operation and maintenance costs of their facilities in full; Decentralizing planning and management of services by (i) making water users' associations (WUAs) the decision-makers, owners and managers of their facilities, and (ii) enabling the communes, particularly the CDCs, to assist WUAs obtain improved services; 1  Redefining the roles of the various institutions involved in the delivery of water and sanitation services, including transitional arrangements to move from a centralized planned approach to a demand-responsive approach and related capacity building; Supporting the private sector as provider for all works, goods and services; and Redeploying the public sector as facilitator, with the Ministry of Energy, Water and Natural Resources 1 (MINERENA) and its Directorate of Water (DEA) providing assistance and support to the CDCs and WUAs\. Rationale for Bank Assistance\. The Country Assistance Strategy (CAS) Progress Report (June 1999) for Rwanda recognized that Rwanda continued to face particular challenges for sustained growth and poverty reduction after the genocide in 1994, including the resettlement and reintegration of displaced families and other victims, achieving peace and stability, and improving the standard of living of the population\. The project supported two of the five main themes of the CAS, namely (i) revitalizing the rural economy with the provision of the social and economic infrastructure (of which water supply and sanitation are part); and (ii) investing in human resource development, including capacity building\. The Bank, which sponsored the preparation of the sectoral strategy (with the WSP-AF and the German GTZ), was in a position to bring forward the design and implementation experiences accumulated in Africa to help implement the new strategy with a self- standing project\. Through this project, the Bank could also cooperate with the Government in demonstrating that sectoral investment programs could be prepared and implemented by CDCs and WUAs using the standard framework developed by the CRDP, thus strengthening the case for community action programs\. 1\.2 Original Project Development Objectives (PDO) and Key Indicators The objectives of the project were to assist the Borrower in: (i) increasing the availability and sustainability of water supply and sanitation (WSS) services in rural areas; (ii) strengthening the capacity of (a) communities to plan water supply and sanitation investments and manage water supply and sanitation services and (b) agencies in charge of water supply services, communes, water users and the private sector to carry out their respective responsibilities under the Borrower's water sector strategy; and (iii) mobilizing community support for (a) the rehabilitation or expansion of the major regional water systems, and (b) their operation by the private sector\. The key indicators of achievement of the developments objectives were the following: Per capita consumption of water Percentage of water systems covering operation and maintenance costs 1The WSS sector was transferred in December 2002 under the Ministry of Infrastructure (MININFRA)\. A State Ministry for Water and Natural Resources was then established in the latter ministry\. The sector and the State Ministry were transferred in December 2003 under the Ministry of Land, Environment, Forestry, Water and Natural Resources (MINITERE)\. 2  Percentage of collective latrines adequately maintained Number of communes able to program and execute WSS investments with the assistance of partner organizations Additional members of the population getting access to services Completion of Mayaga system rehabilitation Completion of investment and assessment studies for the Lava Region systems Private operators delivering water services in Mayaga and the Lava Region Number of regional offices of DEA able to deliver assistance and monitoring services 1\.3 Revised PDO (as approved by original approving authority) and Key Indicators, and Reasons/Justification Not applicable 1\.4 Main Beneficiaries, The primary target group was the rural population in 16 communes (of a total of 194) that were selected in relation to three main criteria: low service coverage rates, little external support for sector investments and high demand for improved services\. The project would provide basic drinking water facilities to about 370,000 people and promote improvement of household sanitation and hygiene practices\. The project would thus contribute to poverty reduction through time savings, improved productivity and health, especially for women and children\. The project would also benefit communes, WUAs, the Directorate of Water and the private sector (contractors, operators, non-governmental organizations (NGOs) and consultants) by strengthening their capacities to deliver their responsibilities in the development of sustainable water and sanitation services\. 1\.5 Original Components The project comprised four components: Subprojects Component (Appraisal*/Actual: US$10\.43 million/US$14\.10 million)\. This component would provide grants to communities\. Annual grant agreements signed with CDCs would finance: - the construction of water and sanitation facilities2 identified in community development plans; and - technical assistance, training and outreach activities delivered by partner organizations3 (Organismes d'appui, OA), which would help communities to plan, implement, operate and maintain water and sanitation facilities in an effective and sustainable manner\. 2The number and type (springs, latrine blocks, piped systems) of facilities were not preset, as they should result from the choices of the communities, which were not yet expressed at the time of appraisal\. However, indicative values were used for the purpose of computing the project costs (see Annex 2) 3Partner organizations are NGOs or local consulting engineers\. 3  Using a demand-responsive approach and the eligibility criteria spelled out in the Project Implementation Manual, this component would start with a pilot phase in four communes and would then be extended to 12 other communes\. Major Water Supply Systems Component(Appraisal*/Actual: US$4\.89 million/US$5\.08 million): The goals of this component were (i) to demonstrate that the decentralized and demand-responsive approach was suitable for rehabilitating major water supply systems ; and (ii) to establish sustainable 4 management arrangements for those systems\. The approach would be tested in the Mayaga system\. This component would also lay the groundwork for completing the Lava Region systems and restoring their operational capacity\. Capacity Building Component (Appraisal*/Actual: US$3\.61 million/US$1\.90 million): The goal of this component was to strengthen stakeholders' capacity to carry out the roles ascribed to them in the rural water supply and sanitation strategy in order to ensure adequate and timely provision of high quality infrastructure and services at the community level\. This would consist of support for: (a) the private sector and NGOs, as providers of works, goods and services; and (b) the public sector (DEA, communes and CDC) as facilitators of the sub-sector development and management process\. Project Management Component (Appraisal*/Actual: US$1\.75 million/US$1\.78 million): This component would finance the incremental costs of managing the project and of assisting the CDCs with the Project Coordination Unit (PCU) staff and the provincial engineers\. *Note: Appraisal estimates include all contingencies 1\.6 Revised Components Not applicable 1\.7 Other significant changes Implementation arrangements and responsibilities were significantly modified during project execution to take stock of: (i) the extension of the national decentralization policy in 2001 and the new status of the communes (renamed districts and later redrawnr5); and (ii) the deteriorating performance of community management of piped systems, which led the district authorities to seek an alternative solution with private operators\. These changes were formally introduced in the Project Implementation Manual (PIM) after the mid-term review (MTR; see section 2\.2 below)\. The closing date was extended once by one year to December 31, 2007, to provide more time to complete the rehabilitation/extension of the branches of the Mayaga system and 4A major system is a water system that supplies several districts; this type of system usually includes water treatment and/or pumping equipment\. 5Initially 106 districts, which were further reduced to 30 in 2005 4  to take stock of the experience with private operators\. The allocation of IDA funds was slightly modified to allow for grouping equipment and works in the Mayaga system rehabilitation\. Finally, Government funding increased substantially after 2005 with the introduction of budget support to the RWSS sector, which allowed financing additional subprojects\. 2\. Key Factors Affecting Implementation and Outcomes 2\.1 Project Preparation, Design and Quality at Entry Key features of the project preparation consisted of (i) taking into account lessons from similar projects in Rwanda and Africa; (ii) developing a sectoral strategy that would be consistent with the national decentralization policy and also be effectively internalized by the Government and stakeholders; (iii) assessing risks and mitigation in the context of the post-conflict situation; and (iv) carrying an economic analysis based on the results of a specific willingness-to-pay (WTP) study\. The Quality Assurance Group (QAG) assessed the quality at entry (QEA) of the project in April 2001 (see section 5\.1\. (a) below)\. Use of Lessons in Project Design\. The introduction of the demand-based approach derived from the lessons of earlier RWSS projects\. The subproject cycle, as defined in the PIM, largely duplicated the arrangements of the Ghana Community Water Supply Project, with the recourse to partner organizations to assist communities and districts and the use of annual investment programs prepared through a participatory process\. The initial satisfactory performances of the WUAs established at the end of the Rwanda Second Water Supply Project also indicated that community management was a sustainable solution\. Government Commitment\. The strong commitment of the Government to the decentralization policy and its convincing application to community investments through the CRDP, were key factors in internalizing the new sectoral strategy\. MINERENA and the DEA were ready to take on their new role of facilitators and to let CDCs and communes implement the subprojects\. Risks and Mitigation\. The Project Appraisal Document (PAD) rightly emphasized two series of risks\. First, the risks linked to the restoration of mutual trust between central/local government and the rural communities were expected to be mitigated by the participatory arrangements that governed implementation\. As mentioned above, these arrangements had been successfully tested in the CRDP\. Second, the risks linked to the weak capacity and limited experience of the stakeholders (which also resulted from the post-conflict background)\. The latter risks were to be mitigated by the assistance delivered by the OAs and globally by the capacity building component of the project\. 2\.2 Implementation Minor Role of External Factors\. External factors played a limited role in project implementation, excepted in the Major Water Supply Systems component, where the 5  recruitment of technical design and supervision consultants was delayed by the lack of adequate proposals (initially sought on a sole-source basis)\. Major Role of Factors Subject to Government Control\. Policy decisions and reforms introduced by the Government played a major role\. As noted above, the steadfast implementation of the decentralization policy by the Government, with the establishment of districts in 2001 and the election of mayors (in lieu of the appointed bourgmestres) put the CDCs in a subordinated position\. The districts were vested with contracting authority and the mayors took a leading role in supervising the performance of the WUAs, as they felt responsible for the sustainability of water services\. This was a key factor in the decision to shift to private management of the water facilities\. In 2005 the Government also introduced a system of performance contracts between the districts and the President 6 and between households and district subdivisions (cells) , which are 7 periodically assessed\. Finally, the reform of the civil service at the end of 2004 reduced the staff of DEA by almost 85 percent\. The resulting disruption was limited, as the best- performing staff members were either kept as civil servants or left the civil service and were re-hired under contracts with the Project Coordination Unit (PCU)\. All these changes and the emphasis put by the Government on results-based policies were instrumental in addressing the implementation issues faced by the project as they (i) helped streamline implementation responsibilities in the districts; (ii) eventually strengthened the cohesion of the implementation team; and (iii) brought forward a culture of accountability, both at central and local levels\. Problem Project Status\. The project entered Problem Project status at the end of 2003\. The downgrading of the implementation progress (IP) rating reflected the slow pace of disbursements (disbursement rate of less than 15 percent two and half years after project approval), monitoring deficiencies (including a lack of quality control by the PCU) and the insufficient provision of counterpart funding from the budget\. More importantly, the absence of visible results in the field frustrated the rural population and the district mayors, and cast doubt on the credibility of the project\. The OAs were clearly overwhelmed by the multiplicity of their tasks\. The preparation of the subprojects in the pilot districts (ending with the tendering of the first batch of water facilities) had lasted more than 20 months (appraisal estimate: nine months)\. In addition, the deteriorating performances of most of the existing WUAs questioned the management option selected for the water facilities\. Actions Taken and Mid-term Review\. In the first quarter of 2004, the PCU held a series of workshops with stakeholders to address the implementation problems\. The PCU also carried out two detailed reviews of: (i) the community mobilization process; and (ii) community management and the experience of three districts of the Byumba province 6The districts sign an annual performance contract to carry out specific development activities, including water (construction and management of water facilities, protection of spring catchments, terracing) which are assessed quarterly by a presidential commission\. 7Household contracts focus, inter alia, on building latrines, hygienic practices and hand washing and rainwater collection\. They are assessed monthly by an umidugudu (village) commission\. 6  with private operators\. The first review found that the districts were now better suited than the OAs to mobilize the community investment contributions\. It also found that financial contributions were perceived as inequitable, as the requested amounts depended on the type of system, which was beyond the control of communities8\. The second review found that more than 50 percent of the WUAs were no longer operational, due to the absence of performance incentives (volunteer status), users' willingness to pay, mismanagement of funds and technical weaknesses\. Conversely, local private operators placed in challenging situations (managing costly pumping systems), had overcome these issues and were even able to self-finance system rehabilitation\. The findings were discussed in the MTR of May 2004\. Participants agreed on an action plan aimed at: (i) simplifying implementation procedures and the subproject cycle; (ii) reducing implementation delays; (iii) supporting the generalization of public-private partnerships (PPP) for the operation of water facilities; (iv) improving coordination among project participants; and (v) strengthening the monitoring and evaluation functions\. The districts took over the community mobilization responsibilities from the OAs, which concentrated on the preparation and supervision of piped systems, while the simple subprojects (springs and latrines) were delegated to the provincial engineers and the district caretakers (fontainiers)\. The lengthy preparation of annual grant agreements was streamlined in a global district program\. The community contribution rules were revised to emphasize in-kind and labor contributions\. The project rules and the PIM were modified accordingly\. The action plan was successfully carried out\. The second batch of subprojects in three new districts was completed in four months\. The districts implemented the management reform and selected private-sector operators for the completed facilities\. More than 50 percent of project funds were committed at the end of 2004 and the project came out of Problem Project status in February 2005\. Scaling-up and Harmonization\. The accelerated implementation performance after the MTR proved that the new implementation procedures were adequate and could be used for scaling-up future RWSS development activities with a common implementation framework\. This achievement, together with the demonstrated new capacities of the stakeholders, paved the way for developing and implementing the sector-wide approach, which, in turn, allowed increasing the sectoral absorption capacity by a factor of ten (see section 3\.2 below)\. In addition, the project fulfilled the harmonization objectives of the Government and the donor community by: (i) merging its PCU with that of the AfDB- financed RWSS project in 2006; and (ii) taking over the implementation of the budget- financed RWSS activities under the Subproject component in 2006, after preparing streamlined financial management procedures\. 2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 8 Beneficiaries could easily contribute 10 percent for spring catchments (contribution equivalent to US$0\.30 per person served), while a 5 percent financial contribution in the case of pumping systems amounted to more than US$6 per person served (US$36 for the average household)) and appeared prohibitive\. 7  M&E Design\. The M&E system was based on a simple set of indicators of access, use and sustainability of water and sanitation facilities and on qualitative assessments of the capacity building activities' outcome\. The M&E arrangements included the appointment of a deputy project coordinator in charge of M&E and the establishment of semi-annual M&E reports\. In hindsight, the monitoring indicators provided a clear vision of the project outcomes, but did not allow assessing either the intermediate results of the project or the pace of implementation\. Adding process indicators-such as those used in the MTR (e\.g\. duration of the various steps of the subproject cycle) -to the list of monitoring indicators would have been appropriate, given the innovative nature of the project approach\. M&E Implementation\. M&E was unsatisfactory until the MTR\. The construction delays prevented measuring the facilities' use and sustainability indicators, which led the PCU to neglect its M&E responsibilities\. Reports were not produced on time and data gathered by the OAs and the provincial engineers were not aggregated by the PCU\. The situation improved after the implementation of the MTR action plan\. In addition, the monitoring function became a sectoral priority, when the Government embarked on a sector-wide approach and budget support with the Bank's assistance with Poverty Reduction Support Credits (PRSC)\. M&E Utilization\. As noted above, the M&E system was appropriate to measure the outcomes, but did not help in monitoring implementation\. However, the project's data gathering system, which was strengthened after the MTR, helped develop the sectoral indicators at the country level (population served, type of facilities management, availability of installations) that were used in the PRSCs\. This enabled evidence of the sectoral progress in terms of absorptive capacity of investments and measurement of increased access to water and sanitation facilities\. 2\.4 Safeguard and Fiduciary Compliance The project did not entail major adverse social and environmental impacts\. The implementation of the mitigation plan was reviewed only twice during project execution, which illustrates the difficulty of mobilizing safeguards specialists on simple Category B projects\. The first review took place in 2003, at which time physical implementation was minimal\. The second review took place with the completion mission\. The Bank Environmental Specialist raised concerns with the protection of water resources in spring catchments and water reservoirs\. Mitigating measures were agreed and included in (i) the matrix of actions of PRSC IV; and (ii) the performance contracts of the districts with the Government\. Fiduciary compliance was satisfactory throughout implementation\. The financial auditors issued clean opinions\. Financial management reports were prepared in a timely manner from mid-2003 onwards\. The rejection rate of disbursement applications rose markedly after the decentralization of the Bank's disbursement unit to Johannesburg\. However, the situation improved after a field visit by the Bank specialists\. 8  2\.5 Post-completion Operation/Next Phase The post-completion operation of the water facilities constructed under the project is adequately addressed\. All completed systems are managed by local private operators under contracts signed with the districts\. The operators are responsible for operations and maintenance and have been competitively selected\. The selection criteria take into account the price of water, the fee paid by the operator to the district and the quality and reliability of the technical proposal\. The water rates range from RWF 2\.5 (gravity-fed systems) to RWF 15 (pumping systems) per container of 20 liters (equivalent to US$0\.25 to US$1\.40/m3)\. Users with private connections pay RWF185 to RWF600/m3\. The principle of paying water at standposts in accordance with the volume consumed has been widely accepted, as the water users acknowledged the improvements in service delivery\. More than fifteen years of experience with administrative or community management of water services proved that free or unpaid water resulted in little water or no water at all\. In addition, and to alleviate the financial burden for the poorest part of the rural population, the districts keep a list of vulnerable households (widows, poor single-parent households), who get free access to water points9\. Rather than using standardized contracts (usually prepared by foreign consultants), which are seldom comprehensible by the parties, each district has developed its own contract, with very simple terms\. In view of the diversity of local situations and of the uncertainty of demand for water, the Rwanda Utilities Regulatory Agency (RURA) endorsed this approach and provided assistance to the districts for renegotiations, once the operational conditions were well-established\. Sanitation facilities are maintained by the schools with the local School Hygiene and Sanitation Committees (hygiène et assainissement en milieu scolaire, HAMS)\. A minimal fee (RWF100/ year) is paid for each child\. The capacities created under the project will continue to be available to the sector\. The core staff of the PCU, as well as the provincial engineers, has been taken over by the AfDB-financed RWSS program and will be eventually financed by the national budget\. A follow-up operation is not necessary, as the sectoral activities now take place within a sector-wide approach and PRSCs\. Budget allocations increased from US$1\.2 million in 2006 to US$6\.3 million in 2007 and US$7 million in 2008\. These funds are financing inter alia eight remaining subprojects identified and prepared under the project, for which IDA funds were not available\. 3\. Assessment of Outcomes 3\.1 Relevance of Objectives, Design and Implementation 9An assessment of the efficiency of these specific rules for the poor is to be carried out soon by MINITERE\. 9  The project objectives remain highly relevant to current country priorities\. Access to WSS services features prominently in the PRSP and in all community development plans\. The Government and the district mayors consider that the sustainability of WSS services is a key element of their own accountability\. The inclusion of the WSS sector among the three priority sectors (with health and education) of the first PRSC is further proof of the relevance of the project objectives to country priorities and the Bank's assistance strategy\. Similarly, the decentralized approach built in the project design makes it highly relevant to the global priorities of the Government, as it demonstrated that the districts could plan, implement and manage WSS facilities\. Finally the project implementation procedures, as updated after the MTR, now serve as guidelines for all WSS investments in Rwanda, regardless of the source of funding\. 3\.2 Achievement of Project Development Objectives The project achieved all its development objectives\. The assessment is made with reference to the level of achievement of target values for the outcome indicators and to other project impacts directly related to the PDO\. Data for the evaluation were provided by the M&E reports, an October 2007 field survey of school latrines, the November 2007 technical audit and the impact evaluation study carried out by local consultants at the end of the project\. Objective#1: Increasing the availability and sustainability of WSS services in rural areas\. This objective was fully achieved and the key outcome targets were exceeded\. The project helped provide access to water services to an additional 408,000 people (excluding the population served by the Mayaga system), i\.e\. 163 percent of the PAD target (250,000 people)\. In addition, the studies financed by the project helped mobilize financing to construct water facilities under budget support that will serve another 90,000 people\. The impact study and the operators' reports showed that water users are consuming 8\.5 liters per capita per day (lpcd) at the spring catchments, 13 lpcd at the gravity-fed piped systems standposts and 10 lpcd at the pumping systems standposts\. Users of private connection consume 20 lpcd\. On average, this amounts to 10\.7 lpcd, i\.e\. 107 percent of the PAD target (10 lpcd)\. The 33 completed piped systems are operational and operated under PPPs\. All systems can cover their operation and maintenance expenditures (125 percent of the PAD target)\. Sanitation facilities (latrine blocks and rainwater storage for hand washing) are available to about 65,000 children in 105 primary and secondary schools\. More than 80 percent of the school latrines are correctly maintained (exceeding the PAD target), as the result of the sensitization efforts carried out with the local HAMS committees\. At country level, the project helped strengthen the national HAMS committee, which was instrumental in introducing hygiene and sanitation practices in the household contracts with the districts (see section 2\.2, note 8)\. Objective #2: Strengthening the capacity of all stakeholders to carry out their respective responsibilities under the Borrower's water sector strategy\. This objective 10  was fully achieved and the key outcome targets were generally exceeded\. Seven districts (23 percent of the 30 districts in the country)10 are able to plan, implement and manage the operations of water facilities\. This result exceeds the PAD target (16 communes, i\.e\. 8 percent of the 194 communes in the country)\. Local contractors, almost non-existent in WSS activities at project startup, executed US$10\.6 million worth of contracts, (94 percent of all construction activities for the Subprojects component)\. Local operators took over the delivery of WSS services well beyond the project area\. More than 25 percent of the 850 water systems throughout the country are now managed under PPP\. Subprojects have been planned and designed in accordance with community preferences\. The best measure of the stakeholders' capacity is given by the global absorption capacity of the WSS sector, which increased dramatically with an additional 600,000 people each year getting access to water services in 2005, 2006 and 2007, to be compared to only 60,000 in 2002\. Objective #3: Mobilizing community support for the rehabilitation or expansion and the operation by the private sector of major regional water systems\. This objective was largely achieved, albeit with some delays\. The rehabilitation and expansion of the Mayaga system was completed in December 2007 and the system now serves 120,000 people (100 percent of the PAD target)\. A PPP for the system operation will be effective shortly\. In the Lava region, the project was, as expected, instrumental in (i) attracting external financing (AfDB and Dutch bilateral assistance) for the completion of the water systems; and (ii) facilitating the involvement of private operators (see Annex 2)\. The Lava Region systems, once completed, may supply about 306,000 people\. As mentioned above, Government policies and reforms strongly facilitated implementation\. However, the project benefits essentially derive from the project outputs\. Access and sustainability achievements result directly from the activities of the Subprojects and the Major System components\. The spectacular increase of the absorption capacity would not have taken place without the training, exchange of experiences and the dissemination efforts provided under the Capacity Building component (see Annex 2)\. 3\.3 Efficiency An ex-post economic analysis of water supply investments (see Annex 3) was carried out with a methodology similar to that of the PAD (valuation of cost savings in getting water, including time savings and consumer surplus)\. The analysis covers 72 percent of the project costs, i\.e\. the Subprojects component (excluding the sanitation facilities) and the Major Systems component (excluding the Lava Region studies)\. The ex-post economic internal rate of return (EIRR) is estimated at 10\.6 percent and the US$0\.51 million net present value ( NPV) are to be compared to the appraisal estimates of 12\.6 percent and US$1\.67 million, respectively\. The slight decrease of the EIRR and of the NPV is 10Five districts in the Southern province (Gisagara, Huye, Kamonyi, Nyanza and Ruhango, one in the Eastern province (Gatsibo) and one in the Western province (Nyamasheke)\. 11  attributable to the different mix of technical solutions between the PAD's indicative list of water facilities and the actual facilities constructed under the project (see the table below) NPV and EIRR of the Water Supply Sources Technical Options NPV (US$ million) EIRR (%) PAD ICR PAD ICR Springs 0\.92 1\.60 19\.4% 65\.4% Rehabilitated piped systems 0\.57 -0\.03 19\.1 9\.8% New piped systems: -0\.42 -0\.58 8\.3 6\.9% - gravity-fed systems n/a 0\.22 n/a 13\.6% - pumping systems n/a -0\.74 n/a 3\.6% Mayaga system 0\.42 -0\.48 11\.3 9\.0% Global 1\.67 0\.51 12\.6 10\.6% The high investment cost of the new pumping systems brings down the NPV\. This is also true to a lesser extent with the Mayaga system, the cost of which was 30 percent higher than expected\. The new gravity-fed systems generate an EIRR higher than expected, and the spring catchments generate an EIRR of more than 65 percent\. An analysis of the efficiency of investments in terms of unit rates of the various types of water facilities is also provided in Annex 2 and summarized in the table below, which shows that the unit rates compare favorably with values observed elsewhere in Africa\. Average cost per person served (US$/person) Type of facilities Project Regional Average Spring catchments 3 5 Piped systems 42 50-80 Major systems 58 >100 all systems (rehabilitated systems, new gravity-fed systems and new pumping systems) Mayaga system, including production, transmission and secondary networks 3\.4 Justification of Overall Outcome Rating The outcome of the project is rated as highly satisfactory, as it allowed provision of sustainable access and use of WSS services to a greater than expected number of rural inhabitants\. It also paved the way for Rwanda to achieve Millennium Development Goal (MDG) targets by creating the conditions for mobilizing donors\. Consequently, the rate of access to water grew from 44 percent at project inception to 71 percent at the end of 2007\. The project objectives, design and implementation were and remain highly relevant to the country priorities and the Bank assistance strategy\. All objectives have been achieved and most of the outcome targets have been exceeded\. In view of the EIRR and of the average investment costs per capita, the efficiency of the operation is satisfactory\. 3\.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development 12  Not applicable (b) Institutional Change/Strengthening The institutional objectives (decentralization of sector development and establishment of sustainable management of facilities) were achieved, and even exceeded, as the project was instrumental in enabling to shift to the sector-wide approach\. (c) Other Unintended Outcomes and Impacts (positive or negative) Not applicable 3\.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops Not applicable 4\. Assessment of Risk to Development Outcome The risk to development outcome is rated low to negligible in terms of (i) restoring trust between communities and central/local governments; and (ii) maintaining the newly acquired capacities of the various actors\. The close involvement of communities at all steps of preparation and execution built up the social cohesion of communities around their WSS subprojects\. More importantly, the successful decentralization process established the legitimacy of the elected district authorities\. Restoring mutual trust between central/local governments and the communities facilitated the acceptance of the policy changes in the delivery of services (private operators and cost recovery policies) as the changes were initiated and elaborated by the district mayors\. As noted above, the principle of paying for water is widely accepted\. The districts acquired a genuine capacity to plan and execute investments and to oversee the delivery of services\. They are themselves accountable both to the communities and to the Government, which closely monitors their performances\. The performance record of the operators is relatively short, as most of the contracts linked to project facilities were signed in 2006-2007\. However, the experience of the first contracts (including those signed outside of the project area) is positive\. The operators and the districts have been able to overcome unforeseen problems and to adjust as needed the contract terms with the support of the project and of RURA\. Key measures for maintaining the acquired capacities are being implemented\. They include for the districts the continuous technical assistance of DEA and of the provincial engineers\. On the other hand, the operators have established a national association, which will provide support to its members in the area of financial and commercial management\. In addition, in its assistance program to Rwanda, WSP-AF has scheduled a specific component devoted to PPPs and IFC is planning an intervention to help the private operators to develop their activities\. 13  5\. Assessment of Bank and Borrower Performance 5\.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry The Bank performance during the lending phase is rated as satisfactory\. The QAG assessed the project's QEA in April 2001 and rated it as satisfactory\. QAG found that the project design was based on a good assessment of the local, political and institutional context and commended its decentralized and community-based approach\. The QAG panel, however, questioned the level of investment subsidies (90 percent) and the likelihood that such a percentage could be affordable for the Government in the medium-term\. The QAG panel also mentioned that the objective of engaging the private sector in the RWSS sector was unlikely to be achieved\. The implementation experience showed that these concerns were unwarranted\. The shift to the sector-wide approach after 2005 demonstrated the sustainability of the investment subsidies, which have been increasingly financed by the national budget\. Likewise, private participation in water services delivery and management has become the norm in Rwanda\. In hindsight, the project design suffered from minor shortcomings stemming from the absence of process indicators, which could have helped to detect the initial implementation issues earlier (see section 2\.3), and from the excessive complexity of the subproject cycle, as defined at appraisal\. The process of subproject preparations included a validation of the community development plans, feasibility studies, and preliminary and detailed design studies, which proved to be redundant\. The changes introduced after the MTR proved that neither the quality of the subprojects nor the community ownership suffered from a simpler and swifter preparation\. (b) Quality of Supervision The Bank performance in supervision is rated as highly satisfactory, as the team took all opportunities of improvement during field visits and proactively addressed issues, in close partnership with the Borrower\. Supervision missions systematically held implementation workshops with OAs, districts, provincial engineers, contractors (as needed), DEA and the PCU, and brainstorming sessions in the field with the project team\. One of the field visits found that one district in the Byumba province (outside of the project area) had already successfully implemented public-private partnerships, which created an opportunity for the team to suggest streamlining the experience\. The aide-mémoires focus explicitly on the development impact and sustainability, and on ensuring adequate operation of facilities constructed under the project; they review progress of the action plans and include detailed recommendations to address implementation issues\. The supervision team remained the same throughout project execution, with the beneficial addition of a municipal engineer based in neighboring Burundi, shortly before the MTR, which allowed the development of a real partnership with the Borrower\. The latter expressed 14  repeatedly its satisfaction to the Bank team for its contribution and flexibility in addressing issues\. The ISRs were documented and candid\. The downgrading of the Implementation Progress rating by the end of 2003 prompted the PCU, DEA and MINERENA to work together with stakeholders to bring the project out of the Problem Project status\.11 Fiduciary aspects (including procurement and disbursement issues) were regularly assessed\. The infrequent safeguards reviews were eventually compensated by including water resources protection measures in the PRSC matrix\. (c) Justification of Rating for Overall Bank Performance Given the above ratings of the two dimensions of Bank performance, the overall Bank performance is rated as satisfactory\. 5\.2 Borrower Performance (a) Government Performance The Government performance is rated as highly satisfactory, in view of its demonstrated ownership and commitment to the project, the leadership provided by the State Minister for Water and Natural Resources, and the enabling environment created by the decentralization policy\. At the macro level, the Government's determination to effectively decentralize development actions with adequate financial and human resources12 was a key factor in enabling districts to take over responsibilities in infrastructure and deliver services\. The Government's emphasis on results and accountability (which was evidenced by the frequent removal of insufficient performers among the district mayors) is also highly commendable\. Although the provision of counterpart funding was initially problematic, these shortcomings are more than compensated by the very substantial budgetary allocations to the RWSS sector, once the PRSCs came in force\. At the sector level, the State Minister appointed in December 2002 demonstrated strong leadership, and was proactive and open to the innovations brought by the project, including the shift to PPP\. Once aware of the implementation problems, the State Minister prompted the PCU and DEA to address them\. He managed the attrition of DEA staff resulting from the civil service reform by setting up a core team of less than a dozen staff, who prepared the shift to the sector-wide approach while they also managed all RWSS projects\. The State Minister also set up a Coordination Committee regrouping all 11It is regrettable to note that, even though the problem project issue was subsequently satisfactorily resolved, the rating persisted in the country portfolio assessment and penalized Rwanda allocation under IDA 14\. 12Thirty percent of budget expenditures are decentralized from national level to district level\. In addition, the civil service reform allowed redeployment of central government staff to the districts\. 15  donors and aiming at converting them to the sector-wide approach, where he persistently advocated harmonization\. He also participated in the dissemination of the outcome of the sector policy reforms, both in Rwanda and in international forums\. (b) Implementing Agency or Agencies Performance The performances of the project team in DEA and the PCU, and of the districts are satisfactory\. The project team faced the demanding task of implementing an entirely new sector strategy and an innovative project with a set of partners with limited experience\. The learning curve proved to be slower than expected and resulted in implementation delays\. However, the team demonstrated its commitment and capacities in revising the project rules at the MTR, while maintaining a participatory approach to problem-solving\. The PCU and the provincial engineers effectively delivered a substantial portion of capacity building activities through a number of workshops and seminars\. They successfully addressed several technical shortcomings of the OAs (see Annex 2)\. Financial management and procurement performances have been adequate\. The initial shortcomings in reporting and M&E were resolved after the MTR\. The districts took over implementation responsibilities in 2001 and immediately recognized that the restoration and expansion of sustainable WSS services was a key concern of the rural population\. The districts played a proactive role in the pilot phase by (i) pointing at implementation delays; (ii) suggesting changes in project rules; and (iii) facilitating the mobilization of community contributions\. Later, the district mayors were easily convinced that the PPP was the right option, especially as PPP had been initiated by one of their peers\. The mayors demonstrated their leadership by negotiating contracts that reflected the specific conditions of each water system and protected vulnerable users\. Throughout the project, their procurement performance has been fully satisfactory\. (c) Justification of Rating for Overall Borrower Performance Given the above ratings of the two dimensions of Borrower performance, the overall Borrower performance is rated as satisfactory\. 6\. Lessons Learned Implementing an effective decentralization of the RWSS sector supported by effective capacity building is a key factor of success in the development of water and sanitation services in rural areas\. To be effective, however, decentralization requires adequate financial and human resources and must be accompanied by an effective monitoring of results by the central Government and by establishing a clear sense of accountability among local authorities\. To deliver results, project rules should be as simple as possible and fully flexible, as the commitment of populations is a direct function of the speed at which subprojects are prepared\. In addition, capacity building at decentralized level can only be effective when the 16  size and number of local entities is adequate\. The 30 Rwandese districts, with an average population of about 250,000 people are in a much better position to benefit from capacity building (and to apply and retain the acquired capacities) than, for instance, the 700 communes of Mali\. There is no one-size-fits-all solution for the management of water facilities, but PPP has a strong potential for the delivery and development of improved water services\. Community-based management seems more appropriate for point sources (springs or hand pumps) than for piped systems\. The Rwandese experience showed that (i) WUAs offer limited accountability, (ii) maintenance and cost recovery is quite challenging, and (iii) local private operators can be found anywhere\. In situations where the operating conditions and actual demand are uncertain, it is not advisable to try to impose the use of standard contracts\. The Rwandese districts decided instead to design themselves very simple contracts for candidates offering a minimum of qualifications, which resulted in quite satisfactory arrangements\. Self-standing RWSS projects should also aim at facilitating harmonization and preparing to scale up and to shift to a sector-wide approach and budget support by (i) providing a complete set of tested guidelines and procedures for preparing and implementing investments and for managing and delivering services; and (ii) enabling sector staff, rather than consultants, to elaborate objectives and policy matrix actions\. As it was the case in Rwanda, only a strong sectoral leadership at the ministerial level can create incentives for staff and donors to internalize the change in approach and to ensure harmonization\. 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies (b) Cofinanciers Not applicable (c) Other partners and stakeholders Not applicable 17  Annex 1\. Project Costs and Financing (a) Project Cost by Component (in US$ Million equivalent) Components Appraisal Estimate Actual/Latest Percentage of (US$ millions) Estimate (US$ millions) Appraisal A\. SUBPROJECTS 10\.43 14\.10 135% B\. REHABILITATION OF MAJOR RURAL WATER 3\.40 5\.08 104% SUPPLY SYSTEMS C\. CAPACITY BUILDING 2\.79 1\.90 53% D\. PROJECT MANAGEMENT 1\.35 1\.78 102% PPF REFINANCING 0\.75 0\.67 89% Total Baseline Cost 18\.72 23\.54 Physical Contingencies 0\.47 0\.00 Price Contingencies 2\.23 0\.00 Total Project Costs 21\.42 23\.54 110% Front-end fee PPF 0\.00 0\.00 Front-end fee IBRD 0\.00 0\.00 Total Financing Required 21\.42 23\.54 110% Calculated by comparing actual costs and appraisal estimates including contingencies\. As noted in the PAD, Component A did not entail any contingency and all physical contingencies were allocated to Component B\. (b) Financing Appraisal Actual/Latest Source of Funds Type of Estimate Estimate Percentage of Cofinancing (US$ millions (US$ millions Appraisal ) ) Borrower Cofinancing 0\.49 0\.48 99% Local Communities Cofinancing 0\.93 0\.60 65% International Development Association (IDA) 20\.00 22\.45 111% The Borrower also provided USD 5\.58 million in parallel financing to construct eight additional piped systems, which had been identified, studied and prepared under IDA financing\. 18  Annex 2\. Outputs by Component Component A ­ Subprojects Key Outputs\. As the subprojects were to be implemented under the demand-based approach, a detailed list of water and sanitation facilities to be constructed under Component A was not included in the PAD\. However, the PAD included specific targets for the additional population to be served by the project and the PAD's cost tables were based on an indicative number of facilities\. The table below compares the appraisal estimates and the actual figures\. WSS Equipment Appraisal Estimates Actual Number Population Served Number Population Served Spring catchments 2,500 150,000 1,201 255,000 Piped systems: - Rehabilitation 25 50,000 21 86,000 - New systems 25 50,000 12 67,000 Total 250,000 408,000 Latrines blocks 125 N/A 134 65,000 Rainwater storage 20 84 The actual outputs for the water facilities are lower than the appraisal indicative figures and the actual outcome is substantially higher (163 percent of the estimate)\. These results reflect the fact that the average population served by the constructed facilities is substantially higher than expected\. The piped systems that were built are also larger than expected\. They regroup on average about 15 standposts, against 10 in the appraisal estimates\. The piped systems also serve about 450 private connections, which were not contemplated at appraisal\. In addition, the OAs completed detailed design studies for eight other systems, the construction of which has been taken over by budget support\. These systems will supply another 90,000 people\. Sanitation subprojects featured well in the CDPs\. With a total cost of RWF 853 million (US$1\.70 million equivalent), they represent 15 percent of the total cost of facilities\. The actual number of constructed facilities is in line or exceeds appraisal estimates\. 105 schools and 4 health centers have been equipped\. Quality of Outputs\. The final technical audit found that the quality of works was generally satisfactory, regardless of the origin of the contractor (local or foreign)\. The supervision missions found some design or execution issues in the piped systems that relied on pumping equipment, which had not been explicitly dealt with by the OAs supervision teams\. These problems were actually addressed by the PCU and the 19  provincial engineers, who brought the contractors to correct them\. The initial design of school latrines also generated maintenance problems, and was subsequently corrected\. As noted above, the quality of services of the four partner organizations was not uniform\. One of them maintained a fully satisfactory performance\. The other three OAs experienced delays, particularly in the early stages of community mobilization, even though they had prior experience with the project district populations\. They also encountered difficulties in retaining experienced staff at the supervision stage\. Efficiency\. As shown in the below table, the average cost of the constructed facilities was lower than the appraisal estimates (-20 percent) for the spring catchments, much higher than expected for the rehabilitated systems (+160 percent) and close to the estimate for the new gravity-fed piped systems\. Actually, all rehabilitated piped systems were substantially expanded, which explains the higher average costs\. The cost per person served compares favorably with the average costs per capita observed in the region (about US$ 5 for the spring catchments and US$ 50-80 for the piped systems)\. Water Supply Average Construction Cost Average Cost Number of Equipment of Facility (US$) per Person People per Appraisal Actual Served (US$) Water Point Estimate Spring Catchments 800 640 3 210 Piped systems: - Rehabilitation 50,000 130,500 31 285 - New gravity-fed systems 120,000 116,500 27 520 - New pumping systems N/A 897,000 100 300 Average number of people per spring catchment or per standpost\. The piped systems that require pumping cost (on a per capita basis) almost four times as much as the gravity-fed systems\. The associated energy costs will further penalize the clients\. Gravity-fed systems should thus be the norm when the existence of adequate water resources allows this option\. However, it is likely that the trend observed in rural areas toward the grouping of scattered population in the umidugudu (new villages) would lead to a growing recourse to pumping\. The promotion of private connections could then allow alleviating the cost of water\. The costs of design, supervision and community mobilization were lower than expected (about 24 percent of the construction costs, against 30 percent as expected at appraisal)\. The changes introduced in the project cycle at the end of the pilot phase (simplification of the technical studies and shifting of community mobilization responsibilities to the district) reduced the work load of the partner organizations and the associated costs\. Component B ­ Major Rural Systems Key Outputs 20  This component focused on: (i) the rehabilitation/expansion of the Shyogwe-Mayaga system and its management by a private operator; and (ii) the execution of technical and management studies for preparing the completion of the Lava region systems under separate financing\. The actual physical works of the Shyogwe-Mayaga system consisted of: The rehabilitation of the seven spring catchments (about 120m3/day) The construction of a new treatment plant at Shyogwe (package units with flocculation, settling tanks and rapid filters) with a capacity of 520 m3/day The replacement of 60 km of transmission pipes (DN 150-250 mm) The construction of a 400 m3 storage tank at Kinazi The rehabilitation and expansion of secondary networks (total length 209 km) equipped with 262 standposts\. The rehabilitation and expansion was completed, albeit with major delays attributable to (i) the late selection of the design engineers, as the initial expectations of a negotiated contract with the previously involved engineers failed; and (ii) the slow pace of design studies for the primary branches and secondary networks (antennes)\. The rehabilitation of the production system and of the main transmission pipe was completed in May 2006, whereas the antennes were completed by the closing date\. The system serves 120,000 people\. The four districts served by the system set up an inter-district association in September 2005, which obtained assistance from WSP-AF to prepare bidding documents for the selection of the private operator\. The operating contract was similar to a lease contract\. The operator was expected to be remunerated from the water sales without external subsidies, but with provisions to reassess the economic conditions after a 12-months period, given the uncertainties about the effective demand for water\. The late completion of the works delayed the bidding until November 2007, after an intensive search for local private operators\. Three candidate submitted bids in December 2007 and the contract was awarded in February 2008 to an NGO, FHI,, which proposed a price of RWF 15/20- liter container (equivalent to US$1\.40/m3) and a price of RWF 600/m3 for the private connections\. The technical studies (including detailed design and bidding documents) of the completion of the Lava Region systems were completed in September 2004\. The cost of completion was then estimated at US$11\.6 million\. The management studies were postponed, pending the assessment of the existing operators' performance, specifically: (i) in the Western part a provincial public utility in Gisenyi, which had taken over from the collapsing water users associations established in 1997; and (ii) in the Eastern part (Ruhengeri), the national water utility, Electrogaz, which was then under private management\. The project provided assistance in the form of water meters for the Gisenyi utility and technical assistance from the provincial engineer\. In 2005, the African Development Bank provided US$6\.8 million to complete the systems in the Eastern part, which remains under Electrogaz' management\. The 21  Government provided US$1\.2 million for the networks, which will provide access to water services for about 116,000 people\. As the performance of the Gisenyi utility became unsatisfactory, the districts and the Gisenyi province decided to seek a private operator\. The latter was recruited in 2007 with the support of the Dutch bilateral assistance, which provided in turn US$1\.6 million for the completion of the Western part, which may supply about 190,000 people\. Quality of Outputs\. The quality of the physical works of the Shyogwe-Mayaga system is satisfactory\. After the completion of the production facilities, heavy rainfall in the summer of 2007 caused damages to the spillway of the Shyogwe dam\. Repairs were carried out at the end of 2007 with Government financing\. The December 2007 review by the Bank safeguards specialist raised concerns about the protection of the watershed feeding the Shyogwe reservoir watershed from potential contamination by fertilizers and pesticides\. After a field visit, it was agreed that MINITERE and the districts will seek strict enforcement of the protection perimeter already established around the reservoir\. This situation could have been avoided by a closer involvement of the environmental specialist\. The quality of the technical studies and of the management assistance of the Lava Region system is evidenced by their satisfactory outcome in attracting adequate financing from other donors and promoting private operators\. Efficiency\. The actual cost of the rehabilitation of the Shyogwe-Mayaga system was US$4\.55 million, i\.e\. 30 percent higher than the appraisal estimate of US$3\.5 million\. This corresponds to US$38 per person served (US$58, including the cost of the secondary networks), which still compares favorably with the average costs per capita observed in the region (see above)\. The design and supervision costs (6\.5 percent of the construction costs) were much lower than the one observed in the Subprojects Component\. The technical options (simple treatment process and gravity-fed supply) warrant straightforward and low-cost operations of the system\. Component C ­ Capacity Building Key Outputs\. Overall, this component helped finance 35 workshops (US$0\.23 million) and 290 person-months of training (290 person-months in Rwanda and 50 abroad, mostly in Africa) at a cost of US$1\.01 million\. The equipment (US$0\.47 million) included 10 computers and ancillary equipment, 4 vehicles and 8 motorcycles\. Consultant services (US$0\.19 million) were used for the financial and technical audits\. The component was carried out in three phases, which were closely connected to the implementation of the project\. These phases were as follows: Phase I: Initial learning (pilot phase, from effectiveness to the start-up of the first works contracts)\. This phase allowed the improvement of the basic capabilities of the 22  stakeholders and the integration of the pilot CDCs, districts and communities in the project\. It consisted of (i) supply of the initial equipment (information technology, office equipment, vehicles and motorcycles) of the PCU and the provincial units; (ii) basic training in procurement (PCU, provincial units and also officers of the National Tender Board in charge of monitoring the project procurement) and participatory techniques (provincial units, CDCs and districts); (iii) visits to other African countries (Benin, Uganda and Burkina Faso); and (iv) periodic workshops with the districts and the CDCs to build awareness of the project approach and the subprojects' implementation manual\. Phase II: Exchange of experiences (from the start-up of the first works contract to the MTR)\. This phase enabled acceleration of the subproject cycle by revising and simplifying procedures and reallocating implementation responsibilities in light of the increased capabilities of the districts\. It consisted of (i) exchanges of experiences (among districts, provincial units and partner organizations) in the implementation of subprojects, through workshops; (ii) specific technical training seminars (masons, sanitation technologies and training of caretakers ("fontainiers de secteur"); and (iii) an assessment of the implementation procedures, culminating in the workshops of the MTR, which regrouped all stakeholders Phase III: Dissemination (from the MTR to project completion)\. This phase allowed spreading best practices, particularly for facilities management, and documenting the progressive shift to the sector-wide approach\. It consisted of (i) finalizing and disseminating the revised implementation procedures; (ii) disseminating the experience of the Northern Rwanda districts with private operators through workshops and field visits; (iii) disseminating the Rwandese experience with budgetary support and local private operators in international for a (including the Bank's Water Week); and (iv) assessing the project execution and outcome (technical audit and impact study)\. Efficiency The cost of this component was substantially lower than expected (53 percent of the appraisal estimate)\. This is attributable to the intensive use of workshops and seminars managed by the PCU (particularly during the second and third phases) and a lesser use of external providers and training abroad\. It should be noted that the Government closely monitored the recourse to external training to avoid unnecessary expenses (all travel for training abroad had to be cleared by the Council of Ministers)\. In addition, the component benefited from WSP-AF support, which helped reduce project expenditures\. 23  Annex 3\. Economic and Financial Analysis This annex presents the results and methodology followed in the ex-post economic analysis of the project\. Introduction and Methodology The project has improved water supply and sanitation coverage and services to rural communities in seven districts through the construction, extension and rehabilitation of point sources and piped systems, the extension and rehabilitation of one major water supply system and the promotion of low-cost sanitation systems\. The immediate impact is a greater quantity of safer water and a more convenient source of water for about 528,000 people, safer and more convenient wastewater and excreta disposal and improved hygiene habits\. Most benefits accrue to households, and within households, to women and children who spend on average one hour per day fetching water (Source: National Inventory of Water Supply; MINERENA/GTZ) and to children under five, whose health is particularly vulnerable to bad water quality\. The ex-post cost-benefit analysis was carried out to calculate the economic net present value (NPV) and internal rate of return (EIRR) of the water supply investments of the project, i\.e\. about 72 percent of the total project costs\. The methodology is similar to the one used in the PAD\. Economic benefits depend on the type of improved water supply (springs, piped system) and on the extent to which it is used by the communities, which in turn depends on the original source of supply (standpost, protected or unprotected spring, fetching water or vendors)\. Two types of benefits accruing to the beneficiaries using the new source were estimated: (a) the cost savings associated with a decrease in use of the traditional source; and (b) an increase in consumer surplus on the increased quantity of water used\. Depending on the traditional source used, the cost savings considered are: the costs saved from not having to buy water from vendors, or the costs saved from not having to spend time fetching water\. Main Assumptions Water Use and Water Rates\. Information on water supply conditions (source of supply, consumption, prices and time spent in fetching water) was gathered as follows: (i) for the water supply conditions before the project, from UNICEF surveys and the WTP survey carried out during project preparation; and (ii) after the project, from the impact study and from statistical information collected from the private operators\. It is estimated that 80 percent of the population use the new supply and that the average daily consumption per capita is about 8\.5 lpcd at springs, 10 lpcd for people using pumping systems and 13 lpcd for the gravity-fed systems (including Mayaga)\. Water fetched from traditional sources is free\. Water costs between RWF 20 and RWF 30 per 20 liter container from vendors, RWF 2\.5 to RWF 5 at the standposts of gravity- 24  fed systems (new or rehabilitated) and RWF 15 at the standposts of pumping systems and of the Mayaga system\. A yearly fee of RWF 300 is charged to households supplied by springs\. The time spent fetching water would be reduced from 45 minutes to 30 minutes at the springs built as part of the project\. The table below describes the water supply conditions of households for each type of water facility, before and after the project, namely (i) the daily consumption of water (in lpcd); and (ii) the actual source of supply used (as a percentage of the total number of households)\. Water Supply Conditions Before and After Project Water supply conditions Comments Before Project After project New source of supply Daily cons\. Distribution Daily cons\. Distribution (lpcd) % (lpcd) % Springs: actual source of supply Average population served = 210 Fetching water 8 50 % 8 17 % Time spent :1 hour / day Vendors 2 10 % 2 3 % @ RWF 20/container Spring 8 40 % 8\.5 80 % Time spent : ½ to ¾ hour / day Rehabilitated piped system: Average population served = actual source of supply 4,150 Standposts 7 40 % 13 80 % @ RWF 3\.75/container Fetching water 8 20 % 8 7 % Time spent :1 hour / day Vendors 2 10 % 2 3 % @ RWF 20/container Spring 8 30 % 8 10 % Time spent : ½ to ¾ hour / day New system (gravity-fed) : Average population served = actual source of supply 4,350 Standposts 0 20 % 13 80 % @ RWF 3\.75/container Fetching water 8 30 % 8 10 % Time spent :1 hour / day Vendors 2 10 % 2 2 % @ RWF 20/container Spring 8 40% 8 8 % Time spent : ½ to ¾ hour / day New system (pumping) : Average population served = actual source of supply 9,000 Standposts 0 20 % 10 80 % @ RWF 15/container Fetching water 8 30 % 8 10 % Time spent :1h 30mn / day Vendors 2 10 % 3 2 % @ RWF 30/container Spring 8 40% 8 8 % Time spent :1h 30mn / day Major Systems (Mayaga) Population served = 120,000 Standposts 5 5 % 13 80 % @ RWF 15/container Fetching water 8 45 % 8 9 % Time spent :1h 30mn / day Vendors 3 10 % 18 2 % @ RWF 30/ container Spring 8 40 % 5 9 % Time spent :1h 30mn / day The cost savings of not having to fetch water was estimated as the opportunity cost of time spent fetching water and is equal to 30 percent of the average income in rural areas\. Incremental Operating Costs\. Average annual costs of the various types of supply were estimated on the basis of actual costs registered by operators\. The operating costs of the Mayaga system (treatment, energy, maintenance and commercial costs) are based on the estimates provided by consultants in the rehabilitation studies and checked against actual data obtained from Electrogaz\. Operation and maintenance costs are summarized in the following table\. 25  Operation and Maintenance Costs (RWF) Type of water supply system Gravity-fed Pumping systems Mayaga system systems Maintenance costs 1\.5 % of 1\.5 % of 1\.5 % of investment costs investment costs investment costs Commercial costs RFW RFW RFW 10,000/standpost 10,000/standpost 10,000/standpost Energy costs - RWF 80/m3sold RWF 20/m3sold Treatment costs - - RWF 50/m3sold Overhead costs 15 % of annual 15 % of annual 15 % of annual revenues revenues revenues rehabilitated systems and new systems Summary of Benefits and Costs Conversion factors were used to translate financial flows into economic values\. It was assumed that the shadow exchange rate equals the financial exchange rate\. Based on IDA norms for projects in Rwanda, a 10 percent discount rate was used\. The period of the analysis is 25 years, starting in 2006\. The results of the cost-benefit analysis are summarized in the following table: NPV and EIRR of the Water Supply Sources Technical Options NPV (US$ million) EIRR (%) PAD ICR PAD ICR Springs 0\.92 1\.60 19\.4% 65\.4% Rehabilitated piped systems 0\.57 -0\.03 19\.1 9\.8% New piped systems: -0\.42 -0\.58 8\.3 6\.9% - gravity-fed systems n/a 0\.22 n/a 13\.6% - pumping systems n/a -0\.74 n/a 3\.6% Mayaga system 0\.42 -0\.48 11\.3 9\.0% Global 1\.67 0\.51 12\.6 10\.6% The global NPV is positive\. However, the actual results are slightly lower than the PAD estimates, with the exception of the spring catchments, which serve on average more than twice as many people as expected\. The high investment cost of the new pumping systems brings down the NPV\. This is also true, though to a lesser extent, for the Mayaga system, the cost of which was 30 percent higher than expected\. The new gravity-fed systems generate a higher EIRR than expected 26  Annex 4\. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Names Title Unit Responsibility/ Specialty Lending Richard Verspyck Lead Water & Sanitation Spec\. AFTU2 TTL Franz Drees Water & Sanitation Specialist AFTU2 Initial design Marie-Chantal Uwanyiligira Project Officer AFTG1 Country Coordination Marie-Laure Lajaunie Water Resources Specialist MNSRE Economic Analysis Hassane Cisse Counsel LEGAF Legal David Freese Disbursement Officer LOAAF Disbursements Abdul Hajji Financial Management Specialist AFTFM FM aspects Prosper Nindorera Procurement Specialist AFTPC Procurement Ernestina Attafuah Sr\. Program Assistant AFTU2 Cost tables Andrew Makhoka Water & Sanitation Specialist WSP- Implementation ESA arrangements Supervision/ICR Christophe Prevost Sr\. Water & Sanitation Specialist AFTU2 TTL Serigne Omar Fye Sr\. Environmental Spec\. AFTEN Safeguards Chantal Kajangwe Procurement Analyst AFTPC Procurement Alain Morel Consultant ETWAF PPP Technical and Deo-Marcel Niyungeko Municipal Engineer AFTU2 implementation aspects Emmanuel Tchoukou Financial Management Specialist AFTFM FM aspects Richard Verspyck Consultant AFTU2 (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle No\. of staff weeks US$ Thousands (including travel and consultant costs) Lending FY96 FY97 FY98 FY99 FY00 38 214\.28 Total: 38 214\.28 Supervision/ICR FY00 1 0\.90 27  FY01 15 83\.45 FY02 19 78\.05 FY03 21 98\.12 FY04 19 87\.45 FY05 21 75\.54 FY06 17 73\.18 FY07 26 127\.40 FY08 11 76\.00 Total: 150 700\.09 28  Annex 5\. Beneficiary Survey Results Not applicable 29  Annex 6\. Stakeholder Workshop Report and Results Not applicable 30  Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR 1\. INTRODUCTION The Rural Water Supply and Sanitation Project (RWSSP) is a project designed (from 1998 to 1999) as a pilot to test the water supply and sanitation policy adopted in late 1997, whose central pillar for setting up the sustainable water supply and sanitation (WSS) systems was a participatory and demand-responsive approach\. The project also introduced a bottom-up project cycle, as opposed to the classic top-down project cycle\. Total project cost is US$21,420,000, including US$20,000,000 in the form of an IDA credit negotiated and obtained by the Rwandan Government and US$1,420,000 to be provided by the Rwandan Government with the participation of the beneficiaries\. The credit agreement was signed on August 7, 2000 and came into effect on January 31, 2001\. Before the reform of the Administration, the project was managed by a team steered by the coordinator and made up of civil servants and contract staff\. Following the reform, in 2005, it was managed by a team of contract staff under the supervision of the Directorate of Water & Sanitation [Direction de l'Eau et de l'Assainissement]\. The project has adjusted to the various administrative changes (central and decentralized reforms)\. The decentralized financing facility applied by the RWSSP was ultimately extended to the entire sector\. 2\. THE PROJECT GOALS 1\. Increase the availability and sustainability of water supply and sanitation (WSS) systems in rural areas by promoting simple WSS systems 2\. Build the capacity of (a) the communities to plan WSS investments and manage WSS services, and (b) the bodies responsible for district WSS services, users and the private sector to discharge their respective sector strategy responsibilities\. 3\. Rally community support for (a) the rehabilitation and/or expansion of the major water supply systems, and (b) the operation of the said water systems by the private sector\. 3\. THE PROJECT COMPONENTS The project is made up of four components: 3\.1\. COMMUNITY SUB-PROJECTS COMPONENT This component provides grants to the districts covered by the project to: Conduct the WSS works, including: - Protected springs - Building and/or rehabilitating water supply systems (gravity and/or pumped) - Boreholes equipped with handpumps - Building sanitation facilities (latrines, rainwater collection, rainwater and wastewater drainage and disposal) 31  Prepare the water and sanitation components of the Community Development Plans (CDPs) by means of consultant services and training of the Community Development Committees (CDCs)\. Design and implement the engineering components for the sub-projects\. Build the community-based groups' capacities\. 3\.2\. MAJOR WATER SUPPLY SYSTEMS COMPONENT Rehabilitate and extend the Mayaga water supply system to include: (i) water catchment, treatment plant, headworks and other production facilities of the system; and (ii) the said system's main trunk\. Assist with the rehabilitation of the Lava Region systems, to include: (i) an evaluation of (a) the operational, social and management conditions for the installations delivered under the 2nd Water Supply Project, and (b) the investments required to achieve the initial service goals for the said systems; and (ii) the definition and implementation of sustainable operational and management procedures, including the operation of the systems by private-sector bodies\. 3\.3\. CAPACITY-BUILDING COMPONENT Build stakeholder capacity to ensure the adequate and timely delivery of supplies, works and services for the WSS sector, including: - Building the capacity of the CDCs to perform their project duties - Providing adequate training, including contracting service providers and partner organizations Build the capacity of the Ministry of Energy, Water and Natural Resources [Ministère de l'Energie, de l'Eau et des Ressources Naturelles ­ MINERENA] to perform its project duties by means of: (a) the provision of technical consultants for the MINERENA personnel assigned to the project, (b) reviews of the Water Supply and Sanitation Programs, (c) identification of subjects for studies, (d) an information campaign to promote widespread hygiene education, (e) an external project impact appraisal, and (e) an exchange program with other countries on project- related issues\. 3\. 4\. PROJECT MANAGEMENT COMPONENT Build the management and supervisory capacities of MINERENA and the CDCs by means of: (i) the building and fitting out of offices for CDC sub-committees and regional MINERENA services, and (ii) the purchase of office equipment, vehicles, motorbikes and bicycles\. Monitoring and evaluation activities, and project audits\. 4\. PROJECT DESIGN The project was designed as a pilot project to test the new Water Supply and Sanitation policy newly adopted in 1997, based on a demand-responsive approach and the participation of beneficiaries in the different sub-project phases (from initiation through implementation to management)\. In addition, the project links the Water Supply and Sanitation in a concrete manner with the building of sanitation works and the promotion of the Hygiene and Sanitation in Schools Program 32  [Programme d'Hygiène et Assainissement en Milieu Scolaire ­ HAMS]\. The planned WSS systems are technically simple systems that can be managed by the local populations\. Given the need to set up sustainable systems, the entire project design prioritized user involvement, primarily with meetings to validate the Community Development Plan's Water Supply and Sanitation sector\. The project's crucial phase concerned mobilizing and raising the awareness of all the stakeholders in the new approach\. The studies were conducted in a participatory manner\. 5\. PROJECT IMPLEMENTATION The implementation of this project, and especially its sub-project component, was based on the demand-responsive approach and the participatory approach, with the particularity of financial participation in sub-project investment\. The choice of zone for the project was determined after its launch and was based on the criteria previously defined during the project preparation phase\. These criteria included a low level of water supply service, the existence of the resource, the level of priority placed on WSS in the Community Development Plan (ranked 3rd place at most), and the absence of similar projects\. The existence of a Community Development Plan (CDP) was a prerequisite in all cases to be able to understand the populations' needs and their rankings in terms of priority\. Sixteen communes were selected on the basis of the said criteria\. Following successive administrative reforms, where the communes became districts and then larger districts reducing in number each time, the project covered 7/30 districts in the country\. Nevertheless, the zone of operations remained the same even though the administrative entity changed\. These different changes affected project implementation essentially in terms of administrative partners, who frequently changed\. The project had to adjust to this\. Project information meetings were held for the new administrative authorities whenever they were needed\. In view of the decentralized nature of the project, the funds to finance the implementation of the sub-projects were transferred to the districts following the signing of a grant agreement between MINERENA represented by the Rural Water Supply and Sanitation Project (RWSSP) and the District\. The entire contracting and works supervision process, as well as the choice of operators for the systems, was managed by the district with the assistance of the partner organizations and the project engineer based in the province\. Important stages in the implementation of the sub-projects: Mobilisation stage (2001), marked by: - Various meetings and seminars held by the Project Coordination Unit for the project partners - ToR and standard documents such as bidding documents and procedures manual produced Study stage, which was longer than planned (2002-2003): - Districts assisted with the production of the CDPs - Partner organizations selected, studies conducted (preliminary design and detailed design), and financial participation by applicants for sub-projects 33  - Agreement signed with the districts Works stage (2004-2007) corresponding to the works contracting process and execution\. The project was extended by one year to finalize the Shyogwe-Mayaga sub-branch works and consolidate the private-sector management of the systems\. In terms of participation, the project was extremely pleased with the level of beneficiary involvement as demonstrated by (i) the free provision of land for the works, (ii) financial participation even before the detailed designs were drawn up, and (iii) participation in the actual works\. Participation on these three levels is what underpins the beneficiaries' current level of ownership\. 6\. MID-TERM PROJECT REVIEW This review enabled adjustments to be made to speed up the implementation of the project, which had no physical infrastructure achievements to show after four years\. These adjustments entailed involving the provincial engineers in the studies conducted for the springs and latrines with the assistance of the district hydraulic engineers, hitherto conducted by the partner organizations; acknowledgement of the failure of the WSS systems by the water agencies; and across-the-board adoption of the private operator principle\. The involvement of the provincial engineers in the studies substantially reduced study lead-times in two new districts\. The principle of setting an annual funding ceiling for the districts was also reviewed to take in only the district's overall program resulting from the multiannual investment plan drawn up by each district\. The adjustments agreed upon following the review were designed to facilitate project implementation\. 7\. RESULTS Component 1: Community sub-projects A number of activities preceded the execution of the WSS works and prompted ownership by the beneficiaries: The Project Coordination Unit applied the new approach to the Water Supply and Sanitation sector Assistance was provided to the districts to draw up the Community Development Plans (CDPs) The partner organizations held meetings at sector and district level to validate the CDP's Water Supply and Sanitation sector The partner organizations conducted preliminary design studies with the participation of the beneficiaries The results of the preliminary design studies were presented to users for validation followed by ranking in order of priority and multiannaul planning of the WSS sub-projects The grant agreement was signed between the RWSSP and the District Two accounts were opened, one for IDA funds (grants to the district), and the other for beneficiaries' contributions to sub-project funds Detailed design studies for all the WSS sub-projects featured in the multiannual planning 34  In terms of infrastructure delivered: Drinking water (i) 33 water supply systems (30 gravity and 3 pumped) of a length of 432\.7 km with 565 public standpipes, 7 water kiosks and 450 house connections\. Note that 22 of these systems are rehabilitations and 11 are new systems, with two being pumped\. (ii) 212 km of sub-branches off the Shyogwe-Mayaga system, counting 262 public standpipes serving 120,000 people (iii) 1,207 protected springs, including three handpumps\. The population served by these systems totals 528,653 people, which is well over the 370,000- person target set in the project goals\. Sanitation The RWSSP was the first water project to properly take in the sanitation sector with concrete infrastructure achievements, which form the basis for the promotion of hygiene\. It built 134 ventilated and drainable latrines, and 84 rainwater storage tanks of 10 m3 each\. These sanitation facilities serve 65,883 people in schools and in clinics with a total of 111 beds\. Moreover, different sanitation technologies applicable to Rwanda were studied\. HAMS Program As part of the promotion of hygiene and sanitation, the Hygiene and Sanitation in Schools Program [Programme d'Hygiène et Assainissement en Milieu Scolaire ­ HAMS] was developed in order to initiate young children into good hygiene practices\. The following important actions were taken in this area: HAMS committees were set up at the level of all districts and schools in the project zone\. The National HAMS Committee comprising representatives of the Ministry of Education [Ministère de l'Education ­ MINEDUC], the Ministry of Local Administration [Ministère de l'Administration Locale ­ MINELOC], the Ministry of Health [Ministère de la Santé ­ MINISANTE], and the Ministry of Energy, Water and Natural Resources [Ministère de l'Energie, de l'Eau et des Ressources Naturelles ­ MINERENA] was created and strengthened\. Training was given to members of the different HAMS committees, training a total of 505 people on the HAMS primary and secondary school committees in hygiene and sanitation considerations, and 83 people on the HAMS district committees\. Radio spots were broadcast on hygiene and sanitation\. Plays performed by Urunana Development Communication were broadcast in the national language on the BBC and national radio\. These messages promoted changes in hygiene and sanitation behavior\. Articles on hygiene and sanitation, and the management of the WSS systems, were published in the leading national newspaper\. A Hygiene Fund was set up for each school in the project zone\. It is funded by the school's own revenues and by contributions from the pupils' parents, to which may be added various subsidies\. This Fund is used to purchase hygiene materials such as toilet paper and hand soap\. 35  The evaluation conducted in October 2007 showed that 80 percent of the school and clinic latrines are well-maintained and in a highly satisfactory state of hygiene\. The RWSSP prompted a nationwide rollout of the HAMS program\. The other sector players, such as UNICEF, have started to support this program, which will produce a teacher's handbook to incorporate hygiene and sanitation into the teaching program\. Component 2: Major water supply systems This component comprised two major activities: A technical assessment was made of the water supply systems in the Lava Region with a view to their completion\. This technical assessment gave rise to bidding documents for the entire primary network and a cost estimate for the work to be done (approximately 11 million)\. A study on modernizing the main 60 km-long Shyogwe Mayaga network and water treatment plant was conducted and followed by rehabilitation work on the 60 km-long Shyogwe- Mayaga primary water supply system\. Component 3: Capacity-building Capacity-building concerned all central and decentralized levels in a range of areas\. Decentralized level: 771 water technicians trained in building VIP latrines and rainwater storage tanks\. 290 hydraulic engineers trained in protected small springs and water supply system maintenance\. All the members of the district CDCs in the project zone trained in Participatory Rural Appraisal (PRA)\. 42 district-level procurement officers trained in contracting\. Study trips in the districts to exchange experiences, especially on the management of WSS infrastructures\. A seminar was held in Kibuye in October 2004 with the authorities and technicians of the districts covered by the project to discuss the management options\. Private operators from Byumba took part in this meeting to talk about their experiences in the matter\. At the end of the seminar, the participants unanimously recommended contracting out the WSS infrastructures to private operators\. Central level: Different training courses were given to 21 people from MINERENA and the NTB (National Tender Board)\. A study trip was organized to Benin for three people at the beginning of the project to see how the participatory projects are steered\. Partner organizations, such as engineering firms and companies, acquired expertise in conducting water supply works, and a new development emerged in the form of the construction of public 36  latrines in which no support agency had been interested, and likewise for small springs, which had been left to untrained hydraulic engineers\. At least five national companies developed their expertise as a result of the different contracts conducted\. Of the 33 water supply systems built or rehabilitated, only one was executed by a foreign firm\. All of the Mayaga sub-branches were rehabilitated by local firms\. Only the primary network was executed by an outside company\. 8\. MANAGEMENT OF THE WSS INFRASTRUCTURES The sustainability of the WSS systems was one of the project's main goals\. This goal was largely achieved in the operations zone, principally as a result of the promotion conducted by the project\. The project initially intended to put in place infrastructures and, at the same time, set up community-based management structures\. Nevertheless, an evaluation conducted by the Directorate of Water & Sanitation [Direction de l'Eau et de l'Assainissement ­ DEA], with project assistance in the first quarter of 2004, revealed the failure of community-based management and the success of the first private managers in the north of the country\. This management model was replicated and scaled up at project level\. A number of activities were conducted to promote public-private partnerships in the districts covered by the RWSSP and beyond: Study trips in the districts practicing public-private partnerships, for the authorities of the districts covered by the project and the other rural districts\. Seminar for the authorities of the districts in the project zone to promote public-private partnerships (PPPs)\. National seminars to build district authority awareness of PPPs\. Meeting of private operational operators to exchange experiences\. Assistance from the RWSSP provincial engineers to the districts to prepare operator recruitment dossiers and contracts\. To round it off, undertakings with a local consultant, with WSP support, to step up assistance to the districts with the PPP program\. The result of these activities is that the transfer of the management of the WSS systems to private operators has become a widespread trend in the Water Supply and Sanitation sector\. For example, the 33 water supply systems built and/or rehabilitated and the Shyogwe Mayaga system are managed by private operators\. The foremost example of these water supply systems is the 272 km-long Shyogwe Mayaga system, which serves 120,000 people\. Its management has just been transferred to the international NGO FHI, in association with a local organization\. The operators are selected on the basis of a bid for tenders\. The RWSSP has provided support to the districts to prepare their own bidding documents for the recruitment of operators\. This option (PPP and its promotion) taken up by the RWSSP has had a highly positive impact on all the water supply systems in the country's different districts such that, by the end of 2007, 24% percent of the water supply systems were managed by private operators and the PPP had become the preferred management model to guarantee the sustainability of the WSS installations\. One- third of the managers are women\. 37  Water rates depend on the type of system (gravity with or without treatment, pumped, or protected spring)\. The rate for a 20-litre jerry can varies from FR2\.5 (gravity system) to FR15 (pumped system), which is equivalent to US$0\.24 per m3 to US$1\.4 per m3\. The households with house connections pay FR185 to FR600 per m3 (pumped and/or treatment)\. A system of tokens purchased in advance (model applied to the Ngenda water supply system) is used to make it easier for households to pay in advance\. Vulnerable families identified by the population are exempt from paying for water\. Water consumption varies from 10 to 13 liters per person drawing water from the standpipe, and stands at 20 liters per person per day for households with house connections\. The daily consumption for people using protected springs is 8 liters per person\. Although water quality may have improved significantly, the distance traveled to draw water remains the same and plays a significant role in quantities consumed\. The private management model applied during the project, and thereafter nationwide, is currently attracting other of the region's countries, which are visiting for exchanges of experience to see how to adapt it to their own countries\. In late 2007, the project hosted two delegations from Mali and Burkina Faso and the RWSSP team was invited to India to present Rwanda's experience in managing WSS systems\. The beneficiary institutions manage the sanitation infrastructures, especially the school latrines wherein each school's HAMS committee (made up of parent, teacher and pupil representatives) supervises sound maintenance\. The October 2007 evaluation found 80 percent of the latrines to be extremely well maintained\. 9\. CONSOLIDATION OF PRIVATE MANAGEMENT Given that management by private operators is a new model, the RWSSP, via the provincial engineers, assisted the districts with operator supervision\. However, it also oversees the management organization, especially technical, of these operators\. A national forum of private operators was set up under the name of the Forum of Private Water and Sanitation Operators of Rwanda [Forum des Exploitants Privés de l'Eau et de l'Assainissement au Rwanda ­ FEPEAR]\. The training provided to technicians has solved the human resources problem, and the capacity of the districts is sufficient to oversee the operators\. Nevertheless, MINERENA will still have to provide assistance for monitoring and evaluation\. Likewise, WSP is interested in continuing to assist private operators and in recruiting new operators for systems not yet managed by the private sector\. In this regard, a WSP-funded training course for 33 private operators was held in April 2008\. 10\. SECTOR DECENTRALIZATION The RWSSP prompted widespread decentralization in the Water Supply and Sanitation sector with its successful fund transfers\. All the sub-project funds were transferred to and managed soundly by the districts\. The districts themselves managed the contracting process and works supervision with the assistance of the Provincial Engineers and Project coordination Unit\. The sector financing facility in the districts is based on the principle of the decentralization of funds such that 30 percent of the budget allocated to the sector in 2007 was decentralized\. 38  11\. PROGRAM APPROACH To smooth the way for the program approach, the RWSSP drew up standard bidding documents for the studies and works, and a technical and financial implementation manual for the sub- projects\. 12\. WORLD BANK PERFORMANCE The World Bank regularly and conscientiously monitored the implementation of the RWSSP with twice-yearly supervision missions conducted by the Bank's team and managed by the Task Team Leader (TTL)\. Each of these supervision missions gave the Bank an opportunity to assess the Project Coordination Unit with a view to improving its performance\. The supervision missions were underpinned by videoconferences (twice a year) for the parties, the Bank and Rwanda via the Project Coordination Unit, to discuss project progress on the whole, but also and above all to review the schedule of activities decided on for a given supervision mission\. These conferences provided an effective framework for the regular monitoring of activities and firm support to the RWSSP's Project Coordination Unit\. In addition to the missions and videoconferences, project supervision by the TTL was also the subject of close and regular contacts by telephone and e-mail\. The appointment of a new TTL in late 2006 changed nothing, since the new TTL had followed the project from the start and taken part in the various supervision missions\. It therefore proved useful to keep the same team from start to finish, an approach recommended for all projects\. Responses to the various non-objection requests sent by Rwanda to the Bank were extremely prompt: the average response lead-time was one week at the most\. As the 2004 mid-term review found the approach to be rigid, the Bank showed flexibility in discussing streamlining to be adopted with the Rwandan party, including the implementation of pre-feasibility studies which, initially conducted by the partner organizations, were assigned to the provincial engineers who have also been given responsibility in the new districts chosen\. The Bank team in charge of the project was the driving force behind the RWSSP's inception of private operator management of the infrastructures, whereas the initial idea for the project was to assign management to the water user associations (Régies Associatives)\. Financially speaking, the disbursement services did their best to regularly credit the special account\. Telephone calls and e-mails to and from the project kept the information flowing and prevented any hold-up in communications\. 13\. BORROWER PERFORMANCE The Project Coordination Unit: CEPEX made evaluations of the activities conducted, followed by recommendations to the Project Coordination Unit to improve performance and achieve the targets set\. CEPEX holds quarterly meetings with the project units to closely monitor the projects\. The Borrower disbursed all the counterpart funds, even though there were delays in the payment of these funds in the initial years of the project\. 39  14\. BENEFICIARY PERFORMANCE Excellent participation in the studies, giving rise to a multiannual investment plan for all the WSS sub-projects\. Close cooperation with the project personnel and partner organizations\. Land for works provided free of charge The beneficiaries set up a supervisory committee to monitor works execution on a daily basis\. Once the works have been completed, this same committee supervises, alongside the district, the private operator managing the WSS systems\. The beneficiaries contributed to the investment by means of their financial participation and also shared in the works\. The local authorities soundly managed the funds allocated to the sub-projects, contracted works in a totally transparent manner, and regularly monitored the works with the control mission and the provincial engineer recruited by the project\. 15\. LESSONS LEARNED Participatory approach It was observed that this approach involves the beneficiaries, who ultimately own the outcomes of their requested sub-projects\. The different methods used to get the population involved (validation meetings for the water and sanitation sector of the Community Development Plan (CDP), consultation during the studies, presentation of study findings and collection of beneficiaries' comments to include them in the final report, and setting up of a supervisory committee made up of representatives of the beneficiaries) created the conditions for perfect participation\. The population took a large part in the actual works and really feels as if it owns the sub-projects\. Decentralization Decentralization forms a development framework wherein all stakeholders take part in deciding on the actions to improve living conditions\. The district authorities really took responsibility for the project activities, and planned in order to meet the demands of the populations to whom they are accountable\. Public-private partnership Following several years of unsuccessful community-based management, transferring the management of the WSS systems to the private sector was found to be the surest way of guaranteeing their sustainability\. To improve on this positive development, the contract should be clear and should detail the responsibilities of each party where the beneficiary is concerned (consumer-responsive)\. PPPs also create jobs for local technicians and generate a district water account credited by the fees paid by the managers\. 40  16\. POST-PROJECT The project made available the studies and bidding documents for the water supply systems in the Lava Region to the Government\. It also conducted all the WSS sub-project studies in the geographic area of action and drew up the corresponding bidding documents\. The project's limited budget was such that not all the studies could give rise to works\. Some of the works proposed by the studies and the remaining bidding documents are being executed by means of budget support and other donors\. Lava major water supply system The AfDB is financing the Mutobo Basse water supply rehabilitation work underway for a total of FR3\.65 billion\. This water supply system will supply 78,000 people\. The Government is financing the Mutera water supply rehabilitation work, for a total of FR600,000,000\. The Mutera water supply system supplies 38,000 people\. The public-private partnership has given rise to financing from PWN (Dutch) to rehabilitate the Yungwe-Bikoré plant (6,000 m3/day) and the Mizingo plant (1,000 m3/day)\. AQUAVIRUNGA, set up in partnership with PWN, AQUARWANDA and the district of Rubavu, will manage the plants following their rehabilitation\. Sub-projects The works for the sub-projects not yet executed are currently financed by means of Budget Support, which increases each year: 2006 (US$1\.2 million) and 2007 (US$6\.3 million)\. In 2006: three new 46 km-long systems, serving 11,175 people, and extensions to two existing water supply systems in order to supply two large schools with more than 1,000 pupils\. In 2007: five water supply systems, covering four new 183 km-long systems (two pumped and two gravity), with 156 standpipes and one rehabilitated 35 km-long system with 45 standpipes\. They serve 78,066 people\. Construction of 120 public ECOSAN latrines along the main asphalted roads\. The work for the remaining studies conducted will also be financed either by the Government, by means of budget support, or by assistance from the different donors\. Moreover, private operator supervision and new operator recruitment for the new infrastructures will remain the sector's priority to guarantee the sustainability of the WSS systems\. 41  Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders 42  Annex 9\. List of Supporting Documents Project Design and Execution Project Appraisal Document for the Rwanda Rural Water Supply and Sanitation Project; World Bank; Report No\. 20419 (May 2000) Project Implementation Manual Aide-mémoire Mid-term Review Mission; IDA (May 2004) Aide-mémoire Supervision Mission; IDA (October 2005) Aide-mémoire Supervision Mission; IDA (November 2006) Aide-mémoire Supervision Mission; IDA (May 2007) Aide-mémoire Completion Mission; IDA (December 2007) Assessments Evaluation de la participation des districts et des bénéficiaires ; PADEAR (February 2004) Revue de l'expérience de la gestion des systèmes ; DEA, Section de mobilisation sociale (April 2004) Rapport d'évaluation des installations sanitaires réalisées avec l'appui du PEAMR; HAMS (October 2007) Audit technique du Projet Eau et Assainissement en Milieu Rural ­ Rapport final; Hydro-R&D International (December 2007) Impact study Facilities Management Contrats opérateurs privés Contrat Mayaga Gestion d'eau potable dans le district de Nyamasheke; BEGC (April 2007) Exploitation privée des systèmes d'alimentation d'eau potable dans le district de Gisagara ; Association Twifashe (April 2007) RWSS Sector Development EDPRS Joint Review ­ Water and Sanitation Sector; MINITERE (November 2006) Scaling up Investment and Reforms through National Program and Performance Contracts (Rwanda Presentation to the SDN Water Week); MINITERE (March 2008) 43  MAP 44

REVIEW

P087801

 ICRR 13049 Report Number : ICRR13049 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 02/23/2009 PROJ ID : P087801 Appraisal Actual Project Name : Power Sector Priority US$M ): Project Costs (US$M): 1\.41 2\.032 Investments Country : Timor-Leste Loan/ US$M ): Loan /Credit (US$M): 1\.39 1,346 Sector Board : EMT Cofinancing (US$M ): US$M): 0\.02 0\.686 Sector (s): Power (100%) Theme (s): Access to urban services and housing (40% - P) Infrastructure services for private sector development (40% - P) Debt management and fiscal sustainability (20% - S) L/C Number : Board Approval Date : 07/23/2004 Partners involved : Closing Date : 03/31/2006 03/31/2008 Evaluator : Panel Reviewer : Group Manager : Group : Fan Zhang Fernando Manibog Monika Huppi IEGSG 2\. Project Objectives and Components: a\. Objectives: The PAD states that the objective of the Power Sector Priority Investment Project (PSPIP) was to assist the Democratic Republic of Timor-Leste in the delivery of least -cost, high-quality electricity service with minimum dependence on the government ’s budget\. This objective was to be achieved by improving the generation capacity and distribution efficiency of the national power company, Electricidade de Timor -Leste (EDTL) and through savings by reducing demand with the use of energy -efficient lamps/light bulbs\. The Development Credit Agreement (DCA) did not have the words "with minimum dependence on the government's budget " from the objective statement\. Since in practice the project did pursue the issue of reducing the power sector ’s dependence on the public budget, the objective described in the PAD is used as the basis for this ICR Review \. b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components (or Key Conditions in the case of DPLs, as appropriate): The Project consists of four components (total component costs in brackets ) 1\. Replacement of engine at unit no \. 5 at Comoro Power station (appraisal estimate US$1\.000 million, actual US $1\.686 million)\. To repair Unit no\. 5 (MAK 4) of the Comoro power station (the only power supplier in the capital city Dili) by replacing the existing damaged engine with a new and more efficient 2\.8 MW engine\. The objective is to enhance base load generation capacity and reduce fuel costs at the Comoro power station \. 2\. Distribution rehabilitation (appraisal estimate US $0\.298 million, actual US$0\.286 million)\. This component is a small part of an ongoing system rehabilitation exercise designed to bring the damaged and dilapidated Dili distribution network to acceptable conditions \. The main activities included providing necessary connections and low-voltage restructuring in preparation for the installation of new substations, repairing and re -conductoring of dilapidated transmission lines, repairing transformer stations and supply cubicles, and providing tools and instruments for maintenance work \. 3\. Distribution of energy efficient lamps /light bulbs (appraisal estimate US$0\.090 million, actual US$0\.060 million) \. To distribute free of charge 60,000 lamps/light bulbs (up to 3 each to 20,000 consumers) to EDTL customers who have acquired prepayment meters \. The objective is to reduce consumer energy costs, the peak load and fuel consumption of EDTL\. It was also expected that the component will increase the momentum of the prepayment meters program and to raise awareness about end -use energy efficiency\. 4\. Project audit (appraisal estimate US$2000, actual US$0) To conduct two project audits, including the provision of technical assistance\. The PAD did not specifically identify which two projects would be audited \. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: Project Cost : The total project costs were US$ 2\.032 million, or 44 percent higher than the appraisal estimates of US $1\.41 million\. The cost overrun was caused by the decision to replace the entire generating unit with a new 4\.7 MW generator instead of replacing only the defective 2\.8 MW engine\. The larger than expected generator required the procurement of a larger step-up transformer for power distribution, amounting to a $ 159,180 cost increase for the distribution rehabilitation component \. Without additional financing available, the distribution component was postponed to be carried out under a follow -up IDA-financed Energy Service Delivery Project (ESDP)\. The suspension of the second component resulted in additional funds being available for the energy efficient lamps component and an amendment of DCA was made in 2007 to reallocate US$13,000 from component 2 to component 3\. The extra financing was intended to be used to purchase additional energy efficient lamps \. However, the procurement did not go through and the extra funds were cancelled \. The last component was not implemented and the funds were not disbursed\. contribution: The Trust Fund for East Timor (TFET) provided a grant of US$1\.390 million Financing and borrower contribution: which was administered by IDA\. US$1\.346 million or 97 percent of the grant was disbursed\. Government counterpart financing amounted to US$0\.686 million as compared with the appraisal estimates of US$0\.02 million\. The cost overrun was fully covered by the Government ’s co-financing\. Dates : The project start-up was delayed due to protracted negotiations of the Grant Agreement \. The project was closed two years later than the original scheduled closing date of March 31, 2006\. Three extensions were made due to delays in procurement, cost overrun as well as political and social unrest \. 3\. Relevance of Objectives & Design: Rating: Substantial Relevance of the Objective\. PSPIP was the World Bank’s first power sector investment operation in Timor -Leste\. The project objective was highly relevant to country conditions where power infrastructure was devastatingly destroyed following prolonged civil unrest, and the restoration of basic electricity service was critical for its economic recovery\. The project objective is in line with the National Development Plan (NDP) to restore infrastructure, including power networks, and one of the targets of the First Transition Support Program to reduce power sector ’s heavy dependence on the government budget\. It is also consistent with the second pillar of the Bank ’s FY 06-08 CAS, which emphasizes the delivery of sustainable energy services \. The project remains relevant at the time of evaluation\. Despite substantial improvement in power infrastructure, Timor-Leste’s electricity service continues facing problems of low accessibility, low efficiency and unreliable supply \. The project is also highly relevant to the Bank’s increased focus on supporting post-conflict countries in transition to sustainable economic growth\. Relevance of the Design\. Under a post-conflict situation, the design of the project was commendably simple and clearly focused on achieving “quick winsâ€?\. However, as pointed out by the PPAR of Timor-Leste Transition Support Program, when assisting post-conflict countries, it is important to strike a balance between addressing the short-term needs and planning for the long-term development\. The challenge of the long-run improvement of the energy sector may not be the availability of resources but rather of the government’s capacity to manage resources and to effectively deliver services\. Efficient and sustainable service delivery requires enhanced institutional and implementation capacity\. The program design largely focused on achieving physical targets without paying enough attention to addressing these capacity development needs\. The only component that has involved technical assistance was not carefully prepared and was dropped eventually \. Although not formally part of the DCA’s statement of the project objective, the PAD and ICR state that the project aimed to reduce the dependence on Government budget for power service through increasing generation, distribution and end-use efficiency, thereby reducing the total cost of power supply and consumption\. However, as recognized by the ICR, a fundamental cause of power sector dependence on Government budget was the lack of cost recovery measures\. By 2005, less than half of the household that had access to electricity had installed meters\. Following the 2006 political disturbances, the situation deteriorated as incidences of meter bypassing had drastically increased\. Without directly targeting the metering and billing issue, the project intervention may reduce government subsidy per kilowatt of electricity supplied, but may well increase the total amount of subsidies needed\. In fact as indicated in the ICR, energy demand has increased dramatically over the course of the project \. Secondly, both price and income effects of increased end-use energy efficiency may push up energy demand\. To curb energy consumption, the most effective mechanism is again to strengthen the metering and billing system \. The project M&E focused on intermediate outputs (see Section 10)\. The level and quality of the electric service, and government expenditure on power supply were not reported \. Because of the inadequate M&E system, it is difficult to empirically identify the connection between project interventions and intended outcomes \. 4\. Achievement of Objectives (Efficacy): Rating: Modest Overall objective : the delivery of least -cost, high -quality electricity service (the PAD and ICR add : “with minimum dependence on the government ’s budget \.â€?) The weakness in the design of M&E system makes assessment of the overall outcome difficult\. There were no direct indicators measuring the change in cost or quality of electricity service attributable to the project\. The estimation of fuel cost savings was less reliable without considering the incremental change in energy supply and consumption (see Section 5)\. The Borrower’s review notes that “the technical and non-technical losses in the Dili distribution system are still as high as 50 percent of total electricity generatedâ€? thus indicating that the distribution rehabilitation sub-component was a missed opportunity to significantly increase power supply efficiency, which mitigated the achievement of the overall objective\. (Note that when insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\.) Given the lack of information to make an assessment on the achievement of the overall objective, the project overall efficacy was rated modest\. Subobjective 1: the delivery of least -cost electricity service : (1) After a 17-month delay in installation and cost overrun, a new and more efficient diesel generator was Output: brought online on April 1, 2007\. (2) A total of 27,600 compact fluorescent lamps, or 56 percent of the purchased energy efficient bulbs, were distributed by April 2006\. The distribution was suspended due to political disturbances in May 2006\. The remaining 22,400 compact fluorescent lamps (CFL) were in storage at EDTL for future distribution \. Outcome: The fuel consumption of the new generator averaged 0\.238l/KWh compared to 0\.28 l/KWh of the displaced high-speed peak load generator\. The cost saving is roughly estimated to be 121,000 l/month\. However, this estimation may not be reliable (see discussion in Section 5)\. The ICR estimates energy saving from the deployment of CFLs amounts to $2\.59 million per year assuming daily lighting demand remains constant\. (As discussed in Section 3, this assumption may not be plausible\.) However, no baseline or ex-post data were collected regarding consumer energy consumption behavior\. Therefore, there was no direct measurement of energy savings outcome attributable to the installation of CFL lights \. Subobjective 2: the delivery of high -quality electricity service Output: The replacement of unit no\.5 engine at Comoro power station with a new 4\.7 MW generator enhanced based load generation capacity\. Upon commissioning, the generator has been operating properly (excluding one month outage for a major repair) and has achieved an average load factor of 64 percent\. According to the Borrower’s ICR, the generator has reached capacity factors of 81\.36 percent in 2007 and up to 99\.35 percent in 2008\. This was an impressive performance by international standards \. Outcome: It was not reported whether the displaced high-speed generator was re-commissioned for power supply in other regions and how the additional generating capacity contributed to the overall reliability of the Dili System\. Although the physical target was achieved, the outcome and the extent to which the DO was achieved is unclear \. Subojective 3: with minimum dependence on the government's budget Outcome: Due to lack of performance indicator on government's spending on power supply, it was not clear whether this subobjective was achieved or not \. 5\. Efficiency (not applicable to DPLs): Component 1: Ex ante estimation: if only fuel cost savings are considered, the internal rate of return (IRR) is 16\.5 percent\. Incorporating benefits from postponed installation of another diesel generator and re-commission of the displaced high-speed engine, the IRR is 49 percent\. The net present value (NPV) is estimated to be between US$0\.591 to US$0\.626 million\. Ex post estimation: The economic and financial rate of return (ERR and FRR) is between 99 to120 percent depending on the unit cost of fuel \. The NPV is US $3\.851 millions\. Component 3: The ex ante estimation of the NPV is US$1\.939 million\. Because of the cost of CFL lamps was declined, the ex post estimation of NPV is US$3\.681 million\. Both analyses assume ERR and FRR are the same \. Project efficiency was rated substantial, however there are several issues/concerns regarding ERR and FRR calculation\. They are discussed below\. 1\. The current economic analysis does not take into account the project-induced change in fuel inputs and energy outputs, which leads to two biases: (a) benefits from private sector increase in output following the expansion of electricity supply was not considered; (b) cost savings were overestimated because fuel inputs will be higher given the incremental increase in electricity supply\. A more rigorous assessment of fuel cost saving could be achieved through the monitoring of actual fuel consumption with and without the project \. 2\. Labor costs were ignored in both financial and economic analysis; reduction in greenhouse gas emissions due to increased energy efficiency was not considered or mentioned as one of the economic benefits \. 3\. If electricity metering and billing continue to be inadequate, financial analysis may overestimate the expected revenue and the fiscal sustainability of the project \. 4\. US$90/bbl oil was used as a conservative assumption to predict fuel cost savings over the lifetime of the project\. With hindsight, this turns out to be an overly optimistic assumption as oil is currently traded at around US$50/bbl\. A sensitivity analysis that reports switching value of oil price at which the project’s NPV becomes zero would better inform the value of the project \. Overall, the true economic benefits may be underestimated while the FRR may be overestimated depending on how much operating and maintenance costs are able to be recovered\. In practice, ill-advised fiscal impact of the projects is more of a problem than underestimated economic benefits \. ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re- re -estimated value at evaluation : Rate Available? Point Value Coverage/Scope* Appraisal No ICR estimate Yes 120% 85\.9% * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: Based on ratings of Substantial for relevance, Modest for efficacy, and Substantial for efficiency, the overall project outcome is rated Moderately Satisfactory \. a\. Outcome Rating : Moderately Satisfactory 7\. Rationale for Risk to Development Outcome Rating: The main risks associated with the project and the sustainable development of the power sector are (i) the emergence of civil unrest and violence; (ii) the heavy dependence of Timor -Leste on revenues from oil and gas reserves in Bayu Undan, which, with recent declines in oil prices, may result in cutting back much -needed financial resources to improve the availability, efficiency and quality of electricity service; (iii) the major challenges remaining to strengthen government capacity to design, manage and deliver power projects; (iv) the fragmentation of donor assistance; and (v) inadequate accounting, billing and collection systems, which threatens EDTL ’s ability to recover costs of supply\. Overall, the risk for development outcome is rated significant \. a\. Risk to Development Outcome Rating : Significant 8\. Assessment of Bank Performance: at -Entry Quality -at- The project objective was highly relevant to local conditions and the Bank’s country assistance strategy\. The project design was simple and clearly focused on meeting short-term emergency needs\. However the project design also suffered from the following weaknesses : 1\. The project preparation was insensitive to the country’s history of political and economic instability\. No political or institutional risk analysis was conducted, and no risk mitigation plan was developed to respond to potential shocks that would have a significant impact on project implementation\. 2\. Despite the country’s weak public sector capacity, technical assistance regarding project implementation and procurement was not built into the program \. 3\. Cost estimate of engine replacement was based on one actual quotation\. No physical or financial contingencies were included in the appraisal\. Project delays and cost overrun could have been mitigated by the including price contingencies in project cost estimates \. 4\. The appraisal suggested the 2\.8MW engine option provides the most cost-effective option\. The ICR noted the new 4\.7MW generator exceeded considerably the appraisal estimates of cost savings\. Therefore, it is unclear whether the capacity choices were based on sound economic analysis of the electricity demand and the required size of the supply system \. 5\. M&E system is weak\. Output and outcome indicators were blurred \. at-Supervision Quality -at- The project was supervised regularly\. A task team member was based in the field and carried out close supervision of the project\. The Bank team also showed persistence and flexibility in assisting the Government and EDTL to overcome many challenges to the project implementation and to adjust the scope in accordance with changing circumstances\. The team followed up regularly on the implementation of the project, and compliance with the Bank’s fiduciary and safeguards policies \. Considering the special challenges presented in a post -conflict environment and that the Bank team was able to achieve the majority of the physical targets, the overall bank performance was rated satisfactory \. at -Entry :Moderately Satisfactory a\. Ensuring Quality -at- b\. Quality of Supervision :Satisfactory c\. Overall Bank Performance :Satisfactory 9\. Assessment of Borrower Performance: The ICR notes that the Government was very committed to PSPIP and made the provision of reliable electricity service a national priority\. During the project cycle, the government exhibited satisfactory support and ownership of the project\. Despite the fact that the Government was weak in institutional and implementation capacity, the Government was able to rely on qualified consultants for procurement and financial management \. Facing unforeseen substantial cost overrun, the Government acted decisively to open a new bidding process and provided adequate financial support to cover the entire incremental cost \. Staff turnover affected the performance of the implementing agency \. The ICR notes that initially the General Manager of the management contractor were very engaged and provided critical inputs for project preparation \. However, the subsequent two project contractors of EDTL were indifferent about the project and made no efforts towards the achievement of the project outcomes \. a\. Government Performance :Satisfactory b\. Implementing Agency Performance :Moderately Satisfactory c\. Overall Borrower Performance :Moderately Satisfactory 10\. M&E Design, Implementation, & Utilization: M&E Design: Project milestone dates are identified as key results indicators\. Although they are simple and can be used to monitor project progress, these indicators do not reflect the progress in accomplishing the objectives and do not provide warnings when there is delay in project implementation\. Relying on milestone dates neither provides flexibility in addressing the issues in project implementation\. The increase in generation capacity and the cost savings through the use of energy-efficient lamps were used as the outcome indicators\. These indicators cannot adequately reflect the project objective of delivering least-cost, high quality electricity service with minimum dependence on the government’s budget\. The more appropriate indicators would be government expenditure on power supply and the reliability and accessibility of the electricity service \. M&E Implementation: Throughout the project implementation, there was no effective M&E system \. Cost savings were estimated based on assumptions made in the appraisal document\. Beneficiary surveys could have been conducted to understand energy consumption behavior change and to estimate the actual fuel cost savings \. M&E Utilization: The implementing agency has collected electricity generation and load factor data at regular intervals\. But in the absence of an appropriate M&E framework, no special efforts have been made to use the data to estimate “relevantâ€? impact\. As a result, relevant information was not available to inform decision -making and evaluate alternative options\. a\. M&E Quality Rating : Negligible 11\. Other Issues (Safeguards, Fiduciary, Unintended Positive and Negative Impacts): Environment: The generating unit component has achieved positive environmental impacts by reducing fuel consumption and pollutants emitted per kilowatt hour of electricity produced \. However, because CFL light bulbs contain mercury, the component related to the distribution of CFLs poses an environmental hazard if there is no provision for recycling\. 12\. 12\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Moderately Moderately Satisfactory Satisfactory Risk to Development Significant Significant Outcome : Bank Performance : Satisfactory Satisfactory Borrower Performance : Moderately Moderately Satisfactory Satisfactory Quality of ICR : Satisfactory NOTES NOTES: - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate \. 13\. Lessons: Based on the review of the project, the following lessons were drawn : 1\. Risk assessments of political and economic shocks should be conducted during project appraisal and contingent plans should be built into project design, especially in countries and regions where there have been recent experiences of large scale civil and political unrest \. 2\. In difficult political and macroeconomic environments like post-conflict countries, flexibility in modifying the Credit Agreements to accommodate the country’s specific conditions was a key factor in enabling the Bank to remain engaged in providing assistance \. 3\. When working with low-capacity borrowers, it is important to provide technical assistance to help borrowers in day-to-day project implementation and procurement \. 14\. Assessment Recommended? Yes No 15\. Comments on Quality of ICR: The quality of the ICR is rated as satisfactory overall\. The ICR presents a concise and candid description of the project objectives, components and results \. The ICR would have been better if it had : 1\. reported if there is any increased economic activity resulting from increased electricity supply and provided more substantial evidence such as increase in reliability and accessibility to electricity regarding the impact of the project 2\. provided more detailed analysis to support the rationale for installing the higher -capacity generation unit\. 3\. conducted more rigorous economic and financial analysis \. a\.Quality of ICR Rating : Satisfactory

REVIEW

P086877

Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review MA-Rural Water Supply and Sanitation (P086877) Report Number : ICRR0020063 1\. Project Data Project ID Project Name P086877 MA-Rural Water Supply and Sanitation Country Practice Area(Lead) Morocco Water L/C/TF Number(s) Closing Date (Original) Total Project Cost (USD) IBRD-73510 31-Dec-2012 112,470,000\.00 Bank Approval Date Closing Date (Actual) 15-Dec-2005 30-Nov-2014 IBRD/IDA (USD) Grants (USD) Original Commitment 60,000,000\.00 0\.00 Revised Commitment 51,366,583\.13 0\.00 Actual 57,277,395\.46 0\.00 Sector(s) Water supply(90%):Sanitation(10%) Theme(s) Rural services and infrastructure(33%):Pollution management and environmental health(17%):Other human development(17%):Participation and civic engagement(17%):Gender(16%) Prepared by Reviewed by ICR Review Coordinator Group Keith Robert A\. Oblitas Ridley Nelson Christopher David Nelson IEGSD (Unit 4) 2\. Project Objectives and Components a\. Objectives To support the Government program in the project area to increase sustainable access to potable water supply in rural areas, while promoting improved wastewater management and hygiene practices\. Source: Loan Agreement, January 9, 2006 (The Project Appraisal Document and the Project Portal data system have substantially similar wording\.)  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review MA-Rural Water Supply and Sanitation (P086877) b\. Were the project objectives/key associated outcome targets revised during implementation? No c\. Components 1 Water Production and ConveyanceEstimated costs at Appraisal (base costs without contingencies) - $94\.3 million; Actual costs – $78\.9 million\. Implementing a program of sub-projects (about 12 to 15 sub-projects were estimated at appraisal) to deliver water to villages through the construction of lateral mains from existing or planned regional trunk lines, storage tanks, public standpipes, and in limited cases, water production facilities such as treatment stations, intake structures and pumping stations\. Detailed eligibility criteria for choice of sub-projects were defined in the Loan Agreement including the financial contributions from local government (15 percent) and beneficiaries (5 percent)\. 2\. Water Distribution and Wastewater Management Estimated costs at Appraisal (base costs without contingencies) - $13\.6 million; Actual costs – $ 0\.0 million\. Comprising: (i) design, construction and supervision of village distribution systems providing house connections; and (ii) mitigation measures required to handle the resultant increased wastewater flows\. Communities (villagers and local governments) would be given the choice to opt for direct household connections instead of standpipes based on their ability to pay for and operate the higher level of service for direct household connections\. 3\. Institutional Strengthening and Project Implementation Support Estimated costs at Appraisal (base costs without contingencies) - $4\.6 million; Actual costs – $5\.3 million\. Reinforcement of the National Potable Water Authority’s (ONEP) capacity to implement the project and provide support to the local organizations responsible for operation and maintenance\. It included (i) implementation of an inclusive participatory approach responsive to community demands for service levels;(ii) training to local organizations responsible for O&M; (iii) hygiene promotion related to water supply and wastewater; and (iv) the costs of technical assistance for project coordination and Social Mobilization Teams\. (The PAD also referred to support in parallel to the project, of three public-private partnerships\.) d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates Project costs and Financing: Total project costs estimated at appraisal were $112\.5 million, and at completion actual project costs were $84\.2 million, 75 percent of appraisal estimates\. IBRD provided a Loan of $60 million of which $57\.3 million (95 percent) had been disbursed by project completion\. Other financing was by the Government of the Kingdom of Morocco ($5\.8 million planned and $13\.7 million actual), and local communities ($22\.7 million planned and $13\.2 million actual\. The primary reason for the reduction in total project costs was because $24 million of parallel funded activities was separated from the project as a result of the delinking of the parts of the program financed by another agency – refer below\. (NB\. Project and component costs are from the ICR\.) Parallel Financing: Until a project restructuring in 2014, the project was parallel financed with a similar program financed by the French Development Agency, Agence Francaise de Developpement, which had allocated $24 million to the project\. Financing was through separate arrangements - the Bank and the French agency following their own procurement rules, and with each financier responsible for a particular group of provinces\. In 2014, the French financed part of the project was “de-linked” from the project because progress with the French financed program had been very slow – even at project completion none of the French financed sub-projects was operational\. Project Duration: The project was appraised in September 2005 and Approved on December 15, 2005\. Effectiveness was on April 7, 2006\. The Mid-Term Review was in June, 2010\. The project had been originally scheduled to close on December, 31, 2012, some seven years after Board Approval, but the closing date was extended by 23 months to November 30, 2014, making for a total project period of just under nine years\.  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review MA-Rural Water Supply and Sanitation (P086877) Restructurings: There were three restructurings: (i) on September 9, 2011 to extend the closing date by 23 months, to reallocate loan proceeds and to record name changes of some provinces; (ii) on May 9, 2013 to change the Borrower’s name; and (iii) on November 25, 2014 to delink the IBRD project from the activities financed by the French Development Agency, reallocate Loan proceeds, revise the Results Framework, and amend a legal covenant\. Institutional Changes: At project commencement, the borrower and implementing agency was the Office National de L’Eau Potable (ONEP), an autonomous, profit-making public corporation under the oversight of the Ministry of Land Use Planning, Water and Environment\. In 2012, ONEP was merged with the national electricity authority\. ONEP then became the water branch of Government’s combined water and electricity agency\. ONEP’s responsibility for the project remained unchanged, and this ICR Review refers throughout to ONEP rather than to the larger body\. 3\. Relevance of Objectives & Design a\. Relevance of Objectives Rural water supply and sanitation feature prominently in both the Bank’s and Government’s strategies for Morocco\. Addressing rural poverty was a priority in both the 1997 and 2001 CASs, and the importance of readily available potable water and sanitation, especially for the poor, has been carried through in the strategies since then\. The 2005 CAS set out the Bank’s support to “improved water management and access to rural water supply and sanitation\.” The project’s objectives are also encompassed in the most recent CAS (FY14-17) which calls for strengthening institutions for improved service delivery to all citizens; and expanding access to basic services\. Likewise for the Kingdom of Morocco, various papers and programs manifest a long-standing concern with provision of potable water, particularly for poor rural dwellers\. A National campaign to provide the infrastructure for improved water supply was launched in 1995, and in 2004 an existing water agency – the Office National de l’Eau Potable (ONEP) was made responsible for an intensified investment program to increase access to potable water\. The need for rural water supply and sanitation undoubtedly justify Morocco’s and the Bank’s emphasis on rural water\. In 1995, only 14 percent of the rural population had access to potable water, and fetching water would typically require considerable time, or costs if bought through vendors\. Access to sanitation facilities was also low\. Such higher costs, whether through water fetching time or purchase costs, were borne by those who could afford it the least\. Average rural incomes are about half those of urban dwellers\. Thus, as an important element in improving rural welfare, the Relevance of the Project’s Objective to “increase sustainable access to potable water supply in rural areas, while promoting improved waste-water management and hygiene practices\.” was Substantial Rating Substantial b\. Relevance of Design A weak Results Framework, primarily due to limited connectivity between outputs and the project objectives, a Risks Assessment underestimating the difficulties of land acquisition, and the limited institutional capacity of ONEP to take on largely new initiatives such as the household connections program, contributed to overoptimistic physical targets and to delayed commencement of activities\. The issues were: (i) land acquisition and compensation actions were not sufficiently detailed to adequately guide implementation, and were late to be finalized and required changes as experience was gained, delaying the construction program, whereas land acquisition planning and implementation should have been as soon as possible in project preparation and implementation; (ii) contracting the technical assistance team, a key part of the project necessary to provide the institutional capacity to carry it out, was not stressed in the PAD, contributing to late commencement (the contract was signed in February 2008, more than two years after the project was approved) whereas it should have been a prominent element in establishing the critical path for project preparation and implementation; (iii) the size of the households connections program (the core of the project’s second component) was far too optimistic; and (iv) the responsibilities and funding for rural sanitation were not clear\. Nevertheless, technical aspects of the project and some of the institutional arrangements were prepared to sufficient quality to enable a start to the project, albeit uneven, and a generally good quality of design for the works program\. This tempers the problematic design issues above, hence the project’s overall Relevance of Design is rated Modest\.  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review MA-Rural Water Supply and Sanitation (P086877) Rating Modest 4\. Achievement of Objectives (Efficacy) PHREVISEDTBL Objective 1 Objective Increasing sustainable access to potable water supply in rural areas\. Rationale The number of rural people in the project area who were provided with access to improved water sources reached 192,000, 59 percent of the target of 324,000 people\. And 64 percent of the water supply and, (under Objective 2 - refer below) wastewater facilities constructed under the project were functioning at project completion, (i\.e\., operating satisfactorily and with an operator)\. Introduction of house connections made minimal progress - the project was to pilot house connections in 265 villages, but none were implemented\. Nevertheless, the project set the stage for future piloting\. A guidebook for house connections was established, and detailed designs were made for 11 villages\. As concerns financing contributions, local governments were mostly in compliance – 80 percent of them paid the requested share of investment costs (the target was 100 percent)\. Contributions from the communities, however, were poor with only 19 percent of household contributions collected\. The ICR comments that such low contributions “reflected limited achievement of the principles of participation and demand-responsiveness\.” Summary: With provision of water supply at 59 percent of the targeted number of persons, and no household connections actually established, the Efficacy of the Objective to increase sustainable access to potable water supply in rural areas was Modest\. Rating Modest PHREVISEDTBL Objective 2 Objective Promoting improved wastewater management and hygiene practices\. Rationale Output achievements of the sub-components supporting this objective were minimal\. No pilot wastewater plants were constructed, and improved hygiene practices, which were intended to be promoted as part of the household connections program, had no foothold given that there was no village where household connections were implemented\. There is no reliable data to assess achievement against the monitorable indicator related to hygiene, which was that at least 20 percent of project beneficiaries had adopted improved hygiene practices\. From project start-up, waste water management and hygiene practices appear to have received little attention - from the Bank and project implementers alike\. For the Bank, the appraisal report did not detail the responsibilities and funding for rural sanitation, and ONEP was reluctant to engage in sanitation, given the already demanding implementation of the standpipes water supply program\. In mid-2012, Government’s position was formalized in a halt of the sanitation program, but this did not generate a restructuring of the project’s objective, components and monitorable indicators\. There were some activities that may have made a marginal difference to the project’s impact on hygiene, such as awareness outreach when a standpipe was complete, of the need for cleanliness around facilities and handwashing)\. But the main focus of the project’s management and field staff was “on more pressing issues such as” (for the water supply with standpipe program) “the selection of caretakers and negotiations with local governments; and hygiene promotion and behavior change did not get the attention and time needed to achieve substantial outcomes\.” (ICR section 3\.1)\.  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review MA-Rural Water Supply and Sanitation (P086877) Summary: Overall, the achievement in promoting improved wastewater management and hygiene practices was very limited, as also concluded in the ICR – “Achievements of the second part of the Project's Development Objectives is negligible with no physical output on sanitation and limited evidence on hygiene practices\.” (ICR section 3\.4)\. The Efficacy of the objective to Promote improved wastewater management and hygiene practices was Negligible\. Rating Negligible 5\. Efficiency At completion, the project’s economic rate of return was estimated at 12 percent (which compares with the ERR estimated at appraisal of 13 percent)\. Benefits included in the ERR were based on time saved in fetching water, and health benefits from increased consumption of water and improved hygiene\. A 20 percent increase in costs or a 20 percent decline in benefits would each reduce the ERR to 9 percent\. As concerns other gauges of efficiency, the cost-effectiveness in terms of costs per capita of the water supply investments was $295, which is not far above the targeted cost-effectiveness of $247\. Project costs at completion were 75 percent of costs estimated at appraisal, but this reduction is commensurate with the reduced physical investment program\. Delays in resettlement, procurement and recruitment of consultants leading to a 23 months extension of the project period, were the project’s main implementation inefficiencies\. Taking all of the above points into account, particularly the time taken at the project’s inception, and also recognizing that the ERR is not substantial, the project’s Efficiency is assessed Modest\. Efficiency Rating Modest a\. If available, enter the Economic Rate of Return (ERR) and/or Financial Rate of Return (FRR) at appraisal and the re-estimated value at evaluation: Rate Available? Point value (%) *Coverage/Scope (%) 100\.00 Appraisal  13\.00 Not Applicable 100\.00 ICR Estimate  12\.00 Not Applicable * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome The project’s objectives to provide potable water, improved sanitation and improved hygiene practices for the rural poor had substantial relevance as such services were particularly important to the welfare of Morocco’s impoverished rural population, for whom water carrying could occupy a major part of a day’s activities and potential earnings\. But the project’s design had only modest relevance as actions needing early implementation, such as land acquisition and compensation, and establishing the technical assistance team, were not put at the forefront\. The Results Framework and Monitorable Indicators did not provide sufficient guidance on project priorities and implementation milestones\. Efficacy was modest in the case of the objective to supply potable water, as achievements were only two-thirds of targets, and the house connections program did not materialize\. The other objective – to promote better wastewater management and hygiene practices - made minimal progress on  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review MA-Rural Water Supply and Sanitation (P086877) all fronts and its efficacy was negligible\. Finally, while the project achieved an economic rate of return of 12 percent, the delays with land acquisition and compensation, procurement, and recruitment of the technical assistance team reduced the efficiency of project implementation, adding two years to the project completion date, and leading to a modest efficiency overall\. The Project’s Outcome was Unsatisfactory a\. Outcome Rating Unsatisfactory 7\. Rationale for Risk to Development Outcome Rating For the project’s main physical achievement – the water supply schemes with standpipes – ONEP has gained implementation experience, and existing service agreements between ONEP and the local governments provide clearly defined guidance and obligations for future operations, fees and service levels\. For several schemes (outside the project construction program but supported with technical assistance from the project), ONEP has set up Public-Private Partnerships, replicating an existing and successful partnership\. Meanwhile, good conditions for ONEP’s operations have been established with the national Government under a Framework Program (2014-2017)\. Amongst other understandings, ONEP is allowed to recover debts from local governments, get refunds of value added tax from Government, and set tariff levels\. These developments augur well for future prospects of sustainable water supply, although the low beneficiary contributions to investment costs (typically less than 30 percent) suggest that coverage of O&M costs may emerge as an issue\. The wastewater management and household connections programs have made little progress, and their sustainability cannot be assessed\. Not yet tested over time is the sustainability of the communities operating the recently completed standpipes\. With these uncertainties, the project’s Risk to Development Outcome is rated Substantial\. a\. Risk to Development Outcome Rating Substantial 8\. Assessment of Bank Performance a\. Quality-at-Entry The project was sound in engineering aspects – thus setting the technical base at the heart of a water engineering project\. Several aspects of preparation were less satisfactory, however\. First, there was a significant underestimation of the importance of land acquisition and compensation, and the need for tackling these issues before or very early in project implementation\. Second, project implementation relied on strong technical assistance from consultants right from the beginning, yet consultants were not recruited until after the second year of the project\. (The un-readiness of the project's land acquisition and consultancy needs, and the limited detailing for implementation of both of them, contributed significantly to the substantial delays that the project experienced\.) Third, the institutional structure for implementing household connections (a key project goal beyond community standpipes) and for investment in wastewater management, was not clearly spelled out\. Fourth, the Results Framework and M&E were loosely structured, with limited capabilities for monitoring project outcomes\. Given these significant gaps, especially as regards land acquisition and compensation, and recruitment of consultants, yet recognizing the strong engineering aspects of preparation, Quality at Entry is assessed Moderately Unsatisfactory\. Quality-at-Entry Rating Moderately Unsatisfactory b\. Quality of supervision Supervision missions were regular, including timely Implementation Status Reports, and the Mid-Term-Review in 2010 provided a documentation of issues\. The Bank was also actively engaged in sector dialogue on sustainable management models, and the enabling environment to develop household connections\. (It is also noteworthy that, by the end of the project, no water schemes had been established under the investment program supported by the Bank’s partner development agency\.) Although below targets, the Bank project had completed investments on 1141 standpipes\. Nevertheless, there were critical shortfalls\. Land acquisition and compensation issues were seriously neglected, as illustrated by the lack of  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review MA-Rural Water Supply and Sanitation (P086877) any mention of compensation issues in ISRs until 2009, nearly four years after Board Approval\. From Mid-Term-Review, supervision missions systematically reviewed compensation issues, but this was not sufficient to resolve all of the issues before project closing\. Another issue was that the Bank did not take sufficiently proactive measures to tackle implementation issues\. The ICR, commenting on this, remarked that “Stronger proactivity measures were needed to make up design weaknesses and address implementation issues\.” (ICR, Section 5\.1)\. Another deficiency was in severely understated reporting of the project’s status\. Project ratings throughout supervision indicate a notable disconnect between ratings and actual performance\. In the 18 ISRs from project commencement in 2005 to project closure in 2014, Implementation Performance ratings were satisfactory for 12 ISRs and moderately satisfactory for five ISRs (the last ISR reduced the rating to moderately unsatisfactory)\. Performance of Supervision was Unsatisfactory\. Summary: With a Moderately Unsatisfactory Quality at Entry, and an Unsatisfactory Supervision Performance, the overall Performance of the Bank was Unsatisfactory\. Quality of Supervision Rating Unsatisfactory Overall Bank Performance Rating Unsatisfactory 9\. Assessment of Borrower Performance a\. Government Performance Government provided general back-up support to ONEP, but could have done better in two principal areas\. First, ONEP was not given full flexibility on adjustments in tariff levels, which affected the organization’s ability to raise funds sufficient for operational requirements\. Second, Government could have done more to facilitate coordination between ONEP and other public agencies affecting the project\. Fast track procurement procedures for works could also have been approved\. Government’s Performance was Moderately Unsatisfactory\. Government Performance Rating Moderately Unsatisfactory b\. Implementing Agency Performance ONEP performed well in taking the first steps to establish a national water supply program, and was committed to the project\. However, physical achievements were well below targets\. But ONEP performance was in part held back by the Government actions above – for instance, it would have had greater financial strength in management and staffing if Government had granted more flexibility in setting tariffs\. But ONEP was fully responsible for most other shortfalls impeding project implementation\. ONEP’s primary weakness, though, was in land acquisition and compensation, where it did not comply with national regulations or with the project’s safeguards framework\. The Performance of the Implementing Agency was Moderately Unsatisfactory\. Considering both the performance of Government and the Implementing Agency, the Borrower’s Performance was Moderately Unsatisfactory\. Implementing Agency Performance Rating Moderately Unsatisfactory Overall Borrower Performance Rating Moderately Unsatisfactory 10\. M&E Design, Implementation, & Utilization  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review MA-Rural Water Supply and Sanitation (P086877) a\. M&E Design As designed at appraisal, an M&E Unit within ONEP was to have overall responsibility for M&E\. Field data would primarily be collected by extension staff (Social Mobilization Teams), and one of ONEP’s line units would coordinate data collation by the operational departments\. Tools to collect operational data were to be developed after Effectiveness\. Monitorable indicators chosen to measure project outputs and outcome ranged in quality, some being measurable and linked to the Results Framework, and others lacking clarity\. The mechanisms by which the M&E system would inform management decisions were not clear\. b\. M&E Implementation MIS type data on physical progress was routinely collected\. Collection of broader information for more evaluative purposes greatly benefitted from three Beneficiary Surveys – in 2010 (the fourth year of the project) which helped inform the Mid-Term-Review; in 2012; and before project closure\. These were, however, primarily qualitative rather than quantitative\. c\. M&E Utilization Data, especially MIS data, was used to track project progress, but there were gaps in some key areas, for instance, there was no clear measure of sustainability\. Also, as local capacity to process data was limited, ONEP had difficulty aggregating or disaggregating the data, reducing utility\. For evaluative purposes, the Beneficiary Surveys proved more useful\.The overall Quality of M&E was Modest\. M&E Quality Rating Modest 11\. Other Issues a\. Safeguards The project was classified as Category B and triggered two Safeguards: Environmental Management ((OP/BP 4\.01), and Resettlement (OP/BP 4\.12)\. Environmental Management: An Environmental Management Framework was issued in 2005, before project approval\. ONEP did environmental screenings for each sub-project, and subsequently monitored contractors\. No issues are reported in the ICR\. Land Acquisition: A Resettlement Policy Framework was issued in 2005, but implementation proved difficult, and not in accordance with Moroccan Law and Bank guidelines\. Also, it was only at Mid-Term-Review, in 2010, that focused attention was paid to progress and issues\. With guidance from the Regional Safeguards Advisor, the Bank MTR team requested ONEP to inform all potentially affected landowners about the acquisition process, including timelines and procedures for assessing compensations, and to not authorize works until provisions for compensation were secured\. However, progress was slow\. By the end of the project, less than 10 percent of expected compensations had been paid\. (It is noteworthy that, as with the ISR ratings for the general progress of the project (section 8), there was a disconnect between the actual safeguards performance and the ratings for safeguards in these reports\. Until mid-2013, the penultimate year of the project, safeguards performance was rated satisfactory or moderately satisfactory in all ISR reports, despite the serious problems of the resettlement and compensation program\. b\. Fiduciary Compliance  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review MA-Rural Water Supply and Sanitation (P086877) Procurement\. ONEP handled procurement in accordance with Bank guidelines, and there were no major procurement issues\. ONEP did well in managing over 40 contracts including several contract amendments to adjust to implementation constraints\. Financial Management\. Financial management was rated satisfactory until 2012 as there were no major problems with financial management, and auditing was satisfactory\. In the last four ISRs, Financial Management performance was downgraded to Moderately Satisfactory as financial and auditing reports were late and lacked the detail required\. c\. Unintended impacts (Positive or Negative) --- d\. Other --- 12\. Ratings Reason for Ratings ICR IEG Disagreements/Comment Outcome Unsatisfactory Unsatisfactory --- Sustained operations of standpipes Risk to Development Outcome Modest Substantial not yet proven over time\. Bank Performance Unsatisfactory Unsatisfactory --- Borrower Performance Moderately Unsatisfactory Moderately Unsatisfactory --- Quality of ICR Substantial --- Note When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate\. 13\. Lessons The following Lessons, in particular lessons 1, 2 and 4, are adaptations from the ICR text and Lessons section: 1\. Prepare and implement land acquisition and compensation as early as possible, including adapting to traditional land ownership customs, the Government policy context, and the implementation capacity of the institution(s) involved\. Most of the land acquisition and compensation program was implemented during or after construction of works (only 10 percent of compensation had been paid by project closure)\. The late start was compounded by unforeseen implementation difficulties due to limited consideration of the wider context for implementing land acquisition\. Preparation took inadequate account of constraints from existing Government regulations, and ONEP’s institutional capacity to implement the program\. The land acquisition and compensation program thus became the main issue and bottleneck to implementation of the overall project\. 2\. A project’s institutional responsibilities and institutional linkages, and the associated implementation processes, need to be clear and sufficiently detailed at appraisal to guide implementation\. This was not the case for rural hygiene, sanitation, and the household water connections program, which contributed to their low achievements\. 3\. Major restructuring of an unsatisfactorily performing project has potential to achieve better results than continuation without change of the original objectives and design\. By project closure only one of the project's two objectives had made progress, and components such as the wastewater management, household connections and hygiene had made virtually no progress\. It might have been better to redesign the project to focus on the stand-  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review MA-Rural Water Supply and Sanitation (P086877) pipes program, with revamped approaches and implementation improvements in areas needed to make it more effective\. Limited studies and piloting of some of the original components could also have been included\. 4\. Project performance ratings need to provide a realistic assessment of progress and issues\. Project ratings throughout supervision indicate a marked disconnect between ratings and actual performance\. In the 18 ISRs from project commencement in 2005 to project closure in 2014, Implementation Performance and Development Objectives ratings were graded Satisfactory for 12 ISRs and Moderately Satisfactory for five ISRs\. Safeguards were also over-rated - until mid-2013, the penultimate year of the project, safeguards performance was rated Satisfactory or Moderately Satisfactory despite the issues with land acquisition\. Such overassessments might result in reduced attention by managers to a project's problems, and may have contributed to the limited attention during implementation to the project’s serious issues and to the need for a more fundamental restructuring of the project than was actually done\. (The ICR, with its candid review (refer below), offers a notable departure from the ratings of the past)\. 14\. Assessment Recommended? No 15\. Comments on Quality of ICR The ICR is an informative, forthright, and well written report, with an issues-based discussion of the project’s performance\. Section 2 – “Key Factors Affecting Implementation and Outcomes” – is learning oriented\. A detailed economic analysis annex is provided, and the Annex on Outputs by Component provide helpful details about the project and its implementation, as well as informative charts and photographs\. The Annexes on the Beneficiary Survey and Stakeholder Workshop are probing and thoughtful in interpretive content\. The ICR’s major departure from the project’s unrealistic performance ratings during project implementation is a significant and appropriate reassessment by the ICR team and associated management\. There are two areas in the ICR where improvement might have been possible\. First, some of the Lessons could have had more reference to the specific experience of the project\. Second, there are several aspects where more detail and discussion would have been informative; in particular, more explanation as to why the wastewater and household connections programs did not take off\. But overall, the report is a strong assessment, noteworthy for its candor in discussion of issues and performance\. The Quality of the ICR is Substantial\. a\. Quality of ICR Rating Substantial

REVIEW

P108058

 Document of The World Bank Report No: ICR00002332 IMPLEMENTATION COMPLETION AND RESULTS REPORT (P108058) ON A GRANT IN THE AMOUNT OF US$70,997,902\.39 TO THE CARIBBEAN CATASTROPHE RISK INSURANCE FACILITY FOR A CARIBBEAN CATASTROPHE RISK INSURANCE PROJECT July 12, 2012 Sustainable Development Department Caribbean Country Management Unit Latin America and the Caribbean Region  CURRENCY EQUIVALENTS Currency Unit = US$ FISCAL YEAR June 1 to May 31 ABBREVIATIONS AND ACRONYMS AAL Average annual loss AFD Agence Française du Dévelopment (French Development Agency) CARICOM Caribbean Community and Common Market CARILEC Caribbean Electrical Utility Service Corporation CCCCC Caribbean Community Climate Change Centre CCRIF Caribbean Catastrophe Risk Insurance Facility (the “Facilityâ€?) CDB Caribbean Development Bank CDEMA Caribbean Disaster Emergency Management Agency CDM Comprehensive disaster management CEA California Earthquake Authority CIDA Canadian International Development Agency CIMA Cayman Islands Monetary Authority, CCRIF’s regulator CIMH Caribbean Institute for Meteorology and Hydrology COFAP CARICOM Council for Finance and Planning DFA Dynamic Financial Analysis, the model CCRIF uses to assess its financial sustainability DFID United Kingdom Department for International Development DRM Disaster risk management ECA Economics of Climate Adaptation EU European Union GEF Global Environmental Facility HLEM Hazard and loss estimation model IBRD International Bank for Reconstruction and Development (part of the World Bank Group) IBTF Initiating Brief for Trust Fund ICR Implementation Completion and Results Report IDA International Development Association (part of the World Bank Group) ISR Implementation Status and Results Report JSIF Jamaican Social Investment Fund KAC Kinetic Analysis Corporation MCII Munich Climate Insurance Initiative MDTF Multi-donor Trust Fund MOP Memorandum of the President of the World Bank to the Board of Executive Directors NHC U\.S\. National Hurricane Center NMHS A national meteorological and hydrological service OAS Organization of American States OECS Organization of Eastern Caribbean States PAD Project Appraisal Document PDO Project Development Objective PHRD Policy and Human Resources Development grant, a program of the Government of Japan PML Probable maximum loss RTFS Real Time Forecasting System, a proprietary storm forecasting system developed by Kinetic Analysis Corporation SRC Seismic Research Centre, University of the West Indies TA Technical assistance UN-ECLAC United Nations Economic Committee for Latin America and the Caribbean UNEP United Nations Environmental Program USAID U\.S\. Agency for International Development USGS U\.S\. Geological Survey UWI University of the West Indies Vice President: Hasan Tuluy Country Director: Françoise Clottes Sector Manager: Anna Wellenstein Project Team Leader: Niels Holm-Nielsen ICR Team Leader: Niels Holm-Nielsen  CARIBBEAN REGION Caribbean Catastrophe Risk Insurance Facility CONTENTS Data Sheet A\. Basic Information i B\. Key Dates i C\. Ratings Summary i D\. Sector and Theme Codes ii E\. Bank Staff ii F\. Results Framework Analysis ii G\. Ratings of Project Performance in ISRs iv H\. Restructuring iv I\. Disbursement Graph v 1\. Project Context, Development Objectives and Design \. 1 2\. Key Factors Affecting Implementation and Outcomes \. 7 3\. Assessment of Outcomes \. 21 4\. Assessment of Risk to Development Outcome\. 29 5\. Assessment of Bank and Borrower Performance \. 30 6\. Lessons Learned \. 34 7\. Comments on Issues Raised by Grantee/Implementing Agencies/Donors \. 36 Annex 1\. Project Costs and Financing \. 37 Annex 2\. Outputs by Component \. 38 Annex 3\. Economic and Financial Analysis \. 39 Annex 4\. Grant Preparation and Implementation Support/Supervision Processes \. 51 Annex 5\. Beneficiary Survey Results \. 53 Annex 6\. Stakeholder Workshop Report and Results\. 54 Annex 7\. Summary of Grantee's ICR and/or Comments on Draft ICR\. 55 Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders \. 56 Annex 9\. List of Supporting Documents \. 60 MAP IBRD 39282 A\. Basic Information Caribbean Catastrophe Country: Caribbean Project Name: Risk Insurance Facility Project ID: P108058 L/C/TF Number(s): TF-58302 ICR Date: 07/12/2012 ICR Type: Core ICR Lending Instrument: SIL Grantee: CCRIF Original Total USD 24\.00M Disbursed Amount: USD 71\.00M Commitment: Revised Amount: USD 71\.00M Environmental Category: C Implementing Agencies: Caribbean Catastrophe Risk Insurance Facility Cofinanciers and Other External Partners: B\. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 02/15/2007 Effectiveness: 07/03/2007 11/11/2008 Appraisal: Restructuring(s): 10/25/2010 10/03/2011 Approval: 04/26/2007 Mid-term Review: 07/31/2008 12/01/2008 Closing: 01/16/2012 01/16/2012 C\. Ratings Summary C\.1 Performance Rating by ICR Outcomes: Highly Satisfactory Risk to Development Outcome: Low or Negligible Bank Performance: Satisfactory Grantee Performance: Highly Satisfactory C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Highly Satisfactory Government: Not Applicable Implementing Quality of Supervision: Satisfactory Not Applicable Agency/Agencies: Overall Bank Overall Borrower Satisfactory Highly Satisfactory Performance: Performance: i C\.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating Performance (if any) Potential Problem Project Quality at Entry No None at any time (Yes/No): (QEA): Problem Project at any Quality of No None time (Yes/No): Supervision (QSA): DO rating before Satisfactory Closing/Inactive status: D\. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Non-compulsory pensions and insurance 100 100 Theme Code (as % of total Bank financing) Other financial and private sector development 100 100 E\. Bank Staff Positions At ICR At Approval Vice President: Hasan A\. Tuluy Pamela Cox Country Director: Francoise Clottes Caroline D\. Anstey Sector Manager: Anna Wellenstein John Henry Stein Project Team Leader: Niels B\. Holm-Nielsen Francis Ghesquiere ICR Team Leader: Niels B\. Holm-Nielsen ICR Primary Author: Todd W\. Crawford F\. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The PDO was stated in the Initiating Brief for a Trust Fund (IBTF), approved March 2, 2007, as follows: The Trust Fund supports the creation and operation of the CCRIF, which will allow Caribbean countries access to natural catastrophe risk insurance at affordable rates\. Revised Project Development Objectives (as approved by original approving authority) As further specified for the purposes of the Implementation Status and Results Reports (ISR), the PDO was stated as: ii  The development objective of the Trust Fund is to support the Caribbean Catastrophe Risk Insurance Facility in order to reduce the Caribbean countries financial vulnerability to natural disasters (earthquakes and hurricanes)\. The fund finances CCRIF's establishment costs, operating expenses and insurance payouts\. This results in a significant reduction of insurance premiums and provides stability to CCRIF until it becomes self-sustainable\. (a) PDO Indicator(s) Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years Establishment of the Facility by end March 2007, and natural catastrophe risk Indicator 1 : coverage provided to participating countries for the Hurricane Seasons 2007, 2008, 2009 and 2010\. Establishment of Establishment of the Facility by end the Facility by end March 2007, and March 2007, and natural catastrophe natural catastrophe Value risk coverage risk coverage CCRIF not yet quantitative or provided to provided to established\. Qualitative) participating participating countries for the countries for the Hurricane Seasons Hurricane Seasons 2007, 2008, 2009 2007, 2008, 2009, and 2010\. 2010 and 2011\. Date achieved 02/06/2007 12/31/2010 01/16/2012 Comments PDO indicator taken from the approved IBTF\. The IBTF did not specify a target (incl\. % value\. The actual value is as of the date the Grant closed\. achievement) (b) Intermediate Outcome Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Indicator 1 : Total claims paying capacity of CCRIF Value US$150 million (quantitative 0 US$110 million (See comment) or Qualitative) Date achieved 02/06/2007 12/31/2010 01/16/2012 Comments The IBTF did not specify an intermediate outcome indicator\. The "original (incl\. % target value" is taken from the ISRs\. The actual value is for the insurance year achievement) June 1, 2011, to May 31, 2012\. iii G\. Ratings of Project Performance in ISRs Actual Date ISR No\. DO IP Disbursements Archived (USD millions) 1 06/12/2008 Satisfactory Satisfactory 9\.30 2 11/07/2008 Satisfactory Satisfactory 12\.27 3 03/31/2009 Satisfactory Satisfactory 18\.57 4 10/12/2009 Satisfactory Satisfactory 25\.38 5 01/30/2010 Satisfactory Satisfactory 38\.34 6 05/21/2010 Moderately Satisfactory Moderately Satisfactory 42\.77 7 02/13/2011 Moderately Satisfactory Satisfactory 65\.86 8 09/06/2011 Satisfactory Satisfactory 65\.86 H\. Restructuring (if any) ISR Ratings at Amount Board Restructuring Disbursed at Restructuring Reason for Restructuring & Approved Restructuring Date(s) Key Changes Made PDO Change DO IP in USD millions To increase the Grant from 11/11/2008 N S S 12\.27 US$24 million to US$50 million\. 10/25/2010 MS MS 49\.74 To add US$20 million\. To add the remaining US$0\.998 10/03/2011 S S 65\.86 million\. iv I\. Disbursement Profile v   1\. Project Context, Development Objectives and Design 1\.1 Context at Appraisal 1\. The Hyogo Framework for Action 2005-2015 provides a global blueprint for disaster risk reduction and identifies the need to “promote the development of financial risk- sharing mechanism, particularly insurance and reinsurance against disasters,â€? as a priority action for “Building the Resilience of Nations and Communities to Disasters\.â€? This recommendation is particularly relevant to Caribbean countries, which are highly exposed to adverse natural events, including hurricanes, earthquakes, and excess rainfall\. On average, at least one major hurricane and numerous tropical storms cross the Caribbean each year\. From 1979 to 2005, aggregate economic losses due just to storms were estimated at US$16\.6 billion – US$613 million annually\. Averages, however, disguise the extreme losses that can occur overnight\. Damage to Grenada alone from just one of the major tropical storms in the Caribbean in 2004, Hurricane Ivan, was calculated at US$800 million\. The combined damage from Ivan and the three other major hurricanes that wreaked havoc in the Caribbean in the same year – Hurricanes Charley, Frances and Jeanne – totaled more than US$4 billion\. 2\. Large economies can absorb the economic impact of major disasters, as the resulting damage, however large in absolute terms, is equal to a small share of GDP and the funds required for recovery, a small share of the government budget\. For example, the damage to Louisiana and other Gulf Coast states caused by Hurricane Katrina in 2005 amounted to US$125 billion, only 1\.1 percent of U\.S\. GDP for that year1; the US$83 billion appropriated by the U\.S\. Congress in its wake hardly registered on the federal budget\. 3\. The same cannot be said of small island economies, such as in the Caribbean, where the damage can easily constitute a multiple of GDP (See Table 1)\. The capacity of the Caribbean countries individually to absorb the financial impact of such disasters is limited by a number of factors\. Their small geographic size prevents diversification of their risk\. The modest scale of their fiscal revenues makes establishing a financial reserve unaffordable and their small budgets constrain opportunities for reallocating resources to meet immediate needs; in any case, reallocation takes time\. 2 Their possibilities for financial risk transfer through affordable catastrophe insurance in traditional international insurance and reinsurance markets are limited by the high transaction costs that result from the limited volume of business they could bring to these markets\. The high levels of their government debt constrain their access to credit in international capital markets and their domestic capital markets lack sufficient depth to meet their needs following a catastrophe\. And, finally, such donor 1 World Development Indicators database, World Bank\.GDP = GDP at purchaser's prices in current dollars\. 2 While larger countries generally have the flexibility to reallocate up to 5 percent of their budgets within a current year to meet extraordinary needs, for the small island countries in the Caribbean such scope is on the order of only 1 percent\. 1  assistance as they may receive to support relief and recovery, with the exception of in-kind humanitarian assistance, comes with a delay, often results from a reprogramming that reduces funds for other development activities, and is normally tied to specific expenditures\. Table 1: Losses from Major Disasters in the Last 40 Years3 Year Natural Disaster Country Region Estimated Direct Direct Loss Loss (nominal (% of US$ million) GDP) Large Economies 1992 Hurricane Andrew USA North 265,000 0\.4 America 1995 Earthquake Japan East Asia 100,000 3\.2 1998 Flood China East Asia 30,000 0\.7 2005 Hurricane Katrina USA North 125,000 1\.1 America Small Island Economies 1985 Cyclones Eric & Vanuatu Oceania 173 143 Nigel 1990 Cyclone Ofa Samoa Oceania 200 178 1991 Cyclones Val & Samoa Oceania 278 248 Wasa 2004 Hurricane Ivan Grenada Caribbean 889 203 2009 Tsunami Samoa Oceania 120 22 2010 Earthquake Haiti Caribbean 8,000 114 4\. What the small island countries in the Caribbean particularly lack is ready access to untied liquidity to support relief in the immediate aftermath of a natural disaster\. In the initial relief stage, humanitarian supplies need to be distributed, debris need to be cleared, people need to be rescued, sites may need to be prepared for emergency housing, vital public services, such as water and power, need to be restored in however makeshift and temporary a fashion, and a strategy to finance the much greater costs of the medium-term recovery and longer-term reconstruction phases needs urgently to be formulated\. All of these activities entail extraordinary costs for materiel, fuel, overtime for government emergency utilities and public works staff, etc\. Figure 1 illustrates the three phases for which financing must be mobilized – initial relief, medium-term recovery, and longer-term reconstruction\. 3 From “Financial Protection of the State against Natural Disasters,â€? Policy Research Working Paper 5429; Francis Ghesquiere & Olivier Mahul; the World Bank; September 2010\. 2  Figure 1: Main Phases of Post Disaster Funding Needs4   5\. The World Bank already had a significant history of experience with supporting efforts of countries in the Caribbean and elsewhere to strengthen their disaster risk management strategies and recover from hurricanes and earthquakes\.5 In view of this history, following the devastation caused by Hurricane Ivan and the other major tropical cyclones in 2004, the Caribbean Community and Common Market (CARICOM) Heads of State requested the World Bank’s assistance in devising and creating a structure that would help the Caribbean countries address the constraints described above by providing them with access to affordable insurance coverage against potential revenue losses from natural disasters, thereby reducing their financial vulnerability to such disasters\. 1\.2 Original Project Development Objectives (PDO) and Key Indicators 6\. Given World Bank policies prevailing in 2007 with respect to Bank-administered trust funds, the usual Project Appraisal Document (PAD) that would have been done for an investment project was not required or prepared for the project\. Instead, an Initiating Brief for a Trust Fund (IBTF) was prepared for Management’s decision, setting forth the following PDO and key indicators\.6 4 Ibid\. 5 See for example Annex 2, “Major Related Projects,â€? in the Project Appraisal Document for the four Catastrophe Insurance Projects for the Organization of Eastern Caribbean States; February 6, 2007; Report No: 38539-LAC\. 6 IBTF 2115 (approved); March 2, 2007\. Project documentation for the Board of Executive Directors consisted of: (i) a Memorandum of the President (MOP) to the Board of Executive Directors, “Proposed 3 PDO 7\. The purpose of the Trust Fund was to support the establishment and operations of CCRIF, a catastrophe risk mitigation facility for which no precedent or model existed, in order to reduce members’ financial vulnerability to natural disasters\. The PDO was stated simply in the approved IBTF as follows::  The Trust Fund supports the creation and operation of the CCRIF, which will allow Caribbean countries access to natural catastrophe risk insurance at affordable rates\. Key Indicators 8\. The IBTF specified the following key indicator:  Establishment of the Facility by end March 2007, and natural catastrophe risk coverage provided to participant countries for the Hurricane Seasons 2007, 2008, 2009, and 2010\. 1\.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification 9\. After CCRIF’s establishment, the PDO and Key Indicators were further specified in Implementation Status and Results Reports (ISR) in order to guide supervision\. As these revisions are more specific, they will be used for the rest of this Implementation Completion and Results Report (ICR)\. Revised PDO  The development objective of the Trust Fund is to support the Caribbean Catastrophe Risk Insurance Facility (CCRIF) in order to reduce the Caribbean countries' financial vulnerability to natural disasters (earthquakes and hurricanes)\. The fund finances CCRIF's establishment costs, operating expenses and insurance payouts\. This results in a significant reduction of insurance premiums and provides stability to CCRIF until it becomes self-sustainable\. Revised Key Indicators  PDO-level indicator: Countries are eligible for insurance payment (and have received payment in case of an insured event)\. Transfer of IBRD Surplus to Support a Caribbean Catastrophe Risk Insurance Facility,â€? February 9, 2007; and a Board of Governors Resolution No\. 585, “Transfer from Surplus to Fund the Caribbean Catastrophe Risk Insurance Facility Trust Fund,â€? which was adopted April 23, 2007, to execute the US$10 million transfer\. 4  o Baseline: CCRIF not yet established o End-of-Project Target Value: Participation fee paid and insurance policy purchased  Intermediate outcome indicator – Total claims paying capacity of CCRIF o Baseline: 0 o End-of-Project Target Value: US$110 million 1\.4 Main Beneficiaries 10\. The primary beneficiaries of CCRIF are the 16 member governments\. They benefit from: (i) being able to transfer a portion of their hurricane and earthquake risk to the Facility at a price lower than what they would pay if they were able to obtain coverage individually in international insurance markets or the cost of the capital they would need to hold or obtain in order to self insure; and (ii) from receiving a prompt cash payout, within two weeks or less, following a covered event\. A secondary benefit might be more favorable investor sentiment, particularly in the tourism sector, stimulated by investors’ greater confidence in the governments’ disaster risk management strategy and ability to overcome quickly the damage caused by the disaster; but such a benefit is difficult to measure and is not assessed in this ICR\. 11\. As CCRIF has consolidated its standing as a Caribbean institution and broadened the scope of its activities, others have also benefited\. It has entered into partnership agreements for support to and collaborative work with several CARICOM organizations, signing Memoranda of Understanding (MOUs) with: (i) the Caribbean Institute of Meteorology and Hydrology (CIMH); (ii) the Caribbean Disaster Emergency Management Agency (CDEMA); (iii) the Caribbean Community Climate Change Centre (CCCCC): (iv) the United Nations Economic Committee for Latin America and the Caribbean (UN-ECLAC); (v) the Seismic Research Centre (SRC) at the University of the West Indies (UWI); and, recently, (vi) the Secretariat of the Organization of Eastern Caribbean Countries (OECS)\. Collaborative activities are designed not only for the mutual benefit of CCRIF and the partner institution, but also to contribute broadly to supporting efforts of CCRIF members to strengthen their disaster risk management policies and practices\. Section 2\.2 amplifies on these mutual benefits\. 12\. A number of officials from member country agencies – e\.g\., ministries of finance, departments of insurance supervisors, national disaster management offices, and national meteorological and hydrological services (NMHS) – have benefited from CCRIF’s support for their participation in a range of professional development activities sponsored by CCRIF itself or by others, such as CIMH and CDEMA\. Finally, undergraduate and graduate-level students have benefited from CCRIF scholarships for studies in insurance, disaster risk management, civil and environmental engineering, geology and geography, and related fields\. 5 1\.5 Original Components 13\. The IBTF specified two components: 1\. Establishment of CCRIF – US$500,000 2\. CCRIF Operations – US$30,421,170\.50 14\. With respect to the second component, eligible expenditures were: a\. professional service fees, banking initiation fees, and registration fees, including related travel expenses incurred by the Recipient in connection with establishment of the Facility; b\. administrative fees, professional fees, audit costs, exchange rate costs, banking fees, reinsurance premia, and remuneration and travel expenses of Board members of the Facility incurred by the Recipient in operating the Facility; c\. insurance payouts of the Facility, to the extent that such payouts are not covered by any reinsurance purchased by the Recipient; and d\. such other operational expenses of the Facility agreed with the World Bank\. 15\. Specific professional fees for which CCRIF received funding from the Grant were those for: (i) the members of the Board of Directors; (ii) the Facility Supervisor; (iii) the Insurance Manager; (iv) the Reinsurance Broker; (v) the Corporate Communications Consultant; and (vi) the External Auditor\. CCRIF has financed its research and development, partnership, capacity building, and scholarship activities out of its own investment income\. 16\. The project was financed by a Multi-donor Trust Fund (MDTF), which was established to support CCRIF’s initial operations\.7 MDTF resources were transferred to CCRIF via a recipient-executed trust fund CCRIF Grant Agreement\.8 The trust fund resources were not used to make a direct investment in CCRIF, but rather to reimburse it over the course of project implementation for eligible expenditures described in paragraph 14\. The initial total financing for the two components – US$30,921,170\.50 – was the sum of pledges from bilateral donors to the MDTF at the time that the IBTF was approved, less the Bank’s 2 percent charge for administering the trust fund\.9 1\.6 Revised Components N/A 7 TF070721\. 8 CCRIF Grant No\. TF058302; April 26, 2007\. 9 Initial donor contributions in US$ equivalents were: the United Kingdom Department for International Development (DFID) – US$7,500,000\.00; Agence Française du Dévelopment (the French Agency for Development, AFD) – US$6,350,750\.00; and the Canadian International Development Agency (CIDA) – US$17,701,464\.80\. 6 1\.7 Other significant changes 17\. Donor contributions to the MDTF eventually rose to some US$67\.4 million\. Table 2: Contributions to Multi-donor Trust Fund Donor Currency of Amount of Amount in Contribution Contribution US$ Equivalent Bermuda US$ 500,000 500,000\.00 CDB US$ 5,000,000 5,000,000\.00 Canada CA$ 20,000,000 17,811,025\.02 European Commission Euro 12,500,000 16,960,000\.00 French Republic Euro 5,000,000 7,258,575\.00 DFID US$ 7,500,000 7,500,000\.00 Ireland US$ 2,400,000 2,400,000\.00 IBRD US$ 10,000,000 10,000,000\.00 Total 67,429,600\.02 18\. With net interest income, the MDTF resources grew over time to US$70,997,902\.39\. As these resources grew and as CCRIF’s eligible expenditures increased, the CCRIF Grant Agreement was increased three times from the original US$24 million, ultimately transferring to it the full amount of the MDTF\. The PDO, outcome indicators, project components, and definition of eligible expenditures, however, remained as outlined in the original Grant Agreement\. 2\. Key Factors Affecting Implementation and Outcomes 2\.1 Project Preparation, Design and Quality at Entry 19\. Grants from the Government of Japan under its Policy and Human Resource Development program (PHRD) to Jamaica and to Antigua and Barbuda, Dominica, Grenada, St\. Kitts and Nevis, St\. Lucia, and Saint Vincent and the Grenadines were vital to project preparation\. The grants, which were administered by the World Bank, amounted to US$800,000 and US$1\.0 million, respectively, and were implemented by the Jamaican Social Investment Fund (JSIF) and the OECS Secretariat, respectively\. Project preparation was also supported by Bank budget, amounting to some US$400,000\. These funds were drawn from the preparation budgets for two closely related projects which funded the participation of Haiti, Dominica, Grenada, St\. Lucia and St\. Vincent and the Grenadines in CCRIF (see Annex 4(b)\. 7 20\. Project design, led by the World Bank with the collaboration of JSIF and the OECS Secretariat, was particularly challenging, as CCRIF was the first multi-country, multi- peril pooled catastrophe risk insurance facility in the world\. In-depth World Bank analytical work provided the intellectual underpinnings for the initial dialogue with Caribbean and other stakeholders and for designing the structure and policies of the Facility\. Key elements in this regard were a Bank-published book on the Caribbean case, “Managing Catastrophic Disaster Risks Using Alternative Risk Financing and Pooled Insurance Structuresâ€?, and a paper published jointly by the World Bank, United States Agency for International Development (USAID), and the Organization of American States (OAS) titled “Insurance, Reinsurance and Catastrophe Protection in the Caribbeanâ€?\.10 21\. Project design drew on data and knowledge accumulated in the Caribbean, North America, Europe, and Asia by catastrophe risk insurance entities; insurance regulators; actuaries; probabilistic catastrophe risk modeling companies; private sector insurance and reinsurance companies, brokers, and associations; disaster emergency management organizations; and meteorological, hydrological, and seismic monitoring and research centers such as the World Meteorological Organization (WMO), U\.S\. National Oceanographic and Atmospheric Agency (NOAA), National Hurricane Center (NHC), California Earthquake Authority (CEA), the Florida and Hawaii hurricane funds, U\.S\. Geological Survey (USGS), and SRC\. In addition to the work undertaken to identify the most suitable hazard and loss estimation model (HLEM), map and assess risks, develop and price the policies, and flesh out the institutional and governance structure of the Facility, a thorough assessment was undertaken of the regulatory environment for captive insurance companies in various Caribbean jurisdictions, including their anti-money laundering and anti-terrorist finance regimes, leading to the choice to domicile CCRIF in the Cayman Islands\. 22\. Design required extremely sophisticated modeling of hurricane and earthquake risk in the Caribbean to develop the HLEM that would underpin the pricing of CCRIF’s policies and its financial sustainability\. The modeling entailed a number of steps, including: (i) physical risk mapping and vulnerability estimation for the Caribbean islands; (ii) innovative actuarial analysis of the probability of tropical storm and earthquake events of different intensities and insurance pricing studies: (iii) evaluation of financial structures and instruments and their associated costs for 10 (i) “Managing Catastrophic Disaster Risks Using Alternative Risk Financing and Pooled Insurance Structuresâ€?; John D\. Pollner; World Bank Technical Paper No\. 495; The World Bank; May 2001\. (ii) “Insurance, Reinsurance and Catastrophe Protection in the Caribbean – A Working Paper prepared in collaboration with the World Bankâ€?; Arthur F\. Evans, John Pollner, W\. Ed Morris, and Jan C\. Vermeiren; Organization of American States, General Secretariat, Unit for Sustainable Development and Environment; USAID-OAS Caribbean Disaster Mitigation Project; May 1996\. 8  pooled risk financing and insurance; and (iv) assessment of options for the institutional and legal structure of the Facility\. 23\. The design of CCRIF was well tailored to help the Caribbean countries reduce their financial vulnerability to natural disasters by addressing the limitations on their capacity individually to absorb the initial financial impact of hurricanes and earthquakes\.  Risk pooling – CCRIF was designed to aggregate disaster risks across the Caribbean, achieving the kind of risk diversification and spreading that its members are not able to attain on their own\.  Affordability – Structuring CCRIF as a risk pool with a diversified portfolio enables it to offer insurance at affordable prices\. At the time of appraisal, it was estimated that CCRIF insurance would cost 60 to 70 percent less than the members’ cost of self-insurance through establishment of a reserve fund, and 45 to 50 percent less than the cost of coverage if they were able to obtain it individually in traditional markets\.  Parametric facility – CCRIF was designed as a parametric insurer to pay claims based on the occurrence of a hurricane or earthquake of a pre-defined magnitude – expressed in terms of proximity, wind speed, storm surge and waves for hurricanes and ground shaking for earthquakes – as measured by data publically available from independent scientific agencies\. 11  Timely and predictable payouts – Given CCRIF’s nature as a parametric insurer, its payouts are both timely and predictable\. CCRIF is able to make payouts within two weeks or less of a covered disaster\. This is possible because, with covered events being defined in advance and subject to rapid measurement based on data from independent third parties, no ex post visit by an insurance adjuster is required to assess damage on the ground and determine the amount of the payout\. 11 Parametric insurance differs from the more traditional indemnity insurance in how losses are determined and payouts are made\. Under traditional indemnity insurance, losses are determined based on an adjuster’s ex post, on-the-ground assessment of actual damage\. This can be a time-consuming and contentious process and payouts to the insured are made only after it is completed\. With parametric insurance, payouts are triggered by the occurrence of natural disasters of a magnitude previously defined in the policy in terms of proximity, wind speed, storm surge and waves for hurricanes and ground shaking for earthquakes\. Payouts under parametric policies are based on an estimate of the losses associated with those parameters as calculated by the HLEM\. Because payouts are calculated by the model, no on-the-ground ex-post loss assessment is required and, accordingly they come quickly\. In the case of parametric insurance, there can be significant basis risk, i\.e\., the risk that a payout will be made when there is little actual damage or the risk that the payout will be significantly less than the amount of damage against which the policy holder obtained insurance\. In the case of CCRIF, however, basis risk was mitigated through the sophisticated modeling process described in paragraph 22\. CCRIF members can obtain coverage for hurricanes as frequent as a 1 in 15 year event and for earthquakes as frequent as a 1 in 20 year event\. The maximum coverage available for each peril for each year for which coverage is purchased is US$100 million\. The Facility uses publically available and readily verified scientific data from NHC for hurricanes and USGS for earthquakes\. 9   Immediate liquidity – By making rapid payouts, CCRIF meets its members’ requirements for an immediate injection of liquidity following a disaster to help them maintain essential government functions and jump-start recovery\.  Flexible resources – CCRIF’s policies were designed to provide payouts sufficient to help members finance their initial disaster response and maintain basic government functions while they mobilize the much larger amount of resources necessary to fund the longer-term recovery effort\. CCRIF was not designed as a vehicle for funding all or even a major part of the cost of the recovery effort, as financial risk transfer of such a magnitude would not be affordable\. CCRIF payouts are not tied to specific, previously identified expenditures\. Instead, member governments enjoy full flexibility in allocating the payouts to the priorities that they themselves identify\.  Transparent payouts – Because covered events are defined in advance in accordance with objectively measurable parameters and because the events themselves are measured by independent scientific agencies which make the data publically available, payouts are not only rapid, but also transparent and subject to third-party verification\.12  Individualized coverage – CCRIF was designed to allow members to tailor their policies to their own risk profile and fiscal requirements\. They do this by adjusting three policy variables: (i) the attachment point (deductible or most statistically frequent event covered); (ii) exhaustion point (most statistically infrequent, or maximum, covered event); and (iii) ceding percentage (share of the loss between the attachment and exhaustion points that is insured)\. The cost of coverage is a direct function of the amount of risk that the member chooses to transfer; thus, there is no cross subsidization from members transferring a low amount of risk to those transferring a high amount\. 24\. A number of other design features contributed to the affordability of CCRIF insurance and the viability of its business model\. Important among these were:  Donor support – CCRIF was designed to be funded during its start-up phase in part by donor contributions\. As described above, these eventually totaled some $67\.4 million; net interest income brought the final amount of the MDTF to about $71\.0 million\.  Faster capital growth – By defraying CCRIF’s major operating expenditures and reimbursing it for claims within its risk retention during its start-up phase, the MDTF enabled CCRIF to retain the bulk of its premium income and, thus, helped it to build its risk bearing capacity more quickly than it could have without such support and assure its financial sustainability as an independent entity over the long-term\. One measure of this effect is that total donor resources transferred to 12 CCRIF retains a Big Four audit firm for this purpose\. 10  CCRIF were equal to 62\.3 percent of its assets as of May 31, 2011\.13 Annex 3 discusses in greater detail the impact of donor support\.  Reinsurance – CCRIF was designed to transfer part of its risk to reinsurers and to the capital market through a swap\. This reduced the cost of the capital that CCRIF needed to cover its risk\.  “Virtualâ€? organizational structure – CCRIF was structured as a not-for-profit virtual organization, with a part-time Board of Directors and no physical office or staff of its own\. Professional services are all provided by contractors operating out of their own facilities: the Facility Supervisor, Insurance Manager, Communications Consultant, Investment Managers, Reinsurance Broker, and R&D support\. By staying organizationally lean, CCRIF has been able to control its fixed costs and overhead\.  Lower costs to members – These design features helped to lower members’ costs\. As CCRIF’s capital has grown, it has been able to reduce the participation fee requirement from 100 percent of premium to 50 percent for members of three or more years standing, lower the price of its coverage by about 30 percent, and begin to provide a 25 percent premium discount in years following years of no claims\. 25\. A central point to be reiterated is that CCRIF was established to add to its members’ revenues in the short-term by providing a cash infusion to help them fund the initial phase of their disaster response and avoid interruption of their basic business of government\. CCRIF was never conceived of, nor designed as, an instrument for avoiding longer-term impacts of the disaster on the government’s debt and balance sheet\. As already indicated, attempting to insure the entire costs of the covered disasters would be prohibitively expensive\. Nor was CCRIF conceived or designed to be a complete and comprehensive disaster response strategy for its members\. Instead, CCRIF was explicitly seen as only one instrument in the tool chest for a comprehensive disaster risk management strategy\. A comprehensive strategy would include not just financial risk transfer, but also: (i) accumulation and analysis of information about hazards and potential losses; (ii) disaster preparedness measures, such as prepositioning relief supplies in critical areas: (iii) establishment of monitoring networks and warning systems for hydrometeorological and seismic events; (iv) identification of evacuation routes; (v) development and implementation of zoning and building codes to reduce settlement in hazard prone areas and to increase the disaster resilience of construction, including in the private sector; and (vi) public investments such as drainage networks and sea walls\. 26\. During the design and project preparation process, extensive stakeholder consultations were undertaken to help shape the Facility’s objectives, structures, and products and build support for a successful launch\. These included a number of 13 Or equal to 60\.2 percent of CCRIF’s assets as of May 31, 2012, based on CCRIF’s unaudited financial statements for 2011-2012\. 11  consultations, workshops, conferences, and briefings for CARICOM Heads of Government, Finance Ministers and Permanent Secretaries, insurance supervisors and regulators, and other senior government officials; the CARICOM Secretariat and CARICOM organizations such as CDEMA and CIMH; U\.N\. bodies; technical specialists; donors; research institutes; and private sector entities involved in probabilistic hazard modeling and catastrophe insurance and reinsurance\. Among the major consultations and outreach activities were: (i) a regional introductory workshop in Kingston, Jamaica, organized in collaboration with JSIF and the CARICOM Council for Finance and Planning (COFAP) in April 2006; (ii) briefings for the CARICOM Heads of Governments in July and October 2006, the latter organized in collaboration with the Caribbean Development Bank (CDB); and (iii) a donors conference in February 2007, which was opened by then World Bank President Paul Wolfowitz, Keith Mitchell, then Prime Minister of Grenada, and Omar Davies, then Minister of Finance and Planning for Jamaica\. Detailed reports on the work to design the Facility were provided at the latter two events\. A briefing was also provided to the Small Island Developing States (SIDs) under the auspices of the United Nations Office of the High Representative for the Least Developed Countries, Landlocked Developing Countries, and Small Island Developing States, given the interest of the latter in CCRIF as a possible model for similar facilities in other regions of the world, such as the South Pacific\. 2\.2 Implementation 27\. Implementation proceeded smoothly under the leadership of CCRIF’s Board of Directors and with the capable technical and administrative support of the Facility Supervisor, Insurance Manager, Communications Consultant, Investment Managers, and Reinsurance Brokers\. The project was never at risk and no restructuring was ever contemplated or required other than to put into effect the expected increases in the amount of the Grant\. Disbursements were consistently ahead of projections and were completed before the closing date of the Grant\. CCRIF’s quarterly reports to the Bank were timely and met the requirements of the Grant Agreement\. External audits of CCRIF’s financial statements were also timely, as well as unqualified\. The auditor’s management letters never expressed material concerns about CCRIF’s internal controls\. An on-site inspection of CCRIF in 2011 by its regulator, the Cayman Islands Monetary Authority (CIMA), found it to be fully in compliance with the relevant regulatory regime and CCRIF’s Trust Deed\. In implementing the project, CCRIF gave careful consideration to the recommendations that the Bank made in three in-depth assessments of CCRIF’s operations and took steps to strengthen its operations in line with those recommendations\. 14 (See Section 5(b), Quality of Supervision, for examples\.) 14 The three reports were: (i) “A Review of CCRIF’s Operation After Its First Seasonâ€?; World Bank, December 1, 2008; (ii) “A Review of CCRIF’s Operation After Its Second Seasonâ€?; World Bank, April 2010; and (iii) “Reducing Financial Vulnerability to Natural Disasters in the Caribbean: A Review of CCRIF’s Operation After Its Third Seasonâ€?; World Bank, April 2011\. 12 28\. CCRIF rapidly built its capital and risk bearing capacity\. As of May 31, 2011, the end of CCRIF’s fourth year of operations – the latest year for which externally audited financial statements are currently available – it had retained earnings of US$89\.8 million and total assets somewhat in excess of US$114\.0 million\. 15 Disbursements from the MDTF amounting to nearly US$71 million made a major contribution, as intended, to the growth of CCRIF’s risk bearing capacity by reimbursing it for major operational and risk transfer costs and policy payouts within its risk retention\. Annex 3 discusses the contribution of donor support to CCRIF’s survivability in greater detail\. The fortunate occurrence of total policy payouts below CCRIF’s modeled average annual loss (AAL) in its first three years of operation also contributed\. In its fifth financial year, from June 1, 2011, to May 31, 2012, CCRIF made no payouts at all, thanks in part to the mild 2011 Atlantic hurricane season\. Table 3: Caribbean Catastrophe Risk Insurance Facility Payouts as of June 26, 2012 Event Date Member Affected Payout (US$) Earthquake November 29, 2007 Dominica 528,021 Earthquake November 29, 2007 St\. Lucia 418,976 Tropical Cyclone Ike September 2008 Turks and Caicos 6,303,913 Islands Earthquake January 12, 2010 Haiti 7,753,579 Tropical Cyclone Earl August 2010 Anguilla 4,282,733 Tropical Cyclone Tomas October 2010 Barbados 8,560,247 Tropical Cyclone Tomas October 2010 St\. Lucia 3,241,613 Tropical Cyclone Tomas October 2010 St\. Vincent and the 1,090,388 Grenadines Total Payouts US$32,179,470 29\. For the fifth consecutive year, June 1, 2011, to May 31, 2012, all members again renewed their policies\. CCRIF wrote 16 hurricane and 13 earthquake policies with a total coverage limit of US$624\.4 million\. It obtained reinsurance to cover US$125 million of this risk\. The bulk of this risk transfer – US$95 million – occurred through competitive contracts to cede reinsurance to global reinsurance companies\. The balance was initially taken up by the Bank’s Treasury, which then swapped it to reinsurers via the capital market\. This reinsurance gave CCRIF the capacity to pay claims associated with a series of catastrophes of such large magnitude that they are expected to occur only once in every 1,401 years without needing to draw on its own 15 CCRIF’s financial statements, as yet unaudited, for its financial year ending May 31, 2012, show retained earnings of US$94\.6 million and total assets of US$118\.4 million\. 13  capital for more than US$25 million (its retained risk for 2011-2012)\. With CCRIF’s assets over and above US$25 million, it had the capacity to withstand an even more severe series of events with a modeled probability of occurring only once in every 10,000 years, although it would require recapitalization in order to continue operating thereafter\.16 30\. The Facility has consistently been conscious of the importance of providing financial value to its members, particularly in light of their fiscal constraints – limited revenue bases and high levels of indebtedness\. Accordingly, as CCRIF’s financial strength has grown, it has taken steps to make its coverage more affordable\. Since its first year of operations, CCRIF has lowered its pricing three times for a total reduction of about 30 percent\. Members have taken advantage of these reductions to increase their coverage steadily\. As a result, CCRIF’s aggregate policy limits increased by 26\.2 percent from US$494\.8 million in its first year of operations to a total of US$624\.4 million for 2011-2012\.17 In addition, CCRIF reduced the minimum participation fee requirement for members of three years standing from 100 percent of premium to 50 percent\. This enabled members to draw on their deposits to defray part of the cost of their premiums for the fourth year\. Finally, given the continued growth of CCRIF’s capital strength, it took the decision that, beginning with the year commencing on June 1, 2012, it would provide members a premium discount for any year following a year in which it had made no payouts\. The discount is equal to 25 percent of the respective member’s premium in the year in which no claims were paid\. No claims having been paid in 2011-2012, CCRIF members were able to benefit from this discount on their 2012-2013 coverage\. 31\. CCRIF has shown flexibility in responding to other needs of its members\. In October 2010, following Hurricane Tomas, CCRIF responded to the urgent appeal of the affected countries – Barbados, St\. Lucia, and St\. Vincent and the Grenadines – for immediate support\. Moving more quickly than required by the terms of their policies, CCRIF advanced to them 50 percent of their expected payouts within a matter of days, providing the balance within the normal period of two weeks after the event\. 32\. CCRIF is also expanding its product line\. Working with risk modelers, CIMH, members’ authorities, and reinsurers, it has overcome a number of data and methodological difficulties and is in the final stages of developing a policy to insure against excess rainfall\. It expects to begin offering coverage for this additional peril early in its 2012-2013 financial year\. This is of great interest to a number of CCRIF members, with Jamaica and Haiti expected to be among the first to take up the product\. In addition, the product is thought likely to attract new members – possibly 16 For its sixth year – June 1, 2012, to May 31, 2013 – CCRIF wrote policies totaling US$626\.2 million, with all 16 members renewing\. It maintained its risk retention at US$25 million and obtained reinsurance amounting to US$120 million, including a US$30 million swap intermediated by the World Bank Treasury\. The top of CCRIF’s US$145 million of combined risk retention and reinsurance is estimated to give it the capacity to pay claims arising from a 1 in 1,125 year event\. 17 US$626\.2 million for 2012-2013\. 14  Guyana, Suriname, the British Virgin Islands, and/or Montserrat – an expansion that would benefit all members by further diversifying CCRIF’s risk pool\. 33\. The Facility has sought to increase its value to its members in non-financial ways\. In 2009, it initiated a technical assistance (TA) program, which is funded by a portion of its investment income and aimed at strengthening its members’ awareness and understanding of their disaster vulnerability and disaster risk management capacity\.18 The program consists of three components: (i) a scholarship and professional development program for students and officials from CARICOM countries studying or working in areas of environment, sustainable development, meteorology, and insurance; (ii) regional strategic knowledge building activities; and (iii) support for local DRM initiatives\. The latter is not yet under way but is to be developed in collaboration with other development partners in the region so as to avoid duplication of effort and inefficient use of resources\. 34\. Most recently, in June 2012, CCRIF awarded two scholarships following a competitive application process\. Both for two-year programs, the first was for a Masters in Public Administration in Environmental Science and Policy from Columbia University and the other for a Masters of Science in Climate Change and Development from Sussex University\. Previously, in collaboration with UWI and through a competitive application process, CCRIF awarded three scholarships for undergraduate and three for post-graduate studies at institutions forming part of the UWI system in areas related to DRM such as civil and environmental engineering, geography and geology, and disaster management\. CCRIF also granted a scholarship to a national of one of its members to pursue a Masters of Science degree in Atmosphere, Ocean and Climate at Reading University\. 35\. CCRIF has sponsored various conferences, professional development workshops and seminars, sometimes providing funding to facilitate the participation of CCRIF member officials\. One recent example of this is CCRIF’s sponsorship for the Sixth Caribbean Conference on Comprehensive Disaster Management (CDM) held in Trinidad in December 2011 under the auspices of CDEMA\. This sponsorship was provided within the framework of the MOU between CCRIF and CDEMA\. CCRIF’s sponsorship provided support for the inaugural High-Level Session, a plenary session, and two professional development sessions on the Global Earthquake Model, conducted by UWI/SRC, and Flood Early Warning Systems, conducted by the Japan International Cooperation Agency\. This sponsorship followed similar support for CDEMA CDM conferences in the previous two years\. CCRIF also provided sponsorship for the sixth conference of the Caribbean Division of the Institution of Structural Engineers in October 2011, also in Port-of-Spain, the theme of which was “Environmentally Sustainable Construction – Mitigation and Adaptation to Climate Change\.â€? CCRIF itself hosted the annual meeting of the World Forum of Catastrophe 18 TA spending is capped at 50 percent of the previous year’s investment income\. The amount budgeted and spent, however, is based on a disciplined process of Board review and approval of specific programs and activities\. To date, annual TA budgets have not risen to the level of the cap\. 15  Programmes in Jamaica in October 2011, the Forum being a mechanism for sharing information and experiences among public sector-supported catastrophe risk insurance systems\. Other recent examples of CCRIF’s professional development and knowledge sharing activities include workshops to improve understanding of the forthcoming excess rainfall product, held in collaboration with CIMH, and to train Caribbean disaster risk management and meteorological officials in use of Real Time Forecasting System (RTFS), which CCRIF licenses from Kinetic Analysis Corporation (KAC) and provides free of cost to its members\.19 36\. One important knowledge generation effort that CCRIF funded was the Economics of Climate Adaptation (ECA) Initiative, which it carried out in collaboration with CCCCC and UN-ECLAC with analytical support from Swiss Re and McKinsey & Company\. Using the ECA methodology, 20 the study conducted a cost-benefit analysis of a range of adaptation measures to reduce damage to physical assets, behavioral measures such as enforcement of zoning and building codes, and financial risk transfer options in eight pilot countries\.21 This analysis was aimed at providing the facts and tools to develop cost effective strategies that could be incorporated into national adaptation programs of action and helped the countries prepare for their participation in COP-16\. 37\. Seeking to anchor itself firmly within the broader framework of disaster risk management strategies and programs in the Caribbean, CCRIF has built a number of partnerships with other Caribbean institutions\. As already noted in Section 1\.4, Beneficiaries, CCRIF has signed MOUs with CIMH, CDEMA, CCCCC, UN-ECLAC, SRC, and the OECS Secretariat\. The MOUs provide the framework for collaboration through information exchange and support for specific activities, which are intended to improve the understanding of disaster risk and the quantity and quality of related data, not only to support CCRIF’s work and that of its partner, but also to benefit CCRIF members and the region more broadly\. For example, the MOU with CIMH calls for collaboration in the areas of research into catastrophe risk and development of new products, specifically the excess rainfall product, provision of real-time information to Caribbean countries and institutions such as CDEMA on tropical cyclones, and training for officials in the region in hydrology and meteorology\. 19 The Arbiter of Storms-Real Time Forecasting System (its full name) was developed by KAC to facilitate better prediction of and response to storms and their likely effects\. Users can obtain maps and tabular estimates, updated at regular, frequent intervals, of factors such as maximum hazard intensity for wind speed, wave and storm surge height, and cumulative rainfall\. They can also obtain estimates of the impact of varying hazard levels on their territory and the storm’s operational impact on major sea and airports, as well as other site-specific hazard and impact maps\. Such information is particularly useful to members’ emergency management agencies and air and sea port authorities, for example in making timely decisions regarding relocation of equipment, evacuation of people, temporary shelter, and deployment of disaster recovery staff and materiel\. 20 A methodology developed by the ECA Working Group, a consortium of public and private sector institutions including the Global Environmental Facility (GEF), United Nations Environment Programme (UNEP), Swiss Re, the Rockefeller Foundation, Climate Works, Standard Chartered, McKinsey & Company, and the EU\. 21 Anguilla, Cayman Islands, Antigua and Barbuda, Dominica, Barbados, Jamaica, Bermuda and St\. Lucia\. 16  CCRIF provides funding for these activities and associated equipment and CIMH, in kind support in personnel and facilities\. 38\. The support provided by CCRIF and CIMH to relief and reconstruction efforts in Haiti following the January 10, 2010, earthquake is a concrete example of the benefits of such collaboration\. CIMH developed publicly available, fully automated rainfall and flood prediction and inundation risk products for three watersheds identified as critical by CCRIF and, in collaboration with CCRIF, assisted the Haitian authorities, international donors, and others in their use to inform urgent decisions on matters such as the location of temporary shelters and tent camps for displaced persons, key relief and recovery operational centers, and transportation hubs\. These products continue to be used in decision making regarding reconstruction of critical infrastructure\. In another example, under the MOU between CCRIF and SRC, CCRIF is helping to fund installation of a new accelerometric network consisting of twelve strong-motion sensors in Jamaica and across the Eastern Caribbean\. Data produced by this network is expected to strengthen disaster preparedness and will be used to refine CCRIF’s model\. CCRIF is developing specific work plans with its other partners\. 39\. CCRIF also offers technical assistance to members that have been affected by a disaster that caused damage but not enough to trigger their policy\. One case of this is financing for academic studies in meteorology for personnel to strengthen capacity at the NMHS of Belize\. 40\. CCRIF has steadily expanded its outreach to other stakeholders such as donors and the general public, through direct contacts, use of print, radio, and television media, participation in conferences, and development of its own website\. News bulletins, press releases, and quarterly and annual reports are issued and made available on CCRIF’s website, along with a variety of technical publications on specialized topics including CCRIF’s product range, characteristics of parametric insurance, the RTFS, and the economics of climate change\. Publications and other information on CCRIF’s website document the rapid increase in use of its website, the number of outreach and partnership activities, and the volume of press coverage\. These communications activities have helped to enhance understanding of CCRIF’s role in disaster risk management and contributed to the consolidation of its standing as a Caribbean institution\. 41\. Finally, CCRIF worked consistently to strengthen its governance and continues to do so\. Key actions in this regard include:  The Board set a Strategic Plan for 2009-2012, including vision and mission statements, objectives, and specific performance targets for operational efficiency, internal controls, new product development, pricing and financial stability, and stakeholder communications\. It up-dated the plan annually and, in February 2012, adopted a new Strategic Plan for 2012-2015, again with specific objectives, and action plan, and performance targets\. To enhance transparency, both Strategic 17  Plans were published on CCRIF’s website\. Quarterly reports prepared by the Communications Consultant align the presentation of CCRIF’s activities and accomplishments with the specific objectives in the Strategic Plan in order to focus on results\. Announcements of key Board decisions also enhance CCRIF’s transparency\.  The Board also instituted a number of procedures to strengthen budget formulation, implementation, and monitoring and to improve records of the Board’s proceedings and ensure appropriate follow-up to its decisions\.  Annual reviews of the Operations Manual were conducted, with up-dates, as necessary, in areas such as: (i) policy with respect to frequency of retendering contracts for service providers and their scope of work; (ii) rules of Board procedure, including the nomination, compensation, and term of Directors; (iii) internal controls, including arrangements for authorizing payments for goods and services; (iv) terms of reference of the service providers; and (v) ethics rules\.  A transition in composition of the Board was completed such that four Directors have now been appointed, two by the CDB on behalf of the donors and two by CARICOM on behalf of the members, in accordance with the procedures established in CCRIF’s Trust Deed\.22  The Board developed and has begun to implement a plan to mitigate the risk of business interruption and loss of institutional memory by better balancing the terms of reference of the service providers, creating a full-time chief executive officer position, adjusting the scope of work of the Executive Chairman of the Board and the Facility Supervisor accordingly, and staggering the terms of the Directors\.  At its June 2012 meeting, the Board reviewed CCRIF’s governance structure in light of recommendations made by the International Association of Insurance Supervisors in January 2012 on the regulation and supervision of captive insurance companies\. CIMA intends to implement the recommendations once finalized\. Based on this review, the Board decided to strengthen its structure and processes\. Enhancements include the formal establishment of a Board Sub- Committee for Internal Audit and Risk Management and formalization and expansion of the terms of reference for the Reinsurance and Investment Sub- Committees to ensure that risk management is adequately addressed\. 2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 42\. The IBTF set forth the following key performance indicators: “Establishment of the Facility by end March 2007, and natural catastrophe risk coverage provided to participant countries for the Hurricane Seasons 2007, 2008, 2009, and 2010\.â€? The kind of more elaborate formal results monitoring and evaluation framework that is annexed to a PAD was not prepared because, as indicated in paragraph 6, the Bank 22 Under the terms of the Trust Deed, the four Directors can then appoint an Executive Director\. 18  policy for trust-funded operations which was in effect at the time the project was prepared and approved did not require one\. 43\. During project implementation, a results framework was developed for supervision purposes\. The first ISR, dated June 2008, specified the following:  PDO level indicator: “Countries are eligible for insurance payment (and have received payment in case of an insured event)\.â€? o Baseline: “CCRIF not yet establishedâ€? o End-of-Project Target Value: “Participation fee paid and insurance policy purchasedâ€?  Intermediate outcome indicator – “Total claims paying capacity of CCRIFâ€? o Baseline: “0â€? o End-of-Project Target Value: “US$110 millionâ€? These indicators were tracked and data were used to inform decisions with respect to policy pricing, reinsurance, and formulation, implementation, and monitoring of the Strategic Plan\. 44\. A survey of beneficiaries was conducted in June 2011 to assess their awareness of CCRIF, understanding of its products and services, and contributions to disaster risk management in the Caribbean (See Section 3\.6)\. CCRIF drew on the findings of this evaluation in crafting its new Strategic Plan 2012-2015\. 2\.4 Safeguard and Fiduciary Compliance 45\. The project did not trigger any environmental or social safeguards\. 46\. Fiduciary performance was without shortcomings\. Procurement and financial management were handled in accordance with the conditions of the Grant Agreement\. As indicated in Section 2\.2, Implementation, external audits of CCRIF’s financial statements were timely and unqualified and the auditor’s management letters never expressed material concerns about CCRIF’s internal controls\. CCRIF’s quarterly reports to the Bank met the requirements of the Grant Agreement and were timely\. An on-site inspection of CCRIF in 2011 by its regulator, CIMA, found it to be fully in compliance with the relevant regulatory regime and CCRIF’s Trust Deed\. 2\.5 Post-completion Operation/Next Phase 47\. Donor support provided through the MDTF achieved its major objective of establishing CCRIF as a fully functioning independent legal entity capable of sustaining itself based on premium income from its members, coupled with income from its investments (see Annex 3 for a further discussion of the contribution of donor support to CCRIF’s financial sustainability)\. CCRIF’s pricing policy is explicitly designed to balance the interests of its members in affordable insurance with the need to defray its key operational expenses and maintain the financial 19  strength required to continue providing valuable insurance and other services to its members\. For 2011-2012, it had robust risk bearing capacity sufficient, as indicated in Section 2\.2, to withstand a series of disasters with a modeled probability of occurring only once in every 1401 years without needing to draw on more than US$25 million of its US$114 million of assets\. CCRIF’s assets over and above US$25 million would serve to pay claims associated with a 1 in 10,000 year event, although it would require recapitalization thereafter to continue operations\. 48\. CCRIF’s next important institutional step is to launch the excess rainfall product\. Planned for early in its 2012-2013 financial year, the availability of this product is expected to lead, as indicated in paragraph 32, to some expansion of CCRIF’s membership\. 49\. In addition, CCRIF is working with the Munich Climate Insurance Initiative (MCII) to develop parametric micro and portfolio insurance products of two sorts, which are expected to be piloted in three CCRIF countries: Grenada, Jamaica, and St\. Lucia\. The first would be a livelihood protection product for small scale producers and businesses – such as farmers and tourism operators – that would provide payouts following weather-related natural disasters of pre-determined magnitudes in order to offset a portion of their income and other economic losses from the disasters\. This product would be underwritten by locally licensed insurance companies and distributed through institutions such as cooperatives, credit unions, micro-finance agencies with community reach\. CCRIF is exploring the possibility of acting as a reinsurer to the issuing institutions\. The second would be a product for institutions such as credit unions and development banks that have significant portfolios of loans to individuals and micro, small, and medium-sized enterprises\. The product would provide coverage to the credit institutions against the risk of losses in its portfolio due to defaults arising from the impact of weather-related events on the borrowers’ debt service capacity\. With regulatory approval, CCRIF could write the product directly\. 50\. CCRIF will continue its partnerships with other Caribbean institutions, bilateral donors, and the World Bank with a view to helping to strengthen disaster risk management in the Caribbean\. Discussions with the European Union delegation in Bridgetown, Barbados, are currently under way regarding possible specific areas of development cooperation\. 51\. Finally, CCRIF has provided some initial support to the Caribbean Electrical Utility Service Corporation (CARILEC) in exploring technical, financial, and institutional options for parametric insurance for its member utilities\. Depending on interest from CARILEC, it plans to continue this collaboration\. 20 3\. Assessment of Outcomes 3\.1 Relevance of Objectives, Design and Implementation Rating: High 52\. The project remains highly relevant to the challenges facing in the countries in the Caribbean, their development priorities, and the World Bank’s strategies for partnering with them\. Natural disasters, which can cause damage equal to a significant share if not even a multiple of GDP and which disproportionately affect the poor, are no less a concern to the countries in the region now than they were at the time of project appraisal\. Indeed, concerns are mounting that weather-related disasters may be increasing in their frequency and severity, while the risk of seismic disasters is, of course, ever present\. Thus, financial risk transfer through insurance or participation in a joint reserve mechanism such as CCRIF that can pay out rapidly continues to be an essential element of a broader natural disaster risk management strategy\. 53\. The capacity of most of the Caribbean countries individually to absorb the financial impact of natural disasters remains severely limited by geographical factors, their modest fiscal revenues, and high debt levels\. Some amount of donor assistance is usually available to them in the wake of a catastrophe, but often comes with a delay\. This inhibits the governments’ efforts to jump start relief efforts and begin mobilizing the much larger amount of resources needed for full recovery\. Thus, while much of the focus in the countries’ development plans and in the World Bank’s country partnership strategies is on engineering solutions and social interventions to make infrastructure, housing, businesses, and people’s livelihoods more resilient to natural disasters, financial risk transfer, including through parametric instruments, also continues to figure as a necessary tool in the countries’ broader overall strategies for effective disaster risk management\. The World Bank is currently elaborating a programmatic engagement on disaster risk management and climate resilience in the Caribbean region, elements of which will include the expansion of opportunities for financial risk transfer, as well as engineering and behavioral adaptation solutions\. CCRIF’s on-going interest in broadening the ECA Initiative, described in paragraph 36, is another aspect of the project’s continuing relevance\. 54\. The project is also highly relevant to the Bank’s broader corporate objective of diversifying Bank instruments and developing structures to smooth shocks\. Catastrophe insurance is one such instrument and facilities based on the same principles as CCRIF are being developed in the Pacific, Mexico, and elsewhere\. 21 3\.2 Achievement of Project Development Objectives Rating: High 55\. The PDO of the trust fund was to support the establishment and operation of CCRIF in order to reduce the Caribbean countries' financial vulnerability to earthquakes and hurricanes\. This objective and the associated PDO and intermediate outcome indicators as set forth in the ISRs (see Section 2\.3 above) were fully achieved\. 56\. The trust fund successfully supported CCRIF’s establishment and operations by reimbursing it for major operational expenses, reinsurance costs, and claims paid within its risk retention during its first four years\. MDTF support enabled CCRIF to retain more of its premium income than would otherwise have been possible, thus accelerating its trajectory towards becoming a financially sustainable, self-standing insurance provider\. For 2011-2012, CCRIF had the capacity to pay $150 million in claims, associated with a series of catastrophes of such large magnitude that they are expected to occur only once in every 1,401 years, without needing to draw more than US$25 million (its retained risk) from its own capital of $114 million\. With CCRIF’s assets over and above US$25 million, it could withstand an even more severe series of events with a modeled probability of occurring only once in every 10,000 years\. 57\. By both of these measures (dollar amounts and frequency of disaster), CCRIF’s claims paying capacity by far exceeds expectations\. The target for CCRIF’s end-of- project claims paying capacity was set in the ISRs at US$110 million, versus the US$150 million achieved for 2011-2012, while the expectation in terms of return period was one in 200 years, versus the one in 1,401 years achieved with reinsurance and US$25 million of CCRIF’s own resources\.23 The latter compares favorably with the claims paying capacity of the CEA, which is estimated at one in 850 years\. 58\. As expressed in the PDO, the purpose of establishing CCRIF was to reduce Caribbean countries’ financial vulnerability to earthquakes and hurricanes\. This objective has been achieved\. By its very nature, the purchase of insurance reduces financial vulnerability\. The 16 Caribbean countries and territories that joined CCRIF in 2007 purchased 29 policies, which they have since renewed annually\. Coverage that they have obtained from these policies rose by 26\.2 percent from an aggregate of US$494\.8 million in 2007-2008 to US$624\.4 million in 2011-2012\.24 These policies have provided them with a hedge against the financial risk associated with earthquakes and hurricanes and the certainty of timely support in the event of a disaster of sufficient magnitude to trigger the policy\. 59\. The seven CCRIF members that have been affected by covered disasters received the additional financial benefit of a rapid infusion of liquidity into their general budgets 23 Memorandum to the Executive Directors – Proposed Transfer of IBRD Surplus to Support a Caribbean Catastrophe Risk Insurance Facility; February 9, 2007; page 10\. 24 US$626\.2 million for 2012-2013\. 22  at a crucial time of particular need\. Such budget support has totaled US$32\.2 million to date\. The use of these cash transfers, which came within two weeks or less of the disaster, was in no way earmarked or restricted\. This allowed the recipient countries to mount their initial high priority relief and recovery efforts more quickly and extensively than would have been possible without the payouts and without needing immediately to incur additional short-term government debt\. Being able to move quickly enabled the governments to prevent or at least restrain the further deterioration of damaged infrastructure and added human suffering, thus helping them to improve the quality and scope of their initial response while they went about mobilizing the much larger amount of financing needed for the broader recovery and reconstruction\.25 60\. Members who have received payouts report having allocated them for purposes such as:  temporary feeding stations for displaced and other affected persons (Turks and Caicos Islands);  immediate reconstruction and stabilization of government processes and provision of civilian security (Haiti);26  capital expenditures, e\.g\., clearing silty rivers, unblocking major roads, stabilizing drinking water plants, and repair of a key government building (St\. Lucia);  recovery efforts under direction of the environmental management agency and emergency repairs of key infrastructure, including a major road along the port (Barbados);  clearing of debris, repairing general damage, capitalizing a special recovery fund and purchasing upgraded weather monitoring data-capture technology and portable weather systems to improve early warning (Anguilla); and  acquiring building and other materials for persons whose homes or crops had been damaged (St\. Vincent and the Grenadines)\. 61\. Statements by senior Caribbean officials following Hurricane Tomas and the January 10, 2010, earthquake that struck Haiti serve to illustrate important views of the high level of CCRIF’s relevance and efficacy:27 25 To improve capacity to absorb cash transfers such as CCRIF payouts and use them effectively for activities benefiting affected persons, the Bank has been working with a number of countries in the Caribbean to strengthen the legal framework and processes for emergency budget appropriation and execution\. 26 The US$7\.75 million payment represented approximately 20 times Haiti’s earthquake premium\. Among the approximately 130 articles from regional, international, insurance, and other press outlets, the following from an article on the Center for Global Development website, which was quoted in the CCRIF Quarterly Report for 1 December, 2009 – 28 February, 2010, page 18: “The sum is small, but the proof of concept, powerful\. The CCRIF moved faster than the World Bank, faster than the IMF, faster than the U\.S\. government\. If another 0 or so were appended to the CCRIF financing numbers, it could become a superior alternative to ad hoc debt relief and debt creation at dire moments\.â€? 27 Barbados and Anguilla citations taken from CCRIF’s Quarterly Report for 1 June – 31 August 2011, pages 10 and 12; Jamaica citation, Quarterly Report for 1 December 2010 – 28 February, 2011, pages 9 and 23   Barbados Minister of Finance and Economic Affairs, Chris Sinkler, in his Financial Statement and Budgetary Proposals for 2011 delivered to Parliament in August 2011, indicated that fiscal revenues for 2010-2011 had decreased but that “the full impact of this reduction was however not felt due to the receipt of the insurance payout from the Caribbean Catastrophe Risk Insurance Facility (CCRIF) for the damage caused by Tomas during the month of November 2010\.â€?  The Government of Anguilla’s website indicates that Acting Permanent Secretary in the Ministry of Infrastructure of Anguilla, Mr\. Bancroft Battick, stated that Anguilla’s membership in CCRIF has brought significant benefits to the island, the major one being to make the Government of Anguilla as robust as possible to natural \. \. \. disasters, with enhanced ability to respond after a major disaster event\.â€?  At the fifth Caribbean Conference on Disaster Management in Jamaica in December 2010, the Jamaica Information Service reported that then-Prime Minister Bruce Golding described CCRIF as “one of the most significant developments to have taken place in recent years in the regionâ€? and went on to say “I am really pleased with the speed with which CCRIF has been able to respond to those cases – Haiti, Anguilla, and the Eastern Caribbean countries – that were battered by Tomas\.â€?  Speaking after Hurricane Tomas and expressing appreciation for the advance of the CCRIF payout, Prime Minister Ralph Gonsalves of St\. Vincent and the Grenadines said the early payment would facilitate “urgent restoration of services and clearing of the affected areas\.â€?  At the COFAP 2010 meeting, then CARICOM Secretary-General Edwin Carrington stated, “[CARICOM’s] wisdom and foresight were evident in the creation of the Caribbean Catastrophe Risk Insurance Facility (CCRIF) whose prompt pay-out to Haiti turned out to be one of the significant sources of financing in this, Haiti’s hour of need\.â€? 3\.3 Efficiency Rating: High 62\. CCRIF is a highly efficient vehicle through which members can reduce their financial vulnerability to natural catastrophes\. At the time of appraisal, it was estimated that CCRIF insurance would cost 60 to 70 percent less than the members’ cost of self- insurance and 45 to 50 percent less than the cost of insurance that they would be able to get individually in traditional markets\. A reassessment for this ICR based on current market conditions reconfirms that participation in CCRIF is a highly efficient way for its members to reduce their financial vulnerability to natural catastrophes\. The paragraphs below describe the methodology and results of the reassessment\. 14; St\. Vincent and the Grenadines citation, Quarterly Report for 1 September 2010 – 30 November 2010, page 1; Haiti citation, Quarterly Report for 1 December, 2009 – 28 February, 2010, page 13\. 24 63\. Before entering into this reassessment, it should also be noted that, as an institution, CCRIF is highly efficient\. One measure of its efficiency is its annual operating expenditures\. CCRIF has kept these at 5 percent or less of its annual premium income\. Another measure may be found in the fact that only 3\.6 percent of Grant resources went to cover operational costs, including Board expenses and fees for professional services\. Methodology of reassessment 64\. The financial benefits of participation in CCRIF can be assessed through a comparison of the long-term average price of coverage for CARICOM governments through CCRIF with: (i) the case where the country would have to go individually to the reinsurance market to buy the same coverage; and (ii) the case where the country would self-retain the same amount of catastrophe risks because insurance would not be available on the market\. These results can be compared to those estimated at the time of appraisal of the CCRIF project\. 65\. The individual country costs of transfer of the same risk directly to the international market are estimated by using the reinsurance pricing algorithm that is used to estimate CCRIF’s reinsurance costs\. This then assumes that individual countries would get the same reinsurance pricing as CCRIF does, which likely leads to a significant underestimation of those costs to the country (because of economies of scale and other factors) and therefore an underestimation of likely savings\. CCRIF pricing is compared against individual country direct reinsurance market coverage\. 66\. The cost of self-retention if the country had to retain this risk (because insurance markets were not available or countries viewed coverage as too costly) through reserves is estimated as the annual average loss plus the opportunity cost of reserves for the same risk currently covered by the CCRIF\. The opportunity cost of reserves is equal to the amount of reserves necessary to provide a payout equal to the coverage limit at the exhaustion point of a country’s CCRIF coverage, multiplied by the marginal opportunity cost of capital\. In the spring of 2012, the average marginal opportunity cost of capital for CCRIF countries is estimated at 7\.5 percent\. Findings of reassessment 67\. As described in Table 4 below, compared to the cost of an individual country going directly to the reinsurance market, CCRIF pricing for hurricane coverage runs about 59 to 54 percent less expensive\. For earthquake coverage, this range is from about 62 to 54 percent less expensive\. The cost savings of CCRIF coverage versus the non- market-based scenario of self-retention are even greater\. Compared to the cost an individual country ensuring the availability of the same amount of cover as is provided by its CCRIF policy, CCRIF cover for hurricanes is about 75 to 57 percent less expensive\. For earthquake cover, this range is from about 85 percent to 58 percent less expensive\. 25  Table 4: Comparison of original estimates of CCRIF savings with estimates of achieved savings Appraisal Current (actual) Coverage comparison estimation range estimation range Hurricane CCRIF savings vs Market 48-56% 54-59% CCRIF savings vs Self- 65-71% 57-75% retention Earthquake CCRIF savings vs Market 42-47% 54-62% CCRIF savings vs Self- 49-53% 58-85% retention Source: Appraisal stage estimates from World Bank (2007)\. Achieved estimates by World Bank Disaster Risk Financing and Insurance Program, with data from CCRIF (2012)\. 68\. As can be seen from Table 4, CCRIF has outperformed the original estimates of the cost savings that it would provide almost invariably across scenarios\. This is true for the estimated savings of CCRIF coverage against self-retention across countries for earthquakes and for many countries for hurricane even when the marginal opportunity cost of capital estimate used at appraisal was 12 percent and in the current estimation is only 7\.5 percent (making self-retention a less expensive option in the current macroeconomic environment)\. 3\.4 Justification of Overall Outcome Rating Rating: Highly Satisfactory 69\. Financial risk transfer through catastrophe insurance remains highly relevant to the development needs of the Caribbean Islands\. They are highly exposed to adverse natural events, including earthquakes and hydrometeorological disasters such as hurricanes and excess rainfall, the latter of which may be trending toward increased frequency and severity\. 70\. The development objective of the trust fund and project was fully achieved: (i) CCRIF was established; 16 Caribbean countries and territories paid participation fees and purchased 29 policies, which they have renewed and increased annually, thereby reducing their financial vulnerability to natural disasters; (ii) CCRIF has made payouts totaling US$32\.2 million to members affected by covered earthquakes and hurricanes within two weeks or less of the event, thereby helping them to improve the quality of their disaster response; and (iii) CCRIF is financially solid and able to sustain current operations without further donor support\. 26 71\. CCRIF is an efficient means for its members to reduce their financial vulnerability to earthquakes and hurricanes\. Their cost of catastrophe insurance through CCRIF is significantly below what they would be required to pay if they sought such insurance individually and directly through reinsurance and capital markets, or if they were to establish individual reserve funds, and this cost was reduced several times during project implementation\. 72\. Finally, CCRIF itself is operationally efficient\. It has limited its expenditures for operating the Facility to around 5 percent of gross premium income, thus opening the opportunity to reduce its pricing and also to expand its financial capacity for research and development activities and technical assistance\. The Grant was disbursed in full without any need for a closing date extension\. 3\.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development N/A (b) Institutional Change/Strengthening 73\. From a raw start-up in 2007, CCRIF has rapidly become a strong institution, led by an experienced Board of Directors and supported by highly qualified professional service providers\. In addition to its financial strength (see Section 3\.2), CCRIF’s governance structure is sound\. It is well regulated by CIMA\. As detailed in Section 2\.2, Implementation, the Board of Directors has taken a number of steps to strengthen CCRIF’s governance\. CCRIF has consolidated its reputation as a Caribbean institution, as demonstrated by the desire of a number of other Caribbean institutions to partner with it\. Positive feedback provided by respondents to the beneficiary survey (see Section 3\.6) reinforces this point\. In addition, although a Caribbean institution, CCRIF has global name recognition\. Members of its Board and representatives of its service providers are eagerly sought as speakers and panelists to share CCRIF’s experiences at conferences and other professional events around the world having to do with disaster risk transfer and management and related matters\.28 28 Some examples include: (i) the UN Climate Change Conference, Durban, South Africa, November 28- December 9, 2011; (ii) International Workshop, “Insurance for Climate Change Adaptation for Private, Productive, and Financial Sectors,â€? hosted by the Ministry of Finance of Peru, Lima, October 12-14, 2011; (iii) European consultation for the UNEP Finance Initiative Principles for Sustainable Insurance, hosted by Munich Re, Germany, October 25-26, 2011; (iv) Pacific Regional Capacity Building Workshop on Enhancing Access to Finance in the Agricultural Sector, hosted by UNCTAD, Fiji, October 20-21, 2011; (v) Forum for Agricultural Risk Management in Development Annual Conference, Zurich, June 9-10, 2011; (vi) 31st Annual Conference of the Insurance Association of the Caribbean, Trinidad and Tobago, June 6-7, 2011; (vii) “Responding to Climate Change in the Caribbean,â€? conference hosted by the Institute for the Study of the Americas, London, June 13-14, 2011; (viii) meeting of the National Association of Insurance Commissioners, Texas, March 26, 2011; and (ix) Fourth United Nations Conference on the Least Developed Countries, Istanbul, May 9-13, 2011\. 27  Providing further evidence of CCRIF’s global reputation as a successful innovator, the German government funded an agreement between MCII and CCRIF to develop parametric insurance products – a livelihood protection product for small-scale entrepreneurs such as farmers, tourism operators, fishermen, and shopkeepers and a product to provide weather coverage for the portfolios of development banks’ and similar institutions’ loans to such entrepreneurs (see paragraph 49)\. (c) Other Unintended Outcomes and Impacts (positive or negative) N/A 3\.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops 74\. A beneficiary survey was conducted in June 2011 to assess stakeholders’ perspectives of CCRIF’s impact and expectations for its future\. One hundred invitations to participate in the survey were sent to officials in CCRIF members’ disaster and emergency management agencies, meteorological services, ministries of finance, and insurance regulators\. Representatives of Caribbean partner institutions were also invited to participate, as were officials from non-member countries who had participated in CCRIF professional development activities and some CCRIF scholarship recipients\. Out of the 100 invitees, 50 responded, constituting a complete sample of the countries, national agencies, and regional institutions that had been contacted – a good survey response rate\. 75\. Respondents generally expressed appreciation for the uniqueness and attractive pricing of the products that CCRIF was able to offer as a diversified risk pool, the importance of those products as a component of their broader disaster risk management strategies, and the rapidity of its payouts, all of which they saw as providing benefits and value for money\. They commended CCRIF’s high level of information sharing and its flexibility and client-responsiveness\. They welcomed its technical assistance program, emphasis on capacity building and professional development, and partnerships with regional organizations\. They noted that CCRIF, through its products, services, and contacts, had contributed to an increased awareness among finance, economy and planning, disaster management, environment, and meteorological officials in the region of the importance of disaster risk management, a common understanding of the role that financial risk transfer can play in it, and greater interaction among them on these matters\. They expressed pride in CCRIF as a Caribbean institution and as the first, and still only, multi-country, multi- peril disaster risk pool\. 76\. Accompanying these positive perceptions and assessments were a number of suggestions for how CCRIF could strengthen its role and operations\. These included:  Development and issuance of new products, particularly the excess rainfall product, but also products covering agriculture, tourism, and electrical utilities; 28   Increased in-depth technical communications with members’ officials to improve understanding of the elements of parametric insurance and how it compares with indemnity insurance, particularly how policies are triggered and payments are calculated;  Increased use of television, radio, and social media to communicate with stakeholders;  Development of a mechanism to take into account the cumulative impacts of two or three successive events not sufficient individually to trigger a policy; and  Increased contact between CCRIF Board members and stakeholders\. 77\. The findings of the beneficiary survey played an important role in shaping CCRIF’s new Strategic Plan 2012-2015 and CCRIF is carrying forward work in response to beneficiaries’ suggestions\. 4\. Assessment of Risk to Development Outcome Rating: Negligible to Low 78\. The risk to the development outcomes is negligible to low from a financial, institutional, and political perspective\. First, as discussed elsewhere in this evaluation, CCRIF is financially sustainable\. Drawing on its reinsurance and using no more than US$25 million of its own capital, which totaled about US$114 million as of May 31, 2011,29 CCRIF had the capacity in 2011-2012 to pay claims associated with a series of disasters having a modeled probability of occurring only once in 1,401 years\.30 Drawing on its reinsurance and using the entirety of its capital, CCRIF could withstand an extraordinary series of natural disasters having a modeled probability of occurring only once in every 10,000 years, although it would need to be recapitalized to continue operations thereafter\. 79\. Institutional risks to CCRIF’s sustainability are also negligible to low\. It has a well functioning governance structure, which the Board is further strengthening through implementation of a business continuity plan and additional measures to ensure on- going compliance with evolving regulatory requirements for captive insurance firms\. CCRIF enjoys the support not only of its members, but also that of a variety of regional organizations and, in addition, has a global reputation for excellence and innovation\. Its original 16 members have shown their recognition of CCRIF’s value, renewing their policies annually and gradually increasing the amount of their coverage so as to reduce further their financial vulnerability to hurricanes and earthquakes\. MOUs with a number of regional organizations serve to anchor it within the framework of the region’s institutions\. CCRIF is strengthened institutionally not 29 May 31, 2011, is the end of the last financial year for which externally audited financial statements are available\. For its financial year ending May 31, 2012, CCRIF’s as yet unaudited financial statements show retained earnings of US$94\.6 million and total assets of US$118\.4 million\. 30 For 2012-2013, the top of CCRIF’s combined US$145 million of risk retention and reinsurance provides cover for a 1 in 1,125 year event\. 29  only by the desire of donors to seek opportunities for further collaboration but also by the continuing interest of the global disaster risk management community and reinsurance industry\. 80\. One political risk to the project’s outcomes – a risk which also has a financial dimension – is that the fiscal constraints of some members could cause them to take the difficult decision to pull out\. This risk is also considered negligible to low\. Haiti is likely to continue to receive donor support to cover its premium, as was anticipated at the time that Haiti joined CCRIF\.31 For 2012-2013, the CDB signaled its intention to support Haiti’s premium payment with a grant\. Some CCRIF members took advantage of CDB finance to help cover their premiums in 2010-2011 and, should it become necessary, such finance would also likely again be available from the CDB\. Finally, CCRIF is estimated to need only eight members in order to have a sufficiently diversified risk portfolio\.32 Thus, even if some members were to pull out, CCRIF would remain a viable risk pool\. 81\. The Board is keenly aware of this financial/political risk and, accordingly, has continuously worked to reduce it by seeking ways to enhance the Facility’s value to its members\. Among such steps have been the lowering of the participation fee requirement, the successive reductions in the premium price totaling about 30 percent since the first year, the decision to provide a premium discount in years following zero-claim years, and the technical assistance program with its range of capacity building activities\. CCRIF’s efforts to develop an excess rainfall product respond directly to members’ and others’ demands and the availability of this product is expected to strengthen further members’ perceptions of CCRIF’s value and, indeed, to pull in new members\. Finally, members’ pride in CCRIF as a Caribbean institution is also likely to mitigate the risk that some might pull out\. 5\. Assessment of Bank and Borrower Performance 5\.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Highly Satisfactory 31 See Project Appraisal Document on Proposed Grant in the Amount of SDR6 Million (US$9 Million Equivalent) to the Republic of Haiti for a Haiti Catastrophe Insurance Project; February 6, 2007; Report No: 38540-HT\. The CDB has agreed to pay Haiti’s premium for 2012-2013\. 32 Analysis at the time of appraisal of the catastrophe insurance projects for Dominica, Grenada, St\. Lucia, and St\. Vincent and the Grenadines indicated that, with US$40 million initial reserves, the Facility would be able to reduce the insurance premiums of a pool of eight countries by more than 40 percent (on average) compared to individual catastrophe insurance, and to grow its reserves by US$2\.5 million year on average\.â€? Project Appraisal Document for Four Catastrophe Insurance Projects for the Organization of Eastern Caribbean States; Report No: 38539-LAC; February 6, 2007\. 30 82\. Bank performance in ensuring quality at entry was highly satisfactory\. Project design was particularly challenging and complex as CCRIF was to be the first multi-country, multi-peril pooled catastrophe risk insurance facility\. With generous PHRD grants from the Government of Japan supplementing Bank budget and with the collaboration of JSIF and the OECS Secretariat, the Bank assembled and led an expert team\. The team tapped the knowledge of a wide range of public sector institutions and private sector entities with broad experience in risk modeling, financial risk transfer, and disaster risk management\. The team carried out detailed risk assessments and did highly sophisticated modeling of hurricane and earthquake risk in the Caribbean to develop the HLEM that would underpin the pricing of CCRIF’s policies and its financial sustainability\. It also conducted extensive stakeholder consultations and provided in-depth briefings to Caribbean countries, potential donors, and others as design progressed to build potential members’ interest in participating in CCRIF and donors’ willingness to contribute to the trust fund to support it\. The design of CCRIF’s policies was tailored to respond to the specific constraints that potential members faced in obtaining affordable catastrophe risk insurance and to provide the rapid financial payout that they needed following a natural disaster\. The possibilities for domiciling CCRIF were carefully studied in order to identify from among several good options the one that would best balance the need for a strong regulatory environment that could command the respect of members, donors, and reinsurers with the flexibility in oversight that would be required to support development and roll-out of CCRIF’s innovative products\. Sections 2\.1 and 3\.1 discuss these matters in greater detail\. (b) Quality of Supervision Rating: Satisfactory 83\. Bank performance during supervision was satisfactory\. Supervision included the usual desk activities such as: (i) review and suggestions for improvements of terms of reference, requests for expressions of interest and proposals, and contracts with the Executive Chairman of the Board of Directors and professional services providers to be financed by the MDTF; (ii) review of audited financial statements; (iii) advice and support to the Insurance Manager and Facility Supervisor on compliance with the Bank’s procurement and financial management policies; (iv) review and authorization of withdrawal applications; (v) review and comment on the Operations Manual and its periodic revisions; and (vi) review and comment on the minutes of the Board’s proceedings\. Field supervision missions took place at regular intervals – three to four times a year\. 84\. In addition to the foregoing, the Bank carried out an in-depth supervision mission following each of the Facility’s first three years of operations\. These missions conducted interviews with CCRIF’s regulator, member officials, representatives of institutions with which CCRIF was partnering, CCRIF’s reinsurers and investment manager and, of course, the Facility Supervisor, Insurance Manager, and members of the Board of Directors\. The missions assessed developments with respect to CCRIF’s 31  operations and governance, budget, risk management and investment strategies, technical assistance, partnerships and stakeholder outreach, and R&D activities\. The Bank published reports on these missions\.33 While these were intended primarily for the Board of Directors and the professional service providers, they were also distributed to CCRIF’s members, MDTF donors, CCRIF’s partner institutions, World Bank Executive Directors representing CCRIF members, and other stakeholders\. 85\. Given the innovative nature of the project, the Bank provided proactive implementation support during supervision\. The Bank participated actively, albeit formally as an observer, in nearly all of the meetings of CCRIF’s Board of Directors and its informal sessions to develop its business strategy, objectives, and performance measures\. At the Board meetings and in the three published reports on its in-depth supervision missions following each of the Facility’s first three years of operations,, the Bank provided recommendations aimed at helping CCRIF to: (i) strengthen its governance structure, bring the appointment of Directors fully in line with the terms of its Trust Deed and Articles of Association, and enhance business continuity; (ii) improve the recording of, and follow-up to, Board decisions; (iii) clarify procurement practices, including with respect to matters such as retendering of contracts for professional services; (iii) clarify the roles of the professional service providers; (iv) improve donor relationships; (v) contain the operating budget; (vi) obtain independent actuarial review of CCRIF’s risk model; (vii) strengthen management of the R&D program; (viii) improve the affordability of its policies; (ix) enhance transparency, outreach, and stakeholder relations to mitigate non-financial risks; (x) increase the transparency of the technical assistance program; and (xi) bring greater specificity to partnership arrangements with other Caribbean institutions\. 86\. The Bank’s supervision added value to CCRIF’s operations\. As detailed in the reports on CCRIF’s second and third years of operations, the Board adopted the majority of the Bank’s recommendations\. The formal records of the Board’s deliberations and decisions also reflect CCRIF’s positive response to the Bank’s contributions through supervision\. 87\. Supervision could have been improved had the three reports on the Bank’s in-depth supervision missions been published and provided to CCRIF and to others within three months after the availability of CCRIF’s audited financial statements (normally available in August)\. This shortcoming is considered minor, given that the Bank discussed the findings of the reports and their recommendations with the Board and CCRIF’s key service providers well in advance of publication of the reports\. 33 See footnote no\. 14, page 12\. 32 (c) Justification of Rating for Overall Bank Performance Rating: Satisfactory 88\. Based on ratings of highly satisfactory for quality at entry and satisfactory for supervision, the overall rating for Bank performance is satisfactory\. 5\.2 Borrower Performance (a) Government Performance Rating: N/A (CCRIF member governments themselves had no role in project implementation, which was managed entirely by CCRIF itself)\. (b) Implementing Agency’s Performance Rating: Highly Satisfactory 89\. CCRIF’s performance as the implementing agency for this recipient-executed trust fund was highly satisfactory\. The Board of Directors showed consistent energy, commitment, and creativity in getting CCRIF up and running, consolidating its operations, and establishing the Facility as a widely recognized and respected Caribbean institution\. The Facility Supervisor, Insurance Manager, Communications Consultant, Reinsurance Broker, and principal Investment Manager showed similar dedication and enthusiasm, going beyond what might have been expected of even the most professional service providers\. The excitement generated by CCRIF’s uniqueness and being able to contribute to its important mission no doubt played an important role in these behaviors\. 90\. Among CCRIF’s accomplishments, as detailed in Section 2\.2, Implementation, the following stand out in particular:  CCRIF successfully balanced considerations of capital adequacy and value to its members, achieving both objectives simultaneously\. In doing, CCRIF showed sensitivity and creativity in responding to the needs of its members and other countries in the region by: o reducing the premium price, lowering the participation fee requirement, and deciding to provide premium discounts following zero-claims years; o advancing to Barbados, St\. Lucia, and St\. Vincent and the Grenadines within days after Hurricane Tomas 50 percent of their expected payouts; o overcoming a range of data and methodological difficulties in order to develop and make available the excess rainfall product to help members reduce their financial vulnerability to this additional peril; and o establishing and implementing the technical assistance program to support members’ efforts to build capacity in disaster risk management more broadly\. 33   The Board took a number of steps to strengthen CCRIF’s governance with respect to appointment of Directors, budget management, records of proceedings and follow-up, and mitigation of risks to business continuity\.  With an eye to good stewardship of donor resources and the capital it received from members in the form of their participation fees and annual premiums, the Board limited CCRIF’s annual operating expenditures to 5 percent of its premium income\.  CCRIF’s fiduciary performance – financial management and procurement – was without shortcomings\. External audits of its financial statements were unqualified\. Regulatory compliance reviews by CIMA were also positive\.  The Grant was fully disbursed in advance of the closing date, without the need for any extension thereof\. (c) Justification of Rating for Overall Borrower Performance Rating: Highly Satisfactory (Based on Highly Satisfactory rating for Implementing Agency’s performance)\. 6\. Lessons Learned 91\. Preparation, supervision, and implementation of the Caribbean Catastrophe Risk Insurance Project illustrate a number of important lessons:  Consultations with a wide range of experts and stakeholders are important in developing and successfully launching an innovative development instrument\. In the case of CCRIF, consultations were essential to building understanding of the proposed facility, the risk modeling that would underpin its products, the nature of parametric insurance, etc\. They also served to assure the CARICOM Heads that the Bank was being responsive to their request\. Without this effort at consultations, it is doubtful that CCRIF’s membership would have reached 16 at the outset\.  Donor support can be essential for an innovative and untested development instrument\. The generous donor support for CCRIF to reimburse it for initial operating expenditures and pay claims within its risk retention greatly reduced the risks to its achieving financial sustainability\. Without such donor support, an initial year in which claims exceeded the modeled AAL would have been a serious setback, as it might have required CCRIF to go back to its members to request recapitalization through an increase in their participation fees\. It was possible to mobilize sufficient donor support because the economies of most CCRIF members are relatively small\. Adequate donor grant resources to support a pilot initiative involving much larger economies would likely have been much more difficult to obtain\.  The private sector expertise and hands-on knowledge of relevant markets is vital to the success of a project that seeks to respond to a market failure\. In the case of CCRIF, the Executive Chairman and the two Board members appointed just prior to the Facility’s launch had private sector experience in 34  banking, asset management, indemnity insurance, catastrophe insurance, and reinsurance – in the Caribbean as well as elsewhere\. Their experience was a key component in decisions regarding matters such selection of service providers, policy conditions, pricing, and client relations\.  When public funds – e\.g\., capital contributions from donors and beneficiary governments, both ultimately provided by taxpayers – support an independently and commercially managed entity, it is important that those managing the entity have experience with stewardship of public resources\. In CCRIF’s case, the two Directors who were appointed soon after the Facility’s launch had experience in senior positions in government and multilateral institutions, along with their expertise in finance, insurance, and banking\. The Executive Chairman also had experience in a public sector agency\. Their contacts with governments in the region and understanding of the regulatory and other requirements for accountability for public funds were an important complement to their colleagues’ private sector experience\. As Directors have departed and new ones have been appointed, CCRIF has maintained this public/private sector balance, with a strong focus on governance and regulatory compliance\.  On-going communications with clients and other stakeholders are essential in piloting successfully an innovative development solution\. To this end, specialized professional expertise in developing and carrying out multi-media communications strategies is required\. Despite the extensive consultations that were carried out leading up to CCRIF’s launch, continuous efforts have been required to improve understanding of its mission, the nature of parametric products, and the range of its services\. The progressive ramping up of CCRIF’s outreach to the public and specialized stakeholders has done much to solidify its standing as a Caribbean institution and understanding of its mission, products, and value\. As was clear from the beneficiary survey, and as is recognized in CCRIF’s 2012-2015 Strategic Plan, a high level of well-targeted communications will need to be maintained\.  A lean organizational structure can be very effective\. CCRIF achieved considerable cost savings and avoided institutional rigidities by remaining a “virtualâ€? organization without a physical office and by contracting externally for professional services rather than acquiring a roster of direct employees\. This said, as time passes and Directors and service providers change, it is important to put in place, as CCRIF is doing, arrangements to ensure institutional memory and business continuity\.  In a highly innovative project, it is important for Bank supervision to give the implementing agency scope for creativity and flexibility, while still ensuring compliance with Bank operational policies\. When the project implementation is in the hands of experienced and highly professional staff, too heavy a hand can result in poor use of available expertise, stifled creativity, and missed opportunities\. The extent of CCRIF’s partnership arrangements, the scope of its technical assistance and professional development activities, which are valued by its members, the on-going refinement of CCRIF’s multi-peril loss estimation model, and its development of the excess rainfall product have much to do with the fact that the Bank did not impose a static view of the project but, 35  instead, created the space for CCRIF to respond to emerging needs and opportunities\. And CCRIF’s dynamism in this regard has had much to do with consolidating its reputation as a valued Caribbean institution\. 7\. Comments on Issues Raised by Grantee/Implementing Agencies/Donors a) Grantee/Implementing Agencies 92\. The Bank appreciates the comments from the Board of Director and staff of CCRIF, agreeing with the assessment of the ICR, and is grateful for the information and suggestions that they provided to improve its depth and clarity\. (b) Cofinanciers/Donors 93\. The Bank welcomes the comments from the CDB, which made a significant contribution to the MDTF to support CCRIF’s establishment and initial operations\. It is gratified that the CDB concurs with the assessment of CCRIF’s on-going importance and relevance in helping raise awareness of and capacity for effective disaster risk management in the region\. The Bank appreciates the CDB’s view that CCRIF has continually focused on the efficient provision of services demanded by its members, has accomplished much in its short history, and will continue to grow in its contributions to the region\. (c) Other partners and stakeholders 94\. The Bank gratefully acknowledges the comments from CIMH, which was the first regional organization with which CCRIF signed a MOU and which has been, and continues to be, an active partner in generating knowledge and strengthening institutional capacity for disaster risk assessment and management in the region\. CIMH provided valuable suggestions for enriching the assessment of the ICR\. 36 Annex 1\. Project Costs and Financing (a) Project Cost by Component (in USD Million equivalent) Actual/Latest Appraisal Estimate Percentage of Components Estimate (USD (USD millions) Appraisal millions) Total Baseline Cost 30\.92 71\.00 229\.60 Physical Contingencies 0\.00 0\.00 0\.00 Price Contingencies 0\.00 0\.00 0\.00 Total Project Costs 30\.92 71\.00 229\.62 Project Preparation Costs34 1\.80 1\.80 100\.00 Bank Administrative Fee35 0\.63 1\.15 182\.54 Total Financing Required 33\.35 73\.95 221\.74 (b) Financing Appraisal Actual/Latest Type of Estimate Estimate Percentage of Source of Funds Cofinancing (USD (USD Appraisal millions) millions) Trust Funds36 1\.80 1\.80 100\.00 Free-standing Single Purpose Trust 31\.55 72\.14 228\.65 Fund37 34 Includes only PHRD grant for project preparation\. Does not include Bank budget resources\. 35 The Bank’s fee for administering the MDTF was 2\.0 percent of contributions\. 36 PHRD grant for project preparation\. 37 “Appraisal Estimateâ€? = Donor contributions to the MDTF at the time of the IBTF dated March 2, 2007\. “Actual/Latest Estimateâ€? = Total donor and IBRD contributions of US$67\.43 plus interest income on undisbursed MDTF balance of approximately US$4\.7 million\. The amount of the “Free-standing Single Purpose Trust Fundâ€? in (b) exceeds “Total Financing Requiredâ€? in (a) due to deduction from the latter of the Bank’s 2 percent fee for administering the MDTF\. 37 Annex 2\. Outputs by Component Component 1: Establishment of CCRIF  CCRIF’s certificate of incorporation in the Cayman Islands and the Memorandum and Articles of Association of the company were issued on February 27, 2007\.  CCRIF’s license as an insurer under the laws of the Cayman Islands was issued on May 23, 2007\. Component 2: CCRIF Operations Item US$ Percent of Total Risk Transfer (reinsurance) 36,247,652 51\.05 Payouts 32,179,468 45\.32 Facility Supervision Fees 1,587,297 2\.24 Board fees/expenses 541,803 0\.76 Corporate Communications 170,956 0\.24 Audit 158,806 0\.22 Insurance Manager Fees 111,921 0\.16 Total 70,997,902 100\.00 38 Annex 3\. Economic and Financial Analysis 1\. Historically, most developing countries have relied on ex post sources of financing (e\.g\., budget reallocation, debt issuance, and donor aid) to defray relief, recovery, and reconstruction costs following a disaster\. In the last decade, however, governments and the international community at large have demonstrated increased interest and effort to shift toward ex ante risk financing and insurance strategies to guarantee immediate access to liquidity following a disaster and to better manage budget volatility arising from disasters\. In the Caribbean, Hurricane Ivan’s devastating impacts on the populations and economies of multiple CARICOM states in 2004 catalyzed demand for ex ante budget protection against natural disasters\. Financial and Economic Impact of Natural Disasters in the Caribbean 2\. CARICOM states are more exposed to natural disaster events than many other countries in the world; in terms of hazard risk, the frequency of hurricane and earthquake events is high, and in terms of financial risk, the impact on each country’s fiscal and macroeconomic stability is significant\. The vulnerability of the region is heightened by the fact that most Caribbean countries’ economies suffer from a lack of diversification, depending mostly on tourism and commodity exports\. These sectors suffer dramatically in the event of a disaster, thus exacerbating the short- and long- term economic impact\. The countries themselves are also extremely small geographically, and natural disasters impact the full economic potential of the country as opposed to localized impacts that occur in larger countries\. 3\. The CARICOM states have relied on ex post financing mechanisms to fund their post-disaster needs\. Given the fiscal and macroeconomic impact of disasters, these mechanisms are extremely costly\. Furthermore, most CARICOM states have little to no fiscal space for ex post budget reallocations, as most are able to reallocate less than 1 percent of their annual budgets\. This situation often forces them to borrow from international capital markets at high interest rates following a disaster event, further increasing their overall recovery costs\. 4\. Fiscal Impacts a\. Adverse impact on public finances: A country’s fiscal balance weakens following natural disasters as the domestic tax base shrinks and expenditure needs escalate\. This deterioration often adds to public debt, which could affect macroeconomic performance beyond the short-term and result in higher inflation and lower investment potential\. For example, Hurricane Ivan hit the small Caribbean island of Grenada in September 2004, causing an estimated 200 percent of GDP in damages across the island\. Faced with the overwhelming costs of the event, the state was forced to approach its creditors for a voluntary restructuring of the island’s public debts, extending its debt service payments by 20 years and adding significantly to its overall cost of funds\. 39  b\. Deterioration in the balance of payments: The current account balance weakens as natural disasters impair export capacity due to deterioration of infrastructure and transportation services, and studies have indicated that the impact can be as great as 10 percent of GDP\. 38 On average, the adverse effects on the external current account balance last two to three years in the Caribbean\.39 The median reduction in output caused by natural disasters in the Caribbean is approximately 2\.2 percent, mostly reflecting damages to agricultural production\. 40 Natural disasters also increase imports due to reconstruction needs and disruptions in domestic supplies\. Foreign grants, remittances or reinsurance payments from abroad often mitigate the adverse impact, but are usually insufficient to offset the initial damage\. While private capital inflows could also help mitigate the deterioration in the balance of payments, they are unlikely to offset it or to be immediately available in the Caribbean countries\. c\. Increase in fiscal deficit: The fiscal deterioration in the wake of natural disasters typically entails a marked increase in expenditures related to emergency assistance and reconstruction efforts coupled with relatively small reductions in government revenues and grants\. In the Caribbean, higher capital spending is seen during the year in which the disaster occurs, followed by compressions in current expenditures afterwards\. 41 Furthermore, productive public spending and broad investments in development activities are crowded out as a result of reduced fiscal space\. d\. Escalating cost of debt: A country’s fiscal flexibility is ultimately dependent on its initial fiscal position, its financing options, and its debt sustainability levels\. Nearly all the Caribbean countries are highly indebted, and already face relatively high costs of debt, ranging from 6 to 8 percent for 10-year bonds\.42 In the face of a natural disaster, sovereign bond spreads increase 1-2 percent on average, thus raising the cost of borrowing for affected governments\. The results of piece-wise sovereign spread analysis indicate that these price effects remain for roughly 6-9 months after a disaster\. 43 In particular, the CARICOM states often lack adequate revenues and fiscal space to deal with the increased costs of debt, especially in terms of the debt service payments they are forced to make in the immediate future\. 38 Rasmussen, Tobias N\., 2004, “Macroeconomic Implications of Natural Disasters in the Caribbean,â€? Working Paper 04/224 (Washington, DC: The International Monetary Fund)\. 39 Ibid\. 40 Benson, Charlotte, Michael, F\. V\., and Robertson, A\.W\., 2001, “Dominica: Natural Disasters and Economic Development in a Small Island States,â€? Disaster Risk Management Working Paper Series, No\.2 (Washington DC: The World Bank)\. 41 Crowards, Tom, 2000, “Comparative Vulnerability to Natural Disasters in the Caribbean,â€? Staff Working Paper No\.1/00 (St\. Michael, Barbados: Caribbean Development Bank)\. 42 Bloomberg, 14-May-2012\. 43 Ozcan, Banu, 2005, “Market Convergence, Catastrophe Risk, and Sovereign Borrowing: An Empirical Analysis for Emerging Market Countries,â€? DAI-A 66/12\. (Medford, MA: Tufts University)\. 40  e\. Limited donor contributions: Underinvestment in protective risk mitigation measures is a common symptom across the Caribbean, as governments expect that others will provide support of a disaster occurs\. However, concerns about this approach have become more pressing given the finite willingness of donors to provide financial support, coupled with the rising trend in the frequency and magnitude of natural disasters\. Grants and concessional loans from multilateral institutions and bilateral donors designed to finance post- disaster mitigation and reconstruction costs are also often earmarked for specific projects and initiatives, as opposed to overall budget support\. 5\. Macroeconomic Impacts a\. Declines in GDP: Within the context of the Caribbean countries, the impact of natural disasters is most significant on the agriculture, fishing, and tourism industries, both in terms of direct monetized losses of physical destruction and indirect losses associated with business interruption\. By extension, natural disasters tend to make output more volatile than otherwise, resulting in immediate consequences for a country's GDP figures\. Real GDP growth in the Caribbean slowed down on average about 3 percent in a disaster year during the period between 1970 and 1997, often followed by a sharp rebound in the following year and a moderate slump afterwards\. 44 b\. Depreciation and inflation pressures: Due to the weak current account balance and investors' concerns about future losses of local companies, the exchange rate of the disaster-affected country will face depreciation pressures\. Inflationary pressures will also build due to an excess of money holdings in the face of reduced incomes and possible concerns about currency depreciation, in addition to monetization of the increased budget deficits\. c\. Negative regional spillovers: Natural disasters could affect countries that have not been hit directly\. Typically, spill-over effects of disasters are most pronounced in terms of regional input-output networks due to damages suffered near shared ports and disruptions in cross-border supply chains\. Financial linkages are also evident, as there is often a rise in sovereign credit spreads and local banks and insurance companies are exposed to cross-border fluctuations\. 6\. An analysis of the overall fiscal and macroeconomic impacts of past natural disasters suggests that, on average: a\. Impacts on GDP were significant, particularly in the second and third years after a disaster strikes\. This is presumably the case because the differential 44 Ibid\. 41  delays in the year of the disaster and the year immediately following the disaster were evened out\. b\. The negative impacts on the trade balance were significant, primarily due to the initial increase and subsequent decrease in imports\. c\. An initial peak in government capital expenditure growth was followed by low growth rates, while government current expenditure showed a marked drop in growth two years after the disaster\. Table 1: Average impact of natural disasters on fiscal and macroeconomic variables in CARICOM states45 Govt\. Govt\. External GDP Export Import Trade current capital Year Inflation Debt Growth Growth Growth Bal\. exp\. exp\. Growth growth growth -3,-2, 8\.1 5\.4 15\.3 11\.0 -46\.0 5\.2 9\.5 17\.6 -1 0 9\.0 2\.3 5\.0 19\.5 -65\.5 7\.2 26\.2 20\.6 1 7\.6 5\.7 15\.0 13\.0 -72\.7 7\.6 1\.0 13\.5 2 6\.5 1\.9 11\.9 1\.5 -70\.7 0\.1 0\.7 13\.5 3 7\.9 3\.0 16\.2 1\.1 -56\.5 5\.4 5\.6 16\.2 The Approach for the Caribbean: Catastrophe Coverage Using Risk Pooling 7\. In this context, the CARICOM governments, the World Bank, and other development and donor partners decided to develop a disaster risk financing mechanism that would guarantee an immediate injection of liquidity for the government following a major disaster\. The mechanism had to meet world-class standards of reliability, transparency, and affordability\. The most cost-efficient design would combine risk retention for low risk layers (prohibitively costly to transfer to the private sector) and risk transfer for high risk layers\. In order to accomplish this, the mechanism had to enable maintenance of financial reserves in severely fiscally constrained environments and open access to international reinsurance markets for countries for which coverage was not available\. 8\. The catastrophe risk vehicle, CCRIF, adopting a risk pooling approach, addresses these constraints and provides numerous financial benefits to the CARICOM states\. Risk pooling reduces the cost of capital for coverage through diversification and portfolio structuring\. Because each country’s exposure is unique, structuring a diversified portfolio of countries and perils, hurricane and earthquake reduces the cost 45 Ibid\. 42  of capital,46 reserves, and insurance\. In addition, due to economies of scale (i\.e\., fixed costs are spread across participating countries), risk pooling reduces operating costs to participating members\. 9\. Covering diverse risks implies that payments will trigger with more regularity and less uncertainty with regards to the timing and amount of capital that needs to be available for payouts\. Therefore, less capital is required per country to be held in a risk reserve or paid as part of an insurance premium in order to ensure solvency for an event of a specified return period\. Importantly, the underlying risk of each country is unchanged, so pricing of coverage with risk pooling does not distort price signals to participants about the cost of their exposure to natural disasters\.47 Figure 1 illustrates these effects\. Figure 1: Catastrophe Coverage Pricing and Risk Pooling Source: World Bank Disaster Risk Financing and Insurance Program (2011)\. 10\. For the abovementioned reasons, risk pooling through CCRIF results in a lower probable maximum loss (PML) 48 compared to the sum of the PMLs for all participating countries\. This is the case because multiple catastrophic events are highly unlikely to affect multiple states in a given year\. For example, the likelihood of a severe hurricane impacting one country may be 5 percent every year, but the likelihood of three severe hurricanes impacting three different countries is likely much lower\. 46 Cost of capital is defined as the amount of capital required to be accessible to ensure solvency in the case of catastrophe\. 47 Furthermore, the parametric nature (relying on an event’s parameters as a proxy for actual losses) of CCRIF insurance assures that the AEL is an objective measure of each country’s exposure to perils\. 48 Probable maximum loss is defined as the largest likely loss from a specific catastrophic event for a given return period\.  43 11\. Figure 2 illustrates the PML for each country’s hurricane and earthquake policies under CCRIF versus the PML for the pooled Facility from a 1-in-200 year event for hurricane and earthquake, respectively\. Due to limitations in data availability, the aggregate loss for the individual country depends on the coverage limit and exhaustion point under its CCRIF policy (which varies across countries)\.49 As is clear below, the pooled loss for a 1-in-200 year event to the CCRIF portfolio for either hurricane or earthquake results in a much lower PML than the aggregate possible losses across countries for the risk transferred to CCRIF for events of different (primarily shorter) return periods\. Figure 2: Benefits of Risk Pooling - PMLs under CCRIF policies Source: World Bank Disaster Risk Financing and Insurance Program, with data from CCRIF (2012)\. 12\. In addition to the benefits of risk pooling and lower operating costs, there are many additional financial benefits of the CCRIF approach that are difficult to quantify in this assessment but are anecdotally suggested\. Such benefits could include reduction in disaster losses due to improved land-use planning informed by catastrophe risk 49 Precise coverage levels vary across policies, thus the amount and layer of risk being contributed varies across countries\. The aggregate columns are the sum of all of the coverage limits for each peril in the CCRIF portfolio\. In most cases, the maximum protection for a country is less than a 1-in-200 year loss, while some countries have coverage that is greater protection than 1-in-200 year\. The pooled loss for a 1- in-200 year event to the CCRIF portfolio for both hurricane and earthquake, however, results in a much lower PML than the aggregate possible losses across countries for events of different (primarily shorter) return periods\. 44  modeling, improved decision-making linked to capacity building services provided by the Facility, etc\. Financial analysis of catastrophe coverage for CARICOM states through CCRIF 13\. The financial benefits of participation in CCRIF can be assessed through a comparison in the long-term average price of coverage for CARICOM governments with CCRIF compared to (i) the case where the country would have to individually go to the reinsurance market to buy the same coverage and (ii) the case where the country would self-retain the same amount of catastrophic risks because insurance would not be available on the market\. In addition, these results can be compared to those estimated at the beginning of the CCRIF project\. Finally, the role of donor capitalization of the CCRIF in reducing insurance costs to participating countries and increasing its financial resilience in high-risk layers can be assessed\. 14\. This analysis uses CCRIF’s Dynamic Financial Analysis (DFA) model, a sophisticated actuarial model that computes insurance pricing and survivability metrics using different input portfolios, reinsurance pricing models, and starting capitalizations for the Facility, among many other variables\. The policy schedule used for this analysis is that selected by participating countries for the policy period 2012/13\. Coverage choices vary across countries\. Attachment and exhaustion points for hurricane coverage range from 15 to 25 years and from 80 to 250 years, respectively; and for earthquakes, from 20 to 50 and from 70 to 250 years, respectively\. The amount of risk ceded, or ceding percentage, also ranges from less than 5 percent to greater than 85 percent for hurricane and less than 10 percent to greater than 90 percent for earthquake\. Three countries do not purchase earthquake insurance\. The differences in coverage choices impact the cost of coverage for the country\. 15\. The price of coverage through CCRIF is estimated as the stable long-term premium to annual average loss (AAL) ratio using the CCRIF June 1, 2012, forecasted financial position (commonly referred to as the multiple)\. This pricing is captured as the assessed long-term CCRIF multiple for the 2012/13 policy schedule selected by participants for hurricane and earthquake\. For confidentiality reasons, the long-term average pricing multiple for CCRIF cannot be disclosed; it is compared to the alternatives, however, by expressing the percentage of cost-savings from using CCRIF versus the alternatives (Table 2)\. 16\. The individual country costs of transfer of the same risk directly to the international market are estimated by using the reinsurance pricing algorithm that is used to estimate CCRIF’s reinsurance costs\. This then assumes that individual countries would get the same reinsurance pricing as CCRIF does, which likely leads to a significant underestimation of those costs to the country (because of economies of scale and other factors) and therefore an underestimation of likely savings\. CCRIF pricing is compared against individual country direct reinsurance market coverage in Savings vs Market (Column A) in Table 2 below\. 45 17\. The cost of self-retention if the country had to retain this risk through its own reserves (because insurance markets were not available or countries viewed coverage as too costly) through reserves is estimated as the annual average loss plus the opportunity cost of reserves for the same risk currently covered by the CCRIF\. The opportunity cost of reserves is equal to the amount of reserves necessary to provide a payout equal to the coverage limit at the exhaustion point of a country’s CCRIF coverage, multiplied by the marginal opportunity cost of capital\. In the spring of 2012, the average marginal opportunity cost of capital for CCRIF countries is estimated at 7\.5 percent\. It is noted that at the time of CCRIF project preparation, the marginal opportunity cost of capital was set at 12 percent – thus, for insurance coverage to continue to be more cost-effective in the current macroeconomic environment, it must remain less expensive compared to this lower opportunity cost\. CCRIF pricing is compared against self-retention for this same risk in Savings vs Self-retention (Column B) in Table 2 below\. Table 2: Estimated CCRIF Long-term Pricing Comparisons50 Savings vs Savings vs Self- Country Market retention (A) (B) Hurricane Anguilla 55\.59% 63\.39% Antigua & Barbuda 56\.24% 65\.39% Bahamas 54\.61% 60\.03% Barbados 56\.29% 65\.66% Belize 57\.86% 70\.81% Bermuda 57\.43% 69\.44% Cayman Islands 57\.35% 69\.44% Dominica 58\.89% 75\.01% Grenada 58\.77% 74\.03% Haiti 53\.85% 57\.34% Jamaica 57\.01% 68\.06% St Kitts & Nevis 55\.80% 70\.47% Saint Lucia 57\.68% 63\.87% St Vincent & the 56\.20% 65\.32% Grenadines 50 For CCRIF pricing and for individual pricing, premium multiples are computed by finding the long- term average multiple for each country if the multiple for all countries is set at the CCRIF multiple of the country’s AALfor the first year (in this case 2012/13) and thereafter allowed to float in such a way that countries are charged external reinsurance costs in proportion to their AAL, CCRIF risk retention costs as cost of capital in proportion to country coverage limit, and CCRIF overhead in proportion to AAL\. Using the DFA model, this analysis is conducted over many years so that an average multiple can be computed for each country\. This average multiple is used for the comparisons in Table 2\. 46  Trinidad & Tobago 57\.49% 69\.83% Turks & Caicos Islands 55\.01% 61\.39% Earthquake Anguilla 61\.87% 83\.87% Antigua & Barbuda 60\.80% 80\.44% Bahamas n/a n/a Barbados 61\.02% 81\.17% Belize 60\.08% 78\.17% Bermuda n/a n/a Cayman Islands 58\.52% 73\.03% Dominica 59\.11% 75\.06% Grenada 60\.46% 79\.46% Haiti 54\.07% 57\.95% Jamaica 57\.86% 70\.85% St Kitts & Nevis 57\.44% 84\.84% Saint Lucia 62\.13% 69\.41% St Vincent & the 60\.60% 79\.85% Grenadines Trinidad & Tobago 55\.23% 61\.87% Turks & Caicos Islands n/a n/a Source: World Bank Disaster Risk Financing and Insurance Program, with data from CCRIF (2012)\. 18\. The substantial long-term cost-savings afforded to CARICOM states by purchasing catastrophe coverage through CCRIF is evident in Table 2\. Compared to the cost of an individual country going directly to the reinsurance market, CCRIF pricing for hurricane ranges from about 59 to 54 percent less expensive\. For earthquake, this range is from about 62 to 54 percent less expensive\. Two caveats are reiterated here: (i) each country chooses a different policy schedule and pricing is affected by the parameters of the coverage; and (ii) pricing for individual coverage direct from the market uses the same reinsurance pricing algorithm as the CCRIF, so the resulting estimates are likely underestimating the true cost of this cover\. While the additional savings from approaching the market through CCRIF are masked by the analysis, it does convey the primary drivers of the premium reduction, mainly risk pooling but also the reserves of the Facility\. 19\. Furthermore, the cost-savings of CCRIF coverage versus the non-market-based scenario of self-retention are even greater, as illustrated by Column B in Table 2\. Compared to the cost for an individual country ensuring the availability of the same amount of cover as is provided by its CCRIF policy, CCRIF cover for hurricane ranges from about 75 to 57 percent less expensive\. For earthquake, this range is from about 85 percent to 58 percent less expensive\. 20\. Long-term average savings estimated with CCRIF’s current parameters have also outperformed the original estimates of the cost savings that it would provide almost invariably across scenarios (Table 3)\. Impressively, this is true for the estimated savings of CCRIF coverage against self-retention across countries for earthquakes 47  and for many countries for hurricane even when the estimated marginal opportunity cost of capital used at the time of appraisal was 12 percent and in the current estimation is only 7\.5 percent (making self-retention a less expensive option in the current macroeconomic environment)\. Table 3: Original Estimates of CCRIF Savings and Current Estimated Achieved Savings Pre-implementation Current (actual) Coverage comparison estimation range estimation range Hurricane CCRIF savings vs Market 48-56% 54-59% CCRIF savings vs Self- 65-71% 57-75% retention Earthquake CCRIF savings vs Market 42-47% 54-62% CCRIF savings vs Self- 49-53% 58-85% retention Source: Pre-implementation estimates from World Bank (2007)\. Achieved estimates by World Bank Disaster Risk Financing and Insurance Program, with data from CCRIF (2012)\. The Role of Donor Capital 21\. At the outset, a multi-donor trust fund (MDTF) was created to support CCRIF’s establishment and initial operations\. Donors’ contributions totaled about US$67\.4 million; with net interest income this amount was brought to about US$71\.0 million\. These resources were not used for a direct investment in CCRIF, but rather to reimburse CCRIF for its major operating expenditures, including risk transfer costs, and for claims paid within its risk retention during its start-up phase\. By defraying these costs, the MDTF enabled CCRIF to conserve the members’ participation deposits and the bulk of its premium income\. In this way, the donors indirectly helped CCRIF to build its risk bearing capacity more quickly than it could otherwise have done to a level sufficient to assure its financial sustainability as an independent entity over the long-term\. A strong capital base also allows CCRIF to retain more of the risk through a pooled reserve while transferring to the reinsurance market the higher-capacity layers which it has insufficient capital to retain, but which cost less to reinsure than the lower layers of risk\. Over time, this strategy tends to reduce the Facility’s expenditures on reinsurance, increase the financial security of the Facility, and decrease the premium required to be charged to participants\. 22\. The indirect impact of the donors’ contributions on CCRIF’s ability to grow its capital and financial sustainability can be analyzed by reducing the CCRIF retention to the amount estimated for what CCRIF would have been able to retain without support from donors and then comparing the performance metrics for these two scenarios\. In this analysis, the 2012 retention is reduced by 60 percent, and this 60 percent worth of what would have been retained is spread across the higher risk layers 48  transferred to the international reinsurance market\. As with the other analyses, under this scenario, the starting point, Year 1, is 2012\. In years 2 and 3, CCRIF is assumed to have been able to increase its retention by 25 percent and 20 percent, respectively, per year, and then stabilize\. These assumptions are based on best estimates provided by catastrophe risk modeling experts of the Facility\. 23\. Key survivability metrics for this analysis are provided in Table 4\. Evidently, the Facility performs better across all metrics with the contribution of donor capital\. The year-end capital of the Facility and its growth are both improved over time with the donors’ contributions\. Also noteworthy is the role of donor capital in the survivability of the Facility\. With the contribution of donor capital, the minimum survivability level experienced by the Facility over ten years remains at a 10,000 year event\. This remains well above the minimum solvency requirements (1-in-200 year event return period) set in the European Union’s Solvency II Directive\. 51 If donor capital is removed, however, then the minimum survivability of the Facility over ten years dips to a 1-in-175 event, falling below the minimum requirements set by the “best practiceâ€? standard\. Table 4: CCRIF survivability metrics with and without donor capital With Donor No Donor Time period Contributions Contributions Year-end capital 5 years 116,717,361 49,420,994 10 years 126,720,721 56,739,203 Retained earnings 5 years 11,611,441 9,315,074 10 years 21,614,801 16,633,283 Sustainability 5 years 100\.00% 99\.98% 10 years 100\.00% 99\.43% Survivability 10 year average 10,000 4,260 Min over 10yrs 10,000 175 Source: CCRIF (2012)\. 51 Solvency II is an EU Directive that harmonizes insurance regulation across Europe and sets strict risk management standards – some of the strictest in the world – that are expected to set the standard of best practice for insurance companies operating in international markets\. Solvency II is anticipated to come into effect in 2014\. 49 Conclusion 24\. This financial analysis has illustrated that CARICOM states can significantly increase their financial resilience to catastrophes through ex ante disaster risk financing and insurance\. The analysis has demonstrated that the CCRIF approach has proved the most cost-effective option due to risk diversification, portfolio structuring and economies of scale in operating costs\. The Facility also provides numerous other benefits, including timely payouts in the case of a triggering event, which are difficult to quantify in this analysis\. This financial analysis has proven, however, that even without these intangible savings and despite the reductions in the expense of maintaining reserves since the original analysis, 52 CCRIF coverage provides substantial savings over individual countries directly approaching the reinsurance market or self-insuring the same risk transferred through their CCRIF policies\. Finally, it has demonstrated that the MDTF set up to support the Facility has increased all essential survivability metrics\. 52 The marginal opportunity cost of capital for the region has decreased from 12 percent to 7\.5 percent between 2007 and 2012 primarily due to macroeconomic conditions\. 50 Annex 4\. Grant Preparation and Implementation Support/Supervision Processes (a) Task Team members Responsibility/ Names Title Unit Specialty Lending/Grant Preparation Francis Ghesquiere Senior Urban Specialist LCSUW Olivier Mahul Senior Insurance Specialist FPDSN LEGOP/ Lisa Lui Senior Counsel LEGLA Atsuko Okubo Senior Counsel LEGCF Xiomara Morel Senior Finance Officer LOAG1 Marc Forni Consultant LCSUW Ross Gartley Consultant LCSUW Maricarmen Esquivel Consultant LCSUW Ana Daza Language Program Assistant LCSUW Supervision/ICR Carlos Rufino Costa Posada Consultant LCSUW Todd W\. Crawford Consultant LCSUW Maricarmen Esquivel Consultant LCSUW Senior Disaster Risk Marc S\. Forni SASDU Management Specialist Disaster Risk Management Ross Alexander Gartley LCSUW Specialist Senior Financial Management M\. Mozammal Hoque LCSFM Specialist Senior Financial Management Svetlana V\. Klimenko LCSFM Specialist Patricia E\. Macgowan Consultant LCSPT Olivier Mahul Program Coordinator FCMNB Andrew Mitchell Consultant LCSUW Ulrich Cedric Myboto Consultant LCSUW Atsuko Okubo Senior Counsel LEGCF Edith Ruguru Mwenda Senior Counsel LEGAF Jonathan Palin Consultant LCSUW Rolande Simone Pryce Senior Country Officer LCC3C Yingwei Wu Senior Procurement Specialist LCSPT Ana Daza Language Program Assistant LCSUW 51 (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only)53 Stage of Project Cycle USD Thousands (including No\. of staff weeks travel and consultant costs) Lending Total: 0\.0 0\.00 Supervision/ICR Total: 6\.28 76\.10 53 Staff weeks and USD thousands are for FY 2012 only\. In previous years, the costs of preparation and supervision were charged to: (i) OECS Catastrophe Insurance Project (P094539: and (ii) Haiti Catastrophe Insurance Project (P104690)\. These two projects provided IDA grants to Dominica, Grenada, St\. Lucia, St\. Vincent and the Grenadines, and Haiti to cover their CCRIF participation fees and all or a portion of their annual premiums for the first three years of membership\. As these projects are integrally related to the CCRIF project (P108058), it is not possible to assign a specific portion of the costs to any one of the three\. 52 Annex 5\. Beneficiary Survey Results Please refer to the Final Report on the Beneficiary Survey, available on the CCRIF website at: http://www\.ccrif\.org/publications/ccrif-stakeholder-analysis 53 Annex 6\. Stakeholder Workshop Report and Results N/A 54 Annex 7\. Summary of Grantee's ICR and/or Comments on Draft ICR 55 Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders Comments from Caribbean Development Bank From: Faye Hardy <barnesf@caribank\.org> To: "tcrawford@worldbank\.org" <tcrawford@worldbank\.org> Date: 06/13/2012 09:06 PM Subject: RE: Caribbean Catastrophe Risk Insurance Facility -- World Bank Implementation Completion and Results Report Dear Todd, Thanks for the opportunity to comment on the draft ICR\. It provides a comprehensive statement on the problems that occasioned the need for CCRIF, and the entity that grew to fulfill those needs\. It is highly encouraging to note that the World Bank’s expectations at the inception of the project were in many ways surpassed, and that acknowledgement was made of the growth of CCRIF as a regional entity and an integral and valuable element in the development network of the Caribbean region\. The recognition of CCRIF’s qualities of strong governance and internal controls, of dynamism and responsiveness to members’ needs were also pleasing to note\. CDB considers CCRIF’s role to be vital in the region in terms of raising awareness of disaster risk management, increasing opportunities for collaboration among complementary regional institutions and governments in this area, and providing risk management solutions of an international standard within the region\. Natural disasters have the potential to be highly disruptive to the development mandate of the Caribbean region with which CDB, among others, has been entrusted, and CCRIF’s interventions help to contain the extent of that disruption in the immediate aftermath of those events\. CCRIF’s technical assistance grants also provide extremely useful opportunities for strengthening the capacity in the region\. CDB will continue to support CCRIF’s efforts by assisting members with financial and other resources, where feasible to do so\. CCRIF’s focus has continually been on the efficient provision of the services requested or required by its members\. It has, in its short history, accomplished much, and its continued introspection and quest for improvement in processes and products should ensure that it continues on a path of growth and relevance to the disaster risk management strategy for the region\. I noted two edits required: 1) on page vi, last paragraph: an unfinished sentence needs clarification/completion - “ …stabiility to CCRIF's until becoming self- sustainableâ€? 2) page 2, the estimated loss on the first line of the table is shown as “26,5000â€?\. You may need to move the comma\. With best regards, Faye 56 From: tcrawford@worldbank\.org [mailto:tcrawford@worldbank\.org] Sent: Tuesday, May 29, 2012 3:40 PM To: Faye Hardy Subject: Fw: Caribbean Catastrophe Risk Insurance Facility -- World Bank Implementation Completion and Results Report Dear Faye, The World Bank prepares an Implementation Completion and Results Report (ICR) for each project that it supports once the financing for that project has been completed\. The multi-donor trust fund which was created in 2007 in order to establish the Caribbean Catastrophe Risk Insurance Facility and support its initial operations has been fully disbursed and CCRIF is now operating without donor support\. As the administrator of the multi-donor trust fund and a contributor to it, the Bank has now prepared an ICR for the project\. The ICR reviews the preparation of the project and developments during its implementation\. It assesses the Bank's performance during project preparation and its implementation and also the performance of the executing agency -- in this case, CCRIF - - during project implementation\. The ICR documents the results achieved and how those compare with the expected results\. It also aims to synthesize the knowledge gained from the project and the lessons that can be learned from its design and implementation with a view to benefiting similar projects in the future\. The views of stakeholders greatly enrich an ICR\. The Caribbean Development Bank was a generous contributor to the multi-donor trust fund and, as such, has played a vital role in helping to establish CCRIF as a self-sustaining organization\. In addition, the CDB has an important role in CCRIF's governance structure, as it nominates two Directors to CCRIF's Board of Directors\. Thus, the CDB's input to the ICR will be valuable\. Please feel free to comment candidly on any aspect of the attached ICR\. We would particularly appreciate your views on CCRIF's relevance to sustainable development in the region and the value that it has added to the Caribbean countries' disaster risk management strategies\. Could I ask you kindly to reply by June 12? Once again, let me say how much we will appreciate your perspective\. Todd (See attached file: CCRIF ICR - 120529\.pdf) Todd Crawford Operations Advisor Sustainable Development Department Latin America and Caribbean Region The World Bank 1818 H Street, NW Washington, DC 20433 Tel: 202-458-0112 57 Comments from Caribbean Institute for Meteorology and Hydrology From: dfarrell@cimh\.edu\.bb To: tcrawford@worldbank\.org Date: 06/12/2012 10:31 PM Subject: Re: Caribbean Catastrophe Risk Insurance Facility -- World Bank Implementation Completion and Results Report Dear Mr\. Crawford Thanks for not complaining about the lateness of response\. The following are my comments on the document: 1\. There are a number of typos and stylistic changes that could be made to improve some aspects of the document\. I assume most of these will be fixed before the document becomes final\. 2\. You frequently make reference to "national meteorological institutes" in the document\. Such entities don't exist\. I believe you are referring to "National Meteorological and Hydrological Services (NMHSs)"\. Please note that the CIMH is not a NMHS\. It is an Institution of CARICOM\. There are a number of such designated institutions\. 3\. You refer to CCRIF's interactions with Institutions of the CARICOM such as CIMH, CCCCC and OECS among others but you never provide examples of these interactions and how they shaped important products and services delivered to the region\. I believe that providing such examples will emphasize the value and importance of such partnerships and may encourage further collaborations and cooperation\. I don't recall seeing the number of MoU's CCRIF has with regional institutions\. Again quantifying this number is important\. On page 14, paragraph 31, the reference to meteorological institutes may be CIMH\. 4\. On page 8, paragraph 20, you note that the CCRIF benefited from the experiences of the CIMH\. Can this be confirmed? It is not clear to me that CIMH was involved in the design phase of the project to establish CCRIF\. I am aware that many NMHSs in the Caribbean region were not aware of the CCRIF and its wind product until after the product was established\. 5\. On page 20, paragraph 50 states that countries " \. were able to mount their initial high priority recovery efforts more quickly that would have been possible without the payouts\." Can this actually be verified given the first and second sentences of paragraph 51? I hope you find these comments fair and useful\. David Farrell ----- ----- ----- 58 From: Todd W\. Crawford/Person/World Bank To: dfarrell@cimh\.edu\.bb Date: 05/29/2012 03:02 PM Subject: Fw: Caribbean Catastrophe Risk Insurance Facility -- World Bank Implementation Completion and Results Report 458-0112 LCSHE Dear Dr\. Farrell, The World Bank prepares an Implementation Completion and Results Report (ICR) for each project that it supports once the financing for that project has been completed\. The multi-donor trust fund which was created in 2007 in order to establish the Caribbean Catastrophe Risk Insurance Facility and support its initial operations has been fully disbursed and CCRIF is now operating without donor support\. As the administrator of the multi-donor trust fund and a contributor to it, the Bank has now prepared an ICR for the project\. The ICR reviews the preparation of the project and developments during its implementation\. It assesses the Bank's performance during project preparation and its implementation and also the performance of the executing agency -- in this case, CCRIF - - during project implementation\. The ICR documents the results achieved and how those compare with the expected results\. It also aims to synthesize the knowledge gained from the project and the lessons that can be learned from its design and implementation with a view to benefiting similar projects in the future\. The views of stakeholders greatly enrich an ICR\. As one of premier Caribbean institutions with which CCRIF has a collaborative relationship, the views of the Caribbean Institute for Meteorology and Hydrology will be especially valuable\. To that end, I would like to share with you for your review the ICR as it currently stands\. Please feel free to comment candidly on any aspect\. We would particularly appreciate your views on CCRIF's relevance to sustainable development in the region and the value that it can bring to the work of CIMH in helping countries in the region to strengthen their disaster risk management capacity\. Could I ask you kindly to reply by June 12? Once again, let me say how much we will appreciate your perspective\. Best regards, Todd Crawford Operations Advisor Sustainable Development Department Latin America and Caribbean Region The World Bank 1818 H Street, NW Washington, DC 20433 - Tel: 202-458-0112 59 Annex 9\. List of Supporting Documents  “A Review of CCRIF’s Operation After Its First Seasonâ€?; World Bank, December 1, 2008\.  “A Review of CCRIF’s Operation After Its Second Seasonâ€?; World Bank, April 2010\.  “Reducing Financial Vulnerability to Natural Disasters in the Caribbean: A Review of CCRIF’s Operation After Its Third Seasonâ€?; World Bank, April 2011\. 60  Bermuda (U\.K\.) UNITED STATES (same scale as main map) OF AMERICA CARIBBEAN CATASTROPHE RISK G u l f o f THE BAHAMAS M e x i c o INSURANCE FACILITY Turks and Caicos (U\.K\.) A T L A N T I C O C E A N CUBA U\.S\. Virgin British Virgin Islands (U\.K\.) Islands MEXICO Puerto (U\.S\.) Anguilla (U\.K\.) Cayman Is\. (U\.K\.) HAITI DOMINICAN Rico (U\.S\.) St\.-Martin (Fr\.)/ St\. Maarten (Neth\.) REPUBLIC St\.-Barthélemy (Fr\.) Saba (Neth\.) ANTIGUA AND BARBUDA St\. Eustasius (Neth\.) Montserrat (U\.K\.) BELIZE JAMAICA ST\. KITTS Guadeloupe (Fr\.) AND NEVIS DOMINICA Martinique (Fr\.) MALA C a r i b b e a n S e a ST\. LUCIA HONDURAS BARBADOS ST\. VINCENT AND THE GRENADINES EL SALV\. NICARAGUA Aruba (Neth\.) Curaçao (Neth\.) Bonaire GRENADA (Neth\.) L\. Managua TRINIDAD L\. Nicaragua AND TOBAGO Panama COSTA Canal RICA PANAMA R\. B\. DE VENEZUELA FRENCH GUIANA (Fr\.) GUYANA P A C I F I C O C E A N COLOMBIA SURINAME 0 100 200 300 400 500 Kilometers This map was produced by the Map Design Unit of The World Bank\. The boundaries, colors, denominations and any other information BRAZIL shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any 0 100 200 300 400 500 Miles IBRD 39282 endorsement or acceptance of such boundaries\. MAY 2012

REVIEW

P087150

IEG Report Number: ICRR14859 ICR Review Independent Evaluation Group 1\. Project Data: Date Posted: 11/18/2015 Country: Bhutan Project ID: P087150 Appraisal Actual Project Name: Decentralized Rural Project Costs (US$M): 7\.00 11\.87 Development Project L/C Number: Loan/Credit (US$M): 7\.00 11\.87 Sector Board: Agriculture and Rural Cofinancing (US$M): Development Cofinanciers: Board Approval Date : 03/01/2005 Closing Date: 09/30/2009 12/30/2014 Sector(s): Roads and highways (64%); Irrigation and drainage (18%); Agricultural extension and research (12%); Sub-national government administration (6%) Theme(s): Rural services and infrastructure (40%); Water resource management (20%); Other rural development (20%); Decentralization (20%) Prepared by: Reviewed by: ICR Review Group: Coordinator: J\. W\. Van Holst John R\. Eriksson Christopher David IEGPS1 Pellekaan Nelson 2\. Project Objectives and Components: a\. Objectives: The Development Credit Agreement (DCA) for the Decentralized Rural Development Project (DRDP) in Bhutan stated that the project's development objective (PDO) was "to improve market access and increase agricultural output for rural communities in selected areas of Bhutan" (Schedule 2)\. The PDO for the project in the Project Appraisal Document (PAD) was the same as in the DCA\. The project received additional financing (AF) from the Global Food Price Crisis Response Trust Fund; the objective for this grant (Schedule 1) was identical to the project development objective for the original credit\. The DRDP and the AF will be reviewed as one entity project and their combined achievements will assessed against the PDO in the DCA\. b\.Were the project objectives/key associated outcome targets revised during implementation? Yes If yes, did the Board approve the revised objectives/key associated outcome targets? No c\. Components: There were three components in the IDA credit\. The AF grant from the Global Food Price Crisis Response Trust Fund, which augmented the project's financial resources by $US5\.0 million, contained the same components as the original credit\. The allocations to each of the three components from the IDA credit and the AF grant are shown separately below along with the total actual costs from both financing sources together\. Component I: Rural Infrastructure (estimated cost of IDA credit US$5\.10 million (excluding contingencies) and AF grant US$2\.42 million; actual total cost US$7\.81 million) This component would finance new construction and rehabilitation of local public goods, namely farm roads, power tiller mule tracks, and irrigation channels\. The majority of these were identified at the local level as priorities by rural communities during the preparation of the Ninth Five Year Plan\. There were two sub-components\. (a) Rural Access \. This sub-component would focus mainly on farm roads and upgrading of mule tracks to permit passage of power tillers in 201 out of 205 Geogs, (administrative "blocks"- sub-divisions of districts) in Bhutan\. Construction and rehabilitation of farm roads, as well as upgrading and realigning of power tiller tracks (PTTs), were to be screened and implemented in accordance with the Ministry of Agriculture's Farm Road Guidelines, and according to rules for “environmentally friendly road construction” (EFRC) practices which already applied to the larger feeder roads\. The PAD mentioned (page 3, footnote 4) that farm roads are the responsibility of the Ministry of Agriculture (MOA)\. The project team advised that this was also the case for power tiller tracks\. Six small suspension bridges, capable of carrying power tillers and motorcycles, would also be constructed, as well as two motorable bridges (Bailey bridges) to connect farm roads\. Dzongkhags (districts) would contract out construction of farm roads to private service providers to expedite completion and ensure consistent quality\. Power tiller tracks and the suspension bridges would be constructed by voluntary labor with equipment and materials supplied by the MOA\. In accordance with the guidelines Geog development committees (GYTs) would own the completed assets and be in charge of their maintenance with tax revenues, other levies, and labor contributions\. (b) Irrigation\. Construction of approximately 45 km and rehabilitation of 393 km of irrigation channels was proposed for financing under this project\. Works would be implemented in accordance with the National Irrigation Policy and the existing procedural manuals\. Water users’ associations (WUA) at the Geog level would be expected to be the key implementing agency for these farmer-managed schemes\. Component 2: Renewable Natural Resource (RNR) Centers (estimated cost of IDA credit US$0\.75 million (excluding contingencies) and AF grant US$1\.92 million; actual total cost US$2\.97 million) This component would finance facilities and capacity building at RNR centers\. It was organized into two sub-components\. (a) RNR Center Construction \. This sub-component would finance at least six RNR centers in as many Geogs\. Prototype designs already existed at appraisal\. Many Geogs also demanded Geog offices as working space for the "Gup” (Geog head) and clerk, and, where needed, RNR centers were to provide office space at a low marginal cost\. Although this arrangement strictly fell outside of the MOA's mandate, it was seen as a way to contribute to the development of focal points in the communities, and to strengthen ties between local government and the MOA at the grass roots level\. (b) RNR Center Capacity Building \. This sub-component would finance applied training, joint experimentation, and farmer-to-farmer field visits, corresponding to demand expressed by Geogs and consistent with the Field Programs and National Programs of the MOA\. There would be special emphasis on high-value crops and livestock products\. The AF provided funds for training research and extension staff as well as farmers, for arranging demonstrations, and for supporting the adoption of new technologies including improved seeds and post harvest technologies in five additional Geogs\. The Extension Division of the MOA would implement this sub-component\. Component 3: Institutional Strengthening (estimated cost of IDA credit US$0\.35 million and AF grant US$0\.66 million; actual total cost US$1\.09 million) (a) Training of Finance Personnel and Procurement Officers \. Institutional strengthening would involve training of finance and procurement officers from the selected Geogs, Dzongkhags and the Administration and Finance Division (AFD) of the MOA on the budget and accounting system (BAS) and the provision of training to Geog administrators on planning, administration, community mobilization, and reporting\. (b) Improving capacity of the MOA and District Officials \. Improved capacity in the MOA and at the Dzongkhag level for social/environmental screening and assessment of sub-projects, particularly for farm roads, irrigation works, and RNR centers would be achieved through training\. Additional training of engineers, as well as planning, administration, community mobilization, and reporting in the selected Geogs, and Dzongkhags was financed by the AF grant\. Additional Financing (estimated appraisal cost US5\.0 million; actual cost US$4\.87 million): The AF introduced a few changes to the original scope and structure of the DRDP credit\. While these changes are incorporated in the description of the project's components above, a change common to all components after the AF grant was approved was that the geographic scope of the assistance financed by the project increased from six Dzongkhags to eleven (ICR, page 6)\. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: Project Cost\. The total project cost increased from US$7\.00 million (including contingencies) at appraisal by 70 percent to an actual cost of US$11\.87 million because of additional financing of US$5 million from the Global Food Price Crisis Response Trust Fund\. Financing\. The project was financed by a US$7\.0 million IDA credit which was fully disbursed, and a grant of US$5 million from the World Bank's Global Food Price Crisis Response Trust Fund of which US$4\.87 million was disbursed Borrower Contribution \. There was no contribution to the project's cost from the borrower\. Dates\. There were five extensions of the closing date; (a) The closing date was extended from its original date of March 31, 2009 to September 30, 2009\. (b) Extension of the project's closing date from September 30, 2009 to December 31, 2010 to complete road contracts which required between 12-15 months for completion\. \. (c) Extension of the closing date by 3 months to March 31, 2011 to provide adequate time for review and internal processing of the AF grant from the Global Food Price Crisis Response Trust Fund\. (d) March 21, 2011 - Restructuring to provide additional financing of US$5 million TF grant, further extension of project closing date to December 30, 2013, changes to the project's scope and components as indicated above, and revised performance indicators to measure intermediate outcomes; (e) December 2013 extension of the closing date of TF grant by 12 months to utilize the savings resulting from depreciation of the Bhutanese Ngultrum versus the US dollar\. Restructuring Revisions in some key PDO and intermediate outcome indicators at the time of the Additional Financing funded by the Global Food Price Crisis Trust Fund (see ICR Section 1\.3) did not reflect material changes in the project's objectives and hence a split rating for the outcome of this project was not warranted\. 3\. Relevance of Objectives & Design: a\. Relevance of Objectives: Substantial Bhutan is a small mountainous, land locked, country with a population of about 770,000 growing at an estimated rate of 2 percent per annum\. The Government's report titled “Bhutan 2020: A Vision for Peace, Prosperity and Happiness” dated May 1999, prepared following a broad consultative process, translated the notion of Bhutan's objective of achieving Gross National Happiness (GNH) into a series of national objectives\. In April 2002, the Government developed its Ninth Five Year Plan (2002-07) which translated its long-term vision of GNH into specific goals and strategies\. For the first time, and as part of the Government's decentralization program, the Ninth 5 Year Plan included separate strategies at the Dzongkhag (district) and Geog (block) levels for education, health, and infrastructure\. The World Bank's Country Partnership Strategy (CPS) for FY06-09 supported Bhutan 2020 (World Bank Paper, October 12, 2006) confirming the relevance of the project at appraisal to the World Bank assistance strategy\. The CPS for 2015-19 is aligned with the Government’s eleventh Five Year Plan (2013 to 2018) and organized under three results areas, namely (a) improving fiscal and spending efficiency; (b) increasing private sector growth and competitiveness; and (c) supporting green development (page 12)\. The PAD quoted the Transport Sector Note for Bhutan (2004) which identified "accessibility (as) the defining development issue in Bhutan, be it access to opportunity, enterprise, markets or services" (page 46) With its focus on rural roads and irrigation infrastructure, this project's objective of improving market access and increasing agricultural output was, and continues to be, highly relevant to the Government's development policy, to the Bank's past and current partnership strategy for Bhutan, as well as to the Bank's overarching objective of achieving poverty reduction and increased prosperity in Bhutan\. The ICR noted on page 25 that the former Quality Assistance Group (QAG) in the Bank had assessed the project's relevance as "self-evident"\. It was not, however, self evident whether the increase in agricultural output (an important element of the PDO) was to be achieved through increases in area harvested or increases in yield or both\. In addition, the extent of the increase in agricultural output as an objective was not specified\. This lack of precision detracted from an otherwise highly relevant and clear PDO\. Nevertheless, the relevance of the project's objective overall was rated as substantial\. b\. Relevance of Design: Substantial The project's design was considered and debated in great detail at appraisal (PAD, pages 5 and 6)\. The design's core feature was its contribution to the Government's decentralization policy in the Ninth 5 Year Plan through empowering Dzongkhags and Geogs, strengthening their fiscal management, and improving the capacity of the Ministry of Agriculture (MOA), at the local government level\. The design was a "combination of programmatic and sector investment loan (SIL) operations" which used national and decentralized systems effectively for implementation focusing on investments in 78 Geogs (blocks) in 11 Dzongkkags (districts) after the AF (Final Report of the Impact Assessment, page 19)\. Other blocks and districts in Bhutan were already receiving support from the government and other donors - predominantly IFAD - (ICR, page 4)\. Geog-based extension staff, backstopped at the Dzongkkag level, would play the central role in improving services to enable farmers to increase agricultural output\. To achieve this the Ministry of Agriculture (MOA) proposed that Renewable Natural Resource (RNR) centers would become the front-line institution in its efforts to improve productivity and sustainability of crop, livestock, and forest production\. In addition to providing training and demonstrations of new technologies, these centers would provide meeting places for communities and, where needed, limited office space for block development committees (GYTs)\. These centers would also improve living and working conditions for the agricultural extension staff who were already located in Geogs (PAD, page 4)\. In order for these activities to succeed at the Geog level the project was designed to strengthen their capacity to prepare timely and accurate financial and physical reporting on project implementation performance to ensure the smooth approval and transfer of funds to the local implementation level\. The PAD had expressed concern that the capacity of the Geog and Dzongkhag administrators, and of the Administration and Finance Division of the MOA, may not meet the demands of the project (page 4-5)\. In the event this concern was adequately addressed\. The project's proposed activities were substantially relevant to the achievement of its objectives\. For example the PAD stated that farmers in the Geogs had expressed, through a participatory process, a high demand for access to markets, inputs, and public services (page 3)\. The construction and rehabilitation of roads and tracks in the mountainous terrain in rural areas were relevant to improving market access for farmers, irrigation infrastructure development, and improved agricultural support services to facilitate "joint experimentation" and "knowledge sharing" to achieve increased yields in the agricultural sector\. However the PAD's results framework (Annex 3) was inadequate because it was only a listing of the project's PDO and intermediate outcomes along with the indicators to monitor progress towards these objectives and outcomes\. It did not present a results chain connecting infrastructure investments through intermediate outcomes to the objective of "improved market access and increased agricultural output for rural communities" (ICR, Section 1\.2) \. The PAD's results matrix also did not identify the institutions responsible for successive achievements along the results chain\. While there were some shortcomings in the design of the results framework and M&E arrangements, the implied results chain in the project's design of activities was clear and this review therefore concluded that the relevance of the project's overall design was rated as substantial\. 4\. Achievement of Objectives (Efficacy): This project's PDO was "to improve market access and increase agricultural output for rural communities in selected areas of Bhutan"\. For the purpose of the assessment of the project's achievements the objective has been partitioned into two sub-objectives, namely (a) increase agricultural output for rural communities in selected areas of Bhutan; and (b) improved market access for rural communities in the selected project areas\. The extent to which the project has achieved these two sub-objectives will be assessed separately based on an assessment of outputs and outcomes\. (a) Increased agricultural output for rural communities in selected areas of Bhutan - Substantial Outputs  Irrigation infrastructure \. The project financed the construction of 42\.5 km of new channels (compared with a project target of 45 km) and the rehabilitation of another 522 km (compared with a project target of 448 km)\. This meant that DRDP contributed about 14 percent and 65 percent percent respectively to new construction and rehabilitation targets set for the overall irrigation development in 9th Five Year Plan (ICR, page 35)  Quality of irrigation construction \. The ICR stated, however, that with respect to irrigation channels in some cases "the inlet structures were found missing/washed away due to design flaws or poor Implementation quality\. At certain locations, irrigation pipes were sagging, reflecting use of lower quality pipes\." The ICR listed some of the factors contributing to these problems (pages 35 and 36)\.   Construction of Renewable Natural Resource Centers : DRDP constructed six RNR Centers in six Dzongkhags - which met the target (ICR, page 38)\.  Outputs from RNR Centers\. The Centers were aimed at increasing production of food (rice, maize) and one cash crop (potato) through improving extension services, adoption of improved technologies and improved seed varieties\. Among the achievements reported by the ICR the following stood out : - Rice: 65 percent adoption of improved seed varieties by farm households and 56 percent by area in one Dzongkhag where new rice varieties were promoted compared with a target of 25 percent (ICR, page 38) - Maize: 2,899 ha of grey leaf spot (GLS)-affected area (including three non-project areas) received quality seed replacement compared with a target of 2,893 ha (ICR, page 38) - Potatoes: 875 tons of basic seed potatoes were produced compared with a target of 700 tons which exceeded the target by 125 percent (ICR, page 38)\. Outcomes  Changes agricultural production \. Using national data on agricultural production in Dzongkhags where the project was implemented, the project was estimated to have achieved the following increases in agricultural production for two food crops (rice and maize) and one cash crop (potato) in the project area between 2009 and 2013\. - Paddy rice production \. In 11 project supported Dzongkhags increased paddy rice production by 18\.2 percent, which surpassed the target of 15 percent from the 2009 baseline and a decline in production of 19\.2 percent\. By comparison, in control Dzongkhags outside, the project area achieved an increase in production of 1\.5 percent and yields of 25\.6 percent\. This result was achieved despite the reduction in harvested area of 18\.3 percent which was compensated by a remarkable increase in yield of 44\.6 percent (ICR, page 16)\. - Maize production\. The 11 project supported Dzongkhags maize production increased target of 12\.9 percent which surpassed the target of 15 percent from the 2009 baseline\. By comparison, in control Dzongkhags outside the project area, achieved an increase in production of 25\.2 percent and yields of 25\.6 percent (ICR, page 16)\. This increase occurred despite a reduction in the 11 project districts and despite heavy losses in area harvested of 23\.7 percent\. - Potato production\. The project resulted in a an increase in potato production of 10\.7 percent compared with a target of 15 percent, but it was substantially more than the 1\.2 percent production increase in four control districts\. The reason for a relatively low increase in production in the project area compared with the target was a 6\.7 percent decline in yield (due to a decline in the quality of seed potatoes) despite an 18\.7 percent increase in area harvested (ICR, page 17)  Impact of external influences on agricultural production \. The ICR noted tdhat losses of agricultural land to non-agricultural uses and an increase in agricultural land left fallow due to labor shortages and exposure to wildlife damage led to reductions in areas harvested\. On the other hand, despite annual fluctuations due to extremes in weather conditions as well as pest and disease attacks, average yields of rice and maize increased during project implementation\. (b) Improved market access for rural communities in selected areas of Bhutan - Substantial Outputs  New road construction exceeded the target \. The project constructed 138\.3 km of new roads in eleven Dzonkhags surpassing by 45 percent the revised target 95\.5 km for the project\. In adition maintenance was performed on 69\.35 km of roads during the project's implementation which exceeded the target of 53 km by 31 percent (ICR, page 31)\. - The Government's Impact Assessment and Project Completion report noted, however, that the assessment of the extent of farm road improvements (based on sampling) was not rigorous and hence not representative for the entire length of roads constructed (ICR, page 31)\.  Power tiller track rehabilitation exceeded target : Power tiller track improvement to existing pedestrian/mule tracks by leveling, grading and widening (up to 3 meter) of earthen path permitted passage of power tillers\. The project achievement of 129 km exceeded the combined original and AF grant targets - an achievement of 13 percent above the target (ICR, page 31)  The target for bridge construction was achieved but only four survived the 2012 cyclone\. The project  constructed six bridges\. This met the appraisal target\. However, two bridges were washed away during the severe 2012 cyclone that caused huge losses in Bhutan\. The project rebuilt one of the destroyed bridges with the support of the Japan International Agency (JICA)\.  Quality of infrastructure construction \. IEG questioned the Bank's project team about the quality of bridge design and construction, in particular their capacity to withstand stresses such as increased water flows during cyclones\. It was explained by the project team that in Bhutan extreme weather events are common\. It is therefore not unusual for suspension and Bailey bridges to be damaged because they were inevitable located in precarious locations\. However the ICR did mention that "in case of farm roads, the MoAF provided guidelines/specifications for base course thickness, appropriateness of gravel-earth mix, required compactions were not always followed\. Consequently, ruts and potholes were witnessed by the ICR mission at places" (page 35)\. Outcomes  Average time taken to walk to a motorable road \. According to the impact assessment the average walking time to the nearest motorable road in 2013 was 1\.3 hours at the project's close compared with a target of 1\.5 hours and also compared with a time of 3 hours in 2000 (see ICR, Data Sheet, page iii)\. - In 2007 there were 47\.8 percent of rural households which were within walking distance of one hour to a motorable road\. In 2011 the proportion had increased to 50\.6 percent (ICR, page 59)\. - When the project closed 78\.2 percent of households were within a walking distance of ½ an hour, 14\.5 percent of households were between ½ to 1 hour of walking distance, 4\.4% household were between 1-3 hours, and only 2\.9% households were between 4-6 hours walking distance (ICR, page 13)\.  Improved rural roads led to increase agricultural output because of improved market access \. Improved farm roads enabled farmers to transport cash crops to markets at lower costs\. The ICR asserts (but without evidence) that consequently farmers' net margins and household incomes increased\. As a result more farmers are now planting additional cash crops including cardamom and oranges (pages 13 and 14)\. However the beneficiary survey found that over 35 percent of respondents interviewed in the beneficiary survey noted that they had increased vegetable production as a result of road access\. For agricultural products in general 71\.9 percent stated that market access had improved, 27\.8 percent sated that the marketing situation had remained the same and 0\.3 percent said that marketing challenges had become more difficult (ICR, pages 54 and 59)\.  Social benefits from enhanced public transport services \. The introduction of public transport service, purchase of private vehicles by local residents and improvement of existing houses and construction of new housing units have provided significant economic stimulus at the local level and have created new economic opportunities at the local level (ICR, page 13) - All Geogs and Dzongkhags in the project area connected with farm roads and power tiller tracks (PTTs), experienced increased economic activities in the form of new shops, enterprises and increased access to essential edibles and other items (ICR, page 13)\. - Following road improvements local vendors regularly collected vegetables and dairy products from farmers and sold them in Bhutan's capital (Thimphu) and other towns\. Farmers’ transportation costs for taking oranges, ginger and vegetables to agriculture markets were reduced significantly (ICR, page 13)\.  Benefits from increased economic activity for women \. The ICR noted that there has been a multiplier effect from the formation of agricultural groups (mainly for vegetables) and establishment of livestock farms (page 13)\. - This, the ICR asserted, created significant impacts on income and cash at hand for women as most of the vegetable group members were women (page 13)  Improved access to credit \. Road construction and rehabilitation have stimulated mobile banking facilities\. In addition, commercial banks have opened up branches in several Geogs\. These developments had a positive impact on economic growth in the rural non-farm economy (ICR, page 13)\. - The ICR states that about 21 percent of the households in the project Dzongkhags negotiated loans for (i) purchasing of seedlings such as cardamom and oranges, (ii) acquisition of improved cattle, (iii) minimizing post-harvest losses, (v) establishment of agricultural farms (mainly livestock related), and (vi) establishment of commercial enterprises (page 13)\. 5\. Efficiency: The PAD considered that a benefit-cost analysis of each relatively small sub-projects was not practicable (page 49)\. The appraisal therefore chose instead to calculate the average cost of the sub-projects per person potentially affected and compare these costs with a benchmark average to assess relative efficiency\. Farm roads and power tiller tracks \. According to the PAD studies undertaken in preparation for the IDA-financed Rural Access Project in Bhutan estimated that US$560/person was equivalent to a 12 percent economic rate of return on capital investment (page 50)\. This benchmark was based on an analysis in Annex 4 in the PAD for the Bhutan: Rural Access Project which estimated (a) social benefits – namely the benefits of improved education as a result of better roads, (b) transport cost savings – namely the savings of a change from the high cost of mule transport to the more frequent and lower cost of truck and bus transport, and (c) agricultural benefits – namely increased value added from agriculture resulting from lower costs for inputs and higher net returns for outputs from a particular stretch of road in Bhutan (Dakpai-Buli road of 37 km)\. A cost of construction of US$560/person became the benchmark against which to assess the efficiency of this project\. However, it was derived for a high quality feeder road and not for farm roads or PTTs\. The PAD for the DRDP stated that the MOA issued guidelines for the construction of farm roads and PTTs which established a minimum requirement of 10 households per km and 7 households per km respectively\. These household criteria translated to cost-effectiveness criteria of approximately $425 per person for farm roads and $245 per person for power tiller tracks\. The project's appraisal estimated the following average costs per person for the sub-projects in this project (DRDP): (a) Farm Roads -$385/person; and (b) Power Tiller Tracks - US$103/person\. Since these costs were much lower than the benchmark comparison in the PAD it was concluded that the anticipated DRDP sub-projects were economically justified\. While these comparisons are intuitively interesting the important assumptions made in this analysis were not only the expected costs of road construction, but is was also assumed that the type and scale of projects used for the MOA benchmarks were comparable to the sub-projects in the DRDP project\. Neither the PAD nor the ICR made a comment on these implicit assumptions but the PAD did acknowledge the different levels of access provided by farm roads and tracks in this project\. The ICR provided estimates of average costs of farm roads roads per beneficiary in six Geogs in one Dzongkhag (Wangdue) in the project and found that (after adjusting the above-mentioned MOA guideline for inflation) that "the equivalent cost in 2009 was $459 per person – very close to the average of the six roads for which there are data available ($463\.3 per person), although still higher than the predicted costs in the PAD, adjusted for inflation - i\. e\. $416 per person (ICR, Table 3, page 46)\. In a separate analysis the ICR used estimated project benefits for an estimated 6,000 households which benefitted directly from the new and improved farm roads and power tiller tracks\. By using data on household incomes from comparable projects in Bhutan and elsewhere in Asia (without any references) and assuming increases in household incomes for direct beneficiaries of 10, 15 and 20 percent in conjunction with the actual costs for the improvement of farm roads and power tiller tracks, economic rates of return were calculated to be 15\.5, 20\.5 and 25\.1 respectively (ICR, pages 18 -19 and 52 - 53) \. Irrigation\. The PAD made no assessment of the benefits from irrigation development or rehabilitation\. As noted already, irrigation channels were reported to have been well built and rehabilitated and, according to the ICR, the improved water control led to increased yields of rice and maize and hence total agricultural production which generated positive returns to the project's investment\. The ICR concluded that "Financial returns to crop productivity improvements under the project were not only strongly positive, but robust\. Even when including all irrigation investment costs, returns from crop productivity improvements reach almost 30 percent and remain above 20 percent even when the results were tested against a 20 percent decline in crop benefits" (ICR, page 18)\. Institutional Strengthening \. The ICR made no attempt to quantify returns to institutional strengthening (page 18)\. It was unfortunate that during implementation the project's M&E system produced inadequate information to make plausible estimates of the rates of return for the farm roads and power tiller tracks\. However, the evidence in the ICR, and the beneficiary survey indicate that farm roads and PTTs constructed and rehabilitated and hence access for farmers to markets improved, was to a large extent attributable to the project and generated positive social and economic returns to the project's investment\. On balance the project made efficient use of the available funds, was operationally and administratively efficient produced value for money, and generated positive returns on capital invested\. On this basis the project's efficiency was rated substantial\. a\. If available, enter the Economic Rate of Return (ERR)/Financial Rate of Return (FRR) at appraisal and the re-estimated value at evaluation : Rate Available? Point Value Coverage/Scope*  Appraisal No ICR estimate Yes 20\.5% 60% * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: The relevance of the project's objectives and design were both substantial\. New and rehabilitated transport infrastructure improved farmers' access to markets, reduced their marketing costs for agricultural products, and led to a number of substantial social benefits\. Based on the measurements adopted by the ICR there were substantial increases in agricultural output and market access in the project area during its implementation\. The beneficiary survey indicated that these achievements were attributable to the project's investments in farm roads, power tiller tracks, irrigation and agricultural support services\. Overall, the efficiency with which project funds were used was rated substantial\. On the basis of the evidence this Review concluded that the project had only minor shortcomings in its relevance, efficacy and efficiency and its outcome was therefore rated as satisfactory\. a\. Outcome Rating: Satisfactory 7\. Rationale for Risk to Development Outcome Rating: The ICR states (page 23) that the Royal Government of Bhutan (RGOB) has incorporated the DRDP approach into the 11th Five Year Plan for the period of 2013–2018\. Presumably, therefore, the main elements of the DRDP experience and practice have been adopted by the Ministry of Agriculture, the Dzongkhags and Geogs as part of their institutional responsibilities and their future development programs\. It is understood that the Government has allocated funds to DRDP type interventions in its annual budgets for the operation, maintenance, renovation and rehabilitation of rural infrastructure\. According to the ICR a number of Road User Groups (RUGs) have been formed for regular maintenance works including minor repairs\. As per the government regulations MoUs are not required to be signed with any benefiting communities, instead a handing over document is signed for O&M after the completion of works\. As stipulated in the farm road guidelines and national irrigation policy, beneficiary communities are responsible for minor O&M activities sucah as drain cleaning, spot filling, small debris removal from farm roads and PTTs, vegetation clearing, blockage removal, intake and outlet structures maintenance for irrigation channels, as well as checking pins and joints for bridges etc\.(page 24)) Sustaining the effort to increase agricultural yields will require adequate and reliable financing of research, on-farm trials, and the continued operation of the RNR Centers\. The ICR anticipated that apart from coordinating with the farmers’ user groups for O&M, the Government’s financial and human resources will be available in the event of natural calamity/emergency such as landslides, floods, torrential rains and any major damages to infrastructure (page 24)\. It should also be mentioned that the ongoing Bank-funded RSCDP continues many of the same themes of the DRDP\. a\. Risk to Development Outcome Rating : Moderate 8\. Assessment of Bank Performance: a\. Quality at entry: Strategic relevance \. According to the ICR key sectoral issues were analyzed in depth including an assessment of Government strategies to deal with the issues facing the agricultural sector\. Indeed a major participatory exercise in all 2005 Geogs concluded that investment in rural roads, irrigation and other infrastructure were high priorities among the rural population\. As already noted in Section 3b of this Review, the project's design supported the ongoing decentralization process in Bhutan through the devolution of most project funds and decision-making powers to the Dzongkhag and Geog levels\. The Government therefore had strong ownership of the project although the \.ICR mentions that a lesson from previous operations has been that decentralization is a long-term process that requires commitment, predictable flow of funds, institutional strengthening and capacity building on regular basis\. Implementation issues \. Despite the project's strategic relevance, the definition of part of the project's objective as an "increase in agricultural output" was weak because output is a variable derived from area harvested and yield\. As a result the ICR wrestled with explaining the interactions between area harvested and yield to explain increases in output\. In effect, given that farmers decide on area harvested, the project only had a potential influence on increasing yield which should have been the project's objective\. Nevertheless the activities related to improved market access and improved yields were satisfactorily implemented by using the country's decentralized administrative systems\. Risk Assessment\. The PAD provided a balanced assessment of project risks\. The ICR acknowledged that project risks were correctly identified, but considered that some mitigation measures were not well defined\. This Review agreed to the following points  The risk that farmers would be unable to find markets was assumed to be mitigated by reduced transport costs and improved access to motorable road\. This was unlikely to be the case for many remote locations where improved access alone would not have mitigated this risk\.  But there was a risk that Geogs would fail to maintain roads and other infrastructure\. There was no evidence in the ICR that Geogs had signed MOUs with user groups for maintenance\. Nevertheless the Bank's task team leader advised that ultimately the Geogs are responsible for the farm roads and the PTTs - with or without the user groups  Finally, a risk identified in the PAD was that procurement of project inputs in remote Geogs may have ended up facing difficulties receiving bids on contracts or the timely completion of contracted work\. Economic aspects\. There were shortcomings in the economic and financial analysis of the project in the PAD\. The analysis was limited to road infrastructure; the benefits and costs of irrigation investments were not analyzed\. As noted already in Section 5 of this Review, the economic analysis of the investments in transportation infrastructure in the PAD had significant shortcomings because it was based on earlier analysis of more sophisticated roads than the farm roads and tracks which were the core investments in this project Monitoring and Evaluation \. M&E design had shortcomings such as absence of baseline data and weak M&E capacity at Geog level\. This will be discussed further in Section 10 of this Review Quality-at-Entry Rating: Moderately Satisfactory b\. Quality of supervision: The Data Sheet shows that supervision missions were conducted twice a year for eight years and once during two years of the project's 10 year implementation period\. The ICR noted that "During the initial phase, high turnover of TTLs and lack of a designated TTL for some period, affected project implementation\." Nevertheless, it also observed that "Sufficient budget and staff resources were allocated, and the project was adequately and intensively supervised" (page 25)\. According to the ICR the "task team prepared Aide-Memoires regularly and alerted the government and the Project Management Team (PMT) to any issues and challenges the project was facing and facilitated remedies in a timely manner, in conformity with the Bank procedures\. The Implementation Status Reports (ISRs) realistically rated the performance of the project both in terms of achievement of development objectives and project implementation"\. However, the ICR acknowledged a concern, also mentioned by the Government, that "following the transfer of the original Task Team Leader (TTL) there was a complete break in communication between the Bank and project team\. In absence of a replacement and without an interim TTL the project team could not communicate with Bank on any issues"\. This was substantial at one period in time at which the Bank changed task team leader and thereafter project management improved considerably\. Over the last few years, the "Bank task team has provided high quality implementation support to the government" (ICR, pages 25 and 70)\. Quality of Supervision Rating : Satisfactory Overall Bank Performance Rating : Moderately Satisfactory 9\. Assessment of Borrower Performance: a\. Government Performance: At the time of project preparation the Government demonstrated a high level of commitment to the project objectives\. During implementation the Minister, Secretary, and Project Director of MoAF consistently maintained their support and commitment to the project\. In addition Government officials worked closely with the Bank’s task team on a regular basis, and cooperated fully with the Bank staff\. Appropriate levels of review and approval were usually in place\. Financial accountability and follow-up was observed, and expenditures were duly authorized before they were incurred, and documentation was maintained properly for periodic review\. The project did not suffer from any counterpart funding problems, although there were delays in fund releases\. Nevertheless, the Government implemented timely corrective measures and made appropriate budget provisions (ICR, pages 6 and 26)\. Government Performance Rating Satisfactory b\. Implementing Agency Performance: This project was implemented by regular Government staff\. According to the ICR the MoAF and in particular the Project Management Team (PMT) were fully committed to the project\. The PMT was led by the same project director throughout the life of the project, which helped to ensure consistency in project leadership and institutional memory\. The project director and other Government officials regularly visited project communities and were able to streamline and strengthen implementation arrangements\. Field staff spent significant amounts of time with the communities to provide much needed guidance and support for identification, design, and implementation of project interventions\. The local political leaders, especially Geog administration heads, were also fully engaged in project implementation (ICR, page 26)\. The Government acknowledged that support from the Netherlands Development Organization (SNV) during the project's early years played a crucial role in supporting the Institutional Strengthening and Capacity Building component (ICR, page 71)\. There were, however, weaknesses in the management team's performance on financial management, procurement and M&E, even though the pressures of project management on regular Government staff are well understood\. Implementing Agency Performance Rating : Moderately Satisfactory Overall Borrower Performance Rating : Moderately Satisfactory 10\. M&E Design, Implementation, & Utilization: a\. M&E Design: The PAD stated that "Tracking overall progress of the program and the monitoring of key performance indicators for the entire program will be the responsibility of MOA/Policy and Planning Division (PPD), which will provide biannual M&E reports to the World Bank\. Capacity at the Geog level for M&E work is weak and MOA will provide capacity building for relevant staff at Dzongkhag and Geog levels and has incorporated the plans into the institutional strengthening component of the project" (page 8)\. It was envisaged that the actual design of the M&E system would "follow the existing guidelines as described in the MoA's Manual for Monitoring and Evaluation Procedures, a system that (was) being rolled out across the country for other Ministries" (ICR, page 8)\. However, the ICR stated that despite this structure for the collection of data the "project was missing baseline data"\. The ICR went on to state that "The project relied on the government system for data collection and no separate arrangements were made to regularly gather and compare productivity/yield data for project supported irrigation schemes" (page 7)\. However, M&E design had shortcomings such as the absence of baseline data and weak M&E capacity at the Geog level\. In addition data "consolidation at the central level into a comprehensive data base remained weak" (ICR, page 5)\. b\. M&E Implementation: According to the ICR focal persons (Agriculture Extension Officers) from Dzongkhag engineering sections collected the necessary data for each intervention (cost, beneficiaries, acreage, start and completion dates etc\.), its consolidation at the central level into a comprehensive database remained weak (ICR, page 7)\. However, project area-specific baselines (to facilitate an assessment of changes in agricultural production or its determinants of yield and area harvested) were not established\. In the event Dzongkhag level data from the national Agriculture Statistics for 2009 were used to provide a baseline and 2013 data represent the project results in the project area which accounted for 30 percent of all Geogs (by number) in Bhutan\. The ICR did not comment on whether this expedient could introduce a bias in the assessment changes in agricultural production\.  Since the project did not invest in all irrigation schemes in a Geog, production gains in project-financed schemes could be offset by the production losses in non-project schemes within the same Geog\. Hence in the case of paddy rice production the project-supported case-studies of very successful “project-farmers” in selected schemes of Thedtsho (Wangdue) and Sampheling (Chukha)\. See ICR, page 14\.  c\. M&E Utilization: Data collected from Geog was regularly analyzed and used for informed decision-making\. For example, data collected by the respective “Commodity Coordinators” for rice, maize and potato were used to assess the seed replacement rate and the progress made with farmers’ training and capacity building measures\. Considering the shortcomings such as lack of project-specific M&E system, relying completely on the government system of data collection and reporting, weak institutional arrangement for M&E, and lack of regular reporting, performance of M&E system is rated as moderately satisfactory\. M&E Quality Rating: Modest 11\. Other Issues a\. Safeguards: According to the PAD six safeguard policies were triggered by this project, namely an environmental assessment, natural habitats, pest management, cultural property, involuntary settlement and forests\. The ICR reported that "the project developed an environmental management framework, and each activity (safeguard issue) was screened to avoid and/or mitigate any specific environmental concerns\. The screening did not indicate any significant environmental issues"\.(ICR, page 8)\. Examples mentioned were that "No farm roads, irrigation schemes and other infrastructure supported by DRDP are located in protected areas or in a known critical natural habitat\. None of the irrigation schemes’ source stream was known as important fish habitat or migration route for protected/endangered/rare aquatic life/fishes" (ICR, page 8)\. The Government's ICR also noted, however, that the Netherlands Development Organisation (SNV Bhutan) provided considerable support by contributing to the knowledge of knowledge of engineers in the construction of environmental friendly roads during the initial years of this project\. With SNV support to Dzongkhang in preparation of site specific environmental management plans (EMPs), the district capacity to prepare these plans improved and since then EMPs were prepared for all DRDP farm roads (ICR, Annex 7, page 62)\. \. b\. Fiduciary Compliance: Financial Management (FM)\. Financial management performance was unsatisfactory in the early years of implementation because "quality and timeliness of the FMRs, funds flow related issues, cash management and disbursement of funds, limited capacity and understanding of the finance staff about the Bank’s fiduciary requirements" (ICR, page 9)\. In addition, there were delays in expenditure reporting (ICR, page 6)\. However, in later years, as a result of joint efforts by the MOA and the Bank such as "training of staff, streamlining of cash flow issues, and regulated payments to the contractors" (ICR, page 9) fiduciary performance was satisfactory\. Procurement\. The project's procurement performance was also weak initially because of officials at the Dzongkhag level did not have any experience in handling Bank procedures which led to considerable delays and in some cases rebidding\. Nevertheless, the ICR states that the Bank’s post-reviews did not identify any noticeable procedural violations, collusion or fraud and corruption issues\. This led the ICR to comment that appropriate record keeping was identified as an area requiring significant improvements (ICR, page 9)\. c\. Unintended Impacts (positive or negative): Poverty Impacts\. The ICR observed that With the availability of road/transport and ease in marketing, intensification of the production of vegetables, potatoes, maize and paddy rice it was reported that nutrition in households had improved\. DRDP had, it was claimed, also led to enhanced livelihoods for rural people and reduced poverty, especially in remote communities\. According to the Government's Impact Assessment and Project Completion report, in 2014 the annual income per households was above Nu\. 30,000 ($476) for 43\.5 percent of households, which was an increase of 354 percent compared to households with this level of income during the past six years (page 20 and Annex 7, page 69) - although the extent to which this increase was attributable to the project was not mentioned\. Benefits for Women \. The ICR reported that women accounted for 45 percent of the direct beneficiaries of the project implicitly claiming this as an achievment, although if whole families benefitted from the project then this proportion is to be expected\. On the other hand the ICR also stated that, as a result of improved transportation infrastructure, women were able to travel to nearby towns, sell their produce, and earn higher incomes\. This reduced their traditional vulnerability and gave them opportunities to open bank accounts and save\. In addition, because new schools and hostels for students have been constructed in the project areas, more girls are attending schools, although no data were provided to support this statement (ICR, pages 20 and 21)\. d\. Other: Nil 12\. Ratings: ICR IEG Review Reason for Disagreement/Comments Outcome: Satisfactory Satisfactory Risk to Development Moderate Moderate Outcome: Bank Performance: Moderately Moderately Satisfactory Satisfactory Borrower Performance : Moderately Moderately Satisfactory Satisfactory Quality of ICR: Satisfactory NOTES: - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate\. 13\. Lessons: The ICR provided a list of 18 lessons under the headings of project design, implementation, monitoring, fiduciary issues, sector issues, and on a range of technical issues\. Many of them were not lessons with potential relevance beyond the project under review, but rather conclusions on factors affecting the project's achievements or shortcomings\. The lessons that stood out from the ICR's list were as follows:  Capacity building for decentralization \. For a decentralized project like DRDP, in countries with considerable capacity constraints, institutional strengthening, streamlining of procedures and capacity building of staff on a regular basis need to be an integral part of the project design\.  Community ownership is critical for the sustainability of project infrastructure \. Existing informal mechanisms such as Water Users Associations (WUAs) and Road Users Associations (RUAs) can successfully take responsibility for infrastructure maintenance and can ensure sustainable development\.  Monitoring and evaluation is essential to a project 's design\. It is critically important for projects to create an effective monitoring and evaluation system for investments and that they be supported by baseline information and a dedicated tracking system or else project results can never be clear\.  Government systems can be used successfully \. Existing government systems and dedicated staff can establish successful and cost-effective units to manage the implementation of projects if they are backed by the immediate authority of governments to make decisions on implementation issues\. This Review adds the following lesson:  Competent and regular supervision for projects in small countries is critically important \. Small countries, by definition, have small bureaucracies which typically do not have the depth and or breadth of experience to manage project implementation according to Bank requirements\. Apart from a relatively short period of discontinuity in the presence of a task team leader which caused significant implementation problems for project stakeholders, most supervision missions were adequately staffed and thereby ensured overall effective implementation\. 14\. Assessment Recommended? Yes No 15\. Comments on Quality of ICR: The ICR was candid and comprehensive\. It made a strenuous effort to present the project's results despite the limitations of the M&E system\. The main shortcomings were inconsistencies between the narrative and data in some parts of the text, as well as the absence of adequate references to sources of key data such the analysis of estimated benefits from irrigation projects in the ICR where the only source mentioned was "comparable projects in Bhutan and elsewhere in Asia" (page 19)\. a\.Quality of ICR Rating : Satisfactory

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P005140

Document of The World Bank FOR OFFICIAL USE ONLY Report No\. 19445 IMPLEMENTATION COMPLETION REPORT THE ARAB REPUBLIC OF EGYPT THE ENGINEERING AND TECHNICAL EDUCATION PROJECT (LOAN 3137-EGT) June 18, 1999 Human Resources Group Middle East & North Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  IMPLEMENTATION COMPLETION REPORT THE ARAB REPUBLIC OF EGYPT THE ENGINEERING AND TECHNICAL EDUCATION PROJECT (LOAN 3137-EGT) CURRENCY EQUIVALENTS Currency Unit = Egyptian Pound (EP) December 1989 = EP 2\.41 December 1999 = EP 3\.41 FISCAL YEAR July 1 - June 30 ABBREVIATIONS EEDP Engineering Education Development Program ICR Implementation Completion Report JEC Industrial Education College MOE Ministry of Education MOHE Ministry of Higher Education PIU Project Implementation Unit RMC Resident Mission in Cairo SAR Staff Appraisal Report TA Technical Assistance TTDC Technical Teacher Development Center TTEDP Technical Teacher Education Development Program Vice President Kemal Dervis Country Director Khalid Ikram Sector Director Jacques Baudouy Task Manager Mae Chu Chang  FOR OFFICIAL USE ONLY IMPLEMENTATION COMPLETION REPORT THE ARAB REPUBLIC OF EGYPT THE ENGINEERING AND TECHNICAL EDUCATION PROJECT (LOAN 3137-EGT) Table of Contents Preface \.i Evaluation Summary \. \. ii PART I\. PROJECT IMPLEMENTATION ASSESSMENT 1 A\. Project Objective \. I B\. Achievement of Project Objectives \. \. 4 C\. Implementation Record \. 6 D\. Project Sustainability \. 7 E\. Bank Performance \. 8 F\. Borrower's Performance \. 8 G\. Assessment of Outcome \. 9 H\. Future Operations \. 9 I\. Key Lessons Leamed \. 10 PART II\. STATISTICAL ANNEXES 11 Table 1: Summary of Assessment \. 12 Table 2: Related Bank Loans/Credits \. 13 Table 3: Project Timetable \. \. 14 Table 4: Loan Disbursements: Cumulative Estimated and Actual \. 14 Table 5: Key Indicators for Project Implementations \. 15 Table 6: Key Indicators for Project Operations \. 17 Table 7: Studies included in the Project \. 19 Table 8: Project Costs and Financing \. 19 Table 9: Economic Costs and Benefits \. 19 Table 10: Compliance with Operational Manual Statements \. \. 19 Table 11: Status of Legal Covenants \. 20 Table 12: Bank Resources: Staff Inputs \. 23 Table 13: Bank Resources: Missions \. 24 ANNEXES: 25 1\. Aide-Memoire (May 1999) \. 26 2\. The Operational Plan for the Project \. 30 3\. Borrower's Report This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. its contents may not otherwise be disclosed without World Bank authorization\.  IMPLEMENTATION COMPLETION REPORT THE ARAB REPUBLIC OF EGYPT THE ENGINEERING AND TECHNICAL EDUCATION PROJECT (LOAN 3137-EGT) PREFACE 1\. This is the Implementation Completion Report (ICR) for the Engineering and Technical Education Project to the Arab Republic of Egypt, for which Loan 3137 in the amount of $30\.5 million was approved on December 5, 1989 and made effective on June 5, 1991\. The Loan closed on December 31,1998, thirty months after the original closing date of June 30, 1996, to allow for the completion of procurement and technical assistance activities\. An undisbursed balance of US$0\.9 million will be cancelled when remaining payments have been made\. 2\. The ICR was prepared by a task team' led by Ms\. Mae Chu Chang, Principal Educator in the Human Development Group of the Middle East and North Africa Region (MNSHD), and was reviewed by Mr\. Jacques Baudouy, Director, MNSHD, and Ms\. Marlaine Lockheed, Education Manger, MNSHD\. Preparation of the ICR began during the last supervision mission of the project in December 1998, and is based on material in the project file, discussions with the Borrower and information collected during the last supervision and the completion mission\. The Borrower contributed to the preparation of the ICR with its own evaluation of the Project's execution (see Annex 3) and commented on the draft ICR\. The team included Messrs\. Joseph W\.B\. Bredie, Senior Education Specialist (AFTH4); Mahmoud Gamal El Din (RMC); Sam Mikhail, Consultant Technical Education Specialist; Ms\. Patricia Maughan, Consultant Implementation Specialist, and Ms\. Nadia Roumani (Editor)\. i  EVALUATION SUMMARY Introduction 1\. The Engineering and Technical Education Project was supported by a Loan in the amount of US$ 30\.5 million\. The Government was to finance the remaining US$ 8\.1 million of the total estimated cost of US$ 38\.6 million\. The final cost wasUS$ 38\.9 million\. The Loan closed on December 31, 1998\. The total disbursement was US$ 29\.6 million\. The remaining balance of US$ 0\.9 million will be cancelled\. Project Objectives * Improve the quality and occupational relevance of engineering education in Egyptian universities, by (i) upgrading the curriculum to international standards; (ii) providing instructional materials to support the new curricula; (iii) upgrading laboratories and installing state-of-the-art equipment; (iv) strengthening links with industry\. * Improve the quality of secondary technical education, by (i) developing a new integrated pre-service teacher education program; (ii) upgrading the quality of technical teachers through in-serve training; (iii) improving technical teacher education\. Implementation Experience and Results 2\. The Project achieved most of its objectives albeit with some delays\. The engineering programs' quality improved substantially and a new type of technical teacher has been trained for the technical secondary schools\. Overall, the Project is rated as satisfactory\. Improve the quality and occupational relevance of engineering education\. 3\. Most of this component's targets have been achieved and the overall outcome is satisfactory\. (i) Upgrading the curriculum to international standards\. At this time, more than 55% of basic engineering and engineering science courses meet quality standards as assessed by a team of international consultants\. Plans to upgrade the other courses during the operational phase of the Project have been prepared by the Borrower\. As part of the curriculum upgrading, laboratory work has been integrated and lab manuals have been produced for more than 70% of the laboratories\. To maintain quality, pilot quality assessments have been completed for the electronics, mechanical and civil engineering programs\. Quality assessments for the other programs are scheduled during the operational phase\. (ii) Providing instructional materials to support the new curriculum\. A multimedia pilot course in fluid mechanics and aerodynamics has been developed successfully\. In addition, a library network of engineering documents has been established and all engineering colleges are now electronically linked to this library\. Also, more than 40% of the faculty participated in the curriculum upgrading, multimedia and engineering library projects\. (iii) Upgrading laboratories and install state-of-the-art equipment\. One hundred fifty nine laboratories were upgraded and state of the art equipment installed in all eighteen engineering faculties\. Specific maintenance programs were also put in place to ensure that the new equipment will be kept in good condition for the longest possible utilization period\. (iv) Strengthening links with industry\. Industry representatives participated in the curriculum committees to ensure that training programs were relevant for industry\. Also, students developed about fifty projects with significant industry links\. 11  Improving the quality of secondary and post secondary technical education 4\. The objective of this component has been achieved in the narrow sense of creating a supply of quality teachers\. Within this narrow definition, the component is judged satisfactory\. (i) Developing a new pre-service integrated teacher education program; Two teacher training schools have been transformed into Industrial Education Colleges (IECs) Kubba and Beni-Suef\. Ten new industrial teacher education programs have been developed\. Facilities at the IECs have been upgraded and equipment procured and installecd Since 1993, the IECs have graduated 1413 new type theory-cum-practice teachers\. In addition, twenty-two faculty received teacher education training in Holland\. Nine more are currently following the same program and six are enrolled in a PH\.D program in the U\.K\. (ii) Upgrading the quality of technical teachers through in-service training\. Since 1993, 325 practical subject teachers completed their in-service education at the Kubba IEC\. (iii) Strengthening technical teacher education\. The Project upgraded the quality and teaching experience of about two-thirds of the teachers in the Intermediate Technical Institutes, and established Technical Teacher Development Centers (TTDCs) at the two IECs\. Implementation Record and Major Factors Affecting the Project 5\. Project implementation was slow at the beginning and the first Project Implementation Unit (PIU), comprising part-time university professors, had to be reconstituted in 1992\. After reconstitution, the PIU team functioned well although the slow start delayed civil works and procurement substantially\. The Government's delay in phasing out enrollment at the Kubba technical secondary school, necessary for it to be transformed into an IEC, further delayed civil work and procurement\. Also, the delivery of laboratory equipment was considerably slower than planned\. There were many different suppliers for each laboratory, as a result of the evaluation committee's decision to award contracts to the lowest evaluated bidder based on price rather than complete equipment packages for each lab\. Managing the many suppliers took a lot of time and required that the university staff had to assist in receiving equipment and organizing the lab\. This in turn caused considerable delays as many professors and technicians were reluctant to assume such responsibility\. The slow start-up and many procurement delays made it necessary to extend the closing date three times\. Project Sustainability 6\. The quality improvements in engineering education are most likely sustainable\. The engineering faculties are gradually extending the assessment of curriculum standards to more programs\. Also, the involvement of industry representatives in curriculum development is continuing\. The engineering faculties are planning to develop a program accreditation with industry\. The library network is working well and the demand for curriculum materials from faculty is growing\. The equipment maintenance programs, installed in all upgraded laboratories, are helping to sustain the physical improvements brought about in the laboratories and equipment\. 7\. The improvements in the quality of technical secondary schools teachers are also sustainable\. There is a demand for the new teachers\. The two pilot IECs with their upgraded faculty and facilities will make it possible to meet the bulk of this demand\. The Government has already established a third IEC at the Suez Canal University\. With donor assistance, the Government is planning to transform three more technical schools located respectively in Alexandria, Zagazig and Aswan, into IECs\. The faculty trained in the Netherlands are dynamic and resourceful and are pushing for further curricula improvements and stronger links with other schools and industry\. Finally, the demand for the in-service teacher training course at theKubba iii  IEC is high and many practical subject teachers are eager to obtain a Bachelor of Arts Degree in Industrial Education\. Bank Performance 8\. The Bank's role in preparing a Project with several innovative design components was satisfactory\. The Project introduced a competitive grants program into Egypt for the first time, successfully upgrading the quality of engineering education\. Engineering faculties competed for grants by submitting the best possible curriculum, staff and facilities improvement program as judged by peers and industry specialists on the basis of quality and relevance criteria\. Also, requiring that maintenance programs and resources be put in place as a condition for equipment procurement was effective\. The design team did not, however, anticipate and make sufficient preparation for the complexities of managing the procurement of a large number of equipment packages by an implementation unit that was unfamiliar with Bank procurement guidelines and procedures\. The complexities of the Egyptian custom regulations were another stumbling block that had been overlooked by the design team\. It was assumed that the equipment for the Project would be exempt from taxes and customs duties\. However, special arrangements were necessary, such as those implemented for UNESCO projects\. The Bank's supervision effort was satisfactory, although weak with regards to procurement management in the beginning\. After the slow start, the procurement process was expedited by the Resident Mission in Cairo which helped to review and process contracts\. However, Bank supervision teams were limited in their ability to assist the PIU team improve disbursement performance which was very slow, particularly with regard to the payment of retention fees to suppliers\. Borrower Performance 9\. Borrower performance was satisfactory during preparation and appraisal\. The Borrower team, in particular the Minister and his advisors, were highly proactive and constructive during preparation\. However, the Borrower was responsible for some of the implementation delays\. Delays were caused by several factors\. Lengthy customs clearance procedures, particularly the procedure for obtaining tax exemption for equipment, caused considerable delays\. Also, the lack of effective communications with presidents of universities, deans, and heads of sections in the faculties of engineering slowed down implementation\. Moreover, the universities did not have suitable procedures in place to receive goods and equipment which in turn delayed payment to suppliers\. Several of these issues were resolved during the implementation of the Project\. Also, as a result of pro-active planning between the PIU and the officials during the last two years, customs clearance delays have been reduced\. Overall, the Borrower was committed to the Project\. This is shown by the fact that the Borrower provided funds to finance additional facilities at the IECs and escalations in construction costs\. Assessment of Outcome 10\. The impact of the Project on the quality of engineering education and technical teacher education programs is positive and substantial\. Engineering courses are up to international standards according to the foreign advisors consulted, and industry representatives have helped emphasize applied engineering practices\. Quality assurance procedures have been developed and once installed will help to sustain course quality\. The need to make engineering education more relevant to Egypt's manufacturing and services sectors remains high, and the procedures to accomplish this goal have been established under the Project\. Evidence that this has been accomplished will be collected through tracer studies during the operational phase\. Furthermore, quality assurances procedures will become a permanent part of engineering programs during the iv  operational phase\. The theory-cum-practice teachers for secondary technical and post-secondary intermediate technical institutes are in demand and are helping to integrate theory and practice classes in these schools\. However, a comprehensive improvement in the quality of technical secondary schools would still require a total and comprehensive reform of these schools\. Summary of Findings, Future Operations, and Key Lessons Learned Summary of Findings 11\. In spite of the slow pace of disbursements due in part to complex procurement arrangements, the Project has made a substantial and positive impact on engineering education programs in Egypt\. Much of the success was due to the effective competitive grants program\. With regard to the objective of improving secondary and post-secondary technical education, the lECs developed under the Project have such a positive impact on the quality of technical teachers that the Government has already established one more IEC at Suez Canal University and plans to establish three more IECs\. Also, the in-service training program at the Kubba IEC is in great demand\. In addition to the IECs, six training centers have been established in the new industrial cities in support of technical education under the Mubarak-Kohl initiative\. Future Operations 12\. The Borrower plans to complete the Computer Network of Engineering Libraries and Engineering Education Database to connect all universities\. The best courseware and laboratory manuals developed under the Project will be disseminated to participating engineering colleges\. It plans to install quality assurance and accreditation in engineering education\. In technical teacher education, the Borrower plans to move the IECs to universities to give them more academic freedom and autonomy, making it easier to adapt teacher education to changing demand and upgrade pre and in-service programs\. It also wants to convert three more intermediate technical institutes into IECs to meet the demand for integrated practice-cum-theory teachers\. Key Lessons Learned\. 13\. The main lessons from the Project's implementation experience are: (a) The competitive grants program used for the engineering education programs proved to be an effective mechanism to bring about quality improvements in universities\. The program required the universities to compete for funds\. The competitive element spurred Universities to come-up with the best possible proposal\. The participatory process of peer reviews also led to a common practice of sharing lessons from experience among faculty members\. (b) The Bank must ensure that government regulations are not in conflict with the procedures for implementing project activities and that joint planning with Government concerned entities (PIU, custom and sales tax departments) are completed during the preparation period\. While the Bank's legal agreement stated that project-financed equipment are exempt from government taxes, the preparation team did not examine the complex procedural requirements to obtain such exemption nor planned for the considerable time it took to prepare the necessary paperwork\. (c) Project start up was delayed due to lack of financing for Project activities prior to effectiveness\. Since the Government does not want to borrow for Project Preparation Facilities, it is necessary to obtain grants to finance preparation activities\. A key start-up activity that should be financed is the recruitment of qualified project implementation staff\. v  (d) The lesson that Government procurement methods should be reviewed and discussed prior to effectiveness and Bank Standard Bidding Documents used in all Bank-financed procurement activities supports the recent decision by the World Bank to require a detailed procurement plan and manual prior to effectiveness\. The World Bank now requires a detailed procurement plan and an implementation manual spelling out implementation and procurement procedures prior to project effectiveness\. In the case of the Project, Government procurement procedures should have been reviewed and aligned with Bank procedures prior to the implementation of procurement activities which would have minimize the delays experienced\. (e) The Project objectives were clear and consistent with the Government strategy for improving engineering and technical education\. Projects that are well situated within a broader strategy of reform owned by the Government can be a catalyst and lead to a full reform program\. The Project has turned out to be a catalyst for reform\. A secondary education reform has already begun under a Bank-assisted Secondary Education Enhancement Project which also include technical secondary schools\. Reforms of industrial training and higher education are being planned by the Government and Donors\. (f) A full time project management team is key to a project's success and timely implementation\. vi  IMPLEMENTATION COMPLETION REPORT THE ARAB REPUBLIC OF EGYPT THE ENGINEERING AND TECHNICAL EDUCATION PROJECT LOAN 3137-EGT PART I - PROJECT IMPLEMENTATION ASSESSMENT A\. PROJECT OBJECTIVES INTRODUCTION 1\. In early 1988, when the Engineering and Technical Education Project was prepared, Egypt's economy was slowing down\. To stimulate growth, the Government embarked on a structural adjustment program aimed at raising production by expanding and modernizing the private sector's productive capacity\. However, with half of the labor force unable to read or write and less than 10 percent trained in technical and scientific skills, modernizing production needed to be accompanied by investments in education\. 2\. Earlier education investments enabled almost 90 percent of Egypt's children to attend six years of basic education\. About 82 percent of the age cohort attended the two years intermediary and 53 percent the three years secondary\. Less than 25 percent participated in higher education which ranged from two to five years in duration\. Vocational training was available in intermediary, and technical education in secondary schools\. More than 60% of secondary students were streamed into technical education\. Only students who completed general secondary had access to universities\. Post-secondary institutions produced middle-level and university higher- level professionals\. Less than 14 percent of university students enrolled in science and engineering\. 3\. Although education expansion has accelerated in the last decade, quality and efficiency had fallen at all levels\. While the system produced more graduates every year, the relevance of many secondary, and university programs to the needs of the economy was poor\. For instance, a 1988 labor market survey indicated that there was no shortage of technical school graduates and university trained engineers, but that enterprises were looking for more practically-oriented technicians and engineers not then produced by the education system\. 4\. In 1988, to respond to this situation, the Ministry of Higher Education (MOHE) decided to: (a) improve the balance between theory and practice in engineering education by increasing the emphasis on practical industry-relevant exercises and project-work; (b) decrease enrollments in engineering faculties to reduce overcrowding; and (c) introduce charges for special classes to complement public funds\. The Government proposed to upgrade laboratories in engineering faculties to facilitate practical experiments with industrial application\. To improve quality in vocational training and technical education, the Government planned to: (a) provide better qualified teachers in sufficient numbers; (b) reform the curricula; and (c) upgrade facilities and equipment\. Technical teachers would be trained in both theory and practical skills in a new type of college - Industrial Education Colleges (IECs) - created by merging the five-year teacher 1  training schools and university departments of industrial training\. The IECs would also provide in-service teacher training and support teacher education development\. PROJECT OBJECTIVES AND DESCRIPTION 5\. The main goal of the Project was to support the Government's 1988 strategy for improving the engineering and technical education sectors\. The objectives were to: (a) improve the quality and occupational relevance of engineering education in Egyptian universities; and (b) improve the quality of secondary and post secondary technical education by supporting the creation of the IECs to meet the demand for better prepared and qualified technical teachers\. To accomplish these objective, the project was designed to include two components: (a) an Engineering Education Development Program (EEDP) to upgrade facilities, laboratory equipment, instructional materials, and provide technical assistance to move existing university engineering faculties toward a more applied orientation through stronger linkages with industry, more relevant curricula and better qualified teaching staff; and (b) a Technical Teacher Education Development Program (TTEDP) to provide instructional equipment and technical assistance to initiate a new and reformed system for the professional preparation of high quality, theory-cum-practice teachers, to serve the secondary and post-secondary technical schools and institutes through the establishment of two new technical teacher training colleges\. Improve the quality and occupational relevance of engineering education: The EEDP Component 6\. Engineering education was to be improved by: (a) upgrading the curricula to international standards; (b) providing instructional materials to support the new curriculum; (3) upgrading laboratories and installing state-of-the-art equipment; and (4) strengthening links with industry\. 7\. Upgrading the curricula to international standards\. The Project would financed: (a) the introduction of quality assessment of engineering programs\. The first step would involve developing a procedure for assessing the quality of each program by the faculty (self-assessment)\. The second step was to develop quality standards for science and engineering science courses and compile a computer-based data-base on these courses\. The third step was to develop model curricula that met international standards\. These model curricula would integrate theory and laboratory experimentation; (b) improving the efficiency and effectiveness of delivering engineering programs\. This would include the strengthening of management capacity of faculty, administrators and support staff through team work\. In addition, a number of faculty were to benefit from formal or informal qualifications upgrading\. 8\. Provide instructional materials to support the curriculum\. The Project would support the establishment of a computerized network for engineering libraries to facilitate the use of library resources among all engineering schools\. Laboratory manuals were to be developed for the practical classes\. Also, a number of multi-media projects were to be developed to bring together the instructional materials for faculty teaching and student learning in one computer- based package\. 9\. Upgrade laboratories and install state-of-the-art equipment\. The Project would finance the refurbishing of laboratories on the basis of competitive proposals produced by the faculty and reviewed by peer committees\. Comprehensive proposals were to be submitted setting- out how the faculty planned to improve the curricula to meet requirements of industry, select and 2  procure the instructional materials and equipment necessary to implement the curricula, and upgrade the competencies of teachers to be able to teach the improved curricula\. Peer committees including representatives from industry, would select proposals on the basis of a comparative assessment of the quality of every aspects of the proposals and the commitment of faculty to implement it\. Only proposals that would meet stringent criteria for faculty, curricula, and laboratory utilization and maintenance, would be financed\. The Project would also finance the procurement of equipment for the refurbished laboratories, again on the basis of competitive proposals prepared by faculty and reviewed by peers that met standard criteria for utilization and maintenance\. 10\. Strengthen links with industry\. The Project would support faculty secondment to industry, and the provision of engineering education specialists for staff and curriculum development\. It would also facilitate the participation of industry representatives in curriculum committees and the preparation of student projects with industrial applications\. Improve the quality of secondary and post-secondary technical education: The TTEDP Component 11\. Secondary technical education was to be improved by: (a) developing a new pre-service integrated teacher education program; (b) upgrading the quality of technical teachers through in- service training; and (c) strengthening technical teacher education\. 12\. Develop a new pre-service integrated teacher education program\. The Project would support the transformation of two, five-year teacher training schools into Industrial Education Colleges (IECs)\. This would include upgrading faculty, programs and facilities, particularly laboratories, and procuring instructional equipment\. A new teacher education program that integrated the teaching of theory and practical classes for the same subject was to be developed at the IECs\. IEC faculty were to be upgraded both in-country and abroad\. Instructional materials for new pre- and in-service courses would be developed and supplied\. 13\. Upgrade the quality of technical teachers through in-service training\. The Project would support the development of an in-service teacher education program at the lECs based on the analysis of the needs of practicing teachers\. The program, to be developed by local and foreign teacher education specialists, would aim to upgrade the skills and knowledge of practicing teachers to the new pre-service program standards\. 14\. Strengthening technical teacher education\. The Project would support programs in institutional management for inspectors, and professional support for curriculum and instructional materials development\. It would support strengthening links between industry and the IECs\. 15\. The objectives were clear and consistent with the Government's 1988 strategy for improving engineering and technical education\. All eighteen engineering faculties would participate in efforts to upgrade the curricula\. The participation of industry representatives in the Project would help assure the occupational relevance of the new curricula and that of international consultants would help bring the curricula in line with international standards\. Improving technical secondary education was also an economic priority\. At the time of appraisal, graduates faced difficulties in finding jobs, because of the stagnant economy and the poor quality of their skills\. Upgrading the quality of these schools and thereby improving the absorption of graduates in the labor market was a high priority\. The Project was designed to address this priority\. 3  B\. ACHIEVEMENT OF PROJECT OBJECTIVES 16\. The overall objectives of the Project have been largely achieved, and the Project is, therefore, rated satisfactory\. It has helped to produce more practically oriented engineers, and technical teachers who can teach the theory as well as the practical classes in their area of competence\. Tracer studies are planned, but currently it is too early to measure the overall impact of the Project on the quality and occupational relevance of engineering education and on the quality of technical secondary education\. Initial feedback from engineering graduates is positive, but there is no systematic feedback from employers to suggest that the recent graduates have contributed to productivity improvements in the economy\. The technical teachers produced under the Project, with instructional competence in both theory and practice, are beginning to bring about a positive change in the teaching in technical schools\. There is some incidental evidence of this from several school principals\. Also, the reputation of the new teachers among their colleagues is good as is evident from the demand for access to the program by practicing and aspiring teachers\. However, technical secondary schools continue to face other problems such as overcrowding, inadequate facilities, irrelevant curricula and low efficiency - problems the new teachers cannot solve by themselves\. Despite the positive contributions of the Project, focussing specifically on improving teacher quality, a more comprehensive education reform is necessary\. Improve the quality and occupational relevance of engineering education\. 17\. Upgrade the curricula to international standards\. The achievement of this objective, which aimed to redesign the structure of the engineering program to meet prevailing international standards for content and theory-practical balance, was satisfactory\. Ten basic engineering and engineering science courses have been surveyed, analyzed and documented\. Model courses based on typical international standards have been developed and shared among the participating universities\. The model courses integrate theory with practical experiments in the laboratories\. The universities where the courses are currently offered find that students are more in touch with typical engineering problems commonly faced by engineering firms than before\. The students are also more keen to become involved in real-life engineering issues and applications\. In addition, the analysis of course content done under the Project made it possible to specify textbooks and relevant courseware, and select the proper equipment for the laboratory experiments\. To maintain the quality of the curriculum, a system of quality audits for engineering programs was developed and tested\. The system used self-assessment followed by peer review\. The pilot assessment of two programs was successful, and the first of its kind in Egypt\. The participating universities are discussing the possibility of instituting the system in all faculties\. They are also looking at the system as a basis for an engineering education accreditation system\. 18\. Provide instructional materials to support the curriculum\. Databases were developed of: (a) all basic and engineering science courses in the participating universities; and (b) all other courses (old and new) which include the use of science laboratories\. The data base includes specifications for textbooks and courseware for each of the courses\. A new electronic library system has been established and it facilitates the cataloging and sharing of library resources among all engineering schools in Egypt\. The data base provides details about all documentation available for the courses developed under the Project\. The peer reviewers who evaluated the courses and the supporting documentation found a marked improvement in the quality and relevance of the instructional materials compared to materials used before\. They also found that many faculty members accessed the data bases on a regular basis to develop their lesson plans and improve their teaching\. In addition, the Project financed the development of a successful computer and multimedia-based course in fluid mechanics and aerodynamics\. The course was tested and evaluated by outside experts and will be disseminated to all engineering colleges\. 4  19\. Upgrade laboratories and install state-of-the-art equipment\. One hundred and fifty nine new laboratories were established with an average overall cost of about US$100,000 per lab\. The labs were selected by committees comprising more than 180 university and industry experts\. All physical spaces had to be refurbished as a precondition for installing the labs\. State-of-the-art equipment, carefully selected on the basis of the analysis of curriculum requirements, were purchased and installed in these labs\. All equipment was entered into a comprehensive engineering equipment database which has become a useful planning tool for engineering institutions in Egypt\. The colleges entered into equipment maintenance contracts, trained maintenance technicians and secured long-term equipment guarantees as a precondition for obtaining equipment\. 20\. Strengthen links with industry\. Faculties that received support under the Project provided evidence of the relevance of the competencies to be acquired through their new courses to the needs of industry\. Representatives from industry participated for five years in project committees to develop course standards that are relevant to industrial practices\. In addition, the Project supported fifty student projects developed together with industry\. Improving the quality of secondary andpost-secondary technical education\. 21\. Developing a new pre-service integrated teacher education program\. The program was established at the Kubba and Beni Suef IECs\. Industrial education programs in ten subject areas were developed by specialist committees\. They combine general education subjects, all subjects related to a specific industrial technology area, education theory, and teaching practices\. The programs are based on a 1992 expert study of in-service teacher training programs\. They were evaluated by experts from the Bolton Institute of Higher Education of the U\.K\. The laboratory facilities at the IECs were upgraded to meet the requirements of the new curricula and are now considered the best among technical teacher institutions in Egypt\. Twenty-two new IEC faculty graduated from a customized Master of Arts program in technical education in the Netherlands\. Nine more are currently enrolled in this program, and six are following a Ph\.D\. Program in the U\.K\. Since 1993, when the new program became operational, the IECs have graduated 1413 new type theory-cum-practice teachers for secondary technical schools\. The graduates have been well received, and demand for these teachers is high\. 22\. Upgrading the quality of technical teachers through in-serve training\. Both IECs have established technical teacher development centers (TTDCs) offering teacher training for teachers of the intermediate and higher technical institutes and for trainers from industry\. TheTTDCs use the same laboratories and trained faculty that are used for the teaching of in-service teachers, with good results\. Since 1993, the Kubba IEC-TTDC has graduated 325 practical subject teachers\. 23\. Strengthening technical teacher education\. The TTDCs have become the focal point of technical teacher education\. Committees comprising teacher educators, inspectors and industry representatives meet regularly at the TTDCs to advise on program development, technical school management, and inspection procedures and standards\. The committees also work on projects to develop educational technologies for laboratory and workshop classes\. The committees organize practice teaching assignments for teacher trainees in neighboring technical secondary schools, and stages in participating industries\. A British Council organized study tour to the UK and North American allowed IEC faculty to learn about institutional models and strategies in industrial education and discuss potential twinning arrangements with overseas institutions\. 5  C\. IMPLEMENTATIONRECORD AND MAJOR FACTORSAFFECTING THE PROJECT 24\. Project implementation had a very slow start and the Project had to be extended three times\. Several factors contributed to the slow implementation including (i) a weak first project implementation unit (PIU); (ii) delays with the establishment of the special account; and, (iii) delays with procurement\. On the other hand, technical assistance was used effectively during implementation and audits were conducted on time\. 25\. The original Project Implementation Unit (PIU) was composed of university professors working part-time on the Project as well as on the African Development Bank's Technical Education Project\. The professors could not dedicate sufficient time to get the Project started and the PIU had to be disbanded\. A new PIU team made-up of a three member executive committee comprising the PIU Director and two component Directors, was established by Ministerial Decree on February 22, 1992\. In addition, procurement and financial staff were recruited, employed and trained at the Bank's Resident Mission in Cairo and at the ILO training center in Turin, Italy\. Two PIU staff were trained in computerized data base management\. Project implementation accelerated markedly as a result of the employment and training of the new PIU staff as is substantiated in the Borrowers' report (Annex 3)\. It took, however, at least another year to overcome the initial delays and get used to the Bank's procurement and financial procedures\. 26\. The Special Account for the loan was set up, but the transfer of the first deposit by the World Bank was completed only in June 1992, due to the change in the PIU team\. The delay in funding first-year project activities retarded the progress of implementation considerably\. A project preparation facility, which is not acceptable under Egyptian Law, would have allowed financing of start-up activities until project funding would have become available\. 27\. Procurement procedures satisfactory to the Government and the Bank were not fully established when the Project became effective\. Progress with procurement improved when the Resident Mission in Cairo (RMC) was established and staffed with procurement specialists who reviewed and cleared bidding documents\. However, delays were still encountered because suppliers took much longer to deliver the equipment than was planned\. There were many different suppliers for each laboratory as a result of the evaluation committee's decision to award contracts to the lowest evaluated bidder based on price rather than complete packages for each lab\. Managing the many suppliers took a lot of time and effort and required that the university staff had to assist in receiving the equipment and organizing the lab\. This in turn caused considerable delays as many professors and technicians were reluctant to assume such responsibility\. Additional delays were caused by the time needed to obtain Government approval for the leasing of telecommunication channels for the library network\. 28\. Technical Assistance was used effectively to achieve the Project objectives\. In the early stages of the Project, the British Council organized a study tour to engineering and technical education institutions in the UK and U\.S\.A\. The tour focused on studying institutional models and strategies for industrial education\. The participants also assessed opportunities for twinning arrangements with institutions in these countries\. International experts were utilized to undertake a study of in-service teacher training program suitable for Egypt\. The study was completed in October 1992\. Over 700 Egyptian experts from the private and public sectors have been contracted to participate in the various committees of the EEDP\. They have completed assignments during all phases of the Project, including the assessment and selection of successful proposals under the competitive grant program for engineering labs\. More than 160 Egyptian experts from the engineering faculties of Egyptian universities as well as from the private sector were contracted to design the curricula for the IECs comprising 180 courses in ten disciplines 6  (Electrical Engineering; Electronics; Process Control; Refrigeration and Air Conditioning; Production Technologies; Precision Mechanical Engineering; Automotive; Civil Construction; and, Building Construction Technologies)\. Each curriculum included courses in technological skills, technological foundations, industrial specializations, general education, and education methods\. The Bolton Institute of Higher Education, contracted to evaluate the curricula, found that it corresponded to international standards of quality and relevance\. 29\. Audit and Progress Reporting were up-to-date and of good quality\. Compliance with loan covenants was delayed (Annex Table 11) in many instances, but all covenants were met well before the Project closed\. D\. PROJECT SUSTAINABILITY 30\. The improvements in engineering education are sustainable\. For technical education, the supply of better qualified teachers through the IECs is also sustainable\. With increasing international competitiveness, and slow productivity improvements in the economy, the Government is committed to sustain the improvements in the quality of engineers and technicians\. This will be accomplished as part of a comprehensive program the Government has embarked upon to raise the quality of the labor force through improvements in education at all levels\. At the universities, this program is likely to build on the quality improvements accomplished under the Project, not just sustain them\. In the technical schools on the other hand, further improvements will require major policy changes that would facilitate the phasing out of low quality secondary technical schools that have littlerelevance to Egypt's economic needs, and transforming these schools into general secondary schools\. The new World Bank-assisted Secondary Education Enhancement Project (Cr\. 3194) has begun to address this policy\. 31\. The physical improvements of the laboratory facilities and equipment can be sustained because the Project helped establish maintenance programs and resources\. The improvements in the engineering programs are also likely to be sustained\. Programs developed under the Project had to demonstrate relevance to the needs of industry and program committees now include industry representatives who make sure that the program reflects the industry's changing needs\. In addition, the Project supported the development of quality assurance systems for engineering programs including quality self-assessment\. The system was tested on engineering programs in three different engineering colleges\. The results were good and have been disseminated to all other engineering colleges\. Quality assurance systems are likely to be introduced in all colleges in the near future\. 32\. The IECs established under the Project will be sustained\. The IECs are planning to obtain MOHE concurrence to recruit full-time faculty\. IEC management expects that this would improve the quality of the teaching further\. The IECs previously relied mostly on seconded or retired university faculty to teach the bulk of the programs, which is considered a second best solution\. The equipment procured under the Project for the IECs is the best available in technical education\. Moreover, the young faculty members who have been trained under the project- funded contract with the Eindhoven University in the Netherlands seem enthusiastic and willing to push for further changes at the IECs\. Three additional IECs are being planned in Alexandria, Zagazig and Aswan and funding for them is expected from donor organizations\. The in-service training program at the Kubba IEC is in great demand\. 7  E\. BANK PERFORMANCE 33\. The Bank's performance was satisfactory during the design, appraisal and implementation phases\. The Bank's design of the competitive grants procedures and peer review of proposals worked well\. Also, the Bank's insistence on proper arrangements and resources for the maintenance of the laboratories and equipment is paying-off\. The Bank's supervision efforts were satisfactory, although not fully effective in keeping Loan disbursement at a satisfactory level\. Although it was not required at the time to have detailed procurement arrangements in place, the Bank team did not fully anticipate at appraisal the complexities and magnitude of the procurement for the many institutions involved in the Project\. As a result, delays occurred particularly in the first two years of implementation\. 34\. The Project was complex, involving many institutions and required a very large number of equipment procurement contracts according to rules that were unfamiliar to the institutions and the government agencies\. Moreover, the management structure proposed for the Project in the Staff Appraisal Report identified a coordinator for each project component, but not an overall administrator\. This caused confusion when the second PIU team was selected, as the three persons identified for managing the two components and the Project as a whole, were of equal professional stature\. It took some time during the early stages of the Project to come-up with acceptable arrangements that ensured that neither would have more authority than the other\. Good collaboration between the Bank's supervision team and the PIU team eventually solved the problem\. F\. BORROWER PERFORMANCE 35\. Borrower performance was satisfactory during preparation and appraisal\. However, during implementation the Project did experience serious difficulties during the first year and a half\. The Govemment team, in particular the Minister2 and his advisor, ensured that the second PIU team was of the a suitable caliber and committed to the task at hand\. However, the MOHE did not provide adequate assistance to ensure prompt and satisfactory acceptance of goods from the suppliers to the faculties of engineering\. Procurement and loan disbursement were delayed in part because of inadequate controls and oversight by the responsible ministries\. The university administrations were also ineffective in making arrangements to receive the equipment\. This was left up to the Deans of the faculties of engineering, some of whom had not been involved in the selection of the equipment, and were reluctant to receive the goods for various reasons\. 36\. The PIU was initially unfamiliar with procedures for exemption from taxes and duties for equipment and goods to be procured under the Project\. This caused substantial delays as the PIU was unable to process goods through customs\. The situation improved in the last two years when the PIU streamlined the preparation of paperwork necessary for each shipment\. The Government failed to phase-out enrollment as planned at the Kubba IEC, causing the subsequent delay in construction at the College\. Nevertheless, Borrower commitment to the Project was sound\. The Government provided the necessary counterpart funds and paid for the construction of additional workshops, laboratories and auditoriums to accommodate the higher than planned intake of students at the IECs\. 2 tn the early stages of project development, the Ministry of Higher Education (MOHE) and the Ministry of Education (MOE) were administered by the same Minister\. Later on in the project's implementation phase, a new minister was selected to manage the MOHE and the Project was transferred to that Ministry\. 8  G\. ASSESSMENT OF OUTCOME 37\. Overall the Project has had a substantial impact on the quality and relevance of engineering education, but only a limited impact on secondary technical schools\. At the eighteen participating engineering faculties, the occupational relevance of the majority of the engineering programs improved and the programs now correspond to international standards\. There is no evidence yet to show that the program quality improvements have translated into better labor market absorption of graduates or better paying jobs\. That evidence needs to be collected through tracer studies which are planned during the operational phase\. Thus, it is too early to measure the impact on the productive capacity of the economy, the ultimate goal of the Project\. A positive impact of the Project is that engineering faculty standards and morale improved considerably as a result of the competitive grants program\. Faculty members have met several times, and networked extensively, creating an esprit du corps\. The equipment and instruments installed in the 159 new laboratories enable students to learn the essential applied or experimental side of their engineering profession - a lasting contribution of the Project\. Finally, the Government has already made a commitment to build upon the Project's accomplishments and undertake a broader more comprehensive program to improve the quality and relevance of higher education with the support of the World Bank and other Donors\. 38\. The original Project objective of training teachers and improving secondary technical education in the given period of time was unrealistic\. The Project's time period was only sufficient to train a relatively small group of teachers adequately\. It is unlikely that these better educated teachers by themselves could bring about the expected quality improvements in secondary technical education\. Several subsequent phases will be necessary to accomplish an overall improvement of secondary education\. However, the impact on technical teacher education is positive\. The capacity to train technical teachers improved substantially with the establishment of the two IECs\. Through the Project, these institutions acquired the facilities, staff, programs and equipment to produce annually 375 new teachers that can teach theory and practical classes as well as about 100 in-service teachers\. Both these type of teachers have a well-rounded education and can possibly facilitate quality learning by students\. In addition, theTTDCs and the IECs are providing a constant stream of inputs to improve teaching standards, and the quality and relevance of technical education\. However, as noted earlier, only drastic policy measures leading to the closure or transformation of the many inadequate secondary technical schools can bring about the Project's goal of quality improvements in secondary education\. H\. FUTURE OPERATIONS 39\. In January 1998, President Mubarak established four committees to devise a national strategy for reform in education, training and scientific research\. With regard to planning for the Project's operational phase, a detailed plan has been prepared which proposes the following operations: (a) undertaking a comprehensive evaluation of the outcome and impact of the Project in terms of its labor market and economic and social impact and benefits; (b) completing the operation and functioning of the Computer Network of Engineering Libraries; (c) expanding the coverage and the usefulness of the Engineering Education Database; (d) continuing the development of detailed and comprehensive laboratory manuals and experiments to complement the IEC curricula; (e) continuing the production and dissemination of the best courseware and laboratory manuals among participating engineering colleges; (f) continuing the periodic review, upgrading and evaluation of IECs' programs and curricula; (g) establishing and testing a revenue- 9  generating technical teacher and instructor training program for private training centers and industry; and (h) setting into motion a continuous upgrading and renewal of teacher education programs at the Technical Teachers Development Centers\. I\. KEY LESSONS LEARNED 40\. Project implementation provided valuable lessons, the most pertinent ones are the following: (a) The competitive grants program used for the engineering education programs proved to be an effective mechanism to bring about quality improvements in universities\. The program required the universities to compete for funds\. The competitive element spurred Universities to come-up with the best possible proposal\. The participatory process of peer reviews also led to a common practice of sharing lessons from experience among faculty members\. (b) The Bank must ensure that government regulations are not in conflict with the procedures for implementing project activities and that joint planning with Government concerned entities (PIU, custom and sales tax departments) are completed during the preparation period\. While the Bank's legal agreement stated that project-financed equipment are exempt from government taxes, the preparation team did not examine the complex procedural requirements to obtain such exemption nor planned for the considerable time it took to prepare the necessary paperwork\. (c) Project start up was delayed due to lack of financing for project activities prior to effectiveness\. Since the Government does not want to borrow for Project Preparation Facilities, it is necessary to obtain grants to finance preparation activities\. A key start-up activity that should be financed is the recruitment of qualified project implementation staff\. (d) The lesson that Government procurement methods should be reviewed and discussed prior to effectiveness and Bank Standard Bidding Documents used in all Bank-financed procurement activities supports the recent decision by the World Bank to require a detailed procurement plan and manual prior to effectiveness\. The World Bank now requires a detailed procurement plan and an implementation manual spelling out implementation and procurement procedures prior to project effectiveness\. In the case of the Project, Government procurement procedures should have been reviewed and aligned with Bank procedures prior to the implementation of procurement activities which would have minimize the delays experienced\. (e) The Project objectives were clear and consistent with the Government strategy for improving engineering and technical education\. Projects that are well situated within a broader strategy of reform owned by the Government can be a catalyst and lead to a full reform program\. The Project has turned out to be a catalyst for reform\. A secondary education reform has already begun under a Bank-assisted Secondary Education Enhancement Project which also include technical secondary schools\. Reforms of industrial training and higher education are being planned by the Government and Donors\. (f) A full time project management team is key to a project's success and timely implementation\. 10  IMPLEMENTATION COMPLETION REPORT THE ARAB REPUBLIC OF EGYPT THE ENGINEERING AND TECHNICAL EDUCATION PROJECT LOAN 3137-EGT PART II: STATISTICAL ANNEXES Table 1: Summary of Assessment Table 2: Related Bank Loans/Credits Table 3: Project Timetable Table 4: Loan Disbursements: Cumulative Estimated and Actual Table 5: Key Indicators for Project Implementation Table 6: Key Indicators for Project Operation Table 7: Studies Included in the Project Table 8: Project Costs & Financing Table 9: Economic Costs and Benefits Table 10: Compliance with Operational Manual Statements Table 11: Status of Legal Covenants Table 12: Bank Resources: Staff Inputs Table 13: Bank Resources: Missions 11  Table 1: Summary of Assessments A\. ACHIEVEMENT OF OBJECTIVES SUBSTANTIAL PARTIAL NEGLIGIBLE NOT APPLICABLE Macro Policies Sector Policies Financial Objectives Institutional Development Physical Objective V Poverty Reduction V Gender Issues = B\. PROJECT SUSTAINABILITY LIKELY UNLIKELY UNCERTAIN V C\. BANK PERFORMANCE HIGHLY SATISFACTORY SATISFACTORY DEFICIENT Identification Preparation Assistance V Appraisal V/ Supervision V D\. BORROWER PERFORMANCE HIGHLY SATISFACTORY SATISFACTORY DEFICIENT Preparation Implementation _ Covenant Compliance Operation V E\. ASSESSMENT OF HIGHLY NOT OUTCOME SATISFACTORY SATISFACTORY SATISFACTORY DEFICIENT 12  Table 2: Related Bank Loans/Credits Loan/Credit Number Purpose of Project Year of Approval Status Project Title Preceding Operations Cr\.681-EGT -Basic Vocational Training for the 1977 Completed Education I Construction Sector -Apprenticeship Training for Industty -Technical Training -Skilled Worker Training -Vocational Instructor Training Cr\.868-EGT -Manpower development through skilled 1978 Completed Education II training for workers, technicians and management -Training of primary and secondary teachers -Population education Cr\. 1069-EGT -Training of qualified workers, 1980 Completed Education III technicians and managers -Training of secondary level mathematics and science teachers -Improving teaching skills of university staff Ln\.2264-EGT -Vocational Training for the construction 1983 Completed Vocational Training and industrial sectors -Upgrading and expending instructor training Ln\.2594-EGT -Training of skilled craftsmen and 1985 Completed Vocational Training technicians for the Electricity sector (Electricity) -Training program for electrical engineers -In-service training for upgrading engineers, technicians and skilled craftsmen\. Following Operations Cr\.2476-EGT -Basic Education 1993 Ongoing Basic Education -Distance Education Improvement\. -In-Service Teacher Training -Educational Management Information System ITF N-0080 -Access & Equity; System Efficiency 1997 Ongoing Education -Distance Education Enhancement Program -Pre- and In-Service Teacher Training -Educational Management Information System Cr\.3194-EGT -General Secondary Education 1999 Not Yet Effective Secondary Education -Technical Schools Enhancement Project -Curricula and Assessment -Institutional Development 13  Table 3: Project Timetable Steps in the Project Cycle Date Planned Date Actually Completed Identification 06/88 Preparation 08/88 Appraisal 02/89 02/89 Negotiations 05/89 09/01/89 Board Presentation 06/89 12/05/89 Signing X 05/29/90 Effectiveness 9/29/90;3/25/91 06/05/91 Project Completion 12/31/96 12/31/98 Project Closing 06/30/96 12/31/98 Table 4: Loan Disbursements: Cumulative Estimated and Actual FY91 FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 Appraisal Estimate \.50 3\.70 11\.90 22\.30 28\.10 29\.90 30\.50 - Actual - - \.29 2\.20 4\.00 11\.18 19\.40 25\.24 29\.60 Actual as % of Est\. 2% 10% 14% 37% 64% - Date of Final Disbursement DISBURSEMENTS - PLAN VS\. ACTUAL US$ 000 20m 15 [M~~~~~~~~ ACTUAL' Li \.L > -O FISCAL YEARS 14  Table 5: Key Indicators for Project Implementation PART A: UNIVERSITY ENGINEERING EDUCATION: This component aimed to implement a program for modernization of university engineering education towards a more applied orientation and strong linkage with industry, through upgrading of facilities, laboratory equipment, updating of curricula and instructional materials and technical assistance\. Subprojects under this program of activities were undertaken as follows: PROJECT ACTIVITIES RESULT 1\. Specialized engineering development, including: The Minister of Higher Education formed the Engineering Education Program Group (EEPG) in 1992 which was composed of the Program Director, representatives from the MOHE, the Supreme Council of Universities, as well as representatives from industry\. The mandate of the EEPG included policy formulation, development of program related criteria and procedures and the overall supervision of the implementation of the various projects under the program\. A preliminary evaluation committee and a technical evaluation committee were formed to participate in the preliminary and final evaluation of the proposals submitted by the participating universities\. (a) the preparation for adoption by the colleges of engineering of: (i) new academic programs to accommodate emerging (i) A database on the status of basic and engineering fields of engineering; science courses in Egyptian colleges of engineering was established\. The database was used for the development of model curricula and specification of textbooks, courseware and equipment for computer fundamentals, mathematics, physics, chemistry, basic electronics, basic electrical systems, thermodynamics, fluid mechanics, material science and engineering workshops\. (ii) interdisciplinary programs combining knowledge and (ii) Two databases were developed and made available to skills from two or more traditional engineering areas; the engineering education community; and a faculty database for approximately 4000 engineering faculty members in 18 colleges of engineering was put in place\. (iii) programs to improve the skills of engineers; and (iii) The program supported initiatives to study a number of quality assurance systems in engineering education, and use them to develop a framework of program quality self-assessment\. The framework was used to conduct self-assessment in three different engineering programs in three different engineering colleges\. Results of the pilot studies were disseminated to all other engineering colleges\. (iv) programs to upgrade engineering laboratories and (iv) The program provided funds to establish and/or workshops; upgrade a total of 159 laboratories in 18 colleges of engineering in Egyptian universities\. The average cost per laboratory was slightly under $100,000\. 15  PROJECT ACTIVITIES RESULT (b) the preparation and implementation of related training Training completed\. No fellowship training was and/or fellowship programs\. undertaken\. 2\. Maintenance of instructional facilities and the training Completed successfully\. Project proposals contained of maintenance coordinators and technicians\. components for maintenance training and funding was provided to assist universities to establish equipment maintenance and repair programs to support the new laboratories and improve the long term sustainability of the EEDP results\. Feasibility studies for a number of the equipment maintenance strategies were supported also under the program\. 3\. Assistance to the engineering colleges in the The preparation facility was utilized successfully\. preparation of subprojects under (1) and (2) above\. Specifically two services were designed to provide assistance to colleges of engineering, especially those in the new regional universities during the preparation phase and the implementation phase of the project cycle\. The main objective of these two services was to improve the opportunity of success for the small universities and achieve a degree of equity in the program\. PART B: TECHNICAL TEACHER EDUCATION DEVELOPMENT: Modernization of technical education so as to improve teaching methods (including the merger of the two practical and theoretical teaching streams), improve curriculum development methods, develop and produce high quality instructional materials and increase the supply of technical teachers, through: PROJECT ACTIVITIES RESULTS 1\. The establishment and equipping of two new industrial The two IECs are fully operational\. All the equipment education colleges (IECs) for the training of technical procured under the program for the IECs have been teachers in Kubba (a technical school for workshop delivered and installed in the IECs\. There are over 25 instructors training) and Beni Suef new laboratories and workshops in each of the IECs\. The equipment represents the state of the art in technology education, and some of the workshops are better than those found in most faculties of engineering, and much better than counterpart laboratories in the intermediate and higher technical institutes\. 2\. A program to ensure the timely and proper functioning The Deans of the IECs have established laboratory teams of the IECs\. led by the new returning faculty from Holland and the UK to commission the equipment and integrate the laboratory experiments in the curricula\. Twenty-two instructors were selected and dispatched for training at Eindhoven Technical University in Holland\. Nine additional instructors are undertaking the 24-month Masters' program at Eindhoven and six instructors are completing Doctoral programs in the UK\. 3\. In-Service Training Program\. Ongoing with continuous monitoring and assessment to update the programs\. 16  Table 6: Key Indicators for Project Operation PROJECT DEVELO PMENT OBJECTIVES STATUS A\. The Engineering Eduication Development Program 1\. Improving the Quality of Engineering Curricula\. A key criteria for funding projects under the EEDP was the redesign of the structure of the program under consideration to meet prevailing international standards conceming the composition, balance and integrity of programs\. One of the major achievements of the EEDP has been the survey and documentation of all basic and engineering science courses in all 18 engineering programs in Egypt\. 'Model' courses based on typical intemational standards were developed and shared among the participating universities\. Integration of theory and practical experience in the laboratories was one of the comer stones of the selection process to ensure that the equipment procured through the project was effectively integrated in the curriculum\. The refurbishing of physical space to house newly procured equipment was one of the main criteria for funding projects under the EEDP\. EEDP supported the curricular documentation of many courses funded under the Project\. Examination of the results of this process by peer reviewers showed marked improvement in the quality of the products\. 2\. Improving the Occupational Relevance of Eng\. Faculties that applied for grants were required to show clear and Graduates\. documented evidence of the relevance of the skills and competencies acquired in the new laboratory/equipment to the needs of industry\. Representatives from industry participated for five years in EEDP committees to: develop, modify and apply the criteria for project selection to ensure relevance of projects to industrial practice\. 3\. Improve the efficiency and ensure effectiveness in the A key indicator was the sharing of curriculum development information\. delivery of engineering programs in Egypt\. Databases were developed by EEDP for: (a) all basic and engineering science courses in the participadng universities; and (b) all courses (old and new) involving labs funded by EEDP\. EEDP developed, through the project's PIU, a comprehensive engineering equipment database that has become a very useful and sustainable resource for the engineering education community in Egypt\. EEDP included the development of equipment maintenance strategies as an important criteria in the selection of projects to be funded\. These criteria included maintenance contract, maintenance training and long-tefm equipment guarantees\. The EEDP, and by inference the engineering education community, managed through the leaming experience to improve efficiency in the project by steadily reducing the average allocation per project from US$160,000 in the first procurement cycle to US$70,000 in the sixth cycle\. 4\. Capacity building of the engineering education One hundred and fifty-nine new laboratories were established with an system\. average overall cost of about US$100,000 per lab\. All 18 faculties of engineering in Egypt benefited from the project\. A new electronic library system is being established and funded under the EEDP to allow the cataloging and sharing of library resources among all engineering schools in Egypt\. The EEDP funded a very successful pilot project for the development of multimedia-based curricular development that will allow the sharing of developed courses among the 18 faculties of engineering\. EEDP developed and tested a system for quality auditing of existing engineering education programs based on self-assessment followed by peer review\. This pilot experiment was a first of its kind in Egypt and could be the base for an engineering accreditation system\. 17  Table 6: Key Indicators for Project Operation Pg2 PROJECT DEVELOPMENT OBJECTIVES STATUS B\. The Technical Teacher Educaton Development Program I Reform of Technical Teacher Education The Kubba and Beni Suef IECs were established as a reform measure in technical teacher education to provide pre-service, and in-service education for a 'new' type of technical teacher that combines theory and practice\. Detailed curricula were developed and published for 10 advanced 'generic' technological disciplines by committees of Egyptian specialists\. Curricula combine the following components: (a) general education; (b) technological foundations; (c) technological skills; (d) industrial specializations; and (e) education theory and practice\. 2\. Improve the Quality of Technical Teacher The curricula for the above-mentioned ten IEC disciplines were Education very favorably evaluated by a British team funded by the TTEDP\. A customized MA program in technical education was developed for 22 new faculty recruits for the IECs\. The program used terms of reference developed by the TTEDP using the same reform guiding principles used to develop the IEC curricula\. Construction was completed at the Kubba and Beni Suef IECs to house new laboratories\. The quality of the facilities represents a major improvement on any existing technical teacher institutions in Egypt\. 3\. Improve the Relevance of Technical Teacher The participation of industrialists to date in the development of the Education IECs included the following: (a) participation in the management of the project through the various TTEDP committees; and (b) participation in advisory capacity in the curricula development\. All ten approved IEC curricula include the following components: (a) 'practice teaching' assignments in neighboring technical secondary schools; (b) training of trainers assignment in participating industries; and (c) a technical education project involving curriculum development or the use of educational technology in laboratory/workshop development\. 18  Table 7: Studies Included in Project No studies were fornally commissioned under the Project\. However, a study for the development of an in-service teacher training program was completed in October 1992, and another study on labor market needs was completed in February 1994\. Table 8: Project Costs & Financing EXPENSE PART A: EEDP PART B: TTEDP TOTAL COSTS CATEGORIES IBRD GOVT\. IBRD GOVT\. IBRD GOVT\. 1\. Works - \.138 - 5\.447 - 5\.585 2\. Goods 16\.646 1\.541 9\.923 1\.131 26\.569 2\.672 3\. Experts \.595 \.939 \.316 \.179 \.911 1\.118 4\. Training \.066 - 2\.016 - 2\.082 _ [TOTAL 17\.307 2\.618 12\.255 6\.757 29\.562 9\.375 NOTE: Government expenditures shown are up to May 1999 only\. Table 9: Economic Costs and Benefits These costs were not calculated for the Project\. However, the Project was expected to yield very significant economic benefits\. By supporting the strengthening of engineering and technical education, it would make a major contribution to Egypt's manpower training efforts aimed at increasing productivity in the economy and expanding export-oriented industries\. Improvement in the quality and job relevance of engineering education would enable the universities to meet more adequately the needs of the economy as technology-intensive companies would benefit greatly from better quality engineering graduates with appropriate industrial knowledge and practical experience\. Through the development of better qualified technical teachers with instructional competence in both theory and practice, the Project would increase the quality and relevance of secondary and post-secondary technical education, thus improving the technical education system's ability to produce well-trained skilled technicians and workers\. Table 10: Compliance with Operational Manual Statements There is no evidence of non-compliance 19  Table 11: Status of Legal Covenants Loan 3137-EGT Original Covenant Present Fulfillment Section Type Status Date Description of Covenant Comments 4\.01(a) 01 C The Borrower shall cause MOHE Done\. to maintain records and accounts adequate to reflect in accordance with sound accounting practices, the operations, resources and expenditures in respect of the Project\. 4\.01(b) 01 C The Borrower shall cause MOHE Done\. to have the records and accounts, including those for the Special Account and the maintenance account, for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Bank\. Sch\.5(l) 10 C The PIU shall be established and The PIU was established and maintained with an adequate has functioned satisfactorily\. number of specialists in financial accounting, procurement and technical assistance coordination\. Sch\.5(2a) 10 C The Minister of MOHE shall Done\. appoint a Project Director for Part A of the project who shall have appropriate qualifications and authority adequate for the performance of his duties\. Sch\.5(2bi) tO C 06/30/1990 An Engineering Education Program Done\. Group (EEPG) shall be formed by the Minister of MOHE on the recommendation of the Project Director\. EEPG shall act as a technical body responsible for the development of procedures for the management of subprojects and for actual evaluation and supervision therefore\. Sch\.5(2bii) 10 C 09/30/1990 EEPG shall be assisted in the Completed with local experts development of suitable policies only\. and procedures for its work by an advisory panel which shall be established and shall consist of local and foreign specialists who shall advise on matters regarding the development and content of engineering education\. COVENANT CLASS - I Accounts/Audit; 10 Implementation COVENANT STATUS - C = Completed 20  Table 11: Status of Legal Covenants Pg\.2 Original Covenant Present Fulfillment Section Type Status Date Description of Covenant Comments Sch\.5(2biv) 10 C Engineering colleges requesting Done\. approval of subprojects for the purchase of laboratory equipment under Part A(2) of the project shall be required to establish and maintain a separate account, in accordance with guidelines satisfactory to the Bank, for financing the maintenance of their laboratories, workshops and other instructional facilities\. Sch\.5(3a) 10 C The Minister of MOHE shall Done\. appoint a Project Director for Part B of the project, who shall have adequate qualifications and authority for the performance of his duties\. The Project Director shall be responsible, in coordination with the PIU, for the preparation and for the carrying out of said Part of the Project and for the development of the IECs' new curriculum\. Sch\.5(3b) 10 C The establishment, equipping and Done\. staffing of the IECs shall be undertaken in accordance with a plan, the content and time schedule of which shall be satisfactory to the Borrower and the Bank\. Sch\.5(3bi) 10 C The plan for the IECs shall provide Done\. Completion schedule for the completion of construction delayed\. work with respect to the IEC in Cairo by 09/01/1990 and with respect to the IEC in Beni-Suef by the end of July 1991\. Sch\.5(3bii) 10 C The plan for the IECs shall provide Done\. Completion schedule for the finalization, on the basis of delayed\. a technical teacher training plan, of curriculum details for the IEC in Cairo by 08/31/90, for its first and second years program by 08/31/91; for its third and fourth year program by 08/31/92\. Sch\.5(3biii) 10 C 07/31/1992 The IEC plan shall provide for the Done\. Completion Schedule procurement of equipment by delayed\. 07/31/1992\. 21  Table 11: Status of Legal Covenants Pg\.3 Original Covenant Present Fulfillment Section Type Status Date Description of Covenant Comments Sch\.5(3biv) 10 C The IEC plan shall provide for the The required staff have been recruitment, in accordance with an appointed\. appropriate staffing plan, of the staff required for the IECs in Cairo by July31, 1991 and of the staff required for the IEC in Beni-Suef by July 31, 1992\. Sch\.5(3bv) 10 C 09101/1990 The IEC plan shall provide for the Done\. Implementation preparation of an implementation schedule was later than plan for in-service training of planned\. existing teachers by September 1, 1990\. Sch\.5(3bvi) 10 C 05/31/1993 The IEC plan shall provide for the Done\. Completion Schedule preparation, by May 31, 1993 of a delayed\. plan for deployment of new teachers and for the carrying out of related administrative reforms required for integration of the two practical and theoretical teaching streamns\. Sch\.5(3bvii) 10 C 06/30/1990 The [EC plan shall provide for the Completed\. The Plan follows adoption, by June 30, 1990 of a Government regulations for remuneration system for the IECs institutions of higher education\. comparable to that of newly established technology institutions, and which shall enable the IECs to attract and retain qualified teaching staff\. Sch\.5(3c) 10 C The Borrower shall establish: (i) by Done\. Completion schedule 05/01/90, a Board of Management delayed\. for the IEC in Cairo, and (ii) by 10/31/90, a Board of Management for the IEC in Beni-Suef, with representatives from MOE, MOHE and industry\. The Boards shall provide guidance to the Project Director for Part B of the project with regard to the formulation of the IECs' programs and ensure coordination between the IECs and MOE\. 22  Table 12: Bank Resources - Staff Inputs Planned Revised Actual Stage of Project Cycle US$ US$ US$ Weeks '000 Weeks '000 Weeks '000 Through Appraisal 69\.0 171\.4 Appraisal-Board 24\.9 62\.6 Board-Effectiveness 6\.5 19\.7 Supervision - - 96\.9 244\.1 Completion 10\.0 30\.0 10\.0 30\.0 TOTAL 10\.0 30\.0 207\.3 527\.8 23  Table 13: Bank Resources - Missions STAGE OF NUMBER TOTAL SPECIALIZED PROJECT MONTH/ OF FIELD STAFF SKILLS PERFORMANCE RATINGNS TYPES OF CYCLE YEAR PERSONS DAYS REPRESENTED PROBLEMS IMPLEMEN DEVELOP- TATION MENT STATUS OBJECTIVES Through 12/88 5 17 EE,DC,Techn\.EdT Appraisal 02/89 7 14 Ed,AE,TEd,A, TTrg,Equipt\., Appraisal - - - through Board Approval Board 05/91 4 15 00,IS,TEd, Approval TTrng\. through Effective- ness Supervision 1 (12/91) 5 13 00, IS, TEd, 2 M Tech\.Ed,Disb\.O\. 2 (09/92) 2 14 00, Tech\.Ed\. I 3 (12/93) 3 11 00,IS,Tech\.Ed\. I 4 (06/94) 2 14 O0, IS I 5 (01/95) 4 14 00, IS, CP U S EP 6 (06/95) 3 8 00, IS, Tech\.Ed\. U S EP 7 (11/95) 3 7 Ed, IS, TTmg\. S S 8 (05/96 2 14 IS,Proc\. S S 9 (12/96) 3 10 Ed,lS, Proc\. S S - 10 (04/97) 2 2 IS, Proc\. S HS - 11(10/97) 1 5 Tech\.Ed\. S HS - 12 (11/97) 3 9 Ed,IS, Proc\. S HS - 13 (04/98) 4 6 Ed\.,IS, S HS - Proc\.,Tech\.Ed\. S HS - 14 (10/98) 2 3 EE, IS, S HS - 15 (12/98) 2 2 IS, Proc\. S HS - Completion 02/99 1 8 Tech\.Ed\. S HS 05/99 3 5 Ed,Proc,lS S HS NOTE: Supervision of the project was carried out in conjunction with other projects in the Education portfolio\. Staff Specializations: A = Architect; CP = Computer Programming Specialist; DC = Division Chief; Ed\.= Education Specialist; EE = Education Economist; Equip\. = Equipment Sepcialist; Disb\.O\.= Disbursement Officer; TEd\.= Technical Education Specialist; TTmg\.= Teacher Training Specialist; Techn\.Ed\. = Education Technology Specialist; 00 = Operations Officer; IS = Implementation Specialist; Proc\. = Procurement Specialist\. Types of Problems = M= Managerial; TA = Technical Assistance; TR = Training; CP = Civil Works Procurement; EP = Equipment Procurement Ratings: I = Minor or Problem Free; 2 = Moderate Problems; 3 = Major Problems; S = Satisfactory; U = Unsatisfactory 24  ANNEX I THE ARAB REPUBLIC OF EGYPT THE ENGINEERING AND TECHNICAL EDUCATION PROJECT LOAN 3137-EGT AIDE MEMOUIE for the IMPLEMENTATION COMPLETION MISSION MAY 1999 25  AIDE MEMOIRE for the IMPLEMENTATION COMPLETION MISSION MAY 1999 INTRODUCTION 1\. While in Cairo to undertake a review of the education sector portfolio of projects under implementation, Ms\. Mae Chu Chang, Principal Educator for the Human Development Group, Middle East and North Africa Region (MNSHD), carried out a implementation completion mission for the above Project\. Ms\. Chang was assisted by Mr\. Mahmoud Gamal El Din, Procurement/Implementation Specialist (MNCEG), and Ms\. Patricia Maughan (Consultant)\. The team met with the Project Director, Dr\. Mohsen El Mahdy Said and the staff of the project implementation unit (PIU) to discuss the experiences of the project's implementation phase and to assist in expediting final disbursement issues\. The Bank team is grateful for the excellent support received from Mr\. Mostafa Abou Shusha (Procurement Officer) and Mr\. Ali Omar Ali (Financial Officer) of the PIU\. The Bank team also met with staff of the Resident Mission to discuss outstanding payment and to expedite the preparation by the Borrower of their part of the Implementation Completion Report (ICR)\. PROJECT BACKGROUND 2\. The Loan, in the amount of $30\.5 million, was approved on December 5, 1989 and became effective on June 5, 1991\. It financed two components: (a) an Engineering Education Development Program (EEDP) which helped to improve: (i) the quality of engineering curricula at eighteen faculties of engineering; (ii) the occupational relevance of engineering graduates; and (iii) efficiency and effectiveness in the delivery of engineering education programs in Egypt; and (b) A Technical Teacher Education Development Program (TTEDP) to improve the quality and relevance of technical teacher education in Egypt\. The Project closed on December 31, 1998 after three extensions of the closing date\. PROJECT IMPLEMENTA TIONHIGHLIGHTS 3\. Project start up was very slow as the team selected to implement the Project had to be replaced by experts who could manage the Project on a full-time basis\. Once the new PIU group took control, a revised time schedule for the Project's implementation was prepared and procurement for the components, in particular for the EEDP commenced immediately\. The PIU team is to be commended for the methodical way in which they approached this task\. They selected and established a suitable computer database program to manage the numerous procurement activities\. However, the procurement process was complex and time consuming, and the original closing date of the Project (June 30, 1996) had to be extended thrice to allow for the completion of the procurement\. The Resident Mission in Cairo was very helpful in expediting the review of bidding documentation for Bank approval\. PROJECT COSTS 4\. The Project was estimated to cost $38\.6 million\. The actual costs were $38\.9 million\. The Bank loan, in the amount of $30\.5 million was 97% utilized\. A balance of $0\.9 million will be cancelled\. This amount represents the cost of a contract for the technical teachers who were 26  trained in Holland which could not be completed by the closing date\. The Government's contribution was greater than planned due to higher construction costs of the IECs\. PROJECT FINANCING PLAN (Plan vs\. Actual) US$ Million PLAN ACTUAL CATEGORY OF EXPENDITURE Gov't\. Bank Total Gov't\. Bank Total Refurbishing (Civil Works) 5\.1 0\.0 5\.1 5\.6 - 5\.6 Goods (Equipment and 0\.4 21\.3 21\.7 2\.7 26\.6 29\.3 Instructional Materials) _ Specialists 0\.2 2\.9 3\.1 1\.1 0\.9 2\.0 Training 1\.5 3\.5 5\.0 - 2\.1 2\.1 Maintenance 0\.3 0\.3 0\.6 - Unallocated (Contingencies) 0\.7 2\.4 3\.1 - - TOTAL t 8\.2 30\.4 38\.6 9\.4 29\.6 39\.0 SOURCE: Staff Appraisal Report (Plan) and PIU accounting records (Actual) NOTE: Some figures do not add up due to rounding\. 5\. The Government is to be commended for the way in which the Universities and the many consultative committees were organized to review proposals for project financing\. Substantial inputs were received from numerous local specialists for preparing equipment specifications; preparing the new curricula for the IECs; and contributing to other consultative activities\. To select state-of-the-art equipment for the engineering faculties, committees comprising more than 180 university and industry experts were consulted\. Compliance with Loan covenants was good as well as audit and progress reporting\. PROJECT OUTCOMES 6\. The Engineering Education Development Program (EEDP)\. The developmental objectives for this component were substantially achieved\. The quality of the engineering curricula, the occupational relevance of engineering graduates, and the efficiency and effectiveness in the delivery of engineering programs were all improved\. Capacity building of the engineering education system was also achieved through the construction of new laboratory facilities and the new equipment\. An electronic engineering library system was established, and an engineering education accreditation system was developed\. 27  EEDP BENEFICIARIES ENGINEERING FACULTY NO\. OF LABS COST (US$) Ain Shams 20 2\.20 Alexandria 10 1\.37 Assiut 8 \.66 Al Azhar 1 \.08 Cairo Sad92\.94 Fayoum E \.25 Helwan 8 \.48 Kafr El-Sheikh 7 \.53 Mansoura 9 \.40 Matau a \.43 Menia 6 \.43 Menouf 3\.27 Port Said 9 \.77 Shebin El-Kom 9\.79 Shoubra 15\.90 Suez 10 \.55 Zagazig 11 \.71 Library Automation Plan* 1\.59 Other Direct Procurement * * 5 1\.52 Total 159 16\.87 NOTE: * All 18 Faculties are networked together (total includes Tanta which is not listed) ** Procurement includes 5 labs for the Faculty of Engineering at Tanta University\. 7\. The Technical Teacher Education Development Program (TTEDP)\. Technical teacher education was reformed through the establishment and operation of the two new IECs at Kubba and Beni Suef\. A new curricula was developed for the IECs to reflect the emerging technological disciplines and the intended reform to combine theory and practice\. Improvements in the quality of technical teacher education are evident from the excellent evaluation of the curricula developed for the IECs by international experts, the quality of the new IEC faculty, and the quality of the physical as well as the educational and training resources in the IECs\. 8\. IEC Graduates\. The IEC at Kubba has been graduating technical teachers since the 1980s, but began to graduate qualified teachers using the new curricula in the 1993/94 academic year\. There has been a steady growth in the number of graduates as indicated in the Table below\. The IEC at Beni-Suef graduated the first group of technical teachers in the 1997/98 academic year\. IEC Graduates Year Kubba IEC Beni-Suef IEC 93/94 135 94/95 116 95/96 121 96/97 211 97/98 231 143 9\. Laboratories and Workshops\. All the equipment procured under the TTEDP have been delivered and installed in the IECs\. There are over 25 new laboratories and workshops in each of 28  the IECs\. This equipment represent the state of the art in technology education, and some of the workshops are better than those found in most faculties of engineering, and much better than counterpart laboratories in the intermediate and higher technical institutes\. 10\. In-Service Training and The Technical Teacher Development Center\. Both IECs have dedicated part of their equipment to establish Technical Teacher Development Centers (TTDCs)\. These centers, when fully established and completed, will provide teacher training for teachers in the Intermediate and Higher Technical Institutes, as well as training of trainers in industry\. The IEC at Kubba has already upgraded the qualification of technical practice teachers in technical secondary schools through an in-service program\. The number of graduates from the program in various disciplines is shown in the Table below\. In-Service Graduates in Discipline Year Production AC&R Automotive Electrical Electronics Total 93/94 32 13 15 22 13 100 94195 26 16 8 20 8 78 95/96 10 14 11 16 12 63 96/97 16 13 12 23 20 84 Totals 84 56 46 127 53 325 IMPLEMENTATION COMPLETIONEPORT (ICR) 11\. The preparation of the ICR began during the last supervision mission before the Project's closing date (December 31, 1998)\. In February 1999, Mr\. Samih Mikhail (Consultant Technical Education Specialist) visited Egypt to prepare a detailed qualitative assessment of the Project's achievements\. He also assisted the PIU team in formulating a plan for the operational phase of the Project (attached to this report as Annex 2)\. Mr\. Joseph Bredie, Senior Education Specialist (AFTH4) worked with the task team to finalize the ICR\. The report is expected to be presented to the Bank's Board of Directors on June 29, 1999\. The PIU managers, Dr\. Mohsen El Mahdy Said (Director of Project Administration); Dr\. Hussein Anis (Director for the EEDP Component); and Dr\. Mohammed Kamel El Said (Director for the TTEDP Component) prepared the Borrower's Report (Annex 3)\. The Bank team had an opportunity to discuss the findings of this report during the completion mission and complimented the team on the thoroughness of their report\. World Bank ICR Mission Cairo, Egypt May 1999 29  ANNEX 2 IMPLEMENTATION COMPLETION REPORT THE ARAB REPUBLIC OF EGYPT THE ENGINEERING AND TECHNICAL EDUCATION PROJECT LOAN 3137-EGT THE OPERATIONAL PLAN FOR THE PROJECT 30  Proposed Plan to Maximize Project's Benefits and Sustainability of Outcomes RATIONALE There is a consensus, among Egyptian officials as well as international experts who reviewed the Project, that it has achieved its objectives, and that considerable progress has been made in improving the quality and relevance of engineering and technical education in Egypt, as a result of the innovative initiatives and programs introduced through it\. A number of factors, however, should be considered as justifications for allocating resources in this proposed plan to maximize the benefits accrued from the Project, and to ensure the sustainability of its outcomes\. First, the impact of a number of initiatives reviewed in Part I could not be adequately evaluated because of the Project's implementation schedule\. Second, the sustainability of other initiatives is critically dependent on completion of additional training and development activities that could not be completed in time\. Finally, the Project involves innovative initiatives such as the establishment of an automated engineering library that were not conceptualized in the original project design\. The additional proposed activities in this plan would maximize the benefits of establishing the library by completing a series of critical training programs for library personnel and soft-ware engineers\. The Government of Egypt's investment in this project exceeds LE 150 million\. This plan proposes the allocation of approximately LE 4 million from the remaining local funds to the series of initiatives outlined below\. This relatively modest investment would ensure the maximization of Projects benefits, and the sustainability of many of its achievemrents\. The plan was developed by the consultant in cooperation with the Project management team; the Director of the Project's PIU Dr Mohsen El Mahdy Said, the Director of the EEDP, Dr Hussein Anis and the Director of the TTEDP, Dr Mohamed El Said\. OBJECTIVES OF THE PLAN The plan has four important objectives: * To complete the evaluation of Project's outcome and its impact on all the stakeholders; * To support a number of critical measures needed to ensure the sustainability of Project's achievements; * To complete the documentation of the best practices and lessons learned from the EEDP, the TTEDP and PIU experiences, and use them as inputs to inform the design of the proposed new project of reform in higher education; and * To provide a link to the new project by developing a series of monitoring, evaluation and benchmarking instruments and testing them on institutions and programs supported by the - Project\. 31  OPERATIONAL PLAN Expected Outcome | Proposed Activies Estimated Cost Potential Sources of ExpectededOCtctme Funding Objective 1: To complete the evaluation of project's outcome and its impact on all stakeholders\. Comprehensive Develop a comprehensive evaluation 6-8 person-months of Remaining local funds Evaluation of outcome instrument for EEDP including existing local consultants in the project\. and impact of the project, indicators and additional indicators as and its two programs suggested by consultant\. EEDP and TEDP Undertake detailed evaluation of the outcome 30-36 person-months of of EEDP in the 18 colleges of engineering and local consultants 159 projects benefiting from evaluation\. Develop a comprehensive evaluation 4-6 person-months of Remaining local funds instrument for TEDP including existing local consultants in the project and/or indicators and additional indicators as suggested by consultant\. The $ 500,000 funds from the UN-based Undertake detailed evaluation of the outcome 10-12 person-months of Fund for Arab of TEDP in the two IECs at Kubba and Beni- local consultants Development (AKFA) Suef\. Objective 2: To support a number of critical measures needed to ensure the sustainability of project's achievements Extend the awareness and Undertake Program Quality Self-Assessment 12-15 person-months of Remaining local funds knowledge of program using the framework developed and local consultants in the project quality self-assessment documented by EEDP to five more practices to 50% of engineering programs\. engineering colleges in Egypt\. Complete development of Hire and train a group of young software 6x24= 144 person months Remaining local funds the Computer Network of engineers to continue the development of of software system on the projecr Engineering Libraries CNEL engineers salaries CNEL\. Provide Training for Software engineers and 6-8 person months of Remaining local funds System Librarians local consultants In the project 2 persons months of Remaining local funds intemational expert in the project trainer! consultant Complete the Continue working with EEDP working 10-12 person months of Remaining local funds Development of the committees to complete engineering education local experts in the project Engineering Education database to include comprehensive list of all Database courses in all colleges of engineering\. Complete Multimedia Identify two additional multimedia pilot 10-12 person months of Pilot Projects and projects and contract local faculty experts to local experts Remaining local funds enhance the benefits develop and document the courses developed in the project gained from it\. using the project completed under EEDp as model Complete the Contract qualified graduate engineers as 576 (2x12x12) person- Remaining local funds development of detailed technical support staff in the two IECs for two months ofjunior in the project and/or and comprehensive lab years to complete the process of engineers salaries The $ 500,000 funds manuals and experiments commissioning of laboratory equipment, and from the UN-based to complement the the development of experiments and lab Fund for Arab detailed curricula of the manuals Development (AKFA) IEC's programs Local faculty consultants to supervise the 20-24 person months of integration laboratory experiments in the local consultants curriculum 32  Objective 3: To complete the documentation of the best practices and lessons learned from EEDP, TEDP and PUI experience and use them as inputs to inform the design of the proposed design of the new project of reform in higher education Produce and disseminate Evaluate and select best laboratory manuals in 10-12 person-months of Remaining local funds best courseware and lab basic science, engineering science and core local consultants\. in the project manuals among engineering subjects, and produce and Production costs of participating engineering disseminate them to other colleges of manuals\. colleges engineering in the system\. Continue the process of Undertake systematic review and modification 20-24 person months of Remaining local funds reviewing, upgrading and of all IEC programs an courses developed in local consultants in the project and /or evaluating all IEC's the 1992-1994 period\. The $ 500,000 funds programs and curricula from the UN-based Assessment of curricular changes by extemal 2 person months of Fund for Arab intemational consultants intemational Development (AKFA) experts/consultants Establish and pilot-test Develop 6-8 short-term technical upgrading 16-20 person-months of Remaining local funds revenue-generating courses based on the best practices in IEC's local consultants in the project and /or training and upgrading courses in deliver them in pilot projects to the The $ 500,000 funds programs in the Technical teaching staff, and administrators of the from the UN-based Teachers Development Intermediate Technical Institutes ITIs\. Fund for Arab Centers TTDCs\. Development (AKFA) Objective 4: To provide a link to the new project by developing a series of monitoring, evaluation and benchmarking instruments and testing them on institutions and programs supported by ETEP\. Comprehensive Develop a comprehensive generic frame work 12-15 person-months of Remaining local funds documented monitoring for monitoring, evaluation and other project local consultants\. in the project and other and evaluation framework management tools relevant to the university's Production costs of potential sources of for the new project sector in the new project based on the results documentation\. funds\. of the use of similar tools in EEDP\. Develop a similar comprehensive generic 6-8 person-months of frame work for monitoring and evaluation for local consultants\. use in the non-university sector in the new Production costs of Remaining local funds project\. documentation\. in the project\. Frameworks of Use the experience gained in EEDP to develop 10-12 person months of Remaining local funds benchmarking institutions guidelines and strategies for benchmarking local consultants in the project\. and their programs in the institutions and academic programs in the university and non- university sector by accessing information university sectors databases as well as the Internet\. The benchmarks include the following: * University Governance and Funding * Academic Programs' Administration * Academic Programs Quality * Teaching/learning Practices * Quality Assessment Develop guidelines and strategies for 4-6 person months of Remaining local funds benchmarking institutions and programs in the local consultants in the project non-university sector by accessing the Internet 33  PROPOSED BUDGET Budget Item Quantity Unit Unit Cost (LE) Subtotal (LE) Local Consultants 230 Person month 5000 1,150,000 Software Engineers 144 Person month 2500 360,000 Junior Engineers 576 Person month 1500 864,000 International 4 Person months 50,000 200,000 Consultants Publications / Other 500,000 PIU Administration 2 Year 250,000 500,000 Subtotal 3,574,000 10% Contingency 357,400 3,931,400 34  ANNEX 3 Borrower's Report  ENGINEERING AND TECHNICAL EDUCATION PROJECT (ETEP) Loan No\. 3137-EGT Borrower's Report INTRODUCTION This report is the Borrower's portion of the Implementation Completion Report (ICR) of the Engineering and Technical Education Project (ETEP), the World Bank supported project under the loan agreement no\. 3137- EGT\. The report is presented in three parts\. The first and second parts of the Borrower's report present the achievements and lessons learned during the implementation of both project components EEDP and TTEDP respectively\. The third part includes the PIU experiences, with emphasis on financial and procurement issues\. All three parts of the report focus on the obstacles and impediments that caused delays in the implementation of the two project components, and how they were handled and/or resolved\. Lessons learned, critical self- assessment and recommendations for similar future projects are also included to reflect the Borrower's points of view and experiences acquired by the Management Team\. OBJECTIVES OF THE ENGINEERING AND TECHNICAL EDUCATION PROJECT (ETEP) The project's goal is the improvement and strengthening of Engineering and Technical Education in Egypt\. To respond to this challenge, the stated objectives of the project are to: a) Improve the quality and occupational relevance of engineering education in Egyptian universities; and; b) Improve the quality of secondary and post secondary technical education in Egypt by supporting the development of a new, more effective type of technical education institutions, which would meet the growing demand for better prepared, and qualified technical teachers\. Each part of the report will briefly address how these objectives were met from the point of view of the Borrower (Management Team)\. ACKNOWLEDGEMENT The management team, PIU Director, EEDP Director and TTEDP Director wish to acknowledge with gratitude all those who contributed to the success and completion of the ETEP project from the various local government authorities that were concerned with the project\. Their genuine support was very helpful, despite the hard times and numerous problems that encountered the PIU during implementation\. The staff members and consultants that were affiliated with the project played a major role towards its success during all phases of project implementation\. The team also wishes to acknowledge with appreciation the efforts made by the World Bank Supervision Missions teams who were very supportive and responsive to any PIU requests, particularly in resolving problems and giving timely and sound advise\. Equally, the team wishes to acknowledge the continual efforts and support given by the Resident Mission personnel, and in particular those concerned with procurement\. Ever since the Resident Mission was established in Cairo, considerable improvement was introduced to the procurement process, despite the slow start until the Resident Mission was fully established, and after appropriate authorities were given to the procurement officer to resolve immediately many of the various problems encountered by the PIU\. 2  TABLE OF CONTENTS INTRODUCTION OBJECTIVES OF THE ENGINEERING AND TECHNICAL EDUCATION PROJECT (ETEP) ACKNOWLEDGEMENT PART I: ENGINEERING EDUCATION DEVELOPMENT PROGRAM (EEDP) Achievements and Lessons Learned Program Objectives Achievements of Program Objectives Summary of EEDP Achievement Project's Critical Review PART II: TECHNICAL TEACHER EDUCATION DEVELOPMENT PROGRAM (TTEDP) Achievements and Lessons Learned Program Objectives Achievement of Program Objectives Review Program Activities * IEC Graduate Profile * IEC's Program Design Committee * Discipline Curriculum Design Committees * Foreign Technical Assistance * Cairo Workshop Staff Training Pre-Service Training Program In-Service Training Program Refurbishing Laboratories and Workshops Teacher Training and Development Center (T`TDC) * Program Sustainability * Future operation * Problems Encountered * Establishment of Buildings * Installation of Equipment in Workshops and Labs * Recruiting of Technicians and the Administrative Staff * Local Funds Allocation * Students Background * Teaching Language * Employment of Graduates PART III: IMPLEMENTING AGENCY - PROJECTS IMPLEMENTATION UNIT (PIIJ) PIU Experience Introduction Project Background Information Financial Records Procurement Records Lessons Learned Financial Issues Procurement Issues Overall Project Implementation 3  APPENDICES Appendix I\. 1: Procedural Chart of EEDP Policy Appendix 1\.2: Statistics of Funded Proposed Plans Appendix I\.3: Proposal Preparation Assistance Service Appendix I\.4: Computer Network for Engineering Libraries Appendix 1\.5: Review Results Appendix I\. 1: Program Structure for Different Disciplines Appendix II\.2: Program Structure for the Ten Disciplines Appendix 11\.3: Details of Enrollment and Graduates Appendix II\.4: List of Workshops and Labs Appendix III\. 1: Project Background Information Appendix 11I\.2: Financial Records Appendix 111\.3: Procurement Records 4  Part I ENGINEERING EDUCATION DEVELOPMENT PROGRAM (EEDP) Achievements and Lessons Learned Program Objectives The EEDP program generally aimed at supporting the upgrading, strengthening, and re-design of programs in existing university faculties of engineering in Egypt to improve the quality and occupational relevance of engineering education and the job prospects of graduates\. Ultimately, these improvements would benefit the productive sectors in which graduate engineers are employed\. The program objectives - and, in turn, its activities- fall into two main groups: the first group focuses on plans of education development in individual faculties; the second group addresses issues of comprehensive nature that benefits all faculties of engineering by serving the interests of engineering education in Egypt at large\. 1- Individual Plans for Education Development This was considered to be the main undertaking of the Engineering Education Development Program in which educational programs at the eighteen Egyptian faculties of engineering were funded\. Those programs included the upgrading of academic curricula, human resources (teaching and support staff), and laboratory and instruction programs and tools, as well as establishing and maintaining strong linkages with industry to give existing programs a more applied engineering orientation consistent with the current and evolving needs of industry\. The participation of the different engineering faculties was allowed through a competitive proposal process involving open review and assessment with peer-review involvement\. This part of the EEDP program was implemented repeatedly in cycles\. At the beginning of each cycle proposals were submnitted and subsequently subjected to thorough refereeing where some proposals were approved for funding\. The implementation of approved proposals cormmenced immediately thereafter by initiating the process of curriculum development, the preparation or refurbishing of the site of newly approved equipment, the design of staff training programs, and the preparation of tender documents and other procurement procedures\. This fundamental portion of the Engineering Education Development Program was supported for its implementation by a number of sub-programs, studies and operations which all ensured that the implementation process was efficient, objective and professional\. Appendix (1-1) summarizes - in a flow chart depiction - the interrelations among those different components\. 2- Comprehensive Development Activities The EEDP program management aimed to execute a number of additional programs to ensure the accomplishment of the project's global goals, optimally and cost effectively\. Those programs were implemented on central - i\.e\. national - basis\. Experts from nearly all faculties of engineering participated in those efforts\. This group of activities included: model curricular development for basic and engineering sciences, introducing and applying principles of quality assurance, establishing a data bank of engineering education in Egypt, develop multi-media-based course-ware, and the founding of a system for library automation and interconnection\. B\. Achievement of Program Objectives 1- Implementation of Education Development Plans Over a period of nearly seven years the EEDP funded, closely monitored, and assessed the implementation of one hundred and fifty nine proposed plans for education development in eighteen faculties of engineering\. Statistics about those plans are given in Appendix (1-2)\. Each individual proposed plan involved some of the following elements: 5  1\. development of engineering curricula and engineering education technology; 2\. procurement and commissioning of laboratory equipment; 3\. supply of instructional materials, including textbooks and library resources; 4\. academic fellowships and study visits; 5\. consultants and visiting professors and specialists as required for the in-country development of staff, curriculum and materials; and 6\. support for applied research in educational technology and methodology The eligibility of a proposed plan for funding by EEDP was judged on the basis of the following criteria: 1\. Evidence of infrastructure refurbishing; 2\. Commitment to equipment maintenance; 3\. Prioritizing academic needs; 4\. Linkage to relevant industry; 5\. Expression of institutional needs; 6\. Commitment of necessary human resources; 7\. Academic reform and curriculum development; and 8\. Commitment to share experience and facilities with others\. Engineering Education Program Group An Engineering Education Program Group (EEPG) was formed by the Minister of Higher Education which included the program director as chairman and representatives from faculties of engineering, the Ministry of Higher Education, the industry and the Supreme Council of Universities\. The EEPG acted as a technical body responsible for the development of procedures for the management of the proposed education development plans and for their actual evaluation and supervision\. Proposal Preparation Assistance Service (PPAS) The PPAS activity is a mechanism provided by the EEDP to assist individual faculties of engineering to prepare program proposals\. Such assistance included the provision of expert and technical services, library resource material, material on engineering education, office facilities, \. etc\. Appendix (I-3) summarizes the turn out of this program\. Proposal Implementation Monitoring and Assistance The EEDP management set up Proposal Implementation Monitoring Committees (PIMC) to ensure that the proposed programs are executed properly and in accordance with pre-approved time schedules\. The PIMC committees reported to the EEDP director on the progress of successful education development programs with special emphasis on such vital aspects as: site preparation and infrastructure refurbishing, equipment installation, commissioning, and utilization, curriculum development and the preparation of renovated courseware material\. Also a Proposal Implementation Assistance Service (PIAS) program was introduced whereby smaller faculties of engineering could be assisted in implementing their proposed education development programs\. The PIAS primarily provided the expert service necessary for this purpose\. One or more experienced professors from leading institutions were assigned by the EEDP management to undertake the task of assisting the institution in question by performing the following tasks: supervising the preparation of site and the development of associated infrastructure, inspecting the new equipment, subject them to acceptance testing and supervise their installation, helping in curriculum development and in the preparation of the necessary instruction materials and courseware, making appropriate recommendations for future curriculum development and propose methods of diffusing and sharing experience with other institutions\. 2-Centrally Implemented Activities As mentioned above the EEDP program management addressed and executed a number of additional comprehensive programs which complemented the development plans in individual faculties\. Those programs were implemented on central - i\.e\., national- basis\. Related achievements are summarized below: 6  (1) Basic & Engineering Sciences Curricula Development The physical sciences and basic engineering sciences received special attention by the EEDP\. Ten subjects were identified: Computer Fundamentals, Mathematics, Physics, Engineering Chemistry, Basic Electronics, Basic Electrical Engineering, Thermodynamics, Fluid Mechanics, Materials Engineering, Workshops\. Teams of experts executed the following tasks: reviewing and examining the present state of educational facilities in those areas in all institutions, angd noting the present curricula, instructional materials, laboratories, and their conditions, and teaching and technical support staff, developing what may be regarded as model programs in those areas; assessing the educational deficiency in each institution and the consequent cost of rehabilitating the present programs and facilities\. (2) Consolidating Cooperation between Universities and Industry Realizing that cooperation between universities and industry creates a marriage of both theoretical study and practical skills in a coordinated manner, the EEDP management prompted andlor enhanced the following activities: * Industry was involved in EEDP Policy making by having representatives from industry sit on the EEPG committee\. * Industrial links were set as one of the criteria for funding\. * Curriculum development was founded on actual industrial needs\. * Developed criteria of quality assurance clearly accounted for industrial links\. * Equipment for teaching and research were exchanged between industry and universities\. Computer-based programs were developed at the universities for industrial use\. University testing facilities were used to serve specific industrial needs\. (3) Quality Assurance of Engineering Education The EEDP examined the issue of education quality evaluation in more depth and launched a study, which aimed at the establishment of an independent evaluation and accreditation body for engineering education\. A study team prepared a draft proposal for a national accreditation body\. The proposed evaluation mechanism was applied on sample programs in selected institutions\. The results indicated that the exercise made reasonable success, which was manifested by: * Increasing appreciation and understanding by institutions for the evaluation principles, necessity, and outcome of quality assurance\. * Compliance of institutions with the requirements of the reviewing committees by preparing all necessary material\. * Readiness and ability of the reviewing conmmittees to apply the regulations and procedures stipulated in the evaluation document\. * Ability of the acquired material and associated reports to reflect clearly and professionally the academic standing of the institution under review\. (4) Development of Multi-Media Instructional Materials The EEDP supported the efforts made by groups of professors to develop multi-media materials for engineering students\. The most complete pilot project involved the development of multimedia educational support aids for teaching Fluid Mechanics and Aerodynamics subjects at Cairo University\. The efforts focused on utilizing latest technologies in multimedia area and the experience gained by the Aero-group in recent years in the design and use of computational and graphical presentation techniques as teaching aids and/or support\. The task group developed an interactive multimedia-based prototype educational courseware covering topics of fluid mechanics-field theory, possibly usable by other fields (elasticity, electromagnetics, hydraulics, \. etc\.)\. The developed product is usable by individual students for education/training support and by instructors as teaching/lecture support aid\. The effort incorporated sets of cascaded solvers varying in levels of approximation starting from simple closed form solutions to use of discrete, generalized coordinates, adaptive solvers to model physical flow problems\. The simple solvers help enhancing the understanding of the physical phenomena\. The more sophisticated solvers help to understand, simulate and estimate more realistic field problems such as: air loading on buildings, site aerodynamics in environmental studies, ventilation and reservoir-simulation \. etc\. 7  Also, the model utilized comprehensive data visualization to enhance learning capabilities and faster comprehension of the difficult physical flow problems, where charting, vector maps, line and flooded contouring, and animated simulations can be extensively used\. Furthermore, other multimedia capabilities were used such as stills and video clips to provide alternatives to site seeing, and expensive laboratory experiments, and were supported by carefully planned narration and sound effects\. (5) Introducing Engineering Library Automation The EEDP executed a plan to automate engineering libraries in eighteen colleges of engineering across the country, and their interconnection via a nation-wide computer network\. The automated library system of Egyptian engineering faculties comprises two main components: the Library Automation Software and the Computer Network for Engineering Libraries: The Library Automation Software (LAS) allows the execution of standard library functions required in an academic library, both in Arabic and in English\. In so doing, the software conforms to existing standards and provides user-friendly interfaces\. In addition, the required software allows the exchange of records with the standard-compliant library automation software\. It also provides access to its information via the INTERNET\. The Computer Network for Engineering Libraries (CNEL) provides access to the database of the library collection in different Engineering Faculties\. It provides access to the INTERNET from any node in the network\. Additional capability is the provision of an integrated management system that enables the system administrator to carry out various configurations, perfornance, fault, and security management\. The ability to support multimedia CD-ROMs and provide video conferencing is also gained\. Appendix (I-4) offers a more detailed account of the engineering library automation project\. Summary of EEDP Achievements The achievements attained through the implementation of EEDP were acknowledged by both the Egyptian government and by the faculties of engineering\. From a bird's eye view those achievements may be summarized as follows: 1- The implementation of one-hundred and fiftv nine proposed plans for eneineerinz education development: The plans covered all faculties of engineering and involved all engineering disciplines\. According to Appendix (I-5), 97% the funded plans were designated as being successful\. 2- Human resources development A large number of engineering faculty members was involved in the various activities of the program\. Nearly 15% of all engineering faculty members in Egypt were in one way or another involved in EEDP activities, including preparation of proposals, refereeing of submitted proposals, preparing specifications for educational materials, equipment, and laboratories, and curricular development\. Other means of human development included: study tours inside and outside the country, training courses, and workshops and seminars\. 3- Model curricular development in basic and enaineerina sciences Basic and engineering sciences included; Computer Fundamentals, Mathematics, Physics, Engineering Chemistry, Basic Electronics, Basic Electrical Engineering, Thermodynamics, Fluid Mechanics, Materials Engineering, and Workshops\. Model curricula were prepared and the academic and material requirements for their implementation were identified\. 8  4- Linkin2 academia to industry Activities in this area were manifested by: industry involvement in EEDP policy making, setting industrial links as criterion for funding, curriculum development based on industrial needs, program quality assessment based on industrial link, the exchange of equipment between industry and engineering faculties\. 5- Modern instructional tools development Pilot interactive multimedia-based prototype educational courseware covering a range of topics was developed\. 6- Introducine principles of quality assurance in education Draft documents for quality assessment and for the establishment of a national accreditation body were issued\. Proposed procedures were exercised on sample programs in selected institutions\. 7- Library automation and intra-networKin\. Opening new horizons to engineering education in Egypt by converting education from a traditional form into a modern forn, which keeps abreast with future global developments\. 8- Establishing a comprehensive en0ineerin2 education data base Project's Critical Review As the EEDP approached its completion date by the end of 1998, review committees were formed by the EEDP Director to launch a comprehensive evaluative campaign\. Five committees in charge of five distinct groups of engineering disciplines were formed each headed by a coordinator\. The aim was to assess the level of success which the EEDP reached and underline the obstacles and impediments which hindered its implementation\. The emphasis was put on the first group of EEDP objectives, namely; the fulfillment of education development plans of individual faculties totaling one hundred and fifty nine plans\. Over a period of nearly five months, the evaluation committees reviewed the complete file of each plan, consulted the corresponding monitoring reports, examined the procurement records, and paid visits to the site to seek the response of faculty members in charge of the plan\. The impact of the implementation of each development plan on the associated educational process was in-turn, carefully assessed\. One hundred and fifty nine review reports were prepared by committee members, which were first examined by the committee coordinators\. The findings were then sorted, tabulated and analyzed under the supervision of the EEDP director\. Appendix (1-5) lists the main statistics extracted from the review reports\. Obstacles and Impediments: Based on the review reports, this section summarizes the issues and events, which typically hindered the execution of the EEDP activities\. The issues are categorized according to the source of impediment\. Within each category, the issues are listed in order of frequency of occurrence, the first being the most commonly encountered\. (1) Impeding issues related to Procurement Procedures * Database was not always up-to-date both in specifications and prices\. * Due to practical constraints the manager of a proposed development plan was not necessarily a member of the bid evaluation committee, which meant that decisions relating to his plan were made in his absence\. 9  * Purchasing equipment by "schedule" meant that the components of one facility were independently purchased which sometimes caused problems of incompatibility\. * Penalties permitted by regulations against suppliers seemed sometimes insufficient to ensure the suppliers' cooperation\. * Local regulations and laws created significant paper work and caused delays\. (2) Impeding issues related to the Beneficiary Faculties * Lack of continuity: Some faculty members assigned to prepare, and later supervise the implementation of, development proposals received temporary assignments elsewhere in country and abroad\. * Originally selected site - within the institution - was sometimes altered causing delays\. * Unpredicted increases in the numbers of students made it sometimes difficult to execute instructional procedures as originally planned\. * Incomplete infrastructure caused difficulty in accommnodating and operating new facilities\. * Unfulfilled commitment by some faculty to appoint qualified manpower\. * Inefficient cooperation with some of the monitoring teams\. * Using procured equipment for purposes different from those originally approved, e\.g\. research, graduate studies, and consultation work\. * Some progTarns were run by a one-man team, which adversely reflected on performance\. (3) Impeding issues related to Suppliers * Poor after-sale service and technical support\. * Supplied items sometimes lacked essential parts and accessories\. * Unjustified delays in responding to the requests of faculty members\. v Missing manuals and other illustrative materials, and sometimes are supplied in a language different than requested (English)\. a Supplying items of different origins causing incompatibility in operation\. Lessons Learned and Recommendations for a Similar Future Program The contents of this section are based on the experience gained by the EEDP management in seven years and also by the opinions and recommendations of the project's monitoring and review committees\. The following recommendations are offered to eliminate many of the difficulties, which faced the implementation of the EEDP sub-programs outlined above and detailed in Appendix (1-5)\. With regards to procurement procedures 1\. Reliable up-to-date database must be made available to the PIU and should be continuously updated\. 2\. To ensure that price estimates are realistic proposals should be supported by valid - or recent - offers from suppliers\. 3\. A representative of proposal writers should sit on the bid evaluation committee\. 4\. To ensure a minimum of compatibility among the items of one facility procurement is better performed on "collective" basis rather than by "schedule"\. 5\. The policy of allowing suppliers to receive 90% of their funds up-front (i\.e\. upon shipment) needs to be revised\. 6\. A mechanism whereby equipment is automatically updated during the procurement process is worth seeking, particularly when computers and their peripherals are concemed\. With regards to suppliers 1\. Suppliers may be obliged to hold training sessions for institutions' technical staff\. 2\. Suppliers should be checked thoroughly for technical support and service capabilities; certificates may be issued for that purpose which would then be an integral part of their credentials\. 3\. An agreement for the maintenance, service, and technical support of equipment may be necessary between the suppliers and the institutions\. 10  Part II Technical Teacher Education Development Program (TTEDP) Introduction The Technical Teacher Education Development Program (TTEDP) aimns at reforming the technical education system through the implementation of a new strategy\. This is achieved through the re-definition of the role of technical education on the basis of a realistic assessment of present and future market needs and the improvement of technical education quality by providing better qualified teachers\. Curricula reforming and laboratory upgrading in existing schools and institutes are the main basis on which the program is supported\. 1\. Program Obiectives The Technical Teacher Education Development Program (TTEDP) is intended to initiate a long-term reform of the technical education system in Egypt\. The first step in this process is the establishment of an appropriate institutional framework for the development of a new type of technical teacher education program\. The main objectives of this program are the following: 1\. Integrating theory and practical teaching, merging the roles of the existing instructors and teachers with instructional competence in both theory and practice, 2\. Improving teaching methods in technical education, 3\. Improving curriculum development methodology and procedures, 4\. Developing and producing high quality instructional materials to support teacher training and teaching of technical subjects, 5\. Increasing the supply of technical teachers to meet the needs of technical education on a continuing basis, 6\. Improving the overall management of the technical education system\. 2\. Achievement of Pro2ram Obiectives Implementation of the program objectives involves a series of interrelated policy measures requiring careful programming and phasing\. The following steps have been achieved to attain the required reform program: I\. Review A statistical study about the technical teachers local market needs according to the industrial development program in Egypt has been carried out\. Following this first statistical study, a review about the technical secondary schools' curricula has been carried out in conjunction with the Ministry of Education\. Two colleges have been established in Kubba, Cairo and in Beni-Suef, they would be responsible for both pre-service and in-service teacher training to fulfill the needs of the Ministry of Education three and five years technical schools\. A technical Teacher Training plan linking the IEC curricula with the demands for technical teachers in several areas of specialization, has been prepared according to the required graduate profile\. II\. IEC Graduate Profile The program structure for ten different disciplines offered by the two IECs has been prepared based on new curriculum\. The IEC graduate should be acquainted with the requisite knowledge and skills in both subject specialty and pedagogy\. The graduate profile is deternined taking into consideration the required principle job of the graduate\. The program structure for the different disciplines is given in Appendix II-1\. IECs Program Design Committee According to both, the existing education level in secondary industrial schools and the required graduate profile, the IECs program and curriculum design committee has established some criteria for the program structure\. The IECs curriculum design committee has also established the required common courses which are designed to serve students in all disciplines These courses are scheduled in the first three semesters in order to guarantee a uniform level of knowledge for the different students intakes\. The newly developed program structure has been discussed with foreign professional experts from Canada and USA\. 11  Disciplines Curriculum Design Committees The IECs curriculum design committees have been formed in different specialization's from selected faculty members from Egyptian universities, institutions and industry to prepare the program technical courses\. Nine committees have been formed in all disciplines except Textile technology\. These specialized conumittees designed the courses to contain the following: - Course contents related items - Course instructional support items - Course practical related items - Course teaching requirements The IECs program design committee has previously defined the required contents of the common courses, which will serve all students according to the aimed graduate profile\. More than sixty-five experts from universities and industry were involved in the design of ten programs containing one hundred and eighty courses\. The program structures for the ten disciplines are given in Appendix II-2\. Foreign Technical Assistance In order to evaluate the developed programs and curricula, the program management has, after consultation with World Bank experts in Canada, USA and the UK, made a short list of institutions that have the capacity and experience to offer technical assistance in the evaluation process\. In order to unify the evaluation of proposals, a point system has been established by the program management as criteria for the proper judgment and selection of the received proposals from the institutions\. The selection committee has finalized the evaluation of the different proposals and decision has been made to select the offer of Bolton Institute for Higher Education (BIHE), presented through the British Council in Cairo\. The decision was made based on the following: 1\. The BIHE has a previous experience and knowledge of the technical education system in Egypt\. 2\. The existence of the British Council in Cairo as a joint contractor will facilitate the communications and will make the British Council formally responsible to the program management for the fulfillment of the required evaluation job\. 3\. Having the lowest financial offer\. Cairo Workshop In the period 12-14 July 1994, the program management has organized a workshop\. The objective of the workshop was to permit a mutually creative discussion between the BIHE evaluation team and the local experts by whom the program structure and curricula have been designed and developed\. Three specialized sessions in the three main disciplines (Electrical, Mechanical and Civil) have been formed to discuss the technical remarks and comments made by the BIHE evaluation team of experts\. The contents of courses in each discipline were then finalized between the local experts and the BIHE evaluation team after extensive discussions and mutual agreement\. III\. Staff Training During implementation, the originally planned overseas fellowships program has been changed from training fellowships to fellowships to obtain M\.Sc\. and Ph\.D\. degrees in Technical Education\. According to the law No\. 49-year 1963 governing higher education in Egypt, full-time faculty members to be appointed in colleges and higher institutes must be holders of a Ph\.D\. degree\. Initially, extensive efforts have been made to establish a new law for the IECs different from the existing law governing Higher Education in Egypt\. The proposed law does not necessitate faculty members to be Ph\.D\. holders, since practical experience is highly needed in this kind of education\. The new proposed Law has been processed by all concerned authorities at the MOHE, and was then sent to the State Council for approval\. The Council did not comply to the MOHE request, for possible conflict with the constitution\. The Council suggested changing the law governing the Technical Education in general instead of making a new law for the two IECs colleges\. Accordingly, it was necessary to qualify the IECs staff members according to the existing law No\. 49-year 1963\. This exercise has delayed the beginning of the staff training for about two years\. 12  The program management has advertised at the beginning of the year 1995 for assistant lecturer positions\. Thirty engineers from the top of the graduates of engineering colleges with minimum two years practical experience have been selected after being interviewed and were employed as assistant lecturers\. Arrangements were then made for their immediate enrollment at the Technical University of Eindhoven (TUE), the Netherlands for 24 months to obtain M\.Sc\. degrees in Technical Education\. Selection of TUE has been through international competition\. A short list of six institutes from USA, Canada and Europe has been made and was approved by the World Bank\. Request for proposals for offering a program in Master of Science in Technical Education has been sent to the six institutes\. Terms of reference and evaluation criteria prepared by a committee formed from the two deans of the IECs, two experts in technical education and the program director have been forwarded to the six institutes\. The evaluation criteria did include the following: 1\. Institute background and previous experience\. 2\. Structure of the offered M\.Sc\. program in Technical Education\. 3\. Financial terms\. The selection committee selected the proposal of the TUE and PTH Association because it was the best technical proposal and the lowest financial offer\. - Actually, 22 assistants (one out of the 22 was employed by IEC Kubba before the program started) have completed their studies and came back and got their official M\.Sc\. in January 1997\. The other 9 are still working in Eindhoven towards their M\.Sc\. degree expected to be finalized by July 1999\. - In addition, 6 assistants have been sent to university of Northombria and Huddersfield university in the UK to obtain their Ph\.D\. degrees in different technical disciplines, and a Diploma in Education\. These two universities have been selected as the best institutions in the UK to offer Ph\.D\. degrees in the required disciplines\. The selection was made after a study tour was organized by the British Council in October 1997 for the program Director and the Dean of the IEC in Beni-Suef to visit six UJK universities, which were originally polytechnic institutes\. IV\. Pre-Service Training Program The pre-service training program is intended for the entrants from the graduates of three- and five-year technical schools\. The main source of entrants would be from the five-year schools and the students would follow a three-year course\. The graduate students from three years schools are enrolled in the first year of the IECs\. However, the graduate students from five years schools are enrolled in the second year of the IECs\. Tables I and 2 show the targeted enrollment and achieved numbers in Kubba and Beni-Suef respectively\. The details of the achieved enrollment and graduates by specialization for both IECs are given in Appendix II-3\. Table 1: Targeted and Achieved Enrollment in IEC Kubba Academic 3-Years Industrial 5-Years Industrial Total Total Year Secondary Schools Secondar Schools Targeted Achieved Targeted Achieved Targeted Achieved 91/92 74 68 157 128 231 196 92/93 240 141 60 193 300 334 93/94 240 131 60 278 300 409 94/95 240 168 60 287 300 447 95/96 240 228 60 386 300 614 96/97 240 219 60 439 300 658 97/98 240 275 60 513 300 788 13  Table 2: Targeted and Achieved Enrollment in IEC Beni-Suef Academic 3-Years Industrial 5-Years Industrial Total Total Year Secondary Schools Secondar Schools Targeted Achieved Targeted Achieved Targeted Achieved 93/94 200 73 50 - 250 73 94/95 200 240 50 177 250 417* 95/96 200 129 50 77 250 206 96/97 200 182 50 54 250 236 97/98 200 173 50 78 250 251 98/99 200 186 50 129 250 315 * The achieved number of students has suddenly increased in 1994/1995 academic year due to the college good reputation after one year of operation\. However, in the year 95/96 the college had requested the MOHE to reduce the number of students accepted for enrollment according to the planned capacity\. In-Service Training Program According to the Program Action Plan two in-service training programs supposed to be offered\. The first program is for one year and offered to the theoretical teachers in Secondary Technical Schools\. This program consists of a didactical part and practical part\. By the end of the program the teacher will have a Diploma in Technical Education\. The second program is for three years and offered to the practical teachers in Secondary Technical Schools\. The program period is three years, the teacher will attend the program for three days a week and the other three days he works in his school\. After the completion of the program, the teacher will have a B\.Sc\. in Technical Education\. The first program was not appealing to the theoretical teachers (all have B\.Sc\. degree in Engineering) because they are very busy in giving private lessons to the students and they think that the B\.Sc\. degree in Engineering is quite enough\. On the other hand the second program has attracted a huge number of practical teachers because they have only Diploma from five years secondary schools and every one wants to have a B\.Sc\. degree to have a better salary scale, and as a social requirement\. The second in-service training program was offered at IEC Kubba for the existing practical teachers in technical secondary schools starting from year 93/94\. There was not enough staff members at IEC Beni- Suef to offer the same program\. The enrollment statistics for the in-service training program in Kubba IEC is given in Table 3 by specialization\. Table 3: Enrollment for in-service plan at IEC Kubba Year Production A/C Automotive Electrical Electronics Total 93/94 32 13 15 22 13 100 94/95 26 16 8 20 8 78 95/96 10 14 11 16 12 63 96/97 16 13 12 23 20 84 V\. Refurbishing Refurbishing the buildings in IECs Kubba and Beni-Suef has been carried out\. In IEC Kubba, three old buildings have been refurbished including the administration building\. A new, four stories building was established to include workshops, laboratories and auditoriums\. The fourth floor was built as an open area and was later partitioned to accommodate a Teachers Training and Development Center (TTDC)\. In IEC Beni-Suef the main education and administration building which was built initially to accommodate a commercial institute has been refurbished\. Also, the fifteen years old unused workshops building was refurbished and totally renovated according to the new concept that the students take the practical related classes in the workshops\. A new three stories building for the health care unit and accountants unit has also been established\. The third floor was deto be an open area and was later partitioned to accommodate the 1TDC\. 14  VI\. Laboratories and Workshops In order to ensure the required quality of teaching the IECs were equipped with different laboratories to serve the different courses in the different disciplines\. A list of laboratories and workshops according to specialization is given in Appendix II-4\. VII\. Teacher Training and Development Centers (TTDC) For the sustainability of the IECs teachers level, two Teachers Training and Development Centers (TTDCs) have been established\. The TTDC mission is to develop highly qualified technical teachers, as well as to provide them with information needed in the ongoing of education\. The TTDC objectives are: - To develop an appropriate system of selection of student teachers\. - To maintain and develop better educational service\. - To sustain top standards and best quality of teaching process\. - To do needs assessment, objectives setting, programs design, implementation and evaluation procedures\. - To function as a nucleus for training of the fellow teachers of the college\. - To provide refresh training on inset basis and regular updated information to teaching body\. - To offer training programs to staff members in Middle Technical Institutes\. - To offer the know-how to other colleges in the field\. - To establish and maintain contact with other institutes\. The TTDC in every college comprises the latest technology in the fields of information systems, education facilities, studios, computer based training, video conferencing, multimedia, \. etc\. Both TTDCs are equipped with the following labs: - Computer Labs - Simulation and Internet Lab - CAD/CAM Lab - Audio/Video Production Lab - Micro teaching Lab - Video Conferencing Lab 3\. Program Sustainability To maintain the 'ITEDP program sustainability two TTDCs were established in the two IECs to offer training programs to the IECs faculty members in the area of curriculum development, institution administration, evaluation and assessment, \. etc\. Ministry of planning allocated a budget for the two IECs within the MOHE fifth plan (1997/2002) budget\. Also, the missions department with MOHE allocated in the mission's fifth plan two missions abroad and another two missions in Egypt every year for the assistant lecturers in the two IECs to obtain a Ph\.D\. degree in different disciplines\. 4\. Future Operation It was aimed to establish the two IECs as centers of excellence and to maximize the benefits from the World Bank project\. As indicator of success of the TTEDP program, another two IECs were established, one with Suez Canal university in the city of Suez and the other with South Valley university in Qenna\. Both colleges have used the curricula developed for the two IECs in Kubba and Beni-Suef\. The program management was sharing committees for faculty member's recruitment in IEC in Suez\. Five applications have been submitted to MOHE to establish other IECs in Sohag, Zagazig, Manzala, Kanater Elkhairia, and Domiat\. MOHE did not take any action in these applications because of lack of funds\. A ministerial decree was issued in October 18, 1998 to establish a sector committee for IECs under the umbrella of the Supreme Council of Universities\. The comrnmittee will look at the approval of the IECs internal regulations\. Currently, the MOHE is working on a new project financed by the World Bank and Donor Countries for the development of university education and higher education in Egypt\. A national committee has been formed by a ministerial decree in October 31, 1998 to look at politics, strategies and objectives of higher education in Egypt\. 15  5\. Problems Encountered a\. Establishment of Buildings Delay in the civil construction work resulted in delays in refurbishing the buildings in the two IECs\. Reasons for this delay are: - Lack of experience of the engineers working in the department responsible for the supervision of the civil and architecture work in the MOHE\. They neither take decisions nor are willing to solve technical problems\. - Lengthy procedures in finalizing the contracts and in the financial payment to the contractors resulted in delaying the construction of the textile building in IEC Beni-Suef\. * To overcome such a problem, it is recommended to contract a specialized consultant to supervise the civil work\. b\. Installation of Equipment in Workshops and Labs During the installation of the equipment in the workshops and labs, the following difficulties were encountered: - Many suppliers have no experienced technicians in Egypt who can take care of the installations of the supplied equipment and operate them\. - Delays in releasing equipment from customs, and sometimes carelessness in the transportation of shipment to the colleges resulted in some damages and loss of small items\. - The short time between the erection of the equipment in place and commissioning them in the education process made it very difficult to order some urgent supplementary spare parts and accessory tools to complete the labs\. * To overcome such difficulties, it is recommended that every contract with suppliers must include installation, testing and turn over of the supplied equipment by the main supplier\. C\. Recruiting of Technicians and the Administrative Staff - There are very few technicians working in the two colleges\. This was a very crucial issue and MOHE personnel department have not been supportive in fulfilling the needs of both IECs because of limited job resources and low wages\. - Shortage in the administrative staff of crucial professions such as store keepers and clerks working in the students affairs departments, as well as workers for cleaning and guards, put heavy burden on both IECs to inspect the equipment and finalize delivery procedures\. * It is clear that the payment scale offered by MOHE for trained technicians is not adequate to attract qualified technicians\. It is recommended that a different payment scale for qualified technicians be adopted through annual contracts away from government salary scales\. d\. Local Funds Allocation - Ministry of planning delays the allocation of the local funds for more than four months every fiscal year and it is not allowed to make any disbursement from these funds one month before the end of the fiscal year\. That is to say the actual implementation is about seven months a year\. e\. Students Background - The students from secondary industrial schools enrolled in IECs have a weak background in basic science subjects as mathematics, physics and chemistry\. * Short courses in basic science subjects should be offered to secondary industrial schools students enrolled in IECs during August and September before the beginning of the first semester\. f\. Teaching Language - The medium of instruction in IECs is the English language\. This is one of the major obstacles because all students enrolled have very weak English language\. * The English language courses contents offered by IECs should be reviewed and the teachers of the courses should be selected carefully with good teaching experience\. 16  g\. Employment of Graduates - The IECs were established to supply Ministry of Education with integrated teachers in different disciplines for the secondary industrial schools\. The students enrolled in the colleges had to sign an agreement stating that he is committed to work as a teacher in secondary industrial schools for seven years after graduation\. Last year Ministry of Education has advertised for 50 thousands teacher position\. The advertisement was opened for any graduate from any college (e\.g\., Engineering, Commerce, Arts, \. \.etc\.) and not only restricted to graduates from colleges of education and IECs as used to be, which is considered as change in Ministry of Education politics\. * Ministry of education should retain the system used to higher teachers in secondary schools\. Also, a one-year diploma in industrial training is going to be offered by IECs for graduates want to work as trainers of the trainers in industry\. 17  Part III Implementing Agency: Projects Implementation Unit (PIU) Ministry of Higher Education (MOHE) ENGINEERING AND TECHNICAL EDUCATION PROJECT (ETE) IBRD LOAN No\. 3137-EGT PIU EXPERIENCE INTRODUCTION 1\. This part of the report will focus on financial and procurement aspects of ETEP and its two program components EEDP and TTEDP\. The PIU accumulated experience, the problems encountered and how they were resolved, the lessons learned, and suggestions for future considerations to improve implementation performance, will also be the subject of this part of the report\. Although some of the common problems are addressed in each of the three parts, it is useful, however, to see them from the point of view of each of the three Management Team\. Tables and charts are included in appendices\. Project Background Information 2\. On December 8, 1991, a Ministerial decree was issued to appoint a new Management Team, a PIU Director and two project components Directors for EEDP and TTEDP\. The team met with World Bank Supervision Mission to Establish a detailed five years plan based on the SAR\. A Ministerial decree was issued on February 22, 1992 to establish the PIU\. Although preparation for the implementation of project activities started immediately after the management team has been appointed, the establishment of the PIU started in mid July 1992, when the first transfer to the Special Account was made by the World Bank\. Salaries of all the appointed full-time staff, as well as the management team, were delayed for over six months after the local funds were approved by the Ministry of Planning (MOP) on May, 1992\. The PIU had to request approval from the World Bank to temporarily pay salaries of the PIU staff from loan proceeds until all the necessary approvals to pay them from local funds were granted\. It took another six months for this issue to be resolved, i\.e\. about a year from project startup\. This issue of salaries and startup costs could have easily been resolved if initial funds in the form grants were made available up front, complementary to the loan funds, to enable the PIU make a proper startup of project activities\. 3\. Appendix III-I contains collective background information about the project\. Basic financial data about loan amount, contingency funds available, limits set for local shopping (three offers basis), and the amounts disbursed within this limit, are included\. Govermnent contribution funds according to the loan proceeds, the additional government funds that were requested and approved during the course of project implementation, as well as the undisbursed amounts from both the loan and the local funds, are also included\. All dates representing milestones in project implementation were also included to give all the necessary background information about the project at a glance\. 4\. The project was extended three times for the many delays encountered, the first of which is delay in the startup and transfer of funds\. Other delays for diverse reasons will be realized when reading through the borrower's report\. The last closing date of the project was December 31, 1998\. The P1U was granted a four months allowance period after the closing date to finalize all pending payments and transactions that were due before the last closing date in accordance with World Bank regulations\. The last contract 18  Financial Records 5\. Appendix III-2 includes charts and tables that demonstrate all financial records kept at the PIU for various project disbursement activities classified in three main categories of expenditure, namely; Goods, Expert Services and Training Activities\. The first Chart No\. III-2\.1 illustrates the original budget included in the loan agreement, for each project component, and for the total budget as a whole\. Unallocated funds are also demonstrated and were split among the two project components on equitable basis, in the ratio of their originally allocated budgets (a ratio of 3:2 between EEDP and TTEDP)\. Three budget amendments were made during the implementation of all Project activities\. Changes were introduced to meet the needs in different categories of funding\. In the third and final budget amendment, 89% of the total project funds, including contingencies, were allocated to Goods as compared to 70% allocated in the original budget\. About 3% of the total budget were allocated for Experts Services as compared to 9% in the original budget, and the remaining 8% were allocated to training activities as compared to 11% in the original budget\. It can be concluded that funds allocated for Goods were maximized to fulfill the needs of the faculties and IECs, and those allocated for Expert Services were minimized, although many peer experts were hired\. 6\. The following chart No\. 111-2\.2 gives the cumulative disbursement under the loan agreement, indicating total expenditures on yearly basis\. The two dotted curves are replicas of the original profile for annual disbursement as estimated in the original loan agreement, the start of each curve is shifted by one year to give an indication of how the actual curve is closer to the dotted one\. This shift reflects the delay in startup as indicated above, and also indicates slow disbursement at the startup as well\. Also, the original curve is flat towards the end, indicating that majority of expenditure was estimated to be during the central period of implementation\. The actual curve, however, is much steeper towards the end than the originally estimated one reflecting that a substantial amount of funds were disbursed towards the end of the project\. This was for a number of accumulated reasons that caused the delay in disbursement as indicated and discussed in all three parts of the report\. 7\. A similar approach was followed to present a comparison between the original and actual annual disbursement curves as shown in Chart No\. III-2\.3\. Notice that the actual disbursement Curve, is flatter during the middle part of implementation than in the original one where a much higher peak is apparent\. The reason for the difference is that in the original plan, procurement for the TTEDP component was meant to take place in three stages, the second stage being the largest one\. In the actual implementation plan, however, procurement was made on five stages (five international tenders)\. The reason for the larger number of procurement stages is because some of the procurement activities had to be delayed under TTDEP until existing buildings at the two IECs were refurbished and/or new ones were completed\. Notice that the two curves would become similar to each other (having a similar peak and distribution) if two consecutive years are added together in the actual disbursement curve, in effect implying that two procurement cycles are combined together\. 8\. A more accurate chart can be plotted from the quarterly disbursement record included in Table III-2\.1 included in Appendix III-2\. The table contains actual disbursement records on a quarterly and annual basis classified into the three main categories of funding, namely Goods, Experts Services and Training Activities, and their totals are included as well\. Monthly disbursement statements are also available on PIU records\. 9\. Table III-2\.2 gives a summary of the final financial status of all procurement transactions at a glance\. The table includes, for each project component, detailed summary information on all procurement transactions under each category of funding, with totals of each category and an overall total\. The information contained in the table is as follows: the total number of successful suppliers in all international tenders for each project component, the corresponding number of L/Cs opened, and the preliminary total contract values for which the "No Objection" from the World Bank was granted to the PIU\. Also, the contracts are classified into two types, those over 100,000 US$ paid directly by the World Bank through Special Commitment (S/C), and those under 100,000 US$ paid directly by the PIU from the special account (S/A)\. Final contracts' payments is also included and classified under the same two types of contracts\. Table 111-2\.3 includes the breakdown of the same information, for goods only, under each intemational tender for both components of the project\. Detailed breakdown of Table 111-2\.3 on the level of individual contracts under each international tender, for each of the two project components, is also available at the PIU\. It can be seen that the final contracts' payment is lower than the actual contracts commnitted\. The reasons for this difference are clearly illustrated in the following Table III-2\.4\. 19  10\. Detailed summary of deductions due to reductions in final contracts' values, cancellation of some or part of the contracts, penalties on suppliers for late delivery and/or non compliance with specifications, and difference due to currency exchange, are all included in Table III-2\.4 and visually presented in Chart No\. III- 2\.4\. Notice in this table that the allocated funds under the procurement of goods category were marginally exceeded\. The PIU had to cancel some of the contracts that the suppliers failed to confirm, in writing, that the delivery date of the goods will be before the closing date of the project in December 31, 1998\. Some other contracts were reduced and penalties imposed on suppliers for many reasons such as; the supplier failure to deliver the contracted equipment according to specifications, country of origin different than that quoted in the offer and in several cases, reluctance of suppliers to deliver part of the contracted equipment\. Difference in currency exchange exceeded quarter of a million US$ as indicated in table III-2\.4\. In addition, the World Bank Financial Officer in Washington returned to the PIU 19 out of 23 procurement transactions, worth over half a million US$ for inconclusive documents presented by the PIU? It is important, however, to note that all returned transactions were retention payments for Goods only, and not Services, that were contracted for, shipped and delivered before the closing date of the project in December 31, 1999, which makes them eligible for payrnent according to World Bank regulation! The aggregate amount of the above mentioned deductions explain the reasons for the undisbursed amount in the procurement of goods category\. Also, Chart III-2\.4 clearly illustrates the reasons for the undisbursed amounts in each category of funding\. Action taken: Eighteen out of the nineteen transactions returned to the PIU were then acceptedfor payment after the Financial Officer from the World Bank recently came to Egypt, reviewed the documentation and had copies of conclusive evidence that the eighteen transactions are eligibleforpayment\. The only one transaction declined, in the amount of the equivalent of eight thousand US$, was because it was components and accessories of machines that were delivered earlier, but were not yet assembled before the closing date of the project\. At the time of writing this report,final payment of the above mentioned eighteen transactions was not yet made, and therefore were not included in the statistical data\. Final tables and statistics can be finalized and made available only after payments are made, and currency exchange rates determined PIU Expenditure 11\. The total amounts spent by the PIU from the loan proceeds over the lifetime of the project was slightly less than 150,000 US$, and the equivalent of slightly over half a million US$ from the local government funds allocated for the two project components\. All PIU expenses were divided and charged among both project components on equitable basis, in the ratio of their originally allocated budgets, i\.e\. 3:2\. PIU expenditure from the loan proceeds were devoted to administrative expenses such as stationary, computers and their peripherals, \. etc\., whereas, local funds were mainly used to cover salaries of PIU administrative staff, as well as those of the management team\. Disbursement from Local Funds 12\. The major portion of the local funds, were allocated for refurbishing and constructing new buildings that are needed for the two IECs in Kubba and Beni-Suef (Educational buildings, laboratories, workshops, training centers, \.etc\. According to the loan agreement, the local budget was 26\.8 ML\.E, corresponding to 8\.1 MUSS\. This budget was increased twice to cover the needs of the TTEDP project component to construct new buildings, and refurbish old ones that were already stipulated in the SAR, as well as other new buildings, the need for which was identified later during implementation\. The first increase was for 12\.5 ML\.E, equivalent to 3\.8 MUSS, and the second one was for 7 ML\.E, equivalent to approximately 2\.2 MUSS\. By the closing date of the project, some of the local funds were still available, and their reallocation for the next fiscal year to cover pending project activities was requested from Ministry of Planning (MOP)\. Table III-2\.5 includes expenditures made from the local funds, under each project component, classified in the main categories of funding, namely; refurbishing, goods (to cover custom clearance, transportation costs, and other costs related to the procurement of equipment), experts services, and training and research activities\. It is clear that the total expenditure of the project (loan and local funds in the amount of 40\.7 MUSS) exceeded the targeted value of 38\.6 MUSS, although the distribution of disbursement between the loan and local funds differed for the reasons mentioned earlier\. 20  13\. Based on the recommendation of the World Bank expert's evaluation of the overall activities of the two project components, four MUS$ were requested from MOP (currently under consideration) to cover a two years program with the following objectives: * To complete the valuation of project's outcome and its impact on all the stakeholders; * To support a number of critical measures needed to ensure sustainability of project's achievements; * To complete the documentation of the best practices and lessons learned from EEDP, TTEDP and PIU experiences, and use them as inputs to inform the design of the proposed new project of reform in higher education; and * To provide a link to the new project by developing a series of monitoring, evaluation and benchmarking instruments and testing them on institutions and programs supported by ETEP\. Procurement Records 14\. During the startup of project implementation, the PIU Director arranged, through the UNESCO office in Cairo, a trip to visit the procurement department at the International Labor Organization (ILO) in Geneva, who implemented several World Bank financed projects worldwide\. The trip also included a visit to ILO's Training Center in Turino, Italy, as well as to IAPSO, an organization in Denmark under the United Nations responsible for procurement of goods for all other UNDP organizations\. The purpose of the visit was to learn about sound international practices in the procurement of equipment, and to identify a suitable computerized procurement system that can be used by the PIU to implement all its procurement activities in accordance with World Bank regulations and guidelines\. 15\. The Computerized Procurement System (CPS) developed by ILO was selected and initially used by the PIU to implement its procurement activities\. The system was further developed by the PIU computer staff, and it was totally changed (completely rewritten) to operate under windows environment using Access as a database instead of Foxpro\. A comprehensive equipment database, originally developed by ILO, was also used to prepare the technical specifications of equipment in the diverse specialization under consideration\. Price estimates were included to give approximate estimates for budgetary reasons\. The full bidding document was completely developed using this computerized procurement system\. Also, the system was further developed to produce the complete Bid Evaluation Report as well\. 16\. The CPS developed by the PIU was made available to all faculties of engineering participating in the project, as well as for the two IECs in Kubba and Beni-Suef\. Also, the PITJ informed the World Bank, in the procurement round table meetings, of its willingness to install a copy of the complete system at the Resident Mission in Cairo, and/or at any other PIU implementing other World Bank financed projects\. The PIU computer staff installed the complete system in one PIU implementing a World Bank project, and trained its personnel until the system was fully operative and the procurement personnel were able to produce their first Tender Document, and Bid Evaluation Report\. 17\. Two of the PIU staff were sent one after the other to the ILO Training Center in Turino, to attend a five weeks training course on procurement under World Bank regulations\. This was a very valuable exercise that enabled all the PrU staff to benefit from the experience gained by the two staff members that attended the training course\. The PIU personnel have also gained a considerable amount of accumulated experience in implementing projects financed under World Bank guidelines and regulations\. The procurement and financial officers at the PIU were hired several times as part-time consultants to assist other PIUls in the start-up of their financial and procurement records, as well as in the international tendering\. 18\. The bidding document was prepared by the PIU based on the World Bank Procurement Guidelines and Regulations manual, and was adapted to meet Egyptian needs, within international practice\. It took several iterations over a period of six months until the bidding document, was approved by World Bank procurement experts\. This was also one of the reasons for the delay in the startup of procurement activities, in addition to delays in the transfer of funds\. 21  19\. Twelve International tenders were executed by the PIU, as well as procurement through the Local Shopping Mechanism (Direct Order by considering at least three offers) was also pursued by the PIU\. Up to 2\.6 MUSS were allowed by the World Bank under the Direct Order mechanism, the PIU bought about 2\.0 MUS$ worth of equipment under this scheme\. Contracts were concluded and L/Cs were opened for about 500 procurement operations\. Table 111-3 \.1 contains all the necessary administrative details and financial summary of international tenders and Direct Order procurement under the loan agreement\. The table contains information about various dates such as; date of invitation to bid, bid opening date, start and end of bid evaluation\. Dates for the "No Objection" authorization from the World Bank, dates for the Notification of Awards to Suppliers, and the starting dates of L/C opening under each international tender, are also included\. Detailed records for every individual transaction under each international tender for each project component are included in a separate document kept at the PIU\. In addition, the number of suppliers participating in tenders, as well as the number of successful bidders are also included in the table\. 20\. Goods were procured from about twenty countries worldwide\. The majority of equipment (over 90%) was procured from well reputable countries\. Chart No\. III-3\.1 indicates the size of investment in the procurement of goods from the twenty countries supplying the equipment under the twelve international tenders\. Well over three hundred contracts, worth over 25 MUSS, were concluded for both components of the project, as indicated in the chart\. The following chart No\. 111-3\.2 includes the total value of contractual agreements that were concluded with each successful bidder, for contracts over 100,000 US$, paid directly through the World Bank via Special Conmnitment (S/C)\. Nearly 23 MUSS out of the 27\.2 MUSS allocated for procurement of goods (around 85%) were disbursed under the S/C scheme\. The rest of contracts under 100,000 US$ were executed and paid directly by the PIU through the Special Account (S/A)\. Chart III-3\.3 is the same as Chart No\. III-3\.2, but for contracts below 100,000 US$ and above 25,000 US$, and Chart III-3\.4 are for contracts under 25,000 US$\. Detailed records for every contract made with each supplier are also available at the PIU in a separate document\. LESSONS LEARNED 21\. The following is a brief account of the problems encountered by the PIU, the impediments that, in so many cases, delayed implementation and the initiatives made by the PIU to resolve the majority of these issues\. Precautions and recommendations for the successful implementation of future projects with minimal delays are also included, whenever feasible\. Financial Issues 22\. Delays in presenting Proforma Invoices by the Suppliers: In the tender document, a thirty days allowance period is given to suppliers to present their Proforma Invoices after the date in which they receive the Notification of Award from the PIU\. In many cases delays were in excess of six months\. One of the reasons for the delay is the supplier's failure to present accurate and complete Proforma Invoice\. Missing information about the supplier's corresponding Bank, port of export, country of origin, wrong equipment, \.etc\. are among the reasons for the delay\. In so many cases it took several iterations between the PIU and the supplier until he presents the correct Proforma Invoice\. Some suppliers did this intentionally in order to prolong the time quoted for delivery of equipment by delaying the date of opening an operational L/C (with no mistakes), the time from which delivery period is counted\. 23\. Delay in presenting the 10% Bank guarantee and/or presenting a conditioned guarantee that is unacceptable to the PIU in accordance with World Bank regulations\. It took quite a number of suppliers several iterations with the PIU to present an unconditional Bank guarantee\. In many cases, only part of the conditions were corrected, then after requesting the removal of the rest of the conditions, the supplier responds to our request by removing them and adding totally new conditions, and so the delay process goes on\. In some cases, the PIU had to cancel contracts with suppliers that over did it to the extent of abusing the PIU's tolerance to accept this matter, given that the altemative of re-bidding is lengthy, especially when you don't have another successful offer to consider, that is technically acceptable\. 22  24\. Part of the essential documents needed by the National Bank of Egypt to open the LlCs for local suppliers to pay them in foreign currency, is the approval of the Ministry of Economic to authorize the PIU to issue payments to the local suppliers in foreign currencies\. In some cases, this process caused considerable delay in opening the L/Cs\. Action taken: A PIU representative was dedicated to follow-up with the Ministry of Economics, on a daily basis, considerably reduced the delays\. 25\. Another document that is needed by the National Bank of Egypt to open a L/C is the preliminary estimate for customs duties on every shipment arriving to Egypt\. This was necessary in the absence of referencing the UNESCO agreement in the loan proceeds, being the only agreement that exempts all educational equipment from all customs duties, as well as from taxes\. Note that, although the Sales Tax was introduced after the project started implementation of its activities, the PIU had a lot of hard time convincing the Tax Authority that all the equipment purchased are for educational purposes\. High officials in the Tax Authority approved temporary release of the equipment, after the PIU Director presented a signed testimony that he is fully responsible to pay all the taxes (same goes for customs duties), and expenses incurred, in case of failure to present Tax (and Custom Duties) exemption certificates\. This process kept ongoing for at least the first four years of implementation until the letter was received from the Minister of Finance exempting every individual shipment at a time\. Recommendation: The World Bank should consider in his future projects stating explicitlv in the project legal document that UNESCO agreement is applicable\. Also, to help the implementing agency perform its duties, the Bank should consider having the government agree, in writing, on the exemption of all the goods to be procured for educational purposes under future projects, from all forms of taxes and customs duties\. This would save the implementing agency from having to get exemption certificate for every individual shipment\. 26\. In many situations, the shipping documents were considerably delayed, and arrived to the PIU well after the shipment arrived to Egypt\. As the PIU cannot initiate customs clearance procedures without having the shipping documents, considerable delays and penalties were imposed, particularly for storage, and had to be paid by the supplier\. Action taken: Suppliers were frequently reminded ahead of time, and before expiry of the delivery date, to issue three original shipping documents as stipulated in the Bid Document, one of which goes for the PIU, and follow-up with their Banks to make sure it reaches the PIU before shipments arrive\. 27\. Towards the end of each fiscal year (during March or April), the PIU requests from the Ministry of Planning (MOP) the budget needed to implement its committed and planned activities during the fiscal year, presenting all the necessary documentation to justify the requested budget\. Unfortunately, by the beginning of each fiscal year, and towards the end of July, MOP only approves a very small portion of the budget requested\. The PIU had to resubmit an identical copy of the application and the support documentation, and it took MOP a long time (2-4 months) to approve the whole budget that was requested well before the fiscal year begins\. This process had to be repeated every year, thus causing major delays in issuing payments to suppliers, despite the continuous daily follow-up by the PIU to speed up the approval process, which essentially requires approval of the Cabinet of Ministers again\. The PIU requested intervention from the MOIC to help accelerate the approval process, with little success to reduce the time\. In effect, the project implementation was fully effective 7-8 months annually\. Recommendation: To ensure (through a kind of written agreement) that MOP approves the budget needed, so long as the support documents show conclusive evidence of contractual obligations and commitments\. This will considerably improve implementation for not having to repeat the elaborate mechanism of getting the Cabinet of Minister's approval twice to get the same originally requested budget approved with the identical support documentation\. 23  28\. When buying goods from the local market, according to the loan agreement, 80% of the contract value was to be paid from the loan, and 20% from local funds to cover all forms of taxes and customs duties, which are not eligible for payment from the loan\. In the absence of a local account for the PIU, extensive delays in paying the 20% were realized\. According to the Ministry of Economics, which issues approvals to government agencies to open accounts in local currency, the PIJ is not authorized to open a separate account in the presence of MOHE's accounts\. Accordingly, the PIU had to use the Ministry's mechanism to issue the 20%, which are lengthy and require different sets of documents than those required under World Bank regulations\. Action taken: The PIU had to struggle all along the different phases of implementation and insist on having the Ministry issue the 20% without having to go through the elaborate mechanism of producing the required documents for disbursement from local government funds\. This process had to be repeated many times, ie\. every time the staff at MOHE is changed\. Recommendation: An account in local currency has to be opened to correspond to the Special Account in foreign currency away from the MOHE accounts\. This has to be done with the approval of the Ministry of Economics\. Also, disbursement procedures from both accounts have to be made the same to avoid any delay in retention payments and/or the 20% from the local funds\. This should not cause any problems to concerned government authorities since auditors from the government review, on regular basis, disbursements made from both accounts\. 29\. One of the major obstacles in issuing retention payments to suppliers who fulfilled their contractual obligations, was the delay of the faculties of engineering in presenting to the PIU the final acceptance documents for the equipment they received\. By law, the PIU cannot release the retention payment, nor the 10% performance guarantee, unless the final acceptance documents are in hand\. The following are some of the diverse reasons for the delay in inspecting and testing the supplied equipment and in issuing the acceptance documents: * Difficulty in gathering the inspection committee members, together with the supplier's representative, particularly during summer holidays, and in universities outside greater Cairo where travel arrangements have to be well coordinated and made ahead of time\. * Absence of the store Keeper of the concerned faculty most of the time\. He is the administrative key person responsible for issuing the final acceptance documents\. * Suppliers frequently request permission to change some of the contacted items, or deliver items other than those contracted for without requesting PIU approval, or deliver the equipment with missing cables, catalogues, spare part items and/or tools and components that are necessary for the installation process\. In cases like computers and their peripherals, where rapid upgrading and technological changes takes place, the TEC accepts the supplier's request when it is an upgrade of all its technical specifications, with no change in price\. However, this approval mechanism is a lengthy process that consumes a lot of time\. * Incomplete infrastructure of the laboratories receiving the equipment, in so many cases, caused delays in issuing pending payments to suppliers\. Action taken: The PIU appointed several staff members, the majority were engineers, their primary job was to follow-up on installation procedures, coordinating between the suppliers and the concernedfaculties, and to make sure that certificates of acceptance were issued immediately after the final testing of the equipment\. Recommendation: Concluding contracts with suppliers, not on CIF basis, but on the basis of site delivery, including installation, testing and turnover would resolve most of the problems causing delays\. However, this option was carefully examined by the PIU and was found to be very expensive if applied as a general principaL Suppliers tend to exaggerate in quoting for the price of turnkey projects\. Installation, testing and turnover of all the heavy machinery and laboratory equipment that needed installation was contractedfor to ensure their proper performance\. 30\. Delays in issuing custorms duties checks from the MOHE (local funds), as well as checks for the customs clearance agency employed by the PIU caused, in mnany cases, considerable delays\. The MOHE had to pay penalties and extra charges for warehouse storage because of these delays\. As a rule, when extra charges are paid, the PIU Director has to transfer all the documents to the legal department at the MOHE to determine who caused the delay, and consequently the cause for paying the penalties and extra charges\. This is a lengthy process that consumed a lot of PIU time in preparing responses to the legal department\. 24  Procurement Issues 31\. The equipment selected by the Bid Evaluation Committee (BEC), based on the technical specifications requested did not meet the expectation of the end user, which proposed the preliminary technical specifications\. The final specifications were prepared by a technical committee formed by the EEDP Director, in coordination with the end user and the PIU, and the collective specifications were included in a bidding document that was prepared and released for intemational tendering by the PIU\. The end user had a specific equipment brand in mind, which the BEC was not able to select in the presence of other technically acceptable offers that are much lower in price (World Bank regulation)\. The result: Difficulty in receiving the supplied equipment by the end user, difficulty in issuing the final acceptance form by the end user (necessary document for issuing retention money), and consequently delay in the retention payment to the supplier\. Recommendation: Including the end user in the Bid Evaluation Committee was sometimes problematic for the PIU\. Experience indicates that sometimes when an end user is selected as a member of the BEC, in so many cases, he has the tendency to find reasons to eliminate technically acceptable offers that are lower in price than the one he wants to select and matches his needs\. Although it would be ideal to fulfill his requirements, this would not be acceptable under World Bank regulations where fair practice and equal opportunities among all suppliers have to be honored\. The PIU, in several occasions, had to return to the BEC the list of selected equipment to reconsider their selection without violating World Bank regulations that are binding to the PIU\. It would be recommended, however, to have the end user endorse the equipment selected by the BEGC before issuing the final notification of awards to suppliers\. However, although implementing this process is safer, and would ensure acceptance of the delivered equipment by the end user, the time consumed in the bid evaluation process would be considerably prolonged\. In addition, if the end user decides not to accept the selected equipment, the PlUwould be cornered\. The only way out was carefully select the BEC members, and to ensure that they carefully consider the technical specifications and fulfil all the needs of the end users, within World Bank stated guidelines and regulations\. 32\. During the early tenders released by the PIU, it took the World Bank procurement experts a long time to review and accept the Bid Documents, as well as the Bid Evaluation Report\. The result: Delay in contracting procedures, where the contracts should have been awarded to the successful bidders within the bid validity period and prior to the expiration of the bid validity\. Reputable bidders who submitted technically acceptable offers, and who are qualified and capable of performing their contracts, were dismayed when the PIU requested extension of their bid validity\. Recommendation: Bid documents should be reviewed and endorsed by both the World Bank and the Borrower before the project starts to avoid such delays\. The presence of a Resident Mission office in the borrower's country, would certainly help accelerate the process, in the event of having procurement officer(s) within the mission with the necessary authority to review and endorse completed bid documents, as well as bid evaluation reports\. 33\. Most of the Intemational tenders were dedicated for the procurement of complete laboratories to fulfil the needs of the eighteen faculties of engineering supported by the ETEP project\. Accordingly, in the bidding document, it was stated explicitly that priority will be given to complete laboratories, followed by complete schedules, i\.e\. equipment of similar nature were grouped together in a schedule to encourage specialized bidders to give their best offers at reduced prices\. In the majority of the tenders, the Bid Evaluation Commnittees were able to select complete laboratories, as stipulated in the bidding document, by applying the rule of selecting the minimum technically acceptable offers on the total price of the complete laboratory, and not on the basis of individual equipment\. This was done to ensure compatibility between equipment, and to confine the responsibility of maintenance and warranty of the equipment in the hands of one supplier\. However, in many cases, the BEC was not able to select complete laboratories for several reasons, such as; * Non of the suppliers presented an offer for a complete laboratory, only partial offers were received\. In some cases, only one supplier offered a complete laboratory, but some of the equipment in his offer did not meet the specifications requested, or were over exaggerated in price, particularly in the presence of other partial offers that included identical equipment for a much lower price\. 25  * Suppliers participating in the bidding operation are not qualified nor specialized in the type of laboratory equipment requested\. * Loosely defined technical specification could lead to the selection of non qualified bidders on the basis that they meet the criteria for selection\. This was one of the reasons that prevented some of the reputable suppliers from participating and presenting an offer\. In addition, wide range of equipment is presented (ranging from industrial equipment to prototypes), and of which meet the criteria for selection and cannot be refused on technical basis\. * The type of equipment requested for the laboratory, are not manufactured by one single supplier\. Reputable and specialized suppliers are not interested except in offering the part of equipment they manufacture, and decline from presenting offers from other suppliers for the rest of the equipment to complete their offers\. All these factors, together with the binding regulations of the World Bank, are among the reasons that made it so difficult for the BEC to select complete laboratories from a single supplier\. As a consequence of this situation, the PIU was obliged to conclude, in some cases, several contracts with different suppliers for one single laboratory\. Compatibility problems (in few cases only) caused many problems during installation of the equipment, which took longer time than anticipated to install and test the equipment\. Coordination adrministered by the PIU staff between the different suppliers, and the end user to arrange for the installation and testing of the equipment, was a major source of delay\. It is essential in such cases to carefully prepare the technical specifications, and ensure they are well defined to invite the qualified bidders to present their offers\. 34\. The contracts that have been concluded with the selected bidders were all on CIF basis\. The consequences of having all contracts on CIF basis caused a lot of problems for the PIU\. With the huge number of contracts made (around 500 contracts), it would have been much better to have the contracts made on the basis of site delivery, including installation, commissioning and startup\. Problems were encountered during transportation from the port of destination to the cargo warehouse, and to the sites\. Insurance coverage should have also been made on the contracted goods from the port of destination to the sites in order to enable prompt replacement of lost or damaged goods\. Loss of small items such as hand tools was frequently reported with no definite responsibility to replace lost or damaged items\. Lengthy procedures to custom clear the shipments, were addressed earlier\. Charges for warehousing, storing, and safeguarding had to be paid for delays in customs clearance\. Overall Project Implementation 35\. Several issues and recommendations on the overall project implementation are briefly pointed out for consideration when designing new projects of similar nature: - Funds in the form of grants should be enabled to start-up any new project to ensure that all implementation mechanisms, including the establishment of the PIU, are in order\. It is highly recommended that the World Bank consider making this seed money part of any future loan agreement for implementing similar projects\. Funds sufficient to support the first six months of implementation, or preferably to support the first year large projects, would be adequate\. * The procurement process could have been made much easier if all similar laboratories were grouped in one tender and procured for all the eighteen faculties of engineering, with much less problems to encounter\. But because the project had multiple objectives to fulfill, it was difficult to do so\. The competitive mechanism that was implemented successfully was meant to fulfil the needs of individual faculties, and not to impose a specific type of laboratory\. Also, Involving as many staff members in the implementation of the EEDP component of the project (over 15% of staff members of engineering faculties were involved), was one of the main objectives of the EEDP program\. The involvement of staff members should be highly encouraged in similar future projects for ensuring accountability and transparency, and for gaining credibility and confidence in the whole implementation process\. * The accumulated training and experience gained by the PIU personnel needs to be invested by the MOHE in future projects\. The lessons leamed during the various phases of implementation would enable the PIU staff to start-up a new project on immediate basis\. This has been frequently recommended by the World Bank Supervision Missions\. 26  Appendix 1\.1 Procedural Chart of the EEDP Policy  Appendix 1\.1 Procedural Chart of the EEDP Policy The following chart outlines the policy of the EEDP towards the implementation of educational development plans in engineering faculties\. The chart shows the evaluation and refereeing procedures and refers to the various associated bodies\. EEDP OPERATIONS AND ACTIVITIES E\.L\.D\.C\. BE\.P\.C\. | J e~~~~~~P E\.P\.C\.| co O $ | ~~~~~T\. E\. C\. A Cnite P + t_ T~~ender Document Program |u<at P\.I\.M\.C\.~~  List of Acronyms Engineering Library Development Committee B\.E\.SC, Basic & Engineering Sciences Committees EE\.G\. Engineering Education Program Group _\.E\.P\. Engineering Education Program Evaluation 3E4 \.P\.C\. See- Engineering Publications Committee P\.PIA$\. Proposal Preparation Assistance Service P\.Cv Preliminary Evaluation Committee T\.i5e\. Technical Evaluation Committee 'U',,, rojects Implementation Unit cientific Equipment Maintenance Committee P\.LM\.CP roposal Implementation Monitoring Committee E EAS\. Proposal Implementation Assistance Service  Appendix 1\.2 Statistics of Funded Proposed Plans  Appendix 1\.2 Statistics of Funded Proposed Plans In this appendix the statistics of those proposals that, were approved for funding and, hence, under went implementation under the EEDP are given\. The following chart illustrates the distribution of funded proposals among the various faculties of engineering\. Numbers of Funded Proposals [By Faculty] 50 _) *Submitted 0 -EPrel\. Preview 0 20 ------ --------------------------------------------------------- ------------------- E 10 ------------- z 0 U, CU X x R_L* - * D'- E ( 6 a o o c c N D ca'au)~ ~ ~ 9 uD M( 9 M -) Co \.-~- C 0 ; \.- =cu \.C <~~~~~ Faculty The following chart shows the progress in the number of approved proposals from one implementation cycle to the other\. Number of Funded Proposals (by Cycle) 50 4 0-- - - - - - - - - - - - - - 0 0\.~~~~~~~~~~~~~~~ 2L 0 ------- I------------------ l ;:; \.C  The following figure illustrates how funding was distributed among the various faculties of engineering Budgets of Funded Proposals [ By Faculty] 3500 2500 ----------- a 00 100 0 5 100 --------n iln E') n \.,- 0 E M s E C - = C ( E N W CY E \.D~ - 0 C o :3 F -0 * C/) ~~~~~~0 UC) : U) ,I Co < ' - c X OLL 0L N Faculty The following figure shows the statistical distribution of budgets of implemented proposals\. The mean proposal budget was computed to be nearly $ 96,000\. Distribution of Approved Proposals Budgets 60 X 50 0 --------------- -- - - - - - - - - - - - - - - - - -- - - - - -- --- -r- - ----- 40 40 0~ 20 aJ 20/| E o~~~~, ( 1000$)  The following figure shows the distribution among the various engineering disciplines of proposal numbers\. 40- /_\.S _ |||X 0: 25 d 10 z Gri Gr2 Gr3 Gr4 Gr5 Gr\. 1: Electronics, Communications, and Computers Gr\. 2: Physics, Chemistry, Mechanics, Chemical Engineering and Libi Gr\. 3: Civil Engineering, Mining, and Petroleum Gr\. 4: Mechanical Engineering Gr\. 5: Basic Electrical, and Electric Power Engineering The following figure shows the distribution among the various engineering disciplines of proposal budgets\. c, 450C 400C <; W350n,,:\.I__ X300f/ __ A = al 20 0 Grl Gr2 Gr3 Gr4 Gr5 Gr\. 1: Electronics, Communications, and Computers Gr\. 2: Physics, Chemistry, Mechanics, Chemical Engineering and Libraries Gr\.3: Civil Engineering, Mining, and Petroleum Gr\.4: Mechanical Engineering Gr\. 5: Basic Electrical, and Electric Power Engineering  Following is a breakdown of the total budget devoted to support educational development plans in engineenng faculties\. Total Budget of Funded Proposals Experts 67\.2% Goods er s 98\.9% Miscelleneous Training 11\.8% 21\.0%  Appendix 1\.3 Proposal Preparation Assistance Service  Appendix 1\.3 Proposal Preparation Assistance Service The progress in the number of preparation-assisted proposals over implementation cycles is shown in the following figure\. This is followed by breakdowns of those assisted proposals according to faculty and discipline\. Proposal Preparation Assistance Service / (Cl Requested ~~~PPAS) 20 \. OucsflPA ,\.01 a co0 15 ---------------------:------------- 0) 4 - 1 0 -- - - - - - - - -------\. : 5 z 0 Cycle Proposal Preparation Assistance Service [by Faculty] 12 E:lRequested PPAS o 10 _lSuccessful PPAS 0) CL0 CLun8u 0 0 a- E Z 2~ 0 ------I-E--E CD 0~~~~~> C H 0m 0 LL fl C Faculty  Engineering Chemistry 4 Engineering Physics 3 Architecture 3 Materials Engineering 3 Fundamentals of Computers 2 Engineering Mechanics 1 Fluid Mechanics 1 Engineering Library Development 1 Engineering Geology & Rock Mechanics 1 Chemical Engineering 1 Automotive Engineering 1 Mechanical Workshops 1 It is interesting to notice that out of a total of 22 requests for proposal preparation assistance only three were concerned with rather advanced engineering curricula (Engineering Geology, Chemical Engineering and Automotive Engineering)\. All the others dealt with basic sciences or basic engineering sciences\. These figures manifest a good academic prioritizing judgement on the part of engineering faculties\. This fact and the fact that the assisted proposals were prepared by renowned experts resulted in a 95% acceptance record\.  Appendix 1\.4 COMPUTER NETWORK FOR ENGINEERING LIBRARIES (CNEL)  Appendix 1\.4 COMPUTER NETWORK FOR ENGINEERING LIBRARIES (CNEL) Description of CNEL The Computer Network for Engineering Libraries (CNEL) consists of 18 nodes, corresponding to the 18 Engineering Faculties in Egypt\. The nodes are classified into 3 Primary Nodes and 15 Secondary Nodes\. Each primary node stores the database information for all 18 Engineering Libraries\. It is also connected to a central Internet gateway\. As such, each primary node acts as a Class C Internet node responsible for a number of secondary nodes in its domain\. The secondary node stores the database for the local library information\. It also accesses the database for other Engineering Libraries via its parent primary node\. In addition, it accesses the Internet via the same primary node Table 1 lists all nodes in the CNEL, their geographic location, their class type (primary or secondary), as well as the name of the homing primary node for each secondary node\. Within each node (whether primary or secondary), a local area network is installed\. The server manages access to the library database, and to the INTERNET\. Two of the PCs are equipped with bar code readers so as to handle circulation activities at the library\. One PC is dedicated to the Library Staff for Cataloguing and Acquisition activities, while the other PC is to be used for Searching activities by the Library User or Library Staff\. The communication gateway, in conjunction with the appropriate software, provides connectivity between the secondary node and its parent primary node, and between the primary node and the central gateway\. A network management system (NMS) is installed in each primary node\. Such facility allows the system administrator to carry out the necessary management functions at the primary node and the secondary nodes in its domain, as well as to exchange management information with other NMS located at other primary nodes\. Figure 1 depicts the schematic diagram for the components of a primary node, while Figure\. 2, depicts the secondary node schematic diagram\. The physical links between the different nodes are based on the Public Switched Telephone Network (PSTN), the X\.25 Packet Switched Network (EGYPTNET), and/or the VSAT Network Table 1\. List of nodes and their types in the proposed Computer Network for Engineering Libraries 51 Ciro [airoya Cairo ro l l | 2 12 ~~Fayoum |o -= ayou _ | 2ry l | 3 || AinAin Sh ams inSas |Cairo ||2r ||i l | 4 || ~Helwan ||Helwan 7 |Cairo||2y |;1I | 5 |~~Mtarya ||Helwan llCairo 2y l1 [ 6 I[ Port Said J Suez Canal ||Port Said ] Iy 11_1 [ 7 I| Suez 1[ Suez Canal [Suez 11 2ry || 1 [ 8 IL Shoubra 1J Zagazig [Cairo || 2ry_|| _ [ 9 I [Alexandria |[ Alexandria j[ Alexandria I li --- | I0 |Tanta I| Tanta ta Tanta || 2y i| 9 i_______ 11 |Kafr El-Sheikh |[ Tanta | Tanta ]I 2ry 9 |[12 I| Mansoura ][ Mansoura J[ Mansoura II 9 [13 li Menouf |[ Menoufia J[ Menouf _ _ 2ry l 114 j[ Shebin El-Kom |[ Menoufia |[ Shebin EI-Kom II 2 || 9 15 l[ ZaZagazig agazig I[ Zagazig ] 2 [16 [ Assiut 11 Assiut If Assiut II l I- [17 Menia |I Menia || Menia | 16  W orkstation for Server Communication Network M anagement G ateway/Router TO INTERNET ~ ~C PC with PC with Bar Code Bar Code t Sconar Reader Rear o Fig\. I Components ocal Area Network a k | l l ~~~~~~~Scanner/Printe OServerCommuniationS PC PC PC with PC with Bar Code Bar Code Reader Reader Fig\. I Components of local aTea network at psimary node Server Communication G atew ay/R o uter To Router at Parent At the Pm Nd iainomae arinmtary nodes belonging to it\.~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~N de l S m socal A rea N etwork Sparteilearmantanedforec lbg icanner/Printo s L X C C ~ ~ ~ ~ ~~Servv PC PC PC with PC with dtases\. Hiar Caode B ar Coade Scaner m tnal t Reader Reader Fig\. 2 Components oflocal area network at secondary node Services Provided by CldEL At the Secondary Noden Access to local database for library information system; Access to database at primary node concering other library information systems; Exchange of E-Mail and performing file transfer between users at the secondary node, as well as between users at different nodes\. In addition, access to INTERNET services (e\.g\. E-Mail, FTP, WWW, and TELNET) Support of(multimedia applications and their communication\. At the Primary Node: in addition to similar services as above; Acting as a Class C Interet node; Providing WWW server facilities; Performing network management finctions at the local network level, as well as for the secondary nodes belonging to it\. General System Features * Separate files are maintained for each library or combining information into system-wide files\. * The system shall require password access control to access remote databases\. p Hardware operates in a real-time interactive mode and can create, update, maintain, and access all data for library materials and patrons in real-time\. * Expansion to include additional features or enhancements and irnprovements in technology is possible without interruptions to the programs already running\. * Software to support acquisitions, interlibrary loan, journal citation, information and referral file, and other modules is being supplied\. * The system provides functional links to the Internet, and performs standard Internet finctions such as E-mail, file transfer (FTP), remote login (Telnet), World Wide Web (WWW) browsing, and WVVW server\. * The system hardware and software supports and the interfacing standards developed under the Open Systems Interface Reference Model, including Z39\.50\. • The system provides continuous backups for the duplication of files in case of system failure\. * The system provides integrated management capability that includes configuration management, performance management, and fault management\.  Functional Aspects of the Library Automation Software General requirements 1- The system has the following integrated modules: A) Cataloging and database maintenance B) Circulation C) Acquisitions D) Serials control E) Patron access catalog F) Report generator G) Z 39\.50 server capabilities Access to Internet and its services as well as providing WWW server capabilities for its library records\. 2- The system supports Interlibrary loan, Journal citation, Information and referral, and Inventorying 3- The system is integrated, with all modules sharing a common bibliographic database (except as libraries sharing the system may choose to maintain separate files) and a common command language\. 4- It can move from one library module to another without logging off and on\. 5- The system uses two languages, namely English and Arabic\. Cataloging and Database Maintenance Aspects 1- The system detects duplicate records - including duplicate bibliographic, authority, and item records - entered into it and retain them in a review file\. 2- The system allows accommodation of full MARC bibliographic, authority, and holding records\. 3- The system is capable of inputting and outputting bibliographic, authority, and holding records in MARC 11 communication format\. 4- The system is capable of accepting on-line transfer of bibliographic and authority record from CLC (or, at the option of the library Administration, from RLIN or WLN)\. 5- The system is capable of accepting transfer of bibliographic records from CD-ROM-based systems, including Bibliofile\. Serials Control 1- The system is able to accommodate all types of serials, including, but not restricted to: periodicals, proceedings, transactions, indexes, and loose-leaf material 2- The system has the following serials control capabilities: ordering, check-in, union listing, claiming\. 3- The system provides the ability to search for serials records by at least: title, call number, ISSN, publisher, corporate author/title, conference title, keyword , and subject\. Patron Access Catalog 1- The patron access catalog provides access to both individual library holdings and combined system-wide bibliographic files and authority files\. 2- The system permits keyword searching of title, series, subject, personal name, corporate name, and conference name\. 3- The system permnits patrons to undertake Boolean searches using terms in AND, OR, and NOT relationships\. 4- The system shall allow the storing (and modification) of patron search results for the duration of the session\. 5- The system shall be able to search remote databases\. Circulation 1- The system provides for electronic scanning of bar code labels on patron cards and library materials\. 2- The system provides for the keyboarding of item and patron information\. 3- The patron file contains at least the following: patron identification number, patron name, permanent, and school addresses and telephone numbers, any restrictions on borrowing, type of patron, fees or fines owned, materials, outstanding, holds, last action date, expiration date of registration\. Acquisitions 1- The following acquisition functions are accommodated: - pre-order searching, ordering, claiming, cancellation of orders, receipt processing, fund accounting, vendor accounting 2- A variety of materials are accommodated, including but not limited to: monographs, serials, documents, 3- The system shall accommodate and identify items in a variety of formats, including but not limited to: print, microfilm, video, audio\.  Inter-library Loan 1- The system is capable of accommodating an interlibrary loan (ILL) module capable to manage the library's borrowing of materials from other libraries\. 2- The ILL module supports the lending of materials from the library's collections to other libraries\. Report Generator 1- The system includes a report generator module\. 2- The report generator offers a wide range of fornatting options, including, but not limited to: tabular and text presentation, column widths, number of lines per page, page headers and footers, 3- The report generator shall offer sorting capabilities\. 4- The report generator shall allow for specification of the data content of a report, including choice of titles, column headings, data elements, row labels, header and footnote contents\.  Appendix 1\.5 Review Results  Appendix 1\.5 Review Results This appendix summarizes the outcome of a comprehensive review process, which was designed by the EEDP management and took place during the last six months prior to the completion of the EEDP program\. This appendix lists the main review statistics, which reflect the extent of success that the EEDP was able to reach\. In the main text, and also in light of these statistics, a critical analysis of the results is given where the main implementation difficulties and their sources are underlined\. Over-all level of success Markers for estimating the over-all level of success of an individual education development plan were set by EEDP management\. Three classes of success were identified, the highest indicates that the development plan was implemented as proposed and to the satisfaction of the EEDP management, while the second level suggests some deficiency in implementation yet the plan is still regarded as somewhat successful\. Plans, which failed to bring significant improvement in the educational process, were placed in the third class\. 46~~~~ 30i - - - --2-- -- - _ P _ 90, /r 6Av\.660/A 20- ~ 0 E 60 //\.060/c 2- _ =_ __ __ __ __ 1 2 3 Code Code 1 The proposal was generally successful ,and fulfilled its goals 2 The proposal fulfilled many of its goals, some goals remained unachieved 3 The proposal did not produce a significant level of achievement Institutional Feed-back The review commnittee members communicated with the administrators and faculty members responsible for the implemented individual development plans\. By doing so, the committee members sought the faculty members' impression about the extent of fulfillment of the original goals and the general impact of the developed plan on the education process\. That communicated level of fulfillment was assigned a mark out of 5\. A 5/5 mark indicates an exceptionally good impression of the achievement, while a 1/5 mark indicates an impression of gross deficiency in implementation\. The following two chart depicts the over-all statistical distribution of marks of the 159 development plans in eighteen faculties of engineering\. The two charts exhibit the same distribution of marks, one in cumulative form and the other in a frequency distribution form\.  90 -; \---5 70 6 80 in o 70 __ _\. \. \. :___\._\. _\._\._:______ 30 22 3 60 0 0 I 20 \. \. \. \. \. \. \. \. \. I 0 0- \. \. o ~~~\.~ \. _ - , H I 1\.5 2 2\.53 4 5 Mark Institutional critical views For development plans receiving marks less than 4/5 the review comuittee was instructed to take notes of the reasons behind institutional dissatisfaction\. Following is a collective summary of those reasons: UJincomplete supply of originally proposed equipment La Specifications are somewhat inferior, or, simply different, from original ones\. Z) Strained relations between monitoring conmmittees and faculty members who were not comifortable with the procedures of monitoring\. • Delays in solving implementation problems\. Those delays were normally attributed to imposed regulations and some suppliers' improper conduct\. LDissatisfaction with the behavior of some suppliers, e\.g\. poor after-sale service, lack of technical support, missing manuals, etc\.  It is of particular interest to examine how well the institutional impressions about program success correlate with the review conmuittee judgement\. A correlative analysis was performed between the two sets of results - both shown above\. The correlation coefficient was +0\.73, which indicates a reasonably strong agreement between the judgement of the review committee and that of the institutions\. This fact, consequently, confirms the validity of the reported results\. Other Indicators of Implementation Success This section includes statistics on some indicators, which reflect on the "goodness" of the education development plans implementation\. The Indicators were determnined bthe review Committee\. a- Implementation Cost Indicator This indicator compares the originally approved budget of an individual development plan to the actual expenditure of that program after its completion\. Three cases of comparative actual cost are identified and are shown in the figure\. 1f so ~ ~ ~ ~ ~ ~~Cd 1 Actul9cos fal /ihil %f orgia buge 80 ----- cL60 / --- - - \._\. \._\. CL so K 30z 2 Actual cost is less than original budget by more tha35 % 3 Actual cost exceeds original budget by more that5 % The review committee investigated the causes of any serious deviation of the actual budget from the original one\. Below, those causes are summarized in order of frequency of occurrence the first cause being the most often to take place\. Cases where the cost was less than original budget: L Items and material were over estimated in the original budget\. E Some items were dropped altogether from the procurement process during implementation because they proved to be obsolete, unavailable, or excessively expensive\. u Failure of institutions - towards the end of the program- to complete the technical and paper work necessary for purchase by direct order\. L Some items were selected with inferior specifications when it became clear to the bid evaluation committees that more complex specifications are not justified for the purpose\. U Originally planned training did not take place either because it proved useless or a training body could not be found\. U Some items were readily made available by the institution and, therefore, were not purchased\.  Cases where the cost exceeded original budget: Z Items and material were under estimated in the original budget\. ii- Specifications Indicator This indicator is concerned with the match between the specifications of the actually procured items and those originally approved\. The statistics of this indicator are given in the figure\. 83\.64Y ^ 10 80- - ,,70 _ y OM 60- 40- m 30t// 4\.570/Ac z20 2 3 Code Code I Goods generally conform to original specifications 2 Some equipment specifications are different from original ones 3 A major part of the originally proposed goods could not be supplied The review comnmittee investigated the causes of any serious deviation of the actual and original specifications\. Below, those causes are summarized in order of frequency of occurrence the first cause being the most often to take place\. J By the time the items were delivered to the institutions the specifications became obsolete\. This is particularly true for computers and related items\. Z The Bid Evaluation Committee - in view of what suppliers are actually offering - intentionally altered some specifications, with or without the consent of the beneficiary institution\. I Inaccurate reading of catalogs by /or the proposal writers and the bid evaluation committees resulted in the supply of items which lacked some necessary parts or accessories J Originally proposed specifications were vague L The sometimes, poor quality of supplied equipment hindered the full use of the provided specifications\. I Lack of full compatibility between different items reflected adversely on the full utilization of equipment specifications\. iii- Equipment utilization indicator This indicator is concerned with the way the supplied equipment and goods were put to use at the institution, and with whether the supplied items are utilized according to the original commitment by the institution\. The statistics of this indicator are given in the figure\.  86\.92 60e _ - ------- 10~~~~~~~~~~1\.5 E a 7_261°A 2z 20- _ 0~~~~~~~~~~1A~ 1 2 3 Code Code 1 New facilities are put to use in conformity with the original plans 2 New facilities are used on a scale which is much smaller than what was originally planned 3 New facilities are used for purposes that are different from those originally proposed The review commrittee investigated the causes of any serious violation of the originally intended use of material and equipment\. This violation is either manifested in that equipment is underused, or is used for purposes, which were not originally approved\. Below, those aspects are summarized in order of frequency of occurrence the first being the most often to take place\. U Specifications of delivered equipment are somewhat inferior to what was originally planned causing incomplete use of equipment\. u Necessary training did not take place hindering the Institution's ability to use the equipment fully\. E New facilities are partly used for research and graduate studies\. u Necessary infrastructure was not completed thus adversely affecting the full use of equipment\. iv\. Courseware preparation indicator This indicator is concerned with whether courseware material was prepared by the institution and delivered to EEDP management as originally committed by the institution\. The statistics of this indicator are given in the figure\. 10o</ 70\.58% 1 2 3 Code Code 1 Course ware material was satisfactory 2 Course ware material was prepared but fell short of expectations in size and / or quality 3 Course ware material was not submitted The review committee investigated the causes of any serious violation of the institution's commitment to produce courseware material\. Below, those causes are summarized in order of frequency of occurrence the first cause being the most often to take place\.  u Faculty members in charge of the development plan did not fulfill their commitment to produce such material and administrators failed to reverse that situation\. In many such cases the persons who prepared the original proposal went on leave from the institution\. I Some development plans -by virtue of their nature- were not expected to produce tangible published material, e\.g\. plans to upgrade libraries and beefing up their holdings\. z In some cases the courseware material was prepared rather hastily and came well short of the expected quality\. Z The incomplete supply of equipment or the deviation of supplied specifications from original ones sometimes impeded the preparation of courseware material\. vi- Training indicator This indicator is concemed with whether training took place as part of the development plan\. Training might have taken anyone of a number of fomrs, namely, organized training course, technical visits, \. etc\. The statistics of this indicator are given in the figure\. 94\.11'% 701~~~~~ 1 1 Some form' of triigtolc i60ning w imleene so- 1 ~~~~~~~2 Code [-ode l Some form of training took place 2 No training was implemented  Appendix 11\.1 Generic Composition of Academic Programs 1  Appendix 11\.1 Generic Composition Of Academic Programs 1- General Education (GE) Arabic language, English language\. 2- Technological Foundation (TF) Mathematics, Science, Physics, Chemistry\. 3- Technological Skills (TS) Graphics, Workshop training, Computer\. 4- Industrial Technical Specialties (IS) Manufacturing Processes, Metallurgy, Applied Electronics \. 5- Education Methodology (EM) Teaching methods, Ed\. Physiology\. (EM) 1 25\.0% 3 51\.0oo/0 "iilL 4 EEE~~~~~~~~~~~~~~ S0 \.0%0/ (TS) 20\.0% 2  Appendix 11\.2 Program Structure for Disciplines offered by IECs Kubba and Beni-Suef 3  Appendix 11\.3 Details of Enrollment and Graduates By Specialization for both IECs 4  Appendix 11\.3 Details of Enrollment and Graduates By Specialization for both IECs Enrolled Students in IEC Kubba by Specialization Machine Automotive A/C Electrical Electronics Total 91/92 11 10 22 - 25 68 92/93 26 28 20 36 31 141 93/94 36 23 4 40 28 131 94/95 28 24 28 31 57 168 95/96 28 12 59 71 58 228 96/97 7 10 83 42 77 219 97/98 15 6 125 42 87 275 Graduate Students of IEC Kubba by Specialization Production Automotive A/C Electrical Electronics Total 92/93 24 20 24 27 50 135 93/94 24 9 18 7 50 116 94/95 19 31 17 17 37 121 95/96 19 34 35 40 45 173 96/97 54 34 42 47 54 231 97/98 44 41 44 68 78 265 5  Appendix II\.3 (Cont\.) Enrolled Students in IEC Beni-Suef to the First-Year by Specialization Mechanical Electrical Civil/ Textile Total Architecture 93/94 48 25 - - 73 94/95 130 110 - - 240 95/96 71 58 - - 129 96/97 101 81 - - 182 97/98 98 75 - - 173 98/99 92 70 24 - 186 Enrolled Students in IEC Beni-Suef to the Second Year by Specialization Mechanical Electrical Civil/ Textile Total Architecture 93/94 - - - - 94/95 96 81 - - 177 95/96 38 39 - - 77 96/97 24 30 - - 54 97/98 46 32 - - 78 98/99 60 63 3 129 Graduate Students of the IEC Beni-Suef by Specialization Production Fine Mech\. Electronics Process Cont\. Total Technology Tech\. Tech\. Tech\. 97/98 63 17 36 27 143 98/99 81 52 56 40 229 6  Appendix 11\.4 List of Workshops and Labs 7  Appendix 11\.4 List of Workshops and Labs IEC Beni-Suef Laboratories and Workshops Specialization Lab\./Workshop Basic Subjects General Science Lab\. Physics Lab\. Chemistry Lab\. Computer Lab\. Micro-Teaching Lab\. Automated Library Production Technology Wood Workshop Metal Cutting Workshop Welding Workshop Sheet Metal Workshop Foundry Workshop Forging Workshop Non-Conventional Machining Lab\. CNC Machining Lab\. Heat Treatment Lab\. Material Testing Lab\. Metallographic Testing Lab\. Fine Mechanical Equip\. Tech\. Technical Measurement Lab\. Metrology Lab\. Fine Mechanics Lab\. Hydraulic Power Lab\. Electronics Tech\. Electronics I and Optoelectronics Electronics If and Optoelectronics Telecommunications Lab\. Electronics PCB Lab\. Electronics Tech\. Electronics I and Optoelectronics Lab\. Electronics II and Optoelectronics Lab\. Telecomrnunications Lab\. Electronics PCB Lab\. Process Control Tech\. Process Control Lab\. Automatic Control Lab\. Instrumentation Lab\. Computer Lab\. Microprocessor Lab\. Electric Machines Lab\. Textile Technology Weaving Lab\. Spinning Lab\. Testing Lab\. Building Construction Tech\. --- Civil Construction Tech\. 8  Appendix 11\.4 List of Workshops and Labs IEC Kubba Laboratories and Workshops Specialization Lab\./Workshop Basic Subjects General Science Lab Physics Lab\. Chemistry Lab\. Computer Lab\. Micro-Teaching Lab\. Automated Library Production Technology Workshop Metal Forming Lab\. Material Testing Lab\. Metal Grophy Lab\. Foundry Sand Lab\. Metrology Lab\. Finishing and Conventional Machining Lab\. Automatic and CNC Machines Tools Lab\. Electrical Tech\. Electrical Machine Lab\. Control Lab\. Measurement Lab\. Electronics Tech\. Electronics 1 and Optoelectronics Electronics II and Optoelectronics Telecommunications Lab\. Electronics PCB Lab\. Electronics I and Optoelectronics Lab\. Electronics nI and Optoelectronics Lab\. Telecommunications Lab\. lElectronics PCB Lab\. Refrigeration and A/C Tech\. Fluid Mechanics Lab\. Heat Transfer Lab\. Thermodynamics Lab\. Refrigerant Lab\. Air-Conditioning Lab\. Power Control Lab\. Automotive Tech\. Engine Lab\. Maintenance Lab\. Chassis Lab\. Tractors Lab\. Automotive Electrical Systems Lab\. 9

REVIEW

P050487

 ICRR 12861 Report Number : ICRR12861 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 03/25/2008 PROJ ID : P050487 Appraisal Actual Project Name : Development Of State Project Costs (US$M): US$M ): 38\.5 54\.8 Statistical System Project Country : Russian Federation Loan/ US$M): Loan /Credit (US$M): 30\.0 30\.0 Sector Board : EP Cofinancing (US$M ): US$M): 8\.5 24\.8 Sector (s): Central government administration (100%) Theme (s): Economic statistics modeling and forecasting (29% - P) Infrastructure services for private sector development (29% - P) Macroeconomic management (14% - S) Analysis of economic growth (14% - S) Legal institutions for a market economy (14% - S) L/C Number : L4468 Board Approval Date : 05/13/1999 Partners involved : Closing Date : 06/30/2004 12/31/2006 Evaluator : Panel Reviewer : Group Manager : Group : Dusan Vujovic Gita Gopal Ali Khadr IEGCR 2\. Project Objectives and Components: a\. Objectives: The development objectives of the Russia Development of the State Statistical System Project (STASYS) were: (1) an improved macroeconomic management by providing a required information base; and (2) an improved availability of data needed for a market economy \. This was to be achieved by focusing on the following priorities in the development of the state statistical system : (i) eliminate data gaps in the macroeconomic framework used for economic policy and management; (ii) capture new and dynamic economic and social activities; (iii) meet the needs of analysis of policy makers and the business community; (iv) introduce international standards and methodologies; (v) increase the efficiency and productivity of statistical production through improved organization, data collection and processing methods and equipment; and (vi) improve the quality of analysis and the monitoring of economic development along with the modernization of decision-making methods for economic policy \. b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components (or Key Conditions in the case of DPLs, as appropriate): The project included 10 components focused on three main areas: developing institutional capacity of GOSCOMSTAT (1-4), strengthening other collection agencies (5-9), and improving project management (10): (1) Improvement of organization, management strategy and perspective planning; (2) Fostering knowledge of standards and methodology; (3) Strengthening of statistical infrastructure; (4) Reorganization of data collection, processing, and dissemination \. (5) Improvement of Public Finance Statistics and the Compilation of General Government Sector Accounts in the SNA; (6) Introduction and Compilation of Financial Statistics; (7) Improvement of Coverage and Quality of BoP Statistics; (8) Improvement of the Capabilities of the Government in the Utilization of Statistical Information for Economic Monitoring, Forecast, and Policy Making; (9) Improvement of Vital Statistics Processing \. (10) Establishment of a Directorate under the existing PIU (the Economic Analysis Bureau) with the purpose of Program management to support the development of the state statistical system \. During project implementation the Bank and the Government agreed on a number changes to the original components of the project\. Albeit nominally extensive, these changes were fully consistent with the project objectives spelled out in the legal documents and did not necessitate amendments to the loan agreement \. The changes were as follows: some GFS activities (planned under a separate project ) were subsumed under the Component 5\. Component 6 was dropped due to lack of interest of the Central Bank of Russia (CBR)\. Component 9 was substantially reduced due to lack of engagement by the Registry Department and was replaced by TA for the implementation of the All -Russia Population Census in 2003\. Component 3 was substantially scaled back and focused to new methodologies for data compilation \. Key activities and performance indicators on replacing censuses with sample surveys were reorganized and consolidated under Component 4 (i\.e\. subcomponents 4\.1 (on economic statistics) and 4\.2 (on households)\. An all-Russia product classifier by economic activities substituted the development of a classification unit Component 8\. A new Component (11) was added to separate the work on the Federal Customs Service database from the rest of the work on the Balance of Payments statistics \. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: Total project cost has increased from US$ 38\.56 M at appraisal to US$54\.79 mainly due to significant scaling up of components 1,2 and 4\. Bank financing remained unchanged at US $ 30\.0 M while the borrower's share increased by US$16\.3 M, from US$8\.50 M to US$24\.79 M, to secure borrowers 80 percent contribution in IFI-supported projects starting December 24, 2004\. This was administratively implemented by a significant reduction in the share of Bank financing for specific disbursement categories in the loan agreement \. As indicated above and documented in the Annex 1 of the ICR, the brunt of additional financing (US$17 M) went to further replication of technical solutions utilized in the information system under component 4\. The closing date was extended twice \. First from June 30, 2004 to April 30, 2005 to allow for completion of original project activities including the agricultural census methodology, the new classification of products by economic activity and inputs into the new chart of accounts in public administration \. The second extension of the closing date (till December 31, 2006) was requested by the borrower along with the extension of project activities and substantially increased counterpart financing mandated by new legislation \. 3\. Relevance of Objectives & Design: The project objectives (improved coverage, quality and availability of statistical data provided in a timely manner ) were highly relevant for the Russian Federation and remain highly relevant to this day \. The project design was well suited for the objectives and chosen components appeared broadly relevant in addressing the capacity needs of the Goscomstat and other collection agencies, despite numerous changes to the structure of components to eliminate overlaps and to channel the main trust of the project design onto specific improvements \. The key objectives \. This project was prepared in the aftermath of the Russian financial crisis of 1998 which exacerbated the political and economic turmoil triggered by the profound decline of the Russian economy during the start of transition \. A reformist and technocratic government of the time clearly recognized the need to overhaul the statistical system and improve the quality of statistical information as a key to better macroeconomic management and implementation of institutional reforms\. The transition posed major challenges to the statistical system due to the emergence of a large and dynamic private sector, expansion of modern services, and the changing role of the state in economic management \. With significant assistance from development partners GOSCOMSTAT moved early to comply with the 1993 System of National Accounts (SNA), collect data on prices and systematically produce the Consumer Price Index (CPI) and other price indexes\. The Bank supported many data efforts in that broader context (including initiatives to strengthen the estimation of national accounts, improve the compilation of the Balance of Payments, money and banking, government finance statistics, introduce new types of social statistics, conduct input -output analysis, household and labor force surveys, develop a set of poverty indicators, etc \.)\. In 1997, the authorities approved a Federal Earmarked Program for the Development of the Statistical System of the Russian Federation for 1997-2000\. Despite these improvements, key weaknesses in the statistical system persisted, however, due to excessive reliance on census data collection methods, continued use of old Soviet -type accounting standards in enterprises and banks, and inadequate compliance with statistical reporting requirements \. This adversely affected the timely provision of quality macroeconomic data needed to inform macroeconomic policy considerations and investor decisions \. Goskomstat and the Bank realized that a deep overhaul of the statistical system is needed to provide quality data for sound macroeconomic management and to inform private investment decisions \. This necessitated fundamental changes in data collection and processing practices and the introduction of modern estimation and analytical techniques\. It also required a wider scope of reform including : (a) all government agencies involved in data collection and processing, looking both at their individual capacity building and improved coordination among them; (b) adequate legal basis for statistical services; (c) better management capacity for the statistical system as a whole; and (d) added emphasis on improving data dissemination and building relationships with end -users\. 4\. Achievement of Objectives (Efficacy): (1) Provide a required information base for improved macroeconomic management - substantial achievement ; (2) an improved availability of data needed for a market economy - substantial achievement \. With a range of new and improved statistical data products, internationally comparability of data, better dissemination and the substantial strengthening of economic modeling and forecasting activities using the new data, both development objectives were substantially achieved \. Looking at individual priorities the project had substantial achievement in almost all priority areas as it helped : (i) eliminate data gaps, duplications and overlaps in all important areas for macroeconomic policy and management (except debt statistics due to some outstanding legal issues ) as evidenced through new statistical products, improved methodology and marked reduction in duplicate publications; (ii) capture new and dynamic economic and social activities (especially in labor force, entrepreneurial activity, agriculture, etc\.) as well as make advances in constructing a sub -regional development index, measuring innovative capacity and competitiveness; (iii) provide critical improvements in meeting the needs for analysis for policy makers and the business community; (iv) observe international standards and methodologies in national accounts, government financial statistics, and balance of payments statistics, to name the most important areas; (v) increase the efficiency and productivity of statistical production in RF by implementing two key projects : The first was aimed at converting from the Soviet all -census data collection framework to an integrated census -sample survey framework which is more efficient and suitable for a market economy - with moderate progress (i\.e\. progress was "commendable though less than anticipated at project appraisal ")\. The second was to modernize data collection, organization, processing and dissemination systems in RosStat were substantial progress has been achieved; and (vi) improve the quality of analysis, monitoring and forecasting economic development by building a new (demand driven) macroeconomic forecasting model \. The model has been used to measure the impact of tax exemptions on public revenues, of oil trade on Russian oil prices, etc \. 5\. Efficiency (not applicable to DPLs): The efficiency of the project itself was affected by implementation delays and multiple extensions of the closing date\. On the positive side, during implementation the project generated a much larger share of confinancing and interest from the borrower supporting the finalization of the Statistical Master Plan, new Federally Targeted Program and the follow-on STASYS 2 project\. This also leads the way to a new model of lending with smaller financial resources from the Bank leveraging a much larger borrower -financed program\. ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re- re -estimated value at evaluation :  Rate Available? Point Value Coverage/Scope* Appraisal No ICR estimate No * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: Despite some implementation delays, this project consistently and substantially achieved both its overall development objectives (required information for improved macroeconomic management and improved data availability for a market economy) and most of the specific project goals identified as priority activities \. Realignment and changes in the project components, including significant scaling up of components 1,2 and 4, the introduction of component 11, and elimination (component 6) or significant scaling down (component 9) of components with weak ownership in the host institutions or alternative sources of free financing, did not affect the broadly defined development objectives\. Combined with strong client ownership and continued relevance of project objectives, confirmed by a follow-on project and substantial confinancing from the borrower, as well as its contribution to the development of a new model of lending based on smaller Bank loans leveraging much larger borrower -financed programs\. a\. Outcome Rating : Satisfactory 7\. Rationale for Risk to Development Outcome Rating: The new Law on statistics approved by the Duma after STASYS project closure (November 2007) formally verifies new data collection and processing methods used in the RosStat, as well as new statistical products developed with the help of this project\. a\. Risk to Development Outcome Rating : Negligible to Low 8\. Assessment of Bank Performance: Bank responded in a timely manner and very quickly prepared a product which addressed the immediate needs of the borrower\. The Bank was well aware of the complex political economy and multiple agency coordination issues behind this project (as clearly noted in the lessons learned )\. A conscious decision was made to use the window of opportunity and go with a quick project preparation and approval by the Board, rather than wait for all the political issues to be resolved and institutional arrangements to be in place \. This approach is quite understandable as some of the key political economy and institutional issues could only be addressed and resolved in real time, during the ratification process and in project implementation \. The only missing element was proper ex ante time allowance for unforeseeable delays and project risks (as identified in the lessons learned )\. In addition to its immediate DO's for the Russian Federation, this project also paved the way to the development of a standardized statistical development project which became the core of the StatCap program, on the one hand, and led to the development of a knowledge -intensive leveraged Bank lending instrument, on the other \. at -Entry :Satisfactory a\. Ensuring Quality -at- b\. Quality of Supervision :Satisfactory c\. Overall Bank Performance :Satisfactory 9\. Assessment of Borrower Performance: Despite some initial implementation problems and slower implementation pace, this project earned a full and true ownership by the authorities both in RosStat, the Bureau of Economic Analysis and in all core economic ministries which have by now grown accustomed to timely provision of quality data and economic analysis and forecasting which would have been impossible without unified and quality data sources \. a\. Government Performance :Satisfactory b\. Implementing Agency Performance :Satisfactory c\. Overall Borrower Performance :Satisfactory  10\. M&E Design, Implementation, & Utilization: Although the STASYS project preceded the current effort to rely on quantifiable project outcome indicators, it utilized the Results Framework methodology \. The PAD contained a number of process-oriented performance indicators which made initial reporting on the “resultsâ€? difficult\. In mid 2005 the team refocused the indicators on key priorities that emerged during implementation : improvement of the data collection and processing systems, upgrading of staff skills, methodological improvements to the national accounts data, integration of statistical and administrative data, and passage of the Law on Statistics \. The follow-on project (STASYS2) builds on this and more effectively shepherds project outcomes \. IMF's SDDS report cards due later this year might be a useful monitoring indicator\. a\. M&E Quality Rating : Modest 11\. Other Issues (Safeguards, Fiduciary, Unintended Positive and Negative Impacts): 12\. 12\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Risk to Development Negligible to Low Negligible to Low Outcome : Bank Performance : Satisfactory Satisfactory Borrower Performance : Satisfactory Satisfactory Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate \. 13\. Lessons: ICR lists seven valuable lessons learned in the STASYS project which are fully applicable to all complex, IT intensive multi-agency projects, and beyond \. Lessons range from multi-agency coordination problem to accommodating non-technical considerations, providing legal basis and external agency as the PIU \. We would like to emphasize the importance of realistic project preparation and implementation with special attention given to adequate time allowances for unforeseeable delays and project risks which turned out to be a major stumbling block in ratification and project implementation \. We would add an additional lesson learned from this project -- the value of continuously engaging the borrower in an evolving and expanding project design leading to enhanced ownership and greater leveraging of Bank lending resources for development results \. 14\. Assessment Recommended? Yes No 15\. Comments on Quality of ICR: Well written, well documented and informed ICR \. a\.Quality of ICR Rating : Satisfactory

REVIEW

P008257

 ICRR 10289 Report Number : ICRR10289 ICR Review Operations Evaluation Department 1\. Project Data : OEDID : OEDID: C2649 Project ID : P008257 Project Name : Enterprise and Financial Sector Adjustment Credit Country : Albania Sector : Public Sector Management Adjustment L/C Number : C2649 Partners involved : Prepared by : Laurie Effron, OEDCR Reviewed by : Alain Barbu Group Manager : Ruben Lamdany Date Posted : 06/08/1999 2\. Project Objectives, Financing, Costs and Components : The EFSAC, approved in August 1994 and effective in January 1995, provided $15 million to support the implementation of the Government's reform program adopted in 1992\. The credit was to be disbursed in two equal tranches: the first on effectiveness and the second 10 months later\. The main objectives of the program supported by the credit were: (i) privatization of large SOEs and downsizing of large problem SOEs and privatization of 200 medium SOEs (ii) strengthening the financial sector, including bank restructuring and privatization, and upgrading bank infrastructure; and (iii) promoting private sector development by improving the legal framework \. There were 15 conditions for the release of the second tranche \. 3\. Achievement of Relevant Objectives : The project had a slow start because of uncertain commitment and weak implementation capacity \. The reform program came to a halt with the collapse of the pyramid schemes in late 1996, followed by widespread civil unrest, political turmoil, and economic disarray \. A coalition government appointed in mid -97 regained control of the macroeconomic situation and some of the adjustment objectives were eventually accomplished and the second tranche was released in June 1998, two and a half years later than expected \. The large problem SOEs were privatized or downsized; the legal framework was improved with the passage of a bankruptcy law and legislation on collateral for loans; and some progress was made in the banking sector \. 4\. Significant Achievements : Most of the 32 large SOEs targeted for action were broken up and privatized, downsized, and liquidated, or were awaiting liquidation at the time of the ICR (end-98)\. Three remaining SOEs were operating with 20% of the original employment levels\. About 90 medium and large SOEs were privatized and many others were split up into smaller units to be privatized: between 1994 and 97 about 3,000 small and medium enteprises were privatized (in addition to the 2,000 that had been prior to 94)\. The Rural Commercial Bank was effectively closed \. 5\. Significant Shortcomings : Progess in the banking sector was slower than expected and the financial sector remains dominated by problem-ridden state banks\. Banking reforms were carried out, although more slowly than expected, but two of the three state banks were allowed to continue lending, to the private sector \. Their performance did not improve, however, as many private clients did not repay their loans on time \. Efforts to improve the situation through changes in bank management and strengthening BoA's supervision were not effective \. Now, in 1999, Government is proceeding with privatization of these two state banks, but the reforms undertaken in the EFSAC did not serve to strengthen the banks\. In addition, although the legal framework improved for bankruptcy and loan collateral, the legal framework is not internally consistent and enforcement and implementation capacity is weak \. 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Marginally Satisfactory Reforms were eventually carried out as foreseen, but did not have the anticipated  outcome, particularly in banking and in the legal framework: see section 5 above\. Institutional Dev \.: Partial Modest Institutional development linked more closely to TA project Sustainability : Likely Likely Bank Performance : Satisfactory Satisfactory Credit was ambitious and complex, and the implementation schedule unrealistic, particularly given the capacity of the Albanian government at the time\. Borrower Perf \.: Satisfactory Satisfactory Government did not prevent, and in some instances actively promoted, the pyramid schemes that ultimately collapsed, causing large-scale civil unrest, bringing down the Government, and severely disrupting the economy\. In some respects, its performance should be considered highly unsatisfactory \. But it remained committed to privatization and did accomplish an ambitious program; for this reason, its overall performance is considered satisfactory\. Quality of ICR : Satisfactory 7\. Lessons of Broad Applicability : As found in many adjustment operations and as pointed out in the ICR, policy -based operations should be relatively simple, with realistic timetables, and based on an assessment of Government's commitment and capacity to carry out the reforms\. 8\. Audit Recommended? Yes No 9\. Comments on Quality of ICR : The ICR is satisfactory\. Although OED gives different weights to certain elements of the program and the Bank's role in designing it, the ICR gives a balanced account of a complex operation \.

REVIEW

P066155

 ICRR 13155 Report Number : ICRR13155 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 09/10/2009 PROJ ID : P066155 Appraisal Actual Project Name : Tax Administration US$M ): Project Costs (US$M): 158 144\.56 Modernization 2 Project Country : Russian Federation Loan/ US$M): Loan /Credit (US$M): 100 86\.56 Sector Board : PS Cofinancing (US$M): US$M ): Sector (s): Central government administration (100%) Theme (s): Tax policy and administration (29% - P) Administrative and civil service reform (29% - P) Legal institutions for a market economy (14% - S) Law reform (14% - S) Other accountability/anti-corr uption (14% - S) L/C Number : L4680 Board Approval Date : 10/24/2002 Partners involved : Closing Date : 06/30/2008 06/30/2008 Evaluator : Panel Reviewer : Group Manager : Group : Clay Wescott Fareed M\. A\. Hassan Ismail Arslan IEGCR 2\. Project Objectives and Components: a\. Objectives: The objective is to carry out a systematic reform and modernization of the tax administration of the Russian Federation (RF), so as to achieve five subobjectives : facilitate voluntary compliance, increase administrative efficiency, strengthen enforcement capacity, enhance professional integrity and skills, and improve tax legislation and fairness in the implementation of tax laws \. As a result, the project would support the strategic goals of promoting macro-economic stability, improving the environment for private sector development, and strengthening public institutions \. b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components (or Key Conditions in the case of DPLs, as appropriate): This project builds on a previous project, Tax Modernization 1 (TAMP1)\. Components include: (I) Tax Administration Management : A\. Organization and Management (US$ 3\.6 million base cost, including US$ 0\.01 million recurrent cost): This component supported improvements in organizational structure, management systems (strategic planning, workload assessment, performance monitoring ), development of standardized workflows and manuals documenting standard processes in tax administration at all levels, revenue forecasting and tax modeling and change management (including communication strategies to explain the rationale and potential impact of proposed changes to all managers, staff, taxpayers and other stakeholders )\. B\. Human Resources and Training (US$11\.9 million base cost, including US$ 0\.2 million recurrent cost): This component supported, as a long -term objective, the development of transparent and standard procedures for the recruitment, selection, hiring and dismissal of personnel and developing career paths based on the new functional organization occupational categories \. In the short-term, this sub-component assisted MinTax in development of a salary and benefits reform package to the extent possible, including building in performance incentives based on transparent criteria for wage setting and benefits \. It also assisted in developing the actual training delivered to the project regions and headquarters during project implementation, and assisted in improving the Ministry's capacity to manage professional ethics by developing legislation and other regulatory and legal acts related to the protection of tax officials from illegal encroachments, and provision of technical assistance in developing and implementing a strategy for the prevention of potential offenses on the part of certain tax authority officials and developing methods for assessments of staff integrity and the fair treatment of the taxpayers, including development of the code of ethics \. C\. Infrastructure (US$111\.0 million (base cost, including US$ 7\.7 million recurrent cost): This component assisted in establishing the Moscow Integrated Inspection for Centralized Data Processing (FDPC) through legislative changes, preparation of physical facilities, procurement and implementation of adequate hardware, software and telecommunications equipment, and optimization of the number of personnel and redistribution of functions among the FDPC, Interrayon Inspections for Centralized Data Processing (RDPCs) and territorial tax authorities\. The project also took steps towards establishing RDPCs (e\.g\. legislative changes, preparation of physical facilities, procurement and implementation of adequate hardware, software and telecommunications equipment, and optimization of the number of personnel and redistribution of functions among the FDPC, RDPCs and territorial tax authorities)\. It assisted in the design of a corporate telecommunications network and the design, development and implementation and maintenance of an advanced information technology system to support all aspects of tax administration \. Finally, it adapted the current physical infrastructure of the tax administration to the standards necessary to support automation and functional distribution of work \. II) Tax Administration Operations : (II) A\. Legal, Regulatory and Appeals Framework (US$3\.5 million base cost; no recurrent costs are planned for this component): This component supported Ministry of Finance in the development of a comprehensive tax policy in Russia\. It also assisted the Ministry of Finance and the Ministry of Taxes and Fees in reviewing the current tax legal and regulatory framework and preparing proposals for introducing amendments to legal and regulatory acts, as well as drafting new legislative and regulatory acts to take into account short - and long-term policy priorities\. It also assisted in strengthening the overall appeals system through carrying out informational campaigns for taxpayers relating to the new system; conducting experiencing -sharing meetings with the judiciary to improve the efficiency and effectiveness of the court appeals system, specifically what court procedures can be undertaken when tax decisions are appealed; and the development of a database of precedents from court decisions of tax cases that can be used to help MinTax decide what cases to pursue in court and how to prosecute them \. B\. Unified State Register of Taxpayers (US$1\.1 million base cost, including US$ 0\.1 million recurrent cost): This component supported software development and implementation to improve the Unified State Register of Taxpayers, including reviewing and proposing changes to legislation and regulations to require the application of a taxpayer identification number (TIN) to specific economic transactions \. C\. Development of Electronic Filing and Tax Payment Accounting Systems (US$ 6\.7 million base cost, including US$ 0\.3 million recurrent cost):: This component supported preparing requirements analysis and specifications, developing and implementing a system for e -filing, and assisted in the development of the architecture of the system for data interchange with the treasury system, as well as the procurement of software, hardware, and telecommunications services \. D\. Audit and Investigation (US $7\.9 million base cost, including US$ 0\.1 million recurrent cost): This component helped strengthen the audit capacity of MinTax through the development of a third -party information system, development and implementation of computerized desk and field audit systems, development and  implementation of a computerized system for selection of field audit cases, piloting the system for checking VAT invoices, strengthening intelligence and investigation operations and cooperation with financial police, as well as implementing a system for processing and accumulating data on citizen incomes and property \. E\. Arrears Management (US $1\.1 million base cost; no recurrent costs were planned for this component ): This component supported activities to improve the techniques and procedures for recovery of tax arrears, and assisted in improving the data exchange system with the Bank of Russia to retrieve data on the amount of arrears accumulated by problem banks, reviewing and implementing the arrears management information system and policy, and developing guidelines and procedures to write off uncollectible arrears \. F\. Taxpayer Services Development (US $1\.8 million base cost, including US$ 0\.01 million recurrent cost): This component assisted in designing a national strategy for production and dissemination of educational materials related to taxation, supported the development of taxpayer information and consultancy services including the development of service standards for the whole country and explanatory materials to guide taxpayers in compliance with tax laws, and assisted in simplifying and unifying tax forms while ensuring that data necessary for auditing and reconciliation of tax returns is provided by taxpayers, and in developing easily understandable tax return filing instructions for taxpayers \. G\. Largest Taxpayer Units (US $0\.7 million base cost; no recurrent costs are planned for this component): This component developed methodologies for effective management of the largest taxpayers, including an analysis of the organizational characteristics of these enterprises and the impact of their restructuring on the tax base and tax revenues, as well as developing and implementing methods and software for forecasting the revenues and tax burden of these taxpayers \. III ) Project Management (US $4\.0 million base cost; no recurrent costs are planned for this (III) component): This component assisted in managing project implementation and covering the costs of project management, and assisted in analysis of the implementation progress based on the reference assessments and introduction of proposals aimed at increasing effectiveness of the activities \. Periodic surveys of taxpayers, managers and staff of MinTax, and other stakeholders were also conducted to solicit their perceptions about improvements made in the tax administration, to identify continuing problems, and to propose measures that might be taken to improve agency performance \. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: The Office of the Prosecutor General (OPG) of the RF carried out a detailed investigation of project activities in 2006 looking for possible corruption, followed by a detailed audit by the Chamber of Accounts \. Although no evidence of corruption was found, the OPG declared that the Federal Tax Service (FTS) had incorrectly used World Bank procurement processes, and should use national procurement processes \. As a result of these investigations and finding, project procurement and disbursements were suspended until these matters were resolved, and project implement recommenced in late 2007\. Because of the resultant delay in project implementation, FTS and the Bank agreed not to implement 13 procurement packages from Component I \.B, in order to close the project at the scheduled time, and cancelled $ 7\.38 million of the loan\. 3\. Relevance of Objectives & Design: Project objectives were highly relevant to country context and the Bank's strategy in the RF \. They build on the 1999 tax code, providing a legal basis for taxation and protecting taxpayer rights \. Project objectives are also relevant to one of the three pillars of the CAS approved in 2002: strengthening public sector management \. Project objectives are also relevant to one of the four central themes of the 2009-2011 Country Partnership Strategy (CPS): improving public sector management and performance \. Project design, including the components discussed above, was relevant to achieving project objectives, incorporating lessons learned from TAMP 1 including: building on strong, high-level political will, a strategic vision, a strong approach to business process re -engineering, the need to reduce the motive and opportunity for corruption through greater transparency and use of electronic systems, and an approach combining reforms in tax policy and tax administration \. Another useful design feature was the use of technical working groups of officials to facilitate work under each component \. These groups continued their work, even when formal project activities were stalled due to unexpected difficulties with procurement \. Once the problems were resolved, project activities could resume quickly and effectively because the working groups had things ready to go in their respective areas\. One lesson from TAMP1, that software development can be a major bottleneck, proved to be also true in TAMP2, despite attempts to build in realistic sequencing to the design \.  The results framework used in the ISRs is well designed, with objectives mainly clearly stated and timebound, quantifiable targets\. The causal chain between the Bank financing and intended outcomes is reasonably clear, with the Bank's focus on pilot regions and the comparison in some cases with non -pilot regions, and with RF as a whole, indicating the extent to which Bank supported regions performed better (or worse) than others\. Yet the two TAMP1 pilots were considered non-pilot regions for TAMP2\. In addition, the Federal Targeted Program (FTP) for tax administration designed at the same time as TAMP 2 funded parallel reforms in these and other regions\. Other factors include performance pay that was introduced for tax administrators during the period, and a buoyant economy fueled by high oil and gas world market prices \. These numerous factors affecting tax administration performance may have had different effects in different regions, helping to explain why by some measures, RF average performance exceeded performance in the TAMP 2-supported pilot regions\. These effects, although welcome, make it harder to use evidence from non -pilot regions as a control group, since the pace of reforms there was influenced by many positive factors \. 4\. Achievement of Objectives (Efficacy): This review will analyze and rate achievement under the five subobjectives \. Ratings are based on project development objectives (PDOs), or key performance indicator (KPI) targets, mentioned in the PAD that were monitored in ISRs\. 1\. Facilitate voluntary compliance\. Achievement of this objective is substantial \. Some PDOs were exceeded: percentage difference between pilot regions and Russia average for voluntarily paid tax returns (96\.4 percent for project regions, 89\.4 percent for Russian average, exceeding 2 percent target; percentage reduction in late filings in pilot regions 62 percent, vs\. a target of 30 percent; and the on-time filing target of 95\.5 percent was exceeded at 96\.3 percent\. In addition, 43\.4 percent of returns are submitted by mail or electronically, which is up from a baseline of 24\.6 percent, but below the PDO target of 50 percent\. An additional KPI of days to notify taxpayers who fail to pay worsened from a baseline of 18 days to 38 days\. The last two indicators are rated achieved and partially achieved respectively in the ICR, but in this Review are rated partially achieved and not achieved\. 2\. Increase administrative efficiency \. Achievement of this objective is substantial \. The PDO of increasing collection efficiency in pilot regions by a 6\.5 percent gain more than in non-pilot regions was exceeded (144 percent increase in pilot regions compared with 95\.6 percent increase in non-pilot regions\. However, the KPI of increasing the ratio of taxes to expenditures by 11\.3 percent more in pilot regions than the RF average was not achieved, with a 5\.4 percent decline in pilot regions, compared with a 30\.3 percent increase in the Russian average\. Possible reasons for this include the fact that TAMP 1 projects are included in the average, benefiting from previous Bank-supported reforms\. Also, Government supported reforms were proceeding in non -pilot tax offices, including a performance pay scheme providing a strong incentive to officials to raise tax collection \. The project period was also a period of strong economic growth, which may have had differential effects on tax collection in different regions\. All of these factors make it difficult to prove the causal chain between Bank support and performance in the pilot regions \. However, it seems plausible that prolonged Bank support through TAMP1 and TAMP2 was spurring reforms across all RF regions, thus leveraging the impact of the support beyond the pilots\. 3\. Strengthen enforcement capacity \. Achievement of this objective is substantial \. The PDO of a 10 percent increase in taxes recovered per tax audit was exceeded (1612 percent increase), compared with a RF average 862 percent increase\. An additional KPI of reduction in tax arrears moved from -10\.1 percent to -15\.2 percent in pilot regions\. There was an even sharper reduction in the RF average, from -1\.8 percent to -30\.1 percent\. leading to a Not Achieved rating \. 4\. Enhance professional integrity and skills \. Achievement of this objective is modest \. There was a PDO calling for setting up periodic surveys in this area \. Two surveys were conducted, one measuring business views on integrity of tax administrators, and the other measuring views on professional skills training \. The latter found that 74\.6 percent of respondents said that training was adequate in pilot regions, compared to 76\.3 percent in non-pilot regions\. Only one survey was carried out on each topic, so it isn't possible to tell if opinions changed during the time of the project\. 5\. Improve tax legislation and fairness in the implementation of tax laws \. Achievement of this objective is modest\. This was measured under surveys called for under the previous PDO \. According to 2007 survey results, around 2/5 of stakeholders felt that tax policy is having a positive effect, with slightly more positive results in non-pilot regions than in pilot regions \. Again, only one survey was carried out on the topic, so it isn't possible to tell if opinions changed during the time of the project \.  As a result of work carried out in the above five areas, the project was expected to contribute to macro -economic stability, improved environment for private sector development, and strengthened public institutions \. Regarding macro-economic stability, the IMF's 2009 Article IV report points out that the RF's prudent taxation policy in the good years has allowed for a large fiscal stimulus in responding to the current economic downturn \. Regarding improved conditions for the private sector, a recent survey of 2,000 RF small firms in 20 regions indicates that there has been a major drop in the regulatory burden (including taxation) since 2001, although there is considerable regional variation \. Finally, progress on the sub -objectives indicates that tax institutions have been strengthened\. Based on the above, the overall achievement of objectives is rated as substantial\. 5\. Efficiency (not applicable to DPLs): The project can be considered highly efficient, with a net present value (NPV) of benefits of $14869\. In addition, factors not considered in estimating NPV may lead to higher fiscal benefits \. These factors include positive GDP growth, real appreciation of national currency, and reduction of statutory tax rates (benefits shared with law-abiding private sector)\. ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re-estimated value at evaluation : re- Rate Available? Point Value Coverage/Scope* Appraisal Yes 66\.5% 100% ICR estimate Yes 66\.5% 100% * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: The overall outcome of the project is rated Satisfactory \. The objectives were highly relevant to the country context and the Bank’s strategy in the RF at the time of appraisal, and remain relevant at the time of evaluation \. The Project design was relevant to achieving these objectives, incorporating lessons learned from TAMP 1\. The results framework used in the ISRs is generally well designed \. The causal chain between the Bank ’s financing and intended outcomes is reasonably clear \. The project achieved substantial results with seven PDOs /KPIs achieved, two partially achieved, and two not achieved, with a high degree of efficiency \. The main shortcoming was a series of delays caused by a major government reorganization, investigations by OGP and the Chamber of Accounts, a ruling by the OGP, and other factors discussed below \. a\. Outcome Rating : Moderately Satisfactory 7\. Rationale for Risk to Development Outcome Rating: The review agrees with the Substantial rating of the ICR \. As pointed out in the ICR, TAMP2 focused on a limited number of pilot regions with favorable conditions for reform; scaling up the reforms to all RF regions will be more challenging\. In addition, studies of public service in RF (e\.g\. A\. Kotchegura, Civil Service Reform in Post-Communist Countries, Leiden, 2008) indicate shortcomings including pervasive patronage networks with weak external accountability and transparency, and limitations on merit -based recruitment and promotion, along with increasing corruption, excessive politicization, and shortage of relevant expertise \. Although the tax and customs service are considered "public service", and not technically part of the civil service, many of these political and managerial challenges apply \. In this setting, reforms depend mainly on personalities, and may be stymied with a new leadership team\. The experience following the restructuring of tax administration in 2004 including the temporary setbacks of TAMP 2 demonstrates one of the risks in such a context, even during a period highly favorable to fiscal progress \. Such setbacks are possible again, and the consequences to modern tax administration in a much less favorable, recessionary environment could be more severe \. a\. Risk to Development Outcome Rating : Significant 8\. Assessment of Bank Performance:  Quality of entry was satisfactory , project objectives were highly relevant to the context and to Bank strategies at the time of appraisal and today \. There were 2-3 supervision missions each project year, and ISRs indicate candid assessment of issues, and success in addressing challenges with project management and procurement, and slippage of PDOs due, inter alia, to the 2004 FTS reorganization, the investigations by the OPG and the Chamber of Accounts, and the finding, for a time, that use of Bank Procurement procedures was illegal \. In dealing with these difficulties, the Bank made its case to relevant authorities in an effective but non -intrusive manner, with the ultimate result that disbursement picked up in the final year such that most PDOs could be achieved \. The QAG panel confirmed that the Bank team dealt with the subsequent OGP intervention with tact and sensitivity\. at -Entry :Satisfactory a\. Ensuring Quality -at- b\. Quality of Supervision :Satisfactory c\. Overall Bank Performance :Satisfactory 9\. Assessment of Borrower Performance: The government provided strong support to the project initially, including the initial elevation of the State Tax Service into the Ministry of Taxes and Fees \. However, the 2004 reorganization to the FTS under the MOF, and reassignment of key executive staff, led to major delays \. The OGP finding on procurement led to additional delays, including the time taken by various executive agencies to resolve the issue \. These headline problems were exacerbated by a command -and-control style of management from the government bodies concerned, combined with ambiguous communication lines and uncertain accountabilities \. Working within this difficult context, the Federal Center for Project Finance, as PIU and implementing agency, the ICR is convincing that the Technical Working Groups and the PIU were key to keeping the project moving forward to the extent possible even during the periods of political uncertainty, and getting it to a large extent back on track following the difficulties \. The technical working groups also worked well in spearheading change management and ownership of reforms among FTS staff, despite a difficult reform context\. A QAG panel review toward the end of the project (April, 2008) noted that extensive audits by RFs supreme audit institution failed to disclose a single case of corruption, collusion or fraud, despite substantial risks of this IT-focused project\. The detailed ICR prepared by FTS is also exemplary, and an indication of the professionalism associated with the project \. For these reasons, the implementing agency performance is rated Satisfactory\. This Review also agrees with the ICR that given the problems of the wider institutional environment, overall borrower performance is rated Moderately Satisfactory\. a\. Government Performance :Moderately Satisfactory b\. Implementing Agency Performance :Satisfactory c\. Overall Borrower Performance :Moderately Satisfactory 10\. M&E Design, Implementation, & Utilization: The project used a robust set of PDOs and KPIs which were clearly stated, quantifiable, and timebound \. A minor shortcoming was that it wasn't always possible to measure progress in TAMP 2 pilots by comparing performance with non-pilot regions, as had been originally planned \. There were many reasons for this, including the fact that TAMP1 projects are included in the average, benefiting from previous Bank -supported reforms\. Also, Government supported reforms were proceeding in non -pilot tax offices, including a performance pay scheme providing a strong incentive to officials to raise tax collection \. The project period was also a period of strong economic growth, which may have had differential effects on tax collection in different regions \. The challenge of multiple attribution is common in public sector reform projects, and this Review finds that M&E design was of a good standard taking all factors into account, giving reasonable if not perfect monitoring data  from which to draw conclusions on project performance \. Although there was an extensive organizational setup for collecting monitoring data, work processes were severely disrupted following the government reorganization launched in March 2004\. Problems included a delay in the contract for taxpayer surveys; as a result, only one survey was ultimately conducted on each topic in 2007-8, and thus it isn't possible to see any trends \. ISRs in 2005-5006 signalled this problem with MU ratings for M&E\. However, starting in 2007, the rating improved to MS, and subsequent reporting on PDOs has been reasonably strong\. a\. M&E Quality Rating : Substantial 11\. Other Issues (Safeguards, Fiduciary, Unintended Positive and Negative Impacts): From December 2004 to June 2005, ISRs indicate serious problems of project management and procurement, including cumbersome and lengthy clearance procedures, lack of observance of the bidding documents conditions, and confusion as to the possibility of national procurement rules application \. Also contributing were the change of about 70 percent of project staff after the restructuring of the FTS, and weak collaboration between the PIU and FTS, and cumbersome FTS work procedures \. All these issues led to delays and may have increased fiduciary risks, already high because of the IT focus of the project \. This is worrisome because the 2003 CFAA states that “modern internal audit functions exist only at the inception stage in the RFâ€?\. Among weaknesses in the financial control environment, there is no basis for administrative sanctions, and no regulations covering proper conduct by officials in handling public funds and project procurement\. This helps explain why World Bank procurement procedures were used in TAMP 2 rather than RF procedures\. Weaknesses in internal controls make the job of external audit more difficult \. In addition, the dual role of the Chamber of Accounts as financial advisor to government, and supreme audit institutions, may compromise the integrity of audit function \. In addition, the CFAA found that the Chamber ’s reports are missing key components, and cannot replace audit reports carried out by private sector auditors of Bank projects \. Thus, although investigations by Russian authorities found no evidence of corruption, collusion or fraud in TAMP 2, the overall control and audit environment raises issues for concern \. 12\. 12\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Moderately Moderately \. Satisfactory Satisfactory Risk to Development Significant Significant Outcome : Bank Performance : Satisfactory Satisfactory Borrower Performance : Moderately Moderately Satisfactory Satisfactory Quality of ICR : Exemplary NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate \. 13\. Lessons: This Review broadly supports the lessons raised in the ICR \. Ownership, attention to change management, and the piloting approach were keys to the successes achieved \. The overall professionalism exhibited by the PIU, NTS, and other concerned authorities is an indication that overall public service reforms in the RF may be gaining some traction, building on the signals by President Putin starting in 2000 of the importance of reforms, and the Public Service Reform program adopted in 2003\. The design of TAMP2 at the same time as  the Federal Targeted Program (FTP) for tax administration allowed the opportunity for reforms implemented in pilot regions to be rolled out nationally at the same time \. While helping leverage the impact of TAMP 2 funding, it also made it more difficult to measure the marginal impact of TAMP 2 funding in the pilot regions, relative to support provided by the FTP \. This Review also agrees with the ICR that perception surveys only give a broad measure of transparency and taxpayer access to information \. However, had periodic surveys been carried out, as envisioned in the PAD, one would have had a sense of whether perceptions had changed during the project period\. Another lesson is the importance of taking a political economy perspective in design and implementation of a high profile institutional development project such as this one \. Two features of this project were useful in this respect\. First, the technical working groups kept the project alive during the period when investigations and legal challenges stopped formal project work in 2006-7; once these matters were settled, project activities could resume quickly and effectively because the working groups had things ready to go in their respective areas\. Second, the Bank team was well informed on the politics behind the delays, and kept Bank Management informed through candid Aide Memoires attached to ISRs \. Because of this, the Bank was able to strike the right balance between not being overly intrusive in a domestic political dispute on the one hand, while being ready to help authorities once the path towards resolving the disputes was reasonably clear \. 14\. Assessment Recommended? Yes No Why? It is commonly reported that public sector reforms by borrowers are delayed or sidetracked by political and administrative changes in midstream \. Better understanding of how to effectively manage this risk in future operations would be beneficial\. 15\. Comments on Quality of ICR: This is a frank and thorough ICR of the highest standard \. One small point: it would have been helpful to include evidence to support the expected outcomes of macro -economic stability and improved environment for private sector development\. a\.Quality of ICR Rating : Exemplary

REVIEW

P078131

 ICRR 14360 Report Number : ICRR14360 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 06/27/2014 Country : Tunisia Project ID : P078131 Appraisal Actual Project Name : Energy Efficiency US$M ): Project Costs (US$M): 31\.8 36\.1 Program/industrial Sector L/C Number : Loan/ US$M): Loan /Credit (US$M): 8\.5 8\.37 Sector Board : Energy and Mining Cofinancing (US$M): US$M ): Cofinanciers : Board Approval Date : 11/04/2004 Closing Date : 12/31/2009 11/30/2011 Sector (s): Energy efficiency in power sector (65%); General industry and trade sector (29%); Banking (6%) Theme (s): Climate change (50% - P); Other financial and private sector development (50% - P) Prepared by : Reviewed by : ICR Review Group : Coordinator : Fernando Manibog Ramachandra Jammi Christopher David IEGPS1 Nelson 2\. Project Objectives and Components: a\. Objectives: The Project Appraisal Document (PAD, page 2) states that the Project Development Objective (PDO) is "to overcome barriers to the development of a sustainable market for energy efficiency products \." The PAD defines the barriers as "institutional and capacity-related" and adds that "the project aims to establish energy service companies (ESCOs) as the main vehicle to guarantee a sustainable energy efficiency market \." The PAD (page 3) further states that the Global Environmental Objective (GEO) is "to achieve a deeper penetration of sustainable commercial energy -efficiency investment activities in Tunisia's industrial sector, by removing barriers and lowering transaction costs \." Schedule 2 of the Global Environment Facility Trust Fund Grant Agreement (dated December 13, 2004) states that "The objective of the Project is to facilitate the development of a sustainable market of energy efficiency Sub -projects through: (i) the removal of institutional and capacity related barriers; and (ii) the establishment of energy services companies\. Following IEG guidelines, this ICR Review assesses the project based on the objective stated in the Grant Agreement, while taking into account the important clarification in the PAD's GEO statement that the project specifically addresses the industrial sector\. b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components: The project had three components : Component 1 - Pilot Phase for Energy Efficiency (US$2\.5 million at appraisal; US$ 2\.07 million actual) This component intended to establish and administer an incremental, output -based subsidy in order to enhance the development of energy efficiency projects in Tunisia's industrial sector \. Prior to this GEF project, the Ministry of Industry (MOI), through its Competitiveness Enhancement Bureau (BMN), was already administering an Industry Competitiveness Fund (FODEC) that offered an energy efficiency subsidy of 13%\. However, of the 1,202 applications to FODEC that were received from industrial companies by 2004, none included energy efficiency projects\. Thus, using GEF funds with a view to increasing the total financial incentive to 23% , this component provided an additional 10% subsidy to be administered by Tunisia's Energy Efficiency Agency (ANME)\. To access this subsidy, as well as the separate subsidy of 70% for energy audits, the industrial applicant had to submit a Program Contract (CP) that included a 3-year action plan to implement an energy efficiency project -- on its own or with the assistance of an ESCO\. If the latter is chosen, the company and the ESCO had to sign a turnkey Energy Performance Contract (CPE), in which the ESCO guaranteed the energy savings, and agreed to pay the difference if the full level of energy savings were not realized \. Component 2 - Partial Guarantee Fund (US$4\.0 million at appraisal; US$4\.4 million actual) This component was aimed at promoting the use -- specifically by industrial companies -- of the "full-service ESCO model" in Tunisia, by providing ESCOs with access to guarantees \. The ESCOs would pre-finance the entire energy efficiency project, including the investment costs, but would receive a 75% guarantee for their bank loans, up to a maximum of US$200,000\. The Tunisian Guarantee Company (SOTUGAR) would administer the guarantee fund of US$4 million\. Component 3 - Technical Assistance(US$2\.0 million at appraisal; US$1\.9 million actual) To encourage energy efficiency investments, this component supported awareness campaigns and training activities for industrial companies, as well as improvements in the capacity of technical centers, engineering firms, and other organizations that could potentially become ESCOs \. The component also financed a Project Implementation Unit (PIU)\. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: The GEF grant estimate was US$8\.5 million at appraisal; the actual amount was US$ 8\.37 million\. At appraisal, the total project cost estimate was US$ 31\.8 million, of which the Borrower would contribute US$ 4\.9 million and local sources US$18\.4 million\. The ICR indicated that the actual total project cost was larger US$ 36\.1 million, of which the Government of Tunisia provided US$ 5\.8 million and private sources invested US$ 21\.8 million to supplement the GEF grant\. Both the Government and private sources contributed larger amounts than estimated at appraisal \. The project closed on November 30, 2011, or almost two years beyond the original closing date of December 31, 2009\. 3\. Relevance of Objectives & Design: a\. Relevance of Objectives: Substantial The project's objectives remain relevant to the latest Country Partnership Strategy covering the period of 2010-2013, by supporting two of its three pillars, namely : (i) employment, growth and competitiveness; and (ii) sustainable development and climate change \. In practical terms, the project's relevance is evident from activities that (i) supported improvements in the competitiveness of participating industrial companies by reducing their energy bills, and (ii) promoted investments by local companies in energy efficiency \. Through energy savings, the project's activities were also directly relevant to avoiding corresponding CO 2 emissions\. According to the Project Appraisal Document (PAD), the project's objectives was fully consistent at appraisal with the 2004 Country Assistance Strategy, which emphasized "the need to support the Government's efforts in the energy sector, with a focus on energy efficiency and renewable energies \." (PAD, page 3) Energy efficiency has also been and still remains a priority of the Government of Tunisia; this started in May 2001, when the Government adopted an aggressive strategy including twenty presidential decisions aimed at enhancing energy efficiency\." (ICR, page 1) b\. Relevance of Design: Modest The project's design components, i \.e\., an operational subsidy, an investment guarantee, and technical assistance components, were straightforward but had important design flaws \. First, accessing the subsidy (Component 1) required the submission of a Program Contract between the industrial applicant and an ESCO -- but the ESCOs still had to be established, and the sequencing of creating the ESCOs and implementing the project components was too tight \. The Guarantee Fund (Component 2) was also designed to provide a 75% guarantee to (yet non-existent) ESCOs for their Bank loans up to a maximum of US$ 200,000\. The project design was over-optimistic in expecting ESCOs to make the jump from being non -existent to operating under the "full-service ESCO model", despite the immature energy efficiency market in Tunisia \. The shortcomings in achieving this project design goal is discussed under Section 4 below\. Second, the reliance on non -existent ESCOs was further complicated by opting for two financial intermediation instruments, i\.e\., a subsidy window for participating industries and a guarantee window for ESCOs, to be overseen by different agencies, notably the Ministry of Industry and ANME \. This made the project design confusing to potential stakeholders in Tunisia, where the idea of comprehensive energy efficiency investments in the industrial sector was new\. Moreover, the project design did not establish formal and regular consultative mechanisms among the stakeholders\. With respect to the Results Framework, the selected output and outcome indicators were generally appropriate, although important ones on institutional capacity -building were weak or missing\. For example, indicators related to stakeholder consensus were inadequate (see immediately above)\. The formulation of most of the indicators were specific, measurable, and time-based, i\.e\., they can be monitored\. However, some of the causal links were weak \. For example, a key link in the causal chain was absent, i \.e\., legislation to regulate the transfer of equipment ownership from ESCOs to industrial companies, yet this was not pursued during project preparation \. Also, it does not seem possible to achieve the outcome of "a sustainable energy efficiency market for Tunisian industry " from having "At least 3 ESCOs are operational" as a modest output goal\. Either the output goal had to be increased or the outcome goals scaled down, as they were mismatched and the baseline was low (competent engineering firms existed, but no ESCOs existed that could be scaled up ) \. The "number of projects approved" is also an inadequate indicator of a "sustainable energy efficiency market ", as proven by the project's own experience of failing to mobilize adequate commercial financing despite the large number of projects approved \. Another output goal was "At least 30 companies have ESCO-mediated projects" even though the ESCOs were non -existent\. In fact, as early as project negotiations, the Government of Tunisia requested a deviation from the PAD's project design by requesting the Bank to make the guarantee facility also accessible to eligible participating companies themselves and commercial Banks (which were ineligible to use the guarantee facility in the PAD ), because "these entities would be better placed in making the investments for the physical companies than the ESCOs, which at that point in time did not yet exist \." (ICR, page 4)\. This again points to a hypothetical project design that excluded already existing, investment ready entities in favor of ESCOs that were yet to be created, with built -in risks for failure\. 4\. Achievement of Objectives (Efficacy): Objective : To facilitate the development of a sustainable market of energy efficiency \. The PAD specified that the market would be Tunisia's industrial sector, the financing vehicle would be energy efficiency sub-projects, and the specific instruments would be Energy Services Companies (ESCOs), a subsidy program, a Partial Guarantee Fund (PGF), and interventions to remove institutional and capacity related barriers \. Outputs: (1) Establishment of a 10% subsidy program administered by the Energy Efficiency Agency (ANME) and a Partial Guarantee Fund (PGF)\. The ICR reports that "116 Program Contracts (CPs) linked to the project were approved and a total of 566 CPs were approved to benefit from the FNME subsidy, in large part because of support from the project\." Analyses of the counter-factual and the degree of attribution to the project were not provided in the ICR \. (2) The PGF was fully committed under the project \. However, future use of the guarantee funds were not agreed with the Bank prior to the project's closing date \. Six loans benefiting from PGF guarantees were repaid by then, but there are no clear provisions for their future use \. (3) Number of projects reaching financial closure \. Of the 116 projects approved, 81 have reached financial closure, representing a 65% partial achievement compared to the appraisal target of 125 projects\. A total of US$26\.9 million in energy efficiency investments were made over the project lifetime, including the 2-year extension\. (4) Number of operational ESCOs\. The goal of having at least 3 ESCOs operational was only partially achieved \. Although 10 ESCOs were licensed by ANME and 4 became operational, they were functioning more as auditing or engineering consulting firms that are paid a fixed fee rather than the full -scale ESCO model originally envisaged, i \.e\., funding the investments fully and getting paid from the energy saved \. The industrial companies themselves had to mobilize the financing for their energy efficiency programs \. (5) Technical centers for monitoring and verification procedures related to energy efficiency investments \. Two technical centers were formed via consultant contracts to monitor the energy efficiency investments : (i) technical center for construction materials, ceramics and glass; and (ii) technical center for mechanical and electric industries \. A monitoring and verification procedure was developed before the project closed \. Outcomes: (1) Energy savings were achieved among participating industries \. Actual energy savings were 31,000 tons of oil equivalent (toe)/year, while in the future, expected energy savings based on the CPs were 51,000 toe/year, both of which exceed appraisal targets \. (2) Greenhouse gas emissions reductions were achieved, i \.e\., 710,333 tons for the 2005-2011 period including the 2-year closing date extension, compared to the original 636,422 tons projected at appraisal for the original project period\. (3) Improved planning and institutional capabilities led to the adoption of energy efficiency programs \. A National Energy Efficiency Program was developed and a National Energy Management Fund was established \. Overall Assessment of the Achievement of the Project Objective : Substantial Targeted levels of program contracts, energy savings, and greenhouse gas reductions were partially, fully or more than achieved\. However, the instruments--i\.e\., full-scale ESCOs and guarantees--that led to these achievements did not materialize or operate exactly as the PAD had (over-optimistically) designed originally\. Nonetheless, what resulted from the project were modified versions that grew directly out of Tunisian realities, and were more suited to those market conditions\. With respect to ESCOs, the PAD's design that relied on ESCOs "as the main drivers for energy efficiency investments" (ICR, page 6) only partly materialized\. Instead of full-scale ESCOs taking full risk by mobilizing investment funds and being paid out of realized energy savings, the participating industrial companies were the ones who paid for the physical investments, while the limited version of ESCOs that actually emerged were paid by those industrial companies on a contractual basis that included a large fixed fee and a small variable fee that is proportional to the level of energy savings achieved \. Regarding the Partial Guarantee Fund (PGF), two-thirds of the investments by the industrial companies were paid through credits guaranteed by the PGF \. However, energy efficiency was new to the business portfolio of commercial banks and ESCOs were an entirely new concept \. Thus, the commercial banks considered the guarantee only as supplementary insurance and still required traditional collateral from the industrial companies \. In the end, the PGF acted as a double guarantee on top of the traditional collateral for loans by industrial companies \. Overall, a structure supporting a sustainable EE market emerged, although not quite in the form originally intended in terms of the type of ESCOs, and the easing of commercial bank requirements for financing EE projects \. 5\. Efficiency: Substantial Cost Effectiveness\. According to the ICR's Annex 3-Economic and Financial Analysis (pages 31-32), the GEF subsidy had a greater leveraging effect than originally anticipated at appraisal, i \.e\., $13 (instead of $9) was actually mobilized from local sources including the Government as well as a greater participation by the local private sector \. Greenhouse gas emissions reductions were achieved (see levels in Section 4 above) at an actual unit cost per ton (US$11\.9) that is less than the appraisal estimate (US$13\.4)\. Administrative Efficiency\. There were disbursement delays as stakeholders took the time in the project's early years to become familiar with the ESCO concept (see project design weaknesses in Section 3b above)\. There were also lags between ANME's Program Contract approval and the actual disbursement of the GEF subsidy, which was released only when the energy equipment was already in place \. These required 3 extensions amounting to 2 additional years from the original Closing Date \. Disbursement caught up and the entire GEF grant was utilized, following an action plan implemented by ANME in 2009 to help industrial companies to implement their energy efficiency programs and collect their respective subsidies more rapidly \. ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re- re -estimated value at evaluation : Rate Available? Point Value Coverage/Scope* Appraisal No ICR estimate No * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: The relevance of project objectives is substantial as it remains relevant to the Country Partnership Strategy and the Tunisia's priorities in its energy and industrial sectors \. The relevance of project design is modest given its dependence on the full-service ESCO model that did not yet exist, the complexity of its financial intermediation mechanisms, and weaknesses in key causal links in its Results Framework, particularly those related to building stakeholder consensus and critically necessary legislation that were not addressed during project preparation \. The project's efficacy is rated substantial as targeted levels of program contracts, energy savings, and greenhouse gas reductions were partially, fully or more than achieved; the instruments leading to these achievements, however, did not materialize or operate as designed (over-optimistically) in the PAD\. The project's efficiency is rated substantial in light of lower unit costs for greenhouse gas emissions reductions and higher resource leveraging effects, when comparing actual versus appraisal levels \. The overall project outcome is moderately satisfactory \. a\. Outcome Rating : Moderately Satisfactory 7\. Rationale for Risk to Development Outcome Rating: It is uncertain whether the full-scale ESCO concept could succeed as the main vehicle for establishing a sustainable energy efficiency market in Tunisia \. The existing ESCOs, while able to help in achieving energy savings, are really limited to providing consulting services because they are financially weak and will continue being unable to mobilize financing for large energy efficiency investments \. A follow-up Bank project approved in 2009 that provides an energy efficiency line of credit has not shown much progress either, with less than 5% disbursed as of 2012\. (ICR page 17) a\. Risk to Development Outcome Rating : Significant 8\. Assessment of Bank Performance: a\. Quality at entry: The Bank seriously underestimated the challenges of transferring the European and North American "full-scale ESCO model" into Tunisia, which had much less experience in energy efficiency investments, and where such projects were largely unknown among industries and banks, at the time of project preparation \. That ESCO model was not the most appropriate one to attempt in Tunisia since, by the mid -2000s when the project was appraised, it has succeeded in scaling -up energy efficiency in only a few countries \. Too little time was given between creating operational ESCOs along that full -scale model and implementing the project's physical and financial (i\.e\., subsidy and guarantee) components\. Moreover, the Bank did not adequately take into account the prior importance of building personal contacts and trust for doing business in Tunisia \. ESCOs could not have developed without entrenching this trust in a new business line first, yet the Bank's project design relied too heavily and too quickly on complex financial intermediation mechanisms \. In short, "the Bank's team tested a theoretically appealing model, ESCOs, to a weak and underdeveloped market \." (ICR, page 19) The project's goals were ambitious yet the necessary legislation (notably on the transfer of equipment ownership from ESCOs to the industrial companies) was absent or weak\. A conflict of interest also seems to have pervaded project preparation and design, since the project was based on a study done by the only ESCO operating in Tunisia at that time, i \.e\., the Societe Tunisienne de Gerance de l'Energie (STGE), which was created by the foreign firm Econoler in 1998\. STGE went into bankruptcy soon thereafter because it was unable to develop a pipeline of energy efficiency projects, given the high transaction costs, the immaturity of the energy efficiency market in Tunisia, and mistrust of that foreign company by Tunisian industrial companies\. at -Entry Rating : Quality -at- Moderately Unsatisfactory b\. Quality of supervision: The Bank supervision team adequately performed the regular supervision functions, including timely and balanced reporting including Aide Memoirs and Implementation Status Reports, carrying out a midterm review to identify measures for accelerating disbursements, and helping to develop an action plan to facilitate the application process for the industrial companies to obtain their subsidies \. However, there were also some shortcomings\. The Bank did not push strongly enough for the timely development and implementation of an Energy Efficiency Measurement and Verification Protocol, which is critically important to Performance Contracts (CPs) and the further development of the ESCO market \. At project closing, there was also no clear agreement with the PIU on an exit strategy for the GEF Partial Guarantee Fund \. Finally, the applicability of, and compliance with OP8\.30 (on financial intermediation) should have been reviewed during the midterm review when the concept of an interest-free loan on investment costs was introduced \. Quality of Supervision Rating : Moderately Satisfactory Overall Bank Performance Rating : Moderately Satisfactory 9\. Assessment of Borrower Performance: a\. Government Performance: The Government has been and continues to be a strong advocate for improving the efficiency of energy use in Tunisia\. Prodded in 2005 by severe budget constraints and spikes in international oil prices, the Government developed an action plan to reduce energy intensity among its highest energy consumers in the industrial sector and established a specialized National Energy Management Fund (FNME) to provide grants for energy efficiency investments out of a tax on vehicle registration \. The Government also re-assigned the management of the grant to ANME, given the inability of the then -existing FODEC fund under the Ministry of Industry to attract proposals for energy efficiency projects \. However, the Government lacked legislation, and did not take adequate action, on transferring energy efficiency equipment from the ESCOs to the industrial companies upon completion of the CPs\. Government Performance Rating Moderately Satisfactory b\. Implementing Agency Performance: ANME and the PIU played important roles in the achievement of project implementation targets \. The PIU was proactive in conducting personalized campaigns to raise awareness about energy efficiency and the available subsidies among industrial companies \. By the midterm review, the PIU was already directly facilitating the energy efficiency activities of 50 companies\. When only 18% of the GEF subsidy (Component 1) had been disbursed with just one year left before the original 2009 closing date, the new PIU Director who assumed office in 2008, together with the Bank team, developed an action plan to improve disbursement during the remaining project implementation period\. However, PIU was inadequately staffed during the initial two years of the project \. The PIU was also slow in developing an Energy Efficiency Measurement and Verification Protocol, and did not have a comprehensive financial and market sustainability plan when the project closed \. Finally, ANME could have been more straightforward and transparent in its administrative procedures for the approval and disbursement of subsidies\. Implementing Agency Performance Rating : Moderately Satisfactory Overall Borrower Performance Rating : Moderately Satisfactory 10\. M&E Design, Implementation, & Utilization: a\. M&E Design: An actionable monitoring and evaluation (M&E) system was presented in the PAD (Annex 14, pages 76-78), with clear institutional responsibilities (including a dedicated consultant in the PIU at ANME ), tracking and data collection functions, and reporting requirements \. Since capacity-building indicators were weak, however, there were inadequate provisions for monitoring progress in key institutional aspects that were outside the direct physical and financial components\. There were other weaknesses in the indicators : for example, "number of projects approved" was shown to be an inadequate indicator for the goal of establishing a sustainable market, when commercial financing proved difficult to mobilize \. Another example was to set a target of 30 ESCO-mediated projects, when the ESCO were yet to be created and there was no prior ESCO experience whatsoever in Tunisia \. b\. M&E Implementation: During project implementation, the PIU at ANME used its own engineers instead of a consultant \. The PIU conducted on-site visits to verify each energy efficiency investment prior to disbursing the subsidy claimed by the respective industrial companies\. c\. M&E Utilization: Physical and financial indicators were adequately monitored, leading to "a high-quality mid-term review report, which made several recommendations to improve project performance \. Most of these were adopted by the PIU at ANME \." (ICR, page 9) One important weakness of the M&E system was that the PIU did not use the International Measurement and Verification Protocol for verifying the energy savings \. The ICR asserts, however, that the energy savings data "can be considered reliable because of the high technical expertise of ESCOs and PIU engineers \." (ICR page 9) While high level of skills is probably an accurate assessment, it is unclear why the PIU did not use the Protocol despite prior agreement during project appraisal, as recorded in the PAD \. (PAD, Annex 14) Instead, the PIU deferred plans "to develop the measurement protocol in future projects with the participation of key stakeholders\." (ICR, page 9) M&E Quality Rating : Modest 11\. Other Issues a\. Safeguards: The project was rated a Category C and thus did not require an environmental and social assessment \. During the implementation of the energy efficiency measures, the noise and dust emissions that were expected were minor and temporary\. b\. Fiduciary Compliance: The ICR provided assurances that "The financial management system in place was satisfactory and in accordance with Bank procedures\." (ICR, page 10) The financial management action plan agreed in the 2004 Operations Manual was implemented satisfactorily by January 2005\. The PIU produced financial monitoring reports in a timely manner and in line with the Bank's requirements \. The PIU had one financial management specialist in its staff \. c\. Unintended Impacts (positive or negative): d\. Other: 12\. Ratings : 12\. ICR IEG Review Reason for Disagreement /Comments Outcome : Moderately Moderately Satisfactory Satisfactory Risk to Development Significant Significant Outcome : Bank Performance : Moderately Moderately When there is a split rating, i\.e\., in this Unsatisfactory Satisfactory case, Moderately Unsatisfactory for Quality at Entry and Moderately Satisfactory for Quality of Supervision, the overall Bank Performance rating is aligned with the rating of Moderately Satisfactory for overall Outcome, per IEG Guidelines\. Borrower Performance : Moderately Moderately Satisfactory Satisfactory Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate\. 13\. Lessons: The ICR (pages 21-23) provides clearly formulated and useful lessons based on the project's implementation experience\. The most important ones are as follows : 1\. Grants and guarantees are not sufficient to develop an energy efficiency market, whereas capacity building (awareness, coordination, and training ) is critical\. (This ICR Review would add that Government mandates alone are likewise insufficient if the necessary legislation and adequate trust in new financing mechanisms are not already present\. Despite 2001 Presidential and 2004 Ministerial Orders mandating the development of an ESCO market, the full-service ESCO model did not materialize\.) 2\. The "full-service" ESCO model is not a viable instrument to leverage energy efficiency market development \. The establishment of alternative ESCO models, which does not take investment risk, appears feasible as the case of Tunisia shows\. 3\. Subsidies that are administered on an output basis do not address the barrier of lack of "upfront capital" that is typical for energy efficiency investments \. (This ICR Review would add that releasing the subsidy only upon completion of agreed outputs builds in a strong disbursement lag, particularly in innovative projects where awareness-raising is needed before energy investment activities can even occur \.) 4\. Keep project design simple\. Having two financial intermediation instruments, i \.e\., a subsidy and a guarantee, led to different support mechanisms, eligibility criteria, governance structures, and complex administration requirements\. 5\. A guarantee fund is not sufficient to provide comfort to commercial banks and change the financing culture in a traditional system\. 14\. Assessment Recommended? Yes No 15\. Comments on Quality of ICR: The quality of the evidence in the ICR is adequate, and the quality of analysis is strong \. Its internal reasoning demonstrates a good understanding of the causal chains that underlie the project's results framework \. The ICR is candid in its assessments of the project's shortcomings, and is generally well written, although it would have been useful to have a simple table showing the chronology of subsidies for energy efficiency in Tunisia \. The lessons are well articulated and directly rooted in the ICR's evidence and analysis \. The ICR is internally consistent and complies with OPCS guidelines, although it is somewhat long at 23 pages\. Some repetitive material (e\.g\., on the level and origin of subsidies) could have been summarized in a well -designed table\. a\.Quality of ICR Rating : Satisfactory

REVIEW

P095205

 ICRR 14598 Report Number : ICRR14598 IEG ICR Review Independent Evaluation Group 1\. Project Data : Date Posted : 03/27/2015 Country : Brazil Is this Review for a Programmatic Series? Yes No How many operations were planned for the 2 series? How many were approved? 1 Series ID : S095205 First Project ID : P095205 Appraisal Actual Project Name : First Programmatic US$M ): Project Costs (US$M): Development Policy Loan For Sustainable Environmental Management L/C Number : L7660 Loan/ Loan US$M): /Credit (US$M ): US$1,300m US$1,300m Sector Board : Environment US$M): Cofinancing (US$M ): US$0m US$0m Cofinanciers : Board Approval Date : 03/05/2009 Closing Date : 12/31/2010 12/31/2010 Sector (s): General agriculture fishing and forestry sector (34%); Forestry (23%); General water sanitation and flood protection sector (17%); General finance sector (13%); Renewable energy (13%) Theme (s): Environmental policies and institutions (35% - P); Water resource management (25% - S); Climate change (20% - S); Land administration and management (10% - S); Biodiversity (10%) Evaluator : Panel Reviewer : ICR Review Group : Coordinator : William R\. Sutton John R\. Heath Christopher David IEGPS1 Nelson 2\. Project Objectives and Components: a\. Objectives: The objectives for the SEM DPL series are framed as follows : The SEM DPL series supports the GOB’s concerted efforts to strengthen environmental management, with particular attention to: improvements in the overall environmental management system, sustainable management of agricultural lands, forests, and water resources; reduction of deforestation in the Amazon; reduction of the environmental degradation of land and water resources that are key determinants of the well being [sic] of the poor; and, promotion of renewable energy \. Program Document (para\. 172) There was no specific objective for the first operation in the series, SEM DPL 1\. The SEM DPL was designed as a programmatic series of two loans, but the series was canceled after the first loan \. There do not appear to have been separate objectives for the individual loans in the series \. For the purposes of this evaluation, IEG construes the objectives of the SEM DPL as follows : a) Improve the overall Brazilian environmental management system; and b) Manage natural resources sustainably, reducing the degradation of agricultural lands, forests (in particular the Amazon), and water resources, and promoting renewable energy \. b\. If this is a single DPL operation (not part of a series), were the project objectives/ key associated outcome targets revised during implementation? No c\. Policy Areas: Policy actions under the two tranches of the SEM DPL were organized around nine “Key Issues and Objectives â€?, which were in turn regrouped into two sub -objectives: A\. improving the overall Brazilian environmental management system, and B\. integrating principles of sustainable development in key sectors \. Sub-objective B was further divided into four policy areas : natural resource management and conservation, water resource management, environmental sanitation, and renewable energy \. The policy areas consisted of the following : A\. Improving the overall Brazilian environmental management system The program sought to support policy reforms to improve and standardize the environmental management system by (i) improving the effectiveness of government environmental agencies, including the MMA and IBAMA, in implementing mandated Brazilian environmental and social management procedures, through restructuring and staffing increases; (ii) mainstreaming climate change in public and private sector investments by drafting and approving a National Climate Change Action Plan, and by BNDES implementing clean development and carbon funds programs; and (iii) improving the effectiveness of environmental and social management systems in BNDES and other financial institutions, through approving a revised Green Protocol to be approved by all federal public Brazilian banks, the approval and application of a new Environmental and Social Institutional Policy by BNDES to all its directly financed operations, and finally the expansion of the application of this new policy to BNDES ’s full portfolio\. By supporting these measures, the SEM DPL aimed to : (i) improve the environmental licensing process using as a proxy a 20 percent decrease in the number of judicially challenged licenses by the Public Prosecutor ’s Office (this indicator was later changed; see above ); (ii) increase planned signed reductions of 20 million tons of CO2 from CDM projects, BNDES projects, and other actions under the National Climate Change Action Plan; and (iii) achieving 100 percent of projects submitted directly to BNDES screened, approved and monitored according to the new Environmental and Social Institutional Policy \. B\. Integrating principles of sustainable development in key sectors B\.1\. Natural Resource Management and Conservation The program sought to support policy reforms to implement an integrated strategy to address issues of deforestation, biodiversity loss and unsustainable agriculture, and livestock production by : (i) improving the sustainability of natural resource management, through strengthening of the forest legal framework, restructuring BNDES programs on forests and agriculture, and designing three sub -sectoral guidelines and the REFLORESTA Program based on the new legal framework and BNDES ’s new Environmental and Social Institutional Policy; (ii) improving Amazon regional planning for sustainable development and reduced deforestation, through approval of the National Sustainable Amazon Program (PAS), and completion of the Ecological Economic Zoning of the Amazon Region; and (iii) improving rainforest conservation, through issuance of a Presidential decree regulating the Amazon Fund, making the Amazon Fund operational, and issuance of a Presidential decree to regulate and create operational mechanisms for the Atlantic Forest Fund \. By supporting these measures, the SEM DPL aimed to : (i) expand sustainable natural forest management of private and public areas from 27,000 km2 to 50,000 km2; (ii) reduce Amazon deforestation by 20 percent; and (iii) promote sustainable use of natural resources by supporting 500,000 ha with the Amazon and Atlantic Forest Funds\. B\.2\. Water Resource Management The program sought to contribute to improved management and quality of water resources through the approval of the Water Resources National Plan and the National Water Quality Evaluation Program, and implementation of the National Water Quality Evaluation Program in ten states \. By supporting these measures, the SEM DPL aimed to achieve regular water quality monitoring for an area of 90,000 km of main rivers, with the results publicly released and used to prioritize investments for improved water quality\. B\.3\. Environmental Sanitation The program sought to support reforms that would improve potable water, wastewater and solid waste service delivery\. The Program Document (PD) further stated that these reforms “would contribute to providing access to safe and renewable energy and related services, thereby reducing air pollution and mitigating its impacts on  human health and associated costs related to treatments of respiratory diseases and the loss of income generation opportunities\.â€? The specific reforms related to this policy area were : to enact Law 11,445/07 on National Guidelines for Water Supply and Environmental Sanitation, to ensure that BNDES programs are coherent with the new legal framework and BNDES ’s new Environmental and Social Institutional Policy, to update PRODES rules and regulations governing payments for wastewater treatment and approve by ANA, and to design two new BNDES sub-sectoral guidelines to ensure coherence with the new legal framework and with BNDES’s new Environmental and Social Institutional Policy \. By supporting these measures, the SEM DPL aimed to reduce pollutions loads by 110,000 tons per year from BNDES projects and the PRODES program\. B\.4\. Renewable Energy The program sought to promote the use of renewable energy in Brazil by diversifying energy sources and developing innovative technologies for alternative energy sources \. The PD further stated that these reforms “would contribute to providing access to safe and renewable energy and related services, thereby reducing air pollution and mitigating its impacts on human health and associated costs related to treatment of respiratory diseases and the loss of income generation opportunities \.â€? The specific reforms related to this policy area were : to include an Integrated Environmental Assessment (IEA) methodology for improving the environmental and social sustainability of the hydroelectric sector in the handbook of the Electricity Sector ’s inventory and apply it in ten river basins, to ensure that BNDES programs for energy efficiency and renewable energy are coherent with BNDES’s new Environmental and Social Institutional Policy, and to ensure the coherence of six BNDES sub-sectoral guidelines for renewable energy with BNDES ’s new Environmental and Social Institutional Policy \. By supporting these measures, the SEM DPL aimed to result in 60,000 tera joules per year produced by renewable energy sources or saved energy efficiency under projects supported by BNDES \. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: Costs : The SEM DPL was designed as a programmatic series of two loans for a total of approximately US$ 2 billion\. The first loan (SEM DPL 1) was for a total of US$1\.3 billion divided into two tranches of US$ 800 million and US$ 500 million\. The total commitment of $1\.3 billion for the first DPL was disbursed \. The planned second loan in the series never materialized\. Financing : The full US$ 1\.3 billion of the SEM DPL 1 was financed by the World Bank on IBRD terms \. SEM DPL 1 was to be disbursed in two tranches, the first of US$ 800 million and the second of US$500 million\. Borrower contribution : None listed Dates : The loan was approved on March 5, 2009, and the expected release dates for the two tranches were March 31, 2009 and June 30, 2009, respectively\. However, the loan did not become effective until June 21, 2010 and the first tranche was not disbursed until June 30, 2010, fifteen months late\. The second tranche was disbursed more than seventeen months late, on December 15, 2010, just over two weeks before the loan was closed on December 31, 2010\. The ICR states that the planned second loan of the series was canceled due to the significant delays experienced in the effectiveness of the first loan, which delayed the second loan beyond the two-year limit imposed by the World Bank between consecutive loans in a DPL series \. 3\. Relevance of Objectives & Design: a\. Relevance of Objectives: Note: Note : This loan is the subject of an IEG Project Performance Assessment Report (PPAR) PPAR ) being done in parallel \. Detailed evidence and references are provided in that report, including information gathered during a field visit to Brazil \. Please see the PPAR for full information on all aspects of the evaluation, including the background and history of the operation, which is key to understanding it \. The PPAR is available for download here : https://ieg\.worldbankgroup\.org/Data/reports/brazil-sem-dpl-ppar\.pdf Overall, the relevance of objectives is rated Substantial \. b\. Relevance of Design:  Please see the detailed PPAR evaluation being done by IEG in parallel for more information \. The relevance of design is rated Negligible \. 4\. Achievement of Objectives (Efficacy): Please see the detailed PPAR evaluation being done by IEG in parallel for more information \. Achievement of Objective A is rated Negligible \. Achievement of Objective B is rated Modest \. 5\. Efficiency (not applicable to DPLs): 6\. Outcome: Please see the detailed PPAR evaluation being done by IEG in parallel for more information \. a\. Outcome Rating : Unsatisfactory 7\. Rationale for Risk to Development Outcome Rating: Please see the detailed PPAR evaluation being done by IEG in parallel for more information \. a\. Risk to Development Outcome Rating : Moderate 8\. Assessment of Bank Performance: a\. Quality at entry: Please see the detailed PPAR evaluation being done by IEG in parallel for more information \. at -Entry Rating : Quality -at- Unsatisfactory b\. Quality of supervision: Please see the detailed PPAR evaluation being done by IEG in parallel for more information \. Quality of Supervision Rating : Unsatisfactory Overall Bank Performance Rating : Unsatisfactory 9\. Assessment of Borrower Performance: a\. Government Performance: Please see the detailed PPAR evaluation being done by IEG in parallel for more information \. Government Performance Rating : Moderately Unsatisfactory b\. Implementing Agency Performance: Please see the detailed PPAR evaluation being done by IEG in parallel for more information \. Implementing Agency Performance Rating : Unsatisfactory Overall Borrower Performance Rating : Moderately Unsatisfactory 10\. M&E Design, Implementation, & Utilization: a\. M&E Design: Please see the detailed PPAR evaluation being done by IEG in parallel for more information \. b\. M&E Implementation: Please see the detailed PPAR evaluation being done by IEG in parallel for more information \. c\. M&E Utilization: Please see the detailed PPAR evaluation being done by IEG in parallel for more information \. M&E Quality Rating : Negligible 11\. Other Issues a\. Safeguards: Please see the detailed PPAR evaluation being done by IEG in parallel for more information \. b\. Fiduciary Compliance: Please see the detailed PPAR evaluation being done by IEG in parallel for more information \. c\. Unintended Impacts (positive or negative): Please see the detailed PPAR evaluation being done by IEG in parallel for more information \. d\. Other: Please see the detailed PPAR evaluation being done by IEG in parallel for more information \. 12\. 12\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Satisfactory Unsatisfactory Please see the detailed PPAR evaluation being done by IEG in parallel for more information\. Risk to Development Moderate Moderate Please see the detailed PPAR Outcome : evaluation being done by IEG in parallel for more information\. Bank Performance : Satisfactory Unsatisfactory Please see the detailed PPAR  evaluation being done by IEG in parallel for more information\. Borrower Performance : Moderately Moderately Please see the detailed PPAR Satisfactory Unsatisfactory evaluation being done by IEG in parallel for more information\. Quality of ICR : Unsatisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate\. 13\. Lessons: Please see the detailed PPAR evaluation being done by IEG in parallel for more information \. 14\. Assessment Recommended? Yes No Why? Please see the detailed PPAR evaluation being done by IEG in parallel for more information \. https://ieg\.worldbankgroup\.org/Data/reports/brazil-sem-dpl-ppar\.pdf 15\. Comments on Quality of ICR: The ICR: • Does not adequately conceptualize the cause and effect chains through which the DPL might have contributed towards change\. • Could have been more candid in reporting on the SEM DPL and its performance, including the fact that all of the resources were directed to BNDES, that there were serious complaints registered by a large number of CSOs, and that progress on BNDES environmental and social systems was much less significant than what was advertised\. In several cases, the ICR also did not fully and accurately report information provided by the implementing agencies as input\. • Reports changes which occurred over a considerably longer period than the DPL (usually from 2004-2007) and assumes that they resulted from it\. • Does not take adequate account of the contributions of other stakeholders in environmental management in Brazil\. • Provides little explanation of why the second loan in a Brazil environmental DPL series was canceled for the second time in a row\. • Provides no information on the potential adverse environmental or social impacts, or implementation of mitigation measures, described in the Program Document\. • For such a large and complex operation, was very short and limited on the information provided, particularly regarding environmental outcomes\. • In view of these weaknesses in the evidence presented, assigns ratings, particularly in areas of outcomes and performance, that appear overly generous\. a\.Quality of ICR Rating : Unsatisfactory

REVIEW

P082976

 Document of The World Bank Report No: ICR1912 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-38590, IDA-44190) ON TWO CREDITS IN THE AMOUNT OF SDR31\.3 MILLION AND SDR18\.8 MILLION (US$45\.0 MILLION AND US$29\.8 MILLION EQUIVALENT) TO THE REPUBLIC OF YEMEN FOR A THIRD PUBLIC WORKS PROJECT December 27, 2012 Sustainable Development Department Middle East and North Africa Region  CURRENCY EQUIVALENTS (Exchange Rate Effective – September 30, 2012) Currency Unit = Yemeni Rials US$1 = YR 215\.53 SDR 1 = US$1\.54 FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy DCA Development Credit Agreement EMP Environmental Management Plan ERR Economic Rate of Return ICR Implementation Completion and Results Report IDA International Development Agency LIPWP Labor Intensive Public Works Project (LIPWP) ITB Invitation To Bid MENA Middle-East North Africa MOE Ministry of Education MOLA Ministry of Local Administration MOP Manual of Procedures MOPIC Ministry of Planning and International Cooperation NPV Net Present Value NGO Non-Governmental Organization PAD Project Appraisal Document PMU Project Management Unit PWP Public Works Project (1, 2, and 3) SC Steering Committee SWE Savings in Water Expenditures VTC Vocational Training Center YR Yemeni Rials Vice President: Ms\. Inger Andersen Country Director: Mr\. Hartwig Schafer Sector Manager: Mr\. Franck Bousquet Task Team Leader: Mr\. Ali Khamis ICR Team Leader: Mr\. Ali Khamis  Republic of Yemen Third Public Works Project Data Sheet A\. Basic Information B\. Key Dates C\. Ratings Summary D\. Sector and Theme Codes E\. Bank Staff F\. Results Framework Analysis G\. Ratings of Project Performance in ISRs H\. Restructuring I\. Disbursement Graph 1\. Project Context, Development Objectives and Design \. 1 2\. Key Factors Affecting Implementation and Outcomes \. 4 3\. Assessment of the Outcome \. 8 4\. Assessment of Risk to Development Outcome\. 15 5\. Assessment of Bank and Borrower Performance \. 16 6\. Lessons Learned \. 18 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners \. 19 Annex 1\. Project Costs and Financing \. 20 Annex 2\. Outputs by Component \. 22 Annex 3\. Economic and Financial Analysis \. 26 Annex 4\. Bank Lending and Implementation Support/Supervision Processes \. 37 Annex 5\. Beneficiary Survey Results \. 39 Annex 6\. Stakeholder Workshop Report and Results\. 43 Annex 7\. Borrower's ICR \. 44 Annex 8\.Comments of Co-financiers and Other Partners/Stakeholders\. 66 Annex 9\. List of Supporting Documents \. 67 MAP \. 68 A\. Basic Information RY-THIRD PUBLIC Country: Yemen, Republic of Project Name: WORKS Project ID: P082976 L/C/TF Number(s): IDA-38590,IDA-44190 ICR Date: 12/27/2012 ICR Type: Core ICR Lending Instrument: SIL Borrower: REPUBLIC OF YEMEN Original Total XDR 31\.30M Disbursed Amount: XDR 50\.10M Commitment: Revised Amount: XDR 50\.10M Environmental Category: B Implementing Agencies: Ministry of Planning and International Cooperation Cofinanciers and Other External Partners: B\. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 04/08/2003 Effectiveness: 07/15/2004 07/15/2004 07/19/2007 04/22/2008 Appraisal: 12/02/2003 Restructuring(s): 05/05/2009 06/22/2011 Approval: 02/26/2004 Mid-term Review: 01/31/2006 05/15/2007 Closing: 06/30/2009 06/30/2012 C\. Ratings Summary C\.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Development Outcome: Moderate Bank Performance: Satisfactory Borrower Performance: Satisfactory C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Satisfactory Implementing Quality of Supervision: Satisfactory Highly Satisfactory Agency/Agencies: Overall Bank Overall Borrower Satisfactory Satisfactory Performance: Performance: -i- C\.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments (if Indicators Rating Performance any) Potential Problem Project Quality at Entry No Satisfactory at any time (Yes/No): (QEA): Problem Project at any time Quality of Supervision No None (Yes/No): (QSA): DO rating before Satisfactory Closing/Inactive status: D\. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) General education sector 30 51 General transportation sector 20 13 General water, sanitation and flood protection sector 30 31 Health 10 3 Other social services 10 2 Theme Code (as % of total Bank financing) Gender 14 20 Other financial and private sector development 14 8 Participation and civic engagement 14 10 Rural services and infrastructure 29 30 Social safety nets 29 32 E\. Bank Staff Positions At ICR At Approval Vice President: Inger Andersen Christiaan J\. Poortman Country Director: Hartwig Schafer Mahmood A\. Ayub Sector Manager: Franck Bousquet Hedi Larbi Project Team Leader: Ali Khamis A\. Amir Al-Khafaji ICR Team Leader: Ali Khamis ICR Primary Author: Richard James -ii- F\. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The overall development objective would be to continue supporting the Borrower in the: (a) provision of needed infrastructure to improve services and environmental conditions (particularly those affecting women and children); and (b) creation of short term employment\. Revised Project Development Objectives (as approved by original approving authority) N/A (a) PDO Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Indicator 1 : Schools-enrollment of students in the project targeted areas\. Value Total: 256,359 quantitative or 148,000 115,000 200,500 Female: 122,026 Qualitative) Male: 134,333 Date achieved 06/30/2003 06/30/2004 04/22/2008 06/30/2012 Comments 128% achieved\. Baseline is PWP-2 achievement\. Targets, revised and actual value (incl\. % measure additional enrollment\. Target increased to 118,500 during MTR, and increased achievement) again to 200,500 for the AF in 2008\. Rev\. target combines MTR revision and AF\. Indicator 2 : Health centers-number of beneficiaries using health centers in the project areas\. Value Total: 537,347 quantitative or 282,900 237,000 760,000 Female: 260,985 Qualitative) Male: 276,362 Date achieved 06/30/2003 06/30/2004 04/22/2008 06/30/2012 71% achievement\. Baseline is PWP-2 achievement\. Targets, revised and actual value Comments measure additional beneficiaries\. Target increased to 460,000 during MTR, and (incl\. % increased again to 760,000 for the AF in 2008\. Rev\. target combines MTR revision and achievement) AF\. Vocational Training Centers (VTC) - number of people graduated from VTCs in the Indicator 3 : projected targeted areas\. Value Total: 5,434 quantitative or 500 540 2,560 Female: 4,347 Qualitative) Male: 1,087 Date achieved 06/30/2003 06/30/2004 04/22/2008 06/30/2012 Comments 212% achievement\. Baseline is PWP-2 achievement\. Targets, revised and actual value (incl\. % measure additional beneficiaries\. Target increased to 1,280 during MTR, and increased achievement) again to 2,560 for the AF in 2008\. Rev\. target combines MTR revision and AF\. Indicator 4 : Water supply systems - number of beneficiaries in the project targeted areas\. Value Total: 209,762 quantitative or 40,700 300,000 295,000 Female: 92,534 Qualitative) Male:117,466 Date achieved 06/30/2003 06/30/2004 04/22/2008 06/30/2012 Comments 71% achievement\. Baseline is PWP-2 achievement\. Targets, revised and actual value -iii- (incl\. % measure additional beneficiaries\. Target decreased to 165,000 during MTR and revised achievement) upwards to 295,000 for the AF in 2008\. Rev\. target combines MTR revision and AF\. Indicator 5 : Sanitation schemes - number of beneficiaries in the project targeted areas\. Value Total: 197,127 quantitative or 147,300 147,000 350,000 Female: 81,455 Qualitative) Male: 116,545 Date achieved 06/30/2003 06/30/2004 04/22/2008 06/30/2012 Comments 57% achievement\. Baseline is PWP2 achievement\. Targets, revised and actual value (incl\. % measure additional beneficiaries\. Target increased to 230,000 at MTR, and increased achievement) again to 350,000 for the AF in 2008\. Rev\. target combines MTR revision and AF\. Indicator 6 : Water harvesting schemes - number of farmers benefited in the project areas\. Value quantitative or 38,000 76,000 320,000 Total: 455,770 Qualitative) Date achieved 06/30/2003 06/30/2004 04/22/2008 06/30/2012 141% achievement\. Baseline is PWP-2 achievement\. Breakdown by gender not Comments available\. Indicator measures additional PWP-3 beneficiaries\. Target increased to (incl\. % 250,000 at MTR and again to 320,000 for AF in 2008\. Rev\. target combines MTR achievement) revision and AF\. Indicator 7 : Short-term employment - enhancement in income in the project targeted areas\. Value quantitative or YR 22,840 YR 33,000 YR 34,000 YR 34,176 Qualitative) Date achieved 06/30/2003 06/30/2004 04/22/2008 06/30/2012 Comments (incl\. % 101% achievement\. Target revised upwards for the AF in 2008\. achievement) Indicator 8 : Number of people with access to an all-season road\. Value Total: 503,249 quantitative or 733,147 0 n/a Female: 206,332 Qualitative) Male: 296,917 Date achieved 06/30/2003 06/30/2009 04/22/2008 06/30/2012 Comments % achievement not calculable\. Core indicator added to ICR to include beneficiaries (incl\. % from road rehabilitation/construction\. Indicator was not part of PAD results and was not achievement) added at the time of approval of the AF\. Indicator 9 : Direct project beneficiaries\. Value quantitative or 995,452 875,450 1,928,060 2,165,048 Qualitative) Date achieved 06/30/2003 06/30/2009 04/22/2008 06/30/2012 Comments 112% achieved\. Core indicator added for ICR (sum of sub-project indicators)\. (incl\. % Combined target increased to 1,224,780 during MTR, increased again to 1,928,060 for achievement) AF in 2008\. Rev\. target combines MTR revision and AF\. -iv- (b) Intermediate Outcome Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised Target approval Completion or Values documents) Target Years Indicator 1 : Number of schools built\. Value (quantitative 524 400 384 378 or Qualitative) Date achieved 06/30/2003 06/30/2004 04/22/2008 06/30/2012 Comments 98% achievement\. Baseline for PWP-2\. Targets, revised and actual value measure (incl\. % additional schools\. Target decreased to 235 during MTR, and increased for the AF in achievement) 2008\. Rev\. target combines MTR revision and AF\. Indicator 2 : Number of health centers built\. Value (quantitative 126 45 45 20 or Qualitative) Date achieved 06/30/2003 06/30/2004 04/22/2008 06/30/2012 Comments 44% achieved\. Baseline for PWP-2\. Indicator measures extension or rehabilitation of (incl\. % existing facilities, not new health centers\. Target decreased to 15 at MTR and returned achievement) to original target for AF in 2008\. Rev\. target combines MTR revision and AF\. Indicator 3 : Number of VTCs built\. Value (quantitative 6 10 10 10 or Qualitative) Date achieved 06/30/2003 07/30/2004 04/22/2008 06/30/2012 Comments 100% achievement\. Baseline for PWP-2\. Targets, revised and actual value measure (incl\. % additional VTCs built\. Target decreased to 5 during MTR, and returned to original achievement) target for the AF in 2008\. Rev\. target combines MTR revision and AF\. Indicator 4 : Number of water supply schemes\. Value (quantitative 103 90 90 47 or Qualitative) Date achieved 06/30/2003 07/30/2007 04/22/2008 06/30/2012 Comments 52% achievement\. Baseline for PWP-2\. Targets, revised and actual value measure (incl\. % additional water supply schemes\. Target decreased to 50 during MTR, and returned to achievement) original target for the AF in 2008\. Rev\. target combines MTR revision and AF\. Indicator 5 : Number of sanitation schemes\. Value (quantitative 44 20 20 18 or Qualitative) Date achieved 06/30/2003 06/30/2004 04/22/2008 06/30/2012 90% achievement\. Baseline for PWP-2\. Targets, revised and actual value measure Comments additional sanitation schemes constructed\. Target decreased to 12 during MTR, and (incl\. % returned to original target for the AF in 2008\. Rev\. target combines MTR revision and achievement) AF\. Indicator 6 : Number of water harvesting schemes\. -v- Value (quantitative 50 110 170 187 or Qualitative) Date achieved 06/30/2003 06/30/2004 04/22/2008 06/30/2012 Comments 110% achievement\. Baseline for PWP-2\. Targets, revised and actual value measure (incl\. % additional water harvesting schemes\. Target increased to 120 during MTR, and achievement) increased further for the AF in 2008\. Rev\. target combines MTR revision and AF\. Indicator 7 : No\. of person months of employment created\. Value (quantitative 91,000 90,000 101,000 118,000 or Qualitative) Date achieved 06/30/2003 06/30/2004 04/22/2008 06/30/2012 Comments 117% achievement\. Baseline for PWP-2\. Targets, revised and actual value measure (incl\. % additional person-months generated under PWP-3\. Target decreased to 60,000 during achievement) MTR, and increased for the AF in 2008\. Rev\. target combines MTR revision and AF\. Indicator 8 : New civil works contractors developed\. Value (quantitative 370 60 95 206 or Qualitative) Date achieved 06/30/2003 06/30/2004 04/22/2008 06/30/2012 Comments 232% achievement\. Baseline for PWP-2\. Targets, revised and actual value measure (incl\. % additional civil works contractors developed under PWP-3\. Target not adjusted at MTR, achievement) but increased for the AF in 2008\. Rev\. target combines MTR revision and AF\. Indicator 9 : New consultancy firms developed\. Value (quantitative 495 60 95 206 or Qualitative) Date achieved 06/30/2003 06/30/2009 07/19/2007 06/30/2012 Comments 217% achievement\. Baseline for PWP-2\. Targets, revised and actual value measure (incl\. % additional consultancy firms developed under PWP-3\. Target not adjusted at MTR but achievement) increased for AF in 2008\. Rev\. target combines MTR revision and AF\. Indicator 10 : Number of development plans prepared\. Value (quantitative 24 50 20 20 or Qualitative) Date achieved 06/30/2003 06/30/2009 07/19/2007 06/30/2012 Comments 100% achievement\. Baseline for PWP-2\. Targets, revised and actual value measure (incl\. % additional development plans developed under PWP-3\. Target revised downwards in achievement) July 2007, and not adjusted for the AF, which financed only Component 1\. -vi- G\. Ratings of Project Performance in ISRs Date ISR Actual Disbursements No\. DO IP Archived (USD millions) 1 03/31/2004 Satisfactory Satisfactory 0\.00 2 10/14/2004 Satisfactory Satisfactory 0\.00 3 04/11/2005 Satisfactory Satisfactory 4\.55 4 09/28/2005 Satisfactory Satisfactory 5\.91 5 03/09/2006 Satisfactory Satisfactory 13\.52 6 06/13/2006 Satisfactory Satisfactory 16\.19 7 12/28/2006 Satisfactory Satisfactory 22\.79 8 06/18/2007 Satisfactory Satisfactory 31\.32 9 12/07/2007 Satisfactory Satisfactory 33\.81 10 06/03/2008 Satisfactory Satisfactory 35\.62 11 12/30/2008 Satisfactory Satisfactory 44\.64 12 06/29/2009 Satisfactory Satisfactory 53\.42 13 12/28/2009 Satisfactory Satisfactory 59\.02 14 04/24/2010 Satisfactory Satisfactory 66\.48 15 06/30/2010 Satisfactory Satisfactory 67\.59 16 01/04/2011 Satisfactory Satisfactory 74\.77 17 07/26/2011 Satisfactory Satisfactory 74\.77 18 01/03/2012 Satisfactory Satisfactory 74\.77 19 07/21/2012 Satisfactory Satisfactory 76\.16 H\. Restructuring (if any) ISR Ratings at Amount Board Restructuring Restructuring Disbursed at Reason for Restructuring & Key Approved PDO Date(s) Restructuring Changes Made Change DO IP in USD millions Number of districts reduced to 20 07/19/2007 S S 31\.32 for training (Comp\. 2)\. Additional financing approved and 04/22/2008 S S 34\.05 indicators adjusted\. 05/05/2009 S S 49\.00 Extension of closing date\. 06/22/2011 S S 74\.77 Extension of closing date\. -vii- I\. Disbursement Profile -viii- 1\. Project Context, Development Objectives and Design 1\.1 Context at Appraisal 1\. The country context during the preparation of the third phase of the Public Works Program was comparable to when the first and second phase were prepared in 1995 and 1998\. The country was facing a number of challenges deriving mainly from the unification of North and South in 1990, the return of over a million overseas workers in 1991 and the civil war in 1994\. During the preparation of the third phase another civil war broke out in the Northern part of the country in 2002\. 2\. The economy was almost driven to a point of collapse with an estimated 40 percent unemployment and a budget deficit of 50 percent\. This weak economic and political situation affected the country’s capacity to deliver the most needed basic services especially in the rural areas, home to 70 percent of the country’s 18 million people out of which 90 percent lived below the poverty line\. In response, the Government had been implementing an economy-wide reform program designed to stabilize the economy and stimulate sustainable growth\. The Government had been less than satisfied with the expected pay-offs from the reform program in terms of employment generation, income growth, and better public services, as access rates remained low\. The education indicators were well below regional average; only 48 percent of Yemeni adults were literate\. Infant mortality rate remained high at 76 per1000, and life expectancy was only 56 years\. Yemen’s very meager water supply (less than 130 cubic meters per capita per year) left 90 percent of the population with less than minimum standards of water supply\. In addition, poor access to safe drinking water and poor sanitation were daily reminders of poverty, especially onerous for girls and women in rural areas\. The largely mountainous terrain left much of the rural population without access to the market economy and public services\. Less than 15 percent of the road network was paved\. 3\. From the beginning of the stabilization program, the Government had sought to mitigate the short-term effects on the country’s most vulnerable population by undertaking to provide a limited social safety net and create jobs\. IDA had supported the Government’s strategy through a series of interventions with the first and second Public Works Program (PWP) and the Social Fund for Development (SFD)\. The two first PWPs had attracted substantial co-financing from other donors due to the shared development priorities and the good results obtained\. The Third Public Works Project (the Project) was an extension of two earlier phases\. The aim was to scale up the impact of these two earlier phases by increasing the number of sub-projects to be delivered as the needs for basic infrastructure services and income opportunities for unskilled labor remained high\. 1\.2 Original Project Development Objectives (PDO) and Key Indicators 4\. The overall development objective of the third phase was to continue supporting the Borrower in the: (a) provision of needed infrastructure to improve services and environmental conditions (particularly those affecting women and children) and; (b) creation of short term employment\. Sustainability of services delivered was to be ensured through community contribution to the costs of sub-projects; involvement in sub-projects selection; participation in -1- sub-projects preparation; and community involvement in monitoring progress of implementation during construction\. 1 5\. The above objective was also consistent with the relevant Country Assistance Strategy (CAS) and the Government’s Second Five Year Plan (2001-2005) which focused on, among other issues, social development by supporting social protection measures to mitigate the adverse impact of the reform program on those most likely to be affected\. Thus, while the Project was responsive to the circumstances and development priorities, it was also relevant to the CAS and the PRSP, which focused on developing human resources, improving infrastructure, achieving economic growth and granting social protection\. 1\.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification\. 6\. The PDO was not revised; however, the targets for key indicators underwent revision and a road/stone paving indicator was added for the ICR as it was omitted in the original results framework in both the PAD and the Additional Financing Project Paper\. As a result of the increase in fuel prices beginning April 2005, prices of building materials such as cement, steel, stones, labor, etc\., increased drastically up to and above 50 percent\. As a consequence, subproject output figures and estimates of employment generation had to be revised downward at MTR in May 2007, except for water harvesting schemes due to the high demand of such subprojects\. In spite of the reduction in outputs, it was estimated that more people would benefit from services, due to the number of beneficiaries being a key element of sub-project selection\. The number of beneficiaries would only decrease for water supply schemes, since this type of sub-project was scaled down due to sustainability concerns\. The targets were revised again during appraisal of the additional financing in 2008\. The details are in the Datasheet and in Table 1 in section 3\.2)\. Finally, the number of district councils to be trained under the Project was reduced from 50 to 20 districts at the request of the Ministry of Local Administration (MOLA), following the adoption of the National Strategy for Decentralization after effectiveness\. 7\. To compensate for the reduction in the total number of subprojects to be delivered following the price increases, an Additional Financing (AF) Credit for an amount of SDR18\.8 million (US$29\.84 million) was approved on April 22, 2008\. The PDO did not change\. 1\.4 Main Beneficiaries 8\. The beneficiaries were the residents of communities receiving sub-projects, which would see the quality of life improve through improved access to services, selected in a participatory manner to correspond to the most acutely felt needs\. Improved access to employment in the construction industry was another direct benefit\. At completion, the 716 subprojects delivered benefited about 2million people distributed across the country’s 21 governorates\. Distribution of projects by governorates and districts is given in Annex 2\. The project capacity building component would provide benefits to 50 districts, reduced to 20 during implementation; districts are listed under the same annex\. 1 The sustainability aspect of the PDO figures in the PAD but was not mentioned in the Development Credit Agreement\. It is however considered relevant and included for the evaluation in the ICR\. -2- 1\.5 Original Components 9\. Component 1: Community Infrastructure: Appraisal estimate: US$46\.5 million /Revised cost including Additional Financing: US$79\.19 million /Actual cost at Project closing: US$81\.75 million\. This was the primary component of the Project, representing 90 percent of the total Project cost\. It provided small scale basic infrastructure services in sectors such as health, education, vocational training, water, sanitation schemes, water harvesting/irrigation and village access roads/stone paving\. Subprojects were demand-driven based on requests submitted by communities, local governments, members of parliament, and selected based on eight established criteria including community contribution, labor content, investment cost per person-month of employment generated, poverty alleviation indicators, investment cost per beneficiary, improvements in environment, sustainability and involuntary resettlement/land acquisition\. 10\. Component 2: Technical Assistance/Consultant Services: Appraisal estimate: US$3\.50 million /Revised cost including Additional Financing: US$5\.57 million /Actual cost at Project closing: US$4\.15 million\. This component provided financing for consultancy services for Component 1 subproject selection, preparation, design, tendering, and construction supervision\. It would also finance capacity building to 50 district councils in carrying out assessments of their infrastructure needs, capacity assessments for implementation, preparation of investment plans, assessment of sources of revenues and establishment of management information systems\. Finally the component would finance:(i) a baseline survey;(ii) carrying out one Socioeconomic Impact Assessment (SIA); (iii) annual audits; (iv) training, including workshops for consulting firms, contractors, and NGOs;(v) training of local communities/beneficiaries in the operation and maintenance of infrastructure created; and (vi) in carrying out of study on the future options for the Public Works Projects including the role of the Project Management Unit\. The capacity building of 50 district councils was to be undertaken in a manner consistent with the MOLA National Strategy for Decentralization, under elaboration, and in coordination with other agencies engaged in similar activities\. 11\. Component 3: Project Management Support: Original cost at appraisal: US$2\.00 million / Revised cost including additional financing: US$3\.48 million /Actual cost at Project closing: US$4\.37 million)\. The component financed operation of the PMU including incremental operational and training costs of PMU staff\. 1\.6 Other significant changes 12\. The Project was implemented as designed with no major changes to the design, scope, implementation arrangements or funding allocations except for:(i) the reduction in the number of district councils from 50 to 20 districts based on a request from the Ministry of Local Administration; and (ii) approval of an additional financing in 2008 to meet the financing gap that resulted from price increases\. -3- 2\. Key Factors Affecting Implementation and Outcomes 2\.1 Project Preparation, Design and Quality at Entry 13\. The project was prepared in only eight months, given that the predecessor projects provided valuable lessons feeding directly into project preparation, and the PMU was well versed in Bank procedures\. The Project was originally intended (in the CAS) as a District and Community Development Project (DCDP) to support decentralization and to include continuation of the public works program\. However, in view of the pressing need for additional subprojects, with close to 8,000 unmet requests from communities for basic infrastructure services, the Government requested and the Bank agreed to pursue the DCDP objectives through two separate interventions, the PWP-3 and a Learning and Innovation Loan (LIL) for supporting the decentralization efforts of the Government\. While combining the two aspects would have allowed more learning by doing in the decentralized entities, splitting the two was probably a wise choice, due to the embryonic nature of the decentralization process and the risk that capacity constraints would compromise the objective of providing improved services, and the uncertain direction of decentralization, which still has to take off at the time of project closing\. 14\. Institutional and implementation arrangements remained the same as in the previous two phases\. A Steering Committee (SC), composing of representatives from the relevant sector ministries and three from non-governmental organizations, was in place to assure that there would be no duplication of efforts with other projects, further guaranteed by the PMU (in the Ministry of Planning and International Cooperation (MOPIC), which chaired the SC) being responsible for implementing similar operations and investments funded by other donors under the PWP-3\. 15\. Lessons learned from the first and second phase were taken into consideration in project design, including among others: • Reusing the subprojects design to fit well with the local labor market environment, country geographical conditions and dispersed site locations\. Distribution of allocations between the governorates followed the same principles used in the previous two phases (i) 50 percent based on poverty index; (ii) population density 30 percent; and (iii) 20 percent remoteness and underserved areas\. • The importance of gathering of baseline data on key performance indicators upfront for each area to be targeted by the Project\. This helped first establish good practices for regular and reliable data collection; provided baseline data against which performance was measured\. • The importance of ensuring sustainability before a subproject is selected for implementation\. This is more relevant for example to water supply schemes\. Proper assessment of water resources is a must to ensure that enough water is available\. Sanitation schemes are another example but related more to environment\. So, to avoid negative environmental impact on the targeted areas, there is a need to ensure existence of functioning and reliable wastewater treatment facilities or other appropriate disposal facilities\. • Operation and maintenance should be secured through solid confirmation either from the -4-  relevant line ministries for schools, health facilities, training centers or from communities for other sectors such as water supply, sanitation schemes, water harvesting, and village access roads\. Active community involvement would promote a strong commitment of ownership which facilitated not only successful delivery but also continued community involvement in the future operation and maintenance of subprojects\. This is even more relevant in isolated communities where government’s ability to provide a sustained financial commitment to future operation and maintenance is not foreseen\. The PWP-3 introduced a 5 percent minimum community contribution in cash or in kind as a mandatory criterion for selecting sub-projects\. • Ensure that appropriate environmental and social safeguards measures were applied through strict screening procedures before a subproject is selected for implementation\. The screening was required to determine the investment needs and to provide appropriate mitigation measures\. 16\. Based on previous PWP phases, the risks were evaluated as moderate, and it was adequately foreseen to include sub-project selection criteria to maximize labor content, strengthen PMU capacity to scale up activities, and include as study on the future of the PMU to assure institutional continuity\. The sub-project cycle was well developed (see the full cycle in the Government ICR, on page 50)\. The Project was ready for implementation as soon as it became effective\. There was approximately a one year gap between the closing of the second phase and the effectiveness of the third phase\. However, the PMU continued to operate in full capacity, managing other donor projects\. So, when the Project became effective in July 2004, the PMU was fully operational and all institutional arrangements, including availability of adequate staff, was in place\. The first year investment plan had already been approved by the Steering Committee (SC) and was ready for tendering and most of these contracts were ready for signing by effectiveness\. 17\. Based on the above design considerations, with adequate evaluation of risk and incorporation of lessons learned, including selection criteria that would contribute to maximizing impact, combined with the full readiness at effectiveness, the quality at entry is rated satisfactory, in line with the Quality at Entry assessment by the Quality Assurance Group\. The only shortcoming noted is not foreseeing indicators to capture the impacts on women and children, which was part of the PDO\. 2\.2 Implementation 18\. The Project was approved on February 26, 2004 and declared effective on July 15, 2004\.The Project was generally implemented smoothly, due to the professionalism of the PMU and engagement of the government and beneficiaries to provide co-financing on time\. The main changes, detailed below, were: (i) the reduction of the number of districts from 50 to 20 under the technical assistance component and adjustments to indicator targets during the MTR, (ii)the approval of additional financing and the resulting adjustment of activities and indicator targets to incorporate results expected from the AF, and (iii) the conflict which resulted in a second extension to the project\. 19\. The MTR was carried out in May 2007\. The review acknowledged the lessons incorporated from previous two phases, in particular O&M and M&E aspects\. The main action -5- taken during the MTR was the revision of key results indicators downwards to accommodate the increase in the price of construction materials and labor as a result of steep increase in the price of fuel and construction materials beginning in April 2005\. 20\. Capacity enhancement of 50 district councils was part of Component 2\. This sub- Component was designed to be aligned with the Ministry of Local Authorities’ (MOLA) National Strategy for Decentralization, but implementation was delayed until a comprehensive strategy had been developed along with draft training manuals\. By April, 2007, a draft implementation manual was finalized by MOLA and agreement reached concerning detailed scope of activities for capacity enhancement of the district councils\. The revised scope of activities now consisted of more in-depth training and support to district councils (including provision of equipment)\. The total budget of US$1\.0 million allocated to activities benefiting districts was considered too limited and in consequence, the PMU and IDA agreed during the MTR to reduce the number of districts and the Development Credit Agreement (DCA) was amended accordingly on July 19, 2007\. The PDOs remained unchanged\. 21\. In April 2008 IDA approved an Additional Financing Credit in the amount of SDR 18\.8 million (US$29\.8 million)\. The PDO remained unchanged, but key outputs, outcome indicators and the monitoring targets were merged with the existing targets\. The change was made based on Government’s request to meet the financing gap caused by continuous price increases in cement, steel and fuel which began in 2005\. 22\. Two extensions were accorded to the project: (i) the first, to enable the completion of Project activities in particular those related to the additional financing, consisted in extending the Project closing for two years from June 30, 2009 to June 2011, and (ii) as a result of the 2011 unrest the Project’s closing date was extended unilaterally by the Bank from June 30, 2011 to June 30, 2012\.All sub-projects were completed despite the difficulties\. The planned final beneficiary impact assessment, which would have provided a more detailed and nuanced picture of impacts at project closing, could not be carried out\. Although this is a minor shortcoming, due to the good M&E system with detailed information on all sub-projects\. 23\. No other major risks were encountered during implementation hindering the project from achieving its development objectives apart from those directly related to normal operating environment risks such as limited access to certain districts in north and south of the country due to geographic and logistical difficulties\. Despite these access problems, these areas received their shares of subprojects under the Project\. It should also be mentioned that access limitation to conflict affected areas did not deprive these areas from receiving their share of subprojects, but only in delaying implementation progress\. 2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 24\. Indicators and targets were developed based on experience from the PWP-2\. A good baseline study was carried out to lay down the exact results obtained from the PWP-2 and assure that results could be attributed to PWP-3\. Further, before the approval of each sub-project the PMU would visit the beneficiary area to update the baseline for the specific sector, and after completion the PMU would return to measure impact, providing for good quality of data and assuring that results can be correctly attributed per sub-project, especially given the large number -6- of donors\. The revisions to indicator targets at the MTR and during appraisal of the AF were each time based on best estimates of number of beneficiaries per output\. A result of this was that even though outputs for most sectors had to be revised downwards at the MTR due to cost increases, the subprojects with the biggest impact were retained, and it was estimated that the number of beneficiaries would actually increase in some sectors\. 25\. During implementation of the third phase and due to increased workload as a result of other donor financing and at the PMU’s request in 2009, an M&E officer was recruited to support M&E functions at various levels of planning, data collection, and quality and cost control related to results indicators as stipulated in the project documents, and physical progress\. To that effect, a new section was added to the quarterly progress report to cover these new activities\. The very good indicator data was used to maximize the number of beneficiaries and employment generation of sub-projects and to assure that sub-projects with elevated risk to sustainability were not funded\. Quarterly reports were provided by the Project to the Government, IDA, and other stakeholders reporting on implementation progress\. The reports provided information on: (a) performance indicators; (b) results of Socio-economic Impact Assessments; (c) compliance with remedial actions for environmental and social safeguards; (d) variation of unit costs under civil works contracts; (e) physical progress of civil works; and (f) status of funds disbursed\. Findings of these reviews were regularly shared with the SC, IDA and other interested stakeholders\. 2\.4 Safeguard and Fiduciary Compliance 26\. Environmental Safeguards: The Project design took into account the Bank’s safeguards policies and included procedures that would ensure full safeguard compliance in accordance with OP 4\.01\. Guidance on procedures for environmental screening, environmental assessment, consultations disclosures, and environmental management plan were clearly stated in the Manual of Procedures (MOP)\. No major environmental safeguards issues were encountered during the implementation of the PWP-3 except on the issue of disposal of medical waste, which was resolved through the inclusion in the design of health units of a small incinerator to get rid of the medical wastes\. 27\. Social Safeguard: OP 4\.12 was not triggered since land acquisition or involuntary resettlement was not anticipated\. The MOP included a check-list to assess feasibility of subprojects; any subproject that had the possibility of triggering OP 4\.12 was eliminated at the preparation stage\. 28\. Financial Management: Financial Management was carried out in accordance with the Project design and the DCA\. The Project maintained satisfactory financial management arrangements in terms of human resources, computerized network and well defined segregation of duties between departments\. Accounting software was specifically designed under previous Public Works Projects, and was used to follow-up on Project accounts and generate timely financial management reports, including Bank required Financial Monitoring Reports\. The PMU maintained a ‘Financial Management Manual’ that included FM policies, procedures and guidelines for Project implementation\. Audits were carried out on an annual basis, were unqualified, and repeatedly confirmed adequacy of the Project’s accounting system, including -7- internal controls mechanism, and disbursements that were made on the basis on statements of expenditures\. 29\. Procurement: Procurement tasks were managed by the procurement department which consisted of a Head of Department, preparation and procurement Engineer, and appraisal/supervision consultants and engineers\. Procurement staff received all the necessary procurement training to manage civil works contracts and complied with IDA procurement guidelines\. Post procurement reviews were regular and did not reveal any fiduciary issues\. 2\.5 Post-completion Operation/Next Phase 30\. Sustainability of subproject is ensured through community involvement in subproject identification, selection, and implementation and in securing community contribution in cash or kind which provides additional assurance on sustainability for future operations and maintenance\. Sustainability is also ensured through representative of the line ministries in the Steering Committee whose main responsibility is approving the yearly and quarterly investment plans prepared and presented by the Project\. At project closing, operating budgets are made available by the relevant sector ministries except for water harvesting and water supply schemes, which are fully maintained by the communities\. Road sub-projects are almost maintenance free due to the construction technique (paving) used\. Quality is assessed as satisfactory based on regular quality control carried out by the M&E Department of the PMU\. 31\. Capitalizing on the experience built and lessons learned from PWP-3, IDA had maintained its engagement and has prepared a follow-on Project in the amount of US$61 million which was approved by Board of Directors on June 22, 2012\. This follow up Project (Labor Intensive Public Works Project) figures in the Yemen CAS of 2010-2013\. 3\. Assessment of the Outcome 3\.1 Relevance of Objectives, Design and Implementation 32\. The objective is very much relevant to the Government’s development priorities one of which is improving living conditions of its population especially those living in rural and remote areas through provision of basic infrastructure services such as clean water, health care, village access roads, sanitation, etc\. Thus the outcomes achieved support both the CAS and the PRSP – by improving infrastructure, achieving economic growth and granting social protection\. The relevance is further testified by the large amount of parallel co-financing the project received from other donors, and the fact that the basic design concept continues to be relevant and is reused for the Labor Intensive Public Works Project (LIPWP)\. One of the strongest features of the design was its demand driven approach which resulted in communities’ direct involvement in subproject selection, preparation, and implementation\. Also, because of its small in size with an average cost of US$110,000, the Project helped in the development of local small and medium- sized enterprises (SMEs) and consulting firms and individual engineers ensuring continued quality improvement of these two local industries\. The Additional Financing and minor changes made during implementation (reducing the number of districts and adjusting indicator targets) assured continued relevance and adequacy between resources and objectives given the changes -8- to operating environment with the adoption of the National Strategy for Decentralization and price increases\. 3\.2 Achievement of Project Development Objectives 33\. The PDO was achieved as measured by the indicators and is rated satisfactory\. Achievement of the two sub-PDOs is evaluated separately below; each was achieved with only minor shortcomings\. Actual achievements by the Project exceeded the output/outcome estimates in most of the key areas such as job creation, provision of basic infrastructures, development of local contractors and consulting firms\. The ICR further considers sustainability of investments, in line with the PDO in the PAD\. Sub-PDO (i): Provision of needed infrastructure to improve services and environmental conditions (particularly those affecting women and children) 34\. Regarding the first sub-PDO the 716 sub-projects delivered have benefited about 2\.2 million people, or 112 percent of the target\. While the indicator breakdown in the Datasheet indicates that there were more male than female beneficiaries in total, in reality women benefit most directly from some of the sub-project types (water supply, water harvesting, health, and vocational training), while education sub-projects contribute to improving gender equality in the longer term\. Males benefited more from sanitation, since improved public toilets are used more by men, and from roads, since men tend to be more economically active outside the home\. The results by sub-project type are given below, with additional information on the qualitative aspects of Project achievements (results against indicator targets at MTR and for the Additional Financing are presented in the Datasheet and in the overview Table below): (a) The school enrollment rate for children increased by 256,359 at Project closing; 28 percent more than 200,500 targeted\. Investments in the education sector account for 52 percent of the total investment cost, indicating the high priority\. The gender breakdown of the indicator shows that slightly more males (134,333) than females(122,026) benefited from the 378 schools constructed (1,888 classrooms), but in reality the project contributes to improving gender parity, since enrollment increased by 58 percent for females against 19 percent for males, leading to a gradually improved gender parity (currently at 0\.66 in primary education)\.In the beneficiary areas, before the Project there would be no school or classes would be held in improvised settings\. With proximity of proper school buildings people are more inclined to send girls to school\. (b) The number of beneficiaries of the 20 health centers improved by the project is 537,347 at Project closing; 29 percent less than 760,000 targeted\. No new centers were built since under PWP-2 it had taken the Government up to two years to assure adequate staffing\. The main activity according to the SIA is family planning (22 percent of activity), which particularly improves female health and neo-natal survival rates\. (c) A total of 5,434 students graduated from the 10 vocational training centers built by the Project; 112 percent higher than 2,560 targeted\. Women make up the majority of beneficiaries (8 of 10 centers are for women) and training provides a job opportunity and steady income for women\. Graduates typically see their earnings increase by 25 to 100 percent after the training program\. -9-  (d) The number of beneficiaries benefiting from 47 water supply schemes was 209,762 at Project closing; 29 percent less than 295,000 targeted\. Fewer sub-projects were approved than foreseen, as test-drilling showed that water sources were inadequate in several cases and projects would not be sustainable\. Especially women benefit from water supply schemes, as previously female members of the household would spend between 2 to 4 hours to fetch water\. Outcome Indicators Baseline Original Revised Target Actual at Percentage target targets including the end of achievement (PAD) during Additional the Project of target MTR Financing (1) Schools – enrollment of students 0 additional 115,000 118,500 200,500 256,359 128% (2) Health Centers no\. of beneficiaries 0 additional 237,000 460,000 760,000 537,347 71% using health centers (3) Vocational Training Centers - no\. of 0 additional 540 1,280 2,560 5,434 212% people graduated from VTCs (4) Water Supply Systems - no\. of 0 additional 300,000 165,000 295,000 209,762 71% beneficiaries (5) Sanitation Schemes - no\. of 0 additional 147,300 230,000 350,000 197,127 56% beneficiaries (6) Water Harvesting Schemes - no\. of 0 additional 76,000 250,000 320,000 455,770 142% farmers benefited (7) Short Term Employment – YR 22,840 YR 34,000 YR 34,176 101% enhancement of income (8) Number of people with access to an 0 additional 0 0 0 503,249 n\.a\. all-season road (9) Direct project beneficiaries 0 additional 875,450 1,224,780 1,928,060 2,165,048 112% Results Indicators for Each Baseline PAD MTR AF Actual Percentage Component Component One : 0 (1) Schools – no\. of schools built 400 235 384 378 98% (2) Health Centers – no\. of health centers 0 45 15 45 20 44% built (3) VTC – no\. of VTCs built 0 10 5 10 10 100% (4) Water Supply Systems – no\. of 0 90 50 90 47 52% Schemes (5) Sanitation Schemes – no\. of schemes 0 20 12 20 18 90% (6) Water harvesting schemes – no\. of 0 110 120 170 187 110% schemes (7) No\. of person-months of employment 0 created\. 90,000 60,000 101,000 118,000 117% Total 719 716 2 Component Two : (8) No of new civil works contractors 738 125 125 190 441 232% developed (9) No\. of new consultancy firms 495 60 60 95 206 217% developed (10) No\. of development plans prepared 14 50 20 20 20 100% for districts Table 1: Evolution in indicator targets at MTR and AF, with actual achievement and percentages\. (e) The number of beneficiaries benefiting from 18 sanitation schemes is 197,127; 44 percent less than 350,000 targeted\. The sanitation schemes has reduced danger of contamination 2 Column totals do not add up, this is due to road sub-projects not being an indicator\. -10-  of drinking water sources and water pollution and consequently minimized risks of infection with diseases resulting from water pollution\. Women and children benefited considerably from waste-water elimination\. (f) A total of 455,770 people benefited from 187 water harvesting schemes; 42 percent higher than 320,000 targeted\. As for water supply, women benefit from time savings to fetch water\. The water harvesting has further resulted in improved agricultural potential in beneficiary areas and contributes to reducing depleting water sources\. (g) The number of beneficiaries from road construction was 503,249; whereas there was no target set\. According to the SIA the roads have facilitated transport of goods and access to economic activities, with traffic increasing by about 75 percent on upgraded roads\. (h) Direct project beneficiaries: 2,165,048 people benefited from the project sub-projects against a target of 1,928,060, an achievement of 112 percent\. 35\. Although some shortcomings were noted on achievement of targets for some sub-project types, the total number of beneficiaries is the best indicator of impact due to the demand-driven nature of the project; this indicator was surpassed\. Further, measured by investments, the health, water supply and sanitation sectors, which did not fully meet the targets, only make up 11 percent of investments\. The part of the sub-PDO objective which pertains to benefiting women and children, this has been achieved\. Water supply, water harvesting and vocational training sub- projects (29 percent of investments) directly or predominantly benefit women, and education sub-projects (52 percent of investments) directly benefit children and contribute to gender parity in education\. For some sub-project types males benefited more in quantitative terms, but overall, given the high number of beneficiaries and the qualitative aspects of impact on women and children, sub-PDO (i) is considered achieved with only minor shortcomings\. Sub-PDO (ii): Creation of short term employment 36\. Intermediate outcome indicator 7 also reveals the level of achievement of PDO; the target was surpassed by 17% with 118,000 work-months of employment generated against a target of 101,000\. 37\. The targeted creation of man-months of work was surpassed, showing that the project did in fact have the expected impact in terms of employment creation, with the creation of 118,000 work months of short-term employment\. This resulted in the distribution of approximately US$27\.7 million in wages\. The average employment period was 7\.4 months, so potentially the project benefited about 15,945 workers (some workers might have worked on more than one contract, so the total could be less), and with a dependency ratio of 7 per person, the total number of people benefiting from the income generated could be as high as 111,000 people\. The average monthly income generated per worker was approximately 235US$, and this income is especially important in rural areas (where 85 percent of sub-projects were implemented) which have seen significant increase in numbers of food in-secured people due to the increase in global food prices exacerbated by the financial crisis\. The project was able to surpass the target by selecting Sub-projects such as stone paving and water harvesting, which have high labor content (40 to 60 percent), and in consequence average employment content in the investments was even higher -11- (34\.5 percent) than estimated at appraisal (30 percent)\. Overall, sub-PDO (ii) is considered fully achieved\. 38\. Private sector development was not part of the PDO, but was clearly supported under the Project, by the development of new contractors and consultancy firms\. For IDA financed sub- projects 469 contractors have been contracted (at an average of 1\.5 sub-projects per contractor), providing opportunities to get on-job training under the guidance of competent supervision consultants to develop their skills and enabling them to participate in tenders from different implementing agencies and the private sector\. Contractors also get acquainted with transparent award and payment procedures that they may in the future insist on the same from others\. The Project also used the services of a many of consultants with services ranging from design and supervision to tender preparation\. For the IDA financed sub-projects 522 consultants have been contracted out of which 206 are new\. 39\. The conditions of 93 percent of the interviewed contractors improved moderately to significantly according to the 2007 SIA, while the conditions of 6\.7 percent did not improve as a result of increased competition among contractors, leading to reduction of the bidding prices\. The continued development and training of small local contracting and consulting firms as well as individual consultants, proved to be beneficial and appropriate, and resulted in quality improvements of facilities delivered\. Evaluation of sustainability 40\. The corollary to the PDO in the PAD relating to sustainability was also achieved, through ensuring that criteria for the design of the sub-projects financed by the PWPs included that O&M costs be low and affordable for the targeted beneficiaries\. The ability and willingness of the beneficiaries to operate and maintain these sub-projects was assessed during the evaluation of sub-project proposals to ensure compliance with established criterion, including sustainability\. The sub-projects built use technologies that facilitate their financial sustainability through the use of construction designs that have low O&M requirements, mainly local labor input\. This is particularly the case in subproject of water supply and harvesting schemes (and in improved access through stone paving)\. All sub-projects are operational at the time of project closing\. Overall results from the PWP-1, 2, and 3 41\. In addition to these results, successful implementation of the PWP-3 (and the previous phases) had successfully managed to gain the trust and support of the donor community, government entities, non-governmental organizations, and social and public figures\. This trust acted as a catalyst for mobilizing funds from other donors, which exceeded US$300 million (details in Annex 1) increasing in turn the impact of the Project on the targeted communities three- to four-fold\. So, with other donor financing, the total number of subprojects delivered under the third phase is not 716 subprojects but 2019 subprojects\. The Table below is a snapshot of the results from the Bank’s interventions through the PWP phases\. -12-  Project Implementatio Total No\. of Jobs created No\. of Name n Period Allocation subprojects (‘000person- beneficiaries (US$ millions) delivered months) IDA Others US$000 US$000 PWP-1 96-00 25\.00 5\.5 435(422)* 66(62)* 2,465(2,360)* PWP-2 99-04 50\.00 66\.50 1,465(821)* 244(80)* 7,300(2404)* PWP-3+AF 04-12 74\.84 387 2470(716)* 231(118)* 6400(2,062)* Table 2: Overview of outputs of PWP phases\. Figures in brackets delivered by IDA funding\. 3\.3 Efficiency 42\. Efficiency is rated substantial\. At appraisal, no economic analysis was carried out due to the demand-driven nature of the sub-projects\. However, the results of PWP-2 showed satisfactory economic rate of return and the same ratios of cost to benefits were expected for the PWP-3\. For the PWP-3 ICR, the overall Economic Rates of Return (ERRs) and Net Present Values (NPVs) have been computed for all sub-projects in education and water harvesting, covering 75 percent of the total investments of PWP-3\.The cost-benefit analysis excludes investments in Components 2 and 3 (for which benefits are not quantifiable)\. Efficiency of project management is evaluated by considering operating ratios\. 43\. The result of the economic analysis shows that overall ERRs for classrooms and water harvesting schemes are 17\.2and 108 percent respectively; confirming the economic viability of these investments\. These results are consistent with the overall NPVs for schools and harvested water of US$128 million and US$38\.7million, respectively\. The full economic analysis can be found in Annex 3, including sensitivity analysis\. The operating cost of the PMU was 4 percent, which is considered efficient compared to the generally accepted norm of 5 percent for project implementing agencies\. 3\.4 Justification of Overall Outcome Rating Rating: Satisfactory 44\. The overall Project outcome is rated as ‘Satisfactory’ based on its high relevance, the extent of achievements and the efficiency of the investments made\. The relevance is proven by the robust design, adapted from the previous PWPs and which continues on for the LIPWP, the large amount of co-financing, and the adjustments made during implementation (including AF) to keep the Project fully aligned with external circumstances\. There were shortcomings on achievement of PDO-indicator targets for some sectors while others were over-achieved\. Due to the demand-driven nature of the project the total number of beneficiaries is the best indicator of impact; this indicator was surpassed\. The gender and children aspect of the PDO was not adequately monitored during implementation through disaggregated indicators, but the ICR presents evidence that this aspect was fully achieved\. The project results were made possible by: (i) responsiveness of the Project design to the needs of the people, labor market, geographical conditions; (ii) existence of a well-established Project Management Unit (PMU) experienced in implementing similar projects; (iii) continuous monitoring and evaluation of realistic and -13- achievable project performance indicators; and (iv) early involvement of the communities in Project design, preparation and implementation ensured ownership and sustainability\. 3\.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development 45\. Poverty impact is significant as Yemen is one of the poorest countries in MENA\. Over 85 percent of IDA financed sub-projects were implemented in rural areas, which account for at least 80 percent of total number of poor in Yemen\. The highest proportion of its population is dispersed in wadis and mountain terrain where getting access to basic services is of utmost importance\. And yet like many poor countries, public financing is hardly available where it is most needed\. The Project was specifically designed to help address basic needs of these people, by having basic services reach these people through provision of small scale infrastructure services working at the same as catalyst to attract other donor financing to help increase these impact\. 46\. Gender was specifically a part of the PDO and women and girls, particularly those living in rural areas, derive direct benefits from improved access to basic economic and social infrastructure services as a result of the creation of high value public assets in different sectors: health, education, water supply, sewage disposal, water harvesting schemes, stone paving of roads and streets and vocational training\. In the water sector, for example, time usually devoted by women and young girls (8-12 years) to fetch water was reduced from 2-4 hours in certain areas to half an hour or less\. 47\. In addition to the improved and sustainable access to basic services, the main social development outcomes achieved were in terms of short-term employment for locally available skilled and unskilled labor during implementation and empowerment of communities through direct involvement in subproject selection, preparation, and operation and maintenance\. (b) Institutional Change/Strengthening 48\. The institutional development impact was substantial on the PMU, which increased ability to implement up to 500 sub-projects in parallel, enabling it to absorb the increase in the workload as a result in the increase in the financing from US$45 million, original Project cost, to around US$387 million total\. Institutional development and strengthening of district councils in 20 districts (amended from 50 districts to 20 districts) was carried out to help them undertake an assessment of their basic infrastructure needs, preparation of medium term investment plans, assessment of sources of revenues and establishment of management information system\. The impact is however limited, as the decentralization process has not taken off to any significant extent and the districts are not yet exercising their intended mandate\. (c) Other Unintended Outcomes and Impacts (positive or negative) 49\. The PWP pioneered a solution to the problem of de-forestation by adding a re-forestation activity to the community infrastructure component\. This was done to ensure that trees removed during construction are replaced, but also to plant 50-200 additional trees in the vicinity of each -14- sub-project\. For IDA financed sub-projects, around 58,000 trees have been planted thus far, and other development projects have initiated similar activities\. 3\.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops 50\. A Socio-economic Impact Assessment (SIA) was to be conducted at the end of the project, but could not be carried out due to the conflict\. The text below summarizes the 2007 SIA, conducted on a representative sample population of 15 percent of 323 subprojects completed and under implementation\. Selected findings, which remain relevant to present the qualitative aspects of the project, are highlighted below (with details in Annex 5): (a) In the education sector, overall enrollment rate in basic and secondary education increased by 34 percent, 58 percent for females and 19 percent for males in the targeted areas\. Decrease in teacher to student ratio from one to 60 students to one to 44 students\. (b) The water storage of 5,790 cubic meters resulted in increasing the average share of water per capita by approximately 9 percent\. Water harvesting contributes to recharging precious ground water resources\. (c) The vocational training centers resulted in increase in income for trainees of between 25 and 100 percent, mainly used to finance schooling for household children, clothing and medicine\. (d) The health, sanitation, and road investments also had positive impacts\. In health, family- planning was one of the major services delivered, which will contribute to improving post-natal life expectancy\. For sanitation, the average distance between sanitation service and the closest water source tripled, reducing drinking water source contamination\. Road paving increased traffic by 75 percent and according to residents contributed to improving environmental conditions, in addition to easy transportation of goods\. (e) Training programs consultant engineers, contractors and local communities had positive effect at different levels such as on improving project design, supervision and implementation of sub-projects, and community/beneficiary participation\. 4\. Assessment of Risk to Development Outcome Rating: Moderate 51\. Risk to development outcome is mainly related to operation and maintenance of completed facilities which is mitigated through community and sector ministries involvement in subproject selection and approval process\. Yemen is a conflict country, but so far under the previous PWPs no sub-project has been affected, due to the strong ownership and resilience built into project design\. The same holds true for sub-projects under PWP-3; since this is a community-driven development project which was implemented at the local level with strong local ownership and engagement, the project's design contributed to its resilience in terms of the conflict situation in Yemen\. Where problems have occurred, they have been overcome\. Communities in some Governorates have temporarily taken over payment of operating expenses for schools and teacher’s salaries until the Ministry of Education could resume payments\. Therefore, while the conflict affected implementation, sustainability is not at risk due to the conflict\. -15- 52\. The overall risk is evaluated as low to negligible in all sectors with the exception of the water supply and health sectors\. The issue with the water sector is related to water quality (salinity, etc\.) and quantity that might result from over extraction\. With regards to the health sector, the main risk is absence of financial and human resources to operate completed facilities (as was the case during the first phase of PWP when out of about 70 health units delivered, only 50 percent were operational and the rest had to wait over 24 months until they could be operational)\. As a result of this experience, no new health units were built under the Project, only extensions or rehabilitation of existing facilities, while sanitation sub-projects were mainly implemented in urban cities where treatment systems already exist or implementation of disposal and treatment sites are a pre-condition to selection\. Water supply projects were subjected to test drilling, which resulted in rejection of a number of requests\. Furthermore, improved awareness and the pro-active role of local communities, early coordination with local authorities and concerned agencies has improved to a large extent sustainability of investments\. Stone paving/village access roads and water harvesting constitute about 36 percent of the investment cost and they are generally operation and maintenance free except for periodical cleaning\. Sub- projects in other sectors are maintained by the relevant line ministries\. 5\. Assessment of Bank and Borrower Performance 5\.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory 53\. The PWP-3 was a continuation of two successful phases and lessons learnt were adequately incorporated during preparation\. Key lessons that were integrated into the Project’s design were ensuring sustainability through community participation in subproject selection and implementation, and maximizing labor content\. The Bank adequately appraised the need to increase PMU capacities and assured that a study would be carried out on the future of the PMU\. Excellent relationship developed between IDA and the Borrower facilitated easy resolution of any issues that arose during Project processing\. By Project effectiveness, bidding documents for the first years' investment program were finalized and the Project was ready for implementation\. Accordingly and based on the above the ICR rates the Bank Performance in ensuring quality at entry “Satisfactoryâ€?, in accordance with the rating given by the Quality Assurance Group\. (b) Quality of Supervision Rating: Satisfactory 54\. Implementation of the Project went smoothly without any major problem\. This was made possible through continued cooperation and team work between the task team and the PMU which in turn helped resolve any difficulties encountered which were, in general, minor\. Regular visits to subproject sites with the PMU staff were conducted and issues on implementation, quality of workmanship, community participation/contribution etc\., were resolved through discussion with the Project\. Comprehensive site visits were carried by the task team during the MTR\. 55\. Safeguards and fiduciary policies were monitored closely and were addressed in a timely manner\. Financial management and procurement activities were constantly monitored ensuring -16- that they continued to be maintained in a satisfactory manner at all times\. Aide memoires were descriptive and well-written\. The ISRs appropriately reflected the situation on the ground\. The Bank also agreed to provide Additional Financing to overcome the financing shortfall and assured that adjustments were made to indicator targets as relevant\. In view of the above, the ICR rates the Bank’s performance during supervision as satisfactory\. (c) Justification of Rating for Overall Bank Performance Rating: Satisfactory 56\. The Bank’s satisfactory performance during both lending and supervision phases justify a satisfactory rating\. Looking at the series of PWPs in their entirety, the option for the Bank was to support the Government to mitigate short-term effects of the adjustment program on the country’s most vulnerable population\. Supporting a third phase proved not only to be very effective in generating short term employment, but also in providing much needed basic infrastructure services in poor, remote areas of Yemen\. 5\.2 Borrower Performance (a) Government Performance Rating: Satisfactory 57\. Government performance is rated satisfactory\. The fact that the Project attracted so much international interest and donor funding is sufficient testimony to its success\. The engagement of various ministries through the SC meant that sub-projects in all sectors are fully operational at project closing and that risks to sustainability have been minimized\. Co-financing has been provided on time\. The only minor shortcoming is the lack of decision as to the future status of the PMU at project closing, following the recommendations of the PWP-PMU study\. (b) Implementing Agency or Agencies Performance Rating: Highly Satisfactory 58\. The project was implemented by a well-established, capable and dedicated Project Management Unit (PMU) which reports to a Steering Committee (SC) chaired by the Minister of Planning and International Cooperation and with the Director of the PMU serves as its Secretary\. The PMU has been in place for over 16 years and has proven to be one of the best performing PMUs in the country\. It is fully familiar with the Bank’s fiduciary policies and safeguards and has a well-tested and functioning MIS; a well-established M&E system to measure results and; an efficient management structure that has the capacity to work effectively and deliver quality works and results\. The PMU adequately carried out the required fiduciary, legal and safeguard activities (technical, audits, participation to post-procurement reviews) and responded effectively and in a timely manner when required to take on additional responsibilities when the need arose\. Action plans/work programs were mostly fully implemented and followed through within the agreed time frame after each supervision mission\. The PMU introduced E-management in 2009 to allow the beneficiaries and contractors to follow up sub-project request status and payments, reducing staff time on communication while at the same time increasing transparency\. Much of the project success is attributed to the sound leadership and drive of the key members of the implementing agency; the low operating cost also testifies to the efficiency of the staff and -17- management\. Finally, the PMU provided a high-quality project completion report, which is included in full in Annex 7\. (c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory 59\. Overall Borrower performance takes into consideration both the Government and the Implementing Agency’s performance during preparation and implementation\. On the basis of the justification provided above, the Borrower’s overall performance is rated Satisfactory\. The Borrower complied with all covenants and agreements towards achieving the development objectives of the Project\. 6\. Lessons Learned 60\. The lessons derived from the Project can be summarized as follows: 61\. Involving communities in sub-project selection and design assured community ownership and participation, which led to strong resilience in the face of a volatile country situation\. Having developed a strong bond with communities they have become more responsive, proactive in participating in the project cycle and have proved to be very capable of managing O&M of most types of sub-projects, including during periods when the government has not been present, as evidenced by the transitory financing of schools by communities\. Coordination with local councils at early stages of the project cycle yields positive results in avoiding duplication of services provided by various implementing agencies, enhances their institutional development, consolidates decentralization and improves sustainability of projects\. 62\. The PMU proved to be highly useful, versatile and scalable project delivery instrument, assuring continued adherence to improved criteria and objectivity in selection\. In a country such as Yemen, where political influence is difficult to avoid, the PMU was able to successfully adopt a decentralized implementation mechanism (selection of subprojects on well- established and clear criteria) which shielded the communities and the implementation unit from political interference\. Keeping the number of staff as limited as possible and using local consulting firms and individuals during high peak workloads allowed the PMU to adjust to fluctuations in workload\. The structure could be scaled up with more branch offices\. The autonomous status of the PMU enabled it to take appropriate measures at times of crisis that facilitated continuation of its operation that would otherwise have created stagnation, havoc and endless litigation\. This in particular, refers to flexibility in transferring funds from community contribution account\. The effect is further maximized by having government agencies play a supporting role of facilitator to PMU\. 63\. M&E has been developed to a high level of effectiveness through continued incremental improvements over the three PWPs and a specific focus on baselines and regular follow-up in the field\. The successive PWPs have demonstrated the importance and usefulness of reporting on results, and consequently attracting additional funds to a performing concept\. The development of a specific M&E department allowed the PMU to integrate M&E aspects as part of project management and sub-project supervision\. The improved data allowed PWP-3 to select sub-project types based on sustainability, labor content, and cost per beneficiary, -18- and to improve technical designs, all essential to maximizing development impact\. The next step is to report regularly on indicators broken down by gender; this is being taken into account for the next phase of PWP – the LIPWP\. 64\. The sub-project selection, design, and tendering process can be used to maximize employment and maintain low investment and maintenance costs\. The Project continually used improved data to select sub-project types with high labor content, such as stone road paving and rain water harvesting\. With 40-60 percent labor content, these sub-project types can play an important role in absorbing sudden unemployment in times of crisis, while at the same time reaching a large number of beneficiaries per dollar\. Moreover, the PMU has modified many technical design aspects, lowering O&M costs, e\.g\. provision of roof rainwater harvesting for schools and low cement techniques for stone paving\. Transparent procedures and timely payment have had a significant impact on reducing unit rates\. While the unit cost of construction inputs increased significantly, PWP still maintains its competitive edge through transparency in the bidding process and simple and timely payment procedures combined with contractors confidence in the PWP management built up over 16 years\. 65\. Long-term engagement and incremental improvement to a strong design can lead to improved sector performance\. The demonstrated success of the PWPs is what led to strong donor commitment and significant leverage on results\. Transparent procedures for selection of contractors and consultants, combined with support to building up the construction and consultancy industry, led to increased competition, better quality of works, and lower costs\. SMEs can enter the market and perform satisfactorily and abide by procedures given the right supportive set-up under national competitive bidding that can enforce these procedures, including the use of local unskilled workers\. Moreover, from time to time, the PWP conducted training to enhance consultant skills in specific and critical areas especially those concerning environmental issues\. Over time, the PWP has (since PWP-1) built a sizeable data base of consultants that is being continuously updated through registration of new consultants, thus giving equal opportunities to all those interested, while at the same time expanding the pool from which competent and experienced consultants in various fields such as design and supervision of complicated sub-projects can be drawn\. 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies N/A (b) Co-financiers N/A (c) Other partners and stakeholders N/A -19-  Annex 1\. Project Costs and Financing (a) Parent Project Cost by Components (in US$ Million Equivalent) Percentage of Components Appraisal Estimate Actual Appraisal 1\. Community Infrastructure 46\.50 50\.43 108\.5% 2\. TA /Consulting Services 3\.50 3\.09 88\.3% 3\. Incremental Operating Costs 2\.00 2\.86 143% Total Project Cost 52\.00 56\.39 108\.4% (b) Financing (in US$ Million Equivalent) Appraisal Percentage of Source of Funds Actual Estimate Appraisal Government 4\.00 4\.85 121% Local Communities 3\.00 4\.20 ** 140% International Development Agency 45\.00 47\.34 105\.2% Total Financing Required 52\.00 56\.39 108\.4% **Including cash (US$1\.356 million) and in-kind contributions (US$2\.843 million)\. (c) Project Cost including Additional Financing by Component (in US$ Million Equivalent) Appraisal Additional Total Actual Components Estimate in Financing in Total Cost Project Cost US$ million US$ million 1\. Community Infrastructure 46\.50 32\.69 79\.19 81\.75 2\. TA /Consulting Services 3\.50 2\.07 5\.57 4\.15 3\. Incremental Operating Costs 2\.00 1\.48 3\.48 4\.37 Total Project Cost 52\.00 36\.23 88\.24 90\.27 (d) Project Financing including Additional Financing (in US$ Million Equivalent) Appraisal Additional Total Actual Source of Funds Estimate Financing Project Cost Government 4\.00 Local Communities 3\.00 International Development Agency 45\.00 29\.80 74\.80 (actual credit value at end of Project) (47\.34) (28\.8) (76\.15) (e) Other Donor Financing: 66\. In addition to achieving the development objectives, the Project was also designed to help Government attract additional funding from various donors\. In this respect, the Ministry of Planning and International Cooperation (MOPIC) was successful in securing donor financing\. During the processing of PWP-2, a co-financing target of US$40-50 million from donors was set\. The Government however, ended up mobilizing around US$53 million\. While no such target was set for PWP-3, the Government succeeded in raising US$303 million from various donors\. -20- At project closing, the total financing, including IDA’s US$74\.84 million, stood at US$387 million, distributed as follows: Donor Agency US$ million IDA Credit 3859-YEM 45\.00 Arab Fund for Development 50\.00 U\.S\. Commodity Grant 25\.30 European Union 5\.30 Arab Fund Grant 0\.37 French Phase III 0\.80 IFAD (1)(International Fund for Agricultural 1\.20 Development) IFAD (2) 1\.92 IFAD (3) 2\.83 IFAD 1\.83 IDA Health Project 10\.00 OPEC 11\.00 Italian Funds 0\.65 Saudi Fund for Development 75\.00 Partners of Development 28\.19 IDA Additional Financing 29\.84 Government of Oman 5\.00 Dutch Grants 6\.00 YLNG (Yemen Liquid Natural Gas) 3\.13 Total (approved) 303\.36 Government 72\.50 FTI from W\.B\. 11\.60 TOTAL 387\.46 -21-  Annex 2\. Outputs by Component Component 1: Provision of Basic Community Infrastructure 1\. Education Sector: - No\. of classrooms built = 1,888 - No\. of classrooms rehabilitated =90 - No\. of classrooms extension = 103 - School Furniture: 35,178 student combined seats 2\. Health Sector: - No\. of health centers additions/extensions built = 20 3\. Vocational and Social: - No\. of centers built = 10 4\. Agriculture/ Water Harvesting: - Total length of collecting open channels=26,765m - No\. of sedimentation tanks= 240 - No\. of rapid sand filters=113 - No\. of small house filters=230 - No\. of public taps (stand posts) =234 - No\. of water container for animals=222 5\. Water Supply Schemes: - The total length of the pipes laid out(galvanized steel and H\.D\.P\.E) =464,820m - Total length of trenches excavated=204,844m 6\. Sanitation Schemes: - The total length of the UPVC pipes laid out(various sizes ) =62,483m - The total length of trenches excavated=61,233m - No\. of public lavatories= 58 7\. Village Access Roads/Stone Paving: - Total paving =119,000m (average width=3\.3m) -22-  8\. Distribution of investments by sector: Sector Target Delivered Average cost per % of the total No Amount(US$ m) sub-project (US$ ) investment Health 45 20 2\.41 120,500 3 Education 384 378 41\.32 109,683 52 Water Supply 90 47 3\.46 73,617 4 Sanitation 20 18 2\.93 162,778 4 Roads/paving 00 56 10\.08 180,000 13 Agriculture/ Water Harvesting 170 187 18\.76 100,321 23 Vocational & Social 10 10 1\.40 140,000 2 Total 719 716 81\.75 127,000 100 9\. Distribution of subprojects by Governorates and Districts: -23- GOVERNORA DISTRIBUTION OF SUBPROJECTS BY DISTRICTS TE SUBPROJECTS ABIAN ALMAHFAD 2 KHANFAR 3 RUSD 4 ZUNGUBAR 1 SRAR 1 LOWDER 2 MUDIA 5 18 ADEN ALBURAIKA 1 ALTAWAHI 5 S/ OTHMAN 1 ALMUALLA 2 SEERA 4 13 ALBAIDAA ALBEIDHA 4 AL-RIASHIA 2 SAWADEEA 2 ALSHARIA 5 SOWMAH 3 ALMULJEM 1 DHI NAAIM 1 31 RADAA 2 RADMAN 2 MASWRA 1 MUKEIRAS 4 NATEE 2 W/RABIE 2 ALDHALEE ALAZAREQ 4 ALHASHAA 5 ALSHUEIB 2 ALDHALEE 3 JUBAN 3 JAHAAF 6 DAMT 1 QAATABA 1 27 ALJAUF ALHAZM 4 ALKHALQ 2 ALZAHER 2 ALGHEIL 2 MATEMA 1 ALAANAN 2 K/ALSHAAF 3 ALMARASHI 2 19 RAJUZA 1 ALMAHARA ALGHEIDA 4 ALMASILA 1 HAT 1 HASWEEN 1 HOF 1 SEIYHUT 1 SHAHAN 1 QASHN 1 13 MANAAR 2 ALMAHWEET ALKHABT 2 ALRUJM 8 ALTAWEELA 4 MAHWEET 3 BANI SAAD 3 HUFASH 2 KOWKABAN 1 MILHAAN 6 29 AMRAN ALSOWD 3 MADAAN 2 BANI SUREM 6 THULA 3 EYALYAZED 2 HRFSUFIAN 2 KHAREF 3 KHAMER 3 40 DHEEBEEN 3 REIDA 1 SHAHARA 3 SUWEIR 2 HABOOR 1 AMRAN 4 EYAL SUREIH 1 MASWAR 1 DHAMAR ALHADAA 9 ALMANAR 4 ALSHARQ 4 DHOWRAAN 2 UTMA 5 AANS 3 Dhamar City 2 MAG-AANS 7 53 MAIFAANS 3 W\. SAFEL 5 W\. ALALI 6 HADRAMOUT ARIAF M 3 ALDIS 1 RAIDA/ KOS 4 AL-SOOM 3 ALSHIHR 3 ALDULIAA 3 ALAABR 1 ALAQTN 3 54 MUKALLA 3 B\. MAIFAA 1 TARIM 4 THAMUD 2 HAJER 1 H\. SAIAR 1 HADIBO 2 HORAIDA 1 HAJA ASLAM 5 A\. ALSHAM 1 A\. ALYEMEN 1 ALJAMEEMA 1 ALSHAHEL 2 MAHABISHA 3 ALMAGHRBA 3 B\. ALMEER 1 59 B\. AWAM 6 B\. QEIS 1 HARADH 1 SHARES 2 AABS 1 KARAH 1 QAFL SHAMR 3 K\. ALSHRAF 1 K\. AFAAR 3 KUSHR 5 KOEDANA 2 MABEEN 5 HAJJA CITY 4 MEEDEE 1 NAJRA 2 WASHHA 3 HODAIDAH TAHUTA 3 AL JERAHI 2 AL HALEI 4 ALHOAEIDA 1 AL HUWK 5 ALDUREHMI 1 ALZAHRA 2 ALZEIDEA 1 43 ASUKHNA 2 ALDHUHI 1 ALQANAWS 1 ALLUHEA 1 MARAWA 3 MONEERA 1 AL MUNA'A 5 BAJEEL 3 BURAA 2 BEITFAQEE 1 JABEL RAAS 1 HEIS 1 ZABEED 2 TOHAITA 3 AL JERAHI 2 IBB IBB 8 RADHMA 1 ALSABARAH 2 ALSEYANI 3 ALSHEER 2 AL-DEHAR 2 ALODEIN 5 61 ALQAFR 2 MAKHADIR 2 MASHANNA 4 ALNADIRA 4 BADAAN 2 JIBLAH 1 HZMALODEIN 10 DHI SUFAL 3 FRAODEIN 2 MOEIKHRA 3 YAREEM 5 LAHJ ALHAD 3 QABEITA 8 AL-ARA 1 ALMUFLIHI 7 MAQATRA 4 ALMILAH 1 TUBAN 1 HALIMIN 1 35 HBELGABR 1 RADFAN 3 TOR ALBAHA 1 YAFEE 3 YAHR 1 MAREB ALJUBA 1 ALABDEEA 1 HAREEB 2 QARAMISH 2 SERWAH 3 MARIB 9 MAHILIA 1 MAJZER 4 24 ALJEDAAN 1 RAIMA ALJABEEN 5 AJAAFARIA 4 ALSALAFIA 4 BLADATAAM 2 KUSMAH 5 MAZHAR 6 26 SAADAH ALHSHWA 1 ALSAFRAA 3 BAQEM 1 RAZEH 2 SAHAAR 4 SHADAA 3 SADAA 3 MAJZAR 1 21 MUNABEH 3 SANA'A ARHAB 5 ALKHARIJIA 3 ALDAKHLIA 1 B\. HARETH 2 B\.HSHEISH 1 BANIBHLUL 1 BANI MATAR 2 JAHANAH 2 38 KHOWLAN 2 SANHAN 3 SAAFAN 6 MANAKHA 4 NEHM 1 HAMDAN 5 SANA'A CITY ALTAHRER 1 ALTHAWRA 2 AL-SABEEN 3 ALHARETH 2 SAWAN 9 SANA'A CITY 1 MAEEN 2 20 SHABWAH ALRAWDH 2 ALSAEED 3 AL-TALH 1 BEIHAN 2 GERDAN 3 HABBAN 2 DUHR 1 RADOM 1 28 ATAQ 3 ARMA'A 5 OSAILAN 1 AIN 1 M\.ALSUFLA 1 MEYFA'A 2 TAIZ ALTAZEEA 1 SMAYTEIN 7 ALSALU 1 AL-QAHIRA 2 ALMAKHA 1 ALMISRAKH 1 AL-MODAFER 3 AL-MAAFER 2 64 MAWASET 5 ALWAZIEA 2 MANDAB 2 J\. HABSHEE 4 HEIFAAN 2 D\. KHADEER 3 SAMEE 2 S\. ROWNA 7 S\.SALAAM 9 MAWADM 4 MAWIAH 1 WAHDNAN 1 MAQBANA 4 TOTAL NUMBER OF SUBPROJECTS DELIVERED X 260 DISTRICTS OUT OF 303 DISTRICTS = 716 -24- Component 2: Technical Assistance - Studies for all sub-projects under Component 1\. - Capacity building for 20 Districts:  Investment plans completed for 20 districts\.  District and Governorate level staff trained\.  Logistic support provided\. - Development of training manuals, in particular the Gender & Environment Manual that focused on reflecting women &environmental needs in the development plans\. Districts trained under the Project: Governorate Districts Total Districts Hadramout AldisAlSahrqiah RidayWaQusai’ar 2 Abyan Ahwar Modiah 2 Taiz Maqbana Mawased Shar’ab Demna Mawi’ah 5 tKhadir Ibb DhiSafal AlOdein Yarim Alsad’ah Almkhader 5 Hodeida Marawa’ah Alzidiah 2 Hajja Meedi Mab’yan Mahabishah Haradh 4 Total 20 Assignment Contracted No\. US$ million Construction supervision individuals/firms 499 2\.10 Engineering designs & bidding documents, baseline survey, etc\. 136 0\.7 Socio-Economic Impact Assessment 1 0\.102 Future Role 1 0\.035 District Council Support 1 0\.67 Component 3: Project Management COD Description CR 3859 CR 4419 Total 3101010001 Salaries 1,581,959 1,117,440 2,699,399 3101010002 Vehicle spare parts, 55,380 14,728 70,108 maintenance and fuel 3101010003 Stationery, printers 41,766 31,245 73,011 and advertising 3101010004 Services expenses 45,648 10,735 56,384 3101010005 Rent office 30,144 4,167 34,311 3101010006 Other expenses 24,733 16,628 41,361 Total 1,779,630 1,194,943 2,974,573 -25-  Annex 3\. Economic and Financial Analysis 67\. The objective of this annex is to assess the economic viability of the most significant investments carried out by the PWP-3Project in social and economic infrastructure\. About 75 percent of the total investments of PWP-3 in community infrastructure were made in the education and water sectors through primary and middle schools (to increase enrollment rates), as well as in water supply systems (water harvesting) in rural areas with no access to water\. As part of the economic assessment, this analysis estimates the ERRs and the NPVs of such investments in order to determine their economic acceptability\. Summary of Costs and Benefits 68\. Costs: PWP-3’s investments covered seven different types of public works that were implemented under component 1(“Community Infrastructureâ€?)\. This component represents 90\.5 percent of the Project’s total investment\. It includes: the construction and expansion of schools (US$41\.3 million), water harvesting (US$18\.8 million), water and sanitation systems (US$6\.4 million), road paving (US$10\.1 million), vocational training centers (US$1\.4 million), and the rehabilitation of health units (US$2\.4 million)\. Considering the availability of relevant information, the overall ERRs and NPVs have been computed for all school sub-Projects as well as for all investments on water harvesting tanks in small villages\. As mentioned above, these investments cover 75 percent of the total investments of PWP-3\. 69\. The analysis also focused on those investments for which the direct benefits are both quantifiable and relevant for the purpose of this analysis\. Therefore, this task excludes investments in Component 2 (which refers to TA through consultant services for Project preparation and supervision), as well as Component 3 (which covers PMU’s management and operational/staff costs)\. The benefits of these types of investments costs are usually unquantifiable and, hence, are not included in this analysis\. These investments are equivalent to about 9\.5 percent of the Project’s total cost\. 70\. Benefits: The Project contributed to the improvement of the quality of life of over 2 million low-income people\. The most important population groups include about 256,000 children who were able to enroll in basic education, direct jobs created generated 118,000 work months, women and children benefited from additional health units, and 421,000 3 rural residents (mostly women and children) benefited from the new water harvesting schemes\. (1) Rural Elementary Schools: 71\. Objective: The PWP-3 built and expanded elementary schools (of about six classrooms each) in rural villages, in order to assist in the effort to improve enrollment capacity in basic education to cover 256,000new students, as part of both the overall and long term strategy for poverty alleviation, as well as part of the goal of employment generation\. 3 The economic analysis was carried out on preliminary results as of December 31, 2011\. The actual final number of beneficiaries from water harvesting is 455,000\. -26- 72\. Without Project Scenario: There is a global consensus that universal access to basic education is the right of each child, which poses enormous challenges particularly in Yemen that is the poorest country in the MNA region\. Yemen’s population is scattered among 41,800 villages with 74 percent of the population living in settlements of less than 5,000 people\. The overall quality of education remains poor and indicators are well below regional averages\. For instance, until recent years, only about 48 percent of the Yemeni adults were literate\. 73\. A significant number of schools are still characterized for being overcrowded and same temporary ‘solutions’ currently include, the use of mosques, tents, or shade areas provided by trees\. This situation is more critical in the rural areas than in the cities\. Therefore, there is not only a critical need for new rural schools/classroom, but also for the renovation of existing ones\. Most of PWPs involvement on school construction has been in small villages, and only in a few cases new classrooms have been built in some urban areas\. 74\. With Project Scenario: The goal was to improve enrollment capacity (students per year) in yearly targets to reach an overall net increase of 200,500new enrollees\. The actual enrollment result (at the end of PWP-3) was 256,000\. The Ministry of Education (MOE) is involved with Project coordination, designs and school locations\. The minister of education is a member in the PWP’s steering committees\. All activities regarding schools were handed over to the branches of the MOE that worked in coordination with the local councils and the communities to ensure proper O&M – as it has been done in previous PWP operations\. 75\. Cost: In addition to the investment cost and the associated incremental recurrent O&M costs, the analysis also took into account the private costs of attending school\. These yearly costs included both the expenditures that families needed to incur (such as school fees, books and supplies, uniforms, transportation, etc\.), which was estimated at US$4\.00 per pupil; as well as the relatively small opportunity cost (i\.e\., the forgone earnings) of middle and secondary students, which was calculated at US$16\.004 annually per student\. In practice, it should be noted that both public and the private costs per student usually turn out to be larger due to the system’s internal inefficiencies (wastage) in the normal school cycle, which are generally reflected in the yearly high rate of repeaters and dropouts (as estimated below in Table 3)\. 76\. Benefits: Basic education is instrumental for poverty alleviation because it is an important channel for improving earnings for low income groups\. However, the typical low return to primary education indicates that continuing to provide a poor quality primary education is inadequate for alleviating poverty\. Therefore, the goal in the medium term includes not only the improvement of coverage and quality, but also facilitating access to junior secondary education, and in particular promoting girls education\. 77\. In addition, the improvement in internal efficiency gains, through lower repetition and dropout rates, could have significant financial savings (for both the government and the families), as it would take fewer years of schooling to produce a primary school graduate\. Also, the nationwide positive externalities of basic education continue to provide ample public finance 4 This yearly amount is equivalent to about 2\.3% of the average yearly income in Yemen, which is estimated at approximately US$680 dollars\. -27- justification for supporting universal basic education with public investment funds\. Furthermore, basic education is recognized as an essential precondition to improve workforce quality and productivity, which contributes to Yemen’s developmental potential\. 78\. Methodology: The usual economic assessment methodology relies upon household (labor force) surveys to provide data on wages, levels of education, and occupations to determine private rates of return to education\. This generates a private income stream that can then be combined with costs of education to estimate the internal rates of return\. In Yemen, a household survey on level of income and years of education has not been recently undertaken that could provide the data for an economic analysis\. For this reason alternative empirical information sources on expected earnings have been used, as reported below\. 79\. Also, the recurrent cost of education (as mentioned above) generally includes school fees, books, transport, uniforms, etc\.; these costs generally are determined in household consumption surveys, of which there is not any in Yemen on rural population that could offer this type of data\. Considering this limitation again alternative sources of information have been used\. 80\. The stream of net economic benefits of the overall investment in schools was computed as the difference between the cash-flows of costs and benefits, “withoutâ€? and “withâ€? the Project\. Such cash-flows were discounted using a 10 percent rate\. The economic analysis converted financial prices into economic prices in order to correct for price distortions due to market imperfections\. This was done by applying the standard conversion factor of 0\.9\. Taxes and duties were removed from financial prices, as these are not real costs in the economy, but rather a transfer of financial resources from the private to the public sector\. 81\. Main Assumptions: In summary: (i) internal inefficiencies have been recognized, that is, not all students who entered the system were expected to finish school on time\. Based on international empirical data for similar socio-economic environments, promotion from one grade to the next was estimated at about 90 percent, repetition was assumed at 8 percent and dropouts at 2 percent of the student population; (ii) no more than 50 percent of the graduates from six-year primary school are expected to continue into the next three-year cycle of middle/junior school; (iii) graduates that enter the labor market are assumed to be employed throughout the analyzed time period, and (iv) wages in real terms are assumed to remain constant during the period of analysis\. The empirical results of the assessment of the internal inefficiencies (reported in Table 3 below) were applied for the computation of the overall Economic Rate of Return (ERR) and the NPV\. 82\. Economic Rate of Return (ERR) and Net Present Value (NPV): Under the above assumptions, the results indicate that the expected ERR for the investments in education is about 17\.2 percent (Table 4) and the net present value of the net benefit is US$128 million, at a discount rate of 10 percent\. These results are consistent with the empirical evidence of the ERRs for comparable sub-Projects which fluctuate between -2\.9 percent and 29\.2 percent\. Based on these empirical results, it may be concluded that the proposed investment in new schools/classrooms is economically viable\. The results of this analysis are included in Table 4 below\. -28-  Table 3: Assessing Educational Internal efficiency Student Flow Analysis: Based on Cohort Method and respective assumptions on transition rates Grade 1 2 3 4 5 6 7 8 9 Repetition 8% 8% 8% 8% 8% 0% 8% 8% 0% Promotion 90% 90% 90% 90% 90% 50% 90% 90% 40% Dropout 2% 2% 2% 2% 2% 50% 2% 2% 60% Grade Grade Grade 6 9 1 2 3 4 5 6 7 8 9 leavers leavers Retention Dropout 256,00 Year 1 0 256,000 - 2 20,480 230,400 250,880 5,018 3 1638 36,864 207,360 245,862 4,917 4 131 4,424 49,766 186,624 240,945 4,819 5 10 472 7,963 59,720 167,962 236,126 4,723 6 47 1,062 11,944 67,185 151,165 231,403 77,187 7 4 127 1,911 16,124 72,559 75,583 75,583 166,309 38,155 8 14 268 3,010 20,317 71,350 68,024 36,280 162,982 13,012 9 1 34 482 4,334 23,993 69,657 61,222 10,158 24,489 159,723 40,784 10 4 69 780 5,820 27,166 67,589 2,167 27,036 101,428 41,605 11 9 124 1,168 7,412 29,857 390 11,943 38,569 18,148 12 18 205 1,644 9,059 62 3,624 10,926 5,481 13 1 33 316 2,204 9 882 2,554 1,330 14 4 55 461 184 519 278 15 8 86 34 94 52 16 14 6 14 8 17 1 1 1 TOTAL 124,649 68,197 - Source: Calculated for this ICR report, based on estimated enrollment and students transition rates\. -29-  Table 4: COST BENEFIT ANALYSIS IMPROVEMENT OF ENROLLMENT CAPACITY IN BASIC EDUCATION Cost with Project Net Benefits with Project Forgone Increased Increased Schools Addition earnings of Earnings Earnings TOTAL Net Economic TOTAL Benefits Invest\. to primary & due to due to INCREASED COST Econ\. Cost O&M secondary primary secondary EARNINGS Year students 1/ education education US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 2005 7,437\.6 0\.0 0\.0 7,437\.6 0\.0 0\.0 0\.0 (7,437\.60) 2006 9,297\.0 148\.8 0\.0 9,445\.8 0\.0 0\.0 0\.0 (9,445\.75) 2007 11,156\.4 334\.7 0\.0 11,951\.9 0\.0 0\.0 0\.0 (11,951\.89) 2008 9,297\.0 557\.8 0\.0 10,622\.8 0\.0 0\.0 0\.0 (10,622\.82) 1 2009 743\.8 0\.0 1,767\.8 0\.0 0\.0 0\.0 (1,767\.76) 2 2010 743\.8 0\.0 1,747\.0 0\.0 0\.0 0\.0 (1,746\.96) 3 2011 743\.8 0\.0 1,727\.0 0\.0 0\.0 0\.0 (1,726\.96) 4 2012 743\.8 0\.0 1,707\.4 0\.0 0\.0 0\.0 (1,707\.36) 5 2013 743\.8 0\.0 1,688\.2 0\.0 0\.0 0\.0 (1,688\.16) 6 2014 743\.8 11,570\.0 13,239\.4 0\.0 0\.0 0\.0 (13,239\.36) 7 2015 743\.8 8,315\.0 9,724\.0 3,098\.9 0\.0 3,098\.9 (6,625\.06) 8 2016 743\.8 814\.5 2,209\.9 6,197\.8 0\.0 6,197\.8 3,987\.95 9 2017 743\.8 798\.5 2,181\.1 9,296\.7 1,714 11,010\.9 8,829\.81 10 2018 743\.8 507\.0 1,656\.4 12,395\.6 3,426 15,821\.1 14,164\.77 11 2019 743\.8 192\.5 1,090\.3 15,494\.5 5,137 20,631\.4 19,541\.14 12 2020 743\.8 743\.8 18,593\.4 6,848 25,441\.7 24,697\.90 13 2021 743\.8 743\.8 21,692\.3 8,560 30,251\.9 29,508\.16 14 2022 743\.8 743\.8 24,791\.2 10,271 35,062\.2 34,318\.42 */ 41 2049 743\.8 743\.8 108,461\.6 56,478 164,939\.3 164,195\.53 42 2050 743\.8 743\.8 111,560\.5 58,189 169,749\.5 169,005\.79 43 2051 743\.8 743\.8 114,659\.4 59,900 174,559\.8 173,816\.05 44 2052 743\.8 743\.8 117,758\.3 61,612 179,370\.1 178,626\.31 45 2053 743\.8 743\.8 120,857\.2 63,323 184,180\.3 183,436\.58 46 2054 743\.8 743\.8 123,956\.1 65,034 188,990\.6 188,246\.84 47 2055 743\.8 743\.8 127,055\.0 66,746 193,800\.9 193,057\.10 48 2056 743\.8 743\.8 130,153\.9 68,457 198,611\.1 197,867\.37 49 2057 743\.8 743\.8 133,252\.8 70,169 203,421\.4 202,677\.63 50 2058 743\.8 743\.8 136,351\.7 71,880 208,231\.7 207,487\.89 ERR = 17\.2% NPV = $128,652\.39 */ This table is summarized for presentation purposes only\. The complete version of is available in the project files\. -30- (2) Rural Water Harvesting Schemes: 83\. Objective: The main objective of these types of subproject was to provide small scale infrastructure to channel and accumulate rain water for human consumption in villages that lack this type of infrastructure\. Such water reserves are designed to meet basic minimum consumption of water during the periods of water scarcity associated with the dry season\. 84\. Without Project Scenario: Those villages that lack water reserves have primarily had to depend on water from other jurisdictions; that is either transported by family members who, in some cases walk up to 7 hours, or have to buy it from water-tanks-trucks that regularly come to these villages\. Given these circumstances per capita water consumption per day is very low\. In these jurisdictions average water consumption, for all daily uses, may be 20 liters per capita or less\. 85\. With Project Scenario: Over forty villages were selected to benefit from the construction of water harvesting tanks, which on average have a capacity to store 4,500 cubic meters\. The selection was based on their actual needs and the commitment of their communities together with the local district councils to assist in their construction, maintenance and operation\. The actual benefits of this new infrastructure were planned to gradually begin in FY05 and were expected to be completed by the end of FY10\. The economic benefits have been evaluated for a 20 year period – though the life-time of this infrastructure will be substantially much longer\. 86\. Economic Cost: The total cost of the water harvesting schemes includes the investment cost and the relatively small operation and maintenance (O&M) costs associated with this particular type of infrastructure by design\. The actual investment cost in financial terms has been estimated at US$18\.7 million dollars\. The average investment per harvesting tank is about US$120,000\. 87\. The operation and maintenance (O&M) costs of these schemes were equivalent to about 0\.2 percent of the investment cost\. Maintenance work was assumed to have taken place three times per year, which includes mainly labor\. Financial costs were converted in economic cost applying the standard conversion factor\. The details of the flow of yearly incremental economic costs for these investments are illustrated in Table 5 below\. 88\. Economic Benefits: Other than the temporary employment generated by the construction of water harvesting schemes, the most important lasting benefits emerged from savings in water expenditures by community residents\. The situation “withâ€? the Project in practice eliminate the opportunity cost of the time of community residents who would have needed to travel relatively long distances to transport water back from other villages\. Though these additional benefits have occurred, this economic analysis has focused in the net benefits directly related to the savings in family budgets due to substantially lower water-expenditures “withâ€? the Project\. Therefore, the estimated ERR may be considered a conservative indicator of the actual benefits\. 89\. Methodology: The calculation was based on the difference between expenditure in water “withoutâ€? and “withâ€? the Project for the expected daily water consumption per capita\. The annual streams of savings were calculated on the basis of the economic value of savings in water expenditures (SWE)\. As noted above, the yearly estimates of SWE assumed an average water -31- consumption of 20 liters per capita per day during the dry season, which was expected to last on average about four months per year\. In order to estimate the SWE it was estimated an amount of YR 4\.0 “withoutâ€? the Project, which corresponds to the current average price per liter of water sold by water-truck vendors and the average price per liter of water of YR 0\.5 that was charged at the harvesting tanks once they entered into operation\. 90\. Economic Rate of Return (ERR): As illustrated in Table 5 below the estimated ERR is 108 percent which, as expected, is highly robust considering that water is relatively scarce natural resource in most rural areas of Yemen\. This is consistent with an NPV of 38\.7 million\. 91\. A sensitivity analysis was performed under the scenario of lower benefits in 25 percent (i\.e\., lower water consumption from the new water harvesting schemes due to an unexpected dry season)\. Assuming benefits lower in 25 percent the ERR is 28 percent (Table 6 below), which makes these investments still economically justifiable and still greater than the opportunity cost of capital, at about 10 percent\. The NPV, in consistency with the above results, is positive and fairly significant (US$17\.7 million)\. Based on these solid economic indicators the overall investment in water harvesting infrastructure was economically acceptable\. (3) Summary of the Economic Analysis: 92\. Considering the relative importance of the different type of public works executed by the Project, the economic analysis has focused on the investments in the construction and expansion of schools/classrooms (that benefited 256,000 new students), and on the investments in water harvesting schemes (that benefited 421,000rural low income population)\. These two types of investments represented about 75 percent of the total investments of PWP-3\. The overall ERRs for classrooms and water harvesting schemes are 17\.2 percent and 108 percent respectively; confirming the economic viability of these investments\. These results are consistent with the overall NPVs for schools and harvested water of US$128 million and US$38\.7million, respectively\. Furthermore, the sensitivity analysis for water harvesting schemes considered shorter rainy seasons, revealing that despite a 25 percent drop in benefits, the ERR for the water schemes of 28 percent is still greater than the opportunity cost of capital, and it is supported by a robust NPV of US$17\.7 million\. 93\. The financial impact of the above investments primarily impacts the respective sectoral institutions and the direct beneficiaries who are all expected to contribute to their O&M\. The financial impact on the users is primarily reflected on user charges for water consumption and voluntary contributions to school maintenance\. For instance, beneficiaries of water harvesting schemes will pay on average YR0\.5 per liter of harvested water, rather than the current YR4 per liter to the private water-truck vendors, which will constitute a net positive financial impact in favor of the consumer, equivalent to average savings of about YR3\.5 per liter of water\. 94\. An explicit criterion in the design of the sub-Projects financed by the PWPs has been that their O&M costs be low and affordable for the targeted beneficiaries\. The ability and willingness of the beneficiaries to operate and maintain these sub-Projects, was assessed during the evaluation of subproject proposals to ensure compliance with established criterion, including sustainability\. The Projects built continue to use technologies that facilitate their financial sustainability through the use of designs and construction designs that have low O&M -32- requirements\. This is particularly the case in subproject of water supply schemes (and in improved access through stone paving)\. 95\. The main fiscal impact of the PWP-3is in covering the recurrent cost requirements for O&M of additional classrooms for existing schools\. The additional classrooms delivered are spread all over the country, and they are unlikely to constitute a significant financial/fiscal impact on any particular community and/or local government\. The ex-post evaluation of similar sub-Projects indicates that O&M has been handled adequately with few exceptions\. The processes for ensuring adequate O&M arrangements before implementation have contributed to successful operations\. -33-  Table 5: Cost Benefit Analysis Construction of Water Harvesting Schemes Costs Benefits Savings in Water Expenditure Water Harvesting Total in Water Expenditure Expenditures Investment O&M Economic w/out in Water due to the Economic Net Economic Year Cost Increment Cost Project with Project Project Benefits Benefits US$000 US$000 US$000 US$000 US$000 US$000 US$000 US$000 2005 3,752\.0 0\.00 3,376\.8 (3,376\.80) 2006 4,690\.0 0\.03 4,221\.0 9,443 472 8,971 8,073\.8 3,852\.73 2007 5,628\.0 0\.06 5,065\.3 9,443 1,062 8,381 7,542\.6 2,477\.33 2008 4,690\.0 0\.11 4,221\.1 9,443 1,771 7,672 6,905\.2 2,684\.09 2009 0\.14 0\.13 9,443 2,361 7,082 6,374\.0 6,373\.89 2010 0\.14 0\.13 9,443 2,361 7,082 6,374\.0 6,373\.89 2011 0\.14 0\.13 9,443 2,361 7,082 6,374\.0 6,373\.89 2012 0\.14 0\.13 9,443 2,361 7,082 6,374\.0 6,373\.89 2013 0\.14 0\.13 9,443 2,361 7,082 6,374\.0 6,373\.89 2014 0\.14 0\.13 9,443 2,361 7,082 6,374\.0 6,373\.89 2015 0\.14 0\.13 9,443 2,361 7,082 6,374\.0 6,373\.89 2016 0\.14 0\.13 9,443 2,361 7,082 6,374\.0 6,373\.89 2017 0\.14 0\.13 9,443 2,361 7,082 6,374\.0 6,373\.89 2018 0\.14 0\.13 9,443 2,361 7,082 6,374\.0 6,373\.89 2019 0\.14 0\.13 9,443 2,361 7,082 6,374\.0 6,373\.89 2020 0\.14 0\.13 9,443 2,361 7,082 6,374\.0 6,373\.89 2021 0\.14 0\.13 9,443 2,361 7,082 6,374\.0 6,373\.89 2022 0\.14 0\.13 9,443 2,361 7,082 6,374\.0 6,373\.89 2023 0\.14 0\.13 9,443 2,361 7,082 6,374\.0 6,373\.89 2024 0\.14 0\.13 9,443 2,361 7,082 6,374\.0 6,373\.89 2025 0\.14 0\.13 9,443 2,361 7,082 6,374\.0 6,373\.89 ERR = 108% Source: Computed for this report\. NPV = $38,730\.25 -34-  Table 6: Sensitivity Analysis Construction of Water Harvesting Schemes Costs Benefits Reduced in 25% 25% of 75% Savings in Water Expenditure Water of water water O&M Harvesting in water Expenditure Expenditure expenditure Net Increment Invest\. without the at vendor's at harvested due to the Economic Economic Year Cost Total Cost Project price price Project Benefits Benefits US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 3,752\.0 0\.00 3,376\.8 - - (3,376\.80) 2005 4,690\.0 0\.03 4,221\.0 1,889 472 354 1,062 956\.1 (3,264\.92) 2006 5,628\.0 0\.06 5,065\.3 4,249 1,062 797 2,390 2,151\.2 (2,914\.03) 2007 4,690\.0 0\.11 4,221\.1 7,082 1,771 1,328 3,984 3,585\.4 (635\.71) 2008 0\.14 0\.13 9,443 2,361 1,771 5,312 4,780\.5 4,780\.39 2009 0\.14 0\.13 9,443 2,361 1,771 5,312 4,780\.5 4,780\.39 2010 0\.14 0\.13 9,443 2,361 1,771 5,312 4,780\.5 4,780\.39 2011 0\.14 0\.13 9,443 2,361 1,771 5,312 4,780\.5 4,780\.39 2012 0\.14 0\.13 9,443 2,361 1,771 5,312 4,780\.5 4,780\.39 2013 0\.14 0\.13 9,443 2,361 1,771 5,312 4,780\.5 4,780\.39 2014 0\.14 0\.13 9,443 2,361 1,771 5,312 4,780\.5 4,780\.39 2015 0\.14 0\.13 9,443 2,361 1,771 5,312 4,780\.5 4,780\.39 2016 0\.14 0\.13 9,443 2,361 1,771 5,312 4,780\.5 4,780\.39 2017 0\.14 0\.13 9,443 2,361 1,771 5,312 4,780\.5 4,780\.39 2018 0\.14 0\.13 9,443 2,361 1,771 5,312 4,780\.5 4,780\.39 2019 0\.14 0\.13 9,443 2,361 1,771 5,312 4,780\.5 4,780\.39 2020 0\.14 0\.13 9,443 2,361 1,771 5,312 4,780\.5 4,780\.39 2021 0\.14 0\.13 9,443 2,361 1,771 5,312 4,780\.5 4,780\.39 2022 0\.14 0\.13 9,443 2,361 1,771 5,312 4,780\.5 4,780\.39 2023 0\.14 0\.13 9,443 2,361 1,771 5,312 4,780\.5 4,780\.39 2024 0\.14 0\.13 9,443 2,361 1,771 5,312 4,780\.5 4,780\.39 2025 ERR =28% / NPV = Source: Computed for this ICR\. $17,799\.28 -35-  Annex 4\. Bank Lending and Implementation Support/Supervision Processes (a) Task Team Members Names Title Unit Responsibility Lending /Supervision Amir Al-Khafaji Lead Specialist MNSIF GhadaYouness Sr\. Legal Counsel LEGMS NourredinBouzaher Sr\. Economist MNSIF Mohamed Yahia A\. S\. Karim Financial Management Specialist AFTFM Financial Mgmt\. Hayat Taleb Al-Harazi Program Assistant MNSEG Administrative support Moad M\. Alrubaidi Financial Management Specialist MNAFM Financial Mgmt\. Thao Le Nguyen Finance Officer LOAG1 John Bryant Collier Operations Officer AFTWR Operational Support Ayman Ibrahim El-Guindy Procurement Specialist MNAPR Procurement Akram A\. El-Shorbagi Sr\. Financial Management Spec\. MNAFM Financial Mgmt\. KarimKamilFahim Auditor IADVP Financial Mgmt\. Elena Gagieva-Petrova Program Assistant ACS Project Support Maged Mahmoud Hamed Sr\. Environmental Spec\. MNSEN Environment SominMukherji Sr\. Financial Analyst AFTEG 1st TTL/Engineer Ali Khamis Senior Operations Officer MNSUR 2nd TTL/Urban Spec\. Josephine Masanque Sr\. Financial Management Spec\. OPCFM Financial Mgmt\. BanuSetlur Environmental Spec\. MNSEN Environment Wendy E\. Wakeman Lead Social Dev\. Specialist MNSSO Social ICR Ali Khamis Sr\. Operations Officer MNSUR Task Team Leader Christian Eghoff Consultant MNSSD ICR Reviewer Maya El-Azzazi Program Assistant MNSSD Richard James Operations Consultant MNSSD Primary Author Mahine Diop Sr\. Municipal Engineer AFTU2 Peer Reviewer Salim Rouhana Urban Specialist AFTU2 Peer Reviewer Judy Baker Lead Economist WBIUR Peer Reviewer Sameh Wahba Lead Urban Specialist LCSDU Peer Reviewer -37- (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands No\. of staff (including travel and weeks consultant costs) Lending FY04 22\.49 153,298\.57 FY05 18\.43 49,162\.33 FY06 31\.26 104,124\.44 FY07 29\.03 84,221\.77 FY08 17\.23 73,992\.15 Total: 118\.44 464,799\.26 Supervision/ICR FY09 21\.63 75,190\.09 FY10 16\.19 23,942\.25 FY11 11\.40 31,564\.15 FY12 8\.84 40,158\.58 FY13 2\.83 4,200\.50 Total: 60\.89 175,055\.57 -38-  Annex 5\. Beneficiary Survey Results 96\. In 2007, a Socioeconomic Impact Assessment Study was conducted\. Sampling Procedure/Technique: Multi-stages stratified random sampling (stratification against type of sub- projects, status of sub-project and Governorates) was used to draw 15 percent of the total completed and that were under implementation sub-projects\. Accordingly, the size of the sample was 46 sub- projects, which were randomly selected from all sub-projects in a proportional manner according to the number of each type of sub-projects (health, education, water; etc\.) from the size of the aforementioned sample (46 sub-projects)\. A ratio of 1/3 of the sample (15 sub-projects) was drawn from sub-projects that were under implementation according to weighted average of sub-projects types; whereas the remaining 2/3 (31 sub-projects) of the sample was selected from the completed sub-projects according to weighted average of sub-projects types\. Summary of Main Findings 97\. The study reached the following conclusions, based on the results achieved until 2007: • The total number of beneficiaries is 2,218,370 beneficiaries, distributed among 21 governorates, in 7 sectors\. The average number of beneficiaries from each sub-project was 6,868 persons\. • Compared with PWP-2, high level of efficiency is observed in allocation of investment during PWP-3 with regard to the number of beneficiaries, whereby for each sub-project increased from 3,800 persons to 6,868 persons in PWP-3 sub-projects that are contracted until now, representing an increase of 81 percent\. At the same time, the average cost of each project increased by 43 percent, thus indicating high capabilities with regard to investment allocation during PWP-3, as compared with the number of beneficiaries\. • The share of each beneficiary from the total investments is reduced from US$14\.54 in PWP-2 to US$\.14\.3 in PWP-3 in spite of increase in the average investment cost by approximately 64 percent\. This is a positive indicator that reinforces judging PWP-3 efficiency with regard to investments distribution and reaching the maximum number of beneficiaries that serve the final objectives of PWP-3\. • In comparison with PWP-2, the ratio of skilled labor increase from 34\.7 percent to 39 percent in PWP-3, with a ratio of increase of 12\.4 percent\. Furthermore, the average ratio of direct and indirect work opportunities per sub-project is increased from 111 person/months to 141 person/months, representing an increase ratio of 27 percent\. • PWP-3 activities are in the construction industry, accounting for 6\.6 percent of the total economically active labor force\. Unemployment in this sector represents 26 percent, according to the 2004 census\. Direct work opportunities generated by PWP-3 during the period covered by this study provided work opportunity lasting a period of 7\.4 months for approximately 4,684 workers\. Taking into consideration that the average dependency per person with income is 7 persons, thus the number of benefiting from the generating income is approximately 32,785 persons\. • The community contribution in the sub-projects' costs amount to US$2,100,832, approximately equal to 7 percent of the PWP-3 invested amount\. In comparison with PWP-2, the ratio of community participation decreased from 10\.7to 7 percent only, representing a ratio of decrease of approximately 34 percent\. -39- • The average monthly income of the unskilled labors in Phase III of the project increased compared with PWP-2 from 18,545 YR/month to 27,598 YR/month, representing a ratio of 48\.8 percent\. At the same time, the average income of the skilled labors increased from 35,304 YR/month to 61,851 YR/month representing a ratio of 75\.2 percent\. Analysis results, also, showed that average income of skilled and unskilled labors increased by 14\.1 percent respectively, compared with their average income before the project\. Such increase matches with the new wages policy, which resulted in wages increase and Alleviation of subsidies to oil extracted by-products and therefore had impacts on the general average of prices and wages\. • The average monthly income of the consultant engineers improved significantly by 87 percent\. Their monthly income increased from US$231 per month to US$432 per month\. This increase contributed in improving the living conditions of engineers significantly for a ratio of 15\.4 percent and to some extent for a ratio of 61\.5 percent and slightly for a ratio of 23\.1 percent of the engineers and consultants\. • The conditions of 40 percent of the interviewed contractors improved significantly after working with PWP and conditions of 53\.3 percent improved moderately; whereas, the conditions of 6\.7 percent did not improve as a result of the great competition among the contractors which lead to reduction of the bidding prices submitted by the contractors in order to secure the work\. • Number and quality of education facilities had improved\. Enrollment rate in basic and secondary education has increased for both sex (by 34 percent), total average increase was 57\.6 percent for females versus 19 percent for males\. Furthermore, assessment result indicated that the increase ratio in enrollment of female student was more compared with male, at 58\.5 percent, 54\.2 percent and 52\.7 percent with regard to basic, mixed basic and secondary education, respectively\. • Decrease in average ratio of students to the teachers from 60 students per teacher to 44 students per teach, which is indicator to improved teaching quality\. • Education environment improved significantly, whereby the average density of student per class is reduced in both the basic and secondary education by 28\.4 percent and 34\.8 percent respectively\. Thus, resulting in improving the comprehension of the students and capability of the teachers to render better quality of teaching\. In addition, teaching aids are available, which include chairs, desks; etc\. PWP-3 considered equipping schools with chairs and desks as a priority, which had a significant impact on improving education environment in primary educational institutions\. • PWP-3also gave priority to construction of additional utilities (annexes) in implemented education sub-projects pertaining to construction of classes (new and addition/expansion), which include warehouses, laboratories, administration rooms, Toilets, and construction of fences in some schools, which had a significant impact in improving education environment in numerous educational institutions\. • The study found that health indicators realized will, no doubt, lead to improvement of the health conditions within the beneficiary poor communities, in the long-run and will contribute towards improving post-natal life expectancy indicator and consequently improving human development indicator with regard to health\. In addition, improvement of health conditions will contribute towards improving the production capacities of the communities and ultimately improve the living conditions, in general\.  Different services provided; more importantly are first aid and curing endemics, in addition of health enlightenment and awareness services, besides family-planning related services at a ratio of 22\.2 percent each\. In addition, the institutions provide medication for kidney diseases at -40-  11\.1percent and other services, thus, emphasizing the large number of out-patients to the health sub-projects\. • The total volume of water produced by the implemented water projects is approximately 5,790 cubic meters, which in turn resulted in increasing the average share of water per capita by approximately 9percent annually\. • Capacity of agricultural reservoirs totaled 9000 cubic meters\. Agricultural sub-projects will have a positive impact on beneficiaries, regarding harvesting of water to be utilized in drinking and irrigation purposes and recharge ground and surface water and improvement of water resource use\. • Positive environmental impacts of sanitation services on beneficiaries: Average distance between sanitation service and closest point to drinking source of water increased by (333 percent), which eliminated drinking water source contamination risks caused by waste-water, thus reducing soil and air pollution, unpleasant smell, diseases and infection (malaria, diarrhea, and skin diseases)\. Reducing water pollution and consequently minimizing risks of infection with diseases resulting from water pollution\. Women and children benefited considerably from waste-water elimination\. • PWP-3 implemented pavement of 1,360 linear meters, including 800 linear meter completed and 560 linear meters ongoing, with an average width of 7\.97 meters, thus, covering a total area of 9,928 square meters\. About 45 roads benefited in three governorates\. In addition, approximately 10,421 families benefited directly and 40,378 families benefited indirectly from the roads-sub- projects\. • The number of vehicles using the roads increased by 75 percent due to facility of the movement, which also facilitated movement of people as a result of easy passage of vehicles on the roads\. Various benefits gained: roads destruction reduced, elimination of stagnant water and mosquitoes, improved land and stores values surrounding the area\. Garbage was also reduced and thus improving the landscape\. • Pavement of roads also increased mobility of people/families and tourist on the paved roads\. The residents indicated that the pavement contributed significantly in providing an aesthetical view to the region and improving environmental conditions, in addition to easy transportation of goods\. • In general, the training programs provided by the Project for staff, consultant engineers, contractors and local communities proved to have positive effect at different levels such as on improving project design, supervision and implementation of sub-projects, the communities/beneficiaries participation and developing self-confidence on performing their roles as well which altogether contributed significantly to the project achievements\. Staff and consultants have the technical capacity to further assist in the project in future\. The objective related to local small contractors and consultants’ development was largely met\. PWP-3 conducted about 8 training workshops (2-14 days) in different governorates, covering all the subjects specified in PAD\. • The study concluded that it is clear that the collaboration and/or coordination of the PWP-3 with other projects working in the same area(s) and having in the same/similar development activities/agencies and programs was sound and strong, especially with the IDA supported funds/programs work nationwide\. Monitoring effectiveness was very systematic\. Also, positive collaboration existed between PWP-3 and local councils, parliament as well as community members and all of them showed high satisfaction\. This led to facilitate implementation of sub- projects\. -41- 98\. Below are examples of testimonials received from Beneficiaries: • Beit Al-Qanes, Manakha District, Sana'a Governorate: A beneficiary stated: “The subproject [a water harvesting scheme] has contributed to the reduction of emigration of individuals to the city\. Before the subproject, eight families immigrated to the city due to shortage of water\. In addition, coffee production has increased\. We are now feeling safe with regard to water\. We use water for drinking and for animals, and for cultivation of coffee and other crops\.â€? • Suffering of farmers in Al-Husn, Al-Tayal District, Sana'a Governorate: “Our region is facing drought\. Spring water started to cease and become dry\. The ground water is very deep reaching 1,000 meters and is also not suitable for drinking or cultivation\. It contains a high ratio of iron and salinity\. Doctors said that it results in dental problems to children\. Nut trees are in course of extermination\. Crops are minimal due to scarcity of water\. This Project will help in provision of water and increasing productivity of nut trees and at the same time recharge spring water\.â€? • An individual from Al-Ghoola Village, Dhibeen District, A'amran Governorate clarified: “The location of the school is in the middle of the adjacent villages, people in the village can now send their children to the school without being worried, and they may also permit their daughters to go to the schoolâ€? -42-  Annex 6\. Stakeholder Workshop Report and Results 99\. No stakeholder workshop was held\. -43-  Annex 7\. Borrower's ICR 100\. The complete borrower ICR is included below as officially transmitted\. Public Works Project Project management Unit Implementation Completion & Results Report Credits 3589 & 4419 YEM Background 101\. The Government of Yemen requested the Bank to include the Public Works Project Phase III within the 2002 CAS (for the period 2003-2005), in view of the immense and pertinent need for basic infrastructure and community Projects especially in rural poor areas with high levels of unemployment\. This need continued to prevail in spite of interventions by several implementing agencies\. The PWP had registered over 14,000 requests for Projects from communities while it had delivered just over 1400 during phase 2\. The Project would support the CAS objectives of Improving infrastructure, developing the human capital and granting social protection\. These objectives were also in line with the Government’s Poverty Reduction Strategy (PRSP)\. 102\. Several other justifications were stated such as demonstrated success and popularity of the PWP, the highly efficient implementing capacity of the PMU as is evident from its excellent track record in speed of delivery, reduced implementation periods and unit rates, competence and dedication of the PMU staff, the constructive guidance and support provided by the Steering Committee, and the streamlined procedures adopted, that all led to the Highly Satisfactory outcome of the preceding operations (PWP-1 and PWP-2)\. Thus the Bank agreed to the Government’s request to include a follow-on operation within IDA’s immediate lending priority\. 1\.1 Additional Financing 103\. During 2005, the prices of building materials, fuel and labor wages increased significantly resulting in overall increase in average cost of sub-Projects, leading to a reduction in numbers of sub- Projects that could be financed under the Project\. To enable the PWP to achieve original targets set in the Results Framework and Development Objectives, an Additional Financing Credit 4419 was approved during 2008 for an amount of SDR 18\.8 equivalent to US$29\.84 million\. 1\.2 Brief history of PWP-3: 104\. Chronological order of events - Negotiations Dec\. 15-18 2003 - Initial signing Dec\. 18, 2003 - Prime Minister Decree No\. 3 January 20, 2004 - Parliament approval May 12, 2004 - Board Approval Feb 26, 2004 - Credit Agreement signed on April 23, 2004 -44- - Approval of Credit Agreement Feb\. 26, 2004 - Presidential Decree No\. 11 June 3, 2004 - Effectiveness July 15, 2004 - Original Credit Closing Date June 30, 2009 - Extended Closing Date with Additional Financing June 30, 2011 (AF Project Paper) - Final Closing Date June 30, 2012 2\.0 Assessment of Development Objectives, Design and Quality at Entry 2\.1 Higher Level / Original Objectives: 105\. The Higher Level Development Objectives of the PWP III were consistent with the CAS of 2002 and the Poverty Reduction Strategy Paper (PRSP) that both aimed to contribute to several long term objectives of strategic relevance to Yemen namely developing human capital, improving infrastructure, achieving economic growth and granting social protection\. Furthermore, the Project’s design that focused on the poorer communities particularly the rural poor is in line with IDA’s overall support for rural poverty alleviation which is based on: (a) comprehensive infrastructure and service improvements (small public works, schools, roads, health centers); and (b) creation of employment outside agriculture\. 2\.2 Specific and revised objectives (if any) 106\. The specific development objectives as for previous Projects aim at poverty alleviation measures targeted to the country’s poor communities\. They specifically include (a) provision of needed infrastructure to improve services and environmental conditions (particularly those affecting women and children); and (b) creation of short term employment\. To ensure sustainability seek to ensure the sustainability of these measures through(a) community involvement in Project selection, preparation, and implementation; and (b) the development of local contracting and consulting firms\. 107\. A detailed results framework was developed to monitor the Projects principal outcomes which include (a) enrollment in schools (b) utilization of health facilities (c) beneficiaries of water supply schemes (d) creation of short-term employment to improve livelihood/decline in population below upper and lower poverty\. Baseline date for the results framework was established based on the Socio- Economic Benefit Impact Assessment conducted for PWP-2\. 108\. At the beginning of Phase III, significant comprehensive improvements were made for Data collection tools for each sub-Project type that is entered in the MIS and covers detailed information on sub-Project need, beneficiaries committees, socio-economic data, site specific data, environmental checklist, etc\. The aim was to enable better monitoring in selection of sub-Projects, reliable data for reporting, data analysis and baseline data for conducting SIA at end of Phase III\. The SIA was scheduled to take place during 2011, but unfortunately due to the unforeseen sudden uprising/ civil unrest during the same year the SIA could not be conducted\. 2\.3 Revised Objectives\. 109\. Due to the fact that PWP III is an extension to the previous two phases and the original objectives are still very relevant and well defined, no revisions were made during course of implementation of Project\. -45- 110\. During the MTR conducted in 2007, it was agreed that the output and outcome indicators originally targeted will not be achieved due to the significant increase in cost of construction inputs\. Thus to enable a realistic evaluation of the Project at completion, the targets were revised\. The new targets were in the range of 60% to 70% of the original targets, hence total number of SP reduced from 700 to 490, while no of jobs to be created from 90,000 work months to 60,000\. 111\. Soon after the MTR, the Bank took the decision to grant an Additional Financing Credit in order for PWP III to scale-up the outputs and outcomes to their original targets thus achieving its Development Objectives\. 2\.4 Critical Assumptions and Risks involved\. 112\. Within the PAD, several critical assumptions were made with adequate mitigation measures\. Below is brief description of how the PWP overcame the risks:- 2\.4\.1 Appropriate selection of subproject with high labor content\. 113\. The average Labor Content achieved reached 34\.5 % higher than envisaged at Project design of 30%\. The increase can be attributed to several factors\. In addition to the rigorous selection process, almost 35% of all sub-Projects implemented are in stone paving and water harvesting where the labor content ranges between 40-60%, implementing sub-Projects in remote rural areas where implementation is highly labor intensive and improved reporting on labor wages\. 2\.4\.2 Construction costs to be maintained at competitive rates\. 114\. The hike in construction costs since 2005 has affected the construction industry as a whole\. The average cost of sub-Projects has increased from US$60,000 as estimated during Project appraisal to US$110,000\. The PWP still maintains its competitive edge through transparency in bidding process, simple and timely payment procedures, contractors confidence in the PWP management that has now spanned over 15 years, number of bidders per sub-Project are still high, on average 7\.5 bidders per sub-Project resulting in its rates being among the most competitive\. 2\.4\.3 The capacity of PMU to adjust to output requirements\. 115\. The autonomy and flexibility the PMU has enabled it to adjust its human resources needs as and when needed\. During implementation peaks, additional staff (as consultants) has been recruited to assist in sub-Project preparation and implementation supervision\. Furthermore, to cope with the increase workload arising from additional sources of finances, during 2008, the PMU was restructured to include a Third Area Manager and branch offices were increased from 6 to 10; a new M&E department and a Design & Review unit\. The new structure allowed for a well-balanced and efficient performance of the PMU whereby it could manage between 450–500 ongoing SP at the same time and disburse a monthly average of US$ 6 million from all donors\. 2\.4\.4 Timely allocation of local counterpart funds\. 116\. The Ministry of Finance allocates annual budget for counterpart funding based on PWP liquidity forecasts\. The funds are then transferred on a timely basis upon PWP completion and compliance with all necessary supporting documents\. 2\.4\.5 The use of consultants with adequate competence\. 117\. The PWP has overtime (since PWP-1) built a huge data base of consultants that is being continuously updated by allowing registration of new consultants, thus giving equal opportunities to -46- all those interested, while at the same time expanding the pool from which competent and experienced consultants in various fields such as design and supervision of complicated sub-Projects can be drawn out\. Moreover, from time to time the PWP conducts training to enhance consultant skills in specific and critical areas especially those concerning environmental issues\. 2\.4\.6 Future of the PWP/PMU 118\. During 2008, the PWP conducted through international consultant a study on the future of the PWP\. The outcome of the study entailed several recommendations among which to transform the PWP into a permanent institution namely Public Works Fund\. An excerpt from the study is hereby quoted5“Given the current position and role of the PWP in Yemen, its high and unmatched levels of efficiency and effectiveness and its relevance within the Social Safety Net, making PWP a permanent institution within the State of Yemen is not a dream or luxury but an urgent necessity\. The Final Report of the study undertaken recommends, therefore converting the PMU of the PWP into a permanent entity\. For reasons of convenience and as long as final decisions have not been made, the study neutrally refers to such a permanent entity as ‘the Public Works Institution’ or PWI\. With the moral and political support of Yemen Governments and its donors, members of parliament and other stakeholders, the (PMU of) the PWP can successfully and painlessly be transformed to a permanent institution, with the potential to significantly contribute to the objectives of Yemen’s Social Safety Net in the coming decade\. Considering the available options and their (dis)advantages, the study concludes that the most realistic option seems to be to transform the current PWP and its PMU in order to establish it as a Public Fundâ€?\. 119\. With formation of the new reconciliation government, most members of the Steering Committee are new and the PWP intends to raise recommendations of the study once again for discussion and appropriate decisions to be taken\. 2\.5 Quality at Entry\. 120\. The Project design took into consideration the importance of quality at entry parameters that are prime determinants of successful development outcomes\. The Project’s higher and specific objectives and their relevance (being the main parameters) are consistent with the CAS of 2002, 2006 (for AF) and the PRSP\. The Project design took into account experience and lessons learned during previous phases in terms of implementation arrangements, technical, financial and procurement aspects\. Risks and assumptions were all realistic and measures taken to minimize them were appropriate, such that, as mentioned above all risks were adequately mitigated\. Adequate baseline data was made available for the results framework to ensure satisfactory monitoring and evaluation\. In compliance with Bank’s safeguards policies, comprehensive environmental management plan was put in place that took into account need for training and awareness for staff and consultants involved\. The highly efficient implementation capacity of the PMU as is evident from its excellent track record in speed of delivery, reduced completion periods and unit rates, would ensure minimal implementation risks\. 2\.6 Original Project Components\. 121\. The PWP III has three components that are the same for both the original credit (3859) and the Additional Financing (4419) as follows:- 5 Study on the future role of the PWP “Establishing the Public Works Fund November 2008â€? -47- (i)\. Community Infrastructure: US$ 39\.5 million + US$ 26\.69 (IDA Financing only) 122\. Community infrastructure includes small scale civil works for construction, rehabilitation, and / or extension of infra-structure works in areas of rural and urban water supply and sanitation, storm water drainage, flood protection, rural roads and sidewalks, schools and health centers, with an average cost US$60,000, and implemented over a period of 6-12 months\. Subproject will be selected from proposals submitted by local communities and local governments according to a set selection criteria and should have national coverage, with emphasis on poverty areas and above-average unemployment rates They should also have a high labor content and include community participation\. 123\. The PWP implemented 716 sub-Project with a total cost of US$ 80\.35 million (including government contribution) accounting for 89\.5% of the total cost of the Project, creating around 118,000 work months at a total cost of approximately US$ 27\.7 million, attaining a labor content of 34\.5 %, more than the target set at 30%\. All sub-Projects have been completed before the new closing date of June 30, 2012\. (ii)\. Technical Assistance: US$ 3\.5 million + US$ 1\.86(IDA Financing only) 124\. Technical assistance and consultancy services for Project preparation, implementation and capacity building of local councils and consultants and contractors and will include:- (i) assisting districts (50) to carry out assessment of their infrastructure needs, their capacity for implementation, preparation of medium term investment plan, assessment of sources of revenues and establishment of management information systems; (ii) preparation of design and supervision, and (iii) carrying out of a study on the future options for the PWP including the role of the PMU\. 125\. To achieve the above requirements for Technical Assistance, the PMU used the services of a large number of well experienced local consultants\. In total for IDA sub-Projects 522consultants have been utilized out of which 206 are new\. The PMU contracted the services of one International Consultant to conduct the study on the future role or the PWP\. 126\. Consultants’ services were used for preparation of designs and tender documents mainly for non-typical Projects such as water harvesting structures, conducting EIAs for environmentally sensitive Projects, undertaking training for PMU staff and local consultants on a number of relevant issues aiming at increase environmental awareness, community participation, supervision of Projects to improve quality of works, and quality control of works\. (iii)\. Project Management: US$ 2\.0 million + US$ 1\.29 (IDA Financing only) 127\. Maintaining and further strengthening the Project Management Unit (PMU) including financing of incremental operational costs of the PMU including training costs of the PMU staff\. 128\. The PMU has continued to perform in an efficient manner keeping its operational costs as low as possible at 4\.1%\. This figure although within the budget allocation, is marginally higher than in previous phases due to the general inflation in the cost of living, increase in fuel prices, office rentals, etc\. 2\.6\.1 Revised Components\. 129\. The DCA has a provision to provide Technical Assistance to about 50 districts in preparing development plans including sources of revenues and establishment of MIS\. Implementation of the component was linked to the National Strategy for Decentralization under the Ministry of Local -48- Authority and due to time and budget constraints it was possible to implement only 20 districts\. Accordingly the DCA was amended on July 19, 2007\. 3\.0 Achievement of Objectives and Outputs 3\.1 Provision of needed infrastructure to improve services and environmental conditions (particularly those affecting women and children); and creation of short term employment\. 130\. Overall PWP III, has achieved to a high degree all of its Objectives as originally set out in the Project Documents in spite of numerous factors/events that took place since the beginning of the implementation Phase (as detailed in paragraph 5\.0\.) Annex 1 shows comparison between the Original, Revised and Actual targets achieved\. Most indicators surpassed the revised targets\. In sectors where sustainability is difficult to obtain such as in health and water supply, targets are less both number of sub-Projects and beneficiaries\. There was a huge increase in indicator “enhancement of incomeâ€? compared to the baseline, that can be attributed to the high increase in inflation during this period\. 131\. Including the Additional Financing, 716 sub-Projects are completed in all sectors benefitting more that 2\.3 million direct beneficiaries out of which 50% are females\. 378 schools (2,000 classrooms) have been completed providing over 257,000 students (amongst which 50% are girls) with appropriate education facilities especially in rural and remote areas\. Similarly 188 rain water harvesting sub-Projects have been completed benefitting over 456,000 beneficiaries in very remote mountainous areas where women and girls are the prime beneficiaries, thus improving to a great extent their living and environmental conditions\. Out of the 10 vocational training centers, 8 are specifically for women to enhance their market skills\. Based on the study conducted on a random sample of trainees, several benefits were noted mainly (i) Increase in income: (Out of the sample surveyed, 55% of the sample indicated an increase in income by 25%, 23% of the sample by 50% , 20% of the sample by 75% and 2% of the sample by 100%), (ii) increase in income is used for improving standard of living such as contributing to family income, financing children to attend school, provide clothing & medicine, (iii) improved awareness on health issues, (iv) availability of new facilities built by PWP enabled centers to expand their activities & introduce other training programs\. 132\. Based on data collected from Branch offices6 of random samples of schools (sample size ranged from 10-30 schools) completed in various governorates (during preparation of the ICRR) the following results were ascertained on increase in enrollment for IDA financed sub-Projects: In Ibb girls enrollment increased by 40%: in Taiz the increase ranged from 25% to 30% for girls and 50% for mixed schools, in Amran increase in girls enrollment reached 75% while for boys 32%, while in Hajja & Saada girls enrollment increased by 160% while boys 115%\. 133\. Furthermore, with creation of 118,000 direct work months as short-term job opportunities with an average monthly income of approximately 235US$, will have created several positive economic impacts for the laborer’s families as a whole (average household size 6\.4 persons) in the form of improved food security / consumption smoothing, especially that since the increase in global food prices exacerbated by the financial crisis there has been severe increase in numbers of food in- secured people in rural areas\. Second round benefits are also derived from the on job training that the laborers gain to enhance likelihood of getting re-employed\. In addition, at least 55,500 indirect jobs 6 Please note that due to the unrest during 2011, a comprehensive SIA could not be conducted\. -49- have been created in areas that directly support the construction industry and others related to the infrastructure developed\. 134\. The most deprived segment of rural communities are the women and children who suffer the most from lack of services, yet bear the highest burden of providing the basic amenities of daily life\. Improving access to basic services especially health, education and water benefits the whole segment of the community, but in particular women and children accrue highest benefits from such services\. Besides the economical advantages gained from reduced cost of traveling, increase in incomes due to increase in level of education (long-term benefit) improved health thus better output; there are significant improvements in the general quality of life of rural communities especially women and children\. Over 85%of IDA financed sub-Projects were implemented in rural areas where rural poor make up for at least 80% of total number of poor in Yemen, hence targeting areas with highest incidence of Poverty\. Thus the outcomes achieved are not only of high relevance to the DO, but also support both the CAS the Poverty Reduction Strategy Paper (PRSP) – viz\., developing human resources, improving infrastructure, achieving economic growth and granting social protection\. Analysis of the main indicators directly attributing to achievement of DO is as follows: Indicator Original Target Revised Targets at end of Actually during Project Including AF Achieved MTR No\. of Sub-Projects 700 490 772 (282 from AF) 716 Average cost of sub-Project 60,000 94,000 110,000 in US$ No\. of Jobs Created (work 90,000 60,000 101,000 118,000 months) (41,000 from AF) Total No of Beneficiaries 0\.9 1\.2 1\.9 2\.3* ( 50% in million (0\.7 from AF) being female) % of Labor Content 30% < 30% 30% 34\.5% Investment cost per Between US 20 34\.3 beneficiary in US$ and US$ 100 *Including sector 5 stone paving of roads Other important Indicators relating to PWP III Performance IDA Cr\. All Donors Percentage of Civil Works to Total Project Cost: 89\.5 86\.4 Percentage of Operating Cost to Total Project Cost: 4\.1 * 4\.3 Percentage of Consultant Services 4\.25 4\.3 Percentage of Goods, Eqpt & Furniture 2\.0 5\.0 ------- ------- 100% 100% * This includes Government Contribution while for IDA Credits alone the fig is 3\.7% 3\.2 Community Participation: 135\. In view of success community participation during the previous 2 phases it has once again been made an important cornerstone in implementation and sustainability of subproject\. Positive experience gained in working closely with local communities that resulted in improved sustainability of completed sub-Projects further consolidated imposing a minimum of 5% community contribution in cash or kind as a Rejection Criteria for selecting sub-Projects\. -50- 136\. “The PWP-3 would build on the experience and momentum of PWP-2, while at the same time laying a more consistent foundation for local governments and communities to maintain and sustain investments madeâ€?\. 7 137\. Total Community Contributions in cash & kind reached 7\.0% for IDA financed sub-Projects while on overall for all Donors reached 8\.6%\. The efforts expended during Phases 1&2 reaped fruitful results during Phase III whereby communities were more responsive and took responsibilities seriously\. Their willingness to cooperate extended not only in providing contributions, but also to participate in a pro-active manner during the various stages of the Project cycle noticeably during implementation and O&M stages\. Awareness on the importance of their role has increased especially in governorates where previously responses were very slow\. 138\. Phenomenon worth of mention is the cooperation of the communities (in some governorates) in times of crisis where they took over operational expenses for schools by contributing to pay the teachers daily wages, food and accommodation until MOE could resume its operations again\. 3\.3\.1 Identification Phase\. 139\. As in previous phases the PWP received requests for sub-Projects from communities, local NGO’s and local authorities\. At the beginning of Phase III verification tools and reports were improved to a large degree\. This ensured that for each sub-Project, thorough surveys and reporting is done that in addition to socio-economic data, details on site location, environmental checklist, prioritization of the communities’ needs, and election of beneficiary committees who are later in- charge of follow-up Project implementation, mobilization of contributions and O&M and endorsement of the Local Authorities are all completed\. Issues of Land acquisition, normally contributed by the communities is also documented as part of this process\. 3\.3\.2 Preparation Phase\. 140\. Communities through the elected committees may get involved in discussions on scope of sub-Projects, but in particular for non typical sub-Projects such as water supply schemes, the PWP has laid down comprehensive procedures starting from establishing a committee elected through general elections and ensuring all segments of the communities are represented including women before commencement of Project\. This general committee is officially registered with the Min\. of Social Affairs to give it a legal status\. Designs and technical issues are discussed with all members, followed by signing an agreement / MOU between the PWP and the beneficiary committee, endorsed by the Local Council and Governor that specifies obligations of each party\. The agreement spells out in detail, scope of the work to be undertaken, community’s contributions to the Project, its role in facilitating implementation and obligations for operation & maintenance\. Signing and endorsing the agreement is pre-conditional to commencing implementation\. 3\.3\.3 Implementation Phase\. 141\. Local Contractors from beneficiary communities are highly encouraged to participate in the bidding process although no preferences are granted\. Objective is for the communities to benefit not only from the infrastructure but also from economic activities generated, especially that the contractor is most likely to employ local labor\. However, as the PWP strictly abides by the World 7 The Project Appraisal Document (PAD)\. -51- Bank Procurement Guidelines local contractors have to participate in tendering process and fulfill all requirements\. Numerous contracts have been awarded to eligible contractors from beneficiary communities to implement sub-Projects in their own locality\. 142\. The PWP noticed increased awareness of communities during implementation, in coming forward with their comments and views albeit their involvement in the supervision is on an informal basis, they are encouraged to report to the PMU on any shortfalls by the contractor or supervising engineers\. 3\.3\.4 Operation & Maintenance Phase\. 143\. Communities play a pivotal role in the O&M of completed sub-Projects even those that are handed over to line ministries / concerned agencies\. The PWP has deeply consolidated its practices with local communities through ensuring that they understand their role\. Parents’ councils for schools, beneficiary committees for water supply, rainwater harvesting, stone paving and sanitation are established to either be the sole operators of the sub-Projects or follow-up and monitor concerned agencies on O&M issues\. This approach has yielded highly satisfactory outcomes for the sustainability of completed sub-Projects\. 3\.3\.5 Coordination with Local Councils\. 144\. PWP has continued and further consolidated coordination procedures established during Phase-2 whereby Local Authorities (LA) are informed on Project objectives, selection criteria, available funds and quarterly investment programs\. During Phase III, it has become good practice that all requests from the communities are also endorsed by the LA therefore reducing incidents of same request being submitted to numerous implementing agencies\. Furthermore the PWP has built a very strong rapport with LA resulting in strong confidence, trust and credibility of the PWP at the local levels, hence facilitating its operations throughout the Project-Cycle\. 3\.4 Development of Local Contracting and Consulting Firms\. 145\. The contracting industry has to a great extent benefitted from the development of small contractors to undertake small scale works\. In total for all three phases the PWP has contracted with over 1800 contractors (out of which 871 from previous phases)\. During Phase III, including for all Donors financing 1011 contractors have been contracted, out which 811 are new, indicating that awarding of contracts is not limited to few contractors, but new entrepreneurs are encouraged to participate\. For IDA financed sub-Projects 469contractors have been contracted (at an average of 1\.5 sub-Projects per contractor\. Giving opportunities to small and un-institutionalized contractors to get first hand on-job training under the guidance of competent supervision consultants to develop their technical, administrative and financial skills including preparation of bids, understanding procurement procedures, contractual obligation, compliance with specifications, improved quality of works and best practices enables them to participate in tenders from different implementing agencies and the private sector\. An important addition to contractors obligations is compliance with the Project specific EMP that has a number of items that the contractor needs to provide during construction phase such as a temporary latrine, safety measures on site, including storage and handling material, avoiding noise pollution, etc\. Being engaged in such measures enhances awareness that could be integrated in their skills\. 146\. They also get acquainted with transparent award and payment procedures that they may in the future insist on the same from others\. Quite a large number of contractors who worked with PWP’s over the three phases have developed into large scale contractors working nationwide including the Private Sector\. -52- 147\. The PWP has, as in previous phases used the services of a large array of consultants from short-term design & supervision to longer term consultants at the head office for such activities as design review and tender preparations as and when needed\. In total for all finances so far 1064 consultants have been contracted out of which 440 are new, while for IDA financed sub-Projects 522have been contracted out of which 206 are new consultants\. 148\. During Phase III, PWP focused on training consultants in several aspects, mainly compliance with environmental issues related to the EMP, factors to be considered during design phase such as site selection, design of rain water harvesting structures including additional environmental mitigation measures, ensuring compliance by the contractor of EMP measures during construction phase, and the importance of regular reporting\. 4\.0 Output by Components\. 4\.1 Community infra-structure\. 149\. In total 716 sub-Projects were implemented through IDA finance while for PWP as a whole it is expected to complete 2470 sub-Projects, distributed geographically among all the twenty one governorates in almost all the 333 districts\. As for previous phases funds were distributed amongst the governorates in accordance with the set criteria 50% based on 2004 population census, 30% Poverty indicators (published by the CSO) and 20% according to remoteness and deprivation\. 150\. In total for both credits 91\.5 % of all resources went for community infrastructure (89\.5% for civil works and 2% for school furniture), a true measure of the efficiency and transparency of the PWP\. Ensuring targeting the poorest communities resulted in 91% of all sub-Projects being implemented in rural areas\. On average, the PWP was able to manage 450-500 sub-Projects under implementation at the same time\. Although numbers reduced during 2011, it took all measures to ensure implementing and supervising all sub-Projects even during times when for security reasons access was extremely difficult\. Quality of completed sub-Projects was satisfactory\. This factor has been enhanced with the regular the random quality control checks conducted by the M&E department\. IDA supervision Missions conduct regular site visits for a number of randomly selected sub-Projects to assess appropriateness of investments / selection process and quality of delivered works\. Feedback in majority of the visits was satisfactory, while minor observations were rectified and reported in a prompt manner\. 151\. Furthermore, result of diligent supervision and strict application of contractual clauses, total amount of additional works reached only 1\.8%, a figure that is rather low for a large number of relatively small sub-Projects implemented in rural areas\. -53-  4\.1\.1 Distribution of Sub-Projects by Sector Sector No\. of S\.P Investme % share Compared nt in Phase III with Phase US$ milli -2 on Original AF Total Credit Health 12 8 20 2\.41 2\.90 4\.9 Education 230 148 378 41\.32 51\.63 57 Water 43 4 47 3\.46 4\.23 14\.3 Sanitation 14 4 18 2\.93 3\.66 4\.2 Road Paving 40 16 56 10\.08 12\.7 7\.9 Agriculture/ Water 123 64 187 18\.76 23\.12 3\.5 Harvesting Vocational Training 8 2 10 1\.40 1\.76 5\.4 /Social Security Total 471 245 716 80\.35 100 152\. The education sector still occupies highest share due to the continued demand for school building in the rural areas although quite a significant drop from Phase -2 ( 51\.6% compared with 57%)\. 153\. The rigorous screening to ensure strong commitment for O&M in place, as a prerequisite for selection, has significantly reduced number of sub-Projects implemented in sectors of health, water supply schemes and sanitation, while sub-Projects with low O&M requirements / and or have higher sustainability have increased such as stone paving and rain water harvesting\. In addition to the fact that sub-Projects in these sectors are more labor intensive thus attaining higher score for selection\. Moreover the PMU has modified many technical design aspects to improve lowering O&M costs such as provision of roof rainwater harvesting for schools to be used for toilets in the dry seasons, low-water consumption flushing cisterns for school toilets, improved technique for stone paving using small quantities of cement to allow growth of grass that reinforces the bonding, hence increasing lifespan\. In addition this technique renders the sub-Projects to have high labor intensity averaging 60%\. 154\. Provision of school Furniture\. All schools have been provided with combined school desks and some schools with administrative furniture\. In total 35,178 combined desks have been supplied for schools financed by IDA\. Disbursement by Categories\. 155\. Due to increase in SDR rates versus the USD since beginning of Phase III from 1\.437 at time of signing DCA to an average of 1\.51, total value of Credit 3859 (SDR 31\.3 million) increased to US$ 47\.35 million as opposed to US$ 45\.0 million, while Credit 4419 Additional Financing decreased by approximately US$1\.0 million from 29\.84 during 2008 to 28\.8 by end of 2011, as at time of signing (during 2008), the SDR rate was much higher 1\.587\. 156\. Government Contributions amounted to US$ 8\.56 million i\.e\. 18% and US$ 4\.7 million i\.e\. 16\.3% for Credits 3589 and 4419 respectively\. -54-  Status of Credits up to May 20, 2012 Credit 3859 Credit 4419 Total Actual Category Original Actual Original Actual Disbursed Planned Disbursed Planned Disbursed A\. Community Infra-structure:- 37\.5 42\.0 25\.48 25\.526 67\.78 (i) Civil Works Goods:- 0\.044 0\.184 (i) Equipment 2\.0 1\.21 1\.31 (ii) School Furniture 0\.74 0\.288 B\. Technical 2\.74 Assistant 1\.86 3\.64 (i) Consultant 2\.5 0\.860 Services (ii) Support to Local 1\.0 0 0 Development C\. Project 2\.0 1\.8 1\.29 0\.99 2\.97 Management Total 45\.0 47\.324* 29\.84 27\.848* 75\.70 *Some Amounts are still to be disbursed\. 4\.2 Technical Assistance\. 157\. As mentioned under paragraph 3\.4 above, the PWP has effectively used technical assistance in the form of local consultants for numerous activities such as verification of Projects and site visits, community mobilization, preparation of designs, conducting training workshops, environmental assessments and supervision of sub-Projects on site\. 158\. With a total of 404 supervision consultants for 716 sub-Projects, average number of sub- Projects per consultant is 1\.8for IDA Credit\. These figures indicate maintaining a balance between giving opportunities to significant number of consultants while at the same time maintaining cost benefit of awarding almost 2 sub-Projects to be supervised at the same time\. 4\.2\.1 Support to Local Development Component\. 159\. To support of the Government’s strategy for Decentralization a budget of US$ 1\.0 million was allocated under Category for Technical Assistance to finance preparation of 50 District Plans which included: assessment of their infra-structure needs, their capacity for implementation, preparation of medium-term investment plan, assessment of sources of revenues and establishment of MIS\. Due to time and budget constraints it was agreed during the MTR to reduce the number of districts to 20 distributed amongst 6 governorates\. 160\. In line with the MOLA National Strategy for Decentralization and the methodologies adopted, plans for the 20 districts were completed, the teams at the district and governorate level were trained and logistic support provided\. The PWP also participated in developing training manuals in particular the Gender & Environment that focused on Reflecting Women & Environmental needs in the Development Plans\. 4\.3 Project Management Unit\. 161\. The PMU has continued to perform in an efficient and cost-effective manner\. In spite of the high inflation and increase in cost of living, its operational costs for both credits remained less than budget allocation 4\.1% as opposed to 4\.4%\. Staff have maintained high levels of motivation and -55- diligence, and has utilized experienced gained over the years to manage a much larger finance portfolio for Phase III that reached over US$400 million compared to US$ 30 million and US$116 million during Phases 1 & 2\. Disbursement capacity doubled from monthly average of US$3\.0 million in Phase 2 to over US$6\.0 million in Phase III, while sub-Projects under implementation simultaneously averaged 450 to 500\. 162\. The high credibility, confidence and trust among its stakeholders have played an important role in attracting additional sources of finance that have increased from six (6) Financiers in Phase 2 to seventeen (17) in Phase III\. The diversified nature of the finances requiring interventions in non- typical fields such as infrastructure and equipment of fish wealth sector, medical stores and procurement of medical equipment, array of reporting requirements, posed a significant challenge on management\. Improvements to the PMU\. 163\. During Phase III a number of developments have been made to the PMU to further enhance and improve its management capabilities essential for coping with the large volumes of workload\. 164\. These include:- Restructuring the PMU Organization • The Steering Committee and the Bank approved the new organization of the PMU\. The major changes included dividing the country into three areas instead of two, thus a third Area Manager, 4 additional Branch Offices bringing them to ten, a Design and Review unit and Monitoring & Evaluation Dept\. • The design & review unit’s objective is to enhance and expedite tender preparation process and reviewing designs for non-typical sub-Projects before tendering\. The M&E objectives are to improve planning & monitoring of finances to ensure timely completion of individual Donor funds, monitoring status of activities in relation to implementation capacity, monitoring Actual disbursement against Planned, regular quality control of completed sub-Projects and under implementation\. Improved planning for disbursement enabled to reduce deviations in recent IFR’s to (< -6%)\. Further development of the MIS • The Management Information System can be regarded as the backbone of the PWP\. To keep in pace with expansion of activities and additional workload, renders its continuous development an absolute necessity\. During Phase III important developments undertaken include:- • Data Base was changed from Access to SQL Server and applications to Visual Basic • The MIS was linked to the Finance system to enable ease of data exchange • Addition of new modules for monitoring of commitments for individual contract, planning for IFR’s, monitoring design & review cycle\. • Several improvements for reporting\. • In addition the PMU was involved in preparation of specifications, procurement and installation of Software and Hardware for the fisheries and medical stores Projects activities that are not within its normal expertise\. Introducing Electronic Management System ( E-Management) • In order to improve its communication, simplify and expedite handling large quantities of correspondence & paper work, the PMU, since 2009 introduced E-management for its public -56-  services and internal administrative procedures\. The system allows public to follow-up their needs such as request for sub-Project, payments, or any other correspondence on screen, thus allowing for staff to better utilize time that was spent on dealing with communication\. The system allows for better monitoring and accountability by management on staff responses in handling issues\. Finance Department • The Finance department is now linked to the Loan & Grant MIS (LGMIS) established by the MoF, whereby payments to contractors, consultants, suppliers and staff are processed electronically from the PMU to MoF and hence the CBY\. The system is extremely efficient, each payment can be followed up electronically, eliminating huge amount of paper work and manual follow up, hence reduced workload of the finance dept\. to a large extent\. Staff of the department received several rounds of training on using the system\. Capacity Building of PMU staff • Staff of the PMU received several training sessions on different aspects of sub-Project design & supervision with the objective of enhancing awareness especially those related to environmental issues in general, and in particular those related to rain water harvesting schemes site selection and incorporating mitigation measures in the design\. Furthermore, after each supervision mission, sessions are held with sub-area managers and governorate consultants to brief them on feedback, recommendations and measures to be taken\. Such feedback has played a positive role in improved staff performance\. Several workshops were held to discuss the new improved tools for site data collection of the beneficiary communities, improved methodology for targeting poor and deprived communities, community mobilization, with particular attention to O&M issues for ensuring Project sustainability, selection of ideal site location for sub-Project implementation and coordination with local authority/local councils\. 5\.0 Implementation Record and Major Factors Affecting the Project\. 165\. By the end of Phase III, the PWP will have completed about 2470 sub-Project (716 being IDA financed), benefitting a total of 6\.5 million beneficiaries (50% females) all over the country\. No\. of sub-Project implemented in rural area is over 85% (for all Donors, 91% for IDA Finances) where incidences of poverty and unemployment are highest, at least 84% of poor live in rural areas making poverty by and large a rural phenomenon\.8 166\. Total no\. of Direct Jobs created reached 325,000work months (as of March 2012), with additional indirect jobs estimated at 130,000 work months\. With a dependency ratio (average household size) of 6\.4 over 2\.9 million beneficiaries have benefitted from income gained\. This is in addition to the 2\.3 million direct beneficiaries of infrastructure delivered\. 167\. Total disbursement up to Dec 31, 2011 reached US$ 296\.3 million\. In total, PWP managed to announce 250 tenders out of which 32 are from IDA funds (25 Cr 3859 and 7 AF)\. No\. of sub- Projects under implementation simultaneously increased from around 200 at the beginning of Phase III to an average of 450 – 500 during 2009 and 2010\. The magnitude of individual sub-Projects from some sources of finances reached over US$ 1\.0 million with one going to US$ 2\.5 million\. The PWP managed a diversified portfolio that included construction of hospitals, medical stores, fishing loading centers, procurement of medical equipment, software and hardware tools\. Total finances during Phase III reached over US$ 400 million\. 8 Coping Strategies in Rural Yemen (World Bank Report)\. -57- 5\.1 Implementation Record and comparison with previous phases (all financiers) Description PWP I PWP II PWP-III (as of Dec 31, Total 2011) Funds (in US$ million) 30\.5 116 380 9 526\.5 No\. of Sub-Projects 435 1465 2470 4370 Direct Jobs Created ( work months) 66,000 244,262 325,000 635,262 No\. of beneficiaries 2\.3 m 7\.3 m 6\.4m 16 m Comm\. Contributions\. 2\.4 m 7\.2 m 21\.9 m 31\.5m No\. of Contractors 260 724 1011 1,995 No\. of Consultants 147 511 1,064 1,722 5\.2 Major Factors Affecting Implementation 168\. Since beginning of the Phase III, several events took place in the country that had major impacts on the implementation process namely: Price increases in 2005 • At the beginning of 2005 i\.e\. soon after announcing first few tenders( first tender was announce on Nov 2, 2004) prices of steel and cement increased by 60% and 100% respectively\. Initially progress of works was very slow, some contractors refrained from signing contracts, number of bidders per Project was on average less than five that in turn led to significant increase in cost of sub-Projects\. • In July of the same year prices of Fuel & Wages increased as well, that prompted the Government to decide to compensate contractors\. A PWP-SFD joint committee was formed to assess the impact of increase in prices of building material, fuel and wages on construction costs\. A very comprehensive study was conducted based on market survey of prices prevailing before and after the increase based on which a cabinet decree was issued on January 3, 2006 (Decree No\. 7 for the year 2006) to compensate from Government Funds as follows: Projects financed from local funds: • Building works and Water Structures: 12% for works implemented after July 21, 2005 according to the agreed implementation program i\.e\. delays will not be included; 3% for work items where cement is the main material\. • 20% for road works excluding civil works items already included in above\. Projects Financed from Foreign Funds: • Building works and Water Structures: 8% for works implemented after July 21, 2005 according to the agreed implementation program i\.e\. delays will not be included; 3% for work items where cement is the main material\. • 10\.8% for road works excluding civil works items already included in above\. The Financial Crisis and Global Fuel Price Increase 2008 169\. Again during 2008, the global Financial Crisis and increase in fuel prices affected cost of construction inputs\. As shown below, unit cost of Reinforced Concrete being the major construction item was significantly high during 2008 and 2009, again increasing average cost of sub-Projects\. Average increase in Prices of Reinforced Concrete (Cost in US$ per Cu\. M) 2005 2006 2007 2008 2009 2010 2011 165 200 197 278 247 219 207 9 Including Government Funds\. -58- Civil Unrest of 2011 170\. The civil unrest of 2011 imposed major implementation hurdles most important of which were, initially severe shortages in fuel that led to sky rocketed prices in the black market, later during the year, official fuel prices increased from YR75 to YR 175 per liter, lack of security that made access extremely difficult, delays in completion of works, suspension by contractors or unwillingness to continue with works and hence termination of contracts\. Contractors were faced with severe shortages and or increase in prices of all input materials in addition to labor shortages\. The PWP had to deal with and solve all arising issues/disputes on a daily basis under stressful circumstances and in most instances on a case by case basis increasing workload to a large extent\. Furthermore, all contracts that are terminated needed to be re-advertised, and in order not to compromise on quality of works, staff took all measures to ensure supervision and site visits are conducted by using all available means of transportation, making security arrangements\.etc\. In all circumstances the PWP continued to apply conditions of contract in a strict manner\. To avoid the risk of high prices no tenders were announced during 2011\. 171\. Lack of funds due to suspension by donors of replenishments was the most critical factor that affected implementation and posed serious problems for the PWP\. Contractors and consultants could not continue to work without being paid their dues, many threatened litigation\. The PWP took a risky decision of transferring amounts from the Community Contributions accounts to cover immediate expenses, later to be refunded once suspension is lifted\. 172\. Fortunately, sub-Projects under IDA financing had reached Substantial Completion, thus were not affected as far as new commitments were concerned but delay in payments to contractors posed problems for the PMU\. 173\. In addition to the increased period allocated for the Additional Financing, the above mentioned events in all increased the overall implementation period of the Phase III from the usual five to eight years; hence increase in overheads/ operational expenses that reached 4\.3 compared to overall operational costs of 3\.02 for all three phases\. Disruptions in Replenishments 174\. The PWP encountered disruptions / delays with its replenishments several times due to change in locations of IDA Disbursement Department, first time when it was moved to Chennai – India and later to Zagreb-Croatia\. The process of familiarizing with procedures took a long time, with large amount of correspondence being requested over and again until replenishments are released\. 175\. Furthermore, suspension of replenishment by the Bank caused major constraints for the PMU, whereby prior commitments to contractors, consultants and suppliers could not be met hence having to respond to continuous complaints, communication, and to take measures to avoid litigations\. 176\. Although the suspension letter stated that withdrawal applications received on or before Oct 26, 2011 covering payments for contracts made prior to suspension July 28, 2011 would be replenished, PWP’s withdrawal applications sent during March & June of 2011 were not processed until February 2012\. -59- 6\.0 Sustainability & Environmental Issues\. 177\. Experience gained in the past has rendered sustainability the key issue during selection of sub-Projects and commitments for O&M are thoroughly investigated\. As in previous phases, Plan for sustainability remained as one of rejection criteria in selecting Projects\. The result of the rigorous screening has reduced number of sub-Projects in sectors prone to problems of O&M such as health, water supply and sanitation to 2\.9%, 4\.3% and 3\.6 % respectively\. Interventions in health sector are limited to extensions and or rehabilitation, while sanitation was mainly in urban cities where treatment system already exists or implementation of disposal and treatment sites are pre-condition to selection\. Furthermore, improved awareness and the pro-active role of local communities, early coordination with local authorities and concerned agencies has improved to a large extent sustainability of investments\. 178\. The Education sector has the highest rate of sustainability especially as almost all schools selected replace existing schools functioning in temporary shelter, extension or rehabilitation where operational budget is already available and the Ministry of Education branch office is involved in site selection\. 179\. The designs of Rain Water Harvesting sub-Projects include several measures for ease of maintenance that have largely improved sustainability such as introducing slow sand filters, sedimentation traps and public taps for water collection, in addition to training of the beneficiary committee on all aspects of O&M\. 6\.1 Environmental Improvements\. 180\. Phase III has seen a leap forward towards major environmental improvements, most significant being increased awareness of staff and consultants, improvements in designs that will mitigate negative environmental aspects such as introducing a roof rainwater harvesting tank in schools for flushing latrines during dry season, design of low–consumption flush toilets, selection of site for rainwater harvesting tanks to be above villages to ensure clean catchment area in addition to adding sedimentation traps and sand filters; testing wells for quality and quantity in water supply schemes led to rejection a large number of requests\. 181\. The PWP has introduced innovative designs for utilization waster water from treatment plants\. In flat land areas, treated water is conveyed in trenches / perforated pipes covered by gravel and trees are planted along to avoid contamination of ground water\. In mountain areas the treated water is conveyed in closed pipes and used for irrigating large trees\. 182\. To ensure compliance of the EMP at all stages, IDA Supervision Missions requested Project Specific EMPs’ matrices to be in Arabic for individual sub-Projects and to be distributed to all concerned persons\. Site specific EMP for the construction phase is annexed to the contracts of both the contractor and supervising engineer and includes safety & hygiene on construction site\. 183\. The supervising engineer reports on all mitigation measures during construction in each periodic report submitted to the PMU\. The PMU and supervising engineer make certain that local stakeholders are prepared to address the mitigation measures for the operational phase required in the EMP prior to handing the Project over to the community\. -60- 6\.2 Re-Forestation Activity\. 184\. Due to Yemen’s acute problem of deforestation, it was decided with IDA (during the Supervision Mission of August 2005), that the PWP would pioneer to contribute to mitigate this problem through adding a Re-forestation activity within its community infra-structure component\. The initiative is aiming at improving ecology and enhancing communities’ pro-active involvement in protecting the environment\. 185\. An additional item has been added to the Bills of Quantities with specifications to select trees most suitable for the locality\. The idea is not only to replace trees that may need to be removed during construction but to plant additional trees ranging between 50 to 200 around / in the vicinity of each sub-Project implemented depending on the size\. For IDA financed sub-Projects around 58,000 trees have been planted and 245,000 by all donors so far\. 186\. It is worthy to mention that this experience has prompted many other development Projects to initiate similar activities\. Also it has been commended as a success story several times in the Bank’s supervision mission’s aide memoires and endorsement letters\. 7\.0 Bank & Borrowers’ Performance 7\.1 Borrower’s Performance\. 187\. The Borrower represented by the MOPIC has as in the previous phases continued to support PWP’s role as one of the main implementing agencies of the Social Safety Net\. This role was further consolidated through allocating government funds for implementing labor intensive Projects, fish wealth sector and local government funds for Abyan Governorate\. The PWP was also entrusted as the implementing agency for Ministries of Education and Health for some Donor financed Projects\. The Deputy Prime Minister, Minister of MOPIC and Chairman of the SC played a pivotal role in mobilizing finance that reached over US$400 million\. 188\. The main reasons attributed to this staunch support are PMU’s transparency and honesty in dissemination of information to all its stakeholders, unqualified audits reports, credibility with beneficiaries that have in turn positive feedback\. As in the past, the Steering Committee, and its Chairman continued the excellent rapport, constructive guidance, exchange of views and their role as facilitators\. 189\. The MOF has been cooperative in ensuring Counterpart funds were made available on time, prompt payment of dues and streamlined and simplified procedures especially with introduction of the Loan & Grants MIS\. 190\. Members of Parliament have also been very supportive of PWP in all aspects in particular approving allocation of Donor funds\. Overall, serious efforts were taken by all to facilitate successful implementation of the Project\. 7\.2 Bank’s Performance\. 191\. The Project’s objectives are highly relevant to the countries urgent needs of Poverty Reduction, consistent with the Government’s development strategy, the Bank’s CAS of 2002 and the PRSP\. To ensure achievement of DO, design of Phase III took into consideration quality at entry parameters, risks anticipated and necessary mitigation measures were appropriate\. Based on lessons -61- learned from previous phase, realistic targets were designed in terms of performance indicators, financial management systems and monitoring\. 192\. IDA Task Team conducted regular supervision missions\. Issues raised by the PMU were addressed promptly, decisions and necessary actions were taken that supported and facilitated the smooth implementation of the Project\. The task team was extremely supportive at all times and valuable input and feedback was given that contributed in major improvements especially those concerning environmental aspects\. Site visits were conducted that acted as check on quality of deliverables, targeting of poor communities, extent of the need of investments made and their sustainability\. Again extensive feedback was given after each site visit that prompted PMU staff to comply with suggestions and recommendations\. 193\. The overall performance of Bank staff was Highly Satisfactory\. 7\.3 PMU Performance\. 194\. PMU staff continued with high performance levels, work ethics, and efficiency that enabled them with nominal additional staff to manage 3\.5 times more financing, hence workload compared with Phase II\. Levels of commitment and dedication have remained the same as in the past\. The PMU continued keeping up with its credibility with stakeholders especially beneficiary communities who, due to the trust and confidence built helped in resolving a lot of conflicts and that could have impeded progress, have become proactive in their contributions and sustainability issue\. The PMU has complied with all covenants in DCA and World Bank Guidelines\. Progress & Audit reports of the required standards have been submitted on time\. Operational Costs have remained within allocated original budget\. 195\. It is worthy of mention that based on the review of the PWP the Bank’s Quality Assurance Group rated both the Development Objectives and Implementation Performance as Highly Satisfactory\. This was endorsed in the Director’s (MENA Region) letter of December 31, 2008\. 8\.0 Additional Information 8\.1 Procurement Issues\. 196\. The Procurement department has undertaken several improvements such as archiving of the complete dossier for each works, goods and services contracts, bid evaluation reports to include number of bidders participated, comparison of unit cost of major work items, modification in tender announcements to include bid security as lump sum and add note for requesting consultants interested in supervision to register\. Automation of all procurement procedures including linking with the Accounting System has been completed, thus affording even higher transparency\. 197\. The PMU is strictly abiding with all World Bank guidelines for its procurement procedures\. After each supervision mission, post review is conducted and no issues have been raised\. Due to the improved procurement capacity Prior Review Thresholds were raised from US$ 200,000 to US$ 300,000 for IDA Credits while for the SEDGAP10 Prior Review was fixed at US$ 1\.5 million\. For Consultants services an improved QCBS is applied\. Furthermore, staff have had rigorous on-job training that has enabled them to handle diverse and in some cases rather complicated procurement procedures for multi donors\. 10 Secondary Education Development & Girls Access Program\. -62- 198\. In addition, repercussions of the 2011 civil unrest on contractual obligations imposed heavy workload in dealing with complaints, applying contract conditions, terminating contracts and need to re-advertising, settle disputes, etc\. 199\. Out of the 716 sub-Projects contracted, 582 were awarded to the Lowest Evaluated Bidder i\.e\. 81\.3%, 120 or 16\.7% to the second lowest and 14 or 2\.0% to the third lowest\. In some cases the PWP cannot award to the lowest bidder due to several reasons such as non- competence of the contractor technically and / or financially, or if the contractor already has been awarded two or three sub-Projects thus poses risks to award more\. In some cases when sub-Projects are of rather specialized nature the PWP stipulates in the ITB that the contractor should have experience in similar Projects\. For the 716 contracts, 469 contractors have been assigned i\.e\. on average 1\.5 contracts per contractor\. Advantages of reducing number of contracts per contractor are affording opportunities for larger numbers of smaller contractors to participate and minimizing risks in case of unsatisfactory performance\. 200\. Similarly for the 716 contracts, 404 supervising engineers have been contracted i\.e\. approx 2\.0 contracts per engineer\. To reduce supervision costs sub-Projects within certain geographic proximity are grouped together so that one engineer could supervise more than one sub-Project at the same time\. 8\.2 Contribution to the National Water Strategy\. 201\. The PMU through its Water & Environment Unit actively participated in preparation of The National Water Strategy\. PWP’s extensive experience in rainwater harvesting played an important role in convincing all actors in the water sector on its importance as one of the major available water sources in Yemen\. This led to incorporating rainwater harvesting in the Strategy, in addition to include it in the inventory conducted for water coverage in Yemen\. The water mapping will also identify appropriate locations for water harvesting in addition to water supply through wells\. 8\.3 Audit Reports\. 202\. During Phase III, IDA finances were audited by four different external auditors, appointed with approval of the IDA and the SC\. Audit Reports have been submitted in a timely manner, no discrepancies have been reported by auditors in management and accounting procedures, including internal controls, and all other aspects\. All Audit reports are unqualified\. 9\.0 Lessons Learned\. 203\. During implementation of Phase III, several key issues were addressed that can be regarded as Key Lessons Learned, in addition to those from previous phases that are still relevant and useful for consideration in designs of future Projects\. They are summarized as follows:- • The Autonomous status of the PMU enabled it to take appropriate measures at times of crisis that facilitated continuation of its operations that would otherwise have created stagnation, havoc and endless litigation\. This in particular refers to flexibility in transferring funds from community contribution account\. • Flexibility of the PMU structure enabled to reduce capacity of staff when workload reduced\. • Labor intensive works such as stone road paving and rain water harvesting create high numbers of jobs 50-60%, thus can play an important role in absorbing sudden unemployment in times of crisis\. -63- • Having developed a strong bond with communities they have become more responsive, proactive in participating in the Project cycle and have proved to be very capable of managing O&M of most type of sub-Projects\. This aspect can be further consolidated in future Projects\. • Several lessons learned from previous phases are still relevant to Phase III include:- • Government agencies can be supportive and play a positive role of facilitator to PMU’s that have proven to be efficient, transparent, built trust and deliver tangible results\. • Transparent procedures for selection of contractors and consultants satisfy all parties concerned and reduce pressure and unqualified claims on the PMU\. • Non Institutional contractors can perform satisfactorily and abide to procedures given the right set-up that can enforce these procedures\. • Transparent procedures and timely payment has had a significant impact on reducing unit rates\. • Coordination with Local Councils at early stages of Project cycle yields positive results in avoiding duplication of services provided by various implementing agencies, enhances their institutional development, consolidates decentralization and improves sustainability of Projects\. 9\.0 Assessing Performance in Selected Thematic Areas 9\.1 Poverty Alleviation and other social Objectives\. 204\. The major outcomes indicated the following: 205\. Sub-Projects implemented have been targeted in areas of high poverty; over 85 % of Projects implemented are in rural areas, where highest poverty prevails in Yemen\. Districts with highest poverty were targeted within the governorates\. 206\. The Project did not adversely affect indigenous people, nor cause involuntary resettlement\. All Bank’s safeguard policies were adhered to\. 207\. Gender Concerns: In selecting sub-Projects, the PWP gave highest priority to those benefiting women, such as schools for girls, for all water Projects the main beneficiaries are women & children, women training centers for income generating activities\. 208\. Environmental objectives: The Project diligently undertook environmental issues through enhancing awareness of its staff, consultants working with PWP and local communities benefiting from Projects\. Screening of sub-Projects led to only those with positive impacts to be implemented\. Mitigation measures were seriously implemented and included in designs, and monitoring is still being undertaken\. 209\. Private Sector Development Objectives: The PWP contributed to development of the private sector through capacity building of local contractors and engineers, in many aspects of Project implementation such as: tender preparation, understanding and complying with World Bank Guidelines, complying with specifications, delivery of good quality on time and at minimum costs, and increased environmental awareness\. Quite a few initial small contractors have grown to large scale contractors working for the Private sector\. Similarly many local consultants have developed to become consultancy firms\. -64-  Annex 1 to Government ICR Outcome Indicators Baseline (as Original Revised End of Actual Actual in Working Target Targets Project Achieved Achieved as Paper for as in the during Target as of Dec Percentage Additional PAD MTR Including 31, 2011 of end of Financing) Additional Project 11 Financing Targets (a) Schools – enrollment of 82,054 115,000 118,500 200,500 256,359 123% students in the Project targeted (Female areas; 47\.6%; Males 52\.4%) (b) Health Centers no\. of 161,224 237,000 460,000 760,000 537,347 70% beneficiaries using health centers in the Project targeted areas (c) Vocational Training Centers - 500 540 1,280 2,560 5,434 212% no\. of people graduated from VCs in the Project targeted areas (d) Water Supply Systems - no\. of 40,700 300,000 165,000 295,000 210,000 71% beneficiaries in the Project targeted areas (e) Sanitation Schemes - no\. of 520,654 147,300 230,000 350,000 198,000 57% beneficiaries in the Project targeted areas (f) Water Harvesting Schemes - 190,320 76,000 250,000 320,000 421,000 131% no\. of farmers benefited in the Project targeted areas (g) Short Term Employment – YR 22,840 YR 34,000 YR 33,780 99% enhancement of income in the Project targeted areas Results Indicators for Each Baseline Component At end PWP-2 Component One : (a) Schools – No\. of schools built; 760 400 235 384 378 98% (b) Health Centers – No\. of health 126 45 15 45 20 42% centers built; (c) VTC – No\. of VTCs built; 6 10 5 10 10 100% (d) Water Supply Systems – No\. 178 90 50 90 47 52% of Schemes; (e) Sanitation Schemes – No\. of 44 20 12 20 18 93% schemes; (f) Water harvesting schemes – 58 110 120 170 187 110% No\. of schemes Total 719 660 12 Component Two : (a) No\. of Development Plans 14 50 20 20 20 100% prepared for districts; (b) No of new civil works 738 125 125 190 441 232% contractors developed; and (c) No\. of new consultancy firms 495 60 60 95 206 217% developed Component Three: No\. of person-months of 138,248 90,000 60,000 101,000 118,000 117% employment created\. 11 ICR editor’s note: corresponds to achievement at end of PWP-2\. 12 Total No sub-projects actually implemented including stone paving reached 716\. -65-  Annex 8\. Comments of Co-financiers and Other Partners/Stakeholders 210\. Not applicable\. -66-  Annex 9\. List of Supporting Documents 1\. Project Appraisal Document (Report No\. 27266-YEM), February 2, 2004 2\. Project Information Document (Revised) dated Feb\. 5, 2004 – Report No\. AB294 3\. Back to Office Reports and Aide-Memoires: February 2005 through June 2010 Dated: February 23-March 14, 2005 Dated: August 17-30, 2005 Dated: May 15-24, 2006 Dated: May 2-13, 2007 Dated: October 30-November 7, 2007 Dated: June 15-25, 2008 Dated: December 13-22, 2008 Dated: May 24 – June 4, 2009 Dated: February 8-24, 2010 Dated: May 12 – June 6, 2010 4\. Project Status Reports/Implementation Status Reports Oct\. 2004- November 2010 Sequence # 1: missing Sequence # 2: dated Oct, 14, 2004 Sequence # 3: dated April 11, 2005 Sequence # 4: dated September 28, 2005 Sequence # 5: dated March 9, 2006 Sequence # 6: dated June 13, 2006 Sequence # 7: dated December 28, 2006 Sequence # 8: missing Sequence # 9: dated December 7, 2007 Sequence # 10: dated June 3, 2008 Sequence # 11: dated 30, 2008 Sequence # 12: dated June 29, 2009 Sequence # 13: dated December 28, 2009 Sequence # 14: dated April 24, 2010 Sequence # 15: dated June 30, 2010 Sequence # 16: dated November 27, 2010 (including ORAF) 5\. Quality Enhancement Review (QER), dated November 10, 2003 6\. Seventh Quality at Entry Assessment (QEA7) Report, July 28, 2005 7\. Mid Term Review Report, May 2-14, 2007 8\. Development Credit Agreement Report No\. 3859-YEM, dated April 23, 2004 9\. Amended Development Credit Agreement, dated August 28, 2007 10\. PMU Quarterly Progress Reports (2004-2010) 11\. Project Manual of Procedures 12\. Study on the future role of the PWP, November 2008 -67- MAP -68-  46ºE 48ºE 50ºE 52ºE 54ºE REPUBLI C O F This map was produced by the Map Design Unit of The World Bank\. The boundaries, colors, denominations and any other information Y EM E N shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries\. 20ºN SELECTED CITIES AND TOWNS 20ºN GOVERNORATE CAPITALS REP\. OF SAUDI ARABIA NATIONAL CAPITAL YEMEN RIVERS MAIN ROADS GOVERNORATE BOUNDARIES INTERNATIONAL BOUNDARIES OMAN 18ºN 42ºE To Abha 44ºE Sanaw To Thamarit Habarut Thamud SAADAH Mah rat To Mirbat Saadah n Mt hu AL- ns\. ak di M AL-JOWF Wa M A H R AT Zamakh HADRAMOUT Damqawt Maydi ¸ - Huth adi Al Jiz t W Al Hazm ser Al Ghaydah 16ºN HAJJAH AMRAN Wad n De Wad i Had Mar’ayt 16ºN tay i Jaw ram b'a f Al Ghuraf Nishtun ou Al Luhayyah Hajjah Sa t Amran t as Hawra MARIB mla Salif Al Mahwit Marib Ra Shabwah AL- SANAA t Qishn MAHWIT SANA'A o u a S H A B WA m Sayhut r a Re Al Hodeidah Al Gabain DHAMAR Harib Nuqub d HODEIDAH DAH a Shihr d (3199 m) Nisab Ataq H RAIMH Dhamar Rida Al Mukalla AL-BEIDA Se Wad Zabid i I B B AL- Al Huwaymi a 14ºN Al Beida 14ºN Ibb DHALE'E (3227 m) Bir Ali Al Dhale'e Taiz A B YA N W ad B i Ahwar TA I Z ana Mocha Shaqra At Turbah ERITREA Lahej Zinjibar Gulf of Ade n At Turbah LAHEJ Qadub Aden Qalansiyah ADEN ETH\. Socotra 'Abd al Kuri Samha ) DJIBOUTI 0 50 100 150 Kilometers Darsa TE IBRD 33513R A 12ºN (HA The Brothers N OR 12ºN DRAMO T GOVER U MAY 2009 0 50 100 Miles 42ºE 44ºE 46ºE 48ºE 50ºE SOMALIA 52ºE 54ºE

REVIEW

P083246

Document of The World Bank Report No: 39486 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-37970, IDA-39570, IDA 41080) ON A PROGRAMMATIC CREDIT IN THE AMOUNT OF SDR 206\.7 MILLION (US$298 MILLION EQUIVALENT) AND GRANTS IN THE AMOUNT OF SDR 54\.5 MILLION (US$77 MILLION EQUIVALENT) TO THE REPUBLIC OF GHANA FOR A POVERTY REDUCTION SUPPORT CREDIT (1-3) APRIL 17, 2007 POVERTY REDUCTION AND ECONOMIC MANAGEMENT AFTP4 AFRICA REGION  CURRENCY EQUIVALENTS (Exchange Rate Effective as of April 2007) Currency Unit = Cedis Cedis = US$ 0\.0001071 US$1\.00 = Cedis 9,335\.0 FISCAL YEAR January 1 ­ December 31 ABBREVIATIONS AND ACRONYMS APR Annual Progress Report BPEMS Budget and Public Expenditure Management CAS Country Assistance Strategy CEM Country Economic Memorandum CFAA Country Financial Accountability Assessment CPAR Country Financial Accountability Assessment CWIQ Core Welfare Indicators Questionnaire DPs Development Partners ECG Electricity Company of Ghana FINSSP Financial Sector Strategic Plan GDP Gross Domestic Product GLSS Ghana Living Standards Survey GoG Government of Ghana GPER Gross Primary Enrollment Rate GPRS Ghana Poverty Reduction Strategy HIPC Highly Indebted Poor Countries IDA International Development Association IMF International Monetary Fund JSA Joint Staff Assessment M&E Monitoring and Evaluation MDAs Ministries, Departments, and Agencies MDBS Multi-Donor Budgetary Support MDGs Millennium Development Goals MMR Maternal Mortality Rate MoFEP Ministry of Finance and Economic Planning NDPC National Development Planning Committee NHS National Health Insurance Scheme PEM Public Expenditure Management PER Public Expenditure Review PLWHA People Living with HIV/AIDS PRGF Poverty Reduction and Growth Facility PRSC Poverty Reduction Support Credit PSIA Poverty and Social Impact Analysis SEA Strategy Environmental Assessment VALCO Volta Aluminum Company VRA Volta River Authority  Acting Vice President: Hartwig Shafer Country Director: Mats Karlsson Sector Manager: Antonella Bassani Task Team Leader: Carlos Cavalcanti ICR Primary Author: Karen Hendrixson  GHANA IMPLEMENTATION COMPLETION AND RESULTS REPORT (ICRR) CONTENTS Page No\. Data Sheet A\. Basic Information B\. Key Dates C\. Ratings Summary D\. Sector and Theme Codes E\. Bank Staff F\. Results Framework Analysis G\. Ratings of Program Performance in ISRs H\. Restructuring 1\. Program Context, Development Objectives and Design\.1 2\. Key Factors Affecting Implementation and Outcomes\.6 3\. Assessment of Outcomes \.17 4\. Assessment of Risk to Development Outcome\.24 5\. Assessment of Bank and Borrower Performance\.26 6\. Lessons Learned\.30 Annex 1: Policy Matrix: Policy Objectives, Expected Outcomes, and Actual Outcomes under PRSC 1-3\.35 Annex 2: Bank Lending and Implementation Support/Supervision Processes\.39 Annex 3: Beneficiary Survey Results\.43 Annex 4: Stakeholder Workshop Report and Results\.44 Annex 5: Summary of Borrower's ICR and/or Comments on Draft ICR\.45 Annex 6: Comments of Cofinanciers and Other Partners/Stakeholders\.46 Annex 7: List of Supporting Documents \.47 Annex 8: Supporting the GPRS Implementation through the PRSC\.49 MAP   A\. Basic Information Program 1 Country Ghana Program Name GH: PRSC I Program ID P076808 L/C/TF Number(s) IDA-37970,IDA-H0520 ICR Date 04/26/2007 ICR Type Core ICR MINISTRY OF FINANCE & Lending Instrument PRC Borrower ECONOMIC PLANNING Original Total XDR 90\.8M Disbursed Amount XDR 90\.8M Commitment Implementing Agencies Ministry of Finance and Economic Planning Cofinanciers and Other External Partners Program 2 Country Ghana Program Name GH: PRSC II Program ID P083246 L/C/TF Number(s) IDA-39570,IDA-H1150 ICR Date 04/26/2007 ICR Type Core ICR MINISTRY OF FINANCE & Lending Instrument PRC Borrower ECONOMIC PLANNING Original Total XDR 86\.2M Disbursed Amount XDR 86\.2M Commitment Implementing Agencies Ministry of Finance and Economic Planning Cofinanciers and Other External Partners Program 3 GH Third Poverty Country Ghana Program Name Reduction Support Credit Program ID P078619 L/C/TF Number(s) IDA-41080 ICR Date 04/26/2007 ICR Type Core ICR GOVERNMENT OF Lending Instrument DPL Borrower GHANA Original Total XDR 84\.2M Disbursed Amount XDR 84\.2M Commitment Implementing Agencies Ministry of Finance and Economic Planning i  Cofinanciers and Other External Partners B\. Key Dates GH: PRSC I - P076808 Revised / Actual Process Date Process Original Date Date(s) Concept Review: 03/25/2003 Effectiveness: 06/25/2003 06/25/2003 Appraisal: 04/28/2003 Restructuring(s): Approval: 06/24/2003 Mid-term Review: Closing: 06/30/2004 06/30/2004 GH: PRSC II - P083246 Revised / Actual Process Date Process Original Date Date(s) Concept Review: 02/09/2004 Effectiveness: 07/15/2004 07/15/2004 Appraisal: 04/12/2004 Restructuring(s): Approval: 07/13/2004 Mid-term Review: Closing: 06/30/2005 06/30/2005 GH Third Poverty Reduction Support Credit - P078619 Revised / Actual Process Date Process Original Date Date(s) Concept Review: 03/08/2005 Effectiveness: 08/30/2005 08/30/2005 Appraisal: Restructuring(s): Approval: 08/25/2005 Mid-term Review: Closing: 06/30/2006 06/30/2006 C\. Ratings Summary C\.1 Performance Rating by ICR GH: PRSC I - P076808 Outcomes Satisfactory Risk to Development Outcome Moderate Bank Performance Satisfactory Borrower Performance Satisfactory GH: PRSC II - P083246 Outcomes Satisfactory Risk to Development Outcome Moderate ii  Bank Performance Satisfactory Borrower Performance Satisfactory GH Third Poverty Reduction Support Credit - P078619 Outcomes Satisfactory Risk to Development Outcome Moderate Bank Performance Satisfactory Borrower Performance Satisfactory C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) GH: PRSC I - P076808 Bank Ratings Borrower Ratings Quality at Entry Satisfactory Government: Satisfactory Implementing Quality of Supervision: Satisfactory Satisfactory Agency/Agencies: Overall Bank Overall Borrower Satisfactory Satisfactory Performance Performance GH: PRSC II - P083246 Bank Ratings Borrower Ratings Quality at Entry Satisfactory Government: Satisfactory Implementing Quality of Supervision: Satisfactory Satisfactory Agency/Agencies: Overall Bank Overall Borrower Satisfactory Satisfactory Performance Performance GH Third Poverty Reduction Support Credit - P078619 Bank Ratings Borrower Ratings Quality at Entry Satisfactory Government: Satisfactory Implementing Quality of Supervision: Satisfactory Satisfactory Agency/Agencies: Overall Bank Overall Borrower Satisfactory Satisfactory Performance Performance iii  C\.3 Quality at Entry and Implementation Performance Indicators GH: PRSC I - P076808 Implementation QAG Assessments Indicators Rating: Performance (if any) Potential Problem Quality at Entry Program at any time No None (QEA) (Yes/No): Problem Program at any Quality of No None time (Yes/No): Supervision (QSA) DO rating before Closing/Inactive status GH: PRSC II - P083246 Implementation QAG Assessments Indicators Rating: Performance (if any) Potential Problem Quality at Entry Program at any time No None (QEA) (Yes/No): Problem Program at any Quality of No None time (Yes/No): Supervision (QSA) DO rating before Satisfactory Closing/Inactive status GH Third Poverty Reduction Support Credit - P078619 Implementation QAG Assessments Indicators Rating: Performance (if any) Potential Problem Quality at Entry Program at any time No None (QEA) (Yes/No): Problem Program at any Quality of No None time (Yes/No): Supervision (QSA) DO rating before Satisfactory Closing/Inactive status D\. Sector and Theme Codes GH: PRSC I - P076808 Original Actual Sector Code (as % of total Bank financing) General education sector 20 20 General industry and trade sector 20 20 General public administration sector 30 30 Health 20 20 iv  Other social services 10 10 Theme Code (Primary/Secondary) Education for all Primary Primary Health system performance Primary Primary Poverty strategy, analysis and monitoring Primary Primary Public expenditure, financial management and Primary Primary procurement Social risk mitigation Primary Secondary GH: PRSC II - P083246 Original Actual Sector Code (as % of total Bank financing) General education sector 20 20 General industry and trade sector 5 5 General public administration sector 50 50 Health 20 20 Other social services 5 5 Theme Code (Primary/Secondary) Administrative and civil service reform Secondary Primary Education for all Primary Primary Health system performance Primary Primary Poverty strategy, analysis and monitoring Primary Primary Public expenditure, financial management and Primary Primary procurement GH Third Poverty Reduction Support Credit - P078619 Original Actual Sector Code (as % of total Bank financing) Central government administration 50 50 General industry and trade sector 10 10 Health 15 15 Power 10 10 Primary education 15 15 Theme Code (Primary/Secondary) Administrative and civil service reform Secondary Primary v  Education for all Secondary Primary Export development and competitiveness Secondary Secondary Health system performance Secondary Primary Public expenditure, financial management and Primary Primary procurement E\. Bank Staff GH: PRSC I - P076808 Positions At ICR At Approval Vice President: Gobind T\. Nankani Callisto E\. Madavo Country Director: Mats Karlsson Mats Karlsson Sector Manager: Robert R\. Blake Emmanuel Akpa Task Team Leader: Carlos B\. Cavalcanti Marcelo R\. Andrade ICR Team Leader: Carlos B\. Cavalcanti ICR Primary Author: Carlos B\. Cavalcanti Marta Berhane Karen L\. Hendrixson GH: PRSC II - P083246 Positions At ICR At Approval Vice President: Gobind T\. Nankani Gobind T\. Nankani Country Director: Mats Karlsson Mats Karlsson Sector Manager: Robert R\. Blake Robert R\. Blake Task Team Leader: Carlos B\. Cavalcanti Carlos B\. Cavalcanti ICR Team Leader: Carlos B\. Cavalcanti ICR Primary Author: Carlos B\. Cavalcanti Marta Berhane Karen L\. Hendrixson GH Third Poverty Reduction Support Credit - P078619 Positions At ICR At Approval Vice President: Gobind T\. Nankani Gobind T\. Nankani Country Director: Mats Karlsson Mats Karlsson Sector Manager: Robert R\. Blake Robert R\. Blake Task Team Leader: Carlos B\. Cavalcanti Carlos B\. Cavalcanti ICR Team Leader: Carlos B\. Cavalcanti ICR Primary Author: Carlos B\. Cavalcanti Marta Berhane Karen L\. Hendrixson vi  F\. Results Framework Analysis Program Development Objectives (from Program Document) Prepared annually within a rolling three-year horizon, the PRSCs 1-3 were a comprehensive series of operations that were designed to support the Government in implementing cross-cutting policies and reforms aimed at improving the living conditions of the population through three components: (i) the promotion of growth, income and employment; (ii) improving service delivery for human development; and (iii) improving governance and public sector reform\. These three components encompassed the five thematic themes of the GPRS, namely (i) ensuring macroeconomic stability; (ii) expanding production and employment; (iii) supporting human development; (iv) protecting the vulnerable and extremely poor; and (v) promoting good governance and public sector reform\. While the support provided under PRSC 1-3 was primarily budgetary funding for the implementation of the GPRS, particular attention was also focused on: (i) leveraging the poverty emphasis of several sector-focused operations by ensuring appropriated expenditure allocation (level and structure) and addressing some of the financing implications of proposed policy actions (e\.g\., removal of school fees); (ii) policy dialogue; and (iii) monitoring resource allocations and outcomes\. Each PRSC also monitored welfare and poverty indicators to enable assessments of whether poverty reduction objectives (both income and non-income dimensions of poverty) were being achieved\.The close and parallel linkage between the PRSCs and the GPRS ensured that these operations were highly responsive to the country's circumstances and development priorities\. The budget support provided by the PRSCs was also complemented by a series of Bank investment and technical assistance operations in the education and health sector, HIV/AIDS, public sector reform, and finance and private sector development\. The three PRSCs were each in the amount of $125 million\. They were on standard highly concessional IDA terms, with PRSCs 1 and 2 also being roughly one third in the form of grants to assist in implementing critical human development services supported by these operations\. The PRSCs were coordinated with budget support from other donors, with coordination increasing over the three-year period\. This coordination took place through the Multi-Donor Budgetary Support (MDBS) framework between the GoG and its DPs\. The goals of this framework were to: (i) support implementation of the GPRS through the budget, thereby ensuring consistency in the policy dialogue; (ii) develop a common progress framework; (iii) reduce Government transaction costs from negotiating and reporting to multiple donors: (iv) enhance the predictability of resource flows; and (v) conduct joint progress reviews between the GoG and its DPs\. The purpose of the MDBS was to harmonize the dialogue and efforts of Ghana's development partners with the Government's own development strategy\. While the principles of the common MDBS framework were agreed upon in 2003, a common progress assessment framework (PAF) to measure GPRS performance was not developed until 2004\. The PRSCs were intended to provide a series of benefits\. The main and ultimate benefit was the human progress towards achieving the MDGs as a result of the economic growth and improvements in service delivery that would result from the implementation of the vii  GPRS\. The additional benefits of PRSC 1-3 were to be (i) the maintenance of macroeconomic stability by contributing to the closing of the external financing gap, and (ii) enabling the GoG to generate the funds required to execute the GPRS policies and programs\. Each of the three PRSCs were centered on the same three components described above, but the actions supported under each one varied somewhat because, broadly speaking, the actions completed under the program supported by PRSC-1 focused on laying out the groundwork for legislative changes and designing strategies for key areas of the reform agenda\. Subsequent operations would then build on the reforms implemented in each preceding operation\. The key objectives of each operation are discussed below\. (The key modifications to the policy areas under each operation are addressed in Section 6\.5 below\.) PRSC-1: The first component of PRSC-1 focused on ensuring progress on macroeconomic stability and pro-poor growth by eliminating factors inhibiting growth\. The first set of actions included: (i) reducing the high public domestic debt, which crowded out credit to the private sector, kept interest rates high, and limited the scope in the budget for financing services that were supportive of development; and (ii) reducing the cost of doing business, such as the unreliable and "high-price" supply of critical inputs, especially energy, and the administrative costs of complying with government regulations\. The second set of actions consisted of removing constraints on rural development\. The rural sector was selected because: (i) it included the bulk of the country's natural resources; (ii) it was home to the largest number of the people; and (iii) it embraced the largest proportion of the poor\. The second component of PRSC-1 aimed at improving service delivery in education, health, and social protection\. It focused on: (i) expanding access to education and health services, with particular attention to the needs of underserved areas and populations; and (ii) improving the efficiency and equity of financing\. By focusing on these actions, the program aimed at dealing with issues such as (i) redressing the unequal regional and gender outcomes in health and education; and (ii) attaining sustainable and equitable financing of these critical services\. The program also aimed at contributing to sharpening the national focus on reaching the MDGs by 2015, adding value to the support already provided by sector projects\. The third component of PRSC-1 incorporated actions designed to: (i) strengthen the institutions of participatory democracy and accountable rule; and (ii) improve the efficiency of the public services and the quality of public expenditure management (PEM)\. Again, the areas identified for PRSC support were selected with a view of adding value to the existing sectoral support by elevating the issues to the center of Government, where collective interest generated by the GPRS would facilitate debate, consensus building, and decision-making\. PRSC-2: Reforms supported by PRSC-2 built on the measures implemented with the support of PRSC-1\. As with PRSC-1, the first component of PRSC-2 focused on ensuring progress on macroeconomic stability and pro-poor growth by eliminating factors viii  inhibiting growth, including reducing public domestic debt to create room for increased credit to the private sector; and strengthening the business environment through the expansion of energy supply services, increased trade facilitation, and the removal of administrative barriers for business development\. The second set of actions consisted of removing constraints on rural development through an increase in Government's support to agriculture and developing a new framework for micro-finance, as well as adding a focus on natural resources, primarily in the form of completion of a strategic environmental assessment (SEA)\. Under the second component of PRSC-2, measures to improve service delivery in education again focused on: (i) increasing access and completion of quality basic education, with particular attention to the needs of underserved areas and populations; and (ii) improving the efficiency and equity of financing\. Measures to improve the delivery of health services centered on bridging the equity gaps in the access to health care services in deprived regions, and at reducing the spread of HIV/AIDS\. Measures to improve social protection focused on actions supporting the vulnerable and the excluded, such as people living with HIV/AIDS, orphans, homeless, and children living on the street\. The third component of PRSC-2 incorporated actions designed to strengthen governance and public sector management\. The policy actions supported under this component ranged from strengthening governance institutions and moving ahead with decentralization, to carrying out public sector reforms, including PEM modernization, and building the capacity to monitor and evaluate the policy agenda\. PRSC-3: Policies supported by PRSC-3 built on reforms implemented under PRSC-2\. The first component of PRSC-3 focused on actions aimed at ensuring progress in attaining macroeconomic stability and pro-poor growth\. Measures focused on (i) creating a more diversified financial sector to enable an increase in credit to the private sector; (ii) strengthening the business environment through the expansion of energy supply services and the removal of administrative barriers to business development; and (iii) encouraging the development of extension services, especially for poorer farmers\. The component also supported measures to improve the performance of the rural sector through policy actions aimed at strengthening the government's support to agriculture\. In the area of natural resources management, attention shifted towards the more pressing issues relating to the management of forestry resources\. The second component incorporated measures aimed at assisting Ghana reach the MDG goals by improving service delivery in education, health, social protection, water, and sanitation\. The measures to improve service delivery in education focused on increasing access and completion of quality basic education, particularly in the three most deprived regions (Northern, Upper East, and Upper West), and on improving the efficiency and equity of education financing\. Measures to improve the delivery of health services centered on bridging the equity gaps in the access to health care serves in four deprived regions (Northern, Upper East, and Upper West, plus the Central region) and at reducing the spread of HIV/AIDS\.Measures to improve social protection focused on actions ix  supporting the vulnerable and the excluded (such as orphans, the homeless, and people living with HIV/AIDS)\. Finally, measures to expand the provision of safe water and sanitation included the development of a comprehensive sector strategy addressing a variety of measures, including existing coverage, implementation capacity, and the incidence of water-borne diseases\. The third component of PRSC-3 incorporated measures designed to strengthen governance and public sector management\. These actions included moving forward with a medium-term agenda for public sector reform that included decentralization, improving public sector performance, modernizing the fiduciary and PEM frameworks, and strengthening the capacity to monitor and evaluate the policy agenda\. Revised Program Development Objectives (as approved by original approving authority) Program objectives remained unchanged\. Approximately 13 policy indicators in the policy matrix were eliminated under PRSC-2 (and subsequent operations)\. Key indicators that were eliminated included one relating to foreign direct investment, reflecting a shift under PRSC-2 away from improving the investment climate towards a greater focus on enhancing private sector competitiveness\. In addition, the indicators supporting improved rural sector growth were revised, with "real per capita food production" replacing three indicators used under PRSC-1 (the indicators that were dropped were "increased cocoa exports," "increased producer prices for cocoa," and "agriculture growth")\. A number of new indicators were also added under PRSC-2\. To reflect the addition of natural resource management as a policy area, an indicator for "forest coverage" was added to measure the improved management of natural resources\. (Under PRSC-3, this indicator was again revised, to "forest plantation coverage\.") Two other indicators -- the "ratio of population per nurse in the four deprived regions," and the "ratio of population per doctor in the four deprived regions" -- were also added under PRSC-2 as better measurements of improving access to quality health care services\. PRSC-2 also added indicators for the primary pupil-teacher ratio in the three most deprived regions, and an improvement in the pupil-textbook ratio in these regions\. Under PRSC-3, still more of the indicators in the policy matrix were modified in language, or dropped\. The quantitative monitoring indicators were also modified somewhat in each successive program document\. These changes reflected modifications in the policy areas addressed under these operations, development priorities on the ground, and the harmonization of the progress framework used by the GoG and its DPs\. (a) PDO Indicator(s) x  GH: PRSC I - P076808 Original Target Formally Actual Value Baseline Values (from Revised Achieved at Indicator Value approval Target Completion or documents) Values Target Years Indicator 1 : Satisfactory Implementation of the Ghana Poverty Reduction Strategy (GPRS) Value (quantitative or Qualitative) Date achieved Comments (incl\. % achievement) Indicator 2 : Increase in poverty reducing expenditures (baseline: 2002=4\.8% of GDP) Value (quantitative or Qualitative) Date achieved Comments (incl\. % achievement) Indicator 3 : Increase in primary school enrollment (baseline: 2002=81%) Value (quantitative or Qualitative) Date achieved Comments (incl\. % achievement) GH: PRSC II - P083246 Original Target Formally Actual Value Baseline Values (from Revised Achieved at Indicator Value approval Target Completion or documents) Values Target Years The PRSC 2 was the second of three operations aimed at supporting the Indicator 1 : implementation of the Ghana Poverty Reduction Strategy (GPRS)\. Value (quantitative or Qualitative) Date achieved Comments (incl\. % achievement) xi  Policies and reforms aimed at improving living conditions of the population Indicator 2 : by:promoting growth, incomes and employment; imp roving service delivery for human development; and strengthening governance Value (quantitative or Qualitative) Date achieved Comments (incl\. % achievement) GH Third Poverty Reduction Support Credit - P078619 Original Target Formally Actual Value Baseline Values (from Revised Achieved at Indicator Value approval Target Completion or documents) Values Target Years Satisfactory implementation of the Ghana Growth and Poverty Reduction Indicator 1 : Strategy Value (quantitative or Qualitative) Date achieved Comments (incl\. % achievement) Indicator 2 : Increase Poverty Reduction Expenditures Value (quantitative or Qualitative) Date achieved Comments (incl\. % achievement) (b) Intermediate Outcome Indicator(s) xii  GH: PRSC I - P076808 Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Increase in the female primary enrollment rate (baseline: Indicator 1 : 2002=78%) Value (quantitative or Qualitative) Date achieved Comments (incl\. % achievement) GH: PRSC II - P083246 Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Under the program for improved delivery of human services, progress was achieved in increasing the share of supervised delive Indicator 1 : ries, reducing the HIV/AIDS prevalence rate among pregnant women, and raisi Value (quantitative or Qualitative) Date achieved Comments (incl\. % achievement) GH Third Poverty Reduction Support Credit - P078619 Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years The Ghanaian economy is in its fourth year of expansion\. The Indicator 1 : latest figures indicate annual real GDP growth rate of 6 percent \. Value (quantitative or Qualitative) Date achieved Comments (incl\. % achievement) xiii  Indicator 2 : Reduction in the poverty headcount index (baseline: 2003=35%) Value (quantitative or Qualitative) Date achieved Comments (incl\. % achievement) G\. Ratings of Program Performance in ISRs GH: PRSC II - P083246 Actual Date ISR No\. DO IP Disbursements Archived (USD millions) 1 06/29/2005 Satisfactory Satisfactory 127\.50 GH Third Poverty Reduction Support Credit - P078619 Actual Date ISR No\. DO IP Disbursements Archived (USD millions) 1 09/26/2005 Satisfactory Satisfactory 123\.43 2 06/29/2006 Satisfactory Satisfactory 123\.43 3 10/06/2006 Satisfactory Satisfactory 123\.43 H\. Restructuring (if any) xiv  1\. Program Context, Development Objectives and Design 1\.1\.Context at Appraisal Since embarking on economic reforms in the mid-1980s, Ghana has made considerable progress in laying the foundations for sustainable growth and poverty reduction\. This has resulted in significant growth and increased private sector activity and investment over the last two decades\. In parallel, important political reforms were also adopted that moved the country firmly to a democratic form of government\. This progress has been periodically interrupted, however, by episodes of weak macroeconomic management associated with the electoral cycle, as occurred in 1992, 1996, and 2000\. As a consequence, the newly elected government inherited in 2001 a very difficult economic situation but nonetheless moved quickly to restore stability, including increasing retail petroleum prices by 60 percent, increasing electricity and water tariffs to stem losses at those utilities, and raising taxes and cutting expenditures\. Sustained implementation of tight financial policies in 2001 resulted in significant macroeconomic stabilization, enabling inflation to be halved (from 42 percent), the exchange rate to remain stable, and foreign reserves to be rebuilt Program implementation during 2002, the year prior to the implementation of the first Poverty Reduction Support Credit (PRSC-1), was mixed, however\. While real GDP growth accelerated to about 4\.5 percent, inflation was further reduced (to 15 percent), and reserves continued to strengthen (to 2 months), there were serious fiscal and quasi-fiscal slippages associated with weaknesses in public expenditure management; particularly in the management of the wage bill, payment of unbudgeted 2001 expenditures, delays in divestiture, and non-implementation of revenue-enhancing measures\. Moreover the failure to adjust petroleum prices contributed to the GoG having to assume the debt of the refinery (equivalent to almost 3 percent of GDP) and domestic debt rose to 29 percent of GDP by end-2002\. To reverse these slippages, the GoG redoubled its reform efforts in late 2002 and early 2003 and - - following a broad participatory process -- finalized a comprehensive poverty reduction strategy (GPRS) that set poverty reduction goals in alignment with the MDGs\. It identified measures to increase growth, income, and employment; improve the delivery of basic social services; and enhance governance and public sector management\. The GPRS recognized that there could be no meaningful poverty reduction without a strong economic foundation and sustained growth\. In March 2003, the Bank-Fund Joint Staff Assessment (JSA) of the GPRS concluded that it provided a sound framework for implementing the Government's anti-poverty agenda and that the medium-term macroeconomic framework set out in the GPRS was realistic\.i It was in this context that the Bank and Ghana's other key development partners (DPs) considered that the country's stable democratic governance, improving investment climate, and progress in achieving the MDGs constituted a good set of fundamentals on which to build support for the GPRS through a coordinated approach (discussed further below)\. The series of three PRSCs, designed in 2003, was the Bank's major contribution to this partnership\. The PRSCs focused on programmatic lending that was grounded in Ghana's clear commitment and capacity to reform, structured in a series of operations supporting a medium-term reform program, and disbursed on the basis of completed actions rather than future commitments\. The funds provided under the PRSCs would help to maintain macroeconomic stability by contributing to the closing of the external financing gap, as well as enable the Government to generate the funds needed to execute the GPRS policies and programs\. 1  1\.2\.Original Program Development Objectives (PDO) and Key Indicators Prepared annually within a rolling three-year horizon, the PRSCs 1-3 were a comprehensive series of operations that were designed to support the Government in implementing cross-cutting policies and reforms aimed at improving the living conditions of the population through three components: (i) the promotion of growth, income and employment; (ii) improving service delivery for human development; and (iii) improving governance and public sector reform\. These three components encompassed the five thematic themes of the GPRS, namely (i) ensuring macroeconomic stability; (ii) expanding production and employment; (iii) supporting human development; (iv) protecting the vulnerable and extremely poor; and (v) promoting good governance and public sector reform\. While the support provided under PRSC 1-3 was primarily budgetary funding for the implementation of the GPRS, particular attention was also focused on: (i) leveraging the poverty emphasis of several sector-focused operations by ensuring appropriated expenditure allocation (level and structure) and addressing some of the financing implications of proposed policy actions (e\.g\., removal of school fees); (ii) policy dialogue; and (iii) monitoring resource allocations and outcomes\. Each PRSC also monitored welfare and poverty indicators to enable assessments of whether poverty reduction objectives (both income and non-income dimensions of poverty) were being achieved\. The close and parallel linkage between the PRSCs and the GPRS ensured that these operations were highly responsive to the country's circumstances and development priorities\. The budget support provided by the PRSCs was also complemented by a series of Bank investment and technical assistance operations in the education and health sector, HIV/AIDS, public sector reform, and finance and private sector development\. The three PRSCs were each in the amount of $125 million\. They were on standard highly concessional IDA terms, with PRSCs 1 and 2 also being roughly one third in the form of grants to assist in implementing critical human development services supported by these operations\. The PRSCs were coordinated with budget support from other donors, with coordination increasing over the three-year period\. This coordination took place through the Multi-Donor Budgetary Support (MDBS) framework between the GoG and its DPs\.ii The goals of this framework were to: (i) support implementation of the GPRS through the budget, thereby ensuring consistency in the policy dialogue; (ii) develop a common progress framework; (iii) reduce Government transaction costs from negotiating and reporting to multiple donors: (iv) enhance the predictability of resource flows; and (v) conduct joint progress reviews between the GoG and its DPs\. The purpose of the MDBS was to harmonize the dialogue and efforts of Ghana's development partners with the Government's own development strategy\. While the principles of the common MDBS framework were agreed upon in 2003, a common progress assessment framework (PAF) to measure GPRS performance was not developed until 2004\. The PRSCs were intended to provide a series of benefits\. The main and ultimate benefit was the human progress towards achieving the MDGs as a result of the economic growth and improvements in service delivery that would result from the implementation of the GPRS\. The additional benefits of PRSC 1-3 were to be (i) the maintenance of macroeconomic stability by contributing to the closing of the external financing gap, and (ii) enabling the GoG to generate the funds required to execute the GPRS policies and programs\. Each of the three PRSCs were centered on the same three components described above, but the actions supported under each one varied somewhat because, broadly speaking, the actions completed under the program supported by PRSC-1 focused on laying out the groundwork for legislative changes and designing strategies for key areas of the reform agenda\. Subsequent operations would then build on the reforms implemented in each preceding operation\. The key 2  objectives of each operation are discussed below\. (The key modifications to the policy areas under each operation are addressed in Section 6\.5 below\.) PRSC-1: The first component of PRSC-1 focused on ensuring progress on macroeconomic stability and pro-poor growth by eliminating factors inhibiting growth\. The first set of actions included: (i) reducing the high public domestic debt, which crowded out credit to the private sector, kept interest rates high, and limited the scope in the budget for financing services that were supportive of development; and (ii) reducing the cost of doing business, such as the unreliable and "high-price" supply of critical inputs, especially energy, and the administrative costs of complying with government regulations\. The second set of actions consisted of removing constraints on rural development\. The rural sector was selected because: (i) it included the bulk of the country's natural resources; (ii) it was home to the largest number of the people; and (iii) it embraced the largest proportion of the poor\. The second component of PRSC-1 aimed at improving service delivery in education, health, and social protection\. It focused on: (i) expanding access to education and health services, with particular attention to the needs of underserved areas and populations; and (ii) improving the efficiency and equity of financing\. By focusing on these actions, the program aimed at dealing with issues such as (i) redressing the unequal regional and gender outcomes in health and education; and (ii) attaining sustainable and equitable financing of these critical services\. The program also aimed at contributing to sharpening the national focus on reaching the MDGs by 2015, adding value to the support already provided by sector projects\. The third component of PRSC-1 incorporated actions designed to: (i) strengthen the institutions of participatory democracy and accountable rule; and (ii) improve the efficiency of the public services and the quality of public expenditure management (PEM)\. Again, the areas identified for PRSC support were selected with a view of adding value to the existing sectoral support by elevating the issues to the center of Government, where collective interest generated by the GPRS would facilitate debate, consensus building, and decision-making\. PRSC-2: Reforms supported by PRSC-2 built on the measures implemented with the support of PRSC-1\. As with PRSC-1, the first component of PRSC-2 focused on ensuring progress on macroeconomic stability and pro-poor growth by eliminating factors inhibiting growth, including reducing public domestic debt to create room for increased credit to the private sector; and strengthening the business environment through the expansion of energy supply services, increased trade facilitation, and the removal of administrative barriers for business development\. The second set of actions consisted of removing constraints on rural development through an increase in Government's support to agriculture and developing a new framework for micro- finance, as well as adding a focus on natural resources, primarily in the form of completion of a strategic environmental assessment (SEA)\. Under the second component of PRSC-2, measures to improve service delivery in education again focused on: (i) increasing access and completion of quality basic education, with particular attention to the needs of underserved areas and populations; and (ii) improving the efficiency and equity of financing\. Measures to improve the delivery of health services centered on bridging the equity gaps in the access to health care services in deprived regions, and at reducing the spread of HIV/AIDS\. Measures to improve social protection focused on actions supporting the vulnerable and the excluded, such as people living with HIV/AIDS, orphans, homeless, and children living on the street\. The third component of PRSC-2 incorporated actions designed to strengthen governance and public sector management\. The policy actions supported under this component ranged from strengthening 3  governance institutions and moving ahead with decentralization, to carrying out public sector reforms, including PEM modernization, and building the capacity to monitor and evaluate the policy agenda\. PRSC-3: Policies supported by PRSC-3 built on reforms implemented under PRSC-2\. The first component of PRSC-3 focused on actions aimed at ensuring progress in attaining macroeconomic stability and pro-poor growth\. Measures focused on (i) creating a more diversified financial sector to enable an increase in credit to the private sector; (ii) strengthening the business environment through the expansion of energy supply services and the removal of administrative barriers to business development; and (iii) encouraging the development of extension services, especially for poorer farmers\. The component also supported measures to improve the performance of the rural sector through policy actions aimed at strengthening the government's support to agriculture\. In the area of natural resources management, attention shifted towards the more pressing issues relating to the management of forestry resources\. The second component incorporated measures aimed at assisting Ghana reach the MDG goals by improving service delivery in education, health, social protection, water, and sanitation\. The measures to improve service delivery in education focused on increasing access and completion of quality basic education, particularly in the three most deprived regions (Northern, Upper East, and Upper West), and on improving the efficiency and equity of education financing\. Measures to improve the delivery of health services centered on bridging the equity gaps in the access to health care serves in four deprived regions (Northern, Upper East, and Upper West, plus the Central region) and at reducing the spread of HIV/AIDS\. Measures to improve social protection focused on actions supporting the vulnerable and the excluded (such as orphans, the homeless, and people living with HIV/AIDS)\. Finally, measures to expand the provision of safe water and sanitation included the development of a comprehensive sector strategy addressing a variety of measures, including existing coverage, implementation capacity, and the incidence of water- borne diseases\. The third component of PRSC-3 incorporated measures designed to strengthen governance and public sector management\. These actions included moving forward with a medium-term agenda for public sector reform that included decentralization, improving public sector performance, modernizing the fiduciary and PEM frameworks, and strengthening the capacity to monitor and evaluate the policy agenda\. 1\.3\.Revised PDO Program objectives remained unchanged\. Approximately 13 policy indicators in the policy matrix were eliminated under PRSC-2 (and subsequent operations)\. Key indicators that were eliminated included one relating to foreign direct investment, reflecting a shift under PRSC-2 away from improving the investment climate towards a greater focus on enhancing private sector competitiveness\. In addition, the indicators supporting improved rural sector growth were revised, with "real per capita food production" replacing three indicators used under PRSC-1 (the indicators that were dropped were "increased cocoa exports," "increased producer prices for cocoa," and "agriculture growth")\. A number of new indicators were also added under PRSC-2\. To reflect the addition of natural resource management as a policy area, an indicator for "forest coverage" was added to measure the improved management of natural resources\. (Under PRSC-3, this indicator was again revised, to "forest plantation coverage\.") Two other indicators -- the "ratio of population per nurse in the four deprived regions," and the "ratio of population per doctor in the four deprived regions" -- 4  were also added under PRSC-2 as better measurements of improving access to quality health care services\. PRSC-2 also added indicators for the primary pupil-teacher ratio in the three most deprived regions, and an improvement in the pupil-textbook ratio in these regions\. Under PRSC- 3, still more of the indicators in the policy matrix were modified in language, or dropped\. The quantitative monitoring indicators were also modified somewhat in each successive program document\. These changes reflected modifications in the policy areas addressed under these operations, development priorities on the ground, and the harmonization of the progress framework used by the GoG and its DPs\. 1\.4\.Original Policy Areas Supported by the Program The policy areas supported by PRSC-1 correspond to the three components outlined above, namely: (i) Promoting growth, income, and employment (addressing the issues of high public domestic debt; high-cost business environment and obstacles to competitiveness; and the stagnation of rural development)\. (ii) Improving service delivery for human development (education, health, HIV/AIDs, and the vulnerable and excluded)\. (iii)Improving governance and public sector management (building a democratic, inclusive, and decentralized state; improving the performance of the public sector; strengthening the fiduciary framework and public expenditure management (PEM); and strengthening the capacity to monitor and evaluate the policy agenda)\. The policy areas supported by PRSC-2 are (new issues are in italics): (i) Promoting growth, income, and employment (addressing high public domestic debt; high-cost business environment; the low reliability of energy supply; high cost of bringing agricultural production to market; and ineffective management of natural resources)\. (ii) Improving service delivery for human development (education, health, HIV/AIDs, and the poor and vulnerable)\. (iii)Improving governance and public sector management (improving the performance of the public sector; strengthening public financial management; strengthening governance institutions; and strengthening the capacity to monitor and evaluate the policy agenda)\. The policy areas supported by PRSC-3 are (new issues are in italics): (i) Promoting growth, income, and employment (addressing high public domestic debt; high-cost business environment; the low reliability of energy supply; low level of financial intermediation; high cost of bringing agricultural production to market; and ineffective management of natural resources)\. (ii) Improving service delivery for human development (education, health, HIV/AIDs, social protection; and water and sanitation)\. (iii)Improving governance and public sector management (improving the performance of the public sector; strengthening public financial management; strengthening governance institutions; and enhancing the capacity to monitor and evaluate the policy agenda)\. 5  1\.5\.Revised Policy Areas Although there was broad continuity between each of the PRSC operations, the programmatic approach inherent to the PRSCs enabled greater adaptability for step-by-step institutional reforms or other modifications\. Thus, while project components and objectives remained unchanged throughout the three operations, some new areas of focus were added in PRSC-2 and subsequent operations\. These areas, and the rationale for their addition, were: (i) creation of a more diversified financial sector, to address the low level of financial intermediation compared to other SSA countries, and which constrained private sector growth; (ii) a focus on the improved management of natural resources, to prevent the depletion of the quality and quantity of Ghana's natural resource base; and (iii) improving rural sector farm and non-farm growth by addressing financial, transport and other barriers to the expansion of non-cocoa agriculture and poverty reduction\. In addition, the policy objective of decentralized government was replaced with improved governance and accountability broadening this policy objective\. Beginning with PRSC-3, there was also an increased emphasis on actions that aimed at improving service delivery at the decentralized level in sectors that accounted for a larger share of expenditures on wages and salaries (e\.g\., education and health), broadening the focus of reforms to incorporate reforms aimed at improving human resource management\. In response to the preliminary findings from the 2003 Core Welfare Indicators Questionnaire (CWIQ) survey, PRSC-3 placed an increasing emphasis on broadening access to education and health services, especially in the deprived regions\. PRSC-3 also introduced a water sector and sanitation strategy after the Demographic and Health Survey (DHS) indicated deterioration in infant mortality and under-5 mortality rates between 1997 and 2003\. This deterioration was attributable in part to emerging problems with child malnutrition, as well as to slow progress in increasing access to safe water sources and to safe sanitation\.iii A social protection strategy was also added to help address emerging problems with child welfare in urban and peri-urban areas\. There was also an expanded educational focus to expand teacher retention schemes in deprived districts and ensure timely delivery of core textbooks in deprived regions\. The addition of the new areas to PRSC-2 corresponded to the use ­ for the first time ­ of the joint performance matrix developed under the MDBS framework\. Similarly, modifications to PRSC-3 were made in response to emerging developmental needs\. As such, these modifications to the original areas of focus under PRSC-1 were largely opportunistic and reflected new evidence on development priorities and therefore should be viewed positively, rather than reflecting negatively on the original design of PRSC-1\.iv 1\.6\.Other significant changes There were no other changes in design, financing, or implementation arrangements\. 2\. Key Factors Affecting Implementation and Outcomes 2\.1 Program Performance As noted, most of the actions completed under PRSC-1 focused on laying out the groundwork for legislative changes and developing strategies for key areas of the reform agenda\. Follow-up actions were then implemented in the context of PRSC-2 and PRSC-3\. The discussion below highlights program performance for each individual credit\. PRSC-1: Prior to Board presentation of PRSC-1, the Government had completed all planned actions aimed at promoting growth, incomes, and employment; accelerating human resource 6  development, and strengthening governance and public sector management (see Table 1 below for a list of prior actions)\. Progress in the implementation of the PRSC-1 reform program was broadly satisfactory, as discussed below in each component area\. Growth, Income, and Employment Promotion: The implementation of PRSC-1 began against the backdrop of the completion of the GPRS, and the renewal of efforts to achieve macroeconomic stability and accelerate growth\. In February 2003, the Government redoubled its reform efforts, raising petroleum prices by around 90 percent to stem loses of the state-owned oil refinery company\. Increases in utility prices followed suit, with the adoption of an automatic adjustment mechanism for electricity and water tariffs\. There was a significant improvement in the external environment, with rising prices for the country's main export commodities (cocoa and gold), and an increase in aid inflows and debt relief\. Political sensitivity, especially as the 2004 electoral process drew nearer, and limited capacity within the public sector, meant, however, that there were delays in following up on actions designed to encourage private sector development and carry out the public sector reform agenda\. At the time, these delays raised legitimate questions about the sustainability of the advances under PRSC-1, given the importance of these reforms for the implementation of the country's broader development program\. Nonetheless, macroeconomic growth rose to 5\.2 percent, up from 4\.5 percent in 2002, and the overall fiscal deficit fell to 4\.5 percent of GDP, down from 6\.8 percent in 2002\. This combination of a growing economy with fiscal discipline enabled a decline in the debt-to-GDP ratio to 19\.6 percent by end-2003, compared to 26\.2 percent at end-2002\. Human Service Delivery Improvement: Progress was made in the implementation of social policies in the education and health sectors\. As noted in the GoG's 2003 Annual Progress Report (APR) on the GPRS, however, renewed efforts were still needed to improve basic social services delivery targeted to the poor\. A particular concern was the DHS' documentation of a deterioration of health indices, namely the increase in infant mortality and under-5 mortality rates, as well as the slow reduction in maternal mortality rates\. Governance and Public Sector Management Strengthening: Actions to strengthen controls over public finances included improving the scope, timing and quality of the reporting of budget execution, with a new monthly report on the budget execution, and quarterly reports on poverty- related expenditures\. Progress was made on the development and implementation of a monitoring and evaluation (M&E) framework\. PRSC-2: Prior to Board presentation of PRSC-2, the Government had completed all planned actions in the three component areas, as shown in Table 1 below\. Progress in the implementation of the PRSC-2 reform program was broadly satisfactory, as discussed below for each component area\. Growth, Income, and Employment Promotion: Despite the fact that 2004 was an election year, overall spending was controlled, annual inflation fell to 12\.6 percent (down from 26\.7 percent in 2003), and real GDP growth reached 5\.6 percent, up from 5\.2 percent in the prior year\. This performance was a sharp turnaround from previous election years, when macroeconomic management slipped sharply\. Progress was also achieved in (i) the share of total domestic credit going to the private sector, which rose to an estimated 54\.7 percent by end-2004, up from 47\.3 percent at end-2002; and (ii) subsidies to public sector utility companies declined in real terms by 40 percent from 480 billion cedis at end-2002 to an estimated 278 billion cedis (in 2002 prices) at end-2004\. Private sector development received a further boost with actions taken to remove certain administrative and regulatory barriers to investment\. These efforts included reducing the time 7  needed to obtain the environment certificate and tax registration and lowering the tax registration fee, thereby reducing the time required for business registration to 85 days in 2004, down from 129 days in 2002\. Private sector competitiveness was enhanced with the installation of automated clearance procedures (GCMS/GCNET) at the Tema (July 2003) and Takoradi (November 2003) seaports, yielding a reduction in the average clearance time at customs by reducing the number of clearance steps from 11 to 3\. Progress in the power sector reform consisted of: (i) the formation of the Volta River Authority (VRA) holding company, creating the legal basis for the separation of power transmission, generation and distribution; (ii) the restructuring of a large share of the debt obligations of the VRA and Electricity Corporation of Ghana (ECG) to the Government, and (iii) the beginning of the revaluation of assets and the separation of VRA's balance sheet\. Power tariffs were adjusted twice in the year (March and October 2003), in accordance with the cost recovery formula, yielding an 18 percent increase in prices for end-users\. There were delays, however, in adjusting the price of retail petroleum products according to the cost recovery formula, leaving prices unchanged from the February 2003 level and leading to an unplanned fiscal gap of around 1\.4 percent of GDP in 2004\. Actions taken to broaden access of the rural sector to credit included the review of the National Framework Paper for Micro-Finance Institutions (MFI), aimed at addressing issues of capacity building of MFIs; the development of a suitable regulatory mechanism for MFI industry; the promotion of linkages between the formal and informal institutions; and training for results in improved portfolio management\. Several actions were also taken towards implementation of the Financial Sector Strategic Plan (FINSSIP), deepening savings mobilization for old age and housing\. In the domain of natural resources management, a SEA was completed to help identify options to better enforce environmental regulations and standards in areas ranging from land forestry and water, to housing, health, and transport\. Forestry reserve management was also strengthened with the continuation of a plantation program, the transparent and competitive allocation of timber rights, and the establishment of a framework for log tracking\. Human Service Delivery Improvement: Improvement in human service delivery resulted from actions carried out in the areas of education, health, and HIV/AIDS\. To redress existing gender imbalances in educational outcomes, incentive schemes (including scholarships) were established to enable girls to complete primary school in deprived districts\. In the 2003/04 school year, a total of 5,000 needy pupils, of whom 80 percent were girls, benefited from these schemes\. There was an additional 8\.9 billion cedis allocated for scholarships for the same period\. As a result of these efforts national gross primary enrollment rates (GPER) rose from 81 percent in the 2002/03 school year to 86\.3 percent in 2003/04 and enrollment rates among female students rose from 78\.0 percent to 82\.2 percent\. Progress in the health sector was achieved through the implementation of a fee exemption policy for maternal deliveries in the four deprived regions\. This program was expanded to two additional regions and adequately funded in the 2004 budget, using HIPC resources\. Supervised deliveries rose to 53 percent by 2004, up from 49 percent in 2002; this increase was particularly pronounced in the deprived regions\. The HIV/AIDS prevalence rate among pregnant women dropped to 3\.1 percent in early 2005, down from 3\.6 percent in 2003\. Efforts to contain the spread of HIV/AIDS involved the implementation of Government-sponsored HIV/AIDS community­based programs, which became fully operational in 200 communities with activities ranging from awareness creation and advocacy, to support to orphans, vulnerable children, and to people living with HIV/AIDS\. In the area of assisting the poor and vulnerable, a pilot program targeted at vulnerable street children became operational, reaching 1700 children through vocation and formal training\. A national water policy was also developed and deprived districts were supported in planning water and sanitation plans\. However, although poverty-related 8  expenditures rose to 7\.7 percent of GDP by end-2004, up from 6\.5 percent at end-2003, budget execution was very uneven across sectors, with agriculture, rural electricity, basic education, and feeder roads programs reporting high execution rates and primary health and rural water reporting much lower rates\. Governance and Public Sector Management Strengthening\. Progress under this component focused on laying the legislative groundwork for decentralization; developing a strategy for public sector reform; PEM strengthening; drafting key governance legislation; and upgrading the M&E system\. Progress on the decentralization and public sector reform agenda consisted of the establishment of the Office of Accountability in the Office of the President; the inauguration of an in-country Peer Review Council for the Africa Peer Review Mechanism (APRM); and Government funding for the Electoral Commission's preparation of the 2004 National Elections - - more specifically the voter registration exercise\. Important pieces of legislation -- the Freedom of Information and the Whistle Blower bills -- were submitted to Cabinet in April 2004 to further enhance the transparency and accountability of public institutions\. Less progress was made, however, in public sector reform aimed at improving the service delivery capacity of the civil and public service, including implementing a professional human resources framework; commencing organizational restructuring of the civil service; and establishing a regulatory framework for SAs and continuing the restructuring of selected SAs\. Delays in these areas occurred owing to the sensitive nature of the reforms, the resultant need for extensive consultations with stakeholders, and the fact that the work was carried out by a relatively small team\. As part of actions aimed at improving public expenditure management, the President signed into law the Financial Administration Act (FAA), the Internal Audit Agency Act (IAA), and the Public Procurement Act (PPA)\. The FAA defined the duties and responsibilities of the Minister of Finance and the Controller and Account General in managing public resources\. The IAA enabled the establishment of an apex body to coordinate, facilitate and provide quality assurance for internal audit controls in Government ministries and agencies\. The implementation of the PPA aimed at attaining greater value for public money spent on goods and services\. Budget reporting was strengthened with the help of new computer-based information and accounting management system (BPEMS), which was installed in the Ministries of Education, Health, Roads and Transport\. Specific results include (i) monthly (commitment and expenditure) budget execution reports reconciled with the Bank of Ghana produced with no more than 8 weeks lag; and (ii) quarterly report on the execution of poverty-related expenditures produced with no more than 8 weeks lag\. Finally, M&E capacity was improved with the completion of the 2003 GPRS APR, the implementation of the GPRS M&E plan, and several Poverty and Social Impact Analyses (PSIAs) conducted in 2003 and early 2004\. PRSC-3: Progress under PRSC-3 was broadly satisfactory, but the Government did not meet all the prior actions in full before Board presentation of PRSC-3\. Most, but not all prior actions were completed without changes to the original triggers, but some actions were moved to subsequent PRSCs (see Table 1 below on prior actions)\. The outcomes of PRSC-3 are discussed below by program component\. Growth, Income, and Employment Promotion: Macroeconomic management remained prudent in 2005, resulting in strong real GDP growth and macroeconomic stability, notwithstanding a sharp increase in international crude oil prices\. Annual real GDP growth reached 5\.9 percent in 2005, up from 5\.6 percent in 2004, and the fiscal deficit continued to shrink, falling to 3\.0 percent of GDP by end-year, down from 3\.6 percent of GDP in 2004\. The 2005 target for the overall fiscal deficit was surpassed, with the domestic debt-to-GDP ratio declining further to 11 percent by 9  end-2005, down from 15 percent at end-2004\. Lower levels of domestic public debt and moderate inflation (which was 15 percent by end-year, and declined to 9\.9 percent by March 2006) allowed, in turn, for nominal interest rates on treasury bills to ease to 11\.5 percent by end- 2005, down from 16\.4 percent at end-2004\. Declining public sector deficits enabled an increase in the share of credit allocated to the private sector to rise to 55 percent by end-2005, up from around 50 percent in the previous year\. Fiscal management maintained its pro-poor orientation, however, with poverty-related expenditures increasing to 8\.5 percent of GDP in 2005, up from 7\.7 percent in 2004\. There was also a further decline in the time required for business registration, falling to 81 days in 2005, down from 85 days in 2004\. In the area of power sector reform, primary efforts included progress to reduce ECG system losses in line with the targets envisioned in the draft proposal for the Management Support Services Agreement; (ii) settling ECG accounts receivable from Ministries, Departments, and Agencies (MDAs) and the Ghana Water Company within 90 days; and (iii) carrying out a comprehensive tariff review, ensuring that VRA and ECG earn an adequate return on capital and ensuring that transmission service was separated from the bulk service tariff in the tariff structure\. The ECG's system losses declined marginally, reaching 25\.47 percent by end-year, down from 26\.54 percent at end-2004, but remained high\. Finally, progress was made in the implementation of the petroleum deregulation program, under which the importation of crude oil and refined products was handled through competitive tendering under the supervision of an independent agency ­ the National Petroleum Tender Board (NPTB)\. As part of this deregulation process, there was also a re-alignment of domestic petroleum prices; although the GoG had resisted raising prices in 2004, domestic retail prices for petroleum products were adjusted three times during 2005 by the NPTB to automatically reflect the cost of imported oil, thereby beginning the transition away from Government-set prices\. Human Service Delivery Improvement: Outcomes in the areas of primary school enrolment, supervised maternal deliveries, HIV/AIDS prevalence rates, and under-5 malaria mortality rates indicated that the policies pursued under the GPRS were yielding positive results\. In the area of education, Government- controlled fees were eliminated and capitation fees were introduced for all students attending basic education\. As a result, there was an increase in GPER, with the national GPER reaching 87 percent by mid-2005, up from 81 percent in mid-2003, and the enrollment rate also improved in all three deprived regions and among girls\. Over 8,000 trainee teachers took part in district sponsorship schemes in the 2004-05 year, with the objective of being posted back in the districts that sponsored them in order to reduce primary pupil-teacher ratios in poorer districts in the deprived regions\. (This program had become increasingly important because the primary pupil-teacher ratios in some regions had actually worsened, owing to the higher GPER reported above\.) Finally, textbook-primary pupil ratios continued to improve, both nationally and in the deprived regions\. In the area of health, the share of overall supervised maternal deliveries rose marginally to 54\.2 percent by 2005, up from 52\.4 percent in 2002, although there were marked increases in some of the deprived regions\. There was also a further decline in the HIV/AIDS prevalence rate among pregnant women remained at 3\.1 percent in early 2005, down from 3\.6 percent in 2002\. In the area of malaria prevention, the fatality rate from malaria for children under-five declined from 3\.7 percent in 2002 to 2\.4 percent in 2005, in part due to an increase (from 10 to 25 percent) of children sleeping under insecticide-treated bed nets\. Less encouraging, however, was the decline in investment in water facilities, following the steady increase in new investment in 2003 and 2005\. For example the construction of new boreholes and the completion of small town pipe systems were, respectively, 21 and 50 percent lower in 2005\. 10  Governance and Public Sector Management Strengthening: Progress in this component primarily occurred in strengthening public financial management, with improvements in budget coverage, timelier external auditing of the accounts of the consolidated fund, and in the implementation of new public procurement and internal audit legislation\. The budget coverage was broadened to include more information on internally generated funds and donor grants\. External audit reports became timelier, with the annual report by the Accountant General being submitted to Parliament within less of 12 months of the closing of the accounts\. Beginning in August 2005 monthly reports on budget execution were generally completed within six weeks\. There was progress in implementing the new public procurement law, with increased coverage provided by the entity tender committees and the tender review boards, and -- under the auspices of the new internal audit agency law -- the number of MDAs submitting internal audit reports began rising\. Progress in the public sector reform area was again slow\. Most of the progress in the public sector reform area in 2005 consisted of preparing and setting up institutional arrangements for the new public sector reform strategy rather than actual policy outcomes\. These steps included the creation of the Ministry for Public Sector Reform; the submission of the Subvented Agencies Reform Act to Parliament; and the launching of a broad reach-out program to communicate and ensure the buy-in of stakeholders\. The Government's implementation of other public sector reform measures, however, was less favorable, particularly in the area of civil service reform\. As a result, the public sector reform trigger was not met, even though these measures were largely technical in nature and had been chosen precisely because ­ as technical measures ­ they would be less controversial and easier to enact\. Table 1: PRSC 1-3 Prior Actions PRSC-1 List prior actions from Legal Agreement/ Program Document Status To promote growth, incomes, and employment: Implementation of the automatic tariff adjustment mechanism and electricity tariffs Completed raised by a combined total of 72 percent in late 2002 and 2003\. Retail petroleum prices brought to import parity levels in January 2003 and an automatic petroleum price adjustment formula made effective in May 2003\. Cabinet approval of the power sector reform, aimed at restructuring the Volta River Completed Authority, including separation of transmission from generation an confirmation of the role of private sector on thermal generation Completion of a survey of regulatory and administrative costs of business, Completed undertaken to prepare an action plan for reducing transaction costs of business\. To improve service delivery for human development: Completion of the school mapping exercise in five deprived districts with the Completed objective of improving the targeting of budget resources\. Launching of the national policy of Community-Based Health Services\. Completed Implementation of a fee exemption policy for maternal deliveries in four Completed underserved regions (Northern, Upper East, Upper West, and Central)\. To improve governance and public expenditure management: Approval by Cabinet of the Central Internal Audit Agency Bill, aimed at ensuring Completed effective and efficient management of state resources, including revenues, expenditures, assets and liabilities\. Submission of a Procurement Bill to Parliament to provide the legal framework Completed for ensuring that public resources are used to finance quality expenditures\. Installation of the new computerized budget and public expenditure accounting Completed and information system (BPMES) was made operational in the Ministry of Finance and Economic Planning and at the Controller's and Accounting General Department to improve the efficiency in managing public expenditure\. 11  PRSC-2 Status To promote growth, incomes, and employment: Launching power sector reform, including the implementation of the first year of Completed the public-private partnership plan\. Completing the automation (GCMS/GCNET) of customs procedures to speed up Completed clearance times at Takoradi and Tema ports\. Developing and beginning implementation of a Cabinet approved private sector Completed development strategy with an action plan to remove key regulatory and administrative barriers for business development\. To improve service delivery for human development: Completed Establishing incentive schemes, including scholarships, to enable girls to complete primary school in deprived districts\. Implement fee exemption policy on maternal deliveries in the deprived regions\. Completed Approving a new health recurrent expenditure allocation formula to protecting the Completed deprived areas\. To improve governance and public expenditure management: Beginning implementation of the Procurement Act, designed to ensure value for Completed money in government purchases, by establishing the Public Procurement Institutions (Public Procurement Board, Secretariat, Entity Tender Committees, and Tender Review Boards)\. Completed (with a note Issuing to Cabinet a policy statement on public sector reform\. that it was submitted to Cabinet) Expanding the newcomputerized budget and public expenditure accounting and Partially completed information system (BPEMS) to cover the Ministries of Education, Health, and Roads and Transport\. PRSC-3 Status To promote growth, incomes, and employment: Continue power sector reform, including (i) issuing for request for proposals for Completed, with bidders for the performance-based ECG Management Support Services changes when defining Agreements; and (ii) continuing the process of transforming VRA into two separate the retained prior companies (generation and distribution), and an independent transmission actions\. ECG action company, with the enactment of the VRA Amendment Act\. moved to PRSC-4 Implement 2004 tranche of the PSDS action plan, including (i) strengthening of the institutional framework for implementation of the strategy; (ii) completing and Completed, with no beginning implementation of the National Trade Policy; (iii) establishing four Land changes in defining the Registries in the regions; (iv) extending GCMS/GCNet facilities to Aflao and retained prior actions\. Elubo; and (v) completing the automation of Registrar-General's department\. To improve service delivery for human development: Eliminate all government-controlled fees and introduce capitation grants for girls in public primary schools in deprived districts and in all public primary schools for Completed, with no the disabled\. changes Assess health professional attraction and retention program in consultation with stakeholders and decentralize management of human resources continued, Completed, with no including the identification of options for decentralizing personnel\. changes To improve governance and public expenditure management: Begin implementation of priority areas of public sector reform aimed at improving service delivery capacity of the civil and public service by (i) finalizing and implementing a professional HR framework; (ii) developing and commencing Completed, with no implementation of a communications strategy; (iii) commencing organizational changes restructuring of the civil service; and (iv) establishing a regulatory framework for subvented agencies and continuing the restructuring of selected subvented agencies\. Deepen payroll management and control by (i) strengthening systems for payroll management and control; (ii) developing and implementing systems for capture and management of subvented agencies payroll data; and (iii) clarifying Completed, with institutional responsibilities for payroll and personnel database management\. changes relative to the 12  original triggers, in defining the retained prior actions\. Some Within the context of existing legislation, develop guidelines and procedures for actions moved to more comprehensive collation of annual financial accounts comprised of (i) subsequent PRSCs consolidated fund; (ii) statutory funds; and (iii) funds from donor funded sector projects and programs\. Completed, with no Increase in the 2005 budget, compared to the 2004 budget, the share of non-salary changes poverty-related domestically-financed expenditures (including HIPC)\. Fully operationalizing Public Procurement Institutions with MDAs\. Continuing to have the preparation of the budget informed by the GPRS Annual Completed, with no Progress Report\. changes Completed, with no changes Completed, with no changes 2\.2 Major Factors Affecting Implementation A number of factors contributed to the largely successful implementation and outcome of these operations\. Some of these were intrinsic to the operations themselves ­ including strong Government ownership; extensive donor coordination; and extensive analytical work -- while others were exogenous to the loans' design, including favorable commodity prices and high levels of remittances\. Strong Government commitment: The GoG had full ownership of the programs supported by the PRSC 1-3 because these operations (i) were fully aligned with the GPRS ­ for which the preparation was led by the Government -- and were consequently highly responsive to the borrower's circumstances and development priorities; and (ii) important reform measures were adopted as prior actions for each operation\. The PSRC program design drew upon the lessons learned in previous adjustment operationsv -- primarily the need to ensure Government "ownership" of the reform process, and the need for realism and selectivity in defining the reform agenda\.vi The program document for PRSC-1 underscored the importance of ensuring ownership of the reform program for the satisfactory implementation of the country's poverty reduction strategy\. By presupposing and building on strong ownership, the PRSCs addressed a major factor (i\.e\., lack of ownership) that led to low evaluation ratings on sustainability in the previous lending portfolio under the FY01-03 Country Assistance Strategy (CAS)\.vii While most of the actions completed under the program supported by PRSC-1 focused on laying out the groundwork for legislative changes, and developing strategies for key areas of the reform agenda, achieving the expected policy outcomes was contingent on follow up actions that, in some instances, would be supported by subsequent operations\. This condition reinforced the importance of ensuring broad ownership of the program from the onset, and of building in mechanisms for regular consultations during implementation\. Effectiveness of donor coordination: Bilateral and multilateral donor assistance played an important role through the common MDBS framework\. The MDBS aided harmonization by providing a framework for policy dialogue and decisions linked to progress in the GPRS implementation, including the use of common triggers by the all DPs, the Bank, the EC, and the AfDB (except for outcome-based triggers, which the Bank and the AfDB chose not to use to underpin disbursements) as well as the use of common performance indicators for monitoring and implementation\. This harmonization increased steadily over time\. The Bank and the DPs carried out two joint missions for the preparation of PRSC-2 which resulted in aligned mission schedules and advance 13  agreement on policy actions and the timing of future development reviews\. As a result, there was achieved an almost complete overlap between the key policy actions agreed under MDBS 2004 and those envisioned under PRSC-2\. The DPs and the GoG also agreed on a joint matrix of policy actions to be supported by PRSC-3 and MDBS-2005, thereby aligning monitoring and evaluation frameworks\. This close donor harmonization reduced transaction costs for the Government by reducing the number of visiting missions and reporting requirements, thereby freeing Government officials to focus more on program implementation\. In addition, the timely and predictable disbursements of budgetary assistance aided macroeconomic planning and stability\. Soundness of background analysis: The analytical basis for the PRSCs was sound, drawing on recently completed work on poverty and social analysis, as well as from country economic and fiduciary work\. Although recent poverty data were not available, a poverty analysis had been carried out jointly with the Government and which drew on the results of the 1998/99 household expenditure survey, and allowing the program to focus on policy actions that addressed poverty equity gaps across regions, and age and gender groups\. The analytical work also included two integrative pieces on growth, poverty and public policy, permitting the program to focus on critical aspects of the interface between these three areas, as well as a variety of work on fiduciary arrangements to improve public financial management and public procurement (see Box 1 below)\. Box 1: PRSCs 1-3 Analytical Basis The specific analytical work that informed each operation included: PRSC-1: The 1997 CEM entitled "Ghana ­ Growth, Private Sector, and Poverty Reduction", and the 2001 CEM entitled "Ghana ­ International Competitiveness, Opportunities and Challenges Facing Non-Traditional Exports;" the FY03 Country Procurement Assessment Report (CPAR); the FY03 Poverty Report entitled "Reducing Poverty and Improving Human Development;" the FY03 FIAS study on "Regulatory Barriers to Investment in Ghana;" as well as analytical work by the GoG and other DPs PRSC-2: PRSC-2 was built on the analytical work carried out in previous years, as described above, as well as the FY04 CEM on "Public Policy, Growth, and Poverty;" the FY04 Public Expenditure Review (PER) focusing on budget design and implementation; the FY04 Country Financial Accountability Assessment (CFAA) assessing fiduciary risks and arrangements; and the Bank-Fund 2004 HIPC Public Expenditure Assessment and Action Plan which assessed the capacity of the public expenditure management system to track poverty-reducing expenditures\. PRSC-2 was also prepared in parallel with, and in close coordination, with the IMF's three-year PRGF (approved May 2003)\. PRSC-3: PRSC-3 was built on analytical work carried out in previous years, as described above, as well as on the FY05 CFAA; FY05 PER; and findings of the 2005 External Review of the Public Financial Management evaluating budget design and execution\. Remittances: Official remittances from Ghanaians living abroad were strong during the three operations, reaching an estimated US$780 million in 2003 and exceeding US$1 billion in 2004\. (These figures do not include informal remittances, which the Bank of Ghana believes are substantial\.) These remittances helped to fuel Ghana's strong economic growth from 2003-05, as well as contributed to the growth of specific sectors such as construction\. Favorable commodity prices: Ghana was also the beneficiary of a substantial improvement in the terms of trade for cocoa, gold, and timber during this period (although this was offset by rising petroleum prices from end-2004), and had record cocoa crops in 2003 and 2004\. These inflows 14  enabled Ghana to finance its budget deficit and pay down domestic debt, thereby enabling a reduction in interest rates, a build-up of foreign reserves, and an improvement in the availability of credit to the private sector\. It also enabled increased allocation to social priorities, despite increases in petroleum prices\. Some factors affected implementation less positively\. One, the implementation of the public sector reform areas of the PRSCs were slower than anticipated, owing to a lack of government capacity and the political sensitivities associated with this reform area\. Two, wages and salaries accounted for a large share of overall poverty-related spending, equivalent to 55 percent of all spending in 2005\. While this trend was particularly evident in the basic education and primary health sectors, by 2005 wages and salaries were beginning to account for higher than anticipated increases in expenditures in agriculture and other sector programs\. As a result, poverty-related programs did not fully benefit from the available external assistance as wage and salary commitments ended up accounting for over two-thirds of poverty expenditure\. In addition, the execution of the budget across programs was tilted toward programs with high payrolls, such as education and health, while more investment-intensive programs, such as rural energy and agriculture, presented lower budget execution rates\. 2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization M&E Design: M&E design and capabilities were weak at the beginning of the GPRS, but did strengthen over the three operations\. As noted in the program document for PRSC-1, the Government's M&E capability in 2003 was characterized by: (i) the lack of a M&E framework to provide oversight over the implementation of the GPRS; (ii) problems in using M&E findings to adjust Government polices; and (iii) gaps in the availability of poverty-related data and insufficient use of participatory M&E findings\. At that time, the last household survey data on poverty that were available were from 1998/99, providing an inadequate baseline for measuring progress under the GPRS\. In 2003, a Core Welfare Indicator Questionnaire (CWIQ) and the Demographic and Health Survey (DHS) were finalized, providing baseline data on a variety of poverty, health and other indicators; however\. While the GPRS established a variety of indicators for measuring progress,viii data collection for both the 2003 and 2004 Annual Progress Reports (2003 and 2004) was made difficult owing to the (i) lack of feedback and incentives to motivate staff in the MDAs, Regions, and Districts to institutionalize M&E activities; (ii) inconsistencies in data between the regions and districts; (iii) challenges of addressing the M&E needs of different stakeholders; and (iv) inadequate resources for M&E at all levels\. As a result, there was only inconsistent reporting of district- and regional- level indicators\. Initial data collection efforts were also limited by the lack of participatory M&E in the initial years of the program; for example, neither civil society nor Parliament were involved in the preparation of the first APR (2003), although this was improved upon in the 2004 APR (and is being expanded still further under GPRS II)\. M&E Implementation: M&E implementation strengthened each year under PRSC 1-3\. PRSC- 1 focused on establishing a M&E system for the GPRS, while PRSC-2 and PRSC-3 focused on further strengthening this system\. As noted, the first APR ­ which provides the key platform for M&E of progress towards GPRS targets -- was prepared in 2003 by the National Development and Planning Council (NDPC) to track the monitoring indicators under GPRS-1\. APRs have been completed for subsequent years of the GPRS; the quality of these assessments has improved over time, and the 2005 APR was considered by donors to be a strong step forward\. 15  Other improvements in M&E implementation include: (i) better dissemination of the APRs to Parliamentarians, the MDAs, regional planning and operation officers, and rural communities (including the use of radio programs and video presentations); (ii) better usage of the APRs to inform the budget process (beginning with the 2005 budget); and (iii) the introduction of participatory M&E\. Participatory M&E, started on a pilot basis in late 2004 to obtain feedback from citizens about the extent to which enhanced access to basic services was being achieved at the community level, and also included the development of citizens report cards to assess satisfaction with the delivery of basic services (water, education, and health)\. In addition, the Government has also established numerous institutional structures for the ongoing review of GPRS indicators, targets, and policies\.ix Less positive, however, is the fact that although the NDPC ­ which is the Government's main M&E agency ­ has chosen not to draw on tools for social accountability for which training has been provided, such as the citizen report cards\. Furthermore, the NDPC has had a 50 percent turnover in staff in the last two years, hampering its ability to carryout M&E and to link the outcome of this M&E back to program design\. These factors could create serious implications for future program quality and undermine M&E sustainability\. To assess the poverty and social impact of selected policy reforms policies on the poor, four PSIAs were completed under PRSC 1-3, and technical committees ­ representing a cross-cutting section of Government and in partnership with local research teams ­ were established to oversee follow-up measures\.x Appropriate criteria were used to select these studies, including (i) potential size of impact; (ii) prominence of the issue in the GPRS policy agenda; (iii) the timing and urgency of policy or reform; (iv) the level of national debate surrounding the reform; and (v) the lack of existing analysis\. Preparation of a new series of M&E PSIAs began in 2005, which will be applied to updating the GPRS, rather than simply focusing on informing short-term policy making\. M&E Utilization: M&E utilization has been weak and still needs improvement\. The Bank- Fund JSA of the 2003 APR noted that the APR's main weakness was that it did not draw policy conclusions and concrete recommendations from its comprehensive analysis and did not identify links to the development outcomes detailed in the GPRS M&E plan\. Accordingly, a key focus of PRSC-2 and PRSC-3 was on improving the link between policies and outcomes and institutionalizing the use of data and analysis ­ particularly the APRs and PSIAs -- to better inform policy decisions and budget allocations\. As a result, the APRs have become increasingly central to the domestic dialogue (e\.g\., guidance on the budget) and the budget support dialogue, and some of the PSIAs have been used to inform follow-up actions (e\.g\., the PSIA on the economic transformation of the agriculture sector informed the revision of the Food and Agriculture Sector Development Policy -- FASDEP)\. Nevertheless, a number of weaknesses still remain\. In general, the 2003 CWIQ, the 2003 DHS, and the PSIAs have been underused\.xi While there was an increase in participatory M&E in 2004 and the results were incorporated into the 2004 APR, feedback mechanisms are still needed to ensure adequate follow-up of these findings\. Budget outcomes are not comprehensively reported, so M&E cannot feed back effectively; however, the ability to close the loop from M&E back to program design will be critical to the quality of future programs supported by PRSC 4-7 (see Section 7\.4 below)\. It is in this context that forthcoming PRSC operations appropriately continue to focus on strengthening M&E capabilities and building the sustainability of M&E capacity and utilization\. 2\.4 Expected Next Phase/Follow-up Operation 16  PRSCs 1-3 are being followed by a second series of four annual operations covering the period 2006-2009 and supporting the implementation of the GPRS I,, in line with the 2004 CAS Progress Report\. The design of this new series was coordinated with the other DPs that participated in the MDBS framework supporting the first GPRS, and the MDBS framework will continue to be used\. This new series of operations is focusing on the three broad components of GPRS II: (i) accelerated private sector-led growth, (ii) vigorous human resources development, and (iii) strengthened good governance and civic responsibility\. A key element of the GPRS II is a focus on the macroeconomic environment as a platform to generate growth, rather just an area where performance stability needs to be maintained\. 3\. Assessment of Outcomes 3\.1 Relevance of Objectives, Design and Implementation The Bank's strategy to progressively increase the share of assistance developed programmatically through the PRSCs became central to the Bank's FY04-07 CAS and accounted for around 50 percent of overall Bank lending during the CAS period\. The CAS itself was firmly rooted in the Strategic Framework for IDA in Africa (SFIA) and the West Africa Regional Integration Assistance Strategy\. The CAS also included several non-lending activities that provided the analytical underpinnings for the PRSCs' support to strengthening fiduciary arrangements, including PERs, CFAAs, and CPARs\. The CAS itself was properly driven by the PRSP and was developed through extensive consultations with Government, stakeholders, and civil society\. As a result, it was closely aligned with the GPRS program and focus\.xii The three broad components of the PRSCs encompassed the five thematic pillars of the GPRS and were compatible with the MDGs (see Annex 9 for a figurative representation of the close alignment of the CAS, GPRS, and the PRSCs)\. xiii The consistency between the CAS, GPRS, and the PRSCs was further reinforced by the fact that the PRSCs were an integral part of the larger and concerted MDBS effort which focused on strengthening the complementarity between the GPRS and inflows of development assistance\. The PRSCs were complemented by a series of specific investment and technical assistance operations, covering the education sector, HIV/AIDS, public sector reform, and finance and private sector development\. These operations were also consistent with other Bank lending to support poverty reduction, most particularly the Community Based Rural Development aimed at reducing rural poverty; the second phase of the Community Water and Sanitation APL to increase coverage of improved water and sanitation services; and the Community Based Poverty Alleviation LIL testing approaches and mechanisms for achieving community-based poverty reduction through improved nutrition, food security, and support to street children, among others\. Project design was also sound because it maintained a focus on monitoring poverty outcomes to ensure that sector programs delivered results in terms of human development indicators that are directly relevant to the MDGs\. Under the PRSCs, disbursements took place at project effectiveness based on the Government's satisfactory accomplishment of prior actions\. This design ensured that key essential reforms needed to support the goals of each phase of the PRSC program would be enacted up-front, giving this lending mechanism advantages over structural adjustment credits used previously\. As seen in Table 1 above, the prior actions show a consistent unfolding of a reform package designed to support the implementation of the GPRS, and ensuring a high level of continuity from operation to operation\. By channeling resources through the budget, instead of through projects where Government decision-making is limited, the MDBS fostered decision-making by the Ministry of Finance, Cabinet, and Parliament, giving these entities a greater stake in the pro-poor 17  agenda, sound financial management, and decision-making, thereby enhancing democratic accountability\.xiv It should be noted, however, that the decision to utilize this type of lending instrument -- rather than a conditionality-based operation where tranche release(s) were dependent upon the completion of specified actions ­ was not without risk\. Ghana's performance under the two previous credits (Economic Support Reform Operations II and III) was uneven, xv and the approaching 2004 elections ­ which in previous years had always been accompanied by weak macroeconomic management ­ augured poorly for the success of the Government program supported by PRSC-1; and in fact, delays in actions to encourage private sector development and carry out the public sector reform agenda in 2003 did raise legitimate questions at the time about the sustainability of the advances under PRSC-1\. Nonetheless, the risk of going ahead with this type of instrument was warranted given that the approach used under ERSO II and III was not entirely successful in fostering significant or sustained reforms (particularly in the areas of public sector reform, privatization of state-owned enterprises, and reform of the energy sector)\. In contrast to typical Bank practice, PRSC-1 was developed ahead of the finalization of the FY04 CAS, (which typically would have provided the strategic context for the PRSC), and the conclusion of the FY03 CFAA (which would have updated the knowledge required for the definition of prior actions and triggers in the area of fiduciary safeguards)\. There were, however, four rationales for moving forward with the PRSC\. One, it was felt that the FY00 CAS and the upstream work on the FY04 CAS provided enough clarification of the strategic context for the PRSC-1\. Two, on the analytical side, the FY01 CFAA and the mission report of the FY03 CFAA-update provided sufficient inputs for the design of the prior actions and triggers of PRSC- 1\. Three, and perhaps most importantly, the Ghanaian authorities requested that the Bank show its support to the GPRS early, and align that support with the GPRS implementation timeframe in order to sustain the national enthusiasm that had been built around the program\. Finally, the choice was also influenced by the Bank's need to maintain its key role among the DPs who were moving ahead with multi-year budgetary assistance\. While this approach was not without risks given the need to keep improving the fiduciary framework, it appears to have succeeded both in maintaining the momentum built under the GPRS and unifying the Bank's assistance with the other DPs\. The program document for each PRSC identified a number of risks to each operation, as well as reasonable mitigating factors offsetting those risks, as shown in Box 2 below\. The risk of electorally-induced economic slippages was correctly identified, incorporating the lessons learned from previous election cycles in Ghana\. Three risks ­ fiduciary risks, capacity limitations, and exogenous shocks ­ were common to all three operations, but were in fact intrinsically addressed by the very nature of the actions implemented under the programmatic series (e\.g\., PEM strengthening and capacity building), or by the nature of the MDBS framework, which provided a forum ensuring access to emergency financing (as long as the program remained sound)\. Box 2: Identified Risks and Mitigating Factors, PRSC 1-3 Identified Risk Mitigating Factor PRSC-1 1\. Sustainability failure owing to 1\. Use of communication & dialogue to gain social acceptance of the political/social pressures reforms, as used successfully to gain acceptance of overdue petroleum price & utility adjustments\. Sound & early poverty measures also reduce risk of opposition\. 2\. Terms of trade shocks or increased 2\. To some extent, excellent relations with MDBS DPs should ensure regional stability threaten macro- access to emergency financing or enable adjustment in disbursement 18  Identified Risk Mitigating Factor financial framework timing, as long as program is sound\. 3\. Residual fiduciary risks to funds 3\. Residual fiduciary risks exist, but will diminish with improvements in budget management & greater focus on fiscal transparency, Parliamentary oversight, & budget account disclosures -- all part of GPRS process\. 4\. Implementation capacity outpaced by 4\. Bank leading DP effort to harmonize program content & adoption of program common framework in 2004 will help\. Donor support under MDBS will make TA necessary if needed\. PRSC-2 1\. GoG cannot sustain current fiscal stance 1\. GoG's recent track record on fiscal management & early action in in run up to elections\. identifying expenditure savings & additional revenue measures to offset price subsidies for retail petroleum products\. 2\. Macro-financial context may deteriorate 2\. To some extent, excellent relations with MDBS DPs should ensure as a result of exogenous shocks access to emergency financing or enable adjustment in disbursement timing, as long as program is sound\. 3\. Fiduciary weaknesses may limit the 3\. Risk is steadily decreasing with progress on strengthening PEM impact of the program regulatory framework\. 4\. Capacity limitations may lead to only 4\. Government continues to build its capacity as well as draw on the partial implementation extensive technical assistance being provided by DPs\. PRSC-3 1\. GoG is delayed in implementing 1\. Recent increases in retail petroleum product prices close existing gap planned structural reforms in the energy between domestic and import parity prices\. sector, leading to a deterioration in the fiscal stance & interruption in Fund program\. 2\. Macro-financial context deteriorates as a 2\. Somewhat mitigated by commitment from DPs to stand ready to result of exogenous shocks, making adjust timing of disbursements as long as problem remains sound\. program implementation difficult\. 3\. Fiduciary weaknesses limit impact of 3\. Risk is steadily reducing owing to continued progress on PEM the program regulatory framework 4\. Capacity limitations lead to only partial 4\. Government continues to build its capacity as well as draw on the implementation extensive technical assistance being provided by DPs Finally, program design correctly included the energy sector\. This inclusion -- which occurred as a result of the Bank's urging -- was initially opposed by some DPs who argued that the energy sector was not a sufficiently cross-cutting issue to be included\. In retrospect, the Bank's persuasiveness on including this focus was well advised, as energy issues continue to play a significant role in the economy\. As discussed further below, progress in the energy sector was slow and the sector is currently in crisis; however, this reflects the political sensitivity of these reforms, rather than poor program design or insufficient attention by the Bank\. Nonetheless, while the PRSC 1-3 were a well designed and implemented series of operations that were clearly aligned with both the Bank and the borrower's objectives, program design did suffer from a number of weaknesses\. A principal weakness was the fact that water and sanitation- related actions were not included under PRSC-1 but were added to the PRSC agenda under PRSC-3 after the DHS Survey indicated deterioration in infant morality and under-5 mortality rates between 1997 and 2003\. While this omission in part reflected the time needed to better align DP priorities in this area under the MDBS framework, it is regrettable, given the clear and direct link between access to safe water and sanitation and positive health outcomes, and that increasing access to water and sanitation is the most important infrastructure investment for achieving the human development MDGs\.xvi The omission of this area essentially meant that improvements in human development indicators resulting from water and sanitation interventions were delayed by two years\. 19  A second weakness in program design is the fact that none of the poverty survey instruments correspond to the period of time covered by the PRSC operations\. While extensive work has been done on implementing and strengthening the Ghanaian M&E system for tracking poverty- related trends, there is no survey instrument aligned with this programmatic series of operations\. The Ghana Living Standards Survey (GLSS5) was not completed as originally planned and the results were not expected to be available until end-2006\. The DHS and CWIQ were last completed in 2003 and will not be carried out again until 2008\. Thus, while some poverty-related impacts are measured (e\.g\., GPER), there is no measure of poverty headcount or distribution to inform either the evaluation of PRSC 1-3 or to inform the design and implementation of the next programmatic series of operations\. Program assessment is also made difficult by the complexity of the program design\. While a policy matrix ­ which set forth the (i) policy objectives; (ii) actions to be completed under each component in each operation and the two succeeding operations; and (iii) expected outcomes -- was included in the program document for each PRSC, these matrices are inconsistent over the program period\. The extensiveness of the areas covered under the PRSCs ­ as well as the multiplicity of donors, each with somewhat different priorities resulted in a complex policy matrix containing multiple monitorable outcomes (e\.g\., 51 in total in the policy matrix for PRSC- 1)\. Under PRSC-2, however, 13 of these original outcomes were either eliminated entirely, or were replaced by new outcomes; in some cases, the outcomes remained the same but the quantification was removed, which makes performance assessment subjective and difficult\. Finally, for some outcomes the wording was changed so that while still similar, they were not precisely the same; again, this makes it difficult to assess performance across the range of these operations\.xvii While some of the changes between PRSC-1 and PRSC-2 can be attributed to the agreement on a harmonized performance framework under the MDBS, not all of them can, because a number of the outcome indicators that were modified under PRSC-2 were subsequently eliminated under PRSC-3, when still more new indicators were added\. Many of these changes may have been for sound reasons -- for example, identification of a more representative indicator ­ while others may have been made to accommodate the varying priorities of the DPs and to ensure harmony under the MDBS\. Nonetheless it impedes an effective evaluation of program progress across the entire programmatic series of operations in accordance with ICR requirements\.xviii 3\.2 Achievement of Program Development Objectives The key policy achievements that were achieved under the PRSC operations are discussed below; additional details can be found in Annex 1 which contains a detailed policy matrix of all the PRSC 1-3's policy objectives, expected outcomes, and actual outcomes\. Overall Outcomes of PRSC 1-3: In the area of promoting growth, investment, and employment, accelerated economic growth coincided with macroeconomic stabilization under the PRSC 1-3 series\. GDP growth averaged 5\.6 percent, rising from 4 percent a year during 2000-02, and real GDP per capita increased accordingly (see Table 2 below)\. End-period inflation was nearly halved to 14\.3 percent from an average of 24\.3 percent during 2000-02; the cedi stabilized against the US dollar; gross international reserves were built up; and the goal of halving the stock of government domestic debt relative to GDP ­ a key anchor in the fiscal program aimed at "crowding in "private sector access to financial resources ­ was achieved\. Domestically financed public spending on pro-poor services was also increased from 4\.8 percent of GDP in 2002 to 8\.2 percent in 2005\. The business environment was improved through a reduction in clearance procedures at the seaports and a decrease in the number of days needed to register a business\. Finally, in the area of sectoral reforms, Ghana made strong progress in moving petroleum and 20  electric power prices to reflect world market prices and the costs of production, albeit with some delays\. The Government also established mechanisms for evidence-based adjustments in these areas, thus reducing political pressures for delays when prices needed to be raised\. Less positively, only limited progress was made in reducing ECG system losses, which declined only marginally (from 26 percent in 2002 to 25\.5 percent at end-2005, far short of the target of 18 percent)\.xix Likewise, electricity subsidies continue to be high, as VRA supplies energy to the aluminum smelter (the Volta Aluminum Company -- VALCO) at 2\.7 cents per kwh, compared to its marginal cost of 10 cents per kwh, and continued weaknesses in the energy sector may have negative implications for future growth and operations (discussed further in Section 9 below)\.xx Finally, although the time needed to register a new business was reduced by 48 days (to 81 days) under PRSC 1-3, this is still among the highest in the region, underscoring the need for continued progress\. In terms of improved service delivery for human development, there was encouraging progress in expanding access to education and health services\. Gross primary enrollment rates reached 92 percent by the 2005-06, up from 81 percent in mid-2003\. The gender parity index narrowed, although the 2005 MDG of equality appears not to have been achieved\. Supervised maternal deliveries rose slightly at the national level, almost 2 percentage points, to about 54 percent, from 2002 to 2005\. In both gross primary enrollment and supervised maternal deliveries, marked improvements occurred in the four relatively deprived regions\. The HIV/AIDS prevalence rate among pregnant women fell to 3\.1 percent in 2005 from 3\.6 percent in 2003 (and declined further to 2\.9 percent by 2006)\. In addition, the under-five mortality rate due to malaria fell from 3\.7 percent in 2002 to 2\.4 percent in 2005\. Other key health indicators, however, have shown little improvement\. The indicators for maternal and infant mortality stagnated and child malnutrition worsened in a few of the regions\. A participatory survey carried out by a group of NGOs in 2004-05 corroborated these findings at the grass-roots level, and the responses in the survey were extremely critical across a range of services in health and education with respect to the quality of these services\.xxi In the area of governance and public sector management strengthening, progress has been mixed, despite clear steps in selected areas\. Progress under this component was reported primarily in strengthening public financial management, with improvements in budget coverage, timelier external auditing of the accounts of the consolidated fund, and in the implementation of new public procurement and internal audit legislation\.xxii External audit reports became timelier, with the annual report by the Accountant General being submitted to Parliament within less than 12 months of the closing of the accounts\. There was also progress in implementing the new public procurement law, with increased coverage provided by the entity tender committees and the tender review boards\. Under the new internal audit agency law, the number of MDAs submitting internal audit reports began rising\. Less positively, some actions which seemed like important reform achievements at the time of implementation have not had a real impact or their impact has been slow to be realized\. For example, while the Freedom of Information Act was submitted to Cabinet in 2004, it has still not been passed into law\. Similarly, while the BPEMS was installed in the Ministries of Road/Transport and Education under PRSC-2, it was not used for processing transactions or producing reports until 2006,xxiii and the establishment of Office of Accountability in the Office of the President still lacks sufficient funding or capacity building to fulfill its mandate\. Progress in public sector reform and on the decentralization agenda was also slow throughout the PRSCs, and the implementation of approved reform programs needs to be accelerated to improve productivity in the public sector and empower local authorities\.xxiv As discussed in Section 9 below, these delays in reform may have negative implications for future operations, as budget support provided through the PRSCs and other MDBS flows was primarily 21  used to replenish the country's reserves and to reduce domestic debt, rather than going into service delivery that would have tested the absorptive capacity of the country\. As donor resources continue to flow to poverty-related areas, however, the effectiveness of this funding risks being compromised if the capacity, performance, integrity, and efficiency of the public service is not improved further\.xxv Table 2: Ghana: Key Macroeconomic Indicators, 2003-05 (%) 2003 2004 2005 Real GDP growth 5\.2 5\.6 5\.9 Real GDP per capita 2\.6 3\.0 3\.2 CPI inflation1 26\.7 12\.6 15\.1 Gross Investment/GDP 22\.9 28\.4 29\.9 Gross National Savings 20\.7 25\.7 22\.8 Current Account Balance/GDP (incl\. Grants) 1\.7 -2\.7 -7\.0 Overall Budget Balance/GDP (incl\. Grants) -4\.4 -3\.6 -3\.0 1) Annual average\. Source: IMF, 2006\. 3\.3 Justification of Overall Outcome Rating Rating: PRSC-1 Satisfactory PRSC-2 Satisfactory PRSC-3 Satisfactory All three of these operations are rated satisfactory\. The operations' development objectives were satisfactorily achieved in an efficient fashion, and, as discussed above, the PRSCs' objectives, design, implementation, and outcomes were highly relevant to country circumstances and development priorities and were highly consistent with Bank strategies and goals\. 3\.4 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development Poverty: A number of measures under the PRSCs reflected more effective targeting of the poor by removing financial barriers to health and education\. These were directly related to the goal of achieving the MDGs and included: (i) the introduction of scholarships to enable girls to complete primary school in deprived districts (PRSC-2); (ii) elimination of Government-controlled school fees for primary school pupils in deprived areas (PRSC-2) and subsequently nationwide (PRSC- 3); (iii) reforming the exemption system to provide health system subsidies for the poorest (PRSC 1-3); and (iv) funding maternal delivery exemptions (PRSC 1-3)\. In addition, a number of these policies gave first priority to the three most deprived regions, thereby helping to address regional disparities in poverty\. In addition, there were a number of broader measures to address non-income dimensions of poverty, also in accordance with achieving the MDGs\. These include: (i) increasing resources for education going to deprived districts (PRSC 1-3); (ii) implementing Community-based Health 22  Planning and Services (PRSC-1); (iii) implementing a high impact rapid delivery program for under-five mortality and maternal mortality rates (PRSC-1); (iv) implementing community initiatives to prevent HIV transmission and provide care to PLWHAs, AIDS orphans, and families (PRSC 1-2); (v) implementing a teacher retention scheme (PRSC 2-3); and (vi) ensuring timely delivery of textbooks for primary schools (PRSC 2-3)\. All of these measures were also targeted at the most deprived regions in order address regional disparities in poverty\. The positive outcomes (detailed above in Section 8\.2) relating to primary school enrollment, supervised maternal deliveries, HIV/AIDS prevalence rates, and under-5 malaria fatality rates indicate that the human development policies supported by the PRSCs were appropriate\. Less progress was shown for the health indicators, however, with targets being missed in the areas of child malnutrition, under-five mortality rates, maternal mortality, and infant mortality; although the lack of data subsequent to the 2003 DHS means that a conclusive assessment of these targets is not yet possible for these operations\.xxvi It is not possible to assess the broader impact of the PRSCs on poverty headcount at this time owing to the lack of data\. Although domestically financed public spending on pro-poor basic services increased from 4\.8 percent of GDP in 2002 to 8\.2 percent in 2005, not all such spending necessarily translates into poverty reduction; for example, wages and salaries accounted for 55 percent of overall poverty-related spending in 2005, and much of the increase in the wage bill was due to higher salaries, rather than an increase in employment\. Notwithstanding the lack of data, however, Ghana's economic growth during PRSC 1-3 may have had a favorable impact on poverty\. The reduction in poverty that occurred between 1997 and 2003 was primarily due to the acceleration in economic growth (although a reduction in inequality also contributed)\. Given Ghana's strong economic growth during 2003-05, as well as the high level of remittances,xxvii it is probable that poverty continued to decline under PRSC 1-3; however, the distributional impact of this growth on poverty may be skewed to the Western, Volta, Ashanti, and Brong Ahafo regions, where production of cocoa, timber, and gold exports is concentrated, rather than to poverty- endemic areas\. Gender: To promote gender equity in enrollment and retention, all Government-controlled fees were eliminated and scholarships were introduced to enable girls to complete primary school in deprived districts\. The resulting improvement in female enrollment clearly had a positive gender impact\. In the longer term, this is likely to have a positive impact on poverty reduction as there is a strong gender dimension to poverty in Ghana, with gender inequalities reflecting differences in access to education\. The omission of a water focus from PRSC 1-2, however, may have had negative gender implications, as women are traditionally responsible for water provision for domestic purposes, and carry heavier burdens in the quest for water\. As noted, the gender parity index is narrowing, but the 2005 MDG of equality may not have been achieved\. Finally, there is no gender-specific budgeting that would ensure budgetary expenditures with specific gender outcomes\. (b) Institutional Change/Strengthening The institutional development impact of the reform measures implemented under PRSC 1-3 was substantial\. Many of the reforms implemented were the genesis for important institutional innovations\. The latter includes the amendment of the Volta River Authority (VRA) Act, and the new Financial Administration, Internal Audit Agency and Public Procurement Acts (FAA, IAA and PPA)\. The amendment of the VRA established the legal basis for the separation of power transmission from generation\. Similarly, the FAA implied a new framework for the management of state resources, leading to clearer reporting responsibilities and greater accountability within 23  the public sector\. Finally, the IAA established the legal basis for setting up an apex body to coordinate, facilitate and provide quality assurance for Internal audit controls in government ministries and agencies, while the PPA strengthened the public procurement institutions, including the creation of a Public Procurement Board, aimed at reviewing procurement practices within the public sector and at increasing accountability throughout the public sector\. An indirect and intangible impact of the MDBS process has been the apparent strengthening of the MoFEP which is responsible for overseeing the implementation of the MDBS/PRSC program\. The Government led the development of the GPRS and a consequence of the MDBS process has been a further increase in ownership by the Government and a shift to a greater emphasis on the national budget process\. GoG officials state that the MDBS has led to a greater focus on improving intra-government coordination and setting priorities\.xxviii As a consequence of the greater focus on the budget process, the MoFEP has emerged as an increasingly important and active institution and has reportedly found it easier to recruit and retain staff, thereby improving the Ministry's capacity and capabilities over the course of PRSC 1-3\.xxix In addition, by strengthening the links between the GPRS and the budgetary process, there has been a greater involvement of key decision-makers in budget preparation, thereby strengthening the integration of cross-sectoral issues\. Although the capacity of the MOFEP has strengthened over the course of PRSC 1-3, it is less certain that the capacity of key poverty-related ministries such as Health and Education have been significantly improved\. The lack of progress on the public sector reform aspects of the PRSCs means that the capacity of the Ghanaian civil services remains very weak\. This weakness may negatively affect program implementation in subsequent PRSCs as the next phase of reforms will be more capacity-intensive as greater efforts are spent on expanding and improving core services and because of the significant debt reduction that has already occurred\. (c) Other Unintended Outcomes and Impacts During the PRSC 1-3, budget allocations to poverty-related programs increased fairly steadily, rising from 4\.7 percent of GDP in 2002 to 8\.5 percent of a (larger) GDP in 2005\. Spending on wages and salaries in both 2003 and 2004, however, ended up accounting for a larger-than- anticipated share of poverty-related expenditures, thereby reducing the amounts available for non- wage expenditures such as school textbooks and medical drugs which tend to be positively correlated with the quality of service delivery\. The increase in spending on wages and salaries was particularly pronounced in agriculture, primary health, and feeder roads programs, where the increases exceeded the overall increase in spending on poverty-related expenditures, reflecting delays in carrying out investments in these three programs\.xxx 4\. Assessment of Risk to Development Outcome Rating: PRSC-1 Moderate PRSC-2 Moderate PRSC-3 Moderate Any assessment of development outcome is necessarily predicated on both the continuation of sound macroeconomic polices to foster continued economic growth and sustained inflows of external remittances and official transfers, particularly since domestic resources are insufficient to finance the GPRS II\. Nonetheless, future sustainability is supported by the fact that 24  macroeconomic policy-making remains sound\.xxxi PRSC-3 took place in the fourth year of economic expansion, and macroeconomic performance under PRSC-4 remained positive, with estimated GDP growth of 6 percent; strong expansion in agriculture and mining; a decline in twelve-month inflation from 14\.8 percent at end-2005 to 10\.5 percent in June 2006 (despite significant upward adjustments of domestic petroleum prices); and further narrowing of the external current account deficit resulting from new gold production, an increase in cocoa exports, and continued strong remittance flows (which are estimated to increase to 17 percent of GDP in 2006, up from 15 percent in 2005)\. Moreover, the introduction of a petroleum pricing formula has addressed what had been a perennial problem with substantial negative macroeconomic impacts in Ghana ­ i\.e\., the failure to implement timely petroleum price adjustments ­ and the continued use of this formula should help shore up future macroeconomic stability\.xxxii In addition, donor commitment remains strong, which augurs well for continued flows of budgetary and other assistance\. In addition, the institutional creation and strengthening that occurred under the PRSCs will also aid sustainability\. Many of the measures implemented under PRSC 1-3 have created structures that will not easily be dismantled; for example the audit units, procurement board, and land registries\. A number of legal actions ­ for example, the FAA, the PPB and the IAA ­ cannot be easily reversed\. In addition, improvements in processes such as budget management and external auditing are self-reinforcing and contribute to good outcomes\. Finally, sustainability is supported by the Government's development of GPRS-II, including a prioritized result matrix, an aid harmonization and effectiveness action plan, and a support overview indicating actual and projected disbursements by DPs by sector and pillar\. This indicates the GoG's commitment to moving forward with its poverty reduction agenda and facilitates the alignment of future DP support with national strategies and the budget, thereby aiding implementation and increasing the likelihood of continued positive progress\. In addition, the strong involvement of civil society and other groups in the development of GPRS-II, and the growing use of participatory M&E, makes sustained national commitment to the program more likely\. Implementation of successor programmatic operations (PRSC 4-7), and continuation of the MDBS framework in support of GPRS II, will help maintain the development outcomes achieved under PRSC 1-3 by providing continued budget and other assistance\. Notwithstanding these favorable influences, however, several factors remain that could pose a risk to development outcomes\. These include: (i) the continued appreciation of the cedi (which has increased about 20 percent in trade-weighted terms over the last two years) which would slow export growth; (ii) remaining fiduciary weaknesses that might limit the impact of the program and lead to only partial funding from Ghana's DPs; and (iii) as with any country with a narrow economic base, substantial terms of trade shocks or reductions in remittances that could undermine macroeconomic performance\. There are, however, mitigating factors that lessen the likelihood of some these risks\. They include (i) the fact that the cedi has been recently undervalued and the prospect of lower energy import bills in the near future once the investments in the West African gas pipeline are completed; and (ii) continuing progress on strengthening the PEM regulatory framework and budget management\. Finally, the risk of exogenous shocks is offset by Ghana's track record of prudent economic management and the excellent relations it maintains with the MDBS partners, providing access to emergency finance if needed (assuming positive program progress)\. More troubling, however, are the larger threats to sustainability stemming from the energy and public sectors\. The energy sector remains problematic\. The introduction of a petroleum pricing formula was a significant achievement, and similarly, recent initiatives to, inter alia, earmark 25  budget funds to compensate VRA for the differences in cost of generation and sale of power to VALCO are addressing the quasi-fiscal deficits stemming delays in adjusting electricity tariffs and continued sales of power at subsidized rates to VALCO\. Continued economic growth, however is predicated on successfully addressing a myriad of energy sector issues; energy sector reforms, however, have been a thorny issue for successive Governments since the 1990s, the reforms that remain to be achieved are complex, and power shortages are expected to depress GDP in 2007\.xxxiii Finally, while the GoG is addressing VALCO's deficits, the Government's plans to undertake non-concessional borrowing raises questions about future debt sustainability\. xxxiv Sustainability is also threatened by the slow progress on public sector reforms under PRSC 1-3\. The large size of the public sector continues to constrain economic expansion by limiting private sector growth and reducing the scope for fiscal management\. Many health targets were missed, and as noted above, the use of external assistance over 2003-05 to pay down debt and replenish reserves did not test the public sector's ability to spend increased resources effectively, yet such delivery is essential to ensuring that poverty is attacked comprehensively\. Moreover, economic growth, although strong, is threatened by the large size of the wage bill, which is the fastest growing expenditure item in the budget, and which increased significantly in the 2007 budget statement\.xxxv High wages and salaries also absorb a large proportion of recurrent expenditures in education and health, thereby reducing funds available for items such as textbooks, pharmaceuticals, or clinics\.xxxvi Finally, reforms in both the public sector and in the energy area will have to place in the context of the approaching 2008 election which is likely to slow progress on politically difficult issues such as wages\. The chief mitigating factors to these more substantive risks include the Government's considerable commitment to moving forward with the GPRS-II, as discussed above, and the effectiveness of the policy dialogue between the Government and its MDBS partners\. In addition, PRSCs 4-7 continue to focus on cross-cutting issues such as public sector reform and decentralization, and the Bank's Economic Management Capacity Building project (US$25 m\. FY06-11) aims at improving the efficiency of public sector management and enhancing the quality of service delivery\. Notwithstanding the efforts of the Bank and the other DPs to mitigate these risks, however, realism requires an upfront recognition that reform progress is likely to slow in the run-up to the 2008 elections\. 5\. Assessment of Bank and Borrower Performance 5\.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: PRSC-1 Satisfactory PRSC-2 Satisfactory PRSC-3 Satisfactory PRSC- 1: The overall objectives of the PRSCs were well aligned with Government's development agenda, priorities, and policies, as set out in the GPRS and they became a central element of the CAS\. As noted, lessons learned from past adjustment operations regarding the need for government ownership were incorporated in the design of the PRSC program and risk assessment and mitigating measures were appropriate\. Similarly noted above, in preparing 26  PRSC-1 the Bank built on substantial analytical work already available on the country\. In preparing and supervising the credit, the Bank worked closely with the IMF and the DPs participating in the MDBS, allowing the program to harmonize with -- rather than duplicate -- the implementation of ongoing sector programs and projects\. Collaboration and joint support between the IMF and Bank for implementation of the GPRS is evidenced through joint assessments of the 2003 APR\. Credit disbursement procedures followed the Bank's disbursement procedures for development policy credits\. Finally, the outcomes of PRSC-1 were sustained through the development and implementation of subsequent operations (PRSC-2 and PRSC-3)\. PRSC-2: Overall, Bank performance was satisfactory during credit preparation and appraisal\. PRSC-2 was prepared in parallel and in close coordination with IMF's PRGF, following the agreed institutional division of labor with the IMF taking the lead on macro-economic sector issues, and the macroeconomic impact of issues such as public sector reform, while the Bank took the lead on structural and social issues\. Collaboration and joint support for the implementation of the PRSC is evidenced through the joint assessment of the 2004 APR, the 2004 HIPC Expenditure Tracking Assessment and Action Plan, and the mid-2004 assessment of progress toward the completion point under the Enhanced HIPC Initiative\. In the number of areas where the mandates of the two institutions overlapped, such as energy sector reforms, the work was coordinated to ensure that consistent advice was provided to the Borrower\. PRSC-2 also further deepened the harmonization of donor practices\. In the run up to the preparation of the program, development partners carried out two joint missions (June and September 2003) that were important first steps in aligning mission schedules and advancing agreements on policy actions and on the timing of future assessment reviews\. These efforts led to a better alignment of programs for 2004, with an almost complete overlap between key policy actions agreed under the MDBS 2004 and those envisioned under PRSC-2\. The objectives of the PRSC-2 were also well aligned with Government's development agenda, priorities and policies, as set out in the GPRS\. Lessons learned from the implementation of the PRSC-1 ­ primarily, the need for closer coordination with the DPsxxxvii -- were incorporated in the design of the PRSC-2, allowing the PRSC-2 to draw from work on poverty and social analysis, as well as from country economic and fiduciary work completed earlier\. Finally, the outcomes of PRSC-2 were sustained through the development and implementation of subsequent operations (PRSC-3)\. PRSC-3: The appraisal mission for PRSC-3 was carried out during the joint 2004 supervisory missions which were again conducted in close coordination with the MDBS partners\. (Under the MDBS framework, a minimum of two review and appraisal missions must take place each year)\. This joint work further deepened the cooperation among the DPs, thereby ensuring agreements on policy actions and the timing of future assessment reviews, and producing a strong alignment of programs for 2005 and 2006\. Finally, the outcomes of PRSC-3 were sustained through the development and implementation of the subsequent operation (PRSC 4)\. (b) Quality of Supervision Rating PRSC-1 Satisfactory PRSC-2 Satisfactory PRSC-3 Satisfactory 27  PRSC-1: Supervision of progress against the 2003 triggers was conducted through a joint MDBS/PRSC mission by the Bank and other DPs\. Supervision was thorough, and in fact could not be cursory owing to the nature of the MDBS framework and the number of donors\. Supervisory missions contained an appropriate mixture of expertise in the areas of macroeconomics, health, agriculture, financial management, natural resources, operations, procurement, and education\. Macroeconomic supervision was exercised through the IMF's PRGF program (approved May 2003) and the IMF Resident Representative in Accra\. PRSC-2: Supervision of the credit occurred through joint MDBS/PRSC missions which included observers from the US, French, and Japanese development agencies, as well as representatives from multilateral agencies such as UNDP and WHO, as well as a Bank mission\. Bank supervision was therefore aligned with the activities of other donors, focusing on the year- long verification process that monitored implementation of the policies supported by the PRSC/MDBS and identified how to best measure the completion of the agreed policy actions\. Supervisory missions also contained an appropriate mixture of personnel relevant to the policy areas of PRSC-2\. Program implementation was also monitored through a series of standardized reports produced at pre-defined intervals; these reporting requirements were established as part of the MDBS framework and improved the Bank supervisory capabilities during PRSC-2 and subsequent operations (see Box 3 below)\. Finally, macroeconomic supervision was exercised through the IMF's three-year PRGF) and the IMF Resident Representative\. Box 3: GoG Reporting Under the PRSC/MDBS 1\. Quarterly reports on macro-economic developments to assess progress on the implementation of the framework agreed between the Government, the IMF and the World Bank, with a lag of no more than 8 weeks after the end of each quarter\. 2\. Quarterly reports on budget expenditures with breakdown by Ministry, Department and Agency with a lag of no more than 8 weeks after the end of each quarter\. These reports will also present the breakdown for Items 1-4 of the Ghanaian budget\. 3\. Quarterly reports on domestically financed poverty-related expenditures (including HIPC-financed expenditures), with a lag of no more than 8 weeks after the end of each quarter\. These reports would include a breakdown along main poverty-related expenditure programs (education, health, etc\.) and a breakdown for Items 1-4 of the Ghanaian budget (personnel, administration, services, investment) 4\. A joint Aide-Memoire from the Review and Appraisal sessions reporting on the Progress Assessment Framework and triggers/targets (completed by the GoG with its DPs) 5\. Selected-flows audit (in advance of the first review and appraisal session)\. 6\. Annual report (not later than March) on progress on the implementation of the GPRS\. PRSC-3: Bank supervision was aligned with the activities of other donors, focusing on the year- long verification process that monitors implementation of the policies supported by the PRSC/MDBS and identified how to best measure the completion of the agreed policy actions\. Supervisory missions again contained an appropriate mixture of personnel relevant to the policy areas of PRSC-3\. As with PRSC-2, program implementation was also monitored through a series of standardized reports produced at pre-defined intervals, and macroeconomic supervision was exercised through the IMF's PRGF and the IMF Resident Representative\. During the joint MDBS-/PRSC review mission from April-June 2005, the GoG agreed that only four of the six subsets formulated in the 2005 Technical Annex to the MDBS-Framework Memorandum had been fully achieved\. The Bank nevertheless felt that there was sufficient progress in all the actions envisioned under the PRSC-3 policy matrix, although the bilateral DPs and the EC decided to release only two-thirds of their performance tranche\.xxxviii This action by the Bank reflected flexibility, in that decisions about tranche release were based on overall 28  progress, rather than exact compliance with specific trigger indicators, in cases where mitigating circumstances existed\. (c) Justification of Rating for Overall Bank Performance As Bank performance for both quality at entry and supervision was rated satisfactory, overall Bank performance is rated satisfactory in accordance with the ICRR harmonized evaluation criteria guidelines\. 5\.2 Borrower Performance (a) Government Performance Rating: Satisfactory PRSC-1: Overall Borrower performance was also satisfactory\. The joint Bank-IMF staff assessment of the GPRS had already underscored the soundness of the GPRS framework for implementing the Government's poverty reduction agenda\. Areas that received particular mention included: (i) the commitment to ensuring macroeconomic stability, as a necessary condition for accelerated growth and poverty reduction; (ii) the understanding of the need to remove obstacles in the access by the poor to basic human services (education, health, social protection); and (iii) the attention given by the authorities to the significance of improving transparency and accountability of public institutions, including the upgrading of public financial management\. While some of the other areas of the reform program were less well developed, including private sector development and public sector reform, actions under the program supported by the PRSCs aimed at elaborating these elements of the program in a timely fashion\. PRSC-2: Overall Borrower performance was satisfactory\. Macroeconomic stabilization was maintained and considerable progress was achieved in implementing the GPRS and its broad range of sectoral strategies\. In particular, the Borrower set a historical precedent in maintaining sustained growth and a broadly stable macroeconomic environment during an election year\. Public financial management was improved through several actions: (i) new legislation for financial administration, internal auditing, and procurement; (ii) practices that helped minimize the risk of budget slippages and accumulation of arrears; (iii) the prompt reconciliation of budgetary and banking accounts; (iv) the increase of frequency and timeliness of reporting on budget execution; and (v) the control of proper use of public resources\. To ensure the efficient use of public funds, as well as greater transparency and accountability, the Public Procurement Institutions were established after the Procurement Act was signed into law in December 2003\. Also, Ghana maintained a favorable ranking in Transparency's International Corruption Perception Index, behind only Mauritius, Botswana, and Namibia\. To encourage private sector competitiveness, the Government introduced various initiatives to reduce the cost of doing business in the country, including the installation of automated clearance procedures at the Tema and Takoradi seaports, and the steps to reduce the time of registering businesses\. It was in this context that Ghana reached the completion point of the Enhanced HIPC Initiative in July 2004\. Funding from HIPC relief amounted to 866 billion cedis, with around 20 percent of the resources used to pay down domestic debt, while the remaining resources were allocated to programs and projects for the medium-term priority areas outlined in the GPRS, particularly in the areas perceived to have greater impact on the poor\. These action and activities undertaken by the 29  Government underscored the country's commitment to the tenets and aspirations of the GPRS with regard to growth and poverty reduction\. PRSC-3: Government performance continued to be broadly satisfactory\. Domestic debt reduction was substantial and economic growth continued to be strong\. Introduction of a petroleum pricing formula addressed what had been a longstanding weakness in the Ghanaian macroeconomic environment\. Government officials have acknowledged that the greater ownership fostered by the MDBS framework has sharpened their focus on setting priorities and on strengthening intra-government coordination\. Similarly, Government officials have noted that the need to identify policy targets and monitor outcomes, while working with external stakeholders, has increased their commitment to reform design and implementation\.xxxix Government relations with the MDBS partners continue to be excellent, setting the stage for subsequent operations\. (b) Implementing Agency or Agencies Performance The Ministry of Economy and Finance was fully responsible for implementing the PRSCs programs\. (c) Justification of Rating for Overall Borrower Performance Rating: PRSC-1 Satisfactory PRSC-2 Satisfactory PRSC-3 Satisfactory Government performance is rated satisfactory in accordance with the following criteria (as identified in the ICRR guidelines): Government ownership and commitment to achieving the development objectives was strong; stakeholders and civil society were consulted at the beginning of the GPRS development and this consultation has strengthened over the period covered by PRSC 1-3; fiduciary requirements were met satisfactorily; the relationships and coordination with the Bank and other donors through the MDBS were excellent throughout; and appropriate and supportive enabling environment reforms were largely adopted, albeit sometimes with delays\. In addition, M&E capacity improved over the course of the operations and M&E data were beginning to be incorporated into decision-making (in the context of the budget) by the end of this series of operations\. Finally, the GPRS II built on the lessons learned during the implementation of GPRS I and provides a comprehensive framework for growth and poverty reduction and transition to the next series of operations (PRSC 4-7)\. 6\. Lessons Learned There are a number of lessons to be learned from this series of operations\. They relate to the impact of the MDBS/PRSC framework on the Government, its institutions, and the Government's reform progress; the operation, management, benefits, and weaknesses of the MDBS/PRSC framework; and, more generally, to the design of operations to support poverty reduction\. The lessons relating to the impact of the MDBS/PRSC on the Government include: 1\. There was a clear impact on Government ownership of the reform program\. The Bank's decision to support country-led reforms through the PRSCs, rather than through structural 30  adjustment or other mechanisms, proved effective because it encouraged the GoG to "step up" to provide leadership and accountability under PRSC-1\. Subsequently, improved donor harmonization and the strengthened predictability of considerable budgetary support -- combined with sizeable debt relief -- raised the stakes still further and fostered improved decision-making by the Government at various levels\. The result has been improved Government coordination in budget preparation, with strengthened integration of cross-sectoral issues and institutional strengthening of the MoFEP\. 2\. The increased harmonization among the DPs under the MDBS framework contributed to the successful implementation of PRSC 1-3 and thus had high returns for the GoG\. These returns are reflected in higher and timely disbursements of budgetary support that were well aligned with the budgetary calendar and predictable in their disbursement\.xl This harmonization also appears to have resulted in reduced transaction costs for the GoG in dealing with donors owing to the reduction in the number of visiting missions and reporting requirements\.xli Additional benefits include greater knowledge dissemination among the DPs and strengthened policy dialogue on cross-cutting strategic objectives, resulting in better project design\. 3\. The PRSCs also -- by enabling Government ownership of the reform program and by not relying on prescriptive means to reach the outcomes agreed to by the DPs and the GoG -- gave the Government greater flexibility and opportunity to experiment with different approaches\. For example, the use of capitation grants ­ to reach the non-prescriptive benchmark to increase national GPER from 80 percent to 88\.5 percent -- was a GoG- driven approach which succeeded quickly and beyond expectations\. This success then enabled a focus on additional and related areas such as improving pupil:textbook ratios and the recruitment of teachers for deprived areas\. It is conceivable that without this flexibility the Government may have been less willing to experiment with new approaches\. 4\. As a way to induce reform, the MDBS framework has an important advantage over a conditionality-based mechanism\. Conditionality-based lending pits those favoring reform against those opposing it, and enables the non-reformers to assert that the reformers are implementing changes because donors are telling them to do so\. Use of the MDBS, however, enables a government to develop a framework and build support for reforms that are manageable and domestically acceptable\. As a result, progress on politically difficult reforms may be slower, but the resultant reforms are also likely to be more sustainable than donor-driven ones\. The lessons learned from the operation and management of the MDBS/PRSC framework included: 1\. While the MDBS simplifies a government's interactions with donors, it is not a simple process to manage\. Multiple donors operating through a single framework means that multiple interests, priorities, and perspectives have to be accommodated and reconciled\. This can result ­ as happened with the PRSC 1-3 ­ in a complex performance matrix with multiple benchmarks that represents a compromise between the various DPs and the Government and reflects a variety of objectives\. The balance of power within the MDBS is uneven, as donors have unequal weights depending on the amount of resources they are providing, but as all the DPs are IDA contributors, the Bank must work to achieve compromise among the partners\. Finally, the multiplicity of donors also means that it is difficult to reconcile different evaluations of Government performance and whether prior 31  actions have or have not been met\. As a result of these factors, the MDBS probably results in higher transaction costs for the Bank because managing these diverse interests and perspectives is highly staff - and time-intensive\. Moreover; these transaction costs are probably larger in a high profile country such as Ghana\. As such, these transactions costs are probably unavoidable but should be acknowledged as a public good provided by the Bank on behalf of its members\. 2\. Another consequence is the difficulty of ensuring that the selection of benchmarks does not lead to a performance matrix that is reduced to a least common denominator grouping of actions on which every DP can agree\. The Bank's preferred approach to this challenge was to base the performance matrix on the Government's annual budget statement because such statements are typically ambitious, thereby setting higher standards for the Government to meet and ensuring that the prior actions and triggers are not too "soft\." In addition, this approach ensures Government ownership, as well as accountability to civil society, thereby addressing a key weakness of structural adjustment lending\. This approach is not without weaknesses, however, and was not universally accepted by all donors, as many important reforms are not reflected in a budget statement (e\.g\., BPEMS establishment)\. While a key advantage of the MDBS is the fact that much of the dialogue towards establishing appropriate benchmarks can take place between donors, rather than between the donors and the government, the MDBS does not eliminate this tension over what are appropriate triggers\. In addition, the need to identify targets on which all parties can agree can lead to an excessive focus on the targets themselves, rather than on broader policy issues\.xlii 3\. In addition to the differences over what are appropriate triggers, there is also an inherent tension within a MDBS over whether the respective triggers have been satisfied\. Some DPs will press for stricter interpretations to ensure that the Government's commitment is not slackening, while others will be more flexible, focusing on the overall progress that has been made rather than whether an individual trigger had been completed in letter and spirit\.xliii These differences in interpretation will cause tension between the DPs themselves and between the DPs and the Government\. All of these approaches have implications for future reform efforts\. For example, if DPs are less flexible in interpreting whether triggers have been met, Governments may suggest less ambitious triggers in the future, making them easier to meet, but undermining overall pace of reform\. Similarly, rolling an incomplete prior action into the next PRSC may ensure that dialogue is continued, while simply rewording a prior action to declare that is achieved may not be as effective\. 4\. There is a learning curve associated with the MDBS, and donors should be realistic about what can be achieved under the first year of its operation\. The establishment and use of the MDBS is an inherently evolving process, particularly in terms of dialogue with the Government, identifying key priorities, and developing trust between the Government and the DPs\. The Ministry of Finance must transition to a new role with a focus on overseeing developments in a variety of sectors across the entire poverty reduction program, rather than monitoring implementation of specific conditionalities for tranche release\. This broader focus requires more sector skills and better communication between Government ministries; these are not easily developed, and as a consequence, implementation of the first operation of a MDBS is unlikely to be entirely smooth\. 5\. Similarly, the complexity of initial program design and multiple and complex benchmarks may be an inevitable outcome of reconciling the divergent interests of 32  multiple donors\. Simplification of program design is facilitated, however, once a quality partnership is consolidated and expanded, and trust between the Government and its DPs becomes stronger\. 6\. Use of a PRSC framework is a step away from the more traditional conditionality-based project lending process to one that is linked to a program as whole\. Accordingly, it requires a higher level of trust by donors in the policies, implementational capacity, and good faith of the government being assisted, xliv and therefore may not be appropriate for all borrowers\. On the other hand, given the greater government ownership that can be fostered under the PRSC mechanism, there may be a greater likelihood of implementation than there would be under a conditionality-based approach\. 7\. A MDBS may not be suitable for all countries because the provision of budget-based assistance requires that adequate public expenditure management practices and fiduciary safeguards are in place\. Concomitantly, a MDBS may not work as effectively in countries lacking a reasonably well qualified and capable cadre of government officials\. 8\. The use of a MDBS is also not without risk because once the first set of prior actions is met, continued reform implementation is uncertain\. To a great extent, PRSC 1 constituted a "leap of faith" by Bank management and staff regarding the GoG's commitment to poverty reform\. By contrast, however, undertaking such risk may well be warranted, particularly ­ as was the case in Ghana ­ the two previous conditionality- based lending programs (ERSO II and III) achieved only limited success\. 9\. While achieving consensus among donors may be more difficult to achieve under the MDBS, there are considerable benefits to donors in terms of their ability to move the development agenda forward\. When donors are dispersed and acting individually, governments have greater leeway to be selective about which reforms they will pursue, and the influence of any single donor is reduced because the assistance that can be provided by an individual donor is smaller\. By contrast, when the resources of donors are combined, Governments have greater incentive to proceed with reforms\. This greater incentive ­ combined with greater ownership of the reform program ­ can create sustainable reform momentum\. Nonetheless, there continue to be limitations as to how much reform can be achieved in politically difficult areas\. While the Bank and DPs worked hard to achieve greater reform in the energy and public sectors, reform progress was slow\. Finally, reform progress will slow down (as in developed countries) in the period preceding an election, and the Bank and DPs will have to build this realism into the performance assessment framework\. 10\. Although the Bank and a Government may see the MDBS as an improvement over donor-led, conditionality-based, structural adjustment lending, this perspective is not always shared by the NGO community\. A number of NGOs in Ghana view benchmarks and prior actions as implied conditionality ("structural adjustment by other means")\. As a consequence, this perception means extensive consultation with NGOs will still be needed\. 11\. Finally, since a MDBS is closely linked to a program, rather than to a specific sector or project, the comprehensiveness and efficacy of program design will play a critical role in the subsequent success of any Bank operations linked to a MDBS\. This, in turn, places a greater emphasis on the need for up-front joint staff assessments that are thorough, 33  constructive, and candid when examining the design, proposed modes of implementation, and potential constraints and obstacles of programs such as Preps\. Finally, the poverty reduction lessons to be learned from these operations are: 1\. Poverty is a multi-faceted phenomenon\. Any poverty-focused program design must ­ to be successful ­ incorporate cross-cutting interventions from the start that include well- coordinated interventions in sectors that are closely linked (e\.g\., health and water, or health and nutrition, public sector reform and health, etc\.)\. The poor outcomes achieved in a number of health indicators under PRSC 1-3 indicate that a tighter cross-cutting focus is probably necessary to achieve key poverty outcomes, particularly in deprived distressed regions\. 2\. High degrees of Government ownership of the reform program will translate into satisfactory implementation of the country's poverty reduction strategy\. Throughout PRSC 1-3, the Government increasingly assumed more and more leadership and initiative in the dialogue to define the content and focus of the policy matrix\. As a result, the process of formulating the development agenda has now been fully internalized by the Ghanaian Government, thereby increasing the likelihood of its implementation\. Since the overriding objective of the PRSC is to improve human development indicators, the usefulness of the PRSC in fostering this necessary government ownership is a positive outcome\. 34  Annex 1: Policy Matrix: Policy Objectives, Expected Outcomes, and Actual Outcomes under PRSC 1-3 Policy Objective Expected Outcome Actual Outcome I\. Promoting Growth, Income and Employment A\. Increasing scope for financing development (private sector credit and budget allocation) A1 ­ Create a more diversified Long-term investment increased 2003: Gross Investment/GDP 22\.9%: financial sector and improve 2005: Gross Investment/GDP 29\.9% access to financial service Savings to GDP increased 2003: Gross national savings/GDP 20\.7% 2005: Gross national savings/GDP Credit to the private sector as a share 22\.8% of domestic credit increased* End-2002: 44% allocated to the private sector End-2005: 55% allocated to the private sector B\. Improving the environment for business while protecting the poor B1\. Expand supply of energy Subsidies reduced: VRA operating loss is 300 billion services while protecting the 2002 (actual): 450 billion cedis* (unedited) at end-2005 poor System losses reduced:* 2005: System losses: 25\.5% 2002 (actual) 26% 2005 (planned) 18% B\.2 Enhance private sector Exports increased* NA (Indicator eliminated under competitiveness PRSC-2) Non-traditional exports increased 2003: US$2\.471 million 2005: US$2\.802 million Time required to register a business reduced* 2002: 129 days 2005: 81 days Clearance times at customs reduced* Installation of automated customs procedures at seaports reduced number of clearance steps from 11 to 3 Number of consignments subjected to physical examination at Customs reduced* N/A C\. Improving performance of rural sector in interest of rural poor C\.1 Improve rural sector farm Real per capita food production N/A and non-farm growth increases 2 percent annually* C\.2 Improve management of Forest cover expanded from 20,000 81,000 ha\. by end-2005 natural resources hectares in 2002 to 80,000 hectares by end-2007 II ­Improving Service Delivery for Human Development A\. Education A\.1 Increase access, completion, From 2001 to 2005, national GPER 2004/05: 87\.5% and quality in basic education, increased from 80% to 88\.5%, * particularly in 3 most deprived regions (Northern, Upper East, and Upper West In the 3 most deprived regions: 35  Northern ­ 62% to 70% 2004/05: 72\.7% Upper East ­ 70% to 79% 2004/05: 80\.5% Upper West ­ 56% to 73%* 2004/05: 77\.3% From 2002 to 2005, girls GPER 2004/05: 84\.5% increased from 76% to 88\.5%* From 2002 to 2005, primary N/A, but primary completion rates are completion rate increased from 66% expected to reach 100% by 2012, 3 to 74% years ahead of target date 2005: Primary pupil: teacher ratio in 3 most Northern: 35\.1 deprived regions improved 2002-05* Upper East: 45\.1 Northern: 35:1 (maintained) Upper West: 35\.1 Upper East: 51:1 to 45:1 Upper West: 38\.7: to 37:1 For 2005/06 school year : Pupil:textbook ratio improved in three most deprived regions from 2001/02 -Northern: 1\.3\. to 2005* -Upper East: 1:3\. -Northern 1:1:3 to 1:3 -Upper West: 1:3 -Upper East: 1:1\.4 to 1\.3 -Upper West: 1:1\.9 to l\.3 A\. 2 Improve efficiency and Proportion of non-salary budget 2005: 20% (achieved in 53 equity of financing education to 40 deprived Districts increased deprived districts, not 40, owing with attention to greater poverty from 16% in 2002 to 17% in 2005 to the increase in the number of impact districts in the same area) Actual non-salary expenditures as 2005: 24% share of actual total expenditures in the education sector increased:* 2002: 22\.9 2005: 24\.5% Actual non-salary expenditure as 2005: 5\.4% a share of total discretionary budget increased* 2002: 5\.2% 2005: 5\.5% B\. Health B\.1 Bridge equity gaps in access Ratio of population per nurse in the 1,450:1 mid-2005 to quality health care four deprived regions decreased from 2,000:1 in 2002 to 1,500 in 2005 Ratio of population per doctor in the 9,170 by mid-2005 four deprived regions decreased from 20,000:1 in 2002 to 16,500 in 2005 B\.2 Ensure sustainable financing Percent of budget allocations for N/A arrangements that protect the goods, services and investment (items poor 2, 3, and 4 in the budget) to deprived districts increased 2004: 54% nationally, with marked Supervised maternal deliveries in increased in deprived regions targeted areas (4 regions) increased from 49% in 2002 to 55% in 2006* National Health Insurance Scheme Fiscally sustainable National Health implemented 2005; covers 17\.9% of Insurance scheme that protects the population 36  poor N/A Outpatient visits per capita in deprived regions increased from 0\.48 in 2002 to 0\.6 in 2006\. C\. HIV/AIDS C\.1 Reduce the spread of the Prevalence of HIV among pregnant 2005: 3\.1% (2006: 2\.9%) HIV/AIDS epidemic women retained below 5% in 2005 (3\.6% in 2001)* D\. Social Protection D\.1 Implement special programs Targeting of resources for vulnerable - National Youth Employment to support the vulnerable and the groups improved* Strategy approved\. Social protection excluded strategy prepared & integrated into GPRS II\. - Social Welfare services provided to women & children who are victims of violence & those with AIDS E\. Water and Sanitation E\. 1 Increased access to safe Access to safe water increased to 55 2003: 46\.4% with access to safe sustainable water and sanitation percent and sanitation to 28 percent water coverage for rural and small by 2006 2004: 51\.7% of rural population with town populations access to safe water Sector investment increased Investment in water facilities declined in 2005, after improving in 2004 Sector planning and coordination Medium-term implementation plan improved for rural water to be completed (under PRSC-4) III ­ Improving Governance and Public Sector Management A\. Building a democratic, inclusive, and decentralized state A\.1 Improved governance and Legal and institutional framework to Whistleblower and Freedom of public accountability reduce fraud and combat corruption Information Acts passed strengthened A\.2 Implement framework for Service delivery at the local level Service delivery remains problematic decentralized delivery of local improved public services B\. Improving performance of the public sector B\.1 Implement refocused public Service delivery at national and local Service delivery remains problematic sector reform levels improved Credible baseline payroll data New payroll database established established (PRSC-5) C\. Strengthening public expenditure management C\.1 Modernize PEM regulatory Compliance with generally accepted By end-2005 Ghana met 8 out of 16 framework public finance standards increased* HIPC public expenditure benchmarks, up from 7 in 2004 and 1 in 2001 Completeness of budget and financial Comprehensiveness of budget statements for the Consolidated Fund statement increased, with 50% of improved* public funds presented in the budget statement 37  Capacity in the area of PFM strengthened* 2006 PEFA assessment confirms that PFM system has improved since 2004 C\.2 Strengthen budget Compliance with generally accepted FAA & FAR provide legal framework formulation public finance standards increased* for public resource management & provide basis for additional capacity building Budget strategic policy priorities aligned with GPRS* Begun in 2005 C\.3 Strengthen budget execution Control to reduce fiduciary risks Financial Administration Act passed; and reporting improved and improvement of budget implementation of internal audit units outcomes supported* in key MDAs ongoing under PRSC 4- 5 Value for money and quality of public spending improved* Public Procurement Act passed\. Tender Review Boards established; standard bidding documents prepared; & number of tenders advertised in Expenditure management made more press increased transparent and accountable* 2005 Appropriations Act shows allocations of internally generated funds, increasing transparency Scope for waste and irregularity in the execution of public expenditures reduced* Internal Audit Agency Act passed; implementation of internal audit units in key MDAs ongoing under PRSC 4- Compliance with legal regulations 5 ensured* FAA & FAR provided strong legal framework for PFM Quality and timeliness of external audit strengthened* Annual report by Accountant General submitted to Parliament within less than 12 months of account closing Transparency improved and public awareness of Government operations 2006 PEFA assessment shows that raised* budget transparency has increased since 2004\. More timely completion of accounts and submission of audit reports to Parliament, which is more actively scrutinizing both budget and accounts\. D\. Strengthening the capacity to M&E of Government activities M&E plan implemented\. APRs begin monitor and evaluate the policy improved* in 2003\. agenda 2003 & 2004 APRs submitted to Closer Parliamentary scrutiny of Parliament in 2004 performance under the GPRS* Preliminary GLSS5 data due Comprehensiveness of poverty data December 2006\. Core Welfare improved* indicators Questionnaire published\. Five PSIAs completed\. Ongoing Efficiency of policy interventions improved* 38  Annex 2: Bank Lending and Implementation Support/Supervision Processes (a) Task Team members P083246 - GH: PRSC I Responsibility/ Names Title Unit Specialty Lending Marcelo Andrade Sr\. Country Economist AFTH2 Benoit Millot Lead Education Specialist AFTH2 Laura L\. Rose Health Economist AFTH2 Eunice Yaa Brimfah Dapaah Education Sector Specialist\. AFTH2 Evelyn Awittor Operation Officer AFTH2 Eileen Murray Sr\. Operation Officer AFTP4 Guenter Heidenhof Lead Public Sector Specialist AFTPR Yongmei Zhou Sr\. Economist AFTPR Emmabel Hammond Team Assistant AFCW1 Smile Kwawukume Senior Public Sector Specialist AFTPR Jan Walliser Sr\. Economist AFTP4 B\. Boubacar-Sidi Economist AFTP4 Danial Boakye Economist AFTP4 Mangesh Hoskote Sr\. Economist (Health) AFTEG Sarah Keener Sr\. Social Development Specialist SDV Mbuba Mbunga Sr\. Procurement Specialist AFTPC Michael Wong Sr\. Private Sector Dev\. Specialist AFTPS Kofi-Boateng Agyen Sr\. Operations Officer AFTPS Solomon Bekure AFTR2 Patience Mensah Agricultural Economist AFTR2 Edward Dwumfour Sr\. Natural Resource Management Spec\. AFTR2 Margo Thomas Sr\. Operation Officer IFC Gert Van Der Linde Lead Management Financial Specialist AFTFM Iradj Talai Manager Financial Management AFTFM Irene Xenakis Operation Adviser AFRVP David Webber Lead Financial Officer LOAG Ayman Adu-Haija LOAG Karen Hudes Sr\. Counsel LEGAF Supervision P083246 - GH: PRSC II Responsibility/ Names Title Unit Specialty Lending Carlos Cavalcanti Sr\. Country Economist AFTP4 Benoit Millot Lead Education Specialist SASHD Laura L\. Rose Sr\. Economist (Health) AFTH2 Kofi-Boateng Agyen Sr\. Operations Officer\. AFTPS Marcelo R\. Andrade Sr\. Country Economist AFTP4 Evelyn Awittor Operations Officer AFTH2 Marta Berhane Language Program Assistant AFTP4 Yongmei Zhou Sr\. Economist AFTPR Smile Kwawukume Senior Public Sector Specialist AFTPR 39  Simplice Zouhon-Bi Consultant AFTP4 Donald O'Leary AFTEG Richard Senou AFTEG Subramaniam Iyer Lead Financial Analyst AFTEG Daniel Kwabena Boakye Economist AFTP4 Eunice Yaa Brimfah Dapaah Education Spec\. AFTH2 Edward Felix Dwumfour Sr\. Natural Resources Mgmt\. Specialist AFTS4 Emmabel Hammond Team Assistant AFCW1 Anthony Thompson AFTFS Papa Thiam Sr\. Private Sector Development Spec\. AFTPS Mbuba Mbungu Sr\. Procurement Specialist AFTPC Sarah Keener Sr\. Social Development Spec\. AFTFS Philip Brynnum Jespersen Program Officer AFCW1 Gert Van Der Linde Sr\. Financial Management Spec\. AFTFM Edward Dwumfour Sr\. Natural Resources Mgmt\. Specialist AFTS4 Irene Xenakis Operations Adviser AFTOS Smile Kwawukume Senior Public Sector Specialist AFTPR Patience Mensah Sr\. Agric\. Economist AFTS4 Karen Hudes Sr\. Counsel LEGAF Ayman Adu-Haija LOAG1 Arthur Majoribanks Swatson Water & Sanitation Specialist AFTU2 Supervision P078619 ­ GH: PRSC III Responsibility/ Names Title Unit Specialty Lending Carlos Cavalcanti Sr\. Country Economist AFTP4 Gayatri Acharya Sr\. Economist AFST4 Koffi-Baoteng Agyen Sr\. Operations Officer AFTPS Ferdinand Tsri Apronti Procurement Spec\. AFTPC Armarquaye Armar Lead Energy Specialist ETWEN Benoit Millot Lead Education Specialist SASHD Laura L\. Rose Sr\. Economist (Health) AFTH2 Eunice Yaa Brimfah Dapaah Education Spec\. AFTH2 Evelyn Awittor Operations Officer AFTH2 Marta Berhane Language Program Assistant AFTP4 Edward Felix Dwumfour Sr\. Nat\. Resources Mgmt\. Spec\. AFTS4 Eileen Murray Sr\. Operation Officer AFTH2 Vivek Srivasta Sr\. Public Sector Spec\. AFTP4 Smile Kwawukume Sr\. Public Sector Specialist AFTPR Marcel Andrade Sr\. Country Economist AFTP4 Daniel Kwabena Boakye Economist AFTP4 Simplice Zouhon-Bi Consultant AFTP4 Sona Varma Sr\. Economist PRMDE Tala Khartabill PRMDE Donald O'Leary AFTEG Richard Senou AFTEG Subramaniam V\. Iyer Sector Manager, Energy AFTEG 40  Philip Brynnum Jespersen Program Officer AFCW1 Mbula Mbungu Sr\. Procurement Specialist AFTPC Papa Thiam Sr\. Private Sector Development Spec\. AFTPS Kofi-Boateng Agyen Sr\. Operations Officer AFTPS Anthony Thompson Sector Manager AFTS C\. Juan Costain Lead Financial Sector Specialist AFTS Patience Mensah Agricultural Economist AFTS4 Edward Dwumfour Sr\. Natural Resources Mgmt\. Specialist AFTS4 Arthur Majoribanks Swatson Water & Sanitation Spec\. AFTU2 Frederick Yankey Sr\. Financial Management Spec\. AFTFM Gert Van Der Linde Sr\. Financial Management Spec\. AFTFM Irene Xenakis Operations Adviser AFTOS Agnes Albert-Loth Sr\. Financial Officer LOAG2 Wolfgan Chabad Finance Officer LOAG2 Manush Hristov Counsel LEGAF Supervision (b) Staff Time and Cost P076808 - GH: PRSC I Staff Time and Cost (Bank Budget Only) Stage USD Thousands (including No\. of staff weeks travel and consultant costs) Lending FY02 70\.95 FY03 368\.34 FY04 0\.00 FY05 0\.00 Total: 439\.29 Supervision FY02 0\.00 FY03 0\.00 FY04 83\.59 FY05 4\.37 Total: 87\.96 P083246 - GH: PRSC II Staff Time and Cost (Bank Budget Only) Stage USD Thousands (including No\. of staff weeks travel and consultant costs) Lending FY04 375\.37 FY05 9\.84 FY06 0\.00 Total: 385\.21 Supervision 41  FY04 0\.00 FY05 119\.71 FY06 18\.71 Total: 138\.42 P078619 ­ GH: PRSC III Staff Time and Cost (Bank Budget Only) Stage USD Thousands (including No\. of staff weeks travel and consultant costs) Lending FY05 28 179\.27 FY06 23 101\.72 FY07 0\.00 Total: 51 280\.99 Supervision FY05 0\.00 FY06 2 12\.84 FY07 23\.70 Total: 2 36\.54 42  Annex 3: Beneficiary Survey Results N/A 43  Annex 4: Stakeholder Workshop Report and Results N/A 44  Annex 5: Summary of Borrower's ICR and/or Comments on Draft ICR The Borrower reviewed the draft ICRR and was in full agreement with the findings, adding that the document reflected their views and experiences with the implementation of this first PRSC series\. 45  Annex 6: Comments of Cofinanciers and Other Partners/Stakeholders N/A 46  Annex 7: List of Supporting Documents 1\. Program Document, [June 27th, 2005] 2\. Letter of Development Policy, [June 28th, 2005] 3\. Tranche Release Document, [August 30th, 2005] World Bank Documents PRSC-1 Memorandum for Regional Operations Committee (ROC) Review Meeting, "Ghana: Poverty Reduction Strategy Credit (PRSC)," April 1, 2003\. Agreed Minute of Negotiations, First Poverty Reduction Support Credit (PRSC 1), May 21-22, 2003\. Program Document, "Ghana: Poverty Reduction Support Credit and Grant," (Report No\. 25995- GH), May 29, 2003\. Project Status Report, PRSC-1, December 3, 2003\. Country Assistance Strategy, Republic of Ghana (Report No\. 27838-GH), February 20, 2004\. Implementation Completion Report, "Ghana: Poverty Reduction Support Credit (1)," (Report No: 30896-GH), December 14, 2004\. PRSC-2 Concept Review Meeting Minutes, "Ghana: PRSC-2," February 9, 2004\. ROC Meeting Draft Minutes, "Ghana: Second Poverty Reduction Strategy Credit," April 6, 2004\. Program Document, "Ghana: Second Poverty Reduction Support Credit and Grant," (Report No\. 29177-GH), June 7, 2004\. Project Status Report, "Ghana: PRSC II," December 15, 2004\. Agreed Minute of Negotiations, "Ghana: PRSC-2", May 14, 2004\. Implementation Completion Report, "Ghana: Second Poverty Reduction Credit" (Report No: -- GH), November 28, 2005, PRSC-3 (and Subsequent Operations) Concept Review Meeting Minutes, "Ghana: Third Poverty Reduction Support Credit," March 8, 2005\. ROC Meeting Draft Minutes, "Ghana: Third Poverty Reduction Support Credit," April 25, 2005\. 47  Aide-Memoire, "Ghana: Joint Multi Donor Budgetary Support Mission (MDBS 2005)/Third World Bank Poverty Reduction Support Credit," April 26-June 2, 2005\. Agreed Minutes of Negotiations, "Ghana: PRSC-3," June 17, 2005\. Program Document, "Ghana: Third Poverty Reduction Support Credit," (Report No\. 33096-GH), July 27, 2005\. Program Document, "Ghana: Fourth Poverty Reduction Support Credit," (Report No\. 35975- GH), May 1, 2006\. Draft Program Document, "Ghana: Proposed Fifth Poverty Reduction Support Credit," December 2006\. Joint Bank-Fund Documents Draft Aide-Memoire, "Ghana: Joint Mission Multi-Donor Budgetary Support/Poverty Reduction Support Credit," September 3-14, 2003\. Joint IDA-IMF Staff Assessment of the [Republic of Ghana] Poverty Reduction Strategy Paper (Report No\. 25495-GH), March 4, 2003\. Draft Aide-Memoire, "Ghana: Joint Multi Donor Budgetary Support Mission (MDBS 2004/PRSC-2)," April 8-28, 2004\. Joint IDA-IMF Staff Assessment of the [Republic of Ghana] Poverty Reduction Strategy Paper, Annual Progress Report, (Report No\. 29181-GH), June 8, 2004\. Joint IDA-IMF Staff Advisory Note of the [Republic of Ghana] Growth and Poverty Reduction Strategy and 2004 Annual Progress Report (Report No\. 35767-GH), April 21, 2006\. IMF Documents "Ghana ­ Sixth and Final Review under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility and Request for Waiver of Nonobservance of Performance Criterion," EBS/06/132, October 18, 2006\. Other Documents Lawson, Andrew; Gyimah Boadi, Ato Ghartey, Adom Ghartey, Tony Killick, Zainab Kizilbash, &Tim Williamson, "Initial Observations on Immediate Effects and Recommendations on Future Design and Management of Ghana MDBS," Preliminary Report to the Government of Ghana and to the MDBS Partners, Centre for Democratic Development (Accra) and Overseas Development Institute (London), October 2006\. Miovic, Peter, "Reflections on Ghana and the Poverty Reduction Support Credits (PRSCs)," Paper Commissioned by the AFTP4 Unit in the Africa Region of the World Bank, October 31, 2006\. 48  Annex 8: Supporting the GPRS Implementation through the PRSC GPRS Objectives Macroeconomic Stability Production & Human Protection for the Good Governance Gainful Resource Vulnerable & the Employment Development & Excluded Basic Services CAS Pillars/ Promoting growth, income & employment Improving Service Delivery for Human Governance & Public Sector Reform PRSC Support Development PRSC Focus Financing Business Rural Educa Health Social Water & Decentrali Public Public Monitoring & development environment development & tion Protection Sanitation zation Sector Financial Evaluation & trade Natural Reform Management facilitation Resource Management PRSC Policy dialogue/specific actions Outcome monitoring/public expenditure Policy dialogue/public financial management Instruments dialogue dialogue/specific actions Note: Figure incorporates water and sanitation focus, which was not included until PRSC-3\. Source: Program Document for PRSC-3 (Report No\. 33096-GH), p\.30 49  i Ghana: Poverty Reduction Strategy Paper and JSA, Report No\. 25495-GH, March 4, 2003\. ii Ghana was one of the first countries to participate in a joint matrix to underpin the budget support disbursement of multiple donors\. Members of the MDBS included seven bilateral al partners (Canada, Denmark, Germany, the Netherlands, Switzerland, and the United Kingdom), plus the World Bank, EU, and the AfDB\. The United States, France, and Japan participate as observers\. iiiBetween 1997-2003, the average increase in access to safe water sources was just under 9 percent, with the Greater Accra region experiencing a 12 percent decline (albeit from levels higher than the national average)\. Access to safe sanitation also continued to be low, with the national average at just over 50 percent, and access in the three deprived regions was at 20 percent or lower\. iv In fact, the Program Document for PRSC-1 noted that the program associated with the PRSC series of operations might be subsequently broadened as needed to meet the credit's main objectives\. v Implementation Completion Report, Third Economic Reform Support Operation, Report No\. 26214-GH, June 27, 2003, and Implementation Completion Report, Second Economic Reform Support Operation, Report No\. 26744-GH, December 15, 2003\. vi The other lessons informing the design of the PRSCs were: (i) flexibility is crucial to respond to evolving situations; (ii) donor coordination is vital to avoid overstretching the Government; and (iii) quick disbursing operations should occur in a context where they can add value to other instruments and sector- specific projects\. vii Discussed at the Board in March 2004 (Report 27838-GH)\. viiiThere were initially 52 indicators; they were subsequently increased to 60 as more indicators were identified\. ix These include the National Intra-Agency Poverty Monitoring Groups, which are inter-sectoral and include governmental and non-governmental representatives; the GPRS dissemination committee; the PSIA Technical and Advisory Committees; and regional poverty monitoring groups\. x These PSIAs focused on: (i) changes to the electricity tariff structure and the impact of the poor; (ii) degree to which policies to promote agricultural growth could benefit small landholders; (iii) a vulnerability mapping exercise to improve the knowledge base for managing targeted interventions for the extreme poor and vulnerable; and (iv) institutional changes resulting from decentralization that may affect access to or quality of services or resources\. xi According to the Joint Staff Assessment Note on the GPRS II\. xii The CAS' close alignment with the GPRS and GPRS II is indicated by the CAS Progress Report (discussed by the Board in June 2006) which confirmed that the strategy laid out in 2004 can continue to guide the Bank's program for Ghana\. xiiiThese are: ensuring macroeconomic stability; expanding production and employment; improving the delivery of services for human development; protecting the vulnerable and extremely poor; and promoting good governance and public sector reform\. xiv According to a study by the Centre for Democratic Development (CDD) and Overseas Development Institute (ODI) on the MDBS\. Lawson, Andrew, et al\., "Initial Observations on Immediate Effects and Recommendations on Future Design and Management of Ghana MDBS," Preliminary Report by the Centre for Democratic Development (CDD) and Overseas Development Institute (ODI) (hereafter CDD/ODI), October 2006, p\. 17\. xv During these operations a number of objectives were achieved only partially or only after considerable delay, and some were not achieved at all\. The second tranche under ERSO II had to be restructured, 50  reflecting a lack of progress on some objectives, and Ghana's Fifth Review (in 2002) under the Fund's PRGF Arrangement could also not be completed and the final tranche was not disbursed\. xvi The fact that PRSC-1 preceded the CAS finalization may also have contributed to the omission of a water and sanitation focus, as the CAS rightly noted that an improved water supply and sanitation were necessary to meet the human development MDGs\. xvii For example, "reduce number of consignments subjected to physical examination at Customs from average 60 percent in 2002 to average 10 percent\.in 2004" under PRSC-1 was changed to "Clearance times reduced" under PRSC-2\. xviiiICR guidelines state the measurable indicators for monitoring progress should be "those in the PD of the first operation of the series\." It should be noted that the complexity of the policy matrix is being addressed in the upcoming PRSC-5, where the Board has endorsed a maximum of 30 triggers and benchmarks\. xix ECG losses continued to decline slightly in 2006, reaching 23\.4 percent by July 2006\. xx Since VALCO came back into operation in September 2005, the VRA's finances have been drained, and as a result, VRA's preliminary (unaudtited ) financial statement for 2005 show an operating loss of about 300 billion cedis, down from an estimated operating profit of 400 billion cedis one year earlier (when VALCO was not in operation)\. VRA's losses compromise its ability to meet its commitment under the ECOWAS energy protocol\. xxi In an exercise led by the Institute for Policy Alternatives (IPA) with 10 Ghanaian NGOs\. IPA, "Community Voices: A Civil Society Assessment of Pro-Poor Policies and Programmes in Ghana's Poverty Reduction Strategy," (2006), cited in Miovic, Peter, "Reflections on Ghana and the Poverty Reduction Support Credits (PRSCs)," October 31, 2006, p\. 3\. xxii By end-2005, Ghana met 8 out of 16 HIPC public expenditure benchmarks, up from 7 benchmarks in 2004 and only 1 in 2001\. xxiiiThe BPEMS is an example of a reform that has been slower to realize than expected, but not as a result of government inaction\. Its operationalization was delayed by (i) the high costs of installing this new system; (ii) Ghana's own specific demands, which increased the costs and lengthened the installation time; and (iii) the transition in project management from a team of consultants to the government itself\. As a consultant-led project, the BPEMS ran for six years with no result, primarily because the consultants had a vested interest in keeping the project going\. When the project came under the umbrella of the budget support program, however, and the funds were directed to the government's budget, so that they could define their own priorities\. There was as a result an opportunity cost to how they spent the money, rather than an earmarked fund (with few outside accountability systems) to support whatever the project management defined as priority\. xxiv Progress in 2006 continued to be slow and public sector reform consisted of preparing and setting up the institutional arrangements for the new public sector reform strategy, including a submission of the Subvented Agencies Reform Act to Parliament and launching of a broad reach-out program to communicate and ensure buy-in from stakeholders\. xxv CDD/ODI, p\. 10\. xxvi In the absence of the DHS data, the Bank monitored several intermediate indicators of improvements in health outcomes\. In addition to the supervised maternal deliveries already noted, the ratio of nurses per 10,000 population and doctors per 10,000 people were monitored\. As seen in Annex 1, both of these showed improvements under these operations\. xxvii A recent study concluded that "remittances have probably reduced poverty by (i) increasing incomes (by more than 20 percent for the poorest 20 percent of households) and (ii) diversifying income\. It appears that, on the margin, remittances have significantly increased (by 20-30) percent investment in education and health\." R\. Adams, "Remittances and Poverty in Ghana," WPS 3838, 2006\. 51  xxviii The CDD/ODI assessment of the MDBS concluded that the MDBS's "contribution to the improved standing of MoFEP may be one of the most important ways in which the MDBS has contributed to the quality of policy making and economic management in Ghana\." CDD/ODI, pp\. 16, 20\. xxix The improved ability to recruit and retain staff has occurred not "because of improved terms and conditions but because the ministry was seen as an important and active institution\." CDD/ODI, p\. 20\. xxx Spending on wages and salaries reached particularly high rates in agriculture, education, and health programs, for example, ranging between 57 and 77 percent of total amounts available\. xxxi In October 2006, the IMF Board positively assessed Ghana's economic performance, noting that the country continued to improve its performance during the first half of 2006, supported by strong macroeconomic policy implementation and a favorable external environment\. xxxii Beginning in April 2006, the Government started reviewing petroleum product prices monthly instead of quarterly to reduce lead-lag effects on pricing\. A domestic petroleum retail price was increased over 30 percent in the first seven months of 2006\. xxxiii Power shortages (due to load management and low water levels in the Akosombo dam) are likely to slowdown mining activities, including new operations, and have a negative impact on manufacturing in 2006-07\. The combined effect of lower mining production and manufacturing are expected to lower real GDP growth in 2007 to 5\.7 percent, down from an estimated 6\.2 percent in 2006\. While planned investments should allow the power supply to be restored to full capacity by 2008, taking advantage of these investments will require three sets of actions: (i) establishment of an independent system operator for the power transmission company, a required prior step for hooking up to the West African Gas Pipeline (WAGP); (ii) realigning electricity tariffs; and (iii) ensuring that the gas from the WAGP is used productively, including setting up a local gas distribution company, converting oil-based power plants, and ensuring that the VRA's finances are sufficiently sound so it can meet its monthly gas payment obligations\. xxxiv While the Bank currently projects (in the context of MDBS-6/PRSC-5) that Ghana's debt sustainability is likely to remain positive, this assessment notes that sustainability could be undermined by a slowdown in either economic growth or reduced concessionality in external borrowing\. xxxv In the 2007 budget statement, public sector wages and salaries were budgeted to increase by 20 percent over the projected outturn for 2006 and 32 percent over the budgeted amount for 2006\. As a result, the program document for PRSC-5 projects that wages and salaries will account for an estimated 10 percent of GDP in 2007, equivalent to more than third of government revenues (excluding grants),\. xxxvi In education, less than 5 percent of all budgeted expenditures in 2006 were for non-salary expenditures\. In the health sector, three-quarters of expenditures are for wages and salaries xxxvii While there was considerable overlap between the focus of the Bank and the DPs at the time of PRSC- 1, there was not full consultation with the other DPs because PRSC-1 was prepared under a very short deadline (4 months) so that the Bank could respond to the GoG's request for early support to the GPRS\. This consultation was consequently improved in the context of PRSC 2-3, including better information sharing; the establishment of a joint chairmanship of the MDBS, with the Bank and a DP serving as co- chairs; and the up-front submission of PRSC Program Documents to the MDBS partners for their review and comment\. xxxviiiThe actions in subset one (growth, income, and employment) and two (public sector governance) were expected to be completed shortly (July/August 2005)\. The key action remaining to be completed within the framework of the Bank's PRSC arrangement was the enactment of the VRA Amendment Bill, which was expected only after July 1, 2005\. xxxix CDD/ODI, pp\. 16, 17\. xl The MDBS substantially reduced the unpredictability of annual aid flows\. MoFEP data show that the year-to-year deviations of actual MDBS disbursements were quite limited: only -0\.1 percent in 2003, - 2\.3% in 2004, and +1\.2 percent in 2005\. (The deviation was likely to be larger in 2006, however, as the 52  GOG anticipated that actual MDBS disbursements would be approximately 80 % of what was originally budgeted, after the MDBS partners concluded that the Government did not satisfy one of the agreed trigger conditions\.) In 2007, predictability will be further strengthened as the MDBS moves to a "year-plus-one" basis so that any assistance that is withheld owing to non-compliance will take effect in the financial year after that in which the break occurs\. While the MDBS was less successful at reducing within-year predictability, making day-to-day cash flow management difficult, the strong year-on-year predictability is a valuable contributor to strengthening macroeconomic management and fiscal planning\. CDD/ODI, pp\. 12\.-13\. xli It should be noted that some officials within the GoG would argue that the reduced transaction costs from fewer missions and reporting requirements has, in fact, been undermined by donors "preoccupation" with programmatic details, thereby absorbing the attention of Ministers and senior officials\. CDD/ODI, p\. 18 xlii The GoG has complained that the 2006 negotiations over the 2007 MDBS were too focused on the "precise determination of trigger provisions and not about much larger issues of policy\. CDD/ODI, p\. 18\. xliiiUnder PRSC 1-3, the Bank's approach generally has been to focus on overall progress, as demonstrated under PRSC-3 (see Section 10\.1\.b on supervision) and PRSC-2, when the BPEMS trigger (and HIPC completion trigger) was re-worded because it was deemed that although the BPEMS was not fully operational, this was not a sufficiently strong enough reason to delay the HIPC completion, particularly as the GoG had taken other significant actions (e\.g\., adjustment of gasoline prices and establishment of an automatic electricity tariff adjustment mechanism)\. xliv CDD/ODI, p\. 16\. 53  IBRD 33411 2°W 0° 2°E To Tenkodogo BURKINA FASO To Hamale Navrongo U P P E R E A S T Bobo- Diolasso WalewaleTumu Bolgatanga GHANA Nakpanduri U P P E R W E S T Walewale To Dapaong 10°N Black Volta Kolpawn Wa Wa 10°N Gushiegu White Volta To Djougou N O R T H E R N Yendi To Tamale Ferkéssédougou BENIN Sawla Fufulsu Bole Daka To Djougou CÔTE Nakpayili Oti TOGO D'IVOIRE To BlackVolta Salaga Bouna Makongo Yeji Kintampo Dambai 8°N 8°N Jema V O L T A B R O N G - A H A F O Atebubu Kwadwokurom Tain Techiman Pru Berekum To Sokodé Sunyani Mount Afadjato (880 m) K w Bia a h Afram u Lake Kpandu nges AgbovilleoT P Volta To l Agogo Ra Abomey Goaso a t e a u Kumasi Bibiani E A S T E R N -Togo Ho Krokosue A S H A N T I Anum im To Porto- no Obuasi Diaso Birim p Novo a aT Kade Koforidua kw Volta Aflao 6°N Oda W E S T E R N A 6°N Dunkwa Enchi GREATER 2°E ACCRA AbidjanoT Tema Twifo Praso ACCRA Prestea C E N T R A L GHANA Ankobra Pra Tarkwa Winneba SELECTED CITIES AND TOWNS Cape Coast REGION CAPITALS Newtown NATIONAL CAPITAL This map was produced by Sekondi the Map Design Unit of The Axim Takoradi RIVERS World Bank\. The boundaries, Gulf of G uinea colors, denominations and any other information shown MAIN ROADS on this map do not imply, on the part of The World Bank 0 20 40 60 80 Kilometers RAILROADS Group, any judgment on the legal status of any territory, REGION BOUNDARIES or any endorsement or 0 20 40 60 Miles a c c e p t a n c e o f s u c h boundaries\. 2°W 0° INTERNATIONAL BOUNDARIES SEPTEMBER 2004

REVIEW

P160583

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 149682-LS IMPLEMENTATION COMPLETION AND RESULTS REPORT ON A SMALL GRANT IN THE AMOUNT OF USD 0\.3 MILLION FROM SCALING-UP RENEWABLE ENERGY PROGRAM UNDER THE STRATEGIC CLIMATE FUND TO THE KINGDOM OF LESOTHO FOR LESOTHO SCALING UP RENEWABLE ENERGY PROGRAM INVESTMENT PLAN June 25, 2020 Energy & Extractives Global Practice Africa Region Regional Vice President: Hafez M\. H\. Ghanem Country Director: Marie Francoise Marie-Nelly Regional Director: Riccardo Puliti Practice Manager: Wendy E\. Hughes Task Team Leader(s): Frederic Verdol ICR Main Contributor: Sarah Moin  ABBREVIATIONS AND ACRONYMS AfDB African Development Bank CIF Climate Investment Funds CPF Country Partnership Framework DoE Department of Energy EDM Electricidade de Moçambique ESMAP Energy Sector Management Assistance Program GDP Gross Domestic Product GEF Global Environment Facility GHG Greenhouse Gas GoL Government of Lesotho IFC International Finance Corporation IP Investment Plan IPP Independent Power Producer JICA Japan International Cooperation Agency LHDA Lesotho Highlands Development Authority LEC Lesotho Electricity Company LEWA Lesotho Electricity and Water Authority LREEAP Lesotho Renewable Energy and Energy Access Project MDB Multilateral Development Bank MEM Ministry of Energy and Meteorology MHP Muela Hydropower Plant MW Megawatt OS Options Study PDOs Project Development Objectives PPP Purchasing power parity RE Renewable Energy REU Rural Electrification Unit SDGs Sustainable Development Goals SREP Scaling Up Renewable Energy Program in Low-income Countries UAF Universal Access Fund UNDP United Nations Development Programme WB World Bank  TABLE OF CONTENTS DATA SHEET \. 1 I\. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES \. 4 II\. OUTCOME \. 11 III\. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME \. 14 IV\. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME \. 14 V\. LESSONS LEARNED AND RECOMMENDATIONS \. 15 ANNEX 1\. RESULTS FRAMEWORK AND KEY OUTPUTS \. 17 ANNEX 2\. PROJECT COST BY COMPONENT \. 20 ANNEX 3\. RECIPIENT, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS \. 21 ANNEX 4\. SUPPORTING DOCUMENTS (IF ANY) \. 23  The World Bank Lesotho Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P160583) DATA SHEET BASIC INFORMATION Product Information Project ID Project Name Lesotho Scaling Renewable Energy Program (SREP) P160583 Investment Plan (IP) Country Financing Instrument Lesotho Investment Project Financing Original EA Category Revised EA Category Partial Assessment (B) Organizations Borrower Implementing Agency Kingdom of Lesotho Ministry of Energy and Meteorology Project Development Objective (PDO) Original PDO The proposed development objective is to support the Government of Lesotho to prepare a renewable energy investment plan for consideration by the SREP for funding\. FINANCING FINANCE_TBL Original Amount (US$) Revised Amount (US$) Actual Disbursed (US$) Donor Financing TF0A3630 300,000 288,000 Total 300,000 288,000 Total Project Cost 300,000 288,000 Page 1 of 23  The World Bank Lesotho Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P160583) KEY DATES Approval Effectiveness Original Closing Actual Closing 09-Oct-2016 30-Dec-2018 30-Dec-2018 RESTRUCTURING AND/OR ADDITIONAL FINANCING Date(s) Amount Disbursed (US$M) Key Revisions KEY RATINGS Outcome Bank Performance M&E Quality Satisfactory Satisfactory High RATINGS OF PROJECT PERFORMANCE IN ISRs Actual No\. Date ISR Archived DO Rating IP Rating Disbursements (US$M) Seq No: 1 29-Oct-2019 Satisfactory Satisfactory 0\.288 ADM STAFF Role At Approval At ICR Regional Vice President: Makhtar Diop Hafez M\. H\. Ghanem Country Director: Guangzhe Chen Marie Francoise Marie-Nelly Director: Anna M\. Bjerde Riccardo Puliti Practice Manager: Wendy E\. Hughes Wendy E\. Hughes Vonjy Miarintsoa Task Team Leader(s): Frederic Verdol Rakotondramanana ICR Contributing Author: Sarah Moin Page 2 of 23 The World Bank Lesotho Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P160583) Page 3 of 23  The World Bank Lesotho Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P160583) I\. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES Context Country Context 1\. At the time of project appraisal in 2016, the Kingdom of Lesotho is a lower-middle-income country with a largely rural population\. Lesotho, a small mountainous country of 2\.2 million people, is surrounded by the Republic of South Africa\. Highlands constitute more than two-thirds of the country, of which less than 10 percent is suitable for cultivation\. Population growth in Lesotho had slowed since the early 1990s, from 2 percent a year to slightly more than 1 percent\. Most people lived in rural areas, but the share of urban population increased substantially, from 14 percent in 1990 to 27 percent in 2015\. Lesotho is also highly vulnerable to climate change and regularly experiences droughts, floods, frosts, heavy snowfall, strong winds, hailstorms, and tornadoes\. These adverse conditions undermine the country’s economic development and are expected to worsen as Lesotho becomes drier and hotter in the coming years\. 2\. Lesotho’s economic growth, once based on remittances and agriculture, was progressively driven by value- added output in services and manufacturing sectors\. Some of the largest industries in Lesotho were mining, construction, food products, and textiles; and in services, wholesale and retail trade\. Agriculture’s value addition to Lesotho’s economy declined from 41 percent in 1975 to 6 percent in 2015 while remittances declined from nearly 100 percent of GDP in the early 1980s to just 16 percent in 2015\. However, these structural transformations have not been sufficient to enable the economy to achieve high sustainable growth rates to withstand external shocks\. While the country quickly recovered from the global financial crisis in 2009, its growth has stagnated since 2011 because of slow economic growth in South Africa and increasingly volatile revenues from the Customs Union\. 3\. Poverty and unemployment remained critical problems in Lesotho despite the country’s steady economic growth\. Though Lesotho recorded continuous economic growth of 2\.5 percent per capita over the past decade, the country showed moderate progress in poverty reduction\. An estimated 40 percent of the population lived below the national poverty line at project appraisal\. Poverty was concentrated in populations living in rural isolated areas (72\.4 percent of the population), with limited income opportunities and high cost of service delivery due to the country’s difficult terrain and scattered settlements\. Consequently, Lesotho’s highland population had been migrating to lowlands, attracted by economic opportunities and better services\. Lesotho suffered from double-digit unemployment rates, that were particularly severe among the youth\. In 2015, the broad unemployment rate was 28 percent and 43 percent among the youth (ages 15 to 24), reflecting no significant improvement since the beginning of the century (overall and youth unemployment rates were 27 percent and 33 percent, respectively, in 1999)\. This dismal situation in the labor market came at a time when the country was entering a window of demographic opportunity - a period when the ratio of the working-age population to the dependent-age population was increasing rapidly\. If the current large cohorts of young Basotho were productively employed, the country could leverage this demographic opportunity to grow richer\. 4\. Social and economic development was constrained due to low electrification rate, reliance on imported fuels, and dwindling forest reserves\. Because many households in Lesotho lack access to electricity (38 percent in 2016), especially in rural areas, they relied on traditional fuels such as biomass (wood and dung) for their energy needs\. Deforestation was a serious problem - from 1990 to 2010, the country lost forest cover at the rate of 0\.5 percent a Page 4 of 23  The World Bank Lesotho Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P160583) year, largely because of rural household demand for wood fuel\. Urban households were less reliant on biomass and mainly used expensive substitutes such as paraffin and gas for heating and cooking\. Paraffin (kerosene) was also the main source of fuel for lighting - 60 percent of all households used paraffin while the rest used electricity or candles\. Lesotho imported all its petroleum needs and 35 percent of its annual electricity needs\. The Government recognized that the low electrification rate, reliance on imported fuels, and dwindling forest reserves are fundamental challenges in the energy sector and barriers to economic development\. Increasing access to electricity, particularly in rural areas, would not only result in improved living conditions of the beneficiary population but would also provide a stronger foundation for the development of income generating activities\. Electricity was also viewed as a driver of broader economic development in Lesotho, with the potential to support industrialization of the economy, tremendously increasing jobs and supporting diversification in manufacturing and agriculture sectors\. Sector and Institutional Context 5\. In 2016, the electricity sector in Lesotho was overseen by the Ministry of Energy and Meteorology (MEM) which was responsible for overall policymaking and financial planning\. The Department of Energy (DoE), a part of the MEM, was responsible for coordinating, monitoring, and evaluating programs and activities in the energy sector\. The DoE had three divisions: conventional energy, renewable energy (RE), and planning\. Each division was responsible for collecting data on sector activities and supporting coordination among stakeholders relevant to its focus area\. 6\. The electricity sector in Lesotho was vertically unbundled\. The Lesotho Highlands Development Authority (LHDA) was mandated to generate electricity while the state-owned Lesotho Electricity Company (LEC) was the country’s monopoly electricity transmission, distribution, and bulk electricity supply company\. The electricity sector was regulated by the Lesotho Electricity and Water Authority (LEWA) which is responsible for issuing licenses for electricity supply activities; setting tariffs for generation (including feed-in tariffs), transmission, distribution, and supply; regulating the quality of supply; and resolving disputes\. Rural electrification efforts in Lesotho involved a mix of sector institutions\. While LEC was responsible for rural electrification projects within its service territory (within 3\.5 km from the existing distribution network), the Rural Electrification Unit (REU), which was a project implementation unit under the DoE, coordinated and managed the implementation of off-grid and rural electrification projects outside the LEC service area\. REU projects were funded through the Universal Access Fund (UAF) managed by LEWA\. 7\. Access to electricity services was low countrywide, and even more so in rural areas\. The national electricity access rate stood at 38 percent in 2016, with 60 percent for urban and peri-urban households and 18 percent for rural households\. These access rates had largely been achieved due to the push by the Government at the time to accelerate electrification through an annual budget for electrification and funding from the UAF\. Almost all those with access to electricity were grid connected\. However, majority of the country was mountainous with low population density, making grid extension to these areas very difficult\. In the absence of electricity access, many rural Basotho relied on inefficient sources of fuel to meet their household energy needs\. The Government set an electrification target to bring electricity to 75 percent of households by 2022 and promote the safe and efficient use of cleaner fuels\. 8\. Electricity demand in Lesotho outstripped available domestic supply, leaving the country reliant on electricity imports\. Electricity was mainly supplied by the Muela Hydro Power Plant (72 MW) managed by the LHDA, and imports from South Africa and Mozambique (55 MW)\. The estimated peak demand was estimated at 145 MW, a significant proportion of which came from manufacturing/garment industry\. LEC forecasted that it will import over 282 GWh of electricity from South Africa and Mozambique (EDM) to meet the peak demand in 2016-2017, at prices ranging from M 0\.77 to 1\.50 per kWh, while purchases from MHP are just M 0\.13 per kWh\. In 2015, electricity imports Page 5 of 23  The World Bank Lesotho Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P160583) accounted for 66 percent of LEC’s supply costs\. The energy supply gap was not limited to electricity – Lesotho also imported all its petroleum needs from South Africa and only had a maximum of three days of fuel reserves in the country at any time\. The Government wanted to reduce this dependence on electricity imports and increase energy security by exploiting Lesotho’s vast, untapped RE potential\. 9\. Lesotho is fortunate to have an abundance of RE resources and realizing this potential was a focus of the Government’s Vision 2020 Strategy\. Wind potential exceeded 1,000 W/m2 in certain pockets of the country, and global horizontal irradiation exceeded 5\.3 kWh/m2 in most parts of the country\. Realizing the potential of these resources was a focus of the Government’s Vision 2020 strategy and viewed to be a potential catalyst for job creation and growth in private sector investment\. Investment in RE was viewed as a mean to address many of the energy sector challenges being faced by Lesotho, while decarbonizing the country’s energy mix\. Increased generation capacity from utility-scale solar photovoltaics (PV), wind, and hydropower could reduce Lesotho’s dependence on imports from South Africa\. The Government of Lesotho, with the help of development partners, made some progress in RE potential assessment and technology piloting, e\.g\., the 281kW solar PV pilot installation at the Moshoeshoe I International Airport and several small hydropower plants in the country\. 10\. Despite significant RE potential, large-scale development and private sector investment was not materializing\. The constraints limiting RE development and deployment in Lesotho included: (i) regulatory and institutional barriers, such as an incomplete legal and regulatory framework, overlapping institutional mandates, and lack of technical standards on RE installations and appliances, creating an uncertain investment climate; (ii) technical and capacity barriers, such as irregular, outdated, and incomplete RE resource and energy baseline studies as well as limited knowledge and capacity from the institutional to end-user level; (iii) environmental barriers, such as declining biomass stock, increasingly variable rainfall and periods of drought, and limited availability of suitable land for RE development, increasing the cost of deployment; (iv) financial barriers, such as limited access to financing and underdeveloped delivery mechanisms for households and private sector, and high cost of distributing RE technologies to dispersed and remote communities in Lesotho; and (v) social barriers, particularly the lack of awareness among Basotho about the health and cost saving benefits of RE technologies, limiting RE uptake\. Rationale for World Bank Assistance 11\. Scaling Up Renewable Energy Program in Low-income Countries (SREP) is part of the Strategic Climate Fund under the Climate Investment Funds (CIF)\. CIF supports developing countries as they move toward low emissions and climate resilient development\. The CIF provides developing countries with grants, concessional loans, and risk mitigation instruments that can achieve significant leverage of private sector resources, investments from multilateral development banks (MDBs), and other co-financing\. The objective of the SREP is to pilot and demonstrate the economic, social and environmental viability of low carbon development pathways in the energy sector by creating new economic opportunities and increasing energy access using renewable energy\. In June 2014, the SREP Sub- Committee approved the selection of 14 new SREP pilot countries, including Lesotho\. 12\. In June 2015, the Government of Lesotho was invited to take a leadership role in working with MDBs to develop a full SREP Investment Plan (IP)\. The Government was committed to promoting the development of renewable energy in Lesotho and to that end, expressed its interest to be one of the pilot countries under SREP and was selected in the pilot country list\. This presented an important opportunity for Lesotho to begin an evidence-based investment planning process that could serve as a basis for developing the share of renewable energy generation in its energy mix\. In June 2015, the SREP Sub-Committee allocated a grant envelope US$300,000 for the Government of Page 6 of 23  The World Bank Lesotho Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P160583) Lesotho to develop its SREP IP, purpose of this activity\. Lesotho SREP IP had to be prepared in collaboration with the WB, AfDB, IFC, and other relevant public and private sector stakeholders\. Upon endorsement of the SREP IP by the SREP Sub-Committee, the Government of Lesotho would become eligible for funding support from SREP to implement its IP, provided that funding for the projects and programs proposed in the investment plans would be available under the SREP 13\. The SREP program was a good fit for Lesotho’s energy sector given the country’s pressing need to develop renewable energy projects\. More than half of Lesotho’s energy consumption was imported from South Africa and Mozambique, with the balance supplied locally from hydro resources\. Lesotho’s indigenous energy resources were only from renewable sources, including biomass, wind, solar and hydro\. The Government was keen to develop its renewable energy resources in order to increase access to electricity, reduce its energy dependency on imports and lower the carbon content of its electricity\. The Government would work to align the SREP IP with all national strategies, policies and ongoing activities in the sector\. The IP would demonstrate how the proposed activities will lead to the reduction of barriers for renewable energy development and market transformation\. 14\. The SREP IP was complementary to other support provided by the World Bank Group and development partners\. At the initiation of the Lesotho SREP IP preparation, IFC was advising the Government of Lesotho on a nationwide wind measurement project, with the support of several donors, including the World Bank’s Energy Sector Management Assistance Program (ESMAP)\. The Government had also commissioned a desktop study of several small hydro schemes and was in discussion with IFC about the possibility of the supporting the Government in taking one or more of them through feasibility and developing them as PPPs\. Additionally, the Government was also in discussion with IFC about the possibility of Lesotho being a pilot country for a standardized, competitively tendered solar PV PPP model\. As part of the EU’s ongoing capacity building program with the DoE, it was funding the preparation of an electrification masterplan to guide sector planning, and formally establish what areas are destined for grid extension\. The masterplan would define the areas that would be served by the grid and the areas that would require decentralized services\. The Italian Cooperation was also supporting the DoE to develop a detailed Lesotho solar resource mapping\. The SREP IP would be a complementary program to this and part of an overall strategy to reach universal access in Lesotho\. Project relevance to higher level objectives 15\. The SREP IP was aligned with the Government of Lesotho’s electrification objectives and would demonstrate the implementation of the Lesotho Energy Policy 2015–2025\. The SREP IP was intended to be a Government of Lesotho’s official RE roadmap\. The overall goal of the program was to enable increased adoption of the priority technologies through the development of commercial on-grid and off-grid RE markets\. This focus aligned with the Government’s Vision 2020 goals to increase private sector investment in infrastructure and promote increased use of RE\. In the absence of a mature legal and regulatory framework, SREP funds would be used to facilitate private investment with support to the first privately funded RE projects and provision of technical assistance to develop missing pieces of the enabling environment\. With SREP support, Lesotho hopes to have a self-sustaining market for on- grid and off-grid investment by the early 2020s\. 16\. The project was aligned with the World Bank Group’s twin goals of poverty reduction and shared prosperity and the Sustainable Development Goals (SDGs)\. Reliable and expanded electricity supply is a key determinant of productivity and competitiveness and is critical to enable economies to attract investments, expand and diversify production, and ultimately create jobs\. Insufficient and unreliable electricity was one of the major constraints in Page 7 of 23  The World Bank Lesotho Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P160583) Lesotho’s investment climate and an evidence-based investment plan for renewable energy represented the first step to addressing these development challenges\. This project was an important contribution to achieving SDG 7, consisting of ensuring access to affordable, reliable, sustainable, and modern energy for all by 2030\. 17\. It was also aligned with the themes elaborated in the Lesotho Country Partnership Framework (CPF) 2016- 2020 and draft Performance Learning Review 2016–2020 (PLR136011)\. The CPF for Lesotho was closely aligned to Vision 2020, and its supporting operational document, the National Strategic Development Plan 2013-2017 (NSDP), which identified inclusive growth as the key development objective, building on five focus areas of infrastructure, skills, technology, health, and environment\. The CPF was crafted to address the high priorities of the NSDP in two focus areas: (i) improving efficiency and effectiveness of the public sector; and (ii) promoting private sector job creation\. The SREP would come under focus area II: private sector job creation, which includes water and renewable energy supply for industrial, agriculture and export opportunities\. Promoting private sector-led investments in renewable energy would help create jobs and sustain general business activities in rural areas\. It will also help rural communities grow by facilitating income-generating activities\. The SREP IP, which was a direct output of the CPF, would therefore further national and World Bank strategic objectives by establishing a rigorous and comprehensive plan for investments in energy\. Theory of change 18\. The project ultimately aimed to improve socio-economic development in Lesotho\. The theory of change underlying this outcome begins with the activities that are part of the grant programming, such as consultations and development of a renewable energy investment plan\. The output, the investment plan, would then be adopted by the government\. The important assumption making the link between the IP and the long-term outcomes is that the implementation of the IP leads to more investment in renewable energy\. It is possible for an IP to be adopted and exist de jure but not be executed\. In this case, there would be no tangible long-term development outcomes\. 19\. This assumption is justified as investment activities have materialized to implement the SREP IP, such as the Lesotho Renewable Energy and Energy Access Project (LREEAP)\. Following the government adoption of the SREP IP, the Lesotho Renewable Energy and Energy Access Project (P166936), a US$52\.9 million investment (US$40 million IDA, US$8 million SREP loan and US$4\.9 million SREP grant), was prepared and approved in January 30, 2020 with the aim to increase RE-based off-grid electrification and increase access to electricity in rural and peri-urban areas of the country\. This investment builds on the pipeline established under the IP\. Specifically, the World Bank prepared the Distributed RE component of the SREP IP under the project component “Rural Electrification by Mini-grids” for which the SREP allocation (US$8 million loan and US$2 million grant) will be complemented by an IDA credit allocation (US$10 million)\. Additionally, the Bank also allocated US$2\.9 million of SREP grant for technical assistance and implementation support under the project\. SREP funds were also allocated – under AfDB management - to support the first privately-owned utility-scale RE plant in Lesotho and development of a RE integration study\. The SREP IP was thus, a critical step to mobilize IDA financing and private sector investment, and attract other donor financing (e\.g\., UNDP, ADFD, EIB and JICA) to contribute to Lesotho's clean energy access expansion\. 20\. Assuming that the IP will be executed and lead to increased investment in renewable energy in Lesotho, important development benefits can be realized\. In addition to extensive assessment of potential economic benefits from the implementation of the Lesotho SREP IP, a 2016 World Bank literature review titled, “Energy, Economic Growth, and Poverty Reduction”, critically assesses the research on the relationship between the energy sector and economic growth\. It identifies studies that provided evidence of benefits of energy projects by examining links in the Page 8 of 23  The World Bank Lesotho Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P160583) following areas: (i) infrastructure and GDP, (ii) energy use and GDP; (iii) power outages and the performance of business; and (iv) household connections to electricity supply and various economic outcomes (income, employment, education, health, etc\.)\. 21\. The literature review provides insights into the importance of the SREP IP\. Two studies by Calderon and Serven (2010a), and Calderon, Moral-Benito, and Serven (2011) have measured the stock of infrastructure in the power sector by the installed generation capacity\. The results obtained provide strong support for the hypothesis that the stock of infrastructure is a determinant of the rate of economic growth of countries and by extension that the size of the power sector is a factor in determining the growth and level of GDP\.1 22\. Error! Reference source not found\. presents a results chain diagram to summarize the pathways by which increasing renewable energy infrastructure can contribute towards reaching the development outcomes outlined in paragraph 17\. Figure 1: theory of change 23\. Evidence of the adoption of the SREP IP is available here: https://www\.climateinvestmentfunds\.org/sites/cif_enc/files/events/files/srep_co- chairs_summary_december_2017_0\.pdf Project Development Objectives (PDOs) The project development objective is to support the Government of Lesotho to prepare a renewable energy investment plan for consideration by the SREP for funding\. The PDO remained unchanged throughout the project\. Key Expected Outcomes and Outcome Indicators 24\. There was only one PDO level results indicator: renewable energy investment plan prepared (yes/no)\. 25\. There was only one intermediate results indicator: stakeholder consultations and finalization for the investment plan (yes/no)\. 1 Bacon, R\., and M\. Kojima, Energy, Growth, and Poverty Reduction: A Literature Review, The World Bank Group, 2016, pg\. 7-9\. http://documents\.worldbank\.org/curated/en/312441468197382126/pdf/104866-v1-REVISED-PUBLIC-Main-report\.pdf Page 9 of 23  The World Bank Lesotho Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P160583) Components 26\. The project had a single component: to provide Technical Assistance to the Government of Lesotho to draft its SREP Investment Plan, including i\. Compiling background information on the country and energy sector; ii\. Conducting a comprehensive assessment of various renewable energy technologies applicable in the territory of the Recipient; iii\. Identifying specific prospective renewable energy technologies applicable in the territory of the Recipient; iv\. Preparation of the draft Investment Plan for developing renewable energy in the territory of the Recipient, based on due diligence findings and stakeholders’ consultation; 27\. The project’s work program oversaw the development of the IP through MDBs joint missions to Lesotho and consultations with relevant stakeholders\. The project hired a Consulting firm in January 2017 to support the preparation of the IP, and an individual Consultant to review the final IP prior submission to SREP Sub-Committee (on November 06, 2017)\. The Lesotho SREP IP was the result of a consultative process, led by the Government and represented by the DoE to identify priority RE technologies for development in the country\. The consultations included a broad range of government agencies and representatives from the private sector, civil society, and international development partners\. There were four consultations over the course of the IP’s preparation\. A Scoping Mission, conducted in January 2017 was used to discuss the overall strategic approach of the IP with Government and energy sector stakeholders, commence data collection, understand the Government’s strategic priorities and challenges facing the energy sector\. Following the mission, an Options Study (OS) was prepared and shared with Government, National Task Force, and MDBs for review (March 2017)\. The OS laid out the energy sector background, an assessment of the potential of various RE technologies in Lesotho as well as the main barriers to their development\. Based on comments received on the OS, the Consultant developed a draft IP and distributed it in April 2017 for comments and discussion with the main stakeholders\. 28\. In May 2017, a Joint Mission was conducted to verify the correctness of the overall approach, identify priority projects and to gather additional materials needed for updating and finalizing the draft IP\. During the Joint Mission, discussions were conducted with the DoE, private sector, NGOs, and donor agencies to ensure that the technology and models proposed in the draft IP were coherent and complementary with ongoing activities in Lesotho in terms of RE development and the energy access expansion program\. The preparation of the SREP Investment Plan for Lesotho was completed in October 2017, and it was endorsed by the Government of Lesotho in November 2017\. In December 2017, the SREP Sub-Investment Committee approved the SREP Investment Plan presented by the Lesotho delegation\. 29\. The project’s final disbursement rate was 86\.4 percent\. The activity did not require the entire amount allocated under the grant so there was no need for further disbursement\. The final disbursement of the project was concluded on December 30, 2018\. Page 10 of 23  The World Bank Lesotho Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P160583) II\. OUTCOME Assessment of Achievement of Each Objective/Outcome 30\. The Project Development Objective (PDO) is to support the Government of Lesotho to prepare a renewable energy investment plan for consideration by the SREP for funding\. The grant achieved the preparation and approval of the IP\. 31\. The SREP IP identifies two on-grid technologies (solar and small hydro) and three off-grid technologies (microgrids, SHS, and improved cookstoves) that best fit the Government and SREP objectives for RE investments\. The SREP IP presents the total technical capacity of renewable resources as 2,300 MW, with annual energy generation potential of 5,900 GWh displayed in Table 3\. Lesotho’s SREP program consists of two core investment focused components: (i) On-grid RE Technologies, and (ii) Distributed Renewable Energy (RE) Solutions\. A third component was added to address the Government’s concerns that a lack of data on project sites would limit the possibility of private sector HPP investment\. SREP funds will be used to support the first privately-owned utility-scale 20 MW solar PV plant in Lesotho and development of a RE integration study\. These activities will be implemented by AfDB\. In parallel, AfDB will support site specific studies for solar PV projects\. The SREP funded off-grid activities consist of financing support for microgrids and other distributed RE technologies (SHS or other stand-alone systems)\. The World Bank will implement these activities\. The completion of these projects is not an outcome of the SREP IP which only assists with preparation and financing\. However, when they are completed, the projects will contribute to further development outcomes, such as increasing access to electricity, improving energy security, and increasing private sector investment\. Table 3: Summary of RE technical potential 32\. The SREP IP has formulated a financing plan along with estimates of the commitments from MDBs, Government, donors, and the private sector totaling US$86\.7 million\. US$18\.5 million of SREP funding is expected to catalyze over three times as much investment, most of it from the private sector (as equity or debt), and the MDB co- sponsors\. The Lesotho SREP IP financing plan is displayed in Table 4\. These funds will be used to build off the US$7 Page 11 of 23  The World Bank Lesotho Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P160583) million already committed by the EU, UNDP-GEF, and Government of Italy to develop parts of the enabling framework and pilot projects that are laying a strong foundation for SREP funded projects\. It is expected that: (i) US$5 million of SREP funding, in the form of a concessional loan, will be used to leverage US$11\.5 million in grants and private concessional loans (or a PRG) from AfDB, US$7\.5 million in equity contributed from the developers of a 20 MW solar PV project, and US$ 6\.9 million in additional financing from either a private lender or other DFI; (ii) US$12 million of SREP funding (US$4 million in grants, US$8 million in concessional financing) will be used to leverage US$10 million in financing from the World Bank, and US$20 million in investment from other private sector investors in microgrids and other distributed RE technologies\. These funds will be complemented by another US$4\.8 million from other donors; (iii) US$1\.5 million in SREP grants will be used for an AfDB managed RE integration study (US$0\.6 million); and World Bank managed site-specific pre-feasibility studies (US$0\.9 million)\. The Government of Lesotho will contribute by facilitating fiscal incentives for services associated with the financing plan\. These incentives will possibly include waiving corporate profit tax for the first 10 years of operation and excluding RE technology sales from VAT\. Table 4: Lesotho SREP IP Financing plan (US$ million) 33\. Of the US 18\.5 million SREP funding, the World Bank project, Lesotho REEAP (P166936), approved in January 2020, will be using SREP loan of US$8 million and SREP grant of US$2 million to finance rural electrification by mini grids\. This includes: (i) Rehabilitation and upgrading of LEC mini grid at Semonkong (SREP loan US$3\.5 million, SREP grant US$2 million) (ii) Mini grid development under PPP models (IDA US$10 million, SREP loan US$4\.5 million) Additionally, as part of the project, the World Bank will also use the SREP grant of US$2\.9 million to provide technical assistance and implementation support\. This includes: (i) Project implementation and coordination support (SREP grant US$2\.5 million) Page 12 of 23  The World Bank Lesotho Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P160583) (ii) Women’s employment, female entrepreneurship, consumer education and citizen engagement, and productive uses of energy (SREP grant US$0\.4 million) 34\. The expected results of the investment are displayed in Table 5\. The investments proposed in the IP can have a transformative impact on Lesotho’s energy sector and are responsive to the SREP indicators\. Utility-scale investments can help the country diversify and increase its generation capacity to meet future demand and reduce its dependence on expensive electricity imports\. Investments in microgrids and distributed technologies can accelerate electrification and energy access in rural areas, improving the quality of life and livelihoods of the population\. It is important to note that this is not a direct outcome of the project; the ICR is only including this to highlight the importance of the IP and its project pipeline and financing plan and illustrate how it is a foundational planning document to reaching the energy sector’s goals\. Table 5: SREP IP expected results SREP Indicators Expected Results Increased supply of renewable 91\.5 GWh, including energy • 61\.5 GWh from the 20 MW solar PV plant (on-grid RE project) • 30 GWh from the technologies in the Distributed RE Solutions project Increased access to electricity • 32,500 men through renewable energy • 32,500 women • 500 SMES & Community services Low carbon development pathways 125,000 t CO2 Gender impacts • Job creation and/or increase economic activity, thereby improving the lives of women • reduced burden of collecting and purchasing fuel\. Impact on job creation • Multi-year construction jobs as well as long term jobs • Increased economic activity Increased accessibility and Projects using a sustainable approach based competitiveness of renewable on increased private sector participation energy Impact on economic, social and • Increased energy security and electricity access (esp\. in rural areas) and environmental development reduced reliance on imports • Increased government and private sector experience and capacity to develop RE projects in Lesotho • Reduction of GHG emissions and environmental pollution Page 13 of 23  The World Bank Lesotho Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P160583) Overall Outcome Rating 35\. Satisfactory\. The project only had one PDO objective, to create a renewable energy investment plan for Lesotho\. This was achieved when the plan was delivered to the SREP sub-committee on December 14, 2017\. Although the officially approved indicator is an output, the project’s achievement has been assessed against a deeper outcome of projects prepared and financed\. As a result of the IP being approved, the project achieved further outcomes of catalyzing finance beyond the expectations of the SREP IP: World Bank contribution to SREP financing plan was four-fold the expected co-financing (US$10 million in SREP IP ended up being an IDA US$40 million in LREEAP), and private sector contribution is also expected to surpass planned amount only with on-grid PV projects under preparation (two projects 20MW and 70MW)\. Other Outcomes and Impacts 36\. No other outcomes or impacts relating to institutional strengthening, poverty or shared prosperity are reported\. The IP is an important foundation for mobilizing private investment into Lesotho’s energy sector, but it did not have a direct impact on mobilizing private finance\. The IP also served as foundation for the Lesotho Electrification Masterplan, endorsed by Cabinet in June 2019\. SREP IP is so far, the most comprehensive public document on RE potential and development in Lesotho\. III\. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME A\. Key factors during preparation 37\. The energy sector in Lesotho had some challenges in terms of availability of data\. There was a lack of basic data and/or studies\. In addition, financing and delivery mechanisms for electrification needed to be strengthened (e\.g\. rural access where there are cash flow problems, weak local capacity for maintenance of RE equipment, need to import RE components)\. Moreover, capacity development and training were necessary for key stakeholders from the institution to end user levels\. Improvement of the sector legislation and regulatory frameworks was also required to attract private sector investment\. 38\. A stock of ongoing initiatives in the energy sector had to be taken to avoid duplication of efforts\. The UNDP (SE4All financed by GEF) and the European Union (EDF10 and 11) were supporting similar activities including the preparation of an Investment Plan for off-grid solutions which had not yet commenced\. The Government of Lesotho through the SREP National Task Force, with the support of the World Bank, had to ensure that coordination was well handled\. B\. Key factors during implementation 39\. The project did not experience any major implementation delays\. The last ISR – filed on May 9, 2019 - rated project implementation as ‘Satisfactory\.’ IV\. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME Page 14 of 23  The World Bank Lesotho Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P160583) A\. Monitoring and evaluation 40\. The rating for Monitoring and Evaluation (M&E) design, implementation and utilization is substantial\. A results framework was included in the SREP and entities that would be responsible for implementation arrangements and monitoring and evaluation of the SREP IP activities were identified\. One ISR was filed for this project and three implementation support missions were completed\. Missions aide-memoire were disclosed on WB and CIF websites\. B\. Bank performance 41\. Bank performance was satisfactory\. The SREP IP was realistic and well designed, according to the SREP Sub-Committee peer review expert and comments received from SREP donor countries representatives\. It fits within the broader SREP activities\. The IP, rather than remaining a stagnant document, informed the preparation of an investment lending project in Lesotho’s energy sector\. The World Bank is preparing the Distributed RE component of the SREP IP, under the Lesotho Renewable Energy and Energy Access Project (P166936) which should contribute to increase access to electricity in Lesotho using RE resources\. The SREP allocation will be complemented by an IDA credit allocation under the project\. The SREP IP delivered through this activity has been a critical step to mobilize IDA financing, and attracting other donor financing (UNDP, ADFD, EIB) to contribute to Lesotho's energy access expansion\. 42\. The World Bank team provided adequate and constructive oversight of the project to help ensure it reached its objective\. The World Bank led a joint mission in May 2017 where the DoE, private sector, NGOs, and donor agencies reviewed and discussed the draft SREP IP and agreed with the Government of Lesotho on the priority investments\. C\. Risk to Development outcome 43\. The risk to development outcome is low\. The SREP IP implementation is already about to surpass financing leverage for its pipeline projects\. The World Bank IDA-financed Lesotho Renewable Energy and Energy Access Project (P166936) was prepared and approved on January 30, 2020, with US$52\.9 million (IDA US$40 million, SREP loan US$8 million, SREP grant US$4\. million) to finance its project development objective of increasing access to electricity in rural and peri-urban areas of Lesotho\. Additionally, no major issues were encountered throughout the project\. The completion of the IP depended on collaboration of key stakeholders including the Government\. An SREP focal point was appointed at the DoE to coordinate and a National Task Force was in place to increase ownership\. V\. LESSONS LEARNED AND RECOMMENDATIONS 44\. Projects that are closely aligned with national sector strategic priorities are more likely to succeed\. The SREP IP remained closely aligned to the Government’s strategic goals for the energy sector\. Due to this, the will to follow through on the work remained to see it to completion\. 45\. Energy sector planning is critical to meet energy sector strategic goals\. The project catalyzed donors and stakeholders to address a need in Lesotho’s energy sector planning\. As a result, there is now a project pipeline Page 15 of 23  The World Bank Lesotho Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P160583) and a financing plan that is the foundation for investments required to meet energy sector strategic goals\. Additionally, based on the SREP IP, a new World Bank investment lending operation has been prepared\. 46\. The client needs to identify and mandate the entities responsible for implementation arrangements and monitoring and evaluation\. The client needs to identify entities that would be responsible for implementation arrangements and monitoring and evaluation related to the two SREP activities in Lesotho moving forward and ensure national level coordination and ownership in terms of monitoring and evaluation to achieve higher level objectives of the Government\. 47\. Technical assistance to Client countries for SREP IP preparation – or any pre-investment technical assistance – should anticipate the need for further assistance during the preparation of investment project\. Lesotho was a new SREP country and MEM/DoE had no formal engagement with MDBs on energy prior the SREP IP\. As a result, DoE’s capacity and budget to conduct required due diligence for project preparation, in particular on Environmental and Social Safeguards, was limited\. It resulted in substantial delays in LREEAP project preparation, which could have been avoided if the SREP IP technical assistance had also made provision for Client support to prepare the project\. \. Page 16 of 23  The World Bank Lesotho Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P160583) ANNEX 1\. RESULTS FRAMEWORK AND KEY OUTPUTS A\. RESULTS INDICATORS A\.1 PDO Indicators Formally Revised Actual Achieved Indicator Name Unit of Measure Baseline Original Target Target at Completion Renewable Energy Investment Plan Prepared Yes/No No Yes Yes 15-Aug-2016 31-Dec-2018 02-May-2019 Comments (achievements against targets): The draft IP was submitted by the Consultant\. Scaling up Renewable Energy Investment Plan for Lesotho was delivered in October 2017 by the Consultant to Lesotho Department of Energy, endorsed on November 03, 2017 by Minister of Development Planning and publicly disclosed the same day\. Formally Revised Actual Achieved Indicator Name Unit of Measure Baseline Original Target Target at Completion DD-MM-YYY DD-MM-YYY DD-MM-YYY Page 17 of 23  The World Bank Lesotho Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P160583) Comments (achievements against targets): A\.2 Intermediate Results Indicators Formally Revised Actual Achieved Indicator Name Unit of Measure Baseline Original Target Target at Completion Stakeholders consultation and Finalization of the Yes/No No Yes Yes investment plan 15-Aug-2016 30-Apr-2017 22-May-2017 Comments (achievements against targets): Page 18 of 23  The World Bank Lesotho Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P160583) B\. ORGANIZATION OF THE ASSESSMENT OF THE PDO Objective/Outcome 1 Outcome Indicators 1\. Renewable Energy Investment Plan prepared (yes/no) 1\. Stakeholder consultations and finalization of the investment plan conducted (yes) Intermediate Results Indicators 2\. Government of Lesotho endorsed the plan (yes) 3\. Approval after Presentation of the investment Plan to SREP Subcommittee completed (yes) 1\. Two core components: (i) On-grid RE Technologies, and (ii) Distributed Renewable Energy (RE) Solutions\. 2\. For on-grid RE technologies, support the first privately-owned Key Outputs by Component utility-scale 20 MW solar PV plant in Lesotho and development of a RE (linked to the achievement of the Objective/Outcome 1) integration study\. 3\. Off-grid activities consist of financing support for microgrids and other distributed RE technologies (SHS or other stand-alone systems)\. Page 19 of 23  The World Bank Lesotho Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P160583) \. ANNEX 2\. PROJECT COST Amount at Approval Actual at Project Percentage of Approval Components (US$M) Closing (US$M) (%) Preparation of the SREP IP for Lesotho and associated 0 0\.288 100 technical assistance - - - - - - - - - - - - Total 0\.3 0\.288 Page 20 of 23  The World Bank Lesotho Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P160583) ANNEX 3\. RECIPIENT, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS - Endorsement letter from the Government of Lesotho for the SREP IP (October 26, 2017) Page 21 of 23 The World Bank Lesotho Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P160583) Page 22 of 23 The World Bank Lesotho Scaling Renewable Energy Program (SREP) Investment Plan (IP) (P160583) ANNEX 4\. SUPPORTING DOCUMENTS (IF ANY) The project work schedule is displayed in the table below: Action Date Project approval October 9, 2016 Approval of Preparation Grant Proposal to SREP Subcommittee October 5, 2016 TORs for Consultant and Candidate September 15, 2016 Hire Consultant January 2, 2017 TORs for the Joint Mission sent to the SREP Sub Committee February 28, 2017 Clearance of TOR for Joint Mission by CIF AU March 15, 2017 Finalization of the draft IP April 30, 2017 MDB Joint Mission and stakeholder consultations to review the results of the May 15-18, 2017 draft IP and way forward Revision of the draft IP October 16, 2017 Disclosure of IP for public consultations (following country’s practice) October 16-20, 2017 Submit SREP IP to Expert for quality review October 20, 2017 Revision of the IP based on comments received and endorsement by the GoL October 31, 2017 Submission of the package (IP, endorsement letter, PPG request, Independent November 3, 2017 Review Report) to the SREP Sub-Committee Endorsement by SREP sub-committee December 14, 2017 Project closing December 30, 2018 Page 23 of 23

REVIEW

P007128

 ICRR 11346 Report Number : ICRR11346 ICR Review Operations Evaluation Department 1\. Project Data: Date Posted : 08/16/2002 PROJ ID : P007128 Appraisal Actual Project Name : Environmental Project Costs 20\.0 11\.6 Management Technical US$M ) (US$M) Assistance Project Country : Ecuador Loan/ US$M ) 15\.0 Loan /Credit (US$M) 9\.8 Sector (s): Board: ENV - Central Cofinancing government administration US$M ) (US$M) (32%), Sub-national government administration (31%), Animal production (30%), General agriculture fishing and forestry sector (7%) L/C Number : L3998; LP181 Board Approval 96 FY ) (FY) Partners involved : Closing Date 09/15/2000 12/15/2001 Prepared by : Reviewed by : Group Manager : Group : John English Andres Liebenthal Alain A\. Barbu OEDST 2\. Project Objectives and Components a\. Objectives The objectives of the project were to : strengthen the capacity of the Environmental Advisory Commission (CAAM) to undertake environmental policy analysis and environmental program design and management; strengthen the environmental management capability of three key ministries (Urban Development [MIDUVI], Industry, Commerce, Integration and Fisheries [MICIP], and Energy and Mines [MEM]); establish and strengthen urban environmental management capability in selected urban areas; and build institutional capacity and carry out the participatory processes and technical analysis required to resolve two of Ecuador's most serious environmental problems, those related to pollution of the Gulf of Guayaquil, and the area in the Amazon most affected by oil exploration and production \. Note that, shortly after project approval, the Ministry of Environment (MoE) was created\. The CAAM was merged into MoE and subsequently abolished in 1998\. The project provided support to MoE, as proposed for CAAM \. b\. Components Operationally, these objectives were translated into four components : Policy Formulation and Institutional Strengthening - US$6\.5 million or 32\.5% of project costs; Municipal Environmental Management - US$3\.9 million or 19\.5% of project costs; Environmental Information and Management in the Gulf of Guayaquil - US$6\.5 million or 32\.5% of project costs; and Environmental Planning and Management in the Ecuadorian Amazon - US$3\.1 million or 15\.5% of project costs\. These components were divided into a large number of discreet activities \. The project took place in a period of great political, institutional and economic change in Ecuador \. At the Mid-Term Review (MTR) in 1999 it was clear that there was a need for consolidation of these activities and this was done, although the basic objectives and structure of the project were unchanged \. c\. Comments on Project Cost, Financing and Dates At the MTR project cost was reduced and almost US$ 3\.0 million was canceled\. Because of further delays, the project closing date was extended for a total of 15 months and, in 2000, a further US$2 million of the loan was canceled\. At completion a final cancellation of US$ 0\.2 million was made\. 3\. Achievement of Relevant Objectives: The project largely achieved three of its four objectives : Significant progress was achieved in strengthening the capacity of the MoE to carry out policy analysis, as well as program design and management \. Less success was achieved in strengthening the environmental management capability of MIDUVI, MICIP, and MEM\. In conditions where there was considerable policy turmoil and high turnover of officials at all levels, project activities, that were not at the core of the ministries' interests, received less attention \. The project played a key role in strengthening management of environmental issues by a number of local government units\. Significant progress was achieved in addressing the environmental issues in the targeted Amazon and Guayaquil Bay areas, but there were substantial shortfalls below what was initially intended \. 4\. Significant Outcomes/Impacts: The project provided substantial support to the MoE to undertake environmental policy analysis and environmental program design and management; review and update pollution control legislation, including a national system of environmental impact assessment; design and implement a national environmental information system; develop a communication campaign and train ministry staff; and establish a policy coordination unit \. A second major achievement was in strengthening the environmental actions of local governmental units \. The project supported the development of a number of Environment Management Units (EMUs) in 23 small and medium-sized municipalities across the country, with the provision of training and assistance in the development of ordinance and environmental plans \. In particular, in the municipality of Esmeraldas the EMU, through strong local political support, addressed environmental problems and supported environmental education with the participation of the Provincial Council, NGOs and civil society \. Other municipalities have now requested assistance from Esmeraldas in creating their own EMUs\. 5\. Significant Shortcomings (including non-compliance with safeguard policies): As appraised, the largest single component of the project (almost one-third of expenditures) was to address the environmental problems in the Gulf of Guayaquil, particularly due to deteriorating water quality \. These had resulted from pesticide run-off from the extensive banana plantations, uncontrolled cutting of mangrove to create shrimp farms, mismanagement in these shrimp farms, and poorly treated municipal sewerage and untreated industrial effluent from Guayaquil\. These had adversely affected water quality and, in particular, the large shrimp fisheries \. Although some progress was made in establishing local EMUs and developing basic data for environmental planning, actual achievements in addressing the severe environmental problems of the region appear modest \. Only US$1,48 million was spent of the US$6\.5 million planned and the ICR does not indicate that funds were saved by adopting particularly cost-effective methods, or that the work was undertaken using other funds \. The project also suffered because of the country's instability \. During the five year life of the project there were five Ministers of the Environment and five project coordinators, and rapid turnover in other staff related to the project \. These changes led to several changes in the country's environmental priorities, affecting the continuity and execution of the project's components\. Given this condition, project design was excessively complex and demanding \. The instability problem was well known at appraisal\. The ICR reports that there had been an eighteen month hiatus during preparation, when Government austerity measures held up the effort \. This strongly suggests that the Bank should have pressed for a straightforward project, not one requiring action by four ministries and with a myriad of defined tasks \. Another factor that undoubtedly hampered the project, although it was not a significant shortcoming, was the fact that Ecuador was not short of funds for environmental activities \. The ICR reports that the country received about US$110 million, in addition to the funds under the Bank project, during the project period \. The majority of these other funds were received in the form of grants, which may have inhibited the use of Bank loan funds, if grant funds could be used for the same purpose \. These funds supported about 80 projects, which must have severely taxed the capacity of the new MoE\. 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Moderately Satisfactory While the project achieved most of its major relevant objectives (which were institutional and qualitative), there were  significant shortcomings\. Institutional Dev \.: Substantial Substantial Sustainability : Likely Likely Bank Performance : Unsatisfactory Unsatisfactory The ICR rates overall Bank performance as unsatisfactory (marginally so) largely on the basis of inadequate supervision during the early stages of the project, before the mid-term review, when the number of sub-components was reduced and the focus sharpened \. However, preparation took five years, partly because of fiscal and political difficulties on the Ecuadorian side\. The project as appraised was overly complex, and appears to have been victim to a desire to get something approved after all the preparation work\. The deficiency in Bank performance appears to have been greatest in the preparation stage \. Borrower Perf \.: Satisfactory Unsatisfactory The Borrower also contributed to the extended preparation time and then, immediately the project became effective, it created a new Ministry of the Environment, into which the CAAM (the project's principal counterpart ) was merged\. This action created considerable problems that hampered implementation in the crucial, early stages\. In addition, such an action (of which the Bank was not aware) strongly suggests that the dialogue between the Bank and Borrower was not as close as it should have been at this time, the blame for which may have been equally shared\. Quality of ICR : Satisfactory NOTE: NOTE ICR rating values flagged with ' * ' don't comply with OP/BP 13\.55, but are listed for completeness\. 7\. Lessons of Broad Applicability: The ICR notes two lessons that are of broad applicability : The complexity of the project has to be commensurate with the capacity of the Borrower \. In this case the design was too ambitious and too broad for a new ministry \. Extension of the closing date can be essential in the achievement of project objectives \. Because of initial delays this project only got up a real head of steam in the last two years, including the extension \. 8\. Assessment Recommended? Yes No 9\. Comments on Quality of ICR: The ICR provides a broadly satisfactory review of a project that is difficult to assess, because of the vague nature of its institutional objectives and the fact that the appraisal identified a large number of tasks, but did not give any real indication of their relative priority \. Given this situation, the ICR might have concentrated more on two sets of issues : Project design, that was over complex \. Why did the Bank and Borrower agree on such a complex design when the problems of instability, institutional change, and funding must have been apparent from the beginning? Ministerial overload\. The Bank loan was less than 10% of the funds received by the country for environmental activities, and was in the form of a loan rather than a grant \. Was Bank funding used for critical activities in the MoE that increased its capacity to effectively utilize the external funds available, or was it used for discreet, but limited activities, while the MoE limped along trying to manage an range of operations that overloaded its limited capacity?

REVIEW

P000822

Document of The World Bank FOR OFFICIAL USE ONLY Report No\.: 20621 PERFORMANCE AUDIT REPORT THE GAMBIA WOMEN IN DEVELOPMENT PROJECT (Credit 2141-GM) June 20, 2000 Operations Evaluation Department This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\. CURRENCY EQUIVALENTS (Annual Averages) (Currency Unit = Dalasi) 1990 US$ 1\.00 D 7\.8 1991 US$ 1\.00 D 8\.8 1992 US$ 1\.00 D 8\.9 1993 US$ 1\.00 D 9\.1 1994 US$ 1\.00 D 9\.6 1995 US$ 1\.00 D 9\.5 1996 US$ 1\.00 D 9\.8 1997 US$ 1\.00 D 10\.2 ABBREVIATIONS AND ACRONYMS ACU Agricultural Communications Unit AEU Agricultural Engineering Unit AfDB African Development Bank AIO Agricultural Inputs Office CAS Country Assistance Strategy BPRMU Book Production and Material Resource Unit DAS Department of Agricultural Services DCD Department of Community Development DLS Department of Livestock Services GAWFA Gambian Women's Finance Association GCU Gambian Cooperative Union FAO Food and Agriculture Organization FNU Food and Nutrition Unit ICC Implementation Coordinating Committee ICR Implementation Completion Report IDA International Development Association IEC Information, Education and Communication M &E Monitoring and Evaluation MTR Mid-term Review NFES Non Formal Education Services NGO Non-Governmental Organization PCC Project Coordinating Committee PMU Project Management Unit SA Special Account SAR Staff Appraisal Report SOE Statement of Expense TA Technical Assistance TANGO NGO Umbrella Organization UNDP United National Development Programme UNFPA United Nations Population Fund UNICEF United Nations Children's Fund UNIFEM United Nations Development Fund for Women BUREAU The Women's Bureau WID Women in Development WIDP Women in Development Project WWB Women's World Banking FISCAL YEAR July 1 - June 30 Director-General, Operations Evaluation Mr\. Robert Picciotto Director, Operations Evaluation Department Mr\. Gregory Ingram Manager, OEDCR Mr\. Ruben Lamdany Task Manager Ms\. Gita Gopal FOR OFFICIAL USE ONLY The World Bank Washington, D\.C\. 20433 U\.S\.A\. Office of the Director-General Operations Evaluation June 20, 2000 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Performance Audit Report on the Gambia Women in Development Project (Credit 2141-GM) Attached is the Performance Audit Report on the Gambia Women in Development Project (Credit 2141-GM) prepared by the Operations Evaluations Department\. This IDA Credit in the amount of US$7\.0 million was approved on June 29, 1990, and became effective on December 27, 1990\. It closed on December 31, 1997, after two extensions of the original closing date of December 31, 1996\. Ninety four percent of the credit was disbursed and a balance of SDR 0\.3 million (US$0\.6 million) was canceled\. The project's objectives were to (i) improve women's productivity and income- earning potential; (ii) improve women's welfare and status; (iii) strengthen government institutions to enable better integration of women's issues in their work; and (iv) contribute to changing Gambian society's perception of the role of women\. The project achieved significant results in the agriculture, health, information education & communication (IEC) and NGO Fund components\. For example, the ambitious agricultural extension targets were surpassed\. Financial management problems encountered during implementation were resolved by closing, although the government has yet to complete a final financial audit\. The Evaluation Summary rated outcome as marginally satisfactory and this PAR rates outcome as satisfactory\. Like the ES, the PAR rates Bank performance as satisfactory and institutional development as modest\. While the ES rated sustainability as uncertain and Borrower performance as unsatisfactory, the PAR found that the factors that contributed to the satisfactory outcome included sustained government commitment through counterpart funding, staff dedication, and institutional ownership of components by participating ministries\. In light of these factors and the enabling policy framework, the PAR rates sustainability as likely, and Borrower performance as satisfactory, but only marginally so, given the financial management problems during implementation\. The most important WID-specific lessons from this project are that: in certain circumstances, a free-standing women-specific project can be an effective mechanism/ vehicle for the integration of women's issues in sector programs\. As a short-term solution, it can provide a boost to mainstreaming gender, by consolidating women-related activities and research, and enhancing awareness\. The economic empowerment impact of a project can be enhanced if it addresses both women's social and economic needs\. This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  CONTENTS RATINGS AND RESPONSIBILITIES \. PREFACE \. \. I 1\. PROJECT BACKGROUND \. 1 A\. Country Background and Project Objectives \. \.1 B\. Components, Design and Financing Costs\. 1 2\. PAR FINDINGS AND RATINGS \. \.1 A\. Relevance of Project Objectives\. \.1 B\. Project Outcomes\.2 C\. Sustainability\.3 D\. Institutional Development Impact\.4 E\. Bank Performance\.4 F\. Borrower Performance\. 5 G\. PAR Ratings\. 5 H\. Factors that Contributed to Project's Overall Performance \.6 3\. LESSONS LEARNED AND RECOMMENDATIONS\. 7 A\. WID/Gender-Specific Lessons Learned\.7 B\. Recommendations \.8 ANNEX 1: PAR FINDINGS \.9\. \.9 ANNEX 2: BASIC DATA SHEETS \.18 This study was prepared by Ms\. Waafas Ofosu-Ammah (Consultant), with Gita Gopal as task manager\. Roziah Baba provided administrative support\.  i RATINGS AND RESPONSIBILITIES Principal Ratings Ratings ICR OED Evaluation PAR Summary OUTCOME Satisfactory Marginally Satisfactory Satisfactory INSTITUTIONAL Substantial Modest Modest DEVELOPMENT SUSTAINABILITY Likely Uncertain Likely BANK PERFORMANCE Satisfactory Satisfactory Satisfactory BORROWER PERFORMANCE Satisfactory Unsatisfactory Satisfactory Key Staff Responsible Task Manager/ Division Chief/Sector Country Director Team Leader Manager APPRAISAL Bruna Vittagliano Birger Frederiksen IMPLEMENTATION Bruna Vitagliano Florent Agueh Michael Gillette Nwanganga Shields Florent Agueh /Birger Katherine Frederiksen Marshall Roza Makonnen 0\. K\. Pannenborg Jean-Louis Sarbib Rosemary Bellew 0\. K\. Pannenborg Hassan Tuluy, Acting ICR Rosemary Bellew Nicholas Burnett Mahmood A\. Ayub  iii PREFACE This Project Performance Audit Report (PAR) is on the Gambia Women in Development Project, for which an IDA Credit (2141-GM) in the amount of US$7 million was approved on June 29, 1990, and with the Development Credit Agreement becoming effective on December 27, 1990\. The credit was closed on December 31, 1997, after two extensions of six months each of the original closing date of December 31, 1996\. At the time of closing, 94 percent of the credit had been disbursed and a balance of SDR 0\.324 million ($600,166) was canceled\. The African Development Bank (AfDB), the Government of Norway, United Nations Development Fund for Women (UNIFEM), United Nations Fund for Population Activities (UNFPA) and United Nations Development Program (UNDP) co-financed the project\. The Operations Evaluations Department (OED) prepared the PAR\. It is based on the Staff Appraisal Report (SAR), the Memorandum of the President to the Executive Directors (MOP), credit documents, review of project files, interviews and discussions with World Bank staff and key Borrower stakeholders, including government officials and NGOs\. The Implementation Completion Report (ICR, Report No\. 17664 dated April 10, 1998) prepared by the Human Development II Section of the Africa Region, provided an account of the project's experience, and covered project design, implementation, major factors affecting the project, project sustainability and an assessment of the project's outcome\. The Evaluation Summary (ES) downgraded Borrower performance to unsatisfactory because of the financial management problems, lack of internal controls, and poor compliance with auditing requirements that the ICR documented\. The final project audit was not completed, but is currently underway and is expected to be completed soon (the delays over the final project audit have arisen from uncertainty as to funding sources)\. The PAR upgrades Borrower performance to satisfactory on the basis of two key factors: all outstanding audit and financial management problems were resolved prior to project closing; and the cumulative impact of the Borrower's commitment and positive performance in the project's substantive components\. The PAR focuses on the relevance of the project's objectives, especially consistency with the Borrower and the World Bank's policies and priorities and the gender-specific constraints identified, and the appropriateness of the project's design and components in addressing these priorities and constraints\. An OED mission visited the Gambia from February 1-9, 2000 and interviewed government agencies, NGOs and other project participants to assess the impacts of the project and its effects on the integration of women's issues into mainstream activities\. Their cooperation is gratefully acknowledged\. Based on these findings, this PAR documents WID/gender-specific lessons and how these lessons are being integrated into, or reflected in, current policy and programming on gender issues in the Gambia\. The draft PAR was sent to the Borrower and co-financiers for comment on May 19 and June 2, respectively\. However, no comments were received\. Comments from the Region and UNIFEM have been incorporated\. Although no comments were received on the draft audit, the Government authorities provided a written evaluation of the project at a workshop organized by OED in Nairobi in May 2000, the findings of which are consistent with those in this audit\.  1 1\. PROJECT BACKGROUND A\. Country Background and Project Objectives 1\. The Republic of the Gambia, on the West Coast of Africa, is one of the poorest countries in Africa\. At appraisal in 1990, per capita income was US$220, increasing to US$340 by 1998\. The Gambia's prospects for sustainable development depend, to a large extent, on the efficient management of resources and the elimination of obstacles to the full participation of all Gambians in the economy, including women\. Women's high rate of participation in agriculture (91\.7 percent), their low literacy rates and the high maternal mortality rates (1,050 per 100,000) had highlighted the need to focus development efforts on their roles in agriculture, health and education\. 2\. The project was made effective on December 27, 1990 and closed on December 31, 1997\. Its objectives were to: (i) improve women's productivity and income-earning potential; (ii) improve women's welfare and status; (iii) strengthen government institutions to enable better integration of women's issues in their work; and (iv) contribute to changing Gambian society's perception of the role of women\. B\. Components, Design and Financing Costs 3\. The project had six components (agriculture, safe motherhood, institutional strengthening, skills development, IEC, and NGO fund) and 18 sub-components\. These are listed in Annex la\. The total cost of $15m was financed by IDA (7m), AfDB, UNDP, the Norwegian Government, and UNFPA\. Each component was implemented by a relevant ministry under the direction of a Component Coordinator, a full-time staff member\. A high level Project Coordination Committee (PCC) oversaw overall policy\. Administrative and liaison functions rested with the Project Management Unit (PMU) in the Women's Bureau\. An Implementation Coordinating Committee (ICC) consisting of Coordinators was responsible for addressing implementation issues and constraints\. 2\. PAR FINDINGS AND RATINGS A\. Relevance of Project Objectives 4\. The objectives were consistent with the Borrower's policies, the Bank's assistance strategies and the prevailing thinking on women's roles in development in the late 1980s'\. Sectoral surveys prepared by the government, with donor support, had documented Gambian women's limited access to resources, education and social services and attitudes that reduce their status and mobility\. Responding to these findings, the Government adopted a two-pronged WID strategy in 1987 to increase women's access to productive resources and economic and social services, and to improve the responsiveness of development interventions\. This project was designed to assist the 'Together with the C6te d'Ivoire Women in Development Pilot Support Project (L3251), it was one of the first two World Bank- financed WID projects in the late 1980s/early 1990s\. 2 Government to implement this strategy\. Justification for a free-standing WID project was carefully considered, including the fact that government commitment and the small size of the country were conducive to targeting such objectives\. Some components were closely related to ongoing IDA projects in education, health and agriculture, and were appropriate for advancing the project's overall objectives\. Thus, these objectives were relevant in terms of addressing demonstrated needs within the context of government, stakeholder, and World Bank priorities and policies\. B\. Project Outcomes 5\. Like the ICR, the PAR encountered difficulties with assessing efficiency and efficacy based on quantitative outcomes because the project did not establish performance indicators at the outset nor monitor results systematically\. The ICR relied on the few input/output targets established at appraisal and some performance indicators developed during the mid-term review\. Using a combination of these useful indicators, some component evaluations undertaken by the Borrower and co-financiers at completion, and interviews with stakeholders and NGOs, this audit developed additional indicators (ex-post facto) to produce a partial quantitative assessment of outcome\. The findings are presented in Annex la\. In addition to capturing the comprehensive nature of this project and the multiplicity of actors and activities, the basic picture it presents is one of positive results in many sub-components and under-achievements in some others\. 6\. The audit confirms the ICR findings that the interventions in the agriculture, IEC, safe motherhood and skills development components provided innovative outreach and extension services to women in over 125 villages and the greater Banjul area\. For example, the agriculture component increased the percentage of women used as contact farmers in agricultural extension from 5 to 68 percent\. Their participation in livestock fairs rose from 12 to 50 percent, resulting in increased income\.2 It introduced higher value crops, e\.g\., sesame, which enhanced income for women's Foups\. It helped GAWFA to clarify savings mobilization links to credit schemes\. It established 175 literacy centers that reached 7,000 women\. It initiated a small agricultural inputs revolving fund (D 1\.7m) with a national network of retailers and an initially high repayment record, demonstrating women's creditworthiness\.4 It launched a visible IEC campaign, including over 50 advocacy materials and new channels of communication for radio, television and video halls, e\.g\., 56 women's theatre groups\.5 The Baby Friendly initiative improved access to nutrition information for children and mothers\. The NGO fund launched 68 small women-run businesses\. 7\. From a qualitative perspective, the project's overall impact was catalytic, jump- starting women-specific activities\.6 The financial independence that it afforded agencies to facilitate programming, the institutional accountability that accompanied it, and the 2 These fairs provided a market for their produce\. ' GAWFA is now one of the few micro-finance institutions licensed by the Central Bank of Gambia, and it continues to provide credit to women's groups for commerce and agricultural activities\. * Initial repayment rates of 90 percent, reduced to 57 percent by closing, because of the limited supervision by the AIO (whose vehicle was commandeered following the 1994 Coup d'Etat) and the diversion of the fund's resources by the new government's agencies\. 'These groups produced shows on social issues in readily understood local languages\. 6 For example, shifting agriculture extension and production from cash crops to women's crops such as coarse grains and vegetables\. 3 technical skills of the participating agencies, created the enabling environment to integrate women's activities efficiently\. Although it preceded the gender mainstreaming era, this WID project was, in reality, a successful attempt to mainstream women-related considerations within the government's policy and institutional framework\. 8\. The main shortcomings include women's unsustained participation in some activities, because of weak links to income (e\.g\., literacy classes or crop fairs7); limited success in reducing women's work through labor-saving devices; limited promotion of technologies for preserving and marketing agricultural outputs; and insufficient attention during implementation to a gradual phase-out of project activities to enable the Women's Bureau to absorb activities\. Another limitation was the piecemeal approach to responding to participants' expressed needs for credit\. This resulted in four separate credit sub-components, some to mobilize savings, and others to provide matching funds for women's small-scale entrepreneurial activities (Annex lb)\. Further, the M&E sub- component, which was expected to strengthen the capacity of the Women's Bureau's was not effective in providing adequate data on project impacts and outcomes\. One 8 unresolved issue is the source of funding for the final project audit\. It is yet to be completed\. Annex Ic present a summary of the ICR and PAR findings by component\. C\. Sustainability 9\. As seen in Annex Id, many of the achievements are likely to be sustained due to: * Government commitment as indicated by the adoption of the National Policy for the Advancement of Gambian Women (1999) and orientation of development programs to focus on gender issues; * Government funding of the Bureau since 1996\.9 Its IIEC activities continuelo and in 2000 it launched a DFID-funded gender and poverty mainstreaming project\. It is compensating for its weaknesses by forging partnerships with other projects, e\.g\., the PHNP, housed in its headquarters\. The physical proximity promotes joint planning; * The World Bank's continued emphasis on women-specific health, agriculture and literacy and skills building activities targeted by the project (Annex le); * Other donors' continued funding of some components and sub-components; and * The continued clustering of women's health and agriculture groups, some of which have grown, such as the 72 sesame growers' groups\. 10\. This PAR found significant awareness of women's concerns and a conducive policy environment\. These continue to build on the project's early gains\. The project trained women with agricultural, craft and entrepreneurial skills, and post-graduate professionals (including 3 Ph\.Ds) and created fairly strong professional leadership in the participating ministries\. Upon completion of the project, the tendency was to revert to the sector approach\. However, the inter-ministerial coordinating committees at policy Although they provided a ready market for produce, crop fairs were not as lucrative as livestock fairs because of perishability\. Although in the final aide memoire dated December 12, 1997 and attached to the ICR, the Bank gave its clearance in principle for the credit to finance the final audit at an estimated cost of US$6,000 and to be completed by March 31 1998\. 'Its annual budget is about $\.5m Dalasis for 36 staff\. 'o The Bureau is represented on the national IEC Task Force that coordinates all IEC activities in the country\. 4 and implementation levels are being replicated in coordination arrangements found in new and emerging projects\. The continued institutional capacity for, and effectiveness of, joint planning and budgeting for women- and poverty-sensitive activities will be enhanced if efforts are to made to establish gender focal points in the ministries\. D\. Institutional Development Impact 11\. By earmarking funds for technical staff to reorient their activities to focus on women, this project provided needed resources for institutional strengthening\. The activities helped to raise awareness and planning and implementation capacity of a multi- disciplinary team of over 30 professionals in four ministries and the Women's Bureau\. These crosscutting institutional development impacts continue in current inter-agency collaboration in Government- and donor-sponsored poverty programs\. 12\. The PMU staff gained considerable skills during implementation\. However, the PMU's existence as a separate unit contributed to the marginalization of the Women's Bureau, because in reality the PMU (as opposed to the Bureau), which was able to attract better staff because it offered better salaries and incentives, became the focal point for women's issues in the country during implementation"\. Given the exodus of PMU staff upon closing (even though the government was prepared to continue their employment as Bureau staff, the differential between PMU and civil service salaries was a disincentive) this marginalization reiterates doubts about the utility of PMUs and their possible destabilizing effect\.12 Having a separate M&E Unit was also not conducive to integrating M&E within the Bureau\. However, government, NGOs and the country as a whole retained the skills acquired by PMU staff, as a significant number of former PMU staff hold high-level policy positions\. These include the current Vice President, the Ministers of Agriculture and Health, and the Director of the Department of Community Development\. The Executive Director of the National Association of Women Farmers was a component coordinator and received her Ph\.D\. under the training offered as part of the agriculture component\. In the private sector, the survival of groups like the Gambian Women's Finance Association (GAWFA) and the emergence of the National Association of Women Farmers (NAWFA) are additional evidence of the institution building impacts\. E\. Bank Performance 13\. The Bank's performance was satisfactory\. Project design was thorough, flexible enough to allow critical changes to accommodate constraints and opportunities (e\.g\., adding the NGO Fund) and reflected an understanding of gender and institutional issues in the Gambia\. The comprehensive listing of key actions to be taken by government, e\.g\., setting up multi-agency task forces, laid the preliminary groundwork for effective implementation\. The implementation schedule was adequate and realistic - the delays encountered being due to political risk beyond the control of the Bank\. With the " The Region feels that the Women's Bureau had a number of problems of its own\. It failed to get fully staffed; it did not attract the best staff; and it did not retain the best staff\. This also led to its questionable sustainability\. The PMU was always intended to phase out\. In its absence, there were few people left in the Women's Bureau for these other reasons\. Few wanted to work there because it was not very successful in establishing its credibility\. 12Only the Public Relations Officer remains in the Women's Bureau as a hold over from the PMU\. 5 exception of UNIFEM's role, the co-financing plan and partnerships were appropriate\.13 However, joint missions were not consistently the norm during implementation, and this contributed to increasing the burden on the borrower\. Supervision was frequent and diligent, although the Bank did not address M&E issues adequately and on a timely basis\. While the Bank compensated for capacity weaknesses in all Ministries by spreading M&E the responsibilities, these constraints were more severe in some than in others, and the main flaw was the over-estimation of the Bureau's capacity to effectively discharge those M&E responsibilities assigned to it\. Also, the Bank should have endeavored to resolve its differences with the Borrower on the funding source for the final audit\.14 F\. Borrower Performance 14\. Preparation was thorough,'5 despite communication difficulties posed by the large number of preparatory task forces\. Project design was innovative, fostering a partnership within government agencies, and between government and NGOs\. Design challenges (including the multi-sectoral nature, the need to work with geographically dispersed groups and the reluctance of some NGOs to participate unless their roles were clarified) were effectively addressed\. The widely representative NGO Fund Management Committee was a workable solution\. Government funding was sustained at a consistent level during implementation\.16 For these reasons, the Borrower's performance is rated as satisfactory, but only marginally so\. While technical management of the individual components was very good, and has created management capacity in the Gambia, the record of poor financial management and the two-year delay over the completion of the final financial audit has left a legacy of skepticism and tarnished the project's reputation\. G\. PAR Ratings 15\. Like the ICR the PAR rates outcome as satisfactory (the ES rated outcome as marginally satisfactory)\. The outcome is satisfactory because of the effective integration of women's issues in programs and the achievements in individual components noted in Annex la\. Like the ICR and ES, the PAR rates Bank performance as satisfactory and institutional development as modest\. The Bank's performance was satisfactory because of the technical soundness of preparation, design and supervision\. While stronger departments emerged in the ministries of Agriculture, Health and Local Government, overall institutional development impacts are modest, given the limited strengthening of the Women's Bureau\. While the ES rated sustainability as uncertain and Borrower performance as unsatisfactory, the PAR found that government commitment and counterpart funding, staff dedication, and institutional ownership of components by 13 There was a shortfall in UNIFEM's contribution because of a shift in its focus from a broad-based organization to a learning and advocacy fund\. 14 While all outstanding audit and financial management issues were resolved prior to closing, the final project audit had not been completed as of February 2000 due to lack of agreement between the Bank and the Borrower as to the funding sources for the audit fees\. The issue is whether the fees for a service completed after the closing date are included in the Development Credit Agreement\. "It included a rapid rural reconnaissance survey on women's activities and constraints in agricultural livestock, data collection and studies on skills development activities, women's employment potential in the formal sector, development and testing of MC materials, review of NGO activities in the Gambia and a baseline survey to establish indicators as input into the monitoring system in the Women's Bureau\. 16 Including funding four Bureau positions, following the funding shortfall from UNIFEM's failure to provide anticipated funds\. 6 participating ministries contributed to the outcomes\. In light of these factors and the prevailing conducive policy framework, the PAR rates sustainability as likely, and Borrower performance as satisfactory, but only marginally so, given the financial management problems, and the unresolved issue relating to the delayed audit\. H\. Factors that Contributed to Project's Overall Performance 16\. Considering the comprehensive nature, size, diversity of funding institutions, multiplicity of pilots, and novelty of the approach, project achievements were satisfactory\. It is one of the first fairly successful attempts to "mainstream" women's issues in sectoral ministries (even though that terminology was not used)\. The two risks associated with this major experiment were clearly identified at the IEPS stage (both IDA's and government's lack of experience in this area, and the difficulties associated with the multi-sectoral approach)\. It is in light of these risks and novelty that the project was deemed to be complex\. However, the complexity was more apparent than real, as each agency executed its own component (although the size and scope of some components may have been ambitious to the point of testing some participating ministries' capacity)\. The PMU's implementation and coordinating roles were fairly circumscribed\. Its failures were not a function of the project's complexity, but its lack of capacity\. Many of the major problems encountered during implementation were not the result of the project's experimental nature, complexity or untested substantive content, but rather poor financial management\. The project worked well in seven key respects: * Planning - noteworthy preparation issues include the NGO consolidation workshop, the full-scale IEC campaign and local task forces involved in project preparation; * Project design - structured as a comprehensive package of technical interventions (health, agriculture, education), delivery mechanisms (extension, training) and outreach (IEC), the design effectively provided a strategic, yet flexible, framework to strengthen institutions and raise awareness and programming responsiveness; * Pre-implementation - emphasis on annual implementation plans specifying outputs, budgets and resources by component for the first three years\. This facilitated annual reviews and revisions and injected flexibility to adapt to changing circumstances and emerging problems; * Implementation - with responsibilities assigned to the ministries as part of their regular (mainstream) activities\. The combination of the ICC and PCC, and the non- representation of donors in these two mechanisms, facilitated the multi-faceted approach and elevated the degree of ownership within each agency; * Enthusiastic reception of the project by beneficiaries and high demand for its services; * Government commitment as reflected in sustained funding and staff dedication; and * Appropriate financing plan and partnering arrangements to unify donors' individual efforts behind a comprehensive initiative\. 7 3\. LESSONS LEARNED AND RECOMMENDATIONS A\. WID/Gender-Specific Lessons Learned 17\. The ICR documented lessons on project implementation, government-NGO partnerships, multiplicity of credit schemes, relevance and appropriateness of pilots, financial management and the importance of operational manuals for monitoring and evaluation\. This PAR concurs with those lessons, and draws these new ones to assist with integration of gender-specific issues in programming and monitoring and evaluation: (a) Integrating women's issues in technical ministries is possible through a process that improves the enabling (and learning) environment within their sectoral areas of expertise, using existing mechanisms instead of creating new ones\. One of the most effective methods is to assign responsibility for women's projects to technical staff, because it avoids the marginalization and/or isolation of relevant gender-specific issues, reduces rivalries among institutions, and encourages institutional ownership\. (b) A women-specific project can be an effective mechanism/vehicle for such integration (or mainstreaming)\. While such a project may not be a long-term solution, it can provide a boost to mainstreaming gender concerns, by consolidating integrated women-related activities and research, and enhancing awareness in participating agencies\. It can avoid the situation where women's programs end up being pieces of uncoordinated efforts with little overall impact\. (c) The economic empowerment impact of a stand-alone WID project can be enhanced if a project focuses on women's social and economic needs in an integrated manner\. Responding to one without the other does not produce lasting results\. For example, an increase in women farmers' agricultural output without a corresponding improvement in labor-saving techniques and access to credit to market the outputs is neither effective nor sustainable\. (d) Start-up support for research and needs assessment is an important foundation for proper design, and can initiate a process of advocacy for women's and/or gender issues in relevant ministries, as was done by the task forces\. (e) Availability offunds to support a gender-specific initiative within a sectoral ministry (including a separate budget line item) and clearly defined activities and responsibilities provide the necessary impetus for activities which may otherwise not be a priority in that ministry's agenda\. (f) Project coordination that ensures consultative decision-making, with appropriate mechanisms for interface between policy (PCC) and technical (ICC) levels is vital for effective execution of a multi-sectoral project\. (g) Supervision and monitoring oMonitoring and evaluating the gender-related components is the responsibility of implementing agencies -- assigning this responsibility to one sole agency (e\.g\., the Women's Bureau) and with little emphasis on establishing performance indicators can weaken the links between sector policies and gender-specific activities\. 8 B\. Recommendations * Develop and agree between Bank and Borrower on a few priority input, output, outcome and impact gender disaggregated indicators and establish an MIS system that is operative at least by credit effectiveness and that will provide user-friendly reports on a periodical basis\. This would involve clarifying and assigning the M&E and research responsibilities of all implementing agencies\. * In pilot projects of this type, capacity constraints at the different levels should be clearly identified during project preparation and costs allocated for such activities\. * Formalize mechanisms to integrate project lessons and impacts into national planning to ensure that women-specific activities are reflected in the regular programs of ministries through budget allocations and staffing decisions\. * Establish links with other projects at very early stages by identifying mechanisms for coordination among complementary projects and promoting joint or overlapping missions, especially in strategic sectors for gender goals, e\.g\., poverty, health, education and agriculture\. ANNEX 1: PAR FINDINGS  la\. Project Objectives, Activities and Results Component Objectives Sub-components Activities by sub-component Outcome Targets Results Coord\. Inst\. Indicators Donor - Agriculture 1\. Increase 1\. Strengthen agricultural extension 1\. Training, logistical support for extension workers # of villages reached 200 200 women's agric\. services in field crops, livestock and 2\. Provide health care lab equipment # ext\. Workers trained NS 20 Productivity horticulture 3\. Establish a revolving fund for livestock drugs % women contact farmers 60% 68% # kaffu farms/women NS 506/22,000 % females/ livestock show NS 50% Livestock demonst\. sites NS 70 Types of TA, training & NS 70 study tours, resources Hort\. Manual 2\. Enable women in 2\. Extend the private sector input 1\. Business training for 18 women # of women trained NS 11 rural areas to distribution network: 2\. Provide technical assistance to these women ATO fertilizer revolv\. fund NS 100,&57% repay DoS for increase their 3\. Conduct a private retailer network study Completion of study Agriculture: disposable income -DAS 3\. Support women's cooperative groups 1\. Engage up to 7 women credit specialists # of credit specialists -DLS -AIO 3\. Improve the 4\. Strengthen food storage & nutrition 1\. Technical assistance # of Specialists trained NS 38 -GCU nutritional status of services 2\. Develop extension materials # of extension materials NS unspecified # -ACU women and 3\. Train MOAgric Food and Nutrition staff # of staff trained NS prod\. -HU children 4\. Provide logistical support] lab eqpt\. to FNU staff # of FNU outreach etrs 3 2 - FNU 5\. Outreach program for FNU for liaison with MOH # of lab eqpt, Provided GA WFA 6\. Adapt improved food processing equipment Outreach prog\. Developed NS Unspecified # prod\., 17 recipes 5\. Improve maintenance of small-scale 1\. Train village management ctees and personnel # of villages& women NS 35 villages, 3513 IDA post-harvest equipment UNDP 1\. Savings campaign for women farmers # of groups receiving loans NS 120 6\. Mobilize women's savings 2\. Improve rural women's access to financial Repayment rate NS 95% institutions Women receiving training NS 2000 Skills Dev\. 1\. Rurat-based 7\. Strengthening of govemment 1\. Basic literacy and numeracy programs # of beneficiary villages 125 125 marketable sUils, departments and participating agencies # of literacy centers 125 171 # village-based trained 125 \.- 130 2\. Org\. /strengthen 8 Skills development program for 10,000 2\. Assist rural women for income activities # of rural women reached 10,000 7,000 DoS for Local women's groups for rural women in 125 villages\. 3\. Establish small-scale credit scheme for trainees # of credit schemes 125 56 Govt\. small business and 1 s of village-based trainers NS 9 -DCD income 4\. Project development and management training for # staff trained NS 7 Masters -NFE 9\. Small-scale credit scheme for improved staff of participating agencies and departments # Com\. Dev\. Agents and NS degrees -BPMRU 3\. Basic literacy access to credit Home Craft Assist trained 50 /numeracy %\. Supply equipment and literacy materials for DCD # and variety of materials NS ADB and NFE in ka of languages NS 7,000 primers % females/livestockshow NS50,240/3 la\. Project Objectives, Activities and Results Component Objectives Sub-components Activities by sub-component Outcome Targets Results Coord\. Inst\. Indicators Donor Safe Motherhood 1\. Reduce the high 10\. Identification and referral of high-risk 1\. In service training for TBAs, community health # beneficiary villages 200 50 and Family maternal mortality pregnancies works and trekking team members # existing TBAs trained 200 200 Planning rate 2\. Sterile techniques & risk mgt\. training for # of new TBAs 200 140 untrained TBAs # existing CHN trained 50 50 3\. Refurbish sub-dispensaries, provide equipment for # trekking teams 15 48 trekking teams and construct posts in isolated villages # trekking stations 35 11 # dispensaries refurbished 35 9 2\. Reduce the 11\. Alarm and evacuation systems 1\. provision of animal-drawn carts incidence of 2\. Expansion of existing telecommunications Pilot villages w/horse-carts 21 14 maternal facilities # of functioning horse- 105 6 malnutrition carts 15 14 # of solar radio equipment NS 8 NS 12\. Women's nutrition program I Education of household members in nutrition Educ/training/demonst\. NS 10,000 2\. A micronutirent supplementation program for Micronutrients dist\. NS Study completed pregnant women Research study Not completed DoS for Health 3\. Qualitative research on food practices and beliefs Vit\. A research study 2 bachelors -NU 4\. Research into vitamin A deficiency in Gambia # nutritionists trained degrees -HEU NS 3\. Raise the 13\. Family planning program 1\. Establish 40 community-based contraceptive Food supplem\. ctrs\. NS 119 contraceptive distribution ctrs in rural areas and 20 in Banjul area Baby-friendly villages 40 12 prevalence rate 2\. Community health educ\., family life education # of dist\. ctrs rural 20 40 3\. Private sector participation in fam\. planning # of urban dist\. ctrs\. NS 20 Norway 5\. Study of infertility in the Gambia # of contraceptives dist\. NS UNFPA 6\. Training and supervision of TBAs and GFPA # of acceptors 50 7\. Training of dispensers and pharmacists\. # kabilo/Imnam pilot TBA NS 60 8\. Baby Friendly Initiative # of dispensers trained NS - Not Specified la\. Project Objectives, A tivities and Results Component, Objectives Sub-components Activities by sub-component Outcome Targets Results Coord\. Inst\. Indicators Donor IEC 1\. Create awareness 14\. IEC material 1\. Provide solar-powered media equipt\. in 30 villages # of villages covered 30 28 villages of Gambian 2\. Coordinate 200 radio listening clubs # of video halls 30 27 women's needs and 3\. Coordinate workshops, surveys and seminars # of listening clubs 200 10 pilots Women's concerns 4\. Progs\. (Radio Gambia & install transmitter) # of theatre groups NS 50 Bureau # & variety of w/shops NS 2 transmitters -ACU Transmitter installed NS -DCD 2\. Identify, mobilize 15\. Women's Bureau and Central 1\. Provision of three vehicles & audio production eqpt\. # of radio programs NS 200 -HEU & use Coordination including ACU, HEU and 2\. Provision of IEC materials # of functioning vehicles & 6 6 -NFE communication NFE 3\. Services of international and local IEC specialists equipment resources in the # & variety of IEC mats\. NS 50 titles IDA promotion of project goals Strengthen Strengthen the 16\. General strengthening of the Women's 1\. Construct and furnish Women's Bureau Construction of HQ 1 HQ Completed Women's Bureau capacity of the Bureau headquarters Functioning\. equipped HQ NS Completed Bureau for policy # of staff in Bureau NS - PMU and program 2\. Establish and staff M& E Unit # of functioning vehicles 9 7 - MEU formulation and for 17\. Monitoring and evaluation # of staff in PMU monitoring and 3\. Establish and staff PMU # of motorcycles 7 7 evaluation Regular monitoring of NS Not completed WIDP activities by Bureau Development of WID Not completed IDA indicators NGO Support Fund Provide matching 18\. NGO fund Establish a fund to be administered by the PMU # of groups supported NS 68 grants for small Funds disbursed $500,000 $480,000 DoS for Women's projects and Affairs programs -PMU IDA NS - Not Specified 14 lb\. Credit Sub-Components Component Credit/Savings Activity Sources of Funding Agriculture Mobilizing women's savings\. Gambian Women's No credit line from Finance Cooperation\. Two year technical assistance project resources contract to educate existing women's groups on available savings objects Agriculture Support for Women's Cooperative Groups through the No credit line from Gambia Cooperative Union through funding of project resources\. D1\.7m specialized women credit officers who would identify agricultural inputs and liaise with women farmer groups for GCU credit\. revolving fund\. SDC Improved access to credit - credit to women US$600,000 small-scale participants in SDC who have acquired specific skills credit fund to improve access by women in rural areas for small business and income-generating activities NGO Fund Matching fund for village level activities and small US$500,000 fund projects including providing credit to women's groups\. F 15 1c\. Summary of ICR and PAR Findings Item ICR Findings PAR Findings (differences in italics) Agriculture Objectives substantially achieved\. Some targets exceeded\. ICR findings confirmed, but did not address a need -- Component improving women's access to credit and labor- savings devices to process increased agricultural outputs\. Skills Mixed results, multiple design and implementation problems\. ICR findings confirmed\. Lack of diversification of Development Credit training was successful, loan recovery was good, income-generating activities pursued (soap making, Component despite sustainability issues such as time conflicts, marketing tie and dye, etc\.) may pose possible market problems and limited income generating opportunities\. saturation problems\. However, second phase (SDC 2) is planning to redress some of these limitations\. Safe Multiple pilots aid limited monitoring of sub-components ICR findings confirmed\. However, targets in the Motherhood made it difficult to assess overall outcome\. The Baby high-risk pregnancy identification were too high\. and Family Friendly pilot initiative contributed to improvement in Planning maternal and child nutrition\. The pilot Kabilo/Iman program Component was successful\. Pilots in the high-risk pregnancy and identification sub-component were less successful\. IEC Objective was substantially achieved, as the project was ICR findings confirmed\. This project is still widely Component widely known in the Gambia\. recognized in the Gambia, and the community-run radio stations and video halls continue to be effective mechanisms for the dissemination of advocacy and substantive content material on women's issues\. Women's Objectives were substantially achieved, as institutional Finding confirmed\. Bureau's capacity for policy and Bureau strengthening was visible in Bureau and main line ministries\. program formulation is strong\. However, severe Remaining challenges include staff recruitment and defining research and M&E weaknesses remain\. manageable role and work program for the Bureau\. NGO Fund Objectives were substantially achieved as 68 sub-projects in Fund was well managed by the Fund Management skills training, literacy, maternal and child health and Committee, and began a process of collaboration agriculture were financed\. Sustainability of is questionable between Bureau, other government agencies and as equipment and supplies were not available, e\.g\., in a NGOs, which continues today\. It became a useful library and food processing center\. vehicle to test NGO-Government partnership\. Id\. Summary of ICR, ES and PAR Ratings Item ICR ES Ratings PAR Ratings Reasons for Differences / Comments Ratings Outcome Satisfactory (Marginally) Satisfactory\. The objectives were relevant, and most were met\. The Satisfactory\. project raised awareness of women's issues, and produced literature and statistics, including baseline studies on women in agriculture and multiple media tools and materials on the role of women\. Institutional Substantial\. Modest\. Modest\. It improved inter-agency coordination on women's Dev\. issues and harmonization of women's programs\. Substantive strengthening of staff competencies to deliver women-specific programs\. This is particularly true in the substantial strengthening of the DCD during its solo implementation of the SDC between 1997 till closing of that component in 1998\. Sustainability Likely Unce \. Liey Likely in most components, based on current activities on women's issues in the Gambia (see Table le below)\. Although the Women's Bureau continues to function with government funding, its technical, research and M&E capacity remains weak, and may be strengthened by experience gained by coordinating new, DFID- funded project to mainstream poverty and gender\. Bank Perf\. Satisfactory\. Satisfactory Satisfactory Findings confirmed, although questions remain with regard to lack of completion of final project audit as of Feb\. 2000\. Borrower Satisfactory Unsatisfactory Satisfactory Satisfactory, but only marginally so\. Borrower Perf\. performance in technical areas was satisfactory, and financial management performance improved in later years, as government responded quickly to resolve problems\. However, questions remain with regard to ____________________________________lack of completion of final project audit as of Feb\. 2000\. 16 le\. PAR Findings and Ratings on Sustainability\. Sustainability PAR Finding PAR Criterion Rating GOG decision to pursue National Policy for Advancement of Gambian Women was drafted in 1997 and Likely gender objectives plans put in place for national follow up to the FWCW\. National Gender Policy passed by Parliament in 1999\. Ministry of Education's proposal for the preparation of a development plan for the 1988-2003 period\. Translation of commitments into funding is an issue\. Continued emphasis by Gender is a cross-cutting theme in CAS and women's health and education Likely World Bank on gender issues are continued in ongoing other projects, 3rd Education project and in policy and lending Population Health and Nutrition project (PHN) projects focus on girls' instruments education, adult literacy, safe motherhood, IEC, etc\. For links with other World Bank projects, see also Table 11\. Continued funding of 0 Agriculture - livestock, horticulture, rral credit, food & nutrition Highly likely individual components elements funded by ongoing projects in DoSA, including UNP and sub-components (Household Food Security); IFAD (Rural Finance and Community Initiatives Program-RFCIP); FAO (Special Program on Food Production) * SDC - SDC 2 funded by ADB i Safe Motherhood - continued government funding of Baby Friendly Initiative, Kabilo/Imamn activity, and integration of WIDP elements into the Participatory Health, Population and Nutrition Project\. National Nutrition Policy passed by Parliament in January 2000 " IEC - continued funding by government of IEC specialist in Women's Bureau and by UNDP under the Nat\. Poverty Action Plan a NG Fund - Social Development Fund (SDF), co-financed by UNDP & ADB for grants for social service, micro-finance and local government capacity building * Women's Bureau - continued funding by GOG\. Mainstrearing Gender and Poverty Project launched in Jan 2000, funded by DFID\. Degree of emphasis on Women's Bureau funded out of government budget at a consistent level since Likely institutional capacity 1997, but staff skills, especially for personnel in research and M&E are strengthening limited\. Through Women's Bureau's participation in DFID project and partnership with Special Poverty Alleviation Coordinating Office(SPACO), SDF, skills building and experience may be gained\. 17 if\. Links with Other Proects in the World Bank Gambia Portfolio Project Project ID Project Purposes Gender Issues (to be) Addressed FY Cost (US$M) Second Education CR 2142 14\.6 Increase access to and Sector Project (FY90) improve the quality and (closed Dec\. efficiency of education 1998) Agricultural CR 2453 12\.3 Further development of The project incorporated the women-specific Services Project (FY93) research, extension and activities in the Agriculture Component\. credit services nationwide\. Environment CR 2602 2\.6 Support the development Management and (FY 94) of national capacity for Capacity Building environmental planning and management and the institutional development of the National Environmental Agency Third Education CR 3128 20\.00 Expand access through The project will address major barriers to Sector Project (FY99) classr\. Construction, girls' girls' education by: and secondary education, Piloting a scholarship program for girls to vocational, on-the-job and cover direct education costs; and providing a university education, early safer and more supportive learning childhood development, environment for girls by continuing a female adult functional literacy an teacher training program, providing separate capacity building\. latrines for girls in all schools and providing a gender-sensitive pre and in-service training program for teachers Participatory Healt CR 3054 18\.00 Follow up on health and The primary beneficiaries are women\. The Population and (FY 98) WID initiatives started und project aims to improve women's health and Nutrition Project the First Health and WID nutritional status, and included objectives for projects\. To support the improvement of maternal health, family activities in health, planning, STD/HIV and nutrition services and population and nutrition acontains a comprehensive IEC component\. AIDS as defined in the The IEC messages will be based on gender national policy analysis and targeted at both women and men\. The monitoring and evaluation activities and the Health Management and Information System to be introduced under the project will he disaggregate data by gender\. 18 ANNEX 2: BASIC DATA SHEETS 2a\. Key Project Data (amounts in US$ millions) Appraisal estimate Actual Actual as % of appraisal estimate Total Project costs 15\.1 13\.6 90% Credit amount 7\.0 6\.6 94% Co-financing 8\.1 7\.0 86% Cancellation 600,106\.22 Date physical components completed Economic rate of retuma NA a\. No net present value or economic rate of return was calculated at appraisal 2b\. Project Dates Steps in Project Cycle Proposed Date Date Revised Actual Date Project Identification January, 1988 Appraisal October, 1989 October/November, 1989 Negotiations Signing June, 1990 Credit effectiveness October, 1990 September 28, 1990 December 27, 1990 Mid-term review December, 1992 June-July, 1994 Completion December 31, 1996 December 31, 1997 Credit closing December 31, 1996 September 27, 1996 December 31, 1997 2c\. Project Financing (in US$ millions) Appraisal Estimate Actual Actual as % of Estimate IDA 7\.0 6\.6 94% Kingdom of Norway 1\.6 1\.4 87% Af\. Dev\. Bank 3\.5 3\.5 100% UNIFEM 0\.7 0\.2 29% UNDP 1\.4 1\.0 71% UNFPA 0\.1 0\.1 100% Government 0\.8 0\.8 100% Total 15\.1 13\.6 90% 2d\. Cumulative Estimated & Actual Disbursements (IDA Credit and Norwegian Grant TF 24220) IDA Credit 2141 (in US$ million) Norwegian Grant Fund (in NOK ,000) Estimate (i) Actual (ii) (ii) as % of (i) Estimate (a) Actual (b) (b) as % of (a) FY1991 2\.1 1\.05 48% 1,300 500 38% FY1992 4\.0 1\.83 45% 4,000 1,272 32% FY1993 5\.1 3\.36 65% 6,800 2,081 31% FY1994 6\.0 4\.74 78% 8,700 3,783 43% FY1995 6\.5 5\.58 85% 9,900 5,376 54% FY1996 6\.9 6\.28 90% 10,000 6,695 67% FY1997 7\.0 6\.7 96% 7,805 85% 19 2e\. Staff Inputs (Missions and Headquarters in staff weeks and US$) Staff weeks US$ (,000) Planned Actual Actual Preparation to appraisal NA 114\.2 190\.1 Appraisal NA 40\.8 76\.4 Negotiation through Board Approval NA 1\.1 2\.5 Supervision 99 111\.1 219\.0 Completion 10 10 \.04 Total 272\.2 488\.0 20 2f\. Mission Data Performance Ratings a Stage of Actual # Of Skills Represented Days Implement Dev\. Problems b Project Cycle Date Persons C in Field Status Objective Preparation 10-11/89 8 AIS, D, LEG, through TRG, AG, AE, PO appraisal Negotiation through Board Supervision 6/31/1990 1 IMPI 1 1 CLC 10/21/90 4 TM, IMPL, PRO, 5 2 1 PP AG 6-7/1991 4 IMPL, AG, PH, 8 2 1 PMP TM 11-12/91 4 AG, MA, TM 10 2 2 AF 5/92 3 TM, MA, CREDIT 11 2 2 AF, SP, 9-10/92 2 TM, FPS 12 2 2 AF, SP 2/93 3 MA, FPS, A 11 2 2 FP, AF, PMP, SP 12/,93 3 TM, MA, IEC 18 2 2 FP, CLC, AF 6-7/94 3 TM, AG, IS 20 S S FP, PMP 3/95 1 TM 16 S S PMP, FP 3/96 2 E, A 5 PMP, FP 4/96 1 MA 15 PMP, FP 7/96 3 TM, HS, AIS 10 S U PMP, FP 11-12/96 3 TM, AG, AIS 22 S U PMP, FP 6/97 3 TM, A 5 S S PMP, FP Completion 12/97 4 TM, AG, MA, IEC 11 S S a\. 1 = Problem Free; 2 = Moderate Problems; 3 = Major Problems; S = Satisfactory; HS = Highly satisfactory; U = Unsatisfactory b CLC = Compliance with Legal Covenants; PMP = Project Management Performance; AF = Availability of Funds; TP = Training Progress; PP = Procurement Progress; SP = Studies Progress; FP = Financial Performance C A = Accountant; AG = Agricultural Specialist; AE = Agricultural Economist; AIS = Architect/ Implementation Specialist; CREDIT = Credit/micro-enterprise Specialist; D = Demographer; FPS = Food Processing Specialist; IEC = Information, Education and Communication Specialist; IMPL= Implementation Specialist; IS= Institutional Strengthening Specialist; LEG = Lawyer; MA = Medical Anthropologist; PRO= Procurement Specialist; TM = Task Manager/Project Officer/Operations Specialist; TRG = Training Specialist

REVIEW

P001745

 ICRR 11059 Report Number : ICRR11059 ICR Review Operations Evaluation Department 1\. Project Data: Date Posted : 08/17/2001 PROJ ID : P001745 Appraisal Actual Project Name : Natural Res\. Mgmt Project Costs 32\.1 32\.48 US$M ) (US$M) Country : Mali Loan /Credit (US$M) Loan/ US$M ) 20\.4 20\.78 Sector (s): Board: ENV - Other social Cofinancing 7\.7 7\.7 services (27%), Forestry US$M ) (US$M) (20%), Crops (20%), Sub-national government administration (17%), Central government administration (16%) L/C Number : C2370 Board Approval 92 FY ) (FY) Partners involved : UNDP, Norway (NTF), Closing Date 06/30/1998 12/31/2000 Germany (GTZ) Prepared by : Reviewed by : Group Manager : Group : John C\. English Andres Liebenthal Alain A\. Barbu OEDST 2\. Project Objectives and Components a\. Objectives The primary objective was to introduce a rational land use system that would stop and reverse the degradation of the natural resource base, which was the greatest threat to sustainable agricultural growth \. The specific objectives were to : build up the capacity of local communities to manage their own natural resources, and to build institutional capacity within the Ministry of Agriculture, Livestock and Environment (MAEE) to enable it to advise villagers on these matters; and build an environmental information system for coordinating and guiding the diverse initiatives underway throughout the country and incorporate the lessons of these field experiences into a national National Resources Management (NRM) strategy\. b\. Components Five components were identified : 1\. Community Natural Resources Management (58% 58 % of base cost ): identification, design and implementation of community-based NRM (CBNRM) plans involving about 150 villages within three administrative regions of Mali and distributed among representative agro -ecological zones of the country; 2\. Baoule National Park and Biosphere Reserve (7% of base cost ): design and implementation of a management plan for the park, and the implementation of CBNRM plans in 10 villages initially part of the park, but for which tenure had been transferred to the communities and removed from the park reserve; 3\. Institutional Support for Government Services (16% 16 % of base cost ): institutional support for central and local government authorities to (i) help with project management and assist rural communities in implementing their NRM plans and (ii) provide the Government with basic environmental monitoring facilities which could be further developed; 4\. Skills Development and Public Awareness (8% of base cost ): a comprehensive training and public information/awareness program on NRM; and 5\. Technical Assistance and Research (11% 11 % of base cost ): financial support for the provision of technical assistance, audits, consultant services, applied research and studies required for project implementation \. At the mid-term review (1995) it was decided that the whole process was too slow and too costly per village and that, if the approach were to be replicable, a more expeditious approach would have to be adopted \. It was then decided to increase the number of villages to 600, while reducing the investment per village by 75%, primarily by not financing social investments (schools, clinics etc\.)\. At the same time the number of field support teams was doubled \. In 1998 the village targets were again increased \. c\. Comments on Project Cost, Financing and Dates  The initial cost estimate was $30\.1 million\. The IDA credit and cofinanciers grants were fully disbursed, the difference in final project cost being due to exchange rate fluctuations \. The project closing date was extended by 30 months to accomodate the expanded work program \. As a result, expenditure on institutional support was more than double the appraisal estimate, while that on village investments was 20% above estimate\. These increases were compensated primarily by declines in the last two components (55% of estimate)\. 3\. Achievement of Relevant Objectives: The project met the primary objective of introducing a rational land use system that will stop and reverse the degradation of the natural resource base \. It built up the capacity of local communities and the institutional capacity within the ministry\. A total of 844 villages and 58 communes completed the first three phases of the NRM approach : creation of a Village NRM committee; a participative technical and socio -economic diagnostic of the "terroir"; and development planning\. 807 villages and 30 communes are implementing their plans\. Substantial capacity building was achieved through the project at various levels (central, regional and local) of Government institutions involved in the project's implementation\. Ten support teams were recruited, trained and posted at district level to provide support to village communities\. A comprehensive training and extension program was carried out throughout the project's life enabling communities to acquire skills in basic literacy, organization and financial management, natural resource management, agricultural production, operation and maintenance of infrastructure and equipment etc \. Initial progress on the environmental monitoring and information system was slow, mainly because of the difficulty of finding an agency with the appropriate management skills to manage it \. It is now the responsibility of the Ministry of Works, Regional Development, Environment and Urbanism \. Data bases on environmental and natural resources have been established through a network of six national agencies, staff training undertaken and a series of reference manuals prepared\. While a formal NRM strategy has not been adopted, in practice one is being implemented \. 4\. Significant Outcomes/Impacts: The CBNRM approach is showing positive effects on resource degradation and on agricultural yields and production\. Water harvesting and soil erosion control techniques introduced under the project have visibly improved soil fertility, soil water capacity and re -growth of natural vegetation\. Areas that, prior to the project, had become marginal for crop production, were rehabilitated and yields have increased \. Based on a beneficiary assessment done in 1998, overall agricultural production in project sites increased by 47 percent\. 5\. Significant Shortcomings (including non-compliance with safeguard policies): There were no major shortcomings in project implementation \. The most significant problem was the implementation of the environmental monitoring and information system component \. This is an effort requiring specific technical skills and, for historic reasons, required the coordination of activities best housed in a number of different agencies \. Work is now proceeding satisfactorily (see point 3) but is well behind initial expectations \. The objective of developing a management system for the Baoule Park that would arrest or reverse land degradation was not achieved\. During the project, as significant area of natural habita was converted to cotton fields \. Livestock encroachment, tree cutting and excessive fire continue to be a threat to the park area \. 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Institutional Dev \.: High High Sustainability : Likely Likely Bank Performance : Satisfactory Satisfactory Borrower Perf \.: Satisfactory Satisfactory Quality of ICR : Satisfactory NOTE ICR rating values flagged with ' * ' don't comply with OP/BP 13\.55, but are listed for completeness\. NOTE: 7\. Lessons of Broad Applicability: Local community empowerment and capacity building require assistance from strengthened government, non-goverment and private agencies, each playing a specific complementary role \. Decentralization must be accompanied by a deconcentration of government services to promote better dialogue and coordination between local and central governments \. Regular supervision missions are essential in the context of community based approaches to enable stakeholders to maintain a common vision of the projject and adjust to evolving community needs \. Literacy is a necessary condition for successfully achieving local community empowerment and sustainable resource management\. 8\. Assessment Recommended? Yes No Why? This project is one of a series of innovative attempts to address natural resource management and rural development issues through the development of participatory structures at the community level and appropriate public institutions to support them \. As such they are of high priority for OED review \. 9\. Comments on Quality of ICR: The ICR provides an excellent review of the project experience and outcomes \. In particular the lessons cited are exemplary in largely being of general applicability and not project specific conclusions of hindsight (see above)\. However, the quality of the ICR could have much been improved through the inclusion of indicators of the actual impact of the project on the natural resource degradation process \. As shown in Annex 1, provision for a few such indicators (e\.g\., extent of forest regeneration, extent of pastoral canopy, park animal population, extent of soil erosion) had been made at appraisal \. Their implementation and reporting in the ICR would have served to underpin and render more convincing such assertions as that "the approach started showing positive impacts \." and "visibly improved soil fertility" (sec 4\.1)\.

REVIEW

P035771

 ICRR 12837 Report Number : ICRR12837 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 03/14/2008 PROJ ID : P035771 Appraisal Actual Project Name : First Cadastre US$M ): Project Costs (US$M): 24\.6 30\.73 Country : Moldova Loan/ US$M ): Loan /Credit (US$M): 15\.9 17\.95 Sector Board : UD Cofinancing (US$M ): US$M): 4\.7 7\.74 Sector (s): Central government administration (75%) Sub-national government administration (25%) Theme (s): Other financial and private sector development (29% - P) Land administration and management (29% - P) Personal and property rights (28% - P) Other urban development (14% - S) L/C Number : C3061 Board Approval Date : 04/23/1998 Partners involved : USAID, Government Closing Date : 02/28/2004 06/30/2007 of Switzerland, Government of Japan, SIDA, Government of Norway Evaluator : Panel Reviewer : Group Manager : Group : Nalini B\. Kumar George T\. K\. Pitman Soniya Carvalho IEGSG 2\. Project Objectives and Components: a\. Objectives: The project's objective was to develop and implement a national unified real estate registration program for urban and rural land and thereby to establish a system of clear and enforceable ownership rights so as to promote the privatization of land and the development of real estate markets in Moldova \. The real estate registration system established under the project was expected to provide : a) property owners with security of ownership rights such that they could sell or rent real estate at fair market prices and pass on their holdings as inheritances; b ) commercial banks with the confidence necessary to give secured credit against real estate; c) the real estate market with information on ownership and location of property as needed for the market to function effectively; d) government agencies and institutions with basic information for urban planning and land management; e) the real estate market with selective information on property values; and f ) the private sector with opportunities to develop in areas related to real estate registration (surveyors, notaries, valuers )\. The project development objectives were not revised \. However at appraisal the project design focused on urban cadastre registration and surveying and the small rural component was to test developments in the privatization of agricultural land\. By the early stages of implementation, however, the Government, with support from the international community in general, and from the World Bank and the USAID Land Project in particular, took the decision to move forward with farm privatization \. The Government requested, and the Bank agreed, that the project register rural land parcels privatized under the USAID Land Project \. b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components (or Key Conditions in the case of DPLs, as appropriate): The project had four components : Mapping Program (Appraisal estimate US$ 6\.20 million, Actual US$ 4\.48 million ) to finance production of new maps and updating of existing maps as appropriate over five years in 36 rayons and municipalities\. The component was to support the first five years of a long term national cadastral mapping program for urban, as well as rural areas, initially covering about 50 % of urban land and 20 % of privatized rural land\. Urban Cadastral Services Program (Appra isal estimate US$ 7\.70 million, Actual US$ 11\. 11 \.65 million ) to finance several elements of an Urban Cadastral Services Program that would provide the institutional basis for registration of ownership rights in urban and intravilan (within built up) areas and storage and administration of ownership information to be readily available to all potential users \. Rural Cadastral Services Program (Appraisal estimate US$ 3\.30 million, Actual US$ 5\.45million 45 million ) to finance activities and investments to provide the institutional basis for registration of ownership rights in rural areas and storage and administration of ownership information to be readily available to all potential users \. This included a real estate registration program and a informative service program \. 15 million ) to support Institution and Capacity Building (Appraisal estimate US $ 4\.80 million, Actual US$ 9\.15million institutions, agencies and individuals participating in project activities through training and technical assistance and establishment of a project implementation office \. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: The World Bank's Board approved additional financing of SDR 2\.0 million (US$3 million equivalent) in June 2005 at the request of the Government of Moldova to upscale activities under the urban and rural cadastral services program components for (i) additional surveying and registration of an estimated 400,000-450,000 parcels and (ii) upgrade of the existing information system\. The content of the project components were not revised, though re -allocation of credit proceeds among the different components was made, particularly from technical assistance to urban and rural surveying since support for the former became available from other donors \. Parallel financing increased from US$ 4\.7 million to US$7\.74 million\. There were two amendments to the IDA credit which extended the project closing dates by 21 months until November 2005\. The extensions allowed for the signature and completion of pending surveying contracts and use of the re-allocated funds from equipment and TA activities to the main surveying and registration activities \.The second extension was allowed to overcome delays in the procurement and implementation of the scheduled surveying contracts as well as to finalize the delayed registration of properties in the capital \. 3\. Relevance of Objectives & Design: Overall project relevance is rated as substantial \. Relevance of Objectives: The project objectives, though ambitious, were in full compliance with the Country Assistance Strategy\. The objectives were focused on establishing a basis for sustainable private sector growth, interalia, through the development and strengthening of public institutions needed in the management of a market economy and through strengthening of the legal and regulatory framework for the private sector \. At the time of appraisal, there was a risk in undertaking this project due to the far reaching reforms required while Moldova was undergoing privatization and transition to a market economy \. An additional risk was that the coalition government at the time had a different opinion on the pace of the reform, and the privatization of agricultural land \. However project risks and their mitigation measures were identified in detail \. Relevance of Design: Project preparation was extensive and was supported by two Project Preparation Facilities, two PHRD Grants and an IDF grant\. The design drew on lessons of experience from other operations in the Region \. Pilot testing during preparation helped develop practical methodologies for project implementation and provided useful on-the-job training to Project Implementation Office (PIO) staff in all aspects of project implementation \. The lack of a strong M&E system however was a weakness and is discussed in section 10 below\. 4\. Achievement of Objectives (Efficacy):  Though M&E was weak overall, the completion report makes a strong case to show that the project objective was substantially achieved\. The number of parcels surveyed and registered went beyond appraisal estimates \. The advance in the development of the fiscal cadastre with SIDA's assistance was also beyond expectation \. There were 834 urban registrations vs 330 planned, 3380 rural registrations versus 200 planned\. In addition, 4214 plans were produced vs the 530 expected at appraisal\. According to the completion report, Moldova has established one of the most efficient cadastre systems in the region\. It is a unified system where real estate transactions and information are secured in one system under the responsibility of the Cadastre Enterprise \.The legal infrastructure basis for a real estate market has been developed and is the cornerstone for consolidating land in rural areas through sales and leases \. Owners of real estates are reported to be using the system to undertake transaction of sales, rent and inheritance\.Commercial banks are reported to have expressed confidence in the system and their desire to have more immediate access to the relevant data to expedite their own procedures \. The Government has initiated the use of the available system as a base for the further development of a fiscal cadastre system for property taxation \. The surveying industry is reported to have benefited from the project (see section 11 below)\. The development of the valuation service industry is in its early stages and is being strengthened with the development of the first cadastre\. The completion report includes the Borrower's input which confirms that the real estate registration system is based on and supported by appropriate legislation comprising the Civil Code passed in 2002 and the Law on Real Estate Cadastre adopted in 1998\. During 1999-2007, the Project registered about 85% of all properties in the country \. Co-financiers comments from SIDA broadly support these findings though progress in private sector development in areas related to property surveying are reported to be below expectation \. The SIDA comments also report monopolistic behavior from state companies and errors in surveying measurements that arose due to speedy procedures (mainly in rural areas)\. 5\. Efficiency (not applicable to DPLs): Project efficiency is rated substantial \. An economic rate of return was not calculated for the project as a whole given its "public good" character\. However based on a cost recovery strategy through fees for registration and information, the project's financial rate of return was estimated at about 8\.5 percent\. At completion the assumptions and projections at appraisal were simulated using data and information provided by the PIO \. On the basis of these assumptions the financial rate of return was estimated at 24 percent\. ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re- re -estimated value at evaluation : Rate Available? Point Value Coverage/Scope* Appraisal Yes 8\.5% 100% ICR estimate Yes 24% 100% * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: Based on an assessment of substantial relevance, substantial efficacy and substantial efficiency outcome is rated satisfactory\. a\. Outcome Rating : Satisfactory 7\. Rationale for Risk to Development Outcome Rating: Moldova is well on its way to becoming a market economy and privatization of property is one of the cornerstones \. A real estate market has emerged and the system has grown to encompass other functions such as fiscal cadastre as well as infrastructure, planning and monitoring \. Strong skill and capacities have been built in the State Agency for Land relations and Cadastre (SALRC), particularly in management, surveying, technical advances and valuation \. The provision of additional financing gave the SALRC time to prepare for the Bank's exit \. The Government has put strong emphasis on the future sustainability of the cadastre system \. A Strategy for Sustainable Development of Cadastre has been developed with specific actions and timeline for its implementation \. Support from donors (SIDA, Norway) has been secured to implement the strategy \. a\. Risk to Development Outcome Rating : Negligible to Low  8\. Assessment of Bank Performance: Quality at Entry: Bank intervention was timely and successful in introducing fundamental important reforms in privatization even when there was still debate on privatization of rural land in the country \. The Bank team mobilized resources (two PHRD grants, two PPFs and an IDF grant ) to initiate the process, review experiences and test hypothesis until a system was agreed that was best fitted to Moldova's situation \. The Bank supported the concept of a unified cadastral system which provides efficient registration procedures for property owners and allows for expansion of the system for multiple uses \. Project risks and their mitigation measures were identified in detail during preparation appraisal \. They included the institutional and regulatory framework for having a unified agency treating all types of properties in Moldova \. This was mitigated prior to project implementation through requirement for essential laws to be passed prior to Board approval \. The lack of adequate attention to building a strong M&E however was a weakness and is discussed in section 10 below\. Quality of Supervision: The Bank supervised the project closely and mobilized specialized skills in surveying and cadastre development, training and legal framework and used them at critical stages of the project and during the mid-term for assessment\. The Bank kept close contact with the major stakeholders, cooperated with major donors and effectively used and cooperated with the management of the Bank's country office to avert unnecessary interference that might have adversely affected the direction of the project \. at -Entry :Moderately Satisfactory a\. Ensuring Quality -at- b\. Quality of Supervision :Satisfactory c\. Overall Bank Performance :Satisfactory 9\. Assessment of Borrower Performance: Government Performance: Although there was a period when the project was rated as a potential problem project because among other things lack of counterpart funding (para 19 page 5 ICR), Government overall commitment to the project was strong\. The Ministries of Finance and Economy provided strong support and balanced independent views on project implementation and direction at critical junctures when strong decisions were needed to ensure continued progress \. Implementing Agency Performance: The PIO was part of the National Agency for Geodesy, Cartography and Cadastre (NAGCC) later renamed the State Agency for Land relations and Cadastre (SALRC) and drew upon the professional staff of the State Agency to implement the project \. The stable staffing at the Agency contributed to good implementation\. Staff received state of the art training in Moldova and Sweden and developed professional skills that remain valuable and necessary for the workings of a real estate market \. The knowledge of the PIO staff about the Moldovan environment, their adaptation to World Bank procedures and the lead that they took in proactively resolving problems contributed positively to project performance \. a\. Government Performance :Satisfactory b\. Implementing Agency Performance :Satisfactory c\. Overall Borrower Performance :Satisfactory 10\. M&E Design, Implementation, & Utilization: M&E Design:The appraisal document identified a list of output /outcome indicators that were monitored \. According to the completion report some of them were not important for tracking the project \. IEG notes that even though the project was appraised in February 1997, it became effective only in March 1999 and there was sufficient time to improve the design of project M&E\. Given the critical importance of M&E much more attention should have been given to this aspect of the project design \. M&E Implementation and Utilization: In January 2000 an easy to update one page 'Project at a Glance' table was introduced to inform decision makers on the project progress and to help the task team follow progress in a more informative manner\. According to the completion report the monitoring indicators tracked the usefulness of the system, the progress in survey and registration work by location (rural and urban) and also by type and users \. However most of the tracking was done for outputs \. There was insufficient attention to monitoring outcomes \. It is difficult to say from this information how far the achievements were compared to the total requirement at the national level, specifically whether the project led to enforceable ownership rights that were able to promote the privatization of land\. a\. M&E Quality Rating : Modest 11\. Other Issues (Safeguards, Fiduciary, Unintended Positive and Negative Impacts): This was a Category C project and no safeguard risks are reported \. Fiduciary: There were some problems on the financial management front given Bank procedures and the lack of experience in Moldova\. However financial staff were hired and trained and a software acceptable to the Bank and utilized in the region was implemented at the PIO\. Quarterly financial reports were prepared by PIO staff and submitted to the Bank without significant discrepancies \. Audit reports had unqualified opinions except for the audits of FY 2004-2005\. The qualification received was explained to have occurred because of the inability of the new auditor to verify cumulative accounts since audits were done by different firms \. Annual audited project statements were found to be acceptable \. The auditors mentioned a few internal control issues and made recommendations to address those \. PIO and project management followed-up on the recommendations to the best of their ability \. The final audit of the project financial statements had not taken place by the time of the completion report \. Governance: Procurement benefited from technical assistance during project preparation and the early stages of implementation \. PIO management opted to utilize small contracts to strengthen the bidding survey industry, which was technically competent, but lacked the necessary managerial skills to operate under competitive procedures \. In order to expedite project implementation, the Bank insisted on initiating ICB procedures \. Foreign firms entered the market and sub-contracted to local firms, thus helping the development of the local surveying contractors \. According to the completion report, while some hurdles and complaints arose as to the use of foreign contractors and their higher costs, the knowledge transfer and progress of workwas effective in raising standards \. One case was reported to the Department of Institutional Integrity \. There was suspicion of collusion amongst contractors, including changes made to bids after they were submitted \. The Bank gave the PIO the option to proceed with the same proposed bid award with the potential for further investigation and declaration of misprocurement /cancellation of part of the loan if any wrongdoing was proved or to go through rebidding \. The PIO selected to rebid\. 12\. 12\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Risk to Development Negligible to Low Negligible to Low Outcome : Bank Performance : Satisfactory Satisfactory However there were weaknesses in the project M&E Borrower Performance : Satisfactory Satisfactory Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate \. 13\. Lessons: Based on the ICR the key lessons are : Cadastre projects need a long and sustained effort in preparation and implementation \. There is also a need to give sufficient attention to financial sustainability on project closure \. Modern technology is important but needs significant budgetary provision for maintenance \. A unified cadastre system that is not tied to a sector ministry eases the necessary coordination process and avoids specialized interests or a focus on a particular sector at the expense of the other (eg\.agriculture vs\. urban properties)\. Building an adequate system of M&E (including baseline data collection ) is not only essential to assess progress but also to make effective mid -course corrections during implementation as and when needed \. M&E  needs to be in place in advance of implementation and needs to include a focus on project outcomes and impacts\. 14\. Assessment Recommended? Yes No Why? To verify the ratings and provide lessons of experience \. 15\. Comments on Quality of ICR: The ICR is satisfactory overall and presents a clear account of the project experience \. It includes the results of a Beneficiary Survey (Annex 5) which are quite revealing\. However the ICR should have explained in some detail the 'reversal in reform' that is noted in para 19 and its implications for project activities \. a\.Quality of ICR Rating : Satisfactory

REVIEW

P045052

Document of The World Bank FOR OFFICIAL USE ONLY Report No: ICR0000516 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-32930) ON A CREDIT IN THE AMOUNT OF SDR40\.1 MILLION (US$54\.5 MILLION EQUIVALENT) TO NEPAL FOR A ROAD MAINTENANCE AND DEVELOPMENT PROJECT December 20, 2007 Sustainable Development Department Nepal Country Management Unit South Asia Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  CURRENCY EQUIVALENTS (Exchange Rate Effective November 30, 2007) Currency Unit = Nepali Rupees NRs\.1\.00 = US$0\.0155 US$1\.00 = NRs\.64\.55 FISCAL YEAR July 16 to July 15 ABBREVIATIONS AND ACRONYMS AADT Annual Average Daily Traffic MPPW Ministry of Physical Planning and Works CAS Country Assistance Strategy MTC Mechanical Training Center DoR Department of Roads MTEF Medium Term Expenditure Framework DoTM Department of Transport Management MTR Mid-term Review EIA Environmental Impact Assessment NPV Net Present Value EIRR Economic Internal Rate of Return NRDUC New Road Development & Upgrading Component EMAP Environmental Management Action Plan PAD Project Appraisal Document EoP End of Project PDO Project Development Objective ERR Economic Rate of Return PIP Priority Investment Plan ESMF Environment & Social Management QAG Quality Assurance Group Framework FCGO Financial Comptroller General's Office RSDP Road Sector Development Project FMIS Financial Management Information System RAP Resettlement Action Plan FY Fiscal Year RBN Roads Board Nepal GESU Geo-Environmental & Social Unit RMDP Road Maintenance & Development Project GEU Geo-Environmental Unit SRN Strategic Road Network GoN Government of Nepal HDM Highway Design and Maintenance HRD Human Resources Development ICR Implementation Completion & Results Report IDA International Development Association ISR Implementation Status Report IT Information and Technology MIS Management Information System MLJ Ministry of Law and Justice MoF Ministry of Finance Vice President: Praful C\. Patel Country Director: Susan G\. Goldmark Sector Manager: Guang Z\. Chen Project Team Leader: Surendra G\. Joshi ICR Team Leader: Marianne Kilpatrick  NEPAL Road Maintenance and Development Project CONTENTS Page Data Sheet A\. Basic Information i B\. Key Dates i C\. Ratings Summary i D\. Sector and Theme Codes ii E\. Bank Staff ii F\. Results Framework Analysis ii G\. Ratings of Project Performance in ISRs vi H\. Restructuring vi I\. Disbursement Graph vii 1\. Project Context, Development Objectives and Design\. 1 2\. Key Factors Affecting Implementation and Outcomes\. 7 3\. Assessment of Outcomes \. 12 4\. Assessment of Risk to Development Outcome\. 17 5\. Assessment of Bank and Borrower Performance\. 18 6\. Lessons Learned\. 19 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners\. 20 Annex 1\. Project Costs and Financing\. 21 Annex 2\. Outputs by Component\. 22 Annex 3\. Economic and Financial Analysis \. 25 Annex 4\. Bank Lending and Implementation Support/Supervision Processes\. 29 Annex 5\. Beneficiary Survey Results \. 31 Annex 6\. Stakeholder Workshop Report and Results\. 33 Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR \. 34 Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders \. 36 Annex 9\. List of Supporting Documents \. 37 MAP IBRD 30306R   A\. BASIC INFORMATION Country: Nepal Project Name: Road Maintenance and Development Project ID: P045052 L/C/TF Number(s): IDA-32930 ICR Date: 11/15/2007 ICR Type: Core ICR Lending Instrument: SIL Borrower: NEPAL Original Total Commitment: XDR40\.1M Disbursed Amount: XDR38\.0M Environmental Category: A Implementing Agency: Department of Roads, Kathmandu, Nepal Cofinanciers and Other External Partners: None\. B\. KEY DATES Process Date Process Original Date Revised/Actual Date(s) Concept Review: 11/15/1997 Effectiveness: 02/21/2000 02/21/2000 Appraisal: 04/11/1999 Restructuring(s): 02/04/2003 & 04/05/2004 Approval: 11/23/1999 Mid-term Review: 11/11/2002 Closing: 12/31/2004 06/30/2007 C\. RATINGS SUMMARY C\.1 Performance Rating by ICR Outcomes: Moderately Satisfactory Risk to Development Outcome: Moderate Bank Performance: Satisfactory Borrower Performance: Moderately Satisfactory C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Moderately Satisfactory Quality of Supervision: Satisfactory Implementing Agency/Agencies: Satisfactory Overall Bank Performance: Satisfactory Overall Borrower Performance: Moderately Satisfactory C\.3 Quality at Entry and Implementation Performance Indicators Implementation Performance Indicators QAG Assessments (if any) Rating Potential Problem Project at any time (Yes/No): Yes Quality at Entry: Highly Satisfactory Problem Project at any time (Yes/No): Yes Quality of Supervision: Satisfactory DO rating before Closing/Inactive status: Moderately Satisfactory i  D\. SECTOR AND THEME CODES Original Actual Sector Code (as % of total Bank financing) Central government administration 30 14 Law and justice 1 1 Other social services 14 1 Roads and highways 55 84 Theme Code (Primary/Secondary) Municipal governance and institution building Secondary Secondary Rural markets Secondary Secondary Rural services and infrastructure Primary Primary E\. BANK STAFF Positions At ICR At Approval Vice President: Praful C\. Patel Mieko Nishimizu Country Director: Susan G\. Goldmark Hans M\. Rothenbuhler Sector Manager: Guang Z\. Chen Frannie A\. Leautier Project Team Leader: Surendra Govinda Joshi Juan Gaviria ICR Team Leader: Marianne Kilpatrick ICR Primary Author: Natalya Stankevich F\. RESULTS FRAMEWORK ANALYSIS Project Development Objectives (from Project Appraisal Document) 1\. The original project development objectives (PDOs) as outlined in the Project Appraisal Document (PAD) were to: (i) achieve sustainable maintenance, rehabilitation, and construction of economically justifiable roads in the strategic road network (SRN) within the Priority Investment Plan (PIP) framework; (ii) improve access to district headquarters not currently served by road, and reduce vehicle transport costs, and delays in project areas; (iii) promote more sustainable funding and more efficient public sector management of road maintenance; (iv) adopt and disseminate environmentally sustainable road construction and maintenance practices; and (v) generate rural employment through adoption of labor-based technologies and long-term employment for the additional generated economic activity\. 2\. According to the PAD, success of the project was to be monitored by the following set of performance indicators: (i) Share of population provided with basic motorized access increases in the project districts; (ii) Number of person-days of employment created in the project districts; ii  (iii) Overall maintenance allocation as per agreed project covenants and road user share increase as per agreed plan between Roads Board Nepal (RBN) and Ministry of Works and Transport/Department of Roads (DoR); (iv) Maintenance allocations for both Strategic and District networks made available in time and in sufficient amounts, as outlined in the Credit Agreement; (v) Allocations actually and efficiently used for the planned purpose; (vi) RBN and Fund established, regulations approved, annual programs implemented and audited; (vii) Average travel time reductions and transport cost reductions achieved as per appraisal estimates; (viii) Detailed technical, social and environmental and economic feasibility studies to be carried out as part of project preparation and followed; (ix) Share of strategic network in poor condition reduced to 20%; (x) Reduced unit costs for works by type of road and activities; (xi) Improved average road condition and quality of road works; (xii) Reduced throughput time for procurement decisions; (xiii) Environmentally sound, low cost construction and methods becoming standardized approach within DoR; (xiv) DoR human resources development policy and strategy, staff development program and training plans in place and being implemented; (xv) Annual in-country short-term courses, overseas short-term courses/study tours, and in- service courses implemented; (xvi) Annual in-country training, overseas short courses on Project Management Reporting and procurement for staff in Ministry of Finance (MoF), Office of the Auditor General (OAG), Financial Comptroller General's Office (FCGO) and Ministry of Law and Justice (MLJ); (xvii) Systems and procedures for preparation of environmental and social assessments and action plans in place; (xviii) EMAPs and RAP being prepared and implemented; (xix) Marketing program for commercialization of DoR's mechanical training operations prepared and being implemented; and (xx) Annual training of equipment operators, mechanics/electricians and supervisors\. Revised Project Development Objectives (as approved by original approving authority) 3\. The PDOs were not revised, but reworded in 2004, because the original wording of the PDOs was found to be overly complex and tended to mix project outputs with the PDOs\. This was recognized as a minor restructuring and, thus, the project did not go to the Board for approval, but was approved by the Regional Vice President in accordance with South Asia Procedures for Portfolio Management on April 5, 2004\. The PDO became "to provide sustainable and efficient road service on the Strategic Road Network"\. The rewording of the PDOs did not affect changes in expected outcomes and benefits\. During that project restructuring the number of performance indicators was reduced to reflect amendments to the project components and to more effectively monitor the project progress\. iii  (a) PDO Indicator(s) Original Target Values Formally Actual Value Indicator Baseline Value (from approval Revised Achieved at documents) Target Values Completion or Target Years Indicator 1: Share of the SRN in bad condition reduced to 20% by end of project (EoP)\. Value (quantitative 32% of SRN in poor 18% of SRN in poor or condition 20% in poor condition condition Qualitative) Date achieved FY1998-99 06/30/2007 Comments (incl\. % The target is exceeded by 2% points\. achievement) Indicator 2: Ex-post economic internal rate of return (EIRR) for major road works is on average 12% by EoP\. Value Ex-post EIRR for major Ex-post EIRR for major EIRR is above 12% for (quantitative all completed major or road works is on average road works is on average works\. Qualitative) 12% by EoP\. 12% by EoP\. Date achieved 07/17/2003 06/30/2007 EIRR for completed works is 60\.5%, on average, and is exceeded by 48\.5% points, Comments including: (incl\. % EIRR for upgrading works ­ 51%; achievement) EIRR for rehabilitation works ­ 93%; EIRR for periodic maintenance works ­ 37%\. (b) Intermediate Outcome Indicator(s) Original Target Actual Value Indicator Baseline Value Values (from Formally Revised Achieved at approval Target Values Completion or Target documents) Years Indicator 1 : Legal Framework for Road Fund established and becomes operational Roads Board Act Value Roads Board and enacted and Roads (quantitative No Roads Board and no a sustainable road Board and sustainable or sustainable road maintenance fund road maintenance fund Qualitative) maintenance fund\. to be established\. established and operational\. Date achieved 04/23/1999 01/30/2003 Comments The achievement of the target may be considered 75%, because the legal framework needs (incl\. % to be improved to enable efficient operation and complete autonomy of the Roads Board achievement) and ensure not only sustainable, but also adequate funding for maintenance Improved efficiency and effectiveness in public sector management of road investments: Indicator 2 : Medium Term Expenditure Framework (MTEF) used to prioritize and allocate investment in the road sector Value MTEF developed and (quantitative No investment priorities Investment used to prioritize or in MTEF\. prioritized in investment in the road Qualitative) MTEF\. sector since FY2002- 03\. Date achieved 04/23/1999 06/30/2007 iv  Original Target Actual Value Indicator Baseline Value Values (from Formally Revised Achieved at approval Target Values Completion or Target documents) Years Comments (incl\. % While priorities were set in MTEF since FY 2002-03, the target is achieved for 75% achievement) because resource allocation and actual expenditure do not match all priorities set in MTEF\. Indicator 3 : Reduced backlog of rehabilitation and implementation of sustainable maintenance on strategic network\. Periodic maintenance of 676 km; Periodic maintenance of rehabilitation of 258 661 km; rehabilitation Value Periodic km and additional of 248 km and (quantitative maintenance of upgrading of 125 km upgrading of 111 km of or None 470 km; of earth roads to earth roads to gravel Qualitative) rehabilitation of 160 km\. gravel standards and standards and 141 km 141 km of gravel of gravel roads to roads to bituminous bituminous seal\. seal\. Date achieved 04/23/1999 04/05/2004 06/30/2007 Actual targets are exceeded if measured against the original targets, but they are slightly Comments under-achieved if measured against the revised targets: (incl\. % periodic maintenance is completed on 98%, achievement) rehabilitation ­ 96%, upgrading to bituminous seal ­ 95%\. Indicator 4: Improved Institutional Capacity in DoR DoR human resources development (HRD) policy and strategy, DoR HRD policy and staff strategy, staff development development and and training training plans in place plans in place and being implemented, Value and being IT facilities set up, (quantitative None implemented, Institutional or information Development Strategy Qualitative) technology (IT) for DoR to operate in a facilities set up, corporate manner Institutional developed by EoP, Development except for installation Strategy for of a few software DoR to operate modules\. in a corporate manner developed by EoP\. Date Achieved 04/05/2004 06/30/2007 06/30/2007 Comments (incl\. % Achieved for 98%, but a few software modules were not installed\. achievement) v  G\. RATINGS OF PROJECT PERFORMANCE IN IMPLEMENTATION STATUS REPORTS (ISRS) No\. Date ISR Actual Disbursements Archived DO IP (USD millions) 1 03/16/2000 Satisfactory Satisfactory 0\.00 2 06/26/2000 Satisfactory Satisfactory 2\.05 3 12/22/2000 Satisfactory Satisfactory 3\.19 4 06/26/2001 Satisfactory Satisfactory 5\.53 5 12/31/2001 Satisfactory Satisfactory 10\.66 6 01/10/2002 Satisfactory Unsatisfactory 10\.89 7 07/18/2002 Unsatisfactory Unsatisfactory 14\.68 8 01/15/2003 Unsatisfactory Unsatisfactory 17\.73 9 07/14/2003 Satisfactory Unsatisfactory 19\.92 10 01/15/2004 Unsatisfactory Unsatisfactory 23\.28 11 06/16/2004 Satisfactory Satisfactory 26\.06 12 12/29/2004 Satisfactory Satisfactory 29\.15 13 06/20/2005 Satisfactory Satisfactory 33\.73 14 12/30/2005 Satisfactory Satisfactory 39\.66 15 06/26/2006 Moderately Satisfactory Satisfactory 42\.90 16 12/29/2006 Moderately Satisfactory Satisfactory 48\.17 17 06/22/2007 Moderately Satisfactory Satisfactory 51\.90 H\. RESTRUCTURING (IF ANY) ISR Ratings at Amount Restructuring Board Restructuring Disbursed at Reason for Restructuring & Key Date(s) Approved PDO Change Restructuring in Changes Made DO IP USD millions Approved by There were two main reasons: (i) Country Director deteriorating security situation in in accordance some project areas; and (ii) public 01/02/2003 with South Asia U U 17\.73 sector budget crisis\. Changes were Procedures for made to the scope and scale of Portfolio some works\. See sections 1\.6 and Management 1\.7\. There were two main reasons: (i) Approved by intensifying security situation in Regional Vice some project areas; and (ii) public President in sector budget crisis\. The PDOs were reworded to consolidate the 04/05/2004 accordance with South Asia U U 24\.78 original complex PDOs; the New Procedures for Construction Component was Portfolio cancelled and two new components Management were added whose implementation was not threatened by the security situation\. See sections 1\.6 and 1\.7\. vi  I\. DISBURSEMENT PROFILE vii   1\. PROJECT CONTEXT, DEVELOPMENT OBJECTIVES AND DESIGN 1\.1 Context at Appraisal 1\.1\.1\. The project was prepared at a time when Nepal was undergoing frequent changes in government and political unrest, notably a Maoist insurgency, which was on the rise\. Since the 1994 parliamentary election, there has been a series of shifting coalitions, with no government able to last more than a year and a half, and many much less\. Development programs suffered as key decisions were not made on time or not adequately implemented and GDP per capita fell in 1998 for the first time in a decade\. In 1998 the fifth Government, in less than four years, was making an increased effort to control the Maoist insurgency that was threatening development efforts in a number of districts\. 1\.1\.2\. In 1998 over nine million (40%) of the population were below the poverty line with most living in rural areas\. The 1995-96 Living Standards Measurement Study revealed that the rural poor lived on average more than five hours away from the nearest dirt road\. The lack of transport infrastructure ­ rural roads in particular1 ­ constrained the potential for agriculture, as it resulted in an increase in the cost of inputs and a reduction in the value of marketable outputs\. The country has a difficult topography with mountains and rugged hills covering 75% of its land area, which makes road engineering unusually challenging and contributes to very high unit costs\. Nepal under funded its road maintenance requirements for much of the 1980s and 1990s, and as a result its road network deteriorated, requiring costly rehabilitation and reconstruction\. Most projects supported by government and its development partners in the 1990s focused on getting the existing network to a maintainable condition in order to reduce transport costs and prevent the road network from becoming a drag on economic growth\. Yet, while the focus on maintenance and rehabilitation was critical and the correct strategy at that time, it had the effect of keeping resources away from the much needed network expansion to remote parts of Nepal, which delayed bringing economic opportunities and services to these isolated communities\. 1\.1\.3\. A 10-year sector investment strategy for the road sector had been developed during the preparation of the Priority Investment Plan (PIP) in 1997, which became the road master plan and called for a balanced investment in rehabilitation and maintenance of existing assets complemented with cost- effective and environmentally sound construction and maintenance approaches for feeder roads\. The Road Maintenance and Development Project (RMDP) was designed to provide assistance in the implementation of Nepal's road sector strategy by addressing such main sector issues as (i) road management and finance; (ii) road maintenance; (iii) decentralization of responsibilities for village and district roads; and (iv) community participation to ensure sustainability of the newly-built roads\. The project also sought to contribute to poverty reduction in rural areas by improving rural access (about 500,000 beneficiaries) in remote hill areas of the Western, Mid-Western and Far Western regions, which had an over-representation of Nepal's poor\. 1 In 1998 Nepal's road network was about 15,000 km (including rural roads)\. Road density was 0\.6 km per 1,000 people in Nepal, compared to 1\.6 in Pakistan, 1\.7 in Bangladesh and 2\.5 in India (based on the World Bank Development Indicators for 1998)\. 1  1\.2 Original Project Development Objectives and Key Indicators (as approved) 1\.2\.1\. The original PDO as outlined in the PAD consisted of five parts: (i) achieve sustainable maintenance, rehabilitation, and construction of economically justifiable roads in SRN within the PIP framework; (ii) improve access to district headquarters not currently served by road, and reduce vehicle transport costs, and delays in project areas; (iii) promote more sustainable funding and more efficient public sector management of road maintenance; (iv) adopt and disseminate environmentally sustainable road construction and maintenance practices; and (v) generate rural employment through adoption of labor-based technologies and long-term employment for the additional generated economic activity\. 1\.2\.2\. The original PDOs were to be monitored by a long list of performance indicators: Share of population provided with basic motorized access increases in the project districts; Number of person-days of employment created in the project districts; Overall maintenance allocation as per agreed project covenants and road user share increase as per agreed plan between RBN and Ministry of Works and Transport/DoR; Maintenance allocations for both strategic and district networks made available in time and in sufficient amounts, as outlined in the Credit Agreement; Allocations actually and efficiently used for the planned purpose; RBN and Fund established, regulations approved, annual programs implemented and audited; Average travel time reductions and transport cost reductions achieved as per appraisal estimates; Detailed technical, social and environmental and economic feasibility studies to be carried out as part of project preparation and followed; Share of strategic network in poor condition reduced to 20%; Reduced unit costs for works by type if road and activities; Improved average road condition and quality of road works; Reduced throughput time for procurement decisions; Environmentally sound, low cost construction and methods becoming standardized approach within DoR; DoR human resources development policy and strategy, staff development program and training plans in place and being implemented; Annual in-country short-term courses, overseas short-term courses/study tours, and in-service courses implemented; Annual in-country training, overseas short courses on Project Management Reporting and procurement for staff in Ministry of Finance, Office of the Auditor General, Financial Controller General's Office and Ministry of Law and Justice; Systems and procedures for preparation of environmental and social assessments and action plans in place; Environmental Management Action Plans (EMAPs) and Resettlement Action Plan (RAP) being prepared and implemented; Marketing program for commercialization of DoR's mechanical training operations prepared and being implemented; and Annual training of equipment operators, mechanics/electricians and supervisors\. 2  1\.3 Revised PDO and Key Indicators (as approved by original approving authority), and Reasons/Justification 1\.3\.1\. The PDOs were reworded in 2004 to consolidate the original PDOs, which were found overly complex and tended to mix project outputs with the PDO\. This was recognized as a minor restructuring and thus the project did not go to the Board for approval but was approved by the Regional Vice President in accordance with South Asia Procedures for Portfolio Management on April 5, 2004\. The PDO became "to provide sustainable and efficient road service on the Strategic Road Network"\. The rewording of the PDOs did not affect changes in expected outcomes and benefits\. 1\.3\.2\. During the restructuring in 2004, the number of performance indicators was reduced to reflect changes in the project components and to more effectively monitor the project progress\. The amended indicators comprised: (i) Share of the SRN in bad condition2 reduced to 20% by EoP; (ii) Ex-post economic internal rate of return (EIRR) for major road works is on average 12% by EoP; (iii) Legal Framework for Road Fund established and becomes operational: Roads Board and a sustainable road maintenance fund to be established; (iv) Improved efficiency and effectiveness in public sector management of road investments: Medium Term Expenditure Framework (MTEF) used to prioritize and allocate investment in the road sector; (v) Reduced backlog of rehabilitation and implementation of sustainable maintenance on strategic network: Periodic maintenance of 676 km; rehabilitation of 258 km and upgrading of 125 km of earth roads and 141 km of gravel roads to bituminous seal; (vi) Improved Institutional Capacity in DoR: DoR human resources development (HRD) policy and strategy, staff development and training plans in place and being implemented, IT facilities set up, Institutional Development Strategy for DoR to operate in a corporate manner developed by EoP\. 1\.4 Main Beneficiaries 1\.4\.1\. The primary target group as outlined in the PAD included road users and the rural population in six districts ­ Darchula, Achham, Kalikot, Jumla, Jajarkot and Bajura, that would benefit from lower freight and passenger transport costs, with resulting benefits in reduced fares, prices of goods, and better accessibility to district headquarters\. As a result of the two minor restructurings in 2003 and 2004, the construction of new roads was cancelled in the districts of Darchula, Jumla, Jajarkot and Bajura, where blasting operations were restricted and not possible due to the worsening security problem\. While this reduced the number of potential beneficiaries in these particular districts, the total rural population who benefited from the project increased because the restructurings made the project more flexible and targeted the improvement of road accessibility (through upgrading, and construction of community roads) in other areas where blasting were not required for civil works\. 1\.4\.2\. Other beneficiaries of the project included the staff of DoR, an institution which was then in a transitional stage from a traditional, public sector organization moving towards a modern road agency\. The restructuring in 2004 placed even greater emphasis on developing the institutional capacity of DoR to deliver higher standard services within the road sector\. 2 The criterion for roads in bad condition is IRI>8m/km\. 3  1\.5 Original Components (as approved) 1\.5\.1\. Originally, the project had five components: (a) Policy reform to setup the Roads Board Nepal (RBN), amend regulatory framework and develop the Road Fund (US$0\.40 million)\. This component was expected to finance consulting services and technical assistance required by the Implementation Committee and RBN once established, study tours to functional Road Funds elsewhere for key decision makers, support to private sector capacity building activities lead by the RBN, and office equipment support for the RBN\. (b) New Road Construction and Upgrading Component (NRDUC) (US$45\.8 million)\. This component targeted construction of dry-weather feeder road construction (197 km) and upgrading to gravel standard (253 km), and also intended to support resettlement assistance, environmental monitoring, and technical assistance for design, project coordination and construction supervision, and civil works for improvements to training and office facilities\. (c) Rehabilitation of 160 km of strategic highway and feeder road network (US$6\.8 million)\. This component targeted rehabilitation of three priority roads of SRN ­ Tansen-Syangja, Tansen- Tamghas and Kothi ­Taulihwa road\. (d) Periodic maintenance of strategic roads (470 km) (US$6\.60 million)\. This component was expected to finance periodic maintenance of 470 km on SRN comprising national highways and inter-district feeder roads in various parts of the country\. (e) Institutional strengthening and training (US$4\.8 million)\. This component intended to support consulting services for institutional strengthening/training of DoR and third party operational audits of works, five-year training and HRD for DoR, and Ministry of Works and Transport, equipment for office modernization, equipment for training and pre-investment and socio- economic impact of road construction studies\. 1\.6 Revised Components 1\.6\.1\. Due to the intensifying security situation in the country, which severely affected implementation within the original scope and objective of the project, a minor restructuring of the project took place in February 2004\. It led to the cancellation of the construction of new roads under the NRDUC and addition of two new components which were not threatened by the security problem: Community road works (45 km); and Emergency repair of flood damaged roads (36 km)\. 1\.6\.2\. Additional adjustments were made to the scope and scale of other components, which are described in detail in section 1\.7\. 1\.7 Other Significant Changes 1\.7\.1\. During implementation, the project had to undergo two minor restructurings to adapt to the changing country conditions\. Specifically, the intensifying insurgency which disrupted civil works in the project areas and a public sector budget crisis in the country which affected the Borrower's funding share of the project and stable and adequate financing of road maintenance\. The first restructuring was in 2003 and was approved by the Country Director; the second one was in 2004 and was approved by the Regional Vice President in accordance with the South Asia Regional Procedures for Portfolio 4  Management\. The most significant changes made in these two restructurings included: (i) changes in the scale and scope of works in different components; (ii) increase in IDA's share of funding (during the first restructuring); and (iii) reallocation of unspent funds from the cancelled activities to components which could be implemented successfully but had been under-funded due to public sector budget crisis\. 1\.7\.2\. The Credit closing date of the project was extended twice and approved by the Regional Vice President\. During the second restructuring, it was extended by 24 months from December 31, 2004 to December 31, 2006 to complete the increased scope of work, which had been added in the first restructuring\. The Credit closing date was extended for the second time by six months from December 31, 2006 to June 30, 2007 to complete the remaining works which had been disrupted during the intensified conflict and ensuing political disturbances in 2005 and early 2006\. 1\.7\.3\. First Restructuring\. The mid-term review (MTR) carried out in November 2002 recommended a minor restructuring due to the prevailing security situation and public sector budgetary constraints\. While the PDO and components remained the same, adjustments were made to the scale and scope of works under the following components: (a) NRDUC: carrying out of (i) construction work of 50 km of dry-weather feeder roads (versus 197 km planned at appraisal) to provide motorable road access to two district headquarters (versus five as planned) EoP; and (ii) upgrading of about 200 km of existing earth roads (versus 253 km planned at appraisal) to gravel standards to connect one district and improve access in two other districts by EoP (same as the original targets)\. The construction of new roads was dropped in three districts ­ Jumla, Jajarkot and Bajura ­ where DoR was unable to arrange blasting operations and prepare the sites for private contractors to undertake civil works due to the ongoing insurgency in these project areas\. (b) Road Rehabilitation Component: expanding the component to include financing of high priority rehabilitation works on 227\.7 km (versus 160 km planned at appraisal) of SRN\. The additional scope of work envisaged rehabilitation of another 86 km of gravel roads to bituminous standard, and provision of otta seal to 144 km of rehabilitated gravel roads mostly in environmentally sensitive hill areas, where light bituminous surfacing helps reduce erosion and cuts down on maintenance costs\. (c) Periodic Maintenance Component: Implementation of (i) periodic maintenance of about 650 km of the strategic highway and feeder road network (versus 470 km planned at appraisal), and (ii) support of DoR's annual routine and regular maintenance for about 2,700 km of strategic highway and feeder road network in FY2002-2003 and about 1,500 km in FY2003-2004 as well as emergency maintenance, which would enable the DoR to meet urgent maintenance needs until the Road Fund was capable of fully financing the maintenance requirements by FY2004-2005\. 1\.7\.4\. During the first restructuring IDA's financing share of civil works was increased from 80% to 85%, because the public sector faced a budgetary crisis and was incapable of meeting its counterpart funding requirements\. As a result of the cancellation of several contracts under the NRDUC, the uncommitted funds from this component were distributed to the maintenance, rehabilitation and institutional strengthening components, which were progressing satisfactorily (Table 1)\. 5  Table 1\. Original and Revised Allocation for Project Component during First Restructuring, US$ million Original Allocation, 1999 Revised Allocation, 2003* Project Components Total % of IDA % of Total % of IDA % of Cost Total Fin\. Total Cost Total Fin\. Total Policy Support 0\.4 1 0\.4 1 0\.4 1 0\.4 1 New Road Development and Upgrading 45\.8 70 36\.6 67 29\.4 45 23\.8 43 Component Rehabilitation and Improvement of 6\.8 10 5\.7 10 13\.9 21 11\.8 21 strategic network to all weather roads Periodic Maintenance of Strategic Network 6\.6 10 5\.5 10 15\.7 24 13\.3 24 Institutional Strengthening 4\.8 7 4\.8 9 5\.2 8 5\.2 9 Project Preparation Facility 1\.5 2 1\.5 3 0\.9 1 0\.9 2 Total Project Costs and Financing 65\.9 100 54\.5 100 65\.5 100 55\.4** 100 Note: * Includes expenditure already made and commitment until project closing\. ** Available Credit amount increased due to exchange rate difference in Special Drawing Right (SDR)\. 1\.7\.5\. Second restructuring\. During the second restructuring in 2004, the following adjustments in terms of scope and scale of works were made to the components: (a) NRDUC: carrying out of (i) construction work of 50 km of dry-weather feeder roads (versus 197 km planned at appraisal) to provide motorable road access to two district headquarters (versus five as planned) by EoP; and (ii) upgrading of about 213 km of existing earth roads (versus 253 km planned at appraisal) to gravel standards to connect one district and improve access in two other districts (same as the original targets) by EoP\. (b) Road Rehabilitation Component: carrying out of: (i) rehabilitation work to about 248 km of the strategic highway and feeder road network (versus 160 km planned at appraisal); (ii) upgrading work to about 125 km of feeder roads to bituminous standard; and (iii) provision of bituminous seal to about 141 km of rehabilitated gravel roads\. (c) Periodic Maintenance Component: implementation of (i) periodic maintenance of about 676 km of the strategic highway and feeder road network (versus 470 km planned at appraisal); (ii) performance-based maintenance of about 114 km of strategic highway; and (iii) routine and regular maintenance of strategic highway and feeder road network as well as emergency maintenance\. 1\.7\.6\. During the second restructuring, savings from the cancelled activities under NRDUC were reallocated to the other project components, which were progressing satisfactorily but were under-funded due to the public sector's budget constraints\. Table 2 provides the allocations planned at appraisal and the revised allocations by component-wise in 2004: Table 2\. Original and Revised Allocation for Project Component during Second Restructuring, US$ million Original Allocation, 1999 Revised Allocation, 2004* Project Components Total % of IDA % of Total % of IDA % of Cost Total Fin\. Total Cost Total Fin\. Total Policy Support 0\.4 1 0\.4 1 0\.4 1 0\.4 1 New Road Development and Upgrading 45\.8 70 36\.6 67 22\.2 34 17\.5 31 Component Rehabilitation and Improvement of 6\.8 10 5\.7 10 24\.0 36 20\.0 35 strategic network to all weather roads Periodic Maintenance of Strategic Network 6\.6 10 5\.5 10 8\.8 13 8 14 Emergency Repair for Flood Damaged 3\.0 5 2\.7 5 Highway 6  Original Allocation, 1999 Revised Allocation, 2004* Project Components Total % of IDA % of Total % of IDA % of Cost Total Fin\. Total Cost Total Fin\. Total Community Road Works 1\.5 2 1\.3 2 Institutional Strengthening 4\.8 7 4\.8 9 5\.7 8 5\.7 10 Project Preparation Facility 1\.5 2 1\.5 3 0\.9 1 0\.9 2 Total Project Costs and Financing 65\.9 100 54\.5 100 66\.3 100 56\.5** 100 Note: * Includes expenditure already made and commitment until project closing\. ** Available Credit amount increased due to exchange rate difference in SDR\. 2\. KEY FACTORS AFFECTING IMPLEMENTATION AND OUTCOMES 2\.1 Project Preparation, Design and Quality at Entry 2\.1\.1\. Background Analysis, Preparation and Design\. This project followed on from a previous Road Maintenance and Rehabilitation Project and the lessons learned from that operation were reflected in the design of this project\. In particular, the project design took into account the importance of continued support to develop capacity within DoR, and bolster local capacities in environmental assessment, geo- technical survey and bio-engineering\. Other lessons taken into consideration revolved around (i) the comprehensive preparation of environmental, social and institutional aspects of the project involving local participation; (ii) strengthening of basic institutional capacities for effective project management in the early life of the project; (iii) bolstering of procurement capabilities from the project design, with initial contracts based on completed designs, strict qualification criteria and awards planned before project effectiveness; and (iv) timely availability of project sites before handing over to contractors\. 2\.1\.2\. Participatory Processes\. The project used a participatory approach to involve beneficiaries and other stakeholders in consultations on environmental and social aspects, and preparation of the policy reform component\. In addition, continuous engagement on policy reform was planned with stakeholders, including the private sector, public sector representatives and major donors\. The selection process for the new roads, implementation of civil and other community works and monitoring and evaluation activities also engaged local communities through involvement with District and Village Development Committees\. While the team planned at appraisal to pursue user and community participation to the fullest extent possible both for information dissemination purposes and generation of strategic network ownership, it recognized that community participation in SRN would be more difficult than participation in district or village roads where ownership and benefits of participation are more keenly felt\. 2\.1\.3\. Risks and Mitigation Measures\. The majority of identified risks focused on the delay in either delivery of the physical infrastructure (due to weak institutional and contractor capacity) or the enabling policy environment\. The identified mitigation means for these risks were well thought through and utilized previous experience although in the early years of the project these risks were considered causes for delays in delivery\. The possibility of the intensifying civil conflict, despite the fact that two of the project districts ­ Jajarkot and Kalikot ­ were controlled by the Maoists at the time of project appraisal and the potential impact of inflexible project design on implementation, were not considered likely during project preparation\. Both subsequently contributed to delays incurred and extension of the project duration\. 2\.1\.4\. Quality at Entry Assessment\. A quality at entry assessment of the project carried out by the Quality Assurance Group (QAG) in January 2000 rated quality at entry as "Highly Satisfactory"\. It commended the project team for incorporating the sector experience and lessons from previous operations in the project approach and design, adequate analysis and treatment of environmental impacts, public consultations on the environmental aspect, addressing the financial management aspects in a clear, 7  practical and common sense manner and others\. However, the quality at supervision assessment of the project conducted on August 23, 2004 noticed that the Quality at Entry Assessment Panel had failed to note that the detailed design had been based on computerized modeling rather than field surveys\. During implementation, it became quickly apparent that this approach was inappropriate for the country's extremely difficult terrain and the resulting need to rework the tender documents entailed considerable delays\. Furthermore, the appraisal team and the Quality at Entry Assessment Panel had failed to consider the deteriorating security situation that had been already prevailing at the time of appraisal as a risk, although the Bank management had recognized the threat of the Maoists insurgency to development efforts in the Country Assistance Strategy for Nepal, 1999-2002, issued in 1998\. The Implementation Completion and Results Report (ICR) team concurs with the Quality of Supervision Assessment Panel's comments and in addition, considers that the original PDOs, although relevant and responsive to the country's development priorities, were too complex and ambitious for the Borrower to achieve under the then prevailing circumstances in the country\. 2\.2 Implementation 2\.2\.1 Implementation was satisfactory in the first year of the projects but right before the MTR - in 2001- 2002 - it was downgraded to unsatisfactory due to lack of progress in NRDUC, which comprised 69% of the original project cost estimate\. The first restructuring after the MTR led to short-term improvements but the project was soon again downgraded to unsatisfactory\. The second restructuring in 2004 enabled significant improvement in implementation and the project remained satisfactory until its closure\. The following were the main factors that affected implementation in the project life: (a) Deteriorating Security Situation\. The Maoist insurgency in Nepal entailed unprecedented security problems in some of the project districts especially those under Maoist control\. This made it difficult for contractors and consultants to execute new construction works and supervision, for NGOs to monitor implementation of social safeguards and for DoR to arrange blasting operations, monitor the performance of cost centers, implement environmental safeguard provisions and carry out overall project supervision\. Nineteen new road construction contracts were terminated due to the poor security situation\. (b) Unstable Political Environment and High Political Influence\. Frequent changes at high levels of government contributed to delays in the creation of RBN\. Originally planned for December 2001, it became fully operational at the end of 2003\. However, once in operation this organization also failed to achieve the objective of raising and managing funds for road maintenance due to political interference in RBN's decision making\. The Board is dominated by political representatives and chaired by the Secretary of the Ministry of Physical Planning and Works (MPPW) who also has responsibility for the Department of Roads\. This undermines a central pillar of efficient Road Fund Boards: independence from public sector road departments\. The IDA team conducted an assessment of RBN's performance in 2005 and its recommendations have been incorporated in a draft amendment to the Roads Board Act, which is under review by the Ministry of Law, Justice and Parliamentary Affairs for subsequent cabinet approval\. In the meantime, an administrative fiat has been approved providing temporary measures for the Board to function more efficiently until the amendments to the Act are approved by the Parliament\. (c) Budgetary Constraints\. The budget crisis faced by the public sector adversely affected the outcome of the PDOs and compliance with policy-related legal covenants\. The allocation for maintenance of the SRN, which was half the amount planned at appraisal, was not transferred to DoR\. As a result of the insufficient funding, maintenance works were stopped, which posed a threat to the sustainability of the country's road assets and provision of the only access to many parts of the country\. This issue was resolved through increasing IDA's share of the project 8  funding and reallocating of some funds from the project activities which were cancelled during the first restructuring\. Ongoing negotiations between the World Bank and MPPW have secured a number of important changes to prevent similar problems in the future including consolidating maintenance funds through RBN and more guaranteed level of funds in the follow-up Road Sector Development Project (RSDP) which was approved in December 2007\. (d) Geotechnical Problems of the Project Roads\. While the engineering and procurement documents for the first year's activities were completed by appraisal, it turned out that engineering design which, at the request of Borrower had utilized computer-aided design, was insufficient to account for all local conditions and provided poor drainage design\. Specifically as a result of insufficient data, the design included an alignment which significantly underestimated the level of rock cutting and earthworks required\. (e) Close Collaboration between the Nepali and IDA Project Teams\. The high commitment of the Borrower and pro-active response of the IDA supervision team as well as the long and positive relationship between IDA and the client entailed close collaboration of the combined team and was key to the prompt and timely restructurings of the project\. The combined project team was able to properly identify relevant issues and find feasible solutions to react to emerging circumstances and restructure deliverables in a positive way\. 2\.2\.2 Quality at Supervision Assessment\. QAG rated the supervision of the project as satisfactory and praised the task team for taking a flexible approach in readjusting the project's components to elements that had a chance of being implemented despite the ongoing insurgency in the country\. QAG accepted the project restructuring in 2004 as a formal change\. The supervision team was also commended on the thorough job of the project restructuring and re-formulation of the development objectives, which QAG then assessed as more realistic and with a better likelihood of being achieved\. However, while it found Financial Management supervision highly satisfactory and responsive to the minor project restructuring undertaken during the MTR and the restructuring in 2004, it noted that a more pro-active supervision in assessing the issues of out-migration could have improved compliance with the Resettlement Action Plan (RAP) conditions\. 2\.3 Monitoring and Evaluation Design, Implementation and Utilization 2\.3\.1\. Overall monitoring and evaluation was the responsibility of the Project Coordination Unit (PCU) in DoR\. It has been generally rated satisfactory by supervision missions\. The effectiveness of maintenance programs was monitored throughout the project to assess the quality of civil works, effective life of various treatments, and overall changes in road asset conditions\. The monitoring program included an annual survey of road and visual condition rating on at least 50% of SRN, and dissemination of the results available in a public Road Condition Report\. In addition, the PCU also arranged project benefit monitoring and evaluation surveys of select roads to assess socio-economic impact of roads which were upgraded and built involving local communities\. 2\.3\.2\. The original project identified too many performance indicators, and their number was reduced during the second restructuring in 2004 to reflect the changes in the project components and more effectively monitor the project progress\. The indicators chosen were well established and the unit has been able to measure outputs easily\. While the overall capacity of the DoR to undertake such monitoring and the effective use of these tools has improved over the course of the project, DoR needs to improve its approach to collecting consistent data relevant to socio-economic impacts of road projects and analyzing and storing them for further use\. 9  2\.4 Safeguard and Fiduciary Compliance Safeguards Compliance is rated moderately satisfactory 2\.4\.1\. Environmental Aspects\. The project was classified as Environmental Category A at appraisal, because it planned the construction of five new roads and upgrading of three roads\. In this regard, a detailed Environmental Impact assessment (EIA) was carried out in compliance with Nepal's legal requirements (Environmental Protection Regulations 2054) and the Bank's Guidelines and Operations Policy, Good Practice, and Best Practice 4\.01 on Environmental Assessment\. A screening and scoping exercise was undertaken to inform the stakeholders, including local residents and officials, about the proposed project, receive their comments and identify priority environmental issues for assessment\. Scoping was required and constitutes a good practice in EIAs to help focus on priority environmental issues\. 2\.4\.2\. The output of the EIA included an Environment Management Action Plan (EMAP), which comprised a framework for implementation including institutional responsibility, management roles and public participation, mitigation measures to be undertaken, including planning, design, pre-construction, post construction, costs of mitigation, time frame and contractual clauses, environmental management monitoring and reporting measures, and bio-engineering recommendations\. In the early stages of project implementation, the EMAP compliance was considered to be lacking due to poor contractor camp facilities and poor environmental engineering design within the existing contracts\. As implementing parties built up their experience, it was improved resulting in an overall satisfactory rating\. DoR plans to build awareness on environmental issues by providing training on EMAP implementation to contractors and including EMAP-related costs in the schedule of rates in order to ensure EMAP compliance by contractors in future projects\. 2\.4\.3\. Social Aspects\. A Social Assessment was carried out as part of project preparation and completed in a timely and professional manner by project appraisal despite unrest and security constraints\. It covered new roads and roads subject to upgrading and consisted of: (i) early screening and social impact assessment as part of project feasibility studies; (ii) public consultation; (iii) preparation of a project specific resettlement and rehabilitation entitlement framework consistent with Government and Bank policies; (iv) census and baseline socio-economic survey of the potentially affected population; and (v) preparation of a time-bound RAP\. 2\.4\.4\. The social aspects of the project were rated unsatisfactory at different stages of the project because the security situation hampered implementation of social safeguards\. However, by the closure of the project all social mitigation measures including compensation, resettlement and rehabilitation were completed in compliance with the agreed RAP\. The compensation disbursement is almost 100% of the budgeted amount while all 103 families displaced have been provided with a resettlement allowance\. However, on the Jumla-Kalikot road, the ownership transfer of lands and properties compensated has been completed for over 98% of land plots and only few cases are outstanding due to the absence of owners (who moved out of the area during the insurgency and DoR cannot trace them), without whom ownership transfer cannot be completed\. Nevertheless, DoR will have annual budget allocated to make payments for compensation claims from the remaining asset owners if required\. 2\.4\.5\. A key success factor of the satisfactory implementation of the safeguards was the support of the Geo-Environmental and Social Unit (GESU) within DoR, which was established prior to appraisal with the mandate to cover bio-engineering, geo-technical issues and environmental assessment\. In November 2002 it was expanded to also cover the implementation of the social aspects\. It ensured the adoption of an Environment and Social Management Framework (ESMF) for road projects under DoR's management which enabled the closer supervision of contractors and provided a knowledge resource within DoR\. 10  Fiduciary Compliance is rated satisfactory 2\.4\.6\. Disbursement\. In the early stages of implementation, the project observed some challenges, including delays in reconciliation of accounts, lack of monitoring of expenses at the field level, slow disbursement and delays in submission of financial management and audit reports\. Much of this was mainly due to the lack of qualified staff, as well as the inability of DoR headquarters staff being unable to visit the field to monitor the cost-related accounts due to the growing threat of insurgency\. After the MTR, thanks to a training/orientation program on financial management for all managers, unit chiefs, and accounts staff in all cost centers as well as increased monitoring of and guidance to costs centers staff, DoR managed to improve the performance of financial management\. That led to timely submission of trimesterly project management reports\. Audit reports did not include significant audit observations\. There are no outstanding audit reports\. 2\.4\.7\. Close collaboration between the technical and accounts teams in the DoR has also generated significant improvements in the financial management system throughout the project\. The DoR has recently started introducing a computerized Financial Management Information System (FMIS) at the DoR central office, which was developed under the Institutional Strengthening Component\. A key to success was application of a holistic approach to financial management that is harmonized and aligned with the public sector's financial management system, instead of a project specific ring-fenced approach\. Following successful piloting at the central office in Kathmandu, DoR plans to extend the application of the FMIS to other districts and build the capacity of costs centers in those districts in the follow-up RSDP so that financial information from all DoR cost centers can be consolidated at the central office\. 2\.4\.8\. At closing, disbursements stood at SDR38\.02 million or 95% against the original credit of SDR40\.10 million\. The undisbursed balance of SDR2\.08 million (US$3\.30 million equivalent) was cancelled as of November 20, 2007\. 2\.4\.9\. Procurement\. Procurement of works, goods and services was carried out in accordance with Bank guidelines, and the bidding processes were conducted in a fair and transparent manner\. At the MTR stage, it was noted that DoR was able to initiate and award contracts within five months demonstrating relatively good efficiency\. Throughout the project DoR performed their procurement role efficiently and proved proficient in preparing tenders and evaluating bids\. The procurement capacity assessment conducted by IDA in 2007 also recognized that DoR is one of few organizations performing efficient procurement functions in the country\. However, several areas were recommended for improvement under the follow- up RSDP, including procurement planning, conducting pre-bid meetings, evaluating bids (particularly consultant's proposals), awarding and signing contracts, observing the code of ethics by the involved personnel as mandated by the new Public Procurement Act, 2063 (2007) and administrating contracts\. DoR has agreed to establish a dedicated procurement unit staffed with skilled and trained personnel during the process of implementing the new Procurement Law\. 2\.5 Post-completion Operation/Next Phase 2\.5\.1\. Operation and Maintenance\. Operation and maintenance of the roads supported by RMDP is provided by DoR either through in-house implementation or outsourcing of works to the private sector\. Funding of routine and regular maintenance is being provided by the public sector and channeled through RBN\. DoR is responsible for developing its maintenance strategy with implementation based on plans submitted to RBN for approval and funding\. 11  2\.5\.2\. Follow-up Operation\. Supported under RMDP, DoR prepared a new 10-year PIP for the road sector covering 2007-2016, which outlines the road sections for upgrading and rehabilitation\. From this and in consultation with the Bank, a further project was approved in December 2007, which will enable 297 km of SRN to be improved to all season quality thus continuing to enhance accessibility along the parameters designated by the authorities\. In addition to the ongoing delivery of road improvements the project will also continue strengthening capacity within the road sector institutions\. However, some of this is dependent on improved performance of RBN, which will need continued supervision and monitoring\. 3\. ASSESSMENT OF OUTCOMES 3\.1 Relevance of Objectives, Design and Implementation 3\.1\.1\. Relevance of the PDOs\. The PDOs remain relevant to Nepal's Tenth Plan and IDA's Country Assistance Strategy (CAS) for 2002-2007 and Interim Strategy Note (ISN), February 2007\. The Tenth Plan, CAS and ISN emphasize improvement of SRN as one of the key development targets and, in particular, give priority to support the development of the road infrastructure in rural areas as well as maintenance of major roads and highways\. The Tenth Plan for the road sector sets the following outcomes: (i) sustainable road maintenance fund available in accordance with annual maintenance plan; and (ii) road access increased to 70 districts (only 62 districts were connected with SRN at the time of planning)\. The CAS outcomes focus on two key issues: (i) sustainable maintenance funding through working with key donors to ensure roads are properly funded from fuel levies; operational RBN by F20Y04; adequate maintenance budget by FY2006; and (ii) improved rural accessibility with the share of population with close access to roads (half-day walk) increased by 4%, Government's focus on accessibility and decentralized rural roads management and nationwide accessibility mapping by FY2005\. These objectives continue to be promoted through the ISN with maintaining the accessibility indicator and reducing the amount of SRN in poor condition to 10%\. 3\.1\.2\. Relevance of Design and Implementation\. Good governance and community participation are both equally relevant as they are underscored in the Tenth Plan and CAS\. The project supported the improvement of governance in management of maintenance funds through the establishment of RBN with the engagement of the private sector and road users\. An independent oversight mechanism has been set up by RBN to monitor the use of maintenance funds by DoR, Municipalities and District Development Committees, which are now required to publish their maintenance plan and expenditure\. The project also promoted community participation through supporting the involvement of local villagers in the community road works\. 3\.2 Achievement of Project Development Objectives The achievement of the PDOs is rated Moderately Satisfactory 3\.2\.1\. The rating takes into account the fact that despite significant external factors out of government control, namely the intensifying insurgency in the country and substantial political changes at the highest levels, most of activities, which were planned at appraisal or added during the restructurings were delivered by the project closure and the residents of the project areas benefited from improved road accessibility\. A rating of moderately satisfactory has been assigned due to the lack of improving connectivity in three districts where the construction of new roads was cancelled due to the security situation\. 12  PDO Indicator 1: Share of SRN in bad condition reduced to 20% by EoP (Achieved) 3\.2\.2\. The baseline road condition survey conducted prior to appraisal in FY1998-99 determined that 32% of SRN was in bad condition\. During the second restructuring the target set for this indicator was to reduce the share of SRN in bad condition to 20% by EoP\. The road condition survey conducted after the completion of the project found 18% of SRN in bad condition, which indicates that the target was exceeded by 2 percentage points\. PDO Indicator 2: Ex-post EIRR for major road works is on average 12% by EoP (Achieved) 3\.2\.3\. The economic analysis shows that ex-post EIRR is significantly above 12%, namely 60\.5%, for all completed major road works\. More details are provided in Section 3\.3 and Annex 3\. PDO Indicator 3: Legal Framework for RBN established and becomes operational (Partially Achieved) 3\.2\.4\. The achievement of the target may be considered partially achieved\. The legal framework has been established and the RBN has become operational\. The funds earmarked for maintenance come from road user charges, fuel levy and direct public sector budget\. Annual reports and information on resources released to different public sector agencies are published on the RBN's website\. However, the RBN still lacks efficient operation and full autonomy\. It is unable to generate adequate road maintenance funds due to administrative and resource constraints\. The fuel levy, which had not changed since the enactment of the Act in January 2003, has just recently been increased\. While a draft amendment to the Roads Board Act is under review by the Ministry of Law, Justice and Parliament to improve the RBN's performance, an administrative fiat has been approved providing temporary measures for the Board to function more efficiently until the amendments to Act are approved by the Parliament\. PDO Indicator 4: Improved efficiency and effectiveness in public sector management of road investments: Mid-term Expenditure Framework (MTEF) used to prioritize and allocate investment in the road sector (Partially Achieved) 3\.2\.5\. During project implementation the fourth MTEF was developed to prioritize and allocate investment in the road sector for FY2002-2003 ­ FY2006-2007\. Prioritization was made on the basis of the contribution that each road or bridge project would make to the main element of poverty reduction as outlined in the Tenth Plan and other elements such as accelerating economic growth, provision of social services and infrastructure, targeted program and good governance\. While investment priorities for the road sector were clearly identified in the MTEF, resource allocation and actual expenditure did not match these priorities\. The shortfall of resources amounted to about NRs\.2\.3 billion or 9% of the Tenth Plan estimated budget\. While some of the targets of the Tenth Plan for the road sector were exceeded during the implementation of MTEF, some of them were not achieved (see Table 3) due to the political problems and security situation prevailing in the country\. 13  Table 3\. Targets of the Tenth Plan for the Road Sector and Actual Achievements during MTEF for FY 2002/03 ­ FY 2006/07 MTEF Total Target Exceeding of Target/ Achievement of Tenth Plan Gap with Target (-) km Km Km % New Road Construction (Direct to Earth, Gravel and 1,113 1,025 88 9 BT)\. Road Upgrading (Direct to Gravel and BT)\. 1,186 1,764 -578 -33 Road Improvement, Rehabilitation and Reconstruction\. 430 596 -166 -28 Periodic Maintenance\. 1,661 1,216 445 37 Motorable Bridge Construction\. 93 200 -107 -54 Number of District Headquarters linked by road\. 63 70 -7 -10 Source: GoN, Fifth Medium Term Expenditure Framework, FY2006/07 ­ FY2008/09, Roads, July 2006\. PDO Indicator 5: Reduced backlog of rehabilitation and implementation of sustainable maintenance on strategic network (Almost Achieved) 3\.2\.6\. The latest road condition survey conducted in FY2006-2007 reported that 82% of the SRN is in good and fair condition based on Surface Distress Index\. Backlog in rehabilitation and periodic maintenance of the SRN has been reduced with completion of periodic maintenance on 661 km (against the revised target of 676 km; completion of works on the remaining 15 km is delayed due to the recent problems in the terai), rehabilitation on 248 km (same as the revised target), and upgrading of 111 km of earth roads (against the revised target of 125 km) to gravel standard and of 141 km of gravel roads (same as revised target) to otta seal standard\. PDO Indicator 6: Improved Institutional Capacity in DoR (Achieved) 3\.2\.7\. The activities planned under the Institutional Strengthening Component have been completed, including some additional activities for the modernization of DoR to ensure improved service delivery in various core and supporting functions and operation in a corporate manner\. The PIP for 2007-2016, Institutional Development Strategy for 10 years, DoR human resources development (HRD) policy and strategy, staff development and training plans, ESMF, Quality Assurance System have been developed and are in place\. Training in EMAPs, bio-engineering, procurement, financial management, performance- based contracting of maintenance works and others have been delivered\. Workshops aimed at sensitizing managers on HRD were conducted and the Road Sector Skill Development Unit staff have been trained in various aspects of training management\. The component has also supported building monitoring and evaluation and technical audit capacities within DoR and preparing several technical handbooks, design guidelines and standards\. Information and Technology (IT) facilities, except for a few software modules, have been set up to strengthen DoR's capacity in financial management, personnel management, road planning and management, and other functions (see Section 3\.5\.b)\. 3\.3 Efficiency Efficiency in achieving the project objectives in terms of EIRR is satisfactory\. 3\.3\.1\. The ex-post economic evaluation was carried out using the Highway Development and Management Model (HDM-IV) Version 2\.0 that estimates project benefits in terms of reduction in road user costs (vehicle operating costs plus passenger time costs) based on assumptions as to road conditions before and after investment and based against a "do minimum" scenario of basic maintenance and rehabilitation\. The detailed economic analysis is given in Annex 3\. 14  3\.3\.2\. The satisfactory rating has been assigned because direct comparison between the analysis completed at appraisal and the completed project is not possible\. This is owing to the major change in project which included not only physical location but also levels of intervention and technology employed\. The EIRR for the project given in the PAD was 28\.2%\. The ex-post EIRR is 46% (Table 4)\. 3\.3\.3\. The main reason of higher than anticipated EIRR for the rehabilitation component is the introduction of innovative otta seal technology for rehabilitation and upgrading of gravel roads, which has brought about a technical revolution in Nepal's road sector\. In addition to its other benefits (e\.g\., protection of substantial annual gravel washouts in hill roads during monsoon, dust free environment, smooth driving leading to reduction in travel time), it is found to be cost efficient as it allows saving in frequent gravelling costs\. Table 4\. Economic Evaluation Net Present Value and Internal Rate of Return Program Link Name NPV NPV (Million Rs) (Million US$) IRR (%) Lumbini - Taulihawa 20 0\.3 69% Tribhuvan Rajpath 143 1\.9 30% Rehabilitation Narayanghat - Mugling 371 5\.0 > 100% Siddartha Rajmarg 139 1\.9 21% Total 673 9\.0 68% Bartung - Tansen - Ridi - Tamghas 148 2\.0 21% Silgadi - Sanfe Bagar 44 0\.6 18% Upgrading Mirchiya (MRM)-Katari- 549 7\.3 48% Okhaldhunga-Salleri Mahakali Rajmarg 100 1\.3 24% Total 841 11\.2 29% Pokhara - Baglung - Beni 153 2\.0 28% Mahendra- Rajmarg 1,463 19\.5 40% Periodic Prithvi Rajmarg 2 0\.0 13% Maintenance Siddartha Rajmarg 534 7\.1 93% Mahakali Rajmarg 28 0\.4 36% Seti Rajmarg -3 0\.0 11% Total 2,176 29\.0 39% Total 3,690 49\.2 46% 3\.4 Justification of Overall Outcome Rating Rating: Moderately Satisfactory 3\.4\.1\. The overall outcome is rated moderately satisfactory given the relevance and efficiency of the revised project, achievement of the revised PDO\. The project remains highly relevant to GoN's and CAS's priorities\. While the original PDOs were not achieved, the revised PDO was achieved through improved road sector maintenance funding from road user fees, improved resource allocation by implementing a MTEF for SRN, strengthened capacity of DoR and improved condition of SRN\. The project has demonstrated its economic efficiency as its actual average EIRR of 46% at the project completion exceeded the estimated at appraisal EIRR of 28\.2%\. 15  3\.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development 3\.5\.1 The upgrading and community works components have contributed to improvement in livelihoods of the residents through better road accessibility\. Detailed findings of the project benefit monitoring and evaluation on several sample roads are presented in Annex 5\. 3\.5\.2 Positive impacts have been recorded on Gorushinghe-Sandhikhara road (upgraded to bituminous standards) where residents living along this road have experienced: Reduction in Transport Costs\. Passenger fares have decreased by 31%, and the freight rate by 66% compared to the pre-project situation\. However, it is difficult to completely attribute this benefit to the improved road conditions as a result of the upgrading works, because there have been other factors affecting changes in transport costs, in particular: (i) regulation of bus fares by the Department of Transport Management (DoTM) of the Ministry of Labor and Transport; and (ii) decline in freight rates due to the increased competition between trucks and mini-trucks; Reduction in Travel Time\. Travel time by bus from Sandhikhara to Gorushinghe has been reduced from 8 to 3\.5 hours; Decline in Price Commodities\. Prices for many commodities have fallen, e\.g\., by 29% for rice, 28% for flour, 25% for sugar, 12\.5% for cooking oil, 17% for vegetable ghee, as well as for construction materials, e\.g\., 46% for cement, 22% for corrugated galvanized iron sheet and 21% for reinforcement bar; Growth of Food Supply\. As a result of the improved road accessibility, many new shops and businesses have emerged along this road corridor, which have led to an increase in supplies of food and other merchandise; Increase in School Enrollment\. School enrollment has increased by 41% (29% for boys and 59% for girls) along this road corridor; and Improved Health Care Practices by the Local Residents\. As communication has expanded outside their communities, people have increased awareness of hygiene and sanitation\. Thanks to the availability of transport services, visits to health centers and health posts have become more frequent, and reduced prices for soap and other sanitary products have encouraged greater use and more households have sanitation\. 3\.5\.3\. The main benefits of the community works component, which was added during the 2004 restructuring, include the following: Generation of short-term employment\. Local people from lower social and economic strata were involved in the construction of the 36 km Jumla feeder road in Kalikot district\. As a result, 73 community-based organizations were formed, which employed as semi-skilled and unskilled laborers about 130,000 local men and women from Dalits and indigenous groups living along this road corridor\. Increased use of modern technologies\. With their increased mobility, local residents have been able to find out about modern technologies used outside their communities\. As a result, many of them have installed solar power technology in their homes and now have electricity to run radio and television\. 16  (b) Institutional Change/Strengthening 3\.5\.4\. The project made a substantial effort to strengthen institutional capacity of the DoR at the central and field levels through supporting a large number of activities and development of various strategies and policies\. Some of the most significant institutional achievements which have had impacts on longer-term capacity are: (i) Management of the Road Sub-sector in Nepal\. Two important strategic documents were prepared that will have a long-term impact not only on the institutional aspects of DoR but also Nepal's road sub-sector; specifically: (i) Institutional Position Paper; and (ii) Institutional Strengthening and Organizational Reform Action Plan for 2007-2016\. The Institutional Position Paper outlines in detail the institutional arrangements that are needed to ensure the effective and efficient management of Nepal's SRN\. The Action Plan was designed to provide an overarching institutional reform framework for the evolution of DoR towards a National Road Authority in the next 10 years\. The Bank-financed follow-up RSDP will support the implementation of this Plan\. (ii) Environmental and Social Management Capacity\. DoR's GEU was expanded to cover the responsibilities for preparing and monitoring social impact assessments and resettlement and RAP for road projects\. GESU has developed ESMF, which is being mainstreamed in all road projects under DoR's management\. The follow-up RSDP will continue supporting this\. (iii) Use of IT in Planning and Management\. DoR has made significant improvements in its IT capacity through development, use and training of its staff in the application of 16 computer information systems\. These information systems have not been simply developed and installed, but are being used by DoR in planning and management activities\. The maintenance strategy was developed based on the analysis of the existing and committed SRN using the HDM-IV model, which enabled DoR to assess and evaluate alternative scenarios and determine the optimal approach\. FMIS introduced at the central level of DoR has replaced a manual system and allowed shifting the focus from manual to computerized transactions and enables timely and accurate financial management and reporting\. It is to be expanded to field divisions under the follow-up project\. Other information systems that have been developed, introduced and are being applied by DoR, including road network database, asset management, program and budget, road related law database, procurement management, dispute resolution, personnel management, land compensation and others\. 4\. ASSESSMENT OF RISK TO DEVELOPMENT OUTCOME Rating: Moderate 4\.1\. A moderate risk rating is based on the fact that while the PIP framework, which is essentially a road master plan for Nepal, has been set out in the road sector for the next 10 years and will form a basis for the selection of road projects for the upcoming Eleventh and Twelfth National Plans, there is a risk to sustainable funding due to the ongoing instability and political change in the country\. In addition, while a more stable funding mechanism for maintenance has been established through RBN, it lacks efficiency and effectiveness in management of maintenance resources\. However, it is expected that an amendment to the Roads Board Act which is under review by the Ministry of Law and Justice and Parliament will enable improvements in RBN's operation in the future\. 17  5\. ASSESSMENT OF BANK AND BORROWER PERFORMANCE 5\.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry (i\.e\., performance through lending phase) Rating: Satisfactory 5\.1\.1\. The Bank's performance during the preparation was rated satisfactory\. The Bank project team took into account lessons learned from the previous operations and was advised by the Country Management Unit in its assessment of the security risk\. This project was consistent with other projects being developed at the same time\. However, as noted by the Quality At Entry review panel, there were flaws in the use of computer aided design which, although innovative at the time, turned out to be inappropriate for the local conditions in the country and thus led to considerable delays\. (b) Quality of Supervision (including of fiduciary and safeguards policies) Rating: Satisfactory 5\.1\.2\. IDA's performance during supervision is rated satisfactory\. The team acted proactively in identifying issues and threats to the achievement of the PDOs and finding opportunities and solutions\. Such an approach as well as close collaboration with the Borrower and implementing agency enabled the prompt carrying out of the project restructurings in 2002 and 2004 to respond to the deteriorating security situation and make the project more flexible and realistic\. (c) Justification of Rating for Overall Bank Performance Rating: Moderately Satisfactory 5\.1\.3\. The overall performance of IDA is rated satisfactory, considering the above assessment with the outcome ratings given in Section 5\.1\. 5\.2 Borrower Performance (a) Government Performance Rating: Moderately Satisfactory 5\.2\.1\. The Borrower demonstrated high levels of ownership and commitment to the project during preparation\. They also supported the preparation of PIP, which was adopted as the main road sector plan\. The roads supported by the PIP were included in the project\. Resources were allocated from the then ongoing Road Maintenance and Rehabilitation Project and a Project Preparation Facility to ensure financing of feasibility studies and final engineering of the road maintenance and development works\. A draft Road Fund Act was prepared and ready for consideration by the Parliament by project appraisal\. However, during project implementation, only limited commitment and support were provided due to the political changes and budget crisis, which in particular affected the successful implementation and operation of RBN and provision of adequate funding of maintenance for SRN\. 18  (b) Implementing Agency or Agencies Performance Rating: Satisfactory 5\.2\.2\. The performance of the implementing agency ­ DoR ­ is rated satisfactory\. It demonstrated its commitment to the project through establishing an effective team for project preparation, which adhered to the original preparation schedule and assured the timely and efficient completion of the preparation activities\. During project implementation and especially during the formal project restructuring, DoR closely collaborated with the IDA team to identify problems and develop solutions which contributed to the successful completion of the project\. In addition, thanks to emphasis on strengthening of the institutional capacity, DoR succeeded in not only delivering all relevant activities, but also substantially improving its capacity in many aspects\. (c) Justification of Rating for Overall Borrower Performance Rating: Moderately Satisfactory 5\.2\.3\. The overall performance of the Borrower is rated moderately satisfactory, considering the above assessment with the outcome rating given in Section 5\.2\. 6\. LESSONS LEARNED 6\.1\. A project being implemented in a conflict-affected country should have a more flexible design and implementation plan\. The insurgency was spreading across Nepal during project preparation and two of the project districts were controlled by the Maoists at project appraisal\. However, the risk of intensifying insurgency in the country was not taken into serious consideration\. When the security situation deteriorated in some of the project districts, the PDOs were too ambitious to be achieved and the RMDP design turned out to be unable to adjust to the changing environment\. It did not allow for timely reaction and major adjustments to the project components could not be made without restructuring: e\.g\., moving civil works to non-affected districts or introducing new components that would not be threatened by the security situation\. While restructuring may be a solution to improve project implementation, it may be less cost and time efficient than if the project had been designed on a program basis\. This would require less resources and time during preparation and allow more flexibility to timely respond and adjust implementation to the changing circumstances\. 6\.2\. Field surveys should always be used to complement computerized modeling of engineering designs of roads in a mountainous terrain\. Engineering designs of new roads in RMDP relied exclusively on computerized modeling and were not accompanied by field surveys\. As a result, they had many flaws and were inappropriate for local conditions\. The revision of designs and tender documents of respective civil works triggered substantial cost and time overruns in individual contracts\. 6\.3\. Autonomy of a Roads Board is important to ensure stable and adequate funding of road maintenance\. Experience in the South Asia region suggests that creation of a Roads Board is not in itself sufficient for efficient and effective mobilization and management of maintenance funds\. The structure of the Board must be such that it can work effectively taking into account the prevailing political context\. 19  6\.4\. Involvement of technical staff in reporting is essential for effective financial management\. RMDP experience suggests that a close collaboration between technical and financial management staff creates linkages between physical progress and financial progress and thus is important to ensure satisfactory financial management\. 6\.5\. Local contractors and consultants are more effective than international contractors and consultants in conflict affected areas\. RMDP shows that the successful completion of the works in insurgency affected districts was mainly due to the involvement of local contractors and consultants\. Local communities and NGOs succeeded in conducting objective assessments of the security situations in project areas and holding effective negotiations with the Maoists to reduce disruption to implementation of civil works, and social and environmental safeguards\. 6\.6\. Knowledge and expertise gained in the Bank-funded project are more effectively disseminated and applied by the staff who are not only engaged in the management of this project but also other projects of the implementing agency\. Rather than setting up a separate implementing unit from scratch, the project employed DoR staff who would both work on this project and continue their regular duties\. This approach used human and intellectual resources more effectively, meaning that whatever useful experience or knowledge (e\.g\. developing the ESMF) the DoR staff gained from implementation of RMDP, they were able to apply to other DoR projects, hence building institutional capacity\. 6\.7\. Measurable EMAP-related indicators and a financial incentive mechanism should be built into the contract in order to ensure contractors' compliance with environmental safeguards\. Contractors were reluctant to follow EMAP and the wording "proper environmental management" in the contract was not a sufficient incentive\. The project experience demonstrated the need to include EMAP-related items in the schedule of rates and measurable EMAP-related costs in the contract to more effectively motivate contractors for compliance with environmental safeguards\. 7\. COMMENTS ON ISSUES RAISED BY BORROWER/IMPLEMENTING AGENCIES/PARTNERS (a) Borrower/implementing agencies 7\.1\. DoR has prepared and submitted its ICR on RMDP to IDA team\. A summary is attached as Annex 7\. The full report can be found in the project folder\. (b) Cofinanciers 7\.2\. Not applicable\. (c) Other partners and stakeholders (e\.g\. NGOs/private sector/civil society) 7\.3\. Not applicable\. 20  ANNEX 1\. PROJECT COSTS AND FINANCING (a) Project Cost by Component (in USD Million equivalent) Components Appraisal Actual/Latest Percentage Estimate Estimate of (USD millions) (USD millions) Appraisal Support to Sector Policy Reform including Amendment of 0\.40 0\.40 100 the Legal Framework, to set up a Roads Board and to Develop the Road Fund\. Construction of Dry Weather Feeder Roads (197 KM) and 36\.60 9\.73 26\.6 Upgrading to Gravel Standard (253 KM)\. Rehabilitation (147 KM) of Strategic Highways\. 5\.70 26\.23 460 Periodic Maintenance (470 KM) of Strategic Highways\. 5\.50 11\.06 201 Institutional Strengthening and Training of Department of 4\.80 7\.80 162\.5 Roads and Ministry of Works and Transport\. Community Road Works (45 KM)\. 0\.00 0\.92 -- Emergency Repair of Flood Damage Roads\. 0\.00 3\.00 Total Baseline Cost 53\.00 59\.14 111\.6 Physical Contingencies 0\.00 0\.00 0\.00 Price Contingencies 0\.00 0\.00 0\.00 Total Project Costs 53\.00 59\.14 Project Preparation Fund 1\.50 0\.60 0\.00 Front-end fee IBRD 0\.00 0\.00 0\.00 Total Financing Required 54\.50 59\.74 109\.7 (b) Financing Actual/Latest Source of Funds Type of Appraisal Estimate Percentage of Cofinancing (USD millions) Estimate (USD millions) Appraisal Borrower - 11\.40 6\.27 55\.00 IDA - 54\.50 53\.47* 98\.11 *As of November 20, 2007\. 21  ANNEX 2\. OUTPUTS BY COMPONENT 1\. The project originally consisted of five components\. Two new components ­ community road works and emergency repair of flood damaged roads - were added during the second restructuring in 2004\. The table below provides details on the original and revised targets and actual achievements of the physical outputs under the civil works components of the project\. The following outputs were delivered under each of the components by the closure of the project: (a) Policy Reform\. This component supported the establishment of the RBN under a new Act and development of a road fund to maintain the strategic and rural roads in the country through the collection of road user charges\. The RBN became operational under the Act in January 2003\. The Board has been able to generate partial road maintenance resource requirements\. However, some direct maintenance funds are still provided through the budget to the road agencies\. At the recommendation of the Bank's study team, the Act is being amended for its revised structures and other administrative improvements\. (b) New Road Development and Upgrading Component\. Of the planned construction of 197 km of dry-weather roads, 106 km have been constructed but only 45 km are in a trafficable condition\. This component could not move ahead because DoR was unable to arrange blasting operations due to the poor security situation in the country\. Consequently, the project has only been able to connect one district headquarter of Achham (Mangelsen district) with motorable road access, versus the five targeted during appraisal\. The construction of new roads was cancelled during the first project restructuring in 2003\. Out of the originally planned 253 km for upgrading to gravel standards, only 213 km (revised target during the second restructuring in 2004) were upgraded due the security problem in the areas\. (c) Rehabilitation of SRN\. This component supported the rehabilitation of 248 km of SRN (against the original target of 160 km)\. As a successful component not affected by the security situation in the country, an additional 86 km of rehabilitation works (otta seal standard upgrading works for 125 km of earthen roads and 141 km of gravel roads) were included in the project during the second restructuring\. All the planned works have been completed except for about 14 km of road section due to the contractor's poor performance\. This component has provided all weather black topped road access for Baitadi, Arghakhanchi, Gulmi, Achham and Okhaldhunga districts\. (d) Periodic Maintenance of SRN\. This component supported implementation of DoR's five-year periodic maintenance works\. Due to the satisfactory implementation of this component, the second restructuring increased the scope of periodic maintenance works from the original target of 470 km to 676 km\. By the end of the project, periodic maintenance works were completed on 661 km of roads\. Performance Based Maintenance was successfully piloted on 114 km of Naryanghat-Butwal road and two more contracts on Fuljore-Pathlaiya and Pathlaiya-Chaurhwa roads (150 km, total) are ongoing, for which GoN will be using its own resources for three more years after project completion\. As agreed during the first restructuring, this component also financed regular maintenance of strategic roads from FY2003 through FY2006 on a declining basis\. (e) Community Road Works\. This component was added during the second restructuring in 2004\. 36 km (against the original target of 45 km) of the Jumla-Kalikot dry-weather road was constructed through employment of local communities in Kalikot district\. Due to the security situation in the district, the construction of the remaining 9 km stretch was completed by the Nepal Army under public sector financing\. 22  (f) Emergency Repair of Flood Damaged Roads\. This component was added during the second restructuring in 2004\. It supported emergency repairing of 36 km of roads damaged during the 2003 monsoon\. (g) Institutional Strengthening Component\. The activities planned under this component have been completed, including additional activities for the modernization of DoR to ensure improved service delivery in various DoR's core and supporting functions and operation in a corporate manner\. The component supported the development and application of the: (i) PIP prioritizing construction, upgrading, rehabilitation and periodic maintenance works for Nepal's SRN for 2007-2016, which has been approved by the National Planning Commission; (ii) Institutional Strengthening and Organizational Reform Action Plan for 2007-2016, which outlines an overarching institutional reform framework for the evolution of DoR towards the National Road Authority in the next 10 years; (iii) Institutional Position Paper for SRN Planning and Asset Management for 10 years; (iv) DoR HRD policy and strategy; (v) staff development and training plans; (vi) ESMF, which is being mainstreamed in DoR's road projects; and (vii) Quality Assurance System\. These documents have been extensively followed for the preparation of the Bank-financed RSDP which was appraised and negotiated in September 2007 and approved in December 2007\. Training in contract and arbitration management, EMAPs, bio-engineering, procurement, financial management, performance-based contracting of road maintenance and other topics has been delivered\. External training was avoided due to a change in the Foreign Aid Policy of not using Credit funds for external training\. Assessments of the Management Information System (MIS)/IT needs of DoR have been conducted and capacity has been built in legal aspects and monitoring and evaluation\. The Road Sector Skill Development Unit staff members have been trained in various aspects of training management\. Support has been provided to GESU to revise its guidelines for social and environmental safeguard requirements and Mechanical Training Centre to sustain its training capabilities through a more commercialized approach\. Awareness has been created on the necessity of these units to provide professional services but units are facing the problems of frequent staff transfers, lack of service demand from other units and lack of adequate budget and other resource allocations\. The institutionalization of recommended activities and practices still requires further effort for improvement, which will be supported under the follow-up RSDP\. The component supported the preparation of many technical handbooks, design guidelines and standards, which are being finalized and will shortly be widely distributed for actual implementation\. Most of these documents are already available with DoR in the final digital form\. (h) DoR has made significant improvements in its IT capacity through development, use and training of its staff in the application of 16 computer information systems\. These information systems have not been simply developed and installed but are being used by DoR in planning and management activities\. The maintenance strategy was developed based on the analysis of the existing and committed SRN using the HDM-IV model, which enabled DoR to assess and evaluate alternative scenarios and determine the optimal approach\. FMIS introduced at the central level of DoR has replaced a manual system and allowed shifting the focus from manual to computerized transactions and enables timely and accurate financial management and reporting\. It is to be expanded to field divisions under the follow-up project\. Other information systems that have been developed, introduced and are being applied by DoR\. These include: road network database, asset management, program and budget, road related law database, procurement management, dispute resolution, personnel management, land compensation and others\. 23  Table 5\. Physical Outputs of RMDP: Original and Revised Targets, and Actual Achievements Component Original targets Revised targets 1st Restructuring 2nd Restructuring Actual achievements NRDUC (a) construction (a) construction of 50 (a) construction of 50 (a) constructed 106 km of 197 km of dry- km of dry-weather km of dry-weather of dry-weather roads\. weather roads\. roads\. roads\. (b) 213 km of earth (b) upgrading of (b) upgrading of 200 (b) upgrading of 213 km roads upgraded to 253 km of earth km of earth roads to of earth roads to gravel gravel standards\. roads to gravel gravel standards\. standards\. standards\. Rehabilitation (a) rehabilitation (a) rehabilitation of (a) rehabilitation of 248 (a) rehabilitated 248 of 160 km of 228 km of SRN\. km of SRN\. km of SRN\. SRN\. (b) upgrading of 144 (b) upgrading of 141 km (b) 141 km of km of rehabilitated of rehabilitated gravel rehabilitated gravel gravel roads with otta roads with otta seal\. roads upgraded with seal\. (c) upgrading of 125 km otta seal\. of gravel roads to (c) 111 km of gravel bituminous standards\. roads upgraded to bituminous standards (14 km is incomplete due to the contractor's poor performance)\. Periodic (a) periodic (a) periodic (a) periodic (a) periodic Maintenance maintenance of maintenance of 650 maintenance of 676 km maintenance of 661 km 470 km of SRN\. km of SRN\. of SRN\. of SRN (delay of (b) support of (b) support of routine, construction of 15 km routine, regular and regular and emergency due to the intensified emergency maintenance for 2,700 conflict in the terai)\. maintenance for km of SRN in FY2002- (b) support of routine, 2,700 km of SRN in 2003 and 1,500 km in regular and emergency FY2002-2003 and FY2003-2004\. maintenance for 2,700 1,500 km in FY2003- (c) performance-based km of SRN in FY2002- 2004\. maintenance of 114 km 2003 and 1,500 km in of SRN and additional FY2003-2004\. 150 km of SRN with (c) completed GON's own financing performance-based for 3 years after the maintenance of 114 km project closure\. of SRN and on-going performance-based maintenance of 150 km by GON\. Community Construction of 45 km Constructed 36 km Works through employment of through employment of local communities\. local communities (the remaining 9 km stretch was constructed by the Nepal Army)\. Emergency Emergency repairing of Repaired 36 km of repairs of flood- 36 km of flood damaged flood damaged roads\. damaged roads roads\. 24  ANNEX 3\. ECONOMIC AND FINANCIAL ANALYSIS Background 1\. At project preparation economic analyses were undertaken for the three different civil works components of the project\. For new road construction and upgrading component the analysis was based on the "Nepal: Road Maintenance and Development Project: Final Report - Economic Aspects" of June 1999\. This utilized a producer surplus methodology for evaluation of benefits\. For the road rehabilitation component a feasibility update was carried out during April-July 1999 following the earlier feasibility studies completed in 1996/1997 using HDM-III\. Similarly, for the periodic maintenance component, a network-based prioritization exercise was conducted by DOR which gave rise to a prioritized resealing program for DoR's paved SRN\. The feasibility study of the periodic maintenance component was based on the "Strategic Road Network Resealing Program for RMDP" dated November 24, 1998\. The latter also utilized HDM-III for the economic evaluation\. 2\. The ERR for the project given in the PAD was 28\.2%\. However, direct comparison between the analysis completed at appraisal and the completed project is not possible owing to the major change in project which included not only physical location but also levels of intervention and technology employed\. The section below outlines the ex-post analysis and the assumptions employed\. Ex-post Economic Evaluation 3\. The ex-post economic evaluation was carried out using the Highway Development and Management Model (HDM-IV) Version 2\.0 that estimates project benefits in terms of reduction in road user costs (vehicle operating costs plus passenger time costs)\. The table below presents the representative vehicle fleet basic characteristics adopted on the economic evaluation\. Table 6 Vehicle Fleet Economic Unit Costs and Basic Characteristics Micro Small Medium Light Medium Heavy Motorcycle Car Pickup Bus Bus Bus Truck Truck Truck Economic Unit Costs New Vehicle Cost (US$/vehicle) 1,005 7,543 8,957 13,197 19,200 22,000 15,733 18,533 24,267 New Tire Cost (US$/tire) 10\.27 29\.47 74\.27 58\.53 85\.20 157\.60 79\.60 156\.53 194\.93 Fuel Cost (US$/liter) 0\.63 0\.63 0\.65 0\.51 0\.65 0\.65 0\.65 0\.65 0\.65 Lubricant Cost (US$/liter) 1\.33 1\.33 1\.33 1\.33 1\.33 1\.33 1\.33 1\.33 1\.33 Maintenance Labor Cost (US$/hour) 0\.40 0\.40 0\.40 0\.40 0\.40 0\.40 0\.40 0\.40 0\.40 Crew Cost (US$/hour) 0\.00 0\.25 0\.36 0\.70 0\.80 0\.75 0\.60 0\.70 0\.70 Overhead (US$) 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 Interest Rate (%) 2\.4 2\.4 6 7\.2 7\.2 7\.2 6 6 6 Working Passenger Time (US$/hour) 0\.16 0\.16 0\.16 0\.16 0\.16 0\.16 0\.16 0\.16 0\.16 Non-working Passenger Time (US$/hour) 0\.16 0\.16 0\.16 0\.16 0\.16 0\.16 0\.16 0\.16 0\.16 Cargo Delay (US$/hour) 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 0\.00 Utilization and Loading Kilometers Driven per Year (km) 10000 20000 30000 50000 50000 80000 30000 40000 60000 Hours Driven per Year (hr) 400 550 1000 2400 2400 2800 1300 1800 2500 Service Life (years) 10 14 12 10 10 12 10 10 10 Percent of Time for Private Use (%) 100 50 20 0 0 0 0 0 0 Number of Passengers 1\.5 3 2 10 28 45 0 0 0 Work Related passenger Trips (%) 5 30 50 5 5 5 0 0 0 Gross Vehicle Weight (tons) 0\.20 0\.80 1\.50 2\.00 6\.00 9\.50 6\.00 12\.50 22\.50 ESA Loading Factor 0\.00 0\.00 0\.01 0\.01 0\.07 0\.33 0\.17 4\.00 14\.00 Traffic Growth Rate Annual Normal Traffic Growth Rate (%) 7% 7% 7% 7% 7% 7% 5% 5% 5% 25  4\. The annual traffic growth rate of 5% for trucks and 7% for buses and cars was estimated based on Sector Wide Road Project (SWRP), Priority Investment Plan (PIP) ­ Final Report, 2007\. The following table presents the resulting typical unit road user costs for a road on hilly terrain and different roughness levels\. Table 7 Typical Unit Road User Costs per Roughness Level for Hilly Terrain (US$ per vehicle-km) Roughness Micro Small Medium Light Medium Heavy (IRI) Motorcycle Car Pickup Bus Bus Bus Truck Truck Truck 2 0\.032 0\.130 0\.165 0\.213 0\.503 0\.581 0\.269 0\.467 0\.719 4 0\.032 0\.134 0\.171 0\.218 0\.515 0\.595 0\.278 0\.478 0\.734 6 0\.035 0\.144 0\.183 0\.229 0\.535 0\.602 0\.296 0\.496 0\.759 8 0\.038 0\.156 0\.196 0\.231 0\.558 0\.636 0\.317 0\.514 0\.782 10 0\.041 0\.169 0\.210 0\.247 0\.580 0\.673 0\.334 0\.532 0\.802 12 0\.044 0\.182 0\.224 0\.264 0\.595 0\.714 0\.347 0\.548 0\.823 14 0\.047 0\.196 0\.238 0\.281 0\.607 0\.754 0\.361 0\.564 0\.842 16 0\.048 0\.205 0\.246 0\.298 0\.618 0\.773 0\.373 0\.578 0\.860 5\. The following table presents the typical unit road user costs composition for a road on hilly terrain with a roughness equal to 4 IRI, m/km representing the condition of the project roads after rehabilitation or improvement\. Table 8 Typical Unit Road User Costs Composition for Hilly Terrain and Roughness 4\.0 IRI (US$ per vehicle-km) Micro Small Medium Light Medium Heavy Motorcycle Car Pickup Bus Bus Bus Truck Truck Truck Fuel and Oil 0\.013 0\.067 0\.089 0\.069 0\.206 0\.251 0\.152 0\.314 0\.535 Tires 0\.001 0\.004 0\.011 0\.008 0\.030 0\.033 0\.018 0\.041 0\.060 Parts and Labor 0\.002 0\.019 0\.024 0\.039 0\.038 0\.034 0\.029 0\.044 0\.067 Depreciation and Interest 0\.009 0\.027 0\.029 0\.029 0\.043 0\.028 0\.057 0\.050 0\.044 Crew Time 0\.000 0\.003 0\.009 0\.022 0\.030 0\.023 0\.022 0\.028 0\.029 Overhead 0\.000 0\.000 0\.000 0\.000 0\.000 0\.000 0\.000 0\.000 0\.000 Passenger and Cargo Time 0\.007 0\.013 0\.009 0\.051 0\.168 0\.225 0\.000 0\.000 0\.000 Total 0\.032 0\.134 0\.171 0\.218 0\.515 0\.595 0\.278 0\.478 0\.734 6\. The economic evaluation considered the rehabilitation, upgrading or periodic maintenance of 1,073 kilometers of roads with a total investment of 2,148 million rupees equivalent to US$28\.6 million, at an exchange rate of 75 rupees per dollar representing the average exchange rate during the project period (2000-2006)3\. Table 9 below presents the road works evaluated with HDM-IV\. 3 Source: Development Data Platform, World Bank\. 26  Table 9 Road Works Evaluated with HDM-4 Length Average Financial Cost (km) (Million Rs) (Million Rs/km) (Million US$) (US$/km) Rehabilitation 202 745\.9 3\.693 9\.9 49,235 Upgrading 332 975\.9 2\.943 13\.0 39,241 Periodic Maintenance 540 425\.9 0\.789 5\.7 10,521 Total 1,073 2,147\.7 2\.001 28\.6 26,678 7\. The table below presents the average condition and traffic characteristics in 2001 of the links evaluated with HDM-IV\. The traffic was obtained from classified manual traffic counts on SRN carried out by DoR annually\. The heavy vehicles percentage represents the percentage of buses and trucks within the daily traffic\. The roughness was estimated using a Transport Research Laboratory Bump integrator as part of the annual surface distress and road roughness surveys on SRN conducted by DoR\. Table 10 Average Link Condition and Traffic Characteristics in 2001 Link Length Width Roughness Traffic Heavy Program Name (km) (m) (IRI) (AADT) Vehicles (%) Rehabilitation Lumbini - Taulihawa 17 3\.7 12\.0 458 73% Tribhuvan Rajpath 37 4\.5 10\.4 242 78% Narayanghat - Mugling 36 7\.0 12\.0 3,245 86% Siddartha Rajmarg 111 6\.3 7\.7 549 62% Total 202 5\.8 10\.0 967 81% Upgrading Bartung - Tansen - Ridi - Tamghas 80 4\.4 10\.4 257 24% Silgadi - Sanfe Bagar 67 3\.9 16\.0 68 63% Mirchiya (MRM)-Katari-Okhaldhunga-Salleri 115 3\.9 20\.0 165 67% Mahakali Rajmarg 69 5\.1 16\.0 96 65% Total 332 4\.2 16\.0 153 47% Periodic Maintenance Pokhara - Baglung - Beni 68 4\.9 6\.6 1,251 56% Mahendra- Rajmarg 351 6\.4 6\.2 1,455 81% Prithvi Rajmarg 17 6\.0 5\.2 1,104 73% Siddartha Rajmarg 24 7\.3 7\.6 3,298 67% Mahakali Rajmarg 15 7\.0 7\.0 1,114 70% Seti Rajmarg 66 5\.0 8\.0 220 63% Total 540 6\.1 6\.5 1,341 69% 8\. The table below presents the average financial road works unit costs per link\. Rehabilitation works represent rehabilitating paved roads with double surface dressings (US$49,200 per km)\. Upgrading costs represent paving unsealed roads with Otta Seal (US$39,200 per km)\. Periodic maintenance works represent sealing the roads with single surface dressing (US$10,500 per km)\. These costs were computed based on the contract values of works of each contract (actual costs)\. Economic costs were computed by multiplying the financial costs by 0\.92 as done in SWRP, PIP Study\. The evaluation assumed that, after the initial investment, the roads will be maintained with a reseal every six years\. The base alternative considered a do-minimum scenario that includes routine maintenance and rehabilitation when the roads reach 12 IRI\. 27  Table 11 Average Unit Costs of Road Works Link Average Financial Cost Program Name (Million Rs) (Million Rs/km) (Million US$) (US$/km) Rehabilitation Lumbini - Taulihawa 33\.7 1\.965 0\.4 26,196 Tribhuvan Rajpath 88\.7 2\.369 1\.2 31,589 Narayanghat - Mugling 253\.1 7\.000 3\.4 93,333 Siddartha Rajmarg 370\.4 3\.329 4\.9 44,388 Total 745\.9 3\.693 9\.9 49,235 Upgrading Bartung - Tansen - Ridi - Tamghas 362\.5 4\.520 4\.8 60,267 Silgadi - Sanfe Bagar 163\.5 2\.440 2\.2 32,533 Mirchiya (MRM)-Katari-Okhaldhunga-Salleri 280\.6 2\.440 3\.7 32,533 Mahakali Rajmarg 169\.3 2\.440 2\.3 32,533 Total 975\.9 2\.943 13\.0 39,241 Periodic Maintenance Pokhara - Baglung - Beni 53\.6 0\.790 0\.7 10,530 Mahendra- Rajmarg 289\.8 0\.827 3\.9 11,021 Prithvi Rajmarg 12\.9 0\.774 0\.2 10,320 Siddartha Rajmarg 22\.8 0\.946 0\.3 12,620 Mahakali Rajmarg 13\.1 0\.903 0\.2 12,040 Seti Rajmarg 33\.6 0\.510 0\.4 6,800 Total 425\.9 0\.789 5\.7 10,521 9\. Table 12 presents the economic evaluation results per link, program and for the overall project, considering a 20 year evaluation period\. The overall project has an Internal Rate of Return (IRR) of 46% and a Net Present Value (NPV), at 12% discount rate, of US$49\.2 million\. Table 12 Economic Evaluation Net Present Value and Internal Rate of Return Link NPV NPV IRR Program Name (Million Rs) (Million US$) (%) Rehabilitation Lumbini - Taulihawa 20 0\.3 69% Tribhuvan Rajpath 143 1\.9 30% Narayanghat - Mugling 371 5\.0 > 100% Siddartha Rajmarg 139 1\.9 21% Total 673 9\.0 68% Upgrading Bartung - Tansen - Ridi - Tamghas 148 2\.0 21% Silgadi - Sanfe Bagar 44 0\.6 18% Mirchiya (MRM)-Katari-Okhaldhunga-Salleri 549 7\.3 48% Mahakali Rajmarg 100 1\.3 24% Total 841 11\.2 29% Periodic Maintenance Pokhara - Baglung - Beni 153 2\.0 28% Mahendra- Rajmarg 1,463 19\.5 40% Prithvi Rajmarg 2 0\.0 13% Siddartha Rajmarg 534 7\.1 93% Mahakali Rajmarg 28 0\.4 36% Seti Rajmarg -3 0\.0 11% Total 2,176 29\.0 39% Total 3,690 49\.2 46% 28  ANNEX 4\. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION PROCESSES (a) Task Team members Names Title Unit Responsibility/Specialty Lending Juan Gaviria Sr\. Transport Specialist LCSSD Task Team Leader till October 2000 Narayan D\. Sharma Consultant SASDT Procurement Chris Hoban Principal Highway Engineer EACPF Highway Engineer Guang Z\. Chen Transport Economist SASDT Transport Economist Surendra G\. Joshi Sr\. Transport Specialist SASDT Transport Specialist Dieter Schelling Lead Transport Specialist AFTTR Rural Road Advisor Sonia Kapoor Sr\. Environmental Specialist SASDN Environmental Engineer Malcolm Jansen Sr\. Environmental Specialist SASDN Environment Hiroko Imamura Senior Counsel LEGES Lawyer Ayse Kudat Consultant ECSSD Social Dev\. Advisor Robert J\. Saum Manager SARFM Financial Management Zarafshan H\. Khawaja Sr\. Social Development Specialist OPCQC Social Development Bigyan Pradhan Sr\. Financial Mgmt\./Operations SARFM Financial Management Specialist Johana Thapa Program Assistant CCGPP Team Assistant Anita Shrestha Team Assistant EAPCO Procurement Assistant Supervision/ICR Guang Z\. Chen Sector Manager, Transport SASDT Sector Manager, Transport Asif Faiz Operations Adviser AFMSD Task Team Leader till December 2001 Surendra Govinda Joshi Sr\. Transport Specialist SASDT Task Team Leader till June 30, 2007 Drona Raj Ghimire Consultant SASES Environment and Social Sunita Gurung Program Assistant SASDO Assistant Ernst-August Huning Consultant SASEI Institutional Development Marianne Kilpatrick Sr\. Transport\. Specialist SASDT ICR Task Team Leader Nagendra Nakarmi Sr\. Program Assistant SARFM Financial Management Ishwor Neupane Consultant SASDT Environment Bigyan B\. Pradhan Sr\. Financial Management/ Operations Specialist SARFM Financial Management Binyam Reja Sr\. Transport\. Econ\. SASDT Transport Economist Johana Shah Program Assistant CCGPP Assistant Narayan D\. Sharma Consultant SASDT Procurement Neena Shrestha Program Assistant SARPS Procurement Assistant Silva Shrestha Research Analyst SASDE Operations Analyst Bhushan Tuladhar Consultant SASDT Environment Natalya Stankevich Operations Analyst SASDT ICR Author 29  (b) Ratings of Project Performance in ISRs No\. Date ISR Archived IP DO Actual Disbursements (USD m - Cumulative) 1 03/16/2000 Satisfactory Satisfactory 0\.0 2 06/26/2000 Satisfactory Satisfactory 2\.05 3 12/22/2000 Satisfactory Satisfactory 3\.19 4 06/26/2001 Satisfactory Satisfactory 5\.79 5 12/31/2001 Satisfactory Satisfactory 10\.66 6 01/10/2002 Unsatisfactory Satisfactory 10\.89 7 07/18/2002 Unsatisfactory Unsatisfactory 14\.96 8 01/15/2003 Unsatisfactory Unsatisfactory 17\.98 9 07/14/2003 Unsatisfactory Satisfactory 20\.73 10 01/15/2004 Unsatisfactory Unsatisfactory 24\.32 11 06/16/2004 Satisfactory Satisfactory 26\.06 12 12/29/2004 Satisfactory Satisfactory 29\.15 13 06/20/2005 Satisfactory Satisfactory 33\.73 14 12/30/2005 Satisfactory Satisfactory 39\.66 15 06/26/2006 Satisfactory Moderately Satisfactory 43\.77 16 12/29/2006 Satisfactory Moderately Satisfactory 49\.02 17 06/22/2007 Satisfactory Moderately Satisfactory 51\.90 (c) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle No\. of staff weeks USD Thousands (including travel and consultant costs) Lending FY96 14\.74 FY97 18\.95 FY98 61\.04 FY99 145\.84 FY00 45 93\.71 Total 45 334\.28 Supervision/ICR FY97 2\.14 FY00 39 57\.41 FY01 38 41\.70 FY02 28 34\.18 FY03 28 72\.79 FY04 33 91\.45 FY05 28 61\.45 FY06 33 43\.73 FY07 36 92\.90 FY08* 13 33\.74 Total 276 531\.49 * As of December 18, 2007\. 30  ANNEX 5\. BENEFICIARY SURVEY RESULTS 1\. The project conducted a monitoring and evaluation survey on sample roads to determine impacts of: (i) roads rehabilitated or upgraded to higher standards; and (ii) roads constructed by local communities on the beneficiaries\. Because surveys were carried out by different consultants, some of them were inconsistent in terms of collecting data for the identified indicators\. Thus, the data for some indicators are missing\. The final results of the surveys are given below\. Results of beneficiary survey on roads rehabilitated or upgraded to higher standards 2\. The project benefit monitoring and evaluation surveys covered the following roads: (i) Bartung ­ Syangja, rehabilitated; (ii) Harthok ­ Tamghas, upgraded from earth to gravel standard; (iii) Kothi - Taulihawa, upgraded from gravel to bituminous standard; and (iv) Gorushinghe-Sandhikhara, upgraded to bituminous standard by applying otta seal technology\. 3\. The main impacts the rehabilitated and upgraded roads have brought upon the beneficiaries include the following: Growth of Annual Average Daily Traffic (AADT)\. As it is seen from the table below, AADT has significantly increased compared to the pre-project situation, in particular on those which were upgraded from gravel to bitumen standard\. Traffic volumes have grown due to increased mobility of labor force, transportation of crops and increase in other activities stimulated by the improved road accessibility\. Table 13\. Increase in AADT on select project roads compared to the pre-project situation Roads Car Utility vehicle Bus Truck Mini truck Average Harthok ­ Tamghas (gravel) N/A 28% 26% 24% 0% 27% Kothi ­ Taulihawa (bituminous) 171% -66% 21% 63% 660% 62% Gorushinghe-Sandhikhara (bituminous) N/A 173% 56% 106% 100% 112% Note: N/A- data is not available Changes in Passenger Fares and Freight Rates\. As the table below depicts, there have been consistent decreases in freight rates but various changes in passenger fares on these roads compared to the pre-project situation\. Although there is a relationship between fares, rates and improved road conditions, there are also other factors influencing changes in fares and rates\. The Department of Transport Management (DoTM) of the Ministry of Labor and Transport typically regulates fares to reflect increases in fuel prices but operators have themselves increased fares far above those set by DoTM\. In the ease of freight, increased competition between trucks and mini- trucks has led to the decline in rates\. Therefore, it is difficult to determine how much changes in passenger fares and freight rates are due to improved road accessibility\. Table 14\. Changes in passenger fares for bus and freight rates on select project roads compared to the pre- project situation, % Roads Passenger fare Freight rates Bartung ­ Syangja (rehabilitated) +14% - 130% Harthok ­ Tamghas (gravel) - 3% - 62% Kothi ­ Taulihawa (bituminous) 0% - 40% Gorushinghe-Sandhikhara (bituminous) - 31% - 66% 4\. Only the survey on Gorushinghe-Sandhikhara focused on collecting the data on travel time, prices for commodities and education situation\. It revealed the following: 31  Dramatic Reduction in Travel Time\. Travel time by bus from Sandhikhara to Gorushinghe has been reduced from 8 to 3\.5 hours\. Growth of Food Supply and Decline in Prices for Commodities\. Supplies of food have increased while prices have declined\. After the condition of this road was improved supplies of food and other merchandize have grown in the area as many new businesses and shops have opened\. Improved food security has saved time for the residents who do not need to queue to get rice or other food from rationing at the district headquarters\. Prices for many commodities have declined, e\.g\., by 29% for rice, 28% for flour, 25% for sugar, 12\.5% for cooking oil, 17% for vegetable ghee as well as for construction materials, e\.g\., 46% for cement, 22% for corrugated galvanized iron sheet and 21% for reinforcement bar\. However, it is unclear whether the decline in commodity prices can solely be attributed to the improvement in the road condition, as other factors, e\.g\., price regulation or market forces may have also influenced the decline in prices for commodities, but were not captured in the monitoring and evaluation survey\. Increase in school enrolment\. The improved accessibility along Gorushinghe-Sandhikhara road corridor contributed to the growth of schools (from 788 to 1,200) and a subsequent increase in school enrolment by 42%\. The project area has recorded an increase in literacy rate by 51% from 1998 to 2005\. Especially, significant improvements have been noticed among the female population: 59% increase in school enrollment and 41% increase in literacy rate\. Table 15\. Education Situation Along the Gorushinghe ­ Sandhikhara Road Corridor Yr 1998 Yr 2005 Increase, % Literacy rate, % 41\.11 61\.98 51 Male 61\.49 74\.34 21 Female 35\.90 51\.15 42 Schools, number 788 1,200 52 Primary 576 884 53 Lower-secondary 128 157 23 Secondary 84 159 89 School enrolment, number 118,496 167,507 41 Boys 70,575 91,287 29 Girls 47,921 76,220 59 Results of Beneficiary Survey on Roads Built by Local Communities Generation of Employment\. The community works component, which was added during the formal restructuring in 2004, supported the generation of employment through involvement of the local people from lower social and economic strata in the construction of 36-km Jumla feeder road in Kalikot district\. As a result, 73 community-based organizations were formed, which employed as semi-skilled and unskilled laborers, about 130,000 local men and women from Dalits and indigenous groups living along this road corridor\. Improved Health Care Practices by the Local Residents\. As communication has expanded outside their communities, people have increased awareness of hygiene and sanitation\. Thanks to the availability of transport services, visits to health centers and health posts have become more frequent, reduced prices for soap and other sanitary products have encouraged greater use; and more households have sanitation\. Increased Use of Modern Technologies\. The new road has also contributed to improvement in the living standards of those who built it\. New houses have emerged along the road corridor; the local people have installed solar power technology in their homes and now have electricity to run radio and television\. 32  ANNEX 6\. STAKEHOLDER WORKSHOP REPORT AND RESULTS (if any) NOT APPLICABLE\. 33  ANNEX 7\. SUMMARY OF BORROWER'S ICR AND/OR COMMENTS ON DRAFT ICR 1\. The Borrower has prepared an ICR on the implementation and achievements of RMDP\. The summary is given below; the full report is available in the project file\. 2\. The ICR provides an overview of the project components and scope, two project restructurings and their reasons, major achievements and outputs in each component\. Since these Borrower's findings related to the above mentioned subjects have been found similar to the ones in the Bank's ICR, they are not included in the summary\. The summary covers only those issues and aspects of the project which were either not discussed in the Bank's ICR or on which the Borrower has a different opinion\. Environmental and Social Aspects 3\. The Borrower indicates that implementation of EMAP was one of the problems at the start of the project but later was improved\. The following are identified as obstacles to EMAP implementation, which DoR will take into consideration in future: Consideration of EMAP requirements by contractors as an impediment to making progress in civil works and their reluctance to follow EMAP; Contractors' and subcontractors' lack of knowledge on EMAP concept; Lack of proper sequencing of road construction activities leading not only duplication of construction efforts but also contributing to environmental damage; Unavailability of adequate equipment for contractors to carry out the haulage of soil disposal; and Lack of awareness among the local communities and project affected people regarding adverse environmental impacts of construction activities\. 4\. Based on the gained experience, the Borrower has found that (i) withholding of and payment deduction effectively motivate contractors in EMAP compliance; and (ii) site specific training and workshops to the workers and group leaders for community-based organizations are an efficient means of building knowledge on bio-engineering works\. The following recommendations are proposed for more effective implementation of EMAP in future: Include EMAP related costs in the schedule of rates; Request contractors to include EMAP associated costs in their bids to ensure EMAP compliance during contract execution; Determine a measurable indicator for EMAP compliance and include it in the contract in order to create a monetary incentive for contractors to ensure adequate implementation of EMAP; Provide continuous guidance to the local construction industry on the application of environmental friendly construction practices; and Create better understanding on EMAP compliance and build awareness among Labor Gang Leaders, Supervisors, and Equipment Operators regarding environmental impact of road construction\. 5\. The Borrower notes significant progress in social safeguard implementation\. Prior to RMDP, RAP had not been implemented in DoR's projects to such an extent\. The main accomplishment is involvement of a large number of stakeholders, including government agencies, local communities, NGOs, etc\. in the consultations on implementation of RAP\. 34  Factors Affecting Project Implementation 6\. The following were found as key factors influencing project implementation: Lack of vehicular access to new road construction sites; Strikes and blockades; Unsafe travel and access to sites; No communication at sites; No medical or emergency evacuation facilities at or near new road construction sites; Lack of the local labor; Delay in the provision of explosives and security; Limited food supplies in some areas; Restriction on transportation of materials; and Contractors' disregard of EMAP requirements\. Main Lessons Learned 7\. The Borrower identifies the following as main lessons learned during project preparation and implementation: Bids should not be let out based exclusively on preliminary design in order to avoid possible large variances in future; Sufficient time should be allocated for survey, design and land acquisition; Provision of seismic tests to determine the depth of the rock below the ground level can be of assistance to narrow down variances in the quantity of the rock; A short-term contract should include a provision regarding price adjustments; and Otta seal surfacing is good for roads in the plain area and for roads with low volume traffic subject to adequate water management in the hill areas, while it is not suitable for hill roads with sharp turning\. 35  ANNEX 8\. COMMENTS OF COFINANCIERS AND OTHER PARTNERS/STAKEHOLDERS Not Applicable\. 36  ANNEX 9\. LIST OF SUPPORTING DOCUMENTS Aide Memoires, preparation missions for the Road Maintenance and Development Project in Nepal, World Bank, 1997-1999\. Aide Memoires, supervision missions for the Road Maintenance and Development Project in Nepal, World Bank, 1999-2007\. Amendment to the Development Credit Agreement, Road Maintenance and Development Project, World Bank, February 4, 2003\. Amendment to the Development Credit Agreement, Road Maintenance and Development Project, World Bank, April 5, 2004\. Development Credit Agreement (Road Maintenance and Development project) between Kingdom of Nepal and International Development Association, December 22, 1999\. Mid-term Review Report, Road Maintenance and Development Project, World Bank, November 25-29, 2002\. Fifth Medium Term Expenditure Framework (MTEF ­ V), Fiscal Year 2006/07 ­ 2008/09, Roads\. Government of Nepal, National Planning Commission Secretariat, Ministry of Physical Planning and Works, July 2006\. Medium Term Expenditure Framework: 3\.1 Road Sector, Fiscal Year 2002/03-2004/05\. His Majesty's Government of Nepal, National Planning Commission, Kathmandu, Nepal, August 9, 2002\. Ministry of Physical Planning and Works\. Implementation Completion Report: Road Maintenance and Development Project, IDA Cr\.3293-NEP\. Department of Roads\. Kathmandu, Nepal, August 2007\. Nepal Country Assistance Strategy during 2004-2007, World Bank, November 24, 2003\. Nepal Country Assistance Strategy during 1999-2002, World Bank, November 17, 1998\. Project Appraisal Document on a Proposed Credit in the Amount of SDR 40\.1 Million to the Kingdom of Nepal for a Road Maintenance and Development Project, World Bank, September 24, 1999\. Project Benefit Monitoring and Evaluation Report: Gorusinghe ­ Sandhikharka Road\. Government of Nepal, Ministry of Physical Planning and Works, Department of Roads\. February 2004\. Project Benefit Monitoring and Evaluation Report: Tansen (Bartung) ­ Syangja Road, Lumbini (Kothi) ­ Taulihawa Road, Tansen (Harthok) Tamghas Road\. His Majesty's Government of Nepal, Ministry of Physical Planning and Works, Department of Roads, March 2007\. Project Status/Implementation Status Reports, World Bank, 1999-2007\. Quality at Entry Assessment III Report (QEA3), World Bank, January 2000\. Quality of Supervision Assessment VI Report (QSA6), World Bank, August 23, 2004\. Roads Board Nepal Performance Assessment Note, World Bank, January 25, 2006\. Sector Wide Road Programme and Priority Investment Plan for the Road Sector, Government of Nepal, Ministry of Physical Planning and Works, Department of Roads, April 2007\. The Tenth Plan (Poverty Reduction Strategy paper), 2002-2007\. His Majesty's Government of Nepal, National Planning Commission, Kathmandu, Nepal, May 2003\. 37  MAP 38

REVIEW

P095840

Document of The World Bank Report No: ICR00001255 IMPLEMENTATION COMPLETION AND RESULTS REPORT Loan No\. 7444-MOR ON A LOAN IN THE AMOUNT OF US$100 MILLION EQUIVALENT (EUR 76\.2 MILLION) TO THE KINGDOM OF MOROCCO FOR A WATER SECTOR POLICY DEVELOPMENT LOAN October 30, 2009 Sustainable Development Department Middle East and North Africa Region  CURRENCY EQUIVALENTS (Exchange Rate Effective October 28, 2009) Currency Unit = Morocco Dirham 1\.00 MAD = US$0\.12 US$1\.00 = 7\.72 MAD FISCAL YEAR ABBREVIATIONS AND ACRONYMS AFD Agence Française de MAEG Ministry of Economic and General Développement Affairs AfDB African Development Bank MATEE Ministry of Regional Planning, Water and Environment (Ministère de l'Aménagement du Territoire, de l'Eau et de l'Environnement) CAS Country Assistance Strategy MDH Million Moroccan Dirham MEMEE Ministry of Energy, Mines, and Water and Environment (Ministère de l'Energie, des Mines, de l'Eau et de l'Environnement) CFAA Country Financial Accountability MFP Ministry of Finance and Privatization Assessment CIE Interministerial Water MI Ministry of Interior Commission (Commission Interministerielle de l'Eau) CSEC High Council on Water and MTEF Medium Term Expenditure Climate (Conseil Supérieur de Framework l'Eau et du Climat) (Cadre de dépenses à moyen terme) CPCSEC Permanent committee of the NIWCP National irrigation water conservation CSEC (Comité Permanent du plan CSEC) CWF Commissariat for Water and NPWC National plan for watershed Forestry (Haut Commissariat aux conservation Eaux et Forêts et de Lutte Contre la Désertification, HCEFLCD) DPL Development Policy Loan (Prêt NRW Non Revenue Water de Politique de Développement, PPD) EIB European Investment Bank OBA Output Based Aid EU European Union ONE National Electricity Board (Office National d'Electricité) GDP Gross Domestic Product ONEP National Water Supply Board (Office National de l'Eau Potable) GFMIS Government financial ORMVA Regional Irrigation Agency (Office management information system régional de mise en valeur agricole) GOM Government of Morocco PER Public Expenditure Review IBRD International Bank for PDAIRE Water Basin Plan Reconstruction and Development IMF International Monetary Fund PESW Programmatic economic sector work (Programme d'Appui Pluriannuel, PAP) INDH National Human Development PM Prime Minister Initiative (Initiative nationale de développement humain) IWRM Integrated water resources NSP National Sanitation Program management (Programme National d'Assainissement) JBIC Japanese Bank for International PNE National water masterplan (Plan Cooperation National de l'Eau) KFW Kreditanstalt für Wiederaufbau PSP Private sector partnership LDP Letter of Development Policy RBA River Basin Agency (Agence de Bassin Hydraulique, ABH) LSI Large scale irrigation RWS Rural water supply MAD Moroccan Dirham SEE State Secretariat in charge of water (Secrétariat d'Etat chargé de l'Eau) MADRPM Ministry of Agriculture, Rural SEEE State Secretariat in charge of water Development and Fisheries and environment (Secrétariat d'Etat chargé de l'Eau et de l'Environnement) MAPM Ministry of Agriculture and WSS Water supply and sanitation Fisheries Vice President: Shamshad Akhtar Country Director: Mats Karlsson Sector Manager: Francis Ato Brown Task Team Leader: Pier Francesco Mantovani ICR Team Leader: Alexander Bakalian  THE KINGDOM OF MOROCCO WATER SECTOR POLICY DEVELOPMENT LOAN CONTENTS Data Sheet A\. Basic Information B\. Key Dates C\. Ratings Summary D\. Sector and Theme Codes E\. Bank Staff F\. Results Framework Analysis G\. Ratings of Program Performance in ISRs H\. Restructuring 1\. Program Context, Development Objectives and Design\. 1 2\. Key Factors Affecting Implementation and Outcomes \. 8 3\. Assessment of Outcomes \. 14 4\. Assessment of Risk to Development Outcome \. 24 5\. Assessment of Bank and Borrower Performance \. 24 6\. Lessons Learned\. 29 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners\. 30 Annex 1\. Bank Lending and Implementation Support/Supervision Processes\. 31 Annex 2\. Government's Reform Program in 2006 \. 33 Annex 3\. ICR Results Matrix for the Morocco Water Sector DPL \. 36 Annex 4\. Summary of Borrower's ICR and/or Comments on Draft ICR \. 56 Annex 5\. Government of Morocco's Policy Letter dated December 19, 2006 \. 67 Annex 6\. List of Supporting Documents \. 74 A\. Basic Information First Water Sector Country: Morocco Program Name: Development Policy Loan Program ID: P095840 L/C/TF Number(s): IBRD-74440 ICR Date: 10/30/2009 ICR Type: Core ICR GOVERNMENT OF Lending Instrument: DPL Borrower: MOROCCO Original Total USD 100\.0M Disbursed Amount: USD 105\.8M Commitment: Revised Amount: USD 100\.0M Implementing Agencies: Ministry of Economy and Finance Cofinanciers and Other External Partners: B\. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 12/20/2005 Effectiveness: 08/13/2007 Appraisal: 10/16/2006 Restructuring(s): Approval: 05/01/2007 Mid-term Review: Closing: 12/31/2007 12/31/2007 C\. Ratings Summary C\.1 Performance Rating by ICR Outcomes: Moderately Satisfactory Risk to Development Outcome: Moderate Bank Performance: Satisfactory Borrower Performance: Moderately Satisfactory C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Moderately Satisfactory Implementing Quality of Supervision: Satisfactory Moderately Satisfactory Agency/Agencies: Overall Bank Overall Borrower Satisfactory Moderately Satisfactory Performance: Performance: i C\.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating: Performance (if any) Potential Problem Quality at Entry Program at any time No None (QEA): (Yes/No): Problem Program at any Quality of No None time (Yes/No): Supervision (QSA): DO rating before Satisfactory Closing/Inactive status: D\. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) General water, sanitation and flood protection sector 45 45 Irrigation and drainage 33 33 Sewerage 22 22 Theme Code (as % of total Bank financing) Access to urban services and housing 17 17 Other public sector governance 17 17 Pollution management and environmental health 16 16 Rural services and infrastructure 17 17 Water resource management 33 33 E\. Bank Staff Positions At ICR At Approval Vice President: Shamshad Akhtar Daniela Gressani Country Director: Mats Karlsson Theodore O\. Ahlers Sector Manager: Francis Ato Brown Narasimham Vijay Jagannathan Program Team Leader: Alexander E\. Bakalian Pier Francesco Mantovani ICR Team Leader: Alexander E\. Bakalian ICR Primary Author: Isabelle T\. Fauconnier F\. Results Framework Analysis Program Development Objectives (from Project Appraisal Document) 1\. Improved governance, financing arrangements, and policy coordination in the water sector\. ii  2\. Enactment of integrated water resource management towards sustainable water uses\. 3\. Enhanced service, asset management and usage productivity in irrigation\. 4\. Better access to water and sanitation service, and increased wastewater treatment capacity\. Revised Program Development Objectives (if any, as approved by original approving authority) (a) PDO Indicator(s) Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years Interministerial Water Commission (CIE) formulates GOM priorities on key Indicator 1 : sector programs, and allows improved coherence of sector policies\. CIE convenes at least twice a year, and its decisions promote efficient Interministerial Water implementation of Commission (CIE) not Value GOM's sector effective\. Absence of (quantitative or policy based on a Medium Term Qualitative) unified strategy\. Expenditure All GOM- Framework\. implemented water sector programs operate under a MT\. Date achieved 01/01/2006 01/01/2010 Although the CPCSEC's executive power is to be enhanced through the Prime Comments Minister's chairmanship, it is uncertain whether the intended inter-ministerial (incl\. % policy coordination and resource allocation functions of the CIE will be achievement) preserved within the CPCSEC\. Indicator 2 : Improved sector organization in place\. Value (quantitative or Qualitative) Date achieved Comments The current state of advancement of the study on reorganization options and (incl\. % reported limited level of interministerial participation do not provide sufficient achievement) indication on the potential achievement of this outcome\. Increased share of public expenditure allocated to WSS access development, Indicator 3 : resource conservation and protection programs, as programmed\. Value (quantitative or Qualitative) iii Date achieved Based on summary figures provided by the MFP, the share of public Comments expenditures in the water sector (state budget only) allocated to WSS access (incl\. % development, resource conservation and protection programs has increased achievement) from 19% in 2007 to 26% in 2009\. Number of River Basin Plans (PDAIRE) debated and approved by River Basin Indicator 4 : Committees\. Value (quantitative or Qualitative) Date achieved There are 9 PDAIREs currently being finalized, and two more currently being Comments developed\. The planning committees of certain RBAs are involved in the (incl\. % elaboration of the PDAIRE, but the River Basin Committees are not, as they achievement) are not yet functional\. Percentage of potential water charges collected by River basin Agencies, and Indicator 5 : percentage of charges collected applied to project co-financing\. Value (quantitative or Qualitative) Date achieved Data provided do not allow for the evaluation of this indicator\. However, an Comments overall increase is observed in the amounts billed and collected by the RBAs (incl\. % between 2006 and 2007, and is expected to increase at a higher rate in 2008 achievement) and 2009\. Indicator 6 : Number of discharge points permitted and monitored\. Value (quantitative or Qualitative) Date achieved Comments By July 2008 (no recent data provided) no RBA had initiated regulation of (incl\. % polluting effluents\. However, it is noteworthy that all RBAs are currently achievement) conducting an inventory of disposal sites\. Indicator 7 : Groundwater management strategy and plan submitted to CIE\. Value (quantitative or Qualitative) Date achieved A national groundwater management strategy was presented to CIE in Dec\. Comments 2008\. Data provided do not allow quantification of aquifer recovery trends (incl\. % and quality\. The aquifer regulation process is making slight progress but faces achievement) many constraints\. Indicator 8 : Increase in the agricultural area equipped with efficient irrigation systems\. Value (quantitative or Qualitative) Date achieved Comments The areas equipped with efficient irrigation systems have increased by 22% iv (incl\. % between 2006 and 2008\. achievement) Increased proportion of ORMVAs operation and maintenance (O&M) Indicator 9 : expenses covered by irrigation water revenues\. Value (quantitative or Qualitative) Date achieved Comments Coverage of O&M expenses has increased from an average across all (incl\. % ORMVAs of 65% to 72% between 2005 and 2009, and is expected to reach achievement) 98% by 2011 with planned twice-yearly tariff increases\. Indicator 10 : Improved efficiency of irrigation networks in public irrigation perimeters\. Value (quantitative or Qualitative) Date achieved Comments As currently -somewhat imperfectly -measured (volume billed/volume (incl\. % distributed) efficiency has increased from 82% to 83% between 2006 and achievement) 2008\. Bid process progress for operations outsourcing on a large scale irrigation Indicator 11 : perimeter\. Value (quantitative or Qualitative) Date achieved Comments Consultants have begun to study PPP options for five ORMVAs\. The (incl\. % Government has adopted a strong pre-PPP stance and is accelerating actions in achievement) this direction\. Improved Rural Water Supply access rate and service sustainability in rural Indicator 12 : areas\. Value (quantitative or Qualitative) Date achieved Comments Access to water supply service in rural areas has increased from 62% in 2006 (incl\. % to 87% in 2009 (ONEP figures)\. There is insufficient information to assess achievement) whether service sustainability has improved\. Funds committed to pollution control compatible with plans towards 60% Indicator 13 : abatement of urban discharge loads by 2020 (or as per National Sanitation Program)\. Value (quantitative or Qualitative) Date achieved The NSP has been funded since 2007 at the expected level of commitment\. Comments Pollution abatement remains one of two principal objectives, and medium (incl\. % term goal in 2008-2012 NSP action plan is to reach 34% pollution abatement achievement) by 2012\. v  Improved WSS service access and sustainability for urban and peri-urban Indicator 14 : households\. Value (quantitative or Qualitative) Date achieved GPOBA-funded pilots to test performance based subsidy for service expansion Comments in Casablanca, Meknes and Tangiers have shown promising results and (incl\. % discussions are in progress to scale up this approach, into a national strategy in achievement) support of INDH objectives\. Indicator 15 : Urban Water Supply and Sanitation service benchmarking system in place\. Value (quantitative or Qualitative) Date achieved Comments A benchmarking system is now being used by the Régies\. This result is only (incl\. % partially achieved as the participation of ONEP and all WSS operators is achievement) essential to a meaningful national benchmarking effort\. Indicator 16 : Increased number of public operators accountable through service contracts\. Value (quantitative or Qualitative) Date achieved Comments The number of operators accountable through service contracts has not (incl\. % changed since the onset of this operation, but two pilots are to be implemented achievement) by 2010\. Indicator 17 : Tariff structure reform completed and tariff regulation reform engaged\. Value (quantitative or Qualitative) Date achieved Comments (incl\. % There has been no action taken regarding tariff structure reform since 2006\. achievement) (b) Intermediate Outcome Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Number of CIE annual meetings\. [Other PDO1 Intermediate Outcome Indicator 1 : Indicators are listed as milestones in DPL Matrix, measured annually by output criteria/values]\. Value (quantitative or 1 2 Qualitative) vi Date achieved 01/01/2006 01/01/2008 Comments (incl\. % The CIE met only once after loan signature\. achievement) Enactment of "Contrat-Plans" to rule river basin agency performance Indicator 2 : obligations [Other PDO2's IOI are listed as milestones in DPL Matrix, tracked annually by output criteria/values] Value (quantitative or Qualitative) Date achieved Comments A number of contrat-plans have reportedly been developed and are currently (incl\. % being reviewed by the Ministry of Finance\. achievement) Enactment of "Contrat-Plans" to rule public irrigation agency (ORMVA) Indicator 3 : performance obligations\. [Other PDO3's IOI are listed as milestones in DPL Matrix, tracked annually by output criteria/values] Value (quantitative or 2 contrat-plans Qualitative) Date achieved 12/31/2008 Comments (incl\. % Draft CPs are ready for two pilot ORMVAs (Haouz and Gharb)\. achievement) Preparation, validation and adoption of tariff setting reform strategy and Indicator 4 : associated legal texts\. [Other PDO4's IOI are listed as milestones in DPL Matrix, tracked annually by output criteria/values] Value (quantitative or Qualitative) Date achieved Comments The last tariff structure adjustment dates back to 2006, and encountered (incl\. % significant social opposition due to poor design, timing and combination with achievement) inclusion of 7% VAT in water bills\. G\. Ratings of Program Performance in ISRs Actual Date ISR No\. DO IP Disbursements Archived (USD millions) 1 06/28/2007 Satisfactory Satisfactory 0\.00 H\. Restructuring (if any) Not Applicable vii 1\. PROGRAM CONTEXT, DEVELOPMENT OBJECTIVES AND DESIGN (This section is descriptive, taken from other documents, e\.g\., Program Document/ISR, not evaluative): This implementation completion report (ICR) describes the results of the Water Sector Development Policy Loan (Water Sector DPL)\. The DPL was designed as the first of a series of programmatic lending operations spanning four years in support of Morocco's water sector reforms\. The series was halted after the first DPL as certain key triggers for a second DPL were not achieved by April 2009, 24 months after loan effectiveness\. 1\.1 Context at Appraisal Overview\. Since independence, Morocco's water policies had focused on securing scarce and unevenly distributed resources for urban and agricultural needs, through the development of dams, large scale irrigation perimeters, and urban water supply systems\. While creating solid infrastructure and capable albeit fragmented institutions, this supply-driven focus also led to neglecting demand management policies and parallel investments in resource conservation and protection, water supply in rural areas, and sanitation and pollution control\. For all its infrastructure achievements, the sector faced pressing challenges, documented as early as the mid 90's, including large scale degradation and depletion of water resources, substantial gaps in water supply and sanitation coverage, and generally inefficient water usages\. Such water-related constraints contributed to limiting economic and social development opportunities across Morocco\. In a context of growing budgetary restraint, severe climate change impacts, free-trade pressures on industry and agriculture, and a new emphasis on reducing inequalities in access to service, water sector modernization was high on the Government's agenda\. Starting in 1995 with the promulgation of the Water Law, the Government of Morocco (GOM) had sought to foster better resource management and protection, as well as improved access and efficiency in infrastructure service, but reform progress had been slow\. Building on three decades of water project partnerships and renewed policy dialogue since 2002, in October 2005 GOM and the Bank identified a Water Sector Development Policy Loan (DPL) to sustain water reforms\. GOM confirmed that the reform program would seek advances in sector governance, resource management, irrigation, and water supply and sanitation (WSS), while ensuring continuity with previous sector reforms and adjustment operations\. Macroeconomic and Social Context\. Water reform was part of an overall GOM agenda of structural reforms including the privatization of telecommunications, housing sector reform and financial sector reform\. These were combined with targeted social strategies to combat poverty and improve indicators in health, education and access to basic services, such as the INDH (National Human Development Initiative), the PAGER (Rural Water Supply Program), a health insurance scheme and education charter programs\. Unemployment continued to afflict youth and those holding diplomas despite significant overall gains (from 13\.6% in 2000 to 9 % in 2006)\. Although on the decline, poverty remained much higher in rural than urban areas, exacerbated by vulnerability to droughts\. Access to potable water had increased dramatically over a decade, and indicators in housing and education were also showing marked improvements\. The growth in the GDP had been volatile and low, averaging less than 3 percent in the preceding fifteen years, due to insufficient diversification in the economy and to persistent volatility in the drought-vulnerable agricultural sector\. Yet a modest recovery was on its way as new sectors such as construction, transport, communications, electricity and water gained dynamism\. The growth in the GDP was expected to reach an exceptional rate above 7 percent in 2006 due to an extraordinary agricultural year, progress in productivity-enhancing reforms, infrastructure development and sound 1 macroeconomic balances\. In short, the medium term macroeconomic outlook was positive, assuming continuation of sound policies and deepened structural reforms through the transition to a new Government in 2007\. Water Sector Issues\. Scarcity and degradation of water resources had reached concerning levels, making demand management, pollution control and the completion of integrated water resources management (IWRM) reform, urgent policy priorities as part of a rational climate change adaptation strategy\. While 90% of economically accessible surface resources were already dammed, availability of per capita supplies was fast declining in a number of key basins, due to population and demand growth\. This situation was compounded by signs of climate change, such as a 30% drop in precipitations since 1970 along with more frequent droughts and floods\. A well developed irrigation sector was faced with chronic shortage of surface water supplies, leading to fast growth of uncontrolled groundwater withdrawals\. Morocco was further confronted with large scale degradation of environmental water quality\. Only about 5% of urban effluents were treated before discharge, which, combined with industrial discharges, agricultural drainage, erosion and saline intrusion, contributed to contamination of key water bodies\. The above-mentioned policy priorities were consistent with the vision of the 1995 Water Law intended to bring about integrated, participatory and decentralized water resources management\. Yet enactment of this modern law was incomplete and ineffective, in part due, until 2002, to insufficient political will in support of demand management, decentralization, and user-pays/polluter-pays principles\. Opportunities also existed for higher returns on irrigation, including more efficient on-farm irrigation practices, enhanced productivity applications, and better performing irrigation services\. Irrigation is crucial for Morocco: at the time of appraisal it contributed 7% of GDP and 50% of Morocco's agricultural added value, generated over 75% of Morocco's agricultural exports, and provided jobs to 50% of the rural labor force\. Irrigation also represented 85% of water usage, applied to 1\.6 million hectares, of which 700,000 ha were part of nine large scale irrigation (LSI) schemes, operated by public agricultural development agencies (ORMVA)\. Despite volumetric pricing and recent tariff increases, ORMVAs suffered from a combination of poor cost-recovery and neglected asset management, which led to: i) unreliable service to farmers, ii) the decay of the country's irrigation infrastructure, and iii) a substantial net drain on GOM's budget\. ORMVA reform, with separation of irrigation and extension activities was widely considered as overdue, and a consensus was emerging on selected opportunities to contract water operations through private sector partnerships (PSPs)\. The potential for water conservation was also high and largely untapped, as inefficient on-farm practices were not regulated, and less than 10% of LSI systems rely on sprinklers or drip irrigation\. Aggressive incentives for technology conversion were needed to jump-start water conservation, achieve "more crops per drop", and mitigate exposure of farmers to water shortages\. It was also recognized that while irrigation reform was crucial to promote water conservation and higher returns in agriculture, these outcomes remained largely dependent on broader agriculture, land and trade reforms, which affect water usage and agricultural productivity\. Persisting gaps in water supply and sanitation (WSS) service coverage and near-absence of pollution control called for public-good infrastructure programs, backed by increased budget support and optimized financing strategies\. Morocco featured a sophisticated and complex WSS sector with relatively well performing operators, a strong private sector presence, the prevalence of multi-sector utilities in larger cities, and bulk potable water production entrusted to a national water supply agency (ONEP)\. A distinct feature of Morocco's WSS sector was the virtual absence of governmental subsidies: overall, the sector was held to be almost entirely self-financed through tariffs, beneficiary contributions, urban-to-rural cross-subsidies, and cross-subsidies from electricity distribution\. While this had supported operators' financial health, it had not promoted investment by the thirteen municipal utilities and four private concessions into developing wastewater treatment, expanding services to lower-income or less densely populated areas, perceived as 2 yielding lower returns, nor into the renewal or upgrade of aging assets\. In parallel, the national utility, ONEP, was also encountering financing difficulties with its own massive infrastructure development mandate for rural water supply\. The cross-subsidization model was beginning to challenges in terms of equity in service delivery, lack of transparence and distorted incentives that contributed to uncompetitive water prices and threatened the financial stability of the entire sector\. Major service coverage gaps continued to exist between urban, peri-urban and rural areas\. Access to potable water in rural areas (61%) remained low by regional standards\. Sanitation service was less well developed than water supply, and wastewater treatment was the exception\. Filling the service gap had become a policy focus, and GOM goals included quasi-universal WSS coverage and substantial pollution abatement capacity\. The Bank's appraisal stated that these objectives would require moving away from largely unregulated cross-subsidization and toward new focused financing strategies, including capital grants, along with more efficient tariffs, cost optimization, targeted fiscal levies and exemptions and new private sector partnerships (PSPs)\. Institutional and governance constraints\. Morocco's water sector institutions, though equipped with superior technical resources, were not configured for efficiency, impairing optimal policy integration and reform progress\. The 2004 Sector Policy Note found that reform inconsistencies were linked to: i) insufficient policy coordination; ii) non-strategic public expenditure allocations; iii) conflicting policy and operating interests; iv) uneven disclosure and performance accountability; and v) weak stakeholder participation\. Policy-making for local water management issues was centralized at the state level with strong supply-driven legacies\. Conflicting operating interests and poor allocation of policy-making responsibilities considerably weakened the Ministry of Regional Planning, Water and Environment (MATEE), which had been created in 2002 to push forward IWRM reform and coordinate sector policies\. A weak regulatory framework slowed gains in service efficiency and equity by Morocco's public water operators, which needed clearer incentives to increase performance and achieve more sustainable and equitable infrastructure service\. Improved accountability for results and financial disclosure was needed to optimize investment choices and tariff regulation\. In the WSS subsector, heterogeneous utility statutes and fragmented regulatory roles impaired consistent service regulation\. Despite improvements since 2003, tariffs continued to heavily subsidize consumption through an untargeted, underpriced first block, whereas connections, priced at marginal cost, were unaffordable in poor peri-urban settings\. Economic regulation gaps and challenges were reviewed in the Sector Policy Note, the Sector Financing Study, and the Poverty and Social Impact Analysis, along with potential reform options\. The Government's Reform Record and Agenda\. Since the promulgation of the innovative Water law in 1995, which upheld the principles of integrated, decentralized and participatory water resource management, and created river basin agencies (RBA) to enact them, GOM had been pursuing sector modernization reforms towards more efficient water management and service delivery\. Key steps between 1995 and 2004 included: The 1995 launch of Morocco's accelerated rural water supply (RWS) program (aka PAGER); The multi-sector concessions awarded since 1997 to private operators in Casablanca, Rabat, Tangiers and Tetouan; The sector adjustment programs engaged with European Union (EU) (FAS-Eau, Facilité d'ajustement structurel pour le secteur de l'eau) in 2001, and with the African Development Bank (AfDB) (PAS-Eau, Programme d'Ajustement Sectoriel de l'Eau) in 2003; these pioneering operations experienced strenuous progress, generally attributed to far-reaching bi- tranche conditionality, and limited reform leadership and implementation capacity; The creation in 2002 of a new Ministry of Regional Planning, Water and Environment (MATEE); and The 2004 launch of a pioneering greenfield irrigation PSP project in El Guerdane\. 3 In addition, the five-minister CIE (Commission Interministerielle de l'Eau) had been re-activated in 2005, and it had mobilized the Administration on specific objectives, including: i) the issuance of national plans for sanitation, aquifer management, water conservation and oasis restoration; ii) the completion of IWRM reform and empowerment of river basin agencies; iii) the reform of WSS and irrigation tariffs, including strengthened tariff and performance regulation, and iv) the assessment of new large scale irrigation systems to be developed downstream of existing unused dams\. The Administration largely responded to the challenge, and as of mid-2006 could account for: The development, approval and budgeting of a new National Sanitation Program (PNA)\. A 2006 Budget Law with increased budget support for sanitation, RWS, RBAs, and to INDH\. An important joint MATEE-MFP paper on approaches to resolve incompatible RBA mandates, and outlining a path to clarify policy and operating conflicts in the sector\. New WSS tariff structure (9% average increase and narrower targeting of first block subsidies)\. The promulgation of a landmark new law for Public Service Delegation, establishing competitive principles and rules for utility service outsourcing, and setting the stage for regulation reform\. The decision to prepare PSP transactions for the development of LSI systems in the Gharb area, and for service provision and asset rehabilitation in the Loukkos ORMVA\. The launch of a National Debate on Water, towards drafting a unified water strategy for Morocco\. The negotiated completion of all pending reform actions under the FAS-Eau adjustment program\. Despite these advances, GOM's program remained a sum of departmental agendas, with conflicted sector leadership and polarized institutional interests in the demand management versus supply management debate\. MATEE championed decentralized IWRM, emphasizing demand management, conservation, and restoration of water resources over development of marginal new ones\. However, under MATEE, the Secretariat of Water (SEE) held a narrow yet influential mandate to develop and manage water resources, which led it to advocate the sustained development of dam and transfer projects\. The Ministry of Interior, while coordinating INDH implementation, defended local governments' interest to improve access to WSS service, develop sanitation/pollution control capacity, and to improve service efficiency and accountability\. MI was also supportive of a regional consolidation of water, sanitation, and electricity distribution operators, spanning urban and rural service, as a template for future regional PSPs championing Moroccan private capacities\. MADRPM defended LSI institutional reform aimed at ensuring the sustainability and efficiency of irrigation systems\. CWF saw to the implementation of integrated watershed management plans, as per the provisions of the National Plan for Watershed Conservation (NPWC)\. MFP's priority was to seek optimal efficiency, and ultimately a reduction, in public expenditures in the sector that would be tied to performance, and enable adjustments based on fiscal availability\. MAEG's priority was to ensure that water service remains affordable and competitive, under effective regulation and market forces\. On behalf of the PM, MAEG also served a key interministerial coordination role\. 4 Identification of the Water DPL in October 2005 served as a catalyst for reform gains and initiatives throughout 2006\. By end of 2006, intense intra-sector consultations conducted by a MAEG-led steering committee and facilitated in part by the Bank's DPL preparation team, had allowed GOM to update and detail a comprehensive water sector reform program\. The reform program represented a hard-won compromise among institutions (see detailed program matrix in Annex 3 and policy letter of Dec 19, 2006 in Annex 5)\. It emphasized integrated water resource management, demand management and performance management as guiding principles, and was structured along four reform tracks, namely: Strengthened sector governance and leadership Completion and enactment of IWRM reform Improved service, sustainability of assets, and productivity of applications in irrigation Better access to water and sanitation service, and increased wastewater treatment capacity\. Success in each of these highly integrated tracks was linked to gains in sector governance, and often linked to results achieved in other subsector tracks\. The newly revived CIE, with its high-level leadership and momentum potential, would have an expanded mandate and would be entrusted with an active role in the implementation of the reform program\. The four tracks of the reform program are outlined below, with specific actions and results detailed in Annex 2: Track 1\. Strengthened sector governance and leadership\. Reform provisions under this track were intended to overcome the fragmentation and legacies that had slowed reform advances, to increase the consistency of water sector policies, by: i) empowering policy coordination bodies such as CIE and CSEC; and ii) improving sector organization towards clearer separation of policy- making and policy implementation roles and increased policy and planning integration capacities, within MATEE in particular\. Adjustments would also ensure better alignment of financial resources with sector policy priorities, by: iii) developing medium-term expenditure frameworks (MTEF) for water sector ministries; and by iv) adapting public expenditure allocation in support of optimized and integrated investment strategies\. Accountability for implementation of these governance-level reforms would rest primarily with MATEE/SEE, MFP, and MAEG, with arbitrages by the Prime Minister and the CIE\. Track 2: Enactment of integrated water resource management reform\. This component sought to reform the water management and allocation system and to give institutional teeth to the 1995 Water Law, by delimiting the priority missions, establishing sustainable funding, and building the capacities of river basin agencies (RBA)\. The Government also sought to induce the launch of strategic resource management programs, including for aquifer management and water quality enforcement in selected RBAs\. Finally, the longer term process of amending the Water Law would also be initiated\. Accountability for implementation of this component would rest primarily with MATEE/SEE\. Track 3: Enhanced service, asset management and usage productivity in irrigation\. Under this track GOM would seek to strengthen the regulatory framework to promote water conservation, productive irrigation uses and more efficient water service by ORMVAs, including through better cost-recovery, and to increase the role of the private sector\. It would also seek to expand and improve large scale irrigation service, improve cost recovery and increase the sustainability of LSI assets\. MADRPM would hold primary responsibility for implementation of these reforms\. Track 4: Improving access to WSS service, and wastewater treatment capacity (preliminary)\. GOM sought to implement regulatory, institutional and tariff reforms that would lead to increased performance and self-financing by the operators, as well as increased accountability to users and 5 communities\. GOM was also committed to allocating increased and sustained aid to what was deemed low-return, "public good" infrastructure, as part of optimized investment and financing strategies, towards improved coverage, equity and performance in WSS service and substantial gains in pollution control capacity\. The main responsibility for implementation of these reforms would be shared between Ministry of Interior, MFP and MAEG\. Rationale for Bank Assistance\. The rationale for Bank involvement was rooted in renewed policy dialogue, anchored in recent analytical work1 and in a shared commitment to sustain the reform agenda in IWRM, LSI and WSS, while providing fiscal support\. A Programmatic DPL (P-DPL) or series of up to four DPLs, designed to provide annual budget support, was thus envisioned to sustain the implementation of an integrated program of water reforms between 2006 and 2009\. The P-DPL format was preferred over traditional investment loan financing for several reasons: a) It would more effectively promote progress in tariff and performance regulation; b) It could address far-reaching sustainability issues in ONEP's revenue structure and in sector financing; c) It could better achieve complex adjustments in the agricultural sector through integrated water reform; d) Morocco's openness to innovation and ripeness to engage in a continuum of reforms, further supported the P-DPL approach; e) A P-DPL designed as an annual budget support instrument allowed for the broad inter- ministerial scope needed to keep the water reform focused on the "big picture" GOM goals of growth and fiscal sustainability; f) The governance dimension of the P-DPL-supported reform program was of strategic importance to GOM's improved governance, transparency and accountability agenda; g) The P-DPL-supported reform program could model better policy coordination and expenditure practices for other sectors; h) The P-DPL would provide fiscal support to encourage authorities to achieve medium term fiscal deficit and debt ratio targets; i) Fiscal strengthening of GOM would create fiscal space to finance sector investments or help smooth the social cost of other ongoing sector reforms\. In addition, the Water sector P-DPL was included in the 2005-2009 CAS base case scenario, and would directly contribute to its strategic objective of "Improving water management and access to water and sanitation services," by working towards the three main water pillar outcomes outlined in the CAS: a) Improve the legal, financial, and institutional framework of the water sector; b) Improve access to service, and [wastewater] treatment coverage in targeted basins; and, c) Improve technical and financial performance of water sector operators\. The P-DPL was fully coordinated with ongoing work by the IMF and the main donors' to Morocco's water sector, in particular the EU and the AfDB, to ensure continuity with sector adjustment operations that were ongoing at the time\. Finally, the P-DPL was planned synergistically with other Bank operations and with ongoing analytical work in the water sector\. 1 The program benefitted from recent sector work, including: i) the Sector Policy Note in December 2004; ii) the Working Group on Institutional Reforms of Large Scale Irrigation in April 2004; (iii) the Water Supply and Sanitation REDI review in June 2004; (iv) the Sector Financing Study in June 2006; (v) the Country Economic Memorandum, on "Fostering Higher Growth and Employment in the Kingdom of Morocco " in 2006; (vi) the Poverty and Social Impact Analysis (Phase 1) in June 2006, and (vii) the Assessment of Cost of Environmental Degradation in 2003\. 6 1\.2 Original Program Development Objectives (PDO) and Key Indicators (as approved) The single-tranche loan of Euro 76\.2 million (US$100 million equivalent) was the first in a program of up to four DPLs (P-DPL or DPL program) designed to provide annual budget support and sustain the incremental implementation of a broad program of reforms in Morocco's water sector\. The higher-level objective of the program was to enhance the contribution of the water sector to Morocco's social and economic development\. The specific development objectives of the DPL and of the P-DPL were to enact reform measures conducive to: 1\. Improved governance, financing arrangements, and policy coordination in the water sector; 2\. Enactment of integrated water resource management towards sustainable water uses; 3\. Enhanced service, asset management and usage productivity in irrigation; 4\. Better access to water and sanitation service, and increased wastewater treatment capacity\. These objectives were consistent with the reform tracks of GOM's program, presented above\. The projected benefits of the program included increased efficiency; equity; financial viability, and environmental sustainability in the water sector\. The 17 Program Development Objectives (PDO) indicators are presented in Table 1 below: Table 1\. Summary of DPL Program Development Objectives and Indicators Objective 1: Interministerial Water Commission (CIE) formulates GOM priorities on Indicator 1: Improve Sector key sector programs, and allows improved coherence of sector policies\. Governance Indicator 2: Improved sector organization in place\. Increased share of public expenditure allocated to WSS access Indicator 3: development, resource conservation and protection programs, as programmed\. Objective 2: Number of River Basin Plans (PDAIRE) debated and approved by Indicator 4: Complete the River Basin Committees\. Implementation of Percentage of potential water charges collected by River basin IWRM reform Indicator 5: Agencies, and percentage of charges collected applied to project co- financing\. Indicator 6: Number of discharge points permitted and monitored\. Indicator 7: Groundwater management strategy and plan submitted to CIE\. Objective 3: Increase in the agricultural area equipped with efficient irrigation Indicator 8: Improve Service, systems\. ensure asset Increased proportion of ORMVAs operation and maintenance (O&M) sustainability and Indicator 9: expenses covered by irrigation water revenues\. raise use efficiency Improved efficiency of irrigation networks in public irrigation in irrigation Indicator 10: perimeters\. Bid process progress for operations outsourcing on a large scale Indicator 11: irrigation perimeter\. Objective 4: Improved Rural Water Supply access rate and service sustainability in Indicator 12: Improve Access to rural areas\. water supply and Funds committed to pollution control compatible with plans towards sanitation, and Indicator 13: 60% abatement of urban discharge loads by 2020 (or as per National wastewater Sanitation Program)\. treatment capacity Improved WSS service access and sustainability for urban and peri- Indicator 14: urban households\. Urban Water Supply and Sanitation service benchmarking system in Indicator 15: place\. Increased number of public operators accountable through service Indicator 16: contracts\. Indicator 17: Tariff structure reform completed and tariff regulation reform engaged\. 7 1\.3 Revised PDO (as approved by original approving authority) and Key Indicators, and Reasons/Justification No changes were made to the PDOs or indicators during the course of this operation, which includes the 24 months following approval of the first DPL until the termination of the P-DPL framework due to lapsed triggering of the second DPL\. 1\.4 Original Policy Areas Supported by the Program (as approved) The chosen policy areas corresponded to the four program objectives, which also matched the GOM's four water sector reform tracks: 1\. Governance and institutional strengthening in the water sector; 2\. Integrated water resources management; 3\. Irrigation sustainability and efficiency; 4\. Expanded access to water supply and sanitation services and expanded wastewater treatment\. 1\.5 Revised Policy Areas (if applicable) No changes were made to the policy areas during the course of this operation\. 1\.6 Other significant changes (in design, scope and scale, implementation arrangements and schedule, and funding allocations) None\. 2\. KEY FACTORS AFFECTING IMPLEMENTATION AND OUTCOMES 2\.1 Program Performance (supported by a table derived from a policy matrix) The Morocco Water DPL programmatic series featured an unusual breadth and depth of sectoral reforms (governance, resource management, irrigation and water supply and sanitation)\. The DPL program matrix (see Annex 3) consisted of key actions excerpted from GOM's even larger reform program matrix\. A dozen actions were retained as agreed prior actions or triggers for each loan in the series, in addition to the required maintenance of a satisfactory macroeconomic framework\. The verified achievement of agreed prior actions in 2006 allowed for the first operation to become effective and for the loan amount of Euro 76\.2 million to be disbursed in May of 2007 (see Table 2)\. The intense multi-actor policy dialogue during preparation, culminating in the implementation of these actions was a significant achievement that provided testimony of the government's high level of commitment to the program\. The actions were substantial in that they laid the legal and/or executive groundwork to allow subsequent policy measures to go forward in all of the aforementioned sub-sectors\. The programmatic nature of the DPL series implied that successive operations were to occur at maximum intervals of 20 months\. However, the series did not materialize beyond the first operation as certain key triggers in the "Governance" and "IRWM" tracks towards the negotiation of a second DPL remained unmet 24 months after the onset of the first (see Table 3 below)\. The Bank team worked over the course of several missions with the GOM's DPL steering committee to assist in accelerating movement on these policy actions\. In July 2008, the Bank team 8 encouraged GOM to request a time extension in order to be able to achieve the agreed trigger actions\. However, GOM did not choose to pursue this path\. Section 2\.2 below presents a discussion of factors during implementation that affected program outcomes\. The ICR Results Framework Matrix for the DPL shown in Annex 3 presents the full set of agreed objectives, policy actions, triggers and outcome indicators for this operation, along with the assessed results\. 9  Table 2\. Prior Actions of Morocco Water Sector DPL 1 Agreed Prior Actions Governance 1\. Adoption of a circular, signed by the Prime Minister, institutionalizing the Inter- Circular adopted (2006) ministerial water commission (CIE), strengthening the role of the commission towards enabling it to propose implementation and financing priorities for the water sector, and establishing a permanent secretariat for said commission\. 2\. Submission to the Bank of terms of reference, in form and substance satisfactory to ToR submitted and accepted by the Bank, for the carrying out of a study on the reorganization of the water sector the Bank (2006)\. with a view to clarifying policy making and policy implementation functions and optimizing the integration of sub-sector planning\. Integrated Water Resources Management 3\. Establishment, by a circular of the Minister of Regional Planning, Water and Circular established (2006) Environment (MATEE), of the river basin committees for each river basin agency\. 4\. Publication in the Official Gazette of the joint regulation ("arrêté") No\. 1180-06 of Joint regulation published June 12, 2006 of the MATEE, the Minister of Finance and Privatization (MFP), the (2006) Minister of Industry, Commerce and Economic Reform, the Minister of Interior (MI), the Minister of Energy and Mining, and the Minister of Tourism, Arts and Crafts and Social Economic Affairs, establishing water pollution charges and the pollution measurement unit\. Irrigation 5\. Amendment, by joint ministerial decision of the Minister of Agriculture, Rural Amendment promulgated Development and Maritime Fisheries (MADRPM) and the MFP, of the decision by (2006) the same Ministers dated May 13, 2002 governing the award of subsidies for the upgrading of irrigation systems towards greater water efficiency, with a view to substituting the requirement for a withdrawal permit by the requirement for a withdrawal declaration\. 6\. Adoption of the joint regulation ("arrêté") of the MARPM, the MFP, and the MI, Joint regulation adopted abrogating and replacing the regulation ("arrêté") No\. 1994-01 November 9, 2001 (2006)\. governing state subsidies for equipping agricultural farms with sprinkler or micro- irrigation systems, with a view to raising to 60% the subsidy rate applicable to promote the upgrade of irrigation systems towards greater water efficiency\. 7\. Adoption of the decision to increase the allocation for irrigation works maintenance Decision adopted (2006) of Regional Agricultural Development Agencies (ORMVA) by an amount at least equivalent to the additional revenue generated by water tariff increases, by way of transferring said amount from the ORMVA's respective operating budgets to their respective investment budgets on account of maintenance expenditures\. Water Supply and Sanitation 8\. Adoption of the National Sanitation Plan ("Programme National d'Assainissement NSP adopted (2006) Liquide et d'Epuration des Eaux Usées") for the period 2006-2009, and establishment of criteria for the allocation and management of subsidies granted under said Plan\. 9\. Enactment of the public services delegation Law No\. 54\.05 promulgated by Royal Law enacted and decree Decree ("Dahir") No\. 1-06-15 of February 14, 2006 ("Loi relative à la gestion published (2006) déléguée des services publics"), and publication in the Official Gazette of the decree No\. 2-06-362 of August 9, 2006 for the implementation of articles 5 and 12 of said Law\. 10  Table 3\. Trigger Actions towards the negotiation of DPL 2 Agreed Trigger Actions Status of execution by April 2009 Governance 1\. Prime Minister to convene Commission Inter-ministerielle de l'Eau Not met\. The CIE was formally convened only (CIE) twice a year, with one session to review sector-wide results once, in December 2008\. CPCSEC2, to be and financing needs\. presided by the Prime Minister, is now projected to be the coordination/consultation mechanism rather than CIE\. No recommendations were prepared by the CIE for LdF 2009\. 2\. CIE proposals for priority programs and expenditure to be reflected Not met\. in annual Budget Bill Preparation Note\. 3\. Submit the recommendations of the Sector Financing Study to the Partially met\. Results of study were presented decision of the CIE\. to CIE, but no ensuing decision has been adopted\. Integrated Water Resources Management 4\. Update by-laws transferring responsibility for Public Hydraulic Partially met\. Six by-laws have been adopted, Assets (Domaine Hydraulique Public - DPH) to River Basin but do not fully respond to reform objectives, as Agencies (RBAs), in order to focus RBA mission on resource RBA mandate remains focused on O&M of monitoring, management & planning as well as stakeholder hydraulic infrastructure rather than on broader participation\. DPH monitoring, management and planning\. 5\. Draft adopt and publish decree ruling the allocation of capital Not met\. A draft decree has been prepared and grants by RBAs in support of resource conservation and protection signed by MEMEE and MFP, but SGG projects, consistent with other subsidy mechanisms\. (Government's General Secretariat) now posits that the allocation of capital grants by RBAs is the prerogative and a formal attribution of the RBA Boards of directors3\. 6\. Initiate water quality control enforcement activities in a pilot river Not met\. This action has not been completed basin\. as it is dependent upon a regulatory framework for quality control being in place\. Irrigation 7\. Finalize the National Irrigation Water Conservation Plan (NIWCP) Met\. The NIWCP has been completed, and submit it to CIE for decision\. Allocate adequate public presented to CIE in Dec 2008, and approved\. It funding to NIWCP needs for 2008 as programmed\. has been funded as a priority measure through the Plan Maroc Vert in the LdF 2009 and will be renewed in 2010\. 8\. Implement Regional Irrigation Authorities' (ORMVA 4 ) Tariff Met\. A first decree has passed to raise tariffs, a Adjustment Plans (TAP) for recovery of sustainable cost of water, second one is being processed to maintain while maintaining a high collection rate of service fees\. increases through 2012 to reach cost recovery\. The Collections rate rose from 76% in 2006 to 82% in 2007, then fell back to 74% in 2008\. 9\. Recruit consulting firm for the detailed study and preparation of Met\. Consultants have already begun working bidding documents for the outsourcing irrigation service in a pilot on 5 studies for 2008-2009\. perimeter\. Water supply and sanitation 10\. Effective payment of GOM budgeted subsidies to the Rural Water Met The PAGER (RWSP) has been fully Supply Program (RWSP) in 2007, and allocation of adequate funded as programmed\. public funding to RWS needs for 2008 as programmed\. (Annual recurrent trigger)\. 11\. Effective payment of budgeted subsidies for the National Met\. The NSP has been fully funded since 2 Comité Permanent du Conseil Supérieur de l'Eau et du Climat (Permanent Committee of Superior Council for Water and Climate)\. Please see section 3\.2 for details on the projected replacement of CIE by CPCSEC\. 3 This stance actually supports the reform sub-objective of empowering the RBAs\. 4 Office Régional de Mise en Valeur Agricole\. 11  Sanitation Program in 2007, and allocation of adequate public 2007 at the expected level of commitment\. funding to NSP needs for 2008 as programmed\. (Annual recurrent trigger)\. 12\. Finalize a strategy and program to correct the WSS service In progress\. Strategy is being prepared and connection deficit in poor urban and peri-urban areas\. Allocate expected to be finalized in November 2009\. adequate public funding to WSS service extension needs for 2008 as programmed\. 2\.2 Major Factors Affecting Implementation: The major factors affecting implementation were the following: A partial loss of the initial strong GOM ownership of the reform program; A domino effect caused by a slowdown in the reform program's Governance track; An ambitious reform program within a tight timeline\. Partial loss of the strong GOM ownership of the reform program\. By several accounts, an overwhelming majority of water sector actors within GOM during appraisal agreed upon the need to change the ways in which policy directions were decided and resources were allocated in the sector\. A sea-change was occurring in favor of more efficient and better coordinated water resources and expenditure allocation among the water sub-sectors\. At the same time, a divided MATEE, conflicting operational interests and overlapping policy-making mandates made certain measures difficult to agree upon during appraisal\. As noted previously, the policy actions agreed and reflected in the policy matrix were in themselves an achievement, given the prior near- absence of dialogue and weak coordination among the different sector ministries\. Although the first DPL was ultimately signed, implementation of the programmatic DPL framework towards triggering the second DPL (DPL 2) faced some slow-down after the September 2007 elections, which brought a re-shuffle of the ministries in charge of the water sector, along with a major initiative by the government to elaborate a new National Water Strategy\. Water became one of six key sectors in which the government wished to put renewed strategic emphasis, alongside energy, health, agriculture, environment and justice\. The MATEE's water and environment attributions were transferred to an empowered SEE, now Secretary of Water and Environment (SEEE), under the Ministry of Energy, Mines, Water and Environment (MEMEE)\. Many of the policy priorities of the previous government, as supported by the DPL, were slowed down while the a new process of data gathering and analysis concerning future directions in the sector was launched, with the assistance of external consultants and under the leadership of SEEE\. While measures relating to irrigation and water supply and sanitation remained actively supported, those measures relating to the overall water sector governance and to water resources management at river basin level appeared to be put temporarily on hold\. Domino effect of Governance track slowdown\. The slow-down of the governance track also contributed to slowing the overall program\. The Interministerial Water Commission (Commission Inter-ministerielle de l'Eau, CIE) was not revived as planned, and no alternative mechanism was established to fulfill its policy planning and resource allocation functions\. As stated in the program document "Success in each of these highly integrated tracks is linked to gains in sector governance, and often linked to results achieved in other subsector tracks\. The newly revived CIE, with its high-level leadership and momentum potential, is entrusted with an active role in the implementation of the reform program\." Indeed, in the absence of a revived CIE, it was difficult to realize the previously expected momentum around the entire reform package, though some tracks were able to forge ahead\. 12 Ambitious reform program and tight timeline\. This was compounded by an ambitious policy reform program and a tight timeline towards the negotiation of the second operation in the series\. The dense and rich DPL matrix contained 33 policy action measures, 12 triggers for a DPL 2 and seventeen outcome indicators, requiring parallel actions on the part of five different major ministries and agencies (SEEE, MAPM, MI, MFP, ONEP) in addition to the MAEG, which maintained a coordination role\. This had appeared ambitious but feasible in a situation of stable policy direction and continuity of the actors involved, but was now subject to the hiatus of administrative and key governmental staff changes that accompany a governmental transition\. 2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization: Responsibility for the successful implementation of the reform program was to rest with the Prime Minister's CIE, gathering the five key ministries in the sector, duly relayed by a permanent technical committee\. Day to day responsibility for reform program coordination and monitoring was entrusted to the DPL Steering Committee (SC), headed by the Ministry of Economic and General Affairs (MAEG) and including MFP, MATEE/SEE (now MEMEE/SEEE), MADRPM (now MAPM) and MI as well as ONEP\. The SC would ensure progress reporting and schedule management, action documentation, interdepartmental coordination and proactive corrective action on non-progress items\. The SC would report to the CIE on reform program progress and needs, and would be responsible for communications with the Bank supervision team\. MATEE/SEE was expected to play a significant role in support of MAEG especially with regard to CIE-related activities\. This arrangement received the highest marks from the "Quality at Entry" review of the Bank's Quality Assurance Group (QAG)\. On the Bank side, a larger than average supervision budget was expected to allow the Bank supervision team to continue to engage with GOM in close policy dialogue and to provide expert technical support to the SC when needed, with up to three supervision missions per year to review progress on the P-DPL and prepare a follow-up operation, if appropriate\. The decision to negotiate the second DPL would be based on verified compliance with pre-set triggers, taking into account overall progress in the government reform program\. Although program outcome indicators were broadly defined by loan signature, many baseline values (or status, for non-quantifiable indicators) and target values for the indicators were not yet established, and were to be identified as part of the supervision of DPL1/preparation for the DPL2\. This was not ultimately completed due to the SC's eroded effectiveness, as a result of the Government's apparent loss of unified interest in working towards the negotiation of a second DPL within the pre-set timeframe and deadlines\. 2\.4 Expected Next Phase/Follow-up Operation (if any): Certain agencies within the Government of Morocco have expressed interest in continuing to partner with the World Bank for support in the water sector, and such a proposal is being studied as part of the upcoming Country Partnership Strategy\. Although the programmatic DPL series, with its far-reaching intra-sector governance objectives, could not be implemented in a timely manner, several sector agencies have shown ongoing commitment to a number of this P-DPL's other objectives by pushing forward key initiatives, such as the national aquifer protection initiative, the National Irrigation Water Conservation Plan (PNEEI), the National Sanitation Program, WSS service expansion to rural areas, and the development of a strategy to address service gaps in poor peri-urban areas\. The Bank is currently engaged in the preparation of three investment loans to support the expansion of service in rural areas, the improvement of the irrigation services in one key river basin and the implementation of a sanitation program through a large pilot in 7 small towns\. 13 The opportunity for any comprehensive new Water DPL support may however depend on increased clarity regarding GOM's updated sector reform and development objectives\. If requested, another DPL could possibly be centered on the recently developed water strategy ­ which has yet to be fully disseminated\. Should the GOM choose to resume its work on governance measures over a sustained period of time, the feasibility of a new sectoral DPL could be assessed\. Another possibility in the current context would be to focus a follow-up DPL on a more limited scope, time-frame, and institutional reach\. For example, it would seem appropriate, given the outcomes discussed in section 2 below, to assess the feasibility of sub-sector DPLs to continue to promote the reform tracks related to i) improving water use efficiency in irrigation and/or ii) expanding access to WSS services to poor and vulnerable households, possibly accompanying the implementation of the upcoming national strategy to address service gaps in poor areas\. Such an operation could be combined with support to deepen the analysis of tariff, subsidy and regulatory frameworks for the sub-sectors\. 3\. ASSESSMENT OF OUTCOMES 3\.1 Relevance of Objectives, Design and Implementation (to current country and global priorities, and Bank assistance strategy) As seen above, GOM has reaffirmed its commitment to the water sector by placing it among its six major strategic axes, and by preparing a National Water Strategy that is soon to be disseminated\. The objectives of the DPL remain extremely relevant to the current policy dialogue between the Bank and the GOM, but it is not clear to what extent the new strategy will pursue the key features of the DPL-supported reform program, such as strengthening sectoral governance and IRWM\. As discussed in section 1, the programmatic Water Sector DPL series was an embodiment of the 2005-2009 CAS `Water Pillar' priorities\. In the upcoming Country Partnership Strategy (CPS), water is likely to continue to have a well justified high-profile, although no longer as a stand-alone pillar, but cross-cutting across the newly proposed "Growth", "Social" and "climate change/sustainable development" pillars\. Improved governance in the water sector towards a more coordinated and efficient allocation of resources among sub-sectors is still considered a crucial objective by most of the current sector actors in Morocco, and continues to be among the Bank's priorities for future support\. Water resources management remains a central issue and current policy discourse appears to have internalized the trend towards water demand management, although significant support also continues in favor of a supply-driven approach\. Irrigation efficiency and improved access to WSS services clearly retain their importance in GOM's current approach to the water sector\. 3\.2 Achievement of Program Development Objectives Despite the fact that the programmatic DPL series did not continue after the first operation, this operation allowed significant and on-going progress to be achieved towards two out of the four PDOs\. In particular, the objectives of the reform program track 3, "Improve service, ensure asset sustainability and raise use efficiency in irrigation", and of Track 4, "Improve access to water supply and sanitation, and wastewater treatment", are demonstrating significant advancement\. Tangible progress towards the first PDO ­ "Improving water sector governance" ­ has been weak, while modest progress is recorded for the second PDO ­ "Complete the implementation of IWRM reform"\. 14  However, there is a shared sense among most sector actors within the GOM and the Bank that the preparation and implementation of the DPL, including substantial debate within GOM, allowed lasting gains to be made in terms of deepening the level of analysis and the knowledge base, improving clarity and transparency surrounding major issues, and heightening awareness about the need to make structural changes towards improved policy coordination and IWRM\. The program development objectives and expected outcomes were designed with a multi-year time frame in mind, during which the government would be empowered to undertake a series of actions towards the achievement of the objectives and the realization of those outcomes\. The ICR offers not only an evaluation of the progress regarding triggers towards negotiation of the second DPL, but also of the progress achieved towards the intended outcomes at the end of the programmatic series in light of the program objectives\. This is with the recognition that over a single operation instead of the planned four operations, the outcomes are not yet fully achieved\. However, it is noteworthy that the GOM is forging ahead with many of the actions prescribed in the original reform program (and DPL program matrix) even without the prospect of the second DPL\. The Results Framework Matrix in Annex 3 presents the complete program of objectives, actions, triggers, and outcomes indicators, along with a status assessment of each action against the 2007 targets (and triggers for second DPL negotiation), and an assessment of the progress made against each intended outcome and objective\. The tables and discussion below offer a close-up of each Program Objective and of the progress made on related outcome indicators\. Objective 1\. Improved governance, financing arrangements, and policy coordination in the water sector\. Sub-objectives consisted of: i) ensuring consistency of water sector policies; and ii) aligning financial resource allocation with sector-wide policy priorities\. Table 4\. Indicators and Assessment of Progress towards Outcomes on Objective 1 Objective 1: Improved governance, financing arrangements, and policy coordination in the water sector Outcome Indicator State of achievement Indicator 1: Interministerial Water So far this outcome appears uncertain\. Although the CPCSEC's executive Commission (CIE) formulates GOM power is to be enhanced through the prime minister's chairmanship, it is priorities on key sector programs, and uncertain whether the intended inter-ministerial policy coordination and allows improved coherence of sector resource allocation functions of the CIE will be preserved within the CPCSEC\. policies\. Indicator 2: Improved sector This outcome appears uncertain\. The current state of advancement of the organization in place study on reorganization options and reported limited level of interministerial participation do not provide sufficient indication on the potential achievement of this outcome\. Indicator 3: Increased share of public There is modest progress towards this outcome\. Based on summary figures expenditure allocated to WSS access provided by the MEF, the share of public expenditures in the water sector development, resource conservation and (state budget only) allocated to WSS access development, resource protection programs, as programmed\. conservation and protection programs has increased from 19% in 2007 to 26% in 2009 (excluding new hydraulic infrastructure)\. The main obstacle to achieving this objective has been the absence of progress in sustaining, beyond formal establishment, an effective inter-ministerial consultation and decision-making forum that would allow for consistent policy-making across sub-sectors, along with efficient budget resources allocations according to agreed priorities\. One of the main tools to implement the reform program goal of improving governance was going to be the Inter-ministerial Water Commission (Commission Inter-ministérielle de l'Eau, CIE) empowered with increased mandates and schedule\. 15  However, during the Dec 12, 2008 meeting of the CIE, it was decided at the suggestion of SEEE to attribute policy coordination and inter-ministerial consultation functions to the CPCSEC (Permanent Committee of the Superior Council for Water and Climate ­ Comité Permanent du Conseil Supérieur de l'Eau et du Climat) instead of to the CIE, effectively dismantling the CIE\. The arguments supporting this action were that: i) The CSEC and its Comité Permanent were formally established in the 1995 Water Law, whereas the CIE existed merely through a circular signed by the previous prime minister; and that ii) the CIE would perform redundant duties with the CSEC and the CPCSEC\. It was also decided that the CPCSEC would now be presided by the prime minister, in order to confer it appropriate executive power\. A decree is now pending to implement this decision\. The Superior Council for Water and Climate (CSEC) was originally conceived as a broad consultation forum involving all levels of water sector actors, from users to local government and basin agencies to regional authorities to national legislative authorities and government, rather than as a venue for inter-ministerial coordination and executive decision-making regarding expenditure allocation\. As envisioned under the DPL, the CIE aimed to establish more equal footing for agenda-setting and deliberations between the ministry in charge of water resources management and the key-ministries overseeing water uses and public expenditure, in the spirit of more integrated policy development and advancement of overdue demand management reforms\. Although reviving the CSEC consultative forum will undoubtedly yield indispensable contributions to national and local policy-making in the sector, it is a matter of debate among sector officials whether the permanent committee of the CSEC can fulfill the CIE's intended functions of improving governance at the ministerial level of decision-making and resources allocation\. Objective 2\. Enactment of integrated water resource management towards sustainable water uses\. Sub-objectives were to: i) empower River Basin Agencies (RBA) including through the expansion of the water charges system; ii) develop water pollution monitoring; and iii) identify and launch a sustainable approach to aquifer management\. Table 5\. Indicators and Assessment of Progress towards Outcomes on Objective 2 Objective 2: Enactment of integrated water resource management towards sustainable water uses Outcome Indicator State of achievement Indicator 4: Number of River Basin Modest progress is being made towards this outcome\. There are 9 PDAIRE Plans (PDAIRE) debated and approved currently being finalized, and two more currently being developed\. The by River Basin Committees planning committees of certain RBAs are involved in the elaboration of the PDAIRE, but the River Basin Committees are not, as they are not yet functional\. Indicator 5: Percentage of potential Progress is uncertain towards this outcome\. Data provided does not allow water charges collected by River basin for the evaluation of this indicator\. However, an overall increase is observed in Agencies, and percentage of charges the amounts billed and collected by the RBAs between 2006 and 2007, and is collected applied to project co-financing\. expected to increase at a higher rate in 2008 and 2009\. Indicator 6: Number of discharge points Progress is uncertain towards this outcome\. By July 2008 (no recent data permitted and monitored provided) no RBA had initiated regulation of polluting effluents\. However, it is noteworthy that all RBAs are currently conducting an inventory of disposal sites\. Indicator 7: Groundwater management Progress has been made towards this outcome\. A national groundwater strategy and plan submitted to CIE management strategy was presented to CIE in Dec 2008\. Data provided do not allow quantification of aquifer recovery trends and quality\. The aquifer regulation process is making slight progress but faces significant human and material resource constraints, in additional to as of yet insufficient empowerment of RBAs to enforce aquifer protection measures\. 16  Progress has been observed on 14 actions in the IRWM track of the reform program (see detailed results matrix in Annex 3), but only modest advances were achieved on the triggers towards the negotiation of the DPL2\. While some actions clearly benefitted from sustained support, especially those relating to groundwater management, others did not\. The actions under the sub-objective `Strengthening River Basin Agencies' are the least satisfactory, as RBAs have not benefitted from an expanded mandate regarding the monitoring, management and planning of public hydraulic assets\. RBAs continue to be held responsible for the operation and maintenance of hydraulic infrastructure, but they do not have sufficient means (collections capacity, human resources, government transfers) to carry out this mission\. On the other hand, a secondary sub-objective, `Enhanced sustainability of the hydraulic infrastructure stock for resource mobilization' has experienced the most progress, followed by `Preservation of aquifers' and `Regulation of water resources contamination\.' Progress of the latter has been slow and arduous\. The advances made suggest that there is a certain momentum around water resources management in Morocco\. However, watershed management has not become more integrated or more participatory than before, though this was a key objective of the IWRM track\. Objective 3\. Improve service, ensure asset sustainability and raise use efficiency in irrigation\. Sub-objectives were to: i) improve on-farm water use efficiency; ii) improve ORMVA technical and financial performance; and iii) promote out-sourcing of irrigation service, consistent with ORMVA reform vision\. Table 6\. Indicators and Assessment of Progress towards Outcomes on Objective 3 Objective 3: Improve service, ensure sustainability and raise use efficiency in irrigation Outcome Indicator State of achievement Indicator 8: Increase in the agricultural There is significant progress towards this outcome\. The areas equipped with area equipped with efficient irrigation efficient irrigation systems has increased by 22% between 2006 and 2008\. systems Indicator 9: Increased proportion of There is significant progress towards this outcome\. Coverage of O&M ORMVAs operation and maintenance expenses has increased from an average across all ORMVAs of 65% to 72% (O&M) expenses covered by irrigation between 2005 and 2009, and is expected to reach 98% by 2011 with planned water revenues twice-yearly tariff increases\. Indicator 10: Improved efficiency of There is modest progress towards this outcome\. As currently imperfectly irrigation networks in public irrigation measured (volume billed/volume distributed) efficiency has increased from perimeters 82% to 83% between 2006 and 2008\. Indicator 11: Bid process progress for This outcome appears likely to be surpassed by 2010-2011\. Consultants operations outsourcing on a large scale have begun to study PPP options for five ORMVAs\. The government has irrigation perimeter adopted a strong pre-PPP stance and is accelerating actions in this direction\. The program development objective and sub-objectives for this track have been achieved\. Virtually all of the agreed actions, including triggers towards the negotiation of a second DPL, have progressed at a good pace with sustained support from the entering Ministry of Agriculture in 2007 (see detailed matrix in Annex 3)\. The Government's new agriculture strategy, Plan Maroc Vert, includes as a priority pillar the enhancement of water conservation measures in irrigation through the National Irrigation Water Conservation Plan (NIWCP, PNEEI in French), which has been fully funded since 2009 through the Plan Maroc Vert and is expected to remain a central priority\. Over a period of 15 years, the NIWCP will allow 550,000 ha to be converted to water-efficient irrigation, reaching 50% of the area currently equipped for irrigation, at a cost of 37 billion MAD for physical investments, of which 40% will be covered by farmers and 60% by the State\. The Regional Irrigation Agencies (ORMVA ­ Office Régional de Mise en Valeur Agricole) are achieving significant technical and financial performance improvements, with a well-engaged Tariff Adjustment Plan that will allow them to reach nearly full cost recovery by 2012, increased collections on water services, better coverage of operation and maintenance expenses through 17  water revenues, and improved efficiency of irrigation networks\. Contrat-plans are ready to be implemented for two pilot ORMVAs ­ Gharb and Haouz ­ in order to clarify the responsibilities and mutual obligations of the ORMVAs and the State, and to enable the ORMVAs to adopt more efficient commercial, technical and financial practices in view of or as an alternative to water service delegation under PPP arrangements\. At the same time, the initiative to promote outsourcing of the ORMVAs' irrigation water service through PPP has received enhanced interest from the entering government, resulting in a fast- tracked approach for the delegation of this service for five ORMVAs (Tadla, Loukkos, Doukkala, Gharb, and Moulouya)\. Objective 4: Improve access to water supply and sanitation, and increase wastewater treatment capacity\. Sub-objectives were to: i) support and optimize sustainable development of rural water supply and sanitation (RWSS); ii) implement the National Sanitation Program (NSP); iii) implement solutions to promote WSS service access in poor urban and peri-urban areas; and iv) strengthen the regulatory framework towards improving the performance and cash-flow of operators, and better take into account consumer interests and expectations\. Although all of the trigger actions towards the negotiation of a second DPL were not achieved by the time of closing, there has been substantial progress towards this objective\. Table 7\. Indicators and Assessment of Progress towards Outcomes on Objective 4 Objective 4: Better access to water supply and sanitation, and increased wastewater treatment capacity Outcome Indicator State of achievement Indicator 12: Improved Rural Water Significant progress has been made towards this outcome: Access to water Supply access rate and service supply service in rural areas has increased from 62% in 2006 to 87% in 2008 sustainability in rural areas (ONEP figures)\. There is insufficient information to assess whether service sustainability has improved, although additional resources have been allocated by ONEP towards this objective\. Indicator 13: Funds committed to Significant progress has been made towards this outcome The NSP has been pollution control compatible with funded since 2007 at the expected level of commitment\. Pollution abatement plans towards 60% abatement of remains one of two principal objectives, and medium term goal in 2008-2012 NSP urban discharge loads by 2020 (or as action plan is to reach 34% pollution abatement by 2012\.5 per National Sanitation Program) Indicator 14: Improved WSS service Progress has been made towards this outcome\. GPOBA-funded pilots to test access and sustainability for urban performance based subsidy for service expansion in Casablanca, Meknes and and peri-urban households Tangiers have shown promising results and discussions are in progress to scale up this approach, into a national strategy in support of INDH objectives\.6 Indicator 15: Urban Water Supply Partial progress has been made towards this outcome\. A benchmarking system and Sanitation service benchmarking is now being used by the Régies\. This result is only partially achieved as the system in place participation of ONEP and all WSS operators is essential to a meaningful national benchmarking effort\. Indicator 16: Increased number of Modest progress has been achieved towards this outcome\. The number of public operators accountable through operators accountable through service contracts has not changed since the onset of service contracts this operation, but two pilots are to be implemented by 2010\. Indicator 17: Tariff structure reform No progress has been made towards this outcome\. There has been no action completed and tariff regulation taken regarding tariff structure reform since 2006\. reform engaged\. 5 A quantifiable indicator was not defined and hence not measured for this outcome\. 6 Although consolidated nationwide data on urban and peri-urban access to potable water and sanitation services is not available, baseline and progress indicators regarding access to a legal service connection are being defined and collected in the context of the OBA pilots\. 18 Progress has been considerable in the expansion of access to water supply in rural areas, through the Rural Water Supply Expansion Plan (PAGER) initiated in 1995 and further strengthened in 2004 with the active involvement of ONEP in its re-development as the Universal Potable Water Access program (GEP)7\. Access to potable water supply has increased from 14% in 1995 to 62% in 2006 to 87% in 2008, and is projected to reach 91% with the completion of projects currently underway\. The State has sustained its commitment to the PAGER by making budget contributions (MAD 150 million in 2007 and in 2008, MAD 100 million in 2009), while ONEP has taken on an increasing share of the investment burden, from less than MAD 200 million before 2002 to over MAD 1460 million in 2008\. In addition, significant steps are being taken by ONEP to increase the sustainability of RWS facilities under its purview, through improved local management drawing upon local facilities managers, user associations and contracting of neighborhood micro-enterprises for O&M, and expanded regional management contracts\. GOM and ONEP also remain proactively involved through Bank -financed Sector Investment Loans in improving RWS sustainability and financing strategies\. However, the delay between 2006 and 2008 in the negotiation of ONEP's contrat-programme with GOM caused a delay in bulk water tariff adjustments needed by ONEP to cross-subsidize the GEP program\. The National Sanitation Program (PNA ­ Plan National d'Assainissement Liquide), implemented jointly by MI and SEEE, is widely considered to be a priority for the GOM, and it has been consistently funded since 2007 at the expected level of commitment: 300 million MAD in 2007, 350 million MAD in 2008 and 500 million MAD in 2009\. As part of this program, pollution abatement remains one of two principal objectives, and the government's medium term goal as part of the 2008-2020 NSP action plan is to reach 60% pollution abatement by 2020\. The plan aims to equip 260 urban centers with sewerage networks and wastewater treatment capacity to benefit 10 million inhabitants\. The government is making progress towards the objective of promoting WSS service access in poor urban and peri-urban areas by: (i) actively supporting a pilot project to demonstrate Output- Based Aid (OBA) performance-based subsidy as an efficient and demand-driven way to extend WSS services in peri-urban areas of Casablanca, Tangiers, and Meknes, with funding from the GPOBA (Global Partnership for Output-Based Aid); (ii) continuing to fund the INDH initiative, which includes aid to low-income households in peri-urban areas on the basis of priority set by local INDH commissions, which can decide to allocate a portion of it to WSS-related investments; and (iii) nearing completion of the national strategy and program to reduce the WSS connection deficit in poor and peri-urban areas, expected to be published in November 2009\. The OBA pilots have shown promising results and discussions are in progress between GoM and the Bank to scale up this approach\. Currently, no consolidated nationwide baseline or progress indicators are available regarding access in peri-urban areas, due to the fragmentation of distribution operators (ONEP, 13 régies, 4 concessionnaires) and the heterogeneity of data relating to these mostly informally settled areas\. Progress has been much more tentative on the objective of strengthening the regulatory framework to improve operator performance and better respond to consumer interests and expectations\. Details on the progress of each action are shown in Annex 3\. The application of the service delegation law remains stalled due to its inapplicability to small towns and rural areas, and requires an exception for ONEP that has not yet been granted through a formal by-law\. As a 7 Programme de "Généralisation de l'Eau Potable" (GEP) 19 result, no new delegated service contract has been signed since the law was promulgated\. Performance-based contracting of operators has only made modest progress with the delayed signature of ONEP's contrat-programme with the State, in 2008\. Although limited regulatory measures are being discussed internally at MI, with the possible constitution within MI of a Regulatory department, there is no consultation among the diverse WSS actors to elaborate a full-fledged regulatory framework\. The national benchmarking project has been adopted and reportedly enhances the transparency of operator performance, but the fact that it does not include ONEP considerably weakens its potential contribution to a national regulatory effort\. GOM's motivation to engage in tariff reform appears greatly dampened by the difficult reception of the partial restructuring and tariff increase made in 2006, which occurred concurrently with the inclusion of the 7% VAT in the water bill (later further increased to 14%) and the collection of several months of arrears by some operators\. The tariff increase and social tranche adjustment alone were responsible for a 62% increase in the water bill of households consuming 8m3 monthly\. This had resulted in significant social unrest, strongly suggesting that future tariff reform must take into account the impact of structure adjustments and increases on poor and vulnerable households\. The DPL-supported PSIA study (Phase II) which was completed in 2008, provides the government with key analytical elements that can be incorporated into the design of more efficient tariffs and subsidies that also promote improved access by the poor and vulnerable\. 3\.3 Justification of Overall Outcome Rating (combining relevance, achievement of PDOs) Rating: Moderately Satisfactory Although the originally planned programmatic series was halted due to an excessive lag in the execution of certain key triggers, progress was achieved on a number of policy actions, and the government appears to remain interested in many ­ though not all ­ of the reform goals supported by this operation\. The DPL's Program Development Objectives have retained their relevance to the current status of the water sector in Morocco, although the governance-related goals may not be a top priority for the current administration\. Advances made on several fronts detailed above appear to continue to progress even in the absence of a second and third DPL\. In view of the achievements made or not made under each individual reform track, and discussed in detail in section 3\.2 above, the ratings for each track can be summarized as follows: Track 1\. Governance: Moderately unsatisfactory Track 2\. Integrated Water Resources Management: Moderately unsatisfactory Track 3\. Irrigation efficiency: Highly satisfactory Track 4\. Water supply and sanitation: Moderately satisfactory 3\.4 Overarching Themes, Other Outcomes and Impacts (if any, where not previously covered or to amplify discussion above) (a) Poverty Impacts, Gender Aspects, and Social Development The DPL preparation process and its implementation provided key support and impetus for a number of initiatives with direct impacts on poverty reduction: New direct investment supported by the reform program for the expansion of WSS services to rural, poor and peri-urban areas contributes directly to improving living conditions, health outcomes, educational opportunities and economic productivity of poor and vulnerable households\. 20  The OBA pilot projects supported by the reform program have allowed three cities (Casablanca, Meknes and Tangiers) to test for the first time in Morocco a subsidy for access to the service, based on performance and attributed strictly on demand\. The pilots are also demonstrating ways to structure and strengthen local partnerships for the participatory implementation of service expansion in poor unzoned areas\. Ongoing preparation of the "Stratégie de rattrappage", including new subsidy policies to foster better access to services, should open new avenues of policy interventions to improve access to low-income households in rural, urban and peri-urban areas\. Poverty and Social Impact Analyses (PSIA), described below, have significantly contributed to the analysis of tariff adjustment and restructuring impacts on poor and vulnerable households, and will serve to orient future policy directions in tariff and subsidy policy reform\. As part of DPL preparation, phased Poverty and Social Impact Analyses (PSIA) were initiated to analyze the distributional impacts on the poor and vulnerable of DPL-backed reforms relating to: i) pricing and subsidies in water supply and sanitation service; and ii) pricing and subsidies in irrigation towards water conservation\. The first phase of these two PSIAs, consisted in a review and analysis by the DPL preparation team of existing documentation and information\. It highlighted the following issues: High collection rates in WSS suggested that tariff structures and levels at the time of appraisal, although relatively high on average terms, were generally affordable by the users they targeted, including for the connected poor and vulnerable\. However, a significant concern was that large investment programs in the sector would further drive tariffs up in the near future, and that GOM lacked mechanisms to assess the impacts of tariff adjustments, especially on the poor and vulnerable\. Connection charges were unsubsidized and unregulated in Morocco, and due to uneven service cost recovery through tariffs, tended to be priced at or above their marginal cost\. As a result, connection charges generally were very high, especially in unzoned or peri- urban areas that are difficult to reach with networks\. Connection charges thus represented an often unaffordable percentage of the annual income of poor and vulnerable households\. In the irrigation sub-sector, farmers in water-scarce areas were willing to pay for increased water tariffs or to convert to modern localized irrigation provided that this results in service quality improvements and productivity gains\. However, the ability of farmers to afford water tariff increases and/or the cost of transition to modern irrigation depended on the size of their farm, their status in regards to land ownership and their productivity\. The main obstacle to successful irrigation reform was the lack of understanding of its benefits, confusion over who will gain from it and the limitations in ORMVA governance and responsiveness for its implementation\. For the irrigation sub-sector, the study recommended special measures to accompany the reform process, in order to better define the responsibilities of local and regional stakeholders and to put in place a clear and transparent financial and legal framework for the implementation of the reform\. It also stressed the need for setting performance targets and objectives for each ORMVA\. Moreover, it highlighted the importance of communicating about the reform to build trust in the institutions responsible for its implementation\. Communication should include guidance to farmers on how to assess the benefits of the transition at the scale of their farm to create support and disseminate good practices\. 21 The phase 2 PSIA delved into more depth in the analysis of impacts on poor and vulnerable households of WSS tariff and subsidy changes implemented in 2006 and further planned under the reform\. The study developed and tested a method to quantify these impacts using data from the 2001 National Survey on Household Consumption and Expenditures (ENCDM - Enquête Nationale sur la Consommation et les Dépenses des Ménages)\. The study confirmed a strong correlation between poverty and lack of access to WSS services, showing that 80% of households are not connected\. It also highlighted important facts regarding household consumption and expenditures in WSS, that have a direct bearing on policy formulation: i) the structure of water consumption is similar across poor and non-poor households, with most households consuming in the second (8-20m3) tranche, partly because the large household size among poor households offsets lower per capita consumption; ii) the burden of WSS expenditures is much heavier on poor and vulnerable households than on non-poor households, and has been aggravated by the 2006 changes in the tariff structures\. The study thus showed that subsidy targeting based on volume using an increasing block tariff is inefficient, as it benefits non-poor households as much (more in absolute terms) as poor and vulnerable households\. It recommended that reform efforts focus on re-directing subsidies towards the neediest beneficiaries, for example through direct transfers and through connection subsidies to facilitate expanded access to the service\. The latter is an approach that has since been tested successfully in the OBA pilots in Casablanca, Meknes and Tangiers\. The methodology used in the PSIA 2 study will be replicable with an updated dataset expected to be published shortly, and should substantially inform not only tariff and subsidy reform in the WSS sub-sector, but similar reforms in other sectors such as energy\. The OBA approach tested during the GPOBA-funded pilots demonstrated that the use of targeted subsidies was an efficient way to extend services in poor periurban areas\. The OBA nature of the approach implies that operators rely on demand from beneficiary households and pre-finance connections\. The subsidy is only disbursed after an independent review of the outputs\. This approach improved sustainability as the operators has to carefully assess demand from beneficiary households and adapt, to the extent possible, its offer to their needs\. The GOM and the Bank are in discussions about how to possibly expand the OBA approach as part of a national strategy to increase access to WSS services\. It is worth noting that ONEP decided to develop an OBA pilot to extend service provision through house connections in rural areas, through its first PPP-type extended subcontracting arrangement with the private sector\. This follows TA granted to ONEP by GPOBA\. (b) Institutional Change/Strengthening (particularly with reference to impacts on longer-term capacity and institutional development) As seen in section 3\.2 above, institutional changes initiated under the DPL include: Institutions (CIE, CPCSEC or any other) to improve high-level sector-wide policy coordination and resource allocation have been seriously considered, but have not yet been activated; The water sector reorganization study is still in progress, there is no indication yet on what recommendations may be made and subsequently adopted; Only modest progress has been made regarding the strengthening of River Basin Agencies, as their means and autonomy to carry out management and planning functions remain insufficient\. The ORMVAs have derived strength from increased financial autonomy and improved outsourcing capacities; Water Supply and Sanitation institutions are undergoing modest improvements: a regulatory accounting model and partial benchmarking for WSS are now in use\. There is 22  a slow but ongoing effort to improve service delegation modalities to improve transparency and efficiency\. The well-received Bank-supported study on restructuring delivery of WSS services yielded recommendations that have been retained, for fast- forward implementation of regional consolidation of ONE (Office National de l'Electricité), ONEP and régies operations in the Doukkala-Abda region (i\.e\. Safi & El Jadida provinces)\. A contractual model is being designed, aimed at a concession- affermage hybrid\. However, WSS institutions would greatly benefit from progress in a regulatory framework for operators and from analysis regarding the structure of tariffs and subsidies, to improve both financial sustainability and the conditions under which access to service for low-income households in peri-urban and rural areas can be expanded\. In addition, the following institutional aspects are noteworthy: Previous fragmentation in the sector has persisted\. Shortly after loan effectiveness, SEE was placed under the new Ministry of Mines, Energy, Water and Environment (MEMEE), and received executive responsibility for all water resources management matters, including water sector coordination, as well as the environment, thus receiving the name SEEE (Secrétariat d'Etat Chargé de l'Eau et de l'Environnement)\. MAPM retained responsibility over irrigation matters and the Ministry of the Interior retained its mandate to oversee WSS services, while ONEP's attributions have not changed8\. SEEE's responsibilities include the oversight of water basin agencies, which previously reported to MATEE\. While SEEE continues to give a fair amount of attention to water resource mobilization efforts, there is reportedly an effort to work towards water demand management, reflected in the National Water Strategy that was prepared in 2008-2009 by external consultants and overseen by SEEE\. Communication among sub-sector ministries about policy priorities has improved\. The preparation of this operation had the widely extolled effect of fostering unprecedented dialogue among sector agencies and ministries during the appraisal phase\. Many participants within GOM and on the Bank side noted that never before had such a plethora of actors working in different domains of the water sector been brought together to discuss synergies, policy directions and priorities\. The dialogue was by many accounts arduous and sometimes ­ as would be expected - fraught with disagreement, but also marked by a shared determination to bring the process to fruition, under the leadership of the MAEG\. The Bank's appraisal team emphasized how much this process and the ultimate policy actions and goals reflected in the matrix were led and established by the various governmental actors themselves rather than pushed by the Bank team, noting GOM members' strong ownership of the process and of its ultimate policy orientations\. Awareness regarding the need for improved coordination among sub-sectors is heightened\. Despite the fact that the governance objective of the DPL has not been at the policy forefront under the new water sector configuration, there is a widely expressed opinion among both Bank staff and many water sector officials in GOM that the break-through round of consultations, debate and collaboration around water policy reform during the preparation process will leave a 8 In September 2009 GOM announced its decision to merge ONEP with ONE (Office National de l'Energie ­ National Energy Authority), thus strengthening the cross-sectoral linkages between water and electricity generation and echoing the current direction of MI towards delegating and regulating water and electricity services together as a package, with new consolidation of service perimeters within regional lines, and outsourcing of services under concession or affermage-type contracts\. 23 lasting mark on the water sector in Morocco\. Many are confident that enhanced awareness is now acquired regarding the essential need for an institutional mechanism to improve coordination and budgetary resource allocation among sub-sector agencies, and that in time, it will once again become an indispensable feature of policy reform efforts\. (c) Other Unintended Outcomes and Impacts (positive or negative, if any) None\. 4\. ASSESSMENT OF RISK TO DEVELOPMENT OUTCOME Rating: Moderate There is prevalent sense among reform-oriented sector actors that preparation and implementation process of the DPL led to irreversible, though possibly "latent," benefits that have the potential to bear full fruit if GOM chooses to incorporate them into the new water strategy\. These gains include the increased awareness among water sector actors regarding the need for improve coordination, the limits of supply-driven water resources management and the need to develop water demand management and conservation options\. The DPL has allowed the Government to increase funding for sanitation and water conservation, although this has not yet been accompanied by moves to assess opportunities for more efficient expenditure in other subsectors\. The new National Water Strategy reportedly contains encouraging language, but has yet to be made public and fully evaluated\. The likelihood of CPSEC becoming an effective instrument for interministerial resource allocation remains to be seen\. In the IWRM track, those advances made, even at a slow pace, should provide lasting results\. These include aquifer protection measures, the fight against soil erosion through better watershed management, the legal framework to combat pollution of water resources, and the system of charges for water withdrawal and disposal\. Advances in the irrigation sector have been steady, reaching beyond initially set objectives and benefiting from unwavering ministerial support\. Development outcomes achieved in this track appear very stable\. Progress in the WSS sub-sector has been slow ­due in part to its complex institutional organization which hinders subsector-wide decision-making and coordination - but shows promise with several of the agreed policy actions under way or in progress\. However, the rationalization of the sub-sector will depend crucially on the government's ability to successfully re-organize the sub-sector, decide on appropriate service delegation mechanisms, establish an effective regulatory framework, and design and implement a tariff and subsidy policy that meets both efficiency and social equity objectives\. Outcomes achieved appear moderately stable\. 5\. ASSESSMENT OF BANK AND BORROWER PERFORMANCE (relating to design, implementation and outcome issues) 5\.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry (i\.e\., performance through lending phase) Rating: Satisfactory 24 Strong analytical grounding\. The Morocco Water DPL supported an unusual breadth and depth of reforms in the governance, resource management, irrigation and water supply and sanitation sub-sectors, which benefitted from a very substantial body of analytical work conducted before and during preparation\. This was the result of a deliberate process by which the Bank had renewed and deepened policy dialogue with GOM in the sector since 2004 and contributed several well-received analytical studies that significantly informed the reform design\. In particular, the PSIA I, followed by the PSIA II during the course of the operation is a salient feature of the Bank's own and Bank-supported analytical work in that has helped to shed important light on the impact of tariff and subsidy design on the poor and vulnerable, and is expected to substantively inform future policy dialogue on tariff reform to minimize this impact\. The approach and methodology of the PSIA II are also expected to replicate benefits into GOM initiatives in other sectors\. Incorporating lessons learned\. The Bank team carefully reviewed lessons learned from the previous CAS, and from the EU and AfDB's experiences with sector adjustment operations, and reflected them in the Program design: Programmatic approaches provide better flexibility to support reforms while managing risk Greater attention must be paid to governance There is a need to focus on results Sector reform measures may be complex and require substantial capacity to be implemented Technical assistance (including from other donors) must be mobilized to accompany reform measures Proactive supervision, sustained high-level dialogue and Strategic communication with the public is key\. Fostering government ownership of the DPL-supported reform\. Faced with proactive and reform-oriented interlocutors at MATEE, MAPM, MI, MFP and MAEG, the Bank team was reportedly able to bring extensive technical expertise and experience to the process without exerting pressure on its client\. Departing from Bank DPL practice, the team insisted not to outline a policy reform matrix at the Identification/Concept Note stage, in order to preserve full GOM ownership of policy matrix development during preparation\. The reform matrix and ultimately the DPL matrix, were seen as the product of the rich dialogue that was taking place among a strong coalition of sub-sector actors within GOM\. This product received full support from the Prime Minister through a policy letter authored solely by GOM and confirming the government's commitment to the reform program before loan signature\. Candid assessment of key risks\. At the same time, the Bank team was fully aware that the strong inter-ministerial pro-reform coalition faced some internal opposition, mainly from actors representing interests in a more supply-driven approach to water policy\. The risk that these interests might continue to pose significant obstacles was assessed and the Bank team, with the support of management, decided to go forward with this risk in mind\. With the benefit of hindsight, the statement that "The DPL series is furthermore construed as helpful in limiting the potential reform slowdown associated with general elections in 2007" appears both clairvoyant and overly optimistic\. Indeed, the reform slowdown materialized, which contributed directly to shortening the DPL series into a single operation\. Yet it seems that the `high-risk, high potential reward' route was worth taking, in light of the DPL's achievements in terms of quality, depth and transparency of water sector policy dialogue in Morocco, and of its actual results in certain sub- sector reforms -- if uneven across sub-sectors - as discussed in section 3\.2 above\. Even with 25 hindsight, a different route that the P-DPL approaches is difficult to imagine, if Bank support is to embrace substantial water reforms, which are notoriously difficult and slow to enact due to their many social, economic and cultural dimensions\. Other key risks foreseen at appraisal and measures towards their mitigation are detailed in Table 8 below: Table 8\. Risks Assessed during DPL preparation and Mitigation Measures Taken Risks Mitigation Measures Program delay risks due to complex institutional Opting for a programmatic approach with built-in arrangements in the sector and technical and flexibility, fostering ownership, leadership by the administrative resource constraints Prime Minister-headed CIE, identifying TA needs and potential TA funding upfront , and planning for close supervision and strategic communication\. All of these mitigation measures appear in hindsight to have been reasonable and to have made the best use of instruments at hand\. Program underperformance risk, whereby minimal This risk was deemed manageable due to GOM's compliance of DPL conditionality would be genuine ownership of the program, and to the close achieved while other measures in the reform supervision process that would evaluate program would be neglected\. compatibility of progress with the negotiation of a subsequent DPL, with the added option to scale down the amount of such loan\. The benefit of hindsight makes it appear overly optimistic to have counted on sustained GOM ownership of the reform program\. However, it was reasonable to count on the instrumentality of close supervision, which is what happened in practice\. Risks associated with public expenditure arbitrages, This was to be mitigated by strengthened policy and whereby existing high-level support for large multi- expenditure coordination built into the program, but year resource mobilization programs would it was recognized that political arbitrages beyond continue ahead of other investments in "public the control of sector actors might continue\. good" infrastructure\. The political arbitrage in favor of resource mobilization infrastructure appears to have continued to exist, at the expense of water demand management and to the point that policy and expenditure coordination efforts materialized with much delay (December 2008), with little impact on the reform process, ; \. However, certain `public good' outcomes such as improved WSS access in rural areas were also allowed to make progress under this political arbitrage\. Risks associated with continued WSS tariff reforms These were to be mitigated with the inclusion of PSIA and possible ensuing problems with public findings in tariff reform design, the coupling of tariff acceptance and political risk\. adjustments with targeted connection subsidies to the poor, using an innovative OBA approach, and strategic communication of water value, conservation and solidarity messages\. These risks were correctly assessed in light of the social unrest that occurred with 2006 tariff adjustment, and the proposed mitigation measures remain extremely appropriate and relevant to future tariff reforms, should the GOM choose to engage them\. Strong QAE Rating\. The Quality Assessment Group issued an assessment of Quality at Entry for this operation in October 2007, with a rating of "Satisfactory"\. It highlighted the DPL's many noteworthy features: The focused and clear strategic relevance and approach of the program, carved out of a more ambitious, broader government program; excellent dovetailing of complementarities with donors engaged in the sector (EU, AfDB, GTZ, KfW)\. 26  The PSIA Phase I in WSS increased the DPL's pro-poor focus by drawing attention to the untargeted nature of lifeline tariffs in contrast to the absence of subsidies for household connection charges\. Very good dovetailing of the programmatic DPL series with ongoing and proposed SILs and the programmatic ESW for the sector, which underpins the reforms\. Comprehensive scope of the program in terms of addressing policy issues in water supply/sanitation, irrigation, and water resources management; and it also tries to expand the application of the new policies to producer and user groups that were previously evading or excluded\. The team seems to have taken risks to build coalitions in support of a comprehensive program, despite the existence of pockets of friction and resistance\. These risks are worth taking to achieve reforms that will eventually pave the way for significant improvement of sector performance\. Implementation arrangements involve all relevant agencies\. The country and sector management were both proactively engaged and provided high levels of support in the country dialog\. There were separate QERs for the DPL and for the PSIA\. The peer reviewers were of high quality as were their comments, which the team took fully into account\. (b) Quality of Supervision (including M&E arrangements) Rating: Satisfactory The Bank supervision team carried out three P-DPL-focused supervision missions between loan signature in May 2007 and closing in April 2009, and also discussed DPL progress during the course of missions centered on other water sector operations in progress\. During each P-DPL supervision mission, the Bank team and the program steering committee carried out a thorough review of the status of each trigger and action with interlocutors from each relevant sub-sector agency, in order to assess the advances achieved relative to expected outcomes or outputs, and to identify any factors that could be contributing to lack of progress\. During the early phase of the supervision period, the program experienced a distinctly uneven progress on the implementation of the agreed reform actions on its various tracks\. To the Bank team, whereas the program had been strongly government-led during the preparation phase, there was now a distinct sense that it needed to push in order to allow the DPL to make progress along the agreed timeline\. Although the Bank made all the appropriate attempts to keep the DPL program alive, it recognized the government's prerogative to slow down the DPL program and respected the sovereign strategic policy-making process that the new government initiated\. During this period, Bank management letters alerted the GOM to the need for urgent progress on P-DPL triggers, but received no formal answers\. The depth of analysis and candid reporting regarding progress of the operation, and reflected in the supervision aide-memoires, is noteworthy\. The Bank also sustained a high quality ongoing dialogue regarding sector policy, which was embodied in studies supported by the Bank such as the study on Flow of Funds in the sector, Poverty and Social Impact Study II and the WSS Distribution reorganization study\. As noted previously in section 2\.3, although Program outcome indicators were broadly defined by loan signature, many baseline values (or status, for non-quantifiable indicators) and target values 27 for the indicators were not yet established, and were to be identified as part of the supervision of DPL1/preparation for the DPL2\. This was not ultimately possible due to the Government's apparent focus on developing a new water sector strategy and overlooking the fulfillment of the agreements towards the negotiation of a second DPL within the established timeframe\. To further strengthen monitoring and evaluation during and after the operation, it would have been preferable to agree before loan signature on clear monitoring indicators, outcome indicators and on a system for the Steering Committee to regularly record and report them to the Bank\. (c) Justification of Rating for Overall Bank Performance Rating: Satisfactory Bank performance is rated Satisfactory in light of the detailed ratings above for quality at entry and quality of supervision\. Bank performance at entry was characterized by strong comprehensive design with solid analytical underpinnings along with the successful fostering of committed government ownership of the reform program\. Bank supervision was rigorous, continuing in a spirit of active partnership and collaboration, with detailed reviews of progress and technical inputs to assist in complying with agreed program measures\. 5\.2 Borrower Performance (a) Government Performance Rating: Moderately Satisfactory The GOM's performance in support of this operation changed markedly between the preparation phase (2005-2006) and the implementation phase\. During the preparation phase, and through approval of DPL 1, the GOM provided a very strong level of engagement to identify and design the operation, with all of the sub-sector ministries actively involved in a very fruitful policy dialogue\. The MAEG was mandated to coordinate the policy dialogue and technical activities around the preparation of the DPL\. By all accounts, it carried out these tasks in an exemplary manner, succeeding in providing both a coordination and mediation role that was highly respected by all participants\. Technical staff in all of the ministries reportedly provided extremely high quality interface with the Bank team\. In the late stages of preparation, some disagreement surfaced among a few participants on certain aspects of the proposed reform program and threatened the signature of the loan\. However, the GOM reaffirmed its commitment to the reform program as discussed with the Bank and the first loan was signed in May 2007\. With the change in government and the re-structuring of the ministry responsible for the sector, strategic policy directions began to be re-evaluated for the water sector, a normal process for any entering government\. The loss of momentum and the apparent disengagement of the steering committee over a period of several months caused much uncertainty regarding the future of the reform program, among the Bank team and among some of the key architects of the program within the Government\. For many of the reform proponents, including the Bank team, it has been a disappointment that the governance measures in the reform program were not pursued as originally intended, as these measures had been the subject of broad consensus among sector actors within GOM itself during the preparation phase, and were considered a central pillar of the reform program\. Indeed, the non activation by the government of the CIE, and its subsequent dismanteling, created a major impasse in the reform process\. 28 (b) Implementing Agency or Agencies Performance Rating: Moderately Satisfactory The implementation of the reform program was the responsibility of the CIE under the Prime Minister's chairmanship, gathering the five key ministries in the sector: MAEG, MATEE/SEE, MAPM, MI, and MFP\. Because the CIE was never truly activated to perform this function, and was in fact deactivated in its December 2008 meeting, it is not possible to evaluate its performance\. As seen above, day to day responsibility for reform program coordination and monitoring rested with the DPL Steering Committee (SC), headed by the Ministry of Economic and General Affairs (MAEG) and including MFP, MATEE/SEE (now MEMEE/SEEE), MADRPM (now MAPM) and MI as well as ONEP\. Although the SC performed its duties capably during the supervision missions, it appears that it had somewhat lost its mandate to push the reform program forward and hence exhibited limited impact\. Individual ministries nevertheless made progress on those actions for which they carried a sustained mandate from the new government\. Thus, although the reform was no longer being implemented by GOM and its designated implementing agency as a full program, participating agencies were nevertheless able to achieve certain specific actions and to obtain progress towards a number of outcomes, as discussed in section 3\.2 above\. (c) Justification of Rating for Overall Borrower Performance Rating: Moderately Satisfactory The overall Borrower performance is rated as moderately satisfactory\. While the program failed to reach the second operation, much has been achieved in the period leading up to the closing of the program\. The program had targeted a broad range of activities with a number of players and some sub-sectors (irrigation and WSS) have clearly achieved and even surpassed their commitments\. In parallel, many sub-sectors have received increased funding from the government budgets in the period 2007-2009 (e\.g\. 60% for the irrigation and wastewater sub- sectors)\. One of the key difficulties that contributed to the current outcome is the disagreement that emerged after the loan signing as to the role of the CIE as the apex institution for overall sector planning, coordination and decision making for resource allocation\. When the CIE finally met in December 2008, a decision was taken to transfer its functions and role to the CPCSEC\. It remains to be seen whether this instance will be able to play the role envisaged for the CIE, with the same expected impact\. The Borrower has also engaged in the preparation of a new water strategy, which created a wait-and see situation and temporarily diverted the attention of the Borrower from the DPL\. This clearly hampered the implementation of the trigger actions leading to a second operation\. 6\. LESSONS LEARNED The following lessons or themes for discussion and inquiry may be considered for future operations of this type or with this kind of objectives: The full success of such a broadly scoped and substantial reform program as was supported through this DPL programmatic series requires that reform ownership remains strong among all key actors and sub-sectors involved, and that a strong champion be in place to sustainably lead the reform program\. 29  This DPL and the high quality analytical work and policy dialogue around it have helped to launch a process of far-reaching changes in the water sector in Morocco\. Although all of the objectives may not have been achieved, many gains appear to be solidly established and may even carry cross-sectoral benefits\. As a corollary to the above, the DPL preparation, in the opinion of many sector officials, provided an unprecedented forum for all key stakeholders to pursue a dialogue on a coordinated and comprehensive sector reform agenda and to produce a broadly scoped and ambitious reform program\. In that sense, it seems that the DPL process has created dynamism in the sector which will last beyond the immediate timeframe of this DPL operation\. An ambitious reform program with clear ownership from the Government, albeit with tight time lines, is a "high risk, high reward" opportunity that is worth undertaking\. Even though some of the reform tracks do not end up meeting all the pre-agreed targets, the benefits ­ both tangible and intangible ­ could be very significant and worth the risks\. In this case, for example, the P-DPL - built around an impressive amount of policy actions (33), triggers for a second DPL (12) and outcome indicators (17) with no less than 5 implementing ministries/ agencies ­ has achieved or put in motion a number of reforms that would have not been probably launched without the framework created by the P- DPL\. A programmatic DPL series as an instrument for broad policy reform may appear difficult to apply for a sector such as water that is historically slow to change, organized in a complex manner, and influenced by powerful political interests, it offers a valuable opportunity for continued dialogue over a longer period of time\. While this current operation was not successful to carry over to the second loan, the insertion of a flexible mechanism for assessing progress and adjusting for emerging situations may have provided the tool for a successful transition to the subsequent loans\. With the benefit of hindsight, it appears risky to assign reform leadership and coordination, and DPL implementation, responsibilities to an entity that has been inactive and the existence of which is actually in contention, but that needs to be activated as one of the first steps of the program, such as CIE\. Yet the CIE was obviously the most logical choice to assume sector reform leadership once it would be active\. Perhaps this slight disconnect might have been smoothed by making the activation and first outputs of CIE (e\.g\. a proposal by CIE to the 2008 Loi de Finances) a prior condition to the DPL1\. On the other hand, such a step may not have changed the ultimate outcome of the DPL given the change in Government\. The DPL program may have underestimated the time that is required to develop consensus around by-laws and decrees and their adoption by the appropriate authorities\. Because any change to an existing governance structure is bound to be met with resistance from those whose interests are at risk, continued involvement of all parties and open communications should be maintained at all times\. 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/Implementing agencies (See Annex 4) (b) Cofinanciers (c) Other partners and stakeholders (e\.g\. NGOs/private sector/civil society) 30  Annex 1\. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Responsibility/ Names Title Unit Specialty Lending Pier Francesco Mantovani Lead Water and Sanitation Specialist MNSWA Hassan Lamrani Senior Irrigation Specialist MNSSD Xavier Chauvot de Beauchêne Water & Sanitation Specialist MNSWA MNSIF - Rachid Bouhamidi Junior Professional Associate HIS Khalid Boukantar Program Assistant MNSSD Julia Bucknall Lead Natural Resources Management MNSWA Nabil M\. Chaherli Sr\. Sector Economist MNSAR Severine Dinghem Senior Financial Officer FEU Rosa Maria Formiga Johnsson Consultant MNSSD Maria Ines Fraile-Ordonez Knowledge and Learning Coordinator EAPCO Jose R\. Lopez Calix Lead Economist and Sector Lead LCSPR Paul Noumba Um Lead Economist MNSSD Rory C\. O'Sullivan Consultant MNCA4 Supervision Pier Francesco Mantovani Lead Water and Sanitation Specialist MNSWA Hassan Lamrani Senior Irrigation Specialist MNSSD MNSIF - Rachid Bouhamidi Junior Professional Associate HIS Khalid Boukantar Program Assistant MNSSD Meskerem Brhane Sr\. Urban Specialist MNSUR Julia Bucknall Lead Natural Resources Management MNSWA Raffaello Cervigni Sr\. Natural Resources Econ\. MNSEN Nabil M\. Chaherli Sr\. Sector Economist MNSAR Xavier Chauvot de Water & Sanitation Specialist MNSWA Beauchêne Zakia B\. Chummun Language Program Assistant MNSSD Rosa Maria Formiga Consultant MNSSD Johnsson Maria Ines Fraile-Ordonez Knowledge and Learning Coordinator EAPCO Jose R\. Lopez Calix Lead Economist and Sector Lead LCSPR Pierre Prosper Messali Sr\. Financial Management Specialist MNAFM Rory C\. O'Sullivan Consultant MNCA4 31 (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage USD Thousands (including No\. of staff weeks travel and consultant costs) Lending FY05 5\.35 FY06 52 329\.48 FY07 37 182\.51 FY08 0\.00 Total: 89 517\.34 Supervision/ICR FY05 0\.00 FY06 0\.00 FY07 1 4\.52 FY08 5 18\.87 Total: 6 23\.39 32  Annex 2\. Government's Reform Program in 2006 Reform track #1: Strengthened sector governance and leadership Publication of revised CIE mandates\. A revision of CIE mandates by circular letter from the Primature will establish CIE's responsibility for sector policy and planning coordination, and for proposing investment priorities and public expenditure allocations\. CIE will be required to convene at least twice a year, and its recommendations will be taken into account in the draft Budget bill of the incoming year\. Its permanent secretariat will be ensured by ministry in charge of water\. CIE mandates, would be confirmed by decree in 2008\. This will help overcome weak sector coordination and leadership, and increase consultation on policy and expenditure arbitrages\. The CSEC standing committee will also be reactivated\. Completion of a sector organization study: A high-level organizational assessment will be conducted, towards clarifying conflicts between policy and operating roles, and towards optimizing capacities for integration of sector strategies\. TORs will be established and validated in 2006 for accelerated study launch\. The study will be completed and submitted to CIE's decision in 2008 for implementation in 2009\. Implementation of Medium Term Expenditure Frameworks (MTEF): MATEE/SEE have developed MTEFs in 2006 towards the 2007 Budget Law\. Other sector ministries will follow suit in 2007, as part of the 2008 budgeting process\. This measure is expected to have a major impact for public expenditure predictability, optimized allocation, and performance management\. Optimized public expenditure and sector financing strategies\. As early as 2007 the yearly draft budget law will take into account CIE's recommendations for public expenditure priorities and allocations in the sector\. Also, the findings and recommendations of the PESW's Sector Financing Study will be submitted to the CIE in 2007 for decision on an action plan to optimize sector financing, to be included in the reform program and budget bill as early as 2008\. A study of fiscal options to alleviate financing constraints will also be launched, with findings submitted to CIE's decision by 2008\. Systematic contractualization of public operators\. Contracts will be established between GOM and public operators, raising accountability for subsidies\. GOM opts for multi-year "Contrats-Plan" with ex-ante review of major expenditure\. "Contrats-Programme" may later be implemented, for ex-post expenditure audits\. Contractualization varies by subsector, and is thus dealt separately under tracks 2, 3, and 4\. National water information system: GOM will implement a national water information system to consolidate and share for public access data on water resources, policy and programs\. Reform track #2: Enactment of Integrated Water Resource Management Reform Refocusing of RBA mandates\. To improve RBAs ability to fulfill their primary IWRM missions, by-laws are being updated in 2006 to preclude systematic and unfunded transfer of GOM duties to RBAs for the operation and maintenance of public hydraulic works\. Where relevant, funded contracts will be established for RBAs to conduct routine maintenance of dams and flood control works\. Establishment of river basin committees\. GOM is to establish river basin committees (RBC) within each RBA, by circular letter to be issued in 2006, towards enhancing user and community representation and participation in RBA decision-making\. All RBCs are to be operational by 2008; Provincial and Prefectoral Water Commissions (CPPE) will be re-activated between 2006 and 2007\. Preparation of "Contrats-Plan" between GOM and RBAs\. Strengthening of RBAs management systems and procedures is to begin in 2007, towards the establishment of "Contrat-Plans" between GOM and all RBAs by 2009\. Regulation of project co-financing by RBAs\. The rules under which RBAs can provide capital grant co-financing to selected water conservation/protection projects will be established in 2007, with the relevant decree published in the same year; Expansion and consolidation of RBA funding through water charges\. Withdrawal charges will be published in 2006 and enforced as early as 2007 for all water users, including on individual irrigators outside of areas already covered by ORMVA-RBAs collection agreements, and on non-connected industries\. Additional pollution charges will be published in 2006 and 2007, with enforcement to begin in 2007, on all residential and industrial users, including non-connected industries\. 33  Regulation of ocean discharges by establishment specific charges\. In a complex effort to circumvent a gap in the Water Law (only applicable to fresh water) and ensure equity among dischargers, new charges will be established for discharges in the marine environment\. The relevant decree should be approved in 2007 and published in 2008\. Collection from major municipal and industrial coastal dischargers will begin in 2009, and will generate substantial pollution control funds in support of the NSP\. Completed legal framework for water quality and pollution control regulation and enforcement\. A plan to issue all decrees needed to address specific disposal quality targets will be issued in 2006\. Such plan will be enacted between 2007 and 2009, with annual issuance of relevant new by-laws\. Water quality monitoring and enforcement will begin in 2007 in a pilot basin, and extended annually to other basins\. Monitoring will be extended to connected industries in 2009\. These measures will require TA\. Development of sustainable aquifer management strategy\. After selecting 2 aquifer depletion and degradation case studies in 2006, GOM will develop detailed diagnostic and restoration action plans in 2007, and propose a national strategy to CIE in 2008, towards piloting on two aquifers\. Promoting asset management of resource mobilization and hydraulic works\. A dam maintenance and rehabilitation plan is to be issued in 2006, and begin in 2007\. The development of new dam safety regulations will begin in 2007 for adoption by 2009\. Dam sedimentation control will be strengthened, with finalization in 2007 of two watershed management studies, and, from 2008 on, implementation of National Watershed Management Program (PNABV) integrated projects\. Integrated assessment of resource development alternatives in coastal zones and Tensift basin\. In a pioneering integrated multidisciplinary effort, TORs will be validated, and a study will be launched in 2007 for the technical and economic assessment of bulk water supply alternatives (including mobilization, interbasin transfers, demand management and reallocations, reuse and desalination)\. Findings will be submitted to CIE's decision in 2008\. TA is needed for TORs and study\. Initiating the amendment process for the 1995 Water Law\. Law optimization revisions will be submitted to CIE in 2008 and introduced in the ratification cycle in 2009\. Amendments would optimize: RBA mandates; planning provisions (link between National Water Plan and River Basin Plans, roles of GOM, , RBAs, RBCs and CSEC in drafting such plans); community participation; definition of water charges; streamlining of Public Hydraulic Assets definition procedure, etc\. Reform track #3: Enhanced service, asset management and usage productivity in irrigation Development of a National Irrigation Water Conservation Plan (NIWCP)\. The accelerated development of the plan, started in 2006, will be completed and submitted to CIE decision in 2007\. Endorsed as a national priority, implementation of the plan will begin in 2008\. Streamlining and increase of water efficiency subsidy awards\. Improvement of on-farm water use efficiency, including through the introduction of better performing irrigation techniques, will be facilitated through improvement of the existing subsidy system\. The drafting of decrees amending subsidy award procedures, and raising the level of capital grant subsidies to 60% of investment costs is to be completed in 2006\. Relevant decrees will be published in 2007\. Improvement of maintenance in LSI areas\. GOM plans to increase the share of maintenance in ORMVAs budgets by an amount at least equivalent to new tariff revenues as early as 2007\. Performance regulation of ORMVA's water service\. ORMVAs will be contractually committed to improved service, cost-efficiency and asset management\. A strengthening of ORMVA management systems has begun in 2006 towards strict separation of the irrigation and agricultural extension costs\. "Contrat-Plans" between ORMVAs and GOM will be drafted in 2007 and signed in 2008\. Launch of PSPs for the rehabilitation and operation of existing LSI perimeters)\. Preparation of a PSP has been decided in 2006 towards delegating water service operations in the Loukkos ORMVA\. TORs for transaction design will be finalized in 2006, the study will be launched in 2007 and completed in 2008, and the tender for service delegation will be launched in 2009\. LSI rehabilitation plan\. A program to upgrade and rehabilitate irrigations systems in the main LSI perimeters operated by the ORMVAs is being developed in 2006\. Such plan should be approved for funding and implementation in 2007 through 2009\. Enhancing the role and capacity of Water Users Associations in irrigation\. A 2006 paper is to clarify the role of WUAs within ORMVA service areas\. A study will be conducted in 2007 to 34  prepare a transfer of irrigation planning and management to WUAs in 2 pilot zones (small and/or traditional perimeters)\. Negotiations with WUAs will begin in 2008 towards tentative transfer of irrigation management in 2009\. Launch of PSPs for the development of new LSI perimeters\. The transaction will aim at developing irrigation downstream of existing unused dam capacity in the Gharb region\. Relevant studies are to be launched in 2007 for a first tranche of the TTI Gharb perimeter, and to be completed in 2008\. The bidding process for a turnkey transaction will begin in 2009\. Reform track #4: Improving access to WSS service, and wastewater treatment capacity Supporting and enhancing the sustainability of Morocco's RWS program\. GOM is to increase financial resources available for funding of RWS investment, and to actually transfer all subsidies committed to as part of Budget Laws\. In 2007, a plan will be developed to mitigate sustainability risks on installed RWS systems, towards funding and implementation starting in 2008\. Consistent with rural demand, GOM will develop a plan in 2007 to promote the conversion of existing standpipe-based RWS systems to network-based connection service\. A strategy will be adopted in 2008 for implementation in 2009\. A decree regulating on-site sanitation systems, important for rural areas, will be drafted in 2006 for adoption in 2007\. Supporting the implementation of the National Sanitation Program\. A National Sanitation Program (NSP) was formally engaged in 2006\. The NSP aims at abating 60% of pollution loads by 2010 and 80% by 2015\. It also aims at providing 80% of urban households with individual connections by 2020\. GOM is committed to reallocate an increasing share of public subsidies to NSP in subsequent years, and to actually pay them as stipulated in Budget Law\. Grant allocation criteria by will also be developed in 2006, followed in 2007 by a study of opportunities to optimize NSP's investment and financing strategies\. A water reuse good practice manual will be issued in 2007, along with a capacity-building plan\. A study is planned, starting in 2007, to define a regulatory action plan required for the development of agricultural and industrial reuse\. Launch of a National Water Supply Conservation Plan\. GOM will prepare in 2007 and start implementing in 2008 a National Water Supply Conservation Plan, geared primarily at containing non revenue water (NRW) as well as urban residential and industrial demands\. Develop financing solutions to facilitate access to WSS service in poor urban and peri-urban areas\. GOM plans to establish a need diagnostic and an action plan in 2007, for the accelerated development, funding, and implementation in 2008 of a national plan to increase service access in poor urban and peri-urban neighborhoods unfit for existing connection programs and pricing\. Strengthening of the WSS regulatory framework\. A landmark new service delegation law was passed in 2006, setting the framework for outsourcing of public services to public or private utility companies\. Implementation decrees will be adopted in 2007, allowing strengthened contractual regulation of operators, including public ones, to manage performance and facilitate tariff adjustments\. Starting in 2006, GOM is also to study the piloting of multisector distribution utility consolidation at a regional scale for two zones in Morocco\. A recommended action plan for the two regions will be submitted to CIE's decision in 2009\. A workgroup will also be established to assess sector regulation needs and options, leading to a study of WSS distribution regulation action plan in 2008\. In the short term, a plan will be implemented towards better regulatory accounting, reporting and benchmarking standards for all operators\. Continued tariff reform\. WSS tariff reform, towards more efficient targeting of subsidies, access promotion, and cost-recovery is one of the key elements of the reform program\. GOM is committed to continuing the adaptation of tariffs in response to changing socio-economic and financing constraints\. A national WSS tariff study, inclusive of a tariff simulator, was achieved in 2006, leading to preliminary tariff structure adjustments\. Further optimization is being assessed in 2006, for targeting of pro-poor subsidies, increased conservation, and operational performance, and improved equity of sector transfers and cross-subsidies, taking into account PSIA findings\. Relevant decrees will be drafted in 2007, for adoption in 2008\. Contractual performance management of WSS operators\. GOM is developing a plan to upgrade management systems and contractual framework of régies, moving towards greater autonomy and accountability of "Contrat-Programmes" by 2009\. GOM intends to sign ONEP's new "Contrat- Programme" in 2006, and upgrade performance management provisions of the next contract\. 35  Annex 3\. ICR Results Matrix for the Morocco Water Sector DPL Main Sub- Prior Milestones Output Output Program Objectives objectives actions and triggers criteria criteria Outcome 2006 for 2007 and and/or and/or Indicator DPL2 (state of indicator indicator 2010 and advancement target values target level of in Jun 2009) 2006 values achieveme 2007 nt at close of DPL1(2009) Objective 1 : Improve water sector governance 1\.1\. Ensure a) Empower Mandates of Convene CIE Adoption of Minutes of 2 CIE consistency sector policy Interministeri twice a year, PM circular; CIE sessions formulates of water coordination al Water with one GOM sector entities Commission session Minutes of one priorities on policies (CIE) and its dedicated to a CIE session key sector permanent consistency programs, secretariat review of and allows revised by implementation A press improved PM' circular strategies and release but no coherence of letter\. CIE to financing minutes of the sector propose priorities of Dec 2008 policies\. So priorities for sector meeting have far this implementati programs been provided outcome on and [annual clause] to the Bank\. appears financing of The CIE has only uncertain\. water sector met once after Although the programs\. loan signature, in CPCSEC's December 2008\. executive During this power is to meeting, it was be enhanced decided that the through the CIE would be prime dissolved and the minister's CPCSEC chairmanship (Permanent it is uncertain Committee of the whether the Superior Council intended on Water and inter- Climate, ministerial established policy through the 1995 coordination Water law) would and resource be activated to allocation fulfill its intra- functions of sector the CIE will consultation be preserved duties\. This within the activation is now CPCSEC\. pending a decree conferring CPCSEC chairmanship to the prime minister\. 36 Main Sub- Prior Milestones Output Output Program Objectives objectives actions and triggers criteria criteria Outcome 2006 for 2007 and and/or and/or Indicator DPL2 (state of indicator indicator 2010 and advancement target values target level of in Jun 2009) 2006 values achieveme 2007 nt at close of DPL1(2009) b) Improve Validate Launch sector TORs validated Interim study Optimized sector TORs of organization by report sector organization sector study\. Issue an interdepartment A report of the organization and increase organization interim report by al Steering first phase of in place capacity for study, to mid-2007 Committee the study Outcome sector policy clarify policy describing the (diagnostic) uncertain\. & planning & operating main has been The current integration\. roles and reorganization completed and state of optimize options\. A first a summary advancement integration of phase of the re- was provided of the study sector organization to the Bank\. on strategies\. study, overseen reorganizatio by SEEE rather n options than the MAEG, does not has been provide completed\. It sufficient does not provide indication on reorganization the potential options, which achievement are to emerge of this from the second outcome\. phase of the study\. 1\.2\. Align a) Develop a Launch Implementation MTEF plan MTEF Increased financial consolidated process for the of MTEF for submitted by validated for share of resource Medium development MATEE and MATEE/SEE to MATEE & public allocation Term of consolidated SEE\. GOM's MTEF SEE\. MTEF expenditure with sector- Expenditure MTEF for line Development of committee prepared by allocated to wide policy Framework water MTEFs for other all ministries\. WSS access priorities (MTEF) ministries, sector ministries However, development, starting with MTEFs were insufficient resource MATEE/SEE reportedly documentation conservation prepared for was provided and 2007-2009 and to evaluate protection updated for this action\. programs, as 2010-2012\. (Additional programmed\. (Additional supporting Modest supporting documentation progress is documentation has been being has been requested) achieved requested) towards this b) Adapt Include CIE's PM's annual outcome\. subsidies to proposals in BLPN Based on support PM's annual No BPLN summary priority and Budget Law documentation figures optimized Preparation has been provided by investment Note (BLPN) received the MFP, the strategies [annually] share of The CIE has not public prepared or expenditures submitted (State Budget proposals to be only) in the included in the water sector PM's BLPN allocated to 37 Main Sub- Prior Milestones Output Output Program Objectives objectives actions and triggers criteria criteria Outcome 2006 for 2007 and and/or and/or Indicator DPL2 (state of indicator indicator 2010 and advancement target values target level of in Jun 2009) 2006 values achieveme 2007 nt at close of DPL1(2009) Complete & Submit study Validated study Minutes of CIE WSS access validate the recommendatio report meeting development, Sector ns for CIE's The study was resource Financing decision presented to conservation Study The study was CIE in Dec\. and presented to CIE 2008 protection in Dec\. 2008 programs Launch a Carry out the TOR validated Study report appears to study of study on by Steering or progress have parafiscal tax parafiscal taxes Committee status report increased options to to benefit the The TOR is still of the study slightly from enhance water sector in discussion The study has 16% in 2007 sector funding The study has between MFP, not yet begun, to 17% in not yet begun, MI, SEEE\. pending the 2009\. pending the finalization of (Figure to be finalization of the the TOR\. verified by TOR\. GOM\. Have requested an official calculation from MFP\.) Objective 2: Complete the implementation of integrated water resources management reform 2\.1\.Empowe a) Focus Update by-laws Joint by-laws Number of r River RBA mission transferring published\. Six River Basin Basin on resource responsibility for by-laws have Plans Agencies monitoring, Public Hydraulic been adopted, (PDAIRE) (RBA), managemen Assets (Domaine but do not fully debated and including t & planning Hydraulique respond to approved by through as well as Public - DPH) to reform River Basin expansion of stakeholder River Basin objectives, as Committees\. the water participation\. Agencies RBA mandate Modest charges (RBAs)\. remains progress is system Six by-laws have focused on being made been adopted, O&M of towards this but do not fully hydraulic outcome\. respond to infrastructure There are 9 reform rather than on PDAIRE objectives, as broader DPH currently RBA mandate monitoring, being remains focused management finalized, and on O&M of and planning\. two more hydraulic currently infrastructure being rather than on developed\. broader DPH The planning monitoring, committees management and of certain planning\. RBAs are 38 Main Sub- Prior Milestones Output Output Program Objectives objectives actions and triggers criteria criteria Outcome 2006 for 2007 and and/or and/or Indicator DPL2 (state of indicator indicator 2010 and advancement target values target level of in Jun 2009) 2006 values achieveme 2007 nt at close of DPL1(2009) Establish and Standard contract involved in fund by separate adopted by the the contract any Government elaboration of infrastructure A standard the PDAIRE, O&M tasks contract is not but the river assigned to in place, as the basin RBAs government committees now posits that are not as O&M task they are not definition and functional\. funding will be defined on a case by case basis through the contrat- plans\. However, these tasks continue to be assigned through identical by- laws for all RBAs\. b) Promote Establish a At least one RBC GOM's circular Minutes of at user & River Basin operational issued to least one RBC community Committee No RBC is establish RCBs meeting representati (RBC) in each currently Not applicable on & RBA operational\. as no RBC is participation Current tendency operational to in RBA is to strengthen date\. decisions technical commissions working for the RBA Boards of directors instead of creating of RBCs\. The information provided does not detail the functioning of these commissions\. c) Establish Issue a Prepare RBAs Contrat-Plan At least one contracts to calendar for for contract implementation Contrat-Plan rule mutual implementatio prerequisites calendar prepared obligations n of Contrat- (cost of GOM & Plans accounting, IT RBA between GOM systems, etc\.)\. and each RBA Prepare Contrat- Plan for at least one RBA A number of contrat-plans have reportedly been developed and are currently being reviewed by the MFP\. 39 Main Sub- Prior Milestones Output Output Program Objectives objectives actions and triggers criteria criteria Outcome 2006 for 2007 and and/or and/or Indicator DPL2 (state of indicator indicator 2010 and advancement target values target level of in Jun 2009) 2006 values achieveme 2007 nt at close of DPL1(2009) d) Set rules Draft, adopt and Decree Decree % of potential for awarding publish decree published implemented water of capital ruling the for all RBAs charges grant co- allocation of collected financing to capital grants and % of projects by RBAs, charges consistent with collected other subsidies applied to (NSP, FDA)\. project co- A draft decree financing\. has been Progress is prepared and uncertain signed by towards this MEMEE and outcome\. MFP, but SGG Data (Government's provided General does not Secretariat) now allow for the posits that the evaluation of allocation of this indicator\. capital grants by However, an RBAs is the overall prerogative and a increase is formal attribution observed in of the RBA the amounts Boards of billed and directors\. This collected by position actually the RBAs supports the between reform objective 2006 and of empowering 2007, and is RBAs\. expected to increase at a higher rate in e) Enact Publish by- Initiate collection By-law 20% of billings 2008 and withdrawal laws related to of abstraction published collected 2009\. charges for water charges for By July 2008, unconnected abstraction for unconnected only the OER industries & industrial uses\. industries RBA had farmers Three RBAs begun (outside of have begun collecting Ormva-RBA billing industrial these charges\. conventions) withdrawal charges\. Initiate collection 20% of billings of abstraction collected charges for In July 2008, irrigation users only the (outside of Bouregreg ORMVA-RBA RBA was conventions) billing and Data provided do collecting not allow for the these charges, evaluation of this since 2006\. action\. 40 Main Sub- Prior Milestones Output Output Program Objectives objectives actions and triggers criteria criteria Outcome 2006 for 2007 and and/or and/or Indicator DPL2 (state of indicator indicator 2010 and advancement target values target level of in Jun 2009) 2006 values achieveme 2007 nt at close of DPL1(2009) f) Introduce Publish by- Publish other by- by-law published Other by-laws pollution laws for laws related to published\. 20% charges for municipal and pollution of billings municipal industrial charges\. Collect collected and pollution pollution charges Four RBAs in industrial charges Two by-laws 2008, and five users concerning the in 2009 were technical billing these characteristics of charges\. Data wastewater provided do not effluent allow for the (dimensioning, evaluation of pollution this action\. coefficients and efficiency of treatment) are under review by the Ministry of Industry\. This reportedly does not interfere with collections of these charges by the RBAs\. g) Regulate Draft legal text Adoption by the Draft legal Legal document charges for for the control Government of document adopted ocean of wastewater the legal By-law under discharge of ocean disposal document for the review but may wastewater control of not be adopted\. wastewater ocean disposal A draft by law is under review, but appears to be contentious due to a possible legal basis issue relating to territorial waters\. 41 Main Sub- Prior Milestones Output Output Program Objectives objectives actions and triggers criteria criteria Outcome 2006 for 2007 and and/or and/or Indicator DPL2 (state of indicator indicator 2010 and advancement target values target level of in Jun 2009) 2006 values achieveme 2007 nt at close of DPL1(2009) 2\.2\. Develop a) Complete Issue calendar Publish the joint Agenda for the At least 5 by- Number of water legal for the by-laws dealing publication of laws published discharge pollution framework publication of with specific the joint by- per year points monitoring for pollution the joint by-laws disposal target laws Not met, but permitted and control, and dealing with standards progress is monitored empower specific disposal [recurrent clause] significant with Progress is institutional target standards There is progress 5 by-laws being made monitoring towards this published or towards this capacities action\. 4 by-laws about to be outcome in have been published, and legal terms\. published 5 additional Institutional between 2006 by-laws under monitoring and 2009 review or capacities not (domestic, sugar elaboration\. yet refineries, paper empowered\. mills, cement By July 2008 factories); a by- (no recent law concerning data oil refineries provided) no disposal is being RBA had published, and initiated another regulation of concerning polluting surface treatment effluents\. is under review\. However, it is Another 4 bylaws noteworthy are under that all RBAs discussion are currently regarding: i) conducting maximum an inventory disposal of disposal standards, ii) sites\. wastewater treatment efficiency standards, and iii) dimensioning and pollution coefficients of industrial activities\. Initiate water Number of quality control discharge enforcement permits issued activities in a By July 2008, pilot river basin the regulation This action has and permitting not been of disposal completed as it is sites had not dependent upon begun for the regulatory three sectors framework (see equipped with above) being in regulatory place\. standards\. 42 Main Sub- Prior Milestones Output Output Program Objectives objectives actions and triggers criteria criteria Outcome 2006 for 2007 and and/or and/or Indicator DPL2 (state of indicator indicator 2010 and advancement target values target level of in Jun 2009) 2006 values achieveme 2007 nt at close of DPL1(2009) 2\.3 Identify a) Design & Select two Implementation Two case Groundwater and launch pilot a natl\. case studies of the analysis on studies management a strategy to for the two case selected strategy and sustainable curb aquifer identification of studies\. plan approach to depletion the problems Initiate the submitted to aquifer and pollution and proposal design of a CIE\. managemen of solutions national strategy Recovery t\. for the protection trends in of overexploited aquifer levels and/or & quality in contaminated selected aquifers aquifers This action There is shows progress\. progress A national towards this strategy for the outcome\. A protection of national aquifers, strategy was including presented to technical and CIE in Dec legislative 2008\. measures, was Data presented to CIE provided do in Dec\. 2008\. not allow Actions quantification considered of aquifer include an recovery increase in trends and aquifer quality\. The withdrawal aquifer charges and regulation creation of process is prohibited making withdrawal areas\. progress but Additional faces initiatives significant underway include human and aquifer contracts material (operational in resource Sousse, in constraints, in finalization in El additional to haouz, la Bahira, as of yet Saiss et insufficient Berrechi)\. Also, empowermen the framework t of RBAs to agreements enforce signed between aquifer SEEE and the protection regions in 2009 measures\. include aquifer protection programs (water conservation, recharge, aquifer contracts, etc\.)\. 43 Main Sub- Prior Milestones Output Output Program Objectives objectives actions and triggers criteria criteria Outcome 2006 for 2007 and and/or and/or Indicator DPL2 (state of indicator indicator 2010 and advancement target values target level of in Jun 2009) 2006 values achieveme 2007 nt at close of DPL1(2009) Plan the development of withdrawal & quality control activities in the most depleted or contaminated aquifers Data provided in July 2008 regarding regularized withdrawals do not indicate whether they are surface or subterranean waters\. The by- law published on Jan 16 2009 regarding authorizations and concessions plans for an additional 3 year time frame to declare and regularize aquifer withdrawals\. 2\.4\. a) Secure Optimize and No action Multi-year Enhance the the support the required for plan on the sustainabilit optimization maintenance 2007\. optimization y of and and Public and financing hydraulic financing of rehabilitation investment for of hydraulic infrastructur hydraulic of hydraulic maintenance and infrastructure e for infrastructur infrastructure\. rehabilitation of maintenance resource e (recurring hydraulic and mobilization\. maintenance clause) infrastructure rehabilitation\. and (not including Adoption of rehabilitation funds directed to legal \. RBAs for this framework for purpose) has dam safety slightly increased Data between 2007 provided do and 2008, but not allow for decreased in the 2009\. evaluation of this indicator\. b) Regulate Initiate a Initiate Draft legal the safety of consultative discussion framework dams/ process to towards a draft hydraulic discuss legal framework infrastructur regulatory on dam safety e options for Data provided do dam safety not allow for the evaluation of this action\. 44 Main Sub- Prior Milestones Output Output Program Objectives objectives actions and triggers criteria criteria Outcome 2006 for 2007 and and/or and/or Indicator DPL2 (state of indicator indicator 2010 and advancement target values target level of in Jun 2009) 2006 values achieveme 2007 nt at close of DPL1(2009) c) Fight Finalize the Accelerate the Area (ha) against watershed implementation under anti- sedimentatio management of the PNABV as erosion n through studies in part of integrated management watershed progress, esp\. cross-sector Progress is managemen for programs being made t \. National OuedMellah (recurring clause) towards this Watershed and Allal El The anti-erosion outcome\. Managemen Fassi management Watershed t Plan project for the management (PNABV) Allal El Fassi and programs Oued Mellah funded watersheds between started in April 2006 and 2007 and will last 2008 have until 2013, at a achieved the total cost of 315 reforestation million MAD of 40,000 ha funded by JICA and the (75%) and GOM construction (25%)\. of 193,000 Increased m3 of dikes investment in this to correct sub-sector is ravines, in planned and addition to expected to yield local considerable development progress in the extension fight against measures\. sedimentation\. 2\.5\. Conduct Develop, Progress is a strategic approve the TOR being made analysis of and launch a towards this the technical, outcome\. satisfaction economic and The study is of water environmental in progress, needs for study of options but without agriculture, to satisfy water consultations potable demand in the with relevant water Tensift coastal sector supply, area\. agencies\. industrial The study is in uses, progress, but environment without al uses, etc\. consultations in the with relevant Tensift sector agencies\. coastal area\. 2\.6\. Initiate A study to Progress is the process evaluate the being made to revise the implementation towards this 1995 Water of the 10-95 outcome\. Law Water Law is Study is being conducted, currently in to define any progress\. necessary amendments\. 45 Main Sub- Prior Milestones Output Output Program Objectives objectives actions and triggers criteria criteria Outcome 2006 for 2007 and and/or and/or Indicator DPL2 (state of indicator indicator 2010 and advancement target values target level of in Jun 2009) 2006 values achieveme 2007 nt at close of DPL1(2009) Objective 3: Improve service, ensure asset sustainability and raise use efficiency in irrigation 3\.1 a) Make a Start the Finalize the Policy paper / Minutes of the Increase in Improve national preparation of NIWCP and guidelines of CIE meeting the on-farm priority of the the NIWCP submit it to the the NIWCP including agricultural water use Natl Plan for (encompassing CIE for decision\. decision in area efficiency Conservation technical, Allocate regards to the equipped with of Irrigation financial, legal, adequate public NIWCP efficient Water institutional and funding to NIWCP No CIE Minutes irrigation (NIWCP) awareness needs for 2008, are available\. systems raising aspects) as programmed The NIWCP There is The NCIWP was was funded in significant presented at the LdF 2009 progress CIE meeting in through the towards this Dec\. 2008 and Plan Maroc Vert outcome\. received full as a priority The areas support (no measure, and is equipped with minutes available)\. expected to efficient Funding for key continue to be irrigation conservation fully supported systems has measures was increased by allocated in LdF 22% between 2008 before the 2006 and Plan was 2008 approved\. Since 2009 funding is allocated through the Plan Maroc Vert\. b) Increase Prepare an Adopt and Amendment Amendment FDA subsidy amendment promulgate the signed by the promulgated rate to to the by-law amendment minister of This farmers' dated Nov\. 9, This amendment MADRPM amendment projects for 2001 to was promulgated and put in the was conversion to increase the in 2006\. decision promulgated efficient subsidy rate making in 2006\. irrigation to 60% process system c) Simplify Amend by- Adopt and by-law signed Decree procedure for laws on promulgate decree by the adopted and granting efficient The decree was ministers promulgated subsidies to irrigation adopted and MADRPM The decree conversion to equipment promulgated in and MFP was adopted water efficient subsidy 2006\. and irrigation granting by promulgated systems replacing the in 2006\. withdrawal However, it is permit unclear requirement whether the with a simple declarations of declaration of withdrawal are withdrawal\. transmitted to (for RBAs to conversion support a only) withdrawals regularization process\. 46 Main Sub- Prior Milestones Output Output Program Objectives objectives actions and triggers criteria criteria Outcome 2006 for 2007 and and/or and/or Indicator DPL2 (state of indicator indicator 2010 and advancement target values target level of in Jun 2009) 2006 values achieveme 2007 nt at close of DPL1(2009) 3\.2 a) Establish Prepare Prepare the CPs Report on the Draft CPs Increase the Improve Contrat-Plan ORMVAs to setting reciprocal costs of each prepared for 9 proportion of ORMVA (CP) to rule develop commitments mission and ORMVAs ORMVAs technical State and prerequisites of between the State the Draft CPs are operation and and ORMVAs CP's and the ORMVAs performances ready for two maintenance financial mutual implementation Studies are of each pilot ORMVAs (O&M) performan obligations (analytical underway with ORMVA for (Haouz and expenses ce accounting, assistance from 2005 Gharb)\. covered by information WB consultants\. irrigation system of water management, revenues etc\.) with the There is objective of significant separating the progress water service towards this accounts from outcome\. other missions' Coverage of accounts O&M b) Approach Establish the Implement the Issue the Publishing of expenses has sustainable Tariff TAP while TAP\. by-laws increased cost recovery Adjustment maintaining high relative to tariff from an for water Plan (TAP) for collection rate of increases in average service in all ORMVAs service fees\. A line with the across all public first tranche of plan ORMVAs of irrigation TAP was Publication in 65% to 72% perimeters\. implemented in early 2009 of between early 2009\. The a regulation 2005 and government (arrêté) 2009, and is intends to continue increasing expected to with TAP at a brisk tariffs\. A reach 98% by pace, with bi- second 2011 with annual tariff regulation is planned twice increases currently expected yearly tariff under review for shortly increases\. the next 3 years (already (until 2012) in signed by order to reach MAPM) to quasi full cost- continue to recovery\. increase tariffs Collection rates twice per year rose from 76% in to cover costs 2006 to 82% in by 2012\. 2007, then fell to 74% in 2008\. MFP Note 80% of bills collected The collections rate has increased from 70% in 2002 to 83% in 2007, as a result of sustained efforts to recover arrears and improve collections\. 47 Main Sub- Prior Milestones Output Output Program Objectives objectives actions and triggers criteria criteria Outcome 2006 for 2007 and and/or and/or Indicator DPL2 (state of indicator indicator 2010 and advancement target values target level of in Jun 2009) 2006 values achieveme 2007 nt at close of DPL1(2009) Assess waiving Process the waiver MFP note Decision on the late fees on decision\. waiver arrears (and The waiver incorporated in arrears for decision was draft 2008 minimum processed in 2006\. Budget Bill or consumption) other legal for farmers document agreeing on a Waiver has repayment been extended schedule their once, through whole arrears\. March 2009\. Draft relevant decision\. c) Strengthen Decide to Increase Exchange of 100% of the Improved maintenance increase maintenance Letters revenues efficiency of of assets in maintenance budgets within between generated by irrigation public budgets within ORMVA's budgets MADRPM/ tariff increases networks in irrigation ORMVA's by at least the and MFP allocated to public perimeters budgets by an revenue generated (MFP maintenance irrigation amount at by tariff increases approves This action is perimeters least equal to MADRPM's not yet There is the revenue proposal) quantifiable, modest generated by as tariffs were progress tariff increases increased in towards this 2009 outcome\. As currently imperfectly measured (volume billed/volume distributed) efficiency has increased from 82% to 83% between 2006 and 2008\. 3\.3 a) Promote Finalize TOR Select consultant TOR finalized Consultant Bid process Promote Public Private to study of to study contract launched for outsourcin Partnerships outsourcing of transaction & signed operations g of (PPP) in LSI irrigation draft bidding Consultants outsourcing irrigation perimeters service in a documents have already on a LSI service, pilot perimeter Consultants have begun working perimeter consistent begun to study on 5 studies This with PPP options for for 2008-2009\. outcome ORMVA five ORMVAs\. appears reform The government likely to be vision has adopted a surpassed strong pre-PPP by 2010- stance and is 2011\. accelerating actions in this direction\. Objective 4: Improve access to water supply and sanitation, and increase wastewater treatment capacity 4\.1\. Support a) Effective Effective 100% of 100% of Improved and optimize Strengthen payment of payment of indicated amount indicated RWS access sustainable GOM's RWSS budget RWSS budget of subsidy amount of rate and development financial support funds support funds disbursed subsidy to be service 48 Main Sub- Prior Milestones Output Output Program Objectives objectives actions and triggers criteria criteria Outcome 2006 for 2007 and and/or and/or Indicator DPL2 (state of indicator indicator 2010 and advancement target values target level of in Jun 2009) 2006 values achieveme 2007 nt at close of DPL1(2009) of Rural resources to by GOM, as by GOM, as per disbursed\. sustainability Water Supply fund RWSS per 2006 2007 Finance Action achieved in rural areas and investment Finance Bill Bill\. Allocate up to LdF 2009 There is Sanitation adequate public significant (RWSS) funding to progress RWSS needs for towards this 2008, as outcome\. programmed\. Access to The government service has has allocated reportedly RWS support (according to funds for LdF ONEP) 2007 (MAD 150 increased million), 2008 from 62% (MAD 150 (2006) to million), and 87% (2009)\. 2009 (MAD 100 There is million)\. Budget insufficient support to RWS information to declined in 2009 assess due to ONEP's whether contractual service agreement (as sustainability part of its has in fact recently signed been contrat improved, programme) to although take on a larger additional share of the resources RWS expansion have been effort\. allocated toward this objective\. 4\.2 Implement b) Increase Payments of Payments of 100% of 100% of Funds the National State budget subsidies to subsidies to indicated subsidy indicated committed to Sanitation support to the NSP as NSP as amount subsidy amount pollution Program investment stipulated in stipulated in disbursed to be disbursed control (NSP) related in the Finance 2007 Finance Action achieved compatible to wastewater wastewater Bill 2006\. Bill\. Allocate up to LdF 2009 with plans collection and collection & adequate public towards 60% treatment treatment, in funding to NSP abatement of particular for 2008, as urban through programmed discharge subsidy Budget support loads by reallocation has been 2012 allocated to the There is NSP at the significant increasing levels progress of commitment: towards this MAD 300 million outcome\. in 2007, MAD Pollution 350 in 2008, and MAD 500 million abatement in 2009\. NSP remains one 2008-2012 action of two plan maintains a principal level of objectives, commitment at and medium MAD 500 million, term goal in annually\. 49 Main Sub- Prior Milestones Output Output Program Objectives objectives actions and triggers criteria criteria Outcome 2006 for 2007 and and/or and/or Indicator DPL2 (state of indicator indicator 2010 and advancement target values target level of in Jun 2009) 2006 values achieveme 2007 nt at close of DPL1(2009) Formally Conduct study to PM decision and Concept paper 2008-2012 adopt NSP optimize joint concept Action NSP action and publish investment paper achieved with plan is to NSPs' strategies and (MATEE/MFP/MI support from reach 34% subsidy financing ) on subsidy KfW and pollution allocation mechanisms for allocation criteria World Bank\. abatement by criteria and NSP and management implementation management 2012\. arrangements Action achieved arrangements with support from KfW and World Bank\. 4\.3 Implement a) Catch up Finalize a Strategy Improved solutions to on the WSS strategy and prepared and WSS service promote WSS service program to plan financing access and service connection catch up on the programmed in sustainability access in deficit WSS Finance Bill for urban and poor urban & connection Strategy in peri-urban peri-urban deficit\. Allocate preparation, to households areas adequate public be finalized in Progress is funding to WSS Nov 2009\. being made connection towards this needs for 2008, outcome\. as programmed GPOBA pilots Strategy in in preparation, with Casablanca, the evaluation of Meknes and and Tangiers quantification of have shown needs almost promising completed\. results and Strategy to be discussions finalized in Nov are in 2009 assuming progress to inputs from all scale up this operators are approach\. made in a timely fashion\. 50 Main Sub- Prior Milestones Output Output Program Objectives objectives actions and triggers criteria criteria Outcome 2006 for 2007 and and/or and/or Indicator DPL2 (state of indicator indicator 2010 and advancement target values target level of in Jun 2009) 2006 values achieveme 2007 nt at close of DPL1(2009) 4\.4 a) Adopt a bill Adopt the Publication of Bill adopted Draft decrees Regulation Strengthen that allows for new Service subsequent to be reform the regulatory delegated Delegation application submitted scheme framework management Law\. Publish decrees, and Action NOT proposed to towards (i) and defines its main standard service achieved\. the improving associated application technical ONEP's Government performance mechanisms decree\. specifications\. required Little and cash-flow and regulation This law was exception to progress of operators; procedures promulgated the new law has been and (ii) better adapted to the hastily with remains achieved take into water supply insufficient time unresolved\. towards this account and sanitation to incorporate outcome\. consumers sectors substantial Although interests and technical some expectations comments from regulatory key sector actors measures are and donor being community\. It discussed has become internally at clear that the law MI, there is impedes the no efficient consultation participation of among the ONEP in small diverse WSS towns and rural actors to areas, making elaborate a the law largely regulation inapplicable as it scheme\. is\. ONEP has requested that a by-law be published allowing it an exception, but no progress has yet been made on this request\. Launch a study Implement the Steering Progress report of distribution study committee Phases 1 and 2 restructuring Phase 1 report of the study pilots\. (diagnostic have been phase) and 2 completed and (presentation to recommendatio stakeholders of ns Phase 1) have disseminated\. been completed\. A final decision about which arrangement to adopt for pilots, has not been made\. 51 Main Sub- Prior Milestones Output Output Program Objectives objectives actions and triggers criteria criteria Outcome 2006 for 2007 and and/or and/or Indicator DPL2 (state of indicator indicator 2010 and advancement target values target level of in Jun 2009) 2006 values achieveme 2007 nt at close of DPL1(2009) Establish a Workgroup workgroup in report Q1 '07 to assess A proposal has WSS regulation been presented needs and to the Minister options\. of Interior, but Regulatory not provided to measures are the Bank\. being discussed internally within Ministry of Interior, NOT at interagency level (including operators or other ministries or ONEP)\. Design a system A benchmarking WSS service for benchmarking system is in benchmarkin of cost and place, but g system in performance without ONEP's place among private participation\. Partial and public progress operators\. has been A benchmarking made system is in towards this place, but without outcome\. ONEP's This result is participation\. only partially achieved as the participation of ONEP and all WSS operators is essential to a meaningful national benchmarkin g effort\. b) Develop Prepare TOR Implement the TOR and legal Reorganizatio Increased performance for a study on reorganization of documents n to be number of based the 2 pilot régies prepared implemented public contracting reorganization Reorganization is in 2 régies operators of public of 2 pilots still being Implementatio accountable operators régies developed on a n is planned through pilot basis in Fez for 2010\. service and Marrakesh\. contracts Drafting of legal Adoption of legal Action Modest documents for documents for the achieved\. progress the new new financial and has been financial and accounting achieved accounting organization of the towards this organization of régies\. Action outcome\. régies achieved\. The number 52 Main Sub- Prior Milestones Output Output Program Objectives objectives actions and triggers criteria criteria Outcome 2006 for 2007 and and/or and/or Indicator DPL2 (state of indicator indicator 2010 and advancement target values target level of in Jun 2009) 2006 values achieveme 2007 nt at close of DPL1(2009) Start the study Study to be of operators for the carried out\. accountable development of This action through the regulatory has been service model and achieved and contracts has regulatory surpassed as not changed accounting in the a regulatory since the régies\. Set-up accounting onset of this regulatory model is now operation\. accounting being capacities\. implemented\. A regulatory accounting model has been adopted by the régies autonomes and is reportedly encountering great success\. MI's proposed 2010 budget emerges from this model\. Drafting of Draft standard standard agreement\. agreements In progress\. between ONEP and the local collectivities and between the operators and the local collectivities\. Standard agreements should indicate performance management and reporting arrangements\. A new standard agreement is being drafted following the adoption of the new Service Delegation law, and will reportedly be submitted shortly to MI (DGCL)\. 53 Main Sub- Prior Milestones Output Output Program Objectives objectives actions and triggers criteria criteria Outcome 2006 for 2007 and and/or and/or Indicator DPL2 (state of indicator indicator 2010 and advancement target values target level of in Jun 2009) 2006 values achieveme 2007 nt at close of DPL1(2009) Signature of Develop ONEP's Contrat ONEP Annual the 2006-2009 financial Programme reports\. Contrat- reporting for signed First annual Programme by regulatory report would State & ONEP purposes be issued for The Contrat- 2009\. programme was signed on Oct 31, 2008 for 2008-2010\. It includes an investment plan and performance indicator definition and reporting\. c) Design Establishment of Validation of the Minutes of the Legal document and a working group results of the working group for the implement for the working group; meeting implementation more preparation and drafting of the presenting of the chosen efficient tariff analysis of tariff necessary legal reform options option drafted\. structures reform options document for the TA No progress and tariff and the implementation of made on this Tariff structure adjustment development of these results\. action\. reform mechanisms associated No progress made completed and towards procedures to discuss or tariff regulation manage prepare a tariff reform performance reform\. The last engaged and tariff structure There has promoting adjustment dates been no access to back to 2006, and progress service encountered regarding tariff significant social structure opposition due to reform since poor design, timing 2006\. and combination with inclusion of 7% VAT in water bills\. The PSIA II study is expected to inform future tariff reform discussion\. 54 Main Sub- Prior Milestones Output Output Program Objectives objectives actions and triggers criteria criteria Outcome 2006 for 2007 and and/or and/or Indicator DPL2 (state of indicator indicator 2010 and advancement target values target level of in Jun 2009) 2006 values achieveme 2007 nt at close of DPL1(2009) Validation of Complete phase 2 TOR validated PSIA report the TOR for PSIA\. Disseminate validated\. phase 2 of the findings & Seminar Poverty and integrate into tariff minutes issued\. Social Impact structure reform\. PSIA 2 is Analysis The PSIA 2 study completed and (PSIA) has been has been completed and presented to the presented to the government\. government, illustrating impacts of tariff adjustments on the poor and vulnerable\. It is expected to contribute meaningfully to future discussions about tariff reform and subsidies in the water sector\. 55 Annex 4\. Summary of Borrower's ICR and/or Comments on Draft ICR 56 57 58 59 60 61 62 63 64 65 66  Annex 5\. Government of Morocco's Policy Letter dated December 19, 2006 (Unofficial translation of French of original attached to minutes of negotiation of December 5, 2006, and signed December 19, 2006) Kingdom of Morocco The Prime Minister No\. 01767 Mr\. Paul D\. Wolfowitz President of the World Bank Washington, DC, USA Subject: Letter of Development Policy for the Water Sector Mr\. President, The water sector benefits from particular attention from Morocco's administration\. The development of water resources has indeed always been at the heart of the nation's economic policies, as it is of crucial importance for irrigated agriculture and for the water and food security of the country\. Within this framework and since the country's independence, Morocco has conducted a dynamic policy to promote access to water which included the development of a solid water mobilization and water supply infrastructure for urban and agricultural needs\. Today, this policy which has bolstered the country's development, calls for new sector reforms to consolidate the efforts deployed so far and to meet the new challenges facing the water sector\. I\. CURRENT WATER SECTOR SITUATION Since the 1960s, the Government has given priority to developing its water resources\. In this regard, important progress has been achieved in the water mobilization sector to satisfy the needs of the population and the development of irrigation: - Water resource mobilization has been achieved through an important dam construction program which has increased the number of dams from 12 to 114\. This increase has led to a 80% mobilization rate for surface water and a nine-fold increase in water storage capacity, i\.e\., from 1\.8 billion m3 to 16 billion m3 at present\. - The objective of developing 1 million hectares of irrigated land has been exceeded given that the total irrigated area currently represents 1\.4 million hectares\. Irrigation generates on average 45% of Morocco's agricultural added-value and supports 75% of agricultural exports\. Farmer revenues have also increased 5 to 13 times, depending on the specific irrigation scheme\. The sectors for public works, industry, service provision and agro-industry have also registered a positive impact due to the increase in irrigated area\. - Urban water supply has also been a focus of sector policy as shown by the 90% potable water access rate in urban areas\. Since the mid-1990s, access to rural water access has also become a priority and a Water Supply Program for Rural Populations (PAGER) was implemented\. The potable access rate in rural areas increased from 14% in 1995 to 73% in June 2006\. In 1995, a water sector reform process was launched to promote efficient and sustainable resource management, as described below: 67  - Water Law No\. 10/95 amended the institutional framework for water resource management with the introduction of modern water resource management principles, an integrated approach according to type of water use, a decentralized management scheme at the river basin level, water users' contribution and participation, the implementation of economic incentives (e\.g\., the "user pays/polluter pays" policy), and the introduction of enforcement instruments through a "water police" force\. - Water Basin Plans (PDAIREs) were launched to improve sustainable water resource management at the water basin level through user participation and to improve living conditions of the population\. - A National Water Plan was also initiated to define the general trend of water sector policies and identify cohesion mechanisms and instruments needed for the integration of regional water plans into the national framework\. - The creation of River Basin Agencies has ensured an integrated, decentralized and participatory management style\. In spite of the achievements cited above, Morocco must now face new challenges, namely: the degradation of water resources; increasing water scarcity due to population growth and economic development; groundwater depletion; the increasing cost of water mobilization; and dam capacity losses due to climatic changes and siltation\. In addition, the water sector also faces of issues of renewal, rehabilitation and strengthening of its existing infrastructure\. Thus, several constraints must be addressed, both at the water sub-sector level and in the institutional framework of water management\. The main constraints facing the potable water and sanitation domain concern the uneven water access rate between urban areas, rural areas and poor peri-urban neighborhoods, as well as the severe lack of wastewater treatment facilities, the high cost of wastewater collection and treatment investments, and the over-burdened water mobilization schemes of certain large cities\. Agricultural sector challenges include: the existing gap between irrigation water demands and availability of water resource storage for this and other uses; worn out irrigation infrastructure in need of upgrading; the dominance of inefficient surface irrigation methods; and the limitation of ORMVAs' institutional framework which curtails their role in developing sustainable water service delivery and which does not clearly separate their public service and development missions from commercial water service delivery\. Water resource management is also hampered by lack of sector and policy planning due to poor coordination between sub-sectors, thus impeding the development of a rational and sufficiently coherent water resource management policy\. In spite of the State's considerable budgetary efforts in favor of the water sector, optimized resource reallocations between sub-sectors will be required to ensure better rationalization of public investment\. Thus, to consolidate achievements to date and to correct malfunctions, the Government is committed to supporting reform efforts in the water sector\. Accordingly, sector adjustment operations were engaged with the European Union in 2001 and with the African Development Bank in 2003\. Government support has also been instrumental in progress achieved in water sector reforms through: support to the implementation of integrated and decentralized water resource management with seven river basins; correcting the delays incurred in implementing the Water Law; promoting the public-private partnership in irrigation, potable water supply and sanitation; and improved dialogue on water issues through the creation of the Interministerial Water Commission\. In 2004, a water and sanitation sector review prepared with the World Bank's help presented a diagnostic of the water sector situation, and identified existing constraints to sustainable water resource development while formulating possible reform options\. 68 In the aftermath of the 2004 sector review, the preparation of the Water Sector Development Policy Loan (DPL) represents one of the objectives of 2006-2009 Country Assistance Strategy agreed by the Government and the World Bank\. The DPL will thus support reforms planned for improved sector governance, integrated water resources management, irrigation, potable water supply and sanitation\. The preparation of the DPL is accompanied by a multi-annual assistance program (ndlt: Programmatic Economic Sector Work) conducted with the World Bank to finance strategic activities, including studies, technical assistance and training seminars\. II\. GOVERNMENT STRATEGY FOR WATER SECTOR MANAGEMENT The new water policy initiated by the Government is based on the following principles: (a) integrated water resource management; (b) a realignment of sector policies, until now focused on increasing the supply and availability of water, towards management of water demands aimed at preserving the quality and quantity of available water resources, and towards improved operators' performance by implementing institutional and service regulation mechanisms\. Within this framework, the main objectives of water sector reform are to: (a) improve sector governance; (b) complete and enact integrated water resource management reform; (c) ensure better water service delivery, sustainable investments and improved productivity of water usage in irrigated areas; (e) improve access to potable water and sanitation, and increase the levels of water treatment and purification facilities; and (g) ensure wider access to sustainable water supplies in areas lacking adequate infrastructure\. In order to achieve these objectives, the water sector reform includes a series of structural and institutional measures which will strengthen strategy efficiency and operator performance in the sector\. 1\. Improve Sector Governance Government will implement the following measures to ensure policy and strategy coordination and coherence: The Interministerial Water Commission's (CIE's) mandate will be reactivated by a 2006 circular letter which will establish CIE's responsibility for coordinating government programs and strategies in the water sector and for formulating proposals on sector investment and implementation priorities\. CIE will convene twice a year and its recommendations will be taken into consideration for the draft budget bill of the incoming year\. CIE's permanent secretariat will be ensured by the Ministry in charge of water\. The standing committee of the High Council on Water and Climate (CSEC) will also be reactivated according to conditions set forth in its initiating decree\. Meetings will be scheduled to discuss progress achieved in the application of CSEC recommendations and any other issues related to water and climate sector policies\. The water sector administration's structure will be revised to ensure mission compatibility and to formalize sector regulations\. In this regard, Government will launch a study on the water sector structure in early 2007 to clarify accountability for defining and implementing sector policies and to effectively integrate sub-sector programs\. The study's findings will be presented to CIE in 2008\. A consolidated medium-term water budget planning system will be developed\. A Medium-Term Expenditure Framework (MTEF) will be implemented as of 2007 in the Ministry of Regional Planning, Water and Environment and in the Secretariat for Water, to be extended to other line water ministries in 2008\. Thus, public budget allocations will be better monitored to effectively target state budget objectives\. The budget reform currently underway in Morocco will thus coordinate contributions from sector stakeholders\. 69  Strengthening of governance and better operator management will be achieved through formal contracting of services\. This approach was adopted as an intermediate phase to prepare public sector enterprises to meet the required criteria for contrats-programmes as set forth in the public sector financial control law\. A contrat-programme between ONEP and Government is currently being finalized for the period 2006-2009\. Government will also implement a national water information system to initially help consolidate an information database and to ultimately set up a water observatory unit\. 2\. Complete and enact integrated water resources management reform In order to reach these objectives, the key actions will focus on: Strengthening the river basin agencies (RBAs) by defining clearly their mission regarding resource monitoring, planning and management, and for the promotion of public hydraulic assets preservation\. The O&M responsibility for hydraulic assets will be transferred to RBAs by contract which will also define their scope and funding\. In that context, joint by-laws transferring responsibility of public hydraulic assets to RBAs will be updated in 2007\. Preparing and establishing prerequisites to implement "contrats-plans" between the Government and RBAs, so that by 2009 contrats-plans can be in effect for all RBAs\. Establishing river basin committees (RBCs) for each river basin through the issuance of a circular letter in 2006 to improve user and community representation and participation in RBA decision processes\. Extending the collection of withdrawal charges to unconnected industries, households, industrial users, and irrigation users outside ORMVA/RBA conventions\. Establishing and enforcing charges for ocean discharge of wastewater, so that resulting revenues can be applied to pollution control programs\. Elaborating on the possibility to review modalities and level of water charges recovered by RBAs to enable an increase in their financial autonomy\. Aquifer conservation: the preparation of a national strategy to control aquifer overexploitation and pollution will be initiated in 2007\. The final design of this strategy will be submitted to CIE in 2008 and two pilot conservation operations will be launched\. Regarding water pollution control, the Government will take all necessary measures to effectively implement existing regulations and empower formal water quality monitoring and enforcement capacities\. Improving the sustainability of hydraulic assets, including through sedimentation control, by strengthening water basin development integrated programs according to the National Watershed Conservation Program\. Initiating a revision of the Water Law to submit an amendment draft to CIE in 2008 and present it to Parliament's approval in 2009\. The main objectives of the update of the Water Law 10-95 and its by-laws would be i) to update river basin agencies' missions and resources for consistency; ii) to better specify the planning process and interface between the National Water Plan and the PDAIREs, as well as the roles of the central administration entity in charge of water resources, of the river basin committees, of the High Council on Water and Climate and of river basin agencies in the preparation of these strategic documents; iii) to strengthen water users' and local governments' participation in the institutions in charge of water resource coordination, consultation, and management; and iv) to clarify and simplify the delimitation procedures for the public hydraulic assets\. 70 3\. Improve water service, ensure asset sustainability and raise use efficiency in irrigation Regarding the irrigation sub-sector, the Government will take necessary measures to: i) increase the efficiency of on-farm irrigation water usage; ii) improve water cost recovery and asset management in public irrigation perimeters; iii) promote the outsourcing of irrigation water service as part of a global vision of ORMVA reform; iv) reduce the amount of undeveloped irrigation surfaces downstream of existing dams, in particular through public-private financing partnerships\. In that regard, the Government's strategy will include: The preparation in 2006 of the National Plan for Conservation of Irrigation Water (NIWCP) which will become a national priority to be implemented from 2008 onwards; The encouragement of use of irrigation techniques to save water and raise its on-farm use efficiency in simplifying subsidy grant procedures and increasing subsidy rate to farmer's projects for conversion to efficient irrigation systems; The establishment of a Tariff Adjustment Plan for ORMVAs, with a continued high collection rate of services fees; The assessment and grant of incentives to farmers agreeing on a repayment schedule of their whole arrears; The improvement of ORMVA technical and management performance with the objective of separating the water service from the accounting of other ORMVA missions, in order to establish Contrats-Plans (CPs) in 2007 to rule mutual obligations with the State; A decision to increase ORMVAs' maintenance budgets by an amount at least equal to the revenue generated by tariff increases; The promotion of public-private partnerships in LSI perimeters\. In this context, the transaction preparation study for outsourcing of irrigation service in a pilot perimeter is being launched in 2006 to be completed in 2008, and launch the bidding process for the delegation of service in scheduled for 2009\. 4\. Improve access to water supply and sanitation, and increase wastewater treatment capacity Regarding the water supply and sanitation sector, the Government's objectives are to: i) generalize access to water supply in rural areas by continuing the PAGER program and promoting the sustainability f the AEPAR rural water supply and sanitation program; ii) improve access to drinking water distribution and sanitation service in urban areas, especially in poor urban and peri-urban areas; iii) develop sanitation and wastewater treatment capacities taking into account the water pollution reduction necessity\. The water supply and sanitation distribution sub-sector is therefore an essential component of the sector modernization and demand management reforms\. While acknowledging the complexity of the sector and the multiplicity of stakeholders, the Government will strengthen the regulatory framework and pursue tariff reform in order to promote performance and increase working capital of sector operators, and to develop accountability towards consumers' interests\. Regarding sanitation and water reuse, a National Sanitation Program (NSP) was engaged in 2006\. The implementation convention of the NSP 2006 tranche was signed in June 2006\. The NSP objective is to reduce water pollution loads by 60% in 2010 and by 80% in 2015, and extend sanitation network of 80% of the urban households by 2020\. The Government is committed to support and implement this program to reach expected results\. To do so, the Government will reinforce public aid to sanitation and wastewater treatment investments by reallocating financial resources to this sector\. Hence, by 2006, allocated subsidies will be paid, and allocation criteria and management arrangements will be established\. A study on the optimization of investment strategies and NSP financing mechanisms will be conducted starting 2007\. 71 In order to promote wastewater reuse, a strategy will be prepared aiming at establishing, by 2009, an appropriate institutional framework, and to develop an operational best practice manual\. The Government will also prepare and implement a National Drinking Water Conservation Program (NDWCP) in order to promote drinking water conservation to operators, industries and users\. In regards to RWSS, the Government will increase financial resources targeting investments in RWSS and, among other things, pay subsidies planned in Finance Bills, elaborate and implement a system insuring service sustainability, and publish and enforce the by-laws related to on-site sanitation\. In order to catch up on the connection deficit to WSS services in poor urban and peri-urban areas, the Government will, in 2007, finalize the preparation of a program to implement connection solutions for these areas\. It is worth noting that the National Initiative for Human Development (2006-2010), also supported by the World Bank, aims to improve conditions and quality of life of urban population\. To do so, projects will be implemented to increase access to basic social services and to strengthen infrastructure in 264 urban areas\. The Government's "Cities without Slums" program, led by the Government, also includes connections of population targeted by the program\. Concurrently, a study for the restructuring of water, sanitation and electricity distribution services, also supported by the World Bank, is currently being launched\. This study will allow to determine constraints and measures to be implemented in order to optimize projects to aim at multi-service distribution\. This new organization will allow communes to regroup themselves to implement a project for their common interest while realizing economies of scale and preventing fragmentation\. In terms of sector oversight and organization, several projects are currently being prepared and will be launched in 2007\. These projects are in line with the institutional and procedural framework of selection of operators, and will be accompanied by monitoring and regulation mechanisms\. These projects touch on the following aspects: Public service oversight and regulation: The Service Delegation Law offers to communes an appropriate framework for the selection and award of public service management outsourcing solutions\. This framework remains to be completed and improved by institutional mechanisms to organize and regulate operators' activities\. The strengthening of such mechanisms is urgently needed for existing contracts of service delegation\. Contractualization of public service management: Whatever the legal status of the operator or service provider, their relationship with the served community will have to be contractualized\. This process will establish the objectives to be reached, the preservation of managed assets which remain property of the community, and the definition of mutual obligations\. In this context, an analysis will be conducted on the needs and options of medium-term regulation reform\. In the short term, an initiative to benchmark water and sewerage distribution services across public and private operators will be launched, towards measuring and publishing of homogenous performance and cost indicators\. Continued water and sanitation tariff reform is also a key element of the overall water sector reform\. For several years already, the authorities have engaged the conceptualization of a restructuring of current tariff systems, and their adaptation to the new socio-economic constraints and to the demands built into the integrated water resource management objectives of the Water Law 10-95\. A national study of water and sanitation tariff systems has thus been completed in 2006, providing an up to date tariff system diagnostic, a cost and revenue simulator for each production and distribution operator, and a range of tariff restructuring scenarios\. A first milestone in tariff reform has also become effective in March 2006 with the publication of new potable water tariff decrees carrying several tariff adjustment provisions, including the increase of the fixed part of the tariff, the narrowing of the first tariff block (tranche sociale) from 8 to 6 m3/month, and the gradual matching of tariff structures (i\.e\. transition from block tariff to single tariff) for the tourism industry with those of general industry\. Concurrently, a 3\.5% increase in bulk potable water production tariffs was enacted in 2006\. 72 These efforts will be continued in the short and medium term to achieve tariffs structures towards better targeting of aid to the poor, better accountability for demand management and water scarcity, improved operator efficiency, and harmonization of cross-subsidies among users and in between sectors to promote equity and service access\. The Government is also determined to elaborate and enact tariff adjustment mechanisms taking efficiency criteria into greater account, aimed at promoting operator performance and transparency\. To that effect, an initiative to update tariff reform options and roadmap is engaged in 2006\. This work will result in the preparation of reform implementation texts and retained tariff adjustment rules, to be adopted in 2008\. The results of an in-depth study of poverty and social impacts analysis (PSIA), supported by your institution, will be taken into account for the design of tariff regulation reforms\. III\. MONITORING AND IMPLEMENTATION A Steering Committee has been created, headed by the Ministry of Economic and General Affairs, including the ministries and agencies involved in the water sector\. This Committee, which led the reform discussions and oversaw preparation of the DPL, will also be responsible for monitoring and implementing this program\. The Committee will ensure progress assessments on implementation and will submit annual progress reports\. The Steering Committee is also responsible for monitoring the multi-annual sector assistance program (PESW) prepared with the World Bank in support of the DPL\. As main decision-maker, the Interministerial Water Commission, headed by the Prime Minister, holds a pivotal monitoring role to ensure successful implementation of the reform\. The Government is fully aware that cohesion and coordination of program objectives and reform elements are crucial to ensure success\. To this end, the Government is planning to develop a communication strategy to define the messages, identify target audiences and allocate appropriate resources to achieve these goals\. The Government of Morocco hereby reiterates its commitment to providing adequate financing, for priority programs, such as the National Irrigation Water Conservation Program, the Rural Water Supply and Sanitation Program, the National Sanitation Plan, the National Watershed Conservation Program as well as efforts underway to compensate for connection deficits in water supply and sanitation\. The Government relies on World Bank support to provide an appropriate DPL loan to dynamically and successfully accompany this series of reforms\. We are grateful for the World Bank's interest in Morocco's water sector\. Sincerely, Driss Jettou Prime Minister 73  Annex 6\. List of Supporting Documents 1\. Program Document (report No\. 37442-MA) and Loan Agreement No\. 7444-MOR\. 2\. Aide-memoires and post-mission letters of GOM for missions of June 2007, November 2007, and June-July 2008\. 3\. Implementation Supervision Report for June-July 2008 mission\. 4\. Morocco Water Sector Policy Note, World Bank 2004\. 5\. Mechanisms and Flow of Funds in the Moroccan Water Sector, World Bank April 2008\. 6\. PSIA I - Poverty and Social Impact Assessment I for the Morocco Water Sector DPL, World Bank 2006\. 7\. PSIA II - Analyse de l'Impact Social et sur la Pauvreté des Réformes du Secteur de l'Eau et de l'Assainissement au Maroc, by SG2S Consultants for the GOM and UNDP- Morocco, December 2007\. 8\. Quality Assurance Group report regarding Quality at Entry, October 2007\. 9\. Etude de Restructuration des Services de Distribution d'Electricité, d'Eau et d'Assainissement dans Deux Zones Pilotes ­ Maroc, by SGI, ICEA, CID consultants for GOM, World Bank and PPIAF, June 2008\. 10\. Supporting Documents provided by MAEG, SEEE, MI, MAPM, MEF, ONEP and HCEF for the ICR review\. 74

REVIEW

P093096

IEG Report Number: ICRR14761 ICR Review Independent Evaluation Group 1\. Project Data: Date Posted: 06/26/2015 Country: Romania Project ID: P093096 Appraisal Actual Project Name: Social Inclusion Project Costs (US$M): 71\.40 53\.40 Project L/C Number: Loan/Credit (US$M): 58\.50 37\.60 Sector Board: Social Protection Cofinancing (US$M): 0\.9 0\.9 Cofinanciers: Board Approval Date : 06/13/2006 Closing Date: 03/01/2011 06/30/2014 Sector(s): Other social services (68%); Central government administration (22%); Pre-primary education (10%) Theme(s): Other social protection and risk management (29%); Vulnerability assessment and monitoring (29%); Urban services and housing for the poor (14%); Participation and civic engagement (14%); Education for all (14%) Prepared by: Reviewed by: ICR Review Group: Coordinator: Hjalte S\. A\. Sederlof Denise A\. Vaillancourt Lourdes N\. Pagaran IEGPS2 2\. Project Objectives and Components: a\. Objectives: The Project Development Objective (PDO) in the Loan Agreement (p\. 6) was to improve the living conditions and the social inclusion of the most disadvantaged and vulnerable people in Romania\. The Project Appraisal Document (PAD, p\. 3) had the following PDO: to improve the living conditions and the social inclusion of the most disadvantaged vulnerable people in the Romanian society by: (i) improving the living conditions and social inclusion of Roma living in poor settlements; (ii) increasing the inclusiveness of ECE [early childhood education] services in targeted areas; and (iii) improving the quality of services for PWD [persons with disabilities], youth at risk and victims of domestic violence\. The PDO was revised in a restructuring on March 28, 2011\. The new PDO was to (i) improve the living conditions and social inclusion of the most disadvantaged and vulnerable people in Romania and (ii) strengthen the administration of social assistance benefits\. At the time, 16 percent of the Bank loan had been disbursed\. The achievement of objectives will be assessed using sub-objectives (i) to (iii) in the original PDO in the PAD and objective (ii) of the revised PDO\. The original PDO in the Loan Agreement, and the first objective in the revised PDO, are overarching welfare outcomes, while the other elements are specific and monitorable objectives\. A split rating will be used between the sub-objectives (i) to (iii) of the original PDO in the PAD on the one hand, and objective (ii) of the revised PDO on the other\. b\.Were the project objectives/key associated outcome targets revised during implementation? Yes If yes, did the Board approve the revised objectives/key associated outcome targets? Yes Date of Board Approval: 03/28/2011 c\. Components: Note: In the absence of accurate information on project component costs, the costs listed below indicate use of the Bank loan\. Component 1: Priority Interventions Program (estimated cost at appraisal US$ 13\.25 million; actual cost US$ 16\.98 million)\. The component was to support the Romanian Social Development Fund’s (RSDF) program to improve living conditions and social inclusion for Roma through better infrastructure and basic social services\. The project would finance: (i) demand-driven community sub-projects; (ii) promotion, information, and education campaigns; M&E activities; and training for local authorities, community groups, and nongovernmental organizations (NGOs); (iii) capacity building at the community level and in the RSDF related to sub-project development; and (iv) provision of technical assistance to poor Roma communities to prepare projects to be financed through EU funds\. Activities were to focus on about 100 poor settlements\. The component was to be implemented by RSDF\. Component 2: Inclusive Early Childhood Education (ECE) Program (estimated cost at appraisal US$6\.9 million; actual cost US$ 7\.5 million)\. The component was to support the Ministry of Education and Research’s (MER) ECE program with the particular aim of mainstreaming participation of children from vulnerable groups, including the Roma, into the regular policies and programs of the Ministry\. The component was to include: (i) construction, extension, rehabilitation and furnishing of ECE infrastructure in communities with a high percentage of Roma; (ii) development of an inclusive ECE curriculum, the provision of training to ECE staff, the development and distribution of ECE teaching and learning materials, and the provision of technical assistance to entities entitled to submit applications for projects to be financed through EU structural funds; (iii) promotion of integrated services and alternative community-based solutions for ECE, including the development of coherent ECE legislation, and the provision of training and counseling programs for parents; and (iv) carrying out monitoring and evaluation and information, education and communication activities\. The component was to be implemented by MER\. Component 3: Social Assistance Programs (estimated cost at appraisal US$ 32\.4 million; actual cost 33\.71 million)\. The component was to support programs under the Ministry of Labor, Social Solidarity and Family (MLSSF) to improving the situation of PWD, youth at risk and domestic violence victims\. The component was to be implemented by the MLSSF\. It included three sub-components: Sub-Component 3\.1: Disabilities Program \. The sub-component aimed at restructuring institutional care and developing alternative community-based systems of assistance for PWD\. This would be done by: (i) implementing sub-projects proposed by local authorities; (ii) institutional capacity building by training professional staff to new standards of care, and developing the monitoring and evaluation system; and (iii) expanding a pilot on occupational counseling services to restructured services\. Subcomponent 3\.2: Youth at Risk Program \. The subcomponent was to support youth age 18 and over in social integration after exiting institutional care\. This would be done by improving their access to integrated social services that would increase their readiness for independent living\. The sub-component would finance subprojects submitted by local authorities to establish multifunctional centers providing protected housing and a range of services to facilitate integration into mainstream society\. It would also finance monitoring and evaluation, training for counseling and to MLSSF staff involved in supervising the centers established, and public awareness campaigns\. Subcomponent 3\.3: Victims of Domestic Violence Program \. The subcomponent was to support the development of integrated social services for victims of domestic violence\. It was to finance subprojects submitted by local authorities for housing to shelter victims and their dependents\. It was also to finance training for staff, a management information system , and public awareness campaigns\. Component 4: Capacity Building for Roma Social Inclusion (estimated cost at appraisal US$0\.9 million; actual cost 0\.25 million))\. The component was to provide assistance to the National Agency for Roma (NAR) and its 8 regional branches in inclusive planning, monitoring and evaluation, and identification, preparation and implementation of programs to be financed through EU and other funds\. This was to be done by: (i) training of NAR staff, Roma NGOs, local authorities and Roma community initiative groups; (ii) developing an information, education and communication strategy; and (iii) strengthening the monitoring and evaluation system\. NAR was to implement the component\. Revised components The PDO was revised in a restructuring on March 28, 2011\. The restructuring included the introduction of a new, fourth, sub-component into Component 3\. Sub-component 3\.4: Social Assistance Cash Transfer program \. The new sub-component was to support an ongoing Social Assistance System Modernization Project (SASMP) and included a range of activities to increase  efficiency in the administration and monitoring of social assistance benefits: (i) upgrading of the management information system for the National Agency for Social Benefits (NASB) with modules for family allowances and guaranteed minimum income (GMI); (ii) harmonizing means-testing procedures for social assistance; (iii) harmonizing disability assessment criteria and the institutional framework for disability benefits and invalidity pensions; (iv) developing institutional capacity and tools to prevent and combat error and fraud; (v) promoting public information campaigns on proposed reforms for efficiency and targeting of social assistance; and (vi) implementing monitoring and evaluation activities to assess the incidence of social assistance transfers and their impact, and savings gained from consolidating social assistance benefits and simplification of their administration\. At the same time, Component 1 was expanded to include 16 additional settlements to the 100 already targeted for provision of basic infrastructure and social services to the most disadvantaged Roma\. The new activities were financed by reallocating funds: US$ 1\.7 million were reallocated from Component 4, and US$ 1\.7 million from Component 3, both to Component 1 to finance the additional settlement investments; US$ 7\.4 million was reallocated within Component 3 to finance the new sub-component\. The space for reallocating funds was in part created by capacity constraints in implementation, especially in the NAR, in part due to financial constraints on co-financing by local authorities, as local budgets felt the effects of the international financial crisis; and in part due to grant financing by the European Union for NAR activities\. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: The information on costs, financing and borrower contribution has been provided by the project team, and is a correction of the costs indicated in the ICR\. Project costs\. Total project costs were estimated at US$ 71\.40 million at appraisal; actual costs at closing were US$ 53\.50 million\. The change reflects the cancellation of US$ 20\.9 million of Bank funds due to underspending on community sub-projects; and an increase in costs due to an increase in the Romanian value added tax that affected Borrower funding\. Project financing\. The Bank provided US$ 58\.50 million\. Of that, US$ 37\.60 million had been spent at project closing\. Communities contributed US$ 0\.9 million Borrower contribution\. The Borrower contribution was US$ 12 million at appraisal\. With an increase in the VAT in 2010 from 19 percent to 24 percent, the Borrower contribution increased to US$ 15 million\. Dates\. The project was approved on June 6, 2006 with an original Closing Date of March 1, 2011\. The Closing Date was extended three times, a first time from March 1 to May 1, 2011 to allow preparation of the new sub-component; a second time on March 28, 2011, when the PDO was revised, to March 1, 2013; and a third time from March 1, 2013 to June 30, 2014, at which time the project closed\. At the time of PDO revision, US$ 9\.99 million, or 17 percent, of the loan had been disbursed 3\. Relevance of Objectives & Design: a\. Relevance of Objectives: High for the original and the revised objective The Social Inclusion Project was developed as Romania increased its attention to social inclusion and poverty reduction targeted at vulnerable groups in anticipation of its joining the European Union (EU)\. Vulnerable groups were identified as the Roma minority, children at risk, persons with disabilities, and youth over 18 transiting from the state child protection system\. Social inclusion and a focus on disadvantaged groups remain important elements of Romania’s development strategy post-EU accession: they are present in the most recent national strategy for social inclusion and poverty reduction covering the 2014-2020 period, and form part of Europe’s “2020 strategy” to which Romania subscribes as a member of the EU\. The PDO also is aligned with the Bank’s Country Partnership Strategy (CPS 2014-2017) for Romania\. Social protection and the inclusion of low-income communities, especially the Roma, remain a priority in the strategy for FY2014-2017, and inclusion is one of the three pillars of the CPS\. The lending program for the new CPS period includes an Institutional Development Fund (IDF) operation for social inclusion\. The revised PDO is also in line with Government and Bank policy – the new sub-component (sub-component 3\.4) supports the implementation of an ongoing Social Assistance System Modernization Project (SASMP), and includes a range of activities to strengthen the administration of the  Government’s cash benefit system\. b\. Relevance of Design: Substantial for the original project and for the revised project\. The original design was relevant to the PDO – it included activities that aimed at improving living conditions and social inclusion\. To do so, it chose a program-based approach, contributing to the implementation of a series of ongoing Government programs that were relevant to the PDO\. The program approach was to be implemented by means of defined annual development plans where the Bank and the Government agreed on specific activities under each program, which would be financed by the project during the upcoming year\. The results framework had a statement of objectives linked to outcomes\. Indicators were measurable and related to each of the programs being supported by the project\. Monitoring and evaluation design (discussed in Section 10) allowed outcomes to be annually monitored\. The design of the revised project included the original design, which maintained its relevance, and introduced measures to strengthen the administration of cash benefits (sub-component 3\.4)\. These were introduced drawing on savings under the original project\. While initially broad in scope, during implementation they would be limited to changes in the management information system, as other elements would be financed from non-Bank sources and the SASMP\. 4\. Achievement of Objectives (Efficacy): The original PDO as stated in the Loan Agreement, and the first sub-objective in the revised PDO are overarching welfare outcomes\. Instead, efficacy will be assessed on the following specific sub-objectives drawn from the original PDO and the revised PDO: to improve the living conditions and the social inclusion of the most disadvantaged and vulnerable people in Romania\.by (i) improving the living conditions and social inclusion of Roma living in poor settlements; (ii) increasing the inclusiveness of ECE services in targeted areas; (iii) improving the quality of services for PWD, youth at risk and victims of domestic violence; and (iv) strengthening the administration of social assistance benefits\. A split rating will be used between sub-objectives (i)-(iii) and sub-objective (iv)\. Sub-objective 1: improving living conditions and social inclusion of Roma living in poor settlements Rating: Substantial Outputs  133 integrated projects benefiting 58,800 people (19,500 women); including 90 with community roads, 30 improving utility access, 62 with a social services component, 17 with a medical services component, 9 with a housing component, 21 with a community center, 21 with an environmental protection component  4 public information campaigns, information disseminated to 214 communities, 18 regional information seminars attended by 647 people, 23 training session for community coordination committees, 3 experience-sharing networks between beneficiaries including 12 network meetings, 171 eligible Roma communities received community facilitation services  1,659 annual consultations of Roma in poor settlements with local authorities over the project period Outcomes  The gap between targeted Roma settlements and neighboring communities as measured by the living conditions index narrowed by 62 index points as compared to a target of 20 index points, and a baseline of 504 index points  83 percent of targeted Roma settlements have access to improved infrastructure as compared to a target of 60 percent and a baseline of 10 percent  74 percent of targeted poor Roma settlements acknowledged an improvement in basic living conditions as compared to a target of 70 percent\.  76 percent of Roma from targeted poor settlements agree that sub-projects reflect community priorities The project was successful in improving living conditions of the Roma; it is less obvious that their social inclusion improved\. Outcome targets for improving living conditions as measured by a living conditions index were exceeded, and the results were recognized by a majority of beneficiaries\. The narrowing of the living conditions gap between Roma settlements and neighboring communities measures greater social inclusion only in the sense of Roma being “separate but equal”\. A somewhat stronger indicator of social inclusion may be the increased number of annual consultations between poor Roma settlements and local authorities on Roma community needs\. The ICR (p\.23) points to further anecdotal evidence of enhanced dialogue and cooperation, as well as the establishment of community groups to institutionalize a process for addressing Roma concerns, all indicators of higher social inclusion\. Roma communities also reported that closer links were being established with local authorities\. Sub-objective 2: increasing the inclusiveness of ECE services in targeted areas ; Rating: Modest Outputs  Built and furnished 19 new pre-school units and refurbished 8 exiting units in areas where there is a large percentage of Roma children age 0-6  ECE curricula for children age 0-3 and revised curricula for children age 3-6, designed to enhance socio-economical and physical health and coherence of the early education  Developed a methodological guide for teaching the new 0-3 curriculum; and a good practice guide for teaching and non-teaching staff for ages 3-6  Updating of quality standards for teaching and learning materials and of norms for supplies  In-service training for upgrading of staff skills in ECE units, including training modules  Provision of ECE teaching and learning materials, primarily for project ECE units  Training in preparation of ECE projects eligible for EU financing  Development of community-based services on a pilot basis  Training programs and modules for counseling parents were developed  Development of a monitoring and evaluation system for early childhood development Outcomes  6 percentage point increase in children from vulnerable groups in targeted communities participating in ECE, as compared to a target of a 5 percentage point increase  11 percent increase in staff with skills in inclusive education Outputs under the sub-objective include a list of activities creating the kinds of early childhood development opportunities and pre-school education situations that should over time plausibly lead to better outcomes in ECE in the targeted areas\. The immediate effects during the project period were, however, modest: an increase from 70 to 76 percent in the number of children from vulnerable groups participating in ECE\. To that should be added the community-based pilot which was successfully introduced into isolated communities, exposing parents to early childhood education and practices\. Sub-objective 3: improving the quality of services for PWD , youth at risk and victims of domestic violence \. Rating: substantial Outputs 1\. Quality of services for PWD  Established 6 neuropsychiatric recovery and rehabilitation centers, 7 assisted care centers, and 25 protected dwellings, conforming to defined quality standards for resident centers, day centers and assisted housing for adults with disabilities\. The facilities cater to a total of some 850 beneficiaries 2\. Quality of services for youth at risk (youth 18+ leaving institutional care)  10 multi-functional centers for youth at risk were established, and seven of these are already in operation, catering to 175 youth 3\. Quality of services of victims of domestic violence  4 shelters were constructed, offering temporary shelter and social services to a total of 209 female victims and minors  An awareness campaign, including 7 conferences, surveys of public attitudes, and 41 street events, distribution of materials Outcomes   The new services for PWD were realized in accordance with the specific quality standards for residential centers, day centers and assisted housing for adults with disabilities, approved by order of the president of the National Authority for Disabled Persons; at the time the ICR was being prepared, some centers for PWD were still being completed  Share of youth benefiting from multifunctional centers who found employment reached 40 percent, equaling the target Revised PDO: (i) improve the living conditions and the social inclusion of the most disadvantaged and vulnerable people in Romania; and (ii) strengthen the administration of social assistance benefits\. The assessment of the revised PDO will include (i) the assessment contained in the Original PDO; to which will be added (ii) an assessment of strengthening the administration of social assistance benefits Sub-objective 4: strengthening the administration of social assistance benefits Rating: substantial Outputs  The National Agency for Social Benefits (NASB) cross checks information with an increasing number of databases from a starting point of zero Outcomes  The scope of the management information system for the National Agency for Social Benefits (NASB), as measured by the number of large social assistance programs (or their successors) paid through that system, increased from 4 programs in 2010 to include all 8 programs by 2014\. The sub-objective initially had a more ambitious agenda, as indicated above in the description of the component\. However, only the management information system would be implemented, as the other planned activities were either financed from non-Bank sources, or by a restructured SASMP\. That said, the introduction of a common management information system allows consolidation of databases, ultimately likely to result in a single national registry\. Already, the three small social assistance programs have been eliminated, and two others consolidated into a national family allowance; and a national registry for PWDs has been put into place\. 5\. Efficiency: Rating: modest No quantitative estimates of efficiency were undertaken, either in the PAD or the ICR, as much of the project (over 75 percent) consisted of demand-driven sub-projects designed or requested by communities\. The ICR provides a qualitative and comparative assessment of cost-effectiveness\. It points to strong performance by the RSDF (exceeding targets), and earlier studies that have indicated that RSDF tend to be systematically lower than for comparable programs\. Investments in ECE introduce effective models that over time should have a strong beneficial effect on school and job performance of children from disadvantage environments\. Expansion of activities for PWDs and at risk children will increase fiscal/financial costs in the immediate future, but should have long-term economic and financial cost saving effects\. The harmonization of information systems and consequently social assistance programs should have a strong rationalizing effect\. These efficiency gains must be weighed against inefficiencies that affected implementation, including the organizational and institutional complexity of design; limited capacity; the only partial use of project funds, and a cumbersome procurement process\. a\. If available, enter the Economic Rate of Return (ERR)/Financial Rate of Return (FRR) at appraisal and the re-estimated value at evaluation : Rate Available? Point Value Coverage/Scope* Appraisal % % ICR estimate % % * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome:  The ratings for relevance of objectives are high for the original project and the revised one\. Both are directly in line with Government policies and Bank strategy\. The ratings for design are substantial for the original PDO and for the revised one\. They reflect a sound basic design and a balanced results framework, albeit that the latter is only focused on the management information system\. Efficacy for the original sub-objectives is rated substantial, modest and substantial, the former rating reflecting improvements in living conditions and social inclusion, the absence of robust outcomes for the second sub-objective, and the achievement of targets in the third sub-objective\. Introducing the revised PDO, the ratings from the original PDO remain the same, and the rating for the fourth, new sub-objective is substantial, reflecting substantial progress on the management information system\. Efficiency is rated modest\. Based on these ratings, the outcome rating for the original objective is moderately satisfactory \. The outcome rating for the revised objective is moderately satisfactory \. At the time of the introduction of the revised objective, the project had disbursed 26 percent of the Bank loan\. According to OPCS/IEG guidelines for restructured projects, the final outcome rating is determined by the ratings for the original project and the restructured project, weighted by the percentage of the grant that disbursed before and after the restructuring\. The weighted value of the outcome under the original objective is calculated as follows: 4 for moderately satisfactory x 26 percent of total disbursements before the introduction of the restructuring = 1\.04\. The weighted value under the restructuring is: 4 for moderately satisfactory x 74 percent = 2\.96\. The weighted average score is therefore 1\.04+2\.96 = 4\.00\. The combined outcome rating is therefore moderately satisfactory\. a\. Outcome Rating: Moderately Satisfactory 7\. Rationale for Risk to Development Outcome Rating: The risk to the development outcome pertains to the sustainability of the initiatives to maintain and further improve living conditions and social inclusion for vulnerable groups\. Sustainability appears highly likely: the Government is committed as a member of the EU through the Europe 2020 initiative including social inclusion; and it is pursuing a strategy of social inclusion and poverty reduction, as well as a national Roma integration strategy\. The Bank-funded MLFSP is providing funding for those initiatives\. At the operational level, implementation of strategies is partly dependent on local authorities’ co-financing capacity, and here the risk may be moderate\. a\. Risk to Development Outcome Rating : Moderate 8\. Assessment of Bank Performance: a\. Quality at entry: The project was relevant, responding to the Government’s strategic priorities\. Its design was based on lessons learned during earlier Bank operations, extensive Bank involvement with Roma issues, as well as vulnerable groups more generally (disability, social care, social assistance); and a detailed social assessment of the provision of services to children and the disabled\. It used existing government structures for implementation, and it secured continued government engagement by requiring annual, up-front commitments\. The monitoring and evaluation system was designed to feed into this annual process\. The Bank team identified key risks and introduced mitigating measures, but it did not sufficiently appreciate the organizational and institutional complexities of involving three ministries and two agencies, and local authorities and targeted local communities\. A more careful analysis during preparation could have facilitated a smoother implementation\. The absence of an overall coordinating body for harmonizing processes may have added to the challenge\. Capacity constraints, especially in the National Agency for the Roma (NAR) and at local government levels, as well as a lengthy and cumbersome sub-project cycle, would quickly show up and slow down overall progress during the early stages of implementation\. The project would come to extend from an original five years to eight years\. Some of this could have been avoided had more attention been paid to the implications of Government-level bureaucratic processes on project implementation – effectiveness procedures and approval requirements for sub-national investments – as well as the institutional framework for coordination\. Quality-at-Entry Rating: Moderately Unsatisfactory b\. Quality of supervision:  While the challenges that were insufficiently addressed in Quality at Entry – coordination, capacity, processes – would complicate implementation and the supervision process, supervision, which was undertaken from the field office with the support of specialists, was able to manage many of those challenges as reflected in the assessment of efficacy above\. Supervision focused on monitoring progress on the indicators in the results framework; and it placed particular emphasis on supporting NAR, where performance was particularly weak\. This was not altogether successful, and significant project resources – 10 million euros – were reallocated to provide technical assistance for social assistance reform, initially a short-term response to the poverty effects of the international economic crisis\. While this addressed an important issue, it fell outside the framework of the original project and its objectives Quality of Supervision Rating : Moderately Satisfactory Overall Bank Performance Rating : Moderately Satisfactory 9\. Assessment of Borrower Performance: a\. Government Performance: The Government was consistently committed to the project, despite several government and ministerial changes (ICR p\. 14)\. While fiscal constraints, especially during the international economic crisis, did affect implementation, especially through local budgets, the Ministry of Finance did provide timely funding within its limitations, also through seeking other sources of external funding\. The performance was somewhat dampened by cumbersome implementation and approval procedures, and the inability to introduce inter-agency coordination for implementing the living conditions and social inclusion strategy\. Government Performance Rating Moderately Satisfactory b\. Implementing Agency Performance: The project was implemented by two ministries (MLSFP and MER) and two agencies (RSDF and NAR)\. The RSDF, in charge of the priority interventions program (Component 1), performed well with a strong staff, good governance and prior experience with the Bank\. Likewise, the MER, in charge of the ECE program (Component 2), performed well, also with the benefit of prior Bank experience\. The performance of MLFSP was weaker: it was the Ministry most affected by the government changes, it was restructured during implementation due to the effects of the economic crisis\. With its project components being the ones most dependent on local authorities, it was the agency most affected by cumbersome procurement rules\. Component 3 was most affected by a weak institution, as NAR would turn out to be the weakest performer of the central agencies: although central to the Roma aspect of the project, it had low capacity and appears to have demonstrated only intermittent commitment to the project; while local authorities who were responsible for civil works, had low capacity and faced cumbersome procurement procedures\. These factors are likely to have significantly contributed to the de facto underspending on the project\. Implementing Agency Performance Rating : Moderately Unsatisfactory Overall Borrower Performance Rating : Moderately Satisfactory 10\. M&E Design, Implementation, & Utilization: a\. M&E Design: Each project component had a built-in monitoring and evaluation component that consisted of an annual project report provided by the four main agencies (MLSSF, MER, RSDF and NAR)\. They were based on administrative data, beneficiary assessments and independent evaluations; and they informed the annual outcome plans and progress on the results framework\. Objectives were clearly specified, albeit with some ambiguity as to what actually went into the determination of “living conditions” and “social inclusion”\. This was, however, overcome by  the indicators, which all could be included under those broad headings\. All indicators were measurable\. Data collection and processing was to be done by the implementing agencies\. Their capacities for M&E varied, with RSDF and MER having some capacity, and MLFSP and NAR limited capacity\. b\. M&E Implementation: Implementation of monitoring, including the collection of baseline data, was slow to start, in part reflecting slow site selection for sub-projects, and in part capacity constraints\. This was in particular the case in NAR, which was to build a database for Roma living conditions and social inclusion\. A consultant was initially brought in to support NAR, but subsequently withdrew due to a contract dispute\. Subsequently, each agency developed its own survey methodology to collect data and monitor outcomes\. One consequence of this appears to have been that a number of intermediate indicators were dropped or revised during the 2011 project restructuring\. c\. M&E Utilization: The information that was being generated by the agencies was used to set annual and monitor progress on outcome indicators\. It is not clear that the specific M&E arrangements for the project feed into the Government’s broader efforts to address the needs of vulnerable groups\. M&E Quality Rating: Modest 11\. Other Issues a\. Safeguards: The project triggered the Bank’s Environmental Assessment (OP/BP/GP 4\.01) safeguard in view of the small infrastructure works and rehabilitation of existing works\. It was classified as ‘FI’, with primarily B and some category C subprojects expected\. The Operating Manuals included a chapter setting out environmental screening criteria and approach to identify and mitigate risks\. The implementing agencies’ compliance with environmental screening criteria was supervised periodically, including reviews of subproject feasibility studies, with occasional site visits\. Only minor issues were identified, which were promptly addressed\. b\. Fiduciary Compliance: Financial management \. Despite the substantial risk to financial management due to complex institutional arrangements that had been identified during appraisal, financial management performance including accounting, budgeting, and reporting was satisfactory throughout implementation, and proper control procedures were maintained\. On-site supervision was conducted regularly, twice each year, with spot checks of selected transactions\. All audit reports were received, occasionally with slight delays, but opinions were clean with only minor recommendations\. The only issue that altered the project’s original financial arrangements related to the closing of the project’s three designated accounts and reimbursement to the Bank of amounts that had been advanced when the government took the decision to pre-finance all externally financed project expenditures with budget resources\. Procurement\. Procurement processes were satisfactory, although the national procurement legislation required approval at several phases of the process by several entities at the local and national level, including the need for inter-ministerial and even government approvals\. This led to continuing delays in implementation\. The Bank carried out post-procurement reviews on an annual basis, including site visits and physical inspection of the works financed\. Only minor issues were identified (for example, limited bids received, minor reporting issues on evaluation reports, and bid opening procedures)\. One recurring issue was the lack of interest in potential bidders and firms expressing interest in consultancy assignments c\. Unintended Impacts (positive or negative): n/a d\. Other: n/a 12\. Ratings: ICR IEG Review Reason for Disagreement/Comments Outcome: Moderately Moderately Satisfactory Satisfactory Risk to Development Negligible to Low Moderate Limited local capacity to implement new Outcome: strategies Bank Performance: Moderately Moderately Satisfactory Satisfactory Borrower Performance : Moderately Moderately Satisfactory Satisfactory Quality of ICR: Satisfactory NOTES: - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate\. 13\. Lessons: Lessons drawn from the ICR: A rigorous assessment of organizational and institutional capacities is critical at preparation and prior to implementation\. This allows designers to properly calibrate project objectives, activities, and responsibilities, and establish realistic implementation schedules Coordination mechanisms need to be considered when multiple agencies are involved in project implementation\. This may be particularly important for social inclusion programs, which tend to operate in a context of fragmented approaches, across sectors, and include a range of different interventions, diverse actors and differing institutional arrangements\. Capturing how activities ultimately contribute to social inclusion is essential in the design of social inclusion projects\. Construction and rehabilitation of facilities and training of providers – often the core of social inclusion action – are of course key to providing services\. Yet, they do not represent the full measure of social inclusion and empowerment\. Results frameworks would need to capture and measure what was built, but also how assets contribute to and translated into enhanced inclusion and well-being\. 14\. Assessment Recommended? Yes No 15\. Comments on Quality of ICR: This was a rich ICR, but at 42 pages it was also long\. A less detailed discussion could have covered the same ground and been more cost effective\. That said, the evidence presented and the analysis provided offered s strong results-oriented text on the basis of which to assess the project\. The presentation of costs and project financing is confusing – cost and financing tables don’t match, and the reallocations during restructuring are unclear\. Except for the length of the document and costs/financing, the ICR follows guidelines\. a\.Quality of ICR Rating : Satisfactory

REVIEW

P078806

 ICRR 12265 Report Number : ICRR12265 ICR Review Operations Evaluation Department 1\. Project Data: Date Posted : 09/01/2005 PROJ ID :P078806 Appraisal Actual Project Name :SIMPLIFIED - Pakistan Project Costs 900 n/a PRSC I US$M ) (US$M) Country :Pakistan Loan/ Loan US$M ) /Credit (US$M) 300 300 Sector (s):General ): US$M ) agriculture fishing Cofinancing (US$M) and forestry sector; Central government administration; General public administration sector; Other social services; General industry and trade sector L/C Number :C3974 FY ) Board Approval (FY) 05 Partners involved : Closing Date 12/31/2004 12/31/2004 Evaluator : Panel Reviewer : Group Manager : Group : John H\. Johnson Zeynep Taymas Kyle Peters OEDCR 2\. Project Objectives and Components a\. Objectives PRSC I is the first of three planned operations intended to support key aspects of the Pakistani Government's Poverty Reduction Strategy, including : 1\. Promoting economic growth while maintaining macroeconomic stability \. 2\. Promoting improved governance and effective devolution of certain public policy functions to the provinces and local governments\. 3\. Promoting investment in human capital \. And, 4\. Targeting the poor and vulnerable with improved social services \. b\. Components (or Key Conditions in the case of Adjustment Loans ): The following were the operation's key components by objective (prior actions are displayed in bold): bold 1\. (a) Maintenance of macroeconomic stability \. (b) Submission of a draft Law on Fiscal Responsibility and Debt Limitation to the National Assembly \. (c) Acceleration of reform of the Central Board of Revenue (CBR)\. (d) Implementation of selected measures advancing budgetary management reform \. (e) Executive Branch approval of an Action Plan for recovery of the power secto r\. (f) Completion of the privatization of Habib Bank \. (g) Approval of a telecommunications policy enabling free entry of private sector competitors to the landline market and expanded licensing of mobile phone operators \. (h) Implementation of a transparent pricing framework for retail natural gas, and rationalization of consumer subsidies\. 2\. (a) Adoption of national procurement rules compatible with international best practice \. (b) Improvement in the timeliness and accuracy of governmental accou nting statements \. (c) Establishment of a Federal Public Accounts Committee in the National Assembly \. (d) Extension of computerized accounting to at least 8 sites\. (e) Comprehensive civil service reform strategy drafted, including broad contours of a National Executive Service\. 3\. (a) Consolidated public education expenditures increased to at least 2 percent of GDP during FY 03\. 03 (b) Introduction of a National Education Assessment System (NEAS) NEAS ) and completion of a pilot assessment of the Fourth Grade cohort \. (c) Implementation of curriculum revisions for Grades 1-12\. (d) Consolidated public health expenditures increased to at least 0\.7 percent of GDP during FY 03\. (e) Government contracting of NGOs to deliver tuberculosis, malaria, and HIV /AIDS preventive and curative services \.  4\. (a) Initiation of a comprehensive evaluation of various existing safety net programs \. c\. Comments on Project Cost, Financing, Borrower Contribution, and Dates The project was a single-tranche programmatic credit in the amount of US$ 300 million equivalent\. Full disbursement took place on September 14, 2004, twelve days after approval \. 3\. Relevance of Objectives & Design : All objectives are considered highly relevant, having been identified first in the Government's PRSP of 2003, and supported by extensive prior AAA \. Interventions were generally well conceived, although, due to lack of available data on the operation of the existing social safety net, significant progress toward improving the delivery of social services to the poor and vulnerable had to be postponed until approval of follow -on PRSCs\. 4\. Achievement of Objectives (Efficacy) : 1\. Substantial\. Economic output growth accelerated to an annual average real rate of 6 percent annually during 2002-2005; the Fiscal Responsibility Bill was recently approved by the National Assembly, and will soon be signed into law; and the budget deficit of the national government remained at historically low levels \. Privatization proceeded satisfactorily, and was recently expanded by the sale of the publicly -owned Telecommunications Enterprise\. Liberalization of telecommunications policy produced major improvements in connectivity \. Foreign investors display significantly increased interest in the Pakistani market over the past twelve months \. However, acceleration of inflation to 9 percent annually remains a concern, as does the slow progress in rationalizing consumer power and natural gas subsidies \. 2\. Modest\. Revision of procurement rules so that they now conform to international best practice, constitutes a major opportunity to reduce waste and corruption \. However, to date, enforcement of these new regulations has languished, awaiting key follow-up actions on implementing regulations and monitoring and reporting mechanisms \. Public accounting and auditing have improved substantially in timeliness and coverage \. But, progress in restructuring the civil service has been slow, and follow up on creating a National Executive Service meager \. Likewise, progress on pay and pension reforms has been limited \. Devolution of health and education services to local and provincial governments is proceeding, but with spotty results, given unresolved tensions between levels of government and weak implementation capacity in many regions \. 3\. Substantial\. Public spending on education and health increased, although only the former met its GDP share goal in FY04\. Moreover, extensive pilots are underway to improve baseline data, as well as the monitoring and reporting of results; they are expected to improve the understanding of results over the next several years \. Twelve NGOs have been have been made official partners of the Government in providing a broad array of curative and preventative services\. Preliminary results of a new household survey suggest that net education enrollments and immunization coverage have improved considerably \. 4\. Modest\. Evaluation of the safety net was completed, and provided timely guidance to PRSCs 2 and 3 in supporting follow-on interventions\. However, the tangible impact of this survey on service delivery to the poor and vulnerable was understandably modest \. 5\. Efficiency : Not rated\. 6\. M&E Design, Implementation, & Utilization: Major emphasis was placed on improving statistical, monitoring, and evaluation systems \. Parallel operations are directed toward building this capacity at the federal, provincial, and local levels \. However, other than a few budgetary spending targets, quantifiable performance indicators were largely absent from the design of PRSC I \. 7\. Other (Safeguards, Fiduciary, Unintended Impacts--Positive & Negative): None indicated\. 8\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Satisfactory Moderately Satisfactory Modest progress on reform of the power, social, and civil service sectors, and on enforcement of revised procurement regulations, prevented full attainment of project objectives\. Institutional Dev \.: Modest Modest Sustainability : Likely Likely Bank Performance : Satisfactory Satisfactory Borrower Perf \.: Satisfactory Satisfactory Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - ICR rating values flagged with ' * ' don't comply with OP/BP 13\.55, but are listed for completeness \. 9\. Lessons: 10\. Assessment Recommended? Yes No Why? This is the first of a cluster of programmatic loans in an important Borrower facing major development challenges\. Of particular interest would be a review of the effectiveness of this broad -based approach to development policy lending, keeping in mind the recent recommendation of the Pakistan CAE that such lending in future be more narrowly focused \. 11\. Comments on Quality of ICR: This Simplified ICR provides a strong, thoughtful accounting of the results anticipated from adoption of the various prior actions supported by PRSC I \. The policy matrix at Annex I is excellent \. However, in rating achievement of the objectives (Section 4), the components should have been aggregated by objective, and the bottom-line assessment of efficacy tied to the four objectives, rather than the myriad components \. Had it done so, the ICR rating of outcome might have more readily acknowledged the influence of important shortcomings in the power, social, and civil service sectors in its rating of outcome \.

REVIEW

P010325

 ICRR 10855 Report Number : ICRR10855 ICR Review Operations Evaluation Department 1\. Project Data : Date Posted : 07/27/2000 PROJ ID : P010325 OEDID: OEDID : C1987 Appraisal Actual Project Name : Second Karachi US$M ) Project Costs (US$M) 331\.7 325\.9 Water & Sanitation Project Country : Pakistan Loan/ US$M ) Loan /Credit (US$M) 216\.9 225\.7 Sector, Major Sect \.: Urban Water Supply , US$M ) Cofinancing (US$M) 138\.3 N\.A\. Water Supply & Sanitation L/C Number : C1987 FY ) Board Approval (FY) 89 Partners involved : Overseas Closing Date 06/30/1998 06/30/1999 Development Administration (ODA); Asian Development Bank (ADB) Prepared by : Reviewed by : Group Manager : Group : Klas B\. Ringskog Andres Liebenthal Ridley Nelson OEDST 2\. Project Objectives and Components a\. Objectives (1) To increase potable water supply by about 31% (100 million Imperial gallons per day (Imgd) and reduce water losses; (2) To improve the financial viability of the Karachi Water and Sewerage Board (KWSB) through increased revenues, cost reductions, and increased operational efficiency; (3) To improve the organization and management of KWSB; (4) To improve sanitation in the City of Karachi, including its low -income and coastal areas by increasing sewerage coverage by 232 Imgd and treatment capacity by 94 Imgd\. b\. Components (1) Water Supply : A 30 km canal and a 70 km conduit to bring water from the Indus river to Dhabeji; four major pumping stations; two direct filtration treatment plants; storage reservoirs; 40 km of primary distribution mains; 10 km of steel pumping main; and expansion /rehabilitation of the distribution network; (2) Sanitation : Three new sewage treatment works with associated trunk sewers; repairs and cleaning of existing sewers; small-bore sewers for low-income neighborhoods; and (3) Institutional Strengthening : Technical assistance, training and studies for KWSB to enable it to plan and execute large scale projects, improve operations and maintenance, and improve and extend sanitation in the City and coastal areas\. c\. Comments on Project Cost, Financing and Dates The project was approved by the Board on February 28, 1989 and closed on June 30, 1999 with a delay of one year\. The ICR reports that the project cost escalated from US$ 331\.7 million to US$ 753\.0 million out of which IDA seems to have financed US$ 225\.7 million\. (The ICR mentions that IDA made a supplementary credit that raised total IDA financing from US$ 125 million to US$ 217 million but no date or credit number are indicated \. Similarly, simple arithmetic ( in ICR Annex 2) indicates a final project cost of US$ 325\.9 million and not US$ 753\.0 million as reported elsewhere in the ICR\.) There was co-financing of certain components by ODA /DFID ( water supply) and by Asian Development Bank ( sewerage) but the ICR does not specify the corresponding amounts which is a major flaw \. 3\. Achievement of Relevant Objectives : None of the four objectives were fully achieved \. Specifically: (1) The water supply was increased by 105 Imgd ( about 500,000 cubic meters per day) but no loss reduction is documented; (2) The financial viability of the KWSB hardly improved and the KWSB survived thanks to Government subsidies throughout the 1990s\. KWSB did manage to pay for its operating costs out of operational revenue from FY 96 onwards but it is uncertain to what degree this was possible due to deferred maintenance \. The operational efficiency and the intended reduction in water losses are impossible to gauge since KWSB chose not to meter domestic consumption\. (3) The organization and management of KWSB did not improve in a sustainable fashion although an energetic Managing Director appointed in 1995 was successful in reducing staff from 14,000 to 8,500 ( reduction of 40 %) and manage some limited administrative improvements; and (4) The ICR itself lacks a Bank analysis of the achievements under the ADB -financed sanitation components and instead provides only the Borrower's analysis \. According to these data, about 60% of the planned increase in wastewater collection and treatment capacity was provided, but the commensurate benefits were unrealized since the project did not include tertiary sewers \. 4\. Significant Outcomes /Impacts : The project's addition to water production of some 500,000 cubic meters per day in the end did not improve the water supply situation i Karachi but did compensate for the drop in water production from the Hub Reservoir of about 400,000 cubic meters due to a persistent drought \. All the same, the water supply quantity and quality are probably worse after completion of the project than prior to it because of the rapid population growth in Karachi and especially so among the low-income population\. 5\. Significant Shortcomings (including non -compliance with safeguard policies ): The legal and regulatory framework was never among the objectives under the project \. An effort was belatedly made at the behest of the Bank to involve a private operator but in the end these efforts came to nothing \. 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Unsatisfactory Unsatisfactory Institutional Dev \.: Partial Modest Sustainability : Unlikely Unlikely Bank Performance : Deficient Unsatisfactory Borrower Perf \.: Deficient Unsatisfactory Quality of ICR : Unsatisfactory 7\. Lessons of Broad Applicability : (1) Without a fundamental legislative and regulatory reform, including changed incentives and contracting of a private operator, the project was doomed from the start; (2) Financial covenants are ineffective if the water supply and sewerage authority is not given the authority and means to comply with them\. In the particular case of KWSB, excessive politicization of the tariff settings and of the management added to the difficulties; (3) The project design should have incorporated more of community participation and especially so under the sanitation component where Karachi had gained valuable experience from the Orangi sanitation works \. 8\. Audit Recommended? Yes No Why? The ICR is unclear on the causes for the failure to improve the water supply and sanitation services in Karachi in a sustainable fashion \. Much of the database to judge the evolution in service coverage, quality, and disparities between rich and poor consumers' service would be important to create and analyze \. A second reason for an audit is to understand why the efforts to introduce a private operator were unsuccessful and what the possibilities for private sector participation (PSP) are in the future\. A third reason for an audit is to explain how the project cost could have become more than double appraisal estimates \. 9\. Comments on Quality of ICR : It is recognized that the preparation of the ICR has suffered from the serious lack of good data on the project and on the KWSB operations\. As a result, the ICR is of poor quality and fails to provide and analyze data to judge the outcome of the project\. In particular: (1) The methodology of calculating the economic rate -of-return is erroneous\. It assumes that incremental water sales should be valued at 2/3 of the water vendor rates but this is tantamount to assuming no price elasticity\. In reality, the high water vendor rates are applicable only to small amounts of water consumption\. The value of water and what consumers are willing to pay will drop rapidly with increasing per capita consumption; (2) The Bank ICR authors themselves should have analyzed the sanitation component rather than simply incorporate the borrower's report and opinion; (3) The data on financing, and on the IDA supplementary credit are confusing in part and absent in part; (4) The ICR could stand editing to help bring out and clarify the findings of this important project\.

REVIEW

P007640

 Forestry development project Report No: ; Type: Report/Evaluation Memorandum ; Country: Mexico; Region: Latin America And Caribbean; Sector: Forestry; Major Sector: Agriculture; ProjectID: P007640 November 3, 1995 Mexico: Forestry Development Project (Loan 3115-ME) The Implementation Completion Report (ICR) on the Mexico Forestry Development project (Loan 3115-ME, approved in FY90) was prepared by the Latin America and the Caribbean Regional Office\. The Government of Mexico contributed to the ICR by commenting on the draft ICR and submitting its own evaluation comments, contained in an appendix\. The ICR provides an unvarnished account of a flawed project\. This was the first Bank project for the forestry sector in Mexico\. The project aimed to improve environmental protection, increase forest productivity and efficiency, create employment for rural and urban communities— including Amerindian communities, and strengthen the management capabilities of federal and state forestry and conservation agencies\. The project operated in the states of Durango and Chihuahua\. As a pilot project, it was too large, too complex, and located in a remote and inaccessible area\. After five years of preparation, the project was approved shortly after a change of government\. By the time implementation was due to begin, major restructuring of the implementing agencies had been carried out, lowering significantly the capacity of the project's lead agency and making institutional arrangements more complex overall\. Furthermore, the project quickly became the object of criticism by nongovernmental organizations concerned that environmental and indigenous peoples' affairs were inadequately safeguarded\. Since the project was approved just prior to the Bank's adoption of new operational directives on both of these issues, the Bank was poorly placed to answer the project's critics\. In the absence of effective local advocates for the project, Government commitment to the project fell and the Bank informally suspended disbursements, waiting for covenant compliance to improve\. The loan was closed two years early and almost two-thirds of the loan was canceled\. The project outcome is rated as unsatisfactory, institutional development as modest, and sustainability as unlikely\. The Operations Evaluation Department agrees with these ratings\. Bank performance is rated as unsatisfactory because of deficiencies in appraisal, and because the Bank did not reappraise the project when it became apparent that institutional arrangements put in place by the borrower after project approval were insufficient to the task and radically different from those which had been agreed\. Borrower performance is also rated as unsatisfactory because the borrower failed to put appropriate institutional arrangements for implementation in place and was deficient in several key elements of covenant compliance\. The project did, however, achieve a number of its objectives, including the rehabilitation of roads, revision of forest management plans, and training of forest managers and technicians\. It also provided a test case for the incorporation of Mexico's new Environmental Law into forest management practices and regulations\. Recognizing the unsatisfactory outcome of the project, the Bank and the borrower have carried out a joint forest sector review to help reformulate sector strategies for the current administration\. No audit is planned\.

REVIEW

P107365

 ICRR 13753 Report Number : ICRR13753 IEG ICR Review Independent Evaluation Group 1\. Project Data : Date Posted : 12/22/2011 Country : Ukraine Is this Review for a Programmatic Series? Yes No How many operations were planned for the 2 series? How many were approved? 2 Series ID : S107365 First Project ID : P096389 Appraisal Actual Project Name : Development Policy US$M ): Project Costs (US$M): 300\.0 300\.0 Loan 2 (dpl 2) L/C Number : L4877 Loan /Credit (US$M): Loan/ US$M ): 300\.0 300\.0 Sector Board : Economic Policy US$M ): Cofinancing (US$M): Cofinanciers : Board Approval Date : 12/20/2007 Closing Date : 06/30/2008 06/30/2008 Sector (s): General public administration sector (37%); General industry and trade sector (30%); Power (19%); Secondary education (7%); Telecommunications (7%) Theme (s): Corporate governance (25% - P); Public expenditure; financial management and procurement (25% - P); Regulation and competition policy (24% - P); Education for all (13% - S); Legal institutions for a market economy (13% - S) Second Project ID :P107365 Appraisal Actual Project Name : Development Policy Project Costs ( US$M): US$M ): 500\.0 500\.0 Lending 3 (dpl 3) L/C Number : L7644 Loan/ US$M ): Loan /Credit (US$M): 500\.0 500\.0 Sector Board : Economic Policy US$M): Cofinancing (US$M): Board Approval Date : 12/22/2008 Cofinancers : Closing Date : 06/30/2009 06/30/2009 Sector (s): Central government administration (50%), Capital markets (17%), Banking (17%), Power (16%) Theme (s): Public expenditure, financial management and procurement (25% - P), Debt management and fiscal sustainability (25% - P), Corporate governance (17% - S), Macroeconomic management (17% - S), Regulation and competition policy (16% - P) Evaluator : Panel Reviewer : ICR Review Group : Coordinator : Rene I\. Vandendries Michael R\. Lav Ismail Arslan IEGPS2 2\. Project Objectives and Components: a\. Objectives: The overarching objective of these two development policy loans (DPL2 and DPL3) was to support the government’s program to promote sustainable and broad -based growth\. The loans continued a program of support initiated in 2005 with a first DPL, but following DPL1 the series was interrupted for more than 24 months because of political uncertainties \. The Loan Agreements (LAs) state the objectives very concisely : support a “program of actions, objectives and policies designed to promote growth and achieve sustainable reductions in povertyâ€? (Appendix to LAs)\. The Program Documents (PADs) provide details on thematic umbrellas, which remained the same throughout the series : “(i) improving the investment climate for growth, (ii) creating fiscal  space for growth through strengthened public finance and public sector reform, (iii) improving service delivery and social inclusion\. (Section 6 of the PADs)" b\. If this is a single DPL operation (not part of a series), were the project objectives/ key associated outcome targets revised during implementation? No c\. Policy Areas: Both DPLs covered the same three policy areas : 1\. Improving the investment climate for growth \. Included here were measures to promote integration with the global economy, a modern framework for corporate governance, reduced red tape, financial sector development and energy efficiency \. 2\. Creating fiscal space for growth through strengthened public finances and public sector reform \. The focus was on measures to support reforms in tax administration, governance of state economic enterprises (SOEs), budgeting, and public financial management \. 3\. Improving service delivery and social inclusion \. The focus was on measures to support improvement in efficiency and performance of education and health as well as improvement in social insurance and social protection\. There were eight prior actions for DPL 2: five in policy area 1, two in policy area 2, and one in policy area 3\. DPL3 had five prior actions: three in policy area 1, two in policy area 2, and none in policy area 3\. Because the economy had entered a severe economic crisis by late 2008, preparation of DPL 3 had been accelerated and there was only limited correspondence between the triggers for DPL 3 foreseen at the time of DPL2 and actual prior actions for DPL 3\. Of the original 6 triggers only 3 became prior actions, 2 were dropped (related to energy reform, and to pension and insurance reform ) and one was modified (in the area of procurement reform where envisaged revision in procurement legislation became a Cabinet resolution to reform)\. One new prior action was initiation of legal and regulatory steps to address Bank recapitalization/resolution\. Also, not including the precondition of macroeconomic stability, of the 18 medium term program development outcome (PDO) indicators in the PAD for DPL2, 11 remained in the PAD for DPL3 while 7 were dropped because the economic crisis made them unattainable; 2 new ones were added\. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: DPL2 was approved on December 20, 2007 for US$300 million, fully disbursed upon effectiveness (February 2, 2008), and closed on schedule on June 30, 2008\. DPL3 was approved on December 22, 2008 for US$500 million, fully disbursed upon effectiveness (December 23, 2008) and closed on schedule on June 30, 2009\. 3\. Relevance of Objectives & Design: a\. Relevance of Objectives: The relevance of the objectives of the DPLs was high when the program was formulated and has so remained \. The program was closely related to the government ’s program and was an essential part also of the FY 04 CAS and FY08 CPS\. It was supported by solid ESW, including a Public Finance Review (I and II), a CEM, a Financial Sector Assessment Program (FSAP) and a Report on the Observance of Standards and Codes (ROSC)\. There were good links to the Bank’s investment program e\.g\. in energy and fiscal management \. The program in DPL3 also complemented the IMF’s Stand-By Arrangement\. b\. Relevance of Design: The relevance of design was modest \. As reported in the ICR, the issue in Ukraine is not one of articulation of priorities but rather one of implementation given the presence of strong vested interests \. Thus, while the goals of the DPLs were laudable, the program was frequently vague on targets and especially on how to get there \. For instance, the goal of reducing the net quasi -fiscal position of the SOE sector did not have a concrete target and  the prior actions were only vaguely related to the target; or, the program did not specify what measures would be taken to reduce the consolidated budget deficit; or, the objective to reduce pension spending and reform the sector relied on an array of policy options yet to be considered \. 4\. Achievement of Objectives (Efficacy): Efficacy is measured by considering achievement of prior actions, of PDO indicators, and of structural change \. There were 13 final PDO indicators reviewed in the ICR at the end of the program, including the pre -condition of macro-economic stability\. There is some confusion because the ICR ignores 4 DPOs from the PAD of DPL2 and one from the PAD of DPL3\. Throughout the implementation period of the DPL program macro -economic conditions were judged to be on track by the IMF\. Policy area 1: Improving the investment climate \. The DPLs included a range of activities in pursuit of the overall goal of improvement in the investment climate \. Integration with the global economy A prior action for DPL2 was the enactment of new laws and amendments to laws to prepare for WTO accession : accession was achieved in May 2008\. Modernization of the framework for corporate governance A prior action for DPL3 was enactment of a law on joint stock companies to encourage transparency in corporate practices and protection of minority stakeholders \. There is no evidence available as yet on its impact \. Reduction of red tape for enterprises A prior action of DPL2 was the enactment of a new law on inspection so as to reduce unnecessary government interference in business activity \. In terms of PDOs, the share of enterprises that underwent at least one inspection during the year did decrease, but below target \. On the other hand, the share of shipments physically inspected by Customs decreased beyond target, as did the share of enterprises that have to comply with compulsory standards\. There was also a decrease in the time spent to obtain permits \. Financial sector development As a result of the economic crisis, a prior action for DPL 3 was the introduction of legal and regulatory steps for recapitalization/resolution of banks\. The ICR does not elaborate on its significance or impact \. Subsequent information from the Region clarified that previously there was no framework to deal with crises \. The passage of an anti-crisis law made it possible to start doing stress -testing of Banks and the like \. Follow-up to this has been fleshed out in the financial sector DPL \. Energy efficiency Prior actions included enactment of a law on energy debt and reductions in the quasi -fiscal deficit in the sector\. The ICR does not provide information on the latter for recent years \. In terms of PDOs, the economy's energy intensity was reduced, but the differential between household, communal, and industrial tariffs for gas and electricity was not reduced as intended \. As a prior action for DPL2 steps were also taken to liberalize the telecommunications sector \. Clearly significant measures were taken and important structural change took place, laying the groundwork towards the overall goal of an improved investment climate \. However, much remains to be done as this goal does not appear to have been reached yet \. The ICR reports that Ukraine's ranking "in the ease of starting the business improved from 136th place in 2009 to 118th place in 2010," and this improved further to 112th place in 2012\. But this is only 1 of the 10 component elements of the overall "ease of doing business" indicator; with regard to the latter Ukraine's rank deteriorated from 132 out of 175 in 2006 to 152 out of 183 in 2012\. Also, the country's risk rating in the International Country Risk Guide worsened slightly over the period 2007-2011\. However, the reforms implemented under DPL 2 and DPL 3 may reasonably be expected to take some time before they have an impact on these country ratings \. Efficacy in achieving the objective in policy area 1 is, on balance, rated substantial \. Policy area 2: Creating fiscal space The objective was to create fiscal space for additional capital expenditures through measures to reform tax administration, governance of SOEs, budgeting and public financial management \. A prior action in both DPL2  and DPL3 was containment of the consolidated budget deficit \. The economic crisis in 2008-2009 made subsequent attainment of this goal impossible \. In terms of PDOs, the share of public fixed capital formation in GDP decreased rather than increased as targeted \. The ICR reports both that the PDO of an increased VAT collection rate as a share of final household consumption expenditure was achieved but also that the "massive GDP contrraction in 2009 (15 per cent) shrunk all tax bases, especially aggregate demand drastically deteriorating the efficiency of VAT collections "\. On the positive side, there was improvement in public financial management as measured by PEFA ratings \. DPL2 also included as a prior action the enactment of a law on management of SOEs, but the ICR does not elaborate on its significance or impact \. Subsequent information from the Region clarified that the law created a framework for a selection process of management teams of SOEs, in an effort to remedy the earlier process of selecting cronies\. A prior action for DPL3 was a revised public procuremen t framework\. However, while the original intent of the program was enactment of a legislative framework, the prior action was eventually reduced to a Cabinet decision on a procurement framework, the significance of which is not explained in the ICR \. The ICR does state that "the draft PEFA notes a significant improvement in public procurement \." Subsequent information from the Region clarified that the speed of preparation of DPL 3 explains the change in the prior action \. A draft of the law became the essence of the Cabinet decision \. Following joint efforts by the World Bank and EU, there is now a new procurement law\. While the goal of creating fiscal space could not be reached for exogenous reasons, efficacy in achieving the objective in policy area 2 is rated substantial on the basis of the noted improvements in public financial management and procurement\. Policy area 3: Improving service delivery and social inclusion The objective was improved efficiency and performance of health and education, and improvement in social insurance and protection\. There was only one prior action in this area, i \.e\. implementation of the first international accepted standardized test in secondary education (DPL2)\. The program's original DPOs -- increased capital spending in education and health and reduction of costs in the social security system -- were dropped\. They were replaced by improved access to higher education for rural students and reduced pension spending\. The first PDO was achieved, suggesting more social inclusion; the second PDO was not achieved, largely because of the economic crisis \. More importantly, the ICR presents no other information on why the original objectives -- improved efficiency and performance of health and education, and improvement in social insurance and protection -- were abandoned\. Efficacy in achieving the objective in policy area 3 is rated negligible\. 5\. Efficiency (not applicable to DPLs): 6\. Outcome: The relevance of the objectives was high, but that of design was modest \. In terms of efficacy the picture is also mixed\. In the prevailing turbulent political circumstances in Ukraine during implementation of the DPLs, the program did help generate several important reforms, which contributed to Ukraine's accession to the WTO, reduced red tape, improved public financial management, a procurement framework largely consistent with international best practice, and action to mitigate the impact of the crisis through anti -crisis legislation\. However, the crisis also led to the abandonment of many of the original objectives because it was not possible to create the needed fiscal space\. Also there was little progress in energy sector reform and in improving service delivery and social inclusion\. On balance, outcome is rated moderately satisfactory \. a\. Outcome Rating : Moderately Satisfactory 7\. Rationale for Risk to Development Outcome Rating: The global economic and financial crisis remains a major risk to growth and stability in the Ukraine economy \. More importantly, the opposition of special interest groups to reform and the slow progress on a number of issues in the IMF Stand-By and in preparing a second Bank financial sector DPL suggest that political risks remain significant\.  a\. Risk to Development Outcome Rating : Significant 8\. Assessment of Bank Performance: a\. Quality at entry: Preparation of the DPL program was based on solid ESW which helped identify the primary areas of needed reform\. The program was aligned with the government's program and was also well -integrated with the Bank's investment activities in Ukraine \. At the same time, the program tended to be vague on how to achieve some of the targets\. at -Entry Rating : Quality -at- Moderately Satisfactory b\. Quality of supervision: Supervision was continuous as part of the preparation of follow -on or future operations\. It continued after DPL3 was closed\. The Bank worked closely with the government in monitoring progress \. Quality of Supervision Rating : Satisfactory Overall Bank Performance Rating : Moderately Satisfactory 9\. Assessment of Borrower Performance: a\. Government Performance: In spite of difficult political circumstances, the government managed to advance its reform program \. Numerous legislative and institutional reform measures were passed \. Yet, some of the more challenging tasks, including pension reform, energy reform and improved targeting of social assistance went unresolved \. Government Performance Rating : Moderately Satisfactory b\. Implementing Agency Performance: Implementation was facilitated by an Inter -governmental Working Group, which also assisted in obtaining the information necessary to monitor the program \. Implementing Agency Performance Rating : Satisfactory Overall Borrower Performance Rating : Moderately Satisfactory 10\. M&E Design, Implementation, & Utilization: a\. M&E Design:  The results matrix was the basis for the M&E system \. Information on progress was obtained from a variety of sources, including government institutions, Bank analyses, the IMF and other donors \. b\. M&E Implementation: M&E was done through the Ministry of Economy and meetings of the Inter -governmental Working Group\. Collecting some of the information needed proved difficult and time consuming \. c\. M&E Utilization: The main use of M&E was to serve as the basis for a continuous dialogue, especially as an input for future Bank strategy\. M&E Quality Rating : Substantial 11\. Other Issues a\. Safeguards: There were no safeguard issues \. b\. Fiduciary Compliance: The DPL program provided strong support to the government to strengthen its Public Financial Management, including through improvement in the public procurement framework which is now largely in line with international good practice\. c\. Unintended Impacts (positive or negative): None d\. Other: 12\. 12\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Moderately Moderately Satisfactory Satisfactory Risk to Development Significant Significant Outcome : Bank Performance : Moderately Moderately Satisfactory Satisfactory Borrower Performance : Moderately Moderately Satisfactory Satisfactory Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate\. 13\. Lessons: The ICR has appropriate lessons \. First, while the flexibility in DPLs allows adjustments when domestic political circumstances or external events compel these adjustments, it may be preferable for the Bank to focus on more narrowly defined and specific reforms with a different lending instrument in order to have impact and success \. Second, joint action with other donors is at times imperative to obtain the desired result such as, in this case, procurement reform\. Third, a good M&E system should ensure that the necessary information to monitor progress is readily available\. 14\. Assessment Recommended? Yes No 15\. Comments on Quality of ICR: The ICR is adequate\. While it contains most of the information to evaluate the program, it had to be supplemented by other evidence to fully appreciate the outcomes \. In the "Ease of Doing Business" indicators, Ukraine did not progress, yet the ICR suggest progress by relying on only one of ten component elements of the indicator\. On procurement, there is little explanation of the potential difference between a Law and a Cabinet decision\. The significance of the law on management of SOEs is not explained \. Finally, as already noted in section 4 above, the ICR ignores 4 DPOs form the PAD of DPL2 and one from the PAD of DPL3\. a\.Quality of ICR Rating : Satisfactory

REVIEW

P105288

Document of The World Bank Report No: ICR0000742 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-7472) ON A LOAN IN THE AMOUNT OF US$264\.10 MILLION TO THE PROVINCE OF BUENOS AIRES FOR A BUENOS AIRES INFRASTRUCTURE SUSTAINABLE INVESTMENT DEVELOPMENT PROJECT PHASE II (APL2) June 30, 2014 Sustainable Development Department Argentina, Paraguay and Uruguay Country Management Unit Latin America and the Caribbean Region  CURRENCY EQUIVALENTS (Exchange Rates Effective June 28, 2007 and December 31, 2013) Currency Unit = AR Peso (AR$) AR$1 = US$0\.328 – Board Approval US$ 1\.00 = AR$3\.050 AR$1\.00 = US$0\.154 – Closing Date US$1\.00 = AR$6\.481 FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS APL Adaptable Program Loan ABSA Aguas Bonaerenses Sociedad Anónima – Water Utility BAPIN Banco de Proyectos de Inversión Pública - Bank of Public Investment Projects CAS Country Assistance Strategy CPS Country Partnership Strategy CREMA Contratos de Rehabilitación y Mantenimiento – Performance-Based Road Rehabilitation and Maintenance Contracts DIPAC Dirección Provincial de Aguas y Cloacas – Provincial Directorate for Water and Sewerage DIPSOH Dirección Provincial de Saneamiento y Obras Hidráulicas – Hydraulic and Sanitation Directorate DPV Dirección Provincial de Vialidad EIRR Economic Internal Rate of Return FM Financial Management GDP Gross Domestic Product GoPBA Government of the Province of Buenos Aires IRI International Roughness Index ISO International Organization for Standardization ME Ministry of the Economy M&E Monitoring and Evaluation MI Ministry of Infrastructure OSSE Obras Sanitarias Mar del Plata-Batán PAD Project Appraisal Document PBA Province of Buenos Aires PDO Project Development Objective SCEOCI Subsecretaría de Coordinación con Estados y Organismos de Crédito Internacionales – Sub-secretary for the Coordination International Credit from Countries and Organizations SIL Specific Investment Loan SPIP Sistema Provincial de Inversión Pública -Provincial Public Investment System UCO Unit for Coordination with Multilateral Credit Organizations UPAS Unit for Provincial Water and Sanitation Services WSS Water Supply and Sanitation  Vice President: Jorge Familiar Calderón Country Director: Jesko S\. Hentschel Sector Manager: Wambui G\. Gichuri Project Team Leader: Lilian Pena P\. Weiss & Maria Marcela Silva ICR Team Leader: Lilian Pena P\. Weiss & Maria Marcela Silva  ARGENTINA BUENOS AIRES INFRASTRUCTURE SUSTAINABLE INVESTMENT PROJECT PHASE II (APL2) Data Sheet \. i A\. Basic Information \. i B\. Key Dates \. i C\. Ratings Summary \. i D\. Sector and Theme Codes \. ii E\. Bank Staff \. iii F\. Results Framework Analysis \. iii G\. Ratings of Project Performance in ISRs \. vii H\. Restructuring (if any) \. viii I\. Disbursement Profile \. ix Section 1\.Project Context, Development Objectives and Design \. 1 Context at Appraisal\. 1 Original Project/Program Development Objective (PDO) and Key Indicators \. 3 Revised PDO and Key Indicators \. 3 Beneficiaries \. 4 Original Components \. 4 Revised Components \. 6 Section 2: Key Factors Affecting Implementation and Outcomes \. 7 Project Preparation, Design and Quality at Entry \. 7 Implementation \. 9 Monitoring and Evaluation (M&E) Design, Implementation and Utilization \. 12 Section 3: Assessment of Outcomes\. 13 Relevance of Objectives, Design and Implementation \. 13 Justification of Overall Outcome Rating \. 17 Overarching Themes, Other Outcomes and Impacts \. 17 (a) Poverty Impacts, Gender Aspects, and Social Development \. 17 (b) Institutional Change/Strengthening \. 17 (c) Other Unintended Outcomes and Impacts \. 18 Section 4: Assessment of Risk to Development Outcome \. 18 i Section 5: Assessment of Bank and Borrower Performance \. 199 Bank Performance in Ensuring Quality at Entry \. 199 Bank Performance in Quality of Supervision \. 19 Borrower Performance \. 20 Government of the Province of Buenos Aires Performance \. 20 Implementing Agency (Coordinating and Executing Agencies) Performance Supervision 20 Section 6\. Lessons Learned \. 21 Section 7: Comments on Issues Raised By Borrower/Implementing Agencies/Partners22 Annex 1: Project Costs\.24 Annex 2\. Project Outputs by Components (and additional Project results)…………\.28 Annex 3\. Economic and Financial Analysis \. 31 Annex 4\. Bank Lending and Implementation Support/Supervision Processes \. 38 Annex 5\. Borrower’s Report \. 40 Annex 6\. List of Supporting Documents \. 55 Annex 7\. Map (IBRD 40951) \. 57 ii Data Sheet A\. Basic Information Buenos Aires Infrastructure Sustainable Country: Argentina Project Name: Investment Development Phase II Project Project ID: P105288 L/C/TF Number(s): IBRD-74720 ICR Date: 05/02/2014 ICR Type: Core ICR Government of The Lending Instrument: APL Borrower: Province of Buenos Aires Original Total USD 270\.00M Disbursed Amount: USD 264\.10M Commitment: Revised Amount: USD 264\.10M Environmental Category: B Implementing Agencies: Ministry of Economy Cofinanciers and Other External Partners: N/A B\. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 03/12/2007 Effectiveness: 08/08/2008 08/08/2008 10/06/2011 Appraisal: 04/23/2007 Restructuring(s): 10/12/2012 08/06/2013 Approval: 06/28/2007 Mid-term Review: 03/24/2011 Closing: 02/15/2012 12/31/2013 C\. Ratings Summary C\.1 Performance Rating by ICR Outcomes: Satisfactory i Risk to Development Outcome: Moderate Bank Performance: Satisfactory Borrower Performance: Satisfactory C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Satisfactory Implementing Quality of Supervision: Satisfactory Satisfactory Agency/Agencies: Overall Bank Overall Borrower Satisfactory Satisfactory Performance: Performance: C\.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments (if Indicators Rating Performance any) Potential Problem Project at Yes Quality at Entry (QEA): None any time (Yes/No): Problem Project at any time Quality of Supervision Yes None (Yes/No): (QSA): DO rating before Satisfactory Closing/Inactive status: D\. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Flood protection 12 14 Roads and highways 40 43 Sewerage 21 21 Sub-national government administration 6 1 Water supply 21 21 Theme Code (as % of total Bank financing) Improving labor markets 14 14 ii Infrastructure services for private sector development 14 14 Municipal governance and institution building 14 14 Other urban development 29 29 Urban services and housing for the poor 29 29 E\. Bank Staff Positions At ICR At Approval Vice President: Jorge Familiar Calderón Pamela Cox Country Director: Jesko S\. Hentschel Axel van Trotsenburg Sector Manager: Wambui G\. Gichuri John Henry Stein Lilian Pena P\. Weiss & M\. Marcela Project Team Leader: Manuel G\. Marino Silva Lilian Pena P\. Weiss & M\. Marcela ICR Team Leader: Silva ICR Primary Author: Elizabeth Hunter Eiseman F\. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The overall purpose of the APL program is to improve the provision of infrastructure services in the Province within a framework of fiscal responsibility\. Through improved services the Project aims to support the return to a sustainable path of economic growth, to alleviate poverty and to increase social equity\. To this end, the Province prioritized a set of interventions through the sector wide Infrastructure Program for the period 2005-2012 specifically aimed to: i\. Develop a multi-year public expenditure program, in line with the priorities of the Province, to implement the Infrastructure Program following sound fiscal policies to ensure convergence towards a long-term sustainable fiscal framework\. ii\. Improve and maintain high priority segments of the non-concessioned paved road network to support the reactivation of the provincial economy and strengthen regional competitiveness\. iii\. Enhance access to water, sewerage, sanitation and urban drainage services, especially for the low-income segments of the population living in highly vulnerable areas of the Conurbano Bonaerense\. iii The Project Development Objectives (PDO) as outlined in the Loan Agreement (LA) of the APL II is to improve the social and environmental welfare of approximately five million people living in the Borrower's territory through the improved provision of transport, water and sanitation, and drainage services\.1 This ICR is evaluating the APL II\. Revised Project Development Objectives (as approved by original approving authority) (a) PDO Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised Target approval Completion or Values documents) Target Years High-traffic productive road assets preserved with an acceptable average roughness (HT Indicator 1 : IRI) to reduce operational and travel time costs, and avoided accumulation of future liabilities in the overall network (AVG IRI) on total paved primary network) Value HT IRI 3\.5 HT IRI 3 HT IRI 3\.7 HT IRI 3\.60 quantitative or AVG IRI 3 AVG IRI 3\.3 AVG IRI 3\.3 AVG IRI 3\.05 Qualitative) Date achieved 05/29/2007 02/15/2012 12/31/2013 12/31/2013 Comments 100% achieved\. During implementation traffic increased significantly, therefore the number of roads that fell under the HT category increased and the target was (incl\. % restructured\. Without the Program, AVG IRI would have reached 5\.7 (projection achievement) from HDM)\. Indicator 2 : Additional poor people with access to Water Supply and Sanitation (WSS) services Total: 0 - People with water Total: 196,130 Total: 167,706 Total: 146,898 Value Connections Water: 35,000 Water: 34,698 Water: 34,698 quantitative or -People with sewerage Sewer: 354,158 Sewer: 298,208 Sewer: 298,368 Qualitative) service lines Active: 161,130 Active: 133,008 Active: 112, 200 -People with active sewerage connections Date achieved 05/29/2007 02/15/2012 12/31/2013 12/31/2013 Comments 87\.6 % achievement (water and sewer service lines: 100%; active sewerage connections: 84%)\. The Project targeted residents living in areas with high poverty incidences\. Targets (incl\. % were adjusted given construction price increases\. See the Efficacy Section for more detail achievement) on indicator values\. 1 This description was taken from the APL2 Loan Agreement, which is the basis for evaluation; however it differs slightly from the description in the PAD, which reads: “The specific Project Development Objective is to improve the social and environmental welfare of approximately 5,000,000 people through the improved provision of transport, water and sanitation and drainage services\.” iv Indicator 3 : Improved flood management capacity measured as flood persistence times Value quantitative or Qualitative) Date achieved Comments This indicator was dropped because flood persistence times impacts would not have been (incl\. % fully observed until after the Project's closing\. The impact of this component was measured achievement) by indicator 6\. (b) Intermediate Outcome Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised Target approval Completion or Values documents) Target Years Indicator 1 : Km of roads rehabilitated Value (quantitative 0 350 251 251\.35 or Qualitative) Date achieved 05/29/2007 12/31/2009 12/31/2013 12/31/2013 Comments 100% achieved\. The target was adjusted to reflect construction costs, oil price increases and (incl\. % the PBA's preference for widening works over rehabilitation\. Works that were ongoing at achievement) the time of the restructuring were transferred to the APL1 and its AF\. Indicator 2 : Km of roads widened Value (quantitative 0 20 35 35\.2 or Qualitative) Date achieved 05/29/2007 02/15/2012 12/31/2013 12/31/2013 Comments 100% achieved\. The target was increased in the October 2012 restructuring given the PBA’s (incl\. % prioritization of road widening works\. achievement) Indicator 3 : Number of intersections enhanced Value (quantitative 0 2 2 or Qualitative) Date achieved 05/29/2007 02/15/2012 12/31/2013 Comments 100% achieved\. v (incl\. % achievement) Number of water supply services lines built by the project in poor neighborhoods (IPMH: Indicator 4 : 40%) Value (quantitative 0 9114 9045 9045 or Qualitative) Date achieved 05/29/2007 02/15/2012 12/31/2013 12/31/2013 Comments 100% achieved\. The Project targeted residents living in areas with high poverty incidences (incl\. % (average Index of Household Material Deprivation (IPMH) above 40%)\. achievement) Indicator 5 : Number of sewerage service lines built by the project in poor neighborhoods (IPMH: 40%) Value (quantitative 0 87861 82468 82508 or Qualitative) Date achieved 05/29/2007 02/15/2012 12/31/2013 12/31/2013 Comments 100% achieved\. The Project targeted residents living in areas with high poverty incidences (incl\. % (average IPMH above 40%)\. achievement) Indicator 6 : Number of hectares provided with proper drainage Value (quantitative 0 1200 1200 or Qualitative) Date achieved 05/29/2007 02/15/2012 12/31/2013 Comments 100% achieved\. In January 2014, the PBA experienced heavy rains that led to flooding, but (incl\. % the territory, which systematically flooded before the Finochietto drainage system, was achievement) unaffected\. Indicator 7 : Implementation of at least one recommendation from the Coastal Erosion Control study Value Recommendation (quantitative No Study Software in use Implemented or Qualitative) Date achieved 05/29/2007 02/15/2012 12/31/2013 Comments 100% achieved\. As a result of the Coastal Erosion Study, the PBA purchased software to (incl\. % measure coastal erosion\. The PBA has been using the software to gather data to inform achievement) investment decisions to erosion prevention and coastal infrastructure design\. Indicator 8 : Economic Development Sector Studies completed vi Value (quantitative 0 3 2 or Qualitative) Date achieved 05/29/2007 02/15/2012 12/31/2013 Comments 66% Achieved\. The third study, “Guidelines for Production Strategies in the PBA” was (incl\. % canceled\. achievement) Indicator 9 : Number of agencies benefited from the project Value (quantitative 0 4 6 or Qualitative) Date achieved 05/29/2007 02/15/2012 12/31/2013 Comments 150% achieved\. The APL2 supported: DPV, DIPAC, DIPSOH\. SCEOCI, the Provincial (incl\. % Directorate for Statistics and the Honorable Court of Auditors\. achievement) Indicator 10 : Activities to strengthen the agencies involved in the project Value (quantitative 0 4 4 or Qualitative) Date achieved 05/29/2007 02/15/2012 12/31/2013 Comments 100% achieved\. The APL2 supported: (i) a regulatory accounting system for potable water (incl\. % and sanitation; (ii) the design of an axle-load control system; (ii) the purchase of a achievement) deflectograph; and (iv) capacity building activities\. G\. Ratings of Project Performance in ISRs Date ISR Actual Disbursements No\. DO IP Archived (USD millions) 1 09/04/2007 Satisfactory Satisfactory 0\.00 2 03/13/2008 Satisfactory Satisfactory 0\.00 3 05/15/2008 Unsatisfactory Unsatisfactory 0\.00 4 10/29/2008 Satisfactory Satisfactory 0\.00 5 05/06/2009 Satisfactory Satisfactory 14\.49 6 11/30/2009 Satisfactory Satisfactory 51\.67 7 05/18/2010 Satisfactory Satisfactory 79\.81 vii  8 11/29/2010 Satisfactory Satisfactory 131\.11 9 06/21/2011 Satisfactory Satisfactory 175\.72 10 10/19/2011 Satisfactory Satisfactory 215\.49 11 12/26/2011 Satisfactory Satisfactory 236\.19 12 07/11/2012 Satisfactory Satisfactory 254\.66 13 11/12/2012 Satisfactory Satisfactory 258\.31 14 03/04/2013 Satisfactory Satisfactory 261\.87 15 07/31/2013 Satisfactory Moderately Satisfactory 261\.87 16 02/15/2014 Satisfactory Satisfactory 264\.10 H\. Restructuring (if any) ISR Ratings at Amount Board Restructuring Restructuring Disbursed at Reason for Restructuring & Key Approved PDO Date(s) Restructuring in Changes Made Change DO IP USD millions To trigger the involuntary resettlement safeguard policy (OP/BP 4\.12), revise the scope of activities to adapt to the financial 10/06/2011 S S 215\.49 situation, revise the outcome indicators accordingly, and extend the closing date by 18 months to August 15, 2013\. To reduce the scope of the civil work components to reflect cost increases, to revise the target values of project indicators to account for the revised project scope, and to reallocate project costs among 10/12/2012 S S 258\.31 components and loan proceeds among categories accordingly\. This restructuring also involved the financing of dropped APL2 works under the additional financing of APL1 through a parallel restructuring\. Extend the closing date by 4\.5 months to December 31, 2013, and 08/06/2013 S MS 261\.87 reallocate funds between disbursement categories\. viii I\. Disbursement Profile ix Section 1\.Project Context, Development Objectives and Design Context at Appraisal 1\. The Buenos Aires Infrastructure Sustainable Development Program Project Phase II (APL2, P105288) was part of an Adaptable Program Loan (APL) that was designed in 2004\. Although the Program was split into two phases, the activities and goals of the APL1 (APL1, P088032) and APL2 were closely intertwined\. In fact, the APL2 adopted the institutional logic of the APL1 and built on the established implementation mechanisms already in place with the agencies involved\. As such, understanding the context at the time of appraising the APL1 is critical to understanding the APL2\. Furthermore, the two Projects overlapped for the entire period of implementation of the APL2: although the APL2 began three years after the start of the APL1, the APL1, which received an Additional Financing (AF, P114081) in 2011, is still under implementation\. It is set to close in May 2015\. 2\. At the time of the appraisal of the APL Program, Argentina was in the process of recovering from the 2001 to 2002 financial crisis\. The crisis led to one of the most severe losses of household income on record\. The percentage of the population under the poverty line increased from 20\.5 percent in 1999 to 54 percent in 2002\. The Province of Buenos Aires (PBA), the largest province in Argentina, represented 39 percent of the Republic’s population, accounted for 36 percent of the country’s GDP and contained the most extensive pockets of poverty in the country\. The PBA’s recovery from the crisis was crucial for the economic recovery of the entire country\. 2 3\. During the financial crisis, the Government of the PBA (GoPBA) substantially reduced infrastructure investment,3 magnifying already existent coverage and quality issues\. The infrastructure base began to deteriorate at an increasing rate, the basic needs of vulnerable groups grew, and growth prospects were constrained\. At the time of the appraisal of the APL1, approximately 50 percent of the people living in the PBA had household connections to the water network, and only 25 percent were connected to the sewerage network\. 4 The PBA also suffered from recurrent floods due to inadequate drainage systems, and high travel times and vehicle operating costs due to poor road quality\.5 4\. Despite the mounting need for increased infrastructure investments, the PBA faced scarce internal financing and limited external financing options given Argentina’s fiscal uncertainty\. In response, the World Bank and the GoPBA, started addressing the difficult economic situation through counter cyclical spending, joining forces to design a major infrastructure investment program that responded to the most pressing infrastructure needs\. The PBA and the Bank identified the following key objectives: (i) the rehabilitation and maintenance of key segments of the provincial primary road network to reduce logistic cost in the PBA and strengthen regional competitiveness; (ii) the rehabilitation and expansion of basic Water Supply and Sanitation (WSS) services for low income 2 Project Appraisal Document, APL2 3 In 2002, at PBA’s level, investment represented 0\.1 percent of GDP and 0\.7 percent of total spending, compared with 0\.7 percent and 7\.8 percent respectively between 1993 and 1997 (Project Appraisal Document)\. 4 Project Appraisal Document, APL1 5 Project Appraisal Document, APL2 1 segments of the population; and (iii) the expansion of urban drainage systems in areas of high vulnerability\. 5\. Given Argentina’s difficult fiscal outlook, the APL Program emphasized the need to support the PBA’s infrastructure priorities within a fiscal responsibility framework\. For the APL1, the provincial authorities designed a framework that ensured fiscal space to service debt obligations and to invest in infrastructure\. The framework facilitated compliance with the Government of Argentina’s (GoA) August 2004 Fiscal Responsibility Law\.6 Highlighting the importance of fiscal responsibility for the Program, the GoPBA designated the Ministry of the Economy (ME) to lead implementation even though the Program was focused on infrastructure\. In addition, the APL Program had a series of triggers, which included a trigger on compliance with the fiscal framework, the PBA had to meet in order for the second phase of the APL to begin\.7 6\. All of the triggers except the fiscal framework trigger for the APL2, “Evidence of satisfactory implementation of the fiscal framework that would enable accommodating the second loan, without jeopardizing convergence towards a sustainable fiscal situation,” were met\. The fiscal framework contained various fiscal targets that ranged from debt stock levels to expenditures on personnel\. At the time of appraisal of the APL2, the PBA had made progress with respect to the targets under its control, such as provincial revenue levels and debt stock and debt services as a proportion of net current revenue\.8 Nevertheless, the Province did not meet the targets for monitoring personnel expenditures and the primary balance\. The PBA’s failure to meet these targets was not a result of poor fiscal management\. Rather, structural changes in Argentina’s fiscal policy towards the provinces altered the revenue balance between the Federal Government and the provinces and made the fiscal targets that reflected expenditure variables inapplicable\. As the GoA began withholding more revenue from the provinces, the PBA became increasingly dependent on the Federal Government’s discretionary financial assistance and less able to control its compliance with expenditure targets\. The APL1’s provincial fiscal framework no longer served to measure the availabili ty of fiscal space to execute the project or the PBA’s medium-term debt sustainability\. 7\. At the time of the appraisal of the APL2, the PBA’s main fiscal risks included: (i) the lack of inter institutional clarity regarding the implementation of the 2004 Fiscal Responsibility Law9 and (ii) the gradual erosion of the PBA’s fiscal performance\.10 To mitigate the impact of the PBA’s fiscal risks on the APL2’s implementation, the Bank committed itself to closely monitor fiscal and financing conditions throughout implementation\.11 Likewise, the PBA focused on exercising fiscal 6 In August 2004, the Argentine Congress approved a Fiscal Responsibility Law\. The Law set out broad principles for provincial fiscal conduct\. Under Argentina’s federal system, adherence to this law was voluntary for individual provinces, but required for those provinces that wanted continued financial support from the Federal Government\. The Law became the axis for Federal Government financing of provincial deficits\. Among other features, the Law established that: (i) nominal primary public spending should not surpass projected nominal GDP growth; (ii) debt service payments should not exceed 15% of current revenues; and (iii) new provincial indebtedness was subject to Federal Government approval\. Adherence to the law and fulfillment of its conditions would make the Province of Buenos Aires eligible for continued financial support from the federal Government to meet its financing needs\. 7 Trigger points included: evidence of satisfactory implementation of the fiscal framework and evidence that institutional policy and regulatory frameworks were strengthened\. 8 In 2005, the PBA’s revenue target was met (own revenue/net current revenues (NCR) equaled 57%), debt stock/NCR was 188% (target 180%) and debt service/NCR was 14% (target 17%)\. 9 T 10 The Province recorded a primary deficit in 2006 and further primary deficits are likely in the coming years\. 11 Project Appraisal Document, APL 2\. 2 prudence within the constraints imposed by the GoA\. For instance, the PBA emphasized increasing its own revenues, both through improved tax administration and via new taxes\.12 The APL1’s successful implementation also illustrated that the APL2 could be implemented effectively despite fiscal risks\. Original Project/Program Development Objective (PDO) and Key Indicators 8\. The overall purpose of the APL Program is to improve the provision of infrastructure services in the Province within a framework of fiscal responsibility\. 9\. The PDO of the APL2 is to improve the social and environmental welfare of approximately five million people living in the Borrower’s territory through the improved provision of transport, water and sanitation, and drainage services\.13 10\. The PDO outcome indicators were: (i) High-Traffic (HT) productive road assets preserved with an acceptable average roughness (HT IRI) to reduce operational and travel time costs and avoided accumulation of future liabilities in the overall network (AVG IRI on total paved primary network); (ii) reduced waterborne diseases and improved sanitary living conditions; and (iii) improved flood management capacity measured as flood persistence times\. The Project also had 10 intermediate outcome indicators, which are detailed in the Data Sheet\. Revised PDO and Key Indicators 11\. The PDO was not revised during the life of the Project\. The PDO-level indicators were restructured and approved by the Board in September 2011 to better align them with the outcome and the revised scope of the Project as well as the APL1 indicators\. The outcome indicator on WSS services was revised to better align the indicator with the Project’s core objective of increasing access to more people in the PBA\. The original indicator measured a reduction in waterborne disease, which reflected factors such as hygiene practices that went beyond the scope of the Project\. The new outcome indicator was the additional number of poor people with access to: (i) water connections; (ii) available sewerage service lines; and (iii) active sewerage connections\.14 12\. The flood management capacity indicator was removed because the impacts in terms of flood persistence times (original indicator) would not have been fully observed until after the Project’s closing\. The Bank financed the optimization and expansion of macro-drainage infrastructure, while the micro-drainage infrastructure investments (necessary for the operation of the system) were financed with other provincial and municipal funds and were not expected to be finished until March 2014\. The target for the roads outcome indicator was also revised to reflect the reduced scope of the Project’s investments\. In addition, nine intermediate indicators were restructured during the life of the 12 At the time of appraisal of the APL2, the PBA had increased its own revenues and reduced its debt stock and debt service as a proportion of net current revenues\. The PBA’s fiscal prudence was complemented by the country’s strong economic growth (from 2003 to 2006, annual GDP averaged nine percent, poverty fell from 59 percent in 2002 to 31 percent in 2006, and unemployment fell from 21 percent in 2003 to approximately 11 percent in 2006), which resulted in national surpluses and streamlined transfers to the PBA\. 13 This description was taken from the APL2 Loan Agreement,which is the basis for evaluation; however it differs slightly from the description in the PAD, which reads: “The specific Project Development Objective is to improve the social and environmental welfare of approximately 5,000,000 people through the improved provision of transport, water and sanitation and drainage services\.” 14 Active sewerage connections, the sewerage connections that are effectively connected to the network, were estimated based on a connection rate calculation developed in the PBA that took into account the expected lag between the construction of the line an d household’s decision to connect\. 3 Project and six new core intermediate indicators were added\. See the Implementation Section and the Data Sheet for further detail\. Beneficiaries 13\. The Project expected to benefit approximately five million residents in the PBA through enhancing road networks, expanding access to WSS services, and improving drainage\. The Project’s WSS component had a poverty lens and targeted 450,000 people living in communities with households averaging 40 percent or higher in the Index of Household Material Deprivation (IMPH)\.15 The Project also aimed to expand drainage to 500,000 people\.16 The road network works were expected to have a direct global impact on economic growth in the PBA through reducing travel times and costs, increasing the competitiveness of small and medium-size enterprises, and generating new employment opportunities in the construction sector\. 14\. The Project aimed to benefit sector agencies and government ministries through a number of institutional strengthening activities, including: (i) creating a strategic framework for provincial infrastructure development; (ii) carrying out sector studies to guide informed infrastructure investment decisions; (iii) implementing activities to promote competitiveness and job creation in the PBA; and (iv) improving information, monitoring and maintenance systems\. Original Components The Project components, as presented in the Loan Agreement, are as follows: 15\. Part 1: Provincial Roads (US$159 million, of which US$107 million is IBRD)\. This component included: a) Carrying out of rehabilitation works (such as asphalt concrete overlaying) of about 10 selected road sections of the non-concessioned interurban primary road network (representing approximately 335 kilometers in the aggregate), of which two adjacent road sections (representing approximately 56 kilometers) will be rehabilitated under the terms of a CREMA17 Contract\. b) Carrying out of rehabilitation works (such as asphalt concrete overlaying) of 1 selected road section of the non-concessioned primary paved road network (representing approximately 70 kilometers) located within the Conurbano Bonaerense\. c) Carrying out of rehabilitation works (such as removal and replacement of existing pavements) of non-concessioned road accesses to the Dock Sud and the Bahia Blanca ports (representing approximately 11 kilometers)\. d) Carrying out of rehabilitation works (such as resurfacing, asphalt concrete overlaying or reconstruction of the existing structure over a recycled base course) of about 6 selected road 15 The IMPH was developed by Argentina’s National Institute of Statistics and is based on an index of hereditary depr ivation and current resource depravation\. To avoid the exclusion of borderline low-income areas, it was agreed that subprojects in vulnerable zones with IPMH ratings between 30 and 40 percent could be considered eligible for financing on a case-by-case analysis so long as they do not represent more than 15 percent of total resources assigned to the component\. 16 There was no overlap between the beneficiaries targeted for drainage and WSS works and very little overlap between the beneficiaries targeted for water and those targeted for sanitation works\. 17 Performance-based roads rehabilitation and maintenance contracts (CREMA) aimed to increase private sector participation in the maintenance and management of the roads networks\. 4  accesses of the non-concessioned secondary paved network (representing approximately 68 kilometers)\. e) Carrying out of: (i) widening and rehabilitation works (within the existing right- of-way) of about 2 selected roads of the Borrower’s non-concessioned urban primary paved network; and (ii) construction works (which works consist of replacing intersections by more efficient round-about arrangements) of about 2 selected critical black spots of the primary paved road network\. f) Carrying out of the 2009-2011 annual routine maintenance programs of the non-concessioned primary unpaved road network\. 16\. Part 2: Water and Sanitation (US$140 million, of which US$110 million is IBRD)\. Carrying out of demand-driven18 water and sanitation infrastructure investments, which consist of the construction of secondary water and sanitation networks\.19 17\. Part 3: Drainage (US$41 million, of which US$32\.4 million is IBRD)\. Carrying out of drainage investments in selected urban and peri-urban areas in order to mitigate flooding caused by rainfalls of high intensity and relatively short duration, which investments consists of, inter alia, the optimization and expansion of storm drainage systems and primarily macro-drainage infrastructure based on integrated urban drainage plans\. 18\. Part 4: Technical Engineering, Feasibility, Design and Benchmarking (US$4\.61 million, of which US$4\.38 million is IBRD)\. Carrying out of the following Project activities involving design and implementation of a strategic framework for provincial infrastructure development constitute an expansion of the scope of the activities carried out or to be carried out under the Buenos Aires Infrastructure Sustainable Investment Development Project‒ Phase I: (a) design of master infrastructure investment plans; (b) carrying out of feasibility studies of infrastructure investments and final engineering design of investments identified by the plans mentioned in (a) above; (c) identification of infrastructure needs, and thereafter, establishment of a set of strategic priorities so as to avoid financing infrastructure investment bottlenecks; and (d) upon completion of the study, to design a strategy for coastal erosion control (which is being carried out under APL 1), implementation of the recommendations of said study (including the Bank’s views, if any), which recommendations may include the design of infrastructure investments\. 19\. Part 5: Pre-Investment for Competitiveness and Job Creation (US$8\.42 million, of which US$8 million IBRD)\. Carrying out of the following Project activities constitute an expansion of the scope of the activities carried out or to be carried out under the APL 1: a) Identification of the economic sectors and regions which are likely to play a fundamental role in provincial development, and thereafter, carrying out of sector studies on economic development\. b) Design of territorial guidelines to promote regional development and stimulate provincial growth and employment\. c) Carrying out of a review of the regulatory framework governing the investment climate across the economic sectors to identify those regulations which may affect the investment climate; 18 The WSS investments were focused on areas where concentrations of low-income families with limited access to basic services (identified using the IPMH) were high and where there were ongoing or planned construction of main supply lines, collectors and treatment plants\. 19 Primary networks were already available (in cases where the primary network had limited resource, the Project financed reservoirs)\. Areas neighboring the Project areas oftentimes already had good service\. The Project supported DIPAC’s master plan by complementing service in unserved pockets\. 5  and (ii) thereafter, design a plan which will include, inter alia, actions to promote competitiveness, employment and value added generation, and to strengthen institutional capacity to implement private sector development policies\. d) As a result of the carrying out of the studies mentioned above, implementation, on a pilot basis, of selected policy recommendations to promote competitiveness and employment generation\. 20\. Part 6: Institutional Capacity Building for Provincial Infrastructure Service Provision and Oversight (US$8\.52 million, of which US$8\.22 million IBRD)\. Carrying out of the following Project activities below constitute an expansion of the scope of the activities carried out or to be carried out under the APL 1: a) Carrying out of technical audits and certification of Subprojects\. b) Provision of technical support to: (i) DPV, DIPAC and DIPSOH to assist MI in supervising and monitoring Subprojects (including the annual road routine maintenance programs referred to in Part 1 (f) of the Project), and in the planning and design of future infrastructure investments; and (ii) DPV in the design and implementation of policies for the control of axle loads\. c) Implementation of selected actions identified in the action plan resulting from the carrying out of DPV’s institutional diagnosis under the APL 1, which actions will assist the DPV to: (i) monitor road network conditions; (ii) make an efficient use of resources; (iii) strengthen its environmental capacity; and (iv) adopt results-oriented management techniques\. d) Provision of technical support to the Borrower, through the ME, to continue the implementation of a program to strengthen the capacity of the agencies whose mandate is to regulate and control the provision of public services\. e) Strengthening of the integrated financial management system to continue supporting the development and implementation of said system\. Revised Components 21\. Increasing construction costs, delayed procurement processes, as well as efforts to synchronize the implementation of the APL2 with the APL1 to maximize impact, resulted in the revisions of the components outlined in Table 1\. The revisions (beyond the number of road works and WSS works) were part of the Project’s first Board-approved restructuring, which included changes to the PDO-level indicators\. The Project’s three restructurings are described in more detail in the Implementation Section\. Table 1\. Restructured Elements Component Restructured Elements Component 1 Number of road works reduced due to increased Project costs\. Component 2 Number of WSS works reduced due to increased Project costs\. Component 3 Component 4 The traffic congestion solution study associated with the increase in port activities was canceled since the development of a port master plan within the framework of the APL1 made the study redundant\. Component 5 The pilot implementation of policy recommendations from the competitiveness and employment studies was canceled because the final results of the studies were not available in time to be implemented under this Project\. 6 Component 6 The following activities were removed: (i) the requirement for technical audits given that the implementation capacity of the involved agencies improved substantially; (ii) the implementation of an action plan generated from the institutional diagnostic of the DPV since the entity began regularly monitoring road network conditions, allocating adequate resources to road maintenance, and utilizing results oriented management techniques through performance-based rehabilitation contracts; and (iii) the strengthening of the financial management system since, in carrying out this activity, the Borrower did not require new technologies or external consultants\. Section 2: Key Factors Affecting Implementation and Outcomes Project Preparation, Design and Quality at Entry 22\. Soundness of background analysis\. As this was the second phase of the APL, the Project relied on the thorough background analysis done for preparation of the APL Program\. Like the APL1, the Project directly supported the GoPBA’s key infrastructure investment priorities, ensuring a high level of client ownership\. In addition to supporting the high level goals of the GoPBA, the APL2 was directly linked to the World Bank’s 2006 Country Assistance Strategy (CAS) Report Number AR - 34015, which emphasized reducing the extent and severity of poverty in Argentina through sustained economic growth, social inclusion, and improved governance\. The CAS pinpoints infrastructure investments as one of the key building blocks for sustained economic growth\. 23\. The Project also incorporated lessons learned from the APL1 on the design of eligibility criteria for works, safeguard frameworks and fiduciary management tools among others\. The Bank’s rationale for supporting this Project was clear given the PBA’s demonstrated commitment to the APL Program, the PBA’s fulfillment of the APL1’s triggers,20 and the PBA’s continued need to close the growing gap in access to basic services\. 24\. Assessment of the Project’s design\. On the whole, the Project design responded to the PBA’s priorities\. The design also directly supported the Bank’s 2006 CAS, which emphasized social inclusion and infrastructure investments\. The decision to design the Program as an APL as opposed to a Specific Investment Loan (SIL) permitted a longer-term outlook and flexibility in the implementation schedule\. This was strategic from a design perspective given that the uncertain fiscal situation and the cross sector nature of the Project implied a higher probability of implementation delays in some or all of the components\.21 In addition, the longer-term outlook of the APL permitted the inclusion of meaningful institutional strengthening activities, which oftentimes require an extended time period for consolidation\. 20 The PBA met all but one of the triggers required for the launch of the APL2\. By the time of the APL 2 design, the GoA had put in place a new legal framework that significantly contributed to the improvement of the fiscal situation of the PBA, making the fiscal trigger irrelevant\. 21 Specifically, the APL design enabled adjustments to the implementation pace according to the evolution of the fiscal framework as well as flexibility in cases where subprojects depended on investments to be executed, operated and maintained by other agents, without restraining progress in other components\. For example, at the time of design of the APL1, the WSS sector was undergoing significant changes (private concessions were being transferred to public utilities), and it was unclear whether all the WSS works could be completed within the timeframe of the APL1\. The APL provided the flexibility to shift these works to the APL2\. 7 25\. The APL Program’s overall purpose, to improve the provision of infrastructure services in the Province within a framework of fiscal responsibility, captured the core objective of the Program and the two APL Projects\. The APL2 PDO “to improve the social and environmental welfare” of PBA residents was vague, but the APL2 PDO’s sub-objectives (improved provision of transport, WSS, and drainage services) directly reflect the outcomes of the Project’s key activities\. The first three Project components focused exclusively on roads (Component 1), WSS (Component 2), and drainage (Component 3)\. While components four, five and six focused on supporting strategic infrastructure development within a frame of fiscal responsibility\. The activities under components four, five and six reflected the needs of the PBA at the time of appraisal, but the large number and wide scope of the activities limited cohesive impact and increased the complexity of Project implementation\. The institutional strengthening activities, however, were of secondary importance to the Project’s achievement of the PDO\. Grouping the disbursement categories for components four, five and six together also minimized the potential complication associated with having six components\. 26\. At a first glance, the implementation arrangements appear complex\. The Unit for Coordination with Multilateral Credit Organizations of the Ministry of the Economy (UCO) was responsible for overall coordination\. The Provincial Roads Agency (DPV), the Provincial Directorate for Water Supply and Sanitation (DIPAC) and the Provincial Directorate for Hydraulics and Sanitation (DIPSOH), under the Ministry of Infrastructure (MI), were in charge of supervising, contracting and implementing roads, WSS and drainage works respectively\. The MI created a unit, the UCPO, to coordinate these three agencies and to maintain communication with the UCO (which became the Sub-Secretariat for Coordination of International Credit from Countries and Organizations (SCEOCI) at a later stage in the Project)\. 27\. Despite the apparent complexity, at the time of design the APL1 was utilizing the same implementation arrangements successfully\. From a design perspective, adopting the same arrangements was crucial given the parallel implementation and integrated nature of the two APL Projects\. The SCEOCI team viewed the APL1 and APL2 Projects as one Program\. The arrangements were also logical given the cross-sector reach of the Program and they set the tone for a fruitful collaboration between the ME and the MI\. In addition, the designation of the ME as the lead implementing agency facilitated synchronized implementation of the Project’s infrastructure and institutional capacity building activities (actually, it helped to maintain a focus on institutional strengthening components complementary to the works throughout implementation), minimized counterpart financing problems and limited conflicts between state government dependencies and agencies\. In addition, the decision to implement the Program within one Province diminished the risk of complications due to political discord between the entities\. 28\. The PBA had a high capacity to implement the APL2\. As noted above, the PBA was successfully implementing the APL1, which followed a very similar structure and financed activities of a similar nature\. Although the Project was infrastructure based, the design also included innovative aspects, including performance-based road rehabilitation and maintenance contracts (CREMA)\. 29\. Fiduciary and safeguards aspects\. Financial Management (FM) arrangements were appropriate\. The Borrower had adequate FM systems, software, and trained staff\. A thorough FM assessment was conducted for the APL1 Project and a less-detailed FM assessment was carried out for the APL2 to ensure the adequacy of the arrangements already in place\. The Borrower also had adequate procurement arrangements at the time of Project design, but still several procurement strengthening measures were agreed at appraisal in order to mitigate potential procurement risks (see par\. 32)\. 8 30\. The APL2 ranked as a “Category B” Project\. The APL2 adopted the safeguards framework developed for the APL Program given the effectiveness of the framework (a specific assessment of APL1 compliance with safeguards was performed)\. Individual environmental assessments of subprojects for the first year were prepared following the guidelines established under the APL1\. The safeguard policies triggered for the Project (OP 4\.01, Environmental Assessment, OP 4\.11, Physical Cultural Resources, and OP 7\.50, Projects on International Waterways) were appropriate given the Project’s original design\. 31\. Adequacy of Government’s commitment\. The Project directly supported the PBA’s infrastructure program, generating a high level of Project commitment and ownership\. The PBA requested that the Bank increases the size of this Project (from US$150 million to US$270 million) to accelerate the achievement of the overall Program objectives and expand the provision of basic services to a greater number of the poor\. The PBA also requested an accelerated preparation schedule for the Project given its importance for the PBA’s development\. The PBA prepared numerous bidding documents prior to the launch of the Project\. In addition, the PBA’s active and satisfactory implementation of the APL1 illustrated a strong level of commitment and set the basis for sound preparation and implementation of the APL2\. 32\. Assessment of risks\. The Project design anticipated all of the major risks\. The risks identified for this Project were based largely on the risks identified in and experienced during the APL1 Project\. The Bank team identified Moderate institutional risks regarding FM (auditing, reporting, and the use of Project resources) and procurement (still limited experience and capacity in Bank Procurement by sub-implementing agencies and risk of escalation of prices in procurement processes, among others) and developed detailed institutional strengthening measures to mitigate these risks\. The Substantial fiscal risks and Moderate road sector risks due to possible market distortions were closely tied to external, macroeconomic factors, and the proposed mitigation measures, which called for close monitoring and high levels of adaptability, were adequate given the scope of the Project\. Implementation 33\. Progress towards the PDO was Satisfactory from effectiveness to the December 31, 2013 closing date\. The Loan was fully disbursed and all contracted infrastructure works were finalized by the closing date\. The Project benefited from the PBA’s experience with Bank processes through the ongoing APL1 as well as an established relationship with the Bank team\. The Project also benefited from the PBA’s pro-active preparation of the bidding documents, as a result of which during the first eight months of Project implementation approximately 50% of the loan had been committed and some US$15 million disbursed\. The Project’s biggest internal challenges were administrative in nature\.22 The Project experienced a 14-month lag in effectiveness because of a delay in the signing of the Guarantee Agreement\. The Project also encountered various difficulties outside its control during implementation, including rocketing construction prices and historic floods\. The Bank and the PBA adapted the Project to the changing circumstances through three restructurings that maintained focus on the Project’s core objectives and enabled effective implementation\. 34\. The March 2011 Mid-Term Review (MTR) revealed the need for adjustments in the scope, timeframe, and safeguards of the Project\. A sharp rise in crude oil prices (see Table 2) caused construction prices to rise, limiting the Project’s financial wherewithal to carry out all planned 22 Administrative delays were caused by inter alia: (i) lengthy and cumbersome internal administrative processing to get authorization to launch bidding processes, to have contracts signed, and to carry out any amendment, and (ii) procurement difficulties related to the Argentinian market\. 9 activities\. The Bank and PBA approached this limitation with a solutions-focused mindset\. For example, funds were transferred from the DPV’s institutional capacity building activities to WSS works given that the DPV’s improved monitoring, operational and maintenance capacity made some activities, such as an institutional action plan, unnecessary\. Additionally, the MTR provided a platform to discuss the measurable impacts of the Project’s components, yielding adjustments in certain indicators\. The drainage PDO-level indicator, for example, was dropped to reflect the difficulty of measuring flood capacity until the micro- and macro-drainage were operating together, which would lag until September 2013\. The drainage impacts were still measured by the ‘drained area’ as works were implemented, and in fact the drainage system functioned remarkably well during the heavy rains of January 2014\. The number of beneficiaries from the drainage component was unaffected\. The WSS PDO-level indicators (initially measured by reduction in waterborne disease) were also changed to reflect more measurable and pragmatic Project impacts, such as number of beneficiaries with improved WSS services\. The Project’s closing date was also extended by 18 months, from February 15, 2012 to August 15, 2013, to allow for completion of activities given slow procurement processes (discussed in the Procurement Section below) and other administrative delays\. The MTR also revealed the need to retroactively trigger the involuntary resettlement safeguard (discussed in more detail in the Safeguards Section below)\. Table 2\. World Crude Oil Prices23 35\. The choice of an APL as opposed to a SIL proved to be key to facilitate successful implementation\. Construction costs continued to rise during implementation (roads works increased in cost by approximately a factor of two), leaving the Project with a US$16\.3 million deficit to fund the completion of ongoing roads and WSS works in October 2012\. Rather than reduce the Program’s scope and drop ongoing works because of inadequate funding, the parallel nature of the APL Projects permitted the Bank team and the PBA to restructure the APL2, transferring the remaining US$16\.3 million in works (one roads work and four WSS works) to the APL1/AF, which had an uncommitted balance\. The Project’s third restructuring in August 2013 was a straightforward four month extension of the closing date (that brought cumulative extension to 22\.5 months) to accommodate potential contingencies in the closure of the Finochietto drainage work and to permit the completion of 23 US Energy Information Administration, February 2014\. 10 institutional strengthening activities\. The restructuring also included adjustment in the allocation of loan proceeds to better accommodate the use of the remaining resources\. 36\. Safeguards\. As mentioned above, the Involuntary Resettlement safeguard policy was triggered after the March 2011 MTR\. According to preliminary sub-project designs, involuntary resettlement was not foreseen at the time of appraisal\. However, a case of involuntary resettlement arose during the implementation of a road rehabilitation work due to a technical modification\. This was, however, an isolated case\. The PBA handled it satisfactorily and in compliance with OP 4\.12 by applying the Resettlement Policy Framework (RPF) developed during the preparation of the APL1’s AF\.24 The MTR, however, did show that social and environmental procedures and capacities of the PBA needed to be improved in order to reach the Bank’s socio-environmental requirements in projects planning, implementation and supervision\. As a result of this analysis, the SCEOCI and the UCPO of the MI appointed specialized staff to oversee and ensure that social-environmental procedures were being implemented\. In addition, the PBA consolidated the capacity of the sub- executing agencies through the implementation of several training workshops, including a Socio- Environmental Management Strengthening Program for socio-environmental personnel, project engineers and technical work supervisors\. The PBA adopted a systematic monitoring model and began publishing inspection reports on the SCEOCI webpage regularly\. 37\. Procurement\. The Project experienced slow procurement processes, especially for technical assistance activities\. The Province has quite lengthy administrative processes, which impacted the duration of procurement processes\. In addition, Argentina has several restrictions to purchase goods produced abroad and to contract and pay international companies\. Most of the institutional activities were related to IT purchases, sophisticated roads equipment and international consulting firms\. These made the contracting even lengthier\. The most significant procurement challenge the Project faced was a mis-procurement of a US$5\.9 million bid to a roads work contract in 2009 and the subsequent cancellation of funds\. The PBA rejected all bids for the works contract based on an assessment that the bid prices were too high and to send a push back signal to the construction industry against inflated prices\. The Bank objected to the rejection\. This was an isolated case and did not reflect the PBA’s procurement capacity\. The Bank and the PBA worked closely to overcome these procurement issues and managed to overcome hurdles without significantly impacting implementation or achievement of the PDO\. 38\. Financial Management\. The Project complied reasonably well throughout its life with the prescribed FM arrangements and Bank requirements, providing acceptable periodic interim financial reports and up-to-date accounting records\. The reports provided reasonable assurance that the Loan funds were used for the intended purpose\. Project transactions were mainstreamed in the general budget of the PBA and subject to the PBA’s internal controls\. Project transactions were also subject to the external oversight of the Province Court of Accounts, whose audit reports submitted to the Bank consistently showed unqualified audit opinions on the Project’s basic financial statements, statement of expenses and the designated account\. The Bank’s financial specialists reviewed the audit reports throughout implementation and found them acceptable\. 39\. Post-Completion Operation/Next Phase\. The AF of the APL 1 is still ongoing\. The infrastructure works financed under the AF will help consolidate the advances made under the APL1 and APL2\. The coordinating agencies and the sub-executing agencies involved in implementing this 24 See Annex II for more detail\. 11 Project will also remain in place after the Project’s closure\.25 In addition, the APL Program supported the development of a number of tools to assist the sub-executing agencies monitor the sustainability of the works\. For instance, the APL2 supported the acquisition of ten vehicles and mobile axle- weight measuring devices to monitor the axle-loads on the network\. One of the main anticipated risks is adequate budget allocation for operation and maintenance activities and continued much-needed infrastructure investment\.26 The PBA expressed its desire to build on the satisfactory experience and progress made under the APL Program through future investment projects\. Monitoring and Evaluation (M&E) Design, Implementation and Utilization 40\. M&E Design\. Two of the original PDO indicators’ scope went beyond the reach of the Project\. The original PDO-level indicator related to WSS services measured increased access to the services through a reduction in waterborne diseases\. The reduction of waterborne diseases is correlated with improved WSS services but also considers aspects, such as hygiene, that the Project did not include\. The WSS PDO indicator was restructured and the resulting set of WSS outcome indicators were straightforward and directly reflected the desired outcome of the Project’s investments (that water lines and sewerage service lines are built and people connect to them)\. The PDO-level indicator related to the drainage works that measured improved flood management capacity through flood persistence times anticipated that the drainage works would be completed at an early stage of the Project\. This was an optimistic assumption given the complicated engineering required to construct the drainage works and the funding required from outside sources to build the micro-systems\. This indicator was dropped, but an intermediate indicator reflecting the impact of the drainage work was maintained\. The PDO-level indicator for roads (decreased IRI) was very straightforward and directly measured the impact of rehabilitating the roads\.27 41\. The ten intermediate indicators (and six core indicators that were added during the first and second restructurings) were also very straightforward and provided a means to clearly measure the Project’s key outputs\. The results framework was designed and restructured in parallel to the APL1’s result framework, enabling easy comparison and compilation of overall Program results\. 42\. M&E Implementation\. The M&E framework was implemented successfully throughout the life of the Project\. The PBA (through the SCEOCI, in coordination with the UCPO) collected data on the indicators and informed the Bank of progress through semester progress reports and during missions\. The indicator on active sewerage connections proved difficult to accurately measure given the PBA’s limited experience projecting active sewerage rates and the WSS operator’s limited on - the-ground monitoring capacity to track active connections\. In general, however, the straightforward nature of the indicators facilitated calculation and collection of data\. The Bank missions also involved many field visits, which served to confirm the general reach of the activities and their respective indicators\. 43\. M&E Utilization\. The Project supported three initiatives to further the use of M&E indicators in the investment analysis process\. First, the APL supported an initiative within the 25 The PBA is using the same implementation structure to carry out projects with the BID and the CAF\. The SCEOCI and UCPO were institutionalized during the life of this project\. 26 For instance, a lack of investment would reverse the steady-state condition of the roads network that the APL helped achieved\. The maintenance backlog would reach over an unacceptable level of more than 20 percent over the next five years with the proportion of roads in bad condition approaching or exceeding 10 percent\. 27 Vehicle operating costs decrease with decreased IRIs while travel time improves\. 12 statistics unit to collect more frequent and detailed household surveys\. Second, the Project supported the development of a pilot budget management tool that tracks not only financial data on agencies’ annual expenditures but also concrete data on the agencies’ achievement of annual indicators and goals\. The PBA plans to use this M&E-styled budget to inform investment decisions\. Third, the APL Program supported the design and implementation of a provincial public investment system (SPIP) to facilitate the monitoring and evaluation of investment projects and inform the assignation of future investment funds\. Section 3: Assessment of Outcomes Relevance of Objectives, Design and Implementation Rating: High 44\. The basic premise of the Program and the APL2 Project (providing access to basic services, improving the provision of transport, and improving urban drainage) remains very relevant in the PBA\. The PBA hopes to develop other projects that would follow the model and build upon the achievements of the APL Program\. The APL2 is also still very relevant from the Bank’s perspective\. It is closely aligned with the objectives of the World Bank Group’s Country Partnership Strategy (CPS) discussed by the Executive Directors on June 9, 2009 (Report No\. 48476-AR), which focuses on three pillars: (i) sustained growth with equity; (ii) social inclusion; and (iii) improved governance\. The CPS also envisions infrastructure assets as one of the building blocks for sustained economic growth\. The APL Program was a precursor of the Bank’s twin goals to alleviate poverty and promote shared prosperity\. The ultimate objective of the APL Program was “to support the return to a sustainable path of economic growth, to end extreme poverty and to increase social equity”28 through infrastructure\. Efficacy Rating: Substantial 45\. The Project fully achieved its key objective\. By the time of the APL 2 design, the GoA had put in place a new legal framework (the National Fiscal Responsibility law) that significantly contributed to the improvement of the fiscal situation of the PBA\. In addition, the PBA undertook a series of structural reforms to ensure the quality of fiscal management\. In 2007, the GoPBA enacted the Financial Administration Act, created the National Revenue Agency of the PBA and implemented tax reforms\. The PBA successfully reduced its debt in terms of Gross National Product, going from 24\.6 percent in 2002 to 8\.5 percent at the Project’s close\. The PBA paid close attention to the prioritization of works based on social and structural needs (See the Overarching Themes, Other Impacts and Outcomes Section), did not over-expend on works and did not exceed their financial capacity\. 46\. The APL2 PAD estimated that the project was going to benefit about five million people\. This estimate was achieved by the Project: the improved road network benefits 780,000 people directly on an annual basis and additional 1\.7 million people indirectly29 (benefiting around five million during the lifespan of the Project), 330,000 directly benefited from the WSS works, and 345,000 directly 28 APL2 Project Appraisal Document 29 The DPV calculated 1\.7 million beneficiaries that live in the areas nearby the improved roads\. The 780,000 direct beneficiaries are people who use the improved roads network regularly, though these people may be the same from one year to the next\. 13 benefited from the drainage works\.30 In addition, the positive externalities created by the Project investments (increased economic activity and land value) as well as the increased institutional capacity to operate, maintain and implement further works have and will continue to benefit countless residents of the PBA\. Roads 47\. The Project improved the road network through financing the rehabilitation of 251\.3 km of roads, the widening of 35\.20 km of roads and the enhancement of two intersections\. The Project had a network-focused approach in order to maximize the impact of the works\. The Project achieved its output indicators as well as its outcome indicator, keeping the average roughness (measured through the International Roughness Index -IRI) of High Traffic31 roads below 3\.7 and the average IRI of the network below 3\.3\. Project design targeted High-Traffic roads and assumed roughness of said roads would decrease (from 3\.5 to less than 3)\. During implementation traffic increased significantly and the number of roads that fell under the HT category increased, however given budget limitations, the number of roads intervened by the Project did not increase accordingly\. Therefore, the average roughness for the roads classified as HT increased and target was restructured\. Without the Program, the overall roughness of the network (AVG IRI) would have reached 5\.7 (projection from the - HDM)\. 48\. In addition, the Project introduced the implementation of CREMA contracts, which are being used by the DPV for investments outside the scope of the Project\. The Project met all of its roads- related indicators\. Investments on the road network over the last couple of years have helped the PBA reach a steady-state condition with a maintenance backlog (roads with IRI>4) of less than 15 percent and a proportion of roads in poor condition (with IRI>5) of less than 5 percent\. As a result, vehicle operating costs for the provincial vehicle fleets using the network have been reduced by nearly 15 percent\. 49\. The Project also played a significant role in strengthening the road asset management capacity of the DPV\. For instance, the Project supported activities to: (i) consolidate the use of the HDM as a planning tool to design efficient and prioritized multi-year rehabilitation programs; (ii) operationalize a comprehensive Routine Maintenance Management System developed under the APL1 by hiring consultants to collect data on the network in order to feed the system and installing software in all the regional districts to elaborate a more rational and efficient annual program of routine maintenance activities over the entire provincial road network; and (iii) improve the DPV’s capacity to monitor axle-loads in the network,32 to carry out network and traffic surveys and to carry out environmental and social assessments of projects\. 50\. The budget allocated to the DPV has been in constant evolution since the 2002 economic crisis, going from US$100 million per year to about US$200 million per year in 2012\. The PBA has still not reached pre-crisis (1995-2000) levels of US$300 to US$350 million per year, but has assigned between 10 and 25 percent of its total budget to the routine maintenance of the provincial road network over the past five years\. That effort has translated into improved primary paved road network conditions\. Table 3 includes detailed information on the condition of the non-concessioned paved network throughout the APL1 and APL2\. 30 These numbers are lower than the estimated number of beneficiaries during appraisal because of cost increases\. 31 Average traffic exceeds 4,000 vehicles per day\. 32 According to information provided by DPV, the axle-load control helped reduce the proportion of overloading/infractors from ten to four percent in its first year of implementation\. 14 Table 3\. Improvement in the riding quality of the non-concessioned paved network throughout the implementation of APL1 and APL2 (2004-2013) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 % in good condition, IRI<4 84\.7 76\.9 92\.7 93\.0 91\.4 88\.0 84\.5 86\.8 86\.9 86\. % in poor condition, IRI>5 4\.2 6\.5 3\.7 2\.0 3\.2 3\.1 3\.0 5\.2 4\.4 5\.0 Maintenance backlog, IRI>4 15\.3 23\.1 7\.4 7\.0 8\.6 12\.0 15\.5 13\.2 13\.1 14\.0 Average Roughness, IRI 2\.8 2\.8 2\.9 2\.7 2\.8 2\.6 2\.9 3\.0 3\.0 3\.1 Estimated Average IRI 2\.8 2\.8 3\.2 3\.5 3\.9 4\.3 4\.8 5\.0 5\.3 5\.7 without investment (HDM prevision) Budget assigned to routine 22\.0 29\.0 28\.0 27\.6 31\.7 23\.7 31 maintenance of the primary paved network, US$ million Water Supply and Sanitation 51\. The Project improved the provision of WSS services through financing the construction of 9,045 water supply service lines and 82,508 sewerage service lines in poor areas (works targeted the poor through applying the IPMH index)\. These new lines provided water connections to 34,698 people, made available sewerage connections to 298,368 people and active sewerage connections to 112,200 people\. The Project achieved all outcome and output indicators with the exception of active sewerage connections, which was missed by approximately 16 percent\. The target for this indicator was estimated based on a formula developed by DIPAC and the Aguas Bonaerenses Sociedad Anónima (ABSA) that attempted to capture the lag that is always present between available access and actual connection to the network\.33 Although the target has not been met according to the formula at this time, information provided by the WSS service providers indicates that the percentage of beneficiary households connected to sewer lines will increase to 80 percent and that the Project will achieve the target by 2017\. 52\. The WSS component of the APL2 was especially important given the volatility of WSS service provision in the national context as well as the low capacity of the utilities involved in the Project to invest in extending WSS, especially sanitation, services\. Key members of DIPAC’s staff commented that without the Project, the utilities would not have had the financial capacity to invest in sanitation\. The APL Program also played a fundamental role in developing the capacity of the PBA to manage WSS works\. During the APL1, the MI established a unit for provincial water and sanitation (UPAS)\. During the implementation of the APL Program, the UPAS (which had eight staff members) became a separate directorate, the DIPAC, with 40 staff members and a budget of AR$300,000,000\. The DIPAC was consolidated because of the APL Program and became ingrained in the MI\. When established, the DIPAC only managed WSS works with external financing\. By the close of the APL2, the DIPAC was managing more works financed by local sources than external sources\. 33 Given the importance of having the population effectively connected to a network, the Bank and the PBA agreed at restructuring to add this more refined indicator\. Nevertheless, given Argentina’s lack of experience in estimating and monitoring this indicator this data should be considered with room for error\. 15 Drainage 53\. The Project improved the provision of drainage services through financing the macro-system for the Finochietto Drainage System (the micro systems were financed with local funds)\. The system covered 1,200 ha of drainage, achieving its respective output indicator\. The communities covered by the system have already seen home values increase as much as five times\.34 In addition, in February 2014 the PBA experienced heavy rains and the area surrounding the system, which was highly prone to flooding, did not flood\. During Project implementation, the population living around the drainage system increased, necessitating the construction of a safety railing in the final part of the drainage system\. The PBA is currently in the process of constructing this railing with its own funds\. 54\. The APL Program also played a key role in increasing the capacity of DIPSOH\. At the start of the APL1, drainage works could not be carried out because DIPSOH did not have an established method for designing works that considered the basin as a whole\. As a result, during the APL1, DIPSOH developed the Manual for the Master Plan Designs to Improve Infrastructure and Management for Urban Drainage, which was formally approved by the GoPBA (Decree 2,647, October 10, 2006)\. The Manual outlines a holistic method for assessing the technical viability of urban drainage works that includes an analysis of: (i) hydraulic and hydrologic design; (ii) the structural and non-structural measures to be undertaken; (iii) compliance with environmental measures; and (iv) the importance of the works as part of a major drainage plan\. During the APL2, DIPSOH fully adopted the Manual and began applying the approach to drainage projects in the PBA regardless of the source of financing\. The success of the Manual spurred the development of further measures to strengthen the non-structural aspects of drainage\. For instance, the GoPBA passed decrees to strengthen integrated coastal planning and to establish a hydraulic plan at the provincial level during the APL2 (See Annex 2 for more information on the decrees)\. Efficiency Rating: Substantial 55\. The overall Efficiency rating of the APL2 is Substantial\. The ex-post economic analysis showed that both the roads and drainage components performed better than expected at appraisal\. Although the WSS component did not achieve the projected Internal Economic Rate of Return (EIRR), it was still economically efficient\.35 At the time of appraisal of the APL2, the DPV carried out an economic evaluation taking into account a sample of roads that were proposed to be financed under the APL2 (the bulk of which corresponded to rehabilitation works of interurban roads), that demonstrated high economic rates of return, with an average EIRR of 50\.9 percent and a Net Present Value of US$59\.4 million\. In 2014, the DPV updated the evaluation with a representative sample of the works, the real costs of the works and updated traffic volumes\. That evaluation showed that despite the increase in cost that occurred for the works the economic returns remained high; the average EIRR was 110 percent and Net Present Value was US$310,000/km at closing\. These higher rates of return are explained by different factors including: (i) higher traffic volumes; (ii) higher user costs as a result of which higher benefits related to savings in operating costs are accrued; (iii) the differences in the road samples used during appraisal and completion and particularly the fact that the bulk of the roads used in the appraisal 34 Anecdotal information collected at the ICR mission during a site visit to the Finochietto Drainage System\. 35 Five points above the 12% discount rate\. 16 samples included lower volume roads which were later substituted by widening works in roads segments within the conurbano with much higher traffic volumes\. 56\. For WSS, the ICR analysis utilized the same methodology as at appraisal: a cost benefit analysis with an avoided cost approach to measure the benefits\. Benefits were measured as the resources saved from going from septic tanks (with corresponding cleaning costs) to conventional sewerage connections\. For drainage works, benefits were measured as the averted financial loss from reduced or eliminated flooding risk\. 57\. Results of the evaluation show that the Project had important benefits for the PBA\. In drainage, net benefits reached US$25M, and the works generated returns of 25 percent (higher than expected)\. In WSS, the works yielded net benefits (NPV) of US$42M and returns of 17 percent (similar to expected)\. See Annex 3 for more detail on the economic analysis\. Water and Sanitation Drainage Summary of Results PAD Actual PAD Actual Net benefit (NPV of flows) 000USD N/A 41,913 N/A 25,000 Between 17% and 37% EIRR Average 22% 17% >=12% 17% Justification of Overall Outcome Rating Rating: Satisfactory The ICR rates the overall outcome of the Project as Satisfactory based on “High” ratings for relevance, and its “Substantial” rating for efficacy and efficiency\. Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development 58\. The WSS works were implemented in areas where average IMPH was 40 percent or higher, ensuring that the poorest segments of the PBA’s population benefited from the Project\. The strengthening of the multiple agencies involved in Project execution will assist in the effective future expansion and rehabilitation of roads, WSS and drainage works, promoting economic and social development as well as poverty reduction\. (b) Institutional Change/Strengthening 59\. Before the launch of the APL Program, the PBA had a small project implementation unit with capacity to implement development policy loans, but limited knowledge on the general processes required for implementing international organizations’ structural investment loans as well as a limited capacity to coordinate provincial agencies\. As a result of the APL Program, a new unit was consolidated to implement the Program\. The unit gained experience in contract negotiations, financial management, procurement processes and safeguard supervision among other areas\. Given this increased implementation capacity, the PBA began soliciting and executing loans from other international organizations\. The UCO went from unit status to agency status, and finally, to being a sub-secretariat\. The SCEOCI team was recognized at a national level for being one of the best- organized teams in the country; representatives from a number of other provinces visited the SCEOCI 17 in order to gain insight on how to strengthen their own teams\. The APL Program also contributed to the consolidation of the DPV, DIPAC and DIPSOH\. For instance, as mentioned in the Efficacy Section, the DIPAC went from being a unit with eight employees to a directorate with 40 employees and a budget for investments of AR$300,000,000\. 60\. The APL Program also supported the development of tools to help the PBA prioritize investments based on social and structural need\. The DPV utilized the HDM 4 model to prioritize road segments in need of repair\. The DIPAC utilized the IPMH model, based on an index of hereditary deprivation36 and current resource deprivation, to target investments towards communities with high levels of poverty\. (c) Other Unintended Outcomes and Impacts 61\. An unexpected impact has been the strengthening of the PBA’s environmental and social supervision capacity\. During the APL1, all environmental and social requirements were met, but the PBA did not have the tools to move environmental and social management beyond compliance\. The environmental and social specialists worked closely with the PBA to develop monitoring tools to streamline the supervision process\. The APL2 also supported workshops not only for social and environmental specialists, but also for works inspectors and contractors\. This hand-in-hand work improved safeguard supervision for the Project and resulted in an institutional shift in the PBA\. The PBA recognized the need for systematically monitoring social and environmental safeguards and is utilizing the developed tools for monitoring all projects whether Bank financed or not\. Section 4: Assessment of Risk to Development Outcome Rating: Moderate 62\. The risk to the development outcome is Moderate\. In general, the institutional strengthening activities have improved the capacity of the executing institutions to strategically plan and monitor investments\. For instance, the DPV recently carried out a network-level economic evaluation with the HDM-4 model, showing that it has an adequate tool for designing multi-year rehabilitation programs, and has a new system for the management of routine maintenance\. In addition, the budget allocated to the DPV has been in constant evolution since the 2002 economic crisis, going from US$100 million per year to about US$200 million per year in 2012; and the PBA has assigned between 10 and 25 percent of its total budget to the routine maintenance of the provincial road network over the past five years\. Nevertheless, the sustainability of the improvements in the roads network depends heavily on the ability of the GoPBA to finance the DPV’s list of priority investments \. The APL Program has played a key role in developing the PBA’s capacity to attract external sources of credit\. Since the launch of the APL, the SCEOCI and UCPO have been involved in the design and implementation of six internationally financed projects, totaling over US$400 million in credit for different sectors\. 63\. A financial analysis of the two largest WSS operators in the PBA, ABSA and the Obras Sanitarias Mar del Plata-Batán (OSSE), shows that there is high probability that the WSS works will be sustainable\. During implementation, both operators improved their financial results\. ABSA and OSSE have a sound capital structure with liabilities lower than 20 percent of their assets, and equities higher than 80 percent\. OSSE has tariffs that fully cover its operating cost and partially cover investment\. ABSA has not achieved tariffs that fully cover operating costs, yet it has improved its 36 Hereditary deprivation is a measure of structural poverty and is determined based on the physical characteristics of the household’s dwelling (the quality of the floor and roof and the presence of a flushable toilet)\. (APL2 PAD)\. 18 cost recovery from 56 percent in 2007 to 87 percent in 2012 (still one of the best ratios in the Country)\. Despite the internal financial shortcoming of ABSA, the GoPBA has demonstrated a high level of commitment to supporting this operator by regularly covering its deficits (following the overall policy in the sector in Argentina)\. Section 5: Assessment of Bank and Borrower Performance Bank Performance in Ensuring Quality at Entry Rating: Satisfactory 64\. During the three-month preparation period, the Bank team performed a comprehensive analysis of the APL1, integrated lessons learned into the APL2 and updated objectives and activities to align the Project closely with the PBA’s strategic vision and infrastructure plan\. Project preparation was streamlined by drawing from the existing institutional arrangements of the APL1\. For example, the implementing agencies (ME and MI) incorporated these new activities into their work program according to their experience with the APL1\. Implementation manuals and procurement processes followed the same guidelines as the APL1, which significantly facilitated discussions with the PBA\. The similarity between the two Projects also facilitated early implementation processes\. During the first eight months of Project implementation (loan became effective on August 2008), US$15 million was disbursed and approximately US$188 million was committed\. Actual and committed expenditures represented approximately 50% of the loan (May 2009 ISR)\. 65\. The Bank team maintained enriching policy discussions with DPV authorities to increase the cost-efficiency of the use of the scarce budgetary allocations for the preservation of the road network to ensure that the standards and technical solutions used for upgrading, paving and rehabilitation corresponded to optimum economic alternatives that yielded the maximum value to the community\.37 This dialogue, initiated during the APL1, led to an agreement in the APL2 to: (i) optimize the technical standards of road works through the adoption of individual interventions that were both cost efficient and technically reasonable; and (ii) the introduction of the CREMA\. In addition, during the implementation of the APL1, the Bank team created an updated data bank for the cost of road works based on official estimates and bidders’ estimates\. The data bank played a key role in the preparation of more realistic official budget estimates for works under the APL2\. The Project’s design-related shortcomings were minor\. Namely, the PDO was vague, and the WSS PDO-level outcome indicator went beyond the scope of the Project\. Bank Performance in Quality of Supervision Rating: Satisfactory 66\. The Bank team played a very active role in supervision, processing three timely restructurings and adapting the Project to steady increases in construction costs\. When construction costs exceeded Loan and counterpart funds, the Bank team smoothly transferred works to the APL1 and its AF\. The Bank team also synchronized indicators for the APL2 and the APL1 enabling easy calculations for the overall impact of the APL Program\. This proactive behavior helped smoothen implementation and indicated good communication with the PBA\. In addition, the environmental and social 37 The adoption of over-designed pavement structures was a common phenomenon that absorbed a great deal of available funds, leaving little resource for attending the rest of the network\. 19 specialists, who were based in Argentina, played an especially active role in developing the capacity of the PBA to systematically monitor safeguards, environmental and social impacts\. The PBA highlighted the positive working relationship with the TTLs\. According to the ISRs, the PDO rating has been Satisfactory since effectiveness\. The PBA, however, expressed frustration over the Bank’s inability to move funds for emergency relief in April 2013 after the heaviest rainfalls in more than a century, but noted that this was beyond the reach of the Bank task team to resolve\. The PBA also noted that procurement support varied from specialist to specialist and that the Project would have benefited from more hands-on support and clearer communication in this field\. Justification of Rating for Overall Bank Performance 67\. Given the Bank’s Moderately Satisfactory preparation and Satisfactory supervision of the Project, the ICR team rates the Bank’s overall performance as Satisfactory\. Borrower Performance Government of the Province of Buenos Aires Performance Rating: Satisfactory 68\. Throughout Project implementation, the GoPBA’s performance was exemplary\. The presence of the Ministers of Economy and Infrastructure during several Bank’s supervision meetings was a testimony of the high sense of commitment and ownership displayed by the Government\. Also, the GoPBA tried its utmost to overcome the financial challenges posed by inflation and increased construction costs, enabling the Project to meet its development objectives\. The GoPBA plans to finance the few activities not completed (five sub-activities within Component 6, amounting to approximately US$500,000) in the Project’s lifetime with its own funds\. The GoPBA may also finance the Ports and Marina study, which was canceled; this additional investment would bring the PBA’s post-completion financing to US$1\.9M\. The GoPBA has also followed the environmental and social specialists’ recommendation and set aside funds to install safety railings along the open channel segment of the Finochietto River\. Implementing Agency (Coordinating and Executing Agencies) Performance Supervision Rating: Satisfactory 69\. The SCEOCI and sub-executing agencies were actively involved in the implementation of the Project and were committed to ensuring the Project’s Satisfactory completion despite a difficult operating environment (given the financial and environmental challenges)\. Strong coordinating teams within the MI and ME overcame the complexity associated with having many entities involved in project execution through close communication and investment in the development of staff members\. During Project implementation, the agencies significantly increased their environmental and social safeguard monitoring capacity\. The agencies were also actively working to streamline and systematize procurement processes throughout implementation\. The administrative delays the Project experienced were largely due to lengthy internal processes that were outside the scope of the Project\. The PBA successfully supervised the implementation of the Project, enabling the Project to close with full disbursement and satisfactory outcomes\. 20 Section 6\. Lessons Learned 70\. The Adaptable Program Loan provided flexibility that was key to the Project’s successful implementation given the unstable fiscal environment\. The APL structure provides flexibility in unstable implementation environments\. The APL structure enabled the Bank to finance an expansive program (US$470 million at the time of appraisal) in an uncertain fiscal environment with decreased risk\. The Program provided the PBA with a source of credit for approximately ten years, enabling strategic, medium-term, pro-active planning\. This was especially important for the PBA given the absolute paucity of financing and credit lines at the time of the APL’s design\. At the same time, the inclusion of required advances to trigger the launch of the APL2 limited the risk that the Bank was undertaking in financing such a large project in a time of high fiscal uncertainty\. The similar structure and shared goals and indicators of the APL1 and APL2 also enabled flexibility in implementation schedules given the easy transfer of activities from one project to the other\. This proved especially important given that at the time of the APL1’s design, the WSS sector was undergoing a major reform\. The reforms took longer than planned and constrained project implementation to a greater degree than expected; for the first two years of the APL1’s implementation, WSS activities were stalled\. Rather than cancel the WSS activities, the parallel structure of the APL Program enabled the easy transfer of these activities to the APL2, and roads activities, which were advancing as planned, from the APL2 to the APL1\. 71\. Project implementation arrangements can strategically foster institutional strengthening\. The involvement of the ME as the leading implementing agency was a strategic decision to ensure that focus on the institutional strengthening activities was maintained throughout implementation to complement the works\. The ME and MI leveraged their common interest in seeing this Project through to foster collaboration, and even shared the same Minister for some time\. 72\. The Project also played a key role in developing the SCEOCI\. The PBA had a small project implementation unit to implement development policy loans before the start of the APL Program\. As a result of the APL, the PBA consolidated a unit dedicated to implementing projects with credit from international organizations that had sufficient capacity to coordinate other ministries and institutions within the Province (such as the MI)\. In the ten years since the launch of the APL Program, the SCEOCI has become integrated in the operating structure of the GoPBA, going from unit status to agency status to becoming a sub-secretariat\. The establishment of a sub-secretariat with significant experience implementing projects with foreign credit has had a multiplier effect, facilitating the GoPBA’s capture of international credit from other organizations\. The APL Program has also played a key role in developing the DIPAC\. At the time of the design of the APL Program, the PBA was not planning and executing WSS works\. The MI established the UPAS at the beginning of the APL program\. The UPAS (now DIPAC) went from being a small unit with eight staff members developed largely for the implementation of the APL to a separate directorate with 40 staff members and a budget for investments of AR$300,000,000, that is thoroughly ingrained in the MI\. Today, the DIPAC plans more works with local financing than with external financing and has developed its own strategic vision for growth\. 73\. The ‘hands-off’ model for promoting connection to sewerage systems employed by WSS Operators in the PBA proved to be effective\. Most of the WSS operators in the PBA do not monitor whether people are actually connecting to new sewerage networks\. The operators have no real incentive to do so given that residents are required to pay a tariff whether or not they have a household connection\. The residents also have no real disincentive to delay their connection to the network, as they are paying for sewerage service and the cost of cleaning the septic tanks is relatively high\. Although residents may hesitate to connect to the system because of initial connection costs, anecdotal data from the WSS operators and wastewater flows arriving at wastewater treatment plants 21 show that within two years of construction, around 80 percent (a high connection rate in the region) of the residents are expected to connect to the system\. For Project monitoring and evaluation purposes, however, measuring active sewerage connections is an important action that relates to the actual impact of investments, and it requires an active supervision jointly by the infrastructure implementing agencies and by the WSS operators\. 74\. Working at the province level facilitates implementation\. The APL Program benefited from directly engaging the PBA to design and implement the Program’s activities\. This design decision helped provide a direct channel to build provincial capacity to work with international organizations, build a close working relationship with the counterpart and tailor the Program closely to the Provinces’ needs\. Section 7: Comments on Issues Raised By Borrower/Implementing Agencies/Partners 1 – Cancellation of US$ 5\.9 million (Section 2\. Implementation paragraph 37) 75\. The Bank cancelled an amount of US$ 5\.9 million from the loan when the Province rejected the offer corresponding to Lot 2 of LPI 5/07, “Repaving section RO 17-RN 3 lot 2 of RP21,” the justification being that said process was not carried out according to the procedures established by the Bank’s Policies and the Loan Agreement\. 76\. The Province of Buenos Aires points out that the Bank violated the right of the contracting party to accept or reject any offer according to clause 33\.1 of the Specific Bidding Document applying to said procedure, which states: “The Contracting Party reserves the right to accept or reject any offer, and to cancel the bidding process and reject all offers, any time before the contract has been awarded, without incurring any responsibility towards the affected bidder(s), or being obligated to inform the affected bidder(s) of the motives of the Contracting Party’s decision\.” 2 – Cancellation of the “Study for the design of production strategies for the Province of Buenos Aires\.” (Intermediate Outcome Indicator(s) Table, Indicator 8) 77\. The Province does not condone the Bank’s decision to cancel the bidding process, then in the technical proposal evaluation stage, due to the following reasons: a\. The Province, in contrast to the Bank, understands that Memo N° 1 did not modify the terms of payment, since it only clarified that the payments would be realized in the legal currency of the Republic of Argentina, according to the tributary administration’s national regulation, which was informally agreed with the Bank\. For this reason, said Memo was drafted as a Clarifying Note rather than a Correction as understood by the Bank\. b\. The Province took the necessary actions to promote a competitive process among consulting firms, attempting to foster the largest quantity and highest quality possible of proposals, and publicizing it through all appropriate avenues and formally inviting several firms to present their own experience\. Hence, the Province disagrees with the Bank regarding the modification 22  of the terms of payment, which would not have discouraged the participation of foreign consultants and reduced the competitive nature of the process\. c\. Regarding the Bank’s declaration of invalidity of the only proposal, the Rules establish that the Borrower's rejection of all proposals should only be considered justified if all of them are irrelevant and none respond to the requirements, either because of significant shortcomings in complying with the terms of reference, or because their cost is considerably higher than the initial estimate\. Thus, as none of these conditions apply to the only existing proposal, the Province considers that said proposal remained valid\. d\. The Bank’s suggestion to begin the process afresh was unacceptable as it was virtually impossible to carry out a new selection process and have the signed contract before the closing date of the Project\. e\. In this regard, we must point out that the tight schedule was compounded by the 4 months the Bank took to review the terms of reference\. While the request for No Objection to the Terms of Reference was emitted on 27/04/12, the Bank's No Objection was only received on 23/08/12\. 3 – Funds reallocation and extension of the closing date (Section 2\. Implementation paragraph 35) 78\. Given the flooding that occurred on April 2nd and 3rd, 2013, in the city of La Plata and its surrounding area, the Province proposed a reallocation of funds to allow the acquisition of anfidraga equipment, and an extension of the Project’s closing date by one year in order to install guardrails to ensure the safety of residents who live on both sides of the open canal of the Finochietto River\. 79\. While this issue was discussed in the Supervision Mission held in May 2013 and was recorded in the corresponding Aide Memoire, the Bank only granted an extension period of 4 months and a reallocation of funds to complete the planned activities of the Program\. 23  Annex 1: Project Costs Table A\.1\.1 – Project Cost by Component (in USD Million equivalent) Restructured Restructured Actual/Latest Appraisal Project Costs Project Costs Estimate Percentage of Components Estimate (USD (October 2012, (August 1, 2013, (December 31, 2013, Appraisal millions) USD Millions) USD Millions)2 USD millions) 1 Roads rehabilitation 159 150\.97 150\.97 153\.85 96,76% Water and Sanitation 140 147\.97 151\.97 153\.12 109,37% Drainage 41 46\.46 48\.61 48\.02 117,12% Engineering and 4,61 0\.66 0\.10 0\.08 technical studies 1,74% Competitiveness and job 8,42 3\.62 0\.03 0\.01 creation 0,12% Institutional Capacity 8,52 5\.58 3\.74 3\.06 Building 35,92% Total Baseline Cost 361,55 355\.27 355\.43 358\.13 99,05% Physical Contingencies 0\.00 0\.00 0\.00 0\.00 0,00% Price Contingencies 0\.00 0\.00 0\.00 0\.00 0,00% Total Project Costs3 361,55 355\.27 355\.43 358\.13 99,05% Front-end fee PPF 0\.00 0\.00 0\.00 0\.00 0,00% Front-end fee IBRD 0\.00 0\.00 0\.00 0\.00 0,00% Total Financing 361,55 355\.27 355\.43 358\.13 Required 98,32% 1 In December of 2009, the amount of the roads category decreased due to a cancellation of US$ 5,900,000\. The amount of financing was then changed to US$ 264\.10 million\. 2 Reallocation across Disbursement categories\. Total costs were calculated retroactively\. 3 Physical and Price contingencies included in costs\. Identifiable taxes and duties were US$ 59 million, and the total project cost, net of taxes, was US$ 303 million\. Therefore, the share of project cost net of taxes is 89%\. 24 Table A\.1\.2 – Project Financing Appraisal Actual/Latest Type of Percentage of Source of Funds Estimate Estimate Cofinancing Appraisal (USD millions) (USD millions) Borrower 91\.50 94\.03 103\.00 International Bank for Reconstruction and 270\.001 264\.10 97\.82 Development 1 In December of 2009, the amount of the roads category decreased due to a cancellation of US$ 5,900,000\. The amount of financing was then changed to US$ 264\.10 million\. Table A\.1\.3 – Reallocation of Loan Proceeds among Categories (USD), October 2012 Restructuring Percentage of Amount of the Loan Allocated (US$) Expenditures to be Financed Category of Current Category of Revised Current Revised Expenditure Allocation Expenditure Allocation (1) Works and 101,100,000 (1) Works and 101,100,000 79% 79% goods under Road goods under Subprojects Road Subprojects (2) Works and 112,900,000 (2) Works and 116,900,000 79% 79% goods under goods under Water and Water and Sanitation Sanitation Subprojects Subprojects (3) Works and 36,700,000 (3) Works and 36,700,000 79% 79% goods under goods under Drainage Drainage Subprojects Subprojects (4) Goods, 12,700,000 (4) Goods, 8,850,000 95% 95% consultants’ consultants’ 25 services and/or services and/or Non-consultant Non-Consultant Services under Services under Parts 4, 5 and 6 Parts 4, 5 and 6 of the Project of the Project (5) Training under 700,000 (5) Training 550,000 100% 100% Parts 4, 5 and 6 of under Parts 4, 5 the Project and 6 of the Project TOTAL 264,100,000 TOTAL 264,100,000 AMOUNT * AMOUNT * *This includes a loan cancellation of USD 5,900,000 under Category (1)\. 26 Table A\.1\.4 – Reallocation of Loan Proceeds among Categories (USD), August 1, 2013 Restructuring Current Disbursement % Ln/Cr/TF Currency Category of Allocation (Type Total) Expenditure Current Proposed Current Proposed Works and goods IBRD- USD under Road 101,100,000\.00 101,100,000\.00 79\.00 79\.00 74720 Subprojects Works and goods under Water and 116,900,000\.00 120,900,000\.00 79\.00 79\.00 Sanitation Subprojects Works and goods under Drainage 36,700,000\.00 38,400,000\.00 79\.00 79\.00 Subprojects Goods, consultants’ services and/or Non-consultant 8,850,000\.00 3,270,000\.00 95\.00 95\.00 Services under Parts 4, 5 and 6 of the Project Training under Parts 4, 5 and 6 550,000\.00 430,000\.00 100\.00 100\.00 of the Project Front-end fee 0\.00 0\.00 0\.00 0\.00 Total: 264,100,000\.00 264,100,000\.00 27  Annex 2\. Project Outputs by Components (and additional Project results) Given the integrated nature of the APL1/AF and APL2, the ICR team prepared a table that captures the overall reach of the Program to-date\. The outputs and outcomes are grouped by institution rather than component to illustrate the full impact of the Program’s activities\. Activity APL1 and AF APL2 Outcome/Comments Roads Infrastructure Improved and DPV Capacity Increased Roads rehabilitated (km) 566 (to-date) 251\.35 ï‚ IRI levels on the network 78 (under execution) have gone from 2\.75 to 3\.05; without the rehabilitation Road widened (km) 28 35\.20 works, IRI levels would have reached 5\.07 (HDM projection)\. Intersection enhanced 2 2 Institutional Strengthening ï‚ Institutional diagnostic conducted ï‚ Implementation of the axle ï‚ Acquisition of ten vehicles and mobile load control, in 2013, helped axle-weight measuring devices that reduce the proportion of helped set up about ten mobile units overloading/infractions from assigned to the monitoring of axle-loads 10 percent at the beginning of on the network the year to 4 percent at the ï‚ Acquisition of a Lacroix Deflectograph end of the year (2013 DPV to measure deflection on the network at annual maintenance plan) a speed of about 2 km/km, thus ï‚ Improved planning capacity - enhancing the previous static ability to properly survey Benkelman Beam procedure network with Network ï‚ Acquisition of the latest version of the Management Systems such as HDM model (HDM-4) to help the HDM Model\. evaluating an entire network of roads ï‚ Increase of private sector extremely rapidly, in replacement of the participation in the older version HDM-3 that had management and maintenance constrained the number of road sections of the networks (through and maintenance policies options CREMA contracts) ï‚ Procurement of computer equipment for the regional districts (or zones) in order to help them design and monitor their annual routine maintenance programs (POAs) ï‚ Participation of DPV’s personnel to selected seminars or forums such as the 2009 seminar ï‚ Implementation of CREMA contracts WSS Infrastructure Improved and DIPAC Capacity Increased Water connections 85,775 34,698 ï‚ WSS coverage extended to Sanitation connections 206,106 (under 298,368 over 500,000 of the PBA’s execution) poorest population (IMPH<40) 28 Active sanitation 199,960 133,008 connections Institutional Strengthening ï‚ Regulatory accounting system designed ï‚ The DIPAC went from being and implemented a 6 person unit to a 35 ï‚ Basic tariff system designed and member directorate during established the lifespan of the Project ï‚ Software for efficient WSS network ï‚ Before the APL Program, the design acquired and implemented DIPAC only implemented externally funded projects, now it implements more internally funded projects than external Drainage Infrastructure Improved and DIPSOH Capacity Increased Improved drainage (ha) Soto Drainage Finochietto ï‚ Increased property values System (under Drainage System: ï‚ Increased economic activity construction) 1,200 ha in surrounding neighborhoods ï‚ No flooding during heavy February 2014 rains Institutional Strengthening ï‚ Coastal erosion study carried out and ï‚ DIPSOH utilizes basin-wide software to monitor coastal erosion approaches utilized in all purchased drainage projects ï‚ DIPSOH developed and adopted a ï‚ Coastal Erosion software used methodology for drainage that considers to guide investment decisions the basin as a whole and has been included in the Manual for the Master ï‚ A series of decrees followed Plan Designs to Improve Infrastructure the approval of the Manual, and Management for Urban Drainage, including: Decree 3\.202 which was formally approved by the (method for approving urban GoPBA (Decree 2\.647, October 10, coastal project); Decree 3\.686 2006)\. (organizational restructuring ï‚ 500 drainage management manuals of DIPSOH – environmental printed and distributed department emerged from this); Decree 3\.735 (provincial hydraulic plan); and Decree 1\.802 (unit for integrated coastal management in the PBA created)\. Ministry of Infrastructure Capacity Increased Social and environmental ï‚ Resettlement framework developed and ï‚ Systematic social and monitoring successfully implemented environmental monitoring ï‚ Monitoring tools established and (published on the SCEOCI integrated in supervision protocol website) ï‚ Training workshops, including a Socio- Environmental Management Strengthening Program Ministry of the Economy Capacity Increased Institutional Strengthening ï‚ APL spurred the establishment of an ï‚ Increased ability to attract entity responsible for implementing 29 - SCEOCI projects with credit from international foreign credit organizations ï‚ SCEOCI team was ï‚ Experience in standard Bank processes recognized at a national level (procurement, financial management, for being one of the best- safeguards management, etc\.) organized teams in the country Institutional Strengthening ï‚ ISO 0991-2008 certification for retail ï‚ Unit has the capacity to – Statistics Unit sale surveys conduct more frequent surveys tailored to the PBA ï‚ Unit is working with the BID to build on the progress of the APL and develop PBA- tailored household surveys Institutional strengthening ï‚ Budget unit developed a methodology ï‚ The Budget team is currently – for collecting financial and physical collecting information from General execution from the PBA’s agencies all agencies and is monitoring ï‚ Provincial system for public budget assignations in at least investments (SPIP) and the Bank of 10 municipal jurisdictions Public Investment Programs (BAPIN) ï‚ SPIP and BAPIN have helped being implemented to improve resource optimize resource allocation; assignation 4,154 projects have been ï‚ SIGADE (System for the Management uploaded in BAPIN and Administration of Debt, Sistema de Gestión y Administración del Deuda) Version 5\.3 implemented to optimize debt management and increase transparency Productivity / Economic ï‚ Strategic study to prioritize ï‚ Policies on territorial Competitiveness infrastructure projects to maximize planning and economic growth and target poverty (10-year development established and vision) implemented ï‚ Productivity strategy for the PBA ï‚ Infrastructure investments (includes inter alia a framework for prioritized and implemented policies to support productive sectors, based on growth and poverty specific lines of action for sector plans impacts and concrete revenue generating opportunities) established ï‚ Strategic port plan (for the Sub- Secretariat of Port Activities, APL1) 30  Annex 3\. Economic and Financial Analysis Water and Sanitation Projects The primary objective of the WSS component was to increase low-income households’ access to sewerage systems by financing secondary sewer networks in the Conurbano\. The APL2 aimed to provide secondary sewer networks and the corresponding connections to about 100,000 households\. Methodology At appraisal, a cost benefit analysis was conducted for the sanitation component\. Benefits were measured as the resources saved from substituting septic tanks, which have a recurring cleaning cost, with conventional sewerage connections\. The costs consisted of: investment, operating and maintenance, internal connection costs, and hygiene education costs\. The evaluation was carried out for eight sub-projects to be implemented under the Project\. The results showed that all sub-projects were economically viable with returns ranging from 17% to 37%, and with an average return of 22%\. For the ICR, a cost benefit analysis that followed the same approach as the one used at appraisal was applied\. The evaluation was done for the whole Program using actual costs incurred and actual benefits obtained with the implementation of the Project\. The net benefit of the Project was estimated as the incremental benefit from two scenarios: with and without the Project\. The without Project scenario assumed that the situation existing at time of appraisal remained; the with Project scenario included benefits already attained with the works\. As done at appraisal, the cash flows were discounted using a 12% discount rate and a 20-year lifetime for the Project\. In order to compare the results with those reached at appraisal, the costs and benefits were adjusted to 2008 prices by taking out exchange rate and inflation rate fluctuation\. Benefits The benefits were measured for the whole Program\. Sewerage beneficiaries were classified in two categories: (i) those who will benefit from the secondary sewer network, but do not have household connections yet; and (ii) those who are connected to the network\. The first group was gradually included in the evaluation as projections estimate that 80% of them will connect to the network\. The second group was included in the evaluation as they are already receiving benefits\. Table 1 shows that there are 82\.5 thousand households benefiting from the service lines, but only 38% of the beneficiaries are actually connected\. The number of households benefitting from sewerage service lines was 16% less than expected at appraisal\. The appraisal target was revised during supervision, and the reduced target was fully accomplished\. Active connections, however, were expected to be 45%\. The Project resulted in a 38% household connection rate\. This evaluation estimates the benefits using current active connections (30,974) plus annual increases until the active sewerage connection rate reaches 66,000, or 80% of potential\. 31  Table 1\. Beneficiaries\. Foreseen at Appraisal and Actual PAD PAD (original (revised Actual/original Actual/revised targets) targets) Actual targets targets Connections Water 9,124 9,045 9,045 0\.99 1\.00 Sewerage (service lines) 97,936 82,464 82,508 0\.84 1\.00 Active sewerage connections 44,557 36,781 30,974 0\.70 0\.84 Population Water 35,000 34,698 34,698 0\.99 1\.00 298,20 298,36 Sewerage (service lines) 354,158 8 8 0\.84 1\.00 Sewerage (with active 133,00 112,00 sewerage connection) 161,130 8 8 0\.70 0\.84 % of active/service lines 45% 45% 38% 0\.83 0\.84 The septic tanks costs used for this evaluation were based on actual costs in the areas where the Project was implemented\. A cost of US$29 per month per household was used, and it corresponded to the average from a sample of subproject implemented and evaluated during implementation\.38 The benefit obtained from the savings generated by substituting the existing septic tanks with a conventional sewerage connection was partially offset by the cost of in-house adjustments needed to connect to the sewer lines and by the monthly bill the new sewerage customer had to pay to the operator\. Both of these costs were included in this evaluation based on the actual tariffs and costs of in-house adjustments\. The information was obtained from the operators and from records of subprojects implemented during the APL2 and was adjusted to 2008 prices\. The cost of in-house adjustment at 2008 price was about US$238, which corresponded to US$199 when 23\.5% taxes were taken out\. Sewerage bills were estimated as a percentage of the water bill and averaged approximately US$2 per household per month\. Costs Costs included in this evaluation consisted of actual costs of works implemented in WSS, which corresponded to US$154 million, 5% lower than foreseen at appraisal (Table 2)\. The financial plan was similar to what was predicted: IBRD’s share was 78%, while counterpart funds were 22%\. At appraisal, it was expected that the IBRD would finance 79% and the counterpart would finance 21%\. Table 2\. Costs of WSS works expressed in USD (Foreseen at Appraisal and Actual) ACTUAL/PA PAD ACTUAL D Million USD % Million % 38 Information was taken from subprojects in Merlo and Bahia Blanca\. Cleaning cost US$247 per year, investment cost for a septic tank US$759, six years of life\. Source: Secretariat of Works and Public Infrastructure of the Municipalities\. 32  USD IBRD financing 128\.75 79% 121 78% 0\.94 Counterpart funds 34\.20 21% 33 22% 0\.97 Total 162\.95 100% 154 100% 0\.95 Source: Project file When actual costs are expressed in Argentinean Pesos, the differences are partially explained by exchange rate fluctuation and inflation\. As figure 1 shows, the exchange rate went from AR$3\.08 per USD at the time of appraisal to AR$5\.54 in 2013, representing an 80% cumulative depreciation of the Argentinean Peso against the US dollar during the period\. Inflation at the same time reached 71% at the end of the period\. Figure 1\. Exchange Rate and Inflation during 2008-2013 period Source: Official figures reported by INDEC\.39 To understand the impact of these fluctuations in the project costs, the actual costs of works in nominal prices were compared against the actual costs transformed to 2008 prices\. This analysis focused only on the WB proceeds (without counterpart funds), as there was no detailed information on the counterpart funds on a year-to-year basis\. Impact of the exchange rate fluctuation was estimated transforming the yearly USD disbursements to local currency using the average annual exchange rate; the result was then compared with the amount obtained using the exchange rate at appraisal\. Results show a 34 percent increase on the amount received in local currency due to the depreciation of the Argentinian peso\. At appraisal the exchange rate was AR$3\.08 per USD and the average obtained during implementation period was AR$4\.14 per USD\. Impact of inflation was estimated comparing the disbursement amount in nominal prices, against the amount disbursed expressed in 2008 prices using the inflation rate from 2008 to the year in reference\. Results show an average increase of 27% in prices due to inflation\. 39 The data for Argentina are officially reported by INDEC\. The IMF has, however, issued a declaration of censure and called on Argentina to adopt remedial measures to address the quality of the official GDP data\. In this context, the Bank is also using alternative estimates for the surveillance of data in Argentina\. 33 Depreciation allowed receiving more money than expected with each USD disbursement\. However, inflation did the contrary, taking out purchasing power on local currency\. Results show that the 34% gained with depreciation was partially offset by 27% inflation\. The remaining 7% corresponded to real increases in the costs of the WSS works (Table 3)\. Table 3: Investment Cost (without counterpart funds), Expected and Actual IBRD Actual/PAD IBRD Financing USD (Million) 121 Equivalent in AR$ (Million AR$) Expected at Appraisal (using 2008 Exchange 372 Rate) Using Exchange Rate of disbursement year 500 Transforming to 2008 prices 400 7% Breakdown of the cost increase: Depreciation of the Argentinean Peso 34% Inflation Rate -27% Real cost increases 7% Results Results show that the outcome of the Project had important benefits for the Province of Buenos Aires, as actual net benefits were 34 percent higher than costs, producing a net benefit of about US$ 42 million\. The EIRR generated by the Project is 17%, similar to the one expected at appraisal\. Table 4\. Results of the Economic Evaluation Water and Sanitation Actual Summary of Results PAD NPV of flows Costs (Investment and O&M) 000USD 121,879 Benefits (000USD) 163,792 Net benefit (000USD) N/A 41,913 Between 17% and 37% EIRR Average 22% 17% The results are satisfactory given that actual investment costs - without inflation and exchange rate differences - were 7 percent higher than expected at appraisal, and the actual connections were lower than expected\. The biggest winners were the customers, who will save US$153 million during the lifetime of the works by closing septic tanks and connecting to the sewer lines\. This benefit is partially offset by the bills the households will have to pay for the sewerage service, and the cost paid for the in-house connections\. The Government had a net loss of US$92 million, which corresponds to the difference between the outflow of the grant to pay investment, minus the inflow that come from the taxes received\. 34 Drainage At time of appraisal two criteria were adopted for drainage works: (i) for small drainage secondary basins affecting the poorest segments of the population and whenever the rate of recurrence in the design of the micro and macro drainage systems is below 5 years, the least cost alternative shall be selected, independently of the net present value yielded by each alternative; (ii) for basins with permanent or semi-permanent courses of great dimension with design recurrence rates over 2 years, whether they are micro or macro drainage networks, the rate of return shall be at least 12%\. During implementation a cost benefit analysis was used for the works implemented in the Finochietto basin, which corresponded to the second type of basin\. The same evaluation was used for the ICR using actual costs and benefits expressed in 2008 prices to make them comparable to the ones used at appraisal\. The benefits of drainage works were measured in the form of losses that were averted when risk of flooding was eliminated or reduced\. Damage costs were projected for two scenarios: with and without project\. The Project’s net benefit corresponded to the difference of incremental benefits of both scenarios\. For the without project scenario it was assumed that flooding situation present at the time of appraisal remained\. For the with project scenario, the actual reduction of floods was included\. Costs\. Drainage works implemented in the basin were AR$125M, which converted at economic prices, using the same conversion factors as the ones used at appraisal, resulted in AR$91\.3M\. Operation and Maintenance costs according to DIPSOH equal AR$520 thousand every two years\. Benefits or Averted damage costs were estimated based on flooding maps for both scenarios, with and without the project, and damage cost associated with each recurrence period\. A curve was built for each scenario including damage costs versus the probability of occurrence\. The area under the curve corresponded to the expected damage cost for each scenario\. The difference between the areas of expected damage cost with and without project, corresponded to the expected averted losses, or expected benefits of the project\. Damages were estimated for residential properties and varied according to flood intensity, water level, and extension of flooded area\. The size of flooding areas showed the magnitude of the problem, as without the project 90% of the area was flooded for 10-year recurrence events\. With the implementation of works, no dwelling was affected for 2-year recurrence periods, and for a 10-year period the area affected was reduced to 30 percent\. Table 1\. Number of blocks affected with floods Recurrence Period 0-0\.20 m 0\.2-0\.4 m +0\.4 m Total Without Project 2-year 7 47 135 189 5-year 8 39 170 217 10-year 6 29 207 242 With Project 2-year 0 0 0 0 5-year 1 16 0 17 35  10-year 0 20 58 78 Damage costs for residential sector included damages to the infrastructure as well as to the equipment inside the properties\. The number of dwellings and the damage cost were estimated using the cadaster database of the municipality for each category given for property tax purposes (A highest income level, B medium, and C lower)\. Table 2\. Damage cost per m2 en AR$ Category for property tax 0-0\.20 m 0\.2-0\.4 m +0\.4 m Damage on Properties A 78 115 173 B 62 94 137 C 54 89 121 Damage on Equipment A 23 63 96 B 23 48 67 C 14 40 64 The results for averted loss show AR$36 million for the 2-year recurrence period to AR$48 for 10- year recurrence period Table 3\. Averted loss (million AR$) 2-year recurrence 5-year recurrence 10-year period period recurrence period Without Project 36 48 58 With project 0 0\.6 10 Averted Loss 36 47 48 The results of the economic evaluation show that net benefits generated by the project were AR$77 million (USD 25M) with 25% return\. Roads In 2007, at the time of appraisal of the APL2, a revised economic evaluation that utilized a representative sample of works was carried out by the DPV\. The evaluation showed high economic returns, with an average EIRR of 50\.9% and a Net Present Value of US$59\.4 million for a total of 543 km of road intervened, i\.e\., about US$109,392/km (compared to an EIRR of 38 percent in 2004 at appraisal of the Program)\. In 2014, the DPV updated that evaluation, taking a representative sample of the works effectively intervened and introducing the real costs of the works and updated traffic volumes\. The evaluation showed that despite the increase in costs the economic returns have remained very high throughout project implementation, with a final average EIRR of 110 percent and a Net Present Value of US$310\.010/km at closing\. These higher rates of return are explained by different factors including: (i) higher traffic volumes; (ii) higher user costs as a result of which higher benefits related to savings in operating costs are accrued ; (iii) the differences in the road samples 36 used during appraisal and completion and particularly the fact that the bulk of the roads used in the appraisal samples included lower volume roads which were later substituted by widening works in roads segments within the Conurbano with much higher traffic volumes\. Another element that confirms the efficiency of the Project is that had the Project not been executed, more than 50 percent of roads in the network would be in poor condition (with an average roughness of 6 IRI)\. Currently (with the Project), five percent of the roads in the network are in poor condition (with an average roughness of 3 IRI)\. The improved condition of the roads translates to lower vehicle operating costs for the provincial vehicle fleet that uses the network; operating costs have been reduced by nearly 15 percent\. In addition, procurement for the works was generally a success since out of 16 road subprojects, the bid price exceed official estimates by more than 15percent (between 18 and 21 percent) in only two cases\. In terms of overall averages, bid prices were 5 percent below official estimates\. Table 4\. Ex-Post Economic Analysis Prov\. Length Final Cost NPV Cost NPV, Road Rehab\. type EIRR % km US$ Million US$M US$/km US$/km # 202 4\.5 Rec+widen+RC22cm 20\.4 10\.5 23 4,533,333 2,327,333 205 3\.1 Widen+RC 22 cm 7\.9 11\.9 39 2,546,387 3,830,710 30-1 35\.5 4/6 cm AC 4\.2 3\.1 112 118,310 81,324 30-2 36\.5 8/10 cm AC 5\.8 3\.8 194 158,904 104,110 Keen 17\.3 Rec\. +7 cm AC 3\.4 0\.81 17\.3 199\.137 465,375 Total 98\.9 41\.8 30\.0 110 431\.549 310\.010 37  Annex 4\. Bank Lending and Implementation Support/Supervision Processes (a) Task Team Members Name Position Manuel G\. Marino Co-TTL – LCSWS Carlos E\. Velez Co-TTL – LCSWS Maria Marcela Silva Co-TTL – LCSTR Lilian Pena P\. Weiss Co-TTL – LCSWS Elisabeth Goller Co-TTL – LCSTR Ana Maria Grofsmacht Procurement Specialist Ricardo Schusterman Social Specialist Daniel Chalupowicz Financial Management Specialist Lilian Pedersen Social Specialist Elba Lydia Gaggero Environmental Specialist Nora Elizabeth Sanchez Guzman Program Assistant Gerard Liautaud Roads Specialist Catherine Signe Tovey Water Resources Specialist Alejandro Roger Solanot Financial Management Specialist Esteban Fernando Travaglianti Transport Specialist Julie Biau Junior Professional Associate Patricia Lopez Infrastructure Finance Specialist Natalie Palugyai LCSTR Sergio Mora Risk Management Specialist Keisgner Alfaro Procurement Specialist Guang Z\. Chen Sector Manager LCSWS Gustavo Saltiel Water and Sanitation Specialist Henry Laiño LCSWS Juan Gaviria LCSTR Luis Alberto Andres Infrastructure Economist Julia Tierney Junior Professional Associate Clementine Marie Stip Junior Professional Associate 38  (b) Staff Time and Cost (from SAP) Stage of Project Cycle Staff Time and Cost (Bank Budget Only) No\. of Staff Weeks Total Costs US$ (including travel and consultant costs) Lending FY2007 18\.75 110,478\.97 FY2008 \.41 1,624\.96 TOTAL: 19\.16 117,854\.01 Supervision/ICR FY2008 18\.09 123,890\.18 FY2009 16\.08 119,738\.40 FY2010 21\.58 109,095\.29 FY2011 14\.67 109,989\.33 FY2012 22\.10 158,678\.31 FY2013 18\.26 112,980\.11 TOTAL 110\.78 734,371\.62 39  Annex 5\. Borrower’s Report INFRASTRUCTURE SUSTAINABLE INVESTMENT DEVELOPMENT PROJECT INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT IBRD 7472 (APL-2) BORROWER’S PROJECT COMPLETION REPORT Ministry of the Economy Sub-secretariat for Coordination with States and International Lending Institutions Province of Buenos Aires 40 1\. CONTEXT 1\. The Buenos Aires Province Infrastructure Sustainable Investment Development Project (2004- 2010) was designed at the end of the severe economic crisis that ravaged the country in 2001-2002 and in particular in the Conurbano Bonaerense, and pushed the number of persons living below the poverty line to 64 percent in 2002 (19\.5 percent in 1994)\. 2\. In a crisis context, fiscal discipline became a priority for the provincial government, which had to cut the infrastructure, housing, and public services budget by 53 percent between 1999 and 2002\. This situation was compounded by the following infrastructure management problems: (i) The virtual cessation of large-scale, strategic projects\. (ii) The halting of projects under way owing to insufficient funds (hospitals, court buildings, gas pipelines, etc\.)\. (iii) Water services were provided to 65 percent of the population in the Greater Buenos Aires area and sewerage services, to 35 percent, with low-income income population groups being most affected by this situation\. (iv) The drying up of external sources of financing, which affected both the provincial government and sector enterprises\. (v) The province’s road network, which had deteriorated significantly\. (vi) The need for a solution to water treatment in the Cuenca Deprimida of the Salado River basin\. 3\. The province’s fiscal situation improved as a result of tax measures adopted and a small primary surplus was achieved in 2003\. Despite the more austere expenditure policy, the provision of basic and essential services continued, mainly for the social classes hardest hit by the crisis\. 4\. Based on projections for 2004, a year for which encouraging signs of economic recovery were beginning to emerge, the possibility of designing a Buenos Aires Province Infrastructure and Public Services Management Plan was introduced, which was organized around identification of the following five policies and ten central themes: (i) Incentivizing economic development, productivity, and employment; (ii) Expanding the provision and quality of public services; (iii) Supporting the socio-cultural development of the population; (iv) Increasing physical/territorial integration; and (v) Strengthening institutional management and community participation\. 41 5\. Based on the infrastructure program, the province identified investment requirements amounting to approximately US$700 million for the period 2004-2010 in two main infrastructure sectors: roads and water (particularly sewers and drainage)\. Given the magnitude of the infrastructure needs identified, the Bank, provincial government, and national government agreed in 2004 to conclude a two-phased Adaptable Program Loan, in order to support the Buenos Aires Infrastructure Program\. The first phase of the program (APL 1) stood at US$200 million and the second, at US270 million (APL 2)\. 2\. BRIEF OVERVIEW AND DESCRIPTION OF THE PROJECT 2\.1\. Project Purpose and Objectives 6\. The purpose of the project was to improve the provision of infrastructure services in the Province while contributing to sustainable economic growth that paves the way for poverty alleviation and increases social equity\. In particular, it sought to: (i) Expand the coverage of basic water, sanitation, and urban drainage services for the population, especially for low-income groups living in highly vulnerable areas of the Conurbano Bonaerense; (ii) Support the productive reactivation and growth of the provincial economy by improving the conditions and sustainability of the road network; and (iii) Gradually develop the respective sectoral infrastructure programs in a sound fiscal framework that ensures convergence toward a sustainable fiscal situation\. 2\.2\. Investment Problems and Prioritization 7\. Road Problems\. In 2003, the Strategic Road Plan for the Province of Buenos Aires was prepared and takes into account the following variables for prioritizing investments: (i) Transport and its composition (AADT, cars, light trucks, heavy trucks and buses); (ii) Road conditions (roughness - IRI); cracks; patching; deflection and rutting; and, (iii) Provincial regionalization, defined in two major areas—metropolitan and interior\. 8\. Different priorities were identified in the road sector, which included: (i) Reducing the cost of travel and operations in the Province through the rehabilitation of the primary paved interurban network; (ii) Reducing congestion and increasing transport efficiency in the Conurbano Bonaerense by expanding and rehabilitating key urban sectors of the primary paved network; 42  (iii) Improving road access to provincial ports; (iv) Improving the linkage of local communities with the primary paved network through the rehabilitation of their access roads; and (v) The need for a paved and unpaved road network maintenance program to support its long- term sustainability\. 9\. Water and Sanitation Problems\. Water and sanitation services in the Province of Buenos Aires (PBA) were very much affected by the crisis described\. Under the program, a proposal was made to increase the expansion of water and sanitation services to the disadvantaged and vulnerable population groups, particularly in the Conurbano Bonaerense\. The provision of this basic infrastructure became a short-term priority, along with compliance with a new regulatory framework, equitable regulatory treatment for public and private providers, and the independence of the regulatory entities\. 10\. Drainage Problems\. The Province of Buenos Aires is particularly vulnerable to urban and rural flooding\. The increase in the number of spills, blocked pipes, and the elevation of free ground water levels (water table) along with the fact that it is located in a very flat and low area increase the vulnerability of the Province of Buenos Aires to flooding\. The increase in groundwater levels has a particularly big impact on the suburban areas of the Conurbano Bonaerense and the agriculturally- rich area of the Humid Pampas\. 11\. The lack of regulation or enforcement of urban planning has led to unplanned settlements, particularly among low-income residents in the more flood-prone areas\. 12\. Institutional Strengthening Problems\. In order to properly address current infrastructure problems and foster the long-term sustainability of the program, a series of structural weaknesses noted by the different provincial government entities, both during the planning and execution phases, need to be taken into account\. 2\.3\. Components 13\. On this basis, three works components were identified for infrastructure investment and three, for improvement: 43 COMPONENT OBJECTIVE Road Rehabilitation of high-priority segments of the non-concessioned interurban road network through traditional customized contracts and the introduction of Performance-based Road Rehabilitation and Maintenance Contracts (CREMAs); Elimination of critical bottlenecks by: (i) widening provincial roads within the non-concessioned paved network in the Conurbano Bonaerense that connects large industrial areas and ports to production and consumption centers, and (ii) making significant road safety improvements at certain junctions and intersections; Rehabilitation of non-concessioned roads that provide nearby towns with access to the primary road network; and Implementation of a well-designed maintenance program for the entire non- concessioned provincial road network\. Water and Sanitation Expansion of coverage for the provision of basic sanitation services in the Province to benefit close to 100,000 low-income population groups who, for the most part, live in highly vulnerable areas from a sanitation standpoint that are under the responsibility of the ABSA, particularly in the Conurbano Bonaerense\. Priority will be given to investments in areas where (i) there is a high concentration of low-income families; (ii) there is a high degree of environmental health vulnerability; and (iii) plans already exist or are being prepared to build main supply lines and collection and treatment plants\. Most interventions will take place in areas for which the ABSA is responsible, particularly in the Conurbano Bonaerense\. Drainage Expansion and optimization of macro-drainage infrastructure in urban and peri- urban areas of the Conurbano Bonaerense\. The proposed investments are part of an integrated drainage plan and follow the methodology adopted with the support of the APL 1\. Technical engineering, Services to strengthen the execution of the program and to improve the selection feasibility, design, and of eligible investments that are ready to be implemented\. benchmarking Pre-investment for Consulting services to assist the government with the extension and competitiveness and job implementation of the outcomes of the strategic evaluation done during APL 1\. creation Institutional Capacity Building institutional capacity to provide provincial infrastructure services and Building supervision for the purpose of strengthening the capacity of the agencies involved in the implementation of the subprojects of each component, strengthening technical assistance programs started under previous projects, and supporting the improvement of information systems and implementing an analytical work program to monitor processes related to the implementation and impact of the program\. 44 3\. EXECUTION 3\.1\. Investment Costs IBRD LOCAL IBRD LOAN-7472 (US$) TOTAL CONTRIBUTION CONTRIBUTION Water and Sanitation 120,900,000\.00 32,220,875\.96 153,120,875\.96 Road Works 102,258,335\.20 28,593,443\.21 130,851,778\.41 Road Maintenance - 23,000,000\.00 23,000,000\.00 Drainage 37,933,591\.62 10,083,612\.96 48,017,204\.58 Technical Engineering, Feasibility, 71,479\.55 3,722\.97 75,202\.52 Design and Benchmarking Pre-investment for Competitiveness 5,037\.95 - 5,037\.95 and Job Creation Institutional Capacity Building 2,931,555\.68 128,596\.94 3,060,152\.62 TOTAL 264,100,000\.00 94,030,252\.03 358,130,252\.03 3\.2\. Changes in the Components 14\. During execution of the Program, the works components were, for the most, part, carried out\. The situation related to the capacity-building components is different, since they had to be revised\. 15\. In restructuring loans APL 2 and APL 1 FA, the scope of the activities of APL 2 included in the pre-investment, institutional capacity-building and technical feasibility components were revised so as to adapt them to the financial situation\. The outcome indicators were revised and several institutional activities were eliminated from components 4, 5, and 6\. 45 A - ROAD WORKS COMPLETED Rehabilitation of the primary paved road network RP No\. 4 Segment I: Camino Gral\. Belgrano - R\.N\. No\. 3 RP No\. 4 Segment III: R\.N\. No\. 3 and Av\. Flemming Primary interurban road network R\.P\. No\. 30 (between RP 74 - Km\. 148,500) Segment I R\.P\. No\. 30 (between Km\. 148,500 - RP 50) Segment II ï‚ Grid - RP 31 CREMA (*) Access to towns Open Door (Segment R\.N\. No\. 7 - R\.N\. No\. 8) Access to Carlos Keen Access to Palemón Huergo and Coronel Mom Access to Huanguelén Elimination of bottlenecks RP No\.205 Segment of R\. Santamarina Street - Jorge Newbery Av\. RP No\. 21 Segment RP 17-RN 3 (La Matanza) RP No\. 21 in the Segment: RN 3 – Lasalle Street RP No\. 21 in the Segment: Lasalle street - Eva Perón Street RP No\. 21 in the Segment: Eva Perón Street – Rivadavia Av\. RP No\. 202 North access segment Tigre branch - R\.P\. 9 (Acc\. Norte) B - WATER AND SEWERAGE WORKS COMPLETED Guernica Sewerage and Drainage - Presidente Perón Sewerage Services in San Miguel Oeste I and Pumping Station San Miguel Oeste II Sewerage Services Moreno Sewerage Services and Potable Water Supply Distribution Network Merlo Norte Sewerage Services Mar del Plata Sewerage Services in the Fourth Biggest Catchment Basin Catonas Basin Sewerage System – Zone 1- Moreno Expansion of the Sewerage System Network in San Vicente Orense-Gral Rodríguez Park Wastewater Collection Network 46  B° Park\. San Martín Noreste - Merlo (*) Sewerage Services B° Park\. San Martín Suroreste - Merlo Sewerage Services (*) B° Mariano Acosta and Ferrari Sewerage Services (*) B° Mariano Acosta and Ferrari Oeste Sewerage Services (*) Expansion of the Sewerage System Network in Cerri Expansion of the Potable Water Networks in Pilar C - DRAINAGE WORKS COMPLETED Finochietto River (*) Financed by IBRD Loan 7472 until Cert\. and Aj\. Prov\. No\. 23 – June 2012 (**) Financed by IBRD Loans 7472 until Cert\. and Aj\. Prov\./def\. No\. 27 – June 2012 D- TECHNICAL FEASIBILITY Study “Identification and Design of Strategic Interventions in Infrastructure and Development of Final Engineering Projects in the Matanza-Riachuelo basin\.” This was not done as it was impossible to include it in the projected loan execution period\. The projected amount is being reallocated to specific studies of the Ministry of the Economy and capacity building in the Provincial Budget Directorate\. D- PRE-INVESTMENT FOR COMPETITIVENESS AND JOB CREATION Study “Strengthening Environmental Management of the Ministry of the Economy and the Ministry of Infrastructure in the Province of Buenos Aires\.” This is included on the basis of the working arrangements between the Province and World Bank\. D- TECHNICAL FEASIBILITY INSTITUTIONAL CAPACITY BUILDING Project “Building the Capacity of the Ministry of the Economy in Budget and Financial Management— Procurement of Equipment\.” The decision was made to include this project\. To this end, funds earmarked for the following projects are being reallocated\. (*) Project “Strengthening the Provincial Directorate for Multilateral Agencies” (funds earmarked for individual consulting and IT equipment are being reallocated)\. 47  Study “Development of Proposals for Institutional Capacity Building of the entity responsible for road safety\.” Project “Institutional Capacity Building of the Provincial Directorate for Development Programs\.” (*) This information is presented in detail in the restructuring paper\. 4\. OUTCOMES 4\.1\. Conceptual Evaluation of the Project 16\. Objectives – indicators achieved\. The works were strategically important to efforts to make progress toward economic growth, poverty reduction, and increased social equality in the province\. (i) The 35-kilometer stretch of new roads, the more than 250 rehabilitation works, and the improved road junctions contributed to increased productivity and regional competitiveness in local and international markets\. (ii) Investments in water and sanitation improved health and sanitation conditions by increasing access to water service and sewerage connections for 147,200 residents living in the Province’s highly vulnerable areas\. (iii) Improved drainage over a 1,200-hectare area through investments in urban drainage helped reduce flooding triggered by rains that led to significant losses for households, in particular low-income households, as well as for industries and commercial activities, both directly and indirectly, owing to disruptions in transport and other services\. 17\. Summary of Indicators Achieved\. ACTUAL PROJ OUTPUT INDICATORS DEC 31, DEC 31, 2013 2013 HT Below 3\.7 3\.6 High traffic productive road assets preserved with an acceptable IRI average roughness to reduce operational and travel time costs AVG Below 3\.3 3\.05 IRI Additional poor people with access to water supply and/or sanitation services 167,706 146,898 People with water connections 34,698 34,698 People with sewerage service lines (1) 298,208 298,368 People with active sewerage connections (2) 133,008 112,200 48  ACTUAL PROJ OUTCOME INDICATORS DEC 31, DEC 31, 2013 2013 Component One: Kilometers of roads rehabilitated 251\.35 251\.35 Kilometers of urban roads widened 35\.20 35\.20 Number of intersections improved 2 2 Component Two: Number of water supply services lines built in poor neighborhoods (IPMH > 9,045 9,045 40 percent) Number of sewerage service lines built in poor neighborhoods (IPMH > 40 82,468 82,508 percent) Component Three: Number of hectares of improved drainage 1,200 1,200 Component Four: Recommendation s from the Coastal Implementation of recommendations from the Coastal Erosion Control Erosion Control Met Study Study implemented Component Five: Sector development studies completed 3 2 Component Six: Number of agencies benefiting from the Project* 4 6 Studies and activities to strengthen the agencies involved in the Project ** 4 4 (1) The project target of 298,368 available sewerage connections was met, as all of the works were completed in 2013\. (2) There were 112,200 active sewerage connections as of December 31, 2013\. (*) Ministry of Infrastructure (DVBA/DIPSOH/DIPAC); Ministry of Economy (SCEOCI/Provincial Directorate for Statistics); Court of Auditors\. (**) Regulatory Accounting System for the Potable Water and Sanitation Sector in the Province of Buenos Aires; Design of the Axle-Load Control System (purchase of weighing devices); Deflectograph for the DVBA; Training activities for the DVBA, DIPAC, SCEOCI\. 49 18\. Investments and Indicators Achieved, by Work – Water and Sewerage WATER/SEWERAGE WORKS COST (US$) CONNECTIONS NUMBER OF PERSONS Sewerage services - Mariano Acosta and Ferrari (oeste) - MERLO 11,950,516 4,405 16,519 4,460 Sewerage services Mariano Acosta and Ferrari – (oeste) - MERLO 11,864,421 6,644 24,915 5,232 Sewerage system for General Cerri - BAHIA BLANCA 5,014,316 2,500 7,055 3,281 Catonas Basin Sewerage System – Zone 1 - MORENO 17,023,870 12,768 48,409 21,058 Sewerage services in the Fourth Biggest Catchment Basin - MAR DEL PLATA 24,694,503 11,929 38,348 12,080 Sewerage and drainage network - PTE PERON 7,511,314 6,932 19,066 9,152 Sewerage services network – Merlo norte – MERLO 1,123,306 1,379 4,535 3,265 Wastewater collection network - Orense Park and La Argentina - GRAL RODRIGUEZ 4,553,371 1,827 6,994 2,518 Expansion of the Potable Water Networks – PILAR 4,256,291 2,305 8,644 Sewerage services network - Parque San Martín neighborhood (noreste) - MERLO 12,929,908 7,736 29,010 9,573 Sewerage services network - Parque San Martín neighborhood (sudeste) - MERLO 7,998,854 6,349 23,809 2,857 Sewerage services network - San Miguel Oeste 1 and E:B (BATCH 1) - SAN MIGUEL 11,186,104 4,684 18,736 6,745 Sewerage services network - San Miguel Oeste 2 (BATCH 2) - SAN MIGUEL 9,277,897 8,694 34,776 14,084 Expansion of sewerage services – town of San Vicente - SAN VICENTE 2,274,680 1,118 4,025 1,932 Sewerage services network and potable water distribution network - MORENO 21,461,534 6,740 5,543 26,054 22,172 15,964 TOTAL 153,120,885 9,045 82,508 34,698 298,368 112,200 19\. Investments and Indicators Achieved, by Work – Drainage DRAINAGE WORK COST (US$) HECTARES OF IMPROVED DRAINAGE Finochietto River* 48,017,205 1,200 TOTAL 48,017,205 1,200 * Remaining balance Cert\. 38/39/40, Aj Prov\. 38/39/40, Aj Def 36 to 40 50 20\. Investments and Indicators Achieved, by Work – Roads ROADS WORK COST (IN US$) KILOMETERS Access to towns 14,379,737 64\.18 Access - Carlos Keen 2,767,528 17\.30 Access – Huangelen 1,232,098 6\.40 Access - Open Door 7,951,282 26\.28 Access - Huergo Mom 2,428,829 14\.20 Elimination of Bottlenecks 66,199,660 35\.20 RP No\. 202 16,428,512 4\.50 RP No\. 205 8,224,068 3\.50 RP 21 Batch 1 2,086,766 3\.50 RP 21 Batch 3 9,601,531 5\.20 RP 21 Batch 4 15,030,483 9\.20 RP 21 Batch 5 14,828,300 9\.30 Primary road network within the inter- urban network 22,189,973 130\.70 RP 30 I 4,227,080 35\.00 RP 30 II 5,770,343 36\.55 RP 31 CARMEN ARECO 12,192,549 59\.15 Rehabilitation of the urban primary road network 28,082,408 56\.47 RP 4 Batch 1 9,733,101 36\.18 RP 4 Batch 2 6,287,355 20\.29 RP 4 Batch 3 12,061,952 TOTAL 130,851,778 286\.55 21\. The Program’s institutional strengthening activities helped build the management capacity of all the participating organizations\. The hiring of consulting firms and individual consultants, training activities, and the production of support materials for each component generated lessons and new management techniques in the various provincial organizations, thus ensuring the sustainability of the Program’s activities\. 51 4\.2\. Impact Evaluation 22\. The impact of the Program’s works will be evaluated using the information gathered from INDEC’s 2001 and 2010 National Population, Household, and Housing Census (CNPHyV)\. The nature of the available information facilitates measurement of the impact of the program on potable water supply and sewerage connections installed\. Many evaluation studies focus in particular on this variable because it is the key to the success of this type of infrastructure works\. 23\. A difference-in-differences analysis will be used to measure the pre- and post- program impact on the areas in which works were carried out, as well as the program’s hypothetical impact\. 24\. It is important to bear in mind that in light of the survey date for the 2010 CNPHyV, only an examination of the scope of the program in the short term (to very short term) is possible in the case of some works, and that others could not be fully addressed (especially APL2 works)\. In the latter case, consideration must be given to the characteristics of the region in which the works were conducted in order to evaluate the program’s impact based on the outcomes of the works assessed\. 5\. FINAL EVALUATION 5\.1\. Sustainability 25\. Actions Executed by the Province to Ensure Achievement of Project Benefits\. The Program addresses long-term sustainability by (i) monitoring fiscal conditions so as to assess the adequacy of fiscal resources available to successfully execute the infrastructure program; (ii) prioritizing the works between sectors and within each sector in order to adapt to the fiscal space available and prioritize high-impact, high-return subprojects, meeting the Program’s specific objectives; (iii) ensuring the implementation of adequate road management strategies and the provision of stable financial resources to ensure ongoing maintenance of the network; (iv) ensuring the implementation of the subprojects in a context of economic and financial equilibrium for water and sanitation operators, in accordance with the requirements set forth in the Framework Agreement; and (v) developing a strategic framework for investments, infrastructure policies, and the definition of guidelines on sector and territorial development in the province\. 26\. In the water and sanitation sector, the Project does not include investments specifically designed to address the service operators’ management or operational deficiencies, focusing instead on expanding services to low-income population groups\. Despite this proposal and the absence of investments geared specifically toward enhancing efficiency or operations, the Project will have an impact on these deficiencies, helping the provincial government to develop and implement proper regulations and mechanisms with a view to maintaining and increasing efficiency targets, and improving the sustainability and capacity to generate new investments\. 52 27\. More importantly, sustainability is underpinned by the provincial government’s firm decision to implement the proposed Program and the requisite institutional and policy frameworks\. 28\. Assessment of the Risk of not Sustaining Project Outcomes\. The Project’s overall risk level is deemed to be relatively low\. The outcomes achieved under APL 1, the experience gained in the area of implementation by the executing agency, and the ongoing and firm commitment of the provincial government to achieving the program’s objectives appear to support this assessment\. 5\.2\. Changes in Original Design 29\. On September 30, 2011, a restructuring paper for the Program was approved with a view to implementing the involuntary resettlement safeguard policy (OP/BP 4\.12)\. The following changes were also made: (i) revision of the scope of the Project’s selected activities in order to adapt to the prevailing financial situation; (ii) revision of the outcome indicators in order to better account for the revised Project scope and facilitate monitoring of progress in order to achieve the Project development objectives; and (iii) an 18-month extension until August 15, 2013, of the Project closing date in order to complete works under way\. With respect to point (i), the amount allocated in the Water, Sanitation and Drainage Works Cost Matrix was increased, in view of the fact that funds became available upon the elimination of a number of institutional strengthening activities that were either redundant or no longer needed\. 30\. In October 2012, the International Bank for Reconstruction and Development approved the restructuring of Loans No\. 7472-AR and 7947-AR\. With a view to covering a portion of the estimated shortfall in the Works Components, the sum allocated to Water and Sanitation Works was increased by US$4 million\. Given that this increase covered a portion of the shortfall, the transfer of certain works from IBRD-7472 to IBRD-7947 was approved in an effort to help complete works being executed under APL2, the resources of which had been depleted\. This restructuring exercise was of critical importance to the ability to complete the four water and sanitation works and one road work under IBRD-7472-AR, which, without this additional financing (IBRD-7947), would have had to have been completed with local resources\. The transfer of works was based on a prioritization process that took into account the percentage of physical progress made in the Program’s works and the impact of these works on the outcomes to be achieved (Program indicators)\. 31\. In August 2013, an extension of the project closing date to December 31, 2013 was approved and funds were reallocated across a number of disbursement categories, particularly with a view to completing sanitation works on the Finochietto river basin\. 5\.3\. Lessons Learned (i) Leadership by the Ministry of Economy with respect to project implementation (ii) Knowledge and relevance with respect to management of external financing 53  (iii) Team work between the civil servants and technical personnel from the province and the World Bank was key to achieving agreements and finding quick, efficient, and effective solutions for the difficulties and challenges faced during execution of the Program\. (iv) The Program’s planning, action, and public investment strategy designed a comprehensive approach model that takes into account not only efficiency in the execution of the works, but also the quality of these works, measured in accordance with the beneficiaries’ interests and needs\. (v) Institutional strengthening activities promoted the development of environments that promote cohesion and confidence within the public administration, thus also facilitating the execution of projects with multilateral lending agencies\. 5\.4\. Achievements (i) Creation of a professional, technical policy, multidisciplinary and interagency team that belongs to the SCEOCI, UCPO, DIPAC, and DIPSOH\. (ii) Growth of the institutional role and responsibilities of the SCEOCI and UCPO, which, over time, were significantly strengthening their capacity in areas relating to project development and management (procurement, financial management, monitoring and evaluation), while also being converted into sub-secretariats in their respective line ministries\. (iii) Organization of the Planning Unit for water and sewerage services into a Provincial Directorate for Water Supply and Sanitation [Dirección Provincial de Servicios Públicos de Agua y Cloacas DIPAC], consolidating the planning process for the expansion of water and sewerage services\. (iv) Implementation of the institutional agreements between the government of the province of Buenos Aires and water and sewerage operators\. (v) Methodological change in the design and management of urban drains, and subsequent approval of the “Manual for the design of master plans to improve infrastructure and management for urban drainage\.” (vi) Execution of structural measures using local funds and national resources and implementation of non-structural measures, for urban drainage\. (vii) Capacity building in planning and evaluating investments in road works, through the incorporation of modeling and programming tools\. (viii) Incorporation of high-tech equipment (deflectograph, mobile axle-weight measuring devices) for activities designed to maintain and improve the provincial road network\. 54  Annex 6\. List of Supporting Documents ï‚ Project ISRs ï‚ Project Aide Memoires ï‚ Project Appraisal Documents (APL1 and APL2) ï‚ Additional Financing to the APL1 Project Paper ï‚ APL2 Restructuring Papers ï‚ Policy Notes (APL1 and APL2) ï‚ Borrower’s Progress Reports 55  62° BOLIVIA BRAZIL ARGENTINA PA ENT RE RIO S RAG BUENOS AIRES INFRASTRUCTURE SUSTAINABLE UA Y SAN NICOLÁS W INVESTMENT DEVELOPMENT PROJECT S\. Nicolas de ARGENTINA U R U G U AY Pacific Ocean Los Arroyos WORKS UNDER THE APL PROGRAM URUGUAY Ramallo CHILE San Buenos Aires BUENOS Pedro AIRES PROVINCE Baradero Colon Pergamino 34° S AN TA FE Capitan Arrecifes Zaraté Atlantic Sarmiento San Antonio Campana Ocean C ÓRDOB A GRAL\. VILLEGAS W Rojas de Areco 34° Grl\. Arenales Salto Capilla del Señor A DISPUTE CONCERNING SOVEREIGNTY OVER THE ISLANDS EXISTS BETWEEN ARGENTINA WHICH CLAIMS THIS San Andres SOVEREIGNTY AND THE U\.K\. WHICH ADMINSTERS THE ISLANDS\. Carmen De Areco de Giles Vedia Luján FALKLAND ISLANDS Junín BUENOS (MALVINAS) Chacabuco Mercedes AIRES Grl\. Pinto Suipacha Lincoln Florentino Ameghino Chivilcoy Grl\. La Heras San Vincente La Plata For Detail, see Alberti Navarro Grl\. Villegas Grl\. Viamonte Magdalena Metropolitan Area Cañuelas inset below\. Bragado Brandsen Lobos Carlos Tejedor Verónica San Miguel América 25 de Mayo Roque Pérez Del Monte 9 de Julio Saladillo Ranchos Chascomús Carlos Casares Grl\. Belgrano 36° Pehuajó Pila Las Flores Castelli Trenque Grl\. Alvear Lauquen 36° San Carlos de Bolivar Dolores Pellegrini Henderson Tapalque Grl\. Lavalle Grl\. Conesa Tres Lomas Daireaux Grl\. Guido L A PAM PA Salliqueló Azul Rauch Maipú Olavarría Grl\. J\. Madariaga Guamini Pinamar Ayacucho Carhué Grl\. La Madrid Villa Gesell Tandil Cnl\. Vidal Cnl\. Suárez Laprida Puán Pigüé Benito Juárez Mar Chiquita Balcarce 38° Mar del Plata A\. Gonzales Cnl\. Pringles Chaves Tornquist Lobería 38° San Cayetano Miramar Tres Arroyos Necochea Bahía Blanca Punta Alta Cnl\. Dorrego Médanos NATIONAL PAVED ROAD NETWORK Monte Hermoso PROVINCIAL PAVED ROAD NETWORK BAHÍA BLANCA W APL1 AF APL2 PROVINCIAL UNPAVED ROAD NETWORK W W W WATER AND SANITATION DEPARTMENT OR PARTIDO BOUNDARIES ROADS PROVINCE BOUNDARIES D D DRAINAGE INTERNATIONAL BOUNDARY 62° 60° R I O N E GR O METROPOLITAN AREA 40° 40° LUJÁN W PILAR W MORENO W W SAN MIGUEL W U R U G U AY Carmen de Patagones HURLINGHAM D MERLO W W Ri o de BUENOS AIRES la LA MATANZA D Pl a AT L A N T I C BERAZATEGUI W W ta OCEAN FLORENCIO VARELA W GENERAL RODRIGUEZ W BERISSO W 0 25 50 75 100 KILOMETERS This map was produced by the Map Design Unit of The World Bank\. IBRD 40951 The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank GSDPM PRES\. PERON W MAY 2014 Group, any judgment on the legal status of any territory, or any Map Design Unit endorsement or acceptance of such boundaries\. 64° SAN VICENTE W W

REVIEW

P050294

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 26151 IMPLEMENTATION COMPLETION REPORT (IDA-34520; IDA-34521) ON A CREDIT IN THE AMOUNT OF SDR 43\.5 MILLION (US$ 55\.6 MILLION EQUIVALENT) TO THE REPUBLIC OF MALAWI FOR THE THIRD FISCAL RESTRUCTURING AND DEREGULATION PROGRAM (FRDP III) 06/12/2003 This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  CURRENCY EQUIVALENTS (Exchange Rate Effective October 1, 2002) Currency Unit = Malawi Kwacha (MKW) MKW 80\.3185 = US$ 1 US$ 0\.012450 = MKW 1 FISCAL YEAR July 1 June 30 ABBREVIATIONS AND ACRONYMS ADMARC Agricultural Development and Marketing Corporation BHA Better Health for Africa BOP Balance of Payments CAS Country Assistance Strategy CBM Commercial Bank of Malawi CMS Central Medical Stores ESCOM Electricity Supply Corporation of Malawi FRDP Fiscal Restructuring and Deregulation Program GDP Gross Domestic Product GOM Government of Malawi HIPC Highly Indebted Poor Countries IBRD International Bank for Reconstruction and Development IDA International Development Agency IFMIS Integrated Financial Management Information System IMF International Monetary Fund I-PRSP Interim Poverty Reduction Strategy Paper LDP Letter of Development Policy MASAF Malawi Social Action Fund MDC Malawi Development Corporation MHC Malawi Housing Corporation MKW Malawi Kwacha MOF Ministry of Finance MPC Malawi Posts Corporation MPTC Malawi Posts and Telecommunications Corporation MRA Malawi Revenue Authority MTs Metric Tons MTEF Medium-Term Expenditure Framework MTL Malawi Telecommunications Limited NEC National Economic Council NFRA National Food Reserve Agency NSNS National Safety Net Strategy OED Operations Evaluation Department ORT Other Recurrent Transactions PCC Petroleum Control Commission PER Public Expenditure Review PERMU Parastatal Enterprise Reform and Monitoring Unit PRGF Poverty Reduction and Growth Facility  PRSP Poverty Reduction Strategy Paper PSD Private Sector Development PURP Public Utilities Reform Project RBM Reserve Bank of Malawi ROC Regional Operations Committee SDR Special Drawing Rights TA Technical Assistance TIP Targeted Input Program TOR Terms of Reference VAT Value Added Tax Vice President: Mr\. Callisto Madavo Country Director: Mr\. Hartwig Schafer Country Manager: Mr\. Dunstan Wai Sector Manager: Mr\. Philippe Le Houerou Task Manager: Mr\. Antonio Nucifora  MALAWI FRDP III CONTENTS Page No\. 1\. Project Data 1 2\. Principal Performance Ratings 1 3\. Assessment of Development Objective and Design, and of Quality at Entry 2 4\. Achievement of Objective and Outputs 4 5\. Major Factors Affecting Implementation and Outcome 9 6\. Sustainability 10 7\. Bank and Borrower Performance 11 8\. Lessons Learned 12 9\. Partner Comments 13 10\. Additional Information 16 Annex 1\. Key Performance Indicators/Log Frame Matrix 17 Annex 2\. Project Costs and Financing 21 Annex 3\. Economic Costs and Benefits 22 Annex 4\. Bank Inputs 23 Annex 5\. Ratings for Achievement of Objectives/Outputs of Components 24 Annex 6\. Ratings of Bank and Borrower Performance 25 Annex 7\. List of Supporting Documents 26 Annex 8\. Variation between budgeted and actual expenditures, 1998/99 - 2001/02 38  Project ID: P050294 Project Name: FRDP III Team Leader: Sudhir Chitale TL Unit: AFTP1 ICR Type: Core ICR Report Date: June 17, 2003 1\. Project Data Name: FRDP III L/C/TF Number: IDA-34520; IDA-34521 Country/Department: MALAWI Region: Africa Regional Office Sector/subsector: Central government administration (47%); General education sector (20%); Health (15%); Crops (12%); Telecommunications (6%) Theme: Public expenditure, financial management and procurement (P); Standards and financial reporting (S); State enterprise/bank restructuring and privatization (S); Education for all (S); Rural markets (S) KEY DATES Original Revised/Actual PCD: 10/14/1999 Effective: 01/23/2001 Appraisal: 10/19/2000 MTR: Approval: 12/21/2000 Closing: 06/30/2002 Borrower/Implementing Agency: GOVERNMENT OF MALAWI/MINISTRY OF FINANCE Other Partners: STAFF Current At Appraisal Vice President: Callisto E\. Madavo Callisto E\. Madavo Country Director: Hartwig Schafer Darius Mans Sector Manager: Philippe H\. Le Houerou Philippe H\. Le Houerou Team Leader at ICR: Sudhir Chitale Sudhir Chitale ICR Primary Author(s): Basil Kavalsky; Antonio Nucifora 2\. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome:U Sustainability:UN Institutional Development Impact:M Bank Performance:S Borrower Performance:U QAG (if available) ICR Quality at Entry: S Project at Risk at Any Time:  3\. Assessment of Development Objective and Design, and of Quality at Entry 3\.1 Original Objective: The operation was intended to build on two earlier adjustment credits (FRDP I and II) which were provided in 1996 and 1998 respectively to the newly democratic Government of Malawi which had taken office in 1994\. These earlier credits had supported wide-ranging structural reforms which substantially liberalized Malawi's economy\. The outcomes of these credits was assessed as satisfactory, with the opening of the tobacco market leading to higher growth rates as smallholders responded to the production incentives, while a new textile export sector developed to take advantage of favorable access to foreign markets\. There were significant shortcomings in public sector management however, in particular with regard to macro-economic stabilization\. Inefficient state enterprises required periodic injections of resources which were funded through public borrowing\. As a consequence deficits and inflation remained high and both nominal and real interest rates were at levels which were too high for most potential private investors\. In addition to the broad economic liberalization, the earlier credits had three core objectives\. The first was a substantial increase in pro-poor public expenditures, and specifically the shares of education and health in total expenditures\. A social safety net was introduced, but was relatively untargeted and was not regarded as fiscally sustainable\. A second area was privatization of the large state-owned enterprise sector in Malawi, where a privatization plan was implemented and a satisfactory start made on selling off enterprises\. The third area related to the management of public expenditure\. A medium-term expenditure framework was introduced, and a start made on improvements in financial management and procurement\. Although the conditions of FRDP I and II were met in substance, the outcomes were not as favorable as expected when those credits were designed\. Growth rates were no higher than the historical averages, reflecting the weaknesses in macro-economic management and their impact on both domestic and foreign private investment\. Uncertainties in agricultural input and output prices also impacted the production of foodcrops in particular\. Finally the AIDS epidemic began to have an increasing impact on output in both the service sector and in agriculture\. Against this background, work on FRDP III started in 1998 with a view to consolidating the achievements of the earlier credits and getting to grips with the critical issues of macro-economic stabilization\. The objective of substantially lowering the deficit, required a complex set of interventions to improve public sector expenditure management, to privatize or increase the efficiency of key parastatals, to target the social safety net so as to reduce its overall cost, and to increase revenue collections\. These were arguably changes which would take time to introduce and have an impact\. The original design for FRDP III consisted of a first tranche with up-front actions and four floating tranches with conditionality in specific areas\. At the Regional Operations Committee (ROC) this design was rejected because of its complexity and the difficulty of proceeding if any one of the floating tranches was undisbursed\. The team was asked to come back with a more traditional two-tranche operation\. At around this time, the HIPC initiative was being expanded and the Bank and Fund were under pressure from the international community to work with countries to establish their eligibility for debt reduction\. A new team leader took over preparation in April 2000 and reached the conclusion that there were too many question marks about the program as designed, with regard to Government commitment to undertake a set of measures to be included in a second tranche\. The likelihood was that even if we succeeded in getting to the approval stage of such a credit, there would be serious problems down the road\. If the Bank wanted quick forward movement on the operation to release HIPC support and donor funding, the most sensible way to proceed was a single tranche operation\. Another difficulty was the need for consistency between a second tranche and the policies to be included in the PRSP which was under preparation by the Government\. - 2 -  A choice was made to go ahead with a single tranche operation which would maintain the momentum of reforms where the Government was committed to further progress and would set in motion the process of reforms in the important areas of financial management, audit and procurement\. The original amount suggested for a single tranche operation was US$35 million (as against the US$80 million for the two-tranche operation), but at the request of the Malawians this was raised to US$55 million which was the amount needed to capitalize the emergency food agency (NFRA), and came close to closing the projected financing gap for the year (which was larger than originally projected because of a 20 percent decline in international tobacco prices)\. FRDP III was approved by the Bank's Board in December 2000, in parallel with the Fund's PRGF which went to their Board in the same month and supported an analogous program of conditionalities\. A parallel Technical Assistance credit to support capacity enhancement in a number of key areas of conditionality was presented and approved by the Board at the same time as the FRDP III\. This credit is expected to close in December 2003 and will be subject to a separate ICR\. FRDP III had three broad objectives\. l The first was the improvement of public sector management with the major focus being on improvements in the allocation, transparency and monitoring of public expenditures\. l The second was the promotion of private sector development essentially through the continuation of the privatization of some key parastatals - telecoms, petroleum imports and distribution, and the commercial banks\. l The third was to create a targeted safety net through the development of a strategy combined with a targeted program of subsidized agricultural inputs and a strategic food reserve\. Each of these objectives was based on existing analytical work\. The preparation of a Public Expenditure Review with Malawian collaboration provided the basis for designing a program of public expenditure reforms which would have substantial Government commitment\. The previous adjustment credit and the Privatization and Utility Reforms Project laid the basis for the Government's program of privatization of major public assets in telecommunications, commercial banking and the liberalization of petroleum imports and marketing\. A study of options for a Safety Net Strategy for Malawi had been recently completed and provided a basis to inform the preparation of the Government's own Safety Net Strategy\. There was no implication that by themselves the measures which supported each of these objectives would be sufficient to keep the adjustment program on track\. It was recognized that in addition to the up-front actions included in FRDP III there would need to be a set of subsequent actions which were defined in the program which would need to form the basis for any new adjustment lending in the future\. This formula had the advantage however, of making the requirements for follow up less rigid than they would be in a two-tranche operation and capable of being changed or fine-tuned to adapt to prevailing circumstances and the PRSP\. 3\.2 Revised Objective: n\.a\. 3\.3 Original Components: n\.a\. 3\.4 Revised Components: n\.a\. - 3 -  3\.5 Quality at Entry: Quality at entry for a single tranche operation is difficult to assess\. The primary criterion is presumably whether the policy measures included created or maintained the momentum of the reform program\. Although the measures included in the program were mainly fairly modest steps, they did deepen the reform in a number of key areas, particularly on advancing the privatization program and improving revenue collections\. These measures constituted a reasonable package of actions which kept up the forward momentum achieved under FRDP I and II\. They only represented a modest step, however, towards the achievement of the critical objective of supporting the structural reforms needed to underpin macro-economic stability\. A more substantial step would have required that the credit tackle the issues related to ADMARC, the agricultural marketing parastatal which had been one of the primary sources of unanticipated calls on Government resources in the period (with the cost of ADMARC's operations amounting to 1\.6 percent of GDP in 1998/99 and 1\.9 percent of GDP in 2000/01)\. This issue had been highlighted in the Public Expenditure Review\. The earlier FRDP credits had secured the divesting of some of the more profitable activities of ADMARC which had been used in the past to cross-subsidize some of its other undertakings and obscured its operational inefficiencies\. Without these, the real underlying problems became apparent\. The solutions however, were not short term nor were they supported by the same degree of analytical depth as the rest of the program\. The multi-tranche operation had proposed to close down a number of ADMARC's local depots in the first tranche\. The new team leader took the view that there were too many question marks about whether this was the right course of action\. Given the uncertainties and the practical difficulties of getting up front agreement and action on further reforms of ADMARC in the time available the decision not to deal with these in the single tranche of FRDP III was defensible\. The recent food crisis points to the failure of agricultural policies and with hindsight this raises questions whether the objective of HIPC eligibility, important though that was, should have been permitted to dominate the timing, design and content of the operation\. A second criterion to judge quality at entry is the strategic role of the operation\. In general, single tranche adjustment operations are justified where the Government is committed to the program and is willing to continue with it\. There were questions whether this was the case in Malawi, given the mixed achievements of the previous structural adjustment operations and the slowing down of the reforms process\. At the same time, determining the appropriate size of a credit when Government commitment is uncertain constitutes another difficult judgment\. The extent to which the usual financing gap considerations should dictate the size of the credit once the decision to lend has been made (both the Fund and the Bank agreed to lend in this case) is unclear\. At the time of the FRDP III, Bank management attached the highest importance to moving in tandem with the Fund to unlock access to HIPC and create the financial basis for an acceleration of reform and growth\. A small single tranche operation was well judged as a means of achieving this objective and the initial amount of US$35 million communicated by the preparation mission to the Government was appropriately scaled in the circumstances, even though it represented a reduction relative to the first tranches of FRDP I and FRDP II\. However, by subsequently increasing the size of the credit to US$55 the Bank gave an unfortunate signal as to the weight it attached to a longer term commitment to the reform process\. In view of these considerations quality at entry is rated only marginally satisfactory\. In view of these considerations quality at entry is rated only marginally satisfactory\. 4\. Achievement of Objective and Outputs 4\.1 Outcome/achievement of objective: The appropriate parameters to evaluate a single tranche operation are not fully clear\. Obviously, - 4 -  any structural operation has to be viewed in the context of the process of reforms it helps to sustain\. This raises the important question of what the appropriate time frame is to evaluate the impact\. In the case of the FRDP III, the ICR was performed two years after the release of funds, so the perspective it takes is different from if it had been undertaken immediately\. As will be discussed below, the two-year follow-up period to the credit has brought very limited changes in two of the three focus areas of the credit (public sector management and social safety nets) and some successes in the third one (privatization): i\. Improved public sector management through enhanced expenditure allocation, transparency and monitoring\. The attempt to build the medium term expenditure framework is continuing and was supported under the project\. The links between the framework and the annual budget are still not well understood however\. The framework has not been used as a rolling three year plan, instead each year the exercise begins anew\. This said, the process has contributed to a greater awareness of the need for pro-poor expenditures and increased allocations for these purposes in line with the PRSP (e\.g\. share of health sector in discretionary recurrent expenditures from 12 percent in 2000/01 to 18 percent in 2002/03; share of education sector in discretionary recurrent expenditures from 21 percent to 29 percent; additional details in Annex 1)\. The allocations for operations and maintenance in the budget have also been stepped up in line with Bank recommendations (e\.g\. health sector from 16 percent to 24 percent in total ORT; education sector from 15 percent to 21 percent)\. There is a need however, for determining overall expenditures more realistically and making some provision for contingencies such as the food emergency\. At present, actual expenditures at the end of the year differ significantly from the original budget estimates (by 2-3 percent of GDP on average; see details in Annex 8)\. The aggregate variation is the result of regular under-spending of the development budget (mainly due to delays in project implementation) and overshooting of the recurrent budget\. Most of the discrepancy in the recurrent budget is associated with higher than anticipated interest payments on debt (mainly as a result of consistent under-budgeting of the interest bill)\. Variations in discretionary recurrent expenditures are also quite large, both in the aggregate (plus or minus 10 percent on average) and in terms of changes to the allocations made to individual agencies (more than half of public institutions regularly receive either 10 percent more or 10 percent less than originally programmed, and it is not uncommon for institutions to receive 30 percent more or less than originally anticipated; see details in Fozzard et al\. (2002), ODI Working Paper N\.166)\. The main net beneficiaries have been the Office of the President, the State residences, the Police, and the Ministry of Foreign Affairs\. In addition, almost every year there is an unexpected crisis, either because of unanticipated parastatal debt or arrears, or because of a natural disaster such as drought or floods\. However, only a small allowance is made for such contingencies (the current budget line for disaster management amounts to about 0\.5 percent of GDP)\. Inevitably, wide variance on recurrent expenditures renders the budget irrelevant as a guide to resource availability during budget execution, thereby weakening the rationale for detailed budgeting, undermining operational planning and subverting parliamentary oversight\. Consequently, most line ministries make little effort to prepare realistic budgets, and the Ministry of Finance does not verify the feasibility of the proposed expenditure reductions\. For instance, the 2002/03 wage bill for education was budgeted at around MWK300 million per month in spite of the fact that the average payroll for education between January and June 2001/02 was approximately MWK380 million\. It was therefore no surprise to find that in July education expenditure was MWK80 million over budget\. Similarly, the 2002/03 budget for utilities by individual line ministries were only about 70 percent to 80 percent of actual expenditures during the previous year (although no actions were planned to enforce the budgeted reductions in these expenditures)\. - 5 -  The problem is not only budget formulation but perhaps even more importantly in its execution\. The sector ministries have not yet shown themselves willing or able to provide a regular flow of meaningful data on expenditures and commitments\. By the same token the Finance Ministry has not been willing to take the initiative in delaying non-salary budget transfers until such data is provided\. The weak monitoring of public expenditures results in regular overspending by some ministries, without sanctions ever being enforced\. Major reallocations are undertaken both within and across ministries without parliamentary approval and with very limited transparency\. Another important element of the FRDP III operation was an overall improvement in the timeliness and transparency of expenditure data both for the Government and for the parastatals\. The one-off collection of data and publication on the web which was carried out before Board presentation has not been sustained\. In recent weeks a commitment was made to publish this data and then immediately withdrawn, suggesting a lack of consensus within the Government on whether it is willing to take this step\. On a positive note, the government is currently publishing Pro-Poor-Expenditure reports on the Ministry of Finance website and in the newspapers\. The performance with regard to monitoring the parastatals has been significantly better\. The Parastatal Enterprise Reform and Monitoring Unit (PERMU) is now operational and produces regular reports on a quarterly basis of the 10 largest parastatals\. This information has not been published on the web however\. The overall arrears situation has not improved since FRDP II\. Government estimates put the stock of arrears at between 0\.5 to 1 percent of GDP, although no precise estimate has been calculated\. A comprehensive audit of arrears is planned with donor funding during 2003 and should provide an accurate assessment of the existing stock\. In recent months the Government has moved to centralize the payments for water and electricity bills of those ministries and budget entities (e\.g\. defense, hospitals, schools etc\.) which have disregarded their payment obligations for these services in the past\. The ministries in turn responded by systematically underestimating the level of their utility payments so that the centralized amounts have only covered about 60 percent of the new bills and the stock of utilities arrears continues to rise at a rate of 0\.2 percent of GDP per annum\. This is arguably still a somewhat better outcome than might have resulted without the centralization of payments\. Revenue collections have improved dramatically\. In fact, the new Malawi Revenue Authority (MRA) constitutes one of the most notable success stories of FRDP III\. Revenue collection has increased by over 3 percent of GDP since the establishment of the MRA in early 2000, although this is in part attributable to changes in tax policy\. An important element of the program was the establishment of an independent Auditor-General's office which would not be beholden to the Ministry of Finance for its annual budget\. This has not yet been realized\. FRDP III underestimated the depth of debate this would cause inside the Government, with strong proponents of the 'New Zealand model' and the 'South African model' ranged on either side\. The Government deserves credit for the depth and care with which it has addressed this issue\. By now, however, the facts are widely understood\. Substantial progress has been made with drafting the relevant legislation and it is expected to be submitted to Parliament shortly\. The reforms on procurement have not progressed since Board presentation\. To some degree this represents genuine uncertainties in the Government as to whether the approach which the Bank outlined in FRDP III is the right one\. There is a great deal of concern about the potential impact of decentralization - 6 -  on corruption and the current approach is a hybrid in which contracts are placed by individual ministries and agencies, but reviewed by a central unit\. Other minor reforms have also not progressed significantly since Board presentation\. The rationalization and prioritization of aid-financed projects within the context of the Government budget has not taken place and the project database which was established at the time of Board presentation has not been maintained or updated\. Cost recovery fees have been introduced for various services (passports, visas, motor vehicle licenses, police reports), but no progress has been made in ensuring that the fees collected are remitted to the Treasury\. Little progress has been made in introducing partial cost recovery fees for secondary and tertiary education\. Secondary school fees have been increased, but the substantial funding for boarding in secondary schools has not been reduced due to concerns about the lack of alternative affordable lodgings for students\. In tertiary education, a significant increase in university fees has been accompanied by the introduction of a universal loan scheme which is widely regarded as a grant\. ii\. Private Sector Development through parastatal reform and privatization\. Three parastatals were selected for FRDP III\. The first was the divestiture of part of the substantial government holdings in the financial sector and in particular privatizing a majority stake in one of them, the Commercial Bank of Malawi\. This has been achieved, although at the `price' of allowing Press Trust, a major local conglomerate with close political ties, to exercise the option of increasing its stake in the other major commercial Bank, the National Bank of Malawi, from 48% to 51%\. Allowing a local conglomerate to be in charge of a major commercial bank raises the need for tighter prudential controls\. On the other hand, the arrival of the new owner of the Commercial Bank of Malawi, Stanbic South Africa, has laid the basis for competitive banking sector development in the future\. This constitutes a positive step in a context where there were little or no alternative options\. The second parastatal was Malawi Telecoms\. Slow progress on this resulted in a hold up in disbursement on FRDP III until the information memorandum was made available to potential bidders\. This reflected some dissent within the Government on proceeding\. Since then the privatization has run into significant problems\. After delays in the early stages (the whole privatization program was temporarily put on hold during 2001 due to concerns on the Government side), the Government made a subsequent good faith effort to privatize MTL\. By then, however, the downturn in the global telecommunications market rendered the privatization process substantially more difficult\. An initial attempt to privatize MTL collapsed as one member of the consortia which had been identified as the preferred bidder pulled out at the last minute\. The process is now being repeated from scratch\. The third parastatal was the petroleum import and distribution agency\. In this case, the privatization appears to have shifted the structure of the sector from a public monopoly to a regulated private monopoly\. While this is far from ideal, given the small size of the Malawian market it appears likely to be the outcome of privatization in many sectors and the evidence suggests a positive result with much greater availability of retail outlets and a fairly stable supply price\. This is a very good achievement and puts Malawi well ahead of many other African countries in this area\. Perhaps the most notable issue here was what was not included\. Although the preparation of new conditionality on ADMARC would have taken time, it would have been appropriate to indicate that this should be part of 'subsequent actions' and that any future adjustment lending to Malawi could not go forward without some improvement of the financial and management situation of ADMARC\. - 7 -  iii\. Safety net strategy through targeting subsidized inputs and creating a strategic food reserve\. The issue of whether and how to intervene effectively in the maize market remains one of the most complex and difficult issues for public policy in Malawi\. The two separate issues of promoting more efficient maize production and distribution on the one hand, and using subsidized inputs or food distribution as a social safety net, have become so inter-twined that it is difficult to achieve one except at the expense of the other and inevitably the pendulum swings backwards and forwards between the two objectives, depending largely on the outcome of the harvest in any given year\. The focus in FRDP III was to try to define a sphere of public intervention on the social safety net which was clear and well established\. This would rationalize the overall package of intervention, quantify the amount of resources needed from the budget and, by removing the uncertainties surrounding public interventions, restore private incentives both to increase outputs and to import and distribute maize in the face of shortages\. Three instruments were defined to achieve this: i) designing a National Safety Nets Strategy (NSNS), ii) targeting the formerly universal free input distribution program (commonly referred to as the 'starter pack' program), and iii) reforming the National Food Reserve Agency (NFRA) into a financially independent institution, with a clear mandate as a strategic grain reserve exclusively involved in disaster and relief activities and clear rules of intervention\. However, the evaluation of the achievements of FRDP III in this area is made more complex by the severe drought which affected Malawi during 2000/01 and 2001/02\. In early 2001 the Government had been advised by the donors (including under the Bank's FRDP III) to reduce the existing maize stocks from 180000 tons to around 60000 tons, which had been estimated by the Government and the donors as the optimum level of strategic maize reserves\. The Government, however, disposed of its entire grain reserves\. At the same time, inaccurate crop forecasts for 2001 from the famine Early Warning System led to the failure to anticipate what later turned out to be a very serious shortage of maize\. As a result of these events, by early 2002 it became clear that the country faced a famine situation, while the level of Government's maize stocks had been run down to zero\. The Government and the donors have since focused on responding to the food emergency, introducing a combination of free food distribution for the most needy, a general maize price subsidy, and the continued operation of the 'starter pack' as an untargeted program\. The achievements of FRDP III need to be evaluated in this context\. A National Safety Net Strategy has been prepared and has been adopted by the Government, building on a 1999 study prepared in collaboration with the Bank\. However, the implementation of this strategy has not yet started and existing safety net programs continue to be funded and administered independently of each other depending on donor support\. The recommended targeting of the 'starter pack' program was implemented during 2000/01 and 2001/02, but a decision was made to revert to a universal 'starter pack' in 2002/03 (which is largely funded by donors, however)\. The Government has stated its intention to reduce the number of starter pack beneficiaries over time, but no clear plan has been decided\. The role and size of the starter pack program remains an area which is still unresolved from a technical perspective and is an object of disagreement both within Government and within the donor community\. The general maize price subsidy raises more difficult questions, but was indeed endorsed by Fund and Bank missions at the time it was introduced\. This policy ensures that affordable food is available to the poor, but is inefficient and perpetuates the uncertainties surrounding the extent of public intervention in the maize market, thus discouraging private sector involvement\. On the other hand, given the seriousness of the crisis, these drawbacks constituted a reasonable cost to pay to ensure that cheaper food became rapidly available and without the risk of delays likely to occur from the administration of more complex schemes\. On balance, therefore, while the FRDP proposals were sensible and reflected the priorities at the time, it is difficult to fault the Government for the decision not to target input support to farmers during years of drought and to provide substantial food and cash transfers to the poorest groups\. While the Government is likely to scale back the subsidized food and - 8 -  inputs distribution programs in future years, the dilemma remains that uncertainties as to its level will reduce incentives to private production and trade\. The issues surrounding the reform of the NFRA deserve separate mention\. As agreed, the Government amended the trust deed of the NFRA to narrow its mandate from one of being engaged in the stabilization of prices to being exclusively engaged in disaster and relief operations\. However, the Government did not use part of the FRDP III credit to capitalize NFRA, and authorized new borrowing by NFRA at non-concessional rates, which led to a subsequent bailout of NFRA in 2001/02 (amounting to 0\.6 percent of GDP)\. Overall assessment: On balance, during the last two years, there has been only very limited progress with the reforms initiated by the FRDP III, and therefore the outcome has been rated unsatisfactory\. However, this unsatisfactory rating is arrived at solely on the basis of the mixed record of implementation of `follow-up' reforms by the Government\. Since these reforms were not strictly part of the credit, the rating is arguably somewhat unfair\. However, these `follow-up' reforms provided the `strategic context' for the agreed program of reforms under the FRDP III, which make little sense without these subsequent steps\. 4\.2 Outputs by components: n\.a\. 4\.3 Net Present Value/Economic rate of return: n\.a\. 4\.4 Financial rate of return: n\.a\. 4\.5 Institutional development impact: In addition to the Technical Assistance credit associated with FRDP III to support capacity enhancement in preparing the Financial Management and Audit Laws and improving the procurement system, a number of steps were taken under FRDP III to establish the basic legal framework for certain key institutions\. These included the setting up of an independent Auditor General's office, the decentralization of procurement, the establishment of a Parastatal Monitoring Unit and the creation of a Malawi Revenue Agency\. Only the last two of these has been achieved so far\. On the first two, the cabinet has not yet approved the proposed changes and though it may do so in the near future, this has delayed the provision of technical assistance for this purpose\. 5\. Major Factors Affecting Implementation and Outcome 5\.1 Factors outside the control of government or implementing agency: The implementation of the measures supported under FRDP III was impacted by two major events\. First the expanding AIDS crisis severely diminished Government capacity in a number of areas, particularly with regard to the provision of education and health services\. Second, the poor rainfalls of 2000 and 2001 led to widespread food shortages and consequent Government intervention to provide maize at subsidized prices\. 5\.2 Factors generally subject to government control: In a number of areas the key constraint appears to be Government commitment\. This is most - 9 -  notably the case with regard to public expenditure management\. Budgets have not been established at realistic levels\. Once they have been approved there is inadequate effort to ensure that even the budgeted levels are adhered to, much less to relate outflows to available resources\. The President's Office is a notable offender in terms of exceeding budget ceilings\. Similarly, the failure to impose hard-budget constraints on parastatals, notably the financing of ADMARC's maize operations, has been a primary cause of large deficits and is at the root of macroeconomic instability\. In light of this it was difficult to meet many of the undertakings which were contained in the Government's Letter of Development Policy and the list of subsequent actions for the program\. In the areas where there was genuine commitment - moving ahead with privatization and implementing the social safety net - the progress was much greater\. 5\.3 Factors generally subject to implementing agency control: Public expenditure management is the primary responsibility of the Ministry of Finance and the inability to carry out this function effectively represents a major failure of the overall operation\. This said, the inability of the Finance Ministry to secure the accountability of the various Government agencies and ministries for preparing realistic budgets and managing them effectively, must be seen in the broader context of the lack of commitment cited above\. 5\.4 Costs and financing: n\.a\. 6\. Sustainability 6\.1 Rationale for sustainability rating: There are a number of considerations in evaluating the sustainability of this project\. The assumption was that there would be follow-up lending to Malawi which could be used to ensure that the measures taken by the Government under FRDP III would be sustained\. In and of itself the record of FRDP III in the absence of such follow up lending is a mixed one\. It has not led to an improvement in public expenditure management, to the expected transparency in Government expenditures, to the decentralization of the procurement function, to the establishment of an independent budget for the Auditor-General's office, or to the privatization of Malawi telecoms\. On the other hand, it has led to the sustained increase in the share of pro-poor expenditures, the improved operations of the Revenue Authority, and the satisfactory privatization of the banking and petroleum sectors\. Further, it has helped to sustain the broader program of privatizations including major parastatals such as Air Malawi, ESCOM, MPC, and others not explicitly mentioned in the FRDP III credit\. The pressures of the food emergency have resulted in the delay of progress with regards to the implementation of the safety net strategy, but there is a genuine understanding of the importance of this and the trend is likely to resume in the near future\. However, the questions surrounding the scope and extent of public intervention in the maize market do not appear to have been sorted out, perpetuating the risk of incurring high future budgetary costs and creating important disincentives for maize production and trading\. The Government of Malawi makes the point in discussion that the Bank may be unrealistic in its assumption on possible timing of actions and particularly on the idea that reform is a linear forward progression\. It is true that in the areas of privatization and safety nets reform the reform process is broadly on track and there is commitment to moving in a general direction\. On the other hand, no significant progress in the area of public expenditure management has been made\. The problem is that the lack of progress in this important area and the general delays in the areas of privatization and safety nets implementation translate into slower growth and this in turns puts the viability of the overall program at risk\. The Government of Malawi needs to balance carefully the political risks associated with more rapid reform on the one hand and the political implications of continued slow growth on the other\. - 10 -  6\.2 Transition arrangement to regular operations: The associated Technical Assistance project is designed to put in place capacity in key areas\. As indicated above, new Structural Adjustment Lending would need to follow up the measures introduced under FRDP III\. 7\. Bank and Borrower Performance Bank 7\.1 Lending: The Bank's primary objective in this operation was to unlock the door to HIPC\. In addition, it was a key component of the overall financing plan and supported the program of structural reforms\. The hope was that the enhanced dialogue and availability of donor funding would result in a renewed Government effort to implement the needed macro and structural reforms\. In practice this has not happened\. To the Bank's credit, large parts of the operation are rooted in good quality, collaborative analytic work such as the PER and work on the social safety net and privatization program\. (The weakness on the analytic side appears to be on agriculture development and the role of ADMARC, which contributed to the decision to leave this important area out of the operation\. In recent months the Bank has moved to correct this in part, by carrying out a Poverty and Social Impact Assessment - PSIA of ADMARC\.) The pressure to produce a loan in a short period of time, however, shows in the inclusion of items which the Bank or the Government had 'on the shelf' rather than always reflecting a coherent set of measures needed to achieve a given objective\. In addition, with the evolving situation of HIPC and the PRSP, FRDP III does not seem to have been rooted in a Country Strategy which could have underpinned the progress made in the short term as the Government moved to assemble the package of up-front measures\. This said, the operation made the best of a difficult situation in which not going forward was virtually out of the question once the Fund had determined that the macro situation was acceptable\. In the circumstances the Task Team Leader positioned the operation effectively\. A firmer line should have been drawn on the size of the credit however\. 7\.2 Supervision: There was no formal supervision carried out given the nature of the operation\. The Bank remained closely engaged of course through its involvement with the reviews of Funds programs and preparatory missions on potential follow-up operations, as well as the preparation of a Country Economic Memorandum covering many of the issues of FRDP III\. More formal supervision with periodic reporting should have been carried out, however, and might have helped to provide a clearer indication to the Government as to where the programs subsequent actions were lagging and provided a basis for internal decisions and action\. 7\.3 Overall Bank performance: Overall Bank performance is rated marginally satisfactory\. Borrower 7\.4 Preparation: The Government demonstrated its capacity to move quickly to meet the needs of the program for up-front actions for release of the single-tranche\. The studies and analytic work was largely in place and the needs for technical assistance were broadly identified\. 7\.5 Government implementation performance: Government implementation performance was unsatisfactory\. There was little follow up once the - 11 -  pressure to meet the original one-tranche disbursement conditions was off\. There is still a fundamental failure to prepare budgets within realistic resource envelopes and then manage them so as to deliver the approved expenditure levels\. The privatization program did not move as quickly as planned\. Government concerns about the potential political impact of retrenchment lead to a temporary suspension of the entire program during mid-2001\. Following this initial delay, however, the privatization program has been resumed and the Government has shown some genuine commitment\. The delay in the implementation of the social safety net strategy can be attributed only partly to the recent food emergency\. More generally, the Government's intervention in the maize sector both in the surplus and deficit years has had very serious consequences for the budget, for macro-economic stabilization and for efficient production and trade\. 7\.6 Implementing Agency: The Ministry of Finance did not monitor or follow up on the program effectively\. 7\.7 Overall Borrower performance: With a single tranche operation the judgment must be equally shared between the quality of the up-front actions and the degree of follow-up of the operation\. As indicated earlier the overall design of the package, while the measures themselves were modest, helped to maintain the momentum of the reform program\. The follow up in the subsequent two years has been disappointing\. Many of the 'subsequent actions' do not seem to have been treated as an agenda for action\. The overall borrower performance is therefore rated unsatisfactory\. 8\. Lessons Learned 1\. The Bank should be more up-front in its documents about the difficulty of waiting for the Government to establish a track record in the various areas covered by the operation, given the pressures to meet the Government and the donor community's need for rapid action in the light of the HIPC program\. While the risks of significant lack of follow-through were described in the risks section of the document, this is really not a sufficient indication of the nature of operations of this type where the window of opportunity is a small one and the benefits lie in maintaining the general direction of reform rather than taking quantum steps\. 2\. This said, it is important that credit amounts be maintained at levels which are commensurate with the measures being undertaken\. The originally proposed two tranche operation would have been put at $80 million and the amounts might even have been back-loaded given the weight attached to conditions for second tranche release\. The increase in the size of the first tranche relative to the amount agreed with the government by the preparation mission sends the wrong signals to the borrower and reduces the credibility of our follow-up operations\. In addition, as mentioned above, the funds were not used to capitalize the NFRA which had been the motivation for topping-up\. 3\. When a single tranche operation such as this goes forward, the focus of the preparation and review needs to be not on measures already taken, but on the list of so-called 'subsequent actions'\. In general these should be expressed in specific terms with timing associated with them\. Ideally a set of actions should be defined for one year into the future and a second set for two years into the future\. This then provides the Government with a very clear indication of the kind of conditionality likely to be associated with future lending\. For critical areas (such as ADMARC) where conditionality is not included in the current operation, but it will be a critical element of follow up adjustment credit, it is important that this be noted in the text and also reflected in the matrix so that subsequent proposals for conditionality in these areas do not come as a surprise to the Government\. - 12 -  4\. Two areas of the credit represent major successes where the Malawian experience may be replicable for other countries\. The approach of setting up an independent revenue authority with a fixed percentage of collections allocation to it for its operations seems to have worked extremely well in providing the motivation which the agency needed\. Initially this percentage was set at 1\.65% but it has subsequently been raised to 2\.25%\. Secondly Malawi's success in privatizing both the commercial banks and petroleum import sector in a small market where there is only room for a limited number of enterprises, suggests that with setting appropriate rules of the game, these can still result in significant efficiency gains\. 5\. This operation underlines yet again the importance of having good analytic work as a basis for World Bank lending and support to governments\. The program of analytic work needs to be designed strategically, however, to avoid the risk of designing conditionality in the areas where solid analytical underpinnings already exist, instead of focusing on areas which are critical to the overall success of the Government's reform program\. 9\. Partner Comments (a) Borrower/implementing agency: The Government has prepared its own evaluation report of the FRDP III\. The report is attached unedited in Annex 7\. In addition, the Government has provided comments on the Bank's report\. These are presented below\. The Government comments highlight the fact that since completion of this report the Public Finance Management Bill, the Public Audit Bill and the Procurement Bill have been approved by Parliament in May 2003\. - 13 -  - 14 -  - 15 -  (b) Cofinanciers: (c) Other partners (NGOs/private sector): 10\. Additional Information - 16 -  Annex 1\. Key Performance Indicators/Log Frame Matrix FRDP III Policy Matrix and Actual Performance Diagnosis Actions before Board Subsequent Actions/ Actual performance in 2001/02 and 2002/03 Medium Term Objectives A\. Public Sector Management Expenditure rationalization Shortage of outlays Increased allocations in the The share of education sector Revised est\. Revised est\. Budget for operation and 2000/2001 Budget for other expenditure in discretionary 2000/01 2001/02 2002/03 maintenance in key recurrent transactions recurrent budget will be Education sector expenditure in sectors\. (ORT) in education, health, maintained at, at least 23%\. discretionary recurrent expenditure 21\.0% 29\.1% 29\.1% agriculture, road maintenance, community Health sector expenditure in development and gender The share of health sector discretionary recurrent expenditure 12\.1% 15\.2% 18\.5% development\. expenditure in discretionary recurrent budget will be Agriculture sector expenditure in maintained at, at least 13%\. discretionary recurrent expenditure 13\.9% 6\.6% 7\.7% Gender / Youth / Community development expenditure in discretionary recurrent expenditure 0\.5% 1\.0% 1\.6% Primary education: The share of primary Achieve yearly enrollment of Revised est\. Revised est\. Budget Allocation inadequate education in ORT increased 6000 students for teacher 2000/01 2001/02 2002/03 and shortage of from 4\.8% of the total ORT training and institute in Share of primary education in ORT 2\.7% 7\.3% 6\.5% personnel in key in 1999/2000 to 5\.4% of service training for all areas\. total ORT in 2000/2001\. primary school teachers at 2001/02 2002/03 least once a year\. Number of students enrolled for teacher training: 2489 3156 Prepackage donor supplied The Ministry has introduced a Textbook Revolving Fund system where books primary textbooks for each are bought through a book fare\. Schools choose their appropriate books from a school to be delivered book fare and the suppliers of the chosen books pack and deliver them straight to directly from supplier to the the schools\. school\. For donor-supplied books the donors themselves deliver the books directly from the port to the schools\. Secondary education: Reduced budgetary Eliminate the subsidy for Revised est\. Revised est\. Budget Disparity in quality allocation for boarding in boarding in secondary 2000/01 2001/02 2002/03 between conventional Conventional Secondary schools\. Share of CSS boarding in ORT Budget data not available, but (boarding) secondary Schools (CSS) from 16% of amount of funding to boarding schools and the recurrent expenditures in has not been reduced\. community secondary 1999/2000 to 8\.7% of day schools due to recurrent expenditures in Secondary school annual fees increased from MWK 200 to 6000 p\.a\. disparity in Government 2000/2001 and re-allocated funding\. saved money to qualitative inputs\. Tertiary education: Announced cost recovery Further expand the cost University of Malawi fees increased from MWK 1500 to 25000 p\.a\. High Government policy in tertiary education recovery through increasing (But a universal loan scheme was introduced in 2002/03 which is being subsidy\. by increasing fees\. fees\. In parallel develop a administered as a grant, i\.e\. no repayments are anticipated) bursary fund to ensure that University of Malawi new full cost programs for MWK 210000 p\.a\. poor students are not University of Mzuzu fees remained MWK 50000 p\.a\. and scholarship system adversely affected\. continues as before\. Contract out catering at Catering has not been contracted out\. tertiary institutions\. Health sector: Increased the share of health Annually recruit, train and Revised est\. Revised est\. Budget Allocation inadequate sector ORT expenditure in deploy at least two hundred 2000/01 2001/02 2002/03 and shortage of total ORT expenditure from nurse technicians, fifty new Share of health sector in ORT 15\.8% 17\.5% 24\.2% personnel in key areas\. 13% in 1999/2000 to medical assistants, and 14\.5% in 2000/2001\. twenty new radiography 2001/02 2002/03 technicians\. Number of students enrolled for nurse training: 435 435 Number of students enrolled medical assistant training: 100 175 Number of students enrolled radiography technician: 20 20 1\. Includes Ministry of Education, Universities, MANEB, MIE, Scholarship fund, and Polytechnic Board of Governors\. 2\. Discretionary recurrent spending is defined as `Total Recurrent Expenditures' minus `Statutory Expenditures' (i\.e\. interest on debt, pensions and gratuities, and the Office of the President)\. - 17 -  Diagnosis Actions before Board Subsequent Actions/ Actual performance in 2001/02 and 2002/03 Medium Term Objectives Medicinal drugs Increased allocation of Implement the reform of the Revised est\. Revised est\. Budget allocation and medicinal drugs in Central Medical Stores (CMS) 2000/01 2001/02 2002/03 distribution: 2000/2001 Budget to $ 1\.17 Allocation of medicinal drugs Allocation inadequate per capita to approximate (USD per capita): $1\.48 $1\.44 $1\.23 and distribution better health in Africa (BHA) inefficient\. targets\. The implementation of the CMS reform has not yet started\. Cost recovery: Announced a cost recovery Use partial or full cost recovery Cost recovery policy introduced for passports, visas, motor vehicle licenses and Subsidy for goods and policy including a schedule of where the case for public police reports, but collections are not remitted to MOF\. services which do not prices to be charged for provision of goods or services have a strong public passports, visas, motor is weak\. good element\. vehicle licenses and police reports\. Rationalization of Established a detailed Establish a mechanism by The rationalization of development projects has not occurred\. The database at development projects: project database within which all proposed new the MOF is neither used nor updated\. Development budget Ministry of Finance projects are screened by a coverage incomplete expanding the coverage to specifically created for aid financed aid financed projects\. committee chaired by a projects and project senior official of the Ministry prioritization weak\. Restricted entry of new of Finance\. projects in the 2000/2001 Budget to only high priority Continue the process of sectors on the basis of the rationalization of the PER\. development budget\. Restricted, suspended or dropped specific low-priority projects in the 2000/2001 Budget\. Expenditure Management Fiscal transparency: Announced a "Ten Point Budgetary outturns for core Information on Budget expenditures has not been posted on web since Board Expenditure outcomes Plan" to improve financial programs will be posted on approval date\. are not publicly management\. the web with a delay of no available until after the more than six months\. end of the fiscal year\. Posted on a Government web site expenditure on core programs in the 2000/2001 Budget, and actual outturn as of September 2000\. Expenditure arrears: Issued circular (March By end 2000, an Integrated Commitment register is maintained pro-forma and data are not reliable (i\.e\. do Arrears by 2000) requiring controlling Management Financial not coincide with actual commitments)\. Data submitted are not verified and Government to the officers to maintain an Information System (IFMIS) Ministries continue to be funded irrespectively\. Cash budget system with credit domestic private up-to-date commitment will be introduced in four key ceiling authority is not enforced and arrears are persistently accumulated\. sector had a tendency register\. Ministries which ministries to inhibit Sanctions are never enforced\. to build up since early do not submit the over-spending and provide 1998\. commitment and timely information on over IFMIS pilot in four ministries only begun in late 2002 (and should be completed expenditure returns timely commitments\. This will be shortly) in the context of the proposed FIMTAP project\. would not be funded\. expanded to all ministries over three years\. Strengthened the monthly cash budget system by introducing quarterly credit ceiling authority system to allow ministries to plan expenditures in advance as well as avoid accumulation of arrears\. Parastatal finances: Created a new parastatal Finances of 5 largest Parastatal Monitoring Unit (PERMU) is operational and produces quarterly Monitoring is weak\. monitoring unit in the parastatals posted on the web reports on parastatal finances\. Information in not posted on the web however MOF\. will be updated with a delay (not even the end of year accounts)\. of no more than six months\. Balance sheets and profit System for authorizing parastatal borrowing still being discussed\. Part of and loss accounts of 5 A new system for authorizing Financial Management Act to be submitted in Parliament in April 2003\. largest parastatals, as of parastatal borrowing will be Government has not authorized parastatal borrowing in 2001/02 and 2002/03 - 18 -  June 2000, have been designed and implemented\. however (except for NFRA ­- see below)\. posted on the web\. Auditing reform: Cabinet has taken the Draft and pass legislation to Financial Management Bill and Audit Bill to be submitted to Parliament in The capacity and the decision to separate the create new legislation to April 2003\. authority of the financial management and separate the financial Auditor-General are auditing functions by management and auditing Auditor-General Office is not independent and funding is determined by MOF\. weak\. enacting new legislation\. functions\. Audit coverage of ministries from 45% in 1999 to approx 60% in 2002\. Initiated the contracting of Create a fully independent TA for the Accountant Auditor-General's office, with General and Auditor adequate staffing, budgetary General's office\. provision\. Raise the audit coverage of ministries from 45% in 1999 to 75% in 2002\. Procurement reform Cabinet has approved the By 2002, using the TA Implementation of procurement reforms has not yet started\. Procurement is results of the phase I of the operation, put in place a new centralized, straining study which decentralizes legal framework for the capacity and leading the procurement process, procurement authority and to delays and and has directed the create a well staffed authority mis-procurement\. Ministry of Finance to and a transparent proceed with the procurement process\. implementation\. Tax administration Created a fully functional, Further improve the MRA Malawi Revenue Authority (MRA) is fully operational and has been performing There is scope for self financing Malawi operations by staff training\. extremely well, as reflected by an increase in tax revenues of approx 3\.5% of improvement in Revenue Authority (MRA)\. GDP (in part to be attributed to changes in tax policy)\. Provision for MRA revenue collection as The budget makes a retention increased to 2\.25% of tax revenue\. evasion is provision for MRA to retain commonplace\. 1\.65% of the tax revenue to finance its operations\. B\. Private Sector Development Financial sector Reforms The financial sector is Commercial Bank of Complete by early 2001 a CBM has been privatized\. Other banking and financial institutions have also publicly owned and Malawi (CBM) brought to new comprehensive entered the market\. oligopolistic\. the point of sale by issuing regulatory framework\. Efficiency, as measured an information Comprehensive regulatory framework has not been prepared\. by interest rate spreads memorandum\. Conclude the sale of the and the limited range of CBM financial instruments, is low\. Privatization of infrastructure (transactions) Infrastructure services The Malawi Posts and Will issue an information MTL has not yet been privatized\. Previous attempt failed in mid-2002 as one are among the top Telecommunications memorandum (IM) for the member of consortium identified as preferred bidder pulled out\. A new process constraints to private Corporation (MPTC) sale of Malawi has been started\. sector development\. legally separated into two Telecommunications Limited corporate entities\. shares before the credit is Cellular services have been liberalized (currently 2 licences and a third is being effective\. considered)\. Registration for internet service providers (ISPs) Full liberalization of cellular fully liberalized (15 ISPs services by 2003\. registered to date)\. Full liberalization of all Communicated policy telecom services (gateways, decision for a limited VSATs for voice linking liberalization of basic networks) by 2005\. telephony services\. Published a request for expression of interest for the purchase and subscription of shares in the MTL\. Liberalization of Petroleum Marketing: - 19 -  Up to 1999 imports Private imports of A petroleum supply study Petroleum importing and marketing has been privatized\. were carried out by petroleum legalized\. will be carried out to examine the Petroleum Control further liberalization of the ORTEX has been liquidated in May 2002\. Commission (PCC), a Private sector imports of petroleum markets\. parastatal\. There were petroleum began May 1, problems of 2000\. Privatize ORTEX by May account-abi-lity and 2002\. transparency in the PCC split into a regulatory PCC\. agency (also called PCC) Prices of petroleum and a supplier of storage products were services (called ORTEX)\. unnecessarily high due to the lack of ORTEX has so far not competition\. engaged in any market operations\. Diagnosis Actions before Board Subsequent Actions/ Actual performance in 2001/02 and 2002/03 Medium Term Objectives C\. Safety nets Safety net strategy There is no coordinated Approved a national safety Ensure that all old and new Implementation of the NSNS has not yet started\. safety net strategy, nets strategy (NSNS)\. safety net programs are leading to waste, Created an institutional designed and prioritized in duplication of efforts structure to implement the line with the medium term and gaps in coverage\. strategy\. objectives of the NSNS\. Starter Pack Program Restructuring the Converted the Starter Pack Gradually reduce the TIP TIP introduced in 2000/01 and 2001/02\. Decision to revert to universal TIP Starter Pack Program, Program to a Targeted Input coverage and improve the (donor funded) in 2002/03, as a result of recent food crisis\. The intention is to which is currently Program (TIP) covering only targeting mechanisms and reduce number of TIP beneficiaries over time, but no clear plan has been untargeted and therefore 1\.5 million households for the integrate it within the NSNS\. decided\. fiscally unsustainable 2000/01 planting season and cost ineffective\. compared to a coverage of 2\.89 million households in the last season\. Reduced budgetary allocation to the TIP from $27 million in 1999/2000 to $2 million equivalent in the 2000/2001 Budget\. Restructuring National Food Reserve Agency The National Food Amended the NFRA deed to Develop NFRA into a well Unauthorized sales of NFRA maize stocks by ADMARC led to the absence of Reserve Agency restrict it to being a strategic functioning strategic grain maize reserves at the time of food crisis\. Reserves have since been restocked\. (NFRA) lacks a grain reserve exclusively reserve as per the new deed\. rationally defined involved in disaster and The government did not use part of the FRDP III credit to capitalize NFRA, as mandate, clear rules relief activities\. This brings had been agreed\. In addition, the government authorized new borrowing by of intervention, and the NFRA under the NFRA at non-concessional rates, which led to a subsequent bailout of NFRA in financial ceilings\. National Safety Net 2001/02\. strategy as one of the poverty relief instruments for emergency situations\. Taken the decision to limit the maize stocks to be held by the NFRA to 60,000 tones\. No new funds programmed in the 2000/01 budget, or new borrowing was authorized\. Tenders have been invited from private traders to sell excess stocks\. So far 72,000 tones have been contracted to be sold\. - 20 -  Annex 2\. Project Costs and Financing Project Cost by Component (in US$ million equivalent) Appraisal Actual/Latest Percentage of Estimate Estimate Appraisal Component US$ million US$ million Balance of Payment support (credit 34520) - single tranche, January 29, 2001 Of which: credit 55\.10 55\.52 IDA reflows 0\.50 0\.50 Total Baseline Cost 55\.60 56\.02 Total Project Costs 55\.60 56\.02 Total Financing Required 55\.60 56\.02 - 21 -  Annex 3\. Economic Costs and Benefits n\.a\. - 22 -  Annex 4\. Bank Inputs (a) Missions: Stage of Project Cycle No\. of Persons and Specialty Performance Rating (e\.g\. 2 Economists, 1 FMS, etc\.) Implementation Development Month/Year Count Specialty Progress Objective Identification/Preparation 10/14/1999 to 23 1 Sector Manager 10/19/2000 9 Economists 2 FMS 1 Health Specialist 1 Agriculture Specialist 4 Consultants 2 RAs 2 ACS Appraisal/Negotiation 08/28/2000 to 14 7 Economists 12/21/2000 2 Agricultural Specialists 1 Procurement Specialist 1 Financial Specialist 1 RA 1 Consultant 1 ACS Supervision No supervision (single tranche operation) ICR 11/01/2002 to 5 2 Economists 03/31/2003 1 Consultant 1 RA 1 ACS (b) Staff: Stage of Project Cycle Actual/Latest Estimate No\. Staff weeks US$ ('000) Identification/Preparation 61\.9 237\.4 Appraisal/Negotiation 34\.3 117\.4 Supervision ICR 8 25\.0 Total 104\.3 379\.8 - 23 -  Annex 5\. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating Macro policies H SU M N NA Sector Policies H SU M N NA Physical H SU M N NA Financial H SU M N NA Institutional Development H SU M N NA Environmental H SU M N NA Social Poverty Reduction H SU M N NA Gender H SU M N NA Other (Please specify) H SU M N NA Private sector development H SU M N NA Public sector management H SU M N NA Other (Please specify) H SU M N NA - 24 -  Annex 6\. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6\.1 Bank performance Rating Lending HS S U HU Supervision HS S U HU Overall HS S U HU 6\.2 Borrower performance Rating Preparation HS S U HU Government implementation performance HS S U HU Implementation agency performance HS S U HU Overall HS S U HU - 25 -  Annex 7\. List of Supporting Documents MINISTRY OF FINANCE EVALUATION REPORT ON A LOAN/CREDIT IN THE AMOUNT OF SDR 43\.5 MILLION (US$ 55\.6 MILLION) AND SDR 2\.4 MILLION (US$ 3 MILLION) AS TECHNICAL ASSISTANCE TO THE MALAWI GOVERNMENT FOR THE THIRD FISCAL RESTRUCTURING AND DEREGULATION PROGRAM (FRDP III) DECEMBER 2002 1\. The Third Fiscal Restructuring and Deregulation Program (FRDP III) 1\.1\. Overview Soon after 1994, the democratically elected Government embarked on a large and complex agenda of policy reforms and institutional change to uplift the economy from deterioration due to external shocks and poor economic management\. One such policy reform was the Third Fiscal Restructuring and Deregulation Program (FRDP III) supported by the World Bank (see Table 1)\. The Government got a credit of SDR43\.5 million (US$55\.6 million equivalent) from the International Development Association (IDA) in support of the continuation of structural reform program\. The project document was signed on December 21, 2000 and application number 1 amounting to SDR43\.1 million was paid on January 30, 2001\. The credit helped to meet balance of payment financing requirements\. FRDP III was designed to consolidate gains arising from structural reforms undertaken under the First and Second Fiscal Restructuring and Deregulation Program (FRDP I and II)\. FRDP III's aim was to further deepen the reform process with a view to ensuring macroeconomic stability and promoting sustainable economic growth with poverty reduction\. The credit included Technical Assistance (TA) amounting to SDR 2\.4 million (US$3\.0 million equivalent) (see Table 2)\. This report been done in the context of the evaluation of the FRDP III structural adjustment credit which closed on June 30, 2002\. Some of the comments raised, however, may pertain to the FRDP III technical assistance credit as well\. The technical assistance credit is still ongoing and is expected to close in December 2003\. 1\.2\. Objectives of FRDP III The FRDP III continued the adjustment agenda, which was set to: Improve the management of the public sector through increased transparency and rationalization of expenditure in line with defined priorities, Strengthen the Government's procurement and auditing services, Encourage private sector development through liberalization of key sectors, and Introduce a national safety net strategy\. - 26 -  The FRDP III credit included Technical Assistance (TA) funds to assist in the following areas: Evaluation of the impact of the FRDP III program, and Development of the agenda for the next macro-economic and sectoral policy reforms\. 2\. Structural Components The project consisted of the following three major components: public sector management, private sector development and safety net\. 2\.1\. Public Sector Management This component was aimed at the following: Improving the allocation of public expenditure in line with the recommendations of the public expenditure review (Joint World Bank and Malawi Government Public Expenditure Review 2001), Improving the transparency and monitoring of public expenditure, and Improving efficiency by operationalizing the Malawi Revenue Authority (MRA)\. 2\.2\. Private Sector Development This component was aimed at the following: Liberalizing Telecommunications, Liberalizing petroleum import/retail marketing, and Liberalizing the financial sector\. 2\.3\. Safety Net This component sought to do the following: Designing and creating an institutional structure for implementation of a National Safety Net Strategy (NSNS), Transforming the starter pack program into a targeted input program (TIP) and incorporating it into the NSNS, and Reforming the National Food Reserve Agency (NFRA) and limiting its role to that of a strategic grain reserve engaged in disaster and relief operations\. 3\. Achievement of Development Objective The main objective of FRDP III was to support policy reforms designed to accelerate economic growth and reduce poverty\. However, the economic prospects show that the country had little potential to achieve high economic growth\. The macroeconomic situation remains tenuous as private sector activity is being strained by an extended period of expansionary fiscal policies (see Table 3)\. Real gross domestic product (GDP) growth slowed down from 8\.2 percent in 1996 to 2\.0 percent in 2000 and the economy grew by ­4\.5 percent in 2001 compared to a projection of 2\.3 percent for the year\. The situation was compounded with the problem of food shortage in 2001/02\. According to the latest information, the economy grew by 1\.8 percent in 2002\. The economic stagnation reflected the contraction in the small-scale agriculture and manufacturing sectors\. Despite failing to achieve the targeted economic growth, money growth of 17 percent was recorded and fiscal deficit (after grant) decreased from 4 percent of GDP in 1999/2000 to 2\.8 percent of GDP in - 27 -  2000/2001\. In addition, inflation and interest rates continued to decline\. On a good note, inflation in 2002 decelerated to 14\.8 percent compared to 27\.5 percent in 2001\. The slow down of inflation was due to tight monetary policy and improved availability of imported food, which dampened pressure on food inflation\. As of November 2002 interest rate (bank rate) stood at 40 percent (See economic report 2002, NEC, Government of Malawi)\. However, the development objective of supporting the Malawi Government to implement the FRDP III has been achieved to some varied degree\. More specifically, the reforms have improved the poverty focus of public expenditures and created a more favorable environment for the operation of the private sector\. The share of expenditures going to health, education, gender, youth and community services has increased over the entire period\. The country has experienced a marked increase in gross primary education enrollment rates due to increased resources combined with the policy of universal free primary education\. In the private sector, much progress has been observed in privatizing the major commercial banks, namely, the Commercial Bank of Malawi and the National Bank of Malawi\. Following the liberalization of the telecommunications sector, there are now several players participating in the sector\. In the safety net part, the Government has instituted the targeted input programme (TIP), which targets the most vulnerable and poor Malawi\. 4\. Assessment of Outcome 4\.1 Public Sector Management 4\.1\.1 Public Expenditure Rationalization The reforms have improved the poverty focus of public expenditures and created a more favorable environment for the operation of the private sector\. Since 1998, the Government has made an effort to prioritise expenditures\. As indicated in Table 4, the share of expenditures going to health, education and community services has increased over the period under review\. In the 2002/03 budget, the allocations to pro-poor expenditure (PPE) programs increased by 4\.4 percent of GDP, building upon the already higher allocation for Pro-Poor Expenditures (PPEs) in the 2001/02 budget, which increased by over 2 percent of GDP\. More specifically, the observed outcomes are as follows: Education In the education sector, free primary education has greatly improved access to primary education\. Enrolment is estimated to be about 3\.3 million\. However, the quality and internal efficiency of the system has been compromised\. To respond to this issue, the Government increased resource allocations to teaching and learning materials from K146 million in 2000/01 to K600 million in 2001/02 whereas allocation for teacher training increased from K81\.1 million in 2000/01 to K350 million in 2001/02\. The resources have been used to train 2849 and 3156 teachers who were enrolled in 2001 and 2002, respectively\. Complemented by the Canadian International Development Agency (CIDA), 11\.4 million textbooks, worth 15 million Canadian Dollars, have been delivered to all the primary schools\. This ensured textbook for every primary school pupil\. The United Kingdom's Department for International Development (DFID) has also included an allocation for teaching and learning materials for 1,936 schools in its seven-year Support to Education Sector Programme (SESP)\. The Government has also introduced a Textbook Revolving Fund (TRF) and students are contributing K250\.00 per year for the replacement of torn and lost books\. - 28 -  In a bid to achieve full contribution towards some goods and services, Government revised secondary school boarding fees from K30 per term to K1, 500 per term\. This was intended to shift resources previously earmarked for secondary schools to primary education\. In addition, students at the University of Malawi are now required to contribute K25, 000\.00 per year as opposed to K1, 500\.00 per year, which was the case before\. At the University of Mzuzu, students are paying a financial contribution of K45,000\.00 per year\. Furthermore, parallel programmes have been introduced whereby students are paying full cost of the programmes\. For those students who cannot afford to pay, the Government provides loans\. At the moment, the criteria are being developed which will consider needy students and those who are eligible for loans\. A proposal is under consideration to administer loans in districts\. Health Since 2000/01 fiscal year, Other Recurrent Transaction (ORT) expenditure allocations to the health sector have been budgeted above the program target of 13 percent of total recurrent expenditure ORT (See Table 4)\. Much effort has been made in the area of human development\. Hence, in 2001/02, a total of 54 health worker tutors were enrolled for an upgrading course at Mzuzu University\. In other health worker training institutions, as many as 1,086 health workers are earmarked for training annually\. Cadres being trained are nurses, clinical officers, medical assistants, laboratory technicians, pharmacy technicians and radiography technicians\. Further to this, the Government will recruit more auxiliary nurses to cater for the shortage of nurses in the country\. Government has drastically increased allocations for essential drugs and pharmaceuticals to more than US$1\.25 per capita, World Health Organisation (WHO) recommended standard for Sub-Sahara Africa\. To enhance efficiency and effectiveness in procurement and distribution of drugs and pharmaceuticals, Government is in the process of reviewing organizational structure and functions of the Central Medical Stores (CMS)\. Cost Recovery Government has managed to implement cost recovery policies including the scheduling of fees\. The cost of applying for passports has been raised from K250\.00 to K4,000\.00 and the Government is intending to increase further to fully cover the whole cost of processing a passport\. In addition, the general public is now required to meet costs of police reports, passports, licenses, some health services, and tuition and boarding fees in secondary schools\. 4\.1\.1 Expenditure Management In the expenditure management area, the Government is working hard in making the pro poor expenditure outcomes publicly made available by posting them on Ministry of Finance website\. Since December 2002, the Government started publishing the pro-poor expenditures returns in the local media\. The Government is also straining its efforts in reducing the accumulation of arrears, especially to the domestic private sector\. Further to this, there is some considerable work in improving the monitoring of parastatal finances, improving the capacity and authority of the Auditor General and improving procurement processes in Malawi\. More specifically, the following are being undertaken: The Government has set conditions to improve fiscal transparency whereby budgetary outturns for core programs are posted on the Ministry of Finance website\. Effort is being made to improve existing reporting systems to capture the transactions on a weekly basis\. The Government is enhancing the computerization of the Credit Ceiling Allocation (CCA) system through a project in the Reserve Bank of - 29 -  Malawi\. Monitoring reports are being produced on a regular basis and being reviewed by the Cabinet Committee on the Economy to crosscheck diversions in the budget\. The Government is also monitoring and preventing expenditure arrears by undertaking a comprehensive inventory of all payment arrears as of June 2002\. Ministries and/or Departments are also able to produce and maintain an up-to-date expenditure commitment register\. The actual commitments, however, are restricted to a monthly CCA\. To facilitate this further, the Government has extended the agency payment system to a number of line ministries experiencing a large accumulation of utility arrears\. The question is quality of financial statements and information in the commitment registers\. The Government has also established the Public Enterprise Reform and Monitoring Unit (PERMU) in the Ministry of Finance to monitor the financial performance of the ten largest public enterprises, including the Agricultural Development and Marketing Corporation (ADMARC), the Electricity Supply Corporation of Malawi (ESCOM), the Malawi Telecommunications Limited (MTL), the Malawi Housing Corporation, Blantyre Water Board, and Southern Region Water Board\. Guidelines have been developed for borrowing by parastatals and are awaiting Cabinet approval\. Some key parastatals have already started declaring dividends to the government for the first time in history (For examples of parastatals, which have declared dividends to the government, see the Budget Statement 2002/03)\. Under the FRDP III TA component, the Government is in the process of separating the current Finance and Audit Act into the Public Finance Management and the Public Audit legislations\. Change Consulting from New Zealand have already finalized the preparation of the drafts of Public Finance Management Bill and Public Audit Bill and stakeholders meetings have been completed\. The Task Force working on the review has already visited South Africa and New Zealand to learn from the experiences of these countries\. It is expected that the bills will be presented to Cabinet and Parliament in early 2003\. The Government is also facilitating the institutional reform program for National Audit Office\. Cowater International Consultant from Canada has done the institutional reform of National Audit Office\. All deliverables (manuals) except the Public Accounts Committee of Parliament report have been produced\. This aims at strengthening the capacity and authority of technical advisory services (See Table 5)\. The office of the Auditor-General has recruited 15 graduates and 22 other personnel with ACCA to improve capacity\. With procurement reform, the program proposed the development of the new Procurement Act and supporting regulation, the creation of National Procurement Authority and Procurement Code, the implementation of capacity building program for procurement cadre, the rationalization of stores, and introduction of computerized stores\. Currently, Cabinet has approved the new Procurement Bill\. In addition, recruitment of consultants on capacity building program for procurement cadre is underway\. Equipments such as vehicles have already been purchased\. Other outputs have not been achieved and a schedule to these activities has been changed and was discussed with the World Bank (See Table 5, Table 6 and Table 7)\. Despite these achievements, public expenditure management has not been satisfactory\. Although the Government has managed to contain aggregate expenditure in line with the total budget, the actual allocation fall short of the desired cash flow funding due to low revenue collections and donor withdraw\. Much of the little that is collected is allocated to statutory expenditures, especially public debt\. 4\.1\.2 Resource Mobilization FRDP III was designed to improve tax administration in order to foster the increase in revenue collection through proper operationalisation of the Malawi Revenue Authority (MRA)\. So far, the Government has implemented several tax measures such as the extension of surtax to the wholesale and retail stages, and the - 30 -  increase of the excise and duty rates on motor vehicles and alcohol\. The Government has also temporarily suspended discretionary duty exemptions other than on donations or imports by diplomatic missions\. There is also on going capacity building in MRA to strengthen tax administration and enforcement\. MRA is further computerizing its operations, recruiting and training staff to monitor tax receipts and ensuring a reduction in delays for the refund of surtax to small businesses\. The Government has now improved the collection of tax from 15 percent of GDP to 17 percent of GDP\. With the extension of surtax to the wholesale and retail stages, the Government envisages a further increase in tax collection\. However, between March 2000 and February 2001, MRA collected on average MK64\.59 for every MK1\.00 they spent from the 1\.65 percent retention fee whereas the Customs and Income Tax Department collected MK104\.55 for every MK1\.00 they spent from budgetary allocations (see "Revenue Collection\.Which Way", Quarterly Tax Bulletin, August 2001)\. It seems that MRA operations are more costly than was the case when Government departments collected the revenues\. This is a result of high overheads being incurred by the MRA\. Hence, there is further need to improve the restructuring of MRA and building capacity to strengthen tax administration and enforcement\. 4\.2 Private Sector Development Under the FRDP, the Government embarked on a privatization program that started with the manufacturing sector but is now being extended to utilities and infrastructure sectors\. Assessing the outcome of this program, the following are observed: Solid progress has been made on telecommunications, which has currently seen an increase in the number of cellular operators (there are 2 registered operators and the third operator is on the verge of being registered) and the number of cell phones\. The number of cell phones has increased from 5,000 in 1995 to 24,000 in 1999\. In addition, telephone penetration rate has greatly improved\. In the financial sector, Commercial Bank of Malawi has been privatized (December 2001)\. Indebank was made a commercial bank in 2002 and Cabinet has approved a comprehensive review of the financial sector regulatory framework\. Similarly, liberalization of petroleum marketing has been most successful\. At the moment, private companies are importing petroleum without restrictions\. There has been mushrooming of filling stations all over the country, both by individuals and companies\. The Government is commercializing ADMARC in preparation for its privatization\. Much progress has been made to privatize or liquidate ADMARC's non-core assets as David Whitehead and Sons, Shire Bus Lines, Grain and Milling, and Cold Storage\. Similarly the Government has instructed the Preivatization Commission to divest ADMARC's minority shareholdings (in Sugar Corporation of Malawi and the National Bank of Malawi Limited)\. However, the performance of the private sector has not been satisfactory owing to a number of obstacles\. Key obstacles include macroeconomic instability (high interest and inflation rates and unstable exchange rate), high transport and infrastructure costs, management constraints and considerable involvement in the economy by Government through statutory corporations\. 4\.3 Create a Safety Net A National Safety Nets Programme (NSNP) forms main features of the Malawi Poverty Reduction Strategy Paper (MPRSP)\. The NSNP has four components, namely, Safety Nets Inputs Sub-Programme (SNIP), Public Works Sub-Programme (PWP), Targeted Nutrition Sub-Programme (TNP), and Direct Transfers Scheme (DTS)\. The four components are not exclusive as have areas of overlap between them, which can be utilized to improve targeting, and the delivery of transfers\. Government approved the NSNP Programme Concept Document in February 2002\. According to - 31 -  the programme, the policy design and review shall remain the responsibility of the Department of Economic Planning and Development (DEPD)\. The Ministry of Poverty Alleviation Programmes, Disaster Preparedness and Rehabilitation shall coordinate the implementation of the programme with districts directly involved in the actual implementation\. DEPD will also coordinate the monitoring and evaluation of the programme and indicators have been developed for monitoring progress and impact of the programme\. Many donors have been supporting different types of safety net activities and DFID has provided significant levels of funding in recent years\. The Department is providing institutional support to the DEPD, involved in pilot safety net projects, supporting expanded public works programme through the Malawi Social Action Fund (MASAF)\. It is also supporting the targeted inputs programme (TIP)\. The Government implemented the targeted inputs programme in the 2001/02 agricultural season\. The intervention involved free distribution of inputs (cereals seeds, legumes seeds and fertilizer) to resource poor Malawians\. Apart from the Government and DFID, the European Union (EU) also funded the programme\. The programme targeted 2 million beneficiaries in 2001/02 and it is proposed that 3 million people will benefit from TIP in 2002/03\. Nevertheless, Malawi is food insecure due to drought and over-flooding in some areas\. As such, the number of beneficiaries was increased in 2002/03 to service most vulnerable groups\. Under the new arrangement supported by the World Bank, the National Food Reserve Agency (NFRA) was designed purely for emergency relief operations in times of drought and ADMARC has been restricted to commercial operations\. However, with the experience of a severe food crisis in early 2002, NRFA, on behalf of the Government, imported maize for sale to ADMARC\. Hence, the Government needs to revisit the NFRA operational policy, concentrating on level of stocks, self-financing of NFRA and storage facilities\. 5 Other Reforms under FRDP III TA 5\.1\. Wage Policy Review The government is developing a medium-term wage policy linked to civil service reform to improve wage competitiveness, lower attrition rates and strengthen public sector performance\. A consultant has been contracted to work on this and work is currently in progress\. An inception report has been prepared and discussed with Government and it is expected that the work will be finalized by end February 2003\. 5\.2\. Other Studies The TA component has also assisted in carrying out further studies to improve public sector management through the provision of technical advisory services\. On macro and sectoral reforms, the project has catered for the following studies: Quantitative Model for Macroeconomic and Poverty Scenarios; Costing for Poverty Reduction Strategy; Food Availability and Accessibility Assessment; Tax Reform Study; and Energy Policy Study\. The last two were under FRDP II but were completed with some funds from FRDP III (See table 8 for studies done under FRDP)\. 6\. Major Factors Affecting Implementation and Outcome The project has been significantly affected by factors within and outside the control of Government as follows: The TA credit was supposed to be implemented by the Ministry of Finance under the supervision of the Secretary to the Treasury where a Task force was supposed to guide each aspect of the TA program\. However, there was lack of coordination in the implementation of various activities with respect to - 32 -  proposed components\. All procurements were carried out in accordance with the Bank's Guidelines for Procurement under IBRD Loans and IDA Credits\. Procurement of local equipments under the project followed Government procedures through approval by Internal Procurement Committee (IPC) in the Government Contracting- Out Unit\. The hiring of all consultants was done after the approval of the World Bank but the procedure was long and tended to be delayed, especially with small consultancies\. Lack of capacity in the implementation of the projects, especially the accounting personnel\. The delay in the follow up of financial inflows after the first tranche, especially with the TA component, which has so far received a disbursement amounting to SDR400,000\. Disbursement has been low due to delays in the procurement reform process\. Under FRDP II, there was a Task Force, which monitored all the progress done under the program\. Under FRDP III, the TA component has a Task Force that is monitoring the progress of the review of the current Public Finance and Audit Act but not the whole FRDP III TA Component\. This makes it difficult to follow on the progress being made in the implementation of the Project\. 7\. Cost and Financing The Project has performed well within the activities it has executed but has yet to spend funds on consultancy, workshops and conferences in the review of Public Finance and Audit Act\. Under FRDP III TA Component, the Government raised concern regarding the disbursement categories listed in schedule 1 of the DCA that are inconsistent with the expenditure categories agreed at negotiations for procurement reform\. In that, no provision was made for operating costs (refer to letter dated 31st July 2002 to the World Bank entitled `Malawi-FRDP III TA (Cr\. 3451-MAI), Proposed Amendments of Schedule 1 and Schedule 6 to the DCA')\. In view of this, Government requested the Bank in early August 2002 to amend Schedule 1 to the DCA to allow operating costs to be eligible for financing under the credit\. A reply is being awaited from the Bank\. Disbursements and withdraw of funds were subject to the conditions of the Credit Agreement\. Payments for local purchases of office equipment has been settled both by foreign and local contributions as stipulated in the DCA\. As indicated in table 9, the whole tranche of FRDP III was disbursed but the reflow of the TA Component was done once on January 11, 2002\. As pointed out earlier, the delay is due to some unresolved issues in the procurement reform\. The same picture is depicted in table 10 under FRDP III TA project cost allocation and expenditures\. 8\. Bank's Performance The Bank was very much instrumental in supporting implementation of the FRDP III TA Credit\. The Bank has assisted in drawing the logical framework of the Project and has also facilitated the monitoring and implementation of the Project\. The Bank has established the Project Monitoring and Evaluation Task Force from various projects\. The Task Force has been reviewing the progress of various projects, FRDP III TA project inclusive\. Within this short period the Bank has mounted supervision missions to monitor the technical assistance part of the FRDP III credit and several meetings with the Bank's staff have been held\. In these meetings, the Bank has provided guidance on the preparation of progress reports and draft Aid- Memoires have been submitted to Government\. It is observed that these draft Aid Memoires should be submitted to Government earlier before wrap-up meetings for maximum consultations in Government\. Overall, therefore, Bank - 33 -  performance has been satisfactory during preparation, appraisal and implementation\. 9\. Recommendations Based on the project design, organization and implementation, the following conclusions and recommendations are made: The Bank is requested to resume disbursement of FRDP III TA credit fund because some progress has been made in procurement reform\. The proposed procurement code is ready for Cabinet approval and is expected in the next seating of Parliament in May, 2003\. There is need to improve capacity in project planning and management, specifically with officers responsible for coordinating the project in the ministry\. The World Bank should continue to offer training in this area with full funding\. Mechanisms should be put in place to ensure adequate and timely communication between line ministries, departments and lending institution for the smooth implementation of activities\. Oversight ministerial responsibility on the project with a clear mandate and authority, incentive packages, transport and communication and budget from the project funds ought to be in place as lack of these has contributed heavily to the delay in the implementation of some project activities\. A Steering Committee of Principal Secretaries chaired by the Secretary to the Treasury including Principal Secretary of DEPD and the General Manager (Economic Services) of Reserve Bank of Malawi should be formed to monitor the implementation and progress as agreed in the project agreement\. Administratively, under the TA, an accountant responsible for maintaining project accounts should be employed for easy tracking of expenditure returns\. Whenever procurements are being made they should always be backed by an appropriate authorized minute from the Project Coordinator or Project Officer\. Table 1: Bank Credit on FRDP Loan Purpose Year of Status Approval First Fiscal Restructuring -Structural adjustment Fully disbursed, and Deregulation -Macroeconomic stabilization except TA Program (FRDP I) -Medium Term Expenditure 1996 component Framework (MTEF) -Agricultural Marketing Liberalization -Comprehensive civil service reform Second Fiscal -Structural adjustment Fully disbursed Restructuring and -Expenditure prioritization Deregulation Program -Labor market reform (FRDP II) -Civil service reform -Continuation of privatization program -Tariff and surtax reforms 1998 FRDP II Technical -Providing funding for technical Assistance Project assistance (FRDP II TA) -Consultancies -Studies -Training to support the FRDP II Third Fiscal -Structural adjustment Restructuring and -Auditing and procurement reform Fully disbursed Deregulation Program -Telecom privatization (FRDPIII) -Banking and agricultural marketing Privatization 2000 FRDP III Technical Assistance Project -Providing funding for technical (FRDP III TA) assistance Still in progress -Consultancies -Studies -Training to support the FRDP III - 34 -  Table 2: The FRDP III TA Project Costs by Components (Credit No\. 3451-MAI) Components Inputs (US$ million) Public Sector Procurement US$ 2\.40 Public Sector Financial Management US$ 0\.40 Preparing next phase of structural and sectoral reform program US$ 0\.20 Total US$ 3\.00 Source: Project Document Table 3: Some Basic Macroeconomic Indicators Variable 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 GDP growth rate (%) 10\.3 -11\.6 14\.3 10\.4 7\.0 2\.2 3\.6 2\.0 -4\.1 1\.8 Fiscal Deficit (inc\. grants)/GDP 5\.4 15\.0 5\.7 4\.4 5\.2 3\.4 5\.6 5\.7 7\.7 3\.1 Inflation rate (%) 22\.8 34\.7 83\.1 37\.7 9\.1 29\.7 44\.9 29\.5 27\.2 14\.8 Domestic savings/GDP 0\.2 1\.7 6\.7 2\.2 -0\.7 8\.0 -0\.6 3\.4 4\.8 -3\.5 Investment over GDP 14\.0 29\.1 17\.2 12\.2 11\.9 13\.5 14\.5 13\.6 13\.9 10\.5 Interest lending rates percent 31\.0 47\.3 45\.3 28\.3 37\.7 53\.6 53\.6 52\.0 Current account deficit/GDP 11\.9 16\.9 5\.2 7\.6 11\.0 1\.4 12\.5 5\.5 10\.4 15\.1 Exchange rate (MK/US$1) 4\.4 8\.7 15\.3 15\.3 16\.4 31\.1 44\.1 59\.5 72\.2 80\.0 Money growth (broad %) 41\.8 39\.9 43\.7 60\.3 -1\.7 41\.1 33\.6 42\.4 21\.2 Official reserves (months import) 5\.7 3\.1 5\.4 5\.0 4\.7 4\.4 External debt/GDP 83 150 140 97\.6 95\.9 138 144 156 149 176 Source: Various Economic Reports, RBM financial statements Table 4: Key Indicators for Project Operation: Structural Structural Indicators 2000/01 2001/02 2002/03 Actual Revised Estimate Public Sector Management Output based budget Rec Allocated as % of Total Voted Recurrent Exp: Education 15\.83 26\.42 25\.82 Health 12\.30 15\.19 18\.45 Agriculture 4\.08 6\.61 7\.70 Gender, Youth and Community services 0\.43 1\.00 1\.60 Per Capita Drug US$1\.16 US$1\.33 US$1\.32 Source: Financial Statements Table 5: FRDP III TA Project Outputs Output Progress 1\. New Procurement Act approved by Parliament and 1\. Draft procurement code is under cabinet review supporting regulations introduced 2\. National Procurement Authority and Procurement cadre 2\. Still under away and awaits enactment of relevant created legislation\. 3\. Recruitment of consultants on capacity building program 3\. Capacity building program for procurement cadre for procurement cadre is underway implemented 4\. Awaits enactment of legislation 4\. Stores department rationalized and computerized 1\. Finance Act approved by Parliament 1\. Draft Public Finance Management Bill is under stakeholders consideration 2\. Audit Act approved by Parliament 2\. Draft Public Audit Bill is under stakeholders consideration 3\. Institutional reform program for National Audit Office 3\. Draft reports have been produced 1\. Selective analysis of structural adjustment completed 1\. A draft concept paper has already been discussed with IMF mission\. 1\. Training 1\. 4 officers gone for long-term training 2\. 4 series of stakeholders' consultative meeting held 2\. Workshops 3\. Study tour conducted to South Africa and New Zealand 3\. Study tour - 35 -  Table 6: Revised milestone of the Project Financial Management TASK ORIGINAL TIMING REVISED TIMING Hiring of consultants for legal separation and institutional development April 300, 2001 Nov\. 15, 2001 Preparation of draft report outlining legal legislation for the two Acts to be drafted by Law Commissioner /Parliamentary Draftsmen\. July 15, 2001 April 15, 2002 Study tour June 30, 2001 August, 2002 Stakeholders Conference Sept\. 15, 2001 August, 2002 Institutional Development Analysis July 15, 2001 May 31, 2002 Report outlining programs that will increase capacity of Public Accounts Committee of the National Assembly (PAC) and other supporting organs July 15, 2001 Sept\. 30, 2002 Management Information Systems report outlining its design and computer equipment needed, specifications, advertisement for tender, receipt of equipment, March 31, 2002 May 31, 2002 installation\. Development of training programs for PAC and staff of the Auditor General's Department Sept\. 30, 2002 Sept\. 30, 2002 Table 7: Revised milestone of the Project Procurement Reform TASK ORIGINAL TIMING REVISED TIMING Enact new Public Procurement Act August 2001 November 30, 2002 Set up Procurement Authority October 2001 February 28, 2002 Launch first training program after finalization of Plan for Capacity Building June 2001 April 30, 2002 Begin Implementation of Stores December 2001 August 31, 2002 Reform Table 8: Studies and Consultancies included in the project Study Purpose Status Impact of study Power sector policy Background for privatization of Recommendation that initial the power sector Completed stages of reform focus on 2001 distribution sector and maximizing private investment in new generation and distribution Financial sector regulatory Background for revision of Issue paper submitted Provided overview of sector, review financial sector regulatory outlined key issues and framework recommendations for restructuring and privatizing financial institutions Government of Malawi Update progress of contracting out Being implemented consultancy on contracting out Budgeting program for Assistance including software and activity costing and training for activity costing related prioritization to MTEF Employment permit policy Review recent revisions in TEP Recommends improvements policies and recommends and clarification of key "key improvements posts" and simplification of approval process Quantitative model for Establish scenarios as an input to Completed macroeconomic and poverty PRSP scenario Costing for poverty reduction Same as above Completed strategy Food availability and accessibility access Tax reform study Completed The procurement reform and Improving public procurement In progress enacting new Public Procurement Act - 36 -  Finance and Audit Act Improving financial management In progress by reforming the auditing and accounting systems Institutional reform of the Same as above In progress National Audit Office Medium Term Wage In progress Policy Note: Some of the studies were proposed under the first and second FRDP Table 9: The BOP Component of FRDP III (Credit Number 3450-MAI) TRANCHE SDR AMOUNT MK'000 DATE CREDITED TO REMARKS DISBURSED A/C NO First 43,100,000\.00 4,450,375 30/01/2001 300616-mwk-2011 Govt\. A/C No\.1 -01 Reflow 400,000\.00 33,745 11/01/2002 001081-mwk-2208 FRDP BOP Govt\. -04 A/C Total 43,500,000\.00 3,484,120 Source: Reserve Bank of Malawi Table 10: The FRDP III TA Project Cost Allocation and Expenditures in US$ Category Category Description Allocation Amount Utilized 1 Office Equipment 437,500\.00 73,049\.11 2 Consultants' Services 1,000\.000\.00 333,301\.99 3 Training, Workshops, Study Tours, 875,000\.00 167,651\.83 Conferences\. 4 Unallocated 687,500\.00 - Total 3,000,000\.00 574,002\.93 Source: Reserve Bank of Malawi\. - 37 -  Annex 8\. Difference in Budgeted and Actual Expenditures (percentage of GDP), 1999/00-2001/02 1999/00 2000/01 2001/02 Approved Actual Difference Approved Actual Difference Approved Estimate Difference RECURRENT EXPENDITURES General Administration 6\.0 4\.1 -1\.9 9\.6 11\.3 1\.7 7\.2 7\.4 0\.2 Social Services 6\.3 6\.3 0\.0 5\.8 6\.2 0\.4 8\.6 6\.1 -2\.5 Of which: Education 2\.6 2\.8 0\.2 2\.6 2\.8 0\.2 3\.0 3\.6 0\.6 Health 1\.6 1\.6 -0\.1 1\.6 2\.0 0\.4 2\.3 2\.1 -0\.2 Social Security and Welfare Services 1\.8 1\.7 -0\.1 1\.5 1\.3 -0\.2 3\.0 0\.2 -2\.8 Community and Social Development* 0\.3 0\.2 -0\.1 0\.2 0\.2 0\.0 0\.3 0\.2 -0\.1 Economic Services 1\.8 1\.2 -0\.6 1\.3 1\.3 0\.0 1\.8 2\.0 0\.2 Total Discretionary Expenditures 14\.1 11\.7 -2\.4 16\.7 18\.8 2\.1 17\.6 15\.5 -2\.1 Unallocable Services** 3\.5 5\.2 1\.7 1\.0 3\.8 2\.8 4\.7 7\.0 2\.3 Total Recurrent expenditure 17\.6 17\.8 0\.3 17\.7 22\.6 4\.9 22\.3 22\.5 0\.2 DEVELOPMENT EXPENDITURES Total Development Expenditure 9\.3 10\.5 1\.2 11\.2 10\.3 -0\.9 9\.5 7\.3 -2\.2 TOTAL EXPENDITURES (as % of GDP) 26\.9 28\.3 1\.4 28\.9 32\.8 3\.9 31\.7 29\.8 -1\.9 GDP at current market prices (million MWK) 91639 91639 109060 109060 144515 144515 * Includes Housing and Community Ammenity Services; Recreational, Cultural and Other Social Services; and Broadcasting and Publishing Services ** Public debt service, pensions and gratuities, and other statutory expenditures - 38 -  - 39 -

REVIEW

P000970

 ICRR 13516 Report Number : ICRR13516 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 08/01/2011 PROJ ID : P000970 Appraisal Actual Project Name : Trade Gateway & US$M ): Project Costs (US$M): 56 56\.8 Investment Project Country : Ghana Loan /Credit (US$M Loan/ ): US$M): 50\.5 52\.4 Sector Board : FPD US$M ): Cofinancing (US$M): Sector (s): General water sanitation and flood protection sector (39%) Central government administration (32%) General transportation sector (19%) Other domestic and international trade (5%) Power (5%) Theme (s): Export development and competitiveness (25% - P) Infrastructure services for private sector development (25% - P) Other financial and private sector development (25% - P) Trade facilitation and market access (25% - P) L/C Number : C3114 Board Approval Date : 07/09/1998 Partners involved : Closing Date : 12/31/2005 12/31/2009 Evaluator : Panel Reviewer : Group Manager : Group : Carla Lizette Pazce Jorge Garcia-Garcia Aristomene Varoudakis IEGCC 2\. Project Objectives and Components: a\. Objectives: Original Objectives The original project development objective (PDO), as stated in the Project Appraisal Document (PAD), was to attract a critical mass of export -oriented investors to Ghana to accelerate export -led growth as well as facilitate trade (PAD p\. 2)\. According to the Development Credit Agreement (DCA), the objective was to implement measures designed to  attract a critical mass of export -oriented firms and facilitate trade in the territory of the Borrower to accelerate growth through: (a) the development of off-site infrastructure for a privately financed EPZ; and (b) the improvement of the quality and standards of services delivered to investors and to exporters by the Borrower ’s institutions and agencies responsible for trade and investment \. (DCA p\. 8) Revised Objectives After restructuring, the amendment of the DCA stated the PDO as “(a) the development of a multi-purpose industrial park (MPIP); and (b) the improvement of the quality and standards of services delivered to investors and to exporters by the Borrower ’s institutions and agencies responsible for trade and investment aiming to attract a critical mass of export -oriented firms and facilitate trade in the territory of the Borrower for accelerated growthâ€? (Proposed Amendment to the DCA, Page 1)\. The restructured project entailed a paradigm shift from an EPZ to a MPIP \. Under the new scheme industries serving the internal market could settle in the MPIP -as opposed to only exporters in the original project \. Details of the amendment are indicated in Section 2c\. This review uses the DCA statement of objectives because it is more specific and has more evaluative content \. b\.Were the project objectives/key associated outcome targets revised during implementation? Yes If yes, did the Board approve the revised objectives /key associated outcome targets? Yes Date of Board Approval: 11/23/2005 c\. Components (or Key Conditions in the case of DPLs, as appropriate): A\. Development of an EPZ /MPIP (Estimated cost at appraisal: US$38\.9 million; estimated cost at restructuring not available; actual cost: US$41\.7 million): The restructuring of the project led to changes in components 1 and 2\. 1\. Container devanning area (Estimated cost at appraisal: US$3\.5 million; estimated cost at restructuring : US$6\.3 million; actual cost not available) Under the original design the credit would finance the construction and acquisition of equipment for a container devanning area outside the port of Tema \. After restructuring, these activities were cancelled and the component was to finance the provision of advisory services for the construction of a container devanning area, and the reconstruction of a bridge and approximately 4 km of access roads outside the port of Tema\. 2\. Off-site and on-site infrastructure (Estimated cost at appraisal: US$33\.4 million; estimated cost at restructuring not available; actual cost not available ) Under the original design the credit would finance the construction of infrastructure for the EPZ /MPIP (e\.g\. water connection, sewage and solid waste treatment facilities, electricity connection facilities, access roads ) and the carrying out of a study to assess the feasibility and economic rationale for the construction of a rail link between the EPZ/MPIP and the port of Tema\. After restructuring, the credit would also finance the construction of a security fence wall and an administration block \. 3\. Environmental assessment and management plan (Estimated cost at appraisal: US$2\.0 million; actual cost not available) The credit would finance the carrying out of an environmental assessment and the preparation and implementation of an environmental management plan \. B\. Trade facilitation and investment promotion (Estimated cost at appraisal: US$14\.7 million; estimated cost at restructuring not available; actual cost : US$7\.8 million) The restructuring led to changes in component 5 and added component 6\. 1\. Customs administration ( Estimated cost at appraisal: US$2\.3 million; actual cost not available) The credit financed technical advisory services and the acquisition of equipment for the Customs, Excise and Preventive Services agency \. The technical assistance ’s goal was to streamline procedures to handle export and import cargo, to install information technology infrastructure, to provide training on special procedures designed specifically for enterprises operating in the EPZ /MPIP, and to carry out systems-based audit controls\.  2\. Investment promotion (Estimated cost at appraisal: US$6\.3 million; actual cost not available) This component financed technical advisory services to the Ghana Investment Promotion Center and the Ghana Free Zones Board\. The technical assistance would help to implement a well targeted plan for investment promotion, to design and install a management information system, and to prepare and implement a strategy to develop linkages between foreign investors and local suppliers \. The credit also financed technical advisory services to the Ghana Immigration Services for the selective retraining of its staff\. 3\. Ports and harbor (Estimated cost at appraisal: US$1\.8 million; actual cost not available) This component would finance technical advisory services to the Ghana Ports and Harbor Authority \. The TA would help to review the operational procedures of Ghana Ports to shorten turn -around time for ships and clearance time for goods, implement the improved procedures, transform the Ports agency into a “landlordâ€? port authority, develop electronic data interchange at the Tema port, and carry out a feasibility study for the dredging of Quay 2\. 4\. Civil aviation (Estimated cost at appraisal: US$1\.0 million; actual cost not available) The component would finance the provision of technical advisory services to the Civil Aviation Authority for its conversion into a regulatory agency, making operational the liberalized skies policy, implementing reforms to increase private participation in airport infrastructure, improving procedures, and designing and implementing an aviation sector strategy \. 5\. Implementation and management development (Estimated cost at appraisal: US$3\.4 million; estimated cost at restructuring not available; actual cost not available ) Under the original project design the credit would finance technical advisory services to the Gateway Secretariat for implementing and supervising the project, and preparing a second phase of the gateway program\. After restructuring, this component financed the acquisition of vehicles and logistical assistance, in addition to the technical advisory services; the preparation of a second phase of the gateway program was eliminated\. 6\. Ghana Investment Advisory Council (Component added at restructuring \. Estimated cost at restructuring not available; actual cost not available ) This component financed technical advisory services to the Ghana Investment Advisory Council for carrying out investment promotion and policy advocacy activities \. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: The credit was approved on July 9, 1998 for US$50\.5 million equivalent and it was disbursed in an amount of US$52\.48 million (differences due to exchange rate fluctuations and cancellation of 2% of the original commitment)\. The original closing date was December 31, 2005 but after three extensions the project closed on December 31, 2009\. 3\. Relevance of Objectives & Design: Relevance of objectives Original objectives : The project sought to make foreign investors aware of Ghana ’s business potential as a gateway to the West African sub -region\. A survey of foreign investors ’ views on Ghana’s competitiveness concluded that the quality of infrastructure and business services were key constraints in the decision to invest in the country\. The project addressed both issues by seeking to develop infrastructure in an EPZ near the port of Tema and by reducing the cost of doing business through the modernization of key institutions \. These two objectives were consistent with the first pillar of both the 2007 Joint Assistance Strategy and the Second Ghana Growth and Poverty Reduction Strategy that involved support for transport and private sector competitiveness \. However, project objectives were not clearly articulated which negatively affected the quality of the results framework\. Relevance of objectives is rated as Substantial \. Revised objectives : The revised project objectives, which aimed at providing quality infrastructure and reducing the cost of doing business, continued to have substantial relevance \. After the restructuring, the project sought to develop a multi-purpose industrial park where industries serving the internal market would be allowed to settle \. The restructured project was aligned with the 2010 CASPR and the new spatial approach being considered in  the new Government strategy\. Deficiencies in the framing of objectives became evident after restructuring when the statement of objectives just replaced the mention to EPZ with MPIP without indicating the difference in results expected from such paradigm shift \. Relevance of objectives is rated as Substantial \. Relevance of design Original objectives : The lending instrument was appropriately selected as it addressed the need for both capital investments in the EPZ and reforms in the business models and processes of key trade and investment promotion agencies\. Regarding the infrastructure development objective, the project overlooked an important transport link between the EPZ and the devanning area, which was later added at restructuring \. The project was designed on the assumption that an international firm would develop most of the EPZ /MPIP, but the PAD didn’t suggest actions to mitigate the risk that the international developer of the EPZ /MPIP didn’t perform according to plan\. Relevance of design is rated Modest \. Revised objectives : The ultimate project goal, “to attract a critical mass of export -oriented firmsâ€?, didn’t change after restructuring despite the adoption of the MPIP model \. However, the investments added after restructuring -the flyover bridge link and arterial roads - were expected to better connect the EPZ /MPIP to surrounding services, enhancing the potential benefits of the investments \. Relevance of design is rated as Substantial \. 4\. Achievement of Objectives (Efficacy): A\. Develop off -site and on -site infrastructure for an EPZ /MPIP Original performance indicators : Negligible The EPZ infrastructure works that the credit financed were completed \. The original targets of having 10, 20 and 30 firms established and operating in the EPZ in the second, third and fourth year after the completion of civil works were not met\. Only one firm located in the enclave by the time of restructuring, 7 years after project approval\. The ICR does not report on the extent to which the original targets of increasing net exports revenue by 25%, 30% and 40% were met at project restructuring\. Revised performance indicators : Substantial After restructuring, the new indicators referred to the extent to which prospective tenants would be motivated to operate in the MPIP, their satisfaction with the quality of services offered, the increase in business activity, and the increase in exports derived from improvements in container storage and transit \. No targets were specified\. Later during implementation, a target of having at least 30 firms authorized to operate in the MPIP was set \. At project closing, 24 firms were operating in it\. A survey of the tenants concluded that they were somewhat satisfied with the services provided \. As of 2009, firms operating in the MPIP had invested U$ 511 million and generated exports valued at US$ 741 million\. As of the date of this review, 45 firms were operating in the MPIP\. B\. Improve the quality and standards of services delivered to investors and to exporters Original performance indicators : Substantial The original project included performance indicators and targets for ports, customs, immigration services, investment promotion and civil aviation \. Port services:The ICR doesn’t report the value of indicators at project closing (reduced cost of loading import containers, increased speed of unloading containers and reduced average dwell time for imported containers )\. However, the ICR states that congestion in the container terminal was reduced but the cost of clearing cargo was not\. Customs services: The number of overland customs check points on road was reduced to 1 for Togo and to 2 for Cote d’Ivoire and Burkina Faso, achieving the targets \. The ICR doesn’t report on the other indicators for customs (reduced number of examinations of cargo and documents at point of entry, and reduced proportion of cargo of statutory free goods examined )\. The ICR indicates that the number of days for clearance of goods was reduced from 25 in 1999 to 2 in 2009\. This is in line with the reduction noted in the Doing Business ’ indicator for time to export and import\. Immigration services: Business and tourist visas on arrival are issued online within 24 hours (target was met)\. The ICR doesn’t report on the reduction of time required for issuing business and tourist visas in Ghanaian embassies and consulates \.  Investment promotion: Regarding the target of US$900 million of investment firmly committed by end -2002; the ICR reports that FDI amounting to US$12 billion were mobilized\. From 1999 to 2009, cumulative net FDI inflows to Ghana were US$6\.4 billion, half what was reported by the ICR but above the target set at appraisal \. During implementation, the target of FDIs increasing by 20% since 2004 was set\. This target was surpassed as well \. Civil aviation: The civil aviation authority was divided into two entities unbundling its regulatory and airport management functions\. The other two expected outcomes were not met : the airport management company remains state owned and Ghana Airways ’ bankruptcy derailed its privatization \. Revised performance indicators : Substantial After restructuring, there were two indicators for this objective : the improvement of trade and investment activities and percentage of companies satisfied with the simplifications of customs \. No targets were set\. The ICR reports progress on investment promotion (see above), but doesn’t report progress on the new customs indicator although the original performance indicators show important improvements in this area \. The ICR didn’t elaborate on the contribution of project outputs to the country ’s investment and trade performance \. 5\. Efficiency (not applicable to DPLs): Before restructuring Project disbursement before the restructuring was significantly below projections and at the project had to be postponed\. At that point, although 61% of the committed amount was already disbursed, not much progress was made in attaining the project objectives \. Efficiency is rated as Modest \. After restructuring Implementation and the pace of disbursements improved after restructuring \. During this time, the likelihood of achieving the project’s PDO increased as more firms began to operate in the EPZ /MPIP\. The achievements after restructuring translated in improvements in the project's NPV \. Efficiency is rated as High\. Although the ICR estimated a positive ERR (16\.2%) and a negative NPV (-US$48\.7 million), during the preparation of this review the Country team rectified these calculations and indicated an ERR of 99\.9% and a NPV of US$609\.8 million\. The latest estimation of the ERR (99\.9%) was substantially higher than the 43\.4% estimated at appraisal in the base case scenario \. Similarly, commercial banks' lending rates in Ghana as of December 2009 were between 25\.75% and 40%, significantly lower than the project ’s 99\.9% estimated ERR For the purpose of this review the latest estimates have been considered, despite the information provided in the ICR and later on isn’t sufficient to replicate the ERR and NPV estimates \. ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re- re -estimated value at evaluation : Rate Available? Point Value Coverage/Scope* Appraisal Yes 43\.4% 100% ICR estimate Yes 99\.9% 100% * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: Original objectives The outcome for the original PDO is rated Unsatisfactory \. Relevance of objectives is rated substantial while relevance of design is rated modest \. Efficiency is rated modest\. Efficacy is also rated modest due to major shortcomings in the achievement of the principal objective of infrastructure development \. Revised objectives The outcome for the restructured PDO is rated Satisfactory \. Relevance of objectives and design is rated substantial\. Efficiency is rated High\. Efficacy is rated Substantial for both objectives as discussed in section 4 above\. In compliance with OPCS guidelines on ICRs (ICR Guidelines, August 6 2006), sub-ratings were weighted by  the shares of disbursement before and after restructuring \. With 61% of the committed funds disbursed before restructuring, the overall outcome is rated Moderately Unsatisfactory \. a\. Outcome Rating : Moderately Unsatisfactory 7\. Rationale for Risk to Development Outcome Rating: The risk of reversing the institutional reforms supported by the project is low because of agreed commitments to monitor the quality of services through a series of partnerships forged among implementing agencies, line ministries and the private sector \. In addition, existing monitoring capacity of the Ghana Free Zones Board was enhanced allowing this agency to better monitor the quality of services provided in the EPZ /MPIP\. There is a moderate risk that the provision of electricity in the EPZ /MPIP becomes unreliable and this discourages prospective investors if the quality of the country ’s electricity services doesn ’t improve\. Currently, the urban network has overloaded lines and substations, high technical and commercial losses and frequent power outages but the government is addressing these issues helped by an ongoing Bank project \. Finally, there are some risks that the country ’s macroeconomic situation could hamper the business investment environment due to weak budget implementation and the implications of the oil “dividendâ€?\. The risk to development outcome is rated as Moderate\. a\. Risk to Development Outcome Rating : Moderate 8\. Assessment of Bank Performance: Quality at entry : The project design addressed the need for both capital investments in the EPZ and reforms in the organization and processes of key trade and investment promotion agencies, two important constraints for prospective investors \. The PAD overestimated the commercial interests of international developers and didn’t consider appropriate mitigating actions for the risk that the international developer of the EPZ/MPIP didn’t perform according to plan\. Regarding the technical aspects, the initial project design didn’t consider the construction of roads from the EPZ /MPIP to the devanning area thereby limiting the benefits from operating in the EPZ/MPIP; however the Bank reacted and added the construction of the connecting roads at restructuring \. The Bank incorporated environmental aspects in the project design that included the preparation and implementation of an environmental management plan \. Quality of Supervision : The Bank team conducted regular supervision missions but greater accuracy and candor were needed in assessment and reporting \. Although the mid-term review conducted in 2002 flagged the critical issue of the non -performing developer; the ISRs continued giving the project satisfactory outcome ratings and only in 2004 the ISRs downgraded the outcome rating \. Implementation support was not sufficiently proactive \. The excessive reliance on one external developer was not fully addressed until restructuring \. The lack of implementation progress was acknowledged, at least at the mid-term review, but corrective actions were deferred for seven years until the scheduled closing date in 2005\. The project should have been restructured or cancelled much earlier \. The M&E framework design was weak, especially after the restructuring \. Neither the PAD nor the Proposed Amendment to the DCA gave a clear description of the causal chains between inputs, outputs and the PDO \. After restructuring, the indicators didn't have baselines or target values \. These weaknesses affected the supervision efforts due to its focus on output delivery rather than on outcome attainment \. at -Entry :Moderately Unsatisfactory a\. Ensuring Quality -at- b\. Quality of Supervision :Unsatisfactory c\. Overall Bank Performance :Unsatisfactory 9\. Assessment of Borrower Performance: Government performance : The government showed strong commitment to the project but disagreements with the private developer greatly affected project implementation \. Government’s slow resolution of the  problem resulted in 60% of the prime land being unavailable for over 6 years\. In terms of counterpart funding, the government provided more than what was committed –US$4\.4 million vis a vis US$3\.4 million- but with delays\. Implementing agency performance : The Gateway Secretariat produced quarterly and biannual project management reports, together with implementation status of project activities of all implementing agencies \. During the first three years changes in government and project coordinators affected implementation but these issues were solved and appropriate coordination arrangements were in place facilitating the transition after project closing\. At project closing, the implementing agencies produced a completion report accounting for progress in the completion of activities and results in each area of intervention \. a\. Government Performance :Moderately Unsatisfactory b\. Implementing Agency Performance :Moderately Satisfactory c\. Overall Borrower Performance :Moderately Unsatisfactory 10\. M&E Design, Implementation, & Utilization: Design : The original key performance indicators (PAD, Annex I) contained measurable outcome indicators as well as some output indicators\. Targets were specified\. The revised key performance indicators (Proposed Amendment to the DCA, Schedule 6) had a predominant emphasis on outputs rather than outcomes, were vague and didn’t specify targets\. Therefore, the assessment of project contribution to results was less clear with the revised indicators than with the original ones \. These flaws weren’t solved during project implementation \. Implementation : Before restructuring, ISRs didn’t report progress on the original indicators \. However, the 2002 mid-term review was candid and detailed \. After restructuring, ISRs were more candid and progress on performance indicators was reported but limitations in the design (lack of targets and vagueness ) impaired M&E implementation\. Utilization : Poor implementation and design of the M&E framework negatively affected its utilization \. a\. M&E Quality Rating : Negligible 11\. Other Issues (Safeguards, Fiduciary, Unintended Positive and Negative Impacts): Safeguards : The project triggered an environmental assessment in accordance with Operational Policy 4\.01\. EPA implemented the environmental management plan satisfactorily \. Operational Policy 4\.12 on involuntary resettlement was triggered but the resettlement issues were addressed by the government before project effectiveness\. Procurement : After project restructuring, the new 2004 World Bank procurement and consultant guidelines were applicable to the project\. Inadequate procurement practices affected investment and disbursements in the infrastructure component during project implementation \. The ICR reported that the Bank team timely and appropriately handled these issues \. 12\. 12\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Moderately Moderately Unlike the ICR, this review rates the Satisfactory Unsatisfactory project outcome before and after restructuring\. The outcome of the original PDO is rated as Unsatisfactory and that of the restructured project, Satisfactory\. The overall outcome is  rated Moderately Unsatisfactory \. Risk to Development Moderate Moderate Outcome : Bank Performance : Satisfactory Unsatisfactory The excessive reliance on one external developer was not fully addressed until restructuring\. The corrective actions in response to the lack of implementation progress were delayed for almost seven years\. Borrower Performance : Satisfactory Moderately Disagreements between government Unsatisfactory and the private developer led to major delays in the development of the MPIP/EPZ\. Quality of ICR : Unsatisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate \. 13\. Lessons: 1\. A sharp focus on results is essential \. When the results are not clearly articulated with a strong causal chain, successful implementation becomes difficult to monitor \. 2\. When project monitoring is focused on inputs and outputs only, problems would not be flagged in time delaying corrective actions \. 3\. When the success of an important project objective greatly depends on external factors, an adequate mitigating plan can facilitate the resolution of problems and the achievement of objectives\. 14\. Assessment Recommended? Yes No Why? An in-depth comparative assessment of selected EPZs in Africa would permit to review recent trends in project outcomes and provide insights on common challenges in project execution and determinants of project success \. 15\. Comments on Quality of ICR: The ICR provided a good description of the project as well as a clear summary of the Government's assessment \. However, it needed greater depth and candor with respect to the nature of central issues, including the selected international developer, the reasons for project restructuring and the need for extensions of closing dates \. The ICR should have examined the restructuring more closely \. The change in the components and activities should have been explained in greater detail to give a clear picture of the revised project \. The progress made up to the point of restructuring should have been more adequately documented \. The outcome assessment and ratings in the ICR didn't comply with OPCS guidelines for the evaluation of restructured projects\. It should have given separate outcome ratings for the original and revised objectives and  calculated the overall outcome rating with the shares of disbursements serving as relative weights \. Finally, the efficiency assessment of the ICR miscalculated both the ERR and the NPV as later indicated by the country team\. a\.Quality of ICR Rating : Unsatisfactory

REVIEW

P090309

Document of The World Bank FOR OFFICIAL USE ONLY Report No: ICR00003912 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD – 48110) ON A LOAN IN THE AMOUNT OF EUR 110 MILLION (US$ 130 MILLION EQUIVALENT) TO ROMANIA FOR THE JUDICIAL REFORM ( P090309 ) September 29, 2017 Governance Global Practice Europe And Central Asia Region  CURRENCY EQUIVALENTS (Exchange Rate Effective September 20, 2017) Currency Unit = Romanian Leu 3\.83 = US$1 US$ 0\.26 = 1 FISCAL YEAR July 1 - June 30 Regional Vice President: Cyril E\. Muller Country Director: Arup Banerji Senior Global Practice Director: Deborah L\. Wetzel Practice Manager: Adrian Fozzard Task Team Leader(s): Klaus Decker ICR Main Contributor: Georgia Harley  ABBREVIATIONS AND ACRONYMS CEPEJ Commission for the Efficiency of Justice COTS Customized Off-The-Shelf CPS Country Partnership Strategy CSM Superior Council of Magistracy CVM Cooperation and Verification Mechanism DIEFP Department for the Implementation of Externally Financed Projects EC European Commission ECA Europe and Central Asia ECRIS Electronic Court Record Information System database EMP Environmental Management Plan ENPV Economic Net Present Value ERR Economic Rate of Return EU European Union EUR Euro currency FIRR Financial Internal Rate of Return FM Financial management FNPV Financial Net Present Value FY Fiscal Year HCCJ High Court of Cassation and Justice HR Human resource management ICT Information and communications technology JHA Justice and Home Affairs JRP Judicial Reform Project JSIP Justice Services Improvement Project KPI Key Performance Indicator LA Loan Agreement LSAT Law School Admissions Test M&E Monitoring and evaluation MOJ Ministry of Justice MoPF Ministry of Public Finance MTR Mid-term Review NAP National Administration of Penitentiaries NIM National Institute of Magistracy NSC National School for Clerks O&M Operation & Maintenance ONCR Office of the Trade Register PAD Project Appraisal Document PAL Programmatic Adjustment Loan PDO Project Development Objective PIP Project Implementation Plan PSC Project Steering Committee QER Quality Enhancement Review RMS Resource Management System RON Romanian Lei ROSC Reports on the Observance of Standards and Codes STS Special Telecommunications Service TOR Terms of Reference ToT Training of Trainers USD US dollars  TABLE OF CONTENTS DATA SHEET \. ERROR! BOOKMARK NOT DEFINED\. I\. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES \. 6 A\. CONTEXT AT APPRAISAL \.6 B\. SIGNIFICANT CHANGES DURING IMPLEMENTATION (IF APPLICABLE) \.9 II\. OUTCOME \. 11 A\. RELEVANCE OF PDOs \. 11 B\. ACHIEVEMENT OF PDOs (EFFICACY) \. 11 C\. EFFICIENCY \. 19 D\. JUSTIFICATION OF OVERALL OUTCOME RATING \. 21 E\. OTHER OUTCOMES AND IMPACTS (IF ANY) \. 21 III\. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME \. 23 A\. \. KEY FACTORS DURING PREPARATION\. 24 B\. KEY FACTORS DURING IMPLEMENTATION \. 25 IV\. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME \. 26 A\. QUALITY OF MONITORING AND EVALUATION (M&E) \. 26 C\. BANK PERFORMANCE \. 28 D\. RISK TO DEVELOPMENT OUTCOME \. 29 V\. LESSONS AND RECOMMENDATIONS \. 30 ANNEX 1\. RESULTS FRAMEWORK AND KEY OUTPUTS \. 32 ANNEX 2\. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION \. 57 ANNEX 3\. PROJECT COST BY COMPONENT \. 61 ANNEX 4\. EFFICIENCY ANALYSIS \. 62 ANNEX 5\. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS \. 67 ANNEX 6\. SUPPORTING DOCUMENTS (IF ANY) \. 68 ANNEX 7\. BENEFICIARY SURVEY RESULTS \. 69 ANNEX 8\. STAKEHOLDER WORKSHOP \. 85 ANNEX 9\. SUMMARY OF BORROWER’S ICR \. 88 ANNEX 10\. BEFORE AND AFTER PHOTOS \. 96  The World Bank Judicial Reform ( P090309 ) DATA SHEET BASIC INFORMATION Product Information Project ID Project Name P090309 JUDICIAL REFORM ( P090309 ) Country Financing Instrument Romania Specific Investment Loan Original EA Category Revised EA Category Partial Assessment (B) Partial Assessment (B) Organizations Borrower Implementing Agency Ministry of Public Finance Ministry of Justice Project Development Objective (PDO) Original PDO The project's development objectives are: (i) to increase the efficiency of the Romanian courts; and (ii) to improve the accountability of the judiciary which should result in reduced corruption and a more transparent act of justice\. Page 1 of 104  The World Bank Judicial Reform ( P090309 ) FINANCING Original Amount (US$) Revised Amount (US$) Actual Disbursed (US$) World Bank Financing 130,000,000 121,018,005 130,926,282 IBRD-48110 Total 130,000,000 121,018,005 130,926,282 Non-World Bank Financing Borrower 0 0 0 Total 0 0 0 Total Project Cost 130,000,000 121,018,005 130,926,282 KEY DATES Approval Effectiveness MTR Review Original Closing Actual Closing 15-Dec-2005 26-May-2006 15-May-2009 01-Apr-2011 31-Mar-2017 RESTRUCTURING AND/OR ADDITIONAL FINANCING Date(s) Amount Disbursed (US$M) Key Revisions 15-Oct-2010 12\.87 Change in Results Framework Change in Loan Closing Date(s) Change in Implementation Schedule Other Change(s) 31-Aug-2011 30\.62 Change in Implementation Schedule 28-Dec-2012 53\.86 Change in Results Framework Change in Implementation Schedule Other Change(s) 16-Mar-2015 103\.52 Change in Results Framework Change in Components and Cost Change in Loan Closing Date(s) Change in Legal Covenants KEY RATINGS Outcome Bank Performance M&E Quality Moderately Satisfactory Moderately Satisfactory Modest Page 2 of 104  The World Bank Judicial Reform ( P090309 ) RATINGS OF PROJECT PERFORMANCE IN ISRs Actual No\. Date ISR Archived DO Rating IP Rating Disbursements (US$M) 01 29-Jun-2006 Satisfactory Satisfactory 0 02 06-Apr-2007 Satisfactory Satisfactory \.64 03 22-Jan-2008 Moderately Satisfactory Moderately Unsatisfactory \.99 04 05-Jun-2008 Moderately Satisfactory Moderately Unsatisfactory 1\.51 Moderately 05 19-Sep-2008 Moderately Unsatisfactory 1\.96 Unsatisfactory 06 13-Apr-2009 Unsatisfactory Unsatisfactory 1\.86 07 30-Jul-2009 Unsatisfactory Unsatisfactory 3\.31 08 26-Oct-2009 Unsatisfactory Unsatisfactory 4\.74 09 04-Jun-2010 Unsatisfactory Unsatisfactory 8\.27 10 15-Mar-2011 Moderately Satisfactory Moderately Satisfactory 19\.63 11 27-Dec-2011 Satisfactory Satisfactory 41\.12 12 01-Dec-2012 Moderately Satisfactory Moderately Satisfactory 53\.86 13 24-Jun-2013 Moderately Satisfactory Moderately Satisfactory 67\.97 14 29-Dec-2013 Moderately Satisfactory Moderately Satisfactory 78\.39 Moderately 15 12-Jul-2014 Moderately Unsatisfactory 90\.40 Unsatisfactory Moderately 16 16-Jan-2015 Moderately Unsatisfactory 97\.28 Unsatisfactory Moderately 17 03-Aug-2015 Moderately Unsatisfactory 103\.52 Unsatisfactory 18 04-Jan-2016 Moderately Satisfactory Moderately Satisfactory 111\.45 19 15-Jun-2016 Moderately Satisfactory Moderately Satisfactory 121\.58 20 22-Dec-2016 Moderately Satisfactory Moderately Satisfactory 125\.27 21 27-Mar-2017 Moderately Satisfactory Moderately Satisfactory 127\.98 Page 3 of 104  The World Bank Judicial Reform ( P090309 ) SECTORS AND THEMES Sectors Major Sector/Sector (%) Public Administration 100 Law and Justice 100 Themes Major Theme/ Theme (Level 2)/ Theme (Level 3) (%) Public Sector Management 100 Rule of Law 100 Judicial and other Dispute Resolution 78 Mechanisms Legal Institutions for a Market Economy 11 Personal and Property Rights 11 ADM STAFF Role At Approval At ICR Regional Vice President: Country Director: Senior Global Practice Director: Practice Manager: Task Team Leader(s): Irina L\. Kichigina Georgia Harley ICR Contributing Author: Page 4 of 104 The World Bank Judicial Reform ( P090309 ) EXECUTIVE SUMMARY The Judicial Reform Project (JRP) was a USD 130 million stand-alone specific investment loan\. It was approved on 15 December, 2005, and closed eleven years later on 31 March, 2017\. The project’s objective was to improve efficiency and accountability in the Romanian judicial sector\. Project performance is summarized below\. Relevance Efficacy Efficiency Overall Bank M&E Quality Efficiency Accountability Outcome performance Substantial Substantial Substantial Modest Moderately Moderately Modest Satisfactory Satisfactory JRP’s development objective was highly relevant for Romania’s context and Romania’s justice reform agenda at the time of approval\. Improvements in efficiency and accountability were seen as critical to address key shortcomings in the final stages of the EU accession process\. A stand-alone investment loan was the right instrument to achieve those objectives\. The project objective remains relevant today\. A follow-up Justice Services Improvement Project (JSIP) will support the Romanian judiciary in its next phase of reform\. JRP was effective in achieving these objectives\. Efficiency in the Romanian courts improved through reductions in backlogs, reductions in case processing times, upgrades to facilities, optimization of workloads, streamlining of processes and a range of training activities that helped increase workplace productivity\. Accountability of the judiciary improved through the overhaul of fundamental legislation, introduction of audio recordings in all courts, training, accreditation tests for magistrates, and a range of transparency initiatives\. Several project interventions improved efficiency and accountability simultaneously\. In particular, the legislative overhaul and the introduction of the audio recording system across all courts were significant and sensitive reforms, which would not have been possible in the absence of the project\. They were relatively low-cost yet achieved profoundly positive impacts across the justice system\. Three out of the five PDO indicators were achieved, and the other two were partially achieved\. Several of JRP’s major achievements were not highlighted as PDO indicators\. JRP’s efficiency was modest\. This was largely due to significant delays to the infrastructure and ICT activities\. The project was restructured four times, with a cumulative extension of six years\. The PDO, objectives and components were not changed\. Delays did not increase the total project cost\. It simply took much longer than expected to achieve the results\. In the case of one large activity, the integrated resource management system (RMS), the benefits are still yet to be visible\. JRP contributed to significant reforms in the justice sector that would not have been achievable in the absence of the project\. Net benefits of the project show an Economic Internal Rate of Return (EIRR) of 71\.2 percent\. However, quantitative analyses should be treated with caution because JRP’s most significant achievements – especially those related to improvements in the accountability of the judiciary – are those most difficult to quantify\. Bank performance is rated as moderately satisfactory\. Project preparation was inadequate\. JRP was far from ready for implementation at approval: it took approximately three years for the project to start disbursing\. Gradually, an effective PIU and an Action Plan contingency mechanism put the project on track\. FM, procurement and safeguards arrangements were satisfactory throughout project implementation\. Monitoring and evaluation (M&E) arrangements were moderately unsatisfactory, primarily because of delays in setting the baseline for the results framework, and delays in reviewing and updating the indicators Page 5 of 104 The World Bank Judicial Reform ( P090309 ) and data throughout project implementation and the four restructurings\. More careful M&E could have better highlighted JRP’s significant achievements\. This ICR highlights several lessons\. M&E should be a top priority, rather than an afterthought seen as necessary to comply with Bank rules\. Projects that combine hard and soft investments should be sure to provide each type of investment sufficient focus, document how each project intervention contributes to the results chain and communicate the progress being made\. An effective PIU, with the authority to take and implement decisions, is critical to success\. Complex IT and infrastructure projects require effective preparation to ensure technical readiness and adequate implementation arrangements\. Wherever possible, the simplest solutions for IT systems should be chosen\. Projects should monitor budgetary allocations carefully to prevent delays\. Slow-moving projects should consider introducing action plans with contingency mechanisms to focus attention on key milestones\. I\. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES A\. CONTEXT AT APPRAISAL Context 1\. Country Context: Romania was well on its way to accession into the European Union (EU) at the time of project appraisal in 2005 and on January 1, 2007 Romania joined the EU as its 25th Member State\. The accession process drove the direction, timing and progress of legal and judicial reforms in Romania\. In the final stages of accession negotiations, Romania committed to implement eleven specific reform commitments, seven of which related to the Justice and Home Affairs (JHA) chapter\. In 2005, the Government adopted a Strategy for the Reform of the Judiciary 2005-2007 and an Action Plan which focused on these remaining challenges, including: (a) strengthening the institutional capabilities of the main judicial institutions; (b) increasing efficiency of courts: reducing duration of court proceedings and improving quality of judgments; (c) strengthening the accountability and integrity of the judiciary: the need to step up anti- corruption efforts and develop performance monitoring mechanisms, and; (d) upgrading court infrastructure and working conditions\. The Justice Reform Project (JRP) was designed to address these challenges\. Approval of the project helped the Romanian Government to demonstrate progress and continued commitment in the final stages of EU accession\. Since accession in 2007, Romania has been subject to a Cooperation and Verification Mechanism (CVM), under which the European Commission (EC) continues to monitor the country’s progress in addressing shortcomings in judicial reform, corruption and organized crime\. The CVM is a transitional measure aimed to ensure that Romania develops the administrative and judicial system needed for the correct application of EU laws, policies and programs\. The EC produces reports assessing progress against benchmarks and issuing recommendations on an annual basis\. On judicial reform, progress in Romania has been generally positive and visible\. 2\. Bank Rationale: Given the strategic importance of justice reform in Romania, there was a strong rationale for Bank investment in the justice sector\. Before this project, the Bank had initiated a series of Programmatic Adjustment Loans (PALs) to support the Government’s rule of law agenda\. The Bank’s Country Partnership Strategy (CPS) for FY2006-09 focused on assisting Romania to successfully integrate within the EU\. The CPS was founded on the three main priorities: (a) achieving sustainable and equitable private sector led high growth; (b) upgrading fiscal management systems and reducing fiscal vulnerabilities, and; (b) enhancing governance and upgrading public institutions, including the judiciary\. The JRP Page 6 of 104 The World Bank Judicial Reform ( P090309 ) contributed to all three CPS priority goals, especially the third\. Subsequent CPSs for Romania have similarly highlighted the importance of judicial reform to the country’s long term growth\. Theory of Change (Results Chain) 3\. The Project Appraisal Document (PAD) did not describe in detail the results chain or the logic behind the operation\. This was not required by Bank procedures at the time of project preparation\. Nonetheless, the linkages can be discerned in several areas\. Backlog reduction and targeted efforts to optimize workloads, streamline processes and improve timeliness in case processing were clearly aimed at improving efficiency across the court network\. Improvements in court infrastructure were intended to increase efficiency through improved work flows and a larger number of court rooms, while also strengthening accountability by meeting EU standards and offering greater workplace standardization and increased transparency in the user experience at targeted court locations\. The introduction of the court recording system was clearly intended to strengthen accountability and build public trust and confidence in the judiciary\. 4\. In other areas, the theory of change and the links between the PDO and the project’s approach, components and activities had to be inferred by the ICR team\. Though not stated, the ICR team assumes that the training activities were intended to increase efficiency by building the capacity of training participants to work more productively\. The introduction of new Codes was presumably intended to achieve large-scale legal reform that would reduce ambiguities in the law, bottlenecks in processing and generally increase legal certainty for citizens and businesses, which would in turn improve both efficiency and accountability of the judiciary\. Presumably, better resource management, through a sector-wide integrated resource management system (RMS), would increase efficiency while also strengthening accountability by limiting vulnerabilities to corruption within justice institutions\. 5\. To achieve progress across these areas, the project worked with stakeholders across the sector, particularly with the Superior Council of Magistracy (CSM), High Court of Cassation and Justice (HCCJ), Ministry of Justice (MOJ), National Institute for Magistracy (NIM) and the National School for Court Clerks (NSC)\. Project Development Objectives (PDOs) 6\. The PDO, as stated in the PAD and Loan Agreement (LA), is: “(i) to increase efficiency of the Romanian courts, and (ii) to improve accountability of the judiciary which should result in reduced corruption and more transparent act of justice”\. The PAD and subsequent project documentation refers to these two limbs in shorthand as efficiency and accountability\. The ICR team has assessed the project based on the extent to which it has achieved these two objectives\. 7\. The prepositional phrase ‘which should result in reduced corruption…’ suggests a second-order result rather than a direct project objective\. Following consultations and review of the PAD, project design and related documentation, the ICR team concludes that this phase refers to higher-level outcomes which are outside of the project’s control\. This ICR therefore reviews the project based on the two direct objectives: efficiency and accountability\. Page 7 of 104 The World Bank Judicial Reform ( P090309 ) Key Expected Outcomes and Outcome Indicators 8\. The project’s key indicators were: a) improved capacity of the court system to adjudicate disputes (in terms of fairness, speed, affordability and ability to enforce decisions); b) improved court facilities, in line with international standards; c) improved public image of the judiciary, and; d) enhanced competence, professionalism and integrity of judges and court staff\. Components 9\. The JRP project had four components: 10\. Component 1: Court Infrastructure Rehabilitation (Cost USD 85\.0 million)\. Activities included: a) rehabilitation and limited new construction of prioritized court buildings, and; b) development of uniform space planning and design standards for court facilities\. 11\. Component 2: Strengthening of the Administrative Capacity of Courts (Cost USD 11\.05 M)\. Activities included: a) development and implementation of a program to reduce case delays and backlogs; b) development of a framework for economic management of the courts, including regulatory and organizational arrangements for economic managers and training; and c) optimization of courts’ operational processes, including transfer of non-adjudicative tasks from judges to court personnel, and upgrading the functioning of case registries, archives, recording of court proceedings, court statistics and case monitoring; and (d) public education/ information, strengthening the CSM’s and courts’ capacity in the area of public information and external relations\. Midway through the project, activities were added including work on the new Civil Code, Civil Procedural Code, Criminal Code, and Criminal Procedure Code, as well as impact assessments of the four Codes\. In 2010, work on a new Insolvency Code was also added\. 12\. Component 3: Court Information System (Cost USD 21\.5 M)\. Activities included the development of a comprehensive RMS for the judicial system\. (Case management systems were implemented through EU financing\.) The RMS would cover financial, physical, and human resource management functions for the justice sector\. It would also cover management support functions, both reporting and analytic\. The RMS would support management functions at the level of the individual courts, as well as at the MOJ, CSM, and the HCCJ\. 13\. Component 4: Institutional Development of Judicial Institutions (Cost USD 6\.61 M)\. This component would provide assistance to the following judicial institutions: a) CSM – in the area of development of long- term judicial policies, monitoring judicial performance, and public communications; b) MOJ – in the area of capital investment planning, judicial statistics, human resources management, budget planning and internal and external communications; c) NIM – in the area of development of new qualification tests for judges’ selection and promotion; development of training courses and curricula; (d) National School of Clerks (NSC) – in the area of strategic planning; development of training courses and delivery of training through e- learning programs; and (e) HCCJ – in the area of budget planning and IT upgrading\. This component would also provide funding, to develop and implement specific tools for monitoring project results, including public surveys and court user surveys\. Page 8 of 104  The World Bank Judicial Reform ( P090309 ) B\. SIGNIFICANT CHANGES DURING IMPLEMENTATION (IF APPLICABLE) Revised PDOs and Outcome Targets 14\. The PDO remained unchanged for the duration of the project\. Revised PDO Indicators 15\. The results framework was revised twice, first in 2010 and again in 2015\. These changes are outlined in Annex 1\. 16\. The 2010 restructuring revised and reduced the level of ambition of the outcome indicators to take into account what can be achieved by the extended project closing date\. The results framework was also modified to include more quantifiable indicators\. For example, while the original framework included an indicator for “Improved capacity of the court system to adjudicate disputes (in terms of fairness, speed, affordability, and ability to enforce decisions),” the revised indicator called for a 10 percent reduction in case backlog\. 17\. The 2015 restructuring added a PDO indicator, "Audio recordings available to any trial participant upon request" to strengthen accountability and better link the implementation of the court recording system within the results chain\. The 2015 restructuring also dropped three intermediate results indicators (IRIs), namely: a\. 10% decrease of average time required to dispose of cases in 5 courts rehabilitated under this project: the restructuring paper argued that this kind of data is neither available in Romania nor could it easily be generated because there was no systematic system for data collection in place\. The paper also noted that the indicator was no longer relevant because the JRP had supported the development of a country-wide performance monitoring system based around five key performance indicators (KPIs), and results are made publicly on annually on the MOJ website\. b\. CSM effectively assumes functions of budget planning, policy formulation and performance monitoring: this indicator was premised on the anticipated transfer of these responsibilities from the MOJ to the CSM and was intended to strengthen judicial independence\. However, the implementation of the law transferring this responsibility has been suspended each year and responsibility remains with the MOJ still in mid-2017\. The indicator was therefore also dropped\. c\. NIM and NSC design and apply web-based user feedback survey for all courses and publish quarterly results: this indicator could not be implemented technically because the open source platform used for the development of the surveys was outdated and its functions were very limited and could not be configured to request user feedback related to the online courses Revised Components 18\. The project components remained the same for the duration of the project, although some of the sub-components were revised\. Other Changes 19\. The JRP was restructured four times during implementation\. Extensions were granted to allow the completion of all project activities under implementation and the achievement of project objectives\. Restructurings cumulatively extended the project duration by six years\. Several changes were made to reduce Page 9 of 104  The World Bank Judicial Reform ( P090309 ) the scope of activities and the level of ambition of the indicators\. The project components, focus, core activities and costs remained the same\. 20\. Restructuring 1 (October 2010) – This restructuring extended the project duration by two years and introduced an Action Plan conditionality mechanism\. The Action Plan outlined an agreed and clear timeline for completing a selected number of key project activities, and was included in the Loan Agreement, which stipulated that failure to complete any of these activities would result in the cancellation of the associated financing for those activities\. It also dropped 2 out of 20 court sites (Campina and Valeni de Munte) from the infrastructure component because they were at the early stages of approval and thus unlikely to be completed within the foreseen timeline by April 2011 and component budget available at that time\. 21\. Restructuring 2 (August 2011) – This restructuring extended the deadline for one of the activities in the Action Plan, the Optimization of Court Procedures, from April 1, 2011 to October 31, 2013 in order to avoid the cancelation of funds for that activity\. 22\. Restructuring 3 (December 2012) – This restructuring extended the project duration by another two years to allow the project finalization of civil works and other engaged activities\. Similar to the first restructuring, an Action Plan was defined with the borrower\. The plan included a timeline for each measure as well as a defined loan that amount the World Bank could cancel in case a target was not met\. 23\. Restructuring 4 (March 2015) – This restructuring extended the project duration by a further two years, narrowed the scope of the RMS under component 3, Court Information System, and revised related result indicators and disbursement projections accordingly\. In addition, the Project Implementation Plan (PIP) was revised to include only those activities that could be completed within the new closing date\. The plan included a risk-management or "contingency" mechanism intended to allow for the cancellation of funds under the RMS by the MOJ if the associated activities were not completed by deadlines agreed with the contractor\. In case of failure to comply with the PIP, funds could be reallocated from the RMS to other activities under the project through a restructuring\. 24\. Financing\. The financial management (FM) and disbursement arrangements for the project continued in largely the same manner throughout project implementation\. Two improvements were made\. First, from 2009, the project pre-financed expenditures from the State Budget through the Treasury system\. Second, from 2010, the share of project finance for civil works was raised from 85 to 100 percent and the remaining undisbursed amounts were grouped into one new category to ensure effective use of the loan funds\. The 2010 and 2015 restructurings revised the withdrawal schedule\. The restructurings also reallocated funds across categories but not between project components\. This did not entail significant changes to the project\. Page 10 of 104  The World Bank Judicial Reform ( P090309 ) Rationale for Changes and Their Implication on the Original Theory of Change 25\. The changes made during project implementation were focused at the activity level\. They arose mainly due to poor project preparation and extensions that were due to delays associated with infrastructure and ICT activities (discussed in detail below under Factors Affecting Implementation) as well as underfinancing of the project for several years\. The changes did not affect the rationale, objectives or key outcomes expected of the project\. II\. OUTCOME A\. RELEVANCE OF PDOs Assessment of Relevance of PDOs and Rating Rating: Substantial 26\. From project preparation through to completion, project objectives aligned well with Bank and borrower’s development priorities\. The PDO aligned with Romania’s national program for EU accession\. The Bank agreed to focus on improvements in accountability and efficiency, given their high priority and linkage with EU accession, and they built on the Bank’s earlier projects and reflected in the Bank’s comparative advantage in justice reform\. The PDO was aligned closely with the main theme of the FY06-09 CPS to enhance governance and upgrade public institutions, including the judiciary\. These objectives remain relevant, align with the current CPS, and are an integral part of the follow-up project, the JSIP\. 27\. While the objectives were clear, the alignment and linkage between project activities and components and their contribution to increased efficiency and accountability of the Romanian justice system could have been clearer\. It would have been helpful if the PAD and subsequent project documentation had articulated in detail what was meant by “efficiency” and “accountability” in this context and how the different components contribute to these objectives\. Without this, the Bank, borrower, implementing agency and beneficiary institutions lacked a shared understanding of the results chain, why it was important and how each project activity contributed a link in the chain\. 28\. The choice of instrument, investment project financing, was appropriate, given the project’s focus on infrastructure and ICT procurement\. An important factor contributing to successful implementation of the infrastructure component, and others to a lesser extent, was the application of the Bank’s procurement procedure\. B\. ACHIEVEMENT OF PDOs (EFFICACY) Assessment of Achievement of Each Objective/Outcome 29\. Several of the project interventions contributed to both efficiency and accountability of the Romanian judiciary simultaneously\. However, to align with the ICR template, this section analyzes each development objective in turn and the key project interventions that contributed to its achievement\. Achievement of Objective 1: Increased Efficiency of the Romanian Judiciary Rating: Substantial 30\. The project increased efficiency through five groups of interventions: civil works to increase court capacity to deal with cases; targeted efforts to reduce backlogs and improve timeliness; optimization of workloads and processes; training and capacity building; and the integration of resource management across the sector\. 31\. Civil works\. The JRP financed construction and rehabilitation of 16 courthouses, some of which are integrated court complexes and so represent 21 courts\. Before the project, these courts were in provided sub-standard working Page 11 of 104  The World Bank Judicial Reform ( P090309 ) conditions, often without functioning heating, windows, and toilets, and with suboptimal work flows\. Office space was cramped, and several judges worked in shifts\. Archiving arrangements were ad hoc, insecure and cumbersome, with files often stored in offices and public hallways which caused a range of case processing problems\. There was a shortage of courtrooms, which caused delays in hearings\. Security and safety were a concern\. Operations and maintenance costs were high (some before and after photos are at Annex 10)\. Of the 16 courts, 12 were renovated and extended and 4 were new buildings\. The number of courtrooms across these 21 courts has increased from 27 to 42, and the number of counsel rooms – where lawyers can meet privately with clients before hearings – increased from 6 to 43 rooms\. As a result, more cases can be heard and hearings can be held in parallel, maximizing the use of judge and staff time\. Archiving is now appropriate for a courthouse\. As the Iasi Court President noted, “We see a direct link from the infrastructure to the quality of justice and shorter time to disposition\. Without proper infrastructure, it would not have been possible to deal with this many cases\.” 32\. Civil works have also contributed to greater efficiency by offering more sensible use of space, streamlined work flows, user-friendly workspaces improved staff morale and motivation\. As the Court President in Pitesti expressed it, “on a scale from 1 to 10, it would be 1 for the old building and 10 for this one\.” The fact that the judges no longer need to work in crowded offices, as the design standards set out the minimum space requirements for a judge to enable them to work quietly and productively, is particularly appreciated\. 33\. Civil works faced major delays due to obstacles common to construction projects in Romania (discussed below under Factors Affecting Project Implementation), but in the end, the project exceeded its target of building 15 courthouses\. If the same works had been procured using local procurement rules, it is unlikely that the construction would be undertaken, let alone completed\. With this in mind, the ICR team concludes that the efficiency gains of these infrastructure upgrades would not have been possible without the support and leverage provided by the project\. 34\. At project closure, a further three courthouses were under construction and will be completed under the new JSIP: Sibiu Tribunal (finalization expected end of June 2018), Prahova Tribunal (finalization expected end of October 2017) and Prahova Palace of Justice (finalization expected by the end of 2017)\. 35\. Efforts to reduce backlogs and improve timeliness\. The project supported the development of backlog reduction plans for courts and related efforts to improve timeliness of case processing\. The results framework tracked the number of cases disposed of in five pilot courts, although it is not clear why these five were targeted in the results framework\. Initial efforts exceeded the target of 10 percent: starting in 2008 until 2015, an increase of at least 16 percent in the number of cases disposed in the five pilot courts was registered\. However, in 2016, the work volume of Orsova First Instance Court dropped significantly (from 3,584 in 2015 to 1,810 in 2016), which led to an overall drop in efficiency from 18\.52 percent in 2015 to 6 percent in 2016\. 36\. Across the court network, there also appears to be some improvement in backlog reduction and timeliness in case processing over the period\. According to the 2016 EU Justice Scoreboard (2010 to 2014 data), the overall clearance rates1 in Romania have increased in first instance courts\. The Scoreboard also shows that the clearance rate for resolving litigious civil and commercial cases in first instance courts has increased from approximately 90 percent in 2010 to approximately 110 percent in 2014\. The Scoreboard also shows that the time needed to resolve litigious civil and commercial cases (using the Saturn method) has been steadily reducing in Romania, from more than 200 days in 2010 to approximately 150 days in 2014\. The MOJ shared with the ICR team more detailed court statistics by court type, case type and location over different time periods covered by the project\. The detailed data revealed a number of discrepancies 1 The clearance rate is the number of resolved cases as a percentage of the number of incoming cases in a reporting period\. Values higher than 100 percent indicate that more cases are resolved than come in, while values below 100 percent indicate that fewer cases are resolved than come in\. The clearance rate indicates whether backlogs are increasing or decreasing\. Page 12 of 104  The World Bank Judicial Reform ( P090309 ) but was broadly consistent with the conclusion in the Scoreboard that backlogs reduced and timeliness improved somewhat over the project period\. 37\. Performance management and optimization of workloads and processes\. At project start, a range of inefficiencies caused frustrations in courts and other justice institutions, but the sector lacked analysis or plans to optimize and streamline workflows to solve the problem\. Under the JRP, the judiciary assessed the optimal volume of work for judges and court clerks\. Based on the analysis, cases are now distributed more equitably among judges and tasks have been delegated from judges to staff to boost productivity across courts\. Standards were also set for ensuring and monitoring the efficiency of courts’ activity\. Three KPIs were developed (clearance rate; case stock pending for more than one year, and; cases closed within one year) and a tracking system was designed for monitoring the indicators\. Various causes for delays in case resolving process were also analyzed in detail\. The tracking system was piloted at the level of 11 Romanian courts covering all types of jurisdictions (3 courts of first instances, 3 tribunals, 4 courts of appeal and High Court of Cassation and Justice) while the Pilot Court Implementation Plan organized work areas into all three separate but complementary main categories: Court Management, Case flow Management and Court Records\. In 2015, implementation was extended to all Romanian courts\. Two more KPIs (average time for disposition; and drafting of decision in excess of legal deadlines) were added by the CSM and all five are tracked annually by Court Presidents/management and by CSM\. The KPIs are published on courts’ portals and are also available to the public\. The system was put in place in 2015 so it is too early to assess quantitative efficiency gains\. However, the ICR team heard feedback that was very positive\. Lessons from other jurisdictions also suggest that a performance management system like this one is likely to improve both efficiency and accountability\. The 2017 CVM report notes that on the national level, progress on equalizing workload within and between courts has been slow, including continuing discrepancies of workload between large and small courts, and this continues to have an impact on the consistency of court decisions\. However, the European Commission notes that the quality of information in this area has improved and is now at the disposal of the MOJ and SCM, allowing them to continue the work in this area\. 38\. A Case Flow Management Guide was also developed and disseminated to all judges\. The guide includes good practices that courts use in managing the flow of cases and good practices used by individual judges to manage each assigned case\. 24 actionable recommendations were made in the fields of: (a) resource allocation and court structure; (b) key performance indicators for workload, time standards, data quality and ECRIS; (c) pilot courts; (d) training needs; and (e) CSM organizational and capacity enhancement\. These recommendations set the groundwork for the 2015-2020 Judicial System Development Strategy (Government Decision No\. 1144), which lays out the direction for judicial reform and modernization over the next five years\. An Action Plan for the Implementation of the Strategy (2015-2020) which incorporated the recommendations was adopted (Government Decision No\. 282) in April 2016\. This means that the recommendations will be used for the development of Romanian judiciary over the next five years\. The uniform standards for operational processes have been institutionalized since 2015\. 39\. Updating the Codes\. JRP supported the adoption of a new Civil Code that entered into force in 2011, a Civil Procedure Code in 2013, and Criminal Code and Criminal Procedure Code in 2014\. This achievement is discussed in detail below as an accountability measure, but it also improved efficiency\. Among other things, the drafting and adoption of new Codes helped to shorten the time of resolution by simplifying and improving consistency in decision making, and clarifying roles and responsibilities in the justice system\. Since the introduction of the new Civil Code, the time to disposition of cases has shortened by 43 percent\. In the 2017 CVM Report, the EC also noted that the new Codes have contributed to faster court proceedings, greater respect for fair trial rights and more consistent judicial decisions\. This activity cost approximately 2 million USD, a small part of the total project cost, yet this work was transformative\. Almost all beneficiaries interviewed for this ICR report highlighted the positive impact that the new Codes have had on their daily work, and emphasized how the Codes have improved the transparency, predictability, availability of consistent case law Page 13 of 104  The World Bank Judicial Reform ( P090309 ) and the simplification of proceedings\. According to the Court President in Iasi Court of Appeal, there has been a visible improvement in efficiency since the introduction of the new Codes\. 40\. A related project intervention was to conduct impact studies on these new Codes to ensure that Romania was meeting its responsibilities and to prevent implementation gaps in the Codes\. The ICR team concludes that, in the absence of the JRP, these impact assessments would have been unlikely, or would not have been conducted to the level of quality to achieve their purpose\. The four impact assessments (one for each Code) assessed what resources were needed to ensure the effectiveness of the new Codes\. Four reports were drafted: a technical report on the new procedures and their impact; a report on human resources, assessing how many new staff would be needed and new positions created; a report on budget and infrastructure; and a final report with conclusions\. The impact assessment reports facilitated a smoother transition to the new Codes, thus strengthening the administrative capacity of courts and improving the efficiency of cases processed under the new legal framework\. 41\. Training and capacity building\. The project supported a range of training activities that helped to improve the capacity and productivity of judges and staff working across the sector, while also increasing the efficiency of training delivery\. The project supported the NIM and NSC to introduce e-learning, including an e-platform and training of trainers (ToT) to use the platform\. At project start, there was no e-learning platform, and by project closure more than 1,215 magistrates and court clerks had undertaken e-learning using the platform at NIM and NSC\. The ToT helped the NIM to create a pool of experts for e-training of magistrates\. 42\. The NIM then created 24 courses on the newly adopted Codes: four larger courses (one for each Code), which take up to one year, and; 20 smaller courses on discrete topics, which normally last 8 to 12 weeks\. The NSC has also drafted guides and handbooks on the four new Codes for court staff\. The material is also available in electronic format and posted on their website also\. The training activities, particularly training on the new Codes, have had a positive impact on the work in courts\. Interviews with judges and magistrates during the ICR mission revealed that most of them had participated in courses on the new Codes and appreciated their content\. 43\. Since 2016, the number of courses has doubled and the NIM is currently providing 54 e-learning modules on a range of topics, with 20 to 40 people trained per each course\. The NIM is also offering more than 300 face-to-face trainings\. The NSC trained 40 trainers on the e-courses for court clerks\. In 2015, the NSC then trained 420 clerks, organized 7 e-learning sessions and 3 blended learning sessions on topics such as civil procedural law, criminal procedural law, English for legal purposes, and Romanian legal language\. The Romanian legal language e-learning course also had 100 participants from the Republic of Moldova in 2015\. The e-learning courses have been a great success, and both NIM and NSC now want to team up with the Bank to upgrade and customize the e-learning platform, which would cost around 10,000 EUR\. The e-platform was developed in 2008 and is outdated and currently only supports three courses operating simultaneously, whereas the ambition of the NSC and NIM, and the demand of participants for courses, has grown\. 44\. With JRP support, the NSC has also organized several ToT seminars, and then training programs, on soft skills for court clerks and prosecution clerks on topics such as communication, time management, and file management\. These training programs has been very popular among court clerks, as training on this kind had not been available before the JRP\. 45\. Unfortunately, the training platform does not support course evaluations, and this was not insisted upon during the activity design stage\. As a result, the NIM and NSC do not have any aggregated user feedback that they can use to reliably assess training impact or inform future trainings\. (For the same reason, training records are not used in the project’s M&E system, nor relied upon in this ICR\.) The NIM and NSC, however, report that anecdotal feedback on the training is positive\. Page 14 of 104  The World Bank Judicial Reform ( P090309 ) 46\. Introduction of an integrated RMS\. The RMS system was intended to transform the way that human and financial resources are managed in the justice sector\. In retrospect, the RMS was overdesigned and too costly for the functionality it offers\. It is also not clear that the full system works and the full ambit of change that it will create, as the RMS is still not complete\. The idea was to replace approximately 160 legacy applications with an integrated system that would allow the different institutions to use the data for planning and management purposes\. For example, the HR module allows the user to see how many judges will retire over the coming years and help the CSM to plan the recruitment of new magistrates\. The RMS introduced new solutions which did not exist before, such as a solution for payroll and HR\. It also has integrity features, such as the inability to erase entered data and the ability to track who is working in the system on what and when\. 47\. The RMS is a complex system comprising several modules/sub-systems\. These are: the Human Resources and Payroll module for the judiciary personnel (approximately 35,000 people), meant to manage about 90 percent of the judiciary budget, with a payroll component; the Financial Module, to manage all other resources of all judiciary institutions, except personnel; the Budget module, intended to be used by all institutions for budget development, allocation, tracking, and execution, in line with the provisions of the State Budget Law; and a Special sub-system for National Administration of Penitentiaries (NAP), through which all claims of detainees and their families could be more easily managed\. 48\. By project closing, some of these components had been implemented, some were still being rolled out\. The implementation of the RMS system has been marred by a series of delays\. The HR/Payroll solution is operational at the CSM, HCCJ and the PM and its subordinated units\. However, the old, existing systems continue to run in parallel at the CSM and HCCJ\. The DIEFP will continue working with the RMS beneficiaries on transition plans\. The RMS solution for NAP is currently at the user acceptance stage; and data migration for the RMS solution at the HCCJ and MOJ is underway\. NAP deployed the document management solution (ER/DR) in March 2017\. The RMS activities which remained incomplete after project closure on March 31, 2017 will be supported by State budget\. Negotiations are currently ongoing between the MOJ and the RMS supplier to establish a final deadline for the remaining activities\. 49\. As of May 2017, the Human Resources and Payroll module is live and functioning at the level of CSM, HCCJ and PM, while its roll out at MOJ, courts, NAP and all prosecutors’ offices is ongoing\. This particular module adds the most immediate value to the judiciary institutions, since it manages approximately 35,000 members of judiciary personnel and 90 percent of the annual judicial budget\. The Financial module has passed all the functional tests and hence was accepted from a functional perspective by the following beneficiary institutions: MOJ, PM and HCCJ\. Testing is on-going for NAP and CSM\. The budget module passed all the functional tests and hence was accepted from a functional perspective by the following beneficiary institutions: MOJ, NAP, CSM, MPA and HCCJ\. Testing is on-going for the Public Ministry\. The ERDR has passed all the functional tests and was accepted from a functional perspective by the only beneficiary of this module, NAP\. The RMS will continue to be implemented at all beneficiary institutions, funded from the State budget, until successful completion\. 50\. On a positive note, feedback on the RMS is promising as stakeholders start to use the system\. The CSM reported that the system is better than the old one and has already decreased workload, contributed to transparency and enables the users to respond to certain queries to which they were not able to respond before\. The HR module allows for projections on staffing needs\. CSM representatives noted to the ICR team that the RMS “ has a huge advantage over the old system\. It is something that should have been done a long time ago\.” In a few years, it is possible that the RMS could become a key success of the JRP, but it is difficult for the ICR team to gauge the time impact trajectory of this significant reform while it is not quite complete and only six months after project closure\. Achievement of Objective 2: Increased Accountability of the Judiciary Page 15 of 104  The World Bank Judicial Reform ( P090309 ) Rating: Substantial 51\. The project increased accountability through five groups of interventions: overhauling the legislative framework; introducing audio recording of all court hearings; upgrading facilities to help ensure the right to a fair trial; magistrate certification; and a range of performance management and transparency initiatives\. 52\. Overhauling the legislative framework\. Legislative reform had a pervasive impact on the justice system of Romania\. The project assisted the MOJ update the Civil and Criminal Codes and Civil and Criminal Procedure Codes, altering how citizens and businesses are regulated and how cases are processed in Romania\. At project start, legislation and procedure were in urgent need of update, as the four fundamental laws had barely changed in 150 years\. Several unsuccessful attempts at reform had been made, the last in 2005, but each had failed to produce substantive legal reform\. In 2007 and 2008, the JRP implemented six related technical assistance projects, where professionals from Romania and abroad provided their expertise to the Government appointed commission drafting the new Codes\. This entailed drafting and correlating 4,846 articles incorporated in the new Codes and analyzing their interaction as a framework\. The reform, including its scale and scope, would have been unlikely without JRP intervention\. The 2017 CVM report notes that the adoption of the Codes has led to the acceleration of court proceedings, greater consistency in judicial decisions, and enhanced respect for the right to a fair trial\. The CSM reports that there is now greater accountability in the justice system thanks to the new Codes in two ways\. First, at an individual level, judges working on cases know that are more answerable to the new law than before\. Second, at an institutional level, more cases are reviewed by the Supreme Court, and published and analyzed by the profession and build a more consistent approach to the law (often referred to as case law harmonization)\. 53\. In addition, JRP supported reforms to insolvency legislation, which increased transparency, improved clarity in case processing and reduced the number of insolvency cases\. This activity was not included in the original PAD but was added in 2010 following consultations with stakeholders\. The MOJ had on several previous occasions attempted insolvency reform, each time to no avail, so it was perceived that reform had a greater chance of success with Bank and JRP support\. From 2011 to 2014, the Romanian Insolvency framework and related mechanisms were strengthened thorough the elaboration of the first national Insolvency Code, in line with European ROSC standards\. The courts and parties are now obliged to send all case documents to the National Office of the Trade Register (ONCR), which are then published in an online bulletin available to the public and the courts\. All procedural documents, minutes of meetings of creditors, documents drawn up by liquidators and any other official documents relating to the file are published in the ONCR bulletin, which provides useful information to courts, regulators, consumers, and businesses, including banks, creditors and clients\. The number of insolvency cases fell because the Code introduced a minimum threshold of 40,000 RON\. The new Code has also clarified issues which were ambiguous, eliminated bottlenecks and simplified the liquidation of assets\. A further enhancement was the introduction of the enforcement procedure from the new Civil Code for insolvency cases\. The World Bank’s Doing Business data indicates some improvement in Romania’s performance in terms of resolving insolvency\. Romania’s distance from the frontier for resolving insolvency has improved from 27\.65 in 2011 to 59\.16 in 2017\. Recovery rates have increased from 25\.7 cents in the dollar in 2011 to 34\.4 cents in 2017\. However, the Doing Business indicators for time, cost and outcome have remained stagnant\. Romania remains behind the Europe and Central Asia (ECA) average with regard to the strength of insolvency framework index 2, where on a scale from 0 to 16 Romania ranks 13\. 54\. Improvements in the quality of Romanian law also increased accountability indirectly\. Since the adoption of the new Codes, the HCCJ has undertaken effort to promote the consistency of court decisions\. HCCJ already published some 2The index is the sum of four component indices: commencement of proceedings index, management of debtor’s assets index, reorganization proceedings index and creditor participation index\. The index started to be collected only in 2015, so it is not possible to compare the current score with the situation that existed prior to the reforms supported by JRP\. Page 16 of 104  The World Bank Judicial Reform ( P090309 ) of its decisions before the adoption of the new Codes but decisions were often scattered, un-searchable and sometimes contradictory\. Today more decisions are published and there is a greater consistency of case law\. With more of the case law being available online, judges can access court decisions and apply the findings on similar cases\. Under the Codes, judges are also able to ask the Supreme Court directly when there is need for clarification\. While the JRP did not finance the online availability of court decisions, the procedural Codes supported by the JRP have provided the HCCJ and other courts with the necessary tools for a more transparent and predictable act of justice, consistency in decision making and greater accountability of judges\. 55\. Audio recording of all hearings\. One of JRP’s most important achievements was the introduction of audio recording for all court hearings throughout Romania\. The audio recording system is one of the success stories of JRP, not only for the greater transparency and accountability it provides, but also for being highly valued by its users as a practical tool\. At project start, none of the Romanian courts had audio recording systems in place\. Handwritten notes were kept by clerks but were unreliable for accountability purposes\. This is a challenging and sensitive reform – both in Romania and in judiciaries around the world – and such initiatives often fail\. In Romania, attempts had been made to introduce these systems for more than five years, each to no avail, due to stakeholder resistance and procurement problems\. The ICR team concludes that this intervention would not have been possible without JRP’s support and leverage\. By JRP closure, integrated audio recording systems were operational in all 243 national courts and all 699 courtrooms and available within the day upon request by any interested party\. Hundreds of audio recordings are requested and used in every day\. The National Judicial Inspection uses these recordings to verify judges’ behavior, and audio recordings have been used in a range of corruption and misconduct cases\. Stakeholders report that the courtesy and professionalism of judges has improved since hearings have been recorded\. In addition to strengthening accountability, the recordings greatly facilitate the work of judges, prosecutors and lawyers and thereby increase efficiency in case processing\. Court Presidents and judges reported to the ICR team their satisfaction with the court recording system\. 56\. Civil works\. The efficiency gains from the civil works are discussed above, but improved courthouses also strengthen accountability by enabling Romania to meet its responsibilities for quality justice based on various EU and international standards\. The counsel rooms enable lawyers to meet with their clients confidentially in a professional space before and after their hearing\. This is particularly important for defendants on pre-trial detention in criminal cases, where this may be their only opportunity to meet with an attorney\. The number of holding cells, usually in the basement of the courthouse, more than doubled\. Standards are now met for the treatment of prisoners, including the separation of men, women and juveniles, and adequate space, hygiene, and safety of all parties, especially defendants, guards and lawyers\. Common areas are more conducive for the public: they are clean, safe and offer useful information for parties awaiting hearing\. Appropriate archiving spaces and practices prevent the disappearance or misuse of court records\. Each new courtroom has been designed to offer separate entrances for judges, defendants, prosecutors, witnesses, lawyers and the public\. This improves workflow, offers a more secure and safe environment, and increases role clarity among justice stakeholders\. Importantly, it also limits the informal interactions between judges, prosecutors and lawyers at the courthouse\. Stakeholders also report a general improvement in the tone and atmosphere of court proceedings\. The 2016 CVM Report highlights that future structural reforms to the Romanian justice system need to be accompanied by the modernization of buildings and IT systems, and notes that the World Bank is supporting such work in Romania\. 57\. Interestingly, while the quality of court decision-making has improved during JRP implementation, the difference is outsized and most marked in courts that received the infrastructure upgrades\. Poor quality of judgements has been a major problem for several reasons, including uneven workloads of judges, backlogs, limited access to case law, poor quality and inconsistent legislation and insufficient training and specialization\. While courts across Romania received support to address these challenges, only 21 courts received the infrastructure upgrades\. According to the borrower’s report, the quality of the judicial services delivered in these 21 courts was analyzed from two different angles, namely the legal quality and the perception of the external court users who interacted with the courts\. The legal quality is measured Page 17 of 104  The World Bank Judicial Reform ( P090309 ) by the annual cassation index which is calculated in percentage, as follows: total number of cases for which appeals/second appeals or any other type of claim were admitted by a superior court (regardless of the appealed matter, such as civil, administrative, criminal, fiscal), divided by the total number of cases closed with a court decision by that specific court for which the index is calculated, multiplied by 100\. To capture the perception of the users, the borrower carried out three surveys, presented at Annex 7\. As per 2015, data indicates that all courts part of JRP registered a low cassation index, below 8 percent of the total number of decision taken illustration a high quality of the decision\. Some of the courts issued decisions of a very good quality, such as CA Iasi, as only 0\.56 percent of them were modified in appeal or second appeal or by any other extraordinary legal means of attach\. The interval varies between 0\.56 percent (Pitesti and Iasi CA) to 7\.56 percent (Tribunal Iasi), the rest of the courts being in this interval\. Table 1: Cassation Index 2015 for 21 courts financed under JRP project Name of the court Total no\. of cases Number of cases for which Cassation Index (Total no\. of cases/Number of resolved/closed appeals were successful cases for which appeals were successful as %) CFI Blaj 1,918 46 2\.39% CFI Vatra Dornei 2,407 119 4\.94% CFI Viseu de Sus 2,163 118 5\.45% CFI Tulcea 9,022 320 3\.55% CFI Slobozia 6,047 158 2\.61% CFI Orsova 3,289 80 2\.43% CFI Bolintin Vale 4,982 135 2\.70% CFI Saliste 1,289 74 5\.74% CFI Oradea 22,074 685 3\.10% Tribunal Arges 7,766 569 7\.32% Tribunal Maramures 10\.326 602 5\.82% Tribunal Ialomita 7,766 569 7\.32% Tribunal Cluj 13,931 NA 1\.27% Tribunal Tulcea 4,417 233 5\.27% Tribunal Iasi 18,641 1,411 7\.56% Tribunal Dolj 23,159 612 2\.64% Tribunal Suceava 6,800 386 5\.67% Tribunal Bihor 12,723 541 4\.25% CA Iasi 8,018 45 0\.56% CA Pitesti Info not available Info not available 0\.56% CA Oradea 642 24 3\.73% 58\. Magistrate certification\. Certification increased accountability by ensuring a more objective and transparent admission process for magistrates and prosecutors\. At project start, there was no law students’ admission test (LSAT) in place\. Under JRP, the LSAT was developed and has become embedded into practice\. During the first pre-test in 2009, 100 law students participated, and by the latest round, the number had increased to over 2,000\. The CSM and NIM have adopted regulations requiring the continuous use of the LSAT test for magistrates\. The test has a considerable impact on admission as it represents one-quarter of the final grade of the candidate\. Greater accountability is also reflected in the number of appeals from unsuccessful candidates, which has fallen since the introduction of the LSAT\. Candidates now limit complaints to the subjective parts of the admission test, such as the interviews\. While the number of candidates who are admitted as magistrates is approximately the same, stakeholders report that the test has gradually increased the caliber of candidates who are admitted\. Stakeholders report that the existence of the LSAT also promotes greater public trust in the admission process and in the perception of quality and reliability of magistrates and prosecutors across Page 18 of 104  The World Bank Judicial Reform ( P090309 ) Romania\. While the EC’s 2017 CVM Report does not explicitly mention the LSAT test, it notes that the rigor of entry procedures into the magistracy, together with obligatory training by NIM, has played an important part in consolidating the professionalism and independence of the magistracy in Romania\. 59\. Performance management, surveys and transparency initiatives\. JRP supported a range of activities to boost transparency in the judiciary that contributed to greater accountability across the justice sector\. At project start, the judiciary did not publish any court performance data and did not conduct any surveys of court users or institutional stakeholders\. As outlined in the PAD, it was impossible to tell what was a high-performing court, judge or staff member, let alone what to do to address under-performance\. Under JRP, the websites of courts and CSM began to publish court performance data periodically\. They also published data on their KPIs, discussed under the efficiency section above, which the EU considered to be a key accountability mechanism\. JRP also conducted and published data from the surveys of individuals and firms on access to and satisfaction with judicial services (including fairness and timeliness) for courts financed by Part A of the project\. Three periodic user surveys were conducted and published: a baseline survey; an intermediate survey, and the final survey just after project closure (See Annex 7)\. The surveys were shared with the European Commission for the Efficiency of Justice (CEPEJ) and were used to certify that Romania conducts surveys for purposes of CEPEJ’s annual EU Justice Scoreboard and biennial Evaluation of Judicial Efficiency Reports\. JRP also financed a survey relating to the reform of the four new Codes\. MOJ published the impact studies on these Codes in 2012\. Although worthwhile, these transparency activities could have been more ambitious to further pursue the accountability objective\. Given the exponential increase in online transparency among governments globally, JRP could have pressed for more than annual publication of basic data\. Also, once the targets in the results framework were met by 2012, the level of ambition could have been raised in any of the three subsequent restructurings that extended the project duration\. The surveys did little to inform policymaking on ongoing reform\. They were undertaken primarily to ensure compliance with Bank results monitoring\. Furthermore, attribution is only partial given that Romania, as an EU member state, was always likely to increase transparency to meet rising EU and citizen expectations\. Nonetheless, JRP interventions were worthwhile and contributed to greater transparency, and therefore lay groundwork for greater accountability, across the justice sector\. Justification of Overall Efficacy Rating Rating: Substantial 60\. JRP substantially achieved the two objectives set out\. Several of JRP’s interventions are notable successes, in particular the JRP’s support to: the overhaul of Romania’s legislative framework; the introduction of audio recordings in every Romanian courtroom, and; the upgrading of court facilities\. Several of these activities contributed to improvements in efficiency and accountability simultaneously and in a symbiotic manner, which helped to overcome sensitivities, so that reforms are now embedded in practice\. 61\. The RMS has yet to contribute significantly to the achievement of these two objectives because the work is not yet complete\. Feedback from the existing modules suggests that it may, in the end, achieve its purpose, but this has not been reflected in the efficacy ratings\. C\. EFFICIENCY Assessment of Efficiency and Rating Rating: Modest 62\. The efficiency of the project is rated as modest\. This is largely due to implementation delays which caused the project duration to more than double\. Despite the extended length of the JRP, costs remained in line with those set out Page 19 of 104  The World Bank Judicial Reform ( P090309 ) in the PAD\. This is largely due to a fall in construction prices and very low inflation associated with the global financial crisis\. Implementation was hampered by the lack of State budget allocation from 2012 to 2015\. 63\. No ex ante economic and financial analysis was conducted of the likely benefits and costs of the JRP\. The PAD argued that it is hard to quantify the benefits resulting from improved justice\. The expected efficiency gains resulting from project outcomes included reductions in administrative expenses and a higher number of cases being resolved in less time, leading to better use of public resources\. 64\. The ICR team conducted an ex post economic analysis at Annex 4\. This ex-post economic analysis of the project considers the direct benefits and costs associated with changes in economic welfare that were a result of project implementation\. The analysis focuses only on the period of project implementation, and future benefits beyond project closure are not included\. The lengthy project period, and the early period of idle funds and slow implementation progress, are factored in to the analysis\. Two benefit streams are identified 65\. First time savings from more efficient use of time of judges, court staff and lawyers enabled by various project interventions\. This part of the analysis estimates the joint effect of civil works done by the project (16 courthouses built and/or reconstructed), related increases in counsel rooms used by lawyers, codes overhauling (Civil and Criminal Code and the Civil and Criminal Procedure Code as well as Insolvency Law), introduction of a court recording system which is operational in all 243 courts across Romania, training activities performed by the project and finally work load optimization\. These interventions were split into those affecting only the judges, staff and lawyers in the jurisdiction of the 16 courthouses where significant civil works were done, and those affecting the court network across Romania\. Variation in years of implementation of certain actions is accounted for in the analysis\. Finally, the effect of these interventions is calculated through assumed time savings of judges, court staff and lawyers and the official data on gross hourly earnings of these categories\. Estimates for time savings are at the lower bound of the expected range of time savings for each category\. Even so, the aggregate undiscounted amount of economic benefits estimated was EUR 54\.6 million\. 66\. Second, Improved human and financial resources management as a result of the introduction of the Resource Management System (RMS)\. The RMS replaces approximately 160 existing applications by introducing a single platform which would include HR and payroll module, financial module, budget module and the module for NAP\. Since the RMS is only partially implemented, the benefits are assumed to represent only a small fraction of its potential, currently 0\.1% of the total court budget for 2016 and 2017\. As a result, this part of the project is assumed to generate aggregate undiscounted EUR 6\.5 million of economic inflows\. 67\. Figure 1 below shows the distribution of net economic benefits that resulted from JRP over the investment horizon\. Page 20 of 104  The World Bank Judicial Reform ( P090309 ) Net Economic Benefits (Euro) 16000000\.0 14000000\.0 12000000\.0 10000000\.0 8000000\.0 6000000\.0 4000000\.0 2000000\.0 \.0 -2000000\.0 68\. As a result of these two quantifiable elements of the project, the Economic Net Present Value (ENPV) of the total project amounts to EUR 47\.4 million at a 5 percent discount rate with an EIRR of 71\.2 percent\. The ENPV of the project also remains positive at much higher discount rates\. For example, a discount rate of 10 percent yields an ENPV of EUR 30\.8 million, while the switching value of the discount rate (i\.e\. the value that makes the ENPV equal to zero) is 72 percent\. 69\. Nonetheless, the PAD raised a valid point: several of JRP’s benefits are those that are least capable of being quantified\. In addition to the project components for which a formal EA was done, JRP produced several benefits that are difficult to quantify\. These include for example: benefits from an enhanced legal environment achieved through higher legal clarity and certainty as a result of redesigning the Civil Code, Civil Procedure Code, Criminal Code, Criminal Procedure Code and Insolvency Law; construction works at the 16 courts and the substantial upgrade of working conditions contributed to improved staff morale and motivation, more sensible use of space, and streamlining of work flows; the introduction of court recording system improved the overall transparency, accountability and legal certainty of the court system in Romania\. D\. JUSTIFICATION OF OVERALL OUTCOME RATING Rating: Moderately Satisfactory 70\. The ICR team rates the overall outcome of the JRP as moderately satisfactory\. JRP supported significant and fundamental reforms that contributed to improvements in the efficiency and accountability of the Romanian judiciary\. However, a satisfactory rating is precluded by the various delays in project implementation, and the setbacks that dogged the RMS, which necessitated multiple project extensions\. The RMS amounted to 15 percent of the project budget, but has so far produced very few tangible outputs or benefits\. This has also increased the risk of the project\. E\. OTHER OUTCOMES AND IMPACTS (IF ANY) Gender 71\. The justice sector in Romania is overwhelmingly comprised of women\. In 2016, women comprised 74 percent of all judges in Romania, higher than the averages in the EU11, EU27 and in ECA\. The gender disparity is even more pronounced for court staff, clerks and other administrators\. Unfortunately, gender-disaggregated data was not collected Page 21 of 104  The World Bank Judicial Reform ( P090309 ) under the JRP to demonstrate the positive gender impact of project interventions\. However, viewing the JRP in the aggregate, the project appears to have had a positive gender impact by improving the working conditions, professionalism and productivity of justice institutions, and the skills and capacities of the women who work in them\. Institutional Strengthening 72\. JRP helped to strengthen justice institutions, especially the courts, MOJ, CSM, HCCJ, NSC and NIM by improving efficiency and accountability\. JRP did so in several ways, including by improving working conditions, streamlining process and work flows, updating foundational laws, supporting performance management and providing training\. Mobilizing Private Sector Financing 73\. JRP did not mobilize private sector financing\. Justice is a core state function which is typically financed from the state budget\. Poverty Reduction and Shared Prosperity 74\. Improvements in the efficiency, transparency and predictability of the justice system help to foster a more conducive business and investment climate\. Unfortunately, data has not been collected to measure private sector impacts beyond the economic analysis at Annex 4\. However, faster and more predictable processing of cases, especially relating to insolvency, helps lower the costs of doing business\. For example, according to the Business Environment and Enterprise Performance Survey (BEEPS), the percentage of Romanian firms reporting that the courts are a problem for business operations fell from 72 percent in 2008 to 27 percent in 2013\. The percentage of firms reporting that bribery is frequent in dealing with the courts also fell from 14 percent in 2008 to 1 percent in 2013 and is now better than ECA and EU11 averages\. Newly established and rehabilitated court buildings in accordance with international design standards also contribute to better public access to the facilities as well as to court materials, forms, records and archives, and thus contribute to improved access to justice for the general population, in particular for vulnerable groups\. Other Unintended Outcomes and Impacts 75\. The new or rehabilitated court buildings have become an external motivator for staff, which has also had an impact on efficiency\. Unfortunately, quantitative data on the efficiency impacts of staff engagement was not collected under the JRP\. However, qualitative feedback is overwhelmingly positive\. During the site visits to Pitesti and Ploiesti, the court Presidents highlighted the general improvement in motivation among staff and that the atmosphere and tone of work, in hearings and in back offices, have also improved\. In Oradea, the rehabilitated court building (which had not been renovated since it was built in 1890) has attracted new judges to the court, including judges who had never been to Oradea\. Page 22 of 104  The World Bank Judicial Reform ( P090309 ) III\. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME Page 23 of 104  The World Bank Judicial Reform ( P090309 ) A\. \. KEY FACTORS DURING PREPARATION 76\. Project preparation was accelerated\. There were critical shortcomings in the preparation of the infrastructure component, the RMS and M&E baselines\. Poor preparation took years to rectify and caused lengthy implementation delays\. 77\. Infrastructure delays were foreseen during preparation and not adequately addressed\. Concerns were raised both at the Quality Enhancement Review (QER) in September 2005 and the Decision Package Review Meeting in October 2005 regarding the readiness of the infrastructure and whether the timelines were feasible\. The QER recommended that a rigorous assessment should be conducted of the feasibility of the proposed rehabilitation program within the implied four-year time frame\. The preparation team then conducted an assessment, but only focused on the private sector capacity and MOJ capacity (which were both found to be adequate), and did not review issues such as readiness of documentation, designs and permits\. Although the PAD had indicated that preparation of infrastructure procurement packages was advanced and would be ready by loan effectiveness, no such packages had been prepared\. According to the DIEFP, it took almost two years to update the required technical documentation before they could start the procurement process\. Moreover, at project appraisal, the DIEFP did not have the internal authority and structure to approve procurements on behalf of MOJ of the various design phases (such as Feasibility Study and Technical Detailed Design)\. So they had to rely on another department of the MOJ, which did not fully ensure and facilitate the bureaucratic process of internal approvals\. Only in late 2008 did the DIEFP become in charge of MOJ internal technical and financial approvals, as a separate structure was created inside the DIEFP – The Technical and Economic Committee of the DIEFP (TEC – DIEFP)\. The first civil works were finalized only in 2010\. 78\. The Bank’s Cultural Property safeguard policy had not been triggered during preparation, even though eight of the twenty courthouses initially covered by the Project were designated as historical sites under Romanian law\. It appears that the Bank and client simply had not undertaken the necessary due diligence to find out their status\. In the case of the Sibiu Tribunal, it appears that the authorities notified the DIEFP that the courthouse had been declared a historic building only after the designs were finalized and works were ready to begin\. This had significant implications for the approval process for technical design and construction authorization\. The time taken for such works was far longer than initially estimated during appraisal due to special requirements for restoration sites, including spatial and operational restrictions\. Thus, the team had seriously underestimated the level of effort needed to finalize the technical packages for these types of civil works\. 79\. Preparatory work on the RMS was also inadequate\. The Terms of Reference (TOR) for the RMS was only prepared in 2007, two years after project start\. The initial idea behind the RMS, which was apparently advocated by a Bank consultant, was too ambitious: it aimed to build a single integrated system for five different institutions, each of which had with their own internal complexities with different approaches to resource management\. The RMS was modeled on a similar system in France, without taking sufficient account of the Romanian context\. There was no compelling business case for these institutions and these functions to be merged in one system\. The Customized Off- The-Shelf (COTS) system that was originally chosen did not have a number of functionalities specific to the Romanian context\. Consequently, iterative changes were needed to adapt the original design, which caused further and repeated delays\. In 2011 the whole system was redesigned from a single system to several that were adapted to each institution’s needs\. Stakeholders report that the RMS is rigid and difficult to understand compared to the simple r, albeit obsolete, legacy systems, and that the complexity and delays limited stakeholder buy-in from the outset\. 80\. Lastly, the project team did not focus on results and their monitoring\. There was no baseline for the project, nor any documented efforts to create one during the preparation phase\. This had a knock-on effect across the results framework and all components\. Page 24 of 104  The World Bank Judicial Reform ( P090309 ) B\. KEY FACTORS DURING IMPLEMENTATION Adverse Factors 81\. Inadequate Preparation\. JRP was at an almost complete standstill during its first three years of implementation\. Issues contributing to the delays were described in the Project Launch Aide Memoire from March 2006\. These included: outdated and inadequate feasibility studies; lack of prepared procurement packages; outdated cost tables and procurement plan; and delayed design standards (due to problems with contract negotiations)\. These problems were compounded by changes in the court requirements during implementation\. Design standards were only approved after project approval causing delays because court designs drafted during project preparation had to be revised significantly to comply with the new standards\. CSM’s Rationalization Plan listed two of the courts selected for rehabilitation by JRP (in Horezu and Orsova) among those to be closed\. In the end, these two courts were not approved for closure by the authorities and works could commence\. Changes to projected staffing in several of the courts called for revision of space requirements and adjustments in design\. 82\. High Staff Turnover\. Significant changes to personnel in the early years – with 3 TTLs during the project’s first four years, and 16 Ministers and 8 project coordinators during the project implementation – slowed project implementation as incoming decision-makers developed their understanding and ownership of the project objectives\. By 2009, the borrower had still not developed an Operational Manual, which also led to delays, in particular for the civil works component, due to insufficient day-to-day coordination with the committees outside of MOJ\. By the later years though, the DIEFP comprised the right personnel and skills, and implementation became much smoother\. 83\. Inadequate Budgets\. Under-funding of projects is a systemic issue in Romania\. Projects in Romania receive budget allocations at the beginning of the fiscal year which then are adjusted at the state budget rectifications in the second half of the year\. Initial budget allocations were often inadequate to cover payments of contractors and consultants\. Sometimes shortfalls were corrected in the budget rectifications, sometimes allocations were cut\. Budget constraints caused significant delays throughout and caused the Implementation Progress rating to be downgraded to Moderately Unsatisfactory in the period 2013 to 2014\. Underfunding creates uncertainty for contractors who are reluctant to deploy staff and equipment, or only do so late in the year when funding becomes available\. This was a particular problem for the RMS and for infrastructure contractors\. In three cases, Cluj Tribunal, Iasi Palace of Justice and Tulcea Tribunal, contractors stopped or postponed scheduled work due to lack of budgetary allocations\. Budget issues were addressed by the CMU as part of their country dialogue and some improvement was noted from 2015 but the problem was never fully resolved\. 84\. Lengthy Approval Processes\. JRP suffered delays due to a lengthy approval processes even for small investments, especially from 2006 to 2009\. According to Art\. 42 (1) of the Public Finance Law, projects with a value over RON 30 mil\. (approx\. USD 7\.4 mil\.) must ensure that all investments are approved by the Government\. This affected several projects in Romania, but particularly affected the JRP, which included 19 court investments, many of which, especially in the last years of the project, with values over RON 30 million\. Each activity had to go through the three-stage approval process, which routinely lasted 2\.5 years to 4 years\. 85\. Audit Risk\. Stringent compliance audits by the Court of Accounts and civil servants’ personal liability for decisions creates an environment where civil servants are reluctant to approve procurements, accept deliverables and authorize payments\. Decisions are deferred up to the highest levels of Government, where there is less ownership, frequent changes and less knowledge of the project\. Among Bank project implementation units, the DIEFP was also one of the most effective in obtaining internal approvals within the MOJ, but it was not immune to this chilling effect\. Positive Factors Page 25 of 104  The World Bank Judicial Reform ( P090309 ) 86\. PIU Capacity\. Once the DIEFP was fully functional, it became a significant positive factor in project implementation\. As one stakeholder noted, over time ‘It became a well-oiled machine, addressing countless challenges in its path as best it could’\. By the later years of the project, the DIEFP developed a reputation for the highest-capacity PIU in the Bank’s portfolio with a team of dedicated and knowledgeable local professionals, including a judicial specialist, civil engineer/architect, IT specialist, procurement specialist, and financial specialist,\. Several of the staff had taken Bank-organized procurement training as well as a FM seminar for Bank-management projects\. Due to the Bank’s strengthening of its application of its safeguard policy, the DIEFP was recently found to have insufficient expertise in the area of Environmental Safeguards (more on that in section 2\.4)\. 87\. Bank Procurement Procedures\. DIEFP argues that the Bank procurement procedure as one of the most important factors for successful implementation\. Bank procurement templates were helpful and the Bank’s feedback and clearances secured support of top management and allayed fiduciary concerns\. Bank procurement procedures reduced delays from contested processes\. Under Romanian procurement law, any bidder has the right to file a claim against the process\. The ensuing court procedures can last years, while the winning contract is blocked and the works cannot start\. Under the Bank procurement procedures, filing a claim does not block the award and the works can commence\. The Bank’s procurement procedure is also more transparent because each bidder is informed why they failed\. Finally, the Bank allows a certain degree of flexibility regarding amendments without having to re-tender the parts of the contract subject to the amendment\. The Bank allows for amendments of the contract\. While 11 years is a long time, stakeholders report that many of these project interventions – especially the infrastructure and ICT components – would have been further delayed, or would not have possible, in the absence of Bank procurement procedures\. 88\. Contingency Mechanism\. The Project Implementation Plan revised during restructuring in 2010, and 2015 introduced a risk-management or “contingency” mechanism which allowed the Bank to cancel portions of the loan in case of failure to achieve dated milestones\. Initially this focused on infrastructure and led to cancellation of two out of twenty civil works sites\. The contingency mechanism subsequently focused on the RMS with the renegotiation of the contract in August 2015\. State funds have been allocated to ensure completion of the RMS after the closure of the Bank loan\. IV\. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME A\. QUALITY OF MONITORING AND EVALUATION (M&E) M&E Design and Implementation 89\. According to the PAD, the CSM and MOJ project teams were responsible for monitoring of the project results\. DIEFP was responsible for consolidating information provided by various project counterparts and courts to track progress against the monitoring plan\. 90\. It should be noted at the outset that this was a challenging task during the early phase of the project, because the data environment in the Romanian justice system was very rudimentary and far below EU comparators\. Statistical data was either not available or courts gathered data manually\. Furthermore, information was not reliable, as there were also no conventions for ensuring data consistency or data integrity across the system in paper or electronic formats\. The situation improved somewhat in 2010, from which time much of the M&E data was collected from the case management system used by Romanian courts and then checked for consistency by the DIEFP\. Administrative data was also collected directly from the different stakeholders and complemented by periodic surveys\. Reliability concerns remained, though data since 2014 is now reliable\. Page 26 of 104  The World Bank Judicial Reform ( P090309 ) 91\. Three years into project there was no baseline data in the results framework, and no documented attempts to obtain it\. A baseline survey was conducted in 2008, two years after project effectiveness\. Its existence later became an indicator, but the data contained therein was not used to set targets\. Due to the delays in generating the baseline, by the time data was collected, several of the indicators had become irrelevant\. Others were vague and proved a challenge to measure\. In 2012, the results framework was revised and new, quantifiable, indicators were introduced where possible\. The project outcome indicators were also modified to be quantifiable and have direct relevance to the project, while still retaining the essence of the original outcome indicators\. Further changes to the results framework were made during the fourth restructuring in 2015, where three results indicators were dropped\. 92\. In retrospect, several of the targets set out in the Results Framework lacked ambition\. For example, the results framework estimated a 10 percent increase in case disposal, which over more than 11 years seems modest\. Similarly, the results framework estimated a 10 percent increase in court hearings in 5 courts rehabilitated under JRP\. Why five courts were chosen is not clear\. The actual increase across court sites was approximately 89 percent, which would have been known from the technical designs conducted early in the project cycle\. These early mistakes became compounded, as the level of ambition of these targets was not increased with the successive project extensions even after the target had been achieved\. M&E Utilization 93\. Once the M&E system was finally established, data was provided regularly and in a timely manner to the Project Steering Committee PSC and the Bank\. For its part, the Bank reported data routinely in the project ISRs\. 94\. However, the ICR team found no evidence to suggest that data was used, either strategically or operationally, by the Bank, the DIEFP or the MOJ to inform project implementation, policymaking or citizen outreach\. For example, the three surveys offered insights (See Annex 7) that seem not to have been applied\. With more careful M&E, the project might have demonstrated satisfactory achievement of both development objectives\. Justification of Overall Rating of Quality of M&E Rating: Moderately Unsatisfactory 95\. Throughout JRP’s preparation and early years of implementation, M&E arrangements were clearly an afterthought\. Years passed without a monitoring system, definitions or baselines for several indicators\. Mid-way through the project, the M&E system was finally established and operational\. Thereafter, the DIEFP was diligent in ensuring timely reporting through to project closure\. The project conducted three surveys over the life of the project, and these were of good quality\. The DIEFP also provided valuable support during the ICR phase when requested\. 96\. The M&E arrangements for the JRP should not be judged in hindsight, as M&E frameworks generally (and the Bank’s expectations of them) have changed vastly over the last 11 years\. Nonetheless, the project missed several opportunities to improve their M&E arrangements over time\. While it is true that the Bank was more focused on outputs and outcomes back in 2005, this does not fully explain why baseline data was not collected to feed the original indicators for three years\. It is also true that the Bank’s understanding of justice system performance measurement has improved significantly over the last decade, yet the project seems not to have reflected these innovations in the restructurings that were processed since then\. The data environment in Romanian justice system was indeed very challenging in the early years of the project\. However, more reliable data became available in 2010 and 2012, and was further enhanced in 2014, yet the results framework did not take advantage of these improvements\. If these opportunities had been seized, a moderately satisfactory M&E rating may have been warranted\. Page 27 of 104  The World Bank Judicial Reform ( P090309 ) 97\. Overall, the ICR team was left with the impression that M&E was considered exclusively a compliance exercise throughout project implementation\. Data was collected and sent to the Bank for inclusion in ISRs, but the information it produced did not penetrate the strategic or operational level in the Bank, the DIEFP or the MOJ\. This is a pity, given JRP’s significant achievements\. C\. BANK PERFORMANCE Quality at Entry 98\. The project was not ready at the time of effectiveness\. Shortcomings in preparation are outlined above, but the most significant among them were the inadequate preparation of technical documentation for the civil works, the failure to adequately trigger the Bank’s cultural property safeguards, and the poor initial conception of the RMS\. In addition, the PIU was inadequately staffed, and no provision was made for JRP in the State budget for its first year of implementation\. Quality of Supervision 99\. Bank performance varied over time and between different functions, as can be expected for a long and complex project\. Overall, Bank performance was poor during preparation and the early years of implementation, when support was most needed\. By mid-way though, Bank performance improved with more proactive monitoring\. The Bank team conducted routine missions and reporting was generally timely\. Throughout the project, the FM and procurement support was satisfactory\. In particular, the team supported the DIEFP through the procurement processes, and the DIEFP appreciated the procurement advice provided by the Bank over many years which helped them to mitigate and manage risks\. Bank support to M&E remained lackluster throughout the project\. During preparation and the early years of implementation, Bank support to the ICT and infrastructure elements of the project were inadequate, but this improved mid-way through the project, and in the last years the Bank’s support to ICT was highly satisfactory and helped to get the RMS activity on track\. Overall, the varied performance resulted in uneven implementation support over the life of the project\. 100\. The MTR was conducted in 2010, four years after project start\. The task team did not heed the advice of the MTR to restructure the project by removing or amending the second project development objective relating to accountability\. The reason for inactivity on this recommendation is unclear: doing so would have made JRP’s purpose and results chain clearer\. 101\. The introduction of the Action Plan and contingency mechanism at the 2010 restructuring was particularly useful\. The JRP was among the first projects in ECA to include clear performance targets linked to disbursements\. Without this, the project would likely have been cancelled in 2010 without having achieved any results\. Although the contingency mechanism had little legal effect, it provided the leverage that the client needed to get activities moving\. Stakeholders reported to the ICR team that the conditionality was not resisted by local stakeholders, rather welcomed as a way to overcome inactivity and help navigate Romanian bureaucracy\. Combined with highly proactive supervision during this period, the Action Plan was effective in getting the project on track\. 102\. Considering the length of the project, a second MTR would have been advisable in 2013 or 2014\. A second MTR could have provided an opportunity to reflect on the project’s successes and challenges, analyze the M&E situation, consult with stakeholders and set the strategic direction for the last phase of implementation\. Instead, the project drifted to a closure, with the final years focusing on the completion of ICT and infrastructure activities\. Page 28 of 104  The World Bank Judicial Reform ( P090309 ) Justification of Overall Rating of Bank Performance Rating: Moderately Satisfactory 103\. JRP preparation had many shortcomings, most of which could have been foreseen\. Preparation was rushed, and although the project team conducted a QER and incorporated the feedback provided, it was not nearly enough to ensure timeliness of implementation\. Preparatory work for the civil works component had failed to take into consideration that some of the sites were historical and had to have special permits and designs\. There were no international design standards developed at project start, which meant that new design standards had to be developed and the preparation for the sites had to be redone\. There was little buy-in from users for the RMS, which was still not completed at project closure\. No change management was foreseen for the beneficiaries for the RMS system\. Indicators were prepared without taking into consideration that there was no available baseline data for some of them\. Indeed, some of the indicators were later dropped as they proved impractical to measure and other obvious indicators added very late in the project\. There was also a lack of ambition behind some of the targets\. Only after introducing a contingency mechanism four years into the project did JRP start to disburse at a reasonable rate\. Supervision of the FM, procurement and safeguards aspects of the project were adequate and appreciated by the DIEFP\. D\. RISK TO DEVELOPMENT OUTCOME 104\. Risk to the development outcome is moderate\. 105\. The infrastructure upgrades provide permanent improvements to working conditions in 16 locations across 21 courts\. The facilities are easier to maintain and more energy efficient, making them more sustainable in the long term\. The MOJ has made adequate provision for operations and maintenance costs, which are significantly lower (approximately half) of what they were before the project\. In Iasi, for instance, the maintenance costs for the old building were 400\.000 RON, while for the new building, which is twice the size, the costs are 490,000 RON\. 106\. Structural reforms – such as streamlining of processes, equalizing workloads among judges, and delegating tasks to clerks – have made significant improvements\. These are not one-shot reforms, and more work is needed, but indications from the CSM suggest that next-generation reforms will continue\. 107\. The RMS will be completed using State budget resources\. The MOJ is now able to provide quality data to inform decision- making and guide reforms\. Tools are now in place to monitor the functioning of the courts and human resource management\. The HR and Payroll modules of the RMS for MOJ and CSM are embedded in the daily operations of the judicial system\. However, no budget has been allocated to the migration of data from the old system to the new one requiring the insertion of tens of thousands of files into the new system\. This has led to further delays\. 108\. The NSC and NIM curricula and the training provided under the project strengthened the skills to judges, prosecutors and their staff\. Development of e-learning facilities for both the NSC and NIM had an important positive impact on the training process in both institutions\. The online platform has been developed for both institutions and a methodology for course development has been taught to the core trainers of both the NIM and NSC and embedded into the work of these institutions\. Enhanced design standards (the SCORM standards) for online courses have been provided on a sample base\. Based on the initial assessments and interviews with representatives from both institutions, online courses are popular and effective tools that are used by a significant number of trainees across the justice sector\. Over time however, the online platform is becoming slow and outdated, and does not allow the training centers to host more than three courses simultaneously\. According to NIM, the necessary upgrade would cost around Page 29 of 104  The World Bank Judicial Reform ( P090309 ) 10,000 EUR but there is no state budget for it\. The Government of Romania should carefully consider how to make the most of rapid global advancements in online learning technology which can build on their already strong base\. 109\. Based on the achievements of the JRP, the Bank and Borrower have started a new follow-on project, JSIP, which became effective in August 2017\. The JSIP will focus on improving efficiency and transparency in the delivery of justice services in Romania\. The new project continues several of the successful elements of the JRP, such as financing basic infrastructure in poor and under-served communities\. It also applies some lessons from the JRP, such as focusing on simple ICT infrastructure, rather than complex software systems\. The new project also scales up some of the JRP’s successes, including by focusing more on transparency initiatives and court user needs\. The JSIP will be implemented by the DIEFP at the MOJ under similar implementation arrangements as the JRP\. V\. LESSONS AND RECOMMENDATIONS 110\. There are several key lessons that can be learned from a long and complex project such as the JRP\. 111\. M&E should be a top priority for any project, not an afterthought to comply with Bank rules\. Teams should continually review and explain to internal and external audiences how project interventions are expected to lead to results and impacts of importance\. As part of the constant dialogue around the results chain, the project results framework should be reviewed and updated periodically, and at least during each restructuring to ensure that indicators are appropriately defined and measured and that the level of ambition of targets matches the project investment\. This is particularly important for projects that are extended multiple times\. Under the JRP, stakeholders never understood precisely how the project expected that civil works and IT activities would increase efficiency and/or accountability\. ICR consultations revealed that the Bank did not discuss the results chain with stakeholders and stakeholders showed little interest\. 112\. Projects should give adequate attention to institutional reforms and should communicate progress and results\. The Bank, the Borrower and the implementing agency focused most of their attention to the ICT and infrastructure activities, likely because they were the largest disbursement categories and the most problematic activities in terms of bureaucratic hurdles and delays\. As a result, JRP was perceived by many as simply a financing vehicle for new courthouses and computers, as if that were an end in itself\. If the project had solely built courthouses and bought computers, it would not have achieved its development objectives\. Much of the achievement of the objectives derived from the structural reforms that the project supported, complemented by investments in ICT and infrastructure\. A few key personnel spread across the DIEFP, the MOJ, MOPF, the beneficiary institutions and the Bank seemed to understand this, but it was not well communicated or documented throughout the sector or throughout the Bank\. As a result, the JRP had many good stories that had gone untold\. 113\. Projects with complex IT and infrastructure investments should have a fully operational project implementation unit in place prior to, or soon after, effectiveness\. In the case of the JRP, a full DIEFP was not in place at effectiveness, and took years to develop a full complement of experienced staff\. As a result, at critical times in the early phases of preparation and implementation, there were no internal qualified technical staff able to prepare relevant documentation or support decision makers in Government\. Furthermore, a capable PIU, with the authority to take and implement decisions, is critical to project success\. 114\. The simplest ICT solutions should be prioritized, wherever possible\. In the case of JRP, the RMS was overdesigned and overambitious\. Its complexity contributed to costs, delays and limited stakeholder Page 30 of 104  The World Bank Judicial Reform ( P090309 ) support\. Teams should be especially wary to incorporate a complex ICT project inside an already-complex institutional reform project\. 115\. It is essential for a project to ensure sufficient State budgetary allocation\. This involves realistic planning, proactive monitoring and follow-up on budget allocations, as well as close and timely coordination between the borrower, the Bank and the implementing agency in case of insufficient funds allocation\. In Romania, the MoPF leads the annual budgetary allocation process, based on the forecasts provided by the line Ministries and ceilings and fiscal targets established at macroeconomic level\. Experience shows that the allocated project budget is rather decided on historical basis and is likely to be established at the level of the budgetary execution in the previous year\. For the years 2012 to 2015, budgetary allocations were inadequate, which caused implementation delays, frustration, complexity and, ultimately necessitated successive project extensions\. In order to ensure that sufficient funds are available for project activities on a timely basis, the implementing Ministry should be proactive in discussing financing needs with the MoPF and ensuring that their budgetary requests are realistic and closely aligned to the project procurement and implementation plan\. Furthermore, the Bank could agree with the Borrower certain milestones in project implementation and specific financing allocations for their achievement\. 116\. Slow-moving projects should consider introducing Action Plans with contingency mechanisms\. Prior to the introduction of the Action Plan, JRP was at a standstill and at risk of being cancelled\. After the introduction of the Action Plan, implementation progress accelerated and the project started to disburse at a reasonable rate\. The contingency mechanism helped focus attention on key milestones for implementation and specified consequences if these milestones were not met\. The relevant stakeholders – the Bank, the client, the DIEFP, and the beneficiary institutions – each benefited from the Action Plan using the contingency mechanism to focus the attention of stakeholders\. This alignment of interests provided the leverage needed to pull the project out of problem status\. \. Page 31 of 104  The World Bank Judicial Reform ( P090309 ) ANNEX 1\. RESULTS FRAMEWORK AND KEY OUTPUTS 1\. RESULTS INDICATORS A\.1 PDO Indicators Objective/Outcome: The project's development objectives are: (i) to increase the efficiency of the Romanian courts; and (ii) to improve the accountability of the judiciary which should result in reduced corruption and a Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Improvements to judicial Text 11,224 cases in 5 18\.52% (cumulative Improved efficiency 6% (cumulative data – efficiency in pilot courts randomly chosen 5 data - 2015 compared measured by 10% 2016 compared to pilot courts to 2008 baseline)\. increase in the 2008 baseline)\. number of cases disposed of or archived in pilot courts\. 31-Dec-2008 02-Jun-2016 31-Mar-2017 16-Mar-2017 Comments (achievements against targets): Page 32 of 104  The World Bank Judicial Reform ( P090309 ) Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Audio recordings of court Percentage 0\.00 100\.00 100\.00 100\.00 hearings available to any trial participant on request 05-Oct-2010 02-Jun-2016 31-Mar-2017 16-Mar-2017 Comments (achievements against targets): Integrated audio recording systems for court hearings are operational in all national courts (243) and their courtrooms (699)\. Audio recordings of court hearings are provided on request to any interested trial participant\. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Rehabilitation/construction Text 0 court buildings 16 courthouses are in Met international 16 courthouses are in of at least 15 courthouses in line with international standards in the line with international line with international standards\. rehabilitation/ standards\. standards (standards for construction of at better accommodations for least 15 court trials, public access and buildings completed\. security features)\. 31-Dec-2008 02-Jun-2016 31-Mar-2017 16-Mar-2017 Comments (achievements against targets): Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Information required to Text RMS not in place\. HCCJ, Public Ministry RMS system installed HCCJ, Public Ministry increase the capacity of the and SCM (HR & Payroll and functioning; and and SCM (HR & Payroll judicial system available module) technically data published module) technically Page 33 of 104  The World Bank Judicial Reform ( P090309 ) through establishment of a ready to go-live\. quarterly for the past ready to go-live\. functioning RMS and such year (since 2012)\. Implementation information/data published ongoing for MOJ\.RMS quarterly by the MOJ, SCM implementation will and HCCJ on thei continue with support from State budget funds beyond the closing date of the project\. None of the institutions publish on their websites resource management data originating from the RMS\. 31-Dec-2007 14-Dec-2016 31-Mar-2017 16-Mar-2017 Comments (achievements against targets): Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Improvements to judicial Text No publications of (a) The baseline survey Regular The baseline survey transparency through actual court was finalized\. Another annual/quarterly was finalized\. Another [annual/quarterly] performance data, or survey related to the publication of survey related to the publication on the websites (b) data from periodic activity of all courts available data in the activity of all courts of the respective courts and user surveys was completed for the past two years (2011 was completed for the SCM of: (a) court conducted, are impact Studies of the & 2012)\. Impact Studies of the performance data; (b) data available to be four new codes\. The four new codes\. The from periodic user surveys of published on the MoJ published the MoJ published the websites of the impact studies on its impact studies on its Page 34 of 104  The World Bank Judicial Reform ( P090309 ) ind respective courts and website in January website in January the SCM\. 2012\. The 2012\. The intermediate survey intermediate survey was finalized\. The final was finalized\. The final survey is under survey is under implementation\. implementation\. The contract will be extended for two months beyond the Project closing date, because approval by the SCM Plenum is late\. 15-Mar-2006 14-Dec-2016 31-Mar-2017 16-Mar-2017 Comments (achievements against targets): A\.2 Intermediate Results Indicators Component: Court Infrastructure Rehabilitation: (Cost $85\.00 M) Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Rehabilitation/construction Text 0 renovated court 18\.52% (cumulative At least 15 buildings 16 courthouses of at least 15 court buildings buildings\. data - 2015 compared completed\. finalized\. Civil works to 2008 baseline)\. are ongoing in 3 courthouses to be finalized after the closing date of the Page 35 of 104  The World Bank Judicial Reform ( P090309 ) current Project and with support of the new Justice Services Improvement Project and State budget\. 15-Mar-2006 02-Jun-2016 31-Mar-2017 16-Mar-2017 Comments (achievements against targets): The decreased percentage is caused by the fact that in 2016 the work volume (number of files registered during one year) of Orsava First Instance Court (one of the pilot courts dropped significantly - in 2015 the total number of cases was 3584 and in 2016 was 1810\. Out of the 1810 cases registered in 2016, 1500 cases were disposed in the respective year (83%)\. For the other remaining four pilot courts, the volume of activity stayed within the previous levels\. It should be noted that for eight consecutive years, starting with 2008 until 2015, an increase of at least 16% in the number of cases disposed in the five pilot courts was registered\. Component: Strengthening of the Administrative Capacity of Courts: (Cost $11\.05 M) Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Uniform standards for Text Realistic The implementation Uniformity in The implementation operational processes time/workload of the indicators operational (case time of the indicators developed and country-wide standards (based on started with 11 pilot handling and optimal started with 11 pilot implementation started EU/International courts\. It is an ongoing workload) standards courts\. It is an ongoing standards) for process, measures for (for handling court process, measures for handling the cases in its achievement were cases) achieved\. its achievement were courts, were not included also in the included also into the developed as yet\. Judicial Reform Judicial Reform Strategy for 2015- Strategy for 2015- 2020 (Government 2020 (Government Decision no\. Decision no\. 1155/2014) and the 1155/2014) and the Page 36 of 104  The World Bank Judicial Reform ( P090309 ) Action Plan for the Action Plan for the implementation of the implementation of the strategy (Government strategy (Government Decision no\. Decision no\. 282/2016)\. 282/2016)\. 15-Mar-2006 14-Dec-2016 31-Mar-2017 16-Mar-2017 Comments (achievements against targets): Component: Court Information System: (Cost $21\.50 M) Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion At least 10 % increase in the Text 277 trainees using the 335 % increase (1205 10 % increase (304 339 % increase (1215 number of trainees using the NIM and NSC e- trainees)\. trainees) trainees) NIM and NSC e-learning learning platform in platform 2012\. 31-Dec-2012 14-Dec-2016 31-Mar-2015 16-Mar-2017 Comments (achievements against targets): Component: Institutional Development of Judicial Institutions: (Cost $6\.61 M) Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Uniform standards for Text Realistic The implementation Uniformity in The implementation operational processes time/workload of the indicators operational (case time of the indicators Page 37 of 104  The World Bank Judicial Reform ( P090309 ) developed and country-wide standards (based on started with 11 pilot handling and optimal started with 11 pilot implementation started EU/International courts\. It is an ongoing workload) standards courts\. It is an ongoing standards) for process, measures for (for handling court process, measures for handling the cases in its achievement were cases) achieved\. its achievement were courts, were not included also in the included also into the developed as yet\. Judicial Reform Judicial Reform Strategy for 2015- Strategy for 2015- 2020 (Government 2020 (Government Decision no\. Decision no\. 1155/2014) and the 1155/2014) and the Action Plan for the Action Plan for the implementation of the implementation of the strategy (Government strategy (Government Decision no\. Decision no\. 282/2016)\. 282/2016)\. 15-Mar-2006 14-Dec-2016 31-Mar-2017 16-Mar-2017 Comments (achievements against targets): Unlinked Indicators Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion New design standards used Text No standards were All courts rehabilitated New design standards All courts rehabilitated in rehabilitation and developed\. and constructed under used for the court and constructed under construction of court the Project are based buildings constructed the Project are based buildings on designs in line with in the last two years on designs in line with international (2011 & 2012)\. international standards, 16 standards\. 16 Page 38 of 104  The World Bank Judicial Reform ( P090309 ) courthouses are courthouses are finalized\. finalized\. 3 remain under implementation beyond the Project closing date\. 15-Mar-2006 14-Dec-2016 31-Mar-2017 16-Mar-2017 Comments (achievements against targets): Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion 10% increase in the total Text Baseline established 99\.72 % increase At least a 10 % 77\.25 % increase number of court hearings in with 2008 data\. (cumulative data - increase (cumulative data - 5 courts rehabilitated under 2015 compared to 2016 compared to the project 2008 baseline)\. 2008 baseline) 15-Mar-2006 14-Dec-2016 31-Mar-2017 16-Mar-2017 Comments (achievements against targets): Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Recommendations to Text No recommendations Recommendations Recommendations Recommendations optimize courts' activity are in place to optimize were adopted by the adopted by SCM\. were adopted by the adopted by the SCM court activity\. SCM on March 28, SCM on March 28, 2013 (SCM Decision 2013 (SCM Decision no\. 392 for the no\.392 for the Page 39 of 104  The World Bank Judicial Reform ( P090309 ) approval of the Final approval of the Final Report)\. Report)\. 15-Mar-2006 14-Dec-2016 31-Mar-2017 16-Mar-2017 Comments (achievements against targets): Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion An RMS for core justice Text RMS not in place\. HCCJ, Public Ministry Sustained use of the HCCJ, Public Ministry sector entities enables and SCM (HR & Payroll RMS\. and SCM (HR & Payroll management of HR and module technically module) technically payroll functions ready to go-live\. MOJ ready to go-live\. MOJ (central apparatus, (central apparatus, Bucharest Court of Bucharest Court of Appeal and subordinated courts) is in the process of preparing data for migration for HR and Payroll\. 15-Mar-2006 14-Dec-2016 31-Mar-2017 16-Mar-2017 Comments (achievements against targets): Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Page 40 of 104  The World Bank Judicial Reform ( P090309 ) An RMS for core justice Text No RMS HCCJ, Public Ministry Sustained use of the HCCJ, Public Ministry sector entities enables pilot and SCM (HR & Payroll RMS and SCM (HR & Payroll justice sector entities to module technically module) technically collect management ready to go-live\. MOJ ready to go-live\. MOJ information data (central apparatus, (central apparatus, Bucharest Court of Bucharest Court of Appeal and Appeal and subordinated courts) subordinated courts) is in the process of is in the process of preparing data for preparing data for migration for HR and migration for HR and Payroll\. Payroll\. 01-Jan-2006 14-Dec-2016 31-Mar-2017 16-Mar-2017 Comments (achievements against targets): Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion The Law School Admission Text No LSAT in place Magistrates' A formal regulation Magistrates’ Test (LSAT) is formally recruitment regulation regarding the recruitment regulation embedded into magistrates# was modified by SCM continuous use of was modified by SCM recruitment procedures decision no\. LSAT test for decision no 869/2009, 869/2009, formally magistrates formally embedding embedding LSAT\. requirement adopted LSAT\. by the NIM\. 15-Mar-2006 14-Dec-2016 31-Mar-2017 16-Mar-2017 Page 41 of 104  The World Bank Judicial Reform ( P090309 ) Comments (achievements against targets): Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Conduct of periodic internal Text No surveys conducted\. The baseline survey 3 surveys conducted The baseline survey and external surveys of was finalized\. Another and results was finalized\. Another individuals and firms and survey related to the disseminated\. survey related to the publication of results activity of all courts activity of all courts was completed for the was completed for the impact Studies of the Impact Studies of the four new codes\. The four new codes\. The intermediate survey intermediate survey was finalized\. The final was finalized\. The final survey is under survey is under implementation\. implementation\. The contract will be extended for two months beyond the Project closing date to allow for SCM Plenum approval of final survey report\. 15-Mar-2006 14-Dec-2016 31-Mar-2017 16-Mar-2017 Comments (achievements against targets): Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Page 42 of 104  The World Bank Judicial Reform ( P090309 ) New/amended Criminal Text Codes not in place\. All Codes adopted in All 4 Codes adodpted All Codes adopted in Procedure Code and Civil the Parliament and in the Parliament and the Parliament and Procedure Code adopted by enforced\. enforced\. enforced\. Parliament and came into force 15-Mar-2006 14-Dec-2016 31-Mar-2017 16-Mar-2017 Comments (achievements against targets): Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Impact assessment of four Text No impact assessment Impact assessment TA that would provide Impact assessment Codes (Civil Code, Civil conducted\. studies finalized on impact assessment of studies finalized on Procedure Code, Criminal November 30, 2011\. 4 Codes under November 30, 2011\. Code and Criminal Procedure implementation\. Code) completed and accepted by SCM and MOJ\. 15-Mar-2006 14-Dec-2016 31-Mar-2017 16-Mar-2017 Comments (achievements against targets): Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion At least 50 % increase of the Text 7 128% increase (16 50 % increase (11 128 % increase (16 number of council rooms in council rooms)\. council rooms) council rooms) 10 courts rehabilitated under this project 31-Dec-2010 14-Dec-2016 31-Mar-2017 16-Mar-2017 Comments (achievements against targets): Page 43 of 104 The World Bank Judicial Reform ( P090309 ) Page 44 of 104  The World Bank Judicial Reform ( P090309 ) A\. KEY OUTPUTS BY COMPONENT Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Outputs 2010 – 2011 2011 – 2012 2012 – 2015 2015 – 2017 2006 – 2010 Components Components Components Components Components prior to post post post post restructure 1 restructure 1 restructure 2 restructure 3 restructure 4 D=Dropped C=Continued N=New R=Revised Component 1: Court Infrastructure Rehabilitation (a) Rehabilitation and limited R C C C • Rehabilitation and (re)construction new construction of works in 16 court buildings: FIC prioritized court buildings (25 (a) Bolintin Vale, FIC Blaj, T Maramures, buildings of which 5 were new Rehabilitation T Ialomita, CA Craiova, T Dolj, FIC constructions)3 construction of Orsova, T Arges, CA Pitesti, T Tulcea, at least 15 FIC Saliste, FIC Viseul de Sus, T court buildings Suceava, FIC Vatra Dornei, PJ Iasi, PJ rehabilitated Oradea, T Cluj\. Work is still ongoing (b) Development of uniform C C C C on: T Prahova, PJ Prahova, and T space planning and design Sibiu standards for court facilities • Manual with new design standards for all court buildings • TA for Independent Technical Monitoring • Assistance for Site Supervision for Construction Works • Furniture for the court buildings • Technical designs • Site supervision for civil works 3 The Loan Agreement of the Project initially refers to 25 civil works projects\. However, five of these were already canceled during the four-year implementation of the project\. Page 45 of 104 The World Bank Judicial Reform ( P090309 ) • Independent Technical Monitoring/Review Component 2: Strengthening of the Administrative Capacity of Courts (a) Development and C C C C • TA to assess the impact of the implementation of a program implementation of the four new to reduce case delays and codes backlogs • TA to revise Civil and Criminal Code (b) Development of a C C C C Procedure Code framework for economic • Determining and implementing the management of the courts, optimal volume of work of judges including regulatory and and court clerks and ensuring the organizational arrangements quality of the courts’ activity for economic managers and training (c) Optimization of courts’ C C C C operational processes, including transfer of non- adjudicative tasks from judges to court personnel, and upgrading the functioning of case registries, archives, recording of court proceedings, court statistics and case monitoring (d) Public Education / D ---- ---- ---- ---- Information Component 3: Court Information System (a) Development of a C C C C • High Level System Analysis for RMS comprehensive RMS for the judicial system Page 46 of 104 The World Bank Judicial Reform ( P090309 ) (b) Upgrading the archive D ---- ---- ---- • Integrated RMS – supply & system for Courts installation of IS • Audio Court Recording System • Encrypting equipment for RMS • RMS Data Migration Services Component 4: Institutional Development of Judicial Institutions (a) Assistance to CSM – in the C C C • Provision of distance learning area of development of long- facilities for the NIM and the NSC term judicial policies, • TA for development of LSAT testing monitoring judicial for NIM performance, and public • Revision of curricula for continuous communications education at NSC • Simultaneous translation equipment for NSC • Baseline public opinion survey on judicial performance • Development of Teaching Techniques for NIM • Management software for DIEFP • Software for electronical processing of the NIM • Translation and publication in Romanian language of all 27 EU Member States’ Constitutions • Project audit for the period for 2015 - March 2017 • Support to the CSM - PR Communications strategy development Page 47 of 104 The World Bank Judicial Reform ( P090309 ) • Support to the MOJ - Internal and external communication • Support to the MOJ – Development of quality management system • Project audit for the period May 2006 - 2009 • Project audit for the period 2010 - March 2013 • Support for strengthening the Insolvency mechanism (insolvency code) • LSAT - Phase II • LSAT - Phase III • Support to the NIM – Development of teaching techniques • Revision of NSC’s continuous training activity • Technical assistance – syllabus drafting for NSC curricula and training in 4 new areas • Technical Assistance for the Development of the Network of Trainers Teaching Techniques in Long Distance Training (E-Learning) within NSC • Development of continuous on line training of the court personnel • Technical Assistance for the Development of the Network of Trainers Teaching Techniques in Page 48 of 104 The World Bank Judicial Reform ( P090309 ) Long Distance Training (E-Learning) within NIM • Baseline Survey • Support to the CSM – Development of quality management system • Intermediate Survey (mid project) • Project audit for the period for 2013 – 2014 • Support to the MOJ - Training for DIEFP staff • Final Survey REVISIONS OF THE RESULTS MATRIX Results Indicator Baseline (2008) Actual End of Project Target Achievement Project development objective indicators Improvements to judicial efficiency in 11,224 cases in 5 18\.52% Improved Fully achieved pilot courts * randomly chosen (cumulative data – Efficiency measured by 10% pilot courts 2015 compared to increase in the number of cases 2008 baseline) disposed of or archived in pilot courts Rehabilitation/construction of at least Met Fully achieved 15 courthouses in line with 16 (additionally, international international standards4 (standards for 0 works are ongoing standards in the better accommodations for trials, on 3 other courts) public access and security features) * 4International standards are based on a comprehensive Manual ( Manual of Physical Design Standards for Romanian Court Buildings, May 10, 2006) created by the Bank team at the early stages of the Project\. Page 49 of 104 The World Bank Judicial Reform ( P090309 ) rehabilitation/construction of at least 15 court buildings completed Information required to increase the RMS not in place HCCJ, Public RMS system installed and Not achieved but capacity of the judicial system available Ministry and CSM functioning and data published substantially met through the establishment of a (HR & Payroll quarterly for the past year functioning RMS and such module) (since information/data published quarterly technically ready 2012) by the MOJ, CSM and HCCJ on their to go-live websites * Audio recordings of court hearings 0 100 100 Fully achieved available to any trial participant on request (Percentage) *** Aggregate case backlogs for Courts Methodology and The baseline Regular annual/quarterly Fully achieved improvements to judicial transparency baselines under survey was publication of available data in through the [annual/quarterly] development\. finalized\. Another the past two years (2011 & publication on the websites of the One user survey survey related to 2012) respective courts and CSM of: (a) conducted the activity of all actual court performance data; (b) courts was data from periodic user surveys of completed for the individuals and firms on access to and Impact Studies of satisfaction with judicial services the four new (including fairness and timeliness) for codes\. The MOJ courts financed by Part A of the published the project* impact studies on its website in January 2012\. The intermediate survey was finalized\. The final survey is under implementation\. Page 50 of 104 The World Bank Judicial Reform ( P090309 ) Intermediate results indicator – Component 1 Court Infrastructure Rehabilitation (a) renovated court buildings with better accommodations for trials, public access and security features; (b) new design standards for court buildings reflecting best international practices and cost efficiency principles Rehabilitation/construction of at least 0 16 At least 15 buildings completed Fully achieved 15 court buildings rehabilitated 10% decrease of average time required N/A At least a 10% decrease\. Dropped to dispose of cases in 5 courts rehabilitated under this project*** New design standards used in No standards All courts New design standards used Fully achieved rehabilitation and construction of were developed rehabilitated and for the court buildings court buildings constructed under constructed in the last two the Project are years (2011 & 2012) based on designs in line with international standards\. 16 courthouses are finalized\. 10% increase in a total number of Baseline 99\.72% increase At least a 10% increase\. Fully achieved court hearings in 5 courts rehabilitated established with under the project 2008 data\. Intermediate results indicator – Component 2 Strengthening of the administrative capacity of courts: (a) improved case management processes; (b) effective integration of economic managers within courts’ structure; (c) new internal working arrangements within courts whereby non judicial tasks are transferred from judges to court clerks; (d) public communication strategy is adopted by CSM Recommendations to optimize courts’ No Recommendations Recommendations adopted by Fully achieved activity are adopted by the CSM recommendations were adopted by CSM\. in place to the CSM on March optimize court 28, 2013 (CSM activity Decision no\.392 for the approval of the Final Report)\. Page 51 of 104 The World Bank Judicial Reform ( P090309 ) Uniform standards for operational Realistic The Uniformity in operational (case Not achieved but processes developed and country wide time/workload implementation of time handling and optimal substantially met implementation started standards (based the indicators workload) standards (for on started with 11 handling court cases) achieved EU/International pilot courts\. It is standards) for an ongoing handling the cases process, measures in courts, were for its not developed as achievement were yet\. included also into the Judicial Reform Strategy for 2015-2020 (Government Decision no\. 1155/2014) and the Action Plan for the implementation of the strategy (Government Decision no\. 282/2016)\. New/amended Criminal Procedure All codes are in All Codes adopted All 4 Codes adopted in the Fully achieved Code and Civil Procedure Code place in the Parliament Parliament and enforced adopted by Parliament and come into and enforced force Impact assessment of four Codes (Civil No impact Impact TA that would provide impact Fully achieved Code, Civil Procedure Code, Criminal assessment assessment assessment of 4 Codes under Code and Criminal Procedure Code) conducted\. studies finalized implementation completed and accepted by CSM and on November 30, MOJ 2011 Page 52 of 104 The World Bank Judicial Reform ( P090309 ) Economic managers employed dropped dropped dropped Dropped through competitive process in courts of all levels) ** About 50% of economic managers dropped dropped dropped Dropped trained) ** About 50% of economic managers with dropped dropped dropped Dropped satisfactory performance ratings) ** Public communication strategy is dropped dropped dropped Dropped adopted and implemented) ** Page 53 of 104 The World Bank Judicial Reform ( P090309 ) Intermediate results indicator – Component 3 Integrated RMS for the Judiciary: (a) development of RMS for courts; (b) upgraded archive system for Courts An RMS for core justice sector entities RMS not in HCCJ, Public Sustained use of the Not achieved but substantially (MOJ, CSM, courts, Public Ministry, High place Ministry and RMS met Court of Cassation and Justice) enables CSM (HR & pilot justice sector entities to collect data Payroll module) on budget execution, financial assets and technically liabilities, human resources, and ready to go-live\. performance (MIS) according to legal MOJ (central provisions and internal regulations**** apparatus, Bucharest Court of Appeal and subordinated courts) is in the process of preparing data for migration for HR and Payroll\. No\. of key offices at the national level (MOJ, CSM, HCCJ) with an integrated view of up-to-date and accurate information regarding resource use, dropped dropped dropped Dropped resource availability, and court operations performance (in the aggregate as well as court-specific)) ** About 50% of court records stored in fire and waterproof dropped dropped dropped Dropped devices) ** Intermediate results indicator – Component 4 Institutional development of judicial institutions: (a) organizational structure of CSM is completed and fully functional; (b) MOJ’s capacity in capital investment planning is improved; (c) new tests and qualification exams procedures are used by NIM; Page 54 of 104 The World Bank Judicial Reform ( P090309 ) (d) national School of Clerks’ capacity is enhanced\. CSM effectively assumes functions of CSM assumed CSM effectively Dropped budget planning, policy formulation and the function of assumes all the performance monitoring Policy indicated functions; formulation And performance monitoring but not budget planning The LSAT is formally embedded into No LSAT in Magistrates’ A formal regulation Fully achieved magistrates’ recruitment procedures place recruitment regarding the regulation was continuous use of LSAT modified by test for magistrates CSM decision no requirement adopted 869/2009, by the NIM\. formally embedding LSAT\. Conduct of periodic internal (within the No surveys The baseline 3 surveys conducted Fully achieved judicial system) and external surveys of conducted survey was and results individuals and firms and publication of finalized\. disseminated results Another survey related to the activity of all courts was completed for the Impact Studies of the four new codes\. The Page 55 of 104 The World Bank Judicial Reform ( P090309 ) intermediate survey was finalized\. The final survey is under implementation\. NIM and NSC design and apply web- No quarterly 3 quarterly Dropped based user feedback survey for all reports reports courses and publish quarterly results published published based on user feedback New strategy for NSCC is adopted and dropped dropped dropped Dropped implemented) ** 30% increase in training delivery by dropped dropped dropped Dropped NSCC) ** 80% of positive evaluation of NSCC dropped dropped dropped Dropped training by court presidents) ** Indicators revised following the 2010 restructuring ** Indicator dropped following the 2010 restructuring *** Indicator created following the 2015 restructuring **** Indicators revised following the 2015 restructuring Page 56 of 104  The World Bank Judicial Reform ( P090309 ) ANNEX 2\. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION A\. TASK TEAM MEMBERS Name Role Preparation Irina Kichigina Task Team Leader Amitabha Mukherjee Task Team Leader Nurul Alam Senior Procurement Specialist Frances Allen Communications Officer Laurentiu Anton David Bernstein Lead Public Sector Specialist Genoveva Bolea Bogdan Constantin Constantinescu Senior Financial Management Specialist Ruxandra Costache Senior Counsel Vladislav Krasikov Mirela Mart Craig Neal ICT Consultant Eric Peterson Architect Dorothea Abeline Reiling Senior Counsel Siew Chai Ting Lead Finance Officer Supervision/ICR Klaus Decker Task Team Leader(s) Elena Corman Procurement Specialist(s) Anneliese Viorela Voinea Financial Management Specialist Luisita I\. Guanlao Lead ICT Specialist Valerie Morrica Safeguards Specialist Cesar Niculescu Safeguards Specialist Page 57 of 104  The World Bank Judicial Reform ( P090309 ) Victor Neagu Communications Officer Andreea Silvia Florescu Program Assistant Gabriela Grinsteins Counsel Irina Kichigina Task Team Leader Amitabha Mukherjee Task Team Leader Migara De Silva Task Team Leader Nurul Alam Senior Procurement Specialist Frances Allen Communications Officer Kosuke Anan Senior Social Development Specialist Janis Bernstein Senior Social Development Specialist Natasha Bhandari Junior Professional Associate Genoveva Bolea Bogdan Constantin Constantinescu Senior Financial Management Specialist Ruxandra Costache Senior Counsel Claudiu Danciu Jonas Arp Fallov Senior Public Sector Specialist Gabriela Beatrice Gabor Maurizio Gallerini IT Elena Georgieva Andonovska Public Sector Specialist Claire Louise Greer Operations Officer Hans Jurgen Gruss Chief Counsel Asli Gurkan Senior Social Development Specialist Haik Hakobyan Yoko Kagawa Senior Public Sector Specialist Vladislav Krasikov Waleed Haider Malik Senior Public Sector Specialist Gabriela Doina Manea Resource Management Specialist Danijel Marasovic Infrastructure Consultant Craig Neal ICT Consultant Page 58 of 104  The World Bank Judicial Reform ( P090309 ) Valeria Nikolaeva Procurement Specialist Rajesh Pandey Eric Peterson Architect Denisa Popescu IT Mihai Preda Driver Ismail Radwan Lead Public Sector Specialist Steven Reichenbach Consultant Milena Sanchez de Boado Justice Consultant Ella Shagabutdinova Charles Simpson III Olga Sipka Justice Reform Consultant Ramesh Sivapathasundram Lead Information Specialist Ireneusz Smolewski Procurement Costel Dorin Todor Zhanybek Ybraiym Uulu Public Sector Specialist Andrew Vorkink Virginia Yates Program Assistant Barbara Ziolkowska Procurement Specialist ICR Georgia Harley Public Sector Specialist Agnes Said Justice Reform Consultant Elena Gabriela Ardelean Operations Analyst NB: the first table below is pulling inaccurate data based on the new ICR template\. As agreed with OPCS, please skip and refer to the next table with the accurate data\. 1\. STAFF TIME AND COST Page 59 of 104  The World Bank Judicial Reform ( P090309 ) Staff Time and Cost Stage of Project Cycle No\. of staff weeks US$ (including travel and consultant costs) Preparation Total 0\.00 0\.00 Supervision/ICR FY10 0 362,930\.50 FY11 0 151,541\.21 FY12 0 85,225\.41 FY13 0 178,725\.65 FY14 18\.964 111,487\.67 FY15 23\.405 149,201\.76 FY16 17\.088 98,614\.17 FY17 19\.625 91,593\.28 FY18 7\.403 41,599\.79 Total 86\.49 1,270,919\.44 STAFF TIME AND COST Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including travel No\. of staff weeks and consultant costs) Lending FY 2005 6\.5 55\.088 FY 2006 24\.094 139\.553 Total: 30\.594 194\.641 Supervision FY 2007 8\.505 75\.749 FY 2008 12\.346 91\.071 FY 2009 18\.383 117\.856 FY 2010 46\.604 363\.670 FY 2011 27\.809 155\.908 FY 2012 14\.56 88\.837 FY 2013 23\.343 181\.017 FY 2014 18\.964 110\.867 Page 60 of 104  The World Bank Judicial Reform ( P090309 ) FY 2015 24\.08 164\.131 FY 2016 15\.888 98\.630 FY 2017 14\.542 81\.159 Total: 222\.024 1,528\.900 ICR FY 2017 4\.083 22,032\.85 Total: 4\.083 22,032,85 ANNEX 3\. PROJECT COST BY COMPONENT Amount at Approval Actual at Project Percentage of Approval Components (US$M) Closing (US$M) (US$M) Court Infrastructure 85\.0 85\.00 100\.0 Rehabilitation Strengthening of the Administrative Capacity of 11\.05 11\.05 100\.0 Courts Integrated Resource Management System for the 21\.5 21\.50 100\.0 Judiciary Institutional Development of 6\.61 6\.61 100\.0 Judicial Institutions Total Baseline Cost 124\.16 124\.16 0\.00 Physical Contingencies 5\.00 5\.00 100\.0 Price Contingencies 0\.00 0\.00 0\.00 Total Project Cost 129\.16 129\.16 100\.0 Page 61 of 104 The World Bank Judicial Reform ( P090309 ) ANNEX 4\. EFFICIENCY ANALYSIS This ex-post economic analysis of JRP considers the direct benefits and costs associated with changes in economic welfare resulting from project implementation\. JRP generated several economic benefits; however, quantifying these depends on the availability and reliability of data\. This economic analysis provides estimates of benefits and costs using data obtained from the MOJ, DIEFP, the Romania National Institute of Statistics and the IMF World Economic Outlook\. The following areas were subjected through economic and financial analysis: a\. Time savings from more efficient use of time of judges, court staff and lawyers enabled by various project interventions\. b\. Improved human and financial resources management as a result of the introduction of the Resource Management System (RMS)\. As a result of these two quantifiable elements, the ENPV of the total project amounts to EUR 47\.4 million at a 5 percent discount rate with an EIRR of 71\.2 percent\. Benefits and costs are estimated for the period from year one of project implementation until current year (i\.e\. from 2006 until 2017), spanning a 12-year investment horizon\. The horizon of 12 years is usually seen in similar projects in the sector\. In our case, increasing the number of years to include in the analysis would add to the efficiency of the project given that economic benefits are expected from the RMS implementation in the future\. Estimated economic costs include: the cost of investment (the amount of loan used as a proxy plus associated fees)5 staff time expenses for project implementation and O&M costs\. Detailed rationale for the estimation of all categories of economic benefits is outlined below: 1- Time savings from more efficient use of time of judges, court staff and lawyers enabled by various project interventions Project implementation enabled judges, court staff, and lawyers to spend time more efficiently, which was possible through improved working conditions, simplified and more efficient legislative framework, improved performance management, and streamlined business processes\. The analysis assumes that time that was left at the disposal of judges, staff and lawyers was otherwise used efficiently (for example, clearing more cases, devoting adequate time to more complex cases, reducing backlogs and professional development education\.)\. This benefit was facilitated through key project interventions that included improvement of courthouse infrastructure, overhauling the legal codes, introduction of a system for court recording, workload optimization, training activities and introduction of a case flow management guide\. Figure 2 illustrates distribution of project funds across interventions\. 5 Loan repayments are not factored in because the grace period extends past the last year of investment horizon Page 62 of 104 The World Bank Judicial Reform ( P090309 ) The analysis splits the estimates regarding time savings of judges, court staff and lawyers according to: a) the year where benefits from these actions became effective and; b) whether specific interventions affected all judges, court staff and lawyers across the court network in Romania, or only the ones working on the territory of 16 courthouses where the civil works were done\. The final estimate is the effect of civil works in the 16 courthouses is 0\.33 hours (i\.e\. 20 minutes) daily saved of the time of 494 judges working in the 16 courts, 0\.33 hours daily for each of the 1,200 court staff and finally 0\.17 hours (i\.e\. 10 minutes) daily for each of the estimated 5,415 lawyers working on the territory under the authority of 16 courts\. The difference in years when civil works in different courthouses were finished was accounted for\. Introduction of court recording affected the entire court system and the estimated time saved for judges as a result of this intervention is 0\.33 hours (i\.e\. 20 minutes) for judges and 0\.50 hours (i\.e\. 30 minutes) for court staff\. This system was effective from 2013 onwards\. Finally, the other interventions including code overhauling, training, workload optimization and introduction of the CFMG affected the whole system as well and their cumulative effect is estimated to be 0\.25 hours (i\.e\. 15 minutes) saved both in case of judges and for court staff\. The value of the working hour of judges, court staff and lawyers was calculated using the average monthly gross salary of judges of EUR 1,800 per month and the average gross salary of court staff of EUR 1,000 per month assuming 8 hours working day and 22 days of work per month\. Lawyers’ monthly compensation is assumed to be on average equal to judges\. It is important to note that our estimates are at the lower bound of the expected range of time savings for each category\. This conservative approach was taken given that it was not possible, beyond qualitative ICR interviews, to determine precisely the extent to which judges, staff members and lawyer was affected by the project\. 2- Improved human and financial resources management as a result of the introduction of the RMS\. This is a significant project activity and its final costs were estimated at EUR 21 million which is 20\.5 percent of total loan value\. The system is intended to replace approximately 160 existing legacy applications\. It includes modules for human resources and payroll managing around 90 percent of the judiciary budget, financial module to manage non-wage expenses of the system, budget module used for budget formulation, allocations, tracking and execution and finally a special sub-system for the NAP\. However, the RMS is not complete, so its full benefits cannot be assumed\. Only the HR and payroll module of the RMS has been implemented, starting from 2016 and the roll out of it is still ongoing\. Other modules are still under development\. The analysis accounts for this by assuming benefits only for this small portion Page 63 of 104 The World Bank Judicial Reform ( P090309 ) of RMS and only on a limited scale\. The economic benefits arising from RMS implementation are estimated at only 0\.1 percent of the total judiciary budget in 2016 and 2017 while the real benefits from full implementation of the system are yet to come\. Table 1 below shows the year by year structure of economic costs and benefits for the life of the project\. Page 64 of 104 The World Bank Judicial Reform ( P090309 ) 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Economic outflows Project investment 500,000 251,140 578,871 3,403,097 7,310,080 18,303,143 12,473,804 15,538,251 13,996,540 12,490,631 12,514,401 5,164,339 Staff time expense for project implementation 16,267 16,674 17,091 17,518 17,956 18,405 18,865 19,336 19,820 20,315 20,823 21,344 O&M cost 0 0 0 0 0 74,982 76,857 118,167 161,496 165,533 212,089 217,391 Front end fee 256,311 Commitment fee 255,061 254,433 252,986 244,478 226,203 180,445 149,260 110,415 75,423 44,197 12,911 0 Total economic costs 1,027,639 522,246 848,947 3,665,093 7,554,238 18,576,975 12,718,786 15,786,169 14,253,278 12,720,676 12,760,224 5,403,075 Economic inflows Time efficiency gains (judges) 0 0 0 0 94,109 192,923 2,208,515 2,304,266 5,199,400 5,350,680 5,528,102 5,666,304 Time efficiency gains (staff) 0 0 0 0 114,636 235,004 2,690,243 2,806,879 8,049,083 8,276,250 8,536,333 8,749,742 Time efficiency gains (lawyers) 0 0 0 0 243,636 499,453 511,939 629,685 699,213 771,824 904,136 926,740 Improved human and financial resources management 0 0 0 0 0 0 0 0 0 0 3,402,604 3,131,273 Loan disbursements 500,000 251,140 578,871 3,403,097 7,310,080 18,303,143 12,473,804 15,538,251 13,996,540 12,490,631 12,514,401 5,164,339 Total economic benefits 500,000 251,140 578,871 3,403,097 7,762,461 19,230,523 17,884,500 21,279,081 27,944,235 26,889,384 30,885,576 23,638,398 Net benefits -527,639 -271,107 -270,076 -261,996 208,222 653,548 5,165,715 5,492,911 13,690,956 14,168,708 18,125,352 18,235,323 Total economic costs 1,027,639 522,246 848,947 3,665,093 7,554,238 18,576,975 12,718,786 15,786,169 14,253,278 12,720,676 12,760,224 5,403,075 Total economic benefits 500,000 251,140 578,871 3,403,097 7,762,461 19,230,523 17,884,500 21,279,081 27,944,235 26,889,384 30,885,576 23,638,398 Net benefits -527,639 -271,107 -270,076 -261,996 208,222 653,548 5,165,715 5,492,911 13,690,956 14,168,708 18,125,352 18,235,323 discounted economic costs 75,781,185 discounted economic benefits 123,154,946 NPV at 5% 47,373,761 EIRR 71\.2% Page 65 of 104 The World Bank Judicial Reform ( P090309 ) 3- Other Qualitative Benefits Several benefits have not been quantified in this analysis, for example, the benefits brought through an enhanced legal environment achieved through higher legal clarity and certainty as a result of redesigning the Civil Code, Civil Procedure Code, Criminal Code, Criminal Procedure Code and Insolvency Law\. Also, the construction works at the 16 courts and the substantial upgrade of working conditions contributed to improved staff morale and motivation, more sensible use of space, and streamlining of work flows\. Finally the introduction of court recording system added substantially, transparency and legal certainty in Romania\. The financial analysis performed was based on a cash flow approach and considered real cash inflows and outflows that arose from project implementation\. The analysis yielded Financial Net Present Value (FNPV) of EUR 18,237 using 5 percent discount rate and Financial Internal Rate of Return (FIRR) of 5\.2 percent\. Key assumptions of financial analysis include: • The investment horizon starts in the first year when the loan was effective, which is 2006\. This is to capture the opportunity cost of non-utilization of the funds for several years, reflected through the commitment fee paid on the undisbursed amount\.In order to determine the incremental financial inflow coming from reduction in O&M costs in the renovated courthouses, we took the average O&M bill of a Romanian courthouse which is currently at the level of 380,000 Lei or 68,000 EUR\. The average reduction achieved as a result of civil works done under JRP is estimated to be around 60 percent\. This estimate is corrected downwards to the average level of 45 percent for the 4 out of 11 courthouses that were both renovated and extended under the project\. • Financial outflows include operation and maintenance (O&M) cost of newly built courthouses since they represent an incremental cost which is a result of project implementation\. These are assumed to be at the level of 50 percent of the total O&M cost of the existing courthouses due to improved overall condition of the buildings – better insulation, new electrical and sanitary installations, etc\. • The cost of government staff time used for implementation is determined based on an assumption that there were 20 employees working on project implementation on average 16 hours per month over the considered horizon\. This cost is estimated using the wage per hour calculated based on the assumption that average government staff wage is currently EUR 1,000 per month\. Similar to the O&M costs above, this amount was multiplied with relevant CPI indices to arrive at annual wage levels for the years before 2017\. • The exchange rate used is Lei 4\.6 to Euro as of August 24, 2017\. • The discount rate of 5% is used\. The choice of discount rate is motivated by the fact that 5 percent rate is suggested to be used in EU Cohesion countries as noted in the 2016 WB GN on Discounting Costs and Benefits in Economic Analysis\. • The annual inflation rate in Romania is assumed to be 2\.5 percent while the annual inflation rate in EU is assumed to be 1\.5 percent\. Page 66 of 104  The World Bank Judicial Reform ( P090309 ) ANNEX 5\. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS Although we agree in principle with the content of the ICR, we still have some comments, mainly to the final conclusions\. As a general comment, we strongly recommend that the figures from the ICR be updated according to the final ones (July 31, 2017)\. This ICR reflects the current rules and approach of the bank, in place at the moment of doing the ICR, not at the moment of the preparation /negotiation of the loan\. I recall that at that time the Bank was more oriented to outputs not to outcomes, the safeguard policy was different and the baseline indicators (mostly inputs) were difficult to be identified either by the bank or by the implementing agency, because of the lack of centralized information\. The introduction of RMS, was at the Bank’s initiative, further to a functional review done by it\. MoJ agreed, hoping to get more centralized information on the judicial system\. Being the first initiative it was normal to begin more slowly, but at the end some important achievements (even partially) could be noted\. Regarding the idea of having a PMU in place prior to the loan effectiveness, it will be good to have it, but unfortunately it is not allowed by the Romanian legislation\. However, a team may be created in the implementing agency which can be transformed latter on in the core of the PMU, to which more staff can be added\. Regarding change management and user support, we recommend more consultation with the final beneficiaries and a public information campaign during the preparation and the implementation of the project, not to have a specific component included\. We do not recommend Action Plan accompanied by contingency mechanism, because this will proof not reliance of the Bank on the capability of the implementing agency or to the Borrower, to do not jeopardize any future transaction with the bank, taking in to account that the financing is not for free, but a loan\. However, Action Plans should always exist, as well as M&E\. Page 67 of 104 The World Bank Judicial Reform ( P090309 ) ANNEX 6\. SUPPORTING DOCUMENTS (IF ANY) • Project Appraisal Document, Report No\. 33987-RO dated November 22, 2005 • Loan Agreement, Loan Number 4811-RO dated January 27, 2006 • Restructuring Paper, Report no\. RES18256, dated March 12, 2015 • Restructuring Paper, Report No: 56592-RO, dated October 5, 2010 • Restructuring Paper, Report No\. 63895-RO, dated August 16, 2011 • Restructuring paper, Report No\. 74121-RO, dated December 11, 2012 • Implementation Status and Results Reports No\. 12 to 20 dated between March 3, 2011 and December 22, 2016 • Audit Reports dated between June 30, 2008 and June 8, 2017 • Aide Memoires of Bank missions from 2008 to 2016 • Revised Performance and Monitoring Indicators, Attachment to Supplemental Letter no\. 2, dated March 19, 2015 • Conformed copy of Revised Performance and Monitoring Indicators, dated October 6, 2010 • Survey of actual experiences with, and attitudes and perceptions about, implementation of Judicial Reforms in Romania", Reference No\. IBRD4811RO-MOJ/ CS-4-12-2 • Operations Manual, dated July 2010, with Annexes from 1 to 3 • Borrower ICR, dated December 2016, annexed in Annex 9 Page 68 of 104 The World Bank Judicial Reform ( P090309 ) ANNEX 7\. BENEFICIARY SURVEY RESULTS Beneficiary Survey 1\. Three waves of surveys were done within the scope of the project: one in 2008 (baseline survey), one in 2014 (intermediate survey), and the final one in 2016 (final survey)\. They covered the providers’ side (judges, prosecutors, court clerks), intermediaries’ side (lawyers), and users’ side (physical and legal persons using the judiciary system)\. The surveys covered the “intervention” group, i\.e\. courts where some project activities were planned, and a “control” group, where activities were not planned\. Survey activities included large quantitative surveys to gather more anecdotal data\. This approach allowed for two types of references when identifying impact: a longitudinal one (across time) and a transversal one (between control and intervention groups)\. 2\. Infrastructure improvements: Data suggests that there are some significant improvements in the courts’ infrastructure as a result of the project activities\. Courts from the intervention group show some significant improvements compare to ones in the control group\. The improvements include: (i) usable floor area is larger by 35%; (ii) public waiting areas are three times larger; (iii) 50% larger office space; (iv) almost double archive space; (v) percentage of courts in need of major repairs is 20%, compared to 60% in the control group; and (vi) more computers and better access to the internet\. As an addition to these “hard” numbers, judges and prosecutors from the intervention group express higher level of sat isfaction with the existing infrastructure (in 2016) and also more frequently express that the situation has been improving in recent years\. 3\. Improvements in court administrative capacity: There are no differences in the number of employees between the intervention group and the control group courts, nor there is one over time\. An analysis of working hours shows no difference between the two groups\. However, one difference that the judges noted was an increase in court clerks’ honesty, integrity and professionalism over time\. 4\. Improvements in the act of justice: Surveyed judges from the intervention group express significantly higher levels oif satisfaction with the quality of prosecutors’ work and improved perception of lawyers involved in cases, more specifically, their integrity, honesty and attitude\. The judges also express higher satisfaction with the Civil Code and Ccivil Pprocedure Code\. However, these opinions are not shared by the surveyed prosecutors\. Moreover, prosecutors from the control group express higher levels of satisfaction with certain aspects of the act of justice\. Nevertheless, there is some improvement over time: the last two years have brought some improvements concerning transparency of the act of justice, acknowledged by prosecutors from both the intervention group and the control group, as well as improved perception of time needed for case disposition\. 5\. The analysis of data from users’ perspective shows that there is an improvement over time in the perception of the judges’ treatment of the beneficiaries of the court\. Data also indicates overall improved perception of all aspects of lawyers’ work\. Although differences between intervention and control groups are not significant, there is a tendency towards slightly more positive evaluations from the respondents from the intervention group\. 6\. Court computerization and training: There were no major differences reported regarding access to new technologies or the need for more professional training\. Perception over the efficiency of the Page 69 of 104 The World Bank Judicial Reform ( P090309 ) registration and archiving system is higher in the intervention group (93 percent) compared to the control group (75 percent)\. Access to jurisprudence, legislation and doctrine databases is reportedly easier for the intervention group (59 percent) compared to the control group (51 percent)\. Overall, improvements are can be discerned as compared to the situation in 2008 (when the intermediate survey was conducted), which suggests a structural improvement of the entire system and a certainthe pervasiveness of the new technologies throughout the system\. 7\. The three surveys are summarized below, starting with the Baseline Survey\. Baseline Survey 8\. A baseline survey was carried out by the Gallup Organization in 2007\. The purpose of the survey was to provide a snapshot of the current reality based on the monitoring indicators, specifically: (1) the performance of the judicial system in Romania, specifically, in terms of its efficiency (speed, fairness, affordability, ability of to enforce decisions, etc\.), transparency and integrity, and professionalism; and (2) the current status and achievements of the judicial reform process\. The survey comprised of a qualitative and a quantitative approach\. The qualitative component focused on the actual conditions being surveyed while the quantitative aimed at providing data on the relevant indicators in relation to the objectives of the JRP\. 9\. For the qualitative approach, a documentary analysis and focus groups and pilot interviews were conducted\. Three focus groups with experts from the judicial sphere (judges, prosecutors and lawyers) were foreseen in three different locations (Bucharest and two other cities agreed with the MOJ)\. For the quantitative part, the participation of 2400 respondents was planned in two of the three quantitative surveys, of which 1200 from the general public, and 1200 experts from the judiciary system (400 judges, 400 prosecutors, 200 lawyers, and 200 court staff)\. In the third quantitative survey on courts and prosecution offices, a questionnaire was sent to all the courts and corresponding prosecution offices (about 520)\. 70 qualitative, semi-structured interviews with judges, prosecutors, lawyers, court staff, governmental bodies, mass media and NGOs were also planned in 8 different locations\. A preliminary report on the findings of the baseline survey was published in January 2008\. However, it is not clear from the report or the background documents how many respondents participated in the surveys\. Part I: Results of the Qualitative Survey 10\. The qualitative survey analyzed three dimensions: (i) the image of the reform of the judiciary; (ii) the attitudes manifested by the respondents; and (iii) respondents’ expectations from the reform of the judicial system\. Respondents included law officers, attorneys, journalists and NGOs\. 11\. With regard to the first dimension, the image of the reform of the judiciary, the prevailing mental image of all respondents was a negative one\. The judicial reform was perceived by respondents as “a form without grounds” which lingers only in the speeches of the politicians\. The management of the legal system was perceived as being ineffective, not based upon expertise, debates with all the parties involved or an independent radiography of the current problems performed by experts in the field\. Respondents from all categories stated that the implemented changes were many but did not trigger the targeted effects, and sometimes they did not even respond to the real problems of the system\. One of the causes, frequently mentioned by respondents, why the reform could not bring any major changes, was the lack of political will, followed by the lack of strategy\. However, most respondents agreed that the legal system Page 70 of 104 The World Bank Judicial Reform ( P090309 ) had evolved since the 1990s and that a series of changes had been enforced due to pressure from the EU\. Still, the results were not perceived as sufficient to create an effective justice system\. 12\. While the respondents provided similar answers with regard to the perceived image of the reform of the judicial system, their views of the definition of what the justice reform differed among the different categories\. Practitioners (law officers and attorneys) viewed it as the development of daily activities\. Journalists defined justice reform as the fight against corruption, solving the files of some high officials, and the independence of law officers\. NGO representatives viewed it as a degree of collaboration with the MOJ and the extent of enforcement of recommendations/advice provided by NGOs\. 13\. Practitioners expressed that the most appreciated changes related to the material equipment of courts and public prosecutors’ departments (IT equipment), random distribution of files, youth promotion, startup of the judge specialization process, and enforcement of exams for management positions\. However, with the exception of IT equipment, the respondents expressed that all the positive changes also had negative effects, due to some non-correlated issues or lack of strategy\. The effects of the changes were also diminished, according to the surveyed practitioners, by the lack of other measures which should have been adopted simultaneously\. Among the different categories of practitioners surveyed, attorneys were most critical regarding the changes, as they felt left aside within the system and their views not taken into account when implementing various reform measures\. 14\. Journalists expressed the belief that the judicial system remained practically unchanged and the phrase “justice reform” had no actual meaning\. For them, justice was still politically controlled and dominated by incompetent, corruptible people\. 15\. NGOs’ perspective of the judicial system is shaped by the direct interactions with certain actors of the system, with whom they interact\. They expressed that there were many changes, but the results were poor and not the ones expected\. 16\. With regard to the second dimension, attitudes towards the characteristics of the judicial system, the reform was a priority both for practitioners within the system and for the members of civil society\. The changes debated referred to efficiency and transparency\. Most respondents perceived the transformations positively\. The large amount of work determined by the large number of files and insufficient personnel was considered by respondents to rather get worse than better\. In some cases, positive changes have been mentioned regarding the duration of procedures, which are explained by the better operation of archives (due to the IT equipment of law courts) or by the change of the summoning procedure (summoning by phone call instead of mail)\. Changes also occurred by the regulation of the emergency procedures (e\.g\.: the payment summoning), offering the possibility of some shorter terms, which reduces the duration of the process\. 17\. Regarding the random distribution of files, the perceptions of respondents were generally positive\. However, at the same time, the respondents noticed the quality of justice might suffer as certain files should be distributed on the basis of competences and relevant experience\. The IT equipment of public prosecutor’s departments and law courts was perceived as having a positive impact upon the activity of the legal personnel by increasing celerity and efficiency, but there are also many deficiencies regarding the infrastructure of the judicial system which are still pending (such as the problem of the insufficient space)\. 18\. When referring to efficiency, most respondents considered certain guiding criteria, such as: the quality of the act of justice, celerity, professional quality of the personnel, cooperation and Page 71 of 104 The World Bank Judicial Reform ( P090309 ) communication among the various levels of the system, as well as the existence of a material-logistic infrastructure to facilitate the good operation of the judicial system\. With regard to the quality of the act of justice, the respondents considered that an efficient judicial system should not leave any space for preferential interpretation of the law by the parties involved, and the rectitude of the act of justice should be directly correlated to the observance of the laws in force\. Likewise, the ideal perspective is to issue more decisions which manage to stand if subject to challenges or appeals\. Practitioners considered that, with a view to improving the act of justice, the implemented changes should focus on legal stability and human resources\. 19\. With regard to celerity (short term, rapid case solving), most interviewed subjects considered that the duration of the legal procedure was very long, especially in civil matters\. Another factor affecting celerity was the fact that judges were obliged to enter the court within certain periods of time, which were closely regulated, due to the lack of space and lack of offices\. The respondents also mentioned the importance of predictability of procedural terms of evidence of management, so that trials may not require too long extensions\. 20\. As for the cooperation and communication at the level of courts and public prosecutors’ departments, the respondents pointed to a lack of efficient cooperation between these two types of institutions\. This, they argued, has a direct impact on the duration of proceedings and the image of the judicial system\. The respondents also pointed to a lack of cooperation within the institutions\. 21\. The material basis needed for the development of the act of justice was considered as satisfactory by most respondents, in particular with regard to the IT equipment\. Most interviewees pointed to the lack of space as a problem with major implications for the duration of the proceedings as well as for the image of the act of justice\. The interviewed law officers and attorneys expressed that new buildings should be built to house courts, in order to avoid over-crowded rooms\. In parallel, measures to increase the number of judges and reduce the number of files assigned to each of them should be taken\. 22\. With regard to transparency of the judicial system, most law officers underlined that courts are sufficiently transparent\. The main criteria defining transparency, according to the respondents, refer to: knowing how public prosecutors’ departments and courts work, as well as the procedures employed by the various departments of the judicial system; providing information regarding the conditions according to which the parties or the public may find about the works initiated to solve cases; and drafting activity reports which are made available to the public\. 23\. As for the expectations regarding the reform of the judicial system, one of the most prominent expectations of practitioners was of balancing the ratio between the number of cases and the number of law officers and auxiliary personnel handling these cases\. Moreover, increasing the number of auxiliary personnel and their training was seen as one of the absolutely necessary conditions to improve the efficiency of courts\. Most law officers expressed their wish that court clerks should have their roles expanded so that they may take over some of the attributions of judges\. A stricter specialization of judges was also perceived as a major factor which might increase the efficiency of the legal process\. 24\. The reform of the judicial system was perceived as closely correlated with the reform of the legislative framework\. The expectations of all of the groups surveyed can be classified under four large categories: stability of the legislative framework, coherence of the legislative framework, unified practice, and correlation of the national laws with the European laws\. Page 72 of 104 The World Bank Judicial Reform ( P090309 ) 25\. The interviewees also mentioned the need for decent spaces for court proceedings as well as spaces for offices and archives\. Technical equipment, such as computers and printers, should be available in all institutions\. They also mentioned the need for increasing the transparency of courts by publishing online information about cases\. All these changes (laws, procedures, competences) should be monitored, and, in case of infringements, penalties should be applied\. A stricter control of observance of procedures was primarily requested by the representatives of NGOs and media, but also by law officers\. Part II: Results of the Quantitative Survey 26\. Institutions: The quantitative survey showed that the medium age of courts and tribunals was on average 64 respectively 67 years\. 71 percent of the head offices of the courts were of the opinion that their institution required major repairs, reinforcement, upgrading or expansion works\. In 64 percent of the case no such works were scheduled in the following year\. In 63 percent of the cases, the opinion was that the spaces where the archives were kept were inadequate\. 49 percent of the respondents thought the quality of installations (power) were inadequate\. The three main problems that the respondents pointed to with regard to the office buildings they were working in were: lack of space, poor quality of installations, and the necessity of building restauration\. 41 percent of the respondents thought space constraints influence the duration of the case solving procedures, while 59 percent did not think that\. 27\. The medium number of files pending at the beginning of 2007 was 1,684 in law courts, 2,629 in tribunals, and 1,315 in courts of appeal\. In 97 percent of the cases the cases were assigned randomly in courts, while only in 37 percent of the cases in prosecutors’ departments\. 28\. The average number of employees was 72 in law courts, 241 in tribunals, and 118 in courts of appeal\. 72 percent of the judges were also performing administrative, non-legal activities\. This was the case for 51 percent of the prosecutors\. The three most common non-legal tasks of judges were: organizing elections and participating in committees, organizing departments, and public relations\. 29\. The number of computers was one per judge in all instances of the courts\. However, the percentage of computers in use by judges was only 32 percent in law courts, 27 percent in tribunals, and 37 percent in courts of appeal\. Furthermore, only 65 percent of the computers had internet connection in law courts, 59 percent in tribunals, and 55 percent in courts of appeal\. 30\. 44 percent of the respondents thought that the archiving system in their court was inadequate, while 53 percent thought it was adequate\. 31\. 59 percent of judges in law courts, 58 percent in tribunals, and 68 percent in courts of appeal attended training courses\. With regard to other staff, 61 percent in law courts, 62 percent in tribunals, and 54 percent in courts of appeal attended training\. 79 percent of the respondents thought that the development of distance learning programs was necessary\. The three main problems pointed out by the respondents with regard to continuous training of magistrates were: lack of time, small number of courses/ seminars and their poor quality, and subjective criteria of selection\. With regard to auxiliary personnel, the three main problems were: small number of courses and their poor quality, lack of specialized personnel/ overwhelming activities, and lack of time\. 32\. Judges: the average working hours for judges in law courts and tribunals was 48 hours, while it was 47 hours for judges in courts of appeal\. The number of files assigned per judge in law courts was 184, 223 in tribunals, and 246 in courts of appeal\. The three main reasons for judges to have files older than six months were: lack of court experts and court expert opinions, case complexity, and lack of procedure\. Page 73 of 104 The World Bank Judicial Reform ( P090309 ) 44 percent of the surveyed judges thought that compared to a year ago the average duration of a case settlement in their court had reduced\. The three main reasons for that were: the active involvement of magistrates, decreased number of files/ more staff, and increase of IT equipment and more specialized magistrates\. 33\. 61 percent of the judges said they were frequently or very frequently confronted with issues that prevented the proper course of the trial and delayed the settlements in the last year\. The three most common issues of this kind that the judges were confronted with related to: lack of experts/ lateness of expertise, parties’ failure to attend meeting/ requests of postponement, and lack of procedure\. 34\. 98 percent of the surveyed judges said they had access to the internet at their institution\. 95 percent said they had access to legislation databases\. 35\. 59 percent of the judges said they had attended training in past year; 91 percent said they were satisfied with the quality of the training\. On average, judges spent 6 days on training in 2006\. 84 percent of the judges felt they needed additional training for their activity\. The main three courses mentioned by judges that they would like to attend were: community law and case law, various courses (foreign languages, computer skills, etc\.), and human rights\. 36\. Prosecutors: the average working hours of prosecutors in law courts was 46 hours, in tribunals 42 hours, in courts of appeal 44 hours, and in the HCCJ 47 hours\. The medium number of files for prosecutors along law courts was 35, 16 in tribunals, 10 in courts of appeal, and 7 in the HCCJ\. 29 percent of the surveyed prosecutors thought the files in their office were not assigned depending on the prosecutors’ specialization\. 37\. 20 percent of the surveyed prosecutors thought that the average time of the criminal prosecutions procedures in their office had reduced a little compared to a year ago\. The three main reasons for that were stated as: prosecutors are more specialized/ work is organized efficiently, competency changes and collaboration with other institutions, and supplement of staff scheme\. 38\. 34 percent of the prosecutors expressed they were frequently or very frequently confronted with issues that prevented the proper course of the trial and delayed the settlements in the last year\. The three main reasons for that were stated as: the procedures, lateness of expertise and repeated postponements, and failure of parties or defenders in attending meetings\. 39\. 96 percent of the prosecutors said they had access to a computer at their work place and 85 percent said they had access to the internet\. 77 percent found this access useful\. 73 percent had access to email\. 93 percent had access to legislation database, and 82 percent found this access useful\. 91 percent said they had access to case law databases, and 80 percent said they found this access useful\. 40\. 69 percent of the prosecutors said they had attended training in the past year\. The medium number of training days was 5 for prosecutors along law courts, 6 for tribunals, 10 for courts of appeal, and 9 for the HCCJ\. Only five percent of the respondents were not satisfied with their training\. 75 percent said they felt that they need additional training for their activity\. The three top courses they were interested in attending were: various courses (foreign language, computer skills, management, etc\.), criminal law and procedures, and various crimes (economic, financial, corruption, etc\.)\. 41\. Staff (court clerks): 41 percent of the clerks said they were working between 41 and 50 hours per week, 16 percent said they were working more than 51 hours\. 34 percent were working between 31 and 40 hours\. 74 percent had worked at their current institution for more than five years\. 82 percent said they Page 74 of 104 The World Bank Judicial Reform ( P090309 ) saw themselves working in the same institution in five years’ time\. Only four percent thought their job description did not match their current activities\. 42\. 99 percent of the court clerks said they had access to a computer in their work place; 75 percent said they had access to the internet\. 22 percent said they did not have access to email\. 82 percent had access to legislation data bases, while 69 percent had access to case law databases\. 56 percent said the access to case law was useful to them\. 43\. 64 percent of the court clerks said they had attended training in the last year\. On average, clerks in courts spent 7 days on training in 2006, while clerks in prosecutors’ department spent 6 days on training\. 89 percent said they were satisfied with their training, while only five percent were not satisfied\. More than two thirds of the surveyed clerks, 67 percent, felt they needed more training for their activity\. The three courses they were most interested in were: various courses (communication, management, foreign languages), legislation/ human rights, and computer science/ using ECRIS\. 44\. Clerks expressed that three top measures that would positively impact professional performance in their departments were: higher salaries, more employees, and training\. 45\. Seven percent of the clerks thought there were many corrupt judges, 8 percent thought there were many corrupt prosecutors, 19 percent thought there were many corrupt lawyers, and 17 percent thought there were many corrupt police men\. 46\. 49 percent of the court clerks thought the government had taken too few or no measures to reform the justice system\. 83 percent thought that the measures taken were rather good, while 12 percent thought they were rather bad\. 68 percent thought that following these measures, the situation would improve, while 23 percent thought it would remain the same\. The three main aspects the clerks considered to have priority in order to improve the Romanian justice situation were: simplifying the procedures by reducing the length of a lawsuit, increasing the transparency of justice, and increasing the judges’ and prosecutors’ independence from politics\. 47\. Lawyers: With regard to workload, the surveyed lawyers had on average 38,93 pending cases, 19,62 of which had been pending for more than six months\. 48\. Lawyers’ perception of judges was not always very positive\. 44 percent of the surveyed lawyers did not think judges treated people with dignity and respect\. 29 percent did not think judges made honest decisions\. 86 percent of the lawyers thought Romanian judges were not held liable when settling a case erroneously\. 44 thought judges did not treat those who have legal assistance and those who do not equally\. 49\. Opinions were similar regarding prosecutors\. 53 percent of the lawyers did not think prosecutors treated people with dignity and respect\. 46 percent did not think prosecutors made honest decisions\. 76 percent did not think prosecutors were held liable when providing for an erroneous remedy in a file\. And 57 percent thought prosecutors’ offices did not treat the poor and the rich equally\. 50\. As for corruption within the justice system, 47 percent of the prosecutors thought many judges were involved in corruption (of which five percent thought this was the case for almost all judges)\. 60 percent thought prosecutors were corrupt, 30 percent thought lawyers were corrupt, 28 percent thought this was the case for notaries, 51 percent with regard to legal officers, 78 percent with regard to police officers, and 35 percent with regard to officers of the court\. Page 75 of 104 The World Bank Judicial Reform ( P090309 ) 51\. Most lawyers were not very impressed with the progress of justice reform\. 64 percent of the lawyers thought the government had taken few or very few measures in order to reform the justice system, while less than a third, 28 percent, thought the government had taken many measures\. Most of the lawyers, 83 percent, thought the measures taken had been good, while 17 percent thought they had been rather bad\. However, 63 percent thought the situation would remain the same despite the reform measures, 8 percent thought it would worsen, while less than a third, 27 percent, thought it would improve\. 52\. Less than half of the lawyers, 43 percent, were of the opinion that compared to one year ago, the length of criminal proceedings was the same\. However, 36 percent thought that the length had reduced a little\. With regard to civil cases, half of the lawyers, 49 percent, thought the average term for the settlement remained the same compared to a year ago, while 39 percent thought it had reduced a little\. The three main reasons for the reduction were: involvement of prosecutors/ more attention of solving the cases, changes of laws/ complexity of cases, and more personnel/ decreased number of files\. 53\. Lawyers were also asked how much of the time they spend in court they consider as wasted\. More than a third of the lawyers, 36 percent, thought more than half the time they spent in court was wasted, while 29 percent thought about half their time was wasted\. 15 percent respectively thought more than a quarter but less than half, or less than a quarter, of their time was wasted\. The three top reasons stated for this were: archives, trial courts, and the registry\. The top three activities considered by lawyers as contributing to wasting their time were: call of the file in trial courts/ trial meetings, archives, and file study\. 54\. Many lawyers were not satisfied with the conditions in the court rooms\. 43 percent stated they were unsatisfied, 14 percent were totally unsatisfied, while 40 percent said they were satisfied\. The main aspects of the court rooms that lawyers were not satisfied with were: small, insufficient space, lack of equipment, and spaces are not clean enough, insanitary conditions\. 55\. According to the surveyed lawyers, the three most important problems that justice in Romania was facing were: lack of competent magistrates, corruption, and insufficient personnel/ large amount of cases\. The aspects that the lawyers thought had priority in order to improve the justice system were: reducing corruption in the legal system, simplifying the procedures by reducing the length of a lawsuit, and permanent training of magistrates\. 56\. Finally, the general public was also surveyed regarding the act of justice in Romania\. Among the top problems that Romania was facing, corruption was the third after too low salaries and prices\. When asked how satisfied they were with the operations of justice, 34 percent of the respondents said they were very unsatisfied, while 37 percent said they were rather unsatisfied\. The Romanians had least trust in the police, closely followed by the government and local town halls\. 30 percent stated they had little trust in SCM and 18 percent said they had no trust at all in the SCM\. Almost two thirds of the respondents, 62 percent, said they had very little or no trust in judges, prosecutors and lawyers respectively\. 55 percent had no or very little trust in legal officers\. The number was 59 percent with regard to officers of the court\. 57\. 76 percent of the respondents agreed with the statement that lawsuits last too long in Romania\. 66 percent agreed that judges’ decisions are influenced by politicians\. 65 percent agreed that courts allow many criminals to be free due to procedural flaws\. 62 percent agreed that judges often interpret the same law differently\. And 49 percent agreed that judges do not pay the required attention and do not allocate the time necessary to the cases they hear\. Page 76 of 104 The World Bank Judicial Reform ( P090309 ) 58\. With regard to statements on judges and trial courts, 59 percent of the respondents thought that Romanian judges are not being held liable when settling a case erroneously\. 75 percent did not think that courts were treating the poor and the rich equally\. 59\. When asked about corruption, the public’s opinion was that the most corrupt professional categories were judges (63 percent), prosecutors (60 percent), lawyers (60 percent), and police officers (60 percent)\. With regard to competence, the public had the least opinion on policemen (38 percent), legal officers (26 percent), prosecutors, officers of the court and judges (25 percent respectively)\. 60\. Most respondents, 56 percent, thought the government had taken few or very few measures with regard to the reform of the justice system\. 12 percent thought no measures had been taken at all\. Only 15 percent thought many measures had been taken\. However, 70 percent thought the measures taken had been rather good, while 23 percent thought they were rather bad\. There was also a certain level of optimism, with 63 percent of the respondents believing the measures taken would improve the justice situation in the country in the next 2-3 years\. 61\. The most important sources of information regarding the system of justice for the general public were TV news (72 percent), press (53 percent) and direct experience with courts (22 percent)\. 85 percent of the respondents or the members of their household had not been party in a lawsuit in the past two years\. Of those who had, 63 percent had employed a private lawyer while 8 percent had an ex officio lawyer\. 26 percent did not have a lawyer\. The majority, 60 percent, were satisfied with the performance of their lawyer, while 32 percent were not satisfied\. 62\. 62 percent of the respondents who had had a case in court in the last 2-3 years said they agreed with the opinion that the lawsuit lasted very long\. 64 percent thought the decision was made based on the facts and 57 percent thought the judge’s decision was fair\. 70 percent thought people were treated with dignity and respect\. Two third of the respondents, 67 percent, thought the judge was neutral and objective and 65 percent thought the procedures applied in the court were correct\. 57 percent said the court allowed everybody to present their standpoints\. 63\. The respondents were asked about what they think are the three most important problems that the Romanian justice is facing\. The number one problem pointed out by the majority of the respondents was corruption\. Second came lack of professionalism, and third vague/ misinterpretation of the legislation\. Involvement of politics in justice also scored high, as well as too long duration of proceedings\. 64\. The three priority aspects to improve the justice situation in Romania were: reducing corruption in the legal system, simplifying the procedure by reducing the length of proceedings, and increasing the judges’ and prosecutors’ independence from politics\. Intermediate Survey 65\. An intermediate survey was carried out by Metro Media Transylvania in 2014\. The purpose of the survey was to collect information on actual court performance and user feedback on the project’s impact in designated courts; the results were to be published on court websites\. The sampling was based on the courts included in the JRP: six courts (courts from Viseu de Sus, Blaj, Worcester, Bolintin Vale, Săliştea Sibiu Orsova) and four tribunals (tribunals from Maramures; Suceava, Arges)\. An additional six courts and four tribunals were selected as a group for control (courts from Târgu-Lăpuș, Aiud, Câmpulung Moldovenesc, Cornetu, Agnita, and Judecătoria Strehaia, and tribunals from Satu-Mare, Călărași, Neamț, and Vâlcea)\. The sample distribution was as follows (with an equal size for the group of control): 75 judges Page 77 of 104 The World Bank Judicial Reform ( P090309 ) (18 from Courts and 57 from Tribunals), 50 prosecutors (12 from Prosecutor Offices of Courts and 38 from Prosecutor Offices of Tribunals), 25 court clerks (12 from Courts and 13 from Tribunals), 154 lawyers, legal advisers (63 from Courts and 91 from Tribunals), 504 litigants, individuals (195 from Courts and 309 from Tribunals), and 250 litigants, companies (96 from Courts and 154 from Tribunals)\. A total of 151 judges, 100 prosecutors, 50 court clerks, 306 lawyers/legal advisers, and 1506 litigants were interviewed\. Below are the results of the intermediate survey\. Part I: Assessment of infrastructure 66\. For the judges’ sample, the survey identifies an important gap related to the level of satisfaction determined within the intervention group, which compared to the group of control, varies from 1% to 33%\. However, the survey notes a higher degree of satisfaction with respect to the basic infrastructure of the courts, such as: size of the useful area, number of courtrooms, quality of the audio system, furniture, and design\. Further, the gap between the two groups is maintained also for the indicator “visible improvements” with 17% in favor of the group subjected to intervention (13 out of 15 aspect analyzed)\. 67\. There are similar results for prosecutors where the survey notes an important variation related to the perception of the two groups participating to the survey\. The results obtained at individual level show that there is a slightly higher degree of satisfaction within the intervention group\. The same group expressed a higher degree of satisfaction related to the public utilities infrastructure: parking lots, cleanliness of restrooms and public spaces\. However, the group of intervention responded to be less satisfied with the visible improvements perceived over the last two years\. 68\. The results for the court clerks are very similar to those determined for the judges’ profile\. The level of satisfaction between the intervention group and the group of control varies from 7% to 32%\. Overall, the results show that this sample is satisfied with the basic infrastructure of the courts and there is a more positive perception related to the visible improvements\. 69\. As for the lawyers and legal advisers, the results indicate that the two groups have a level of satisfaction varying between 8% and 25%\. On average, lawyers and legal advisers who are part the group of intervention respond to be satisfied or very satisfied with 8 out of 10 aspects, while lawyers and legal advisers from the group of control only with 7\. Also this sample notes a more positive perception related to the visible improvements for all aspects identified in the survey\. 70\. Further, for the litigants, individuals the results show a level of satisfaction varying from 4% to 27% in favor of the group of intervention\. For the two groups, the deviation of perception related to the improvements over the last two years differ from 16% to 31%\. 71\. Similar to other samples, the survey shows that for litigants, companies the level of satisfaction varies between 3% and 24%, in favor of the group of intervention\. The way these groups perceive recent improvements varies from 6% to 24%\. 72\. Overall, in infrastructure, the survey states that the project has generated a real and significant impact in most cases\. In the case of judges and clerks, we note a high level of satisfaction related to the basic infrastructure of the courts, while prosecutors are highly satisfied with the public utilities, and lawyers and litigants are satisfied with the design of the courts\. Also, the project increased visibility of improvements in almost all situations, except for prosecutors\. Part II: Quality of the staff Page 78 of 104 The World Bank Judicial Reform ( P090309 ) 73\. The survey shows that judges have a similar perception towards prosecutors and clerks\. Both groups (intervention and control) identify the same needs for the improvement of the quality of the staff, and a higher degree of satisfaction towards court staff compared to tribunals staff\. 74\. As for the prosecutors, the results show for the intervention group a slightly higher degree of satisfaction towards judges and clerks\. However, the groups of control expresses satisfaction with the degree of improvement in the quality of the staff\. 75\. The results for the clerks’ sample show that both groups express same degree of satisfaction towards judges and prosecutors\. There are different perspectives related to the degree of improvement where the variation goes from 0 to 12% in favor of the group of intervention\. 76\. The collected data for the lawyers show an important satisfaction variation between the two groups, precisely 2% to 13% concerning all types of skills identified in the survey\. The differences related to the visible improvements of the quality of the staff is in favor of the intervention group with 16%, compared to 6% for the control group\. 77\. For the litigants, individuals, the variation in the level of satisfaction towards judges and prosecutors results to be significant between the two groups interviewed\. 78\. Looking at the litigants, companies, the results show a variation in the level of satisfaction between 0% and 18% in favor of the intervention group\. The difference between the two groups is less important when it comes to the level of satisfaction towards judges and prosecutors\. Part III: The act of justice 79\. The data show in the case of judges, that both groups (intervention and control) are satisfied with the outcome, and good improvement was noted but there no clear tendency between the two groups\. 80\. In the case of the prosecutors, the differences vary between 6% and 18% in favor of the group of intervention, and there is an overall tendency for increased satisfaction towards lawyers\. 81\. The results show that the court clerks’ level of satisfaction differs between 4% and 16% between the two groups\. Regarding the perception towards improvement both groups expressed differences varying from 12% to 28%\. 82\. For lawyers, the results show a satisfaction variation between 4% and 11%, in favor of the group of intervention\. On average, the group of intervention declares to be satisfied with 3 out of 6 aspects of improvement, while the group of control only with 2\. 83\. The litigants, individuals sample data indicates differences varying between 7% and 19%, in favor of the group of intervention\. On average, the group of intervention declares to be satisfied with 5 out of 7 aspects of improvement, while the group of control only with 4\. 84\. For the litigants, companies sample data shows that the group of intervention is slightly more satisfied where the level of satisfaction differs from 4% to 18%\. On average, the group of intervention declares to be satisfied with 4, 6 out of 7 aspects of improvement, whilst the group of control only with 4, 5\. 85\. To sum, the survey states that the project has generated a real impact, rising the degree of satisfaction among all categories participating to the survey with the exception of judges\. There is a high level of satisfaction identified on all dimensions of justice\. Also, the level of satisfaction regarding the Page 79 of 104 The World Bank Judicial Reform ( P090309 ) improvement is significantly higher within the intervention group\. Part IV: Workload 86\. The survey shows that the way this project influenced the workload of professionals has several factors: (i) it was generally oriented towards reducing the workload\. This seems to be less the case for clerks (but here the key factor may be the number of clerks in the court); (ii) reduction of delay (more than six months) in the average time required to dispose a case; (iii) increased efficiency for judges; (iv) and better time management framework for prosecutors and clerks\. Part V: Professional training 87\. This survey does not identify any major differences between the two groups (intervention and control)\. However, it illustrates differences related to the 2008 Baseline survey\. Thus, for the judges, there is an increase of 20% among those who have followed a training course in the year preceding the survey\. The data shows similar values for prosecutors, indicating a systemic growth of this indicator over the last 6 years\. For clerks, the survey identifies beyond a structural increase in the number of those who have followed a training course (8% compared to 2008), also an increase of 8% due to the project\. Regarding the need to follow professional trainings, the recent data indicate rather a decrease compared to 2008 no matter the group\. Part VI: Using new technologies 88\. Regarding the access to new technologies, data shows that for all three categories of professionals (judges, prosecutors and clerk) there are significant differences between the two groups (intervention and control)\. However, one aspect to be noted here is the access to data bases related to the case of law, where there is an increase of 10% for judges\. They respond to have access easily to such information, and to the archiving system\. Compared to the 2008 Baseline Survey, data shows a significant improvement regarding the access to the internet and to professional information for all categories of professionals participating to the survey\. Part VII: History access and costs 89\. Although concerning the history access the survey does not reveal any major differences between the two groups, the differences are attributable to the costs\. The results show that the group of intervention spent more time in courts than the group of control\. The audience time did not change, it remained about three hours\. However, total costs (audience start, transport, photocopied documents, etc\. but without lawyers’ costs) are significantly lower by 16% in the intervention group (1,250 lei) than in the control group (1,450 lei), for individual litigants, these are 38% lower in the intervention group (490 RON) than control group (680 lei)\. The difference in costs between the two categories is determined by the proportion of different courts and tribunals to access the first instance in which case the costs are higher\. Part VIII: Complaints and claims 90\. The survey does not present any data analysis for this part of the assessment\. Final Survey Page 80 of 104 The World Bank Judicial Reform ( P090309 ) 91\. The first investigated aspect was a presentation of the courts, the analysis of the material and human infrastructure which these courts possess\. It revealed that the courts which were included in the project possess a superior infrastructure both qualitatively and quantitatively, as compared to the control group courts\. Data indicates useable floor areas larger by about 35%, public waiting area about three times larger, office space larger by approx\. 50%, and almost double archive space\. The number of public facilities (toilets and parking spaces) is much higher for the courts subject to intervention\. Taking this into account, it appears normal that the proportion of courts in need of major repairs is much smaller for the intervention group (20%), compared to the control group (60%) 92\. There is no significant difference concerning the number of employees between the two groups, the only difference being the number of interns from the intervention group (5 interns) as compared to the control group (1 intern)\. 93\. Data indicates that, on average, the number of pending cases, at the beginning of 2015 was higher for the courts subject to the intervention (4127 cases, compared to 3105, from the control group)\. Out of the total which includes new cases (8861 cases) 5359 were disposed (about 60%), while in the control group, out of the 9645 pending cases registered with the courts, 6353 were disposed (66%)\. These numbers are similar to data revealed in 2014 (68% in both types of courts)\. 94\. The computer network for the intervention group is composed of 133 devices, out of which 98% are connected to the internet\. Within the control group, out of the 117 existent devices (on average) 90% are connected to the internet\. Comparing these results to the ones of the 2014 study, a more developed computer network can be observed, both in terms of numbers and regarding Internet connectivity\. 95\. The case archiving system seems to be more problematic in the control group, considering that five of the courts either consider it less efficient, or cannot provide a rating\. 96\. The questioned judges’ opinions reveal a high satisfaction level and a perception of the improvement in courts’ infrastructure situation, mostly within the intervention group\. Furthermore, in what concerns the act of justice, judges observe an improvement in the quality of the prosecutors’ body, but less so for the general efficiency of work\. 97\. Compared to the judges which were part of the control group, the ones in the intervention group stated to a larger extent that they had noticed improvements in what concerns the progress of the act of justice, especially referring to the lawyers’ honesty, where 24% more judges from the intervention group consider that this aspect improved in the past two years\. The smallest difference between the two groups (3%) is regarding the time to case disposition\. 98\. For generating a better work experience, the judges consider it necessary that a larger number of clerks be employed in courts, but also that a regulatory framework be enacted, to facilitate higher efficiency\. 99\. On average, the judges from the group subject to intervention had 796 cases, and the ones from the control group, 740 cases\. Approximately 7% of the cases assigned to the judges from the intervention group and 4% of the cases of the control group judges are at least 6 months old\. Efficiency wise, in 2015, judges from the first group disposed 597 cases (75% of the total assigned to them) and the judges from the control group disposed 523 cases (71%)\. 100\. No major differences were observed regarding the number of work hours, the situations of working from home, professional training and adoption of modern technologies\. In what concerns the Page 81 of 104 The World Bank Judicial Reform ( P090309 ) access to legislation, jurisprudence or doctrine, there is a difference between the two groups, 56% of the judges from the group subject to intervention saying that access to this type information is easy, compared to 43% in the case of the control group\. 101\. Compared to the last two years, judges state that they can observe improvements in all aspects regarding the courts’ qualified human resources, the three attributes of clerks being the most mentioned\. Differences could be observed between the two groups within the interval 26% (referring to the honor and honesty of clerks) – 29% (in what concerns the clerks’ professionalism)\. 102\. Prosecutors observed improvements in what concerns the courts’ infrastructure and facilities\. Moreover, the opinion of the prosecutors from the intervention group was that most aspects have improved considerably\. Major percentage differences could be identified between the two categories of respondents, showing higher satisfaction levels for the prosecutors in the intervention group, concerning the changes the courts have gone through\. 103\. The perception of the act of justice shows that for the good progress of the courts’ activity, as well as for a proper performance of the prosecutors’ activities, the most important aspects are the number of assigned cases, the time to case disposition, and the provisions of the new Civil Code and of the Civil Procedure Code\. 104\. The last two years brought improvements concerning the transparency of the act of justice, acknowledged by prosecutors from both groups (74% of the group subject to intervention and 67% for the control group) and concerning the time needed for case disposition (56% for the group subject to intervention and 65% for the control group), less so, concerning the number assigned cases\. On average, a prosecutor from a court part of the group subject to intervention, had, in 2015, 623 cases while at the same time, a prosecutor from a court which was part of the control group, had on average, 390 cases\. 105\. Out of active cases, on average, 52 (8%) were older than 6 months from their assignment and 251 (40%) older than 6 months since they entered the system, as reported by the prosecutors in the intervention group\. According to the statistics in the control group, out of all the assigned cases, on average 31 (8%) were older than 6 months from their assignment and 74 (19%) were older than 6 months since they entered the system\. 106\. There were no major differences reported regarding the access to new technologies or the need for more professional training\. Instead, perception over the efficiency of the registration and archiving system was higher in the intervention group (93%), compared to the control group (75%)\. Access to the jurisprudence, legislation and doctrine databases was easier for the intervention sample (59%) compared to the control group (51%)\. 107\. In what concerns the clerks’ perception, it matches the improvement perception trend and that regarding the satisfaction with the work environment\. For these employees, the aspects which take precedence are the ones regarding the infrastructure (useful floor area, number of courtrooms, equipment of the employees’ offices), as compared to the specific aspects which regard the act of justice\. 108\. The act of justice was perceived as satisfying and improving, especially in the intervention sample\. With the exception of the time to case disposition (with a higher degree of satisfaction found in the control group) data indicates differences of 2% (concerning the number of clerks) up to 20% (provisions of the new Civil Code/Civil Procedure Code), in favor of the group subject to intervention\. Page 82 of 104 The World Bank Judicial Reform ( P090309 ) 109\. The average workload of clerks in the intervention group was higher than in the control group\. In 2015, clerks in the intervention group had, on average, 29% more cases to prepare (833 cases vs\. 645 cases)\. Furthermore, the clerks in the intervention group had more cases older than 6 months since their registration in the system\. 21% of clerks’ cases in the intervention group were older than six months, versus 6% in the control group\. 110\. No major differences were identified with regard to access to new technologies, but the registering and archiving system is considered to be efficient in a larger proportion (84%) for the intervention group, as compared to the control group (74%)\. 111\. Regarding the way lawyers evaluated the courts’ infrastructure, a main aspect is that regardless of to which group they belong, they most frequently rated the courtrooms’ audio systems, the possibility of researching the archives, as well as the possibility of looking up information on the internet\. The aspects which mostly satisfy lawyers are the building solemnity, the exterior aspect of the building, as well as the cleanliness of public spaces\. 112\. The aspects most frequently considered as satisfactory by lawyers in regards to the act of justice were: the way cases are assigned; the way judges treat litigants in the courtroom and the provisions of the new Civil Code/Civil Procedure Code\. 113\. Lawyers from the control group were found to have a higher workload, when looking their number of cases\. The main reasons for slowing (and sometimes delaying) lawyers’ work have to do with work procedures, long terms and expertise\. 114\. The attributes used to rate the lawyers’ perception of the quality of personnel (attitude, honesty and professionalism of judges, prosecutors or clerks), were positively evaluated\. Differences between the two groups appeared in regards to the higher proportion of those satisfied in the intervention group, as well as vice versa\. 115\. Private citizen - litigants identify the following hierarchy in what concerns the visibility of the courts’ infrastructure constitutive elements: public waiting spaces, the audio systems in the courtrooms and the possibility of searching for documents in the archives\. Litigants stated that they are mostly satisfied with the building aspect, both internal and external, the solemnity of the building, as well as the cleanliness of public spaces\. The same as with lawyers, the number of parking spaces is still seen as a problem\. 116\. In what concerns the act of justice, the most satisfying aspects, from the perspective of private litigants, are the professionalism, the attitude and the honesty of lawyers\. The most frequently improved aspects during the last two years, taken into account by the litigants, are the way judges treat litigants in the courtroom, but also the entire set of attributes applicable to lawyers\. 117\. 15% of the private citizen litigants from the group subject to intervention and 13% of the litigants from the control group intended to file a complaint regarding certain aspects of their courtroom experience\. The main reasons for which they intended to do so were the methods of settlement for cases and the time needed for settlement\. The ones that haven’t filed their complaints, although they intended to do it, reasoned their choice by the lack of hope that anything would change, the potential deterioration of their relationships with the courts’ employees, and the fact that they didn’t know where to file the complaint or the time needed to do so\. Page 83 of 104 The World Bank Judicial Reform ( P090309 ) 118\. The most visible elements form the courts, from the perspective of litigants which are representatives of legal entities, were: the public waiting spaces, the possibility of looking up documents in the archive, and the audio system in the courtrooms\. The most satisfying aspects regarding the courts’ infrastructure were the internal and external aspect of the building, as well as the buildings’ solemnity\. 119\. The perception over the act of justice in this case underlines a higher satisfaction with the attitude of the lawyers; the way judges treat litigants within the courtroom and the lawyers’ professionalism\. During the last two years, the most evident improvements were made to the way judges treat litigants in court, as well as all the analyzed attributes applicable to lawyers\. 120\. 15% of the legal entities representatives from the group subject to intervention and 7% of the representatives from the control group intended to file a complaint regarding certain aspects or situations encountered in court\. The main reasons for taking these actions are the methods of settlement or the attitude of the personnel\. The reasons for which this population did not file their complaints although they intended to, are the fact that they reasoned nothing would change, or that in doing so, they would endanger their relationship with the court\. 121\. The litigants, irrespective of category, offered a predominantly positive evaluation regarding almost all tested aspects/attributes (attitude, honesty, professionalism) of judges, prosecutors and lawyers\. Page 84 of 104 The World Bank Judicial Reform ( P090309 ) ANNEX 8\. STAKEHOLDER WORKSHOP 1\. The World Bank in collaboration with the MOJ organized a stakeholder workshop on March 07, 2017\. The main objective of the workshop was to discuss the achievements of the Justice Reform Project\. The World Bank team solicited feedback from stakeholders on how the collaboration of the MOJ and the Bank on the Project could have been improved and in what areas the Ministry could make further progress to improve its efficiency\. The lists of participants is included in Table 4 below\. 2\. The workshop program started with opening remarks by the Bank followed by a short presentation delivered by the Ministry of Public Finance\. Further, the DIEFP presented the main components and results of the Project delivered and the workshop concluded with an open discussion\. This document reflects the main highlights of the presentations and discussion with the stakeholders\. 3\. The DIEFP emphasized that the project aimed to improve the efficiency and accountability of Romania’s justice system in many areas, but the key outputs of the project that had influenced or would affect improvements in the justice system the most were: court optimization assignment and impact studies for the four codes, development and implementation of audio systems in courts and RMS, upgrades on ICT in the courts, rehabilitation and construction of 18 sites, and training for court personnel\. 4\. The DIEFP highlighted the context, initial objectives and final results of the Project sharing with the audience the Ministry’s overall satisfaction with the outcomes of the project, emphasizing the civil works in Oradea and Craiova, as well as the IT component\. The DIEFP highlighted the important role of the Bank during implementation in providing continuous support and showing flexibility in changing course\. 5\. The DIEFP delivered a high-level presentation on challenges encountered during the eleven-year project cycle highlighting the financial crisis that hit Romania around 2009 and affected tremendously the budget allocations\. Key highlights of discussion 6\. The discussion was structured and introduced five questions, as follows: • What worked well? • What could have been done differently? • Do you think the money was well spent? • Has the project impacted the work of courts? And if so how? • What was left undone and what would you focus on in the future? 7\. Overall, the workshop participants were supportive of the project and highlighted the good performance of the DIEFP and an excellent cooperation with the Bank which provided continuous support through the entire project cycle\. 8\. The workshop participants noted a strong preference for civil works as tangible outcomes of the project\. The updates and developments regarding the ICT system were appreciated and participants Page 85 of 104 The World Bank Judicial Reform ( P090309 ) showed satisfaction in using ICT systems\. However, they highlighted the urgency to complete what remains for further development in order to implement the integrated RMS system to allow for an accurate and transparent decision-making process based on an efficient resource allocation\. Participants also requested training and change management on the RMS system to better facilitate the transition and improve the perceptions of the system\. 9\. The participants also noted that the project would have benefitted from better outcomes if the preparation phase was better developed\. The participants discussed they encountered tremendous difficulties in the implementation phase due to a lack of readiness of technical documents to start procurement and implementation, sometimes outdated such as permits\. In the opinion of some participants, some of the issues could have been identified and resolved during the preparation phase of the project\. 10\. The project encountered important delays due to the lack of sufficient budget allocation, which slowed down the implementation process between 2011 and 2015\. The participants also highlighted that the “lowest price” method when awarding contracts does not seem to be the most suitable for some products such as the IT software and civil works\. Table 2: List of participants invited to the JRP Workshop Name Title Institution Mr\. Flavian Popa Prosecutor CSM Ms\. Adina Ghita Judge Bucharest tribunal Ms\. Elena Lascu President Corabia First Instance Court Mr\. Pătru Dumitru Economic Manager Valcea Tribunal Ms\. Liliana Oprea Judge Olt Tribunal Ms\. Valerica Virtopeanu President Arges Tribunal Ms\. Rodica Mihaela Dobrin President Dolj Tribunal Ms\. Carmen Domocos President Oradea Tribunal Ms\. Paula Ene Economic Manager Prahova Court of Appeal Ms\. Lucia Saulea Economic Manager Ploiesti Tribunal Ms\. Carmen Ghita Head of Unit MoPF Ms\. Elena Heroiu Senior Advisor MoPF Ms\. Roxana Badea Senior Advisor MoPF Ms\. Cornelia Munteanu Deputy Manager MOJ Mr\. Andrei Pana Judicial System Specialist MOJ Mr\. Catalin Spiroiu Jurist MOJ Ms\. Laura Rodeanu Financial MOJ Ms\. Adriana Gheorghiu Procurement Specialist MOJ Mr\. Gabriel Clinceanu Technical Manager MOJ Ms\. Monica Oana Architect MOJ Mr\. Eugen Dirstaru Technical Advisor MOJ Ms\. Maria Arsene European Commission, CVM EC Ms\. Mona Popescu Liaison Magistrate French Embassy Mr\. Cristinel Buzatu Policy Adviser Justice Embassy of the Kingdom of the Page 86 of 104 The World Bank Judicial Reform ( P090309 ) Cooperation Netherlands Mr\. Florian Caimac Former Project Manager Mr\. Costel Todor Former Project Coordinator Mr\. Adrian Gavrilescu Public Manager Public Ministry Mr\. Razvan Capatana IT Specialist ICCJ Mr\. Cristian Plesa Head of Co-operation and National Administration of Programs Unit Penitentiaries, MOJ Klaus Decker Task Team Leader, Senior WB Public Sector Specialist Georgia Harley Public Sector Specialist WB Agnes Said Consultant WB Elena Ardelean Public Sector Analyst WB Andreea Florescu Team Assistant WB Rob Boone Adviser WB Carmen Calin Procurement Specialist WB Page 87 of 104 The World Bank Judicial Reform ( P090309 ) ANNEX 9\. SUMMARY OF BORROWER’S ICR Project PDO The project's development objectives are: (i) to increase the efficiency of the Romanian courts; and (ii) to improve the accountability of the judiciary which should result in reduced corruption and a more transparent act of justice\. In order to reach the goals of efficiency and accountability, the following areas require support under the project: (i) upgrading of court infrastructure and automation; (ii) court administration reform, including a program of case delay reduction and reorganization of internal working arrangements in courts; and (iii) institution building for the main judicial governing bodies (e\.g\. CSM, HCCJ and MOJ)\. PDO Indicators Project Outcome Indicators – 5 Key indicators (restructured during project implementation) to measure success and the PDO achievement are the following: POI 1) Improvements to judicial efficiency in pilot courts; Target 10% increase in the number of cases disposed of or archived in pilot courts\. Actual value 18\.52 % (cumulative data – 2015 compared to 2008 baseline) Status Achieved – target exceeded POI 2) Audio recordings of court hearings available to any trial participant on request; Target Integrated audio recording systems for court hearings are operational in all national courts (243) and their courtrooms (699)\. Audio recordings of court hearings are provided on request to any interested trial participant\. Actual value Integrated audio recording systems for court hearings are operational in all national courts (243) and their courtrooms (699)\. Audio recordings of court hearings are provided on request to any interested trial participant Status Achieved as planned POI 3) Rehabilitation/construction of at least 15 out of 18 courthouses in line with international standards (standards for better accommodations for trials, public access and security features); Target International standards in the rehabilitation/ construction of at least 15 court buildings completed\. Actual value 16 courthouses are in line with international standards Status Achieved – target exceeded with 1 court building Page 88 of 104 The World Bank Judicial Reform ( P090309 ) POI 4) Information required to increase the capacity of the judicial system available through the establishment of a functioning RMS and such information/data published quarterly by the MOJ, CSM and HCCJ on their websites; Target RMS system installed and functioning and data published quarterly for the past year (since 2012) Actual value Indicator partially achieved for CSM and HCCJ (HR &Payroll module)\. Underway for MOJ\. None of the institutions publish on their websites resource management data originating from the RMS\. Status Partially Achieved POI 5) improvements to judicial transparency through the [annual/quarterly] publication on the websites of the respective courts and CSM of: (a) court performance data; (b) data from periodic user surveys of individuals and firms on access to and satisfaction with judicial services (including fairness and timeliness) for courts financed by Part A of the project\. Target Regular annual/quarterly publication of available data in the past two years (2015 & 2016) Actual value (a) court performance data – all courts report publicly on their website, on a yearly basis, their annual activity reports, including the value of the 5 related performance indicators (b) data from Interim user survey and Final survey for courts financed by Part A of the project Status Achieved Project IRIs Project Intermediate Result Indicators - 13 indicators (restructured during project implementation) to measure success are the following: PIRI 1) Rehabilitation/construction of at least 15 court buildings; Target At least 15 buildings completed Actual value 16 courthouses were built Status Achieved – target exceeded with 1 court building PIRI 2) New design standards used in rehabilitation and construction of court buildings; Target All courts rehabilitated and constructed under the Project are based on designs in line with international standards\. Actual value 16 courthouses were built in line with international standards Status Achieved PIRI 3) 10% increase in a total number of court hearings in 5 courts rehabilitated under the project; Target At least a 10% increase\. Actual value 99\.72% increase (cumulative data – 2015 compared to 2008 baseline)\. Status Achieved - target significantly exceeded with over\. 89% Page 89 of 104 The World Bank Judicial Reform ( P090309 ) PIRI 4) Recommendations to optimize courts’ activity are adopted by the CSM; Target Recommendations adopted by the CSM Actual value Recommendations were adopted by the CSM in 2013 Status Achieved PIRI 5) Uniform standards for operational processes developed and country-wide implementation started; Target Uniformity in operational (case time handling and optimal workload) standards (for handling court cases) achieved\. Actual value 3 individual Key Performance Indicators, namely 1\. Clearance Rate, 2\. Case Stock Over One Year Old, and 3\. Cases Closed Within One Year were elaborated\. The country wide implementation of these indicators started with 11 courts of different degrees of jurisdiction and were extended by end 2015 all across the national courts\. Status Achieved PIRI 6) An RMS for core justice sector entities enables management of HR and payroll functions; Target Sustained use of the RMS Actual value CSM, NIM, NSC, JI, PM (central apparatus), NAD, DIOCT and HCCJ (core justice sector entities) are currently using the RMS's HR and Payroll functions Status Achieved PIRI 7) An RMS for core justice sector entities enables pilot justice sector entities to collect management information data; Target Sustained use of the RMS Actual value CSM, NIM, NSC, JI, PM (central apparatus), NAD, DIOCT and HCCJ (core justice sector entities) are currently using the RMS's HR and Payroll functions Status Achieved PIRI 8) The Law School Admission Test (LSAT) is formally embedded into magistrates’ recruitment procedures; Target A formal regulation regarding the continuous use of LSAT test for magistrates’ requirement adopted by the NIM\. Actual value The formal regulation regarding the continuous use of LSAT test for magistrates’ requirement was adopted by the NIM, through the Decision no 1131/2014 (Art\.4, para\.( 11 ), starting with 11\.12\.2014\. Status Achieved PIRI 9) Conduct of periodic internal and external surveys of individuals and firms and publication of results; Target 3 surveys conducted and results disseminated\. Actual value 3 surveys conducted (Baseline, Intermediate and Final Surveys) and results disseminated\. Page 90 of 104 The World Bank Judicial Reform ( P090309 ) Status Achieved PIRI 10) New/amended Criminal Procedure Code and Civil Procedure Code adopted by Parliament and came into force; Target All 4 Codes adopted in the Parliament and enforced Actual value All 4 Codes were adopted in the Parliament and enforced, the last 2 of them, criminal code and criminal procedure code, started the effective enforcement with February 2014\. Status Achieved PIRI 11) Impact assessment of four Codes (Civil Code, Civil Procedure Code, Criminal Code and Criminal Procedure Code) completed and accepted by CSM and MOJ; Target TA that would provide impact assessment of 4 Codes implemented Actual value Impact assessments finalized in November 2011\. Status Achieved PIRI 12) At least 10 % increase in the number of trainees using the NIM and NSC e-learning platform; Target At least 10 % increase in the number of trainees using the NIM and NSC e-learning platform\. Baseline was 277 in 2012\. Actual value In 2015 – 655 trainees (increase of 136%) and in 2016 – 1205 (increase of 335%), compared to 277 baseline\. Status Achieved and significantly exceeded PIRI 13) At least 50 % increase of the number of council rooms in 10 courts rehabilitated under this project\. Target At least 50 % increase of the number of council rooms in 10 courts rehabilitated under this project\. Baseline was – 7 council rooms in 10 courts Actual value In 2010, 16 council rooms were in 10 courts\. Increase was of 128%\. Status Achieved and significantly exceeded Page 91 of 104 The World Bank Judicial Reform ( P090309 ) Project Components The project has four components: (1) Court Infrastructure Rehabilitation (2) Strengthening of the Administrative Capacity of Courts (3) Court Information (IT) Support and (4) Institutional Development of Judicial Institutions\. Total amount of the loan is Euro 110 million\. Component 1: Court Infrastructure Rehabilitation – The project will support the rehabilitation and limited new construction of prioritized court buildings, and the development of uniform space planning and design standards for court facilities\. Rehabilitation and construction will provide improved public access and rationalization of court facilities, structural and environmental upgrading, enhanced security features and technological capacity and plan revisions required for the judiciary to function with efficiency and independence\. Court rehabilitation and construction will also mitigate one of the obstacles to the public’s respect for the court system\. The project will provide assistance for physical rehabilitation of at least 15 court buildings, but no more than 18 buildings (in which function 21 courts), depending on available funds after finalized procurement procedures\. The project will also support the development of design standards that will serve the judicial system in the long term\. Component 2: Strengthening of the Administrative Capacity of Courts – The project will assist the Romanian courts to adopt modern administration techniques to increase their productivity, improve the quality of their services and restore confidence in the judiciary\. Support for elaboration and implementation of the 4 new legal codes will also be provided, as well as for the new Insolvency Code\. Component 3: Court Information (IT) System – The Government’s Information Technology (IT) Strategy, approved in July 2005, anticipated development of a comprehensive RMS for the judicial system\. (Operational level case management systems are being implemented under EU financing\.) The RMS will cover financial, physical, and human resource management functions for the entire justice sector\. It will also cover management support functions, both reporting and analytic\. The RMS would support management functions at the level of the individual courts, as well as at the MOJ, CSM, and the HCCJ\. The system will operate over the EU/Government funded wide area network and will obtain reporting information from the court-level operational systems\. The use of industry standard technologies and interfaces specifications will minimize compatibility issues\. The RMS would serve approximately 5,000 users, comprising 20-25 individuals at each of the roughly 200 judicial facilities, and approximately 200 individuals at the MOJ, CSM, and HCCJ\. Technical support will be coordinated at the level of the second instance courts\. Additionally, during the first JRP restructuring, the funds anticipated as future savings realized during the procurement of the RMS and cancellation of other assignments, will be used to purchasing the long- awaited (by the MOJ) IT systems established for audio recording of the court hearings\. Component 4: Institutional Development of Judicial Institutions – This component would provide assistance to the following judicial institutions: CSM - in the area of quality of internal management, development of long-term judicial policies, monitoring judicial performance, public communications; Page 92 of 104 The World Bank Judicial Reform ( P090309 ) MOJ - in the area of quality of internal management and internal and external communications; NIM - in the area of development of new qualification tests for judges’ selection and promotion; development of training courses and curricula; NSC - in the area of strategic planning; development of certain training courses and delivery of training through distance learning programs and other innovative methods; This component would also provide funding, to develop and implement specific tools for monitoring project results, including public surveys and court user surveys\. A comprehensive baseline survey will be carried out immediately after loan effectiveness in order to provide a snapshot for the current reality\. Two more surveys would be carried out over the project implementation period\. Overall Main Achievements The most important JRP outcomes are the substantial reformation of the fundamental legislation impacting both the Romanian society as a whole (New Civil Code and New Criminal Code) and the functioning of all the national judiciary proceedings and trials (New Civil Proceedings Code and New Criminal Proceedings Code)\. A similar successful radical transformation of these 4 fundamental laws was done 146 years ago, in 1865, by King Charles the first, while other unsuccessful attempts occurred many times during 1940 to 2005\. The huge amount of work done consisted in the drafting and correlation process of 4,846 articles incorporated in the new Codes6\. Additionally, through a separate consultancy contract implemented in 2010-2011, all the resources needed for effective enforcement of all 4 Codes were assessed and planned according to a gradual 3 years schedule\. As a result of all the above, the 4 new Codes were adopted by Romanian Parliament and gradually entered into force in 2011 (Civil Code), in 2013 (Civil Proceedings Code) and in 2014 (Criminal Code and Criminal Proceedings Code)\. This achievement was fundamental for the national judiciary and its effects for the society will be seen in the next years\. Insolvency related national legislation was also reformed through JRP\. During 2011 and 2014, through a separate consultancy contract, the Romanian Insolvency legal framework and related mechanisms were strengthened thorough the elaboration of the first national insolvency code, in line with European ROSC standards\. Another highly important outcome was the successful implementation of a consultancy assignment by which the management of courts’ judicial activities were improved\. Through this consultancy, during 2011- 2013, the optimal volume of work for judges and court clerks was assess and standards for ensuring and monitoring the efficiency of courts’ activity were set as well\. Among others, Performance indicators were elaborated and a tracking system was designed for monitoring the case files clearing rate, the percentage of stock cases over 1 year and the percentage of cases closed within 1 year\. Capacity building was also a Project top priority\. Through 4 technical advisory contracts7 the e-learning activity within National Institute of Magistracy8 and National School of Clerks was enhanced, as the number of magistrates using the new e-learning facilities increased in 2013 with about 56% in comparison with 2012 baseline (277 trainees in 2012, while 639 trainees in 2013)\. Moreover, as result of the implementation of other 2 consecutive consultancy contracts9, the recruitment process of the young magistrates (judges and prosecutors) started to be conducted more efficient, also based on LSAT type tests (reasoning tests) and Page 93 of 104 The World Bank Judicial Reform ( P090309 ) not only on pure legal knowledge\. Thus, during 2010 – 2014, all 870 new future magistrates were recruited based on LSAT admission tests\. Additionally, following 2 consultancies implemented between 2009 and 2012, both MOJ and CSM have in place ISO type quality management systems which uniformed and documented all the business flows and administrative documents at their level\. IT component also achieved significant outcomes\. As a result of it, an integrated IT court session audio recording system was put in place at the level of all 243 national courts and implicitly in 699 court rooms were court sessions were held across Romania in 201310\. The system is operational since July 2013 and it is widely seen as a valuable instrument meant to increase the transparency of act of justice, as all the lawyers and any party involved in a certain a trial/court session, can request the audio recording of the court sessions\. Moreover, the national Judicial Inspection can now use the recordings to verify the judges’ behavior during court sessions, whenever necessary\. In a nutshell, this system contributed to the change of the act of justice and increased the positive attitude of court staff towards all external court users’ categories\. Another IT system started to be implemented for management of all judiciary resources (RMS – ERP type)\. The project of an extremely high complexity is still on going\. In case of RMS, the outcomes are so far the following: 1\. Human Resources and Payroll module – is functioning (is Live) at the level of CSM, HCCJ and PM, while its extension at MOJ, courts, NAP and all prosecutors’ offices is on-going\. This particular module brings the most significant added value to the judiciary institutions, since it manages approx\. 35\.000 members of judiciary personnel and approx\. 90% of the yearly budget of the entire judiciary system, which is represented by payroll costs\. 2\. Financial module – passed all the functional testes and hence was accepted from a functional perspective by the following beneficiary institutions: MOJ, PM and HCCJ\. Testing is on-going for NAP and CSM\. 3\. Budget module – passed all the functional testes and hence was accepted from a functional perspective by the following beneficiary institutions: MOJ, NAP, CSM and HCCJ\. Testing is on-going for PM\. 4\. ERDR – passed all the functional testes and hence was accepted from a functional perspective by the only beneficiary of this module, NAP\. By using the ERDR, all claims of detainees and their families can be more easily managed in the future\. Courts infrastructure remains the most costly project component and yet highly important for improving courts’ efficiency\. Thus, additional court rooms at the level of national courts will lead, among others, to more cases solved within a year, due to more adequate spaces for judgment\. In total, 16 court buildings were finalized, buildings which represent the premises for 21 national courts, out of which: 9 Courts of first instances (CFI), 9 Tribunals (TR) and 3 Courts of Appel (CA)\. The efficiency and the quality of judicial services delivered at the level of all these 21 courts was increased and details in this regards are presented in the chapters below\. Efficiency of Courts The overall rating of efficiency (ORE) of a selected court is calculated by an algorithm part of the IT statistics system (ECRIS STATIS), which takes into account the monitoring and compilation of the first 5 Page 94 of 104 The World Bank Judicial Reform ( P090309 ) efficiency related sub-indicators, as follows: Clarence rate (efficiency), Stock of cases, Cases closed within 1 year, Average time for disposition, Editing exceeding the legal deadlines, Number of court hearings\. The contract financed under JRP, related to Optimization of courts activity, significantly contributed to the identification and putting in place country wide, with the involvement of Superior Council of Magistracy, the mentioned ORE monitoring system\. The overall efficiency rate of a court, as well as all the 5 above sub-indicators can render 4 different level of efficiency for any court, as follows: 1) Highly efficient, 2) Efficient, 3) Satisfactory, or 4) Inefficient\. For all 21 courts, with only 2 exceptions, which were part of the Project, the overall rating of efficiency (ORE) is either Efficient either Highly efficient, according to the statistical information provided for the year 2015\. Only CFI Bolintin Vale and Bihor Tribunal has as ORE the rate - Satisfactory\. Lessons Learned The following 7 lessons were learnt, related to civil works component: 1\. Work on historical (national heritage) monuments is the most complicated and time consuming situation 2\. Difficulty to obtain fast building permits due to 1) MOJ internal reasons and 2) MOJ external reasons - national required legal procedures\. 3\. Technical readiness of implementation arrangements prior to the Loan signing\. 4\. Capacity of designers, contractors and site supervision engineer are needed\. 5\. The “true to life” quality of detailed designs, generated in many cases the need for adjustments/changes during implementation\. 6\. Designers contracted by the local court Beneficiaries, outside the framework of JRP caused in some cases delays in implementation\. 7\. Yearly budgetary allocation was not always in line with the request of the DIEFP and MOJ, due to financial crises and other MoPF public funds policy related reasons\. The following 5 lessons were learnt, related to IT component: 1\. IT projects with a single beneficiary institution, despite their complexity, can be successfully implemented far more easily than IT projects with more beneficiary institutions which do not have by law a common leader or single management factor(s)\. 2\. Capacity of IT contractors cannot be maintained throughout all project implementation, unless a specific/tailor made liquidation mechanism is designed from the beginning/contract signing\. 3\. Supervision management consultants do not bring significant added value when it comes to complex IT projects\. 4\. When new datacenters are to be created, already existing infrastructure should be leveraged\. 5\. For complex IT projects, user support should be included in the contract for the duration of the warranty period (typically 3 years)\. Financial Status at Completion By the end of Project closing date, the amount of EUR 110 mil was committed and the amount of EUR 102\.3 mil was disbursed from IBRD funds\. The undisbursed amount of EUR\.7\.7 mil will be paid from government contributioncanceled\. Page 95 of 104 The World Bank Judicial Reform ( P090309 ) ANNEX 10\. BEFORE AND AFTER PHOTOS Bolintin Vale Court of First Instance – Rehabilitation Before After Blaj - Rehabilitation Page 96 of 104 The World Bank Judicial Reform ( P090309 ) Before After Vatra Dornei Court of First Instance – Rehabilitation and extension Before After Page 97 of 104 The World Bank Judicial Reform ( P090309 ) Suceava Tribunal – Extension of existing building After Saliste Court of First Instance – Rehabilitation and extension Before After Page 98 of 104 The World Bank Judicial Reform ( P090309 ) Pitesti Court of Appeal - Rehabilitation Before After Page 99 of 104 The World Bank Judicial Reform ( P090309 ) Maramures Tribunal – Rehabilitation Before After Arges Tribunal – New building Page 100 of 104 The World Bank Judicial Reform ( P090309 ) Orsova Court of First Instance – New building Page 101 of 104 The World Bank Judicial Reform ( P090309 ) Tulcea Palace of Justice – New building Iasi Palace of Justice – New building Page 102 of 104 The World Bank Judicial Reform ( P090309 ) Page 103 of 104

REVIEW

P007707

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 22428 IMPLEMENTATION COMPLETION REPORT (CPL-37510; SCPD-3751S; SCL-3751A) ON A LOAN IN THE AMOUNT OF $350 MILLION TO THE UNITED MEXICAN STATES FOR A SECOND WATER SUPPLY AND SANITATION SECTOR PROJECT July 23, 2001 Finance, Private Sector and Infrastructure Department Latin America and Caribbean Region Colombia-Mexico-Venezuela Country Department This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\. l  CURRENCY EQUIVALENTS (Exchange Rate Effective ) Currency Unit = Peso (Mex$) I Peso = US$ 0\.11 (as of June 26, 2001) US$ 1\.00 = 9\.11 Pesos 1 Peso = US$ 0\.30 (as of May 1, 1994) US$ 1\.00 = 3\.3 Pesos FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS APAZU National Program for Water and Sewerage BANOBRAS National Development Bank for Public Works and Services (Banco Nacional de de Obras y Servicios Publicos) BOT Build, Operate and Transfer CAS Country Assistance Strategy CEMCA Training Mexican Center of Water and Sanitation (Centro Mexicano de Capacitaci6n de Agua y Saneamiento) CETES Mexican Government's Treasury Bills (Certificados de la Tesoreria de la Federaci6n) CNA National Water Commission (Comisi6n Nacional del Agua) EIA Environmental Impact Assessment FRR Financial Rate of Return ICB International Competitive Bidding ICG Internal Cash Generation IDB Inter-American Development Bank (Banco Interamericano de Desarrollo) IMTA Mexican Institute of Water Technology (Instituto Mexicano de Tecnologia) LACI The Loan Administration Change Initiative LCB Local Competitive Bidding MOU Memorandum of Understanding NP Master Plan NAFTA North American Free Trade Agreement (Tratado de Libre Comercio-TLC) PMR Project Management Report PROMMA Water Resources Management Project PSP Private Sector Participation SECOGEF Government Comptroller Office (Secretaria de la Contraloria General de la Federacion) SIAPA General Information System for the Water and Sanitation Sector (Sistema de Informacion para Agua Potable y Alcantarillado) UDIS Units of Investments UFW Unaccounted for Water WUs Autonomous Water Utilities and Operating Agencies Vice President: David De Ferranti Country Manager/Director: Olivier Lafourcade Sector Manager/Director: Danny Leipziger Task Team Leader/Task Manager: Oscar Alvarado  FOR OFFICIAL USE ONLY MEXICO SECOND WATER SUPPLY AND SANITATION SECTOR PROJECT CONTENTS Page No\. 1\. Project Data 1 2\. Principal Performance Ratings 1 3\. Assessment of Development Objective and Design, and of Quality at Entry 2 4\. Achievement of Objective and Outputs 4 5\. Major Factors Affecting hnplementation and Outcome 9 6\. Sustainability 11 7\. Bank and Borrower Performance 12 8\. Lessons Learned 15 9\. Partner Comments 17 10\. Additional Information 27 Annex 1\. Key Performance Indicators/Log Frame Matrix 30 Annex 2\. Project Costs and Financing 31 Annex 3\. Economic Costs and Benefits 34 Annex 4\. Bank Inputs 35 Annex 5\. Ratings for Achievement of Objectives/Outputs of Components 37 Annex 6\. Ratings of Bank and Borrower Performance 38 Annex 7\. List of Supporting Documents 39 This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.   Project ID: P007707 Project Name: Second Water Supply & Sanitation Project Team Leader: Oscar E\. Alvarado TL Unit: LCSFW ICR Type: Core ICR Report Date: July 23, 2001 1\. Project Data Name: Second Water Supply & Sanitation Project LIC/TFNumber: CPL-37510; SCPD-375iS; SCL-3751A CountrylDepartment: MEXICO Region: Latin America and Caribbean Region Sector/subsector: VP - Pollution Control / Waste Management; WW - Water Supply & Sanitation Adjustment KEY DATES Original Revised/Actual PCD: 06/07/1993 Effective: 06/20/1995 Appraisal: 09/15/1993 MTR: 07/21/1996 Approval: 06/09/1994 Closing: 08/31/2001 Borrower/Implementing Agency: BANOBRAS/COMISION NACIONAL DE AGUA Other Partners: STAFF Current At Appraisal Vice President: David De Ferranti Shaid Hussain Country Manager: Olivier Lafourcade Edilberto Segura Sector Manager: Abel Mejia Ricardo Halperin Team Leader at ICR: Oscar Alvarado Luis Pereira ICR Primary Author: Oscar E\. Alvarado; Guillermo Yepes 2\. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: U Sustainability,: UN Institutional Development Impact: M Bank Performance: U Borrower Performance: U QAG (if available) ICR Quality at Entry: U Project at Risk at Any Time: Yes  3\. Assessment of Development Objective and Design, and of Quality at Entry 3\.1 Original Objective: The broad project objectives, in line with government policies, were to help finance the continuation of the APAZU program (Agua Potable para Zonas Urbanas) launched in 1990 under the first Water and Sanitation Sector Project also financed by the Bank\. The APAZU supported the decentralization of water and sanitation services, strengthening of local water utilities (WUs), improving sustainability of investments and addressing water resources and environmental concerns\. The specific project objectives were to: (a) improve the quality and expand coverage of water and sanitation services; (b) strengthen the institutional capacity of CNA (Comision Nacional de Agua) to comply with its legal mandate to assist water utilities improving their management, operations and planning capacity, and to train their personnel to achieve these goals; (c) reduce subsidies to the sector by promoting the development of adequately sized and operationally and financially autonomous local WUs; (d) support BANOBRAS' efforts to enhance its capacity to appraise and supervise projects; (e) encourage private sector participation (PSP) by establishing an appropriate legal and technical framework to attract private investment; (f) improve management of water resources and the environment by supporting water quality programs; and, (g) strengthen the sector's capacity to enforce environmental regulations and carry out environmental impact assessments\. The Project was part of a package of three operations (Water Supply, Solid Waste and Northern Border Towns) for about $1 billion made available to Mexico at the time the NAFTA trade agreement was signed with the US and Canada\. The Loan became effective on June 20, 1995 and was amended four times\. The first amendment, on March 15, 1995 prior to effectiveness, to clarify the meaning of Environmental Preventive Reports\. The second, on November 29, 1995 allowed the denomination of subloans in Units of Investment (Unidades de Inversi6n) instead of CETES (Certificados de Tesoreria) to soften the financial impact of the economic crisis on the WUs\. The third, on March 21, 1997, redefined the Monitoring and Reporting Requirements of the subloans; and the fourth, on December 2, 1999, to allocate $60 million for emergency projects in response to the impacts of natural disasters such as Hurricane Pauline\. In addition, the closing date was extended from September 30, 1998 to August 31, 2000 on the expectation that new sewerage works in the Federal District could be financed under the project, works that never materialized\. On March 2000, $84\.3 million were canceled\. 3\.2 Revised Objective: While the original project objectives were not changed, the fourth amendment of December 1999 expanded - 2 -  the scope of the project and created a new component to retroactively finance the Government of Mexico expenditures incurred in the reconstruction of water and sanitation works in areas affected by recent natural disasters\. These investments had to comply with specific eligibility criteria devised for the emergency works, and were exempted from the conditionality and eligibility criteria of the original loan that applied to WUs financed under the project\. This expansion therefore did not imply any modification of the project initial objectives\. Moreover, there was a common understanding that, by that time, it was too late to attempt a project restructuring which would have had to be very deep to assure an effective project rescue\. 3\.3 Original Components: The project rationale, in line with the Government strategy at the time, was to deepen the decentralization process, emphasizing sustainable investments\. This responded to evident pressure on existing water and sanitation services, that needed to make further investments to meet the population growth in urban areas\. In addition, most WUs needed to improve the efficiency of operations and to become financially solid to offer more reliable and cost effective services\. Moreover, there was a substantial backlog of investments in treatment of wastewater as only 15 % of municipal discharges were treated in 1995\. The bulk of loan resources (86%) were allocated to help expand coverage of water and sanitation services\. Resources were also allocated to help improve the quality of services through the rehabilitation of existing infrastructure as well as strengthen the WUs, through training of its staff, which was to be provided by CNA/IMTA\. In addition loan resources were allocated to provide technical assistance to CNA, IMTA and BANOBRAS\. (see annex 2) The original US$770 million sector project had two major components\. At the time of the fourth amendment to the Loan Agreement (December 1999) a third component was added to finance the emergency works\. A description of these components follows: Part A\. Investment support to Water Utilities for $736\.3 million To BANOBRAS\. For $722\.8 million, for provision of subloans to WUs to help finance eligible investments to expand coverage and improve the quality of water supply, sewerage and waste treatment services\. To BANOBRAS\. For $13\.5 million, to help non-eligible WUs develop master plans that would make them financially viable, prepare environmental impact statements and implement selected institutional development actions\. Part B\. Technical Assistance Component for $33\.7 million To CNA (Coniisi6n Nacional del Agua)\. For $23\.0 million to help: (a) implement the sector information system (SIAPA); (b) study alternatives for an adequate regulatory framework to encourage PSP in the water and sanitation sector, and (c) WUs to deliver better and more efficient services\. To IMTA (Instituto Mexicano de Tecnologia del Agua)\. For $7\.3 million to strengthen the institution, expand its research laboratory; build pilot wastewater treatment plants to train operators and train WUs staff\. To BANOBRAS\. For $3\.4 million to strengthen its capacity to evaluate and monitor projects under implementation\. -3 -  Part C\. Emergency Works for the Urban Water and Sanitation Sector affected by Natural Disasters (new) To CNA\. For $60 million, reallocated from parts A and B of the project, to finance the federal government eligible expenditures incurred to reconstruct water and sanitation infrastructure\. 3\.4 Revised Components: Project components were not formally revised, except for the above-mentioned creation of the new emergency component in 1999\. The emergency component responded to a request made by the Mexican Government and, while it financed eligible expenses in water and sanitation, it allowed the Federal Government to be reimbursed for unplanned expenses, while drawing down a larger portion of the Loan, which, at that time, was already stagnant\. In addition, in late 1996, the technical assistance component for CNA and IMTA was absorbed within Bank Loan 4050-ME Water Resources Management (PROMMA), which offered a more comprehensive framework for water resources management\. 3\.5 Quality at Entry: Project scope was consistent with the Country Assistance Strategy (CAS) which envisioned assistance to the Government to strengthen public finances at the national and state levels, improve allocation of public resources and increase private sector participation in the provision and financing of water and sanitation infrastructure\. Project design also reflected the Government's decentralization efforts\. The appraisal report rightly identified the project's institutional and political risks\. The appraisal report described in detail the policy framework and the implementation procedures, including a monitoring and information systems, intended to build on the lessons leamed from the first operation as well as provide an effective tool to monitor progress of sector reform\. However, the SAR did not always adequately link project objectives and goals with the actual activities of the project components financed under the proposed loan\. For example, the objective of increasing private sector participation was mentioned, but no specific activities were envisaged as part of the project\. Also, project components aimed at achieving better prepared projects and strengthening the capacity of WUs, while appropriate, did little to support sector reform at a broader level, and correct structural issues such as pricing and cost recovery, and create a better regulatory framework\. The Mexican counterpart agencies showed commitment and ownership to the project objectives and design during project preparation 1993/94\. However, the commitment of the new Mexican Administration which came into office in late 1994, to sector policies and project conditions in the wake of a severe economic crisis, in early 1995 showed signs of weakening as was evidenced by their requests to reduce project conditionality (MOUs, Master Plans)\. 4\. Achievement of Objective and Outputs 4\.1 Outcome/achievement of objective: The lack of more appropriate information systems in BANOBRAS to follow project outcomes and impact as well as in CNA to follow on sector improvements imputable to the project has hindered project post-evaluation\. Nonetheless, in spite of supporting decentralization by strengthening various WUs, the project failed to achieve most of its proposed objectives and goals as stated in the SAR\. Therefore it is clear that project objectives were only partially met\. In particular, some key project outcomes such as - 4 -  strengthening CNA's SIAPA (Sistema de Informacion para Agua Potable y Alcantarillado) information system and BANOBRAS project monitoring systems; and, developing a more effective framework for private sector participation\. Loan proceeds were not in fact used to support any of these goals, and in the case of the framework for private sector participation there were no activities envisaged in the Project's SAR\. The population benefited under the project was about 32% of appraisal estimates\. Loan proceeds were partially disbursed ( 86%) even after the amendment to reallocate $60 million for natural disaster relief operations and a partial cancellation of $84\.3 million\. Only about 50% of the original loan amount was disbursed against original project components and objectives\. The reasons for this low disbursement percentage derives from a combination of factors, of which two are key: (i) the financial crisis in 1995, which greatly contributed to BANOBRAS's subloans being largely unattractive to the WUs, and (b) the combined failure of the Borrower, implementation agencies, as well as Bank in promptly deciding how to restructure the project when it stalled in 1996\. This is elaborated in greater detail in sections 4\.2 (b, c, and d) and 5 of this ICR\. At loan closing, the situation of the sector continues to be of concern\. Investment is still at a low level and attempts to attract the private sector have not been successful (par\. 4\.2 e)\. Tariffs still do not cover operational and maintenance costs in most WUs, and efforts to increase revenues at the local level are stalled\. In constant terms, tariffs have remain largely unchanged since 1995: for instance, average collection in 1995, in urban areas (not including the Federal District) was $M 29\.6 per capita served per year and $M 28\.7 in 1999\. Moreover, arrears of WUs to CNA for water extraction and discharges continue to increase\. On the positive side, decentralization in the sector has progressed, and there is noticeable improvement in efficiency and service provision levels in various WUs\. 4\.2 Outputs by components: (a) Sector Investments Annual investments made under APAZU are presented in Annex 1, Table 1\. Under this program 21% of resources were allocated to water supply, 43% to sanitation and wastewater treatment, and 36% to help improve operations and services through rehabilitation, replacement of obsolete equipment and technical assistance\. At the time of appraisal, it was estimated that the project would benefit some 10 million people\. BANOBRAS' completion report estimates the population benefited at 12\.6 million, and 20\.7 million if the effects of retroactive emergency financing ($35 million) are taken into account\. BANOBRAS estimates include many population groups which benefited from improvements in the quality of services, but no information is available to quantify these beneficiaries\. According to CNA, total beneficiaries (with new service) of all national sector investment programs, including APAZU, were about 13\.8 million of which 10\.1 million were in urban areas (Annex 1, Table 2)\. Bank supported investments represented about 70% of APAZU program, which in turn represented 35% of total sector investments from 1995-1999\. Therefore, it seems reasonable to assume that project beneficiaries fell short of appraisal estimates\. Based on the above figures, estimates indicate that about 4\.7 million benefited from access to water and sanitation services under the APAZU program and 3\.2 million from Bank supported investments (i\.e\. /estimate of APAZU beneficiaries prorated to total investments)\. The above reported figures overestimate the beneficiaries and the lack of information on the effects of rehabilitation efforts in WUs highlight some of the deficiencies of the sector and project information systems\. These systems have been designed to track, among others, investments and coverage of services, -5-  as well as project disbursements and debt obligations\. Despite significant improvements in recent years, CNA's information system is not yet ready to provide useful comparative statistics and benchmarking on operational and investment indicators that would be helpful to identify good practices and promote a much needed competition among WUs\. The sector information (SIAPA) system is a worthy start that needs further refinement to improve quality and reliability of information collected which is expected to generate substantive analytical work\. BANOBRAS' information system would also benefit from a thorough revision to capture information that tracks the financial performance of WUs, their main clients, and provide an early waming of financial difficulties\. The project was relatively successful in supporting sector decentralization efforts and in promoting the strengthening of WUs (as mentioned about 36% of project funds went to finance WUs strengthening programs) \. The project design, however, failed to design a more effective working relationship between the Federal Government, the States and WUs\. (b) Strengthen institutional capacity of CNA and IMTA These institutions used only $1\.5 million of the $14 million technical assistance allocated for this purpose (Annex 2)\. CNA has explained that the main reasons for not using Bank funds had to do, primarily, with the fact that external resources do not provide additional budgetary resources to Federal agencies\. Consequently, it is easier for them to tap unrestricted federal funds than external resources with conditionality\. IMTA's technical assistance component were included in another Bank Project, PROMMA Project (Loan 4050-ME), apparently without adequate coordination within the Bank and the Government\. Nonetheless, CNA and IMTA maintain an active staff training program to improve the dialogue with Wls and local governments\. More recently, with the help of French grant aid, CNA/IMTA have completed construction of an impressive new training facility (Centro Mexicano de Capacitaci6n de Agua y Saneamiento - CEMCAS-) near Mexico City which is expected to meet the training needs of WUs\. (c) Support BANOBRAS to appraise and supervise projects BANOBRAS did not use technical assistance from the project, largely for reasons similar to CNA's, but they used other resources to improve its institutional capacity to dialogue with WUs\. It also reports using the loan for the training of 41 of its own staff\. BANOBRAS supervises projects at a decentralized level, an arrangement that has had positive effects, providing closer follow-up and assistance to clients\. However, as of today, BANOBRAS still needs to improve its management information system to help monitor implementation progress of works, progress made in achieving development objectives, and overall impact of investments\. It would also need improvements on the follow up on the financial situation of WUs\. (d) Reduce Subsidies to the Sector The original intention of the Government was to gradually reduce subsidies to the sector and make them more transparent\. The APAZU program was designed to provide WUs with a mix of loans and grants to encourage increased internal cash generation (ICG) resources\. Hence, it was expected that such a strategy would provide sufficient incentives for WUs to make a significant financial effort to increase revenues, through tariffs\. In those cases where the mix of resources was applied as designed, subsidies to the sector were reduced\. However, in APAZU projects not supported under the Bank's Loan, this strategy was not always apply in a consistent way\. -6 -  In the period 1995-1999, about $M 11,750 million ($ 1,456 million) were invested in the sector (Annex 1, Table 3) of which $M 4,084 million (about 35%) fell under the APAZU Program\. These investments do not include investments under Ramo 33 (substantial transfers to local governments), for which information on how much has been invested in water and sanitation is not available\. However, to qualify the reduce of subsidies is not possible since no goals, indicators or specific technical assistance components were developed to monitor its progress\. The 1995 crisis coincided with a drastic reduction of Federal allocations for investments in the sector, and particularly through APAZU\. This reduction changed de facto the mix, and hence the government's financial policy became less attractive\. Reduced grant contributions from the Federal Government largely explain the lack of enthusiasm from the WUs to continue borrowing from BANOBRAS, since the new mix became financially none viable\. This change in financial policy was probably the main factor that contributed to stall the project\. At the same time, the reduction in Federal allocations coincided with an increase in Federal transfers to municipalities (Ramo 33), which can be used for several types of investment, including water and sanitation\. Overall, there is little evidence that APAZU achieved the objective of reducing services subsidies programs (Annex 1, Table 3)\. For example, sources of funds in 22% of WVUs supported by APAZU did not include cash generation or loans which raises the issue of consistency of government's sector policies and development objectives\. This lack of consistency in the mix of resources helps also explain the slow pace of disbursements in the later years of the sector operation when the positive effects of the economic recovery were already in evidence, since local governments and WUs preferred to use softer funds\. Nonetheless the increasing mix of internal cash generation and loans to WUs, 19% for non-APAZU Programs and 31% for APAZU, shows a promising and positive trend\. While the proposed financial mix in APAZU represented a departure in the right direction from the prevailing grant financing, more remains to be done\. In particular, there is need to have a consistent financial policy coordinating all Federal government funds to foster sector development goals\. These funds should help create the incentives for WUs to increase their internal cash generation (ICG) through a judicious mix of operational efficiency gains, rationalization of cross-subsidies and higher levels of cost recovery\. (e) Encourage Private Sector Participation (PSP) The objective was to improve the existing regulatory framework to help attract private participation in the management and investments of water and sanitation services\. However, no activities related to this objective were explicitly defined in the project appraisal document\. Therefore, due to an obvious design flaw, the project had practically no influence in encouraging PSP\. Overall, accomplishments in PSP in the sector in Mexico have been modest\. In spite of strong enthusiasm for PSP in the early 90s, actual results are well below original expectations, with most cases being related to BOTs for wastewater treatment plants\. Only about 34% of contracts awarded are currently (March, 2000) in operation, and only 11 of 50 BOT projects ever reached operating stage\. Understandably, many local governments and WUs are reluctant to bring in the private sector in the absence of a thorough analysis, convincing successful models, and wide dissemination and understanding of the failures\. Structural deficiencies in pricing, including the generalized politicization of water supply tariffs, which has led to unsustainable internal cash generation in WUs, as well as to low levels of private sector participation in the sector\. -7-  On the positive side, the project supported several international seminars, organized by CNA, to discuss PSP related experiences, which drew broad interest and heavy attendance\. The seminars probably contributed to disseminating key experiences of PSP and improve knowledge and understanding of the issues and operational practices\. CNA's interest and activities in promoting PSP have increased substantially and represents one key pillar of the strategy of the new administration\. (f) Improve Management of Water Resources and the Environment The project had a marginal contribution to this objective\. Loan proceeds were sparingly used to fund technical assistance programs to IMTA, since Loan 4050-ME subsequently provided more funds to this institution for similar institutional development programs\. (g) Strengthen environmental regulations and EIAs Project investments were directed to urban areas and included preparation of EIAs in compliance with water resource and environmental regulations enforced by CNA and the Ministry of the Environment\. In this sense, the project contributed to increase awareness and practice of environmental analysis\. The project, however, did not provide the mechanisms or resources to formulate and enforce environmental regulations\. 4\.3 Net Present Value/Economic rate of return: All investments to improve and expand services, with the exception of emergency works, had to pass an economic rate of return hurdle of 12%\. These investments were identified in the Master Plans submitted to the Bank for approval\. A review of a sample of the master plans for three cities (Los Cabos, Baja California; El Carmen, Campeche; and Tuxtepec, Oaxaca), indicated that the ERR in two projects was higher than the agreed hurdle rate (a combined 25% in Los Cabos, and between 13% and 18% for sewerage, waste treatment and water supply components in Tuxtepec)\. No rate of return was calculated for investment in El Carmen\. This review further indicate that the economic analysis was a perfunctory exercise, with apparently only marginal effect on the proposed works under the master plan, as there was no discussion of least cost analysis to maximize investment returns\. For works actually carried out, usually a sub-group (initial phase) of those proposed in the master plan, no economic analysis was carried out\. While the Bank provided comments on the consistency of the master plans and proposed remedial actions to tackle deficiencies of services, there is no evidence that these comments extended to the economic analysis\. 4\.4 Financial rate of return: No FRR targets were set under the project\. Nonetheless, tariff adjustments below inflation coupled with initial low tariffs, which still affect most WUs, point in the direction of disappointing FRRs\. It is worth noting that internal cross-subsidies embedded in the rate structure appear to have increased from 1994 to 1998 \. In a sample of 60 WUs, tariffs increased in nominal terms by 67%, 95% and 102% for residential, commercial and industrial users respectively while the Consumer Price Index increased by 248% over the same period\. These reinforce the undesirable effect of the prevailing cross-subsidy structure in most WUs which undermines efforts to increase internal cash generation and promote a rational use of water resources\. The financial performance of WUs was not followed systematically throughout the project implementation - 8 -  period\. Existing information systems do not provide a comprehensive view of the financial situation of the WUs\. However, existing data strongly suggest that average WUs in Mexico barely covered operational costs and hence that cost recovery objective has been generally not attained\. 4\.5 Institutional development impact: Sector Policies\. The project attempted to introduce new financial policies and guidelines for better project planning and preparation\. It seems that this was generally achieved within the scope of the subloans which used the project financial structure\. Federal Sector Institutions\. The project's institutional development impact on BANOBRAS and CNA was at best marginal\. Both CNA and BANOBRAS used a small portion of the allocated funds for institutional strengthening\. Water Utilities\. As mentioned, existing information systems at the Federal level do not yet provide comprehensive information about the performance and institutional development of the WUs\. In general, APAZU supported well the ongoing decentralization process and helped establish and strengthen the WUs\. In spite of the incipient regulatory framework and the lack of adequate incentives, some WUs performed relatively well\. In addition to support provided by CNA in various cases, this may be explained by the relative independence of some WUs, and their decision to move towards commercially oriented institutions\. Sector indicators provided by CNA comparing 1999 and 1995 show a general improvement in WU efficiency indicators (i\.e\. unaccounted-for-water and billing collection ratio)\. A sample review of 8 participating WUs carried out by CNA, showed improvements in operations (increased metering and leak control)\. Visits to two WUs (Leon, Guanajuato and Atlixco, Puebla) during preparation of the ICR and to various other WUs during the last phase of supervision period (Hermosillo, Sonora, Culiacan, Sinaloa; Pachuca, Hidalgo) provide indications about the development impact of the project\. All these WUs show structural problems regarding financing of investments, noncommercial accounting systems, low tariffs and some efficiency problems\. However, most of these WUs also show high collection indices and fairly well managed operations\. For instance, WUs in Hermosillo, Culiacan, Leon and Pachuca, have developed effective client-oriented commercial systems and can show good operations and maintenance, including UFW programs and quick response to pipe breaks\. Leon and Atlixco have developed adequate information and accounting systems which allows them to function effectively\. Leon's WU developed, with its own resources, a new commercial and accounting system with little involvement of BANOBRAS or CNA and the Bank\. Atlixco's WU developed a more basic but suitable system for a small utility with the support of CNA\. However in general WUs would benefit greatly by improving their accounting methodology (depreciation is not often recognized as a financial cost and hence not incorporated into the financial statements)\. They would also benefit from a managerial and commercial accounting system separate from budgeting and accounting reporting requirements (set by the States) where accrual and cash concepts are intermingled and give confusing results\. In summary, project's contribution to the water and sanitation sector was below project expectations\. Despite improvements in the performance of various WUs, the sector remains weak and vulnerable, lacks a credible regulatory framework, needs a more consistent financial policies, and investments that are largely dependent on subsidies\. 5\. Major Factors Affecting Implementation and Outcome 5\.1 Factors outside the control of government or implementing agency: -9-  The financial crisis that affected the Mexican economy in late 1994 and 1995, was present when the loan was declared effective in June, 1995\. This crisis had a profound effect on the project\. On one hand, financial resources to the sector from 1995-1999 declined significantly by 57 % in real terms compared to investments in the 1990-1994 period\. Investments financed under the APAZU program suffered a similar decline\. Moreover, some state governments refused to provide the loan guarantees demanded by BANOBRAS or prohibited WtJs to borrow from this institution as state debt service obligations soared\. Interest rates to WUs were pegged to CETES (Treasury Bill Notes + spread of 2\.5 points) which some also soared (Annex 1)\. The amendment introduced in 1995 to allow BANOBRAS to denominate the sub loans in Unidades de Inversion (UDIS + a spread of 6\.5 points), linked to the Consumer Price Index, was intended to dampen debt service payments by WUs in the early years\. However, states and WUs remained cautious and reluctant to borrow at high rates and preferred to wait for grant financing and defer borrowing, even at the expense of postponing investments of high priority works\. The effect was devastating, as it made the loans less attractive and consequently rendered the project stagnant thereafter\. 5\.2 Factors generally subject to government control: The allocation of significant grants by the Federal Government to local governments (States/municipalities/WUs) regardless of the financial/operational performance of local efforts to improve cash generation sent mixed signals and provided unclear incentives which weakened the commitment of most state and local governments to put pressure on WVUs to operate as fully commercially oriented institutions\. As a result of many years of subsidies, there was a lack of clear signals and a concerted effort at all levels to increase cash generation to leverage additional resources, including credit to expand and improve services\. This reluctance is particularly noticeable when it comes to extending services to poor areas where revenues from water and sewerage charges often do not cover operating costs due to highly distorted tariff structures\. For instance, in Tlanepantla Edo\. de Mexico, the average tariff in 1999 was $M 7\.0/m3 while the average metered domestic tariff was $M 3\.66/m3 (with a low of $M 1\.54/m3, which does not even cover variable costs) while the average metered non-domestic tariff was $M 11\.97Jm3 respectively\. It is clear that the problem of wrong incentives given by the federal and state grants as well as the distorted tariff structures, do not seem to have received adequate attention by government authorities, nor by the Bank at time of appraisal\. Demand for BANOBRAS loans fell sharply\. After the crisis, and with a new policy for sector financing, the Federal Government drastically reduced the allocation for project counterpart funds\. As these grant funds were not replaced, the WUs found the financial mix unattractive\. Low tariff levels in most WUs, insufficient to cover investments, also made it impossible to acquire new debts\. In addition, as interest rates soared, local governments and WUs became reluctant to access these credits even though, when the mix of resources, including grants, was taken into account, the loans should still have been attractive\. However, the lure of 100% grant financing was still a more attractive option\. In addition, WUs usually complained about the long time needed to get a loan approved which sometimes was as a long as the term of municipal administrations (3 years)\. The very limited use of loan resources earmarked for technical assistance by CNA and BANOBRAS is also explained, at least partially, by the fact that external resources are not additional resources to the budget: if they are not utilized, the budget transfers are not reduced accordingly\. Hence there is little incentive for Federal agencies to use external resources especially associated with attached conditionality\. Some WUs, on the other hand (e\.g\., Leon, Guanajuato), have suggested that their reluctance to use technical assistance funds was more related to perceived cumbersome and protracted procurement arrangements\. In Leon, for example the WU opted to develop a modem commercial system with its own - 10-  resources\. The problem of unused, earmarked, technical assistance funds seems to be affecting other Bank operations such as the Solid Waste (Loan 3752-ME) and PROMMA (Loan 4050-ME)\. 5\.3 Factors generally subject to implementing agency control: - The waiver of project eligibility criteria (according to less strict rules that applied to the W&S I project) granted to WUs financed under retroactive provisions ($ 50 million), for subprojects prepared under the previous Bank operation, gave misleading signals to the sector institutions right at the start to the new Mexican administration, which then tried to extend this waiver to all investments under the project\. At the end of the project in 1999, a similar waiver for $60 million was also granted to investments under the emergency program (part C of the project)\. - Unfortunately, the Borrower and the Bank were not proactive in anticipating the impact of the economic crisis of 1995 on the sector and failed to take adequate actions to minimize its effect on the sector operation\. A more timely definition on restructuring or partially canceling the loan should have been taken in 1997\. This would have avoided substantial costs in commitment fees to the Mexican Government\. - Protracted sub-loan negotiations with BANOBRAS and the perception of cumbersome Bank procedures also discouraged many local mayors from accessing these funds which did not provide enough time to process the sub-loans and execute the works within the three years term of their political mandate\. 5\.4 Costs andfinancing: The actual allocation of loan proceeds have significant differences when compared with SAR estimates\. Only 65% of the original loan amount was actually disbursed, including the $ 49\.8 million disbursed for emergency works, and only 51% was disbursed if one excludes emergency works\. Only about 5% of funds allocated for activities related to strengthening of Federal Institutions (CNA, BANOBRAS and I1TA) was disbursed\. Project investments account for about 50% of the original project cost\. Information from BANOBRAS indicate that the financial structure (Loan, grants and ICG) was largely maintained\. Low disbursements implied that fewer than expected subloans were provided by BANOBRAS to the WUs and, as mentioned above, available funds for institutional strengthening were scantily used\. During project implementation, at the request of the Government, $84\.3 million were canceled when it became evident that those funds were not going to be used\. 6\. Sustainability 6\.1 Rationale for sustainability rating: The sustainability of the project is rated unlikely\. There has been a positive trend in the sector with the transfer of responsibilities for water and sanitation operations to local governments, an objective actively supported by the project\. By 1999, 943 local governments had created a semi-autonomous water and sewerage utility and in 19 of the 31 states, WU boards had the authority to set service rates\. While many WUs have improved their technical operations most WUis are still struggling with inadequate tariffs and ad-hoc subsidies which give wrong incentives to enable them to provide reliable services\. Sustainability is at stake in many WUs, where tariffs do not cover operational costs and therefore are financially nonviable, and still lack adequate information and accounting systems (in particular a registry of fixed assets) and hence lack the management tools to operate as an - 1 1 -  autonomous and commercially-oriented utility\. 6\.2 Transition arrangement to regular operations: The APAZU project has continued to operate with own (federal) resources\. However, under decreasing federal budgets, and increased municipal transfers, the new administration is revisiting the financial structure and incentives, as part of an overall policy and government strategy for the water and sanitation sector, currently under preparation by CNA\. CNA has quantified the financial needs of the sector as about 1\.7 billion a year for the next six years and is working a financial strategy based on improved efficiency, higher adjusted tariffs, private sector participation and contributions from municipal and state sources\. A new program is being envisaged to replace APAZU which will most probably be supported by multilateral institutions including the World Bank\. 7\. Bank and Borrower Performance Bank 7\.1 Lending: Many of the shortcomings that affected the first Bank Sector operation ($300M Ln 3271 -ME) were considered during preparation of the current Sector operation but the project failed to address key issues effectively\. They included: (1) Lack of clear rules in the allocation of federal grants to local governments to improve water and sanitation services and maintenance of existing assets; (2) Rigidities in the way budgets are allocated to federal agencies that discourage the use of external resources; (non-budget additionally)\. (3) Financially nonviable service rates that did not cover costs in most WUs and problems with highly distorted cross-subsidy tariffs that discourage water conservation and undermine WUs' efforts to improve billing and collection\. (4) Unreliable management information systems in CNA and BANOBRAS that hinder monitoring of project performance and their capacity to engage local governments and WVUs in a productive dialogue to improve sector performance and efficiency\. The emphasis of both institutions seems to have been directed primarily to helping local governments and WUs with new construction rather than following a path of expansion of services with a parallel improvement of service operations; and (5) Weak enforcement of service quality standards and lack of incentives for local governments to improve quality of services, particularly to the poor, based on long term sector development plans\. The fast pace of implementation of the first Bank Sector Project (Ln 3271-ME), which disbursed ahead of schedule, led to the Bank financing the Second Sector Project without adequately addressing the sustainability problems encountered in the first operation and the implementation challenges of the second\. At appraisal, the Bank attempted to compensate for these shortcomings by loading the project with conditionality by requiring Master Plans (e\.g\., medium-term, institutional and service improvement plans) and Memorandum of Understandings (MOU) (institutional and service improvement goals under the project) between BANOBRAS and the WUs as conditions to be eligible for financing\. These agreements - 12 -  were intended to provide a sound plan for the development of WUs and required prior review from the Bank\. However, the acceptance of retroactive financing, (of about $50\.0 million) in essence bypassed the need to prepare MP/MOU conditionality set for new sub-projects setting a precedent (which was later extended to emergency works for disaster relief) which gave wrong signals to the sector institutions\. Moreover, a review of such master plans and MOU required unrealistic resources from the Bank beyond customary supervision budgets\. The Bank failed to allocate the necessary manpower to review these documents in a timely fashion and to provide adequate feedback\. The Bank Loan provided resources both to expand services and provided technical assistance to help improve WUJ operations as well as for a massive technical assistance to CNA, IMTA and BANOBRAS\. However, the specific goals to be achieved under the technical assistance, particularly by Federal institutions were not clearly identified, neither did the Bank establish indicators to measure progress attained under the technical assistance component\. There was a disconnect at appraisal between development objectives and resources that would be needed to achieve them\. Disbursements Disbursements started off briskly and reached $ 125 million during the first year of project implementation, assisted by retroactive financing ($ 35 million) of investments initiated under the first Sector Loan Project\. Afterwards, disbursements declined dramatically to $ 6\.3 million in CY 1996, $ 28 million in 1997, $ 17\.7 million in 1998, and $ 1\.8 million in 1999\. Total disbursements eventually reached $ 228\.8 million, or 65% of the original amount\. BANOBRAS reported 2,287 different contracts in 384 WUs while CNA reported 834 contracts for the emergency program; an average of less then US$ 70,000 per contract\. These large number of contracts suggest an unnecessary unbundling of construction and technical assistance activities, which unduly taxes project preparation and supervision capacity and casts serious doubt on the rationale for ex-ante ICB and LCB procurement limits\. 7\.2 Supervision: The quality of supervision was adversely affected by frequent changes of Task Manager (5 during the life of the operation) and the composition of supervision teams which, at times, did not seem to have adequate sector expertise to engage BANOBRAS and CNA in a productive dialogue\. Also, at times, supervision seemed to be perfunctory, since there is no record that major implementation issues were ever discussed\. Project ratings, on the other hand, appear to have been primarily linked to disbursements and hence were surprisingly optimistic until the very end of the project\. Even when the pace of disbursements declined sharply there is no record that Bank missions engaged the borrower in a meaningful discussion to understand the causes of this slowdown or to search for meaningful solutions\. Supervision missions visited some WUs to monitor achievement of project goals but there are no records of follow-ups on the findings of these visits\. 7\.3 Overall Bankperformance: Bank performance was not satisfactory and it was compromised from the beginning by overoptimistic and in some cases unrealistic project goals at appraisal, many not adequately identified and fumded, and without monitorable indicators to assess progress\. This is particularly troublesome, as the lessons from previous operations were not fully incorporated into this project\. In particular, the commitment of Federal institutions to sector development, often understood primarily as the need to promote new construction, was - 13 -  not assessed adequately and was not questioned during supervision\. The wrong signals given by federal and state grants for investment to local governments, which discouraged WUs to increase their internal cash generation, were also not addressed at appraisal even though this problem had surfaced in the first Sector Operation\. Certainly, frequent changes in Project Task Management contributed to a fractured and nonproductive dialogue with the Borrower\. BANOBRAS and CNA complained about the frequent changes in task managers as well as the lack of flexibility of the Bank to simplify procurement procedures and help accelerate disbursements\. In particular, they point to the Bank's refusal to increase retroactive financing to 20% of Bank Loan and to lower eligibility criteria and make procurement guidelines less rigid, often at odds with local state laws, and Bank delays in responding to their requests\. While some of these complaints are justifiable (changes of task managers, delays, and probably occasional rigidity) most criticism regarding the lack of flexibility seems to suggest a lack of familiarity on their part with Bank procedures and policies, (many requests would have meant deviations from project objectives and /or conflicted with procurement guidelines) something which is difficult to understand given the long association between the Bank, BANOBRAS and CNA as well as the experience of these institutions with Bank projects\. The fact is that both parties failed to come up with a way to rescue the project after it became virtually stagnant in late 1995\. The need to restructure the project was raised during the Mid Term Review of 1996, but these discussions failed to reach consensus as the corresponding Aide Memoire of the mid-term review was not signed, by BANOBRAS and CNA\. There is also no evidence of serious attempts to restructure the project thereafter\. Borrower 7\.4 Preparation: Borrower performance during project preparation was reasonably satisfactory\. The project was a continuation of the APAZU program initiated under the first sector loan, and intended to introduce sound sector policies and better prepared sector investments\. Government participation during project preparation was proactive\. Both BANOBRAS and CNA had clear ideas of their own and reached consensus with the Bank team on the development sector goals to be reached\. However, the borrower also failed to anticipate the project's built-in implementation complexities, specially those related to the follow-up of targets and objectives\. 7\.5 Government implementation performance: Government implementation performance was also reasonably satisfactory\. The Government continuously supported the APAZU objectives and strategy during implementation\. While government provided continuos follow-up throughout the implementation period, there is no strong evidence of the Government's clear efforts to accelerate project execution when it became stalled in 1996\. The Government drastically decreased the Federal counterpart funds (a justified policy decision, given the crisis and the increased federal transfers to municipalities via Ramo 33) but thereafter helped little in compensating for the financial shortcomings of the project\. 7\.6 Implementing Agency: The performance of the Borrower (BANOBRAS) and executing agency (CNA) were not satisfactory\. In the initial months of project implementation, construction of new works at the local level proceeded satisfactorily\. However, as already mentioned, there was a collective failure (Bank, Borrower and - 14 -  Implementation Agencies) in promptly taking the right decisions to avoid the project's long and costly stagnation period\. In addition, their management information systems, a key element to support their decision making process and hence to facilitate project implementation and progress in sector and institutional development, were not adequate at the time of appraisal and continue to be so\. Moreover, the two key elements of project follow up of development commitments made by WUs remains weak at best as the Master Plans and Memorandum of Understanding have not been used as dynamic planning instruments to help improve quality of services by securing a commitment from WUs and then following up with monitoreable indicators\. 7\.7 Overall Borrower performance: Overall Borrower performance is rated unsatisfactory\. As explained, despite a reasonably satisfactory preparation phase, project implementation, which in this case deserves a higher weight, was overall unsatisfactory\. 8\. Lessons Learned Preparation Lack of adequate attention to regulatorv and sector reform issues While the project design focused on coverage and decentralization and strengthening the WUs, it overlooked important sector structural issues, which were, and still hinder sector development\. Two of the key unresolved issues are the regulatory framework, including pricing and tariffs, and the respective roles of public sector institutions and private sector participation, which have had particular influence in constraining further sector development in Mexico\. Due to the nature of sector reform, which often takes considerable time and requires along-the-way corrective measures, this program would have a staged approach which would have also facilitated taking timely decisions and corrections to the project and avoiding the long unproductive period it suffered during the last three years\. Inadequate Financial Policies to Allocate Public Funds Grant financing (Federal and State) is still the predominant mode to fund expansion of services\. In spite of large investment needs and reduced budgets at the central level, local governments and WUs often opt to postpone investments if they have to finance them with their own resources, as this strategy would demand painful decisions concerning tariff increases and efficiency gains\. Weak enforcement of quality of service by CNA and State agencies does not provide adequate incentives for local governments either to increase cash generation or to borrow to improve services\. Lack of Credible Monitoring Svstem This operation reinforces the need for, and justifies the increased attention the Bank is now giving to establishing clear and monitoreable goals in its projects\. In this case, no mechanisms were designed or put in place to follow the project's targets\. Appropriate information systems must be put in place\. Instruments like LACI and the use of project management reports (PMRs), with appropriate cost-center accounting can help\. However, sector goals and measurement of project impacts must be integrated into, with a workable information system\. Implementation - 15-  Ineffective Conditionalitv The Master Plans and MOU imposed as conditions were not sufficient to compensate for lack of better incentive-like sector policies\. These policies should be in place before a project of this magnitude becomes effective; if they are not, a more gradual approach to sector development should be pursued\. Lack of timely action to re-estructure/adjust operation The Bank should be alerted and then provide a timely response as to whether to restructure or not when a project gets into trouble\. In this case, local conditions suddenly changed, which was immediately apparent, and almost brought the project to a standstill\. In these circumstances, there should have been a special review to come up with specific decisions\. Both the Bank and Mexican authorities failed to come up with a way out and agree quickly on what to do about the project\. Inadequate dialozue with new administration When administrations or counterparts change, the Bank should make every effort to reach a common understanding and agreement with an incoming administration\. Counterpart project teams are often subject to changes at decision making levels, and newcomers, who find ongoing projects as done deals, may frequently have second thoughts on project design, conditionality or processes\. A failure to get new administrations fully on board will probably mean forcing the project against their will, therefore creating resistance to proper implementation\. Future Operations The Bank needs to rethink how to support a future sector operation of similar nature\. Any future operation should begin with an agreement on broad sector policy strategy\. It is also important to set realistic goals and focus technical assistance where is most needed and not to disperse scarce human resources in the pursuit of a myriad of ambitious but unrealistic goals, not compatible with the stage of development of most WUs in Mexico\. The Bank also needs to assess the staff resources it is willing to allocate to complex and large projects\. Given the decentralization trend in the sector in Mexico, it has become more and more difficult for federal agencies to enforce significant policy changes at the state and local level\. This may not be the case with the states, which are closer to the municipalities, and have passed water and sanitation State Laws to govern the sector\. Initial results from the State of Mexico Structural Adjustment Loan, in which sector adjustment is directly managed and enforced by the state, reinforce this idea and suggest that a more direct approach from the Bank through the States should be explored\. An initial approach could involve a few progressive states, to test this approach , carrying out demonstration case studies, and based on this experience, expanding to other states thereafter\. Future operations should focus on financial policies and address vigorously one key structural sector issue: tariffs and cost recovery\. Despite the facts that financial autonomy of the WIU's was supported by the project, actual results are very modest\. Today, most WUs in Mexico barely cover their operational costs or less, while investments are usually subsidized via Federal, State or municipal (Ramo 33) funds\. These subsidies, however are erratic, non-sustainable, and do not follow coherent financial policies\. Tariffs continue to be decided on political grounds usually outside the WUs\. Financially nonviable WJUs cannot access credit, and would not be attractive to private funds\. A comprehensive financial policy and a realistic strategy towards attaining cost recovery is a key factor in designing any new operation\. By the same token, private sector participation (PSP) in operations and financing of the sector, though modestly represented in Mexico, shows great potential to help develop the sector in Mexico\. New - 16 -  operations should take PSP into consideration from the design stage, and help establish appropriate institutional and regulatory frameworks, and aggressively promote PSP as an up-front alternative to public WUs\. 9\. Partner Comments (a) Borrower/implementing agency: BANCO NACIONAL DE OBRAS Y SERVICIOS PUBLICOS - (BANOBRAS) I\. Antecedentes El 17 de mayo de 1990, el Ejecutivo Federal a traves de la Comisi6n Nacional de Agua, dio a conocer el documento "Lineamientos del Programa Nacional de Agua Potable y Alcantarillado", como instrumento rector de las actividades del Subsector\. En la misma fecha, en la ciudad de Los Mochis, Sinaloa, se puso en marcha el Programa Nacional de Agua Potable y Alcantarillado\. Derivado de la necesidad de contar con recursos adicionales para continuar solventando la creciente demanda de servicios en materia de agua potable, alcantarillado y saneamiento, con oficio nuimero 305\.115 del 26 de abril de 1994, la Secretaria de Hacienda y Credito Puiblico (SHCP) instruy6 al Banc, Nacional de Obras y Servicios Pudblicos, S\.N\.C\., Instituci6n de Banca de Desarrollo (BANOBRAS) para que en terminos de su Ley Organica actuara como Agente Financiero ante el Banco Internacional de Reconstrucci6n y Fomento (BIRF) a fin de obtener un cr&dito destinado a financiar parcialmente el Programa de Agua Potable, Alcantarillado y Saneamiento en Zonas Urbanas (APAZU), y lograr con ello una cobertura mayor en la ampliaci6n y mejoramiento de obras de conducci6n y abastecimiento de agua potable, asi como de descarga y tratamiento de aguas residuales en los centros de poblaci6n\. Sobre esta base, con fecha 10 de junio de 1994 el Gobierno Federal, a trav6s de BANOBRAS, suscribi6 con el Banco Mundial el Contrato de Prestamo numero 3751-ME por un importe de 350\.0 millones de d6lares\. Cabe mencionar que el Contrato de Prestamo se declar6 en efectividad el 20 de junio de 1995\. En la instrumentaci6n del Prestamo se establecieron diversos objetivos que corresponden integramente a los considerados para el APAZU, mismos que mas adelante se sefialan\. Asimismo, fueron establecidos una serie de beneficios esperados con la utilizaci6n de los recursos extemos que son: Contribuir a controlar y eventualmente erradicar el c6lera y reducir significativamente otras infecciones gastrointestinales que prevalecian bAsicamente en las areas pobres de Mexico\. * Beneficiar directamente a aproximadamente 10 millones de personas\. * Contribuir a la racionalizaci6n de las inversiones del Sector\. Promover la conservaci6n del agua a traves de la implantaci6n de tarifas mas racionales y la reducci6n de perdidas de agua no contabilizada\. Estimular ahorros intemos en el Sector\. Reducir la dependencia de recursos gubemamentales en el Sector\. - 17-  Promover la adopci6n de politicas de efectividad de costos para alcanzar el mejoramiento del medio ambiente\. * Fomentar las inversiones en recursos humanos en el campo del medio ambiente\. II\. Descripci6n del Prowrama El uso eficiente del agua y su abastecimiento a toda la poblaci6n del pais fue una de las mas altas prioridades consignadas en el Programa APAZU, mismo que es operado por la Gerencia de Agua y mediante el cual se destinan recursos al Subsector Agua Potable, Alcantarillado y Saneamiento con el fin de cubrir los rezagos existentes y atender las demandas derivadas del crecimiento de la poblaci6n, en esta materia\. Este Programa fue puesto en marcha en mayo de 1990 con la finalidad de canalizar recursos a proyectos de construcci6n, rehabilitaci6n, ampliaci6n y mejoramiento de infraestructura de los sistemas existentes, asi como para apoyar la creaci6n y consolidaci6n de organismos operadores descentralizados de los estados o municipios\. Para este fin, la ejecuci6n del Programa requiri6 de la intervenci6n de diversas Dependencias Federales en el ambito de su competencia, originalmente la Secretaria de Desarrollo Social (SEDESOL), misma que de conformidad con la reasignaci6n de funciones en la Administraci6n Publica Federal llevada a cabo en 1995 fue sustituida por la Secretaria del Medio Ambiente, Recursos Naturales y Pesca (SEMARNAP); la Comisi6n Nacional del Agua (CNA); el Instituto Mexicano de Tecnologia del Agua (IMTA); y el Banco Nacional de Obras y Servicios Puhblicos, S\. N\. C\. (BANOBRAS)\. El Programa pretendi6 alcanzar los siguientes objetivos: Mejorar cuantitativa y cualitativamente los servicios de abastecimiento de agua potable, alcantarillado y saneamiento, abatiendo los rezagos existentes y ampliando su cobertura\. * Profundizar en la descentralizaci6n de los servicios mediante la creaci6n y/o consolidaci6n de los organismos operadores municipales, regionales y estatales, con caracter descentralizado, buscando su autonomia tecnica, administrativa, operativa y financiera, asi como el que sean capaces de operar y mantener los servicios eficientemente\. Apoyar la adecuaci6n y fortalecimiento institucional de las dependencias gubemamentales involucradas y la consolidaci6n de los organismos operadores responsables de la administraci6n y operaci6n de los servicios\. Eliminar gradualmente los subsidios injustificados en materia de agua potable, alcantarillado y saneamiento\. Crear conciencia sobre el costo del agua y evitar su desperdicio\. Contribuir a mejorar las condiciones del medio ambiente dando prioridad a las acciones encaminadas a aminorar el impacto ambiental negativo\. La operaci6n del Programa se bas6 en un esquema general de mezcla de recursos, el cual se integr6 con aportaciones fiscales federales que se complementaron con participaciones estatales; asi como con recursos crediticios y con aportaciones directas de los organismos operadores de los sistemas de agua potable y alcantarillado, a traves de su generaci6n intema de caja (GIC)\. De esta forma, las inversiones perrnitieron obtener mayores impactos en la realizaci6n de acciones\. - 18 -  Con el prop6sito de establecer un mayor control en el uso y canalizaci6n de los recursos al Subsector, BANOBRAS se constituy6 como ventanilla unica de pago en lo correspondiente al APAZU\. Derivado de los diferentes niveles de desarrollo e integraci6n nacional, el Programa adopt6 los Indices de Marginalidad Municipal (IMI), definidos por el Consejo Nacional de Poblaci6n (CONAPO), para establecer los porcentajes de credito, asi como los correspondientes a las aportaciones federales, estatales y de generaci6n intema de caja a fin de conformar las mezclas fmancieras de cada proyecto en particular\. De acuerdo a estos indices se apoy6 equitativamente a las diferentes localidades con necesidades de servicios de agua potable, alcantarillado y saneamiento al diferenciar las condiciones socioecon6micas imperantes en todas y cada una de ellas\. Tomando en consideraci6n los niveles de satisfacci6n de necesidades en materia de agua potable, alcantarillado y saneamiento, asi como de consolidaci6n de los propios organismos operadores, a partir de 1993 se modific6 la politica en cuanto a la conformaci6n de mezclas financieras, estableciendose estas de conformidad con el nuimero de habitantes de cada localidad\. De esta suerte, aquellas localidades pertenecientes a municipios cuya poblaci6n total fuera inferior a los 80,000 habitantes, se rigieron por los IMM, en tanto que para aquellas con una poblaci6n superior a la indicada, el financiamiento de acciones se efectu6 con base en la estructura financiera definida para cada tipo de proyecto\. La operaci6n del Programa se llev6 a cabo en una forma totalmente descentralizada, ya que la programaci6n y presupuestaci6n de las obras y acciones se llev6 a cabo en los Subcomites Especiales de Agua Potable y Alcantarillado Estatales, dependientes de los Comites de Planeaci6n para el Desarrollo Estatales (COPLADES), en tanto que los procesos de licitaci6n, adjudicaci6n y ejecuci6n de los proyectos financiados con los recursos del Programa, asi como la supervisi6n de 6stos, se realiz6 por conducto de los organismos operadores descentralizados, responsables del otorgamiento de los servicios de agua potable, alcantarillado y saneamiento, a nivel estatal o municipal, mismos que se constituyeron como los sujetos de financiamiento y a quienes se pretendi6 fortalecer y consolidar para lograr con ello su autosuficiencia tecnica y financiera\. Tomando en consideracion los niveles de satisfacci6n de necesidades en materia de agua potable, alcantarillado y saneamiento, asi como de consolidaci6n de los propios organismos operadores, a partir de 1993 se modific6 la politica en cuanto a la conformaci6n de mezclas financieras, estableciendose estas de conformidad con el numero de habitantes de cada localidad\. De esta suerte, aquellas localidades pertenecientes a municipios cuya poblaci6n total fuera inferior a los 80,000 habitantes, se rigieron por los 1MM, en tanto que para aquellas con una poblaci6n superior a la indicada, el financiamiento de acciones se efectu6 con base en la estructura financiera definida para cada tipo de proyecto\. La operaci6n del Programa se llev6 a cabo en una forma totalmente descentralizada, ya que la programaci6n y presupuestaci6n de las obras y acciones se l1ev6 a cabo en los Subcomites Especiales de Agua Potable y Alcantarillado Estatales, dependientes de los Comites de Planeaci6n para el Desarrollo Estatales (COPLADES), en tanto que los procesos de licitaci6n, adjudicaci6n y ejecuci6n de los proyectos financiados con los recursos del Programa, asi como la supervisi6n de estos, se realiz6 por conducto de los organismos operadores descentralizados, responsables del otorgamiento de los servicios de agua potable, alcantarillado y saneamiento, a nivel estatal o municipal, mismos que se constituyeron como los sujetos de financiamiento y a quienes se pretendi6 fortalecer y consolidar pam lograr con ello su autosuficiencia tecnica y financiera\. Durante el aino de 1996, derivado de la modificaci6n instrumentada por el Gobiemo de la Repiiblica a los - 19 -  procedimientos de ministraci6n y radicaci6n de recursos federales, las aportaciones del Ramo XXVI (Superaci6n de la Pobreza), como fuente de fondeo del Programa de Agua Potable, Alcantarillado y Saneamiento en Zonas Urbanas, realizadas tradicionalmente por la Secretaria de Desarrollo Social, se sustituyen por las provenientes de la Secretaria del Medio Ambiente, Recursos Naturales y Pesca (SEMARNAP) con la participaci6n de la Comisi6n Nacional del Agua (CNA), a trav6s de la utilizacion del Ramo XVI (Medio Ambiente, Recursos Naturales y Pesca)\. III\. Asignaci6n de Recursos BANOBRAS actu6 como Agente Financiero, y por instrucciones del Gobiemo Federal como ejecutor del Segundo Proyecto Sectorial de Agua Potable y Saneamiento en la parte "A" "Otorgamiento de subprestamos a los organismos operadores encargados de la rehabilitaci6n y expansi6n de los sistemas de agua potable y alcantarillado, incluyendo plantas de tratamiento y fortalecimiento institucional de la capacidad de tales organismos operadores" y, parte "B\.3" "Fortalecimiento en la capacidad institucional del prestatario en las areas de preparaci6n y evaluaci6n de los subproyectos, licitaci6n y monitoreo y evaluaci6n con respecto al Subsector Agua Potable, Alcantarillado y Saneamiento"\. Asi tambien, qued6 a cargo del Gobiemo Federal, a traves de la SEMARNAP, por conducto de la Comisi6n Nacional del Agua y del Instituto Mexicano de Tecnologia del Agua, la ejecuci6n de las partes" B" y "C", excepto de la parte "B-3" del Proyecto\. La parte "B" del Proyecto consider6 el fortalecimiento de la capacidad de la C\. N\. A\., para otorgar asistencia tecnica a los Organismos Operadores en: a) El establecimiento del sistema de informaci6n de agua potable y alcantarillado\. b) La preparaci6n de Planes Maestros y en la organizaci6n e implementaci6n de sus programas de desarrollo institucional; en la administracion de sus operaciones; y en la capacitaci6n de su personal para proveer la informaci6n captada en el Sistema de Informaci6n de Agua Potable y Alcantarillado\. c) El establecimiento de un Sistema Nacional del Agua\. d) Promover la participaci6n del Sector Privado en el Sector de Agua Potable, Alcantarillado y Saneamiento\. Por lo que hace a la parte "C" del Proyecto, esta integr6 la previsi6n de recursos fiscales para beneficiarios elegibles de financiamiento de subproyectos de emergencia\. Es de sefialar, que con fecha 2 de diciembre de 1999, el Banco Mundial notific6 a BANOBRAS su conformidad sobre la petici6n que le fue formulada respecto de la creaci6n de una nueva componente para la rehabilitaci6n o construcci6n de infraestructura puiblica de agua y saneamiento en zonas urbanas como resultado de desastres naturales\. Con la creaci6n de esta nueva componente, se reasignaron un monto de 60 millones de dMlares para financiar subproyectos de emergencia consistentes en la rehabilitaci6n y construcci6n de sistemas de suministro de agua potable y saneamiento dafiados por desastres naturales, los cuales son ejecutados por los beneficiarios elegibles que se designen en las reglas de operaci6n del Fondo de Desastres Naturales (FONDEN)\. Esta componente se encuentra a cargo del Gobiemo Federal\. De igual forma, derivado de la reconsideracion del monto contratado y de las dificultades de desembolso, - 20 -  con fecha 28 de febrero del 2000, el Banco Mundial notific6 a BANOBRAS la aprobaci6n de una cancelaci6n parcial del prestamo por un monto de 84\.3 millones de d6lares, quedando por consiguiente el monto total ajustado en 265\.7 millones de d6lares\. La asignaci6n de recursos por categorias de desembolso tanto original como modificada se muestra en el cuadro que se presenta como Anexo N° 1\. IV\. Ejercicio de Recursos Con la ejecuci6n del Programa, durante el periodo 1995 - Agosto del 2000, se Ilevaron a cabo inversiones por un total de 4,083\.2 millones de pesos, de los cuales 1,901\.0 millones correspondieron a recursos federales; 926\.6 millones a aportaciones estatales; 688\.8 millones de pesos fueron recursos crediticios; y 566\.8 millones de pesos aportaciones de los organismnos operadores a trav6s de su generacion interna de caja (GIC)\. Del importe total referido, se ejercieron 2,621\.2 millones de pesos en inversiones destinadas a la realizaci6n de infraestructura, en tanto que 1,462\.0 millones de pesos en acciones de mejoramiento de eficiencia\. Por lo que hace a infraestructura se canalizaron 870\.4 millones de pesos para la realizaci6n de obras y acciones de agua potable; 1,444\.2 millones de pesos en alcantarillado; y 306\.6 millones en saneamniento; montos que equivalen al 21\.3 %; 35\.4 %; y 7\.5 %, respectivamente, en tanto que el mejoramiento de eficiencia represent6 el 35\.8 % del total ejercido\. En el ejercicio de los recursos participaron la totalidad de los Estados de la Repuiblica, con excepci6n del Distrito Federal, siendo los mas representativos en cuanto al monto de sus inversiones: Baja California; Chihuahua; Guanajuato; Jalisco; Mexico; Oaxaca; Puebla; Sinaloa, y Veracruz, representando en conjunto el 59\.1 % del total de la inversi6n realizada en el periodo (Anexo N°2)\. Cabe senialar que en forma adicional a la canalizaci6n de recursos antes referida, se llevaron a cabo inversiones adicionales con cargo al Programa y que se reflejan en la disposici6n de recursos del prestamo 3751-ME, toda vez que las mismas corresponden a gastos efectuados con anterioridad a la entrada en efectividad del mismo pero consideradas como gastos retroactivos\. El monto de los recursos referidos ascendi6 a 404\.6 millones de pesos, con lo cual el ejercicio total efectuado con cargo al Prograrna en el periodo de referencia ascendi6 a 4,487\.8 millones de pesos\. V\. Desembolso de Recursos Extemos Como ya se indic6, el Prestarno 3751-ME entr6 en efectividad el 20 de junio de 1995, fecha con la que se inici6 la vigencia y ejercicio de los recursos provenientes del empr6stito mencionado, teniendo como movimiento inicial la apertura de la cuenta especial por un monto de 30\.0 millones de d6lares, mismos que fueron depositados el 29 de junio de ese mismo aflo\. El monto total desembolsado al 4 de enero del 2001, fecha del ultimo desembolso de recursos, asciende a 228\.9 millones de d6lares, lo que representa un avance financiero del 86\.1 % respecto al monto total ajustado del prestamo (Anexo N°3)\. De la cifra antes referida se llevaron a cabo reembolsos por esa misma cantidad, de los que 178\.3 millones de d6lares, equivalentes a 1,321\.5 millones de pesos correspondieron a BANOBRAS, en su caricter de ejecutor, en tanto que 50\.5 millones de dMlares, equivalentes a 478\.8 millones de pesos a los otros ejecutores del Proyecto\. (Anexo 4)\. - 21 -  Por lo que hace a la desagregaci6n de los desembolsos por categorias de inversi6n, BANOBRAS aplic6 163\.4 millones de d6lares al financiamiento de infraestructura en agua potable, alcantarillado y saneamiento, en tanto que dirigi6 a acciones de mejoramiento de la eficiencia de organismos operadores 14\.8 millones de dMlares y a servicios de consultoria para el fortalecimiento institucional BANOBRAS 0\.01 millones de dMlares\. Asimismo, fueron aplicados a traves del Gobiemo Federal 1\.5 millones de d6lares a servicios de consultoria para fortalecimiento institucional de la CNA y el IMTA y 49\.1 millones de d6lares a obra civil y servicios de consultoria para obras de emergencia (Anexo 5)\. En lo correspondiente a la integraci6n de los reembolsos efectuados a BANOBRAS a nivel de entidad federativa, los estados que participaron mayoritariamente en el monto de los reembolsos fueron: Baja California; Chiapas; Chihuahua; Guanajuato; Guerrero; Jalisco; Mexico; Michoacan; Nuevo Le6n; Puebla; Tabasco, Tamaulipas y Veracruz, representando en conjunto el 73\.4 % del total reembolsado en las categorias relativas a la infraestructura y consolidaci6n de organismos operadores (Anexo 6)\. VI\. Problemas Enfrentados La ejecuci6n del Programa de Agua Potable, Alcantarillado y Saneamiento en Zonas Urbanas consign6 durante el periodo comprendido entre 1995 y el 31 de agosto del 2000 diversos problemas que limitaron su desarrollo normal y frenaron el ejercicio de recursos, incluyendo el otorgamiento de credito, circunscribiendose esta problematica en aspectos presupuestales; econ6micos; financieros; y operacionales\. Sobre esta base, en lo tocante a los aspectos presupuestales se pueden sefialar, entre otros, el criterio de distribuci6n de recursos fiscales federales con el que se llev6 a cabo la asignaci6n de los mismos, situaci6n que deriv6 en una limitada autorizaci6n presupuestal para obras y acciones con participaci6n crediticia en la mezcla financiera\. Asi tambien, provocado por la situaci6n econ6mica-financiera prevaleciente en el pais, durante los anios de 1995 a 1999 existieron reducciones en la asignaci6n presupuestal de recursos federales, generando con ello la eliminaci6n de diversas obras y acciones originalmente programadas, aunandose a ello la falta de oportunidad en el flujo de las ministraciones de dichos recursos, situaci6n que provoc6 el que en repetidas ocasiones se vieran agotadas totalmente las disponibilidades y se frenara el ejercicio normal del Programa\. De igual forma, existi6 una astringencia presupuestal de algunos Gobiemos Estatales, limitando su participaci6n en el esquema de mezcla de recursos\. En lo concemiente a los aspectos econ6micos, se puede sefialar la suscripci6n de los Acuerdos de Saneamiento Financiero celebrados entre los Gobiernos Estatales y la SHCP, lo cual condujo a la suspensi6n de todo tipo de contrataci6n crediticia por parte de estos; asi como tambien de diversos Organismos Operadores, toda vez que existi6 reticencia de gran numero de Gobiemos Estatales en cuanto a la suscripci6n de los Contratos de Mandato necesarios para la constituci6n y, en su caso, afectaci6n de garantias\. De igual forma, afect6 notablemente en el nivel de colocaci6n de credito las altas tasas de interes imperantes en el mercado durante casi todo el periodo\. Por lo que hace a los aspectos financieros, se puede considerar el sobreendeudamiento de diversos Organismos Operadores; la imposibilidad de los acreditados potenciales de enfrentar las cargas financieras resultantes de las condiciones establecidas para la contrataci6n de creditos; y la preferencia de algunos Organismos Operadores en la contrataci6n de creditos con la Banca Comercial a fin de sustituir el credito BANOBRAS, dada la laxitud observada en materia de otorgamiento de creditos\. En lo referente a los aspectos procedimentales, los problemas que se pueden mencionar son la lentitud por parte de algunos Subcomites Especiales de Agua Potable y Alcantarillado en el analisis y aprobaci6n de las - 22 -  propuestas de inversi6n presentadas por los Organismos Operadores; el retraso que en ocasiones se experiment6 en la emisi6n de los oficios de autorizaci6n presupuestal; la lentitud e incremento de los procedimientos por parte de las Dependencias locales; la parcializaci6n de los proyectos en detrimento de la ejecuci6n de obras y/o acciones en forma integral; la falta de expedientes tecnicos completos; la falta de comprensi6n integral y aplicaci6n de la normatividad del Programa en algunas Entidades Federativas, tanto en los procesos de licitacion y adjudicaci6n de obras y/o suministros, como en lo relativo a los procedimientos establecidos en el flujo de la documentaci6n inherente al proceso de liquidaci6n de facturas, anticipos y estimaciones de obra ejecutada\. Por otra parte, se observ6 de nuestros acreditados cierta lentitud en el cumplimiento de requisitos establecidos por la Instituci6n en materia de formalizaci6n de creditos, requiriendo inclusive lievarse a cabo diversas prorrogas a los periodos establecidos para tal efecto\. Asi tambien, se observ6 una inadecuada programaci6n en la ejecuci6n de obras y acciones, promoviendo esto una limitada derrama de recursos durante los primeros meses del afio y acentuandose al final del mismo\. Cabe senialar que derivado de la publicaci6n de las nuevas reglas de operaci6n por parte de la CNA para el manejo del APAZU durante el ejercicio presupuestal del 2000, en las que se incorporaron nuevos procedimientos incompatibles con los convenidos con el Banco Mundial para tal efecto, se promovi6 que obras y acciones autorizadas para dicho ejercicio presupuestal no fueran elegibles de fmanciamiento por el referido Organismo Financiero Intemacional\. Cabe aclarar que como un elemento circunstancial en la reducci6n del nivel de solicitudes de credito durante el ejercicio presupuestal del 2000, lo constituye el limitado plazo para disponer de recursos fondeados con el prestamo 3751 -ME, toda vez que la fecha ultima establecida contractualmente con el Banco Mundial para disponer de los mismos fue el 31 de agosto de dicho anlo\. VII\. Medidas de Solucion Adoptadas Con el prop6sito de solventar los problemas enfrentados se llevaron a cabo reuniones regionales para dar a conocer a las representaciones estatales de BANOBRAS y de la Comisi6n Nacional del Agua, asi como a los Gobiemos Estatales y Organismos Operadores de los Sistemas de Agua Potable y Alcantarillado, la normatividad establecida para la operaci6n del Programa, enfatizandose la creaci6n de Organismos Operadores de los sistemas de agua potable y alcantarillado a nivel municipal, o en su defecto la descentralizaci6n correspondiente\. De igual forma, con el fm de agilizar la canalizaci6n de recursos se simplificaron los procedimientos de ministraci6n y radicaci6n de recursos federales, asi como de los correspondientes a la liquidaci6n de documentaci6n de pago\. Con el prop6sito de obviar tiempos en la autorizaci6n y formalizaci6n de financiamientos, asi como ser congruente con los esfuerzos realizados por algunos organismos operadores, la Instituci6n promovio la formulaci6n de proyectos integrales y multianuales; impulsandose la promoci6n de los financiamientos y servicios que otorga la Instituci6n, de tal forma que los acreditados reales y potenciales contaran con informaci6n que les orientara sobre las ventajas que ofrece la contrataci6n de creditos a traves de la Banca de Desarrollo\. Asi mismo, se efectu6 una estrecha coordinaci6n de acciones entre las Dependencias Federales nornativas en los aspectos tecnicos y presupuestales, a fin de que las obras y/o acciones autorizadas se ejecutaran con la calidad, tiempo y costo requeridos, buscAndose la optimizaci6n en el uso de recursos\. Con el objeto de que fuera totalmente comprendida y se llevara a cabo el cumplimiento pleno de la - 23 -  nornmatividad del Programa, se apoy6 con acciones de asesoria permanente a las correspondientes representaciones estatales de las Dependencias Federales involucradas, buscando que las obras y/o acciones ejecutadas por los Organismos Operadores con sus propios recursos, asi como con recursos federales y estatales, cumplieran con los criterios de elegibilidad y los requisitos de licitaci6n establecidos, permitiendose con ello el que las inversiones se consideraran como aportaciones locales y los recursos extemos contratados con Organismos Financieros Intemacionales fueran ejercidos eficientemente\. Con el prop6sito de ampliar la cobertura de los servicios de alcantarillado; asi como de la propia consolidaci6n de los Organismos Operadores de los sistemas de agua potable y alcantarillado, se continu6 con la politica establecida relativa a subsidiar con recursos federales y estatales el 100% del costo de dichas acciones en localidades con una poblaci6n superior a los 80,000 habitantes\. Asimismo, se continu6 con la politica de subsidiar con recursos federales y estatales el 100% del costo de estudios y proyectos\. VIII\. Resultados Obtenidos Derivado de las medidas adoptadas para solventar la problematica enfrentada se obtuvieron resultados tanto cualitativos como cuantitativos, mismos que a continuaci6n se establecen: * Ampliaci6n de la cobertura de los servicios de agua potable, alcantarillado y saneamiento en todos los Estados de la Repuiblica, exceptuando el Distrito Federal\. * Mayor derrama de recursos dirigidos al Mejoramiento de Eficiencia de los Organismos Operadores, promoviendo una modernizaci6n administrativa de los servicios, el fortalecimiento de su autonomia, asi como el incremento de sus capacidades de gesti6n y ejecuci6n\. * Incremento en la canalizaci6n de recursos para desinfecci6n de agua y para el tratamiento de aguas residuales, eliminandose gran cantidad de focos insalubres que afectaban la salud y contaminaban los mantos acuiferos\. Canalizaci6n de recursos para la ejecuci6n de 4,179 obras y acciones, de las cuales 2,838 corresponden a agua potable; 1,110 a alcantarillado; y 231 a saneamiento\. Cabe aclarar que las obras y acciones referidas integran 2,666 relativas a mejoramiento de eficiencia (Anexo 7)\. Es de senialar que al considerar las inversiones realizadas en obras y acciones que fueron ejecutadas bajo los recursos del Programa con anterioridad a la declaracion de efectividad del Proyecto y cuya inversi6n fue autorizada como gastos retroactivos, el numero de estas se incrementa en 24\.3 %, con lo que el total asciende a 5,195 obras y acciones (Anexo 7A)\. * Atenci6n de las necesidades de la poblaci6n en materia de agua potable, alcantarillado y saneamiento en 904 localidades de 688 municipios en 31 Entidades Federativas, beneficiandose con la aplicaci6n de los recursos crediticios a un total de 12'573,93 Ihabitantes (Anexo 7)\. Al igual que el punto anterior, al considerar los gastos retroactivos el niumero de localidades atendidas se incrementa a 1,064, el de municipios a 804, beneficiandose con la aplicaci6n de los recursos crediticios a una poblaci6n adicional de 8' 151,697 con lo que el nuimero total de habitantes beneficiados ascendi6 a 20'725,628 (Anexo 7A)\. Participaci6n en la ejecuci6n del Programa de 346 Organismos Operadores, de los cuales 27 son descentralizados del Estado y 319 del Municipio\. Asi tambien, participaron 5 Gobiemos Estatales; 28 - 24 -  Gobiernos Municipales; y 5 Entidades Ejecutoras (Anexo 8)\. Asi tambien, al considerar los gastos retroactivos el numero de Organismos Operadores participantes se incrementa a 361, de los cuales 27 son descentralizados del Estado y 334 del Municipio (Anexo 8A)\. Incremento en la actualizaci6n y elaboraci6n de Planes Maestros, pasando de 45 con los que se contaba al inicio de la ejecuci6n del Segundo Proyecto Sectorial, a 278 al 31 de agosto del 2000 (Anexo 9)\. IX\. Experiencias de BANOBRAS en la Eiecuci6n del Programa El Banco Nacional de Obras y Servicios Publicos, S\. N\. C\., en concordancia con la politica de desarrollo social que asume el Gobiemo de la Repulblica en el Plan Nacional de Desarrollo para el periodo 1995-2000, particip6 con la ejecuci6n del Programa de Agua Potable, Alcantarillado y Saneamiento en Zonas Urbanas (APAZU), en la elevaci6n de los niveles de bienestar y calidad de vida de los mexicanos mediante la instrumentaci6n de, entre otras estrategias, la de ampliar la cobertura y mejorar la calidad de los servicios basicos, ya que dirigi6 sus acciones a mantener, complementar y aumentar la infraestructura de alta calidad en los servicios de agua potable, alcantarillado sanitario y saneamiento, atendiendo y reforzando la infraestructura hidriulica considerada estrategica; jerarquizando los recursos de inversi6n dirigidos a mejorar la operaci6n; terminar las obras inconclusas; realizar las obras nuevas requeridas por el crecimiento de la demanda; y adecuar y utilizar plenamente la infraestructura ociosa\. Asi tambien, el Programa, con el fin de hacer frente a la creciente demanda de estos servicios, incentiv6 y abri6 nuevas oportunidades a las empresas privadas a efecto de que participaran directamente en la prestaci6n de los mismos, principalmente en lo relativo a saneamiento\. De igual forma, con el prop6sito de elevar la eficiencia del sistema hidrol6gico, particip6 en la extensi6n y fortalecimiento empresarial de los organismos responsables del manejo integral de los servicios de agua potable, alcantarillado sanitario y saneamiento, promoviendo el desarrollo sustentable\. Con base en las acciones instrumentadas se promovi6 una modernizaci6n administrativa de los servicios, el fortalecimiento de la autonomia tecnica, administrativa y financiera de los Organismos Operadores participantes en el Programa, asi como el incremento de sus capacidades de gesti6n y ejecuci6n\. Asimismo, fue posible avanzar en el fortalecimiento institucional de las Dependencias participantes en el Programa; ejecutar descentralizadamente las inversiones; y contar con una mayor transparencia en los procesos de licitaci6n de obras y/o suministros, eficientandose la aplicaci6n de los recursos\. Asi tambien, se contribuy6 al cambio estructural del Subsector, al promover la eliminaci6n paulatina de subsidios en el costo por consumo de agua potable, tanto en el ambito domestico como comercial e industrial; una mejoria de la imagen institucional de los prestadores de dichos servicios; la modernizaci6n del marco legal en apoyo a organismos operadores de diversas entidades federativas; asi como la profesionalizaci6n de los cuadros tecnicos y directivos de las empresas responsables de la prestaci6n de los servicios de agua potable, alcantarillado y saneamiento Con estas medidas, el Programa particip6 en el abatimiento de manera mas acelerada en una de las demandas mas sentidas de la poblaci6n y principal rezago social que es la falta de agua potable y alcantarillado sanitario, avanzando en forma paralela en el saneamiento de las cuencas hidrol6gicas, mejorindose asi la calidad ambiental de nuestro Pais\. Es de hacer especial menci6n a las acciones emprendidas en materia de planeaci6n - programaci6n - - 25-  presupuestaci6n, mismas que permitieron, tomando como base los planes y programas de desarrollo establecidos, contar con elementos basicos para lievar a cabo un mejor registro, control y seguimiento de las obras y acciones, tanto de las realizadas como de las que se encontraban en proceso y por realizar\. Asimismo, tales acciones permitieron conformar estrategias, las cuales a trav&s del disefio de normas, politicas y procedimientos de operaci6n en cuanto a la ejecuci6n de dichas obras, conllevaron a conformar mecanismos de evaluaci6n y tomar las medidas correctivas necesarias en caso de desviaciones, promoviendo que su realizaci6n se efectuara con un mayor control de los recursos aplicados, minimizar los costos correspondientes y ejecutarse en los plazos establecidos, beneficiandose con ello directamente a los usuarios finales y satisfaciendose de una manera mas eficaz las necesidades de la poblaci6n en materia de los servicios hidraulicos\. Asimismo, en este ambito resalta el proceso iniciado para inducir a los organismos operadores a un proceso de planeaci6n integral considerando acciones a realizar en el corto, mediano y largo plazos, a fin de Ilevar a cabo una programaci6n de acciones con base en las prioridades establecidas y las necesidades detectadas en los propios Planes Maestros\. X\. Evaluaci6n de Desempeio del BIRF El disefio del Segundo Proyecto Sectorial de Agua Potable y Saneamiento (Prestamo 3751-ME), fue realizado tomando en cuenta las condiciones macroecon6micas imperantes en el pais asi como de los diferentes agentes que intervenian en el Subsector durante los afios de 1993 y 1994, las cuales fueron distintas a las que prevalecieron durante su ejecuci6n\. De esta forma, se establecieron originalmente una serie de requisitos a ser cumplidos por los Organismos Operadores a fm de que pudieran ser considerados como sujetos de financiamiento con los recursos del prestamo; sin embargo, con el cambio de las aludidas condiciones, dichos requisitos en muchos casos produjeron un proceso lento y de amplios tramites para satisfacer los elementos de elegibilidad tanto del acreditado como del proyecto a fmanciar, aunandose a ello los procesos de licitaci6n, entre otros aspectos que conllevaron a rigidizar la ejecuci6n del Proyecto\. A lo anteriormente sefialado, se agrega el constante cambio de responsables del Proyecto por parte del BIRF (cinco), mismos que no contaron con el tiempo suficiente que les permitiera llegar a interiorizarse integralmente en la comprension y problematica del mismo, lo que dificult6 la obtenci6n de respuestas favorables sobre los planteamientos realizados por BANOBRAS, relativos a flexibilizar la normatividad establecida para hacerla acorde con las condiciones cambiantes en las que se desenvolvi6 el Proyecto y que requerian de su redimensionamiento y modificaci6n\. Asi tambien, es importante hacer notar que derivado de la rigidez en cuanto a la aplicaci6n de la normatividad del Banco Mundial, en el afio de 1995 se solicit6 un tratamiento de excepci6n para el reconocimiento de un monto superior a los 35\.0 millones de d6lares autorizados como gastos retroactivos, toda vez que se contaba con documentaci6n con un importe adicional del orden de 53\.0 millones de d6lares, mismos que fueron erogados conforme a la normatividad del Programa APAZU y en consecuencia de dicho Organismo Financiero Intemacional\. Cabe sefialar que auin cuando dichos gastos fueron realizados durante el amplio periodo en el que se llev6 a cabo la identificaci6n del Segundo Proyecto, su proceso de evaluaci6n, asi como la negociaci6n de los documentos legales correspondientes para declararlo en efectividad, estas erogaciones se efectuaron bajo la concepci6n y criterio de continuidad del Primer Proyecto Sectorial dentro Programa APAZU, obteniendose una negativa sobre el planteamiento realizado\. En los meses de julio y agosto de 1996, se llev6 a cabo la Misi6n de Supervisi6n de Evaluaci6n Intermedia (Mid Term Review), la cual tuvo como objetivo el evaluar la situaci6n general del Proyecto a fin de que, en su caso, se propusieran medidas correctivas de reestructuraci6n\. En esa ocasi6n, se trat6 con el Task - 26 -  Manager del Proyecto la posibilidad de flexibilizar parcialmente la norrnatividad del prestamo y de reestructurarlo a fin de adecuarlo a los cambios y las condiciones imperantes, toda vez que los avances que se habian obtenido eran modestos y no se contaba con una visi6n objetiva y acorde a la realidad de ese momento, no habiendose obtenido una respuesta favorable sobre el particular\. Por lo anteriormente expuesto, se estima que el papel jugado por el BIRF si bien es cierto que siempre mantuvo una disposici6n adecuada para impulsar la dinamica con la cual se desenvolvio el Proyecto, su desempeino pudo haber sido mas eficaz de haberse contado con una actitud mais abierta a la posibilidad de cambio conforme a las condiciones del pais y en especifico del Subsector, toda vez que de haber aceptado la propuesta de flexibilizaci6n a la normatividad y redimensionar el Proyecto sin dejar de observar los objetivos y metas fijados, se hubiera logrado con ello el llevar a cabo un mayor desembolso de los recursos contratados y ejecutar mas obras y acciones que ampliaran la cobertura de los servicios de agua potable, alcantarillado y saneamiento en las zonas urbanas de la Repuiblica, satisfaciendo las necesidades de tales servicios a un mayor numero de habitantes\. COMISION NACIONAL DE AGUA - (CNA) I\. Antecedentes La Comisi6n Nacional del Agua, se cre6 como un 6rgano desconcentrado del Gobiemo Federal mediante Decreto Presidencial publicado en el Diario Oficial de la Federaci6n de fecha 16 de enero de 1989; teniendo entre las funciones mas importantes: administrar y custodiar las aguas nacionales, asi como los bienes que se vinculan a estas, de conformidad con las disposiciones juridicas aplicables, ademas de vigilar el cumplimiento de la Ley de Aguas Nacionales y proveer lo necesario para la preservaci6n de su calidad y cantidad para lograr su uso integral sustentable\. Asimismo, esta encargada de estudiar, normar, proyectar, promover, construir, vigilar, administrar, operar, conservar y rehabilitar la infraestructura hidraulica, asi como las obras complementarias que correspondan al Gobiemo Federal\. Con el cambio de Administraci6n Presidencial en 1994, y por la modificaci6n a la Ley de Administraci6n Publica Federal, la CNA paso a formar parte de la Secretaria del Medio Ambiente, Recursos Naturales y Pesca (SEMARNAP) en 1995, cuyas atribuciones se establecen en la Ley de Aguas Nacionales, su Reglamento, el Reglamento intemo de la SEMARNAP y las dem6s disposiciones aplicables\. El Gobiemo Federal a traves de la Secretaria de Hacienda y Credito Publico (SHCP) y el Banco Nacional de Obras y Servicios Publicos (BANOBRAS), inicia negociaciones con el Banco Intemacional de Reconstruccion y Fomento (BIRF), para la obtenci6n de un Prestamo Sectorial para financiar el Programa de Agua Potable, Alcantarillado y Saneamiento\. El BIRF aport6 un monto total de $300 MDD\. Llegando a buen fin las negociaciones con el Organismo Financiero Intemacional, obteniendo la aprobaci6n del BIRF al cr6dito 3271 -ME, el 18 de enero de 1991, por lo que la CNA inicia formnalmente a traves del Banco Nacional de Obras y Servicios Publicos (BANOBRAS), Agente Financiero del Prestamo, los desembolsos del prestamo del BIRF en 1991\. Debido al exito que tuvo el Primer Prestamo Sectorial, el Gobiemo Federal inici6 formalmente negociaciones con el Banco Intemacional de Reconstrucci6n y Fomento (BIRF), para la obtenci6n de un Segundo Prestamo Sectorial para fmanciar el Programa de Agua Potable, Alcantarillado y Saneamiento, por un monto total de $350 MDD (millones de d6lares); la operacion se formaliz6 el 10 de junio del afio 1994, iniciando desembolsos hasta junio de 1995\. II\. Descripci6n y Objetivos del Proyecto - 27 -  Los objetivos globales del proyecto son asistir en: (a) mejoramiento de la calidad, y aumento de la cobertura de los servicios de agua y saneamiento en Mexico: (b) reforzamiento de la capacidad institucional del prestatario para la evaluaci6n y supervisi6n del proyecto sectorial de Suministro de Aguas y Saneamiento; (c) reforzamiento de la capacidad institucional de la CNA cumpliendo con su planeaci6n; (d) reducci6n de subsidios al sector de suministro de aguas y saneamiento en Mexico; (e) fomentar la participaci6n del sector privado en la prestaci6n de los servicios y control de la contaminaci6n del agua y aminorar el impacto ambiental de las actividades del Suministro de Agua y Saneamiento\. El Agente Tecnico es la Comisi6n Nacional de Agua y el prestatario es el Banco Nacional de Obras y Servicios Publicos\. 11\.1 Objetivos Principales Las metas principales del programa registradas en el Contrato de Prestamo son: (a) Incrementar las coberturas de los servicios de agua potable, alcantarillado y saneamiento, cloraci6n de mayor cantidad de agua y micromedici6n de los consumos domesticos, comerciales e industriales, asi como el cumplimiento de las normas particulares de servicio; (b) Incrementar la capacitaci6n del personal; (c) Consolidaci6n de los organismos operadores mejorando los sistemas comerciales, operacionales y administrativos, realizar planes maestros y Memoranda de Entendimiento y (e) Reducci6n de los subsidios en terminos de pesos a los organismos operadores\. 11\.2 Subcomponentes del Proyecto El proyecto consisti6 de las siguientes partes: Parte A (BANOBRAS): Proveer de prestamos a los organismos operadores para financiar proyectos dirigidos a la rehabilitaci6n y expansi6n de sistemas de suministro de agua y alcantarillado, incluyendo plantas de tratamiento de aguas negras, y el reforzamiento de la capacidad institucional de cada uno de los organismos operadores\. Parte B (CNA): Reforzamiento de la capacidad de la CNA con respecto a: (a) Implementaci6n del SIAPA\. (b) Asistencia a los Organismos Operadores en la: Preparaci6n de planes maestros; Organizaci6n e implementaci6n de otros programas para desarrollo institucional; La formaci6n de su personal dentro del SIAPA\. (c) La implementaci6n de la calidad nacional del agua, a traves de iniciativas de mejoramiento entre las cuales se puede mencionar: 1) el perfeccionamiento de los sistemas de medici6n y monitoreo de la calidad del agua; 2) el desarrollo de normas y mecanismos oficiales de descargas y limites permnisibles de descarga; 3) el desarrollo e implementaci6n de una iniciativa para la certificaci6n de laboratorios de calidad del agua; 4) realizaci6n de estudios para el perfeccionamiento y calificaci6n de los directores de los sistemas hidraulicos, y 5) llevar a cabo programas de pretratamiento para las aguas residuales industriales; y (d) Promover la participaci6n del sector privado en el Suministro de Agua y Saneaniiento\. - 28 -  11\.3 Operaci6n del Programa Las disposiciones establecidas en el Presupuesto de Egresos de la Federaci6n (PEF) para el anio 2000, publicadas en el Diario Oficial de la Federaci6n del 31 de diciembre de 1999, obligan a publicar en este medio informativo oficial las Reglas de Operaci6n especificas para asegurar una aplicaci6n eficiente, eficaz, equitativa y transparente de los recursos puiblicos de los programas en que exista apoyo financiero por parte de la Federaci6n\. El PEF del anlo 2000, establece en su Articulo 78 lo siguiente: "Las reglas de operaci6n de los programas de agua potable, alcantarillado y saneamiento de la Comisi6n Nacional del Agua, ademas de proveer lo establecido en el articulo 73 de este Decreto, deberan contener disposiciones que sujeten el otorgamiento de subsidios destinados a los municipios y organismos operadores de agua potable y alcantarillado que hayan formalizado su adhesi6n a un acuerdo de coordinaci6n celebrado entre los gobiernos federal y estatal, en el que se establezca un compromiso juridico sancionado por sus ayuntamientos, o en su caso, por las legislaturas locales, para implantar un programa de corto y mediano plazo, definido en coordinaci6n con la Comisi6n Nacional del Agua, que incluya metas cuantitativas intermedias y contemple un incremento gradual de la eficiencia fisica, comercial y financiera, con el objeto de alcanzar la autosuficiencia de recursos en dichos organismos, asi como asegurar la calidad y permanencia de la prestaci6n de los servicios de agua potable, alcantarillado y saneamiento a la poblaci6n"\. Por lo anterior, la CNA para ser congruente con las disposiciones vigentes del PEF para el aino 2000, public6 el dia 20 de marzo del anlo 2000 sus "Reglas de Operaci6n para los Programas de Infraestructura Hidroagricola, y de Agua Potable, Alcantarillado y Saneamiento a cargo de la Comisi6n Nacional del Agua", en el Diario Oficial de la Federaci6n, cumpliendo de esta manera con las disposiciones oficiales en vigor\. III\. Cumplimiento de Objetivos 11l\.1 Incremento en el Servicio Durante los aflos 1990-2000, las inversiones en Agua Potable, Alcantarillado y Saneamiento incluido el Programa APAZU, permitieron incrementar de manera considerable las coberturas de los servicios, registrando para el periodo un aumento en el agua potable del orden del 9\.7%, asi como del 11\.8% en el servicio de alcantarillado, lo cual se debi6 en gran parte a la concertaci6n lograda para la ejecuci6n del Programa APAZU, asi como a la participaci6n de las comunidades involucradas\. Para 1995, la poblaci6n total con servicio del pais era de 76\.7 millones de habitantes, alcanzando la cifra de 85\.0 millones para el anio 1999, significando que la tasa de crecimiento de la cobertura de los servicios creci6 a un ritmo de 2\.8% anual, siendo esta tasa mayor que la registrada para medir el incremento de la poblaci6n, la cual registr6 en promedio 1\.9% anual\. Asimismo en 1995, 14\.4 millones de habitantes no contaban con los servicios de agua potable a nivel nacional, representando una cobertura del 84\.2%\. En cuanto al alcantarillado se refiere, s6lo 65\.7 millones de habitantes contaban con este servicio, representando el 72\.1% de cobertura a nivel nacional\. Por lo anterior, se concluye que gracias a la implementaci6n del Programa se han ejercido recursos financieros en obras con beneficios palpables para la poblaci6n\. En el Anexo 1 (Cuadros I y 2) se presenta la evoluci6n de las Coberturas de Agua Potable y Alcantarillado a Nivel Nacional, que han sido registradas en el periodo en analisis, llegando a beneficiar a 12\.5 millones - 29 -  de habitantes con obras y acciones de agua potable y a 14\.0 millones de habitantes con acciones de alcantarillado\. En el Anexo 2 (Cuadros 3 y 4) se muestra la evoluci6n de las coberturas para agua potable y alcantarillado en las zonas urbanas del pais durante 1995-2000\. Por lo que a la cloraci6n de las aguas se refiere, mediante este metodo de purificaci6n se pas6 de un gasto clorado de 256,265 lps a 287,147 lps en el mismo periodo (1995-1999) lograndose un incremento en gasto tratado del 12%\. La meta de cloraci6n de agua potable de alrededor del 90% a alcanzar durante el periodo, se cumpli6 de manera satisfactoria, ya que en 1995 el porcentaje de agua clorada fue de 94\.1% mientras que en 1999 fue del 92\.7%\. Por otra parte, en 1995 existian 287 plantas potabilizadoras en operaci6n en todo el pais, las cuales trataban un gasto en conjunto de 76,617\.5 lps; para el aino 1999 el total de plantas en operaci6n ascendi6 a 324, que en su conjunto potabilizaban un gasto de 78,157 lps (2% mas que en 1995)\. En lo que respecta a las plantas de tratamiento de aguas residuales, en 1995 existian 469 plantas en operaci6n y se trataba un gasto total de 41,705 lps; para el anio 1999 se logr6 un total de plantas en operaci6n de 777,que en conjunto tratan un gasto de 42,397 lps\. III\.2 Consolidaci6n de Organismos Operadores En cuanto al Marco Legal se refiere, en 1995 existian 17 Estados en donde la Ley permitia el corte del suministro de agua por falta de pago; otros 14 Estados no tenian establecida esta situaci6n en su Ley Estatal\. Para 1999 la situaci6n se modific6 al incrementarse a 21 los Estados en donde esta aprobado el corte del suministro; los estados que adhirieron esta modificaci6n a su Ley fueron: Guanajuato, Hidalgo, Mexico y Nuevo Le6n; caso contrario sufri6 la Ley Estatal de Sinaloa, en donde estaba aprobado el corte del servicio y se derogandose posteriormente\. En el periodo en analisis (1995-1999), 14 Estados han realizado modificaciones a sus legislaciones estatales de agua potable y saneamiento, lograndose con ello el mejoramiento de los servicios, asi como la adecuaci6n de sus estructuras tarifarias; entre los estados que han realizado las adecuaciones a sus marcos legales se encuentran: Aguascalientes (1996), Colima (1997), Chihuahua (1998), Hidalgo (1999), Mexico (1999), Morelos (1995), Nayarit (1995), Nuevo Le6n (1997), Quintana Roo (1996), San Luis Potosi (1996), Sinaloa (1998), Sonora (1999) y en caso de Tlaxcala, este estado abrog6 su Ley Estatal en 1997\. Como apoyo a la consolidaci6n de los organismos operadores, durante el periodo en analisis se han realizado con cargo al Programa APAZU 40 Planes Maestros (Anexo 3)\. III\.3 Descentralizaci6n del Subsector El Gobiemo Federal ha impulsado a traves del Plan Nacional de Desarrollo una politica de descentralizaci6n, con la cual ha fortalecido las asignaciones presupuestales hacia los municipios principalmente a traves de la asignaci6n de recursos via Ramo 33 (Aportaciones Federales para Entidades Federativas y Municipios)\. Por lo que a la CNA corresponde su estructura organica se ha venido transformando, tomando en cuenta la necesidad de mantener la integralidad en la administraci6n del recurso\. Asimismo, ha sido necesario atender simultaneamente dos aspectos vinculados con su naturaleza, ya sea normativa u operativa para lo cual se han creado 13 Gerencias Regionales Administrativas, y se han instalado 25 consejos de Cuenca en el Pais\. - 30 -  111\.4 Desarrollo institucional: I11\.4\.1 Participaci6n del Instituto Mexicano de Tecnologia del Agua El IMTA particip6 en el Programa dentro de las componentes de apoyo al fortalecimiento de la capacidad institucional de la CNA, de los organismos operadores de agua potable y saneamiento y del propio Instituto\. Principalmente destaca su aportaci6n al APAZU en la instrumentaci6n de un Programa de Capacitaci6n para los Organismos Operadores de los Servicios de Agua Potable en el pais, asf como brind6 capacitaci6n al personal de la CNA\. Por otra parte, el IMTA realizo dentro de este Programa de Capacitaci6n cursos en sus propios centros impartiendose temas de caracter tecnico, administrativo y de desarrollo de personal\. Asimismo, el IMTA promovi6 el intercambio de experiencias entre diferentes organismos operadores del pais, mediante la organizaci6n de reuniones de intercambio tecnico tanto nacionales como intemacionales, en Mexico y el extranjero\. Otra actividad en la que particip6 el IMTA fue la actualizaci6n de los sistemas de informnaci6n del sector agua, en donde se disefio el Sistema Nacional de Infornaci6n de Calidad del Agua, y se actualiz6 el Sistema Raison para plataforma Windows; estas aplicaciones se impartieron a traves de cursos de actualizaci6n\. En este punto, cabe sefialar, que a partir de 1997, varias actividades del Programa de Agua Potable, Alcantarillado y Saneamiento que originalmente se tenian contempladas con cargo al prestamo 3751-ME, y que su terminaci6n fue prevista para ese mismo afio, se desarrollaron y continuan en progreso con cargo al Prestamo 4050-ME, Programa de Modernizaci6n del Manejo del Agua (BROMMA), que entr6 en efectividad en aquel entonces\. Las principales actividades que ahora son ejecutadas con cargo al PROMMA son: a) Desarrollo Institucional de la CNA, b) Programa nacional de Capacitaci6n del IMTA, dentro del cual se efectu an seminarios y talleres para la capacitaci6n del personal tecnico, asi como de instructores, c) Programa de certificaci6n, que incluye actividades relacionadas con la certificaci6n en materia de agua, drenaje tratamiento de aguas, materiales equipo y normatividad de contaminantes, y d) Programa de Tratamiento de Aguas Residuales, que son un conjunto de acciones relacionadas con la formulaci6n de tecnica, vigilancia, condiciones especificas de descarga, monitoreo de parametros, adquisici6n de equipo para la vigilancia y control de descargas\. IV\. Principales Factores que Afectaron el Desarrollo del Provecto Un factor que afecto el desarrollo del Proyecto, fue la alta rotaci6n del staff encargado de la procuraci6n del Prestamo por parte del Banco, hecho que fue especialmente notorio en los procedimientos y criterios de elegibilidad establecidos por el Banco\. En 1993, el Gobiemo Federal inicia negociaciones con el Banco Mundial para la obtenci6n de un Segundo Prestamo Sectorial, por un monto total de 350\.0 millones de d6lares\. Las negociaciones se alargan hasta el siguiente anio\. A finales del anio 1994 se suscitaron acontecimientos desfavorables en varios 6rdenes de la vida nacional e intemacional que incidieron marcadamente en la evoluci6n de la economia del pais\. - 31 -  Como resultado de las negociaciones que encabez6 el Gobiemo Federal con el Banco Mundial para la obtenci6n del Segundo Prestamo Sectorial, dicho prestamo fue aprobado y firmado el 10 de junio de 1994, para entrar en efectividad en 1995\. Durante el afio 1995, la economia mexicana sufri6 una crisis econ6mica muy severa\. La interrupci6n repentina de los flujos de capital del exterior hacia Mexico a finales de 1994 e inicios de 1995, sumada a la devaluaci6n de la moneda nacional, impusieron a la economia del pais un ajuste econ6mico\. A fin de coadyuvar al logro de estos objetivos, las politicas fiscal, monetaria, comercial y salarial se concentraron en procurar una reducci6n rapida del impulso inflacionario causado por la devaluaci6n\. La transformaci6n del sistema financiero mexicano afligi6 a su entomo directo, lo cual fue notable en la disminuci6n de los creditos de la banca de desarrollo asumidos por los Organismos Operadores\. Cabe sefialar que la situaci6n por la que atraves6 la economia en el periodo de 1993 a 1995, afect6 negativamente al proyecto, principalmente en lo referente a las asignaciones presupuestales de recursos fiscales\. Asimismo, las situaciones de contingencia por fen6menos meteorol6gicos extremos que se presentaron durante el periodo de ejecuci6n del proyecto, tuvieron efecto en inversiones extraordinarias, utilizando recursos de asignaciones de fondos comprometidos de credito externo para las obras no previstas en el presupuesto\. Por otra parte, se hizo necesario a lo largo del proyecto, contar con una estructura uinica de coordinaci6n del Programa, para asegurar mas efectivamente el progreso de la ejecuci6n de cada uno de sus componentes\. V\. Sustentabilidad Esperada La sustentabilidad esperada del Programa de Agua Potable, Alcantarillado y Saneamiento guarda una relacion directa con la busqueda de la autonomia de los organismos operadores, a traves de la recuperacion de costos, la organizacion de los Organismos Operadores y la incorporacion de tecnologia, y se puede enfocar desde dos puntos de vista: 1) en el aumento de la eficiencia de los Organismos Operadores con las acciones a corto plazo que han sido implantadas para el logro de la autosuficiencia t6cnica, economica y financiera de los propios organismos, y 2) en el mejoramiento de los servicios atendiendo mayores coberturas y calidad de los mismos\. Es evidente que se han logrado incrementos en la eficiencia del manejo del agua y en la recuperaci6n de las inversiones en las redes de agua potable y alcantarillado alcanzando, a traves de convenios y acuerdos de cooperaci6n, las metas de corto y mediano plazos, establecidas en el Plan Nacional de Desarrollo y en los Planes de desarrollo Estatales\. Para alcanzar las metas es necesario que se encaminen las acciones hacia los siguientes rubros: 1\. Inversi6n en eficiencia fisica y comercial (fortalecimiento y recaudaci6n) 2\. Uso pleno de la infraestructura y diferimiento de la construccion de nueva infraestructura de agua potable, alcantarillado y saneamiento\. 3\. Capacitaci6n y certificaci6n del personal de los Organismos Operadores en aspectos tecnicos, econ6micos, administrativos y financieros\. - 32 -  4\. Cultura del Agua 5\. Participaci6n de la Iniciativa privada en la prestaci6n de los servicios\. Todos los aspectos anteriores deben seguir conjuntAndose de tal manera que los recursos, esfuerzos y acciones conjuntos que se emplean para el logro de los objetivos, mejorando la prestacion de los servicios de agua potable y alcantarillado en el pais, reduciendo los impactos negativos al medio ambiente, saneando los acuiferos y desarrollando una verdadera conciencia ambiental en la poblaci6n\. VI\. Actuaci6n del Banco Un aspecto que incidio de forrna negativa en la ejecuci6n del programa, fue el constante cambio de responsables del Proyecto por parte del BIRF (cinco)\. Este hecho provoc6 una falta de consistencia en la obtenci6n de respuestas sobre la problemitica y los planteamientos efectuados por el prestatario y por el ejecutor; sobre todo en lo referente al redimensionamiento del pr6stamo y a las modificaciones necesarias para que los requisitos originalmente propuestos fuesen acordes a las condiciones desfavorables en la economia del pais\. Por otra parte, el diseiio original del Segundo Proyecto de Agua Potable y Saneamiento contempl6 una serie de requisitos a ser cumplidos por los Organismos Operadores, con el fm de que estos ultimos pudiesen ser considerados como sujetos de financiamiento con los recursos del prestamo\. Esta serie de disposiciones se disefiaron y establecieron previamente, tomando en consideraci6n un escenario distinto al que se ocurri6 con posterioridad, durante la ejecucion del Proyecto\. En muchos casos, la realidad demostr6 que se produjeron procesos lentos para satisfacer los requisitos de elegibilidad de los proyectos, e inclusive para su licitaci6n; y si bien, el Banco Mundial particip6 activamente en las misiones, asesorando tecnicamente y proponiendo soluciones para la realizaci6n del Proyecto, la poca flexibilidad que se demostr6 para adecuar la normatividad a las alteraciones ocurridas en el ambito del Subsector, mermaron la eficacia para alcanzar las metas fijadas y con ello Ilevar a cabo el mayor desembolso de los recursos contratados, previstos en el proyecto original, y asi, ejecutar mas obras y acciones para ampliar la cobertura de los servicios de agua potable y saneamiento\. VII\. Actuaci6n del Prestatario La actuaci6n del Banco Nacional de Obras y Servicios Publicos y su participaci6n para la consecuci6n de los objetivos del Proyecto, fueron satisfactorias\. La posici6n rigida que adopt6 el Banco Mundial, con relaci6n a la reestructuraci6n del Prestamo y a las modificaciones solicitadas por BANOBRAS para adecuarlo a las frecuentes alteraciones que ocurrieron en el ambito del Subsector, imposibilit6 a esta Instituci6n para Ilevar a cabo un mejoramiento en los registros de licitaciones, y para cumplir con el programa de desembolsos previsto; no obstante las constantes peticiones de BANOBRAS para flexibilizar parcialmente la normatividad establecida\. VIII\. Evaluaci6n de Resultados de las Inversiones Eiercidas en el Programa APAZU 1995 - 1999 Como resultado de la participacion del Gobiemo Federal en la instrumentacion y ejecuci6n del Programa APAZU, las inversiones totales ejercidas en el periodo 1995-2000 ascendieron a $4,083\.4 millones de pesos (MDP)\. Como se puede observar en el Anexo 4 Cuadro N°1, las inversiones federales en el anio 1995 fueron las menores del periodo, debido a que en este aino se presenta la crisis de la economia del pais, repercutiendo de forma considerable en una disminuci6n drastica (66%) de los recursos asignados al Programa con respecto al afio anterior\. Los siguientes afios (1996 y 1997) muestran una recuperaci6n - 33 -  favorable en la asignaci6n de los recursos, presentando una vez mas disminuciones para los anios de 1998 y 1999\. La evoluci6n de las inversiones asignadas a este programa se presenta en el Anexo 4 Cuadro N°1\. Del total de recursos por ejercerse al concluir el afio 2000 por $ 4,083\.2 millones de pesos, la CNA aportaria $1,901\.0 MDP (el 46\.8%); los gobiemos estatales sumarian en conjunto $926\.6 MDP; los organismos operadores (GIC) y/o los gobiernos municipales aportarian alrededor de $566\.8 MDP; aportando el resto de los recursos los creditos otorgados por BANOBRAS y/o la banca comercial\. El monto destinado de los recursos para obras y acciones de agua potable hasta 1999 era del orden de $2,152\.0 MDP (48\.4%); $1,541\.2 MDP (43\.3%) para infraestructura y acciones de alcantarillado y $389\.9 MDP (8\.3%) para obras y acciones de saneamiento\. Lo anterior se puede observar en el Anexo 4 Cuadros N°l y 2\. Asimismo, como se puede observar en los cuadros del Anexo 4, los recursos federales ejercidos en la pasada administracion fueron asignados en menor cantidad anio con afio, lo cual es congruente con lo establecido en la politica de disminuci6n de subsidios para el subsector\. En el presente aiio no se registraron inversiones del APAZU financiadas con recursos del Prestamo en analisis, debido a la conclusi6n de las operaciones de dicho prestamo con el Banco Mundial\. En una operaci6n de prestamo con una cierta duraci6n, existen una serie de imponderables al momento de su disefio\. Tales imponderables Ilevan finalmente al redimensionamiento de las acciones en terminos de recursos, debido a los niveles anuales de asignaci6n presupuestal\. Tal fue el caso de los desembolsos efectuados para apoyar las acciones de emergencia que se presentaron en nuestro pais durante el periodo de ejecuci6n del prestamo\. El desembolso de recursos se vio incrementado al presentarse gastos extraordinarios por fen6menos metereol6gicos tales como: Huracan Paulina y Programa emergente de Sequias en 1998 y 1999; Huracan Isis en Baja California Sur y Sinaloa y por el Programa de Agua Potable en Chiapas\. En total por estos conceptos se erog6 un monto total de $763\.1 millones de pesos (Anexo 5)\. Cabe perfectamente sefialar, que el apoyo logrado mediante la asignaci6n extraordinaria de recursos econ6micos contribuyo para asistir de forma inmediata, a las obras de reconstrucci6n de los sistemas de dotaci6n de agua potable, de alcantarillado y saneamiento, en las zonas urbanas afectadas por los fenomenos climaticos\. Se logr6 asi el auxilio apremiante a la poblacion con la participaci6n de los distintos sectores de atenci6n local, y se contribuy6 de forma importante al restablecimiento efectivo de los servicios desbastados, mediante operativos emergentes\. De igual forma, en las zonas afectadas por el fen6meno de la sequia, se realizaron acciones efectivas destinadas a mitigar la escasez del recurso\. IX\. Lecciones del Provecto Con el APAZU, se apoy6 a la politica de descentralizaci6n del Gobierno Federal y logr6 la ampliacion de la infraestructura, asi como la ejecuci6n de acciones para el mejoramiento institucional, acciones que en todos los casos surgen de una planeaci6n integral y estrategica, que como herramientas de gesti6n de proyectos increment6 sustancialmente su aplicaci6n\. La mezcla de recursos para financiamiento de acciones permiti6 multiplicar y hacer un uso mAs racional de los diversos fondos financieros destinados al subsector, los cuales se adecuan de acuerdo a la capacidad de los estados, municipios y organismos operadores\. Con el programa en marcha se ha permitido que la gesti6n y la participaci6n de los organismos operadores sean mas amplias, para fomentar la consolidaci6n de organismos publicos descentralizados con autonomia y patrimonio propios, dando la libertad de ejercer su presupuesto, y la posibilidad de establecer y aprobar - 34 -  sus tarifas en el seno de sus propios Consejos de Administraci6n\. Los organismos operadores necesitaron de tiempo para que sus gestiones les permitieran generar los recursos suficientes para amortizar sus deudas y operar de una manera mas adecuada y/o para apalancarse con alguna otra fuente de fmanciamiento diferente de BANOBRAS\. Se ha fomentado la descentralizaci6n y participaci6n de los estados y municipios en las inversiones asi como la participaci6n del sector privado en el sector de agua y saneamiento\. Se ha promovido un cambio en los esquemas de colaboraci6n entre las distintas entidades de Gobiemo y la Iniciativa privada\. Se ha fomentado control de la contaminaci6n y se ha mejorado la regulaci6n en materia ambiental, al tiempo que se ha aminorado el impacto ecol6gico de las actividades de suministro de agua y saneamiento\. En el Anexo 6 se presentan los principales logros alcanzados en la implementaci6n del Programa para los afios 1995 y 1999; los datos ahi presentados corresponden a cifras reportadas en los cuademos de la Situaci6n Actual del Subsector Agua Potable, Alcantarillado y Saneamiento a diciembre de cada anio (1994-1999), que publica la CNA\. En el Anexo 7 se presentan algunos casos de Organismos Operadores en donde se realizaron inversiones de APAZU financiadas con recursos del Prestamo y que han tenido resultados exitosos en sus gestiones; dichas localidades se mencionan a continuaci6n: Torre6n, Coah\., G6mez Palacio, Dgo\., Zona Metropolitana de Guadalajara, Jal\., Chetumal, Q\. Roo\., Culiacan, Sin\., Reynosa, Tamps\., Dzemul, Yuc\. y Progreso, Yuc\. X\. Operaciones Futuras Por la experiencia adquirida durante la ejecuci6n del proyecto, y por lo que se refiere a los cambios drasticos en la economia del pais, se recomienda disefiar y desarrollar un proyecto financiero que prevea situaciones variantes en la evoluci6n de la economia del pais, y que permita desagregar las componentes del prestamo, de tal forma que los creditos resulten menos onerosos y permitan verdaderamente consolidar a las empresas prestadoras de los servicios de agua y alcantarillado en el pais\. Por las caracteristicas y la complejidad del subsector, los agentes financieros deben procurar desde un principio la conveniencia de una flexibilizaci6n inmediata por parte de los bancos, para la operaci6n de estos proyectos, dado que por su naturaleza estAn condicionados por distintos anbitos y situaciones de cambio\. Es necesario retomar la lecci6n y la experiencia adquirida durante la realizaci6n de esta segunda etapa del Programa APAZU, en terminos de economia y de una procuraci6n de un nuevo Prestamo mas adecuado, de tal manera que se impulse auin mas el proceso de descentralizaci6n y la consolidaci6n de los Organismos Operadores; para ello se deberan mecanismos que otorguen flexibilidad a los procedimientos de gesti6n del prestamo; entre otras cosas, dichos mecanismos permitirin hacer mas compatibles los procedimientos administrativos y podrian facultar a los intermediarios financieros para que establezcan, en su caso, la reestructuraci6n de adeudos bajo medidas mas moderadas\. El Siglo XXI representa nuevos y grandes retos en materia de ecologia para el pais y el mundo entero, es por ello que en Mexico deberan enfocarse los esfuerzos hacia el mejoramiento del ambiente; en el caso especifico el Sector Agua, se requieren grandes inversiones para la consolidaci6n de los organismos operadores, el uso pleno de la infraestructura existente, asi como para apoyar obras y acciones que fomenten y mejoren el medio ambiente, como lo puede ser la construcci6n de infraestructura de - 35 -  saneamniento (plantas de tratamiento y potabilizadoras), asi como la creaci6n de una conciencia ecol6gica (cultura del agua) en la poblaci6n urbana y rural de todo el pais\. Xl\. Conclusiones y Recomendaciones De los objetivos del programa, se destaca el fomento a la participaci6n entre las distintas entidades gubemamentales y la participaci6n del sector privado en actividades tradicionalmente Ilevadas a cabo por el Estado en exclusividad\. Se foment6 el proceso de descentralizaci6n y se gener6 una asignaci6n presupuestaria mas racional, ejecutada con mayor eficiencia\. Se consigui6 que la participaci6n y la gesti6n de los Organismos Operadores fuesen mas amplias, asi como la creaci6n de organismos puXblicos descentralizados con autonomia presupuestal\. Se trabaj6 en la ejecuci6n de acciones para el mejoramiento institucional, fortaleciendo la capacidad de desempefno de los organismos operadores y de respuesta a las demandas por el servicio de suministro y saneamiento de agua\. En cuanto a los logros alcanzados, son claros los avances que se obtuvieron en la ampliaci6n de la cobertura de los servicios de agua potable y alcantarillado, asi como los alcances en la poblaci6n beneficiada con este servicio\. El proyecto permiti6 vincular una estrategia con enfoque sectorial, la politica tarifaria para inversi6n y la priorizaci6n de proyectos de inversi6n, en el marco nacional previsto en el Plan Nacional de Desarrollo\. Se recomienda seguir trabajando con eficiencia y avanzar hacia el logro de una mejor distribuci6n presupuestaria, tratando de lograr el fortalecimiento de la descentralizaci6n, apoyando a la consolidaci6n de los Organismos Operadores y contribuir al mejor uso de las inversiones realizadas\. Para que los organismos operadores puedan estar en la posibilidad de acceder a los recursos de creditos externos, se considera apropiado que para futuros prestamos, para financiar obras y acciones de agua potable, alcantarillado y saneamiento, sera necesaria la participaci6n de los Gobiemos Federal y Estatal, de los organismos operadores, de la iniciativa privada y de las Instituciones financieras nacionales para que se mejoren las condiciones crediticias y las tasas de inter6s que se cobran por los prestamos otorgados\. ANEXO 1 Cuadro #1 - Cobertura de Agua Potable a Nivel Nacional ANO Poblaci6n Habitantes Habitantes Habitantes sin Porcentaje de Total con Servicio Beneficiados Servicio Cobertura 1995 91\.1 76\.7 2\.7 14\.4 84\.2 1996 92\.7 78\.7 2\.0 14\.0 84\.9 1997 94\.3 80\.9 2\.2 13\.3 85\.8 1998 95\.8 82\.8 1\.9 13\.0 86\.4 1999 97\.3 85\.0 2\.3 12\.3 87\.4 2000* 97\.4 85\.0 1\.4 12\.3 87\.4 Total 12\.5 - 36-  Cuadro #2 - Cobertura de Alcantarillado a Nivel Nacional ANO Poblaci6n Habitantes con Habitantes Habitantes sin Porcentaje de Total Servicio Boneficiados Servicio Cobertura 1995 91\.2 65\.7 6\.6 25\.5 72\.1 1996 92\.7 67\.2 1\.5 25\.6 72\.4 1997 94\.3 68\.3 1\.1 26\.0 72\.4 1998 95\.8 69\.4 1\.1 26\.4 72\.4 1999 97\.3 71\.1 1\.7 26\.2 73\.1 2000* 97\.4 71\.1 2\.0 26\.2 73\.1 Total 14\.0 * La poblaci6n del anio 2000 fue tomada de los datos del XII Censo de Poblaci6n y Vivienda 2000 (febrero ANEXO 2 Cuadro #3 - Cobertura de Agua Potable en Zonas Urbanas ANO Poblaci6n Habitantes Habitantes Habitantes sin Porcentaje de Total con Servicio Beneficiados Servicio Cobertura 1995 67\.0 62\.0 2\.6 5\.0 92\.6 1996 68\.2 63\.5 1\.5 4\.6 93\.2 1997 69\.3 64\.9 1\.4 4\.3 93\.7 1998 70\.5 66\.5 1\.4 4\.0 94\.3 1999 71\.6 68\.1 1\.6 3\.5 95\.1 2000* \. \. Total Cuadro #4 - Cobertura de Alcantarillado en Zonas Urbanas ANO Poblaci6n Habitantes Habitantes Habitantes sin Porcentaje de Total con Servicio Beneficiados Servicio Cobertura 1995 67\.0 58\.6 6\.4 8\.4 87\.4 1996 68\.2 59\.7 1\.1 8\.5 87\.5 1997 69\.3 60\.5 0\.8 8\.8 87\.3 1998 70\.5 61\.3 0\.8 9\.2 87\.0 1999 71\.6 62\.6 1\.3 9\.0 87\.4 2000* \. Total * La poblaci6n del ano 2000 fue tomada de los datos del XII Censo de Poblaci6n y Vivienda 2000 (febrero)\. - 37 -  ANEXO 3 Planes Maestros Ejecutados con Cargo a la Comisi6n Nacional del Agua 1995 - 1999 No LOCALIDAD ESTADO POBLACION 1995* I ROSARITO BAJA CALIFORNIA 37,121 2 CALKINI CAMPECHE 12,405 3 CHAMPOTON CAMPECHE 21,894 4 ESCARCEGA CAMPECHE 25,209 5 CD\. ACUNA COAHUILA 79,221 6 MATAMOROS COAHUILA 41,610 7 PIEDRAS NEGRAS COAHUILA 114,384 8 SALTILLO COAHUILA 510,131 9 TORREON COAHUILA 481,493 10 COLIMA COLIMA 110,977 11 MANZANILLO COLIMA 80,568 12 TECOMAN COLIMA 68,847 13 GOMEZ PALACIO DURANGO 192,888 14 LERDO DURANGO 54,570 15 SAN FRANCISCO DEL RINCON GUANAJUATO 64,577 16 ACAPULCO GUERRERO 592,528 17 ALTAMIRANO GUERRERO 21,936 18 ARCELIA GUERRERO 16,609 19 rBUENAVISTA GUERRERO 6,092 20 CHILPANCINGO GUERRERO 123,475 21 HUITZUCO GUERRERO 16,050 22 IGUALA GUERRERO 98,276 23 OLINALA GUERRERO 4,823 24 TAXCO GUERRERO 48,028 25 TELOLOAPAN GUERRERO 19,355 26 MORELIA MICHOACAN 512,169 27 BAHIA DE BANDERAS NAYARIT 5,053 28 GUAYABITOS Y PENITA NAYARIT 7,160 29 TEHUACAN PUEBLA 172,510 30 SAN LUIS POTOSI SAN LUIS POTOSI 586,585 31 SOLEDAD DE GRACIANO SANCHEZ SAN LUIS POTOSI 147,188 32 MAZATLAN SINALOA 302,808 33 ROSARIO SINALOA 13,441 34 GUAYMAS SONORA 90,964 35 MATAMOROS TAMAULIPAS 323,794 36 REYNOSA TAMAULIPAS 320,458 37 COATEPEC VERACRUZ 42,462 38 PROGRESO YUCATAN 40,005 39 FRESNILLO ZACATECAS 89,338 40 ZACATECAS ZACATECAS 118,742 * DATOS DEL CONTEO DE POBLACION Y VIVIENDA 1995, CONAPO\. - 38 -  ANEXO 4 Inversiones Realizadas por el Programa APAZU 1995-2000 Cuadro #1 - Origen y Aplicaci6n de los Recursos FUENTE DE RECURSOS APLICACI6N DE LOS RECURSOS A 1R O I_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Federal Estatal MPIO/GI Credito Total Agua Alcantari Sanea Total I____ _ _C Potable liado miento 1995 88\.31 87\.95 3\.92 37\.03 217\.21 60\.96 152\.76 3,49 217\.21 1996 424\.77 205\.86 100\.32 50\.49 781\.44 435\.56 289\.35 56\.52 781\.43 1997 6 47\.52 296\.17 185\.99 109\.09 1,238\.77 594\.90 520\.02 123\.85 1,238\.77 1998 315\.60 146\.99 126\.87 194\.31 783\.77 415\.66 296\.49 71\.61 783\.77 1999 424\.81 179\.48 134\.49 171\.79 910\.58 520\.28 266\.52 123\.78 910\.58 2000 0\.00 10\.17 15\.21 126\.05 151\.44 124\.64 16\.06 10\.73 151\.44 TOTAL 1,901\.02 926\.62 566\.81 68 875 4,083\.20 2,152\.00 1,541\.21 389\.99 4,083\.20 Cuadro #2 - Participaci6n Relativa FUENTE DE RECURSOS APLICACI6N DE LOS RECURSOS AfNO Federal Estatal MPIO/GIC Credito Total Agua Alcanta Sanea Total \.__ _____ ___ __ __ ___ ____I Potable rillado miento 1995 40\.7% 40\.5% 1\.8% 17\.0% 100\.0% 28\.1% 70\.3% 1\.6% 100\.0% 1996 54\.4% 26\.3% 12\.8% 6\.5% 100\.0% 55\.7% 37\.00/% 7\.2% 100\.0% 1997 52\.3% 23\.9% 15\.0% 8\.8% 100\.0% 48\.0% 42\.0% 10\.0% 100\.0% 1998 40\.3% 18\.8% 16\.2% 24\.8% 100\.0% 53\.0% 37\.8% 9\.1% 100\.0% 1999 46\.7% 19\.7% 14\.8% 18\.9% 100\.0% 57\.1% 29\.3% 13\.6% 100\.0% 2000 0\.0% 6\.7% 10\.0% 83\.2% 100\.0% 82\.3% 10\.6% 7\.1% 100\.0% TOTAL 46\.8% 25\.8% i 12\.1% 15\.2% 100\.0% 48\.4% 4333% 8\.3% 100\.0% - 39 -  ANEXO 5 Contrataci6n Asociada a Obras de Emergencia Reconocidas para Financiamiento PROGRAMA No DE CONTRATOS IMPORTE SIN IVA (miles de pesos) HURACAN PAULINA (CONTRATACION 1997) 63 243,528\.2 HURACAN PAULINA (CONTRATACION 1998) 34 114,154\.1 HURACAN PAULINA (CONVENIOS ADICIONALES) 23 13,207\.5 AGUA POTABLE EN CHIAPAS 59 40,961\.6 PROGRAMA EMERGENTE DE SEQUIAS 1998 269 162,063\.9 PROGRAMA EMERGENTE DE SEQUUAS 1999 349 176,548\.9 HURACAN ISIS - BAJA CALIFORNIA SUR 21 7,332\.4 HURACAN ISIS - SINALOA 16 5,292\.4 TOTAL 834 763,089\.2 ANEXO 6 Indicadores de Eficiencia de Agua Potable y Saneamiento Participantes en el Programa APAZU 1995-1999 NO CONCEPTO 1995 1999 I Poblaci6n 91 '606,148 97'283,460 2 N° Tomas de Agua Potable 12'025,377 14'660,789 3 Cobertura de Agua Potable 92\.6% 95\.1% 4 N° de Conexiones de Alcantarillado 9'322,485 1 1'133,021 5 Cobertura de Alcantarillado 87\.4% 87\.4% 6 N° de Conexiones de Alcantarillado I Tomas de A\. P\. 77\.5% 75\.9% 7 Producci6n Anual (Mill\. de m3) 7,670\.6 8,003\.0 8 Producci6n Anual Media de Agua (Ips) 272,404 309,744 9 Volumen Anual Facturado (Mill\. de m3) 4,669\.8 5,532\.4 10 Agua No Contabilizada (Cantidad Facturada / Cantidad 39\.1% 33\.4% _____ Producida) 11 Desinfecci6n de Agua (Ips) 256,265 287,147 12 Dotaci6n Anual Poblaci6n Servida m3/hablano 137\.5 123\.4 13 Facturaci6n Anual (miles de $) 7'356,658 17'357,939 14 Tarifa promedio de A\.P\. y Alcantarillado ($1m3) 0\.58 1\.45 15 Recaudacion Anual (miles de $) 4'479,152 1 1'567,272 16 Recaudaci6n/Facturaci6n (%) 60\.8% 66\.6% - 40 -  ANEXO 7 TORREON, COAHUILA SISTEMA MUNICIPAL DE AGUA POTABLE Y SANEAMIENTO (SIMAS TORREON) En el anio de 1997 se Ilevo a cabo el Plan Maestro para el Mejoramiento de los Servicios de Agua Potable, Alcantarillado y Saneamiento para la Ciudad de Torreon, Coahuila, donde se determino la situaci6n actual y las necesidades futuras de mejoramiento del sistema\. Antecedentes En la fecha que se realizo el estudio tenia una poblaci6n de 516,950 habitantes, la cobertura en el servicio de agua potable es del 97%, la fuente de abastecimiento es el agua subterranea mediante el aprovechamiento de 60 pozos profundos de los cuales extraen un caudal promedio en su conjunto de 2,243 lps\. Asimismo cuentan para su regulaci6n y almacenamiento con 27 tanques superficiales y 3 elevados, sumando una capacidad de regulaci6n de 56,000 m3, existen ademas 5 tanques de rebombeo; la red de distribuci6n esta formada por tuberias de 2" hasta 12" de diametro, el servicio en terminos generales es bueno tomando en cuenta que las presiones son regulares y el servicio es continuo las 24 horas; por otra parte la red de la zona centro y alrededores es muy antigua por lo que es muy frecuente las fugas, ya que la tuberia rebaso su vida uitil; referente al alcantarillado la cobertura era del 82%, cuentan con una red de atarjeas colectores y subcolectores formada por tuberias de concreto simple y armado con diAmetros de 20 a 122 cm\., en su mayor parte conducen el agua por gravedad, a traves de 4 colectores principales que son el Constituci6n, Bravo, Escobedo, LAzaro Cardenas , el sistema cuenta para el desalojo de aguas negras con 19 carcamos de bombeo, en terminos generales se puede considerar que el estado de la infraestructura es regular, aunque existe un alto porcentaje de tuberias azolvadas, asi como una buena parte de las tuberias cuya antigiiedad rebaso su vida uitil, por otra parte el desalojo de las aguas negras se realiza directamente a las zonas agricolas donde s emplean sin ningun tratamiento previo\. Situaci6n Actual y Logros Alcanzados Actualmente la Ciudad tiene 596,877 habitantes, con una cobertura de agua potable del 98% con un incremento de un 1% y por lo que respecta al alcantarillado la cobertura es del 94% incrementandose un 12%, alcanzandose estos logros en los ultimos 4 anios, derivados de las siguientes acciones e inversiones dentro del Programa de Agua Potable y Saneamiento en Zonas Urbanas APAZU: Durante 1997 a 1999 se realizaron 7 obras con una inversi6n total de $ 6,636,277\.00 de acuerdo a las siguientes acciones: Equipamiento e interconexi6n de los pozos num\. 59 y 60; equipamiento de tanque en la Col\. Caleras de Solares; cierre de circuito a tanque de Caleras de Solares; medidores para equipo de bombeo (macromedicion 40 unidades), 15,890 micromedidores para tomas domiciliarias y rehabilitaci6n del colector sanitario "Constituci6n" 1a\. Etapa\. Para el presente afio 2000, se programo 1 obras mas, con una asignaci6n total de $10,477,445\.00 con las acciones siguientes: Construcci6n del colector sanitario "Allende" 1a\. Etapa\. Es de importancia recalcar que estas acciones se estAn ejecutando de acuerdo con las recomendaciones del Plan Maestro y por lo que respecta al saneamiento inicio el 4 de diciembre la construcci6n PTAR a base de -41 -  Lagunas de Estabilizaci6n con una capacidad de 1,900 lps, que consta de 3 m6dulos, 2 de 700 lps cada uno y otro de 500 Ips\., con un costo de $ 180,405,486\.00, en la cual el gobiemo federal a traves de la C\.N\.A\. participa con una aportaci6n de $16,000,000\.00\. GOMEZ PALACIO, DURANGO SISTEMA DESCENTRALIZADO DE AGUA POTABLE Y SANEAMIENTO, SIDEAPA (GOMEZ PALACIO) En el anlo de 1996 se Ilevo a cabo el Plan Maestro para la consolidaci6n y desarrollo institucional del organismo operador Sistema descentralizado de Agua Potable, Alcantarillado y Saneamiento de G6mez Palacio, Dgo\., donde se determino la situaci6n actual y las necesidades futuras de mejoramiento del sistema\. Antecedentes En la fecha que se realizo el estudio tenia una poblaci6n de 215,994 habitantes, la cobertura en el servicio de agua potable es del 93%, la fuente de abastecimiento es el agua subterranea mediante el aprovechamiento de 32 pozos profundos de los cuales extraen un caudal promedio en su conjunto de 787 lps\. y que se encuentran conectados directamente a la red, 6 tanques de regularizaci6n, 4 carcamos de rebombeo, 2 estaciones de rebombeo, las tuberias que integran la red de distribuci6n que se encuentra totalmente interconectada, sin presentar alguin tipo de sectorizaci6n, con bajas presiones dentro de la red y con gastos insuficientes para los usuarios, por lo que se requiere el reforzamiento de la red primaria y ampliaci6n de servicio en la red secundaria de agua potable, el mejoramiento en la eficiencia y carga de trabajo de los pozos que abastecen a la red, sectoriza r a mediano y largo plazo el sistema de distribuci6n; por lo que respecta al alcantarillado la cobertura es del 89% El sistema esta formado por tuberia de concreto simple para diametros de hasta 45 cm y concreto reforzado para diametros mayores\. En atarjeas se presentan diimetros de 20 y 25 cm y en subcolectores y colectores de 30 a 107 cm\. La red de colectores y subcolectores que presenta la ciudad, se pueden identificar basicamente tres zonas de escurrimiento, la primera drena hacia el carcamo El Refugio, la segunda zona escurre hacia el oriente en donde se encuentra el carcamo Matriz Cuba, el cual recibe la mayor parte de las aportaciones de la ciudad\. Por uiltimo la tercer zona de escurrimiento, es en el sur de la ciudad, abarca el parque Industrial Lagunero (P\.I\.L\.) y algunas colonias ubicadas hacia esa zona; las aportaciones son conducidas hacia el carcamo P\.I\.L\., por lo que es necesario realizar trabajos de rehabilitaci6n y ampliaci6n del sistema de drenaje sanitario, modificar, reforzar y/o ampliar los tramos de subcolectores y colectores actuales\. Situaci6n Actual y Logros Alcanzados Actualmente la Ciudad tiene 282,298 habitantes, con una cobertura de agua potable del 95% con un incremento de un 1% y por lo que respecta al alcantarillado la cobertura es del 91% incrementandose un 2%, alcanzandose estos logros en los ultimos 5 afios, derivados de las siguientes acciones e inversiones dentro del Programa de Agua Potable y Saneamiento en Zonas Urbanas APAZU: Durante 1996 a 1999 se realizaron 79 obras con una inversi6n total de $ 60,212,407 de acuerdo a las siguientes acciones: Construcci6n del colector, Sta\. Rosa, El Foce, Poniente, Carlos Herrera, Rehabilitaci6n de Red General de drenaje Parque Industrial y Calle Urrea, Construcci6n de red de atarjeas y alcantarillado, Rehabilitaci6n del colector 5 de Mayo, Adquisici6n de micromedidores, Adquisici6n Equipo de Computo, Reposici6n y - 42 -  Rehabilitaci6n de Pozos, Construcci6n de tanques, Reforzamientos de red, detecci6n y reparaci6n de fugas, Adquisici6n de equipo de radiocomunicaci6n, construcci6n de red de atarjeas, construcci6n de subcolector, rehabilitaci6n del colector General Oriente, construcci6n del colector Periferico Norte, Construcci6n del colector General Oriente-Rebollo Acosta, Rehabilitaci6n del colector Hidalgo Norte, Rehabilitaci6n General Oriente- 5 de Mayo, Construcci6n del Colector san Antonio\. Para el presente afio 2000, se programaron 4 acciones mas, con una asignaci6n total de $5,534,514\.00, Rehabilitaci6n red de atarjeas y alcantarillado, Fraccionamiento del Bosque, reforzamiento de la linea de interconexi6n a tanque de almacenamiento cerro de la pila a la red del sistema y cerro del campestre, Construcci6n del colector Articulo 123\. Es de importancia recalcar que estas acciones se estAn ejecutando de acuerdo con las recomendaciones del Plan Maestro\. y por lo que respecta al saneamiento en el presente afio se iniciara la construccion PTAR a base de Lagunas de Estabilizaci6n con una capacidad de 650 lps, que consta de 3 m6dulos, 2 de 250 lps cada uno y otro de 150 lps\., y en una primera etapa se construiri la PTAR para un gasto de 500 lps\. con un costo de $84,558,095\.00, en la cual el gobiemo federal a traves de la C\.N\.A\. participa con una aportaci6n de $9,000,000\.00 El efecto de las inversiones en el comportamiento del Organismo Operador COMAPA ha sido el siguiente: Coberturas de la Ciudad de Gomez Palacio, DGO Conceptos 1995 1996 1997 1998 1999 2000 Poblaci6n 257,042 260,195 263,386 266,617 269,887 272,806 Ocupantes viviendas 256,085 259,265 262,484 265,743 269,042 271,983 particulares Total de viviendas ocupadas 56,439 57,811 59,217 60,656 62,131 63,300 Tomas de Agua Potable 54,348 55,665 57,014 58,396 59,811 60,933 lndice de Hacinamiento 4\.55 4\.5 4\.4 4\.4 4\.3 4\.3 Cobertura de Agua Potable 96% 96% 96% 96% 96% 96% Conexiones de Alcantaillado 45,532 46,326 47,133 47,955 48,791 49,501 Cobertura de Alcantanllado 81% 80% 80% 79% 79% 78% ZONA METROPOLITANA DE GUADALAJARA (ZMG) SISTEMA INTERMUNICIPAL DE AGUA POTABLE Y ALCANTARILLADO (SIAPA) La Comisi6n Nacional del Agua realiz6 en 1993 el Plan Maestro para el Mejorarniento de los Servicios de Agua Potable, Alcantarillado y Saneamiento para la Zona Metropolitana de Guadalajara, Jalisco, donde se determin6 la situaci6n actual y las necesidades futuras de mejoramiento del sistema\. Las inversiones totales realizadas a la ZMG a traves del Programa APAZU en el periodo 1995-2000 ascienden a $566\.5 MDP, de lo que $270\.5 MDP son origen federal, $243\.4 MDP de recursos estatales, $51\.9 MDP de recursos de GIC y s6lo $0\.7 MDP de origen crediticio\. -43-  En cuanto a las inversiones realizadas para obras y acciones de agua potable a traves del Programa APAZU en la ZMG, durante el periodo 1995-1999 se ejercieron recursos por un total de $119\.09 MDP, de los cuales 51\.15 MDP fueron de origen federal (42\.95%), con lo que se benefici6 a una poblaci6n de 280,000 habitantes\. Las principales obras realizadas con dichos son las siguientes: Interconexi6n de la Planta Potabilizadora N° 1 a la Planta Potabilizadora N°2; rehabilitaci6n de la Planta Potabilizadora N° 1; obras de mejoramiento de la eficiencia y reforzamiento del suministro de agua potable mediante a perforaci6n, rehabilitaci6n y equipamiento de pozos profundos\. Alcantarillado - Las inversiones realizadas en alcantarillado durante el periodo 1995-1999, ascendieron a $91\.78 MDP, correspondiendo $40\.04 MDP a recursos federales (43\.6%)\. Con estos recursos se realizaron obras para beneficio de 1'01 1,695 habitantes, destacando las siguientes: construcci6n del colector Arroyo Seco para el Saneamiento Integral de la Cuenca del Ahogado, asi como la construcci6n y ampliaci6n de redes de alcantarillado sanitario en 27 colonias\. El efecto de las inversiones en el comportamiento del Organismo Operador SIAPA ha sido el siguiente: Coberturas de la Zona Metropolitana de Guadalajara, Jalisco Conceptos 1995 1996 1997 1998 1999 2000 Poblaci6n 3,461,819 3,505,614 3,549,962 3,594,872 3,640,350 3,680,792 Ocupantes viviendas particulares 3,446,370 3,489,837 3,533,853 3,578,424 3,623,557 3,663,707 Total de viviendas ocupadas 718,252 736,489 755,190 774,365 794,027 809,439 Tomas de Agua Potable 647,252 669,236 702,086 736,549 772,703 757,171 Indice de Hacinamiento 4\.82 4\.76 4\.70 4\.64 4\.58 4\.55 Cobertura de Agua Potable 90% 91% 93% 95% 97% 94% Conexiones de Alcantarillado 582,658 590,992 599,446 608,021 616,718 624,330 Cobertura de Alcantarillado 81% 80% 79% 79% 78% 77% CIETUMAL, QUINTANA ROO COMISION ESTATAL DE AGUA POTABLE Y ALCANTARILLADO (CEAPA) La Comisi6n Nacional del Agua realiz6 en 1992 el Plan Maestro para el Mejoramiento de los Servicios de Agua Potable, Alcantarillado y Saneamiento para la Ciudad de Chetumal, Quintana Roo, Tamaulipas, donde se determin6 la situaci6n actual y las necesidades futuras de mejoramiento del sistema\. Saneamiento - En 1997 la localidad contaba con una cobertura de alcantarillado del 11%, realizandose el saneamiento de las aguas en cuatro plantas de tratamiento (FOVISSSTE V y VI, Payo Obispo y Santa Maria), las que en conjunto trataban 42 lps y operaban con una eficiencia promedio entre el 40 y el 80%\. Las aguas residuales son dispuestas en su mayoria en fosas septicas, asi como las tomas clandestinas que estan conectadas al drenaje pluvial, implican en conjunto una grave amenaza de contaminaci6n de los acuiferos de la ciudad y de la Bahia de Chetumal\. La CNA elabor6 en 1996 el proyecto ejecutivo para el saneamiento de la localidad, en donde se concluy6 que era necesaria la construcci6n de una planta de tratamiento de aguas residuales y un emisor para un gasto total de 360 lps, con lo que se daria soluci6n a - 44 -  esta problemAtica\. En 1997 y 1998 se llevo a cabo la construcci6n en una primera etapa de la planta de tratamiento Centenario, para un gasto de operaci6n de 120 lps\. Esta obra se realiz6 con recursos 100% federales del programa APAZU, que en total ascendieron a $19\.286 millones de pesos\. La planta Centenario entro en operacion en mayo de 1999, la que trata actualmente un gasto de 39 lps\. En ese mismo ailo se realizaron inversiones del programa APAZU, para la conexi6n de viviendas al alcantarillado sanitario por un monto de $2\.689 millones de pesos, correspondiendo 29\.6% a recursos federales y el 70\.4% restante a recursos del Estado\. En conclusi6n estas obras tuvieron un costo total de $21\.18 millones de pesos, estructurados por 20\.081 MDP de aportaci6n federal y el saldo a traves del Gobierno del Estado (1\.099 MDP)\. Las inversiones totales realizadas a la ciudad de Chetumal a traves del Programa APAZU en el periodo 1995-2000 ascienden a $83\.3 MDP, de los que $52\.3 MDP son origen federal, $6\.8 MDP de recursos estatales, $21\.4 MDP de recursos de GIC y s6lo $2\.1 MDP de origen crediticio\. El efecto de las inversiones en el comportamiento del Organismo Operador CEAPA ha sido el siguiente: Coberturas de la Ciudad de Chetumal, Quintana Roo Conceptos 1995 1996 1997 1998 1999 2000 Pobiaci6n 202,046 203,240 204,440 205,648 206,863 208,014 Ocupantes viviendas particulares 200,806 202,008 203,218 204,435 205,659 206,818 Total de viviendas ocupadas 44,931 45,783 53,262 61,964 72,086 49,192 Tomas de A\.P\. 36,957 38,289 39,669 41,099 42,580 43,617 Indice de Hacinamiento 4\.50 4\.44 3\.84 3\.32 2\.87 4\.20 Cobertura de A\.P\. 82% 84% 74% 66% 59% 89% Conexiones de Alcantarillado 3,863 4,733 5,769 7,033 8,572 8,984 Cobertura de Alcantarillado 9% 10% 11% 11% 12% 18% CULIACAN, SINALOA (JUMAPA) La Junta Municipal de Agua Potable y Alcantarillado de Culiac6n, estuvo apoyada en el periodo de 1996-2000 a traves del Programa APAZU con subsidios federales en el orden de 12 millones de pesos, con lo que se increment6 la cobertura de agua potable y alcantarillado, permitiendo al organismo operador invertir con recursos propios en obras y acciones de mejoramiento de la eficiencia\. Se implement6 un programa denominado "Proceso de Mejora Continua" con lo cual se ha obtenido un servicio mAs eficiente al usuario a traves de la obtenci6n de una mayor productividad de su sistema t6cnico-operacional, comercial y administrativo\. Este programa esta dividido en cuatro proyectos\. Proyecto de Recuperaci6n de caudales\.- Este programa tiene como objetivo detectar y reparar fugas existentes en las redes principales\. Proyecto de Mejoramiento de Eficiencia electrica\.- El objetivo de este programa es el de reducir el impacto -45 -  de la incidencia de la energia electrica en los costos operacionales del organismo, por consumo de los equipos electromecanicos\. Proyecto, Sistema de Atenci6n Telef6nica\.- Este sistema se encarga de dar atenci6n por telefono de manera eficaz y rapida las 24 horas durante 365 dias al afio, proporcionandole al usuario un servicio eficaz en materia de reparaci6n de fugas y reportes de problemas en las redes de agua potable y alcantarillado sanitario, reconexiones de servicio, aclaraciones y convenios\. Proyecto, Disminucion del Agua no Contabilizada\.- Este proyecto consisti6 en Ilegar hasta el 100% de micromedici6n con un proceso de la toma de lectura automatizado a traves de computadoras portatiles, reduciendo el minimo de errores a la vez de una disminuci6n del tiempo con respecto de los procedimientos manuales\. El efecto de las inversiones en el comportamiento del Organismo Operador ha sido el siguiente: Coberturas de la Ciudad de Culiacan, SIN Conceptos 1995 1996 1997 1998 1999 2000 Poblaci6n 696,262 705,981 715,836 725,829 735,961 744,859 Ocupantes vivicndas particulares 690,916 700,804 710,833 721,006 731,324 740,355 Total de viviendas ocupadas 146,121 153,243 160,713 168,547 176,762 181,733 Tomas de Agua Potable 129,947 136,780 143,972 151,543 159,511 170,945 Indice de Hacinamiento 4\.76 4\.61 4\.45 4\.31 4\.16 4\.10 Cobertura de Agua Potable 89% 7 89% 90% 90% 90% 94% Conexiones de Alcantarillado 115,215 118,364 121,599 124,922 128,336 130,959 Cobertura de Alcantarillado 79% 77% 76% 74% 73% 72% REYNOSA, TAMAULIPAS COMISION MUNICIPAL DE AGUA POTABLE Y ALCANTARILLADO (COMAPA) La Comisi6n Nacional del Agua realiz6 en 1996 el Plan Maestro para el Mejoramiento de los Servicios de Agua Potable, Alcantarillado y Saneamiento para la Ciudad de Reynosa, Tamaulipas, donde se determin6 la situaci6n actual y las necesidades futuras de mejoramiento del sistema\. Asimismo para el ano de 1998, se realiz6 el estudio para la Localizaci6n y Recuperaci6n de Perdidas en el Sector Granjas del Sistema de Agua Potable en Reynosa\. Antecedentes En 1996 esta localidad registraba una poblaci6n aproximada de 365,000 habitantes, y sus fuentes generaban un gasto total de 45\.13 millones de m3 anuales (1,336 lps); en agua potable el municipio tenia una cobertura de 91% y del 57% en alcantarillado; sin embargo, se presentaban fuertes problemas de fugas en las redes de distribuci6n, en las tomas domiciliarias y en todo el sistema (41%), por lo que el organismo operador recurri6 a la CNA en busca de apoyo para resolver esta problematica\. La CNA, atendiendo la solicitud del organismo operador, sugiri6 se instrumentara un programa de recuperaci6n de volumenes perdidos por fugas tanto en la red de distribuci6n como en tomas domiciliarias\. - 46 -  Asimismo se puso en operaci6n el programa de transferencia de tecnologia en materia de recuperacion y control de fugas realizado por el Instituto Mexicano de Tecnologia del Agua (IMTA, 1990), con lo cual se obtuvieron los siguientes resultados: Fugas en la red de distribuci6n 8%, fugas en tomas domiciliarias 15\.2%, agua no contabilizada 17\.8% y fugas totales del sistema 41\.1%\. De los resultados arrojados por el estudio de fugas, se determin6 poner en practica la metodologia de recuperacion de fugas por sectores, con lo cual se logr6 la recuperaci6n de 25 lps y una facturaci6n de 2\.29 millones de pesos en el primer afno\. Adicionalmente, otro resultado importante fue que el personal del organismo operador qued6 capacitado para continuar con los trabajos de recuperaci6n y control de fugas en sus redes de distribuci6n, y asi tener mayor recuperaci6n de recursos para obras prioritarias\. Situaci6n Actual y Logros Alcanzados Cabe seinalar que las inversiones realizadas a traves del APAZU desde 1996 al 1998 para esta localidad ascienden a $64\.0 millones de pesos, de los cuales 31\.7 MDP fueron aportaciones de recursos federales y el resto de recursos de contraparte estatal, crediticia y de GIC\. Durante los anios 1999 y 2000 no se han canalizado recursos del APAZU a esta localidad\. Con los recursos invertidos en obras y acciones de mejoramiento de la eficiencia, agua potable y alcantarillado, el comportamiento de las coberturas se ha mantenido constante durante el periodo 1995-2000 en 91% de agua potable; asi mismo, la cobertura de alcantarillado ha ido en aumento, ya que en 1995 se registr6 una cobertura del 56% llegando al 63% en el aiio 2000 (1% al afio)\. El efecto de las inversiones en el comportamiento del Organismo Operador COMAPA ha sido el siguiente: Coberturas de la Ciudad de Reynosa, Tamaulipas Conceptos 1995 1996 1997 1998 1999 2000 Poblaci6n 337,053 353,598 370,954 389,163 408,265 419,776 Ocupantes viviendas particulares 334,879 351,433 368,684 386,781 405,767 417,651 Total de viviendas ocupadas 79,941 84,453 88,599 92,948 97,510 102,503 Tomas de A\.P\. 73,120 76,930 80,706 84,667 88,823 92,168 Indice de Hacinamiento 4,22 4\.19 4\.19 4\.19 4\.19 4\.07 Cobertura de A\.P\. 91% 91% 91% 91% 91% 90% Conexiones de Alcantarillado 44,959 48,126 51,517 55,146 60,796 65,079 Cobertura de Alcantarillado 56% 57% 58% 59% 62% 63% DZEMUL, YUCATAN La localidad de Dzemul en el Estado de Yucatan tenia en 1995 una poblaci6n de 2935 habitantes, y contaba con un sistema de agua potable deficiente, y como consecuencia proporcionando un mal servicio con baja presion en general y un consumo promedio de 120 Ihd\. -47 -  Bajo esta situaci6n, con apoyo del programa APAZU se desarrollo un proyecto para consolidar al organismo operador con acciones de reforzamiento de la red y seccionamiento, rehabilitaci6n del equipo electromecanico rehabilitaci6n de medidores, micromedici6n, rehabilitaci6n del tanque elevado y la actualizaci6n del padr6n de usuarios\. Con las acciones de mejoramiento se alcanzaron niveles de eficiencia, como pasar de un 90% a 95% incluyendo el aumento de poblaci6n que lleg6 a 3139 habitantes, se mantuvo el 100% en agua desinfectada, se despego de 0 a 90% en tomas con presi6n dentro de norma, la cobertura de micromedici6n aument6 del 72% al 85%, se abati6 el porcentaje del 20% al 5% en medidores descompuestos, y el agua no contabilizada se bajo del 68% al 30%\. Como resultados adicionales la poblaci6n se ha sensibilizado al pago del servicio, se han abatido las perdidas comerciales y fisicas, se ha incrementado la eficiencia administrativa y tecnica, ademas de que las tarifas no se han incrementado\. Las acciones han sido sostenidas durante 5 anlos a partir de 1996, con un total de inversi6n de 2 millones de pesos\. El efecto de las inversiones en el comportamiento del Organismo Operador ha sido el siguiente: Coberturas de la Ciudad de Dzemul, YUC Conceptos 1995 1996 1997 1998 1999 2000 Poblaci6n 2,935 2,976 3,017 3,059 3,102 3,139 Ocupantes viviendas particulares 2,935 2,976 3,017 3,059 3,102 3,139 Total de viviendas ocupadas 775 780 785 791 796 801 Tomas de Agua Potable 586 618 651 686 723 744 Indice de Hacinamiento 3\.79 3\.81 3\.84 3\.87 3\.90 3\.92 Cobertura de Agua Potable 76% 790ho 83% 87% 91% 93% Conexiones de Alcantaillado 175 184 194 205 216 N\.D\. Cobertura de Alcantanillado 23% 24% 25% 26% 27% N\.D\. PROGRESO, YUCATAN La ciudad de Progreso en 1995 contaba con una poblaci6n de 43,892 habitantes, con un sistema de agua potable deficiente, lo que generaba un escaso control de volumenes de agua entregada, asi como la distribuci6n a la poblaci6n\. Se tuvo acceso al Programna APAZU, iniciando con la elaboraci6n de un Plan Maestro, con el cual se diagnostic6 y se plante6 como prioridad consolidar al Organismo Operador con acciones consistentes en macromedici6n, micromedici6n, rehabilitaci6n de tomas, rehabilitaci6n de equipo electromecanico, adquisici6n de equipo de computo, rehabilitaci6n de medidores, sistema contable, sistema de recursos humanos, sistema de informaci6n, actualizaci6n del padr6n de usuarios y reforzamiento de la red y seccionamiento\. Con las acciones anteriores se logr6 que la cobertura de agua potable ascendiera del 87% al 95% considerando el aumento demografico, que la desinfecci6n del agua se mantuviera en el 100%, que las tomas con presion dentro de la norma tuviera un movimiento del 20% al 60%, que la macromedici6n en abastecimientos se desplazara del 18% al 100%, que en cobertura de micromedici6n se obtuviera un aumento del 59% al 70%, - 48 -  que se avanzara en mnedidores descompuestos del 67% al 10%, y que el agua no contabilizada se redujera del 69% al 40%\. Hay mejoras que no estan dentro de estas sujetas a estas mediciones, pero que si se perciben, como que la poblaci6n este sensibilizada al pago del servicio y al buen uso del agua, a no incrementar el precio de las tarifas, al abatimiento de las perdidas comerciales, asi como el incremento de la eficiencia administrativa y tecnica\. - 49 -  (b) Cofinanciers: Not applicable (c) Other partners (NGOs/private sector): Not applicable 10\. Additional Information Table 1\. Sector Investments 1995-1999\. Sources of Funds $M (current) millions Year Total APAZU Program $M $ $M $ % of Total 1995 2,244 349\.6 247 38\.0 10\.9 1996 1,745 229\.6 862 112\.1 48\.8 1997 2,410 304\.3 1,430 179\.8 59\.1 1998 2,610 285\.6 793 85\.8 30\.0 1999 2,741 _ 286\.8 742 76\.6 26\.7 Total 11,750 1,455\.9 4,084 492\.3 34\.8 Table 2\. Sources of Funds 1995-1999 $M (current) millions Source of Funds Total Sector APAZU Non APAZU Investments Investments Programs $ %$ %$ % Federal Government 6,336 54 1,901 46 4,435 58 State & Local Gov\. 2,735 23 927 23 1,808 23 Credits to WS 1,123 10 689 17 434 6 Internal Cash 1,556 13 567 14 989 13 Generation Total 11,750 100 4,084 100 7,666 100 - 50-  Table 3\. Evolution of Service Levels 1995-1999 a/ Coverage %; [million peoplel Sub-Sector Water Supply Sewerage Waste Treatment b/ 1995 1999 1995 1999 1995 1999 Rural Areas 61 66 30 33 [14\.7] [16\.91 [7\.1] [8\.6] Urban Areas 93 95 87 87 (469) (777) [62\.0] [68\.1] [58\.6] [62\.6] Medium Size 9 1 75 Cities 97 93 Large Cities Country 84 87 72 73 41\.7 b/ 42\.4 b/ [76\.7] [85\.0] [65\.7] [71\.2] [15\.3 %] [13\.7%] Incremental Population Served 1995- 1999 Rural Areas 2\.2 1\.5 Urban Areas 6\.1 4\.0 Total 8\.3 5\.5 a/\. Source: CNA\. Situaci6n del Subsector Agua Potable, Alcantarillado y Saneamiento a Diciembre 1999\. b/\. Treated waste flows in m3/sec\. In parenthesis, number of waste treatnent plants in operation; in brackets, treated flows as a percentage of water produced\. Table 4\. Evolution of CETES Rates - in % -1994-1999 Indicator 1994 1995 1996 1997 1998 1999 CETES Rates Annual Average 14\.1 48\.4 31\.4 19\.8 24\.8 21\.4 Consumer Price Index a! 74\.1 100\.0 134\.4 161\.6 184\.0 211\.0 Yearly Variation % -- 13\.4 34\.4 20\.2 13\.9 14\.7 a/ Source IMF\. - 51 -  Annex 1\. Key Performance Indicators/Log Frame Matrix 1994 1995 1996 1997 1998 1999 _Estim\. Actual EstUm\. Actual Estim\. Actual Estim\. Actual Actual Actual Service Increase (Sector Monitong Indicators) Water Connections (thousands) 500 450\.7 500 589\.3 500 497\.5 500 582\.1 377\.5 589 Sewerage Connections (thousands) 600 417\.8 600 433\.5 600 356\.6 600 251\.1 326\.3 443 Waste water treated m31sechyear 70 32\.1 90 41\.7 115 33\.7 135 39\.4 40\.9 42\.4 Percentage of chlonnated water 96\.0% 96\.0% 97% 94\.1% 97% 94\.6% 97% 94\.9% 93\.4% 92\.7% Percentage of metered connections 60 \. 70 75 80 Percentage Municip\. in Compliance w/Particular Standards 30 41 56 76 Accummulate Connections (thousands) 417\.8 __ 1,040\.0 1207\.9 1,459\.00 2,497\.10 2,228\.50 Water Coverage 82\.2% 84\.2% 85\.0% 85\.7% 86\.4% 87\.4% Accumulate Connections (thousands) 417\.8 851\.3 1,537\.4 0 1,785\.3 2,228\.3 Sewerage Coverage 65\.7% 72\.1% 72\.4% 72\.4% 72\.4% 73\.1% Training (Project Monitoring Indicators) Number of Trainees 1,100, 1,150 ___ 3__ - 1 -3-0 Credit Hours Per Class/Year 1,920 2,000 _ 2,400 2,400 NumberofWusAffected 130 _ _ 150 _ 170 190 Trained People 6,642 123 - 427 -2941 0 Number of Operators Involved 2,391 52 201 1,176 0 Consolidation (Project Monitoring Indicators) Master Plans L 30 10 15 3 10 36 21 17 2 Legislative Changes of State Agencies 6 1 _ 6 4 Commercial Improvements 50 40 30 30 Operational Improvement 40 40 30 = 30 Administrative Improvement 30 30 20 20 Memoranda of Understanding 60 50 40 40 \.Subsidy (Project Monitoring Indicators) I Lowering of Subsidy (Million of US$) 67 64 60 51 - 52 -  Annex 2\. Project Costs and Financing Project Cost by Component (in US$ million equivalent) ,,p l t\.;\.t,al/Latesit 'Percentage of Estimate Estiat Appraisal Projo Cost My o\.pnn $mlo LJS$ mlin ______ A\. Investment Support to Local Water Utilities Water Supply & Sewerage Works 614\.10 326\.80 53\.21 Studies & Design 43\.00 Institutional Support for Water Utilities 12\.30 14\.80 120\.32 Preparation of MPs & ELAs Help w/"CONSOLIDATION" B\. Strengthening Sectoral Federal Institutions 27\.50 1\.50 5\.45 CNA Institutional Strengthening Technical Assistance to WUs Water Quality Program IMTA Institutional Strengthening Technical Assistance to WUs BANOBRAS 3\.10 0\.05 1\.61 Institutional Strengthening C\. Emergency Civil Works and Consultant Services 60\.00 49\.80 83 Total Baseline Cost 760\.00 392\.95 Total Project Costs 760\.00 392\.95 Total Financing Required 760\.00 392\.95 Project Costs by Procurement Arrangements (Appralsal Estimate) (US$ million equivalent) Expenditure C\.ategory ; ! AB ;; Total Cost 1\. Works 75\.80 496\.90 22\.10 0\.00 594\.80 (34\.10) (223\.60) (9\.90) (0\.00) (267\.60) 2\. Goods 15\.50 49\.00 24\.00 2\.80 91\.30 (7\.00) (22\.10) (10\.80) (0\.00) (39\.90) 3\. Services 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 4\. Miscellaneous 0\.00 0\.00 5\.30 0\.00 5\.30 (0\.00) (0\.00) (4\.80) (0\.00) (4\.80) 5\. Miscellaneous 0\.00 0\.00 23\.60 32\.00 55\.60 (0\.00) (0\.00) (21\.20) (0\.00) (21\.20) - 53-  6\. Miscellaneous 0\.00 0\.00 18\.40 4\.60 23\.00 (0\.00) (0\.00) (16\.50) (0\.00) (16\.50) Total 91\.30 545\.90 93\.40 39\.40 770\.00 (41\.10) (245\.70) (63\.20) (0\.00) (350\.00) Project Costs by Procurement Arrangements (Actual/Latest Estimate) (US$ million equivalent) Procurmen Metho 0; iExpenditure Category ; j;; < fKtIlj0 j -i;^> Fth; IB N\.a\.F\. Total Cost 1\. Works 0\.28 275\.38 0\.00 0\.00 275\.66 (0\.14) (137\.69) (0\.00) (0\.00) (137\.83) 2\. Goods 2\.54 17\.02 0\.00 0\.00 19\.56 (1\.27) (8\.51) (0\.00) (9\.78) 3\. Services 0\.00 0\.00 17\.01 17\.01 (0\.00) (0\.00) (17\.01) (0\.00) (17\.01) 4\. Miscellaneous 0\.00 0\.00 80\.72 80\.72 (0\.00) (0\.00) (64\.23) (0\.00) (64\.23) 5\. Miscellaneous 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) 6\. Miscellaneous 0\.00 0\.00 0\.00 0\.00 0\.00 (0\.00) (0\.00) (0\.00) (0\.00) (0\.00) Total 2\.82 292\.40 97\.73 0\.00 392\.95 (1\.41) (146\.20) (81\.24) (0\.00) (228\.85) "Figures in parenthesis are the amounts to be financed by the Bank Loan\. All costs include contingencies\. t Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units\. Project Financing by Component (in US$ million equivalent) A\. Investment Support to Local Water Utilities Water Supply & Sewerage 301\.10 313\.00 163\.40 163\.40 54\.3 52\.2 Works Studies & Design 21\.10 21\.90 0\.0 0\.0 Institutional Support for 4\.20 8\.10 14\.80 352\.4 0\.0 Water Utilities Preparation of MPs & ElAs Help wl "CONSOLIDATION" - 54 -  B\. Strengthening Sectoral 22\.40 5\.00 1\.50 6\.7 0\.0 Federal Institutions CNA Inst\. Strengthening Tech\.Assistance to WUs Water Quality Program IMTA Inst\. Strengthening Tech\.Assistance to WUs BANOBRAS 1\.20 1\.90 0\.05 4\.2 0\.0 Inst\. Strengthening C\. Emergency Civil Works 60\.00 49\.15 81\.9 and Consultant Services - 55-  Annex 3\. Economic Costs and Benefits As explained in the main text, Economic Costs and Benefits of the project or subprojects were not calculated at appraisal\. Comments on Economic Costs and Benefits are provided in the main text\. - 56 -  Annex 4\. Bank Inputs (a) Missions: Stage of Project Cycle No\. of Persons and Specialty Performance Rating (e\.g\. 2 Economists, 1 FMS, etc\.) Implementation Development Month/Year Count \. Specialty Progress Objective Identification/Preparation December/92 6 2 Financial Analysts, 2 Sanitary Engineers, 1 Economist, I Environmental Specialist July/93 6 2 Financial Analysts, 3 Sanitary Engineers, I Economist Appraisal/Negotiation October/93 6 1 Financial Analyst, 1 Sanitary Engineer, 1 Economist 1 Environmental Specialist, 2 Engineers October/94 2 1 Financial Analyst, I Engineer January/95 1 1 Water & Sanitation Specialist Supervision October/95 3 1 Water & Sanitation S S Specialist, 1 Operation Analyst, l Sanitary Engineer March/96 3 1 Water & Sanitation Specialist, S S 1 Financial Analyst, 1 Operation Analyst August/96 5 1 Water & Sanitation Specialist, S U 2 Financial Analysts, I Procurement Specialist, I Operation Analyst May/97 5 1 Water & Sanitation Specialist, S S I Financial Analyst, I Operations Analyst, I Procurement Speciaist, 1 Water Resources Engineer February/98 4 1 Water & Sanitation Specialist, S S I Procurement Specialist, I Engineer, I Operation Specialist, June/98 3 1 Water & Sanitation Specialist, S S I Procurement Specialist, I Engineer November/98 3 1 Water & Sanitation Specialist, S S 1 Procurement Specialist, 1 Engineer March/99 3 1 Water & Sanitation Specialist, S S I Engineer, 1 Financial Specialist August/99 2 1 Sr\.Procurement Specialist, I U U Procurement Specialist - 57 -  ICR August/00 4 1 Water & Sanitation U U Specialist, 1 Procurement Specialist, 2 Engineers December/00 2 1 Water & Sanitation Specialist, U U 1 Engineer (b) Staff\. Stage of Project Cycle A uAct/Latest Estimate\. No\. Staff weeks US$ ('000) Identification/Preparation 16\.4 47\.1 Appraisal/Negotiation 88\.3 260\.8 Supervision 157\.1 502\.2 ICR 12\.0 64\.0 Total 273\.8 874\.1 - 58 -  Annex 5\. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligib1e, NA=Not Applicable) Rating Z Macro policies O H OSU*M O N O NA Z SectorPolicies OH OSUOM ON O NA Z Physical O H OSUOM O N O NA 3 Financial O H OSUOM * N O NA i Institutional Development 0 H O SU *M O N 0 NA Z Environmental O H OSUOM * N O NA Social Z Poverty Reduction OH OSU*M ON O NA L Gender O H OSUOM O N * NA E Other (Please specify) O H OSUOM O N * NA Z Private sector development 0 H O SU O M 0 N 0 NA [J Public sector management O H 0 SU O M O N 0 NA O Other (Please specify) O H OSUOM O N * NA - 59-  Annex 6\. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HUU=Highly Unsatisfactory) 6\.1 Bank performance Rating L Lending OHS*S OU OHU O Supervision OHS OS *U OHU O Overall OHS OS *U O HU 6\.2 Borrowerperformance Rating Oi Preparation O HS S Lu O HU El Government implementation performance 0 HS 0 S * U 0 HU El Implementation agency performance O HS O s * U O HU a Overall OHS OS * U O HU - 60 -  Annex 7\. List of Supporting Documents 1\. Mexico\. Second Water Supply and Sanitation Sector Project: Staff Appraisal Report Minutes of Negotiations Loan Agreement Supervision Reports Expost Procuremnet audits 2\. CNA\. Participacion Privada en la Prestacion de los Servicios de Agua Potable Alcantarillado y Saneamiento 3\. CNA\. Situacion del Subsector Agua Potable, Alcantarillado y Saneamiento 1995 and 1999 4\. World Bank\. Mexico: A comprehensive Development Agenda for the new era\. Chapter 26 Water 5\. CNA\. Ley de Agua Nacionales y su Reglamento - 61 -  - 62 -  IBRD 25397 MEXICO °*° & ~ Z>tes SECOND WATER SUPPLY AND SANITATION PROJECT \., SAJA + 4filW > / Nognins - o \.Jl; , Ju6r* c8CALRrORNU C, 1 ,2 ; X t %< 30- -°9XbX\-0~~~~~~~~~~~~~~ 0f A'k h -'A soe gopeek M- \.I~~~~~~~~~~~~~~~~~~~; x ~~IyrotBl I itogoa PA Cl F C 0-c' E A /VloLo-DGR- /cc k d - >4/n B Durongo~~~~~~Cllk-~ "M" 'MinF\. ',, '> :':' \./f of f M ; ChilpUllCI fi < <'H/A'io\. BELIZE : F f $ = f " t'4 \. \. " ;- X i @ W " X " ,','j " , ;' < 1 G U A E M A t >, | | : \. XG U Aj HOND U 8\.4255~~~~~~~~~~~~~~~~~~~~~ 314 $ =P 4 So LsPolNDURApS V rnn\.st\. NVEMER-99

REVIEW

P082996

Document of The World Bank Report No: ICR0000542 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-46320 IBRD-46330) ON A LOAN IN THE AMOUNT OF US$1 BILLION TO THE REPUBLIC OF TURKEY FOR A THIRD PROGRAMMATIC FINANCIAL AND PUBLIC SECTOR ADJUSTMENT LOAN March 17, 2008  TURKEY - GOVERNMENT FISCAL YEAR January 1 ­ December 31 CURRENCY EQUIVALENTS (Exchange Rate Effective as of March 20, 2008) Currency Unit New Turkish Lira (YTL) US$ 1\.00 1\.2379 YTL YTL 1\.00 0\.81 US$ Weights and Measures Metric System ABBREVIATIONS AND ACRONYMS ARIP Agricultural Reform Implementation Project LIBOR London Interbank Offered Rate ASCU Agriculture Sales Cooperative Union LLP Loan Loss Provisioning BIDP BRSA Institutional Development Plan MARA Ministry of Agriculture and Rural Affairs BOT Build-Operate-Transfer MASAK Financial Crimes Investigation Board BRSA Banking Regulation and Supervision Agency MOF Ministry of Finance BYES Budget Management Information System MOH Ministry of Health CAR Capital Adequacy Ratio MONE Ministry of National Education CAS Country Assistance Strategy NBFI Non-bank Financial Institutions CATAK Environmental Set-aside Program NGO Non-Governmental Organization CBT Central Bank of Turkey NPL Non-Performing Loans CEM Country Economic Memorandum OECD Organization for Economic Cooperation and Development CFAA Country Financial Accountability Assessment PA Privatization Administration CMB Capital Markets Board PPA Public Procurement Agency CPAR Country Procurement Assessment Review PEIR Public Expenditure and Institutional Review CPI/WPI Consumer Price Index/Wholesale Price Index PEM Public Expenditure Management DFIF Support Price Stabilization Fund PFMC Public Financial Management and Control DGF Directorate General of Foundations PFMP Public Financial Management Project DIS Direct Income Support PFPSAL Programmatic Financial and Public Sector Adjustment Loan EAP East Asia and Pacific PFSAL Programmatic Financial Sector Adjustment Loan EBA Execution and Bankruptcy Act PIP Public Investment Program EBF Extra-budgetary Funds PIR Public Investment Review ECA Europe and Central Asia PIT/CIT Personal Income Tax/Corporate Income Tax EFIL Export Finance Intermediation Loan PPSAL Programmatic Public Sector Adjustment Loan EMBI+ Emerging Markets Bond Index Plus PSSP Privatization Social Support Project EPF Vakif Bank Employee Pension Fund REER Real Effective Exchange Rate ERL Economic Reform Loan SAI Supreme Audit Institution EU European Union SCT Special Consumption Tax FDI Foreign Direct Investment SDIF Savings Deposit Insurance Fund FIAS Foreign Investment Advisory Service SEE State Economic Enterprise FSAL Financial Sector Adjustment Loan SIS State Institute of Statistics FX Foreign Exchange SME Small and Medium Scale Enterprise FY Fiscal Year SOE State-owned Enterprise GDF General Directorate of Foundations SPO State Planning Organization GDP/GNP Gross Domestic Product/Gross National Product SRMP Social Risk Mitigation Project  GDR General Directorate of Revenues SSAL Special Structural Adjustment Loan GFS Government Finance Statistics SSF Social Solidarity Fund HPC High Planning Council SSI Social Security Institutions HR Human Resources TCA Turkish Court of Accounts IAIS International Association of Insurance TESEV Foundation for Economic and Social Supervisors Studies IAS International Accounting Standards TKB Turkish Development Bank IBRD International Bank for Reconstruction and TL Turkish Lira Development IDF Institutional Development Fund TIN Taxpayer Identification Number IFC International Finance Corporation TSKB Turkish Industry Development Bank IMF International Monetary Fund UAP Urgent Action Plan IOSCO International Organization of Securities UNCITR United Nations Commission on Commissions AL International Trade Law ISE Istanbul Stock Exchange VAT Value Added Tax LAC Latin America and the Caribbean VB Vakif Bank LDP Letter of Development Policy WB World Bank Vice President: Shigeo Katsu Country Director: Ulrich Zachau Sector Manager: Bernard Funck Task Team Leader: Rodrigo A\. Chaves ICR Team Leader: Mediha Agar Authors: Mediha Agar ­­ Oscar Calvo-Gonzalez  COUNTRY Operation Name CONTENTS Data Sheet A\. Basic Information B\. Key Dates C\. Ratings Summary D\. Sector and Theme Codes E\. Bank Staff F\. Results Framework Analysis G\. Ratings of Program Performance in ISRs H\. Restructuring 1\. Program Context, Development Objectives and Design \. 1 2\. Key Factors Affecting Implementation and Outcomes \. 7 3\. Assessment of Outcomes\. 12 4\. Assessment of Risk to Development Outcome\. 21 5\. Assessment of Bank and Borrower Performance \. 21 6\. Lessons Learned\. 26 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners\. 28 Annex 1 Bank Lending and Implementation Support/Supervision Processes\. 29 Annex 2\. Beneficiary Survey Results\. 39 Annex 3\. Stakeholder Workshop Report and Results\. 40 Annex 4\. Summary of Borrower's ICR and/or Comments on Draft ICR\. 41 Annex 5\. Comments of Cofinanciers and Other Partners/Stakeholders\. 53 Annex 6\. List of Supporting Documents \. 54 MAP  A\. Basic Information Program 1 Programmatic Financial & Public Sector Country Turkey Program Name Adjustment Loan (PFPSAL) IBRD-46320,IBRD- Program ID P070561 L/C/TF Number(s) 46330 ICR Date 04/23/2008 ICR Type Core ICR Lending Instrument PSL Borrower GOVT\. OF TURKEY Original Total USD 1,100\.0M Disbursed Amount USD 1,100\.0M Commitment Implementing Agencies Undersecretariat of Treasury Cofinanciers and Other External Partners Program 2 Programmatic Financial & Public Sector Country Turkey Program Name Adjustment Loan 2 (PFPSAL 2) IBRD-46560,IBRD- Program ID P070560 L/C/TF Number(s) 46570 ICR Date 04/23/2008 ICR Type Core ICR GOVERNMENT OF Lending Instrument PSL Borrower TURKEY Original Total USD 1,350\.0M Disbursed Amount USD 450\.0M Commitment Implementing Agencies Undersecretariat of Treasury Cofinanciers and Other External Partners Program 3 Programmatic Financial & Public Sector Country Turkey Program Name Adjustment Loan 3 (PFPSAL 3) Program ID P082996 L/C/TF Number(s) IBRD-72330 ICR Date 04/23/2008 ICR Type Core ICR REPUBLIC OF Lending Instrument PSL Borrower TURKEY i  Original Total USD 1,000\.0M Disbursed Amount USD 1,000\.0M Commitment Implementing Agencies Undersecretariat of Treasury Cofinanciers and Other External Partners B\. Key Dates Programmatic Financial & Public Sector Adjustment Loan (PFPSAL) - P070561 Process Date Process Original Date Revised / Actual Date(s) Concept Review: 05/04/2001 Effectiveness: 07/17/2001 07/17/2001 Appraisal: 05/21/2001 Restructuring(s): Approval: 07/12/2001 Mid-term Review: Closing: 12/31/2001 12/31/2001 Programmatic Financial & Public Sector Adjustment Loan 2 (PFPSAL 2) - P070560 Process Date Process Original Date Revised / Actual Date(s) Concept Review: 05/04/2001 Effectiveness: 08/15/2002 08/15/2002 Appraisal: 01/14/2002 Restructuring(s): Approval: 04/16/2002 Mid-term Review: Closing: 12/31/2002 06/30/2003 Programmatic Financial & Public Sector Adjustment Loan 3 (PFPSAL 3) - P082996 Process Date Process Original Date Revised / Actual Date(s) Concept Review: 04/04/2003 Effectiveness: 07/01/2004 07/01/2004 Appraisal: 05/02/2003 Restructuring(s): Approval: 06/17/2004 Mid-term Review: Closing: 06/30/2005 06/30/2006 C\. Ratings Summary C\.1 Performance Rating by ICR Programmatic Financial & Public Sector Adjustment Loan (PFPSAL) - P070561 Outcomes Satisfactory Risk to Development Outcome Moderate Bank Performance Satisfactory ii  Borrower Performance Satisfactory Programmatic Financial & Public Sector Adjustment Loan 2 (PFPSAL 2) - P070560 Outcomes Satisfactory Risk to Development Outcome Bank Performance Satisfactory Borrower Performance Satisfactory Sustainability Likely Institutional Development Impact Modest Programmatic Financial & Public Sector Adjustment Loan 3 (PFPSAL 3) - P082996 Outcomes Moderately Satisfactory Risk to Development Outcome Moderate Bank Performance Moderately Satisfactory Borrower Performance Satisfactory C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Programmatic Financial & Public Sector Adjustment Loan (PFPSAL) - P070561 Bank Ratings Borrower Ratings Quality at Entry Satisfactory Government: Not Applicable Quality of Supervision: Satisfactory Implementing Agency/Agencies: Not Applicable Overall Bank Overall Borrower Performance Satisfactory Performance Satisfactory Programmatic Financial & Public Sector Adjustment Loan 2 (PFPSAL 2) - P070560 Bank Ratings Borrower Ratings Quality at Entry Satisfactory Government: Not Applicable Quality of Supervision: Satisfactory Implementing Agency/Agencies: Not Applicable Overall Bank Overall Borrower Performance Satisfactory Performance Satisfactory Programmatic Financial & Public Sector Adjustment Loan 3 (PFPSAL 3) - P082996 Bank Ratings Borrower Ratings Quality at Entry Moderately Satisfactory Government: Not Applicable Quality of Supervision: Satisfactory Implementing Agency/Agencies: Not Applicable Overall Bank Overall Borrower Performance Moderately SatisfactoryPerformance Satisfactory iii  C\.3 Quality at Entry and Implementation Performance Indicators Programmatic Financial & Public Sector Adjustment Loan (PFPSAL) - P070561 Implementation QAG Assessments Performance Indicators (if any) Rating: Potential Problem Program at any time No Quality at Entry None (Yes/No): (QEA) Problem Program at any Quality of time (Yes/No): No Supervision (QSA) None DO rating before Closing/Inactive status Programmatic Financial & Public Sector Adjustment Loan 2 (PFPSAL 2) - P070560 Implementation QAG Assessments Performance Indicators (if any) Rating: Potential Problem Program at any time No Quality at Entry Satisfactory (Yes/No): (QEA) Problem Program at any Quality of time (Yes/No): No Supervision (QSA) None DO rating before Closing/Inactive status Programmatic Financial & Public Sector Adjustment Loan 3 (PFPSAL 3) - P082996 Implementation QAG Assessments Performance Indicators (if any) Rating: Potential Problem Program at any time No Quality at Entry Satisfactory (Yes/No): (QEA) Problem Program at any Quality of time (Yes/No): No Supervision (QSA) None DO rating before Closing/Inactive status Satisfactory D\. Sector and Theme Codes Programmatic Financial & Public Sector Adjustment Loan (PFPSAL) - P070561 Original Actual Sector Code (as % of total Bank financing) Banking 46 46 Capital markets 2 2 Central government administration 50 50 iv  General industry and trade sector 2 2 Theme Code (Primary/Secondary) Debt management and fiscal sustainability Primary Primary Public expenditure, financial management and Primary Primary procurement Regulation and competition policy Primary Primary Standards and financial reporting Secondary Secondary State enterprise/bank restructuring and privatization Primary Primary Programmatic Financial & Public Sector Adjustment Loan 2 (PFPSAL 2) - P070560 Original Actual Sector Code (as % of total Bank financing) Banking 40 40 Central government administration 54 54 General industry and trade sector 2 2 Non-compulsory pensions, insurance and contractual 2 2 savings Other social services 2 2 Theme Code (Primary/Secondary) Administrative and civil service reform Secondary Secondary Other financial and private sector development Primary Primary Public expenditure, financial management and Primary Primary procurement Regulation and competition policy Secondary Secondary State enterprise/bank restructuring and privatization Secondary Secondary Programmatic Financial & Public Sector Adjustment Loan 3 (PFPSAL 3) - P082996 Original Actual Sector Code (as % of total Bank financing) Banking 45 45 Central government administration 45 45 Law and justice 10 10 Theme Code (Primary/Secondary) Administrative and civil service reform Secondary Secondary Macroeconomic management Secondary Secondary v  Public expenditure, financial management and Primary Primary procurement State enterprise/bank restructuring and privatization Primary Primary Tax policy and administration Secondary Secondary E\. Bank Staff Programmatic Financial & Public Sector Adjustment Loan (PFPSAL) - P070561 Positions At ICR At Approval Vice President: Shigeo Katsu Johannes F\. Linn Country Director: Ulrich Zachau Ajay Chhibber Sector Manager: Bernard G\. Funck Cheryl W\. Gray Task Team Leader: Mediha Agar James Parks ICR Team Leader: Mediha Agar ICR Primary Author: Mediha Agar Oscar Calvo-Gonzalez Programmatic Financial & Public Sector Adjustment Loan 2 (PFPSAL 2) - P070560 Positions At ICR At Approval Vice President: Shigeo Katsu Johannes F\. Linn Country Director: Ulrich Zachau Ajay Chhibber Sector Manager: Bernard G\. Funck Pradeep K\. Mitra Task Team Leader: Mediha Agar James Parks ICR Team Leader: Mediha Agar ICR Primary Author: Mediha Agar Oscar Calvo-Gonzalez Programmatic Financial & Public Sector Adjustment Loan 3 (PFPSAL 3) - P082996 Positions At ICR At Approval Vice President: Shigeo Katsu Shigeo Katsu Country Director: Ulrich Zachau Andrew N\. Vorkink Sector Manager: Bernard G\. Funck Cheryl W\. Gray Task Team Leader: Mediha Agar Rodrigo A\. Chaves ICR Team Leader: Mediha Agar ICR Primary Author: Mediha Agar Oscar Calvo-Gonzalez vi  F\. Results Framework Analysis Program Development Objectives (from Program Document) The main objective of PFPSAL 3 is to support implementation of the Government's financial and public sector reform priorities while ensuring that social programs are adequately funded and increasingly better targeted\. Key reform priorities in the financial sector include: (i) strengthening the regulatory framework for banking (ii) building institutional capacity at the Banking Regulation and Supervision Agency (BRSA) and Saving Deposit Insurance Fund (SDIF), (iii) restructuring and privatizing state banks, and (iv) improving the corporate insolvency regime\. Key reform priorities in the public sector include: (i) deepening of structural fiscal policies in support of sustainable fiscal adjustment, (ii) implementing public expenditure management (PEM) reforms covering budget planning and execution, financial accountability, and public liability management, and (iii) strengthening public sector governance including implementation of the national anti-corruption strategy and preparation of civil service reform strategy\. Priorities for social spending include: (i) adequate expenditure for health, education and social protection in the 2004 budget and (ii) better targeting of social protection\. Revised Program Development Objectives (as approved by original approving authority) (a) PDO Indicator(s) Programmatic Financial & Public Sector Adjustment Loan (PFPSAL) - P070561 Original Target Formally Actual Value Indicator Baseline Values (from Revised Achieved at Value approval Target Completion or documents) Values Target Years Indicator 1 : Progress made towards development of a regulatory framework for bank, fully compliant with international best practice Value (quantitative or Qualitative) Date achieved Comments (incl\. % achievement) Indicator 2 : Further strengthening of the policies and procedures of the banking regulatory agency\. Value (quantitative or Qualitative) Date achieved Comments (incl\. % achievement) vii  Indicator 3 : Effectiveness of actions taken to resolve/recapitalise problem banks and to restructure state banks\. Value (quantitative or Qualitative) Date achieved Comments (incl\. % achievement) Indicator 4 : Implementation of fiscal policies consistent with fiscal budgetary targets\. Value (quantitative or Qualitative) Date achieved Comments (incl\. % achievement) Indicator 5 : Extent of actions taken to improve government's budgeting and accounting capacity \. Value (quantitative or Qualitative) Date achieved Comments (incl\. % achievement) Programmatic Financial & Public Sector Adjustment Loan 2 (PFPSAL 2) - P070560 Original Target Formally Actual Value Indicator Baseline Values (from Revised Achieved at Value approval Target Completion or documents) Values Target Years Indicator 1 : Progress made towards development of a regulatory framework for banking fully compliant with international best practice\. Value (quantitative or Qualitative) Date achieved Comments (incl\. % achievement) Indicator 2 : Further strengthening of the policies and procedures of the banking regulatory agency\. Value (quantitative or Qualitative) Date achieved Comments viii  (incl\. % achievement) Indicator 3 : Effectiveness of actions taken to resolve/recapitalise problem banks and to restructure state banks\. Value (quantitative or Qualitative) Date achieved Comments (incl\. % achievement) Indicator 4 : Implementation of structural fiscal policies consistent with fiscal targets\. Value (quantitative or Qualitative) Date achieved Comments (incl\. % achievement) Indicator 5 : Extent of actions taken to improve public expenditure management in line with OECD and EU norms\. Value (quantitative or Qualitative) Date achieved Comments (incl\. % achievement) Indicator 6 : Effectiveness of actions taken to improve public sector governance\. Value (quantitative or Qualitative) Date achieved Comments (incl\. % achievement) ix  Programmatic Financial & Public Sector Adjustment Loan 3 (PFPSAL 3) - P082996 Original Target Formally Actual Value Indicator Baseline Values (from Revised Achieved at Value approval Target Completion or documents) Values Target Years Indicator 1 : Deepening of structural fiscal policies in support of sustainable fiscal adjustment\. Value Consolidated Public (quantitative or Sector Primary Balance Qualitative) was 6\.2 percent of GNP at the end of 2003\. Date achieved 12/31/2003 Comments (incl\. % achievement) Indicator 2 : Public spending in social sectors remains on track\. PPFPSAL benchmarks Value (in percent of GNP) are (quantitative or 4\.25 for education, 3\.25 Qualitative) for health and 7\.0 for social protection\. Date achieved 05/21/2004 Comments (incl\. % achievement) (b) Intermediate Outcome Indicator(s) Programmatic Financial & Public Sector Adjustment Loan (PFPSAL) - P070561 Original Target Formally Actual Value Indicator Baseline Value Values (from Achieved at approval Revised Completion or documents) Target Values Target Years PFPSAL 3 is the last operation in a programmatic series\. The IO Indicator 1 : was not required in PFPSAL 1 and PFPSAL 2 and there is no be nefit in retro fitting\. Value (quantitative or Qualitative) Date achieved Comments (incl\. % achievement) x  Programmatic Financial & Public Sector Adjustment Loan 2 (PFPSAL 2) - P070560 Original Target Formally Actual Value Indicator Baseline Value Values (from Achieved at approval Revised Completion or documents) Target Values Target Years PFPSAL 3 is the last operation in a programmatic series\. The IO Indicator 1 : was not required in PFPSAL 1 and PFPSAL 2 and there is no be nefit in retro fitting\. Value (quantitative or Qualitative) Date achieved Comments (incl\. % achievement) Programmatic Financial & Public Sector Adjustment Loan 3 (PFPSAL 3) - P082996 Original Target Formally Actual Value Indicator Baseline Value Values (from Achieved at approval Revised Completion or documents) Target Values Target Years The GFS Functional Classification is expanded to the general Indicator 1 : government institutions with the exception of local governments with the 2006 budget preparation\. Value (quantitative or Qualitative) Date achieved Comments (incl\. % achievement) G\. Ratings of Program Performance in ISRs Programmatic Financial & Public Sector Adjustment Loan (PFPSAL) - P070561 Date ISR Actual No\. Archived DO IP Disbursements (USD millions) 1 05/07/2002 Satisfactory Satisfactory 1100\.00 Programmatic Financial & Public Sector Adjustment Loan 2 (PFPSAL 2) - P070560 Date ISR Actual No\. Archived DO IP Disbursements (USD millions) 1 06/27/2002 Satisfactory Satisfactory 0\.00 2 12/23/2002 Satisfactory Satisfactory 450\.00 3 06/30/2003 Satisfactory Satisfactory 450\.00 xi  Programmatic Financial & Public Sector Adjustment Loan 3 (PFPSAL 3) - P082996 Date ISR Actual No\. Archived DO IP Disbursements (USD millions) 1 09/09/2004 Satisfactory Satisfactory 500\.00 2 05/14/2005 Satisfactory Satisfactory 500\.00 3 02/25/2006 Satisfactory Moderately Satisfactory 500\.00 H\. Restructuring (if any) xii  1\. Program Context, Development Objectives and Design 1 1\.1 Context at Appraisal Turkey was hit by the worst economic crisis of its history in November 2000 and February 2001\. While the immediate triggers for the crisis were the fragility of the banking sector, the underlying reason was non-transparent and unsustainable fiscal imbalances of the public sector\. Government's lack of commitment to key structural reforms further exacerbated the problem in the public sector\. These imbalances resulted in an increase in net public debt stock to 90\.4 percent of GNP in 2001\. The spark of the crisis was the surfacing of financial difficulties in some banks that had borrowed heavily abroad, on short-term maturities, to finance the purchase of high- yielding local debt instruments\. The surfacing of difficulties in one particular bank worried market participants that the problems might be more widespread\. Concerns about the actual financial situation of Turkish banks led to a drying up of liquidity in the money market and the ensuing skyrocketing of interest rates at which banks could refinance themselves\. Foreign lenders called in their outstanding loans and foreign exchange reserve losses mounted, as the Central Bank defended the crawling peg\. Additional IMF and World Bank resources stemmed the crisis temporarily until, in February 2001, a public dispute between the President and the Prime Minister further eroded the markets confidence in the sustainability of the reform program and rendered the crawling peg untenable\. The roots of the crisis went, however, much deeper\. Lack of confidence was widespread in the banking sector ­ both private and state-owned\. Private sector banks had not only large exposures to exchange rate and interest risk but were also heavily engaged in lending to related parties and had made only limited provisioning for non-performing loans\. State banks kept accumulating so-called `duty losses' incurred as they were directed to fund government programs and to provide subsidized lending to certain borrowers\. With limited public information about the extent of these duty losses, and the widespread perception that they constituted a contingent government liability, the sustainability of public debt came into question\. Large off-budget expenditures of so- called extra-budgetary funds (EBFs) added to these concerns about the sustainability of public debt\. In addition, the fact that the banking sector as a whole held a large share of its assets in public debt instruments further intertwined the finances of the public sector and the banking sector\. 1 In line with the ICR guidelines, this ICR was prepared for the programmatic PFPSAL series as a whole and includes a separate assessment of the contribution of each individual operation to the program\. 1  In response to the crisis, a major stabilization and structural reform plan was put in place in March 2001, including implementation of the floating exchange rate regime, restructuring of the banking system, strong fiscal adjustment in the public sector\. As the exchange rate was left to freely float, the ensuing depreciation exacerbated the banking crisis, through the un-hedged exposure of Turkish banks to foreign exchange rate risk, as well as increased the public debt burden\. In such a context, the government's reform program was supported by a new IMF program of US$16\.2 billion ­ the largest up to that time ­ accompanied by World Bank support for the structural reform elements of the package\. The program operations were designed to address medium term second generation structural, policy and institutional reforms in the financial and public sectors\. The program was supported by the Country Assistance Strategy (CAS) and the Progress report endorsed by the Board in July 2001\. It was closely integrated with the other elements of the CAS and was supported by extensive Economic Sector Work (ESW)\. The content of the reform drew on the analysis presented in the 2000 Country Economic Memorandum (CEM), and the 2001 Public Expenditure and Institutional Review (PEIR)\. It also drew heavily on the Bank's fudiciary sector work including the Country Procurement Assessment Review (CPAR) and the Country Financial Accountability Assessment (CFAA), both completed in 2001, as well as the Fiscal Transparency Review prepared by the IMF\. The Programmatic Financial and Public Sector Adjustment Loan (PFPSAL) program was designed to support the Government's combined package of financial and public sector reforms\. Reforms in these two areas were closely linked as weaknesses in public finances had greatly contributed to financial instability\. One of the root causes of the crises was lack of transparency of the budget, in particular the handling of subsidies through off- budget funding ­ including the duty-losses of state banks\. In the CAS Progress Report, the World Bank envisaged a total of US$2\.45 billion in adjustment lending under two programmatic financial and public sector adjustment loans (PFPSAL and the three-tranche PFPSAL II)\. Subsequently, the Government requested cancellation of the second and third tranches of PFPSAL II and preparation of a new loan, PFPSAL III, which would constitute the last operation in this programmatic series (see Table 1 and further details of changes to the structure of PFPSAL operations in section 1\.6 below)\. PFPSAL III was included in the US$4\.5 billion high-case program of the CAS endorsed by the Board in November 2003\. Close coordination with the IMF implied that a number of reform areas supported by PFPSAL, such as public expenditure management and state bank's privatization, were reflected in the structural benchmarks for the IMF program\. Table 1: Overview of PFPSAL operations PFPSAL I PFPSAL II PFPSAL III Concept May 4, 2001 March 22, 2002 April 4, 2003 Approval July 12\. 2001 April 16, 2002 June 17, 2004 Amount (US$) 1\.1 billion 1\.35 billion 1 billion 2  Effectiveness July 17, 2001 August 15, 2002 July 1, 2004 Tranches 1 3 2 (US$ 450 million each; (US$ 500 million each) 2nd and 3rd tranches cancelled) Closing December 31, 2001 June 18, 2003 June 30, 2006 In line with the `Guidance Note on ICRs for Programmatic Development Policy Lending,' this ICR is prepared for the programmatic series as a whole and includes a separate assessment of the contribution of each individual operation to the program\. 1\.2 Original Program Development Objectives (PDO) and Key Indicators (as approved) The main objective of PFPSAL I was to address the Government's immediate financial and public sector reform priorities in the aftermath of the November 2000 and February 2001 financial crises, while ensuring that social programs continue to be adequately funded\. The main objective of PFPSAL II was to support the next phase of the Government's financial and public sector reform priorities in response to the February 2001 financial crisis, while continuing to ensure that social programs are adequately funded\. The main objective of PFPSAL III was to support implementation during 2004 of the Government's financial and public sector reform priorities while ensuring that social programs are adequately funded and increasingly better targeted\. To achieve these objectives, the program was built around three pillars of policy actions: (a) macroeconomic framework, (b) financial sector reform, and (c) public sector reform\. Each of the PFPSAL operations identified a number of key priorities within the financial sector reform and public sector reform components (see expanded discussion on policy areas in section 1\.4 below)\. Key outcome indicators identified at the time of approval for monitoring performance under PFPSAL are reported in Table 2\. Table 2: Outcome indicators as identified in program documents Policy area Key outcome indicators Macro Growth (GNP growth, %) framework Inflation (CPI inflation, year/year, %) Nominal interest rate (T-Bill rate, %) Primary surplus of consolidated budget (% of GNP) Public sector debt (total net debt, % of GNP) Social expenditures maintained at pre-crisis levels (as % of GNP): education, 4\.25; health, 3\.25; and, social protection, 7\.0\. 3  Financial Effective independent banking regulation and supervision capacity created\. FX and sector connected exposure regulations are aligned to international best practice\. Banks compliant with FX and connected lending regulations\. Consolidated supervision achieved\. All non-intervened banks have a minimum risk weighted Capital Adequacy Ratio of at least 8 percent\. Restructuring of troubled private sector banks mostly completed\. Effective bank failure resolution capacity created\. Restructuring of state banks completed\. Benchmarks: Emlak closed, Vakif 100% privatized, Halk either privatized entirely or merged with/acquired by another bank, Ziraat 15% privatized\. Full implementation of IOSCO standards for all securities activities and IAS for all financial institutions\. Regulations for the insurance industry in line with international IAIS norms\. Turkey has a financial sector of which the large majority is controlled by the private sector and that is financing increasing portions of the investments required by the productive sector\. (identified in program document for PFPSAL III) Public Conditions for sustained fiscal adjustment are solidly in place\. sector New GFS budget classification is operational for the entire general government in the 2004 budget\. Budget preparation process has gained real credibility and shirt to performance budgeting is underway\. Financial accountability practices in the consolidated budget agencies are aligned with international norms\. The Government is able to manage prudently all public sector liabilities\. Turkey demonstrably improves in terms of perceived corruption as measured by diagnostic and business surveys\. Government has launched a medium-term strategy for civil service reform\. Regarding the design of the program, conditionality attached to PFPSAL operations became more streamlined over time, as reflected by the decline in the number of conditions for effectiveness and core conditions for the release of tranches (Table 3)\. Table 3: Number of conditions attached to PFPSAL operations PFPSAL I PFPSAL II PFPSAL III Conditions for effectiveness 29 24 22 Benchmarks (for PFPSAL II) 37 Not applicable Not applicable 2nd tranche core conditions Not applicable 15 12 3rd tranche core conditions Not applicable 14 Not applicable 4  1\.3 Revised PDO (if any, as approved by original approving authority) and Key Indicators, and Reasons/Justification As reflected in section 1\.2 above, the main development objective in each of the PFPSAL operations remained largely unchanged\. However, the precise wording used to state the development objective was slightly updated to reflect the phase of the reform process at the time of the individual operation\. In addition, in PFPSAL III the objective of better targeting of social expenditures was added to the ongoing objective of ensuring that social programs are adequately funded\. This refinement reflected the concern that the objective of adequately funding social expenditures referred only to the quantity but not the quality of the social expenditures\. 1\.4 Original Policy Areas Supported by the Program (as approved): The PFPSAL program supported three areas of policy which were seen as closely linked in the particular situation that Turkey was facing: (i) macroeconomic management; (ii) financial sector; and (iii) public sector\. The first policy area referred to the overall macroeconomic framework, as macroeconomic stability was seen as a pre-requisite for the resumption of economic growth and the reduction of poverty\. To achieve and maintain macroeconomic stability, a prudent fiscal policy that allowed a reduction in public debt was deemed to be essential, and incorporated in PFPSAL in line with the stand-by Agreement between the Fund and Turkey\. PFPSAL operations provided financing to ensure that, despite the substantial fiscal tightening required, social programs continued to be adequately funded\. The second policy area supported by PFPSAL was financial sector reform\. The banking crisis of late 2000 and early 2001 had made clear a number of deficiencies in the banking sector\. The prevalence of lending to related parties, excessive exposures to foreign exchange risk, and inadequate loan loss provisioning all highlighted the need for an overhaul of the regulatory framework\. Such an overhaul called for a strengthened banking supervisory authority, which had only been recently established as an independent authority and had only a limited capacity to undertake its mandate\. Resolving the situation of banks in difficulties, by liquidating insolvent banks and recapitalizing illiquid ones, was another area addressed by PFPSAL\. Finally, to avoid the accumulation of losses in state-owned banks, the program envisaged their reorganization, operation on a commercial basis, and eventual privatization\. A two-tranche Financial Sector Adjustment Loan (FSAL) approved in December 2000 had aimed to address these issues but, following the February 2001 crisis and the implications for banks' balance sheets of a 40 percent depreciation of the exchange rate, it was necessary to refocus priorities and timing of the reforms\. The second tranche of FSAL was therefore cancelled and the envisaged reforms subsumed into the PFPSAL and PFPSAL II\. Public sector reform was the third and last policy area supported by PFPSAL\. Reforms in this area aimed at both achieving a sustainable fiscal adjustment as well as tackling the lack of budgetary transparency which was as an ultimate source of the crisis\. Structural 5  fiscal policies, including a tax reform, as well as a cap on public employment, and a rationalization of the public investment program all aimed at improving the sustainability of the fiscal adjustment\. Within the heading of public expenditure management, the program addressed the need to increase the fiscal transparency by improving the coverage of the budget and adopting international standards of budget classification and reporting\. In this context, the abolishment of EBFs was covered in the program\. The genesis of the EBFs, first created in the 1980s as a way to circumvent excessively burdensome prior approval procedures for budget expenditures, suggested also the need to overhaul the overall public financial management system\. Financial control was to shift from a focus on ex-ante controls to internal control and internal audit, while the external audit was to be developed as an independent function within the public administration\. Key priority areas of reform within the financial sector and the public sector were identified in each PFPSAL operation\. These priorities remained largely unchanged throughout the program, as reported in Table 4\. At the same time, the precise wording used to state these priorities was updated to reflect developments at the time of each operation\. In addition, PFPSAL III expanded somewhat the coverage of the priorities within financial sector reform to include improvements in the corporate insolvency regime, on the basis that a better functioning banking sector requires an appropriate legal framework that addresses creditor rights, insolvency, and restructuring systems\. Table 4: Key priorities for reform supported by PFPSAL operations (as approved) PFPSAL I PFPSAL II PFPSAL III Financial a) Overhaul of the a) Overhaul of the a) Strengthening the sector regulatory regulatory framework regulatory framework reform framework of of banking activity; of banking activity; banking activity; b) Institutional b) Building institutional b) Institutional development of the new capacity at the Bank development of the Bank Regulation and Regulation and new Bank Regulation Supervision Agency Supervision Agency and Supervision c) Problem bank/bank and Savings Deposit Agency failure resolution; Insurance Fund; c) Problem bank/bank d) State bank restructuring c) Restructuring and failure resolution; and privatization\. privatizing state banks; d) State bank d) Improving the restructuring and corporate insolvency privatization\. regime\. Public a) Structural fiscal a) Further deepening of a) Deepening of sector policies; structural fiscal policies structural fiscal reform b) Public expenditure in support of policies in support of management; sustainable fiscal sustainable fiscal c) Financial adjustment; adjustment; accountability; b) Broadening of public b) Implementing public d) Public liability expenditure expenditure management; management reform management reforms program, including the covering budget e) Public sector 6  governance\. implementation of planning and concrete improvements execution, financial to the framework for accountability, and budget planning and public liability execution, financial management; accountability, and c) Strengthening public public liability sector governance management; including c) Implementation of the implementation of the strategy to strengthen national anti- public sector corruption strategy and governance, including preparation of civil adoption and service reform implementation of a strategy\. national anti-corruption strategy and initial steps towards civil service reform\. Support for these priorities within the PFPSAL program was part of an ongoing and much broader Bank effort to support reform in the financial sector and the public sector, including the Economic Reform Loan approved in 2000\. 1\.5 Revised Policy Areas (if applicable) The policy areas supported by PFPSAL remained unchanged throughout the program\. 1\.6 Other significant changes (in design, scope and scale, implementation arrangements and schedule, and funding allocations) See revisions to timeline of operations discussed under section 2\.1 below\. 2\. Key Factors Affecting Implementation and Outcomes 2\.1 Program Performance (supported by a table derived from a policy matrix) Upon approval of the first PFPSAL in July 2001, it was intended that the series would be completed with a three-tranche PFPSAL II tentatively planned for December 2001\. The first tranche of PFPSAL II was disbursed but, following the parliamentary elections held in November 2002, the new Government requested an extension of the closing date of PFPSAL II from December 31, 2002 to March 31, 2003 in order to determine its specific plan and timetable for the reform program\. During this period the Government prepared a roadmap for the reform program, issued in April 2003, and the Bank extended the loan closing date to June 30, 2003\. 7  In the mean time, the nature of the support requested by the Government had changed ­ from crises response support to structural reform support as the economy recovered from the crisis\. Subsequently, the Government requested cancellation of the second and third tranches of PFPSAL II and preparation of a new loan\. PFPSAL I and II had been designed in the immediate aftermath of a crisis situation and its financial terms were in part standard IBRD terms and in part the terms of special structural adjustment loans (SSAL)\. In particular, PFPSAL II included US$ 550 million on standard IBRD terms and US$ 800 on SSAL terms\. As Turkey moved from a crisis response to a recovery phase the Government felt that it no longer needed to draw on the undisbursed funds under SSAL terms\. Moreover, the approach of canceling the undisbursed tranches of PFPSAL II and preparing a new loan allowed the required adjustment of the timetable in accordance with actual developments since PFPSAL II had been approved in mid-2002\. Cancellation of the second and third tranches of PSPSAL II took place in June 2003 and PFPSAL III was prepared on standard IBRD terms\. The first tranche of PFPSAL III was released upon effectiveness in July 2004, with the second-tranche expected to be disbursed by June 2005\. However, the closing date was extended first to December 31, 2005 and subsequently to June 30, 2006 upon the Government's request to provide additional time needed to finalize the remaining pending actions supported by the loan\. In June 2006 the Bank released the second tranche granting a partial waiver of one condition regarding the state bank restructuring and privatization sub-component\. Table 5: Program performance - overview Tranche # Amount Expected Release Actual Release Date Date Release PFPSAL I ­ single tranche US$ 1\.1 billion July 2001 July 2001 Regular PFPSAL II ­ first tranche US$ 450 million December 2001 August 2002 Regular ­ second tranche US$ 450 million June 2002 Not released\. Cancelled ­ third tranche US$ 450 million December 2002 Not released\. Cancelled PFPSAL III ­ first tranche US$ 500 million July 2004 July 2004 Regular ­ second tranche US$ 500 million By June 2005 June 2006 Partial waiver A summary of the key elements underscoring program performance by policy area is presented in Table 6 below based on the policy matrices approved for each operation\. Table 6: Program performance ­ key elements based on policy matrix Policy area PFPSAL I PFPSAL II PFPSAL III I\. Macroeconomic framework Macro- Supplementary budget Primary surplus below Primary surplus 8  economic for 2001\. target in 2002 but debt consistent with 6\.5 stability reduction continued\. percent of GNP target\. Safeguarding Total social spending Total social spending Total social spending social above the benchmark above the benchmark of above the benchmark of expenditures of 14\.5% of GNP\. 14\.5% of GNP\. 14\.5% of GNP\. II\. Financial sector reform Regulatory BRSA issued loan loss Program moved beyond New Banking Law framework of provisioning regime, enactment\. E\.g\., BRSA enacted in 2005 consistent banking activity lifting exceptions for took regulatory and with international best Ziraat bank; enforcement actions to practice and EU Enacted Banking Law ensure all non- principles\. amendments, including performing loans are change to connected correctly reported and exposure limits\. provisioned for\. Institutional BRSA approved First phase of BRSA BRSA re-organized, development of Institutional IDP achieved but cutting the number of the Bank Development Plan difficulties emerged in departments, and second Regulation and (IDP) introducing risk- the second stage related IDP launch, requiring Supervision based and consolidated to independence, strategic planning; Agency supervision\. governance, staffing and SDIF institutional budgets\. development plan\. Problem BRSA identified all All SDIF banks Pamuk bank merged into bank/bank capital deficient banks intervened as of 2002 Halk bank; failure and agreed capital were sold, liquidated or SDIF institutional resolution restoration plans or merged (except Bayindir development plan initiated resolution\. and Pamuk)\. adopted\. State bank Ziraat and Halk banks All planned branch Pre-privatization steps: restructuring recapitalized; closures and reduction (i) Auditors certifying and New independent of excess personnel for every 6 months that privatization professional Governing Ziraat and Halk banks lending of state banks is Board for Halk and were completed; based on commercial Ziraat appointed with Strategic study for principles; (ii) the mandate to manage Ziraat completed and restructuring plans of on commercial basis; launched for Halk; Ziraat and Halk; Emlak bank closed Public tender for Vakif Privatization plan for after construction bank in 2002 did not Halk launched, awarding assets transferred to the result in viable bids and of an advisory and sale Mass Housing Admin\. Government was slow to mandate; however, and its banking address ownership, privatization strategy for activities merged into governance and Ziraat postponed (waiver Ziraat and Halk\. portfolio problems of second tranche affecting the bank\. condition granted); Sale of 25% of Vakif\. 9  Improving the An Insolvency and Execution and corporate Creditor Rights ROSC Bankruptcy Act amended insolvency served as input for the to introduce pre-packaged regime Government's review of restructuring options, but improvements required these amendments do not in the legal framework\. target the delays and low recovery rates of bankruptcy cases\. III\. Public sector reform Structural fiscal Supplementary fiscal Under the tax strategy, Personal income tax policies package including Special Consumption simplified; corporate increase in the Tax was introduced, income tax rate cut; new petroleum consumption simplified investment withholding tax on tax and VAT rate and incentives and interest and capital gains; adjustment of harmonized tax rates on Revenue Administration agricultural support income from financial as semi-autonomous body prices; investments; (but slow progress in Number of civil Public employment raising efficiency, e\.g\. servants not to monitoring system fully large tax payer's unit); increase\. functional; 28,000 of the Cap on number of civil 45,800 identified servants kept; SEE redundancies already employment reduced\. achieved\. Public Close remaining 15 Successful pilot program Extra Budgetary Fund law expenditure budgetary funds and using GFS budget enacted eliminating the management two extra-budgetary classification; earmarking of revenues funds; no new ones to Most extra-budgetary and special appropriation be created; funds closed, but that had allowed for the Eliminate all legal earmarking still in place; continued operation of 24 provisions allowing Public Investment of the 69 funds closed the creation of duty Program rationalized\. since 2000\. losses by state banks\. Financial Installation of Public Financial PFMC law amended to accountability computerized public Management Control eliminate expected accounting system law enacted in implementation problems; (say2000i); December 2003; Turkish Court of Establish task force to Automated on-line Accounts law submitted develop audit reform accounting system for to Parliament (TCA as program\. budget agencies; pilot supreme audit institution projects using accrual and changing its focus accounting; from pre-approval of New Public expenditures to financial Procurement Agency and performance audit); operational as the new but law still not approved\. procurement law went 10  into effect in Jan\. 2003\. Public liability Law on public finance Law on Public Finance management and debt management and Debt Management submitted to enacted and new Debt Parliament\. Management office established\. Public sector Initiate national National strategy Code of conduct for civil governance strategy to improve published in March servants issued; governance and combat 2002 ­key elements Functional review of the corruption\. reflected in the Urgent government\. Action Plan of new Government\. The list of prior actions for each operation in the program is provided in Table A\.1 in Annex 1\. 2\.2 Major Factors Affecting Implementation: Progress in implementing the PFPSAL program has been influenced by three key factors: (i) the process of crisis recovery and the complexity of reforms envisaged, (ii) the electoral cycle, and, (iii) the EU perspective\. (i) Moving from a crisis resolution to a post-crisis recovery phase was a factor that affected implementation\. While in a crisis situation, reforms target the immediate needs ­ such as the need to recapitalize or liquidate failing banks ­ as the country recovered from the crisis more complex reforms became appropriate ­ such as the reorganization and timing for the privatization of state banks\. These complexities, more so than a possible reform fatigue after recovery from a crisis, seem to be the key factors in explaining the delays experienced in this operation\. (ii) The delay in the preparation of PFPSAL III was also related to the electoral cycle in Turkey\. The parliamentary elections in November 2002 took place shortly before the initial closing date of PFPSAL II\. The new Government requested its extension so that it could determine its specific plan and timetable for the reform program and prepared an Urgent Action Plan in the spring of 2003\. Only then could PFPSAL III begin to be prepared\. While noting this impact of the electoral calendar on the timing of the reform program, it must also be stressed that political stability following the November 2002 elections has been instrumental in further entrenching macroeconomic stability\. (iii) A final key factor that affected the implementation of PFPSAL was the increasing importance of the EU accession process for Turkey\. This increasing importance of the EU, which reached a high mark in December 2004 when the European Council agreed to start negotiations, contributed positively to the implementation of PFPSAL\. The Government anticipated the eventual EU requirements and focused on ensuring that reform areas supported by PFPSAL in issues ranging from public financial management to agricultural support, would be as consistent as possible with eventual EU requirements\. 11  2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization: The programmatic approach of the PFPSAL allowed for a clear Monitoring and Evaluation framework built around benchmarks for subsequent operations identified at the time of the first operation\. The approach recognized the need to sequence complex policy measures over time\. It allowed for a reasonable degree of flexibility to respond to unfolding events on the ground while maintaining overall coherence\. The multi-tranche nature of PFPSAL III, and of PFPSAL II as initially envisaged, provided a way to move forward with the reform program at a time when the reform progress experienced delays\. Together with the government counterpart, the country team followed closely developments in implementing the second tranche conditions of PFPSAL III, including the preparation of a number of analytical notes besides the regular supervision missions\. In addition to the outcome indicators identified at the outset of PFPSAL, additional quantitative indicators to monitor progress were defined\. These additional indicators helped also in the dialogue with the authorities\. They include: Financial sector Number of state bank's branches and employees Public sector Expenditures and balance of Extra Budgetary Funds Number of employees of consolidated budget agencies Average completion time of projects in the Public Investment Program 2\.4 Expected Next Phase/Follow-up Operation (if any): Following the closing of PFPSAL 3, a new series of programmatic public sector policy development loans has continued to build up on a number of reform areas supported by PFPSAL\. While public financial and expenditure management reform and public administration and governance reform have been supported under the PPDPL program, financial sector reform agenda has been followed under the CEDPL\. 3\. Assessment of Outcomes 3\.1 Relevance of Objectives, Design and Implementation (to current country and global priorities, and Bank assistance strategy) The Program objectives together with its design, and implementation were quite relevant to achieve the overall outcome from the operation\. This relevance was assured through the strong analytical works carried out before the program design\. In the case of the public sector, the assessment of the issues and required policy actions were led by the Government through the technical support from the Bank\. The 2001 PEIR was a joint product of the Government and the Bank team\. While much progress has been achieved in all three policy areas (macro framework, financial sector, and public sector), making further progress in all of them continues to be highly relevant, as reflected by the extension of the 2003 CAS ­ in which PFPSAL had a prominent role ­ into fiscal year 2007\. 12  Macroeconomic performance has been impressive but the current challenge is to sustain growth and achieve convergence\. The recent pick up in inflation and the widening current account deficit highlight the continued importance of entrenching macroeconomic stability\. Further progress in the structural fiscal policies supported by PFPSAL, as in the social security reform supported by PPDPL, will result in a higher quality of the fiscal adjustment, allowing for a more rapid decline in the ratio of public debt to GNP by boosting growth and lowering interest rates\. In the financial sector, the privatization of the state banks remains to be completed\. Improving the regulatory and supervisory framework of non-banking financial institutions constitutes the next challenge in the financial sector ­ as envisaged at the outset of PFPSAL and reflected in the financial stability assessment work of the Bank\. Finally, the current reform agenda on the public sector continues to build up on the progress made with support of PFPSAL, as evidenced by the inclusion in PPDPL of elements of the public sector reform such as public financial and expenditure management reform and public administration and governance reform\. 3\.2 Achievement of Program Development Objectives This section provides, for each of the three policy areas (macro-framework, financial sector, and public sector) in turn, a review of outcome indicators and a discussion on the extent to which the observed outcomes can be attributed to actions supported by the program\. (i) Macro-framework Outcomes The results in terms of economic recovery, disinflation, and debt sustainability over the last five years have been remarkable\. Growth rebounded strongly after the sharp contraction in 2001 and has remained above 6 percent since\. For the first time in three decades Turkey achieved single-digit inflation in 2005\. Interest rates and public sector debt have both come down substantially (see Table 7)\. Table 7: Macroeconomic and social expenditure outcomes as measured by outcome indicators identified by PFPSAL Objective Key outcome Baseline Program Actual outcomes indicators Targets 2000 2001 2002 2003 2004 2005 2006 Macroeconomic Growth (%) 6\.3 -9\.5 3\.0 7\.9 5\.9 9\.9 7\.6 6\.0 stability Inflation (%) 39\.0 68\.5 35\.0 29\.7 18\.4 9\.3 7\.7 9\.7 Nominal interest rate (T-bill rate, %) 36\.3 82\.3 55\.0 62\.7 46\.0 24\.7 16\.3 18\.0 Primary balance of consolidated budget (% of GNP) 2\.6 5\.1 5\.5 4\.2 6\.3 7\.1 6\.8 6\.6 then 6\.5 (for 2003 13  onwards) Public sector debt (% of GNP) 57\.1 90\.5 81\.0 78\.5 70\.4 63\.5 55\.3 44\.8 Safeguarding Education social (% of GNP) 4\.0 4\.2 4\.25 4\.4 4\.2 4\.0 4\.0 4\.3 expenditures Health (% of GNP) 3\.5 4\.3 3\.25 4\.7 4\.8 5\.1 5\.2 5\.3 Social protection (% of GNP) 6\.7 7\.7 7\.00 7\.9 9\.1 9\.1 9\.7 9\.7 Total social expenditures 14\.2 16\.9 14\.5 17\.1 18\.0 18\.2 18\.9 19\.3 In addition to the indicators identified in program documents we can also turn to third- party assessments of Turkey's macroeconomic stability as well as those derived from financial markets, which show remarkable improvements (Table 8)\. Table 8: Third-party indicators of macroeconomic stability Objective Indicators Baseline Actual outcomes 2000 2001 2002 2003 2004 2005 2006 Macroeconomic Sovereign spread over stability EMBI+ (basis points) 800 707 693 309 265 223 207 Sovereign rating (long- term default, by Fitch) BB- B B B B+ BB- BB- ICRG financial risk rating* 24 23 32 33 33 33 34 Note: * Risk ratings range from a low of 0 (highest risk) to 50 (least risk)\. The rating reflects an assessment of a country's ability to pay its way by financing its official, commercial and trade debt obligations\. Risk points are assessed for each of the component factors of foreign debt as a percentage of GDP, foreign debt services as a percentage of exports, current account, net liquidity as months of import cover, and exchange rate stability\. Attribution Many factors besides actions supported by the PFPSAL have contributed to the result of an improved macroeconomic framework\. The overall positive global economic environment since 2002 with ample liquidity in global markets and progress in the EU accession process are two such factors which are unrelated to PFPSAL\. In addition, conditionality attached to the IMF program required many of the macroeconomic policies supported by PFPSAL ­ most notably with regard to the primary surplus\. Therefore, assuming the overall stabilization program had been in place, the results in terms of macroeconomic stability should not be attributed mainly to PFPSAL\. In contrast, the contribution of PFPSAL to the safeguarding of social expenditures can be established with greater certainty\. In the absence of PFPSAL it was less likely that social expenditures would have been kept at the pre-crisis levels and, hence, this outcome can be reasonably attributed to the program\. 14  (ii) Financial sector Outcomes The results in terms of improved confidence in the banking sector have been impressive\. Following the credit crunch after the banking crisis, Turkey's banking sector has strengthened while expanding its activities, as reflected by increasing banking assets as a share of GNP\. Following a process of consolidation the remaining fewer banks are more profitable and are less exposed to credit risk (as evidenced by lower non-performing loans), foreign exchange risk (lower open positions), and liquidity risk (liquid assets higher)\. In terms of shock absorbing factors ­ besides the banks' profitability ­ they are now better capitalized and have increased their loan loss provisioning (Table 9)\. Table 9: Financial sector outcomes ­ selected banking sector indicators Objective Banking sector indicators Baseline Actual outcomes 2000 2001 2002 2003 2004 2005 2006 Restoring Total assets banking sector (as % of GNP) 80\.0 90\.9 73\.8 66\.7 67\.9 76\.4 78\.4 confidence Number of banks 85 66 59 55 53 51 50 Return on assets (%) -0\.8 -5\.5 1\.1 2\.3 2\.3 1\.7 0\.7 Return on equity (%) -10\.5 -69\.4 9\.3 16\.0 16 11\.8 20\.0 Non-performing loans (% of total loans) 11\.1 25\.2 17\.6 11\.5 6\.0 5\.4 3\.8 FX deposits / total deposits 47\.1 56\.6 56\.9 48\.4 43\.2 35\.3 37\.3 FX loans / total loans 35\.5 47\.2 48\.4 38\.1 25\.7 17\.5 14\.9 Open FX position (% of total assets) -3\.6 -0\.1 -0\.4 0\.5 -0\.1 -0\.1 -0\.6 Capital Adequacy Ratio (%) 9\.3 20\.8 25\.6 31\.0 28\.8 24\.2 20\.5 Loan loss provisions (% of non-performing loans) 63\.1 49\.0 64\.2 88\.5 88\.1 89\.8 90\.6 Large majority Asset share held by private of control by banks (domestic or foreign) 50 - 45\.7 48\.9 50\.5 the private sector Asset share held by majority foreign-owned banks 3 - 4\.3 12\.4 17\.4 Financing Securities / assets 17\.0 36\.4 41\.1 42\.5 39\.7 35\.6 31\.8 increasing portions of Credits / assets 30\.4 24\.5 19\.9 24\.8 30\.2 35\.0 40\.2 investments Claims on public sector / required by the assets 36\.8 39\.8 40\.7 43\.4 40\.6 37\.0 32\.5 productive sector Claims on private sector / assets 29\.4 23\.0 20\.2 24\.6 30\.3 34\.3 38\.8 15  Source: CBRT (Financial Stability Report), BRSA\. Banking sector includes deposit money banks, investment banks and development banks\. A notable development since 2005 has been the increased strategic foreign investment in Turkish banks\. This reflects the improved prospects of the banking sector but also, due to the strength of the acquiring foreign banks, contributes to the stability of the banking sector\. Rating upgrades for the Turkish banking sector as a whole have ensued\. Table 10 reviews the outcome indicators identified at the outset of PFPSAL\. Table 10: Financial sector outcomes compared to PFPSAL outcome indicators Outcome indicator Outcome Effective independent banking regulation Independent supervisor and regulator in place, and supervision capacity created\. FX and though improving capacity remains a continuing connected exposure regulations are challenge as the financial sector becomes aligned to international best practice\. increasingly sophisticated; 2005 Banking Law is Banks compliant with FX and connected expected to lead to further improvements in lending regulations\. Consolidated supervisory practices; supervision achieved\. The authorities have committed to move to Basel II by 2008\. All non-intervened banks have a Capital adequacy ratios of all banks above 8 minimum risk weighted Capital percent (as of Sept\. 2006, cf\. 5 banks below 8 Adequacy Ratio of at least 8 percent\. percent CAR as of end-2001)\. Restructuring of troubled private sector All banks intervened were sold, liquidated or banks mostly completed\. Effective bank merged (except Bayindir); failure resolution capacity created\. Failure of Imar bank in 2003 resolved without systemic implications\. Restructuring of state banks completed\. Emlak: closed; Benchmarks: Emlak closed, Vakif 100% Vakif: 25% sold in 2005 raising US$1\.27 billion; privatized, Halk either privatized entirely or merged with/acquired by another Halk: 25% sold in 2007 raising US$1\.85 billion; bank, Ziraat 15% privatized\. Ziraat privatization delayed\. Full implementation of IOSCO standards The Capital Markets Board has already achieved for all securities activities and IAS for all a degree of compliance with IOSCO principles; financial institutions\. Entry of foreign banks have accelerated adherence to International Financial Reporting Standards\. Regulations for the insurance industry in Draft Insurance Law, dealing with a number of line with international IAIS norms\. key acquis issues, pending enactment\. In addition the Government agreed to monitor the progress in the financial sector component through a number of other indicators\. In particular, the number of branches of employees of state banks was monitored as an indicator of the restructuring of those banks\. The combined number of employees for Ziraat, Emlak and Halk, which stood at around 60 thousand in July 2001, had come down to around 34 thousand as of mid-2002 and has remained around that figure since ­ the latest available data for the first quarter of 16  2007 indicated 32 thousand employees (including temporary personnel)\. The combined number of branches also declined from 2,478 in July 2001 to 1,585 by end-2002 (as of the closing of PFPSAL in June 2006 the combined number of branches had increased to 1,737 reflecting in part the merging of Pamuk into Halk in 2004)\. Interest in the state banks has increased and, following a failed attempt to sale a stake in Vakif, stakes in both Vakif and Halk have been sold ­ the latter, in May 2007, attracted bids 8-times the shares offered\. Attribution Given the cross conditionality with the IMF program, the attribution of PFPSAL for the financial sector reform is not straight forward\. However, PFPSAL made a distinct contribution in the reform of the financial sector\. In particular, the program made a difference with regard to a much improved regulatory and supervisory framework that follows international best practices regarding issues such as connected lending, as well as in strengthening the institutional capacity of the regulators\. In addition, the involvement of the Bank also helped to move forward in the complex process of reorganization and privatization of state banks\. Third-party assessments provide some evidence of the positive contribution of the restructuring of state banks supported by PFPSAL\. Capital Intelligence, a credit analysis company specialized in rating emerging market banks noted, when explaining the rationale of a rating increase for Halk Bank in June 2006, that the bank's financial profile had "improved over the last couple of years due to the restructuring program surrounding both the banking sector in general and the state banks together with an improved operating environment\." Speaking of Ziraat, the same rating company considered that "Ziraat is now operating largely on a commercial basis" which was the precise outcome that was supported by PFPSAL\. (iii) Public sector Outcomes Results achieved during the time of the program in terms of the outcome indicators identified at its outset are set out in Table 11 below\. Table 11: Public sector outcomes compared to PFPSAL outcome indicators Outcome indicator Outcome Conditions for sustained fiscal Conditions in place as evidenced by: adjustment are solidly in place\. Reform of tax policies; Public employment and Public Investment Program rationalized\. New GFS budget classification is The 2006 budgets for all general government operational for the entire general institutions have been prepared based on the GFS government in the 2004 budget\. budget classifications\. Budget preparation process has gained Budget Law enacted in December 2005 real credibility and shift to performance New definition of general government covering budgeting is underway\. central government, social security institutions, and local government; Information on expenditure/revenues on Extra 17  Budgetary Funds given to Parliament; revolving funds data published quarterly since 2005; estimate of tax expenditures attached to budget; Medium-term fiscal plan to guide budget formulation issued since 2005; Performance-based budgeting still to be implemented\. Financial accountability practices in the Ex-ante financial control authority transferred in consolidated budget agencies are aligned 2006 to line ministries; with international norms\. Internal Audit Control Board established in 2005 to set internal audit standards and provide quality control of internal audit by line agencies; Automated on-line public accounting system (Say2000i)\. The Government is able to manage Debt management is perceived to be transparent prudently all public sector liabilities\. and debt management reports are published monthly since August 2006\. Turkey demonstrably improves in terms The Business Environment and Enterprise of perceived corruption as measured by Performance Surveys show a reduction in the diagnostic and business surveys\. frequency of unofficial payments between 2002 and 2005, especially related to business licensing, taxation, customs, and utilities connections\. Government has launched a medium- Functional review of government finalized but term strategy for civil service reform\. only limited impact on efficiency (elimination of General Directorate of Rural Services and the Undersecretariat of Housing)\. Results in the achievement of fiscal transparency were assessed in a 2006 Report on the Observance of Standards and Codes ­ Fiscal Transparency module by the IMF, which concluded that "Turkey has continued to make progress toward meeting the requirements of the fiscal transparency code," noting also that further effort was still required to fully meet the requirements of the Code\. As mentioned above, together with the counterpart, the country team also followed a number of additional indicators, such as those regarding the public investment program and the role of extra-budgetary funds (Table 12)\. While the reduction in completion times alone does not ensure the rationalization of the public investment program, the fact that the decline in completion times has taken place recently in a context of increased actual investment and fewer projects gives us more comfort as to its use as a quality indicator\. Table 12 also shows that the expenditures accounted for by extra-budgetary funds have been more than halved, in terms of GNP, compared to 2000\. Table 12: Additional outcome indicators of public sector reform monitored by Bank staff Baseline Actual outcomes 2000 2001 2002 2003 2004 2005 2006 Public Investment Program 18  Number of projects 5,321 5,047 4,414 3,851 3,555 2,627 2,525 Average years of completion 9\.2 12\.5 8\.5 7\.6 8\.1 6\.6 5\.5 Actual investment (% of GNP) 4\.9 4\.3 4\.4 2\.9 2\.7 3\.3 Extra-Budgetary Funds Expenditures (% of GNP) 2\.1 1\.1 0\.8 0\.7 0\.7 0\.5 0\.8 Balance (% of GNP) -0\.3 0\.8 -0\.2 -0\.2 -0\.2 0\.0 -0\.2 Attribution PFPSAL was the cornerstone of the public sector reform aspects of the reform program launched in 2001\. In the absence of the program it is unlikely that the policy actions supported would have (i) been part of the conditionality of the IMF program, and (ii) been implemented as timely as they were with the support of PFPSAL\. The program made a distinct contribution in bringing international best practice and in helping design appropriate reform steps in a range of issues regarding public financial management and control: appropriate budget coverage and classification, public accounting and auditing, strategic planning, medium-term budgeting, and liability management\. By contributing to progress in areas where past weaknesses had led to unsustainable public finances, the program also indirectly contributed to mitigating the risk of future crises\. 3\.3 Justification of Overall Outcome Rating PFPSAL I Rating: Satisfactory Justification: PFPSAL I supported key elements of the stabilization program launched in May 2001 that signaled to the market the Government's determination to achieve and maintain macroeconomic stability\. As the first Bank operation following the crisis, the contribution of PFPSAL I towards that signal was significant, thus supporting the Government's efforts, being the first manifestation of the plans announced by the Bank in March 2001 to support the Turkish stabilization program with US$3\.5 billion in new commitments in fiscal 2002 ­ an increase of US$2 billion over the high case in the 2000 CAS\. The relevance of the objectives, as well as the extent to which they were achieved and the efficiency of the operation were all substantial\. PFPSAL II Rating: Satisfactory Justification: The second operation made further progress along the lines envisaged at the time of PFPSAL I\. A number of key reforms began to materialize, such as the enactment of the Public Financial Management Control law, which represented a landmark change in the approach towards public expenditure management and financial accountability in Turkey\. While the second and third tranches of PFPSAL II were cancelled the actions which they meant to support were either accomplished before PFPSAL III or incorporated as part of the PFPSAL III\. PFPSAL III 19  Rating: Moderately satisfactory Justification: Notwithstanding the achievements made towards meeting the development objectives, progress was slower than envisaged in a few areas, most notably in launching the privatization of state banks and in the approval of the Agricultural Framework Law\. The closing date of the loan, originally June 30, 2005, was extended twice, first to December 31, 2005 and subsequently to June 30, 2006 to provide additional time needed to finalize those pending actions supported by the loan\. Eventually, the release of the second tranche took place after a partial waiver on the launch of a privatization strategy for Ziraat bank\. In the context of a fast disbursing loan, it can be argued that these delays negatively affected the efficiency of the operation in achieving its objectives\. However, since the nature of the last operation in the series was more oriented to reform support rather than a crises response, addressing the long standing structural issues was more important than the timing of the disbursement\. 3\.4 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development In the absence of the program it is likely that social expenditures would have been cut in order to achieve the required fiscal adjustment needed to achieve public debt sustainability and the restoration of macroeconomic stability\. Such a reduction in social expenditures would have aggravated the negative impact of the 2000-01 crisis on poverty and social development\. In addition, the PFPSAL has contributed to important social benefits through restoring growth, job creation, and reduced economic vulnerability ­ although the existing data cannot provide a comparable assessment year-by-year on the evolution of poverty during the crisis and the first years of the program (Turkey' State Institute of Statistics and World Bank Joint Poverty Assessment Report, 2005)\. Some elements of the program necessarily implied a short-term social cost, most notably the reduction of over-employment in state economic enterprises\. The Government worked to mitigate these social costs through the provision of social benefits\. Workers affected by the reduction in public employment (a total attrition of 59,000 from 2002 to mid-2004) were eligible for pensions and other insurance benefits\. Workers laid off from SEEs in the portfolio of the Privatization Administration benefited also from a special compensation benefit\. In addition, all workers meeting the minimum contribution history requirement of 18 months were also eligible to benefit from the new unemployment insurance scheme introduced in 2000\. It must also be noted that the resumption of growth has not been accompanied by substantial increases in employment (World Bank's Labor Market Study, 2006)\. Still, the incidence of poverty, after stagnating for a number of years, is now receding rapidly (Figures)\. (b) Institutional Change/Strengthening 20  Some sub-components of PFPSAL aimed directly at contributing to the development of capacity of institutions, most notably the Banking Regulation and Supervision Agency, the Savings and Deposit Insurance Fund, and the Turkish Court of Accounts (TCA)\. The available information suggests that the program had a modest but positive impact on developing the capacity of the above-mentioned institutions\. In the case of the TCA, however, the still pending approval of the new TCA law carries with it the risk that the capacity built up at the TCA may be eroded as it cannot be put in practice\. Besides these cases, an unintended consequence of the implementation of the reforms supported by PFPSAL in the area of direct income support for farmers was an improvement in capacity at the Ministry of Agriculture and Rural Affairs\. Evidence of this increased institutional capacity was the relatively favorable screening of the agriculture chapter in the context of the EU negotiations\. Also the institutional capacity among the state banks to deal with market participants and potential investors and advisors has improved over time, partly as a result of the preparation of privatization plans supported by the program\. (c) Other Unintended Outcomes and Impacts (positive or negative) A number of tools used to monitor PFPSAL performance have now become part of the standard policy toolkit of the Government: i) the national farmers' registry in the Ministry of Agriculture and Rural Affairs established to monitor direct income support under PFPSAL and which is now the basis for other policies administered by the Ministry; ii) public employment data, which started to be collected as part of the PFPSAL program to monitor one of its conditions, has now become a standard reporting item by the Statistical Office, thus helping to increase the transparency of the budget; iii) social expenditures by the government also started to be monitored by the Government as part of the PFPSAL program, and has been continued after the closing of PFPSAL III, helping to increase the transparency of the budget\. In addition, the strategic plans of the SDIF and BRSA, which were part of the conditionality attached to the second tranche of PFPSAL III, have become useful for other government agencies' own efforts to develop their strategic plans (required by 2010 as part of the Public Finance Management Control law) serving de facto as unintended pilot projects of government agencies developing strategic plans\. 3\.5 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops (optional for Core ICR, required for ILI, details in annexes) Not applicable\. 4\. Assessment of Risk to Development Outcome PFPSAL I, II and III 21  All rated equally as they contribute to the same development outcomes and are being rated, on the basis of the assessment of risks at the time of writing\. Rating: Moderate2 Justification: The reform program has delivered strong economic performance and, hence, the risk posed by possible shocks has been reduced to a considerable extent\. Nevertheless, Turkey still remains vulnerable to both internal and external shocks\. The ability of Turkey to withstand turbulences in financial markets such as that observed since June 2006 demonstrated improved resilience of the economy\. Turkish markets' relatively fast recovery from volatility in financial markets showed the economy's improved resilience to such shocks\. At the same time, the impact on domestic markets was not negligible, indicating Turkey's continued vulnerability to external shocks\. A change in global liquidity conditions and risk appetite for emerging markets remains an important external risk factor\. Political stability and support for the program remain key factors to ensure the sustainability of the results achieved\. In this regard the risks have also been mitigated to some extent by the very reforms that PFPSAL supported, as they have helped to increase budget transparency, consolidate independent regulators, and brought in commercial practices and private sector interest into state banks\. 5\. Assessment of Bank and Borrower Performance 5\.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry PFPSAL I Rating: Satisfactory Justification: Despite the challenge of a very difficult crisis environment and country context, and the limited time taken to prepare the loan (three months), the PFPSAL addressed the key issues at the root of the crisis\. The fact that the policy areas supported by PFPSAL I have remained unchanged and relevant throughout the operation and beyond, is further evidence of the satisfactory quality at entry\. The in-depth country and sector work conducted prior to the operation was, in this regard, a key factor\. The Public Expenditure 2 All ratings given by the ICR should use a six-point rating scale (Highly Satisfactory, Satisfactory, Moderately Satisfactory, Moderately Unsatisfactory, Unsatisfactory, or Highly Unsatisfactory), except for the rating of Risk to Development Outcome that use a four-point scale (Negligible to Low, Moderate, Significant, High)\. 22  and Institutional Review conducted in 2000-01, in particular, is still widely regarded among counterparts in the Government of both being an excellent analysis of the key policy issues affecting the public expenditure management as well as an example of how to build ownership and consensus in support of a difficult set of reform issues\. Technical assistance in the form of a Public Financial Management Project in 1995 had already laid down the analytical groundwork but, without a lending operation, it had made only a limited contribution\. It was the bundling of knowledge and lending that proved to make a difference\. During 2001 a Country Procurement Assessment Review (CPAR) and a Country Financial Accountability Assessment (CFAA) were also completed and served to underpin the program\. Given all this pre-existing dialogue and analytical work, which included also a Country Economic Memorandum in 2000, it was possible to prepare the PFPSAL program in a short period of time, three months\. In a crisis environment, this short preparation time was particularly important\. PFPSAL II Rating: Satisfactory Justification: The design of PFPSAL II followed on the key reform areas identified in PFPSAL I as benchmarks that would trigger PFPSAL II in a smooth manner\. Progress made permitted also a streamlining of the conditionality attached to PFPSAL II so that, while PFPSAL I envisaged 37 benchmarks for PFPSAL II, in the event the release for the first tranche of PFPSAL II was linked to a total of 23 conditions\. Quality at entry for PFPSAL II was rated satisfactory by a Quality Assurance Group (QAG) panel in August 2002\. PFPSAL III Rating: Moderately Satisfactory Justification: The design of PFPSAL III was built around the areas envisaged in the second and third tranches of PFPSAL II that were cancelled\. All of the conditions in those tranches were added to the PFPSAL III operation, which moved beyond the scope of PFPSAL II in a number of areas\. These changes were fully in line with the thrust of the reforms supported by the program and reflected mainly the need to update the timetable to keep up with developments\. Among the changes introduced, a prior action for PFPSAL III was the enactment of the Public Financial Management Control Law (which was only to be submitted in draft under the final tranche of PFPSAL II)\. Similarly, PFPSAL III contained as a second tranche condition the enactment of the agricultural framework law which moved beyond the requirements in PFPSAL II by locking in the reductions in agricultural subsidies channeled through the direct income support mechanism\. Finally, PFPSAL II did not tackle the steps needed to start the privatization of the two largest state banks, Ziraat and Halk\. Those steps needed for their privatization became conditions for the release of the 23  second tranche in PFPSAL III\. Given the size, complexity and political sensitivity of privatization and restructuring of the state bank, following a phased out approach -- observing results of the privatization of Halk Bank prior to proceeding with the sale of the much larger Ziraat Bank -- was a sensible decision\. However, the Bank should have assessed the likelihood of privatization more candidly\. (b) Quality of Supervision PFPSAL I Rating: Satisfactory Justification: As a single-tranche operation supervision by the Bank implied the preparation of a project status report following the closing of the loan\. PFPSAL II Rating: Satisfactory Justification: The Bank undertook the appropriate supervision missions and completed project status reports until the closing of the operation\. PFPSAL III Rating: Satisfactory Justification: In addition to the appropriate supervision missions and project status reports, the Bank proactively identified areas where there was a risk that the momentum for reforms may be weakened to which it paid particular attention through dedicated monitoring notes on issues such as budget implementation and the PFMC law (as discussed under section 2\.3 above)\. (c) Justification of Rating for Overall Bank Performance PFPSAL I Rating: Satisfactory Justification: Both Bank performance in ensuring quality at entry and in quality of supervision is rated satisfactory (as discussed in respective rationales provided above)\. PFPSAL II Rating: Satisfactory Justification: Both Bank performance in ensuring quality at entry and in quality of supervision is rated satisfactory (as discussed in respective rationales provided above)\. 24  PFPSAL III Rating: Satisfactory Justification: The overall performance of the Bank is rated satisfactory based on the performance in ensuring quality at entry and in quality of supervision\. (as discussed in respective rationales provided above)\. 5\.2 Borrower Performance (a) Government Performance As performance of the government and the implementing agency are indistinguishable, the rating and its justification is only provided for overall borrower performance in section 5\.2\.c below\. (b) Implementing Agency or Agencies Performance See below\. (c) Justification of Rating for Overall Borrower Performance PFPSAL I Rating: Satisfactory Justification: The Government agencies participated actively in project preparation, working jointly with the Bank in the analysis that provided the underpinning for the operation\. In particular, the effective collaboration between the Undersecretariat of the Treasury, Ministry of Finance, and State Planning Organization together with the Bank in the PEIR provided a strong basis for preparing the public sector component of the program\. Implementation was swift as called for to address the crisis situation in early 2001\. PFPSAL II Rating: Satisfactory Justification: While some delays occurred in 2002 the Government remained committed to the reform program, which moved into the implementation phase in a number of areas\. Government counterparts further developed productive relationships and the Government agencies involved in implementing the policy measures in PFPSAL II remained focused\. PFPSAL III 25  Rating: Satisfactory Justification: As discussed under the section covering factors affecting implementation, the electoral cycle and the change of government in late 2002 resulted in a delay in finalizing this operation\. Despite these delays, the Government remained committed to the objectives of the PFPSAL program and progress was made to implement most of the envisaged reforms, while a waiver was requested and agreed to regarding a second tranche condition relating to the launch of a privatization plan for Ziraat bank\. The Government decided that learning from the Halk Bank offering before proceeding with the sale of Ziraat Bank, the largest (state or private) bank in Turkey, would be a realistic approach\. \. In addition, the authorities were concerned with attempting to sell two of the largest banks in the country simultaneously while also issuing shares of Vakif Bank ­ another state controlled bank\. 6\. Lessons Learned The experience of PFPSAL provides a number of insights that speak to four distinct issues: (i) critical role of country leadership; (ii) the importance of bundling knowledge and lending in Bank's operations; (iii) the appropriate balance of the Bank's focus on supporting design and implementation of a program; and (iv) the specifics of programs in crisis situations\. i) Critical Role of Country Leadership: High degree of up-front political leadership, ownership of the strategy and the program by the Government including key ministries, and consensus behind the program were important preconditions for the successful adoption and implementation of reforms especially in the case of public sector reforms\. Full engagement of the counterpart during the design process of the program was a crucial factor that contributed positively to the success of the program\. This strong engagement of the Government was secured through full involvement of the counterpart in the preparation of analytical documents including PEIR, which set the base of the reform program Political stability since November 2002 through a single party government has contributed positively to the country ownership to the Program\. ii) Bundling of knowledge and lending PFPSAL provides a good example of the importance of in-depth analysis and continued engagement as the basis for a sound program\. Such an analysis and dialogue was key for identifying the underlying sources of the crisis, as well as to ascertain the Government's ownership of specific reform proposals\. The faster progress made in the public sector component of the program compared to the financial sector can be seen partly as a result of more in-depth analysis in the 26  preparation stage\. In this regard, the limited information available regarding state banks' operations was a serious constraint in the design of the program\. The program can serve as an example of how lending operations provide ample opportunities to engage with the authorities\. At the same time, as the positive experience with the economic and sector work underpinning the public sector reform component, the program demonstrates that much of the groundwork for such engagement can effectively take place under non-lending operations\. It proved, however, more difficult to have an effective non-lending engagement regarding the state banks, reflecting perhaps the very different nature of the two sectors and the sensitivity of information that ­in the absence of a lending operation­ counterparts are likely to feel comfortable sharing\. iii) Design vs\. implementation Numerous counterparts considered that the Bank was more effective in the design of the program than in helping its implementation\. The comment was widespread, being made about diverse areas such as strategic planning, performance-based budgeting, and the preparation of medium term expenditure frameworks\. Although the option of using grant money to support the implementation was under consideration, due to some ownership problems from the counterpart side, this alternative could not be realized\. Moreover, support needed during the implementation could not be addressed through technical assistance provided under the development policy loans, which requires continuous involvement with the counterpart\. Moreover, not having an investment lending to support the implementation leaves the Bank to support the implementation in a limited manner\. Without entering into a broader discussion as to the appropriate role of the Bank in supporting implementation, the experience of PFPSAL suggests that: (a) the activities of the World Bank Institute could be better linked with existing lending operations; (b) support for implementation was limited in part by the lack of borrowing for technical assistance projects by the Government ­ leaving the Bank with limited ability to support implementation\. This last point prompts a question as to how the Bank could emphasize more the need to accompany the reform program supported by a development policy loan with sufficient technical assistance\. iv) Crisis programs Getting at the underlying roots of the crisis, the link between lack of public finance transparency and financial sector vulnerability, was key for the success of the program\. This underscores the usefulness of designing PFPSAL as a multi-sector program\. At the same time, as the experience with the differing pace of implementation of the two components under PFPSAL III shows, separation into different programs may be called for at some point in time\. In a much-improved environment waiting for an appropriate timing for the privatization of state banks has probably resulted in greater revenues than anticipated or that would have been achieved in faster sales\. The increased interest in the Turkish banking sector was most unexpected only two or three years before partly because at the depth of the crisis it is easy to under-estimate the extent of the recovery\. Therefore, a broader conclusion could be that when designing a program in the midst of a crisis, 27  flexibility is particularly important regarding policy measures that may have widely differing outcomes under different states of the economy\. 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/Implementing agencies No comments\. (b) Co-financiers Not applicable\. (c) Other partners and stakeholders Not applicable\. 28  Annex 1 Bank Lending and Implementation Support/Supervision Processes (a) Task Team members P082996 - Programmatic Financial & Public Sector Adjustment Loan 3 (PFPSAL 3) Names Title Unit Responsibility/ Specialty Lending Supervision Rodrigo A\. Chaves Lead Economist ECSPE Mediha Agar Economist ECSPE Steen Byskov Financial Sector Spec\. ECSPF Michael Edwards Lead Financial Sector Specialist ECSPF Kamer Karakurum-Ozdemir Economist ECSPE Zafer Mustafaoglu Senior Economist ECSPE Ruth Neyens Consultant OPD-His Ahmet Gurhan Ozdora Sr Operations Off\. ECSSD Steven R\. Weisbrod Consultant ECSPF Devrim Yurdaanik Consultant ECSPF (b) Staff Time and Cost P070561 - Programmatic Financial & Public Sector Adjustment Loan (PFPSAL) Staff Time and Cost (Bank Budget Only) Stage No\. of staff weeks USD Thousands (including travel and consultant costs) Lending FY01 345\.98 FY02 63\.15 FY03 0\.00 FY04 0\.16 Total: 409\.29 Supervision FY01 3\.52 FY02 142\.56 FY03 18\.74 FY04 0\.00 Total: 164\.82 P070560 - Programmatic Financial & Public Sector Adjustment Loan 2 (PFPSAL 2) Staff Time and Cost (Bank Budget Only) Stage No\. of staff weeks USD Thousands (including travel and consultant costs) Lending FY01 0\.00 FY02 629\.52 FY03 0\.00 FY04 0\.00 29  FY05 0\.00 Total: 629\.52 Supervision FY01 0\.00 FY02 72\.81 FY03 406\.23 FY04 19\.99 FY05 0\.00 Total: 499\.03 P082996 - Programmatic Financial & Public Sector Adjustment Loan 3 (PFPSAL 3) Staff Time and Cost (Bank Budget Only) Stage No\. of staff weeks USD Thousands (including travel and consultant costs) Lending FY03 25 110\.99 FY04 99 540\.36 FY05 6 23\.45 FY06 0\.00 FY07 0\.00 Total: 130 674\.80 Supervision FY03 0\.00 FY04 0\.00 FY05 56 428\.97 FY06 23 116\.20 FY07 -0\.03 Total: 79 545\.14 Table A\.1: Program Performance ­ List of Prior Actions Prior actions from Policy Matrix in Project Document Status PFPSAL I (single tranche) (all met as Board presentation conditions) Satisfactory macroeconomic framework for calendar year 2001, consistent with the core objectives, including: (a) positive GNP growth during the second semester; (b) inflation of two percent (2%) per month and nominal interest rates of 50-55% by the end of the calendar year; and (c) primary surplus for the consolidated public sector of five and a half percent (5\.5%) of GNP\. Satisfactory supplementary budget for calendar year 2001 consistent with the macroeconomic objectives set forth in above paragraph 1 which also ensures satisfactory expenditure envelopes for health, education and social protection The Borrower has amended the Banking Law to: (i) allow for full tax deductibility of all specific loan loss provisions required by BRSA effective for the year beginning January 1, 2001; and (ii) allow application of connected exposure limits on a consolidated basis while retaining the existing phase-in period in the Banking Law for connected exposure to reach EU limits, and introduce separate exposure limits for equity investments in non-financial subsidiaries in line with the applicable EU 30  directive, with a phase-in period\. The BRSA has: (a) issued through Decision No\. 355, dated June 20, 2001, a Regulation on the existing loan loss provisioning rule, published in the Official Gazette on June 30, 2001, and has applied the loan loss provisioning rule also for Ziraat Bank and has lifted the exemption from specific provisioning for Ziraat Bank's agricultural support loans; (b) issued, through Decision No\. 354, dated June 20, 2001, and Regulation on chartering and operations of banks, published in the Official Gazette dated June 27, 2001: (i) a satisfactory definition of connected exposure in line with the applicable EU directive, this definition and maximum exposure limit to apply on a solo and consolidated basis; and (ii) satisfactory interim steps and timetable for banks to reach compliance with the new Banking Law limits on equity holdings in non-financial subsidiaries; and (c) amended, to be effective as of January 1, 2002: (i) the solo and consolidated capital adequacy regulations to change the reporting frequency for the capital base constituting the denominator of the foreign exchange exposure limit from quarterly to monthly; and (ii) the consolidated foreign exchange position reporting rule to change the reporting frequency from quarterly to monthly\. BRSA has agreed to finalize time bound action plans by August 31, 2001, with banks which are out of compliance with the new connected exposure limits for such banks to reach compliance\. The Borrower has established a working group, comprising members from Treasury, BRSA, CBT, CMB and MOF, to recommend measures to reduce the risks caused by excessive use of retail repos/short term liabilities in the banking sector\. BRSA has developed, and its Board has approved, a time bound strategic plan with clearly assigned implementation responsibilities to: (a) have a comprehensive human resource policy further assimilating its staff from different sources and strengthening the staff training program; (b) integrate the existing multiple databases into a common database and develop a common platform for analyzing and assessing banking risks; (c) upgrade and develop procedure manuals for all major existing BRSA units; and (d) introduce the concept of relationship supervision with offsite examiners, enforcement staff and Sworn Bank Auditors working in teams on individual banks\. BRSA has identified all capital deficient banks in the system and agreed upon capital restoration plans with these banks or has initiated appropriate resolution actions for these banks\. Treasury, in cooperation with CBT, has injected into SDIF banks, enough: (a) marketable government securities (in Turkish Liras and foreign exchange) at market terms in a mix of maturities and currency denominations carrying quarterly market- based floating rate coupon interest to ensure that the banks have sufficient liquidity to operate and honor any deposit withdrawals, and to recapitalize the SDIF banks up to 0% capital adequacy; and (b) cash (in lieu of Government securities referred in subparagraph (a) above) to retire at least two thirds (2/3) of all on and off balance sheet overnight high cost liability funding of the SDIF banks outstanding as of March 16, 2001, (excluding liabilities to CBT) and CBT to subsequently withdraw excess liquidity through open market operations within an overall ceiling on the stock of repurchase agreements of the SDIF and state-owned banks with CBT as of May 31, 2001 of 7 quadrillion Turkish Liras\. 31  SDIF has: (a) hired required staff for its collection department; (b) received approval from its Board enabling the transfer of 1166 problem loan files (each above 75 billion Turkish Lira) from Sumerbank to the collection department; and (c) completed the transfer of 150 of the above-mentioned files\. SDIF has selected a second transition bank besides Sumerbank, and revoked the license and initiated the merger/liquidation of Turk Ticaret Bank, Es Bank, Inter Bank and Eti Bank with either one of the transition banks\. Treasury has, in cooperation with CBT, injected into Halk Bank and Ziraat Bank enough: (a) marketable government securities in a mix of maturities and currency denominations and carrying quarterly market-based floating rate coupon interest to ensure that these banks have sufficient liquidity to operate and honor any deposit withdrawals and to write-off all remaining duty loss claims and recapitalize the two banks up to at least eight percent (8%) capital adequacy; and (b) cash (in lieu of Government securities referred in subparagraph (a) above) to retire at least two thirds (2/3) of all on and off balance sheet overnight high cost liability funding of these banks outstanding as of March 16, 2001, (excluding liabilities to CBT) and CBT has subsequently withdrawn excess liquidity through open market operations within the overall maximum ceiling on the stock of repurchase agreements of the SDIF and state- owned banks with CBT as of May 31, 2001 of 7 quadrillion Turkish Liras\. The Borrower has appointed an independent professional governing board for Halk Bank and Ziraat Bank with the mandate to manage these banks in accordance with commercial principles and all prudential guidelines under the Banking Law issued by BRSA, and the governing board has initiated operational restructuring of these banks, including closure of unprofitable branches and reduction of redundant staff\. The governing board for Halk Bank and Ziraat Bank has appointed a restructuring advisor for Ziraat Bank and a restructuring and privatization advisor for Halk Bank\. The Borrower has adopted an amendment to Law No\. 6219 to allow the simultaneous sale of A and B shares of Vakif Bank, and has agreed to authorizing the simultaneous sale of the A and B shares\. The Borrower has introduced a satisfactory supplemental fiscal package consistent with the revised fiscal targets for calendar 2001 including: (a) increase in the petroleum consumption tax by at least 15% in May, following a 20% increase in April, and subsequent full implementation of the indexation regulation for the petroleum consumption tax adopted in 2000; (b) increase in the standard value added tax rate from 17% to 18% and the luxury rate from 25% to 26%; (c) increase in the minimum base for social security contributions of 40% and increase in the ceiling from 4 to 5 times the minimum base in line with existing regulations; (d) full pass through by state-owned enterprises of cost increases due to exchange rate adjustments and the revised inflation targets; and (e) adjustment of agriculture support prices in line with the agriculture reform program\. MOF has issued Regulation No\. 2, published in the Official Gazette dated June 19, 2001, to expand the use of tax identification numbers to owners of bank accounts, users of banking services and participants in financial transactions\. The Borrower has announced that the number of civil servants will not increase in 2001 and has committed to implement a strict policy of replacing up to a maximum of fifteen 32  percent (15%) of retiring personnel in state-owned enterprises including Turk Telekom and enterprises in the portfolio of the Privatization Administration\. The Borrower has established a high-level steering committee consisting of representatives from MOF, Treasury, SPO and TCA, and selected line ministries and agencies as needed, to coordinate the implementation of the public expenditure management reform\. The Borrower has adopted Law No\. 4684, dated June 20, 2001, Prime Ministry letter No\. 2001/817, dated May 17, 2001, and Decree No\. 2001/2698, dated July 3, 2001 to close the remaining fifteen budgetary funds and two extra-budgetary funds\. The Borrower has completed the new budget classification for consolidated budget agencies in line with new GFS standards for implementation on a pilot basis in calendar year 2002 budget\. HPC has issued Decision No\. 2001/30, dated June 22, 2001, for the calendar year 2002 budget preparation process, which in a satisfactory manner: (a) provides a macro fiscal framework for 2002 budget preparation including overall levels for the recurrent and investment budget; (b) establishes indicative ceilings for both the recurrent and investment budgets for ministries and line agencies; (c) freezes the introduction of new multi-year projects into the public investment program, except for possible emergency projects; and (d) calls for the rationalization of the public investment program in the 2002 budget, including: (i) the timetable for rationalization process; (ii) the objective of reducing expected average time for completion of public investment program by twenty percent (20%) compared to the 2001 public investment program along with sector specific reductions consistent with this overall objective; (iii) global criteria for prioritizing projects; and (iv) instruction to line ministries and agencies to prioritize their investment programs in line with the ceilings, objectives and criteria\. The Borrower has substantially completed field installations for the say2000i computerized accounting system with the objective of starting full automation for consolidated budget agencies by the end of calendar year 2001\. The Borrower has announced that the draft public procurement law to be submitted to the Parliament by October 15, 2001 will be fully compatible with UNCITRAL standards as a first step towards full compliance with EU directives\. The Borrower has established a task force to develop an audit reform program encompassing: (a) plan of actions, including necessary legal amendments, to expand scope of TCA audits to cover the entire general government including autonomous agencies, social security institutions, remaining extra-budgetary funds; and (b) preparation of a new law on internal financial control and audit in line with international and EU standards based on a review of current control, inspection and audit process\. The Borrower has adopted Law No\. 4684, dated June 20, 2001, and Decree No\. 2001/2312, published in the Official Gazette dated April 30, 2001, to eliminate all existing legal provisions authorizing creation of duty losses in the state banks\. The Borrower has submitted to the Parliament the Law on Public Finance and Debt Management, in a satisfactory manner that establishes the Treasury as the single borrowing authority for the central government and has initiated development of a 33  comprehensive fiscal risk management framework\. The Borrower has initiated the preparation of a satisfactory national strategy to combat corruption and improve governance\. PFPSAL II (first tranche) (all met as Board presentation conditions) Satisfactory macro framework for 2002 consistent with the core objectives including GNP growth of 3%, annual inflation of 35% and nominal interest rates in the 55% range by December 2002, a primary surplus for the consolidated public sector of 6\.5% of GNP, and a decline in the public debt to GNP ratio to about 81%\. Satisfactory budget for 2002 is approved by Parliament which ensures satisfactory social expenditure envelopes for health, education and social protection\. The BRSA to (i) issue an explanatory supplement to the LLP rule to clarify the concept of fair value for the valuation of collateral supporting bank loans; (ii) amend the provisional article 2(f) in the Banking Law 4389 so as to eliminate the phasing-in of specific loan loss provisioning requirements for classified exposures over a period of four years starting June 1999; and (iii) amend the LLP rule to facilitate restructuring of corporate loans and ensure restructured loans are only upgraded to a higher classification category once renewed debt service track record and creditworthiness are firmly established\. The BRSA to require banks to bring repos on balance sheet as collateralized finance transactions\. The BRSA to undertake the necessary regulatory enforcement actions, including instructing of external auditors to launch the process of ensuring that all non performing loans are correctly and transparently stated through proper classification and provisioning procedures in the private deposit taking banks' balance sheets in order to reflect their true capital position\. Resolve Eti, Iksat, Site, Kent, Bayindir, EGS through sale or license revocation/liquidation\. (One of these banks may be converted into a non deposit bank for residual asset resolution purposes)\. Resolve all the liabilities remaining with the SDIF upon completion of the sales of some of the SDIF banks or revocation of the banking licenses of un-saleable banks, by transferring all such banking liabilities along with matching Government securities to large private banks (including Ziraat) through auctions\. The SDIF to also prepare an asset resolution strategy to deal with all the remaining non-performing loans, and other investments in subsidiaries of these banks\. Resolve all the liabilities remaining with the SDIF upon completion of the sales of some of the SDIF banks or revocation of the banking licenses of unsaleable banks, by transferring all such banking liabilities along with matching Government securities to large private banks (including Ziraat) through auctions\. The SDIF to also prepare an asset resolution strategy to deal with all the remaining non-performing loans, and other investments in subsidiaries of these banks\. The Government to issue instructions to Ziraat and Halk management to undertake the 34  necessary operation restructuring, including unprofitable branch closures and reductions of excess staff\. Agreement to be reached between the Treasury and the management of Ziraat and Halk on the amount of interest and principal payments to be made to Ziraat and Halk during 2002 in cash on Government securities held by Ziraat and Halk\. Identify all public service functions of Ziraat that should be transferred to other entities as well as the recipient entities for these functions and formally adopt a transfer plan through issuance of Government of Turkey decision/decree/legislation/protocols as necessary\. Hire a Privatization Advisor to advise on the privatization strategy of Vakif bank\. Satisfactory fiscal package for 2002 is announced and implemented including: (i) revenue increases including increase in PCT, special transaction taxes, property tax revenues, and real increases in SEE prices in late 2001 and adjustment in line with WPI or world prices in 2002 (1\.2% of GNP); (ii) reduction in personnel and benefit expenditures including retrenchment of SEE employment and changes in health insurance benefits (0\.5% of GNP); (iii) reduction in operating expenditures including elimination of regional administrations, shift of certain departments to the provincial administration, and tighter restrictions on SEE expenditures (0\.2% of GNP); (iv) further reduction in agriculture subsidies and transfers to agricultural SEEs (0\.1% of GNP)\. Medium-term strategy for improving the tax system is adopted by the Government\. Comprehensive public employment program to adjust public sector staffing levels is initiated\. Preparations are complete for implementing new GFS budget classification and coding on a pilot basis in 2002 budget\. Agreement is reached with the Bank on action with regard to the remaining Extra- Budgetary Funds\. The Government has adopted a Public Investment Program for 2002 which meets the objective of the High Planning Council decision including a 20% reduction in the average project completion time and a major reduction in the number of new multi-year projects\. Annual budget law for 2002 has authorized MOF to issue accounting standards for all general government agencies in line with GFS\. Satisfactory public procurement law is enacted\. Submit to Parliament draft legislation: (i) to extend the coverage of Turkish Court of Accounts audits to the Parliament and Presidency, and (ii) for external audit of TCA itself\. Satisfactory public debt law is adopted by Parliament\. National strategy to enhance transparency and good governance in the public sector is adopted by the Council of Ministers and published\. Ministerial committee for civil service reform is established\. 35  PFPSAL III (first tranche) (all met as Board presentation conditions) Satisfactory macroeconomic program including track record for at least 2004 (Q1) to be evaluated on the basis of the overall program with respect to key variables\. Agreement is reached on medium-term agriculture policy paper including satisfactory provisions for direct income support (DIS)\. Agreement has been reached on the principles, scope, and contents of satisfactory and comprehensive set of amendments to the Banking Act that will be submitted to the Council of Ministers and which will (a) delineate the functions of and regulate the collaboration between BRSA and SDIF as well as to secure the institutional independence of each of these institutions and (b) enhance SDIF's collection enforcement powers\. Following its recent reorganization in March 2004, the BRSA has initiated the development of a new strategic plan\. The Government has made the decision to hire consultants with adequate experience and qualifications under satisfactory TORs to carry out a due diligence of Vakif bank\. The process of selecting consultants with adequate qualifications and experience to carry out the due diligence activities has been launched\. The Government in collaboration with Ziraat and Halk banks have prepared satisfactory TORs to engage strategic advisors to formulate a privatization strategy which includes required prior restructuring actions\. The Government in collaboration with Ziraat and Halk have launched the process of selecting advisors with satisfactory qualifications and experience to formulate the privatization strategy\. Amendments to the Execution and Bankruptcy Act have been enacted to introduce pre- packaged options and to complement the earlier amendments enacted in July and December 2003\. Implementation of the fiscal package for 2004 is on track and all remaining measures in the package have been implemented\. The first legislative package for the direct tax reform was enacted in April 2003\. A second package of direct tax reform legislation was enacted in January 2004 to rationalize geographical, sectoral, and other investment incentives including by rationalizing the benefits in Free Trade Zones\. The quarterly public employment reports have been prepared and provided to the Bank in 2003\. The public employment policies are being maintained and strengthened in 2004\. These include: (i) a cap on the total number of civil servants in the central and local government ­the ceiling on new hiring in the consolidated budget has been set at 40,000; and (ii) a limit on replacement hiring in the SEEs equal to 10 percent of attrition\. 36  MoF issued a circular in June 2003 expanding new GFS budget classification to all of general government\. Satisfactory EBF law is submitted by the Council of Ministers to Parliament\. An assessment prepared by SPO in April 2003 confirmed the reduction in the average project completion time in the 2002 PIP and indicated a further reduction in the average completion time to an estimated 7\.6 years in the 2003 PIP along with a continued reduction in the number of projects\. Following the budgetary cuts in the context of fiscal measures required to meet the end- year primary surplus target, the average completion time is likely to increase to 8\.6 years in 2004\. High Planning Council issued circular identifying 8 public administrations for implementation of strategic planning\. The new accounting regulation for general government in compliance with GFS requirements was published in the official gazette on November 19, 2003\. The new PFMC extended the coverage of TCA audits to the Parliament and Presidency, and provided for external audit of TCA itself\. Strong middle office for risk management has been established within the Treasury\. The Law on Freedom of Information for Citizens was enacted in October 2003\. PFPSAL III (second tranche core conditions) Satisfactory macroeconomic program including track record for at least 2004 (Q3) to be Met evaluated on the basis of the overall program with respect to key variables\. Agricultural framework law is enacted including satisfactory provisions for DIS\. Met Satisfactory amendments to the Banking Act have been enacted and are being Met implemented\. Implementation of BRSA strategic plan and SDIF institutional development strategy is Met satisfactory\. The Government has reviewed the due diligence report and the Council of Ministers Met has adopted a satisfactory strategy to bring about private sector control of Vakif bank and such strategy is being satisfactorily implemented\. The Council of Ministers has adopted a satisfactory restructuring and privatization Partially strategy for Halk and Ziraat and such strategy is being satisfactorily implemented\. Met (waiver for Ziraat) The regulations for the amended EBA have been satisfactorily implemented\. Met Implementation of the medium-term strategy to improve the tax system is satisfactory\. Met 37  Implementation of the comprehensive public employment program is satisfactory\. Met Satisfactory EBF law is enacted\. Met A satisfactory new TCA law clearly defining the scope and types of audits, in Met conformity with the PFMC law, is submitted to Parliament\. Legislation establishing a satisfactory code of conduct for civil servants is enacted\. Met Progress in preparation of civil service reform strategy is satisfactory\. Met 38  Annex 2\. Beneficiary Survey Results (if any) Not applicable\. 39  Annex 3\. Stakeholder Workshop Report and Results (if any) Not applicable\. 40  Annex 4\. Summary of Borrower's ICR and/or Comments on Draft ICR General Comments 1\. Third Programmatic Financial and Public Sector Adjustment Loan (PFPSAL III) is the third in a series of programmatic loans since 2001 in support of the Government's comprehensive reform of the financial and public sectors\. The main objective of PFPSAL III is to provide support to the Turkey's financial and public sector reform priorities while ensuring that social programs are adequately funded and increasingly better targeted\. 2\. Our comments about the implementation of the structural reform program supported by PFPSAL III are as follows: Macroeconomic Framework 3\. Satisfactory macroeconomic program has been conducted under the PFPSAL III program\. We have implemented sound economic and structural policies so as to provide economic stability and high growth in the last five years\. 4\. Social spending trends have been consistent with the target set by the program\. 5\. With the High Planning Council Decree on 30\.11\.2004 No: 2004/92; Agricultural Strategy Document covering the period 2006-2010 was issued\. In this document, it was stated that the share of direct income payment in agricultural budget would be decreased from 78 percent to 45 percent by the end of 2010\. Besides, it was declared that area based payment criteria of direct income payment would not change\. Agricultural Strategy Document was prepared by a technical committee led by SPO\. 6\. Agricultural Law No: 5488 was put into force on April 18th, 2006\. Direct income payment has also been mentioned among the agricultural support instruments in Article 19 of this Law\. According to the Law, the amount of payments would be decided according to the unit area payment criteria facilitating the adaptation of agricultural producers to the objectives of agricultural policy and environmental conditions and the other issues about direct income support would be arranged by implementation rules\. Banking Sector Reform A\. Regulatory Framework for Banking Activity and Institutional Development of the BRSA/SDIF, 7\. A new and advanced Banking Law No: 5411, coherent with European Union principles came into force as of October 19, 2005 and published in the Official Gazette No: 25983 dated November 1, 2005, while the secondary regulations, brought forth in accordance with the Banking Law within one year, since 1 November 2006\. The enforcement procedures are effectively carried out by relevant departments of the independent and autonomous Banking Regulation and Supervision Agency\. With the enactment of the Banking Law, regulatory and supervisory framework was rearranged in 41  a more systematic way and reinforced through the use of new tools and approaches in the light of international best practices\. Among others, incorporation of the non-bank financial institutions into the regulatory and supervisory domain of the BRSA, the crucial importance attributed to the corporate governance rules, elaboration of protective provisions, defining financial holding companies as a new financial entity and new mechanisms for efficient cooperation between the related public authorities were the main features of the new legislation\. Regarding inter agency cooperation and information exchange, the establishment of the Coordination Committee, and Financial Sector Commission which consist of related public institutions can be considered a significant progress in terms of institutional capacity\. Furthermore, coordination and integration between audit and enforcement functions have been improved via Banking Law\. 8\. The BRSA Strategic Plan (2006­2008) which has outlined mission, vision, main values and strategic goals of the Agency is a milestone towards enhancing institutional capacity and transition to the strategic management culture\. Following the adoption of the Plan the BRSA has entered into the implementation phase\. In the context of the five strategic goals and 13 related targets set out in the Plan: Efforts to review and update the "Risk Focused Audit Guidebooks" of BRSA in the light the recently published sub-regulations are about to be finalized\. Financial Sector Assessment Program (FSAP ­ Turkey) jointly organized by the IMF and World Bank has been finalized\. The activities of Financial Sector Commission as a mechanism of routine coordination, collaboration and sharing of information among functional supervisors and other agencies have gained momentum\. The frequency of meetings has been enhanced, and the Commission has focused its efforts on improvement of exchange of information, cooperation and coordination among institutions and developing joint policies regarding the matters that relate to the financial sector\. Human resources of the BRSA were reinforced through training programs and recruitment\. In this context: Training programs regarding Basel II have been organized in order to develop human resource capacity of BRSA\. The future trainings focused on Basel II have been planned\. 32 assistant sworn bank auditors and 35 assistant banking specialists with bachelor's degrees in economics and administrative sciences, law, mathematics-statistics and engineering have been recruited\. In order to develop efficiency of BRSA staff: Preparation of the "BRSA Job Descriptions Handbook" is about to be finalized\. The "Collection of BRSA Regulations" has been prepared and distributed to the personnel\. E-capacity of the BRSA has been improved via new website\. The new website, in the light of the BRSA values such as "transparency and accountability", "sensitivity" and "customer focused service", has been 42  designed to enable all the related parties to get information in a more systematic, efficient and user-friendly manner\. Procedures and principles regarding the "BRSA Seminars" through which prominent BRSA specialists and outside speakers will participate and address critical topics in the supervisory and regulatory domain of the BRSA have been established\. 9\. Based on the fact that reporting and assessment are inseparable parts of strategic management, implementation results have been addressed in the BRSA Annual Report 2006\. Moreover, a performance evaluation study for internal purposes has been just completed\. 10\. Several actions have been undertaken so as to strengthen the Saving Deposits Insurance Fund (SDIF)\. Governance of SDIF has been strengthened\. Besides, removal of the current blanket guarantee has been removed and transition to a limited deposit guarantee scheme has been started as of July 5, 2004\. Long term financial sustainability strategy for the deposit insurance fund taking into account operating budget and performance plans have been developed as well\. 11\. Overall, it is possible to state that the PFPSAL III process has played a supportive and catalytic role for the efforts towards a more efficient and independent regulatory and supervisory system, which have been in place since 2001\. The content and timing of the Program, and flexibility provided to the responsible institutions are considered fair and reasonable\. B\. State Bank Restructuring and Privatization 12\. State owned Ziraat Bank and Halk Bank, and state-controlled Vakif Bank represent about 30 percent share of total banking system assets\. These banks are operating under market conditions\. The government approved specific strategies for Ziraat Bank and Halk Bank in June 2005\. Based on the High Privatization Council Decree enacted in November 2005, financial and legal advisors to Halk Bank regarding privatization were appointed as of April 2006\. Ziraat and Halk Bank have been substantially restructured in terms of staffing and branch networks in preparation for their privatization\. The advisors submitted their reports at the end of June 2006 and Treasury shares at Halk Bank were taken into privatization portfolio and program in accordance with High Privatization Council Decree No: 2007/8\. An Initial Public Offering (IPO) was held for the Halk Bank's 24,98 percent shares and the shares started trading on Istanbul Stock Exchange on May 10, 2007\. 13\. In 2005, Mc Kinsey&Company was mandated to exercise an analysis for determining the appropriate method on how to increase the private ownership within Vakifbank\. As an IPO was decided to be the best method, and consequently a very successful IPO was conducted on November 2005\. 14\. The strategy for Ziraat Bank is envisaged to be prepared drawing on the experience of Halk Bank\. 43  C\. Execution and Bankruptcy Act 15\. We recognize the crucial role of Execution and Bankruptcy Act (EBA) for sustaining financial sector stability\. We modernized the Execution and Bankruptcy Act (EBA) in accordance with international standards and EU best practices in order to provide transparency and preserve debtor and creditor rights\. There has been several amendments to the Execution and Bankruptcy Act dated July 17, 2003 in order to adapt changing social and economic circumstances and expedite judicial procedures on July 30, 2003, February 12, 2004, March 2, 2005 and May 31, 2005\. The regulations for the amended Execution and Bankruptcy Act (EBA) were published respectively on July 30, 2003, February 21,/2004, March 18, 2005, June 1, 2005\. Public Sector Reform A\. Structural Fiscal Policies 16\. As a requirement of the economic program, public sector primary surplus of 6\.5 per cent of GNP was targeted and significantly high amounts of primary surpluses were achieved\. However, keeping the primary surplus target, which is the main performance criterion of the fiscal policy, constantly every year caused fiscal consolidation relying mainly on revenue increasing measures rather than expenditure rationalization\. 17\. In April 2003, the Parliament approved the first legislative package under the direct tax reform designed to simplify and consolidate the direct tax regime in line with OECD standards and international best practice\. This legislation: (a) harmonizes tax rates on income from financial investments at the declaration stage; (b) simplifies and harmonizes the system of investment incentives; (c) reforms the system of income tax credits, and (d) simplifies taxation of corporate earnings and dividends\. Key provisions of the legislation became effective immediately and the remaining articles became effective in January 2004\. 18\. In scope of the policy of restructuring the Turkish Revenue Administration, it has been reorganized as a semi-autonomous unit affiliated to the Ministry of Finance and restructured according to functionality\. Also, a large payer unit (LTU), which became operational as of January 2007, has been formed\. These developments will absolutely strengthen the Turkish tax system and will help in struggling against the unrecorded economy and developing the taxpayer services\. 19\. But there are some tasks that should be completed\. Such as; Revenue Administration should cover the entire country\. Today, local tax offices are operational in only 29 cities (and LTU)\. In other cities, local taxation units are operating under the Ministry of Finance (Defterdarliklar)\. Tax audit system should be developed\. Number of both provincial and central tax auditors is not sufficient\. Technological and human resource capacities of RA should be developed\. 44  20\. We had comprehensive public sector employment policy in 2002 and 2003 and we sustained and strengthened it in 2004\. The policies for 2004 include: (a) a cap on the total number of civil servants in the central and local government-the ceiling on new hiring in the consolidated budget was set at 40,000 workers; and (b) a limit on replacement hiring in the SEEs equal to 10 percent of attrition and no replacement hiring for budget-financed SEEs\. A system of quarterly monitoring for public employment across the general government has been established in 2002\. A committee chaired by MOF monitors the employment figures of the consolidated budget agencies, SEEs, local administrations, state banks and social security institutions\. 21\. Reducing over-employment in the state economic enterprises is a key element of our public employment program\. At end 2001/early 2002, approximately 15,000 workers were retired, notified of their retirement, laid off or converted to private contract status, following the lifting of restrictions on the ability of managers to require public sector workers over 50 years of age to retire\. In addition most of the unfilled positions in SEEs were eliminated\. The overall attrition from SEEs between February 2002 and mid-March 2004 has reached to over 59,000\. B\. Public Expenditure Management (PEM): Budget Reform Objective/Policy Reform Area: Strengthen credibility of budget preparation process and rationalize PIP\. 22\. Turkey modernized the legislation concerning the budget process\. The crucial improvement was the introduction of the Public Financial Management and Control Law (PFMC Law), adopted by the Turkish Parliament in December 2003 (Law No\. 5018)\. This law replaced the General Accounting Law of 1927, which was outdated in many respects\. The PFMC Law will have been fully implemented in December 2007\. 23\. With the help of PFMC Law, mechanisms to strengthen plan-program-budget relations were established, the budget preparation process was redefined and the budgetary scope was expanded to be compatible with the international standards and EU best practices\. 24\. The official documents like 3-year Medium Term Program, Medium Term Fiscal Plan, Budget Call and the Budget Preparation Guide, the Investment Circular and the Investment Preparation Guide and the dates that these documents must be prepared and published in the Official Gazette, responsibilities of the institutions in the budget preparation process and basic rules are described and determined in the PFMC Law\. 25\. The budget formulation process starts in May when SPO prepares and presents the 3-year Medium Term Program (upcoming budget year and following years) to the Council of Ministers\. The Medium Term Program includes a macro-economic forecast and sets the main priorities and objectives\. The objectives include an inflation target for the medium term\. The program also presents estimates for general government expenditures, revenues and borrowing for the next three years\. The document is in the form of a Cabinet Decree and is published in the Official Gazette\. 45  26\. According to the PFMC Law, general government operations are covered by: (i) the central government budget; (ii) the budgets of social security institutions; and (iii) local government budget\. Central government budget is composed of general budget (List No\. I), special budgets (List No\. II), and budgets of the regulatory and supervisory agencies (List No\. III)\. 27\. In this context, 25 organizations, which have autonomous budgets and receive transfers from the consolidated budget before the year 2006, are covered as special budget administrations and included into the List No\. II\. Furthermore, 8 regulatory and supervisory agencies, which were excluded under the scope of the consolidated budget in the old system but transfer their revenue surpluses, are included under the List No\. III\. 28\. Moreover, health, social and cultural centres, which were excluded in consolidated budget according to the old definition and operated in connection with the universities started to be included among the special budget administrations\. 29\. In order to ensure effective acquisition and efficient use of public resources, accountability and financial transparency, the structure and the operation of the public financial management, implementation of the budgets, accounting and reporting of financial transactions and financial control were reorganized as well\. As the budget scope expands, the right of budget used by the Parliament is broadened\. 30\. After that process the new PFMC Law was amended with the Law No\. 5436, which redefines the structure and functions of Strategy Development Departments and Head of Departments, financial service experts and their assignment and training process\. Secondary and territory legislation to implement the PFMC Law are still being developed\. 31\. In July 2003, the High Planning Council issued a decision announcing the launch of the strategic planning initiative on a pilot basis in eight agencies representing various parts of general government\. With guidance and support from SPO, the eight agencies are expected to finalize their strategic plans very soon\. Based on the experiences of these pilots a phased program to expand strategic planning to the rest of government will be prepared and implemented\. 32\. Besides, the internal audit perspective foreseen in the PFMC Law is not fully implemented in the public domain and the assignment process of internal auditors has not been fulfilled yet\. 33\. Within this context, it is evident that structural reform program has positive consequences which are stated above\. Nevertheless, before starting a structural reform program, considering to establish and impose more flexible conditionalities instead of strict ones might be more useful\. 34\. It is envisaged in the Eighth Five-Year Development Plan and the corresponding annual programs that the effectiveness in the planning and implementation of the public investments be increased and the contribution of the public investment projects to the economic development and social welfare be maximized\. In this context, a rationalization 46  process was initiated in which the projects constituting the year - 2001 and the year - 2002 investment programs were reassessed taking into consideration the sectoral, regional and project-specific priorities, and the projects that lost their significance were identified accordingly\. 35\. In year 2001, a total of 1,002 projects that either lost their priority and feasibility or could not be initiated due to insufficient allocation were eliminated from the year-2001 investment program\. The eliminated projects consist of 353 major projects and 649 sub- projects all of which sum up to an investment total of 12\.4 million YTL (year -2001 program prices)\. Hence, the number of projects in the resulting year-2002 investment program turned out to be 4,414\. Another consequence was that the average completion time of the existing projects in year 2002 has been set to 8\.5 years, which is about a 9\.1% decrease with respect to the year-2001 programmed completion time (9\.4 years) and about a 32% decrease with respect to the completion time after the year-2001crisis (12\.5 years)\. 36\. Keeping within the same context in year 2002, a total of 600 projects (230 major and 370 sub-projects), which sum up to an investment total of 4\.9 million YTL, were eliminated from the year-2002 investment program\. The number of projects in the resulting year-2003 investment program was out to be 3,851, which is far less than that in year-2002 investment program (4,414 projects)\. Similarly, the average completion time of the public investment stock in year 2003 has fallen to 7\.6 years with an 11\.2% decrease when compared to that in the preceding year\. 37\. Rationalization process has included not only the project elimination procedures but also some other improvement operations for the investment program\. In this context, Some multi-year projects of various institutions have been restructured as single-year projects; The finished tasks and the tasks that would not be able to be contracted in the very near future have been eliminated from the project scope of some projects; The projects which were deemed adequate for public service with their already completed tasks have been removed from the investment program; Several projects have been removed from the implementation stage and repositioned in the feasibility preparation stage in the investment program so as to have their feasibility studies be revised; The existing projects are re-prioritized to identify those: o that have low-levels of physical realization, o that have no urgency, o that have a lower-level priority\. 38\. The projects that carry features mentioned in the bullets preceding this paragraph have been halted with trace allocations, and the available funds have been redirected to those that are urgent and that carry higher priorities\. 47  Within the Government's Urgent Action Plan (UAP) and the Higher Planning Council's macro framework decision no: 2003/2, o Vehicle procurement is halted with the exception of those that are used for health, defense and security purposes such as ambulances and fire brigades; o Constructions of public service buildings with realization ratios less than 75% are halted with trace allocations; o Except for absolutely urgent cases; new investments for social facilities such as public housing, camping, nursery and guest housing are prevented, and the continuing investments in these areas are halted with trace allocations\. 39\. The rationalization process has been carried on in the following years' programs as well during the implementation stages of the projects in the investment program\. The number of projects in the year-2007 investment program has turned out to be 2,710 while the average completion time of the public investment stock in year 2007 has fallen to 5\.8 years\. The results which have been obtained after rationalization process are very sufficient and 2007 investment program is much more rational, sustainable and feasible than 2001 investment program\. 40\. We published Extra Budgetary Funds Law in the Official Gazette in July 2004, and it was started to be implemented in January 2005\. The rationalization of the off- budget activities by reducing the number and increasing the transparency of extra budgetary funds and revolving funds is well underway\. The extra budgetary funds except 5 of more than 60 were closed and their previously earmarked revenues and expenditures were moved into the budget starting in 2004\. The number of revolving funds was also reduced from about 2,650 in mid-2001 to around 1,000 by end-2005\. We are aiming to restructure all revolving funds within general government by the end of 2007\. Quarterly financial statistics for the revolving funds and projected fiscal balances of the revolving funds as an annex to the budget proposal for the central government have been published in order to bring transparency of fiscal balances\. 41\. Consistent economic and functional classification of GFS that was applied for consolidated budget starting with the 2004 budget extended to cover the rest of the central government social security institutions in the 2006 budget preparation\. Through this way, the policy analysis of public spending would be improved satisfactorily\. Projected aggregate expenditures and revenues of revolving funds and extra-budgetary funds for 2006-2008 have been submitted to the Parliament during the central government budget approval process\. C\. Financial Accountability 42\. We published the new accounting regulation for general government in compliance with GFS requirements in the official gazette on November 19, 2003\. 43\. Government Accounting Standards Board responsible for transforming the framework standards included in the accounting regulation into full-fledged accounting 48  standards over time has been established\. Regulations about working principles of the Board was published in the Official Gazette dated 13 May, 2005\. 44\. The Public Financial and Management (PFMC) Law which was enacted in December 2003, provides a new framework for modern public expenditure management and accountability and introduces a performance-oriented public sector management and is being implemented satisfactorily\. 45\. We submit Turkish Court of Accounts (TCA) Law to the Parliament in February, 2005\. We aim to empower The TCA to audit entire general government and to carry out financial and performance audits\. 46\. Reform of the public accounting system is well underway\. The say2000i automated accounting system is now fully operational in all Ministry of Finance accountancies\. D\. Public Liability Management 47\. The Law No\. 4749 on Public Finance and Debt management, enacted in March 2002, has established a comprehensive risk management framework in Turkey\. By this law, the Middle Office (MO), organized as a Deputy General Directorate at the Directorate of Public Finance is mainly responsible for formulating risk based debt and receivables management strategy, monitoring the associated market and credit risks and reporting them to the Debt Management Committee (DMC) for decision making\. The MO employs well-trained human resources with a high level of technical expertise in order to conduct both market and credit risk management analyses\. 48\. One of the main tasks of the MO is managing market risks associated with public debt\. In this context, MO is mainly responsible for assisting the DMC in formulating the benchmark policies taking into account costs and possible risks\. To this end, medium and long term analyses of the cost and risk structure of the public direct liability portfolio are conducted\. Currency, interest rate and maturity composition targets of public debt are proposed to the DMC\. The tolerable levels of deviation from these targets, the risk limits are also evaluated\. The realizations in execution of the borrowing policies and the risks that arise as a result are monitored and reported\. The risk and cost analyses are revised according to the realizations and the market conditions\. In order to perform the mentioned analyses and formulation of the benchmark strategy, "Cost-at-Risk" (CaR) methodology, which is applied by many other debt offices, is adapted\. In general, benchmark policies aim to reduce interest rate and currency risks by emphasizing issuance of fixed rate local currency securities and to mitigate liquidity risk through extension of maturities and maintenance of an adequate level of cash reserve\. 49\. The MO also monitors and evaluates the functionality of primary and secondary markets and makes suggestions for the improvement and comments on the new borrowing instruments, issuance techniques etc\. 50\. For credit risk management, the Law No\. 4749 and consequent communiqués introduced measures such as the risk account for undertaken guaranteed debt, a guarantee 49  limit covering the reimbursement and investment guarantees, partial guarantee scheme and a guarantee fee of up to 1% in order to increase fiscal discipline and to limit and control the explicit contingent liabilities arising from government guarantees in line with international practices\. 51\. In order to address the above mentioned issues, the MO has developed analytical models to evaluate these liabilities and to estimate the potential costs to the Treasury\. In this respect, a Credit Risk Model was used to prepare a preliminary valuation of Turkey's guaranteed debt portfolio\. The study estimated the expected loss and the maximum probable loss for different institution categories as well as for the portfolio on a discounted/undiscounted basis\. In addition, for a more comprehensive contingent liability and receivables management, another consulting service was used to assign credit ratings to institutions which have outstanding Treasury reimbursement and investment guarantees, on-lent credits and receivables due to the Treasury\. This study determines the credit rating of the institutions taking into account quantitative and qualitative information and calculates the expected loss for each of them\. 52\. The review of the government guarantee portfolio has been completed with these two main analytical tools\. In this respect, some measures are taken according to the credit risk of each institution in the portfolio\. Based on the findings of the models and other research, the level of annual Treasury guarantee limit, guarantee fees and the appropriation for the risk account are determined and proposed in the budget process\. 53\. Additional responsibilities of the MO are to conduct research regarding debt management issues and to monitor the Central Government Budget\. For the budget monitoring activities, the MO is responsible for preparing the reports regarding budget financing, analyzing and forecasting the developments in the government budget and conducting studies on issues that would have a direct or indirect effect on budget indicators\. 54\. Given the importance of high public debt burden in the economy, the MO also started to perform public debt sustainability and sensitivity analyses in 2002\. In the course of this time, the methodology of sustainability analysis has been developed in terms of both scope and calculation technique\. In this process, the establishment of the Risk Account enabled the MO to take contingent liabilities into account and extend public debt stock projections accordingly\. Thus, current medium term public debt sustainability analysis covers Treasury's explicit contingent liabilities\. 55\. Moreover, the Public Debt Management Report is published monthly\. This report includes the financing program and public finance statistics such as budget realization, domestic, external and Treasury guaranteed debt flow and stock, risk account performance and receivables stock\. 56\. As a result of the progress in risk management, together with sound fiscal and monetary policies and political stability, debt stock ratios have declined subsequently improving the economic indicators of the Turkish economy\. Thus, the net public debt to GNP ratio fell from 90\.4% of GNP in 2001 to 44\.8% in 2006 with an average 7\.6 point 50  decline each year\. The past five years proved that reducing the public debt ratio and maintaining the economic growth primarily depend on strict control of public finances\. 57\. In addition to the decline in the public debt stock ratio, interest and foreign exchange sensitivity of the stock has declined as a result of prudent debt management policies in recent years\. The share of floating rate and foreign currency denominated debt in total public debt has decreased significantly\. The share of floating rate debt among total central government debt stock has fallen to 44\.6% as of April 2007, from the level of 55\.0% in 2002 and the share of foreign currency denominated debt ratio dropped to 34\.7% as of April 2007, from 58\.1% at the end of 2002\. In addition, the payments undertaken due to Treasury guarantees declined from $1\.1 billion in 2002 to $337 million in 2006 and the guaranteed debt stock dropped from $6\.3 billion in 2002 to $4\.2 billion in 2006\. As a result, the structure of debt stock has become more resilient to possible financial shocks\. E\. Public Sector Governance Objective/Policy Reform Area: Adopt a systematic approach to combating corruption and improving governance throughout the public sector\. 58\. We realize that, corruption is an obstacle to economic and social devolopment in many countries in the world\. Therefore, we are implementing a number of substantive action that have been envisaged in the Urgent Action Plan\. One of the comprehensive set of substantive actions was the enactment of the law on "freedom of Information for Citizens" in October 2003\. Following the enactment of the law regulations were made in public in April 2004\. Furthermore, the law on the establishment of an Ethic Board for civil servant was established in April 2005\. Also, the regulation on the Code of Conduct for civil servants was issued\. Lessons Learned 59\. Adjustment and Development Policy Loans should have few disbursement conditions\. Such loans should focus only critical actions in order to achieve outcome foreseen under the program\. We welcome the dramatic decrease in the number of disbursement conditions of the Bank's adjustment and development policy loans\. Disbursement of PFPSAL III completed after two years after Board approval because second tranche had 20 disbursement conditions\. Difficulty seen in disbursement of PFPSAL III shows the importance of focusing on critical actions\. We are glad to see that recent adjustment and development policy loans have been focusing on critical actions\. 60\. We recognize that country ownership has fundamental role to overcome political difficulty in the envisaged program\. Building ownership for the actions entailed under the program require flexibility and collaboration with key reform leaders when developing analytical underpinning of the reform\. 51  61\. We observe that macroeconomic stability is the strongest pre-condition for sound development program\. The success of the recent programmatic loans confirms the importance of ownership and macroeconomic stability when implementing the development programs\. 52  Annex 5\. Comments of Cofinanciers and Other Partners/Stakeholders Not applicable\. 53  Annex 6\. List of Supporting Documents Published documents Central Bank of the Republic of Turkey, "Financial Stability Report", various issues\. International Monetary Fund, "Review Under the Stand-By Arrangement," various issues\. International Monetary Fund (2006), "Turkey: Report on the Observance of Standards and Codes ­ Fiscal Transparency Module" (Country Report No\. 06/126) Organization for Economic Cooperation and Development (2006), "Economic Surveys: Turkey" World Bank (2001), "Turkey, Public Expenditure and Institutional Review: Reforming Budgetary Institutions for Effective Government" (Report No\. 22530-TU) World Bank (2002), "Implementation Completion Report on Financial Sector Adjustment Loan to Turkey (SCL-45880)" (Report No\. 24210) World Bank (2002), "Implementation Completion Report on Programmatic Financial and Public Sector Adjustment Loan to Turkey (SCL-46320; SCL-46330)" (Report No\. 25227) World Bank (2003), "Implementation Completion Report on Second Programmatic Financial and Public Sector Adjustment Loan to Turkey (Loan number-46560; Loan number-46570)" (Report No\. 27643) World Bank (2003), "Turkey, Country Economic Memorandum: Towards Macroeconomic Stability and Sustained Growth" (Report No\. 26301-TU) World Bank (2005), "Implementation Completion Report on Economic Reform Loan to Turkey (SCL-45490)" (Report No\. 31606) World Bank (2005), "Country Assistance Strategy Progress Report for the Republic of Turkey for the period FY2004-2007" (Report No\. 33995-TU) World Bank (2006), "Turkey, Country Economic Memorandum: Promoting Sustained Growth and Convergence with the European Union" (Report No\. 33549-TR) World Bank (2006), "Turkey, Labor Market Study" (Report No\. 33254-TR) World Bank (2006), "The World Bank in Turkey: 1993-2004", An IEG Country Assistance Evaluation World Bank (2006), "Turkey, Public Expenditure Review" (Report No\. 36764-TR) World Bank and State Institute of Statistics, Turkey (2005), "Turkey, Joint Poverty Assessment Report" (Report No\. 29619-TU) Internal documents Program Documents, Loan Agreements and Agreed Minutes of Negotiation\. Implementation Status and Results Reports\. Aide memoires from supervision missions\. 54

REVIEW

P006026

Document of The World Bank FOR OFFICIAL USE ONLY Report No\. 14781 IMPLEMENTATION COMPLETION REPORT ARGENTINA PUBLIC SECTOR REFORM LOAN (LOAN 3394-AR) JUNE 29, 1995 Country Operations Division Country Department I Latin America and the Caribbean Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\. CURRENCY EQUIVALENTS Currency Unit: Argentinean Peso Exchange Rate 1 US Dollar = 1 Peso (Since April 1, 1991, the exchange rate has been pegged to the US Dollar by law\.) GOVERNMENT OF ARGENTINA FISCAL YEAR January I - December 31 ABBREVIATIONS AND ACRONYMS ANA National Customs Administration, Administraci6n Nacional de Aduanas BANADE National Development Bank, Banco Nacional de Desarrollo BHN National Housing Bank, Banco Hipotecario Nacional BICE Investment and Trade Bank, Banco de Inversi6n y Comercio Exterior BONEX External Treasury Bonds, Bonos Externos del Tesoro CECRA Executive Committee to Control the Administrative Reform, Comit6 Ejecutivo para Controlar la Reforma Administrativa CGN National Accounting Office, Contadurfa General de la Naci6n CIF Cost insurance and freight DGI General Tax Board, Direcci6n General de Impositiva FSAL Financial Sector Adjustment Loan GOA Government of Argentina IDB Inter-American Development Bank IMF International Monetary Fund PB Participating Banks PE Public Enterprise PERAL Public Enterprise Reform Adjustment Loan PSRL Public Sector Reform Loan PSRTAL Public Sector Reform Technical Assistance Loan SIGENAC Executive Controller of the Nation, Sindicatura General de la Naci6n SIGEP General Auditing Office of Public Enterprises, Sindicatura General de Empresas P6blicas TAL Technical Assistance Loan TCN National Court of Accounts, Tribunal de Cuentas de la Naci6n VAT Value-Added Tax FOR OFFICIAL USE ONLY TABLE OF CONTENTS PREFACE \.i EVALUATION SUMMARY \. ii PART I: PROGRAM REVIEW FROM THE BANK'S PERSPECTIVE \. 1 A\. PROJECT IDENTITY\. 1 B\.BACKGROUND \.1 C\. LOAN OBJECTIVES \. 2 The Government's Strategy \. 2 The Bank's Strategy \. 2 D\. LOAN DESIGN \. 3 Revenue Mobjilization \. 3 Expenditure Reduction and Rationalization \. 4 Central Bank Reorganization \. 5 Coordination With Other Bank Operations \. 6 E\. REVENUE MOBILIZATION COMPONENT \. 7 Implementation\.7 The Bank's Role in Revenue Mobilization \. 8 Results of Improved Revenue Mobilization \. 9 F\. EXPENDITURE REDUCTION AND RATIONALIZATION COMPONENT \.9 Implementation \. \. 9 The Bank's Role in the Expenditure Reduction Component of the Loan \. 10 Results of Improved Expenditure Reduction and Rationalization \. \. 10 G\. CENTRAL BANK REORGANIZATION COMPONENT \. 11 H\. MACROECONOMIC FRAMEWORK COMPONENT \. \.11 I\. INSTITUTION BUILDING \. 12 Tax Administration \. 12 Customs Administration \. 12 Federal Administration \. 12 Central Bank Reorganization \. \. \.13 J\. SUSTAINABILITY \. 13 K\. LESSONS LEARNED \. 14 L\. BANK PERFORMANCE \. 16 M\. BORROWER PERFORMANCE \. 16 N\. COORDINATION WITH THE IMF AND THE IDB \. \.17 This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed wihout World Bank authorization\. PART II: PROGRAM REVIEW FROM THE BORROWER'S PERSPECTIVE \. 24 PART III: STATISTICAL INFORMATION \. 25 Table 1: SUMMARY OF ASSESSMENTS \. 25 Table 2: RELATED BANK LOANS/CREDITS \. 26 Table 3: PROJECT TIMETABLE\. 27 Table 4: PROJECT FINANCING \. 27 Table 5: BANK RESOURCES: STAFF WEEKS \. \.27 Table 6: BANK RESOURCES: MISSIONS \. 28 ANNEX Table A: Key Macroeconomic Indicators \. 29 Table B1-B3: NATIONAL ADMINISTRATION REFORM \. 30 Table C: FISCAL COST OF INDUSTRIAL PROMOTION \. 31 STATUS OF SECOND TRANCHE RELEASE CONDITIONS \. \. 32 -'- ARGENTINA IMPLEMENTATION COMPLETION REPORT PUBLIC SECTOR REFORM LOAN (PSRL, LOAN 3394-AR) PREFACE This is the Implementation Completion Report (ICR) for the Public Sector Reform Loan (PSRL) No\. 3394, to the Argentine Republic, in the amount of US$325 million\. The loan, intended as a quick- disbursing adjustment operation, is repayable in 17 years, including 5 years of grace, at the standard variable rate\. The PSRL was approved on July 30, 1991 and closed on December 31, 1993\. It was fully disbursed in two tranches of US$162\.5 million each, released on September 23, 1991 and March 9, 1993\. The Inter-American Development Bank (IDB) co-financed the PSRL with its first-ever adjustment loan to Argentina\. The PSRL was accompanied by a US$23 million Public Sector Reform Technical Assistance Loan (PSRTAL, Loan No\. 3362) which was co-financed by a 150\.0 million yen grant from the Ministry of Finance of Japan\. This ICR was prepared by the Country Operations Division of Country Department I of the Latin America & the Caribbean Regional Office (Preface, Evaluation Summary, Parts I and III)\. The ICR was based, inter alia, on the Initiating Memorandum, the Report and Recommendation of the President, the Loan Agreement, Mission Reports, correspondence between the Borrower and the Bank, and internal Bank memoranda\.  -ll- ARGENTINA IMPLEMENTATION COMPLETION REPORT PUBLIC SECTOR REFORM LOAN (LOAN 3394-AR) EVALUATION SUMMARY Project Objectives The US$325 million PSRL Loan to the Government of Argentina, approved on July 30, 1991 was designed as an integral component of an effort to stabilize the Argentine economy and eliminate Argentina's persistent structural deficit through targeting key public sector reforms\. The PSRL provided support in the Government's efforts to: (i) increase revenues through reorganization of the Tax and Customs Administrations and reduction of industrial promotion and tax exemptions; (ii) decrease and rationalize expenditures through streamlining the Federal Administration, improving systems of budgeting and accounting, and decreasing earmarked funds; and (iii) reorganize the Central Bank so as to make it an independent institution able to focus upon its core function as monetary authority\. The Bank's role was to offer the technical assistance and financing necessary to permit the Government to achieve its objectives for the balance of payments without recourse to inflationary domestic credit creation\. The resources from the PSRL permitted the Government to replace domestic borrowing (on onerous terms) with foreign loans\. It used the counterpart from \.he loans to pay indemnization of workers as part of its administrative reform\. The PSRL was complemented by the ongoing Public Sector Reform Technical Assistance Loan (PSRTAL for US$23 million), which provided financing for goods and services to facilitate meeting PSRL conditionality and is currently helping to institutionalize the resulting reforms\. Similarly, the Tax Administration Loan (Ln\. No\. 3015, US$6\.5 million) financed improvements in tax administration which allowed the GOA to meet targets established by PSRL\. The overall strategy for eliminating the persistent fiscal deficit was also supported by the Public Enterprise Reform Adjustment Loan (PERAL, Loan No\. 3291 for US$300 million), which focussed on reorganization and privatization of public enterprises, and its accompanying Public Enterprise Reform Executive Loan (PEREL, Loan No\. 3292 for US$23 million), which helped finance the cost of consultants for restructuring the PE framework and the telecommunications and railway organizations\. Implementation The PSRL was disbursed against import receipts according to prevailing guidelines in two tranches of US$162\.5 million each\. The first tranche was available for disbursement at the time of loan effectiveness\. The second tranche was available for release when 14 specific conditions were met\. All but one of the 14 specific second tranche loan conditions--including the politically and technically difficult measures of the passage of the Federal Administration Reform, Financial Management and Control Law and the Central Bank Charter--were met by February 1993; the second tranche was released on March 9, 1993\. The loan was also conditioned upon evidence of progress on the macroeconomic program, and indeed, macroeconomic indicators were strong, exceeding projections in -111- many critical areas\. The unsatisfied condition pertained to the enactment and implementation of a Public Procurement Law which would abrogate existing Compre Argentino (Buy Argentine) laws, which provided procurement subsidies to preferred domestic producers supplying public enterprises\. The condition was waived in view of progress already made, and because privatization had reduced the urgency of an explicit repeal of this legislation\. As of June 1995, the law remains in Congress, and there is no expected date for its passage\. In addition, in the latter half of 1993, contrary to the spirit of the loan's effort to reduce industrial promotion costs, there was a slight resurgence of industrial promotion, and a partial exemption of the VAT for producers in Tierra del Fuego was extended to the year 2003\. Finally, measures announced in March 1995 to tighten the fiscal accounts could reverse, at least temporarily, efforts to reduce wage compression in the public sector\. Despite these shortcomings, the vast majority of the loan conditions were met, including the critical enactments of the Federal Administrative Reform and the Financial Administration and Performance Control Law\. The PSRL was successful in supporting reforms pursued under the Convertibility Plan to eliminate the fiscal deficits that generated hyper-inflation and to launch economic recovery\. Under the Plan Monthly inflation fell from 24\.9 percent in 1990 to an annual average rate of 4\.2 percent by 1994; the fiscal accounts improved from a deficit of 2\.5 percent of GDP in 1990 to a surplus of 1\.8 percent in 1993; and annual economic growth during 1990-93 was in the 6-9 percent range\. However, while macroeconomic aggregates for 1994 remained positive, with growth of 7\.1 percent and inflation of less than 4 percent, fiscal performance began to falter during the second semester\. Significant efforts were required during the last quarter to achieve a surplus of 0\.7 percent of GDP\. Economic performance is now projected for 1995-96 to be substantially below that of the previous four-year average of 7\.7 percent, due to the spillover effects of the Mexican financial crisis\. Summary of Findings The successes of the Loan can be attributed to a variety of factors\. First, Argentina was engulfed in macroeconomic crisis and willing to undergo a major structural reform in order to decrease its massive deficit\. Second, given Argentina's balance of payments needs, co-financing from the Inter- American Development Bank significantly of the Loan in ensuring that conditionality was met\. Third, the Loan benefitted from the intellectual capital, experience, ongoing dialogue and personal relationships developed during the course of previous projects and economic work\. Without the Bank, the Argentine Government undoubtedly would have undergone a public sector reform, however, it is doubtful it would have been as comprehensive or structural as it was\. Loan conditionality that required the passage of laws by the legislature was critical for ensuring the sustainability of reforms\. This, however, required substantial preparation work in formulating the proposed laws and reviewing changes during legislative deliberations, and the ability of the executive to push the laws through Congress\. Such a strategy entailed considerable risk, witness the failure to pass the legislation to abolish the Compre Argentino Laws\. While the loan was largely successful, owing to a variety of factors, future operations might be cautioned against using this approach\. The ongoing regional crisis represents the first significant challenge to the sustainability of the program, which remains particularly sensitive to foreign capital flows\. For its part, to date the Government has reacted swiftly to the crisis to further strengthen the fiscal accounts and the banking system\. While the duration of the regional crisis and the sustainability of the program are still uncertain, the policy and institutional improvements fostered by the PSRL have served the Government well in meeting this challenge\. -1- ARGENTINA PUBLIC SECTOR REFORM LOAN (LOAN 3394-AR) IMPLEMENTATION COMPLETION REPORT PART I: PROGRAM REVIEW FROM THE BANK'S PERSPECTIVE A\. PROJECT IDENTITY Project Name: Public Sector Reform Loan Loan Number: 3394-AR RVP Unit: Latin American and the Caribbean Region Country: Argentina Type of Loan: Support for public sector reform B\. BACKGROUND 1\. During a half century of slow economic growth, Argentina gradually fell from the ranks of the world's most prosperous nations\. This decline can be traced mainly to increased reliance since the 1940s on state-led growth and its associated chronic public sector deficits and endemic inflation\. Economic policy was commonly used to propagate rules and transfers favoring successive groups with access to power--unionized labor, privileged industrialists, housing contractors and selected middle class home buyers, some provincial governments and the military\. Public expenditures surpassed 50 percent of GDP, and high levels of external protection compounded the misallocation of resources\. 2\. The abrupt end of voluntary foreign commercial credit in the early 1980s and the sudden rise in real international interest rates--coupled with the 1982 South Atlantic War which provoked a financial collapse that forced the Government to assume responsibility for all foreign debt and placed additional pressure on public finances--led the Treasury to resort increasingly to money creation\. To avoid the inflation tax, the private sector withdrew its resources for the financial system and reduced its real currency holdings\. By the mid-1980s, the country entered its longest period of stagnation this century\. Savings and investment rates fell as Argentines saved and invested abroad\. Labor productivity fell, poverty worsened, and unpredictable inflation became the main impediment to recovery of private savings and investment\. By the late 1980s, subsidies through the budget, tax exemptions, agricultural regulations, public enterprises, and central bank rediscounts were roughly 8 percent of GDP, average tariffs exceeded 40 percent, and quantitative restrictions protected 60 percent of domestic production\. 3\. Upon taking office in July 1989, the Menem Administration recognized that without macroeconomic stability, the economic slide could not be reversed\. Its November 1989 stabilization program, supported by the IMF, relied on a fixed exchange rate and stressed fiscal performance and structural reforms more than the Plan Austral (1985) and Plan Primavera (1988) programs initiated by Alfonsin, Menem's presidential predecessor\. Despite successes in passing legislation to sell PEs, suspend most subsidies, limit Central Bank credit to the public sector and expand the VAT tax base, these measures failed to earn the confidence of financial markets, and the primary surplus remained -2- insufficient to transfer resources to the Central Bank to cover its large nominal interest bill on domestic debt and its external debt service\. Meanwhile, high interest rates required to support the fixed exchange rate drove up the Central Bank's interest bill thus creating an unsustainable cycle: the Central Bank created money to pay its own interest bill and then borrowed back the australes to sterilize the endogenous monetary expansion\. The program finally exploded in early December 1989 when markets moved against the austral and interest rates skyrocketed\. 4\. On December 15, 1989, a new economic team floated the exchange rate and removed nearly all remaining price controls\. Amid inflation fears and rumors of dollarization, the exchange rate depreciated sharply as demand for austral-denominated assets plummeted further\. Over the New Year's weekend, to forestall imminent hyperinflation, the authorities converted virtually all domestic commercial bank time deposits, worth about US$3\.5 billion, and most of the Central Bank and Treasury's outstanding debt that the deposits financed, into 10-year dollar-denominated External Bonds (BONEX)\. While this penalized savers, the measure halved the potential liquid stock of financial assets, stopped incipient hyperinflation, and eliminated the Central Bank's destabilizing quasi-fiscal deficit by eliminating its short-term debt and its interest burden\. However, the Government failed to complement these measures with fiscal adjustments that would have reduced the public sector demand for credit, and it failed to prohibit Central Bank money creation\. In early February 1990, unexpected price adjustments for public enterprises and persistent rumors of dollarization triggered renewed fears of high inflation\. In February 1990, the ensuing collapse in money demand from its already low level spun the economy into hyperinflation, and it was in this environment that preparation for the PSRL began\. 5\. In early 1990, the Argentine Government was prepared to undergo a massive deficit-reducing reform, and it was willing to accept the political consequences of such a reform; however, it lacked a coherent strategy for achieving this reform\. The Bank, for its part, aided by substantive knowledge from previous work done on Argentina's tax administration, public finance, financial sector and trade laws, had a clear vision of reforms that the Argentines needed to undergo in order to reduce their public sector deficit\. This situation provided for a synergistic reform effort\. The program was aided further by the fact that the GOA trusted the Bank's advice, based upon Argentina's previous experience with the Bank during the Plan Primavera episode, when the Bank remained supportive despite the ultimate short-term failure of the Plan\. In order to effect permanent improvements, the Bank sought concrete reforms that most likely would have been avoided in the Bank's absence\. Specifically, these were reforms in tax administration, personnel administration, financial management, industrial promotion and the Central Bank Charter\. It was believed that only an all-encompassing strategy, inherently high yield and high risk, could be effective in executing a massive public sector reform\. C\. LOAN OBJECTIVES The Government's Strategy 6\. The Bank encouraged the Government to switch strategies from incentive reforms (trade liberalization and financial deregulation) to public sector reforms focused on sustainable fiscal improvement and an efficient retrenchment of the state on core public functions\. Structural changes, including reorganizing and downsizing the Federal government, privatizing PEs, improving management in the provinces and reforming the social security system, were intended to replace temporary measures such as emergency taxes and wage and investment compression\. The second phase of the structural reform program focused on a major administrative reform (which included decentralizing secondary education and other public services to the provinces), expenditure controls, improvements in tax policy -3- to make it more efficient and effective, reductions in the costs of industrial promotion (by deferring payments or canceling contracts for industrial promotion), and efforts to reorganize the Central Bank and make it an independent monetary authority\. The Bank's Strategy 7\. The Bank's medium-term objective was to improve public finances--a strategy supported by the Bank's PERAL, PEREL, Tax TAL and PSRTAL as well as PSRL-- to help eliminate the persistent structural deficit causing economic instability, slow growth and increased poverty over the last decade\. Endemic deficits originated with an erosion of revenue capacity and an inability to contain expenditures\. The Bank's strategy called for rationalizing public expenditures and improving the revenue base while focusing the Government's activities on protecting the poor during adjustment and making much-needed infrastructure investment\. To this end, the Bank engaged in its investment loans in water supply and the social services (and more recently, capital markets development), thus helping lay the basis for a private sector-led investment recovery\. D\. LOAN DESIGN 8\. The PSRL targeted several areas for increasing public revenues, decreasing expenditures and improving the functions of the Central Bank\. It was decided that the loan could only be presented to the Board on the strength of extensive pre-Board actions as described below, which required numerous Bank missions during the post-appraisal and negotiation phase\. Hence, there was no effectiveness conditionality but that for second tranche release was substantial\. Revenue Mobilization 9\. Pre-Board Actions for Tax Structure Reform\. In February 1990, the Government implemented a major tax reform that improved efficiency and increased potential revenues\. The VAT covered all goods at a 13 percent uniform rate, income taxes on corporations were lowered from 33 to 20 percent (with a minimum payment of 1 percent of assets), and individual income taxes were simplified to 5 brackets between 10-30 percent (with a withholding tax for wage earners)\. These taxes replaced capital gains and personal net wealth taxes\. Second, a subsequent reform package in February included a ten day time limit on VAT and income tax payments and an indexing system under which taxes due would be adjusted on a daily basis for estimated current inflation\. Third, a new law in early 1990 levied stringent penalties on tax evaders\. Fourth, the Government extended the VAT to services and increased its rate to 15\.6 percent in November 1990 while maintaining the VAT without adding new exemptions\. Last, the February 1991 package raised the asset tax from 1 to 2 percent, widened the income tax base by suspending loss-carry forwards, raised the VAT to 16 percent, raised the gas tax to 33 percent, increased the bank check tax from 0\.4 to 1\.2 percent, pegged energy prices to international prices, and raised PE tariffs, which had been temporarily frozen since September 1990\. 10\. Pre-Board Actions for Inproving Tax Administration\. By July 1991, real revenue and efficiency gains were to be found in rebuilding the severely eroded tax administration\. To this end, the Government was able to build upon past Bank efforts through the 1988-89 Technical Assistance for Tax Reform Loan (3015-AR)\. By the Board Date, the Government had begun making the General Tax Office (DGI) more effective through: (1) increasing site inspections, (2) incorporating 200,000 VAT tax payers to the tax rolls, and (3) implementing a computerized audit and control system for the largest -4- 1,000 taxpayers\. In addition, the Government had initiated reforming customs administration by drafting the revision of customs norms and designing a new organizational structure\. 11\. Pre-Board Actions for Reducing Tax Exemptions and Industrial Promotion\. The Government began restructuring its industrial promotion obligations with the July 1989 Emergency Law which deferred 50 percent of industrial promotion payments for one year in exchange for bonds to be paid two years later\. In consultation with the Bank, the Subsecretary of Public Revenues canceled benefits for 43 firms, and Decrees 435 of March 1990 and 612 of April 1990 transferred authority for industrial promotion from provincial administrations and Tierra del Fuego to the Subsecretary of Public Revenues, under the Ministry of Economy\. In addition, the Government replaced provisions which allowed beneficiaries to deduct their full costs rather than value added from taxes\. Early in the loan program, the Bank was concerned that the Government was reluctant to adopt an aggressive policy to reduce tax expenditures if the audit process produced the desired reductions (less than US$600 million in 1991 and US$200 million in later years)\. In November 1990, it initiated a mandatory census for all promotion schemes other than Tierra del Fuego on penalty of benefit cancellation\. One-quarter of beneficiaries did not respond, and their cases were processed\. The self-monitored tax deduction system was dissolved, replaced by a full audit for compliance with original contracts\. Those passing the audit received nontransferable fiscal bonds applicable against taxes in the year of tax obligation\. This allowed the Government to end evasion and know the fiscal costs of the subsides\. Those failing to meet the promises of their original contracts received a bond, sharply reduced in value in proportion to the noncompliance; they were also audited for back taxes\. 12\. To reduce the substantial fiscal cost of exemptions granted to producers in Tierra del Fuego, the Government reduced specific duties on the electronics industry from 100 percent ad valorem to 50 percent in 1990, and then in March 1991 converted these to ad valorem rates of 22 percent\. These measures induced many closings\. Nonetheless, the policy provided for transition period by exempting domestic producers from the internal tax on electronics products until February 1992, at which time all protection for the industry in Tierra del Fuego was to be eliminated\. 13\. Second Tranche Release Conditions For second tranche release, the Government was required to: (1) maintain the VAT covering goods and services without granting new exemptions beyond those already in force as of December 1, 1990; (2) progress on the DGI reform evidenced by: (i) increasing the number of tax audits performed in the preceding 12-month period to at least 115 percent of audits performed during fiscal 1990, (ii) increasing the aggregate value of the tax assessment made during the preceding 12-month period to at least 120 percent of that made in fiscal 1990, (iii) increasing the aggregate value of additional tax collection resulting from tax inspections assessments to at least 85 percent of the total value of such assessments in the preceding 12 month period, and (v) establishing a tax roll system to cover all taxpayers both at the national and regional levels; and (3) implement a computerized control system for at least 25 percent of import tax receipts\. 14\. The Government was required to reduce the fiscal costs of industrial promotion schemes to less than 30 percent of projected costs without reform for 1994 by: (i) initiating the legal process for 800 firms whose benefits had been suspended, (ii) completing the DGI's review of 2,500 industrial projects receiving incentives during 1991-92, (iii) laying the legal foundation for the bond exchange (a nontradable tax credit against future tax obligations), and (iv) including actual amounts of contracted expenditures in the 1994 budget as line items in order to lend transparency to the tax expenditures\. Because industrial promotion for Tierra del Fuego was particularly costly, the Bank insisted that the Government move to eliminate any programs promoting industrial activities on the Island\. -5- Expenditure Reduction and Rationalization 15\. Pre-Board Actions for Reducing Federal Employment and Improving Workers' Incentives\. In 1991, wages accounted for 70 percent of all federal expenditures remaining after interest and transfer payments\. Despite the unpopularity of downsizing in a time of high unemployment, under the March 1990 Emergency Decree 435, the Government: (i) froze all vacancies and promotions, (ii) reduced the number of federal Secretariats and Subsecretariats from 153 to 60, (iii) eliminated overtime, (iv) required early retirement for those within two years of normal retirement, (v) enforced bans against double employment and (vi) sharply reduced the operations of the BHN and the BANADE\. 16\. In early September 1990, with the Bank's assistance, the Government prepared the Administrative Reform Program designed to restructure and downsize the entire Federal Government\. Decree 1757 established a commission to oversee the reform, reduced the cost of indemnization to displaced workers, and created the possibility of revising federal employment statutes to eliminate permanent tenure benefits\. The Program, establishing a legal basis for reform, was codified in Decree 2476 of November 1990\. Not including reductions in secondary teachers, the Government intended to maintain a ceiling on federal employment of no more than 480,000 workers\. The federal downsizing was coupled with an effort to increase efficiency by attracting highly skilled managers and workers by improved incentives\. In March 1990, the Government increased the salary compression ratio from 2:1 to 17\.5:1\. Decree 1727 of August 1990 allowed the Government to reopen labor agreements to change permanent tenure rights or "stability privileges" of federal employees that for years had prevented managers from replacing unproductive or even corrupt employees\. The Government also issued measures to enforce bans on double employment\. 17\. Pre-Board Actions to Reform Budgeting and Accounting\. At the time of loan preparation, the Government had already begun its effort to improve budgetary control by merging the auditing agency of the public enterprises (SIGEP) with the Ministry of Economy\. Still, the Government lacked a comprehensive system which coordinated budgeting, accounting, debt management and the Treasury\. With the Bank's assistance, the Government set specific goals: (i) establish accounting norms, (ii) increase internal and external auditing, (iii) distinguish between accounting, internal registration/control and external control, (iv) withdraw judicial responsibilities for the prosecution of public fraud cases from the TCN (National Court of Accounts), (v) account for important expenditures (e\.g\., PEs) in the budgetary process, (vi) program the budget and conduct a regular review of public expenditures, (vii) maintain ex-post performance control and control of budget execution, (viii) submit timely budgets, (ix) promote public investment in budget planning, (x) tailor modern information systems to support financial management, and (xi) curb earmarked funds and industrial promotion schemes\. Prior to preparation for the loan, the Government had already limited transfers to the provinces with the aid of the co-participation law implemented in January 1988 and limited transfers to PEs\. These budgetary commitments complemented reforms already underway supported by the PERAL\. In 1990, a task force was named to review the 1991 progress, a committee was designated to control expenditures for 1990-91, and the President issued a decree that placed all revenues under provisionary control of the Treasury, adjusted projections of budget needs for inflation, and reviewed expenditures that accounted for the Administrative Reform Program and the new public sector policies\. 18\. Second Tranche Conditions\. Second tranche loan conditions called for achievement of federal employment reduction targets as outlined in the Government's Administrative Reform Program as well as an increase in the salary compression ratio, a program for senior executives, a computerized salary payments system and the establishment of legal grounds for the new compensation and payment system\. The second tranche release conditions also called for budget and accounting reforms: passage and -6- implementation of the new Law of Financial Management and Performance Control, implementation of a new Public Procurement Law covering procurement of goods and services and management of public assets, preparation and submission of the 1992 budget to Congress before November 1991 (based upon a complete programmatic review and new budgeting system), progress made in the elimination of at least 25 Earmarked Funds, and resistance from making transfers to the Argentine provinces and public enterprises during 1991 in excess of amounts authorized under the 1991 Budget Law bill\. Central Bank Reorganization 19\. Pre-Board Actions in the Central Bank Reform\. The 1989 Economic Emergency Law set a clear goal for the Central Bank; it was to be an independent entity whose principal objective was sustaining the value of the nation's currency\. But the Central Bank lacked the asset basis to control monetary policy\. It was encumbered by its antiquated organization and was incapable of carrying out its bank supervision and rediscounting duties\. The first step toward recapitalizing the Central Bank was the conversion of the Central Bank's domestic short-term interest-bearing obligations into ten-year BONEX in late 1989\. The 1991 Convertibility Law, which pegged the exchange rate to the US dollar, paved the way for reform that would enable the Central Bank to focus on its function as a monetary authority\. The Central Bank Charter, compiled with Bank assistance, would define Central Bank functions and reorganize its internal structure\. Since early 1991, the Central Bank has published financial statements that reveal its balance sheet; since April 1991 it has published its reserve position weekly to provide the public with information to monitor implementation of the Convertibility Law\. 20\. Second Tranche Conditions\. The conditions for second tranche release included: (i) reorganization of the Superintendency; (ii) elimination of the system of commercial bank advances to the social security system, which counted as bank reserves and complicated monetary control and made it difficult to know the current monetary base; (iii) removal of trade financing functions from the Central Bank; and (iv) a new draft charter\. Coordination With Other Bank Operations 21\. The Public Sector Reform Technical Assistance Loan The PSRL's accompanying Public Sector Reform Technical Assistance Loan (PSRTAL for $23 million) is currently halfway through its scheduled implementation\. As part of the customs administration component of the program, the development of the computerized MARIA project for customs declarations along with a primary communications network between ports and the Customs Headquarters are nearly completed; simplification of the new Custom Code, establishment of related norms, and development of four administrative systems are expected to be completed in six months\. In addition, the customs component has undertaken infrastructural improvements such as the installation of a chemical analysis laboratory, and a training program has trained 200 people in the Customs School\. As a result of these efforts, collections have increased since 1991 from $100 million per month to $250 million and irregularities in valuation of merchandise have decreased from 50% in 1992 to 18% in 1993 while the dispatch of imports and exports has been reduced by 30%\. Through automation, discretionality in Customs operations has been greatly reduced long with a 15 % reduction in the number of intervening agents\. Support for Administrative Reform and Modernization of the Central Government through modernization of the National Public Administration has thus far resulted in savings of $63 million for the Government from reducing physical space by 220,000 square feet, a 25 percent reduction in APN staff since April 1990, and a reduction in average processing time by 50 percent\. Meanwhile, deregulation activities resulted in an estimated aggregate fiscal net gain to the state of $322\.4 million in 1993\. As part of its financial -7- management and control component, technical support provided for the development and implementation of new methods and procedures with related manuals and policy guidelines to be applied in: budget preparation and execution, cash and debt management, accounting, and internal and external control; the development and implementation of an integrated financial system; and a training program for public officials of the key financial offices\. Finally, as part of the loan's components to reorganize the Central Bank and the Superintendency of Financial Entities, a computerization and communications strategy has been designed, and implementation of the system and its two applications: accounting and current accounts; and the training of technical personnel and end users, was undertaken in 1994\. 22\. Other linchpins of the Bank's support of public sector reforms in Argentina support reforms in public enterprises and the provinces\. The PERAL and its accompanying executive loan, the PEREL, supported the major structural changes in the public enterprise sectors, including divestitures, enterprise rationalization, and new pricing regimes\. The level and pace of privatization exceeded targets\. The subsequent PERAL II Loan (FY93 for US$300 million), targeted to privatize defense-related industries, was also largely implemented in a timely manner\. The Provincial Development Loan provided technical assistance and resources to finance provincial public investments in proportion to the success of individual provinces at increasing their own savings and balancing their budgets\. The recent Provincial Reform Loan (FY95 for US$300 million) would support the Federal Government's effort to promote the reform of provincial finances by promoting sustainable policies and the improved allocation of public resources in the provinces\. Taken together, these reforms support ambitious structural changes in the organization and financing of the Argentine public sector\. E\. REVENUE MOBELIZATION COMPONENT Implementation 23\. All conditions within the revenue mobilization component of the loan were initially met\. In the later half of 1993, however, there was a partial resurgence of quasi-industrial promotion\. 24\. Expansion of the VAT and Changes in Tax Policy\. Tax Revenues The Government gradually expanded the tax base and shifted (As % of GDP] from reliance on inefficient to efficient taxes\. The Government did modify the VAT excluding from the VAT financial services, credit cards payments, services financed \. \. by pension funds, and boats and airplane repairs\. But the VAT base was also broadened to cover insurance operations with Decree No\. 171/92 and financial activities and transports were incorporated in the VAT base with Decree I go 1 91 1 92 93 1 94 1 No\. 879/92\. In accordance with international procedures, ini Taxes MTax HaNdles SocialSecuity Decree No\. 294/92 allows the VAT reimbursement to foreign tourists\. 25\. Improving Tax Administration\. The PSRL played a vital role in accelerating tax administration reform by supporting the inspection program, reconstruction of tax rolls, auditing reform, and tax enforcement initiated under the Tax Administration Loan\. 26\. Reform of Customs Administration\. Customs replicated the DGI's Large Taxpayers system\. By October 1992, it covered nearly 40 percent of National Customs Administration (ANA) collections\. -8- Beginning December 1, 1992, the Government required the uniform customs declaration (manifestos) at its main port of entry (Ezeiza Airport) using an adaptation of the French customs computer system (MARIA)\. Ezeiza Airport represented 25 percent of imports by value\. The program was implemented in July 1993, and completion of other sites were scheduled for June 1994\. 27\. Reduction of Tax Exemptions and Industrial Promotion\. The Government canceled all existing contracts not yet activated and canceled rights to renew existing contracts\. It planned to audit all firms for tax payments due during the 50 percent suspension of the promotion laws in 1989-90, when evasion was especially high\. In November 1992, the Government enacted Decree 2054, establishing the legal basis to issue nontransferable tax credits to beneficiaries that could be applied against future tax litigation\. By February 1993, the Government had assigned all tax benefits\. Before firms could use benefits, however, the DGI reviewed past tax payments and adjudicated firms that elected to undergo closer scrutiny through an appeal\. During this process, firms could not claim benefits\. Firms choosing to maintain the system were subject to immediate DGI inspection to assess their compliance with all laws and decrees since July 1989 with respect to industrial promotion benefits\. 28\. By June 1992, Decree 888/92 was to end preferential subsidies to exports from Tierra del Fuego, hence, the Non iai Pbi ecor Baac remaining benefit was exemption from the VAT\. Decree 1999 (enacted October 29, 1992) was to phase out over 4 years the VAT exemption for electronics producers\. Tariff protection for the industry fell from 35 to 20 percent, reducing the effective fiscal subsidy; the statistical tax for all imports (which serves as a minimum tariff) was raised from \. 3 to 10 percent\. In the latter half of 1993, a partial 1231123423"12341234123412241234 resurgence of industrial promotion was observed though in a different form than before\. Tax rebates were granted to -NFPS Balance -Op\. Prrmry Suiplus ---ieresI specific sectors and non-tariff barriers have been gradually introduced on specific goods such as textiles and shoes\. The Government has claimed that these constitute transitory measures\. The other apparent reversal is the Government's policy toward Tierra del Fuego producers\. The recent adhesion of Tierra del Fuego to the Pacto Fiscal will revert this measure since, contrary to second tranche release conditions pertaining to this issue, the firms located in Tierra del Fuego will be required to pay only 25 percent of the VAT until 2003\. The Bank's Role 29\. The Bank played a catalytic role by coordinating the efforts of a disorganized economic team and by helping the Argentines to focus on specific objectives\. The success of the program was bolstered by the Loan's accompanying PSRTAL, and the fact that the PSRL was able to build upon foundations of tax administration reform set by the Bank's Tax Administration TAL\. The Bank's loan schedule and conditions for release of the second tranche further served as a monitoring agent\. The combined effect of the time constraint and the Bank's assistance provided for the rapid implementation of tax reforms, particularly in customs, that might not have occurred otherwise\. The Bank's stand on tax exemptions and industrial promotion, from the beginning, was that continued loan preparation was contingent upon the Government's continued efforts to permanently reduce tax expenditures supporting the Industrial Promotion Regime\. The Government faced a great deal of political pressure to maintain or increase levels of industrial promotion, and at the time, the Government remained firm in maintaining and eventually decreasing industrial promotion\. Despite recent signs of slight resurgence of industrial promotion, the gains that have been made would not have been met without support from the loan and -9- pressure from the Bank\. In particular, when the reform was delayed because of logistical problems concerning the bond exchange, the Bank helped the Government to circumvent these obstacles\. Results of Improved Revenue Mobilization 30\. Tax and Customs Reform\. Between 1989 and late 1992, tax revenues on a cash basis doubled; the share from efficient taxes (that gave incentives to investment and savings) grew from 50 to less than 5 percent\. Between 1990 and 1992, the number of VAT taxpayers increased from 700,000 to 1\.6 million, collection of VAT payments doubled as a share of GDP, and although average tariff coverage and quantitative restrictions were falling, the program to improve the ANA resulted in a threefold increase in collections of import taxes as a share of GDP\. The Public Finance Review (February 1993) concluded that improved effort at tax collection and expanding the tax base, after controlling for changes in tax rates, tax policy, and decreased inflation and improved economic performance, were responsible for more than 60 percent of the increased revenue performance\. 31\. Industrial Promotion\. The Government projected that cuts in industrial promotion expenditures alone would produce fiscal savings of as much as US$2\.4 billion in 1993, while subsidies to promote the Tierra del Fuego regime would fall from 1990 levels of US$350 million to less than US$50 million in 1995\. In light of the greater goal of reducing federal expenditures and market distortions, the recent 15 percent subsidy on capital goods and the retreat from Tierra del Fuego reforms threatens to counteract gains made from successful reforms such as the industrial production reform\. While the Bank regards this and other quasi-subsidies to the paper and other industries as permissible transitory measures, the Bank believes that sound industrial policy requires their eventual elimination\. F\. EXPENDITURE REDUCTION AND RATIONALIZATION COMPONENT Implementation 32\. All but one condition within the expenditures component of the loan were met\. 33\. Reform of the Federal Administration\. The Government's Administrative Reform Program (October 1990) resulted in a major reorganization of the Federal Government including streamlining the federal administration, maintaining and attracting high calibre workers, and reallocating resources in order to increase efficiency\. 34\. Improving the Budget and Accounting Processes\. The Government reduced spending jurisdictions more than 50 percent between 1990 and 1992 as part of the administrative reform; in 1991 and 1992, the Central Government maintained the budgeted limits on transfers to PEs and provinces; it decreased the number of earmarked accounts from 152 in 1989 to 59 in 1992, and 44 in 1993; and in 1991, for the first time in nearly a half century, the National Administration budget for the following year was submitted on time\. For 1993, the Executive again presented a proposed budget to Congress on schedule, and it was approved before the start of 1993\. The Government enacted a Public Financial Administration Law in September 1992 that revamps national fiscal accounting, improves budgeting and control systems and establishes modern auditing systems for public expenditures\. 35\. In 1991, the Government, with Bank assistance, began preparation of a ground-breaking Law of Financial Management and Performance Control\. The Minister of Economy's influence was critical to its passage on September 30, 1992 and its implementation a month later\. The Law provided for -10- internal control functions to support management through monitoring and audits, while the external control function essentially focussed on ex-post performance control based on the information produced by the internal control structure\. 36\. In 1992, the Government prepared a draft Public Procurement Law, intended to make public purchasing more competitive and more transparent\. It would eliminate procurement subsidies to preferred domestic producers such as those supported by the Buy-Argentina (Compre Nacional Law, estimated as high as 1 percent of GDP annually\. In early 1993, there was discussion with the Bank's Legal Department as to whether the loan condition had been met\. At the time, the Bank was working with the Government to fine-tune the draft law, and a Presidential decree (2284/91) had suspended all Buy-Argentina Laws\. The Bank's Legal Department asserted that conditionality required that the Procurement Law contain an explicit derogation of Compre Argentino Laws\. After consultation with Bank specialists, the Government agreed to a number of provisions that would make the bidding process more competitive, including clarifying the bidding procedures and introducing "single envelope" procedures based on pre-qualification for international contracting\. In January 1993, the public procurement condition was waived when the Government had submitted the Law to Congress but passage was expected to take several months\. As of June 1995, the Law remains with the House of Representatives and there is no expected date for its passage\. The Bank's Role in the Component 37\. It is doubtful that, in the absence of the Bank's support, the administrative program would have been implemented as smoothly as it was and the reform would have been as comprehensive as it was, including improvements in the incentives systems as well as general downsizing\. The ambitious loan conditions laid out by the Bank to provide budget and accounting processes provided a checklist of actions necessary for establishing permanent improvements\. The Bank placed particular emphasis on the importance of the Financial Management and Control Law\. For the first time in Argentine history, a law would establish a comprehensive definition of the public sector, define financial responsibilities and set up a modern control and auditing framework\. The Law replaced the past system of opaque, discretionary, and often ad hoc Treasury (or Central Bank) expenditures with a system of transparent, congressionally mandated expenditures subject to the normal audit processes\. Although the Bank applied steady pressure on the Government to enact its Public Procurement Law, it has not been passed into Law\. The higher-than-expected rate of privatization and the suspension of Buy-Argentina Laws have diminished the condition's urgency, and the Government has been successful at achieving its broader goal of improving expenditure rationalization without yet complying with this loan condition\. Results of Improved Expenditure Reduction and Rationalization 38\. Reduction of the Federal Administration By early 1993, the Federal Government shrank from 617,000 in 1990 to 284,000 as a consequence of the reform program\. The number of on-budget positions (excluding teachers) were reduced by one-third, three quarters of which was due to direct retrenchment\. In 1991-92, the Government paid about US$312 million in severance claims associated with these reductions, hence, the program generated only modest immediate fiscal savings\. But the program could eventually produce annual savings as high as US$1 billion\. The program would require on average a six-month period of income maintenance at 75 percent of salary, followed by a limited number of severance payments averaging about US$3,000\. The total cost of the indemnization program is estimated to be US$300-425 million\. -11- 39\. Despite the achievements of the program, there are several related issues that should be addressed\. First, the Aministration reform greatly improved efficiency in the Ministry of Economy but was less successful in the other areas such as the Ministries of Health and Education\. Second, the task of reducing provincial and municipal employment--not part of the PSRL--remains to be addressed\. 40\. Reform of the Budgetary Process\. If the enhanced 200 expenditure controls resulting from the new Law of Financial Management and Performance Control reduce non-interest 1nn 19 no 9 9 n2 1993 1n9 expenditures by 3 percent, as projected, they would provide US$450 million in savings\. Combined transfers to the provinces and to PEs were A$9,055 less than budgeted amounts\. Earmarked funds fell from 151 in 1990 to 44 in 1994, representing expenditures of US$419 million, less than 3 percent of the budget\. G\. CENTRAL BANK REORGANIZATION COMPONENT 41\. Implementation, the Bank's Role, and Results\. The Government met all conditions within the Central Bank component of the loan\. The Bank encouraged the Government to draft a new Central Bank Charter, reorganize the Superintendency, eliminate commercial bank advances to the social security system and remove trade financing functions from the Central Bank\. Central Bank employment declined 30 percent from end-1990 to September 1992\. The Central Bank Reform played a principal role in reducing and stabilizing prices\. The average monthly CPI inflation fell from 24\.9 percent in 1990 to zero inflation in February 1994 and an annual inflation rate of 3\.9\.2 by end-1994\. H\. MACROECONOMIC FRAMEWORK COMPONENT Nonfinancial Public Sector 42\. Argentina's macroeconomic recovery during 1990-94 Primry Balance was very successful, particularly in light of Argentina's (in % of GOP] hyperinflation in early 1990 and renewed inflation and 10 exchange rate devaluation in 1991\. Economic expansion Interest increased real GDP by a average of 7\.7 percent per year; P investment rates increased; and international reserves more Balance than tripled since the beginning of the program and now back virtually the entire money base\. The macroeconomic program exceeded loan targets in many areas, including 4 Overall Surplus public sector revenues, capital expenditures (due to f accelerated privatization), and public sector balance\. Current 2 expenditures, at 15\.6 percent of GDP, were marginallyPrimar higher than the projected 14\.6 percent because automatic 0 U Ai transfers to the provinces were counted as national expenditures\. Actual annual real GDP growth rates of 8\.9, 8\.7, 6\.0, and 7\.1 percent in 1991, 1992, 1993 and 1994 respectively, far exceeded Board conservative projections of - 2, 2\.5, 2\.8, and 2\.8 percent\. -12- 43\. The Bank's Poverty Assessment Study indicates that Argentina's urban poverty declined dramatically between 1990 and 1993 with economic growth and price stability\. In 1989, almost half of the population of Metropolitan Buenos Aires reported receiving incomes below the poverty line, whereas by May 1993 the poverty rate had dropped to 17\.6 percent\. However, given the strong relationship between unemployment and poverty, Argentina's urban unemployment rate is worrisome-- since 1992 the unemployment rate has increased continuously, reaching 12 percent in late 1994, despite the high rate of economic growth during this period\. Thus, sustaining these improvements in the rate of poverty, as well as enhancing the distribution of income, will require consolidating the macroeconomic reforms and extending them to increase the flexibility of labor markets, as well as increasing the effectiveness of social service expenditures\. I\. INSTITUTION BUILDING 44\. The PSRL called for substantial institutional building\. Tax and Customs Administrations Reforms improved the agencies' abilities to monitor, collect and audit taxpayers\. Streamlining and restructuring the Federal Government decreased onerous personnel expenditures and enabled the Government to maintain and attract quality employees\. And the reorganization of the Central Bank was vital to the long-term stability of the macroeconomic program\. Tax Administration 45\. In compliance with second tranche release conditions of the PSRL, the DGI established a control system for the largest taxpayers that came on stream in February 1991 (it covered 66 percent of tax collections by end-1992) and rebuilt tax rolls through more than 450,000 site inspections in 1990-92\. The universal tax roll was developed, and in 1993, the tax authorities gained the capability in the computer system to undertake audits, checks and monitoring on the entire taxpayer base, which was estimated to reach 2\.8 million by year-end 1993\. The number of VAT taxpayers increased from 700,000 in 1990 to 1\.6 million in 1992\. The DGI increased its audits 179 percent in relation to 1990, and another 80 percent relative to 1991 in the first 8 months of 1992\. Although the aggregate value of assessments in 1991 after DGI audits was lower than 1990, this was because virtually all large assessments were transferred to the judiciary for prosecution under the new penal code, and therefore are not registered as assessments\. The substantial increase in the "voluntary payment" category of tax receipts indicates that tax assessments were in fact increasing in value\. Also, the number of businesses closed by the DGI for VAT violations rose from 750 in 1990 to 8,200 in 1991, and was estimated to have reached 18,000 in 1992\. Customs Administration 46\. The Bank stressed the importance of customs administration reforms that would include norms, procedures, and personnel policy in order to rationalize the internal organization\. The Bank helped the Government tailor the DGI's Large Tax Payers system for the main operational centers of ANA, and helped adapt and implement the French customs computer system at the main port of entry\. Federal Administration 47\. The Government's Federal Administration Reform Program, drafted with Bank assistance, anticipated net retrenchments of 110,000 plus transfers of non-teaching personnel of 11,000 to the provinces, for a total reduction of about 121,000\. The program decentralized secondary education to -13- the provinces in the course of 1991-92, reducing federal employment by 54,000 positions, financed through improved revenues from the shift in the tax base toward greater co-participated revenues\. By the second tranche release, federal employment had been cut by more than 103,000 positions in 1991- 92, a net reduction of 15 percent since 1990; in addition, 284,000 teachers and health workers had been transferred to the provincial governments\. Rather than simply lay off workers, this effort was based on a ministerial reorganization that focused on federal activities related to core objectives\. 48\. The Administrative Reform also called for efforts to increase work incentives and improve management\. The Government increased the compression ratio from about 2:1 in March 1990 to 17\.5:1 in the new pay scale (with Decree 2712/91)\. Decree 2129/91 established a senior executive service program for qualified technical and management staff with three monthly salary levels\. By February 1993, over 170 (out of 300) senior executive positions had been filled through the competitive review process\. However, it should be noted that among the fiscal measures recently taken in response to the effects of the Mexican financial crisis, was a highly visible move to cut the salaries of higher level government officials\. While this has been billed as a temporary, emergency measure, it represents at least a momentary reversal of efforts under the loan to reduce wage compression in the public sector\. Central Bank Reorganization 49\. The reform program required by the PSRL aimed to: (i) reorganize the Superintendency, a first step toward enhancing its powers and separating it from the Central Bank; (ii) eliminate the system of commercial bank advances to the social security system, which counted as bank reserves as this system complicated monetary control making it difficult for the authorities even to know the current monetary base; (iii) remove the trade financing functions from the Central Bank; and (iv) produce a new draft charter\. On September 23, 1992, the Government passed the New Charter\. Complementing the Law of Convertibility, it removed non-core activities from Central Bank duties enabling it to focus on its function as a monetary authority\. The new Bank Charter eliminated the Central Bank's role as liquidator of failed financial institutions and elevated the status of the Superintendency of Bank, requiring confirmation by the Senate\. The period of visit of financial firms declined from an average 24-36 months to 12-15 months reflecting progress in the approving of bank supervision in the Superintendency\. Bank liquidations reduced staff by 27 percent; and the total number of Central Bank staff declined 30 percent from end-1992 to September 1992\. J\. SUSTAINABILITY 50\. The legislative changes and institutional strengthening achieved by the Loan augers well for the sustainability of the reforms\. After four successful years, the Government's convertibility program is still on track\. The key factor has been growth in private sector confidence brought about by a series of structural reforms and establishment of a low and permanent ceiling on the Government's payments to commercial creditors\. The main risks to the program are associated with disruptions in capital inflows; failure to improve competitiveness through productivity growth; and unforeseen political developments threatening fiscal equilibrium\. Strongly rising international interest rates could reverse capital inflows inducing a sharp economic contraction with adverse consequences for the financial system and public finances\. Over the medium-term, meeting growth expectations crucially depends on strong export growth\. In the context of the legally fixed exchange rate, this requires competitiveness to be restored through productivity growth above rates achieved by international competitors\. The authorities would otherwise come under pressure to devalue the exchange rate, which would carry its own inflation risk, in the context of a highly dollarized -14- economy\. A weakening of fiscal discipline for political reasons constitutes another risk, in the context of a very open capital account\. In such an event, international reserves and therefore the monetary base could decline sharply, which would severely test the convertibility program\. However, memories of hyperinflation make it unlikely that the electorate will endorse in the near future populist policies that would undermine the hard-won gains in fiscal discipline\. 51\. However, while macroeconomic aggregates for 1994 remained positive, with growth of 6 percent and inflation of less than 4 percent, fiscal performance began to falter during the second semester due to lower than expected revenues and increased expenditures\. The social security accounts, in particular, deteriorated with the transition costs of introducing the new optional private pension system, a reduction in employer's wage taxes, and the absorption by the Federal Government of three financially-ailing provincial pension systems\. Moreover, in late 1994, the regional loss of confidence, provoked by the crisis in Mexico, also represents a crucial test for the sustainability of the reforms promoted by the Loan\. Indeed, the budgetary control systems implemented by the program have allowed the Government to react swiftly to the need to tighten fiscally and the overall balance was in equilibrium for 1994, and another round of fiscal measures was announced in early March 1995 to help restore investor confidence\. K\. LESSONS LEARNED 52\. The PSRL's overall success at completing complex public sector reforms are owing to several major factors\. First, Argentina was engulfed in macroeconomic crisis and willing to undergo a major structural reform in order to decrease its massive deficit\. Second, before the official start of loan preparation, a sound foundation of information had been gleaned through ESW and related public sector loans\. The Bank's past experiences with Argentina during the Financial Sector discussions in November 1989, the research for the Reforms for Price Stability and Growth (September 1989) Report No\. 7994 and for the Public Finance Review: From Insolvency to Growth Report No\. 10827 (February 1993), the Plan Primavera Reforms as well as work on the Public Sector Technical Assistance Loan No\. 2712 (1988) and the Technical Assistance for Tax Reform Loan No\. 3015 (1989) established the foundation for work on the Public Sector Reform Loan\. The 1988 Public Sector Technical Assistance Loan and Tax TAL, as well as the 1988-1989 Plan Primavera provided opportunities for Bank members to not only build on information gathered through these works, but also build upon relationships with Argentine officials that arose through these interactions\. Third, the Government trusted the Bank to act in the Country's interests\. This trust was borne of the Bank's demonstrated past commitment to Argentina, particularly during the Plan Primavera experience from August 1988 to February 1989, during which the Bank remained supportive of the Argentine Government while other lenders retracted\. The combined effect of these factors produced a synergistic reform effort\. The Government realized that its past efforts provided only temporary relief from economic instability, and it was willing to take the political risks that accompany profound structural changes\. While the Government's economic team was new and discombobulated, and it lacked the organization, strategy and finances to undertake such a reform, the Bank had a clear and concrete vision of what steps needed to be taken to effect real change\. Without the Bank, the Argentine Government undoubtedly would have undergone a public sector reform, however, it is doubtful it would have been as comprehensive or structural as it was\. 53\. Initiation\. The Public Sector Reform Loan was initiated by the Argentine Government\. The Government's past experiences with the Bank, particularly through the Plan Primavera (1988-89) and the Financial Sector Discussions in November 1989 convinced the Argentines that the Bank was -15- committed\. Conclusion: It stands to reason that the reform effort would be more cooperative when the Borrower trusts the commitment, capabilities and motives of the Bank from the start of the project\. 54\. Loan Conditionality\. In light of the fact that second tranche release conditions were rigorous, supporting major structural reforms, the loan was remarkably successful\. Conditionality included the implementation of four laws, one of which was the single unmet condition\. Furthermore, the recent resurgence of industrial promotion is consistent with the Government's initial resistance to the Bank's insistence in eliminating industrial promotion\. Conclusion: These shortcomings suggest that compliance is more difficult when it entails legislative passage and/or politically unpopular actions\. To avoid high levels of non-compliance, the Bank would be prudent to engage in loan discussions with administrations that have explicitly expressed a desire to undergo important reforms, regardless of the political risks involved\. The Bank's other option, to exclude these conditions from loan agreements might be acceptable if these conditions could be met during negotiations before the loan signing\. 55\. Previous ESW\. Previous research and sector work played a significant role in laying the groundwork for the PSRL\. The loan process was facilitated by economic analysis undertaken for the Country Economic Memorandum tax policy study, Tax Policy for Stabilization and Economic Recovery- Argentina Report No\. 8067 (November 1989) and work on the public finance and the Reforms for Price Stability and Growth- Argentina Report No\. 7994 (July 1989) as well as discussions on the financial sector reform (October-November 1989)\. In constructing the loan objectives, its designers were able to take advantage of gains made by past Bank Loans (such as the Public Sector Technical Assistance Loan, No\. 2712 and the Tax Administration Loan, No\. 3015 of 1988-89)\. Conclusion: The merits of research and sectoral work should be evaluated on an individual basis\. In the case of the PSRL, previous work and research provided a great deal of important information and the basis for policy dialogues\. 56\. Implementation\. Smooth implementation of these rather complex loan conditions to a great degree can be attributed to ongoing dialogue, advance preparation and the competency of individual actors\. The Bank immediately responded and helped the Government to identify alternate modes of effectively meeting goals set by the Loan Agreement\. For example, when the Government was having difficulty implementing its bond exchange program for industrial promotion beneficiaries, the Bank helped the Government formulate an alternative program which entailed immediate DGI audits for beneficiaries rejecting the exchange program\. The Loan was fortunate in that inflation remained manageable despite ongoing inflationary fears\. Failure of the Government to repeal explicitly Compre Argentino Laws by passing a Public Procurement Law is the one condition that was not met fully\. At the time that a waiver was requested, the Government was making solid progress on the draft legislation and it appeared to be a matter of time before a completely satisfactory law were passed\. Despite this disappointment, the higher-than-anticipated pace of privatization and the fact that the Compre Argentino Laws were suspended have diminished the relevance of Procurement Law\. Conclusion: Again, the value of experience and preparation cannot be understated\. Experience on the part of the Bank enabled the Bank to help the Borrower use creative means to meet loan conditions\. The loan process was also buoyed by strong actors, such as the Minister of Economy, who almost singlehandedly pushed the Financial Law and Budget Control Law through Congress\. While the Bank had hoped for a Public Procurement Law which included repeal of Compre Argentino legislation, it is doubtful that the net results of delaying release of the second tranche would have improved the overall impact of the reform program\. In fact, in retrospect, the waiver was a prudent decision\. Hypothetically, the PSRL may have benefitted from heavier and earlier pressure on the loan conditions entailing legislative passage and implementation (such as the Procurement Law condition), yet some delays, such as the delay in the bond exchange for industrial promotion beneficiaries, would not have been detected early on\. Other -16- Bank loan operations may benefit from this lesson and may apply early pressure for the progress of loan conditions that require approval from political bodies outside of the executive\. However, the Bank also should be cautioned to have reasonable expectations in what it can accomplish legislatively\. 57\. Post-Closing Follow-Up\. The Division continues to keep an eye on developments related to the Public Sector Reform Loan\. The Bank is paying close attention to new quasi-industrial promotion (in the form of subsidies to capital goods), and part of the Provincial Adjustment Loan is intended to address a need for downsizing within provincial governments, similar to the Federal Administrative Reform Program\. In particular, follow-up on the civil service reform and improvements in the payments system would have enhanced this program\. Conclusion: It may be advisable to provide follow-up evaluations of continued progress for reform programs, for the short time frame of the program means that evaluations are based upon short-term compliance with loan conditions rather than the long-term objectives they are intended to achieve\. L\. BANK PERFORMANCE 58\. The Bank provided finances, technical assistance and a framework for the Government undergo a largely successful public sector reform that encompassed vast areas of reform in federal revenues, federal expenditures and Central Bank issues\. Some risks linger, however, such as the non-passage of the Public Procurement Law, the recent emergence of new quasi-industrial promotion policies and the reneging of Tierra del Fuego industrial promotion reduction decrees, developments that have emerged despite the fact that the Bank stressed the crucial aspect of industrial promotion reduction as a component of the loan\. The loan's successes greatly outnumber its shortcomings\. Through ongoing dialogue between Argentine officials and the Bank, the PSRL was devised, implemented and disbursed smoothly\. The Bank's short lag time in responding to questions from the Argentine Government kept the project going when it came upon obstacles\. The Bank provided technical assistance for the Tax Reform Program through the PSRTAL and met with government officials during numerous missions to ensure that the program was moving according to schedule\. The Bank was able to take considerable advantage of past ESW, the 1988-89 Tax TAL, and past discussions and relationships with Argentine officials\. The Bank firmly stressed the importance of certain conditions, for example, the Federal Administration Reform, the Tax Reform, the Industrial Promotion Bond Exchange and the Financial Management and Performance Control Law\. Although the Argentine Government had undertaken public sector reform before the introduction of the PSRL, it is unlikely that it would have pursued a reform of such magnitude without the Bank's support\. M\. BORROWER PERFORMANCE 59\. The Government complied initially with all but one of the fourteen specific second tranche conditions for the PSRL\. This condition, the passage of the Public Procurement Law, currently remains in Congress\. The Government was also initially slow to respond to the Bank's industrial promotion conditions and has since retracted its Tierra del Fuego decrees and have introduced new policies in other areas that constitute quasi-industrial promotion\. The Government's successes, and there are many, are owing to a variety of factors\. In some cases, it was the influence of key Argentines that provided the necessary support for passage of legislation, the Financial Management and Performance Control Law, for example\. The Government did a remarkable job of prevailing with an exhaustive reform program, particularly the Federal Administrative Reform and the Industrial Promotion Reform, during times when it was politically unpopular to do so\. -17- N\. COORDINATION WITH THE IMF AND THE IDB 61\. The Bank has worked closely with the IMF in the design and supervision of adjustment operations, in formulating country strategy and in ESW using common data and ensuring consistent conditionality\. The IMF prepared a new stand-by arrangement in July 1991-92 with the Government, the results of which were incorporated into the Bank's targets for short-term macroeconomic monitoring\. IMF and Bank staff consult continually about specific policies; the IMF adopted the Bank's recommendations on administrative reform, tax and customs administration, income tax, industrial promotion, and Central Bank issues in their own discussions with the borrower\. Since 1989, the Bank and the IMF have several parallel missions, and Bank staff have also participated in Fund missions\. 62\. The IDB co-financed the PSRL with its first adjustment operation in Argentina and one of the first for that institution ever\. Its representatives have participated in all Bank missions, and IDB staff have signed joint aide memoirs for these missions\. In addition, the IDB provided resources for consultants and other aspects of loan preparation\. Given the magnitude of Argentina's balance of payments needs, co-financing by the IDB significantly increased the leverage of the Loan in ensuring that conditions were met\. 9 -19- ANNEX page 1 of 5 STATUS OF SECOND TRANCHE RELEASE LOAN COVENANTS Revenue Mobilization 1\. Value Added Tax Maintain VAT, covering both goods and services, with no exemptions other than those existing as of December 1, 1990\. Complied\. Although the Borrower did modify the VAT with Decrees No\. 501/91 and 1669/91 and Law 24073/92 (adopted March 1991, August 1991 and April 1992 respectively), thereby excluding from the VAT base financial services and payments with credit cards, and exempting minor activities such as services financed by pension funds and boats and airplane repairs\. At the same time, however, the VAT was broadened to include insurance operations with Decree No\. 171/92 in January 1992, and in June 1992, financial activities and transports were incorporated in the VAT base with Decree No\. 879/92\. In accordance with international procedures, Decree No\. 294/92 allows the VAT reimbursement to foreign tourists\. 2\. Tax Administration Make satisfactory progress in tax administration reform as evidenced by: (i) increasing the number of tax audits performed in the preceding 12- month period to at least 115 percent of the number of audits carried out during fiscal year 1990; (ii) increase the aggregate value of the tax assessment made during the preceding twelve-month period to at least 120 percent of the total value of such assessment made during fiscal year 1990; (iii) increase the aggregate value of additional tax collection resulting from tax inspections assessments to at least 85 percent of the total value of such assessments in the immediately preceding twelve- month period; and (iv) establish a tax roll system for purposes of controlling all tax payers at both the national and regional levels\. Complied\. 3\. Customs Administration Make satisfactory progress in implementing the Customs Reform Program as evidenced by the installation of an automated customs tariff and collection control system covering about 25 percent of import tariff revenues\. Complied\. The MARIA program was fully implemented at Ezeiza Airport in 1993, and other sites were scheduled according to the following calendar: Aeroparque in Buenos Aires, November 1993; Buenos Aires Port, January 1994; Campana, Rosario, Paso de los Libres, April 1994; Cordoba and Mendoza, May 1994; Bahia Blanca, Puerto Madryn, Rio Grande, June 1994\. 4\. Industrial Promotion Take satisfactory measures to limit the fiscal costs of the Industrial Promotion Regime as evidenced by: (i) replacing previously granted tax exemptions with tax bonds applicable against tax liabilities; (ii) suspending benefits for firms declared ineligible after the audit process as set out in the Control Program for Industrial Promotion; and (iii) completing requisite decrees and -20- ANNEX page 2 of 5 resolutions to establish the administrative and legal basis for control of audited firms\. Complied\. Decree 2054, issued November 1992, supplemented with three ministerial resolutions, accomplished the following: (i) enacted the bond substitution across the board for qualifying firms; (ii) established legally the forfeiture penalties for firms falling short of their original contractual commitment; (iii) established an annual tax credit as the vehicle for compensation; (iv) established uniform rules for the application of promotion benefits to suppliers of promoted firms (the IVA compra regime) for purposes of the compensation, and rules for payment of past benefits during the emergency suspension; (v) circumscribed benefits for firms that had not yet activated their projects; (vi) provided for voluntarily resigning from the system while preserving the DGI's right to inspect for future tax fraud; and (vii) any firm choosing to maintain the present system would be subject to immediate DGI inspection to assess whether it had complied with all laws and decrees since July 1989 with respect to industrial promotion\. 5\. Take satisfactory measures to eliminate tariff and tax incentives and other subsidies promoting industrial activities in the territory of the province of Tierra del Fuego\. Not in compliance\. The Government did initially comply with this condition\. At the time of second tranche release, the Government had issued decree 888/92 which would have ended preferential subsidies to exports from the island, and Decree 1999 would have phased out the VAT exemption over four years\. Since then, however, this exemption has been extended until the year 2003\. 6\. Not enact or otherwise put into effect or grant new tax exemptions, reductions or incentives similar to, or included among those provided under the Industrial Promotion Regime, as of December 31, 1990\. Not in compliance\. The Government did initially comply with this condition\. Until the second half of 1993, the Government complied with this condition; the industrial promotion law (Law 23614) was suspended until September 1993, and no new industrial promotion had been granted since the beginning of the program\. Forms of quasi- industrial promotion other than those explicitly reduced through this loan, have since emerged\. The overall gains from industrial promotion reductions of this loan, however, greatly outweigh these recent developments\. Expenditure Reduction and Rationalization 7\. Administrative Reform Achieve satisfactory progress in implementing staff reductions included in the Administrative Reform Program\. Primarily, this called for total gross lay-offs of 121,000\. Complied\. -21- ANNEX page 3 of 5 8\. Improve the incentives system by: (i) increasing the salary compression ratio of the national administration to at least 10:1; (ii) establishing the program for senior executives described in the Administrative Reform Plan; (iii) establishing a mechanism to control salary payments through computerized issue of checks (or other auditable, noncash form of payment) for the National Administration, permitting timely information and auditable accounts on a monthly basis for the Subsecretary of Finance; and (iv) establishing new rules and the legal basis for a new compensation and payment system\. Complied\. 9\. Expenditure Control Put into effect the new Financial Management and Performance Control Law, excluding the enactment or issuance of all necessary regulations\. Specifically, the new law: (i) assigns full internal accounting responsibilities to the National Accounting Office in the Treasury (CGN), including the implementation of the new financial and accounting information systems, accounting norms and the preparation of the national financial accounts; (ii) creates a system for internal control of the Executive Branch by transforming the existing SIGEP into Executive Controller of the Nation (SIGENAC) reporting directly to the President, and establishing a network of internal auditing units reporting to the heads of the various government entities and operating on the basis of auditing norms defined by SIGENAC and under its supervision; and (iii) restructures the TCN into the new agency for external control, the General Auditing Office of the Nation (GAO) reporting to Congress\. Complied\. The Law was passed by Congress on September 30, 1992\. 10\. Put into effect a law regulating the procurement of goods and services and the management of public assets, including the enactment or issuance of all necessary regulations\. Not in compliance\. At the time of second tranche release, the Government had agreed to: (i) clarify the bidding procedures; (ii) include pre-qualification procedures; (iii) clarify sole-source contracting procedures; (iv) revamp the proposed "private initiatives" contracting procedure" (v) introduce "single envelope" procedures based on pre- qualification for international contracting; (vi) introduce consideration of price in hiring consultants; and (vi) establish procedures consistent with international regulations for projects with financing from international organizations\. A Law of Public Procurement was submitted to Congress in January 1993, where it remains\. There is no expected date for its passage\. 11\. Submit a Budget Law bill for 1992 to Congress on time\. Complied\. The Executive Power has also submitted proposed budgets on time for 1993 and 1994\. -22- ANNEX page 4 of 5 12\. Eliminate at least 25 Earmarked Funds, comprising at least 22 percent of the total Earmarked Fund's resources\. Complied\. 13\. Not make transfers to the Borrower's provinces or public enterprises in excess of amounts authorized under the Borrower's 1991 Budget Law bill submitted to Congress on February 12, 1991\. Complied\. Central Bank 14\. Achieve satisfactory progress in the implementation of the Central Bank reorganization activities including: (i) the enactment of the New Central Bank Charter; (ii) the implementation of the reforms to the Central Bank's Superintendency of Banks and Financial Institutions; and (iii) the elimination of the Central Bank's role as liquidator of financial institutions together with reductions of the staff and other administrative support previously assigned to the carrying out of such functions\. The new Central Bank Charter was to accomplish the following: (i) provide Central Bank directors sufficient independence to manage the institution with the objectives of preserving the value of the currency; (ii) restrict the Central Bank from financing public sector open market purchases of government securities with specified legal limits; (iii) remove functions from the Central Bank not directly related to its fundamental function of currency stability, including removal of the trade credit and bank liquidation functions from the present Central Bank; (iv) restrict Central Bank credit to commercial banks to emergency liquidity rediscounts associated with its lender of last resort functions; (v) prohibit the Central Bank from issuing interest-bearing liabilities; and (vi) strengthen the Superintendency of Financial Entities\. In addition, the Central Bank removed functions ancillary to their functions by transferring legal authority on failed institutions to the courts for their resolution\. Complied\. The New Central Bank Charter was passed by the Congress on September 23, 1992, and was made effective on October 30, 1992\. The final version, reflecting Bank input, included: (i) the establishment of the Central Bank's independence; (ii) the elevation in status of the Superintendency within the Central Bank with the requirement that he or she be a member of the board, and as such, be confirmed by the Senate; (iii) proscription of direct lending to the Treasury; (iv) proscription of the issuance of interest- bearing liabilities; (v) limits on the use of rediscounts to emergency situations consistent with "lender of last resort" functions; and (vi) removal of non-core function responsibilities such as trade financing, liquidation of banks and on-lending of publicly guaranteed credit\. In addition, the number of staff associated with the liquidation of closed banks declined from 309 to 223 between December 31, 1990 and September 1992\. While the staff associated with bank liquidation activities declined about 27 percent, the total number of employees in the Central Bank declined 30 percent from December 31, 1990 to September 1992\. -23- ANNEX page 5 of 5 Macroeconomic Framework 15\. Maintain a macroeconomic policy framework consistent with the objectives of the PSRL program\. Complied\. -24- PART II PROGRAM REVIEW FROM THE BORROWER'S PERSPECTIVE (Not received from the Borrower\.) - 25 - ARGENTINA PUBLIC SECTOR REFORM LOAN (LOAN 3394-AR) IMPLEMENTATION COMPLETION REPORT PART II: STATISTICAL INFORMATION Table 1: Summary of Assessments A\. Achievement of Objectives Substantial Partial Negligible Not applicable Macro policies X Sector policies X Financial objectives X Institutional development X Physical objectives X Poverty reduction X Gender issues X Other social objectives X Environmental objectives X Public sector management X Private sector development X B\. Project sustainability Likely Unlikely Uncertain x C\. Bank performance Highly satisfactory Satisfactory Deficient Identification X Preparation assistance X Appraisal X Supervision X D\. Borrower performance Highly satisfactory Satisfactory Deficient Preparation X Implementation X Covenant compliance X Operation E\. Assessment outcome Highly Highly satisfactory Satisfactory nsatisfactor unsatisfactory x - 26 - Table 2: Related Bank Loans/Credits Loan/credit title Purpose Approval Yr\. Status Preceding operations 1\. Municipal Development Loan Assist provincial/municipal govts\. 1988 Disbursing (L-2920-AR) through improvements in financial mechanisms for municipal investments\. 2\. Tax Administration (TAL 1) Strengthen the DGI structural reform 1989 Disbursed (L-3015-AR) program through TA in computarization tax inspection, training, and control\. 3\. Provincial Development Provide financial support and incentives 1991 Disbursing (L-3280-AR) for provinces to undertake their own adjustment programs, consistent with national program, through physical investments\. 4\. Public Enterprise Reform Part of Bank program to support GOA's 1991 Disbursed Adjustment Loan (PERAL) objectives of stabilizing the economy and (L-3291-AR) resuming growth\. Loan aims to support efforts to privatize PEs in several sectors and to assist in mgmt\. improvements in other sectors\. 5\. Public Enterprise Reform Same as above, plus finance costs of 1991 Disbursing Execution (PEREL) service and equipment contemplated (L-3292-AR) under the accompanying PERAL and extend activities to additional sectors\. Following operations 1\. 2nd Public Enterprise Reform Part of Bank program to reduce public 1993 Disbursed (PERAL II) (L-3556-AR) sector participation in the productive sector\. Loan aims to privatze defense- related firms, convert defense activities to civilian use and promote competition\. 2\. Financial Sector Adjustment Part of a Bank program to reduce the 1993 Disbursed (L-3558-AR) role of the state in the financial sector, strengthen the banking sector and its supervisory framework and provide resources for Argentina's debt and debt service reduction arrangements\. - 27 - Table 3: Project Timetable Date actuall Steps in project cycle Date planned latest estimate Identification 02/20/90 Appraisal 06/00/90 11/07/90 Negotiations 01/00/91 05/02/91 Board presentation 03/00/91 07/30/91 Signing 08/13/91 Effectiveness 03/00/91 09/23/91 Second tranche release 03/00/92 03/09/93 Project completion Loan closing 12/31/94 Table 4: Project Financing (US$} Source Planned Revised Final IBRD 300\.0 325\.0 325\.0 IDB 300\.0 300\.0 300\.0 Total 625\.0 Table 5: Bank Resources: Staff Inputs (Manweeks) Stage of Project cycle FY90 FY91 FY92 FY93 Total Preparation 67\.5 32\.7 100\.2 Appraisal 0 69\.6 0 0 69\.6 Negotiations 0 34\.6 12\.6 0 47\.2 Supervision 0 0 27\.7 15\.9 43\.6 Sub-total 67\.5 136\.9 40\.3 15\.9 260\.6 - 28 - Table 6: Bank Resources: Missions Stage of Month/ Number of Days in Specialized staff Project cycle Year Persons field skills represented Through appraisal Identification 02/00/90 5 44 b,c,e,f,i\. PSRTAL Coordination 04/00/90 6 63 a,d,i\. Pre-appraisal mission I 06/00/90 7 79 a,d,e,f,h\. Pre-appraisal mission II 09/00/90 5 45 a\.d\.e\.f\.h\.i\. Pre-appraisal mission III 10/00/90 2 14 1,g\. Appraisal through Board approval Appraisal mission I 11/00/90 9 117 a,d,f,g,h\. Appraisal mission II 12/00/90 2 18 d Post-appraisal mission I 01/00/91 2 20 a Post-appraisal misison II 02/00/91 4 24 a,k\. Post-appraisal mission Ill 04/00/91 1 3 a Board approval through effectiveness Supervision mission I 09/00/91 1 2 e Supervision mission II 10/00/91 1 5 f Supervision mission III 11/00/91 3 56 i,g,h\. Supervision mission IV 01/00/92 2 17 f Supervision mission V 02/00/92 4 56 a,d,e,h\. Supervision misison VI 03/00/92 3 27 a,d,h\. Supervision mission VII 07/00/92 1 12 f Supervision mission VIII 10/00/92 7 63 a,d,e,f,g,h,j\. Procurement mission I 01/00/93 1 6 a Audit mission 04/00/93 1 16 i Specializations: a\. Task Manager b\. Public Bank Expert c\. Education Expert d\. Economist on the Central Bank e\. Industrial Economist f\. Financial Analyst g\. Public Expenditures Specialist h\. Tax Policy Specialist i\. Financial Sector Expert j\. National Accounts Specialist 29 Table Al: Key Macroeconomic Indicators (in percent unless otherwise specified) 1990 1991 1992 1993 1994 1991 1992 1993 1994 (actual) (as projected in Presidents Report) at (actual figures) Annual Real Growth Rates GDP constant market price 0\.1 2\.0 2\.5 2\.8 2\.3 8\.9 8\.7 6\.0 7\.1 Private Consumption per capita -7\.5 3\.0 -1\.6 0\.0 0\.6 10\.3 9\.5 2\.9 4\.3 National Accounts (% of current GDP) c Total lnvestment 8\.9 11\.9 13\.5 14\.3 14\.8 14\.6 16\.7 13\.4 20\.0 Private 5\.9 8\.2 9\.7 10\.1 10\.3 12\.4 14\.3 16\.0 17\.7 Public 3\.0 3\.7 3\.3 4\.2 4\.5 2\.2 1\.9 2\.4 2\.3 National Savings 10\.5 9\.9 11\.6 12\.3 13\.1 13\.2 13\.0 15\.5 16\.4 Private 12\.1 8\.5 9\.3 9\.0 8\.9 13\.3 11\.8 13\.5 15\.4 Public -1\.6 1\.4 2\.3 3\.3 4\.2 -0\.1 1\.2 2\.0 1\.0 Foreign Savings -1\.6 2\.0 1\.9 2\.0 1\.7 1\.4 3\.7 2\.9 3\.6 ICOR (lagged) -8\.3 4\.5 4\.8 4\.8 5\.2 1\.6 1\.9 3\.3 3\.0 Public Sector Total Current Revenues d/ 9\.7 15\.5 15\.4 15\.2 15\.9 11\.5 12\.5 12\.3 12\.9 Total Current Expenditures eJ 11\.9 15\.7 15\.1 14\.6 14\.7 12\.5 12\.4 12\.1 11\.3 PE Non-interest Savings 0\.9 1\.1 1\.2 1\.5 1\.6 0\.2 0\.2 0\.3 0\.0 Public Savings -1\.5 1\.0 1\.6 2\.2 2\.3 -0\.7 0\.7 1\.5 0\.5 Capital Expenditures 1\.4 2\.6 2\.6 2\.7 3\.0 1\.0 0\.3 1\.0 1\.0 Nonfinancial Public Sector Balance -2\.5 -0\.8 -0\.1 -0\.2 0\.1 -0\.7 0\.7 1\.5 -0\.2 Quasi-Fiscal Surplus 0\.0 0\.1 0\.1 0\.1 0\.1 0\.0 -0\.1 0\.1 0\.1 OverallBalance Financed by: -2\.4 -0\.6 0\.0 -0\.1 0\.1 -0\.7 0\.6 1\.6 0\.0 External Borrowing (net) -2\.0 0\.1 0\.7 0\.3 0\.7 1\.4 -0\.4 1\.7 0\.3 Net Domestic Financing 4\.3 0\.6 -0\.8 -0\.7 -0\.9 -2\.0 -0\.1 -0\.1 -0\.2 Balance or Payments Expots GNFS (real growth rare) 21\.8 -15\.3 3\.4 4\.6 4\.7 -0\.5 -1\.1 7\.2 12\.1 Exports of GNFS/Current GDP 10\.5 7\.6 7\.6 7\.3 8\.0 7\.3 6\.6 6\.3 6\.3 Imports GNFS (real growth rate) -2\.6 23\.3 5\.6 6\.0 5\.3 66\.3 53\.4 11\.2 19\.1 Imports GNFS/Curmnt GDP 5\.0 5\.6 6\.0 5\.8 6\.0 6\.2 8\.2 8\.2 9\.2 Resource BalanceiCurrent GDP 0\.05 2\.0 1\.9 2\.0 2\.0 0\.02 -0\.02 -0\.01 -0\.02 Current Account Balance/Current GDP 0\.01 -1\.4 -1\.3 -1\.3 -1\.1 -0\.01 -0\.04 -2\.90 -3\.60 Current Account Balance (million USS) 1331 -2535 -2373 -2475 -2272 -2768 -8361 8456 8557 Debt Indicators Total DOD (million USS) 59413 60339 61608 63896 65750 69830 37304 37945 97077 Total DOD/Current GDP) 0\.42 0\.42 0\.49 0\.51 0\.50 0\.37 0\.38 0\.34 0\.35 Debt Service Total/Current GDP 3\.3 7\.0 6\.6 6\.4 6\.7 5\.9 3\.5 3\.0 3\.3 Interest Total(million USS) 5757 5241 4913 5228 5127 4955 4173 3634 4874 Interest Total/Current GDP 0\.04 0\.04 0\.04 0\.04 0\.04 0\.03 0\.02 0\.01 0\.02 Prices, Exchange Rates and Interest Rates Domestic Inflation Index (annual) 2023\.0 79\.0 40\.0 25\.0 20\.0 141\.0 15\.3 7\.5 3\.9 Real Exchange Rate Index (1987=100) 99\.5 72\.0 75\.1 79\.2 79\.2 61\.8 53\.2 48\.9 49\.3 LBOR 8\.9 7\.7 7\.5 7\.8 7\.4 7\.3 3\.9 3\.4 4\.9 Monetary Survey - Expansion to Money (million Pesos) International Reserves 13423 6391 3986 4123 7526 9093 12495 17222 17929 Domestic Credit 20529 55463 60387 54283 74445 50710 51197 63068 73671 Private Sector 6567 34520 67519 63736 105222 24235 27547 42617 53220 Public Sector 13962 20943 -7131 -14452 -30783 26425 23650 20451 20451 Quasi-money 2693 53690 52103 48220 67530 5023 9047 12797 14342 MI 2701 17397 17368 16073 22510 7929 11692 16632 19567 GDP (million USS) 141400 124900 124900 124100 132500 139700 22800 255300 279500 a / Projections in Presidents Report were based on old national accounts data; these have been converted to new national accounts system\. b / Estimate\. c / Projected national accounts figures and actual 1991 figures based on old national accounts data, hence, actual 1991-1994 figures are relatively high, except the foreign savings figures, which are relatively low\. They are not directly comparable to actual 1991-94 figures\. d / Includes net operational surplus of Public Enterprises\. c / Transfer of quasifiscal expenditures to the Treasury in 1990; includes PE interest payments\. - 30 - 'Ible BI-B3: National Administration Reform Program Apnil 199 1993 Reductions Budget Total Lay-ofTs at Transters Total National Administration b/ 671479 284215 387264 103469 c/ 233795 Administrative Reform Program 341021 227677 113344 90913 22431 National Administration (Budgeted) 268246 184667 83579 61148 22431 Central Administration 123646 61276 62370 39939 22431 Decentralized Agenc3s 144600 123391 21209 21209 Othe National Administration (off Budget) 72775 43010 29765 29765 Other Programs 330458 56538 273920 12556 261364 Legislature 12405 12405 0 \. \. Judiciary 14053 17476 -3423 -3423 \. Nation Accounts Court 1000 1021 -21 -21 \. Teachers 303000 25636 277364 16000 261364 Memo: Amed Forces (A\.F\.) and Conscripts d/ 131297 112594 18703 18703 National Administration and Armed Forces 802776 396809 405967 122172 c/ 283795 Gross lay-offs (exc\. Lax agencies\. Police and A\. F\.) 121600 al Reducuons n positions via lay-otfs\. early retrcrment and attrition\. b/ Does not a%clude University Teachers, estimated to be around 95,000\. c/ Total net lay-ofs\. Discounting increases in the main tax collection agencies (13,300) and police (4,800)\. total gross lay-offs reach 121,600\. d/ Net of civilian personnel in Ministry of Defense, included in National Administration budget (above)\. Includes conscripts, which were reduced from 29,000 in 1990 to 12,000 in 1992, a reduction of 17,000\. el Gross total lay-ofTs of 121\.600 (footnote c) in the National Administration plus military reductions, are 140,300\. Apri 1990 1993 Reduction Budget Total Administrative Reform Program 341021 227677 113344 Budget National Administration 268246 184667 83579 Central Administration 123646 61276 62370 Decentralized Agencies 144600 123391 21209 OfI-Budget National Administration 72775 43010 29765 Central Administration 0 0 0 Decentralized Agencies 72775 43010 29765 at National Administration covered in Decree 2476/90 and in 'Hacia un Estada Moderno* repot - 31 - Apri 1993 Reducuon 1990 Budgct National Adminisuaion 268246 184667 83579 Centl Adminisaton 123646 61276 62370 Ministry of Economy and Public Works 11115 6973 4137 MiUistry of Foreign Affairs 3082 1611 1471 Ministry of Health 44360 12022 32338 Ministry of Labo and Social Security 2374 2149 725 Ministry of Defense 41293 27020 14278 Ministry of Interior 1167 1173 -6 Ministry of Culture and Education 14157 4120 10037 Ministry of Justice 1751 1765 -14 Presidency 3342 4438 -1096 Decentralized Agencies 144600 123391 21209 a/ 1993 Budget definition\. because of changes in administrative structure selected agencie have been grouped diflerenity from previous layouts in order to make data comparable\. h/ Does not include Teachers and Military\. - 32 - Table C: Fiscal Cost of Industrial Promotion: Estimated Fiscal Cost and Savings of Reform Progrz (Million of USS of June 1990) 1990 1991 1992 1993 1994 1995 Tax Expenditures Before Reforms (Projected) a/ 3012 3269 3491 3945 3675 3719 Industrial Promotion 2661 28338 3085 3521 3232 3256 Existing Projects b/ 2451 2468 2455 2681 2182 1996 Law 23614 (Projected) c/ 210 420 630 840 1050 1260 Tierm del Fuego dt 351 381 406 422 443 463 Savings from Policy Reforms 528 822 828 2382 2256 2335 Industrial Promotion 518 760 630 2118 1929 1910 Suspension of Promotion for New Projects e/ 210 420 630 840 1050 1260 50% Benefit and IVA Compras Suspension f/ g/ h/ 308 340 0 0 0 -172 Penalties for Non-Compliance with Emergency Law il 0 0 0 353 0 0 Reduction in Benefits - Decree 2054 j/ 0 0 0 925 879 822 Tierra del Fuego k/ 1/ 10 62 198 264 327 425 Fiscal Cost After Reforms 2484 2447 2663 1563 1419 1384 Industrial Promotion 2143 2128 2455 1403 1303 1346 Tierra del Fuego 341 319 208 160 116 38 a I Includes SICE and Four Provinces programs\. Based on February 1993 information\. b / Equal to "Costa Fiscal Utilizado\." c / Includes USS210 million per year of new projects\. as provided in law 23614 of September 1989, but not yet in force\. d / Production and import levels are assumed to increase at a 4\.5% rate after 1992\. e / Savings from suspension of Law 23614 (footnote b)\. f / Suspension of 50 % of benefits by the Emergency Law\. Only 20 % of the tax obligation is estimated to have been paid\. g / It is assumed that only 50 % of the IVA compras was acutally collected during 1990 and 1991\. In 1992, a judicial decision suspended the collection of IVA compras\. h / The refund of the IVA compras paid during April 1990 to December 1991 starts in 1995\. i / It is assumed that during 1990 and 1991, onlvu 20 percent of the tax liability from the 1989 Emergency Law was actually paid\. This amount was announced to be paid in 1993, as a consequence of audits\. including a penalty of 100%, as provided by law\. The refund of the original payment, as provided by Law, will also come in 1993\. j / This measures the fiscal savings from the bond substitution process started in December 1992 (decree 2054)\. k / Includes suspension of reimbursements to the continent (June 1990)\. I / Includes 1991-92 fiscal savings from reduction in the domesuc sales tax (impuestos internos); also includes 1993-95 savings from decree 1998/92 (November 1992), assuming a yearly percent fall of 8% in production and import levels after 1992\. DOCUMENT OF THE INTER-AMERICAN DEVELOPMENT BANK NOT FOR PUBUC USE PROGRAM COMPLETION REPORT ARGENTINA PUBLIC SECTOR ADJUSTMENT PROGRAM (LOAN No\. 633/OC-AR) F r 1995 Rev M-ch 9, 1995  PREFACE This is the Program Completion Report (PCR) for Argentina's Public Sector Adjustment Program (PSAP), which was supported by a fast disbursing operation in the amount of US$ 325 million (Loan No\.633/OC-AR)\. The loan was approved on September 25, 1991 and was fully disbursed by March 1993\. This report was prepared by specialists of the Finance and Basic Infrastructure Division 3\. Preparation of the report began on December 1, 1994\. The report is based on the loan documents, supervision reports, correspondence with the borrower and internal memoranda\. s ABBREVIATIONS ANA National Customs Administration BCRA Central Bank of the Republic of Argentina CPI Consumer Price Index ENTEL National Telecommunications Enterprise EFF Extended Fund Facility IDB Inter-American Development Bank IFI Intermediary financial institution IMF International Monetary Fund IRR Internal rate of return INDER National Reinsurance Institute PSAP Public Sector Adjustment Program QR Quantitative restriction SIGENAC Executive Comptroller's Office YFP Federal Petroleum Enterprise VAT Value-added tax WB World Bank t - ii - INDEX I\. EVALUATION SUMMARY \. \. 1 A\. INTRODUCTION \. \. \. 1 B\. OBJECTIVES AND DESCRIPTION OF THE PROGRAM\. \. \. \. \. \. 2 C\. COMPLIANCE WITH POLICY CONDITIONALITY\. \. \. \. \. \. \. -\. 3 D\. PROGRAM RESULTS\. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 3 E\. MAIN LESSONS\. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 3 (a) Design\. \. \. \. \. 3 (b) Execution and Monitoring\. \. \. \. \. \. 4 (c) Disbursement Procedures\. \. \. \. \. \. \. 4 (d) Sustainability\. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 4 (e) Bank and Borrower Performances \. \. \. \. \. \. 5 F\. MAIN RECOMMENDATIONS FOR FUTURE OPERATIONS\. \. \. \. \. 5 II\. ANALYSIS OF THE OPERATION \. \. \. \. \. \. \. \. 5 A\. BACKGROUND \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 5 B\. OBJECTIVES AND DESCRIPTION OF THE LOAN \. \. C\. COMPLIANCE WITH POLICY CONDITIONALITY \. \.9 D\. PROGRAM RESULTS \. \. \. \. 9 (a) Macroeconomic Performance \. \. \. \. \.9 (b) Fiscal Performance \. \. \. \. \. \. \. \. 10 (c) Public Procurement Law \. \. \. \. \. \. 13 (d) Central Bank Reorganization\. \. \. \. \. 5\.13 E\. MAIN LESSONS FROM THE PROGRAM\. \. \. \. \. 5\.14 (a) Design\. \. \. \. \. 14 (b) Execution and Monitoring\. \. \. \. \. 9\.14 (c) Disbursement Procedures;\. \. \. \. \. 9\.14 (d) Program Risks \. \. \. \. \. \. \. \. \. 15 (e) Sustainability \. \. \. \. \. \. \. \. 15 (f) Bank and Borrower Performances\.i\.o\. \. \. \. \. \. \. \. \. \. 15 F\. MAIN RECONENDATION FOR FUTURE OPERATIONS \. \. \. \. \. \. \. \. \. \. \. \. \. 16 III\. BASIC PROGRAM INFORMATION \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 16 A\. BASIC DATA\. \.P\.d\. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 16 B\. (DB FINANCING \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 16 C\. FINANCING\. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. \. 16 ANNEXES Annex A Report on Second Tranche Release - 111 - PROJECT KEY DATA Borrower: Republic of Argentina Executing agency: Ministry of Economy Amount and purpose:\. Import financing US$321\.75 million Inspection and supervision US$ 3\.25 million Total US$325\.00 million Sources: Ordinary Capital US$325\.0 million Terms and conditions: Amortization 20 years Grace period 5 years Interest rate variable Commitment fee 0\.75 % Inspection and supervision 1% Disbursement period: Original 2 years Actual 1 year and 5 months after effectiveness PROJECT COMPLETION REPORT ARGENTINA PUBLIC SECTOR ADJUSTMENT PROGRAM ( LOAN No\. 633/OC-AR ) I\. EVALUATION SUMMARY A\. INTRODUCTION 1\.1 Argentina followed inward-oriented substitution policies since the 1930s that led to the development of a protected, non-competitive manufacturing sector, which grew with the shortages of consumer goods that prevailed during the Second World War and the immediate postwar period\. The Government also expanded into the productive and service sectors as well as into the financial sector in the areas of development and mortgage banking\. Since the 1950s, Argentina's economy experienced erratic and low real growth, high inflation, declining investment/GDP ratios, and capital flight\. The situation began to worsen in the mid-1970s as balance of payments and fiscal deficits further clouded the economic situation and their financing led to heavy borrowings from abroad\. 1\.2 Anti-inflationary policies followed during 1979-81 used the exchange rate as an anchor under a pre-announced devaluation schedule (tablita)\. Significant private capital inflows attracted by short-term financial benefits financed mostly consumer goods imports, tourism expenditures, and outflows of funds (e\.g\. real estate investments in Uruguay)\. The increased trade deficit and the rising debt service payments deteriorated the current account balance of payments\. Private enterprises were adversely affected by high real interest rates and high debt/capital ratios and experienced severe difficulties, which also impacted on the financial sector\. The fiscal deficit worsened as revenues declined with the economic slowdown\. The overvaluation of the currency could no longer be sustained in early 1981\. 1\.3 The abandonment of the tablita in March 1981 led to a financial collapse of the private sector\. As a result, the government had to honor the "exchange guarantees" it had issued to private debtors and, thus, became responsible for nearly all private external debt\. Subsequently, international interest rates shot up to very high levels and foreign financing sources began to dry out with the retrenchment of international commercial banks from Latin-America on account of the South Atlantic conflict and, particularly, the 1982 debt crisis, which was triggered by the Mexican moratorium on the external debt\. As a result, Argentina's external debt multiplied while its sources of financing were limited to multilateral lending\. Commercial debt rescheduling and limited amounts of new money became a necessity\. 1\.4 Rather than making an effective fiscal adjustment to pay for its debt service obligations, the government resorted to money creation and used 2 foreign exchange restrictions anc/or broad quantitative restrictions on imports to mobilize resources for this purpose\. The private sector gradually withdrew its resources from the financial system to avoid the inflation tax\. Meanwhile, several stabilization programs failed and inflation kept recurring with renewed strength until it reached 200 percent in July 1989\. 1\.5 The crisis provided the momentum for an early transfer of power to the newly elected President, whose administration launched programs of stabilization and structural reform with mixed results in 1989 and 1990\. Advances in privatization of public enterprises and administrative reforms were not accompanied by a stable fiscal equilibrium or success in the control of inflation\. Hyperinflation resurfaced in December 1989 and, after some decline, inflation climbed again at end-1990\. In early 1991, a major stabilization program began\. The program comprised revenue and expenditure measures to eliminate the fiscal deficit\. The turning point was an April 1991 convertibility law establishing a par fixed exchange rate peso/dollar, which so far has been maintained albeit with some corrective measures as export competitiveness weakened\. The aim of the measures is to reduce domestic costs, including labor and social security costs, through structural adjustments on the supply side to restore the economy's competitiveness\. 1\.6 The Government aimed at balancing the public sector accounts, reversing the demonetization of the peso economy, and normalizing relations with external bank creditors\.The fiscal and quasi-fiscal deficits so far had been virtually eliminated, partly with the proceeds of the privatization of public enterprises and debt-equity conversions\. The monetization of the economy was enhanced by the introduction of bimonetarism,\. the strengthening of the peso free convertibility with a reportedly 100 percent dollar backing of the monetary base, freeing financial intermediaries to provide credit in pesos or dollars, guaranteeing dollar deposit withdrawals in the same currency, and deregulating the stock exchange\. With respect to the external debt, the Government moved to renegotiate the debt with commercial bank creditors under the Brady plan, which supported major debt and debt service reductions with a strong linkage to economic reforms\. B\. OBJECTIVES AND DESCRIPTION OF THE PROGRAM 1\.7 The Bank loan supported the Public Sector Adjustment Program (PSAP) in a cofinancing operation with the WB\. The main objective of the PSAP was to remove the sources of the- public sector deficit\. Towards this end, the PSAP concentrated in three areas: increasing fiscal revenues; rationalizing public expenditures; and restructuring the central bank (BCRA) and reducing its role in deficit financing\. 1\.8 The revenue component aimed at increasing collections and reducing evasion\. It included: expanding the value-added tax base; removing up to 80% of manufacturing subsidies; and, more importantly, strengthening the tax administration through better and expanded auditing of declarations, more complete taxpayers rosters, greater efficiency, computerization of 3 internal and custom taxes, and administiative restructuring of tax offices\. 1\.9 The expenditure component aimed at lowering expenditures by reducing the federal bureaucracy by over 120,000 and the federal payroll by 25 percent, by strengthening budgetary management and by expenditure controls\. In addition, the program supported the creation of a special executive service of about 1,500 people to alleviate, on a selective basis, the flattening of the wage scale of the federal administration; this was envisaged as a step in creating a high level civil service well- remunerated to run the country's bureaucracy\. 1\.10 The BCRA restructuring component aimed at restoring its role as the monetary authority and avoid a repetition of past practices when BCRA was an important source of financing for all government levels\. The loan required: a new charter, a drastic reduction in credit to the non- financial public sector, staff reductions and the termination of the financial support to commerce and to the liquidation of banks\. C\. COMPLIANCE WITH POLICY CONDITIONALITY 1\.11 The Bank loan was approved on September 25, 1991 and had been disbursed by March 26, 1993\. Second tranche disbursements were delayed because the supporting import documentation was not provided in a timely manner\. D\. PROGRAM RESULTS 1\.12 The program was successful in reducing macroeconomic instability originating in the fiscal accounts\. The revenue component based mostly on administrative improvements of the tax administration and the expanded VAT tax base increased Central Government revenues over 4 percentage points of GDP during 1990-93\. The expenditure management and control component, however, did not contribute much to deficit reduction as total expenditures of the Central Government increased about 2 percentage points of GDP during 1990-93\. The BCRA component resulted in a significant improvement of the financial sector's supervision, a new BCRA charter, the restructuring of the BCRA, and limitations on credit to the non-financial public sector\. However, recent events (reappearance of the fiscal deficit, unsustainable rising current account balance of payments deficits, Mexican peso difficulties) raise questions about the medium-term sustainability of the program (see main body of the report)\. E\. MAIN LESSONS (a) Desizn 1\.13 The main design lesson from the PSAP is the confirmation that the conditionality should concentrate on a few, key important areas rather than dispersed over many components and sub-components\. This was the positive experience of the PSAP, which had few components\. The dispersion of the conditionality over many areas is a recipe for incomplete or sub- 4 standard performance in one or more sub-components, wich, in an overall balance, has to be accepted as some level of compliance\. 1\.14 The PSAP demonstrates also the importance of the overall macro context or policy framework in which the program is being implemented\. Argentina was involved in a broadly based overall program of structural reforms of which the PSAP was a part\. All reform programs were consistent and had full government support\. In particular, the PSAP, by strengthening public finances, was a fundamental element of the quest for price stability, which was the core of the government policy\. (b) Execution and Monitorin 1\.15 The PSAP provides a lesson about the importance of the government and other public sector bodies being fully committed to the program as a condition of success\. In this case, the government had a strong commitment and pushed forward the agreed measures\. With respect to monitoring, this is facilitated by a well-focused and concentrated program, which was the case of the PSAP\. (c) Disbursement Procedures 1\.16 The PSAP developed difficulties for the provision of the necessary support documentation for second tranche release\. The support of the WB permitted to circumvent this obstacle but this approach should not be satisfactory for dealing with the problem\. The lesson extracted from the PSAP experience is that procedures for tranche disbursement should be clarified at the negotiation stage to avoid misunderstandings\. (d) Sustainability 1\.17 The risk of unforeseen developments derailing progress obtained under the PSAP is still present\. Macroeconomic performance is crucial to the sustainability of the results of the PSAP\. This concerns maintaining the exchange rate regime, restoring export competitiveness, generating genuine savings and foreign exchange earnings to service the public sector debt and cover current account balance of payments developments\. Up to now the Government has been able to stay the course\. However, the program still confronts potential risks arising of: the fallout from the Mexican peso crisis on capital markets, higher international interest rates, failure of productivity increases to exceed those of trading partners and thus failure to boost competitiveness for strong export growth, and pressures for a devaluation leading to higher inflation rates\. 1\.18 A program dealing with the public sector deficit, which basically achieves results through revenue increases and much less through expenditure reductions, is bound to develop difficulties if the economy encounters major problems affecting adversely growth and tax revenues\. Some indications of fiscal disequilibrium already surfaced in 1994 and could widen in 1995\. It is too early to assess the magnitude of the impact\. 5 (e) Bank and Borrower Performances 1\.19 Bank performance was adequate in the framework agreed at the time for cofinancing WB operations\. 1\.20 Borrower performance was satisfactory in complying with Bank conditions, with the exception of the enactment of the Public Procurement Law\. However, the\. documentation required for second tranche release was not provided as required, forcing the Bank to rely on WB information\. F\. MAIN RECOMMENDATIONS FOR FUTURE OPERATIONS 1\.21 An adjustment program should concentrate on a few, important areas to ensure meaningful reform results\. In this connection, the diagnosis of the problem and the identified solutions should be very accurate\. II\. ANALYSIS OF THE OPERATION A\. BACKGROUND 2\.1 Argentina embarked on import-substitution policies since the 1930s Great Depression\. These policies led to the development of a protected, non- competitive manufacturing sector, which grew with the shortages of consumer goods that prevailed during the Second World War and the immediate postwar period\. A parallel development was a significant expansion of the Government into productive and service sectors, such as petroleum, coal, steel, electricity, telecommunications, railways and airlines, and into the financial sector with development and mortgage banks\. Since the 1950's, Argentina's economy experienced significant difficulties characterized by erratic and low real growth, high inflation, declining investment/GDP ratios, and capital flight\. 2\.2 Anti-inflationary policies followed during 1979-81 used the exchange rate as an anchor under a pre-announced devaluation schedule (tablita), which lagged behind the inflation rate; they exacerbated the economic deterioration\. Significant private capital inflows attracted by short-term financial benefits financed mostly consumer goods imports, tourism expenditures, and outflows of funds (e\.g\. real estate investments in Uruguay) and did not add significantly to the production and exporting capacity\. The increased trade deficit and the rising debt service payments deteriorated the current account balance of payments\. The fiscal deficit worsened as revenues declined with the economic slowdown\. The overvaluation of the currency could no longer be sustained in early 1981\. 2\.3 The costs of the experiment were\. significant\. First, an increasingly overvalued peso led to an import boom and significant deficits in the current account balance of payments while lack of expenditure discipline and real revenue declines sharply increased the fiscal deficit\. Larger fiscal and balance of payments deficits were financed with substantial foreign borrowings when international interest rates were highly positive in real terms\. These borrowings were used to finance fiscal deficits, 6 losses of public enterprises and provincial governments, industrial promotion schemes favoring privileged industrialists, housing contractors and selected middle class home buyers, military expenditures and, in addition, foreign exchange gaps to sustain the pre-announced devaluation schedule\. Second, the financial structure of private enterprises became very weak\. Private enterprises were adversely affected by high real interest rates and high debt/capital ratios and experienced severe difficulties, which also impacted on the financial sector and on public finances\. Third, the public debt stock escalated further when private debtors experienced difficulties with their external debt obligations and the Government had to honor its exchange guarantee commitments and become responsible for almost all private external debts\. As a result, the public external debt service increased very significantly in 1982\. At the same time, the armed conflict with Great Britain and, particularly, the Mexican debt moratorium led to a retrenchment of foreign commercial banks from lending in Latin-America\. 2\.4 With the retrenchments of foreign lenders from the region in 1982, servicing the external debt became a serious problem\. Argentina's access to external financing was limited to multilateral lending\. Resorting to involuntary debt rescheduling of debts with foreign commercial banks with the commitment of some new money became a necessary arrangement\. The debt- servicing problem was further compounded by the well-known transfer problem, i\.e, the generation of income and foreign exchange earnings by producers/exporters and the transfer mechanism for appropriating these resources by the Government for payment to the creditor banks\. Military and civilian governments avoided the problem and resorted to foreign exchange restrictions, quantitative import restrictions and money creation instead of generating genuine fiscal resources\. Stabilization programs failed and inflation rekindled after each failure\. A severe crisis developed when inflation reached 200 percent in July 1989\. 2\.5 The crisis facilitated an earlier transfer of power to the newly elected President, who took office with a strong mandate to stop the chaotic economic situation and carry out programs of stabilization and structural reform\. The government launched a privatization program of public enterprises in 1990, which covered the airline, telecommunications company, railways, oil and gas companies, power and water companies, steel, armament factories, etc\. with the proceeds of these sales providing resources for a temporary improvement of public finances\. However, the initial stabilization efforts were not successful; hyperinflation levels were recorded in December 1989 and, after some decline, inflation began to accelerate again in late 1990 and early 1991\. 2\.6 A new program began reversing the trend in April 1991\. It aimed at reducing inflation, changing the structure of production, balancing the public sector accounts by increasing tax revenues and controlling expenditures, continuing the privatization of public enterprises, reversing the demonetization of the peso economy, and restructuring the central bank (BCRA)\. The turning point was the April 1991 Convertibility Law establishing a par fixed exchange rate peso/dollar, with free convertibility, and a reportedly 100 percent dollar backing of the 7 monetary base\. This led to the dollarization of deposits and credits of financial intermediaries, and the guarantee of dollar-deposit withdrawals in the same currency\. The peso/dollar exchange rate so far has been maintained albeit with some temporary corrective measures, such rebates to improve export competitiveness, or pressures from the investment climate in the region, particularly the devaluation of the Mexican peso and its aftermath on financial markets\. 2\.7 To stimulate private activities, trade liberalization efforts continued\. The maximum import tariff rate was reduced to 20 percent; quantitative import restrictions were removed, except for cars; export taxes were eliminated and indirect taxes reimbursed to exporters; and the anti- dumping mechanism was revamped to comply with the GATT Code\. In parallel, restrictions on professional, transport and port services were ended to reduce businesses costs\. Labor legislation was approved aiming at improving collective bargaining and providing more flexibility\. 2\.8 On the strength of the reform program, the Government negotiated in 1992 with creditor commercial banks, under the Brady plan, a debt and debt service reduction program\. The DDSR Agreement restructured about US$21 billion of external debts with commercial banks and normalized the situation of about US$8 billion of past due interest\. The Agreement provided a partial discount and a lower fixed interest rate in exchange for normalizing the repayments and continuing the implementation of significant policy reforms and structural adjustments\. The agreement improved Argentina's creditworthiness and ability to attract foreign financing\. 2\.9 The above-noted developments shaped the growth performance of the economy\. The real GDP's growth rate fluctuated during the 1980's, dropped 6 percent in 1989 and showed no growth in 1990\. Savings and investment rates in Argentina dropped as funds increasingly moved abroad\. However, under the 1991 stabilization and reform program, the economy recovered\. During 1990-93, GDP grew over 7 percent a year and exports of goods increased 2 percent a year\. Nevertheless, productive investment was insufficient to restore competitiveness\. The current account balance of payments deteriorated abruptly from a surplus of US$4\.6 billion in 1990 to a deficit of US$11\.6 billion in 1994, reflecting the increasingly uncompetitive trade position and the reduction of protection\. Imports expanded from US$3\.7 billion in 1990 to US$15\.5 billion in 1993 and rose again by 40 percent in the first semester of 1994 compared to the same period in 1993\. 2\.10 Projections for 1995 indicate the need for continuous private capital inflows and the essential importance of boosting export performance\. Given developments in the Mexican capital market, the inflows of foreign private capital is not ensured; thus, the balance of payments financing would most likely be a function of desired savings and investment levels in the private sector\. I 1 World Bank, Provincial Reform Loan, President Report No\. P-6414-AR\. 8 B\. OBJECTIVES AND DESCRIPTION O THE LOAN 2\.11 The Bank loan provided US$325 million in support of the PSAP to help cover some of the costs of the adjustment\. This was a cofinancing operation with the World Bank (WB), which provided also US$325 million in support of the adjustment program\. 2\.12 The principal government objective in undertaking the PSAP was to take corrective action to remove the sources of the public sector deficit\. To accomplish this, the PSAP covered the following areas: (1) increasing fiscal revenues; (ii) rationalizing public expenditures; and (iii) reforming the Central Bank (BCRA) and, in particular\. reducing its deficit financing of the government\. 2\.13 On the revenue side, the program included important steps to increase government revenues, as follows: (I) expanding the value-added tax base to cover services and the vetoing by the Executive of any new exemption to this tax; (ii) eliminating up to 80 percent of the subsidies granted to manufacturing; (iii) strengthening the tax-administration through better audit systems to cover the 30,000 largest taxpayers in 1991 and all taxpayers in 1992; (iv) cross-checking of taxpayers declarations for social security payments and tax collections; (v) stimulating greater efficiency of tax collectors with a revenue-sharing system; (vi) improving the follow up and collection of taxes owed as a result of audits; and (vii) revamping of the General Tax Directorate (DGI), with particular reference to revisions of administrative regulations and budgetary procedures, and the introduction of new procedwres for hiring personnel and purchases by DC1\. In addition, drastic actions were taken against firms which were not in compliance with VAT procedures; about 200 firms were closed down in the initial steps of the program\. The program also supported a new computerized system for the control of import classification to reduce errors and corruption\. 2\.14 On the expenditure side, the program consisted of: (I) reducing the federal bureaucracy by 120,000 no later than May 1, 1992, with particular emphasis on the elimination of whole government functions and entities rather than on piecemeal reductions; (11) diminishing by 25 percent payroll expenditures; (iii) improving salary scales for about 1,500 executives as a step in creating a high-level executive service to correct the flattening of the federal wage pyramid; (iv) a termination package for fired employees, which consisted of payments for six months at 75 percent of the original vage plus a lump-sum payment plus maintenance of social benefits for one year; and (v) strengthening budgetary programming of and controls over expenditures, including drafting legislation on financial management and controls\. 2\.15 With respect to the BCRA, the program aimed at restructuring the Superintendency of Banks; a new charter for the BCRA; a substantial reduction of credit to the non-financial public sector as a result of the progress in sttengthening public finances; termination of BCRA's\. financial support to commerce and to the liquidation of bank\., which conveyed a parallel staff reduction under conditions similar to those granted to government employees\. 9 C\. COMPLIANCE WITH POLICY CONDITIONALITY 2\.16 The loan was approved by the Board on September 25, 1991 and was fully disbursed by March 1993\. After loan signing on November 15, 1991, first tranche disbursements took place on December 13, 1991 and second tranche disbursements in March 1993 after loan conditions had been met\. Second tranche disbursement of the cofinanced WB loan had taken place a month earlier in February 1993\. D\. PROGRAM RESULTS (a) Macroeconomic Performance 2\.17 The main program objective of reducing the chronic macroeconomic instability was achieved\. In general, the macroeconomic performance was consistent with the program objectives\. The government economic program lowered inflation substantially by establishing a fixed peso/dollar exchange rate and full convertibility while achieving a fiscal balance\. With price stability, the economy recovered its growth path; GDP grew an average 7\.9 percent a year during 1990-93\. However, unemployment reached levels exceeding 10 percent, which are significantly above traditional country levels, and the trade account deficit of the balance of payments widened to about US$5\.0 billion in 1994 from US$3\.7 billion in 1993, as imports were fueled by domestic demand and the peso appreciation\. Capital inflows financed the larger current account deficit\. Table 1 MACROECONOMIC INDICATORS (billion dollars or %) ITEM 1990 1991 1992 1993 19941 GDP 69 181 727 255 280 Exports (FOB) 12 12 12 13 15 Imports (FOB 4 8 14 15 20 Trade Balance 9 4 -1 -2 -5 Gross Domestic Investment/GDP (%) 14 14 17 18 20 National Savings/GDP (%) 18 15 14 16 16 Foreign Savings/GDP (%) -4 -1 2 2 4 Current Account B\.O\.P\. 5 -1 -6 -8 -11 Net Foreign Assets (Monetary Survey) 4 6 3 8 52 Reserves (Monetary Survey) 4 9 11 15 152 Federal Deficit (-), cash basis (% of GDP) -3 -1 1 1 0 1 Preliminary\. 2 July 1994\. Sources: IFS and WB, PR-6414-AR, and Secretaria de Programaci6n Econ6mica, Informe Econ6mico, 1994\. 10 2\.18 Sustainability of the program in the medium-term depends on corrective actions\. The government medium-term strategy is: (i) with respect to export competitiveness, to reduce domestic production costs, particularly through lowering equivalent-dollar wages and eliminating the employer's payroll contribution to social security below those of Argentina's trading partners; and (ii) with respect to balance of payments imbalances, to increase national savings to compensate for the recent instability in capital markets, which might not provide the private capital inflows needed to finance the current account balance of payments deficit\. In this connection, legislation was approved to ease collective bargaining and provide more flexibility to the labor market, and to reform the social security system into a capitalization program and eliminate the employer's contribution\. New legislation on these two matters is now under discussion in Congress\. Despite the increase in private savings, external private capital inflows will still be needed to ensure a smooth transition to a sustainable balance of payments\. (b) Fiscal Performance 2\.19 Fiscal performance was satisfactory from 1990 to 1993 as the current and overall deficits of the Central Government became small surpluses\. Tax administration was successful in reducing tax evasion and pushed collections to record levels\. Central Government revenues increased from about 12 percent in 1990 to over 16 percent in 1993\. The expenditure reduction in the Central Government, however, was less successful as current expenditures increased from 14 percent of GDP in 1990 to 17 percent in 1993, increase which was not fully compensated by a slight drop of capital expenditures\. Total expenditures increased from 15\.6 percent of GDP in 1990 to 18\.1 percent in 1993\. 2\.20 In 1994, there was some deterioration of the fiscal accounts resulting on under performance in compliance with some of the IMF's targets\. Afterwards, with the Pension Reform Law 2041, which became effective on July 1, 1994, payroll revenues on manufacturing activities were transferred to new pension arrangements and the employer contribution eliminated, while the government retained the liabilities of the old pension system\. As a result, the government has been experiencing monthly fiscal deficits in the second half of 1994, which have continued into 1995\. Reductions of employer's payroll contributions, for commerce and services scheduled for January 1, 1995 were postponed until the fiscal situation improves\. The pension reform effect, combined with the increase in interest payments from higher international interest rates on part of the external' debt (past-due interest bcoris), is likely to increase the public sector deficit over that of 1994\. Early estimates are for a government deficit of US$2 billion\. 2\.21 The fiscal and quasi-fiscal deficits were virtually eliminated through: (i) increases of the value-added tax rate from 13 percent to 18 percent with very limited exemptionsi; the value-added tax (VAT) collections expanded from 2\.3 percent of GDP in 1990 to 6\.2 percent in 1994; (ii) a large revenue impact of rebuilding the tax rolls and improving the tax 1 Raised to 21% in March 1995\. 11 administration to combat tax evasion; (iii) lower manufacturing subsidies; (iv) stronger expenditure controls, redimensioning of the public administration; (v) lower transfers to the provinces and public enterprises; (vi) the proceeds of the privatization of public enterprises; and (vii) the reduction of interest payments associated with the renegotiation of the external debt\. The primary surplus of the public sector reached 2\.1 percent of GDP in 1992 and 2\.7 percent in 1993 before declining to 1\.1 percent in 1994\. 2\.22 On the revenue side, the government made serious efforts to raise revenues through VAT rate increases and improvements in the general tax administration (DGI), which had a substantial impact on increasing Central Government revenues, as nsted in paragraphs 2\.19 and 2\.21\. The administrative improvements :arried out were: (i) the number of audits increased significantly and the collection target of over 85% of the additional tax liabilities determined by these audits was accomplished; (ii) a universal roster of taxpayers was established and the coverage of the roster of large taxpayers was expanded from 60,000 in 1992 to 250,000 in 1994; (iii) the value of tax assessments increased although it did not lead to higher global assessments over those of 1990, as required by the conditionality, because most important valuations were sent to the courts for disposition in compliance with the new penal code; and (iv) revenues from the "voluntary" tax payments category doubled as a ratio to GDP between 1990 and 1992\. 2\.23 In addition, the program to improve customs administration was successful in raising import tariffs revenues, which tripled from 1990 to 1992\. The basic tools were: the adoption of the French customs computerized system (MARIA), the simplification of procedures and norms, and the adoption of the General Tax Directorate (DGI) system for controlling large taxpayers\. 2\.24 With respect to industrial promotion exemptions, the program led to a significant overhaul of the system\. The tax administration examined 2,500 industrial establishments benefitting from these exemptions and the government promulgated Decree No\. 2054 and three ministerial resolutions, which established the legal and administrative set up for the control of the audited firms\. The Decree required that all firms remaining under the old system would be subject to an audit to ascertain its co:apliance with all laws and decrees enacted since 1989\. Decree No\. 2054 also established: (i) new rules replacing tax exemptions with non-negotiable tax certificates, which could be used to pay tax liabilities; (\.i) termination of benefits for firms not in compliance with their initial commitments; (iii) limitations of benefits for beneficiary firms which had not begun operations; and (iv) new uniform rules for the application of the VAT regime norming sales of suppliers to firms benefitting from the industrial promotion scheme\. 2\.25 The elimination of the fiscal and other incentives to manufacturing activities in the province of Tierra del Fuego also achieved \.satisfactory results\. The domestic tax on sales of electronic equipment was repelled in november 1991; export subsidies were terminated by Decree 888/92; the VAT exemption for manufacturers of electronic equipment was expected to be 12 gradual,y eliminated in four years by Decree 1999/92 but has been partially retained until the year 2013, as noted below; and import tariff protection was reduced from 35% to 20%\. However, the special preferential treatment of Tierra del Fuego was only partially eliminated\. In 1993, a partial exemption of the value-added tax (7 percent instead of 18 percent) was retained until the year 2003 and, under MERCOSUR's external tariff arrangements, the province was permitted this prerogative until the year 2013; inputs also are imported duty free\. 2\.26 The government, at disbursement of the second and final tranche of the loan, had complied with a closely related condition requiring that no new tax exemptions or other benefits would be provided after December 1990 under the Industrial Promotion Regime or other existing legislation\. Later on, however, special exchange rate arrangements have been established for some manufacturing activities adversely affected by the Convertibility Law regime, such as car exports\. 2\.27 On expenditure reduction, the government complied satisfactorily with the conditionality\. However, total public expenditures remained at about the same level\. Declines in infrastructure expenditures, debt service, and miscellaneous other expenditures were compensated mostly by increases in social security expenditures, which went up from 5\.86 percent of GDP in 1991 to 8\.84 percent in 1994\. 2\.28 With respect to staff reductions, about 120,000 jobs were eliminated at the Federal level, of which 22,000 were transferred to the provinces, about 19,000 were laid-off in the armed forces, and 20,000 retired\. This was partly compensated with the reported increases in revenue-collection personnel and police,\. which totalled 13,300 and 4,800, respectively\. During 1991-92, the cost of the reduction in force was about US$312 million\. Public enterprises employment declined from 347,000 in 1989 to 37,000 in 1994 as a result of the privatization program\. Overall, it is estimated a reduction in force of about 300,000 jobs in the public sector\. 2\.29 The Law on Financial Management and Performance Control was approved on September 30, 1992 and the corresponding regulations were issued\. The law established: (i) an integrated public financial management system, including comprehensive budgeting and accounting for the federal public sector; (ii) an effective system of internal controls for the Executive branch, coordinated by the executive comptroller's office, which reports directly to the President of Argentina; and (iii) reestablished a National General Auditing Office, which reports to Congress\. 2\.30 Other conditions on expenditure accounting control that the government complied with were: (i) the annual budgets submitted to Congress to be based on a new programming system; (ii) the elimination of earmarked funds, which dropped from 151 in 1990 to 59 in 1992, with a parallel reduction in expenditures of 23%, which was close to the agreed percentage reduction; further action in 1993 reduced the number of funds to 44, which represented about 3% of the budget and are no longer a source of subsidies to the private sector; (iii) transfers to the Provinces were lowered 13 significantly bel\.w 1991 budget authorization while transfers to public enterprises were only slightly lover\. 2\.31 At the same time that the government took steps to reduce expenditures, it established a senior executives service and widened the pay ratio between top executives and other staff positions\. Decree No\. 2712/91 established a new pay scale for civil service\. (c) Public Procurement Law 2\.32 At second tranche disbursement, the Board's tranche release document noted that the government had not fully met its commitment to enact and put into effect the Public Procurement Law\. A draft law had been prepared clarifying and revamping bidding, pre-qualification, price, and contracting procedures, and particularly those procedures dealing with projects financed by multilateral banks and other international organizations\. The law had been submitted to Congress in January 1993 but has not been approved\. However, a Presidential decree advanced most of the expected changes by postponing preferences for domestic firms and issuing administrative instructions to purchasing agencies\. The privatization of state enterprises also contributed to a positive result on this score as these entities did most of the procurement of goods in the public sector\. (d) Central Bank Reorganization 2\.33 The monetary authority of the Central Bank of the Republic of Argentina (BCRA) was reestablished with several actions\. Short-term, high interest deposits were converted to long-term dollar bonds (BONEX) at LIBO-based rates in January 1990, thus ending the destabilizing practice of BCRA of covering its losses with short-term debt\. This was followed by the approval of the Convertibility Law in April 1991, which fixed the exchange rate at one peso per one US$, de-indexed contracts, permitted dollar transactions, and required a 100 percent dollar backing of the monetary base; and by the passage of a new BCRA Charter in September 1992 to reestablish an independent monetary authority\. The dollarization of deposits and credits of financial intermediaries, the dollar guarantee of deposit withdrawals in the same currency, and the deregulation of the stock exchange strengthened the monetization of the economy\. 2\.34 The reorganization of the BCRA was carried out in step with the agreed changes\. The new BCRA charter prohibited the bank from issuing bonds, lending to financial intermediaries (except for short-term liquidity needs), paying interest on deposits, and financing the government by more than 10 percent a year\. It also required the reform of the Superintendency of Banks and the transfer of the activities connected with the liquidation of banks from BCRA to the courts\. BCRA retained the liquidation of assets of failed banks\. As a result of the restructuring the total number of employees of BCRA dropped 30 percent from 1990 to 1992; the staff associated with the liquidation of failed banks also declined about 27 percent\. 14 2\.35 The regulatory framework of the banking system experienced a significant improvement\. Apart from eliminating restrictions, the new norms represent a significant step to strengthen the solvency of the banking system with the introduction of Basle-type norms on the risk classification of assets and minimum capital requirement at 8 percent of said assets\. The new criteria for portfolio classification was expected to be in place by December 1994 and the provisioning needed to be provided by July 1995\. Argentina's banking system is overdimensioned for the existing business and thus tends to charge higher fees and interest rates to cover expenditures\. The full impact of the Basle-type rules on asset classification and provisioning to cover minimum solvency requirements is likely to lead to a rationalization of the banking system\. Already some banks have failed and others are experiencing liquidity difficulties, which may worsen if the portfolios are not of good quality\. E\. MAIN LESSONS FROM THE PROGRAM (a) Desizn 2\.36 The main lesson from this program concerns the importance of keeping the conditionality centered on a few important areas to ensure the overall success of the adjustment operation\. The PSAP experience clearly supports this approach\. It shows positive results on a well-defined, concentrated conditionality\. Complex conditionality could be tackled more successfully under several operations\. 2\.37 A second design lesson relates to the consistency with the overall policy program being carried out by the government\. The PSAP's design was consistent with the overall adjustment policy followed by the government, which covered many areas under several adjustment programs\. In particular, it should be mentioned the close connection between price stability and sound fiscal accounts and a properly functioning central bank and banking system\. (b) Execution and Monitoring 2\.38 The commitment of the national authorities to the implementation of the program is essential for positive implementation results\. This was the case with Argentina's PSAP with the strong commitment of the Ministry in charge of economic policy, who also had the firm support of the President\. 2\.39 With respect to monitoring, the importance of a clear, identifiable level of advance in measuring progress should be stressed\. It helps substantially to keep down monitoring activities but also helps ensure more substantial compliance\. (c) Disbursement Procedures 2\.40 The second traniche disbursement was the subject of some misunderstanding\. A disbursement request was made by the government without the appropriate documentation supporting the fulfillment of the conditionality\. The documentation was put together with help from the WB staff that prepared 15 the tranche release for that institut\.on\. The disbursement was further delayed for the need to wait, in cofinancings with the WB, for the WB's Board decision approving the disbursement with a waiver on the condition requiring the enactment of the Public Procurement Law\. In this connection, it should be noted that the collaboration WB-BID was satisfactory\. (d) Program Risks 2\.41 The Bank documentation anticipated the potential risk of rising unemployment linked to the reduction in force in the public sector\. The PSAP impact on unemployment has been magnified by the economic consequences of overall deflationary economic policies with unemployment reaching about 13 percent of the labor force\. However, there was no negative feedback to stop the program\. 2\.42 The identified risk in the loan proposal of a condition not been fulfilled materialized in the case of the Procurement Law as noted above\. (e) Sustainability 2\.43 The main risk noted in the loan proposal was that of unforeseen developments derailing or reducing the effectiveness of the overall program despite a committed government\. The economic conduction has been instrumental in carrying forward the program\. Nevertheless, despite this commitment, there are potential developments ahead, which may raise major hurdles in the near future, e\.g\. pressures on public finances\. If this risk materializes, there is a lesson to be drawn: public sector financial adjustments are closely interrelated with the short and medium term performance of the economy and, unless there is vigorous economic recovery and growth, fiscal performance could deteriorate as revenues falter\. 2\.44 Furthermore, private savings increase should be a clear goal of the overall reform program to ensure the sustainability of the macro reform program\. In this context, the lesson is that domestic measures should be put in place to help avoid an import stampede caused by trade liberalization and an overvalued currency\. These measures might include transitory selective consumption taxes, limits on consumer credit, etc\. to ease the transition and create the conditions for lasting reforms and avoid booms and busts, which would be blame on the reforms\. (f) Bank and Borrower Performances 2\.45 Bank performance was adequate in view of the existing constraints at that time, which required the Bank to cofinance adjustment operations developed by the WB\. 2\.46 Borrower performance was satisfactory in complying with almost all the loan conditions in a timely manner\. The only major exception was the Public Procurement Law\. The documentation required to meet disbursement conditions, however, was not timely provided for second tranche disbursement as noted above\. 16 F\. MAIN RECOM(ENDATION FOR FUTURE OPERATIONS 2\.47 This operation provides a good example to be followed: an adjustment program concentrated in a few, important areas with a good diagnosis and where important results are feasible\. The operation provides a clear case to contrast against other programs with a much broader, all-inclusive coverage but with potential non-compliance in several areas\. III\. BASIC PROGRAM INFORMATION Country: Argentina Loan number: 633/OC-AR Name of the operation: Public Sector Adjustment Program Borrower: Republic of Argentina Executing agency: Ministry of Economy Modality: Fast-disbursing A\. BASIC DATA Orizinal Program Committee (SLP): 08/10/90 Program Committee (SLS): 05/08/91 Loan Committee: 08/01/91 Negotiations: 08/12/91 Board approval date: 09/25/91 Loan contract signing: 11/15/91 First tranche disbursement: 12/13/91 Second tranche disbursement: 03/26/93 B\. IDB FINANCING (million US$) Total IDB amount disbursed 325 Total Program 650 IDB percent of total 50 % C\. FINANCING (million US$) 1\. Total 650 IDB loan (Ordinary Capital) 325 WB loan 325 2\. Disbursement Schedule ma H& First tranche 162\.5 162\.5 Second tranche 162\.5 162\.5 3\. Loan Disbursement Disbursed 325\.0 Canceled none 4\. Disbursement Dates Expected Actual First tranche 12/15/91 Second tranche 12/31/93 03/26/93 at the latest 5\. Terms Grace period 5 years Amortization 20 years First amortization 11/15/96    LMI MA N Repcrt No 1478 1 Type: ICR

REVIEW

P001000

 ICRR 10187 Report Number : ICRR10187 ICR Review Operations Evaluation Department 1\. Project Data : OEDID : OEDID: C2237 Project ID : P001000 Project Name : Energy Country : Guinea-Bissau Sector : Refining Storage & Distribution L/C Number : Credit 2237-GUB Partners involved : European Union, EIB Prepared by : Alain A\. Barbu, OEDST Reviewed by : Hernan Levy Group Manager : Roger H\. Slade Date Posted : 08/06/1998 2\. Project Objectives, Financing, Costs and Components : The project, supported by a credit of US$ 15\.2 million equivalent, was approved in FY 91, formally restructured in 1995 and closed in FY98, two and a half years behind schedule, at which time US$ 2\.5 million were cancelled\. Actual project cost was US$13\.7 million, 41 percent less than appraisal, largely due to the cancellation of a project component upon restructuring \. Project objectives were to: (i) improve the safety and efficiency of the petroleum products distribution system; (ii) improve the supply and distribution of electricity; and (iii) strengthen the institutional capacity of the state -owned power utility (EAGB) and petroleum distribution company (DICOL) and of the Ministry of Natural Resources and Industry (MNRI)\. These objectives were fully relevant but probably too ambitious for a single operation given the Borrower's limited institutional capacity The original project included : (i) a power component including rehabilitation and expansion of EAGB's generation facilities, extension of its distribution network and training; (ii) a petroleum component including the rehabilitation of DICOL's storage and import facilities, training and TA, and the set up of a revolving fund for the purchase and importation of petroleum products; and (iii) a MNRI component including studies, training and TA as well as miscellaneous equipment and vehicles to strengthen Government's planning an monitoring capabilities \. Upon project restructuring, most of the petroleum component was dropped as a result of the Government's decision to liquidate DICOL and liberalize this sub-sector; also, the scope of the power component was reduced due to the non-materialization of the expected co -financing from EU and EIB\. 3\. Achievement of Relevant Objectives : Policy objectives in the petroleum distribution sub -sector have been substantially achieved, albeit through the privatization and liberalization of the sub -sector rather than the strengthening of the monopolistic DICOL and the introduction of a revolving fund, as originally envisaged; competition among private operators has already led to more efficient pricing while regulatory reforms are being introduced \. Physical and financial objectives in the power sector were only partially achieved as the expansion of generation capacity fell far short of appraisal targets, largely due to unavailability of the expected co -financing; and the positive impact of tariff increases was offset by increased losses and poor bill collection \. On the other hand, ex-post ERRs on the Bank-financed power components range from 17 to 26 percent and good progress was made in the institutional strengthening of EAGB (in preparation for its privatization) and the restructuring of the power sector (incl\. enactment of a new Electricity law) --efforts which are to be supported by a follow up Bank project currently under preparation \. 4\. Significant Achievements : Full liberalization of the petroleum products distribution market \. Good progress on the set up of a regulatory framework for the energy sector \. And progress made towards the restructuring and privatization of the power sector \. 5\. Significant Shortcomings : Persisting weakness of the power sector, characterized by a continued capacity deficit, high losses and unsatisfactory (albeit recently improving) finances --resulting in non-compliance with loan covenants \. 6\. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Marginally Satisfactory In spite of notable progress on policy and institutional fronts, power sector remains weak (in this case, project is assessed against restructured objectives because restructuring was in response to a positive change in the policy environment (petroleum sector liberalization) and to exogenous factors (non-materialization of co-financing) Institutional Dev \.: Substantial Substantial Sustainability : Uncertain Uncertain Largely dependent on continued Government commitment to sector reform and resolution of current civil conflict Bank Performance : Satisfactory Satisfactory Borrower Perf \.: Satisfactory Satisfactory Uneven progress in the petroleum and power sectors\. On balance, satisfactory given the very ambitious nature of the project Quality of ICR : Exemplary 7\. Lessons of Broad Applicability : (i) combining two distinct sectors like petroleum and power in a single project makes for excessively complex design and loan conditionality, and is likely to result in delays when Borrower's institutional capacity is limited; (ii) performance-based management contracts with a private firm do not usually provide enough incentives and autonomy of decision to the private operator; (iii) risks that co-financing may not materialize (as happened in this project for EU and EIB) need to be carefully assessed at appraisal; and (iv) large tariff increases should be accompanied by improvements in electricity service and stricter commercial management, lest they be offset by a higher incidence of fraud and non -payments\. 8\. Audit Recommended? Yes No 9\. Comments on Quality of ICR : ICR is rated as exemplary\. Report is very thorough and includes all required tables and annexes (including detailed aide-memoire and Borrower contribution) as well as ERR recalculation\. Conclusions are sound and lessons are fully relevant\. ICR could have been improved in one specific respect : by including specific indicators of performance for the petroleum distribution sub-sector (admittedly, an aspect not dealt with in -depth in the SAR)

REVIEW

P007672

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 18856 IMPLEMENTATION COMPLETION REPORT MEXICO MINING SECTOR RESTRUCTURING PROJECT (LOAN 3359-ME) December 28, 1998 Finance, Private Sector and Infrastructure Sector Mexico Regional Department Latin America and The Caribbean Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  CURRENCY EQUIVALENTS: US$ 1\.00 = Mex$3\.0940 average of 1992 (Peso) = Mex$3\.1152 average of 1993 (Peso) = Mex$3\.3751 average of 1994 (Peso) = Mex$6\.4190 average of 1995 (Peso) = Mex$7\.5994 average of 1996 (Peso) = Mex$7\.9183 average of 1997 (Peso) = Mex$9\.0652 average of 1998 (Peso) FISCAL YEAR January 1 to December 31 ABREVIATIONS AND ACRONYMS SHCP = Secretaria de Hacienda y Credito Publico Ministry of Finance and Public Credit SECOFI Secretaria de Comercio y Fomento Industrial Ministry of Commerce and Industrial Development SEMIP Secretaria de Energia, Minas e Industria Paraestatal Ministry of Energy, Mines and Parastatal Industry SEMARNAP= Secretaria de medio Ambiente, Recursos Naturales y Pesca Ministry or Enviroment, Natural Resources and Fishing NAFIN Nacional Financiera, S\.N\.C\. National Financing Agency FM Fideicomiso de Fomento Minero Trust Fund for Mining Develoment CRM = Consejo de Recursos Minerales Mineral Resources Council DGM = Direccion General de Minas General Directorate of Mines SMM Small- and Medium-size MIning Enterprises Pequeiias y Medianas Compafiias Mineras PMI Public Mining Institutions Agencias Mineras Publicas PFI = Private Financial Intermediaries Intermediarios Financieros Privados Vice President: Shahid Javed Burki Country Management Director Olivier Lafourcade Team Manager Richard Clifford  FOR OFFICIAL USE ONLY IMPLEMENTATION COMPLETION REPORT MEXICO MINING SECTOR RESTRUCTURING PROJECT (Loan 3359-ME) TABLE OF CONTENTS PREFACE \. 1 EVALUATION SUMMARY \. 2 PART I: IMPLEMENTATION ASSESSMENT \.5 A\. Project Objectives \. 5 B\. Achievement of Objectives \. 6 C\. Financial Performance \. 7 D\. Major Factors Affecting the Project \. 8 D\. Project Sustainability \. 8 E\. Bank Performance \. 8 F\. Borrower's Performance \. 9 G\. Assessment of Outcome \. 9 H\. Future Operation \. 10 I\. Key Lessons Learned \. 10 PART II: STATISTICAL ANNEXES \. 12 Table 1: Summary of Assessments \. 13 Table 2: Related Bank Loans/Credits \. 14 Table 3: Project Timetable \. 15 Table 4: Loan/Credit Disbursements \. 16 Table 5: Key Indicators for Project Implementation \. 17 Table 6: Key Indicators for Project Operation \. 18 Table 7: Studies Included in the Project \. 19 Table 8A: Project Cost \. 20 Table 8B: Project Financing \. 21 Table 9 : Economic Costs and Benefits \. 22 Table 10: Status of Legal Covenants \. 23 Table 11: Bank Resources \. 24 Table 12: Bank Resources-Missions \. \. 25 APPENDIX A: Project Completion Mission Aide Memoir \. 26 APPENDIX B: Borrower's Contribution to the Report \. 30 This document has a restricted distribution and may be used by recipients only in the perfornance of their official duties\. Its contents may not otherwise be disclosed without World Bank authorization\.  1 IMPLEMENTATION COMPLETION REPORT MEXICO MENING SECTOR RESTRUCTURING PROJECT (Loan 3359-ME) PREFACE This is the Implementation Completion Report (ICR) for the Mining Sector Restructuring Project in Mexico, for which Loan 3359-ME in the amount of US$ 200 million equivalent was approved on June 25, 1991 and made effective on June 26, 1991\. The loan was closed on June 30, 1998, compared with the original closing date of June 30, 1996\. The final disbursement took place on October 31, 1998; at that date a balance of US$ 28\.3 million was cancelled\. The ICR was prepared by Gustavo Unda, LCSFP (Consultant), and reviewed by Richard Clifford (Country Sector Leader of the Mexico Department), Maria Victoria Lister, Quality Assurance Officer (LCSFP) of the Latin America and the Caribbean Region, and Felix Remy, Project Adviser (ENTIM)\. The preparation of this ICR began during the final supervision/completion mission, from May 18 to 25, 1998\. It is based on material in the project files\. The Borrower contributed to the preparation of the ICR by providing facts, figures and views reflected in the report and by commenting on the draft of ICR\. The Borrower provided comments that are included as Appendix B to the ICR\.  2 IMPLEMENTATION COMPLETION REPORT MEXICO MEING SECTOR RESTRUCTURING PROJECT (Loan 3359-ME) EVALUATION SUMMARY INTRODUCTION\. 1\. Past lending of the Bank for mining in Mexico was oriented towards specific investment projects, with direct lines of credit to the sector\. e\.g\. for the First and Second Small and Medium Scale Mining Projects (Loans 1 820-ME and 2546-ME)\. The lessons learned from those operations were that the continued development of the mining sector required increased access to land rights, reduced ownership limitations, revision of the tax legislation, a restructuring of existing institutional setups, as well as policies that stimulate private investment in mining by both domestic and foreign firms\. 2\. The Bank Mining Sector Review (Report No\. 7379-ME) identified an inadequate regulatory and institutional framework as the major constraint to increase private investment and further growth of the sector\. Based on this report, the Govemment undertook a full transformation of the mining sector, and requested support from the Bank\. The Mining Sector Restructuring Project was identified during discussions with the Government in 1989 during discussion of the above sector report\. PROJECT OBJETIVES\. 3\. The project aimed at contributing to further development of the mining sector and the mining industry, facilitating local and foreign investments and increasing exports of minerals and commercial mineral products\. The specific project objectives were to: (i) support the Government of Mexico (GoM) program to deregulate the mining sector and stimulate private domestic and foreign investment, through the establishment of an appropriate policy and institutional framework; (ii) build broader financial market support to the mining industry; and (iii) help finance the surge in demand for investment funding that was expected to result from the improved policy and institutional setting for mining operations\. The project was divided in two components: Part A - Investment Component, and Part B - Institutional Component\. 4\. The project objectives were based on the Bank's Mining Sector Report, that were adopted by the Government as part of the National Mining Modemization Program 1990-1994 (NMMP)\. 5\. To support the project's objectives, loan proceeds were allocated to finance: (i) an institutional development component, addressed to the modernization of the agencies responsible for the mining registers and mining concessions; and (ii) an investment component to support the Small and Medium-Size Mining companies (SMMs)\. The project included environmental objectives addressed to prepare, issue and enforce mining industry's regulations\.  3 IMPLEMENTATION EXPERIENCE AND RESULTS\. 6\. The project had a wide coverage, reaching through its institutional component the entire public mining sector, and through the investment component the small and medium size private mining companies\. The internal rate of return on the investments (IEER) was always above of the minimum established during appraisal\. 7\. Achievement of the Objectives: The project achieved most of its deregulation objectives\. Deregulation of the mining sector has resulted in more than 8\.7 million hectares of the national mining reserves were released and about 17,000 new mining concessions granted, and has attracted important foreign investments\. Consequently, this objective was successfully achieved\. The investment component of the project, successfully contributed to build a broader financial support to the mining industry, resulted in sublending operations to finance 171 subprojects\. The technical assistance objectives addressed to the modernization of the Public Mining Institutions (PMI) was highly effective, and successfully implemented\. The environmental objectives were only partially achieved\. 8\. Sustainability: The implementation of an appropriate policy and institutional framework, which has resulted in the important private domestic and foreign investments, the release of more than 8\.7 million hectares, and the approval of about 17,000 new mining concessions, ensure the sustainability of the project\. 9\. Project Cost and Financing: Project costs amounted to US$ 382\.4 million , to finance 171 credits for SMMs, including Bank's, Government, PFIs and SMMs participation\. Technical assistance and equipment for the modernization of the PMIs, amounted to US$ 7\.5 million\. 10\. Implementation Timetable: The project was originally designed to be completed in five years, but was extended twice for one year each time, due to a severe deterioration of the macro- economic situation, generated by the economic crisis that affected the country at the end of 1994\. 11\. Factors affecting achievement of objectives: Investment objectives were affected by the economic crisis suffered by the country, that limited the participation of the intermediary banks\. The preparation of the environmental objectives was affected by: (i) the complicated process for their preparation; (ii) the low priority given by the ministry responsible for approving their scope and contents, and the cumbersome procedures for their official approval and enforcement; (iii) institutional changes that delayed the operative functions of the agencies responsible of the mining sector and environmental matters; (iv) the shortage of funds required; and (v) changes of the environmental policies\. 12\. Bank and Borrower Performance: Bank performance on the whole was satisfactory, from project preparation to completion, despite the many staff changes during project implementation\. Borrower performance started well with good project preparation in close collaboration with the Bank, and continued during project implementation, particularly in regard to enforcement of the "Reglamento"\. However, there were some problems of intra-Governmental budget coordination that impeded the application of Bank funds\. Borrower performance was also affected by the institutional changes creating new Ministries and eliminating others, that contributed to delays in the preparation of environmental regulations by DGM, and delayed acquisition of a highly-specialized equipment to accelerate the execution of CRM's mining- geological information program\.  4 13\. Project Outcome: Satisfactory\. Notwithstanding the successful achievement of the project objectives, which could justify a highly satisfactory rating of the project, other factors influenced the project's outcome\. These included result the negative effect of the economic crisis that caused implementation delays, and the factors that negatively affected the timely enforcement of the environmental standards for the mining industry\. The impact of the deregulation of the sector and its agencies' modernization has been outstanding: foreign investment has grown dramatically during the last five years, the sector agencies have modern Mining Register and Mining Concession systems , and have made impressive progress in the development of the Mining-Geological Information Program\. SUMMARY OF FINDINGS, FUTURE OPERATIONS AND KEY LESSONS LEARNED 14\. Future Operations: Now that the institutional objectives have been achieved, the agencies have been modernized and the incentives for foreign and domestic investment in the mining sector have been established, no additional Bank support will be required\. 15\. Lessons Learned: The importance of project ownership by the implementing agencies and the Government cannot be over-emphasized\. The recommendations contained in the Mexican Mining Sector Review report, prepared by the Bank, were adopted by the Government, and were the basis for the reform of the mining sector\. Many of the reforms were implemented before appraisal\. Restructuring the mining sector involved implementation of important policies such as divesting from parastatal companies, and opening the exploration and exploitation of the country's mineral resources to domestic and foreign investors\. The success of the project was highly dependent upon the presence and support of high government levels, and the direct commitment of the mining agencies and the respective managers\. During project preparation, ownership was clearly demonstrated by the fact that, even before the Bank loan became effective, the Government had already started the implementation of the National Mining Development Plan\.  5 IMPLEMENTATION COMPLETION REPORT MEXICO MINING SECTOR RESTRUCTURING PROJECT (LOAN 3359-ME) PART I: PROJECT IMPLEMENTATION ASSESSMENT A\. BACKGROUND AND PROJECT OBJECTIVES Introduction 1\. The participation of the Bank in this sector goes back to 1980, when the first loan was granted\. The preparation of this project benefited from this previous experience and was further facilitated by a long standing dialogue with the Government\. Based on this, in 1988, the Bank promptly reacted to the Government policy to open the economy of the country, and initiated the preparation of the Mining Sector Review that included an in-depth identification and analysis of the problems preventing an efficient exploitation of the mineral resources of the country\. The review was intensely discussed and reviewed with the Government, and whose conclusions and recommendations were promptly adopted by the latter\. Project Objectives 2\. The objectives of the project were: * to support the Government's program to deregulate the mining sector and stimulate private domestic and foreign investment, through the establishment of an appropriate policy and institutional framework; * to build broader financial market support to the mining industry; and * to help finance the surge in demand for investment funding that was expected to result from the improved policy and institutional setting for mining operations\. 3\. The SAR reflected an expectation that by achieving these objectives, the project would contribute to increased exploration and exploitation of the vast mining potential of the country, to take advantage of Mexico's strategic location near the United States of America and Canada\. The Mining Law, approved shortly before loan effectiveness, was decisive in eliminating stringent restrictions to entry to domestic and foreign investors, that had impeded the realization of the sector's full potential by restricting private participation\.  6 4\. The Mining Law issued by the Government improved access to land and mineral rights to private investors, that coupled with a revised tax legislation, and the restructuring of the institutional setup of the sector, supported by the project, have been basic elements in establishing an environment which helped to realize the country's comparative advantage in the mining sector, and to stimulate private investment in mining by both domestic and foreign firms\. 5\. The strategies to restructure the mining sector were: (i) open the sector to foreigners; (ii) release about 6 million hectares held by CRM; and (iii) establish concession fees; (iv) reduce royalties and establish result-based taxation; (v) establish an institutional setup focussed on the role of the state as a regulator/administrator in a private-sector-led industry; (vi) support the development of the SMMS building a broader financial market support to the mining industry\. 6\. The project supported by the Bank included two major components: (a) an institutional component addressed to the deregulation of the sector, through: (i) the modernization of DGM's system of mining administration and control; (ii) studies to evaluate the results from the changes to the mining regulations and explore the possibility of any further policy adjustments in the future; (iii) the establishment of industry-specific environmental standards for the mining sector; (iv) training of CFM personnel to improve their project evaluation and supervision skills, as well as their capability to provide advice on the potential environmental impact of mining projects; and (v) upgrading of CRM's capability to generate, process and divulge geological information; and (b) an investment component addressed; (i) to build a broader financial support to the mining industry, and (ii) provide financial support to the SMM's\. B\. Achievement of objectives 7\. Based on the ample and long experience with Bank-financed projects, and the training program undertaken by FFM to evaluate and supervise mining subprojects, investments of about US$ 164\.2 million were financed by the Bank, contributing to (i) the achievement of the objective to broaden the financial market support to the mining industry, and (ii) increase the beneficiaries' product quality and production, create jobs, and in some cases, foreign exports\. The institutional changes supported by the project, have also contributed to the expected foreign and domestic investments in mining exploration and exploitation\. 8\. Physical components\. The investment component of US$ 191\.5 million under Category 1 was reduced from US$ 191\.5 million to US$ 177\.0 million, transferring US$ 4\.5 million to Category 2 to assist DGM in the preparation of the environmental regulations, and US$ 10\.0 million to Category 4 to enable CRM to acquire additional geological and mining survey equipment, including a highly specialized airplane\. Total credits financed by the project amounted to US$ 367\.9 million, of which US$ 164\.2 million equivalent were financed by the loan, US$ 127\.7 million by the SMMs' own resources, US$ 21\.3 million by the intermediary banks and US$ 54\.7 million by FFM\. The undisbursed balance of the loan of US$ 28 3 million, was cancelled\. There were 171 subprojects financed\. 9\. During the implementation of the project, the following amendments were made: - on November 10\. 1995: (a) to the Loan, CFM Project and Guarantee Agreements, to reflect the dissolution of CFM and the assumption of its functions, assets, rights, obligations and liabilities by FFM and CRM, all pursuant to the Guarantor's Mining Law published in the Official Gazette on June 26, 1992; (b) to the Loan Agreement: (i) extend the Closing Date from June 30, 1996 to June 30, 1997; (ii) establish thresholds for prior review and/or approval of budgets, short lists, selection procedures, letters of invitation, proposals, evaluation reports and contracts, and procedures; (iii) establish procedures to employ consultants for complex, time-based assignments;  7 (iv) transfer funds (US$ 14\.5 million) from Categories 1 and 4, to Category 2, US$ 10 and US$ 4\.5 million, for additional funding for CRM, and DGM, respectively; (v) increase the size limit for subloans, from US$ 5 million to US$ 10 million; (vi) amend the percentage of funds to be supplied by the financial intermediary to 10% until December 31, 1995 and 15% thereafter; - on June 18\. 1997: the Guarantee Agreement was amended to: (i) allow FFM to increase its direct financing of operations; (ii) increase the percentage of total FFM direct lending from its own resources; and (iii) reduce the participation of the intermediary banks to 5%; and - on January 3, 1998, the loan was converted to SCL Terms\. 10\. Institutional Component\. The project was designed to support the Government program to deregulate the mining sector and stimulate private domestic and foreign investment, through the establishment of an appropriate policy and institutional framework\. This was to be done by means of technical assistance and training, to modernize the mining sector agencies\. 11\. The implementation of the project covering the institutional development and the investment components, brought about the following improvements: (a) stronger Govermnent agencies responsible for the sector, and establishment of CRM as a geological research institute with capabilities to generate, process and divulge geological information\. (b) a broader financial market support to the mining industry, through the implementation of the Mining Law and the "Reglamento", that facilitates foreign and domestic investment in exploration and exploitation of mining resources\. (c) a new institutional setup of the mining sector\. (d) support to the National Mining Development Program\. (e) stronger capabilities to evaluate and supervise SSMs subprojects, and broader financial support for their modernization/expansion\. 12\. As a result, geological information on the mineral resources of the country are available to the international and domestic mining community to facilitate and promote their participation in the exploration and exploitation of those resources Additionally the SMMs benefited from credits for their modernization and/or expansion, to be more competitive in the domestic and international markets\. The total cost of the technical assistance and equipment for the modernization of the mining agencies, amounted to about US$ 7\.2 million equivalent, and the amount invested in related operating costs was about $ 0\.30 million equivalent\. 13\. The project was to be implemented from 1992 to 1996\. The Closing Date was postponed two times, for completion in 1997 and 1998, almost entirely due to delays caused by the 1994 economic crisis that affected the country\. When the project was finally closed in June 1998, disbursements amounted to US$ 171\.7 million, leaving an undisbursed amount of US$ 28\.3 million, that was cancelled\. Notwithstanding the delays, the investments were efficiently supervised and effectively implemented\. C\. Financial Performance\. 14\. A condition for subprojects to be financed under the loan, was that they had to have a financial rate of return (FRR) of no less than 12%, and for most of them it was considerably higher\.  8 D\. Major Factors Affecting the Project\. 15\. The major factors that affected the execution of the project were: (i) the December 1994 economic crisis that generated large arrears on payments of mortgages and all types of loans to the private sector, that resulted in slowing down credits to the SMMs from 1996 onwards; (ii) the 1995 ministerial restructuring that slowed preparation of environmental regulations, as the mining sector and the environmental agencies that were transferred to different ministries,, remained non operational for nearly one year, while their internal regulations were being defined, coupled with the low priority given to this task by the responsible ministries; and (iii) since 1996, no funds were assigned to DGM to complete the environmental regulations\. E\. Project Sustainability 16\. Project sustainability is likely\. The mining sector supported by the project, has introduced important changes, among which the most important ones are: (i) cancellation of mining concessions to parastatal enterprises, followed by the Mining Law's provisions to grant access to them and, in general to all mining resources, to domestic and foreign investors; (ii) introduction of a modified taxation system addressed to promote investments and cancel non-exploited mining concessions; (iii) implementation of an institutional setup that provides immediate access to the Mining Register and Mining Concessions, together with simplified procedures to award concessions; and (iv) creation of geologic-mining information of the whole country, and making it available to the domestic and foreign mining community\. The strengthened and restructured PMLs now rely on trained personnel and the state-of-the-art technology for the acquisition and dissemination of basic information\. The PMIs' challenge will be to retain trained personnel and the motivation to fully implement their mandate\. F\. Bank Performance 17\. Project Identification and Preparation\. Highly Satisfactory\. The reforms undertaken by the Govemment that transformed Mexico into one of the most open economies in the world, and the comprehensive study Mining Sector Review carried out by the Bank in 1989, provided a solid ground for outlining the scope of the project, particularly in all matters concerning the sector's institutional aspects\. Fruitful dialogue with the Government led to a clear understanding of the actions needed and the support required to implement them\. The complex issues involved in the implementation of the restructure of the sector were incorporated as part of the preparation of the project\. 18\. Project Appraisal\. Highly Satisfactory\. The appraisal mission consisted of six staff members and four consultants that reviewed and analyzed the Government's National Mining Modernization Program, to define the ways and means required to implement: (i) a deep reform and restructuring of the mining sector, including mineral rights policies, allocation rights and the taxation mechanisms system; (ii) the modernization of all agencies concerned; (iii) the support to the SMMs; and (iv) the regulatory aspects of the sector\. All the above is clearly reflected in the SAR and in the legal documents\. The deadline for the preparation of environmental regulations for the mining sector, however, was underestimated, because the mission did not know the complexity of the task\. 19\. Supervision\. Satisfactory\. The staff and consultants that prepared the appraisal of the project, had a limited participation during its implementation\. There were also many Task Manager changes, but the dialogue and support between the mining agencies and the Bank, facilitated project supervision\. The attitude of the Bank was flexible, and when the need it arose  9 responded well\. During the early stages of project, the Bank reacted strongly when it perceived serious delays in the preparation and issuance of environmental regulations for the mining sector, but as project implementation proceeded, the complexity of the process was appreciated (the large number of participants and cumbersome procedures, public consultations, etc\.)\. Further delays were caused by changes of environmental policies, and aggravated by the shortage of financial resources required to carry out the task (para\. 15)\. Based on the above, reluctantly, the Bank decided against taking punitive actions, allowing more time for the compliance of this condition\. In view that the economic crisis slowed down loan disbursements, the Closing Date was extended twice, for one year each time, and the loan was finally closed leaving an undisbursed balance of US $ 28\.3 million\. G\. Borrower Performance 20\. Preparation and Appraisal\. Highly Satisfactory\. Prior to appraisal the Government had already agreed with the findings and recommendation of the Bank's Sector Review Report, and furthermore, had already issued the new "Reglamento" of the old Mining Law that initiated the regulatory reform work\. The new Mining Law, which firmly established the legal basis for the sector reform, was enacted shortly after\. Consequently, all the concerned agencies had an active participation in preparing information and data required by the Bank to appraise the project, and later, provided full support and additional information needed to the appraisal mission\. 21\. Implementation\. Satisfactory\. The 1994 economic downturn in the country inflicted serious problems on the private banks\. As a result, implementation of the investment component of the project was slowed, as the banks were forced to limit their lending operations\. In an attempt to alleviate such situation, the Bank agreed to reduce the banks' financial participation to 5%, but the impact of this measure was negligible\. For reasons previously explained (para\. 15), environmental regulations are still to be completed\. At the time of the preparation of this report, the status of the environmental regulations was as follows: two regulations have been issued, five more are in the final review phase by the National Institute of Ecology (INE); an environmental regulatory plan for an important mining region has been completed, but its approval by INE is pending; manuals for preventive environmental measures for underground an open-pit mining, are under preparation; however, once the review and revision of the Environmental Impact Regulation, is completed, DGM and INE will determine if the above manuals are issued\. During the early stages of project implementation, the progress in the transformation of CRM into a geological research institute was slow, but by the time the project was completed, the agency had achieved full conversion that has received national and international recognition\. DGM's modernization has been completed, although since 1996, with funds, other than the Bank's, because the latter were not included in its annual budgets\. 22\. Compliance with Loan Covenants\. Satisfactory The status of implementation of the major legal covenants is given in Table 10\. The Government commitment to complete and issue the environmental regulations for the mining industry, is the only loan condition that could not be complied with\. H\. Assessment of Outcome 23\. Overall rating: Satisfactory\. Despite that the closing date had to be extended twice for one year each time leaving an undisbursed amount of the loan of US$ 28\.3 million, and environmental regulations have not yet been completed, the overall outcome was satisfactory\. The satisfactory rating is based on the successful achievement of the following three major activities of the project: (i) the deregulation of the mining sector to stimulate private domestic  10 and foreign investment, through supported by the institutional component of the Bank, that resulted in and increase of the mining-metallurgic production, of more than 10%, from 1990 to 1997; (ii) broaden the financial support to the mining industry, supported by the investment component of the project, that attracted commercial banks participation of about US$ 21\.3 million equivalent, despite the problems generated by the economic crisis; and (iii) help finance the surge in demand for investment funding that was expected to result from the improved policy and institutional setting for mining operations, reflected by the US$ 164\.2 million, financed through the investment component of the Bank loan\. Although there were problems for the completion of the environmental regulations for the mining sector (para\.15), progress has been made, and the decision to complete this task is based on the fact that the DGM's unit in charge of it continues to working on it\. The above justifies the decision to classify the project outcome as satisfactory\. L\. Future Operation 24\. Now that the institutional objectives have been achieved, future operations of this kind are not contemplated and, therefore, no additional Bank support is required\. J\. Key Lessons Learned\. 25\. The lessons learned, discussed below, underscore the linkage between project success and project design, and project ownership\. In this particular case, design was preceded by an important and comprehensive Sector Review, whose findings and recommendations were fully agreed and adopted by the Government\. 26\. Project Ownership\. The importance of project ownership by the implementing agencies and the Government cannot be over-emphasized\. The recommendations contained in the Mexican Mining Sector Review report, prepared by the Bank, were adopted by the Government , and were the basis for the reform of the mining sector \. Many of the reforms were implemented before appraisal\. Restructuring the mining sector involved implementation of important policies such as, divesting from parastatal companies, and opening the exploration and exploitation of the country's mineral resources to domestic and foreign investors\. The success of the project is highly dependent upon the presence and support of high government levels, and the direct commitment of the mining agencies and the respective managers\. During project preparation, ownership was clearly demonstrated by the fact that, even before the Bank loan became effective, the Government had already started the implementation of the National Mining Development Plan\. The investment component, on the other hand, suffered delays that at the end prevented the full disbursement of the loan, resulted in the modernization/expansion of a large number of SMMs\. 27\. The main lessons to be learned from this project are that: (i) the Bank's prompt reaction to the policies adopted by the Government to open the economy of the country led to the preparation of the Bank's Mining Sector Review, whose findings and recommendations were widely accepted by the latter, and resulted in the issuance of a new Mining Law;  11 (ii) although there were shortfalls in some aspects of the implementation of the project, the efficiency gains from the modernization of the mining agencies, has already stimulated private domestic and foreign investments; (iii) despite the problems that delayed the preparation and enforcement of the environmental regulations applied to the mining sector, the progress made has paved the way to continue the work started under the project, not only because the government agencies are fully conscious of the benefits, but also because private investors are now aware of their need as well\.  12 IMPLEMENTATION COMPLETION REPORT MEXICO MINING SECTOR RESTRUCTURING PROJECT (Loan 3359-ME) PART II: STATISTICAL TABLES  13 Table 1: Summary of Assessments Macro policies X Sector policies X Financial objectives X Institutional development X Physical objectives X Poverty reduction X Gender issues X Other social objectives X Environmental objectives X Public sector management X Private sector development X x Identification X Preparation assistance X Appraisal X Supervision X Preparation X Implementation X Covenant compliance X Operation (if applicable) NA NA NA Overall X  14 Table 2: Related Bank Loans Loat/Credttite Purpose Year of approval Status Preceding operations 1\. Loan 1820-ME Exploiting the market 1980 Successful in channeling US$40 million potential of the mining most of the loan to sector; private sector SMM Small and Medium-Scale Generating employment development\. Objectives Mining Development Project among low income were too broad to be groups\. achievable under the proiect design adopted\. 2\. Loan 2546-ME Support Government's 1985 Almost 500 SMMs US$ 105 million sector development subprojects financed by Second Small and Medium-Scale strategy; the loan, generated Mining Development Project Strengthen capabilities about 4,900 new jobs, of major institutions and incremented supporting SMMs; production by about 5% Improve coordination per year\. Credits for within the sector\. metallic mining development and for exploration, performned highly unsatisfactorily\. Coordination and monitoring the implementing agencies never functions as planned\. The overall economic imnpact of the project was positive, meeting appraisal estimates\. TOTAL: US$ 145 million  15 Table 3: Project Timetable Ident station (Executive project Su06mary) /24 /89 10/24 /89 Preparation 06/05/90 06/05/90 Appraisal 09/90 & 01/91 09/90 & 01/91 Negotiations 04/--/91 04/--/91 Board presentation 06/25/91 06/25/91 Signing 06/26/91 06/26/91 Effectiveness 11/25/91 11/25/91 Project completion 06/30/98 06/30/98 Loan closing 06/30/98 06/30/98  16 Table 4: Loan/Credit Disbursements: Cumulative Estimated and Actual (US$ million) Fy FY FY FY FY FY FY FY 19 _________________________ 1992 1993 I4 19" 1996 1997 1998 Appraisal estimate 50\.0 90\.0 135\.0 180\.0 200\.0 Actual 20\.0 70\.9 85\.6 96\.4 146\.6 158\.1 159\.0 171\.7 Actual as % of estimate 40 79 63 54 73 79 79\.5 85\.9 Date of final disbursement 10/31/98  17 Table 5: Key Indicators for Project Implementation (a) Incremental jobs (* 4068 (b) Incremental Output, on an annual basis 1\.5% per year (c) Direct and indirect exports generated, from 1990 to US$ 1,800 M 1998 (**) (d) Subprojects location In all States with mineral resources (e) Type of subproject Small mining enterprises which annual production value is of no more than US$ 3 million equivalent, and medium-size ones which annual production is of no more of US$ 35 million (f) Investment in mining: US$ 26,800 M rivate domestic and foreig (a) Number of subprojects financed 171 Total investment: Financing breakdown: Beneficiaries: Intermediary banks: World bank: (b) Number of subprojects financed 171 Total investment by item: Fixed assets: US$ 260\.0 M Working capital: US$ 28\.0 M (*) Incremental jobs reported by FFM were 4068, but the cost for job generated can not be estimated, as the objectives of most of the subprojects financed, were addressed to increase quality and production, while reducing production costs, and sometimes the labor force; (**) Mining-Metallurgic Production  18 Table 6: Key Indicators for Project Operation Operating aspeets A!tnal (a) Implementation of FFM's, DGM's and CRM's Satisfactory completed modernization plans (b) Execution of the technical Satisfactory completed assistance program for DGM, FFM and CRM (c) Number of hectares released from National Mining 8'753,051 Reserves (d) Number of concessions granted, by type and size 17,220  19 Table 7: Studies Included in Project 2=W0Ni=9WLLL EMSa Evaluation of the impact of the "Reglamento" Cancelled On investment in mining exploration and exploitation in Mexico\. Review the possibility of future changes in the Cancelled Guarantor's land management policies, in order to develop an improved policy setting for Mexico's mining sector in the medium term\. Both studies were cancelled, once the impact of the new institutional setup, and the Mining Law and its new "Reglamento", showed their adequacy, as their benefits were reflected by important foreign investments in the mining sector\.  20 Table 8A: Project Cost \.Appraisal Estimate (U Actual (USSM) Category and Item - Local Foreign Total Local Foreign Total costs costs, -\.-- Costs Costs I\. Goods and Works under 76\.5 115\.00 191\.50 65\.67 98\.52 164\.19 Subprojects 2 (a) Consultants Services and 1\.28 1\.28 1\.41 1\.41 Equipment under Parts B1,B2 AND B3 2 (b) Consultants Services and 6\.42 6\.42 5\.82 5\.82 Equipment under Part 4 3(a) Operating Costs under 0\.15 0\.15 Parts B11, B2 and B3 3(b) Operating Costs under 0\.40 0\.40 0\.28 0\.28 Part B4 4 Works under Part B 4 0\.13 0\.12 0\.25 TOTAL 76\.63 123\.37 200\.00 65\.67 106\.03 171\.70 Note: Appraisal Estimates of local and foreign costs under Category 1 are not available; the amounts shown were calculated applying the percentage that the cost of equipment acquired under the lines of credit represents, when compared with the total cost of subprojects financed\.  21 Table 8B: Project Financing Appraisal Estimate IBRD 191\.50 45\.0 8\.50 77\.3 200\.00 34\.1 Beneficiaries 148\.90 35\.0 148\.90 45\.8 Government 63\.80 15\.0 2\.50 22\.7 63\.80 15\.2 (FFM)I PFI 21\.30 5\.0 21\.30 4\.9 TOTAL 425\.50 100\.0 11\.0 100 436\.50 100\.0 Actual Cost S{{uMCg j 1tt ,% Wprti % TMaJ IBRD 164\.2 45 7\.2 100 0\.3 100 171\.7 Beneficiaries 127\.7 35 127\.7 Government 54\.7 15 54\.7 (FFM) PFI 21\.3 5 21\.3 TOTAL 367\.9 100 7\.2 100 0\.3 100 375\.4  22 Table 9: Economic Costs and Benefits The project's and loan characteristics do not permit to determine economic costs; however, the Government policy to open the markets, make the domestic prices comparable to the international one, and consequently the economic rate of return should be very similar to the financial return of 12% stipulated as the minimum for all subprojects financed by the loan\. The benefits of the project are reflected in the number of jobs created by the subprojects, and the export market increase generated by subprojects which production is oriented to foreign markets\.  23 Table 10: Status of Legal Covenants LA 3\.01 Execution of the project C Transfer of loan proceeds LA 3\.02 Subproject criteria and C Borrower obligations as procedures trustee of FFM LA 3\.03 Procurement C Bank Guidelines LA 4\.01 Accounts and Audits C Maintain separate records and accounts in accordance with sound accounting practices, and have them annual audited PA (*) 2\.02 Project Implementation C Management aspects of the arrangements executing agencies PA 2\.03 to 2\.05 Monitoring/Reviews C Monitoring, review and reporting GA 3\.01 Financial CP Assist executing agencies in carTying out their ~~~~~~~~~~~~~~~~respective obligations GA 3\.04 Sector policy C Achievement of project l____l ____=__ conditionality objectives GA 3\.05 Environmental CP Environmental regulations LA = Loan Agreement; PA = FFM Project Agreement; GA = Guarantee Agreement C = Complied with; CP = Partially complied with (*) Originaly named CFM Project Agreement but later changed to FFM Agreement  24 Table 11: Bank Resources: Staff Inputs -____ _ Planed Revised Actual Stage of project cycle Weeks US$ '000 Weeks US$ '000 Weeks US$ '000 Preparation 0\.0 0\.0 0\.0 0\.0 79\.5 206\.10 Appraisal 0\.0 0\.0 0\.0 0\.0 62\.2 133\.20 Negotiations 0\.0 0\.0 0\.0 0\.0 13\.2 32\.50 Supervision 7\.0 22\.2 13\.0 31\.4 100\.5 252\.70 Completion 50\.0 99\.8 39\.0 62\.8 1\.0 0\.00 TOTAL 57\.0 122\.0 52\.0 112\.6 256\.4 624\.50  25 Table 12: Bank Resources: Missions Preparation 02/89 9 7 MS, FNA, CE, 1 ME, C, EE Appraisal 04/90 4 5 MS, FNA, ME 1 09/90 4 8 MS, FNA, CE, ME, C, EE 01/91 6 8 MS, FNA, CE, ME, C, EE Supervision 03/92 1 9 E,MS,ME,EE 2 E 10/92 3 4 E 1 04/93 2 5 ME,FNA 2 M,E 01/94 2 4 E,MS 2 M,E 07/95 4 5 MS,FNA,E, S S F,E,D 10/95 2 2 EE,CE,ME S S E,D 04/96 3 2 EE,CE S S E, D 06/97 2 8 CE,FNA S S E,D 10/97 1 8 CE S S E,D 02/98 1 10 CE S S E,D 05/98 1 2 CE S S E,D ICR 08/98 1 2 CE Total Bank Resources: Staff Days Preparation 9 63 Appraisal 14 100 Supervision 22 109 Completion (pending) Total 45 272 a/ C-Consultant; e- Economist; FNA- Financial Analyst; ME-Mining Expert; EE-Environmental Expert; ME- Mining Expert; CE-Civil Engineer b/ Performance ratings between March, 1992 and April, 1993 were based on overall performance (first column) and development objectives (second column)\. Form 590 was revised in 1994 to reflect the implementation status and development impact\. c/ F-Financial; M-Managerial; T-Technical; E- Environmental; D-Disbursement Mexico Regional Department Latin-American Region  26 MEXICO Proyecto de Reestructuracion del Sector Minero (Pristamo 3359-ME) Appendix A Misi6n de Supervisi6n (Mayo 18 a 25, 1998) Ayuda Memoria Esta Ayuda Memoria (AM), tiene por objeto resumir los resultados de la misi6n de supervisi6n del proyecto de referencia, integrada por el Ing\. Gustavo Unda, Gerente del proyecto\. En vista de la proximidad de la fecha de cierre del prestamo de referencia (Junio 30, 1998), y teniendo en cuenta que el saldo sin desembolsar del prestamo es de aproximadamente US$ 47\.0 millones (incluyendo los fondos no comprometidos de la Cuenta Especial), los objetivos de la misi6n fueron: (a) la revisi6n del estado de avance de cada una de las componentes del proyecto y en especial de los desembolsos del prestamo; y (b) la discusi6n del alcance y contenido del Informe de Terninaci6n del Proyecto (ITP) y el envio de la informaci6n necesaria al Banco, para que el mismo inicie la preparaci6n de la parte del ITP\. La lista de las personas contactadas por la misi6n aparece en el Anexo I de esta AM\. I\. Estado de Avance del Proyecto\. 1\. Normas ambientales\. DGM, con el apoyo de la Camara Minera de Mexico (CAMIMEX), y con los recursos aportados por FFM para ello, continua trabajando en las tareas relacionadas con la normatividad del sector minero\. El estado de avance a la fecha fue presentado a la misi6n por DGM\. La culminaci6n de todas las tareas relacionadas con esta actividad, es la expedici6n y entrada en vigor de las normas, sin embargo, los resultados y tiempo transcurrido, son poco halagadores, ya que ademas ha habido demoras en las decisiones/aprobaciones del Instituto Nacional de Ecologia (INE) durante el proceso de preparaci6n que tales normas requiere, aun cuando la misi6n desconoce si tales demoras se han debido a la reestructuraci6n institucional que tuvo lugar a principio de la presente administraci6n, a la redefinici6n de politicas ambientales, a reajustes intemos del INE, o a otras causas\. 2\. Fortalecimiento Institucional\. (a) DGM De 1994 a 1995, DGM desarroll6 y estableci6 exitosamente los sistemas de control y registro de concesiones mineras y de modernizaci6n administrativa, en una primera etapa\. Sin embargo, la segunda etapa tuvo que posponerse debido a que los fondos asignados en el prestamo para dicho fin, no fueron incluidos en el presupuesto de DGM en 1996\. La misi6n fue informada, sin embargo, que durante 1997 y 1998, el presupuesto de DGM, incluy6 recursos presupuestales ajenos al prestamo, que han permitido la ejecuci6n de la segunda fase de las actividades arriba mencionadas\. (b) CRM De igual manera, durante 1994 y 1995, CRM con el apoyo del Banco, inici6 un ambicioso programa Minero-Geol6gico, que tambien sufrio retrasos durante 1996 al no haberse aprobado en su presupuesto los recursos asignados en el prestamo para tal fin\. A partir de 1997, CRM ha recibido amplio apoyo del Gobierno, para inclusive, acelerar la ejecuci6n del citado programa\. El proceso de modernizaci6n de CRM ha ido acompaffando de un amplio programa de capacitaci6n de su personal\. El Banco, a traves de la supervisi6n del proyecto, ha tenido oportunidad de conocer los detalles del programa mencionado\. 3\. Apovo a la pequefla y mediana mineria\.  27 La misi6n tuvo oportunidad de reunirse con fimcionarios de FFM, NAFIN y de la Secretaria de Hacienda y Credito Ptblico (SHCP) para revisar el apoyo financiero brindado a la pequefia y mediana mineria, de 1991 a la fecha, tanto con recursos propios de FFM como con fondos del prestamo del Banco\. FFM present6 un documento resumiendo los creditos otorgados, que muestra lo siguiente: - de los US$ 192\.5 millones asignados en el prestamo para el fmanciamiento de subproyectos mineros, a la fecha se han ejercido y desembolsado US$ 145\.6 millones, quedando un saldo sin desembolsar de US$ 46\.9 millones, incluyendo aproximadamente US$ 5\.8 millones que estan en la Cuenta Especial; - se encuentran pendientes las lineas de credito de 11 subproyectos con un costo de aproxinadamente US$ 28\.5 millones, ya autorizados por el Banco; - otros cuatro subproyectos con un costo estimado de US$ 3\.5 millones, han sido enviados al Banco y se encuentran en proceso de revisi6n; - FFM esta preparando el resumen ejecutivo de 6 subproyectos mas, con un costo estinado de US$ 0\.8 millones, que se espera que en los pr6ximos dias sean enviados al Banco, para su revisi6n; y ademas esta integrando y/o evaluando 14 nuevos subproyectos susceptibles de ser financiados a traves del prestamo, cuyo monto aun no esta defmido\. La misi6n indic6 claramente que a pesar de tener una cartera tan importante de subproyectos susceptibles de ser financiados por el Banco, es evidente que hay serias dificultades para que las lineas de credito a traves de los intermediarios fmancieros, sean aprobadas\. FFM a su vez, hizo notar a la misi6n que, tal como se indica en el citado documento, hay los siguientes elementos, que se considera deben ser tomados en cuenta por el Banco: - durante el periodo indicado, el organismo ha otorgado creditos por un monto de aproximadamente $ 2,250 millones de pesos, de los cuales $ 708 millones corresponden a aquellos fmanciados con fondos del prestamo (los US$ 145\.6 millones desembolsados); - durante 1997, se aprobaron por FFM creditos fmanciados $327\.9 millones, de los cuales dicho organismo financi6 con recursos propios la cantidad de $ 303\.7 millones, mientras que solamente se aplicaron $ 24\.2 millones (equivalentes a US$ 3\.1 millones) de los fondos del prestamo; y - durante los cuatro primeros meses de 1998\. se han aprobado creditos por $ 34\.1 millones, de los cuales FFM financi6 $ 22\.1 millones y el Banco solamente $ 12\.0 millones (equivalentes a US$ 1\.45 millones)\. Por otra parte, FFM expres6 que los objetivos del proyecto fmanciado por el Banco, coinciden con los objetivos de los creditos que otorga FFM utilizando sus propios recursos, ya que: - un volumen importante de los mismos, se hace de los mismos intermediarios financieros; - los plazos y las tasas son similares; - los criterios de evaluaci6n de los subproyectos y la integraci6n de la documentaci6n que es sometida a la consideraci6n de su Comite, son los mismos que se aplican para subproyectos que son sometidos a la revisi6n y aprobaci6n del Banco; - los planes fmancieros, sin embargo, difieren de los de los subproyectos fmanciados por el Banco, ya que no es requerimiento indispensable que el intermediario fmanciero participe en el  28 financiamiento de los mismos\. FFM hizo notar a la misi6n que ello facilita y agiliza las negociaciones de las empresas mineras con los intermediarios fmancieros; - la participaci6n de las empresas que solicitan el financiamiento de sus proyectos, generalnente aportan recursos para capital de trabajo y de otros costos relacionados con dichos proyectos, y forman parte de la linea de credito negociada con los intermediarios financieros; y - las garantias requeridas por el intermediario fmanciero, en terminos generales\. son similares a las que requieren para subproyectos financiados con fondos del prestamo del Banco\. II\. Informe de Terminaci6n del Proyecto (ITP)\. La misi6n celebr6 reuniones para explicar a cada una de las agencias ejecutoras del proyecto, el alcance y contenido del ITP; los representantes de la Secretaria de Hacienda y Cr6dito Puiblico (SHCP) y de Nacional Financiera (NAFIN) tambi6n participaron en dichas reuniones\. Con el objeto de facilitar la preparaci6n de las partes del ITP con las que participaran dichas agencias, NAFIN entreg6 a las mismas, copias del informe de Evaluaci6n del Proyecto (Staff Appraisal Report (SAR)), asi como de las secciones de los documentos legales del proyecto, relevantes para la preparaci6n del ITP\. Adicionalmente a lo anterior, la misi6n, tambien por conducto de NAFIN, entreg6 una lista de referencia de las tablas, todas ellas referidas al SAR, que se requiere sean preparadas y enviadas al Banco, a la brevedad posible\. Se acord6 que la parte del ITP, cuya preparaci6n sera coordinada por NAFIN y ejecutada por las agencias ejecutoras del proyecto, deberA enviarse al Banco, a mas tardar, un mes despues de la fecha de cierre del prestamo\. Sin embargo, la misi6n solicit6 que las tablas actualizadas del SAR, sean enviadas al Banco, de ser posible antes de dicha fecha\. La ejecuci6n del proyecto se ha visto afectada por elementos ex6genos al mismo y al Fideicomiso de Fomento Minero (FFM), el Consejo de Recursos Minerales (CRM) y la Direcci6n General de Minas (DGM), agencias ejecutoras del proyecto\. En consecuencia, la misi6n hizo hincapie en la necesidad de que los informes de cada una de ellas, contengan una descripci6n sucinta del impacto de dichos elementos (reestructuraci6n institucional, tal como la transferencia de los organismos responsables de la ejecuci6n del proyecto de una Secretaria a otra, restricciones presupuestales por cuestiones de indole macro-econ6mica, etc\.)\. De igual manera, la misi6n recomend6 que los citados informes contengan una breve descripci6n del inpacto del proyecto en beneficio del sector minero\. Aun cuando Nacional Financiera inform6 a la misi6n de la intenci6n del Gobierno de solicitar una tercera extensi6n de la fecha de cierre del prestamo, con el objeto de tener oportunidad de utilizar la totalidad o cuando menos una parte importante del saldo del prestamo pendiente de desembolsar, se acord6 que en vista de la incertidumbre de que dicha pr6rroga sea aprobada por el Banco, tanto el Prestatario como cada uno de los organismos responsables de la ejecuci6n del proyecto, procederan a preparar de inmediato la informaci6n necesaria para que el Banco inicie el ITP que presentara a su Directorio\. Las tablas actualizadas que aparecen en el SAR, deberan ser enviadas al Banco a mas tardar el 31 del pr6ximo mes de Julio, salvo que el Banco apruebe la extensi6n de la fecha de cierre del prestamo\. III\. Solicitud de Extensi6n de la Fecha de Cierre del Prestamo Basandose en lo anterior, NAFIN confirm6 a la misi6n que, tal como lo habia indicado en la reuni6n al inicio de la misi6n, procedera a solicitar una nueva extensi6n a la fecha de cierre del prestamo, con el prop6sito de poder desembolsar los fondos remanentes del prestamo, que seria la tercera en caso de ser aprobada por el Banco\.  29 La misi6n recomend6 que dicha solicitud este s6lidamente sustentada, aportando todos los elementos necesarios que permitan al Banco evaluar las posibilidades de alcanzar dichlo proposito, y expres6 que no se puede considerar a priori que la extensi6n sera aprobada por el Banco, ya que entre otras cosas, se tendran que tomar en cuenta los extremadamente bajos niveles de desembolso de los fondos del prestamo durante los ultimos 18 meses\. Durante las reuniones celebradas, NAFIN, SHCP y FFM mencionaron que la solicitud de pr6rroga al cierre del prestamo a ser presentada al Banco, incluira la autorizaci6n para: (i) fmanciar retroactivamente, subproyectos mineros que FFM a traves de intermediarios fmancieros, ha financiado con recursos propios; y (ii) con caracter de excepci6n, de ahora en adelante, eliminar la participaci6n del 5% del monto de los creditos por parte de los intermediarios fmancieros, para los subproyectos ya aprobados por el Banco, pero que no han podido concluir satisfactoriamente las negociaciones de las lineas de credito, y para aquellos que se presenten de ahora en adelante a su aprobaci6n\. Mexico D\.F\., Mayo 25, 1998 Por la Misi6n del Banco Mundial Ing\. Gustavo Unda Gerente del Proyecto  30 Borrower's Contribution to the ICR Appendix B Evaluation Summary Mining Sector Restructuring Project Introduction The World Bank's participation in the mining sector dates back to 1981 when the first Bank loan (loan 1820-ME, for US$ 40 million) for a project addressed to provide technical assistance to the sector for production plants and mining exploration and contribute to the development of small- and medium-size mining companies; the project was completed in May, 1986\. A second loan became effective in April 1986 (Loan 2546-ME, for US$ 105 million) was for another project as continuation of the first one, to provide: (i) technical assistance for institutional strengthening of the executing agencies; (ii) financial resources for exploration and exploitation and development of mineral resources; and (iii) promote the financial participation of the commercial banks\. Project Objectives In 1991, the Government signed Loan 3359-ME for US$ 200 million which scope was designed to: (i) assist the Government in restructuring the mining sector in establishing an institutional framework including mineral rights policies, allocation rights and the taxation mechanisms system, to eliminate the problems that had been affecting the sector; and (ii) continue the financial support to the small- and medium-size mining companies\. The main objectives of the project were: the elimination of obstacles that prevented domestic and foreign investments in the sector; the facilitation of mining concessions and the development mining geologic information, that together with a suitable institutional framework would promote needed domestic and foreign investments to explore and exploit the country's mineral resources\. Among the key factors that contributed to attaining the project objectives, are the Mining Law and its new "Reglamento, and the revised mining taxation system, resulting in the following progress made: (i) more than 17,000 mining concessions have been registered, totaling about 8\.7 million hectares; (ii) the time required for processing mining concessions went down from 5 years to 5 months, and as a consequence, the backlog of about 14,000 concession requests that were pending since 1989, has disappeared; (iii) concessions' cancellation and/or release the amount to about 14 million hectares\. In macro-economic terms, as a result of the privatization of the public mining companies, the following has been achieved: (i) the value of the mining has grown a 1\.5% per year, from US$ 3,112 million to US$ 3,453 million, during the period 1990 to 1997; and (ii) exports increased about 4\.4% per year, from US$ 1,526 million in 1990, to US$ 2,066 in 1997\. Implementation Experience and Results When the Loan Agreement was signed, the New Mining Law was still to be issued and its new "Reglamento" was yet being prepared\.; however, taxation to mining activities had been reduced, the Mining Rights had been derogated and Superficial Rights had been updated\. Prior to  31 loan negotiations the Government had undertaken the National Mining Modernization Program 1990-1994, designed to implement all the institutional and modernization tasks included in the project, facilitating the Bank interaction with the executing agencies of the project\. The following table presents a summary of the final project costs, broken down by source and category (in US$ Million): Source Appraisal Actual Estimate as of June 30, 1998 IBRD 200\.0 164\.2 SMMs 148\.9 127\.7 Government (FFM) 66\.3 54\.7 PFI 21\.3 18\.3 TOTAL 436\.5 364\.9 Distribution of the IBRD contribution, by category: Category Appraisal Final Estimate Cost 1\. Goods and Works under subprojects 191\.500' 164\.159 2\. Consultants' Services and Equipment 7\.705 7\.232 3\. Operating Costs 0\.545 0\.275 4\. Works to rehabilitate CRM's laboratory facilities 0\.250 0\.000 TOTAL 200\.000 171\.683 Project implementation, scheduled initially in the Appraisal Report for the period 1991 to 1996, with a closing date for June 1996\. There were two extensions (to 1997 and 1998), resulting from delays in project execution that stemmed mainly from the economic crisis that affected the country at the end of 1994, that in due time led the commercial banks to adopt stringent conditions to finance mining subprojects\. The following paragraphs discuss the main factors affecting project execution: (i) The financial participation of the commercial banks had a decreasing trend since 1996, because most of the mining subprojects required medium- and long-term credits, and the banks claimed argued that such credits were not attractive to them because their recovery would postpone the final profit margins, resulting in a loss on the original investment\. This situation was originated by the economic factors that led to an accelerated number of debtors' arrears to the banks, forcing them to adopt stringent and selective practices to finance mining subprojects; (ii) The preparation and issuance of environmental regulations, stipulated their completion and enforcement in one year, not taking into consideration the long process established in the Federal Law on Meteorology and Normativity\. Further delays were caused by the ministerial reorganization affecting the activities of the mining sector and the environmental agency;  32 (iii) The loan funds reallocated from Category 1, to Category 2 (a) for the preparation of the environmental regulations by DGM, could not be applied for not having been included in DGM's budgets, since 1996\. Bank Performance Bank participation during project implementation, through the supervision missions, was constant and flexible facilitating amendments to the legal documents to: (i) be consistent with the problems generated by the 1994 economic crisis, including adjustments to the financial participation of the commercial banks, and changes to FFM's application of its own financial resources; and (ii) adjust them to the executing agencies' requirements, such as the dissolution of CFM and the reallocation of loan finds\. Generally speaking, our assessment finds the Bank's performance throughout project preparation, appraisal and implementation, most valuable and positive\. During project implementation, showed receptiveness to requests from all executing agencies and the Borrower\. Borrower Performance The executing of the project was affected by problems exogenous to it, that however, did not affect the attainment of the objectives, despite that one of the goals set, namely, the preparation and enforcement of environmental regulations applicable to the mining sector, was not fully completed, and that there was an undisbursed balance of the loan\. Owing to the financial difficulties created by the economic crisis, the project had to be extended twice\. The closing date, which was to be 1996, had to be postponed until 1998\. Even so, about 90% of the loan funds allocated to the SMMs, was efficiently invested, leaving an undisburser balance of the loan of US$ 28\.3 million\. We feel that: (i) FFM's performance in project execution was satisfactory; (ii) CRM's performance, with Bank support until 1996, and with the full Government support since then, was highly satisfactory, as attested by the Bank; and (iii) DGM's performance was satisfactory, as it carried out expeditiously its modernization, that has transformed it into an efficient mining resources administrator, although due to lack of he necessary financial resources, has not yet completed the environmental regulations\. Assessment of Outcome Overall, the results obtained from implementation of the Mining Sector Restructuring Project can be regarded satisfactory\. Summary of Findings, Future Operations, and Main Lessons Learned The preparation of a project of the scope and nature of this, requires the combination of important political decisions and the necessary technical and financial support\. Targets for the achievement of all goals should ambitious but not overly optimistic\. The mining sector restructuring program was created as a continuation of the modernization of the industrial productivity, to strengthen the technical capacity through training programs, and to stimulate domestic and foreign investment\. The program was also the financial  33 instrument that contributed to the development of the national economy through the coordinated support of the World Bank and the Government, reflected in the loan 3359-ME\. The project succeeded in establishing the institutional setup and modernizing the corresponding agencies, divesting public mining enterprises, and attracting domestic and foreign investments\. Future Bank participation in the sector does not seem justified anymore, in view that mining exploration/exploitation is now open to domestic and foreign investors\. World Bank User Q:\Personal\ICR\.DOC 01/12/99 5:00PM

REVIEW

P113219

 ICRR 13315 Report Number : ICRR13315 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 04/09/2010 PROJ ID : P113219 Appraisal Actual Project Name : Sl-dpl-food Crisis US$M ): Project Costs (US$M): 3\.0 3\.0 Response Country : Sierra Leone Loan/ US$M ): Loan /Credit (US$M): 3\.0 3\.0 Sector Board : SP US$M): Cofinancing (US$M ): Sector (s): Health (50%) General education sector (50%) Theme (s): Global food crisis response (100% - P) L/C Number : Board Approval Date : 08/06/2008 Partners involved : Closing Date : 06/30/2009 06/05/2009 Evaluator : Panel Reviewer : Group Manager : Group : Alemayehu A\. Ambel Prem C\. Garg IEGSE ICR Reviews IEGSE 2\. Project Objectives and Components: a\. Objectives: According to the program document, the objective of this Development Policy Grant (DPG) was to "support the Government's poverty reduction strategy in 2008 by providing the authorities with needed fiscal space to partly compensate for the lost revenues resulting from the recently reduced tariffs on food and fuel prices \." The support would " mitigate the impact of such price increases and contribute to continued basic service delivery for vulnerable groups"\. b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components (or Key Conditions in the case of DPLs, as appropriate): A\. Food Security The DPG aimed to enhance food security to mitigate the impact of the increase in food and fuel prices \. Policy actions undertaken in this area include tariff reductions in 2008 on the following items: rice (from 15 to 10 percent), flour (from 20 to 10 percent), wheat (from 5 to 2\.5 percent), sugar (from 20 to 10 percent), and petrol (from 5 percent to a fixed rate of US$20/mt)\. The Government also wanted to stimulate food production through the provision of 71,000 bushels of seed rice to farmers \. B\. Human Development The tariff reductions undertaken per the prior actions of the DPG resulted revenue losses in 2008\. Therefore, the grant supported the Government's effort to maintain the 2007 levels of basic service delivery to vulnerable groups \. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates:  The support was a development policy grant in a single tranche that was made available to the Government upon effectiveness\. The grant is part of the Global Food Crisis Response Program (GFRP), which was financed by the Food Price Crisis Response Trust Fund (FPCRTF)\. The Bank has three related GFRP projects in Sierra Leone \. Parallel to this DPG, the Food Price Crisis Response Trust Fund (FPCRTF) operation\. There were no formal cofinancing arrangements with other donors \. However, the program document shows that there was budgetary support from the UK Department for International Development (DfID) and the European Commission ( p\.12)\. It is also reported that there were crisis related support from other agencies including FAO and WFP ( p\.12-13)\. 3\. Relevance of Objectives & Design: Relevance of objectives (High )\. The impact of the rise of the international food and fuel prices was exacerbated by the "hungry season," from June to December, a period of frequent scarcity in the domestic food supply \. Therefore, a rapid response was necessary to mitigate the impact of the shortage of availability of affordable food and to assist the Government's capacity to provide adequate assistance to groups most vulnerable to higher food prices \. This operation was indeed a priority although, as a crisis response project, it was not included in the country assistance strategy\. Relevance of design (Modest )\. One aspect of this operation was addressing the human development objective of the PRSP\. In this regard, this operation identified ongoing anti -poverty programs and supported the Government to continue the various feeding programs at least at their respective 2007 levels\. On food security, the operation supported policy actions on tariff reductions on basic food items such as rice, flour, wheat and sugar as well as fuel \. The design was focused and simple \. However, there was no justification given in the program document how the tariff reductions address the poverty reduction objectives of food security better than other approaches \. In so far as most of the consumers of the imported food would have been relatively well -off urban consumers, it would appear that tariff reduction might not have been the most appropriate response from the poverty reduction perspective \. 4\. Achievement of Objectives (Efficacy): Providing fiscal space and mitigating the impact of price increases on vulnerable groups (Modestly Achieved ) The grant supported policy actions on tariff reductions on prices of selected items \. In general, it is reported that the policy actions might have contributed to the stability of consumer price inflation and hence less burden on consumers and Government providers of basic services \. For example, between June 2007 and June 2008, domestic price of rice rose by far lower than the international price (49 percent Vs\. 139 percent)\. Similarly, the domestic price of petroleum rose by 27 percent compared to that of the international price which rose by 92 percent (ICR p\.7)\. Also, to stimulate food production the Government envisioned to distribute 71,000 bushels of seed rice to farmers \. However, this was not monitored and was not included in the Government's own implementation report \. Revenue losses caused by the 2008 tariff reductions were partly compensated by the program and the Government was able to continue the delivery of basic services to most vulnerable groups at or above the pre -crisis levels\. Specifically, 8,200 lactating mothers and children under the age of five received meals three times a day \. The number of beneficiaries in this category was 55 percent higher than the 2007 levels of 5,300\. Similarly, 3,740 handicapped children and pupils in Government boarding schools were given meals three times a day \. In this regard, the program covered 16 percent higher than the 2007 levels of 3,000\. In addition, food assistance was provided to patients in district hospitals and health centers \. The ICR reports that the assistance was extended to at least 12,374 beneficiaries, which is close to the targeted 12,800\. However, the reported figure does not include one district hospital for which information was not available \. The other groups of beneficiaries who were targeted to receive food assistance were 500 children in remand homes and approved schools \. The project supported 380 of them who were available in those designated places when the program was implemented \. In general, this program was designed to help the Government in its poverty reduction efforts in 2008 by mitigating the effects of the recent crisis in food and fuel prices \. As indicated above, however, one constraint to assess the achievement of objectives of this grant is lack of relevant outcome indicators \. The program document and the ICR discussed only program outputs \. However, as noted both in program document and the ICR, the policy actions taken in conjunction with this grant and the corresponding outputs were likely to have poverty impacts through enhanced food security and human development \. For example, it is noted that "without measures to contain the increase in the price of key food staples, poverty headcount of rice consumers alone could rise by at least 150,000, increasing the share of people below the poverty line by an estimated three to four percentage points, in a matter of months " ( ICR p\. 14)\. 5\. Efficiency (not applicable to DPLs): Not Applicable ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re -estimated value at evaluation : re- Rate Available? Point Value Coverage/Scope* Appraisal % % ICR estimate % % * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: Based on high relevance of objectives, modest relevance of design and modest efficacy, outcome is rated Moderately Satisfactory \. a\. Outcome Rating : Moderately Satisfactory 7\. Rationale for Risk to Development Outcome Rating: Sierra Leone is a net importer of key staple foods such as rice \. It also net fuel importer\. Therefore, as in the case of the recent global food and fuel prices crisis, the country remains vulnerable to such external shocks \. In the context of this operation, one identified risk was an increase in the international prices of food items \. However, the global food prices actually declined in 2009 although they were above the pre -crisis levels\. Another area of risk anticipated by this operation was limited implementation capacity of central ministries and local councils that might not be sufficient to provide services to targeted beneficiaries \. However, as indicated in Section 4, meals and food assistances were provided to all of them \. Also, the program did not have long term development outcomes \. Therefore, although the vulnerability to external shocks and Government's low revenue base to counter the food security and human development impacts remain, none of them are applicable to this project \. a\. Risk to Development Outcome Rating : Negligible to Low 8\. Assessment of Bank Performance: at -entry (Moderately Unsatisfactory )\. This operation benefited from lessons drawn from Ensuring quality -at- previous development operations \. In addition to these country specific analytical activities, the Bank's GFRP framework document served as a guideline to prepare this operation \. However, the Bank had little input in the design of the policy reforms\. Also, the program document does not clearly state the development objectives and there were no adequate outcome indicators \. Quality of supervision (Moderately Satisfactory )\. The Bank was very client responsive in terms of a speedy delivery of the support\. The Bank also assisted the Government in meeting project development indicators \. The ICR reports that the Bank's two ISRs report that, as a result of continuous Bank support, the rating of the project's M&E changed from unsatisfactory to satisfactory (p\. 16)\. However, the Bank did not pay much attention to the quality of the service delivery of the various feeding programs or even of the reliability of the reported data on the beneficiaries\. at -Entry :Moderately Unsatisfactory a\. Ensuring Quality -at- b\. Quality of Supervision :Moderately Satisfactory c\. Overall Bank Performance :Moderately Satisfactory 9\. Assessment of Borrower Performance: Overall borrower performance was Moderately Satisfactory \. In addition to implementing the prior policy actions associated with this operation, the Government's commitment to the project was demonstrated by its contribution to the analytical work that assessed poverty and public service delivery issues \. The Government also produced implementation reports on the budget allocation and grant expenditures by beneficiary sectors as well as targets and achievements using project performance indicators \. However, there were delays in reporting and the Ministry of Finance and Development (MOFED) was not able to provide information on some outcome indicators (ICR p\. 17)\. a\. Government Performance :Moderately Satisfactory b\. Implementing Agency Performance :Not Applicable c\. Overall Borrower Performance :Moderately Satisfactory 10\. M&E Design, Implementation, & Utilization: M&E Design (Substantial )\. The program document reports that a technical committee, chaired by the Minster of Finance and Economic Development, was establish to coordinate the activities of this operation \. The committee was responsible for monitoring the operation and all outcome indicators, and to provide monthly reports of progress measured against established timetables and agreed indicators \. In addition, the M&E design of the program benefited from its close linkage to the poverty reduction strategy established within the Development Aid Coordinating Office\. The Government envisioned to use the PRSP monitoring framework to track expenditures for the food assistance programs \. M&E Implementation and Utilization (Modest )\. There were three reports produced by the Government with information on (i) budget allocation among beneficiary agencies; (ii) grant expenditure by beneficary sectors; and (iii) actual performance indicators compared to targets (ICR p\. 17)\. However there were no reporting on overall public expenditures on food assistance programs (ICR p\. 11) \. It is also indicated that the Bank did not receive periodic progress reports as per the agreed timetable although the frequency of reporting was ambitious (ICR pp\. 11& 17)\. a\. M&E Quality Rating : Modest 11\. Other Issues (Safeguards, Fiduciary, Unintended Positive and Negative Impacts): There were no unintended positive or negative impacts \. 12\. 12\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Satisfactory Moderately Although the operation had highly Satisfactory relevant objective, there were some shortcomings in the design and achievement of objectives ( See comments in Section 6)\. Risk to Development Moderate Negligible to Low The risks were analyzed in the context Outcome : of emergency management as a one time intervention to mitigate the impact of the food price crisis\. The operation did not have long term outcomes \. (See comments in Section 7)\. Bank Performance : Satisfactory Moderately Some shortcomings in ensuring quality Satisfactory at entry coupled with those in supervision amount to significant shortcomings\. (See comments in Section 8 )\. Borrower Performance : Satisfactory Moderately Delays in reporting coupled with lack of Satisfactory information on some indicators downgrade overall performance (See comments in Section 9\.  Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate \. 13\. Lessons: The ICR offers three lessons and two are highlighted because the messages of the first and second lessons are similar\.The lessons are presented with slight modification from the ICR wording \. It would be preferable to use existing mechanisms for M&E instead of creating new set -ups for such one-shot, crisis response operation\. There were advantages gained from keeping the design of the operation simple and well focused on Government priorities and country circumsta nces\. This DPG focused only on reduction of tariffs and excise rates of basic items, provision of inputs, and targeted feeding programs \. 14\. Assessment Recommended? Yes No Why? This DPG is one of the early completed GFRP development policy operations \. Therefore, a further assessment of it would expand the evaluative material that would be available for the ongoing and upcoming IEG evaluations (for example, the Social Safety Nets study and the Food Crisis Response study )\. In addition, there are other two related Bank supported GFRP investment loans in Sierra Leone \. A comparative analysis of all these three projects would provide more insight on the relative performance of investment loans and development policy operations in crisis management\. 15\. Comments on Quality of ICR: The ICR provides useful information on the experience in designing and implementing this DPG \. Specifically, the ICR presents a candid assessment of the shortcomings encountered on the sides of the Borrower \. Overall, it contains information to justify the outcome and performance ratings although it tended to overstate most of them \. The ICR does not include discussion on the performance of some of the activities included in this operation (for example, the distribution of seed rice)\. a\.Quality of ICR Rating : Satisfactory

REVIEW

P094916

Document of The World Bank Report No: ICR00003505 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-42150 IDA-42160 IDA-42170 IDA-46450 IDA-46460) ON A CREDIT TO THE REPUBLIC OF MALI IN THE AMOUNT OF SDR 16\.9 MILLION (US$25 MILLION EQUIVALENT) AND AN ADDITIONAL CREDIT IN THE AMOUNT OF SDR 27\.4 MILLION (US$42\.5 MILLION EQUIVALENT) ON A CREDIT TO THE ISLAMIC REPUBLIC OF MAURITANIA IN THE AMOUNT OF SDR 16\.9 MILLION (US$25 MILLION EQUIVALENT) ON A CREDIT TO THE REPUBLIC OF SENEGAL IN THE AMOUNT OD SDR 16\.9 MILLION (US$25 MILLION EQUIVALENT) AND AN ADDITIONAL CREDIT IN THE AMOUNT OF SDR 27\.4 MILLION (US$42\.5 MILLION EQUIVALENT) FOR A FELOU HYDROELECTRIC PROJECT OF THE US$350 MILLION WEST AFRICA POWER POOL (APL) PROGRAM September 30, 2015 Energy and Extractives Global Practice Africa Region  CURRENCY EQUIVALENTS (Exchange Rates Effective June 8, 2015) Currency Unit = FCFA FCFA 58 5= US$ 1\.00 SDR 1\.00 = US$ 1\.3965 SDR 1\.00 = Euro 1\.2511 Euro 1\.00 = US$ 1\.1213 FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS AIC Average Incremental Costs APL Adaptable Program Lending CAS Country Assistance Strategy CDM Clean Development Mechanism CER Certified Emission Reduction CFAA Country Financial Accountability Assessment CNC Comité National de Coordination (National Coordination Committee) CO2 Carbon Dioxide CTPI Comité Technique Permanent de l’Interconnexion (Permanent Technical Committee for the Interconnection) ECOWAS Economic Community of West African States EDF Electricité de France (French Electricity Company) EDM Electricité du Mali (Power Company in Mali) EEM Eskom Energie Manantali SA EEP ECOWAS Energy Protocol EIA Environmental Impact Assessment EIB European Investment Bank EPC Engineering, Procurement and Construction ESMP Environmental and Social Management Plan EMS Energy Management System EOI Expression of Interest ESKOM South African electricity supply utility ESMAP Energy Sector Management Assistance Program FCFA Franc Communauté Financière Africaine (West African CFA Franc) FM Financial Management GHG Greenhouse gas GWh Gigawatt hour ii HEP Hydroelectric Project IDA International Development Association IDC Interest During Construction ISR Implementation Supervision Report IRR Internal Rate of Return kV Kilovolt kWh Kilowatt hour M&E Monitoring and Evaluation MTR Mid Term Review MW Megawatt NPV Net Present Value OMVS Organisation pour la Mise en Valeur du Fleuve Sénégal (Senegal River Basin Development Organisation) O&M Operation and Maintenance PAD Project Appraisal Document PDO Project Development Objective RAP Resettlement Action Plan RHDP Regional Hydropower Development Project RIAS Regional Integration Assistance Strategy SCADA Supervisory Control and Data Acquisition SEMAF Société d’Exploitation de Manantali et de Felou (Felou and Manantali’s Operation Company) SENELEC Société Nationale d’Electricité du Sénégal (National Power Utility in Senegal) SDR Special Drawing Right SOGEM Société de Gestion de 1’Energie de Manantali (Manantali Energy Management Company) SOMELEC Société Mauritanienne d’Electricité (Power Company in Mauritania) UNFCCC United Nations Framework Convention on Climate Change WAGP West Africa Gas Pipeline WAPP West Africa Power Pool Senior Global Practice Director: Anita M\. George Sector Manager: Meike van Ginneken Project Team Leader: Fatouma Toure Ibrahima ICR Team Leaders: Fatouma Toure Ibrahima and Nash Fiifi Eyison iii  AFRICA The Félou Hydroelectric Project CONTENTS Data Sheet A\. Basic Information B\. Key Dates C\. Ratings Summary D\. Sector and Theme Codes E\. Bank Staff F\. Results Framework Analysis G\. Ratings of Project Performance in ISRs H\. Restructuring I\. Disbursement Graph 1\. Project Context, Development Objectives and Design \. 1 2\. Key Factors Affecting Implementation and Outcomes \. 9 3\. Assessment of Outcomes \. 20 4\. Assessment of Risk to Development Outcome\. 29 5\. Assessment of Bank and Borrower Performance \. 30 6\. Lessons Learned \. 33 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners \. 34 Annex 1\. Project Costs and Financing \. 36 Annex 2\. Outputs by Component \. 37 Annex 3\. Economic and Financial Analysis \. 40 Annex 4\. Bank Lending and Implementation Support/Supervision Processes \. 43 Annex 5\. Beneficiary Survey Results \. 45 Annex 6\. Stakeholder Workshop Report and Results\. 46 Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR \. 47 Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders \. 48 Annex 9\. Carbon Finance Project (P099312)-ICR…………………………………\. 49 Annex 10\. List of Supporting Documents \. 59 MAP IBRD 34462R iv A\. Basic Information WAPP APL 2 - OMVS Country: Africa Project Name: Felou Hydroelectric Project IDA-42150 IDA-42160 Project ID: P094916 L/C/TF Number(s): IDA-42170 IDA-46450 IDA-46460 ICR Date: 08/28/2015 ICR Type: Core ICR Governments of Lending Instrument: APL Borrower: Senegal, Mali, Mauritania Original Total XDR 50\.70M Disbursed Amount: XDR 98\.01M Commitment: Revised Amount: XDR 105\.5M Environmental Category: A Implementing Agencies: SOGEM Cofinanciers and Other External Partners: EIB B\. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 12/15/2005 Effectiveness: 04/30/2007 04/30/2007 08/27/2009 09/11/2012 Appraisal: 04/17/2006 Restructuring(s): 06/28/2013 12/23/2014 Approval: 06/29/2006 Mid-term Review: 11/21/2011 11/21/2011 Closing: 06/30/2010 12/31/2014 C\. Ratings Summary C\.1 Performance Rating by ICR Outcomes: Moderately Satisfactory Risk to Development Outcome: Moderate Bank Performance: Moderately Satisfactory Borrower Performance: Moderately Satisfactory v C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Moderately Satisfactory Government: Moderately Satisfactory Implementing Quality of Supervision: Moderately Satisfactory Moderately Satisfactory Agency/Agencies: Overall Bank Overall Borrower Moderately Satisfactory Moderately Satisfactory Performance: Performance: C\.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating Performance (if any) Potential Problem Quality at Entry Project at any time Yes None (QEA): (Yes/No): Problem Project at any Quality of No None time (Yes/No): Supervision (QSA): DO rating before Moderately Closing/Inactive status: Satisfactory D\. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) General public administration sector 7 7 Hydropower 93 93 Theme Code (as % of total Bank financing) Regional integration 33 33 Regulation and competition policy 33 33 Trade facilitation and market access 17 17 Water resource management 17 17 E\. Bank Staff Positions At ICR At Approval Vice President: Makhtar Diop Gobind T\. Nankani Country Director: Colin Bruce Mark D\. Tomlinson Practice Meike van Ginneken Subramaniam V\. Iyer Manager/Manager: Project Team Leader: Fatouma Toure Ibrahima Wane Amarquaye Armar Fatouma Toure Ibrahima/ ICR Team Leader: Nash Fiifi Eyison ICR Primary Author: Nourredine Bouzaher vi F\. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The Project Development Objective of Felou Hydroelectric Project of the OMVS Power System Development Sub-program of WAPP (WAPP APL 2) is to alleviate power supply deficits in WAPP Zone “B” OMVS countries (Mali, Mauritania and Senegal) by augmenting the supply of low cost hydroelectricity\.1 Revised Project Development Objectives (as approved by original approving authority) The PDOs were not revised\. (a) PDO Indicator(s) Original Target Actual Value Values (from Formally Achieved at Indicator Baseline Value approval Revised Target Completion or documents) Values Target Years Quantity of hydroelectricity supplied by OMVS Power System Operator to the Indicator 1 : electric utilities of the WAPP Zone B OMVS Countries (EDM, SENELEC, SOMELEC) (Gigawatt-hour (GWh), Custom) 1142 GWh 807 GWh 1143 GWh 1121 GWh Value - EDM: 594 - EDM: 315 - EDM: 427 - EDM: 562 quantitative or - SENELEC: 377 - SENELEC: 273 - SENELEC: 385 - SENELC:346 Qualitative) - SOMELEC: - SOMELEC: 219 - SOMELEC: 331 - SOMELEC: 213 171 Date achieved 06/29/2006 06/29/2006 08/27/2009 12/31/2014 Comments (incl\. % This PDO indicator is for all practical purposes achieved (98\.2%)\. achievement) Operating rules in place on the basis of sound economic dispatch criteria Indicator 2 : (Yes/No) Value quantitative or No NA Yes Yes (*) Qualitative) Date achieved 08/27/2009 06/29/2006 08/27/2009 12/31/2014 Comments This indicator was added at additional financing\. (incl\. % achievement) (*) See section 2\.3 for details\. 1 The PAD of June 5, 2006 only mentions one objective (see PAD page 12 and Project Development Objective above)\. The Project Agreement of September 13, 2006 between IDA, OMVS and SOGEM, and all ISRs, mention two objectives: “The objectives of the Project are to: (a) augment the supply of low cost hydroelectricity from the OMVS Power System to the national power utilities of Mali, Mauritania, and Senegal; and (b) develop a nucleus of a well-functioning, cooperative, power pooling mechanism for the WAPP Zone “B” OMVS Countries of West Africa\.” The assessment of this ICR will rely on the definition of objectives given in the Project Agreement as per OPCS guidelines\. vii (b) Intermediate Outcome Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Indicator 1 : Commissioning and performance testing of Felou HEP completed on schedule Value (quantitative No Yes Yes Yes or Qualitative) Date achieved 06/29/2006 06/29/2006 08/27/2009 12/31/2014 Comments (incl\. % Commissioned on April 30, 2014\. achievement) Commercially sound (power exchanges) agreements put in place and adhered to Indicator 2: by OMVS Power System Operator Value (quantitative No Yes Dropped NA or Qualitative) Date achieved 06/29/2006 06/29/2006 08/27/2009 12/31/2014 Comments (incl\. % This indicator was dropped with the additional financing\. achievement) Indicator 3 : Generation Capacity of Hydropower constructed under the project Value (quantitative 0MW 60MW 60MW 60MW or Qualitative) Date achieved 08/27/2009 06/29/2006 08/27/2009 12/31/2014 Comments This is a core indicator and was added starting with ISR #7\. Generation capacity (incl\. % was constructed and commissioned in April 30, 2014\. achievement) Indicator 4 : Availability of the power generation units of Felou HEP Value (quantitative 0% 95% 95% 95% or Qualitative) Date achieved 06/29/2006 06/29/2006 08/27/2009 12/31/2014 Comments (incl\. % Target reached on April 30, 2014 achievement) Indicator 5 : Owner's engineer has been recruited\. Value (quantitative No NA Yes Yes or Qualitative) Date achieved 08/27/2009 06/29/2006 08/27/2009 12/31/2014 Comments Indicator added with additional financing\. Owner’s engineer recruited on (incl\. % November 04, 2009\. achievement) Indicator 6 : Design-build contractor has been employed viii Value (quantitative No NA Yes Yes or Qualitative) Date achieved 08/27/2009 06/29/2006 08/27/2009 12/31/2014 Comments Indicator added during additional financing\. Design-build contract signed on (incl\. % May 18, 2009\. achievement) Adoption of Tariff Protocol for Felou HEP by the OMVS Power System Operator\. Indicator 7 : - EDM - SENELEC - SOMELEC Value (quantitative No NA Yes Yes or Qualitative) Date achieved 08/27/2009 06/29/2006 08/27/2009 12/31/2014 Comments Indicator added with additional financing\. The tariff protocol was signed on (incl\. % April 30, 2010\. achievement) Power sector monitoring and evaluation data of the WAPP Zone B-OMVS Indicator 8 : Countries collected, analyzed and disseminated by the WAPP\. Value (quantitative 0% 100% 100% 100% or Qualitative) Date achieved 06/29/2006 06/29/2006 08/27/2009 12/31/2014 Comments (incl\. % WAPP is already collecting data on a regular basis\. achievement) Database at the WAPP level is put in place and power sector M&E data of the Indicator 9 : WAPP Zone B OMVS Countries are developed\. Value (quantitative No NA Yes Yes or Qualitative) Date achieved 08/27/2009 06/29/2006 08/27/2009 12/31/2014 Comments (incl\. % WAPP is already collecting data on a regular basis, achievement) Indicator 10 : Communication and data acquisition facilities upgraded\. Value (quantitative No NA Yes No or Qualitative) Date achieved 08/27/2009 06/29/2006 08/27/2009 12/31/2014 Comments The SCADA system could not be acquired before the closing date of the (incl\. % project\. achievement) Indicator 11 : Necessary software licenses acquired Value No NA Yes No (quantitative ix or Qualitative) Date achieved 08/27/2009 06/29/2006 08/27/2009 12/31/2014 Comments The necessary software licenses could not be acquired before the closing (incl\. % date of the project\. achievement) G\. Ratings of Project Performance in ISRs Actual Date ISR No\. DO IP Disbursements Archived (USD millions) 1 10/05/2006 Satisfactory Satisfactory 0\.00 2 06/27/2007 Satisfactory Satisfactory 0\.00 3 12/17/2007 Satisfactory Satisfactory 0\.36 4 06/02/2008 Satisfactory Moderately Satisfactory 0\.98 5 12/23/2008 Satisfactory Moderately Satisfactory 1\.79 6 05/13/2009 Satisfactory Moderately Satisfactory 2\.15 7 12/06/2009 Satisfactory Satisfactory 27\.19 8 04/14/2010 Satisfactory Satisfactory 28\.16 9 03/28/2011 Satisfactory Moderately Satisfactory 34\.55 10 10/29/2011 Satisfactory Moderately Satisfactory 48\.71 11 06/12/2012 Satisfactory Moderately Satisfactory 64\.49 12 03/27/2013 Moderately Satisfactory Moderately Satisfactory 106\.03 13 11/07/2013 Moderately Satisfactory Moderately Satisfactory 120\.00 14 06/10/2014 Moderately Satisfactory Moderately Satisfactory 131\.00 15 12/24/2014 Moderately Satisfactory Moderately Satisfactory 148\.19 x H\. Restructuring (if any) ISR Ratings at Amount Board Restructuring Disbursed at Restructuring Reason for Restructuring & Approved Restructuring Date(s) Key Changes Made PDO Change DO IP in USD millions 08/27/2009 S MS 2\.15 Additional financing: Project costs increased from US$125 to an estimated US$241 million\. An additional financing for about US$85 million for two credits to Senegal and Mali was approved by the Board to fully fund the project\. IDA was not then in a position to make credits available to Mauritania\. The project objectives and the original project design with its three components remained unchanged\. The only changes concerned the arrangements for project implementation, the extension of the closing date by 3 years (from June 30, 2010 to June 30, 2013) and the financing plan to which IDA contributed an additional US$85 million\. The reasons that led to the additional financing and the key changes made are further described in Section 1\. 09/11/2012 S MS Reallocation of Credits proceeds 06/28/2013 MS MS Extension of the closing date of the project by 18 months (i\.e\. until December 31, 2014) 12/23/2014 MS MS Cancellation of part of the projected undisbursed funds at project closing (SDR 5\.92 out of 7\.49 million)\. xi I\. Disbursement Profile xii 1\. Project Context, Development Objectives and Design (this section is descriptive, taken from other documents, e\.g\., PAD/ISR, not evaluative) 1\.1 Context at Appraisal (brief summary of country and sector background, rationale for Bank assistance) A\. Regional Context: 1\. At the time of appraisal, the member countries of the Economic Community of West African States (ECOWAS) faced a number of energy sector challenges among which were: (i) Low access to electricity\. The poverty reduction action plans of many of ECOWAS member States emphasized increasing access rates as well as encouraging productive uses of energy as important challenges to be addressed\. Despite the region’s large energy endowment, the region’s per capita consumption of electricity was among the lowest in the world\. In 2003, the combined total consumption of electricity was about 40,000 GWh (approximately 60 kWh per capita) and peak power demand was 6,500MW\. Electricity demand is projected to grow by over 7% per year until 2020, with electricity requirements reaching 140,000 GWh (approximately 370 kWh per capita) and the peak power demand exceeding 22,000MW\. It was estimated that only 20% of the population of ECOWAS member States had access to electricity\. The access was higher in the Organisation pour la Mise en valeur du Fleuve Sénégal (OMVS) countries with about 30% of the population connected; (ii) Widespread supply shortfalls\. Across the region, electricity supply was characterized by unreliable service caused by supply shortfalls\. These shortfalls made it difficult to expand access\. It was estimated that the capacity shortfall in the OMVS countries was about 200 MW; (iii) Use of expensive emergency thermal generation plants\. To ease the immediate supply shortfalls, several ECOWAS member states, including OMVS member states, were compelled to procure on an emergency basis, generation plants fueled with imported petroleum products primarily because they are quick to install and involve relatively lower capital outlays\. However, the high running cost of these facilities meant that the tariff paid by consumers was often below cost recovery levels\. The utilization of such plants had in general proven to be unsustainable and the challenge for the region was to search for and implement projects from more sustainable sources such as hydro power; (iv) Undeveloped indigenous hydroelectric resources\. The indigenous fossil fuel resources (coal and petroleum) of the region commonly used for electricity production are concentrated in one or two member states\. There was however a substantial economic hydroelectric potential of about 1000 MW in the region that remains untapped\. The challenge for the West Africa Power Pool (WAPP) was to find ways to mobilize these resources in an environment where the individual governments did not have adequate resources to meet the investment requirements; and (v) Weak institutional and human capacities\. The size of the power infrastructure in many of the member states of ECOWAS and OMVS can be described as small or very small\. 1 The local capacities for system operation, maintenance and especially project implementation were correspondingly low\. 2\. The vision of ECOWAS was to develop and put in place a cooperative power pooling mechanism for integrating national power system operations into a unified regional electricity market - with the expectation that such mechanism would, over the medium to long term, assure a stable and reliable electricity supply at affordable costs\. The long term scenario was to establish the WAPP as the principal vehicle to help meet the region’s projected electricity requirement by harnessing electricity from: (a) several large capacity hydropower facilities (e\.g\., Kainji, Akosombo, Manantali) sited on the region’s major rivers (Niger, Volta, Senegal) which produce relatively low-cost electricity (US$0\.01 - 0\.03kWh); (b) the substantial but as yet untapped hydro resources of Guinea, some 6,000 MW of which was potentially economic to develop and generate around 20-25 TWh per year of electricity at relatively low cost (between US$0\.02-0\.03kWh); and (c) an expansion of gas-fired power generation, leveraging the West Africa community’s parallel track strategy to expand access to Nigeria’s enormous natural gas reserves (3,500 billion cubic meters of proven natural gas reserves) via the West Africa Gas Pipeline (WAGP)\. In order to provide a robust infrastructure platform for the WAPP, a four-fold increase in power system interconnection capacity among ECOWAS Member States (the “Community”) was required over the period 2005-2020\. 3\. Power pools benefits expected from developing interconnections and operating the power pool included the following: (i) reduction in capital and operating costs through improved coordination among power utilities; (ii) optimization of generation resources and scale economies with large generating units; (iii) improved power system reliability with reserve sharing; (iv) enhanced security of supply through mutual assistance; (v) improved investment climate through pooling risks; (vi) coordination of generation and transmission expansion; (vii) increase in inter-country electricity exchanges; and (viii) development of a regional market for electricity\. 4\. Among the many constraints and challenges facing the WAPP (such as mobilizing investment for power projects), two constraints were particularly relevant to the West Africa region (including OMVS): (i) Inadequate generating capacity and reserve margin; and (ii) lack or underdeveloped transmission networks\. ECOWAS and OMVS, with the support of the Bank and other donors, particularly the European Investment Bank (EIB), addressed the problem by strengthening generation and transmission throughout the region through three Adaptable Program Loans (APLs): - APL 1: Costal Transmission Backbone - APL 2: OMVS Power System Development; and - APL 3: Inter-zonal Transmission hub This ICR deals with APL 2: OMVS Power System Development\. 5\. West Africa is endowed with significant energy resources for electricity generation, but these resources are unevenly distributed and the gap between supply and demand was increasing\. In 2003, the combined total consumption of electricity was about 40,000 GWh (approximately 160 kWh per capita) and peak power demand was 6,500MW\. Electricity demand was projected to grow by over 7% per year until 2020, when electricity 2 requirement would reach 140,000 GWh (approximately 370 kWh per capita) and the peak power demand would exceed 22,000 MW\. 6\. OMVS was mandated by the governments of Mali, Senegal and Mauritania to ensure a multi-purpose water resources development, including electric power generation in the Senegal River Basin\. The hydropower potential of the Senegal River Basin is estimated at 1,200 MW, of which only about 200 MW have so far been developed\. During the 1990s, the Regional Hydropower Development Project (RHDP), implemented by a special purpose company (Societe de Gestion de l’Energie de Manantali, SOGEM – Manantali Energy Management Company), led to the establishment of a unique sub- regional power system: the OMVS Power System\. It comprises a 200 MW hydroelectric plant at the foot of the Manantali dam, a 1000 kilometer long system of 225kV transmission lines and sub-stations that evacuate electricity produced at the Manantali hydroelectric plant to the main load centers in Mali, Mauritania, and Senegal, both operated in real-time by a central load dispatching system\. The Felou 60MW run-of-the-river power plant was located on the Senegal River in Mali about 200 km downstream of the Manantali Hydropower Station with an interconnection to the 225 kV transmission system which links Dakar (Senegal), Nouakchott (Mauritania) and Bamako (Mali)\. The Felou hydroelectric Project (HEP) took advantage of an existing small hydro plant (600 kW) and excess transmission capacity available in the OMVS network\. B\. Rationale for Bank Assistance 7\. The Felou HEP primary purpose was to support the OMVS Governments’ efforts to provide affordable energy to their energy starved economies\. To support this objective, the Bank pursued a two-pronged strategy at the regional and national levels\. 8\. At the regional level, the Bank followed a well-defined and phased integration effort in key sectors where the countries would benefit significantly from cross-border trade - notably road and air transport, energy and telecommunications\. This strategy was articulated in the Regional Integration Assistance Strategy (RIAS) for West Africa which the Bank adopted in 2001 and whose objective was to help the countries concerned create a unified regional economic space through the integration of markets of goods, financial and infrastructure services\. 9\. To achieve this objective, the Bank and other donors such as EIB (which parallel financed the Felou Build-Design contract) in consultation with the WAPP and ECOWAS, agreed to put in place a multi-year programmatic framework in support of WAPP\. In addition, national energy projects in the Bank Country Assistance Strategies (CAS) for each ECOWAS member state (including OMVS) were aligned with the broader goals of WAPP\. For the OMVS countries, the Felou HEP was aligned with the objectives of: (a) broad based growth and private sector development, including improving infrastructure of the FY04-06 Mali CAS; (b) wealth creation of the Senegal FY03-06 CAS; and (c) accelerating private sector-led growth of the Mauritania CAS\. 10\. At the national level, the development of the OMVS Felou HEP under the WAPP APL 2 operation provided a least-cost energy source and strategically complemented country-specific IDA energy lending operations in the OMVS member countries (i\.e\. Mali, 3 Senegal, and Mauritania) to address various energy sector challenges outlined in paragraph 1 above\. 1\.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) 11\. The objectives of the project were to: (a) augment the supply of low cost hydroelectricity from the OMVS Power System to the national power utilities of Mali, Mauritania, and Senegal; and (b) develop a nucleus of a well-functioning, cooperative, power pooling mechanism for the WAPP Zone “B” OMVS Countries of West Africa\. 12\. The PAD only mentions the first objective\. However, the Project Agreement included the second objective\. The ICR analysis is based on both objectives as stated the Project Agreement, as per OPCS guidelines\. All implementation status and results reports (ISRs) mention the two objectives\. 13\. The two PDO level key performance indicators are: - Quantity of low cost hydroelectricity that OMVS power system supplies to the electricity utilities of the WAPP Zone B OMVS countries (EDM, SENELEC, and SOMELEC); and - Operating rules in place on the basis of sound economic dispatch criteria\. 14\. The first PDO level indicator was included in the original results framework, while the second PDO level indicator was added to the results framework of the project as part of the changes made during the additional financing in 2009\. 1\.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification 15\. The original project objectives were not revised during the life of the project\. Only the first PDO level key indicator was included in the original results framework in the PAD\. The second PDO level indicator (i\.e\., operating rules in place on the basis of sound economic dispatch criteria) was introduced through the additional financing in 2009\. Original Target Values (from Formally Indicator Baseline Value approval Revised Target Comment(s) documents) Values Quantity of hydroelectricity supplied by OMVS Power System Operator to the Indicator 1 : electric utilities of the WAPP Zone B OMVS Countries (EDM, SENELEC, SOMELEC) (GWh)\. 1142 GWh 807 GWh 1143 GWh Value - EDM: 594 This indicator was - EDM: 315 - EDM: 427 quantitative or - SENELEC: 377 in the original - SENELEC: 273 - SENELEC: 385 Qualitative) - SOMELEC: results framework - SOMELEC: 219 - SOMELEC: 331 171 Date achieved 06/29/2006 06/29/2006 08/27/2009 4  Operating rules in place on the basis of sound economic dispatch criteria Indicator 2 : (Yes/No) This indicator was Value added at additional quantitative or No No original target Yes financing (See Qualitative) section 2\.3 for details)\. Date achieved 08/27/2009 06/29/2006 08/27/2009 (b) Intermediate Outcome Indicator(s) Original Target Formally Values (from Indicator Baseline Value Revised Comment(s) approval Target Values documents) Indicator 1 : Commissioning and performance testing of Felou HEP completed on schedule\. Value This indicator was (quantitative No Yes Yes in the original or Qualitative) results framework Date 06/29/2006 06/29/2006 08/27/2009 Commercially sound (power exchanges) agreements put in place and adhered to Indicator 2: by OMVS Power System Operator\. Value This indicator was (quantitative No Yes Dropped dropped with the or Qualitative) additional financing Date 06/29/2006 06/29/2006 08/27/2009 Indicator 3 : Generation Capacity of Hydropower constructed under the project\. Value Core indicator (quantitative 0MW 60MW 60MW added starting with or Qualitative) ISR Sequence 7 Date 08/27/2009 06/29/2006 08/27/2009 Indicator 4 : Availability of the power generation units of Felou HEP\. Value This indicator was (quantitative 0% 95% 95% in the original or Qualitative) results framework Date 06/29/2006 06/29/2006 08/27/2009 Indicator 5 : Owner's engineer has been recruited\. Value Indicator added (quantitative No NA Yes with additional or Qualitative) financing\. Date 08/27/2009 06/29/2006 08/27/2009 Indicator 6 : Design-build contractor has been employed\. Value Indicator added (quantitative No NA Yes with additional or Qualitative) financing Date 08/27/2009 06/29/2006 08/27/2009 Adoption of Tariff Protocol for Felou HEP by the OMVS Power System Indicator 7 : Operator EDM, SENELEC, SOMELEC\. 5 Value Indicator added (quantitative No NA Yes with additional or Qualitative) financing Date 08/27/2009 06/29/2006 08/27/2009 Power sector monitoring and evaluation data of the WAPP Zone B-OMVS Indicator 8 : Countries collected, analyzed and disseminated by the WAPP\. Value This indicator was (quantitative 0% 100% 100% in the original or Qualitative) results framework Date 06/29/2006 06/29/2006 08/27/2009 Database at the WAPP level is put in place and power sector M&E data of the Indicator 9 : WAPP Zone B OMVS Countries are developed\. Value Indicator added (quantitative No NA Yes with additional or Qualitative) financing Date 08/27/2009 06/29/2006 08/27/2009 Indicator 10 : Communication and data acquisition facilities upgraded\. Value Indicator added (quantitative No NA Yes with additional or Qualitative) financing Date 08/27/2009 06/29/2006 08/27/2009 Indicator 11 : Necessary software licenses acquired\. Value Indicator added (quantitative No NA Yes with additional or Qualitative) financing Date 08/27/2009 06/29/2006 08/27/2009 1\.4 Main Beneficiaries, (original and revised, briefly describe the "primary target group" identified in the PAD and as captured in the PDO, as well as any other individuals and organizations expected to benefit from the project) 16\. The primary target groups identified in the PAD are the OMVS member countries of Mali, Senegal and Mauritania and through their respective power utilities, their respective populations\. Furthermore, as a source of clean, renewable energy, the OMVS 60 MW Felou Hydroelectric Project benefits the global environment as it displaces thermal power generation powered by fossil fuels\. 6 1\.5 Original Components (as approved) 17\. The Felou HEP had three components: (a) Component I (US$ 177\.6 million)2: Design, construction and commissioning of a 60 MW run-of-the-river hydroelectric plant at Felou\. This component represents about 92% of total project cost (excluding price contingencies and interest during construction)\. The design build contract included the provision of the following goods and services: (a) site preparation; (b) civil works; (c) studies and services; (d) electro-mechanical equipment (3x21 MW generating sets); (e) equipment assembly; (f) mechanical auxiliairies; (g) electrical equipment and materials; (h) interconnection to the OMVS transmission system; (i) environmental and social mitigation; (j) assistance in operation and maintenance during the guarantee period; and (h) spare parts\. These components are further broken down into sub- components in Annex 2 below\. (b) Component 2 (US$ 8\.56 million2): Two-Stage "Project Cycle Management Contract"\. Provision of services of an experienced engineering consulting firm to provide comprehensive project cycle management support to oversee the design, construction and commissioning of the hydroelectric plant at Felou through a two- stage sequential contracting arrangement, as follows: (i) Phase 1 ("Transaction Adviser")\. Contract with a consulting firm to provide transaction advice and support required to: (a) perform detailed planning and scheduling of project implementation arrangements, including pre-qualification of prospective bidders, (b) prepare and issue bidding documents for the selection of an independent contractor, (c) prepare a comprehensive set of power supply agreements for use by the OMVS Power System Operator, and (d) conduct the two-stage bidding process, evaluate bids and make recommendation for the award of the design-build contract; and (ii) Phase 2 ("Owner's Engineer")\. Contract to oversee the day-to-day performance of the design-build contractor over the entire "design-build performance testing" cycle, up until the critical milestone involving the hand-over of the "use and control" of a fully operational Felou hydroelectric plant to the OMVS Power System Operator\. (c) Component 3 (US$7\.79 million2): WAPP Action Plan for the OMVS Power System\. Support in facilitating joint operations and coordination between Electricite du Mali (EDM), Societe Nationale d’Electricite du Senegal (SENELEC), Societe Mauritanienne d’Electricite (SOMELEC) and the OMVS Power System Operator by: (i) upgrading communication and data acquisition facilities to enable real-time information exchange with the load dispatching center at Manantali and the three national power utilities; and (ii) acquiring the necessary software licenses (with 2 Excluding price contingencies and interest during construction\. See Annex 1 for details\. 7  relevant training) to support optimization and scheduling of the combined hydro and thermal power generation capacity of the recipients\. 1\.6 Revised Components 18\. There was no change in the project components\. 1\.7 Other significant changes (in design, scope and scale, implementation arrangements and schedule, and funding allocations) 19\. The original project design with its two development objectives and three components remained unchanged throughout\. The changes introduced with the additional financing were those related to the arrangements for project implementation, the extension of the project’s closing date, the financing plan and revisions to the results framework\. 20\. Arrangements for project implementation: Under the original project implementation arrangements, OMVS was responsible for the overall coordination of the implementation of the project\. OMVS, with the support of SOGEM, was also responsible for component 2 of the project, including: (i) detailed planning and scheduling of project implementation arrangements; (ii) preparing and issuing bidding documents for the selection of an independent contractor; and (iii) conducting the bid evaluation and contract award processes\. In August 2008, OMVS informed the Bank that the Council of Ministers had decided to entrust the responsibility for project implementation entirely to SOGEM3\. While OMVS had played a coordinating role and helped with mobilizing the financing for the project, this decision of the Council of Ministers helped focus the responsibility for implementation on SOGEM which was already carrying out most of the coordination of project implementation activities with the assistance of its consultants\. This change in project implementation arrangements was considered acceptable and was formalized as part of the additional financing package\. 21\. Extension of the Closing Date: Given the delays experienced in awarding the design and build contract and the time needed to mobilize the additional financing required to complete construction, the project could not be completed by the original closing date of June 30, 2010\. Taking into account the implementation period for the design build contract, the closing date of the project was extended by three years (from June 30, 2010 to June 30, 2013)\. The closing date was later again extended by one year and a half to December 30, 2014\. 22\. Project Financing: In line with OMVS policies, the costs of new regional assets were to be equally shared between the member states independently of how project benefits are shared\. Therefore, in the original financing plan, Mali, Mauritania and Senegal each borrowed one third of the funds made available from IDA and the EIB\. SOGEM had estimated that the total financing required to implement the project increased from US$125 million to about US$241 million (or 193% increase)\. The main reason was the increase in 3 OMVS’ Council of Ministers: Decision N 0461/ER/CM (July, 30, 2008) 8 the cost of the design build contract, but the estimates for the Project Cycle Management Contract, price contingencies and Interest During Construction (IDC) had also to be adjusted because of the increase in the cost of the design build contract to which they were tied\. The cost of IDC which was underestimated during appraisal of the original project was made, during additional financing, to reflect the 4\.5% on-lending rate for IDA and EIB funds from the three governments to SOGEM\. 23\. In 2009 and because of policy reasons, IDA was not in a position to extend new credits to Mauritania, but given the high priority accorded to completing the Felou HEP, the significant economic benefits and the high cost of delays, the governments of Mali and Senegal requested that they be allowed to borrow the full amount of the additional financing required\. The Government of Mauritania had indicated to the Governments of Mali and Senegal: its full commitment to an early completion of the Felou project and had demonstrated that by settling the arrears from SOMELEC to SOGEM as well as by signing off on the new guarantee mechanism which was to ensure regular bill payments to SOGEM\. Given this evidence of commitment to OMVS, SOGEM and the Felou HEP, Bank management provided a waiver from OP 7\.30 (Dealings with De Facto Governments4) to allow disbursements on the existing Credit to Mauritania for the Felou HEP subject to approval of the additional financing by the Board\. This was done on August 29, 2009 which accorded Senegal and Mali an additional financing of SDR 27\.4 million (equivalent to US$42\.5 million) each\. Revision of the Results Framework: The additional financing project paper of July 30, 2009 introduced the following changes to the project’s results framework (Section 1\.3 above for details): ï‚ Addition of a PDO indicator to the second project objective of creating a nucleus of a power pooling mechanism, namely “Operating rules in place on the basis of sound economic dispatch criteria”\. ï‚ Addition of seven intermediate performance indicators; and ï‚ Deletion of one intermediate indicator\. 2\. Key Factors Affecting Implementation and Outcomes 2\.1 Project Preparation, Design and Quality at Entry (including whether lessons of earlier operations were taken into account, risks and their mitigations identified, and adequacy of participatory processes, as applicable) Project Preparation 24\. The project was well grounded in the need of the region and the OMVS countries for a reliable source of affordable energy to sustain a broad-based growth and employment called for in country assistance and poverty reduction strategies\. 4 A "de facto government" comes into, or remains in, power by means not provided for in the country's constitution, such as a coup d'état, revolution, usurpation, abrogation or suspension of the constitution\. 9 25\. The project was also well grounded in existing OMVS conventions and operating rules for jointly owned infrastructure, such as the OMVS power system and followed an output-based approach to the main design build contract\. In parallel a consulting engineer support was provided to enable SOGEM to oversee the entire project cycle, including engineering supervision\. 26\. At the time of appraisal, the project benefitted from the experience gained in the implementation of: ï‚ the Regional Hydropower Project of Manantali which was partly financed by IDA through three credits to Mali, Senegal and Mauritania as well as from lessons learned, including the option of a Fixed- Price Date Certain Turnkey Contract for the dam and power station, with a pre-qualification process (i\.e\. a two stage bidding process); and ï‚ national projects and sector work done by the Bank in Mali, Senegal and Mauritania, all of which had an impact on the Felou HEP project and the OMVS system, such as the Energy Support Project (ESP) in Mali or the Electricity Sector Efficiency Enhancement Project in Senegal\. 27\. Existing hydrological data on the Senegal river and the data collected at the site of the existing small run-of-river power plant (600 kW), which was replaced by the Felou hydroelectric power plant, were used to develop a comprehensive set of high-quality baseline data, including reasonable candidates such as Felou and Gouina hydroelectric projects, downstream of the Manantali hydroelectric project\. The feasibility study carried out by Coyne et Bellier (2003) delineated the dam and power plant characteristics and these technical specifications were used in the call for the first stage bids toward the choice of an Engineering, Procurement, and Construction (EPC) contractor\. 28\. The project also benefitted from the Scandinavian experience in the design of power pooling mechanisms\. A key lesson learned was the requirement of active involvement of all transmission system operators\. In the specific WAPP APL 2 project context, a unique multi-country regional transmission system operator – Eskom Energie Manantali SA (EEM) – was established to coordinate operations through the Comité Technique Permanent de l’Interconnexion (CTPI) with the national power utilities\. Assessment of project design and Quality at entry\. 29\. The objectives of the project responded to Bank priorities for the ECOWAS region in general and OMVS region in particular\. They also fitted Government priorities to supply their economies with affordable energy\. The CASs and poverty reduction strategies of each country for the year 2005-2006 when the Felou project was prepared and appraised, invariably called for higher, sustainable and broad-based growth to generate employment and raise the living standards and affordable energy was a key ingredient in achieving this\. 30\. The project’s strategy to remain simple and focus on two objectives, the main of which was increasing the power generation capacity to alleviate the power and energy shortages in Mali, Senegal and Mauritania and designing the project to only include three components was commendable\. The project development objectives were structured around two categories of outcomes expected from the project, namely (a) alleviate power supply deficits in Mali, Senegal and Mauritania through an increase supply of low cost 10 hydroelectricity from the OMVS power system, including Felou; and (b) develop a nucleus of a well-functioning WAPP power pooling mechanism\. The second outcome was added at additional financing\. 31\. The project was designed with three components that reflected the categories of outcomes mentioned above (a “design build” component, a “Project cycle management contract” component, and a “WAPP Action plan for the OMVS Power System” component); consequently, project design followed a well-defined structure, from components to objectives and from objectives to outcomes\. The scope of the first two components was reasonable and in line with international experience in run-of-river power plants\. The scope of the third component was also reasonable\. However, the outcome it supported has no easy interpretation (see Section 2\.3 below for more details)\. 32\. An important feature of the project was the retention of a private company as OMVS Power System Operator However, promoting private sector participation needs to be accompanied with a strengthening of the public entity’s capacity to oversee a private sector operator\. The Manantali project succeeded in involving a private operator for the management and operation of project facilities, as well as in reviewing and establishing tariff principles and mechanisms, and energy purchase agreements\. However, legal disputes between SOGEM and the operator over contract responsibilities and remuneration which were not clear in the Manantali concession agreement showed that the objective of promoting private sector participation needs to be accompanied with a strengthening of the public entity’s capacity to manage and negotiate operations and maintenance (O&M) contracts\. 33\. As a category A project in regards to safeguards, the project design took into account the Bank’s safeguards policies, including procedures and implementation arrangements to ensure full consideration of environmental and social safeguards\. Four Bank safeguard policies were triggered: Environment Assessment (OP/BP 4\.01); Involuntary Resettlement (OP/BP 4\.12); Dam Safety (OP/BP 4\.37) and Projects on International Waterways (OP/BP 7\.40)\. See Section 2\.4 below for details\. 34\. The implementing agency was supported by an engineering consultant to assist in bid evaluation and supervision during construction\. This was an appropriate measure to supplement SOGEM’s implementation capacity\. However, project implementation still proved to be challenging (see section 2\.2 below) due to: the lack of advanced procurement actions including readiness of the bidding documents before project approval; the adoption of a comprehensive bidding process including prequalification and two-stage bidding; the unexpected rebidding process conducted to comply with the Bank’s procurement eligibility requirements; and the rise in the cost of civil works and equipment for the design-build contract\. Multiple reasons were given to explain the substantial increase in the estimated cost of the design-build contract despite an open international competitive bidding process\. In US Dollar terms, the estimated base price of the Design-Build contract increased from US$ 100 to US$ 176 million\. The cost increase was due to the devaluation of the USD exchange rate relative to the Euro in which the contract was denominated and the worldwide increase in commodity and equipment prices that was witnessed in comparable projects over the few years after the base price was estimated till the contract was procured\. Other factors may also have contributed to the high contract price, such as the worldwide market volatility when the contract was procured, and the contract model selected (while 11 its selection might have been justified for its other merits): a fixed lump-sum price contract on design-build basis, covering construction of the large civil works, supply and installation of hydrogenation plant for a multi-year period\. 35\. In addition to IDA, EIB was the only other external co-financier of the project\. EIB provided parallel financing for design-build contract under component 1 of the project\. Adequacy of governments’ commitments 36\. The commitment to, and ownership of the project was strong at the time of preparation and appraisal\. This strong commitment was sustained throughout the life of the project\. The governments of Mali, Senegal and Mali requested and obtained five (5) IDA credits (three original and two additional financing) towards the financing of the project which was also co-financed by EIB\. The three governments also pushed for the settlement of arrears to SOGEM by their respective national utilities as well as accepting a tariff increase of 10% in July 2013\. Assessment of risks 37\. The table below shows the risks and mitigation measures identified in the PAD along with a brief description of how these risks evolved during the implementation of the project\. Original perceived risk Risk rating Original mitigation Comments measure Non-application by the The OMVS High This risk did not OMVS riparian Commission and the materialize countries of third party General Secretary of access to power the WAPP organization generation and Not rated agreed to align the transmission facilities functions and as well as free transit operations of the of electricity within OMVS power system ECOWAS\. with those drawn up for the WAPP Zone B\. Poor state of The technical This risk was to be communication assistance, addressed through facilities that the communication Component 3 of the national power equipment and software project which could not utilities rely on for to be provided under be implemented before real-time information Not rated the project were to help the closing date of the exchange with the address this project because of OMVS central load shortcoming\. delays in agreeing on dispatching system in the terms of reference Manantali\. between the OMVS, WAPP, SOGEM, EDM, SENELEC and SOMELEC and delays in the recruitment of the consultant Relatively weak Adoption of a two stage This risk was capacity of the OMVS bidding procedure and adequately identified\. 12  and SOGEM to recruitment of a However, the oversee the consultant to prepare, mitigation measure construction of the issue and evaluate bids proved by itself OMVS Felou and oversee the insufficient to remedy Hydroelectric project Not rated construction of the dam the lack of capacity of and power station and SOGEM, the the supply and implementing agency\. installation of the communication equipment Fiduciary risk in the The risk was adequately selection of the two identified\. This risk was main contracts: (i) mitigated through the Design-Build contract; Moderate Same as above\. recruitment of a and (ii) the contract consulting engineer to for the supply and launch and help installation the evaluate the bids\. SCADA, communication equipment and software\. Technological All investments soundness of supported under the investments Not rated project use proven - designs and carry no particular risk or controversial aspect 38\. Other risks (not formally identified at appraisal): ï‚ Hydrology and O&M: As with most hydroelectric projects, the hydrology is an important risk to project outcome\. SOGEM set up a Hydrology Risk Fund to ensure that payment obligations are met in the event of a disaster or a poor rainfall year and a Maintenance and Operation Fund\. Despite resources constraints, SOGEM did its best to ensure that these were adequately funded\. The coming on stream of Felou would allow more resources to be allocated to the Funds\. ï‚ Non regular payment of electricity bills: Another risk not formally identified is the non-regular payment of bills by EDM, SENELEC and SOMELEC which created serious financial difficulties for SOGEM\. SOGEM in turn had difficulties repaying the loans including some on-lent to it by the three governments for the purpose of project financing\. However, financial covenants were put in place whereby the Governments of Mali, Senegal and Mauritania were to cause their respective utilities to establish an escrow account to backstop payments obligations for electricity purchases from the OMVS power system\. This provision however proved ineffective as the three national utilities continued to accumulate arrears\. The situation improved after the commissioning of Felou and as of early June 2015, only EDM had arrears of about FCFA 3\.3 billion, of which 1\.43 billion are in dispute with SOGEM\. 13 2\.2 Implementation (including any project changes/restructuring, mid-term review, Project at Risk status, and actions taken, as applicable) 39\. The project was approved in June 2006 and closed in December 2014\. The eight and a half years implementation period was characterized by two distinct phases: a period of significant delays, which lasted roughly four years, until mid-October 2010, and a period of active implementation, which lasted about four years and a half until project closure in December 2014\. 40\. The early implementation period (2006-2009) was characterized by a slow start\. The parent project was approved in 2006 and became effective 10 months later\. In 2008, the cost overrun resulted in processing the additional financing, which was approved in 2009 with additional delays because legal documents needed amendments after a coup d’etat in Mauritania and a waiver was needed to proceed\. The new set of effectiveness conditions attached to the additional financing further delayed implementation\. As a result, three years after Board approval, as of August 2009, less than 3 % of the project funds had been disbursed, against an original expectation of about 75%\. During this period, the overall implementation progress and project development objectives ratings of the Felou HEP were consistently satisfactory to marginally satisfactory even though start-up was slow, the Bank and the three Governments/implementing agency were able to adapt to the unforeseen challenges posed and project implementation proceeded more rapidly\. 41\. The active implementation period (2010-2014) was characterized by implementation progress but also significant project management challenges such as management contract issues, financial problems, governance and country instability\. With improved perspectives of achieving its objectives, the project was restructured in August 2009 with the additional financing with adjustments to some component indicators and a three-year extension of the closing date\. By mid-October 2010, with many of the earlier challenges addressed, the project started to make significant progress\. The bidding process was successful and the design-build-contractor started construction\. The Mid Term Review (MTR) took place in November 2011 to examine the issues that had slowed implementation\. It focused on remedial measures to accelerate implementation, improve operational efficiency, and strengthen SOGEM’s financial position and operating performance\. It also suggested steps to ensure that the environmental and social issues in the Environmental Action Plan and the Resettlement Action Plan, whether they were the responsibility of SOGEM or the EPC contractor, be undertaken or completed\. The mission finally focused on the financial situation of SOGEM which was worrying because of an increase in operating costs and a high level of arrears built up by participating utilities\. The expected tariff increase of three times 10 % each starting in July 2011 and stretching to January 2013 did not take place, further exacerbating SOGEM’s cash-flow problems\. The MTR requested that SOGEM implements a cost cutting program to alleviate the situation\. However, an increase in tariffs was seen as the most important instrument to redress the situation\. SOGEM’s performance in financial management was rated moderately unsatisfactory because of the four months delay in submitting the 2010 audit reports\. The MTR, while insisting that SOGEM strengthen the capacities of its financial department, otherwise confirmed the continued relevance of the project development objectives and its three components\. 14 42\. Thereafter, the project progressed well until closure\. The development objective (DO) rating was Satisfactory until June 2012 and moderately satisfactory until the project closing date in December 2014\. Implementation progress was rated moderately satisfactory from early 2011 until the closing date of the project\. 43\. In summary, the following factors affected project implementation at various stages: ï‚ Procurement Process: The procurement process for the design-build contract started only after the project was approved in June 2006\. Following a comprehensive process, including prequalification and two-stage bidding, four bidders were prequalified but only two of them submitted bids in the final stage\. Because the lowest evaluated bidder could not meet the eligibility requirements under the Bank’s Procurement Guidelines and the other bidder’s price was too high, a fast-track rebidding was then conducted in late 2008, which resulted in awarding the contract to Sinohydro of China for a value of about 126 million Euros or about US$ 176 million (excluding physical and price contingencies)\. The contract was signed in May 2009 after a satisfactory financing plan was in place to fund the cost overrun\. 5 Since the project was designed to have a design-build contract, the procurement method i\.e\. prequalification plus two-stage bidding, might have been a suitable approach\. However, it should not be taken for granted for future projects and a thorough assessment of various procurement options should be carried out\. Procurement actions should also be carried out well in advance of the project approval and the processing of additional financing\. ï‚ Delayed Project Effectiveness: It took 10 months between appraisal and effectiveness of the original project due mainly to having the three Governments sign/ratify the legal documents and meet the conditions of effectiveness\. The additional financing took about the same time (about 10 months) between appraisal and effectiveness\. ï‚ Additional financing: IDA, at the request of the Governments of Mali and Senegal, approved two additional credits of about US$42\.5 million each towards the financing of the project\. The reasons for the increase noted above\. Construction of the dam and power station started in November 2009 with the signature of the contract\. As already mentioned earlier on delayed project effectiveness, it took about10 months for the additional financing to become effective\. The reasons were the satisfaction of the conditions of effectiveness (two of which were tied to the readiness of the draft bidding documents for Design-Build Contract and the draft phase 2 contract “Owner’s Engineer”(which required the recruitment of the consulting engineer) and the lengthy legal approval process by the countries involved (Mali and Senegal)\. ï‚ Management Contract Issues: Disputes between SOGEM and EEM over contract responsibilities and remuneration which were not clear in the Manantali concession agreement led to an unanticipated termination of the 15-year contract between them with effect end October 2011 with the possibility of extending the contract until June 30, 2012\. 5 Bid validity expired on March 28, 2009, but SOGEM had already obtained an extension of two months to allow more time to put the additional financing in place\. 15 Eventually the EEM contract was extended and closed in July 2014 after successive extensions\. While waiting for the recruitment of a new private operator, a new company, La Société d’exploitation de Manantali et de Félou (SEMAF) was set up as a subsidiary of SOGEM\. SEMAF has already started the operation and maintenance of Manantali\. For Felou, SOGEM signed a temporary contract with the EPC constructor, Sinohydro which will expire in October 2015 (before the end of the April 2016 warranty period)\. An O&M expert provided recommendations on the future transfer of Sinohydro's responsibility to the newly created subsidiary, SEMAF\. ï‚ Financial Issues: Payment arrears reached nearly FCFA 45 billion at the end of December 2007\. In addition, funds for maintenance and upgrading of the hydroelectric plant and transmission lines (Main Equipment Rehabilitation Fund) were not set aside by SOGEM as originally planned and agreed\. The same happened to the Hydrology Risk Fund (15 billion FCFA) that SOGEM had set up to ensure that payment obligations are met in the event of a disaster or a poor rainfall year\. The situation improved only in 2009, when a resolution from the OMVS Council of Ministers called upon member countries to ensure the regular payments of their electricity bills and authorized EEM to cut electricity supply to the defaulting electricity companies\. Following the resolution of the OMVS Council of Ministers, the level of arrears decreased: According to the Annual EEM technical report released in March 2011, the recovery rate of new bills was up to 100% (Eskom, 2003-2010)\. As for the old arrears, 75% of the outstanding 2007 total arrears were settled at the end of April 2009\. This situation however proved unsustainable and the build-up of arrears reemerged as a major concern: FCFA 11 billion compared to turnover of FCFA 35\.8 billion or about 31% in December 2013\. SOGEM’s financial situation improved following the commissioning of Felou and as of early June 2015, only EDM had arrears of about 3\.3 billion FCFA, of which about 1\.4 billion FCFA are in dispute\. SENELEC and SOMELEC are current\. ï‚ Coup d’Etat and Insecurity in Mali: In Mali, the civil war, the 2012 coup d’etat and the resulting insecurity resulted in higher costs, including security fees, for goods and services\. In addition, in periods of heightened tensions, constructors and consultants withdrew their staff from the Felou site and often worked through (heavily guarded) short visits\. Furthermore, this situation had an impact on project supervision as often during this period, supervision was done remotely through video conference\. ï‚ Lack of Agreement on Acquisition of SCADA and other IT equipment and Software Licenses: Except for a minor expense on a study and preparation of bidding documents, component 3, a very small component of the whole project (about 4% of project costs), was not implemented\. The procurement of SOGEM’s enhanced SCADA system was delayed by almost two years, as a result of prolonged technical discussions between SOGEM, EDM, SENELEC, SOMELEC, and the WAPP Secretariat about the integration of existing and future SCADA systems in the sub-region, together with procurement delays for consulting services for the design of SOGEM’s enhanced SCADA system\. ï‚ Lack of Capacity of SOGEM: SOGEM lacked technical, administrative, financial and environmental and social capacity to carry out the project as implementing agency\. A supervising engineer and direct recruitment in the needed specialties (procurement, financial management, environmental and social) helped strengthen SOGEM’s capacities 16 in implementing the project\. As with other countries, a future Bank engagement with SOGEM could focus on capacity building\. ï‚ Contractor’s Underestimation of Highest Floods: The design-build contractor’s underestimation of highest floods/size of diversions/cofferdams, twice resulted in flooding of the construction site\. This led to implementation delays and financial claims between SOGEM and the contractor\. 44\. SDR7\.49 million (or about US$ 10\.46 million) of the credits were not disbursed and were thus cancelled\. 2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 45\. Design: The baseline data for the indicators (original and revised) were prepared and the monitoring system was simple and based on measurable outputs especially for components 1 and 2\. The original project documentation only had one PDO indicator\. A second indicator was added at the time of the additional financing\. At the time of the additional financing, seven new intermediate indicators were added and one was dropped\. Furthermore, one core indicator related to generation capacity of hydropower constructed under the project was added starting with ISR 7 (see Section 1\.3 above for details)\. The second project objective to “develop a nucleus of a well-functioning, cooperative, power pooling mechanism for the WAPP Zone “B” OMVS Countries of West Africa” and its outcome indicator of “operating rules in place on the basis of sound economic dispatch criteria” were somewhat vague\. 46\. Some indication of what the outcome indicator was meant to be is given in the Results Framework of the additional financing “…a measurement for the functioning of the WAPP power pooling mechanism” or in the description of component 3 (PAD, para\. 23) which was meant to support the achievement of the project’s second objective “This component will help upgrade the functional and operational capabilities of the CTPI to fully deploy the power pooling provisions of the OMVS Power System\. Specifically, this component will facilitate joint operations and coordination between EDM, SENELEC, SOMELEC and EEM”\. Or from the description of component 3 in the additional financing Project Paper (para\. 15): “\.acquiring the necessary software licenses with relevant training to support optimization and scheduling of the combined hydro and thermal power generation capacity of the recipients”\. Ultimately component 3 was not implemented\. 47\. Implementation: The M&E system was well-embedded institutionally and the OMVS Power System Operator and SOGEM carried out the overall monitoring of the project and the achievement of the output indicators\. These indicators were reported to the Bank in progress reports\. The monitoring included separate detailed reporting by SOGEM, covering progress on physical implementation, procurement, financial commitments and other elements of the project progress\. The data collected were evaluated and used to inform decision-making\. 48\. Utilization: The information provided by the monitoring and evaluation system is critical to the operation and energy dispatch of the OMVS power system and to the three utilities of Mali, Senegal and Mauritania\. Due to the criticality of the information provided, the sustainability of the M&E arrangements beyond the project implementation period is 17 likely\. However joint operations and coordination between EDM, SENELEC, SOMELEC and the OMVS Power System Operator has been postponed to a future date as the conditions for this to happen are not yet in place (e\.g\. power shortage in all OMVS countries, power exchange agreements, etc\.)\. 2\.4 Safeguard and Fiduciary Compliance (focusing on issues and their resolution, as applicable) 49\. Environmental and social safeguards: Four safeguards policies were triggered: Environment Assessment (OP/BP 4\.01); Involuntary Resettlement (OP/BP 4\.12); Dam Safety (OP/BP 4\.37) and Projects on International Waterways (OP/BP 7\.40) 50\. Over the life of the project, the compliance with environmental safeguards was rated from satisfactory to moderately satisfactory mainly because of the lack of reporting by SOGEM particularly on the status of implementation of the RAPs, and the call for the strengthening of its social unit\. The team however noted considerable efforts in the implementation of safeguard mitigation measures\. The detailed action plan showed that all planned mitigation measures under Sinohydro (the design-build contractor) or OMVS responsibility were satisfactorily implemented: feeder road; water supply; fence of Lontou School; providing funding for the construction of the health center; etc\. An improved water waste management system was built and the safety of workers and population in the Felou site was improved and no incident was recorded\. 51\. The environmental audit of the Felou HEP which was due within six months of the closing of the project was received\. Its conclusions are that: (i) every person affected has been equitably compensated and complaints resolved to the satisfaction of the parties; (ii) the measures included in the RAP have been for the most part implemented; (iii) the mechanisms of dispute resolution have worked well; and (iv) there has been an improvement in the social conditions such as through the provision of potable water supply\. It however recommends a number of minor corrective measures, part of the Environmental and Social Management Plan (ESMP), to be addressed by SOGEM/Sinohydro while Felou is still under the operating warranty (e\.g\. Reforestation of the site, follow up on the maintenance of the trash management system and a plan of what would become of the Sinohydro’s base camp now that the work was completed)\. 52\. Financial Management (FM): The FM performance of the project was rated mostly moderately satisfactory during project implementation and the related risk was deemed moderate taking into account that minimum FM arrangements were put in place at the coordination unit and that 100 % of projects expenditures were made through direct payments\. Starting in 2012, audit reports noted gradual improvements on SOGEM’s financial statements that evolved from a qualified opinion with substantial shortcomings to an unqualified opinion in 2013\. However, SOGEM’s weak internal control environment and its FM system to which the overall FM performance of the project was closely tied, was often criticized by external auditors and Bank FM supervision reviews\. As documented in ISRs, staffing of SOGEM’s finance department remained an issue and SOGEM failed, over the life of the project, to take appropriate action to adequately reinforce it\. 18 53\. Financial management was rated unsatisfactory in November 2011 because the audit report revealed serious weaknesses in SOGEM’s financial management and internal controls\. The rating was subsequently upgraded to moderately satisfactory after SOGEM improved its financial and accounting practices and reorganized its finance department\. This rating was kept until the end of the project\. 54\. Procurement: The project was implemented in accordance with Bank’s Procurement and Consultant Guidelines and the Standard Bidding Documents were used\. As noted in section 2\.2, for the Design-Build contract a rebidding process was conducted to in order to comply with the Bank’s procurement eligibility requirements\. Allegations of fraudulent and corrupt practices by a firm involved in the implementation of the project resulted in an investigation by the Bank that has led to a pending sanctions case against the firm and related risk mitigation measures\. 55\. The ISRs noted weaknesses in capacity and recommended training and recruitment of procurement specialists\. After the effectiveness of the additional financing in October 2010 and except for component 3, procurement proceeded and the Felou HEP fully entered operation in April 30, 20146\. 2\.5 Post-completion Operation/Next Phase (including transition arrangement to post-completion operation of investments financed by present operation, Operation & Maintenance arrangements, sustaining reforms and institutional capacity, and next phase/follow-up operation, if applicable) 56\. The Felou HEP is operated as a unit of the OMVS power system that now includes Manantali and Felou, but is expected to include more power plants in the future such as the Gouina HEP, now under construction with non-World Bank financing\. The OMVS member countries have a clear strategic interest in the effective operation of the OMVS system that delivers power sustainably at a reasonable cost\. As indicated earlier, Governments’ commitment to the project and to the OMVS system in general have for the most part been strong and steady\. The alternatives to the predominantly hydro based OMVS power system (such as relying on thermal power generation even if the economics of thermal power has been altered by the rapid fall in oil prices) are worse\. Hydropower has to stand on its own merit but it still provides a cheaper source of energy to meet the three OMVS countries’ energy needs\. The risks to project outcome have been evaluated as modest as Felou HEP is likely to serve the three countries’ energy needs well into the future (see para\. 85 below)\. Furthermore, there is still a significant hydro potential on the Senegal River (about 1200 MW of which only 260 have so far been developed) that has not been yet tapped that could be developed to supply OMVS/WAPP countries in the future\. 6 The ratings of procurement in ISRs up to sequence 9 of March 2011, were however consistently satisfactory\. This rating was downgraded to moderately satisfactory in sequence 10 of October 2011 because of the time taken to procure component 3 of the project (SCADA system, associated software and licenses)\. The project retained this rating until project closing because this component could not be acquired before December 31, 2014\. 19 57\. While addressing their energy needs through the pooling of their own resources, the OMVS countries are also looking further into the future to meet their energy needs through a wider power pooling and exchange of energy with other West African countries through the WAPP\. 58\. Transition operation and management arrangements are being put in place through an affiliate of SOGEM to manage the OMVS power system effectively\. The management of the system is likely to be enhanced once the SCADA system is acquired\. 59\. Sinohydro is currently acting as a temporary OMVS system operator7\. In July 2014, SOGEM created an affiliate (SEMAF) to take over the role of OMVS system operator for an initial period of four years at the end of Sinohydro’s contract at the end of October 2015\. SEMAF has started doing so for Manantali and some of its staff has been seconded to Felou to undergo training in the operation and management of hydro assets under the supervision of Sinohydro\. After an initial four-year period, a determination will be made whether to proceed with the recruitment of a private firm or continue with this or other arrangements\. 60\. The Bank support is critical in supporting OMVS, SOGEM and the WAPP in further developing economic exchange for electricity throughout the West Africa region and particularly through short and medium capacity building programs and investment in generation, transmission and distribution assets\. 3\. Assessment of Outcomes 3\.1 Relevance of Objectives, Design and Implementation (to current country and global priorities, and Bank assistance strategy) Rating: High 61\. Relevance of objectives: The project objectives and the activities supported by the Project were, and still are, highly relevant to the power sectors of Mali, Mauritania and Senegal and regionally, as more electric power becomes available, to the WAPP\. 62\. The development of the Felou HEPis in line with the Bank’s regional integration strategy in Africa which remains a critical piece of the Bank’s strategy to improve connectivity, leverage economies of scale, and enhance productivity\. Furthermore, better infrastructure is key to promote broader growth, including in manufacturing and services\. More abundant, reliable power is fundamental for competitiveness\. Too little electricity remains the most serious infrastructure obstacle\. Tapping Africa’s tremendous potential to generate its own power from hydro, geothermal, natural gas, and solar resources is a priority for African countries, including OMVS, and the World Bank Group\. 63\. The development of the Felou HEP also strategically complements country-specific IDA energy lending operations that are ongoing or planned in the OMVS countries of the Senegal River Basin to increase the power supply to meet the needs of industry, commerce 7 It has done so at SOGEM’s request, after EEM left\. 20 and households\. The Felou HEP is aligned with the FY14-15 Mali Interim Strategy Note on the preparation of the conditions for economic recovery\. The growth in domestic electricity demand resulted in Mali absorbing the entirety of its share (50%) of generation from the Manantali hydropower scheme\. To meet further growth in demand, the Government adopted a strategy combining more expensive short-term domestic thermal generation with longer term regional solutions that would result in lower generation costs, including the construction of an interconnection with Cote d’Ivoire, and development of Mali’s hydropower potential, estimated at about 1,000MW\. Of this potential, about 250MW has been developed so far at the Selingué and Sotuba dams on the Niger River, and the Manantali dam on the Senegal River\. Also on the Senegal River, the Félou hydro plant will add to the generation mix\. 64\. The project supports the two pillars of the Senegal FY13-17 Country Partnership Strategy of accelerating inclusive growth and creating employment and improving service delivery which focus on infrastructure investments in the energy sector to improve the availability of reasonably priced electricity and to reduce the sector’s dependence on costly thermal generation\. The high cost of energy coupled with unreliable supply (especially for electricity), is a key constraint to private sector growth and also contributes to undermining the fiscal framework\. The challenge for Senegal is to ensure a competitive supply of electricity in the industrial zones and agricultural areas that have the greatest potential\. Demand had increased by about 10% per year\. In 2010, power outages occurred 270 days out of 365, with the impact of these outages on economic growth as high as 1\.4 percentage points of GDP\. Senegal will need to diversify its energy mix, including by attracting private sector investments and improving sector governance\. Senegal’s heavy dependence on imported oil products for its energy supply has hurt its competitiveness, weakened its fiscal framework, and continues to severely undermine growth\. Investments in low cost hydropower projects and regional cooperation offer a solution to Senegal’s energy problem\. 65\. The project objectives are also aligned with the two pillars of the Mauritania Country Partnership Strategy FY14-16 of growth and diversification and, economic governance and service delivery through developing and expanding growth-supporting infrastructure, including transport, electric power production, and ICT\. 66\. Relevance of Design and Implementation: The project design was basically sound\. The project comprised three components; (i) a large design-build component whose main objective was the construction of the Felou HEP to meet the energy demand of the participating utilities; (ii) closely tied to the first component, engineering consulting services to supplement SOGEM’s capacity in the bidding process and construction supervision; and (iii) a component comprising the acquisition of information technology for the management of the OMVS power system\. The first two components were tied to the first project objective which was to increase the quantity of electricity made available to the participants\. The third component was logically tied to the second project objective which was to develop a nucleus of a well-functioning power pooling mechanism between OMVS countries\. The second objective had no PDO indicator until the additional financing and the link between this project objective and its PDO indicator was somewhat tenuous (see Section 2\.1 above)\. 21  67\. Improvements in design could have included: a clearer definition of the second PDO as well as its indicator with the benefit of hindsight, a more straight forward procurement process, although the team was acting on a lesson learned from the Manantali project; in pursuing the two-stage bidding process, a capacity building element to support SOGEM in its management of the project\. 3\.2 Achievement of the Project Development Objectives (including brief discussion of causal linkages between outputs and outcomes, with details on outputs in Annex 2) Rating: Substantial 68\. The PDOs, namely: (a) Augment the supply of low cost hydroelectricity from the OMVS Power System to the national power utilities of Mali, Mauritania, and Senegal; and (b) Develop a nucleus of a well-functioning, cooperative, power pooling mechanism for the WAPP Zone “B” OMVS Countries of West Africa, remained unchanged throughout the project’s life\. A split assessment (more below) is carried out because a PDO indicator was added at the time of the approval of the additional financing\. 69\. Achievement of the project objectives Actual Value Original Target Achieved at Indicator Revised Target % of target Completion Dec 2014 1\. Quantity of low 1143 GWh 1142 GWh 1121 GWh Achieved for all cost practical hydroelectricity that (EDM: 427 (EDM: 562 purposes OMVS power GWh – GWh – (98\.2%) System supplies to SENELEC: 385 SENELEC: 346 WAPP Zone B GWh – GWh – OMVS countries, SOMELEC: 331 SOMELEC: 213 disaggregated by GWh) GWh) national power utility 2\. Operating rules (*) in place on the basis Yes Yes Achieved of sound economic dispatch criteria (Yes/No) (*) No PDO key outcome indicator was attached to this PDO in the original project\. One was introduced with the additional financing\. 70\. The quantity of electricity generated in December 2014 was 1121 GWh (EDM: 562 GWh; SENELEC: 346 GWh; and SOMELEC: 213 GWh) or 98\.2% of the project target of 1142 GWh\. The target can be considered substantially achieved\. It is estimated that without the operational problems experienced at Manantali, the energy generated at Felou which is close to 300 GWh today would have reached 330 GWh, leading to a total 22 combined generation of Manantali and Felou close to 1151 GWh\. The breakdown of this composite target of 1121 GWh shows that the electricity off take by SENELEC and SOMELEC were lower than anticipated and lower that of EDM due to demand and supply conditions in each country\. Manantali and Felou provide the cheapest energy option (about US$ 0\.11 cents/kWh) knowing that the cost of electricity generation is very high as a result of the region’s high dependence on expensive oil-based thermal generation translating into high tariffs of US$0\.20-30 per kWh still not sufficient to cover the cost of supply\. 71\. About 96% of the project’s resources (excluding price contingencies and interest during construction) were devoted to the achievement of the first objective against only about 4% to the second objective of the project\. Taking into account the relative weights of the components of the project and the high achievement of the first objective (98\.1%) as well as its high significance to the immediate well-being of the populations of Mali, Senegal and Mauritania, the overall assessment of the achievement of the project development objectives is rated as Substantial\. 72\. Causal Chain: There was a clear and logical causal chain between all of the activities that the project was designed to carry out under components 1 and 2 and the expected attainment of the objective of supplying an increased quantity of low cost hydroelectricity that OMVS power System supplies to WAPP Zone B OMVS countries\. The logical causal chain between the activities under component 3 and the expected attainment of the objective to develop a nucleus of a well-functioning, cooperative, power pooling mechanism for the WAPP Zone “B” OMVS Countries of West Africa was also relatively clear to follow\. 73\. Outputs: A 60 MW capacity run-of- river hydroelectric plant at Felou (Mali) which was fully commissioned on April 30, 201 and consulting services\. 74\. Outcomes: Increased access of consumers of Mali, Senegal and Mauritania to reliable electricity at an affordable price and increased revenues from the sales of electricity for SOGEM\. The project will also lead to improvements in revenue and operating efficiency of EDM, SENELEC and SOMELEC through higher sales and fuel substitution of expensive diesel generation by hydro energy\. This will increase their ability to pay their bills to SOGEM\. 75\. With regard to the second project objective of creating a nucleus power pooling mechanism among OMVS countries, the key PDO level indicator on operating rules on the basis of sound economic dispatch was reached\. The rules that are put in place play a vital role in ensuring an effective dispatch of the energy produced to the three participating utilities\. The rules for allocation of electricity for Felou were agreed between the members were 45 percent dispatched to Mali, 30 percent to Mauritania and 25 percent to Senegal\. This allocation adjusted at times to optimize the economic benefits of the electricity dispatch, for instance in periods were the Manantali hydropower plan experienced operational problems\. The project also helped to build capacity to implement the operating rules of the jointly owned infrastructure managed by SOGEM more professionally\. The technical and economic management system will be further enhanced with the acquisition and installation of a SCADA system, which is expected to be acquired under a new OMVS project under preparation\. 23 76\. Overall assessment of the achievement of the PDOs\. The assessment of the overall achievement of the PDOs (efficacy) of the project follows the ICR guidelines (Appendix B) on the rating of the outcome of projects with formally revised objectives and/or outcome indicators\. Split Evaluation Against original Against Revised Overall Objectives Objectives 1\. Rating Moderately Satisfactory Satisfactory 2\. Rating Value 4 5 3\. Weight (% disbursed before/after Objective 1\.4% 98\.6% 100% change) 4\. Weighted Value (2 x 3) 0\.056 4\.93 4\.986 5\. Final Rating Satisfactory 77\. The split evaluation yields a Satisfactory rating on the achievement of PDOs, which equates to a Substantial rating 78\. At the closing date of December 31, 2014, eight out of 10 intermediate outcome indicators were achieved as follows: Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Indicator 1 : Commissioning and performance testing of Felou HEP completed on schedule Value (quantitative No Yes Yes Yes or Qualitative) Date achieved 06/29/2006 06/29/2006 08/27/2009 12/31/2014 Comments (incl\. % Commissioned on April 30, 2014\. achievement) Commercially sound (power exchanges) agreements put in place and adhered to Indicator 2: by OMVS Power System Operator Value (quantitative No Yes Dropped NA or Qualitative) Date achieved 06/29/2006 06/29/2006 08/27/2009 12/31/2014 Comments (incl\. % This indicator was dropped with the additional financing achievement) Indicator 3 : Generation Capacity of Hydropower constructed under the project Value (quantitative 0MW 60MW 60MW 60MW or Qualitative) 24 Date achieved 08/27/2009 06/29/2006 08/27/2009 12/31/2014 Comments This is a core indicator\. Generation capacity was constructed and commissioned (incl\. % in April 30, 2014\. achievement) Indicator 4 : Availability of the power generation units of Felou HEP Value (quantitative 0% 95% 95% 95% or Qualitative) Date achieved 06/29/2006 06/29/2006 08/27/2009 12/31/2014 Comments (incl\. % Target reached on April 30, 2014 achievement) Indicator 5 : Owner's engineer has been recruited Value (quantitative No NA Yes Yes or Qualitative) Date achieved 08/27/2009 06/29/2006 08/27/2009 12/31/2014 Comments Indicator added with additional financing\. Owner’s engineer recruited on (incl\. % November 04, 2009 achievement) Indicator 6 : Design-build contractor has been employed Value (quantitative No NA Yes Yes or Qualitative) Date achieved 08/27/2009 06/29/2006 08/27/2009 12/31/2014 Comments Indicator added during additional financing\. Design-build contract signed on (incl\. % May 18, 2009\. achievement) Adoption of Tariff Protocol for Felou HEP by the OMVS Power System Operator Indicator 7 : - EDM - SENELEC - SOMELEC Value (quantitative No NA Yes Yes or Qualitative) Date achieved 08/27/2009 06/29/2006 08/27/2009 12/31/2014 Comments Indicator added with additional financing\. The tariff protocol was signed on (incl\. % April 30, 2010 achievement) Power sector monitoring and evaluation data of the WAPP Zone B-OMVS Indicator 8 : Countries collected, analyzed and disseminated by the WAPP Value (quantitative 0% 100% 100% 100% or Qualitative) Date achieved 06/29/2006 06/29/2006 08/27/2009 12/31/2014 Comments WAPP is already collecting data on a regular basis, but an M&E system is yet to (incl\. % be completed\. 25 achievement) Database at the WAPP level is put in place and power sector M&E data of the Indicator 9 : WAPP Zone B OMVS Countries are developed Value (quantitative No NA Yes Yes or Qualitative) Date achieved 08/27/2009 06/29/2006 08/27/2009 12/31/2014 Comments (incl\. % WAPP is already collecting data on a regular basis, achievement) Indicator 10 : Communication and data acquisition facilities upgraded Value (quantitative No NA Yes No or Qualitative) Date achieved 08/27/2009 06/29/2006 08/27/2009 12/31/2014 Comments The SCADA system could not be acquired before the closing date of the (incl\. % project\. achievement) Indicator 11 : Necessary software licenses acquired Value (quantitative No NA Yes No or Qualitative) Date achieved 08/27/2009 06/29/2006 08/27/2009 12/31/2014 Comments The necessary software licenses could not be acquired before the closing (incl\. % date of the project\. achievement) 3\.3 Efficiency (Net Present Value/Economic Rate of Return, cost effectiveness, e\.g\., unit rate norms, least cost, and comparisons; and Financial Rate of Return) Rating: Modest 79\. An economic analysis has been undertaken for the project at completion\. The main quantifiable economic benefits of the project for the three countries are the increased supply of electricity evaluated at the assumed value of unserved energy of US$0\.14/kWh\. However, given that this value is a broad measure for the whole West Africa region per project preparation documents, a higher value (e\.g\., increased by 20%) was tested for the OMVS countries\. The economic costs are the total investment cost of the project disbursed (excluding price contingencies and interest during construction), the operation and maintenance (O&M) and transmission and distribution costs\. The investment costs include the construction of the plant, equipment and buildings\. The O&M costs mainly include repairs and other regular maintenance costs\. The delays are taken into account through the process of discounting\. The cost of delays is simply the difference between the net present value of the project without delays and the net present value of the project with delays)\. The table below summarizes the results of the economic analysis at completion\. 26  Economic Analysis for Félou (medium case hydrology scenario of 335 GWh) (in US$ Million, NPV at 10%) Mali Mauritania Senegal Global PV of Costs $72\.24 $48\.16 $40\.13 $160\.53 PV of Benefits $93\.73 $62\.49 $52\.07 $208\.30 Net Benefits $21\.49 $14\.33 $11\.94 $47\.76 IRR 15% 80\. Sensitivity Analysis: A sensitivity analysis was also carried out to quantify the impact of alternative assumptions on the Net Present Value (NPV) and the Internal Rate of Return (IRR) under the medium case scenario of hydroelectricity generation of 335 GWh/year\. The results are summarized below\. Medium case scenario NPV US$ Million IRR (%) Base case $47\.76 14\.74% 20% reduction in sales $7\.82 10\.84% 20% increase in value of unserved energy $89\.42 18\.42% 81\. This analysis shows that the results of the project are still positive in the base case but are very sensitive to a reduction in critical variables\. This includes the changes in sales due to, for example, poor hydrology, breakdown of one or both generating sets, incident on the transmission line, etc\.)\. An increase in the value of unserved energy by 20% would almost double the NPV\. 82\. The economics of the project deteriorated because of the cost overrun that necessitated the additional financing and the delayed stream of benefits because of the implementation issues already discussed (see Section 2 above)\. NPV IRR (%) (USD million) At appraisal 221 30 At Additional financing 62 14 At Completion 48 15 83\. Average Incremental Cost (AIC): The average incremental costs indicate the price which would recover the investment and operating and maintenance costs over the life of the project\. Since these costs are in constant terms, they would need to be adjusted periodically to take into account the effect of inflation and other real price changes\. The AIC for the average hydrology scenario is US$0\.11 US/kWh\. 3\.4 Justification of Overall Outcome Rating (combining relevance, achievement of PDOs, and efficiency) Rating: Moderately Satisfactory 27 84\. The project development objectives and design of the project have a high relevance in terms of increasing the supply of electricity to the OMVS system and to the three utilities’ power systems that were, and continue to be, subject to severe load shedding\. The overall achievement of the project objectives is rated as satisfactory\. The recalculated efficiency (NPV and IRR) in this ICR confirms the positive efficiency of the project, albeit lower than either the original or the additional financing because of the cost overrun and the delays in effectiveness and procurement\. The combination of the relevance of objectives and design, the achievement of the project development objectives and efficiency ratings, results in an overall outcome rating of Moderately Satisfactory\. 3\.5 Overarching Themes, Other Outcomes and Impacts (if any, where not previously covered or to amplify discussion above (a) Poverty Impacts, Gender Aspects, and Social Development 85\. The direct impact of the project on lower-income rural and urban population and other vulnerable groups was not explicitly taken into consideration at appraisal, and no poverty analysis was conducted at the preparation stage\. Gender issues were not addressed during the preparation stage nor was the gender impact monitored during the implementation of the project\. However, as a source of clean, renewable energy, the Felou HEP qualified for carbon emission reduction credits, the proceeds of which are earmarked for electrification of rural communities that reside along the transmission “right of way” of the OMVS Power System\. Furthermore, there are no adverse indirect and/or long-term impacts anticipated as a result of the project\. The main social development issue in the project area (Kayes, Bafoulabe) pertains to the negative impacts on fishing activities and acquisition of about 1\.25 ha of land planted with orchards and vegetable gardens for project facilities\. The RAP determined the adequate level of compensation for these losses and the compensation was effected\. The project also implemented additional social enhancement measures to benefit neighboring villages (Lontou, Bengassi) in the project zone of influence (e\.g\. water supply)\. (b) Institutional Change/Strengthening (particularly with reference to impacts on longer-term capacity and institutional development) 86\. The project’s institutional development impact, which is defined in ICR guidelines as the extent to which the project “has improved the agency’s or country’s ability to make effective use of its human and financial resources”, has been modest\. The institutional strengthening provided in this project by a technical assistance in two phases for preparation, issuance and evaluation of bids and works control and supervision (owners’ engineer)\. Given the limited scope of work of engineering consultants, this choice was sub-optimal recruitments of accountants, financial management, environmental and other specialists were made by SOGEM often late and at the insistence of the Bank\. (c) Other Unintended Outcomes and Impacts (positive or negative) 87\. Carbon offset: The project also offers a substantial global environmental benefit related to reduced greenhouse gas emissions: electricity delivered to the grid by the project 28 would have otherwise been generated by the operation of existing or new power plants that mainly use fossil fuels\. The Felou HEP was registered on May 6, 2010 as a Clean Development Mechanism (CDM) project activity according to the standards of the United Nations Framework Convention on Climate Change (UNFCCC)\. The project has the potential to generate 1,342,355 Certified Emission Reductions (CERs) for the first seven years of operation\. The Bank signed an Emission Reduction Purchase Agreement (ERPA) with SOGEM for the purchase 280,000 Certified Emissions Reductions (CERs) on June 29, 2007 under the Spanish Carbon Fund (SCF)\. The ERPA was later transferred to the Tranche 2 of the Umbrella Carbon Facility (UCF T2) on December 13, 2011\. On January 23, 2015, the ERPA was amended to: (i) capture the delay in the commissioning date, and (ii) to adjust the contracted CERs volume according to the amended commissioning date of the project on July 2, 2013\. The CER volume contracted under the UCF T2 was reduced from 734,300 CERs in the original ERPA to 701,665 CERs to be generated from July 2, 2013 to December 31, 2018\. Also, the project successfully completed the independent validation of its compliance report to the World Commission on Dams\. In June 2015, the Felou HEP was issued its first carbon credits of about 90,000 CERs and delivered them to UCF T2 as a result of the first successful verification, which covered 6 month period from July 2 to January 1, 2014\. This is the second issuance in West Africa (after Nigeria with cook stoves and gas flaring), and the first issuance for a hydro project in West Africa\. The proceeds are to be earmarked for electrification of rural communities that reside along the transmission “right of way” of the OMVS Power System\. The second verification is completed and the issuance of about 172,000 CERs for the second reporting period is expected by end of September 2015\. From the carbon finance point of view, the Felou HEP is demonstrating high performance and should be able to deliver more than the contracted CERs according to the agreed schedule, if SOGEM maintains the current monitoring best practices\. The registration of the Felou HEP as a CDM activity also provides a substantial demonstration effect, leading to more development of renewable energy-based projects and reduced greenhouse gas (GHG) emissions from the region\. More details about the carbon offset are provided in Annex 9\. 3\.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops (optional for Core ICR, required for ILI, details in annexes) 4\. Assessment of Risk to Development Outcome Rating: Moderate 88\. The Felou HEP is expected to serve the energy needs of Mali, Senegal and Mauritania in years to come\. There is a modest likelihood that some changes, detrimental to the project’s main development outcome may occur due to: (i) Technical: (a) poor hydrology; (b) lack of proper maintenance of Manantali and Felou HEP installations; and/or (ii) Institutional and Financial: The situation improved significantly in recent years\. The three participating utilities of Mali, Senegal and Mauritania paid their bills to SOGEM regularly even though they themselves are constrained by the tariffs allowed nationally by their respective governments and regulatory authorities\. 29 5\. Assessment of Bank and Borrower Performance (relating to design, implementation and outcome issues) 5\.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry (i\.e\., performance through lending phase) Rating: Moderately Satisfactory 89\. This ICR assesses the Bank’s performance during identification, preparation, and appraisal of the project as Moderately Satisfactory\. 90\. The Bank took into account the adequacy of project design and all major relevant aspects, such as technical, environmental, financial and economic\. Less attention was given to the institutional, procurement and financial management aspects\. A number of alternatives were considered for the project design and the Bank made use of the transfer of experience from similar projects such as the Manantali project\. 91\. The composition and balance of the Bank team at appraisal was adequate\. It consisted of four core sector specialists, including a hydropower specialist and six fiduciary and safeguards members, including a senior environmental specialist\. However, frequent changes of task managers (about one task manager every 14 months on average,) may have been disruptive to dialogue with the implementing agency\. The period for the original project preparation was adequate (four months between the concept review and appraisal)\. Strategic choices were made appropriately at the design and preparation stage including: (i) the focus on two objectives and a few components; and (ii) combining specialized technical assistance and physical investments\. This focus was kept unchanged with the additional financing of the project\. 92\. Some of the potential risks were correctly identified\. Some potential risks were not identified such as hydrology (see Section 2)\. The risk, posed to SOGEM’s financial situation by the non-regular payment of bills by EDM, SENELEC and SOMELEC was not formally identified in the project documentation\. Nonetheless, the three utilities were required, as condition of effectiveness, to open an escrow account to guarantee the payment of their bills to SOGEM\. Eventually, this measure proved ineffective and the level of arrears remained high\. The Bank also drew attention of the authorities about the negative consequences on SOGEM‘s financial situation of postponing promised tariff adjustments\. Furthermore, there were capacity issues such as SOGEM’s financial management, environmental and procurement capacity that were not adequately addressed which led to implementation delays\. The original project readiness for implementation could therefore have been improved through early preparation of bidding documents and the implementation of capacity building measures\. The lack of such measures was one of the major contributing factors in the slow implementation of component 1 and the non- implementation of component 3 of the project (see Section 2)\. 93\. Overall, the project design was basically sound in terms of the focus on two objectives and the choice of limited number of components, the time for preparation was adequate and the preparation team was adequately staffed\. The project cost was underestimated, though unforeseen factors came into play and thus necessitated additional 30 financing\. The project was extended from June 30, 2010 to December 31, 2014 after two extensions of the closing date\. There was no quality at entry review\. 94\. Quality at entry, as a whole, is therefore rated as Moderately Satisfactory\. (b) Quality of Supervision (including of fiduciary and safeguards policies) Rating: Moderately Satisfactory 95\. The quality of project supervision carried out by the Bank is rated Moderately Satisfactory\. 96\. The Bank allocated sufficient budget and staff resources, and the project was adequately supervised, except in the early first two years of project implementation\. The quality of supervision reporting in these first two years was poor (e\.g\., lack of aide memoires and limited information in ISRs\. The quality of supervision reporting improved markedly in later years and the team's proactive supervision in later years allowed a quick re-launch and award of bids after allegations of fraudulent and corrupt practices\. The intervention of the Bank was appropriate, well-coordinated, and satisfactory 8 with its insistence on compliance with financial, environmental and social safeguards as well as the management of the OMVS power system such as the continuity or choice of another OMVS System Operator\. The team also had the support of management and the comments on ISRs were very supportive\. The Bank's financial management and procurement staff worked closely with the SOGEM staff to explain the rules and procedures to be applied during project implementation, with regard to procurement of goods and works, and selection of consultants, as well as audit requirements, based on the financing agreements\. The financial management aspects of the project were carefully reviewed, and specific recommendations to strengthen the financial management system were made\. Shortcomings in accounting software were also identified and recommendations made to address them\. Environmental and social specialists were most often associated to supervision missions to monitor the quality of environmental and social compliance\. The Bank also provided guidance and oversight in the preparation of the operational manual for SOGEM, the final version of which was completed in July 2010\. The last ISR archived on December 24, 2014 rated the performance of the project achievement of development objectives and overall implementation progress as moderately satisfactory\. 97\. Based on the above the ICR rates the project’s quality of supervision as Moderately Satisfactory\. (c) Justification of Rating for Overall Bank Performance Rating: Moderately Satisfactory 8 The supervision mission scheduled for May 26-30, 2014 was cancelled because of the coup d’etat in Mali\. The meetings were therefore held through video conference and the Bank conducted a follow-up field mission in August 2014 to monitor project implementation progress, and exchange on the operation and maintenance of the plants and the repair of the Manantali HEP that broke down in April 2013\. 31 98\. The rating of overall Bank performance is Moderately Satisfactory, being moderately satisfactory at entry and moderately satisfactory during supervision with the rating on overall outcome as moderately satisfactory\. 5\.2 Borrower Performance (a) Government Performance Rating: Moderately Satisfactory 99\. The Governments of Mali, Senegal and Mauritania’s performance is assessed as Moderately Satisfactory\. The commitment to the ownership of the project and to the achievement of the project’s development objectives, as discussed in Section 2\.1, was strong at the time of project preparation and appraisal, and remained largely supportive during implementation, except when it came to tariff adjustments\. The Governments did not have a direct implication in the implementation of the project but had power to decide on the financing of capital investments, tariff adjustments and implementation arrangements\. For example, in July 2008, they designated SOGEM as the sole implementing agency while the implementation was earlier shared between OMVS for component 2 and SOGEM for components 1 and 3 of the project\. The three Governments also pushed for the settlement of arrears to SOGEM by their respective national utilities as well as accepting, with delay, a tariff increase\. (b) Implementing Agency or Agencies Performance Rating: Moderately Satisfactory 100\. Implementing agency performance is rated Moderately Satisfactory for: First, the implementing agency/agencies were pro-active in very difficult circumstances (war and civil disturbances) that made it an out-of-norm endeavor\. There was, to be sure, Bank prodding on many issues related to project management: staffing, procurement, financial management, submission of audit reports and, reporting on environmental and social safeguards\. This is normal in the process of project implementation and Bank advice was always taken into account and accommodated by the implementing agency\. Second, there was stellar implementation of the environmental and social safeguards\. Third, the dedication of SOGEM’s Project Implementation Unit (PIU) staff and its manager in dealing with implementation challenges (many of which are described above), including in the procurement of the relatively large number of goods, works (through a complex two- stage bidding process), and consultancy services and the implementation of the relevant infrastructure\. (c) Justification of Rating for Overall Borrower Performance Rating: Moderately Satisfactory\. 101\. The rating of overall Borrower performance is Moderately Satisfactory, being moderately satisfactory for Governments’ performance and moderately satisfactory for the implementing agency’s performance with the rating on overall outcome as moderately satisfactory\. 32 Lessons Learned (both project-specific and of wide general application) 102\. Capacity building: Although there is more to be done and additional capacity building measures could have been incorporated into the project, SOGEM has gained experience and know-how from the implementation of the Felou HEP, including interactions with large contractors, consultants and donors\. The closing of the Felou project offers an opportunity to: (i) develop a sustainable operation and maintenance of the OMVS power system; (ii) focus on the safety of dams and the reliability of transmission lines (in coordination with needed reinforcements of national distribution systems); (iii) devote some thinking into finding and designing a mechanism to ensure the regular payment of bills by national utilities to ensure the sustainability and expansion of OMVS facilities; and (iv) review in depth the capacity of SOGEM to undertake large investments and develop enhancements in various areas (procurement, project management, accounting and financial management, environmental compliance, etc\.) through reorganization, staffing and training\. 103\. Require bidding documents to be ready before Board presentation: Especially those of major components (e\.g\., component 1) of large projects and/or those requiring a two-stage bidding process\. The highlight of the Felou project implementation is the inordinate amount of time taken on a two-stage bidding process to contract the design-build contractor and the economic losses incurred as a consequence\. Requiring bidding documents to be ready before Board presentation is a step towards addressing this type of problems, especially when large projects are involved; 104\. Address the buildup of accounts receivable: To resolve the recurrent problem of significant buildup of accounts receivable, grant real (i\.e\. credible) autonomy to OMVS System Operator to cut supplies for non-payment of bills and some leeway in tariff adjustment under a regulatory arrangement to be defined\. Another possible and perhaps more sustainable solution would be a partial credit guarantee(s) by the three governments of Mali, Senegal and Mauritania to the OMVS System Operator\. This (these) guarantee(s) would be called in case of non-payment by EDM, SENELEC or SOMELEC\. The existing state of play is a threat to the development of OMVS and its three participating utilities but also to the future of the WAPP\. This regional electric power arrangement cannot develop into a market unless the electricity sellers have some assurance that they will be paid; 105\. Plan ahead for the system operator set-up: Hydro projects are relatively cheap to operate, but the consequences of flawed operation or maintenance can be extremely severe (safety issues, loss of production, heavy rehabilitation costs even for relatively recent projects, etc\.)\. Those in charge of O&M must have a strong interest in ensuring the flawless and sustainable capacity of the project to deliver the services and revenues which were expected at the investment stage\. The overwhelming pattern which can be observed worldwide is the one by which the owner of the hydro project also assumes O&M responsibility, possibly with the temporary or permanent assistance of experienced specialists\. Most attempts to have the O&M responsibility borne by a separate (often foreign) firm which has no long term interest in the project’s performance in term of reliability, safety, durability, etc\. have not been fully satisfying as the Manantali experience has shown\. 33 106\. In the case of Manantali, the creation of SEMAF is currently considered as a temporary arrangement, merely meant to solve the immediate problem of ensuring the continuing operation of the plant despite Eskom’s departure, with a view of recruiting another independent operator as soon as possible through competitive bidding\. There could be some merit in analyzing the pros and cons of a reverse proposal, considering that the independent operator was a temporary approach for the first few years of operation, and that the creation of the subsidiary would in fact be a first step towards a possibly more sustainable solution, more consistent with the standard practice, by which the owner retains O&M responsibility either directly or through a subsidiary\. This option would obviously require providing a strong technical and organizational support to this entity for some years, with the main objective of increasing the company’s own capacity to eventually be able to operate largely in an autonomous manner\. There would be a key role for the Bank and other international financial institutions in providing such support\. 107\. The EEM experience also points out to the necessity of: (a) a trained and competent staff to negotiate/interact with the independent operator; (b) well financed reserves to undertake the O&M, including heavy maintenance and to mitigate the effects of a poor hydrology; (c) a careful drafting of the bidding documents and contract of the System Operator, whether public or private; and (d) a periodic audit of the System Operator, including a technical and financial audit\. 108\. If covenants are imposed, ensure the implementing agency has direct control, over them\. Two financial covenants were imposed on SOGEM requiring it to maintain a level of accounts receivable of less than 90 days and to have net revenues to be at least 1\.2 times the estimated maximum debt service requirements\. It was not in the power of SOGEM to have the level of revenues necessary to meet these covenants\. Those who could have made the fulfillment of these covenants possible were the three national utilities (by paying their bills regularly) and their respective governments/regulatory agencies (by authorizing tariff adjustments when justified)\. In the case of SOGEM, the two financial covenants that were imposed were not credible and the lack of compliance with at least one of them and the cyclical compliance with the other were not unexpected\. 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies 109\. On July 7, 2015, SOGEM provided the Bank with its own evaluation of the implementation of the Felou HEP9\. A summary of this evaluation is given in Annex 7\. Its main conclusions are the following: ï‚ The works were carried out to the satisfaction of all project actors; ï‚ All performance indicators have been met; 9  SOGEM : Elément du rapport d’Achèvement du Projet élaboré par l’IDA – Bamako, 7 juillet 2015 34 ï‚ All performance tests were judged satisfactory by the consulting engineer and the operational acceptance was pronounced on April 30, 2014; ï‚ The supporting and mitigation measures to the negative impacts of the project have been put in place in line with the recommendations of the ESMP and the RAP\. The regular follow up by the World Bank has contributed to the achievement of this result\. ï‚ Following the environmental and social management audit which took into account the observations/comments of the World Bank, the Malian Ministry in charge of the Environment has indicated to SOGEM its agreement with the findings; ï‚ Since the power generation began, the rate of availability of the generators is more than 98% and the energy produced as of June 30, 2015 is 600 GWh; ï‚ The closing of IDA on December 31, has put a stop to the procurement process of Component 3\. SOGEM has considered putting this component in the new project now being prepared\. ï‚ Finally, the project has been implemented within the limits of the available financing\. (b) Cofinanciers 110\. The EIB commented on this ICR as follows\. (see also Annex 8) “…\.We agree on the content of the report and share its conclusions, especially with regard to the assessment and the weaknesses of SOGEM and the lessons learned section\. However, if you allow us, the following two items could be taken in consideration for the final version of the Completion report: - The Sinohydro underestimation of highest floods /size of diversions/coffer dams (that resulted into twice flooding of the construction site) - The Claim/acceptance/defect situation between Sinohydro and SOGEM would be useful to explain more in detail in the PCR, especially as Sinohydro remains under contract with SOGEM for the time being” \. 111\. WB comment: In accordance with the Bank’s decision, a partial amount of the claims were cleared\. Since the project is now closed, the balance will be borne by SOGEM\. (c) Other partners and stakeholders (e\.g\. NGOs/private sector/civil society) 35  Annex 1\. Project Costs and Financing (a) Project Cost by Component (in USD Million equivalent) Appraisal Revised at Actual/Latest Estimate Additional Estimate Percentage of Components (USD Financing (USD Appraisal millions) (USD million) millions) Design-Build Contract 100\.00 176\.29 169\.07 169% SCADA/EMS & Communications 7\.5 7\.79 0\.62 8% Equipment and Software Project Cycle Management – Phase 1 0\.5 1\.91 10\.27 354% Project Cycle Management – Phase 2 2\.4 6\.65 Pre-investment activities 1\.1 1\.14 0\.648 59% Environment and Resettlement Action 1\.0 1\.04 (*) Plan Project Management Support SOGEM - 2\.89 2\.89 Total Baseline Cost 112\.5 197\.70 183\.50 163% Physical Contingencies 1\.3 1\.32 (*) Price Contingencies 6\.3 23\.16 (**) Total Project Costs 120\.10 222\.18 183\.50 153% Interest During Construction 4\.90 19\.13 17\.75 362% Total Financing 125\.00 241\.31 201\.26 161% (*) Included in the Design-Build Contract (**) Included in the Design-Build Contract and the Project Cycle Management Contract (b) Financing Appraisal Revised at Actual/Latest Type of Estimate Add\. Estimate Percentage of Source of Funds Cofinancin (USD Financing (USD Appraisal g millions) (USD million) millions) SOGEM Joint 10 36\.76 25\.45 255 EC: European Investment Parallel 40 44\.55 26\.13(*) 65 Bank International Development Association 75\.00 160 149\.68 200 (IDA) Total 125\.00 241\.31 201\.26 161 (*) The total amount disbursed by EIB on their three loans of 11 million Euros each to the three OMVS countries was 23,331,000 Euros as at December 31, 2014\. The exchange rate used to convert Euros into USD is 1\.12 USD to the Euro\. 36  Annex 2\. Outputs by Component Component 1: Design-Build-Operate-Transfer (DBOT) of the OMVS Félou HEP (Component 1 is a turnkey contract) 1\. Site preparation 2\. Civil works a\. Felou substation b\. 225 kV transmisison line Felou-Kayes c\. Kayes substation d\. Access roads e\. Head works (Headwater structure) f\. Power station g\. Release channel h\. Steel i\. casings j\. Rehabilitation of the existing weir k\. Water supply channel l\. Temporary derivation channel cofferdam 3\. Studies and services 4\. Electro-mechanical (3 x 21 MW generating sets) a\. Turbine alternators G1, G2 and G3 b\. Speed regulators G1, G2 and G3 c\. Voltage regulators G1, G2 and G3 5\. Equipment assembly 6\. Mechanical auxiliaries a\. Heavy lifting equipment b\. Industrial and potable water supply production and distribution sytem c\. Engine oil treatment equipment d\. Workshop’s electrical and mechanical equipment e\. Sewerage treatment system f\. Instrumentation g\. Air conditioning system h\. Fire protection system 7\. Electrical equipment and materials a\. Material medium voltage b\. Alternative current auxiliaries c\. Direct current auxiliaries d\. Emergency generation e\. Lighting f\. Alarm systems and fire detection g\. Telecommunication equipment 37  h\. Generators’ control system (first rank) i\. Generators’ control system (second rank), including data transmission network j\. Protection systems k\. Grounding equipment l\. Cables and installation\. 8\. Interconnection with the OMVS transmission system, a\. Transformers G1, G2 and G3 b\. A 225 kV substation t Felou (with the possibility of connecting the future Gouina project) c\. Equipment for energy metering, protection and control of the Felou substation d\. Equipment for the Kayes 225 kV substation and extension (instruments, pylons, isolators, conductors and cables) e\. Equipment for the extension for the Kayes substation 9\. Environmental and social mitigation 10\. Assistance to operation and maintenance during the guarantee period 11\. Spare parts Component 2: Consulting Services – Project Cycle Management\. Experienced engineering consulting firms provided comprehensive project cycle management support to oversee the design, construction and commissioning of the hydroelectric plant at Felou through a two-stage sequential contracting arrangement, as follows: a\. Phase 1 ("Transaction Adviser")\. A consulting firm to provided transaction advice and support to: (a) carry out detailed planning and scheduling of project implementation arrangements, including pre- qualification of bidders, (b) prepare and issue bidding documents for the selection of an independent contractor, (c) prepare a comprehensive set of power supply agreements for use by the OMVS Power System Operator, and (d) conduct the two-stage bidding process, evaluate bids and make recommendation for the award of the design-build contract; and b\. Phase 2 ("Owner's Engineer")\. An experienced consulting engineering firm was recruited to oversee the day-to-day performance of the design- build contractor until the fully operational Felou hydroelectric plant was handed over to the OMVS Power System Operator; and 38 Component 3: Capacity Building Support (Comité Technique Permanent de l’Interconnexion – OMVS Power System)\. (*) a\. Consultant (drafting terms of reference, preparing bid documents and assisting in the evaluation); b\. Supply of SCADA/EMS and associated communication equipment; c\. Software for hydro-thermal optimization; d\. Transportation and installation on site; e\. Testing and operational conformity; and f\. Training\. (*) This component was not implemented\. 39  Annex 3\. Economic and Financial Analysis 1\. At appraisal in 2006, a benefit-cost analysis (BCA) was carried out to assess the economic viability of the Felou hydroelectric project\. In 2009, a new BCA was carried out with the additional financing\. At completion, the economic efficiency is assessed again\. 2\. To ensure comparability with the appraisal and additional financing estimates, the economic analysis at project completion adopted the same methodology, and in some cases, the same unit valuations, such as those for the value of unserved energy (USD0\.14/kWh and USD0\.12/kWh for the original project and the additional financing respectively) and the average sales out of the Felou hydroelectric project (HEP)\. 3\. However, due to the long project implementation period expanding almost a decade, the benefit streams were delayed by about four years\. The main project benefit, the electricity generated at Felou, will be shared between the shareholder countries of Mali, Mauritania and Senegal\. In the context of the economic analysis, the rules for allocation of electricity for Felou will be as agreed between the members, i\.e\. Mali: 45%, Mauritania: 30% and Senegal: 25%\. 4\. The investment costs include the construction of the machinery and equipment, buildings, and land purchase\. The O&M costs include mainly repair and maintenance costs\. Transmission and distribution have also been included\. 5\. At appraisal, a cost-benefit analysis was undertaken to ascertain the economic justification of the Felou HEP\. Costs included the capital and operating costs of the Felou HEP\. As the analysis was presented into a condensed form, it is not at all clear if transmission and distribution costs were taken into account\. Benefits included mainly the sale of energy\. At appraisal, the reduced CO2 emissions and carbon revenues were also estimated\. However, these revenues were a minor benefit in the economic justification and were not taken into account in the economic analysis of the additional financing\. They are not also taken into account at completion though they are described in detail in this report\. Benefits are valued at the value of unserved energy in the ECOWAS region of USD 0\.14 used as a proxy for customer willingness to pay for incremental electricity supply\. The economic rate of return as estimated at the time of appraisal was 30% and the NPV was estimated at about USD 221 million\. This is in sharp contrast to the economic values found at additional financing and at completion stages\. The cost of the project has, of course, increased with the additional financing and benefits were delayed\. The project is still economically justified with a largely positive NPV and an economic rate of return higher that the assumed discount rate of 10%\. The cost of the delays is given by the difference between the NPV without delays and the NPV of the project with delays\. NPV IRR (%) (USD million) At appraisal 221 30 At Additional financing 62 14 At Completion 48 15 6\. However, the sensitivity analysis whose results are shown below shows that these positive results are very vulnerable to a reduction in sales (due for example to a poor 40 hydrology or an incident at the plant that would prevent it from delivering the assumed quantity of energy) and to the assumed value of unserved energy\. Distribution at Closing Mali Mauritana Senegall Total PV Total Costs $72\.24 $48\.16 $40\.13 $160\.53 PV Total Benefits $93\.73 $62\.49 $52\.07 $208\.30 PV Net Benefits $21\.49 $14\.33 $11\.94 $47\.76 Sensitivity Results Medium case scenario NPV US$Million IRR (%) Base case $47\.76 14\.74% 10% increase in capital costs $31\.71 12\.94% 20% reduction in sales $7\.82 10\.84% 20% increase in value of unserved energy $89\.42 18\.42% 20% decrease in value of unserved energy $6\.11 10\.65% 7\. Average Incremental Cost (AIC): The average incremental costs indicate the price which would recover the investment and operating and maintenance costs over the life of the project\. Since these costs are in constant terms, they would need to be adjusted periodically to take into account the effect of inflation and other real price changes\. The AIC for the average hydrology scenario is 0\.11 US$/kWh\. 41 42  Annex 4\. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Responsibility/ Names Title Unit Specialty Lending Amarquaye Armar Lead Energy Specialist EWDEN Task Team Leader Senior Water Resources Ousmane Dione AFTU2 Management Specialist Fanny Missfeldt-Ringius Energy Economist AFTEG Robert Robelus Senior Environmental Specialist AFTS1 Sidi Mohammed Boubacar Senior Counsel LEGAF Senior Monitoring and Evaluation Mohammed Khatouri AFTKL Specialist Renee Desclaux Finance Officer LOAG2 Senior Social Development Yvette Djachechi AFTS3 Specialist Aissata Zerbo Procurement Analyst AFTU2 Senior Financial Management Nestor Coffi AFTFM Specialist Senior Financial Management Fily Sissoko AFTFM Specialist Ramon Lopez-Rivera Consultant – Power Engineer AFTEG Federico Ciampitti Consultant – Hydropower Specialist AFTEG R\. Gopalkrishnan Consultant – Procurement Specialist EAPCO Margaret Wilson Consultant – Financial Economist AFTEG Marie-Adele Tchakounte- Senior Program Assistant Sitchet Rita Ahiboh Program Assistant AFTEG Supervision/ICR Bernard Abeille Consultant GGODR Rita Ahiboh Senior Program Assistant GEEDR Salamata Bal Senior Social Development Spec GSURR Federico Ciampitti HQ Consultant ST GWADR Issa Diaw Senior Power Engineer GEEDR Ousmane Dione Practice Manager GWADR Philippe J-P\. Durand Consultant GEEDR Rahmoune Essalhi Procurement Assistant GGODR Senior Financial Management Maimouna Mbow Fam GGODR Specialist Stephan Claude Frederic Lead Specialist GEEDR Garnier Julie Godin Carbon Finance Specialist GCCCF Fatouma Toure Ibrahima Senior Program Officer GCPPP Wane 43  AFTG1 Tjaarda Storm van Leeuwen Adviser HIS AFTG1 - Helena Mamle Kofi Procurement Analyst HIS Ramon Lopez-Rivera Consultant GEEDR AFTG1 - Peggy Mischke Energy Specialist HIS Robert A\. Robelus Consultant GENDR Osval Rocha Andrade AFTMW Financial Management Specialist Romao - HIS Seynabou Thiaw Seye Program Assistant AFCF1 Thanh Lu Ha Sr\. Program Assistant GEEDR (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) USD Thousands Stage of Project Cycle No\. of staff weeks (including travel and consultant costs) Lending FY06 24\.15 189\.62 FY07 7\.67 23\.14 FY08 0\.77 2\.32 Total: 32\.59 215\.08 Supervision/ICR FY06 0\.00 0\.00 FY07 9\.42 74\.38 FY08 8\.17 76\.51 FY09 11\.28 108\.71 FY10 15\.07 95\.16 FY11 17\.60 97\.88 FY12 14\.51 90\.87 FY13 13\.38 90\.44 FY14 25\.28 157\.69 FY15 16\.89 115\.23 Total: 131\.60 832\.49 44 Annex 5\. Beneficiary Survey Results (if any) 45 Annex 6\. Stakeholder Workshop Report and Results (if any) 46  Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR 1\. On July 7, 2015, SOGEM provided the Bank with its own evaluation of the implementation of the Felou hydroelectric project (HEP)10\. A summary of which is given below: 2\. The report provides some important dates in the life of the project and describes the status of implementation of components 1 and 3, the environmental and social management plan, carbon offset component, the beefed up security around the Felou installations, the operation of the power plant and the financial claims of the Design Build contractor\. It also describes a number of difficulties encountered during implementation\. 3\. Its main conclusions are the following: - The works were carried out to the satisfaction of all project actors; - All performance indicators have been met; - All performance tests were judged satisfactory by the consulting engineer and the operational acceptance was pronounced on April 30, 2014; - The supporting and mitigation measures to the negative impacts of the project have been put in place in line with the recommendations of the ESMP and the RAP\. The regular follow up by the World Bank has contributed to the achievement of this result; - Following the environmental and social management audit which took into account the observations/comments of the World Bank, the Malian Ministry in charge of the Environment has indicated to SOGEM its agreement with the findings; - Since the power generation began, the rate of availability of the generators is more than 98% and the energy produced as of June 30, 2015 is 600 GWh; - The closing of IDA on December 31, has put a stop to the procurement process of Component 3\. SOGEM has considered putting this component in the new project now being prepared; and - Finally, the project has been implemented within the limits of the available financing\. 10 SOGEM : ELEMENT DU RAPPORT D’ACHEVEMENT DU PROJET ELABORE PAR L’IDA – Bamako, 7 juillet 2015 47  Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders 4\. The European Investment Bank (EIB) commented on this ICR as follows: (*) 5\. “As requested you will find below our comments on the Implementation Completion and results report for the Felou Hydroelectric project\. 6\. We agree on the content of the report and share its conclusions, especially with regard to the assessment and the weaknesses of SOGEM and the lessons learned section\. However, if you allow us, the following two items could be taken in consideration for the final version of the Completion report: - The Sinohydro underestimation of highest floods /size of diversions/coffer dams (that resulted into twice flooding of the construction site); and - The Claim/acceptance/defect situation between Sinohydro and SOGEM would be useful to explain more in detail in the PCR, especially as Sinohydro remains under contract with SOGEM for the time being” (*) EIB’s Email of August 3, 2015 48 Annex 9\. OMVS Felou Hydroelectric Carbon Finance Project (P099312) Implementation Completion and Results Report Document of The World Bank IMPLEMENTATION COMPLETION AND RESULTS REPORT ON A PURCHASE OF EMISSION REDUCTIONS TO SOCIÉTÉ DE GESTION DE L’ENERGIE DE MANANTALI (SOGEM) FOR THE OMVS FELOU HYDROELECTRIC PROJECT 49  IMPLEMENTATION COMPLETION AND RESULTS REPORT CONTENTS 1\. DATA SHEET \.52 A\. Basic Information \.52 B\. Key Dates \.52 C\. Ratings Summary \.52 D\. Sector and Theme Codes \.52 E\. Bank Staff\.53 F\. ERPA payments and emission reductions (ERs) delivery to date \.53 G\. Supervision of Carbon Finance Operations Guidelines \.53 2\. ACHIEVEMENT OF IMPLEMENTATION OBJECTIVES AND OUTCOMES \.54 3\. BANK AND PROJECT ENTITY PERFORMANCE \.55 5\. COMMENTS FROM PROJECT ENTITY AND OTHER PARTNERS \.56 6\. SAFEGUARDS COMPLIANCE \.56 7\. LESSONS LEARNED\.57 8\. JUSTIFICATION FOR MOVING TO THE SECOND PHASE (CARBON FINANCE MONITORING PHASE) AND SAFEGUARDS COMPLIANCE\.57 50  Acronyms UCF T2 Tranche 2 of Umbrella Carbon Facility CDM Clean Development Mechanism CERs Certified Emission Reductions GCCCF Climate and Carbon Finance Unit of the Climate Change Group DOE Designated Operational Entity ER Emission Reduction ERPA Emission Reduction Purchase Agreement GHG Greenhouse Gases GWh Gigawatt hour ICR Implementation Completion and Results Report SOGEM Société de Gestion de l’Energie de Manantali MW Megawatt PAD Project Appraisal Document PDD Project Design Document PDO Project Development Objective PE Project Entity tCO2e Tons of carbon dioxide equivalent UNFCCC United Nation Framework Convention on Climate Change OMVS Oragnisation pour la Mise en Œuvre du Fleuve Sénégal SCF Spanish Carbon Fund 51  IMPLEMENTATION COMPLETION REPORT (ICR) OMVS Felou Hydroelectric Project (P099312) 1\. DATA SHEET A\. Basic Information Country: Mali Project Name: OMVS Felou Hydroelectric Project Project ID: P099312 (Parent project is P094916) ICR Date: September 1, 2015 Emission Reduction Purchase Agreement volume in Certified Emission Reductions Tranche 2 of the Umbrella Carbon Facility (UCFT2) CERs 701,665 Bank/IFC lending or grant (in loan/grant currency): XDR 105\.5 million Environmental Category: A Project entity: Société de Gestion de l’Energie de Manantali Co-financiers and Other External Partners: European Investment Bank (EIB) ICR prepared by: Affouda Leon Biaou/Fatouma Toure Ibrahima/ Nash Fiifi Eyison Approved by CD: Indira Konjhodzic Approved by PM: Meike van Ginneken B\. Key Dates ERPA signing date First ERPA signing date (SCF): June 29, 2007 Second ERPA signing date (UCF T2): December 13, 2011 January 23, 2015 ERPA amendment date ERPA effectiveness date June 29, 2007 ERPA termination date December 31, 2019 C\. Ratings Summary Progress towards achievement of PDO Moderately Satisfactory Overall Implementation Progress Moderately Satisfactory Overall Safeguards Rating Moderately Satisfactory D\. Sector and Theme Codes Sector Codes (in %) Renewable Energy 100% Theme Codes (in %) Climate Change 100% 52 E\. Bank Staff Position At ICR At ERPA Signing Practice Manager Meike van Ginneken Subramaniam V\. Iyer Task Team Leader Fatouma Toure Ibrahima Wane Amarquaye Armar Deal Manager Affouda Leon Biaou Bertand Loiseau F\. ERPA payments and emission reductions (ERs) delivery to date # Payment Payment Type Monitoring Period CERs Value Date Currency Delivered 1 ER Payment 2/07/2013 – 90,237 12/06/2015 EUR 31/12/2013 G\. Supervision of Carbon Finance Operations Guidelines According to the Bank Guidelines (Office Memorandum, December 1, 2011) oversight (supervision and monitoring) of Carbon Finance operations is conducted in two phases: (a) the implementation phase, from effectiveness of the ERPA to project completion; and (b) the monitoring phase, from project completion to termination of the ERPA\. Between these phases, oversight responsibility is transferred from the Region to GCCCF\. Since the Project is fully operational and capable of generating emission reductions, the present ICR summarizes the achievements of this project, and issues and lessons learned, in order to transfer it to GCCCF for the monitoring phase\. 53 2\. ACHIEVEMENT OF IMPLEMENTATION OBJECTIVES AND OUTCOMES 2\.1 Basic project description and summary of any significant changes since Emission Reduction Purchase Agreement (ERPA) signature 2\.1\.1 The OMVS Felou Hydroelectric Project reduces greenhouse gas emission through the supply of clean energy which displaces fossil-fuel based electricity generation to the interconnected grid in the sub-region including Mali, Mauritania and Senegal\. Total installed capacity of the project is 63\.45 MW consisting of 3 Bulb-type turbines, with a predicted gross power generation of 333\.5 GWh per annum\. 2\.1\.2 Sponsored by the governments of Mali, Mauritania, and Senegal, acting through the High Commission of the Organisation pour la Mise en Valeur du Fleuve Sénégal (OMVS), the project was developed and overseen by the Société de Gestion de l’Energie de Manantali (SOGEM)\. The operation of the project was contractually delegated to a grid operator\. 2\.1\.3 The Félou hydroelectric project was designed in 2006 to alleviate power supply deficits in WAPP Zone “B” OMVS countries (Mali, Mauritania and Senegal) by augmenting the supply of low cost hydroelectricity\. The project has the potential to generate 1,342,355 Certified Emission Reductions (CERs) for the first seven years of operation\. The Bank signed an Emission Reduction Purchase Agreement (ERPA) with SOGEM for the purchase 280,000 Certified Emissions Reductions (CERs) on June 29, 2007 under the Spanish Carbon Fund (SCF)\. The ERPA was later transferred to the Tranche 2 of the Umbrella Carbon Facility (UCF T2) on December 13, 2011\. On January 23, 2015, the ERPA was amended to: (i) capture the delay in the commissioning date, and (ii) to adjust the contracted CERs volume according to the amended commissioning date of the project on July 2, 2013\. The CER volume contracted under the UCF T2 was reduced from 734,300 CERs in the original ERPA to 701,665 CERs to be generated from July 2, 2013 to December 31, 2018\. 2\.1\.4 As a source of clean renewable energy, the OMVS Felou Hydroelectric Project generates carbon emission reductions, the proceeds of which were earmarked for electrification of rural communities that reside along the transmission “right of way” of the OMVS Power System\. 2\.2 Project implementation and commissioning 2\.2\.1 Original Project Development Objective: the original PDO of the Félou HEP was to generate electricity and GHG emissions reductions from a run-of-the-river hydroelectric installation on the Senegal River in Mali\. The Félou project will deliver clean energy to national power utilities in the sub-region (Mali, Mauritania and Senegal) and the GHG credits to international buyers through the creation of additional 63\.45 MW 11 of installed hydropower generation capacity at an existing weir of an old 600 kW hydroelectric facility\. The construction and operation of the Félou HEP is supported by financing from the International Development Agency (IDA) under the WAPP APL 2 - OMVS Félou Hydroelectric Project and from the European Investment Bank (EIB)\. The Félou HEP started delivering electricity to the grid on July 2, 2013 and can supply 320-350 GWh to the interconnected grid displacing the same amount of electricity from existing fossil fuel based plants in the regional grid\. 11 Total nameplate capacity of three generators\. 54 2\.2\.2 The Félou HEP was registered as a CDM project on May 6, 2010\. So far, 90,237 CERs have been issued and delivered to UCF T2, corresponding to the first verification, which covered the period from July 2 to January 1, 2014\. The second verification is completed and the issuance of about 172,000 CERs for the second reporting period are expected by end of September 2015\. The project preparation costs incurred have been reimbursed to SCF from the payment made for the first CERs issued as stipulated in the UCF T2 ERPA\. As of June 2015, approximately 90% of contract ERs remain to be delivered under the UCF T2 ERPA\. The project successfully completed the validation of the compliance report to the World Commission on Dams\. 2\.2\.3 As per the PAD and PDD, SOGEM committed to provide electricity to selected villages surrounding the project site\. As part the resettlement action plan (RAP), three villages (Médine, Lontou and Bengassi) in the OMVS priority rural electrification program were electrified with grid electricity\. The project supports the local community development with its plan to electrify seven more villages through connection to the grid\. These villages Kaffa, Kounda, Fatola Mamoubougou, Lomba, Keniou and Boteguekourou\. SOGEM will use revenues from the sales of carbon credits to finance the electrification of these villages\. A special rural electrification account was created to hold the payment of carbon revenues\. 2\.3 Monitoring, reporting, verification and issuance of emission reductions 2\.3\.1 The monitoring of Félou HEP has been carried out by SOGEM in accordance with the Monitoring Plan as described in the PDD12\. With the Bank’s support, SOGEM has prepared all monitoring reports\. 3\. BANK AND PROJECT ENTITY PERFORMANCE 3\.1 Assessment and rating of overall Bank performance 3\.1\.1 Overall, the Bank’s performance has been Moderately Satisfactory in regards of the carbon finance operations\. The Bank’s involvement was critical in the CDM registration and verification stages\. Since the beginning of the project, the Bank has collaborated closely with SOGEM and has built the capacity needed to overcome many of the obstacles the project encountered, such as the concerns raised by the designated operational entity (DOE) during the verification stage on the project’s installed capacity and monitoring system alignment with the registered PDD\. 3\.2 Assessment and rating of overall project entity performance 3\.2\.1 The performance of SOGEM is rated Moderately Unsatisfactory for the parent project\. However, the project entity performance is rated Moderately Satisfactory in regards of the carbon operation because of the delay in the commissioning date\. SOGEM has complied with all of the obligations and requirements expected, such as assisting with the development of the PDD, implementing the monitoring plan, executing the resettlement action plan and compensation of local stakeholders, (i\.e\., municipalities, communities, and nongovernmental organizations)\. SOGEM monitors the performance of the equipment to ensure compliance with the PDD and implements the Environmental Management and Monitoring Plans\. SOGEM is complying with the safeguards of the WAPP APL 2 - OMVS Félou Hydroelectric Project (the parent project)\. 12 For the PDD and UNFCCC related documents, please refer to: http://cdm\.unfccc\.int/Projects/DB/DNV- CUK1256566709\.38/view 55 4\. BENEFITS, TARGET POPULATION, AND RATE OF SUCCESS 4\.1 The OMVS Félou Hydroelectric Project was the first CDM project registered in a regional project, and the first hydro project to issue CERs in West Africa\. ERs have been calculated using information verified by a DOE, an “independent auditor accredited by the CDM Executive Board to verify whether implemented projects have achieved planned greenhouse gas emission reductions,” as well as the CERs issued by the CDM Executive Board\. Estimated electricity generated has also been extracted from these reliable sources\. Benefits Indicators Baseline Estimated Amount* Results* Action Values 2013 2014 2013 2014 Emission Tons of carbon 0 96,145 191,765 90,127 171,949 Reductions dioxide equivalent per year Electricity Gigawatt 0 165\.5 330 156 296 Generated hours/year and Exported to the Grid *As of December 31, 2014\. 4\.2 Three villages were electrified\. As more CERs are certified by the UNFCCC, more resources will be used for the implementation of the rural electrification activities\. For that purpose, SOGEM created a special rural electrification account to receive carbon credits payments and track the use of the fund\. 5\. COMMENTS FROM PROJECT ENTITY AND OTHER PARTNERS 5\.1 SOGEM contributed to the preparation of this Implementation Completion and Results (ICR) report, providing the Bank ICR team with information and data, and facilitating site visits\. SOGEM also provided the lessons learned section, and the information to describe Félou HEP’s commissioning and implementation experiences\. SOGEM participated in regular Bank supervision and safeguard missions\. 6\. SAFEGUARDS COMPLIANCE 6\.1 Four safeguards policies were triggered: Environment assessment (Full, Category A project) (OP/BP 4\.01); Involuntary resettlement (OP/BP 4\.12); Dam safety (OP/BP 4\.37) and Projects on international waterways (OP/BP 7\.40) 6\.2 There were no significant and/or irreversible impacts expected from the Project nor adverse indirect and/or long-term impacts foreseen as a result of project activities\. The main social development issues in the project area (Kayes/ Bafoulabe) related to the negative impacts on fishing activities and acquisition of 1\.25 ha of land planted with orchards and vegetable gardens for project facilities as well as the interruption of the power supply from the small existing run-of-river power plant at Felou during the construction of the Project\. The latter temporary impact was mitigated by the provision of electricity with a supply from the site generator\. 6\.3 An Environmental Impact Assessment (EIA) and Resettlement Action Plan (RAP) were prepared and disclosed prior to project appraisal\. The RAP determined the adequate level of compensation for the loss of assets resulting from the acquisition of 1\.25 ha of land\. 56 6\.4 The Project also implemented additional social enhancement measures to benefit neighboring villages (Lontou, Bengassi) in the Project zone of influence\. A large part of the mitigation measures (particularly infrastructure improvements) was implemented as part of the main design and built contract\. The last ISR of September 2014 rated the compliance with environmental safeguards as moderately satisfactory because of the lack of reporting by SOGEM particularly on the status of implementation of the RAPs\. 7\. LESSONS LEARNED 7\.1 Capacity building and climate change awareness\. As in many countries in Sub-Saharan Africa, several capacity building activities were conducted in Mali financed by donors and multilateral agencies\. However, little has been achieved in terms of the retention of the capacity because of the lack of direct connection between these capacity building initiatives and concrete projects on the ground\. The Félou hydro power project was able to bring this real case in the region, providing the ground for practicing greenhouse gas accounting\. The Bank was able to help develop a CDM capacity within SOGEM and more importantly to raise awareness on carbon and climate finance at the company management level as well as at the level of governing bodies of the OMVS\. 7\.2 Carbon finance to provide benefits to local communities\. The project is unique in its design where at the early stage, the project entity with support from the World Bank has decided to use the revenues from the sales of carbon credits to support local development through the electrification of villages\. The decision is supported by the OMVS and additional climate finance are sought to provide energy access to rural communities\. 7\.3 Independent nature of CDM project cycle and Bank capability to deal with it\. Access to project development financing and CDM project registration is key to maximizing the benefits from CDM projects\. In this case, a Project Idea Note was submitted to the Bank in June 2006, and the project was registered in December 2010 with many challenges such as the demonstration of additionality using barriers analysis\. Later on, the registered PDD was revised to take into account the monitoring system implemented on the ground and simplify the system\. The Bank was able to support SOGEM to navigate through the CDM pitfalls and implement a smooth monitoring system\. 7\.4 Replication effect\. The Felou hydropower project was the first CDM project to issue CERs in West Africa\. Within SOGEM, this achievement created strong interest to explore additional climate finance opportunities, to support local development\. The lessons learnt will be useful to the OMVS where the hydro potential remains untapped, when countries like Guinea are included\. 8\. JUSTIFICATION FOR MOVING TO THE SECOND PHASE (CARBON FINANCE MONITORING PHASE) AND SAFEGUARDS COMPLIANCE 8\.1 Compliance with safeguards and implementation challenges in the first phase - supervision phase 8\.1\.1 The project was rated A due to environmental and social safeguards which were triggered during implementation\. During implementation, suitable measures were taken to mitigate these safeguard issues\. 8\.2 Project entity’s capacity to carry out key functions related to safeguard requirements 57 8\.2\.1 SOGEM’s capacity to address safeguards was satisfactory\. 8\.3 Potential issues in post completion operation, including project entity’s capacity and ability of the project to deliver the contracted ERs 8\.3\.1 No issues are likely to arise in the post completion of the project\. Emission reductions are on schedule for delivery, as estimated\. 8\.4 Justification for moving to the second phase - carbon finance monitoring phase 8\.4\.1 All safeguard requirements are fulfilled and the ESMP is fully complied with\. No substantial outstanding material issues exist and no potential issue is anticipated during the remaining term of the ERPA\. The environmental audit of the Felou HEP which was due within six months of the closing of the project was received\. Its conclusions are that: (i) every person affected has been equitably compensated and complaints resolved to the satisfaction of the parties; (ii) the measures included in the RAP have been for the most part implemented; (iii) the mechanisms of dispute resolution have worked well; and (iv) there has been an improvement in the social conditions such as through the provision of potable water supply\. 8\.4\.2 For the remaining monitoring activity, SOGEM has the capacity to operate the project and to carry out key functions related to safeguards requirements\. The monitoring system is proven to be suitable, and the risk was assessed as minimal at the time of the Implementation Completion Report (ICR)\. 8\.5\. Recommendations and guidance for project monitoring in the second phase - carbon finance monitoring phase 8\.5\.1 The team noted considerable efforts in the implementation of safeguard mitigation measures\. The detailed action plan showed that all planned mitigation measures under Sinohydro (the Design Build contractor) or OMVS responsibility were satisfactorily implemented\. 8\.5\.2 As of today, all major safeguard issues and compensation are closed\. However, the team should continue to monitor on yearly basis the implementation of rural electrification activities\. The environmental audit recommends a number of minor corrective measures, part of the ESMP, to be addressed by SOGEM/SINOHYDRO while Felou is still under the operating warranty (e\.g\. Reforestation of the site, follow up on the maintenance of the trash management system and a plan of what would become of the Sinohydro’s base camp now that the work was completed)\. 58  Annex 10\. List of Supporting Documents - ICR Guidelines (August 2006, last updated on October 5, 2011); - Guidelines for Reviewing World Bank Implementation Completion and Results Reports\. A Manual for Evaluators (IEG, Nov\. 12, 2013); - PAD: WAPP APL-2, OMVS Felou Hydroelectric Project (June 5, 2006); - Project Paper: Additional Financing for the Felou Hydroelectric Project (July 30, 2009); - Project Agreements; - Financing Agreements; - Aide-memoires; and - IRSs (15 sequences) - SOGEM : Elément du Rapport d’achèvement du projet élaboré par l’IDA – Bamako, 7 juillet 2015 ; and - EIB’s Email of August 3, 2015\. 59  10° 0° ALGERIA 10° 20° For Detail, 20° MAURITANIA See IBRD 35062R WEST AFRICA Area of Map MALI WEST AFRICA POWER POOL APL PROGRAM SENEGAL For Detail, NIGER See IBRD 34436R CHAD FELOU AND GOUINA HYDROELECTRIC PROJECTS, APL 2 THE GAMBIA BURKINA FASO GUINEA BENIN 10° NIGERIA 10° GUINEA- TOGO This map was produced by the Map Design Unit of The World Bank\. 0 25 50 75 Kilometers CÔTE BISSAU SIERRA D'IVOIRE The boundaries, colors, denominations and any other information LEONE shown on this map do not imply, on the part of The World Bank For Detail, See GHANA Group, any judgment on the legal status of any territory, or any LIBERIA IBRD 33827R1 C\.A\.R\. endorsement or acceptance of such boundaries\. 0 25 50 75 Miles CAMEROON For Detail, See EQUATORIAL IBRD 35002R GUINEA To Nouakchott 12° ATLANTIC OCEAN SÃO TOMÉ 8° 10° AND PRÍNCIPE GABON CONGO Sene Djeder gal R\. ATLANTIC Rosso Boghé M A U R I TA N I A FUTURE EXISTING Podor TRANSMISSION LINES: Dagana 225 kV OCEAN Kaedi 16° 150 kV 16° St\. Louis 110 kV Sakal Ferlo 90 kV R\. Louga Matam PRIORITY LINES Linguére Ourossogui Sen Tobene POWER GENERATION PLANTS: eg R\. al Taiba THERMAL Bakel HYDRO DAKAR Thiés Touba SENEGAL SUB-STATIONS Diourbel PROJECT DAM SITES R\. Kayes Mbour um Kidara lo Felou Sa Kaolack SELECTED CITIES Gouina NATIONAL CAPITALS Sadiola MALI INTERNATIONAL BOUNDARIES Tambacounda Mahina BANJUL Ga mb THE GAMBIA Soma ia R \. Brikama Manantali Velingara R \. Kita a nce To Ségou am Cas Kolda Kenieba Kedougou BAMAKO Ziguinchor Tanaff Sambangalou GUINEA BISSAU g R\. Wulessedougou IBRD 34462R in Mansoa Bafatá Gaoual Mali FEBRUARY 2008 f Ba Bombadinca To Sikasso BISSAU Fello-Sounga Selingue 16° Saltinho To Conakry To Conakry 12° SIERRA LEONE To Gozoguezia 8° Bougouni

REVIEW

P102709

 ICRR 12278 Report Number : ICRR12278 ICR Review Operations Evaluation Department 1\. Project Data: Date Posted : 11/21/2005 PROJ ID :P078618 Appraisal Actual Project Name :Programmatic Support For Project Costs 80 80 Institution Building US$M ) (US$M) Country :Afghanistan Loan /Credit (US$M) Loan/ US$M ) 80 80 Sector (s):Central ): government US$M ) Cofinancing (US$M) administration L/C Number :C3963 FY ) Board Approval (FY) 05 Partners involved : Closing Date 03/20/2005 03/20/2005 Evaluator : Panel Reviewer : Group Manager : Group : Pierre M\. De Raet Chad Leechor Laurie Effron OEDCR 2\. Project Objectives and Components a\. Objectives The project was the first of a programmatic series of policy development operations aimed at providing support to the Government's objective to deepen, broaden and sustain ongoing reforms in the areas of public administration and fiscal management\. The specific objectives were to support ongoing reforms : 1) for strengthening the budget process, increasing the administrative capacity of line ministries and sub - national administration, developing revenue policy and administration, and improving civil service effectiveness; 2) for a more efficient allocation of fiscal resources to human development; and 3) for private sector development (PSD) (investment climate; financial sector, and state -owned enterprises - SOE)\. b\. Components (or Key Conditions in the case of Adjustment Loans ): Project's approval was subject to the following key prior actions : 1) adoption by the Cabinet of an ordinary and development budget for its FY 2004 including adequate financing and fiscal framework, increased allocations to provinces, and increased allocations for health, education, and solidarity; 2) submission to the Ministry of Justice of a draft Public Finance and Expenditure Management Law; 3) approval by the Independent Administrative Reform and Civil Service Commission to place 3,000 government positions and the staff of the Central Bank under an elevated pay -scale; 4) adoption by the Cabinet of a tax reform package, including wage withholding, a fixed tax on some services, a reduction in the corporate tax rate (20%), and a withholding tax on rental income (20%); 5) adoption by the Cabinet of several amendments to the Income Tax Law; and 6) completion of a draft procurement law and regulations \. The main triggers for approval of a second operation were the following : 1) maintenance of a satisfactory macro -economic framework; 2) preparation of a Medium-Term Fiscal Framework; 3) improvement in civil service efficiency, measured by various actions /quantitative indicators; 4) preparation of a draft Pension Law and proposed financing plan; 5) progress in raising fiduciary standards, measured by various actions /indicators; 6) proper monitoring and evaluation of spending for health and education; 7) review of legislation, regulations, and procedures related to private investment; 8) continued progress in the reform of the financial sector (regulatory framework; Central Bank modernization; and resolution of state-owned commercial banks); and 9) progress in SOE reform\. c\. Comments on Project Cost, Financing, Borrower Contribution, and Dates The Credit for US$80 million was disbursed upon effectiveness in August 2004\. 3\. Relevance of Objectives & Design : The objectives were fully relevant and consistent with the Government and Bank strategies \. The areas targeted for support were well identified\. Based on this first operation, the triggers for a second operation were limited, well defined and clearly circumscribed to the reform areas targeted \. The adoption of a programmatic series of operations is fully justified in the circumstances of Afghanistan \. 4\. Achievement of Objectives (Efficacy) : OED notes that the ICR is an interim review since the operation is part of a programmatic series and takes this into account in assessing performance under the operation \. 1) Macro-economic Framework\. Achievement is rated Substantial \. Stability was maintained under an IMF Staff-Monitored program\. Particularly noteworthy is the improvement in revenue mobilization in 2004/05, although not to the level expected at appraisal, reflecting increased implementation of the tax reform package adopted as prior condition\. 2) Public Administration and Fiscal Management \. Achievement is rated Substantial \. Good progress was registered in civil service reform and in strengthening fiduciary standards, with some important triggers for a second operation met, notably the enactment of the Public Finance and Expenditure Management Law \. Some triggers were delayed, such as the enactment of a new Procurement Law, while others (preparation of a Medium-Term Fiscal Framework and of a draft Pension Law) were not met by the time the ICR was written but were met shortly thereafter, allowing to proceed with the negotiations of the second operation \. The sub-national administration was not strengthened as expected given the continued poor security situation outside of Kabul \. 3) Human Development\. Achievement is rated Substantial \. Good progress was made towards the benchmarks, especially in establishing baseline assessments, extending delivery of health services, and introducing a certificating program for teachers\. Implementation of the solidarity programs was extended to rural areas \. 4) Private Sector Development\. Achievement is rated Substantial \. Progress was modest and uneven in reviewing the legislation pertaining to private investment \. In the financial sector, good progress was achieved with the enactment of a new Central Bank Law and a new Banking Law, providing for satisfactory prudential regulations, while many functions/activities of the Central Bank were strengthened and modernized \. Some commercial banks were re-licensed, while others will be restructured \. Good progress was also achieved in streamlining the SOE sector \. 5\. Efficiency : Not applicable 6\. M&E Design, Implementation, & Utilization: The program document contained an M&E annex covering the Public Administration and Fiscal Management component specifying indicators, responsible agency, and expected medium -term outcome\. The ICR provides values/results as of August 2005 for this area, but recognizes that the monitoring framework will have to be strengthened in the subsequent operations to reflect better qualitative assessments and extended to the other reform areas\. 7\. Other (Safeguards, Fiduciary, Unintended Impacts--Positive & Negative): Good progress was made on fiduciary standards \. 8\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory The rating takes account of the progress made in the medium-term perspective of a programmatic approach\. Institutional Dev \.: Substantial Substantial Afghanistan receives considerable TA at the moment\. Monitoring of capacity building remains essential\. Sustainability : Likely Non-evaluable It is not possible at the present to assess whether the benefits of this operation and of the program as a whole will be sustainable\. Sustainability is uncertain as long as security does not improve in all parts of the country\. Risks remain very high\.  Bank Performance : Satisfactory Satisfactory Borrower Perf \.: Satisfactory Satisfactory Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - ICR rating values flagged with ' * ' don't comply with OP/BP 13\.55, but are listed for completeness \.  9\. Lessons: 1) In post-conflict countries, flexibility is essential \. In this case, the choice of a programmatic series and the design of the operation, based on triggers for follow -on operations, were very appropriate \. 2) As the ICR notes, in countries with weak capacity, preparation of and /or amendment to legislation is particularly demanding given the complexity of the tasks involved and the highly qualified skills required \. The reform program must be well measured and realistic in this respect \. 3) In countries where the public administration has been almost completely destroyed, a key priority for Bank strategy is to reconstruct the statistical basis of the country \. 10\. Assessment Recommended? Yes No Why? After the programmatic series will be completed to assess the extent to which the series will have contributed to raising GOA's capacity in public administration and economic management \. 11\. Comments on Quality of ICR: The ICR is concise and well written\. However the following may be noted : 1) It does not address the sustainability of the program as a whole as required by BP 8\.60, in particular the risks and the mitigating measures planned under subsequent operations; 2) It could have discussed the status of preparation of the second operation \. 3) It mentions that the operation meshes well with other Bank operations, notably the Public Administration Capacity Building Project approved in January 2005\. It would have been useful to discuss how they complement each other \.

REVIEW

P123399

Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Niger Safety Net Project (P123399) Report Number: ICRR0022389 1\. Project Data Project ID Project Name P123399 Niger Safety Net Project Country Practice Area(Lead) Niger Social Protection & Jobs L/C/TF Number(s) Closing Date (Original) Total Project Cost (USD) IDA-49200,IDA-D1130,TF-A2304 30-Jun-2017 93,953,042\.18 Bank Approval Date Closing Date (Actual) 19-May-2011 31-Dec-2019 IBRD/IDA (USD) Grants (USD) Original Commitment 70,000,000\.00 8,500,000\.00 Revised Commitment 98,992,629\.58 8,498,601\.59 Actual 93,953,042\.18 8,498,601\.59 Prepared by Reviewed by ICR Review Coordinator Group Hjalte S\. A\. Sederlof Judyth L\. Twigg Joy Maria Behrens IEGHC (Unit 2) 2\. Project Objectives and Components DEVOBJ_TBL a\. Objectives The Project Development Objective (PDO) as set out on page 5 of the Financing Agreement and page 4 of the Project Appraisal Document was to establish and support an effective safety net system which will increase access of poor and food insecure people to cash transfer and cash for work programs\. Page 1 of 15  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Niger Safety Net Project (P123399) The PDO was revised in February 2012 to read as follows: to establish and support an effective and adaptive safety net system that will increase access of poor and vulnerable people to cash transfer and cash for work programs\. The ICR undertook a split evaluation of the project\. The ICRR does not\. Drawing on the PDO and original outcome indicators, the intended outcome appears to be “increased access…to programs” by means of establishing safety nets (the output)\. The new outcome indicators, introduced with the adaptive system, seem to indicate that the establishment of safety nets was the outcome\. The ICRR is adopting the original interpretation and assesses Efficacy on the basis of the following reformulation of the objective: “increasing access of poor and vulnerable people to adaptable cash transfer and cash for work programs\.” b\. Were the project objectives/key associated outcome targets revised during implementation? Yes Did the Board approve the revised objectives/key associated outcome targets? Yes Date of Board Approval 07-Apr-2016 c\. Will a split evaluation be undertaken? No d\. Components The project had four components: Component 1: Establishing a safety net system for delivering cash transfers and implementing cash for work programs (estimated cost at appraisal US$ 3\.20 million; actual cost US$5\.19 million)\. Building on lessons learned from piloting that preceded the project, the component was to build a national safety net system including a management information system, targeting and payment systems, and monitoring and evaluation systems, as well as necessary capacity building to operate the systems\. Component 2: Provision of cash transfers for food security (estimated cost at appraisal US$48\.60 million; actual cost US$59\.18 million)\. The component included cash transfers and accompanying measures to increase incomes and human capital among an estimated 80,000 poor and food insecure households in the five poorest regions of Niger (95 percent of poor households in the country)\. It included three sub- components to allow a gradual run-in and scale-up of the cash transfer system: Sub-component 2\.1 (starting phase): the provision of cash transfers to approximately 10,000 beneficiaries in two of the poorest regions (Dosso, Maradi)\. Sub-component 2\.2 (expansion phase): based on a positive assessment of the implementation of the cash transfer system during starting phase, expansion to scale in all five regions\. Page 2 of 15  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Niger Safety Net Project (P123399) Sub-component 2\.3 (accompanying measures): awareness campaigns and training modules in eight essential family practice activities (health, nutrition, sanitation) conditional on receiving the cash benefit\. The accompanying measures had been developed in collaboration with the United Nations Children’s Fund (UNICEF), who had field-tested them and found that they had led to significant improvements in child health\. They were to be implemented by non-governmental organizations (NGOs)\. Component 3: Cash for work (estimated cost at appraisal US$10\.50 million; actual cost US$17\.68 million)\. The component was to provide short-term income support to an estimated 60,000 individuals participating in labor-intensive public works schemes\. The schemes were to be targeted at areas experiencing temporary acute food insecurity\. The project was to finance wages as well as non-wage costs, and work was to be overseen by NGOs\. Component 4: Project management (estimated cost at appraisal US$7\.70 million; actual cost US$11\.89 million)\. This component was to finance all costs related to the management of the project\. Significant changes during implementation The project underwent three restructurings and included one case of Additional Financing: A first restructuring was undertaken in February 2012\. Project funds of US$ 1\.19 million were reallocated to sub-component 2\.1 to deal with additional demand for cash transfers that arose from crop failures and workers returning from Libya and Cote d’Ivoire\. The number of potential beneficiaries increased from the original 10,000 to 12,500\. Additional financing in the form of an IDA grant of US$ 22\.5 million was provided in March 2016, accompanied by US$8\.5 million in trust fund resources from the Sahel Adaptive Social Protection Program (SASPP) to support adjustments to the project\. The PDO was revised to include a scalable, adaptive safety net for times of crisis; and the revised project also supported the expansion of project coverage to three more regions, becoming nationwide\. Two further restructurings in March 2018 and May 2019 extended the closing date of the project, mainly to ensure a smooth transition from the Safety Net Project to a new Second Adaptive Safety Net Project that became effective in May 2019\. Other changes With the introduction of the additional financing and the revised PDO, the project name was changed to “Adaptive Safety Net Project\." and the names of components 1 to 3 were similarly revised to add clarity, albeit without significantly changing the substance of the project or its components\. A new sub-component 2\.2a was added at that time: “productive measures to support the promotion of resilient livelihood\." It was to include such measures as strengthening the operation of community savings program activities through trainings on financial education, provision of small grants to test alternative Page 3 of 15  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Niger Safety Net Project (P123399) livelihood options with high income generating potential, linking of beneficiaries with access to microfinance or banks to gain access to credit, and support to improve agricultural productivity through partnership with the Bank-funded Climate Smart Agriculture Program\. e\. Comments on Project Cost, Financing, Borrower Contribution, and Dates Project cost\. At appraisal, total project cost was estimated at US$70\.00 million\. Actual project cost at closing was US$93\.94 million\. Financing\. The project was financed by two IDA credits totaling US$92\.5 million (US$70\.0 million and US$22\.5 million, respectively) and an SASPP Trust Fund contribution of US$8\.5 million\. A total of US$84\.86 million (US$62\.9 million and US$22\.5 million, respectively) of the IDA funds were disbursed\. The full amount of the trust fund was disbursed\. Total disbursements added up to US$93\.94 million\. Dates\. The project was approved on May 19, 2011 and became effective on October 11, 2011\. The original closing date, June 30, 2017 was postponed once to December 31, 2019, at which time the project closed\. The additional financing – the second IDA credit of US22\.5 million – was approved on April 7, 2016 and closed on June 30, 2019 fully disbursed\. The trust fund was approved at the same time and closed on June 30, 2018 fully disbursed\. 3\. Relevance of Objectives Rationale The original and revised PDOs were relevant to the country situation, government policy and Bank strategy\. Niger is one of the poorest countries in the world, characterized by widespread poverty, food insecurity, and malnutrition due to a hostile climatic environment (the country is located along the edge of the Sahara desert) and the absence of sustainable safety nets to alleviate poverty and build resilience among the population against external shocks\. The project built on Niger’s national social protection policy (2011) and its strategy for food security (2012), and was aligned with its economic and social development plan (2017- 2021) and its focus on setting up a permanent safety net system to replace the largely ad hoc emergency programs focused on addressing short term acute crises\. The project is consistent with the ongoing policy dialogue between the Bank and Niger reflected in the current Country Partnership Framework (CPF) FY2018 to FY2022\. Following the Systematic Country Diagnostic of 2017 that set out core constraints to reducing poverty and improving shared prosperity by 2030, including social transfers as a means of not only coping, but also building resilience, the CPF includes social protection among its three focus areas, and it continues to support the further development of an adaptive safety net system as well as measures to address socio-economic aspects of displacement\. While the project was introducing an institutionally challenging safety net system, it was, with capacity building, in most instances appropriately scaled\. The addition of the adaptive mechanism, introduced in mid-stream and appropriately supporting the objectives of the project, would not, however, be completed within the project time frame (see Section 4)\. Rating Relevance TBL Page 4 of 15  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Niger Safety Net Project (P123399) Rating Substantial 4\. Achievement of Objectives (Efficacy) EFFICACY_TBL OBJECTIVE 1 Objective Increasing access of poor and vulnerable people to adaptable cash transfer and cash for work programs Rationale The objective was to be achieved by establishing and implementing an adaptable safety net system that could deliver cash to targeted beneficiaries, either for work (community micro-projects) or accompanied by other measures that would strengthen their resilience\. “Other measures” included accompanying measures that encouraged income generating and productive activities, or provision of advice on family health, nutrition, and sanitation; and support to households in coping with climate change shocks and disasters, mainly by scaling cash assistance to the affected households\. The latter mechanism – climate change and disaster relief - was expected to be fully in place only under a second Adaptable Safety Net Project (P166602)\. Outputs Most of the core elements of an adaptable safety net system were put in place and were operational at the time of the ICR: i\. a targeting system, including intake, registration and selection of beneficiaries and based on proxy means-testing (PMT) and community validation: ii\. a payment mechanism using established micro-finance institutions and mobile phone companies to deliver payments to beneficiaries; iii\. grievance mechanisms; iv\. a monitoring and evaluation function to assess the performance of the delivery system; and v\. a dedicated management structure, including a management information system to help manage the data base of all potential and actual beneficiaries and monitor all processes relating to targeting, registering, and payment\. Work was underway towards finalizing the crisis mechanism (the adaptable component) that, once fully in place, was expected to further strengthen the adaptability of the safety net and the resilience of beneficiaries to a variety of shocks, including climate and disaster ones; and on developing a unified social registry to combine multiple user programs\. The family health-related accompanying measures had already for some time been tested in the field by UNICEF, and evaluations had indicated that trainings and sensitization programs were leading to improvements in child health\. Linkages with early disaster warning systems were under development and Page 5 of 15  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Niger Safety Net Project (P123399) once in place were expected to further strengthen the adaptability of the safety net to a variety of shocks, including climate and disaster ones\. This is expected to be finalized under a new, second Safety Net Project (P166602)\. Based on a composite indicator that assessed the adequacy of institutions and staff introduced into the safety net system, as well as the functioning of the core elements of the system, the ICR determined that “the key systems required for a well-functioning national safety net program were set up\." Targets set for key indicators were being met (see Outcomes), which would indicate that the components were operating as expected\. Implementation is being monitored and periodically evaluated, including through field audits, and elements will be adjusted as necessary\. In addition to regular project monitoring, larger-scale evaluations (two impact evaluations and a mid-term review) have documented the effectiveness of the project in facilitating household savings and investment activities, promoting parenting practices, and in targeting performance, i\.e\. building people’s resilience and human development\. In particular, they have underlined the value of combining cash transfers with community outreach as means of improving children’s health, nutrition and cognitive development; and with productive inclusion (training and accompaniment) as a means of economic diversification and income generation, including women’s empowerment\. Outcomes Achievement of project outcomes was observed using the following key indicators: A total of 149,000 households (or some 1 million individuals, assuming an average household size of seven) had access to the cash transfers compared to an original target of 126,500 households as the cash transfer component increased\. The targeting approach (PMT and community validation) proved effective in targeting the poor: a household targeting evaluation found that 83 percent of beneficiary households were classified as chronically poor\. A subsequent World Bank-initiated study found that PMT was more effective than other methods in identifying chronically poor households\. Of the 149,000 households, 87,000 households participated in one or more accompanying measures compared to a target of 107,000 as security considerations and cultural factors relating to child rearing limited participation Cultural considerations were somewhat mitigated by participants being able to select among several maternal and child health-related interventions and consequently participation in accompanying measures was able to exceed the end target of 90 percent, reaching 93 percent coverage\. An evaluation of the impact of accompanying measures indicated that exposure to accompanying measures (by means of community meetings, group discussions and home visits) was likely to yield positive behavioral changes in instances where mothers who actively participated were more likely to adopt preventative health practices\. Exposure to preventive health practices did not, however, appear to show up as positive growth or cognitive development effects\. The ICR plausibly assumed that to appear, such effects may require significantly longer exposure to accompanying measures\. An impact evaluation of the effects of cash transfers on resilience of beneficiary households carried out prior to the introduction of adaptive approaches under the revised project indicated that cash transfers can on their own mitigate the effect of shocks, as recipients are more likely to use savings mechanisms and diversify Page 6 of 15  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Niger Safety Net Project (P123399) economic activity than non-recipients\. This result appears to confirm findings in other countries that safety nets, adaptive or not, can help improve resilience\. A total of 50,256 households benefited from cash for work activities, exceeding the target of 30,000\. These activities generated 3\.4 million days of temporary work, or 94 percent of the target\. The shortfall reflected absences and in some instances insufficient availability of workers\. As part of cash for work activities, the project rehabilitated 579 community-level infrastructures (micro- projects) compared to a target of 600\. All 579 micro-projects were operational at project closing\. Building on the disaster risk financing mechanism, the safety net system was able to scale up in response to shocks, benefiting some 4,700 exposed households, 94 percent of the targeted households\. Each household received monthly transfers of FCFA10,000 for a period of 12 months\. Rating Substantial OVERALL EFF TBL OBJ_TBL OVERALL EFFICACY Rationale Based on the above outcomes, the project mostly was able to achieve the objective\. It established the institutional setting and developed the systems for an effective safety net that successfully covered 83 percent of targeted chronically poor households with transfers, in most instances increasing coverage of the chronically poor and vulnerable groups\. While there was a shortfall in the number of households benefiting from accompanying measures, largely for external reasons, attendance among participants remained high\. Impact evaluations noted the positive effects of cash transfers on household welfare and food security, and in coping with climatic shocks; of accompanying measures on household resilience and human development\. Benefits from cash for work activities far exceeded the target for beneficiary households\. Overall Efficacy Rating Substantial 5\. Efficiency The PAD and the ICR analyzed benefits of the cash transfer program and the cash for work program applying conventional methods for estimating their economic impact\. In both programs, the results reported in the ICR exceeded those envisioned in in the PAD\. Likewise, ICR results for both programs were in line with international experience\. Page 7 of 15  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Niger Safety Net Project (P123399) For cash transfers, drawing on the analysis in the ICR that looks at consumption vs\. cost of a productive inclusion package (a grant plus training), the economic impact of the package exceeded its cost after 18 months; few programs have proven to be cost effective over such a short period of time\. In addition, cash transfers have indirect positive spillover effects on the local economy The cost effectiveness of the cash for work program outperformed estimates at appraisal and were in line with international experience\. The ICR undertook an analysis of the cash for work program based on how much it costs to transfer US$1 to the beneficiary population, incorporating three variables: labor intensity, wage targeting performance, and new wage gain\. The resulting cost effectiveness was calculated at 0\.52, and the total cost of transferring US$1 in net wage to a food insecure person at $1\.92\. Comparable costs range from $1\.80 (Ethiopia) to $1\.98 (Liberia)\. Other considerations also contributed to enhancing efficiency\. Close engagement with parliamentary leadership, including their participation in field missions, broadened the appeal of the project and strengthened political commitment to the program, facilitating its implementation\. Synergy with other projects, notably through the availability of its database and systems for other interventions, helped lower targeting and implementation costs for this project as well as other interventions\. While the closing date was extended by over two years, this had a number of benefits: it allowed a phased expansion of coverage, starting with the poorest regions and progressively expanding nationwide; it resulted in better targeting (including through the timely launching of a unified social registry), resulting in an ICR-estimated 83 percent of participants being poor compared to 87 percent in Ethiopia and between 74 and 86 percent in Liberia; and it allowed the introduction of flexibility into the safety net to better cope with the impact of climate risk and improve the resilience of poor and vulnerable people\. Administrative costs remained moderate at some 10 percent of lending\. At the same time, the project faced challenges that moderately reduced efficiency: a government decision to change project coordinator contributed to slowing down implementation, as did occasional delays in cash payments due to cash shortfall problems\. Efficiency Rating Substantial a\. If available, enter the Economic Rate of Return (ERR) and/or Financial Rate of Return (FRR) at appraisal and the re-estimated value at evaluation: Rate Available? Point value (%) *Coverage/Scope (%) 0 Appraisal 0  Not Applicable Page 8 of 15  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Niger Safety Net Project (P123399) 0 ICR Estimate 0  Not Applicable * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome Relevance was rated high, reflecting that the project was well targeted at priority concerns and largely scaled to the government’s absorptive capacity\. Efficacy was likewise substantial, with minor shortcomings in achieving set objectives\. Efficiency was substantial, in line with results in comparable countries\. These ratings are consistent with minor shortcomings in the project's preparation and implementation, producing an outcome rating of satisfactory\. a\. Outcome Rating Satisfactory 7\. Risk to Development Outcome The PAD rated the overall risk to the development outcome as high, acknowledging risks relating to political stability due to recent regime change and a fragile security situation; potential imbalances between a weak institutional framework and a complex project design, i\.e\. the setting up of cash transfer and cash for work programs; and the challenges of maintaining the financial sustainability of those programs\. While the ICR did not give a rating for risk post-project, it discusses the risk to the development outcome (Section D) and notes that these same risks remain, albeit somewhat reduced during implementation\. The security situation remains fragile and may threaten operations on the ground, but the government has remained committed to the interventions supported by the project\. Institution building, including expanded operational capacity, was completed as planned (and will continue under a second safety net project), raising absorptive capacity for new technologies\. Project outcomes indicate that institutional development has been successful as core elements of the safety net have been put into place, ranging from targeting, through payment systems to grievances and management\. Fiscal-financial challenges remain and are increased with the COVID-19 pandemic and an increasingly fragile environment; they leave sustainability dependent on donor support\. The latter currently appears to be stable, including with the continued participation of the Bank through its engagement in the follow-up project and in related community development operations\. Still, despite tangible improvements, the overall risk to the development outcome remains high\. 8\. Assessment of Bank Performance a\. Quality-at-Entry The project was strategically relevant, addressing poverty and vulnerability in Niger by starting the process of replacing ad hoc emergency assistance with permanent safety net structures\. The introduction of an adaptive approach during implementation to deal with environmental shocks would further Page 9 of 15  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Niger Safety Net Project (P123399) strengthen the project’s focus on alleviating poverty and building resilience\. The project was consistent with the Bank’s ongoing policy dialogue with Niger on food security and safety nets, emphasizing technical and financial assistance to set up and operate key programs\. Design drew on the Bank’s extensive and similar experiences in other sub-Saharan countries, as well as economic and sector work in Niger\. The latter had examined the main causes of poverty, the relevance of existing safety net programs, and the feasibility of different methodologies for building a safety net system\. Findings had pointed to the need for a regular transfer system and the importance of accompanying measures to expand the effects of cash transfers\. Close involvement of national stakeholders (which included participation in Bank missions and continued during implementation) ensured integration of project management into the institutional framework\. Likewise, engagement with the main bilateral donors and NGOs created a common platform for supporting safety net\. A cash transfer pilot fed into the detailed design of the project, and the design itself sought complementarities with other Bank interventions, including in particular ongoing community action programs\. Implementation arrangements centered around the Prime Minister’s Office, where a safety net unit was introduced to establish and manage the safety net system, giving it a strong profile\. M&E arrangements built on a consistent results framework\. The project logic was in principle straightforward and linked to indicators that allowed progress to be monitored and outcomes to be assessed\. However, the formulation of the framework introduced some uncertainty regarding outcomes and outputs, reflected in the ICR; for example, did the project view the establishment of the system as an outcome, or was that determined by the delivery of services through that system, or by changes in behavior among the beneficiaries? The project had a gender aspect, with women being the recipients of the cash transfers and the main beneficiaries of the accompanying measures\. While a key gender indicator had been introduced – “female beneficiaries” -- it did not point to a specific gender focus beyond the fact that half the recipient household population consisted of women\. Nonetheless, many of the accompanying measures were oriented towards preventive care for women and children, and it would not have been improbable that a clear majority of direct beneficiaries were women\. The project fell under environmental classification “B\." Fiduciary compliance was deemed satisfactory (see Section 10 on Other Issues)\. The risk assessment (risk rating “high”) took into account the political and institutional challenges facing the country\. Quality-at-Entry Rating Satisfactory b\. Quality of supervision Formal supervision missions were undertaken twice yearly and were complemented by technical missions\. The missions focused on building institutional capacity and on supervising fiduciary and safeguard aspects\. Results are reported in Sections 4 and 10\. Bank inputs and processes during implementation were satisfactory; the Bank fielded an experienced team with extensive knowledge of safety net development in general and in Sub-Saharan Africa in particular, and their experience is reflected in the progress that was made in setting up a system that largely was able to meet expectations based on project outcomes\. While a second safety net project has been launched building on the results of this one, successful transition is influenced by uncertainties surrounding security concerns\. During implementation of this project, the supervision team was able to adapt to unexpected situations as they arose: at the technical level, by adjusting the project to respond to the unexpected return of migrants from neighboring countries; and by introducing an adaptable function to strengthen the productive impact of transfers and help address short term environmental shocks\. The project adapted to precarious security through remote programming Page 10 of 15  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Niger Safety Net Project (P123399) to monitor activities when access was not possible while also adapting to circumstances when mobility was difficult because of insecurity – police escorts, motorbikes, donkeys, etc\. Such challenges did make timely payment delivery and provision of supporting activities difficult but appear not to have unduly affected achievement of output and outcome targets\. Quality of Supervision Rating Satisfactory Overall Bank Performance Rating Satisfactory 9\. M&E Design, Implementation, & Utilization a\. M&E Design The ICR (p\. 6) developed a detailed results framework that defined the objectives of the project and links between outputs and outcomes\. Indicators focused on setting up the safety net and monitoring access to the cash transfer systems once the safety net was in place\. Longer-term evaluations focused on process (the functionality of core components), targeting efficiency, and the impact of the program on behavior change such as levels of consumption, nutritional status and food security\. A management information system allowed for rigorous M&E, including mid-term and end-of-project evaluations to assess progress towards the PDO, notably by assessing the impact of the project on beneficiaries, assessing the quality of works, and overall project efficiency\. The focus of the evaluations was on process to assess the effectiveness of project implementation, targeting evaluation and notably the extent of targeting errors, and the impact of the project on change in behavior\. b\. M&E Implementation Monitoring was undertaken by the Bank supervision team in collaboration with the project’s safety net unit, originally located in the prime minister’s office and consisting of a steering committee, a technical unit, and regional offices\. The unit was subsequently introduced as part of a national agency for prevention and management of food crises, linking the safety net system to disaster risk management\. The results monitoring framework pre- and post-AF was mostly implemented as planned, albeit with a few challenges\. Data collection occurred manually instead of electronically, as had been expected, leading to delays in data entry and monitoring, and consequently in the distribution of data for analysis\. Movement restrictions due to security concerns occasionally delayed the conduct of some project activities, notably the timely distribution of benefits\. Four impact evaluations were carried out – one on targeting effectiveness, one on accompanying measures for behavioral change, one on productive inclusion measures, and one on cash transfers for resilience\. All captured key project achievements\. A planned evaluation of cash for work schemes was Page 11 of 15  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Niger Safety Net Project (P123399) not conducted (due to security concerns); it was replaced by a subsequent qualitative review of the cash for work component\. [TTL: why manual data collection – what was the problem?] c\. M&E Utilization Monitoring during implementation allowed several improvements to be introduced into the project\. These included the introduction of adaptability to address crises; scaling up of the cash transfer function; and improvements in targeting\. The impact of climatic shocks promoted the design of AF by encouraging adaptability (scaling) of cash benefits in combination with productive measures to build resilience against such shocks\. The targeting effectiveness evaluation drew attention to the primacy of PMT as a targeting mechanism in the Nigerian environment\. An impact evaluation of accompanying measures for behavioral change drew attention to the need to engage with health centers in addressing the challenge of undernourished children\. M&E Quality Rating Substantial 10\. Other Issues a\. Safeguards The project was categorized as environmental assessment category “B” and triggered two safeguard policies: OP 4\.01 - Environmental Assessment and OP 4\.12 - Involuntary Resettlement, primarily due to the potentially negative, although limited and localized, impact of cash for work projects\. An Environmental and Social Management Framework was prepared to consider such safeguard measures in implementing cash for work micro-projects\. A third safeguard policy on Pest Management (OP 4\.09) was triggered during the additional financing restructuring\. It was linked to productive inclusion measures conducted in partnership with the Bank’s Climate Smart Agriculture Program\. An Integrated Pest Management Plan was prepared to ensure the efficient use of pesticides and fertilizers, The ICR reported that the project complied with the triggered safeguards policies, and the project implementation unit was considered capable of applying and complying with environmental and social policies, procedures, and regulations\. Performance on environmental safeguards was upgraded from moderately satisfactory to satisfactory after the implementation of a set of recommendations formulated in the mid-term review in 2016\. All micro-projects subject to classification were compliant with the environmental and social assessment procedures\. b\. Fiduciary Compliance Financial management\. Fiduciary compliance was deemed satisfactory\. Both procurement and financial management performance were rated "moderately satisfactory" by the supervision mission on the occasion Page 12 of 15  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Niger Safety Net Project (P123399) of the additional financing\. Based on the recommendations of the supervision mission, the project strengthened fiduciary controls and developed an action plan accordingly\. The last audited financial statements for the fiscal year ending December 31, 2018 were submitted to the World Bank on time with an unqualified audit opinion, and the audit reports were found acceptable to the World Bank\. Procurement\. Procurement activities included contracts to equip and supply consultant services to the safety net functions that were being introduced under the project\. An initial procurement plan for the first 18 months of project implementation was updated annually\. The ICR notes that procurement was rated “moderately satisfactory," as the grievance redress mechanism registered a small number of incidents that resulted from insufficient clarity in procedures (concerning referrals, follow-up on complaints, and timeliness in addressing complaints)\. The ICR recommended that the GRM manual be updated to ensure a more rigorous application of incident reporting procedures\. c\. Unintended impacts (Positive or Negative) With micro-finance institutions being given a key role in payment delivery, financial services spread to underserved areas, including services that fell outside the strict limits of the project\. d\. Other Gender\. The role of women as the recipients of the cash transfers was enhanced\. They were the main beneficiaries of accompanying measures, and their role in community savings and credit activities was enhanced, as opportunities for investment in productive assets opened up for them and contributed to their economic empowerment\. Institutional strengthening\. The project brought the safety net agenda into the political discourse and thereby facilitated the introduction of initiatives for poverty alleviation as a way of building resilience against climate effects\. Active engagement of parliamentarians in field missions and workshops engendered political support\. Identification of key social reforms raised the efficiency and effectiveness of public spending on safety nets, and drawing attention to adaptive initiatives helped build the framework for resiliently addressing climate change\. 11\. Ratings Reason for Ratings ICR IEG Disagreements/Comment Outcome Satisfactory Satisfactory Bank Performance Satisfactory Satisfactory Quality of M&E Substantial Substantial Page 13 of 15  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Niger Safety Net Project (P123399) Quality of ICR --- Substantial 12\. Lessons The following lessons are drawn from the ICR: In a context of recurring shocks, high poverty rates, and limited resources, multi-year government cash transfers can be effective in mitigating the welfare effects of climatic shocks and contributing to resilience\. In Niger, cash transfers targeting poor households increased consumption by about 10%, largely benefitting households affected by droughts\. Cash transfers also fostered these households’ resilience by facilitating savings and economic diversification\. "Cash-plus" programs can yield more cost-effective results for household well-being than cash-only\. The project included measures to improve human development and human capital outcomes (e\.g\. child health and nutrition, reproductive health, early child stimulation, etc\.) and promote productive inclusion as integral elements of the cash transfer intervention\. Project evaluations showed that cash-plus can boost investments and diversify off-farm income-generating activities, leading to significant increases in revenues and profits compared to cash-only\. However, in including "cash-plus" measures, cultural sensitivities may influence take-up\. In this case, some beneficiaries perceived some interventions, notably ones relating to parenting, child development, and women’s empowerment as foreign to local culture (ICR, para\. 38)\. This points to the need to focus on better understanding cultural barriers, for instance through participatory research, when seeking cost-effective results\. The sustainability of cash for work microprojects and their impact on resilience can be enhanced with participatory planning, securing land tenure, and ensuring an adequate time span for effective changes to take place\. The project introduced a community-based participatory approach to the design, management, and maintenance of microprojects\. Legal documents secured land tenure and ensured long-term asset utilization\. Likewise, cash for work projects were extended to two years\. These measures contributed to sustainability of the public assets created through the projects\. 13\. Assessment Recommended? No 14\. Comments on Quality of ICR Page 14 of 15  Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review Niger Safety Net Project (P123399) The quality of evidence and the analysis presented in the ICR was satisfactory\. It was results-oriented and presented a coherent theory of change, including the discussion of critical assumptions underlying it\. Distinctions between key concepts – poor/vulnerable, adaptability/resilience -- were well made; on the other hand, a clearer distinction between outcomes and outputs would have been helpful\. Overall, the ICR provided sufficient evidence to assess the project\. a\. Quality of ICR Rating Substantial Page 15 of 15

REVIEW

P118179

 Document of The World Bank FOR OFFICIAL USE ONLY Report No: ICR00004400 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-49810/IDA-H7160) ON A CREDIT IN THE AMOUNT OF SDR 14\.9 MILLION (US$23\.6 MILLION EQUIVALENT) AND A GRANT IN THE AMOUNT OF SDR 12\.3 MILLION (US$19\.4 MILLION EQUIVALENT) TO NEPAL FOR A NP MODERNIZATION OF RANI JAMARA KULARIYA IRRIGATION SCHEME - PHASE 1 ( P118179 ) March 29, 2018 Water Global Practice South Asia Region  CURRENCY EQUIVALENTS (Exchange Rate Effective January 31, 2018) Currency Unit = Nepalese Rupee (NPR) NPR 104 = US$1 US$1\.46 = SDR 1 FISCAL YEAR OF NEPAL July 17, 2018 – July 16, 2019 Regional Vice President: Annette Dixon Country Director: Qimiao Fan Senior Global Practice Director: Guang Zhe Chen Practice Manager: Takuya Kamata Task Team Leader(s): Ahmed Shawky M\. Abdel Ghany, Purna Bahadur Chhetri ICR Main Contributor: Susanne M\. Scheierling  ABBREVIATIONS AND ACRONYMS AMP Asset Management Plan BCR Benefit-to-Cost Ratio CPS Country Partnership Strategy DADO District Agricultural Development Office DIME World Bank Development Impact Monitoring and Evaluation DoA Department of Agriculture DoI Department of Irrigation EMP Environmental Management Plan ENPV Economic net present value ERR Economic rate of return FMIS Farmer managed irrigation system FMR Financial Monitoring Report FNPV Financial net present value FRR Financial rate of return FY Fiscal Year GDP Gross Domestic Product GoN Government of Nepal ICB International Competitive Bidding ICR Implementation Completion and Results Report IDA International Development Association IP Implementation Progress ISR Implementation Status and Results Report IEE Initial Environmental Examination IVCDP Indigenous Vulnerable Community Development Plan IUFR Interim Unaudited Financial Report MLE Monitoring, Learning, and Evaluation MoI Ministry of Irrigation M&E Monitoring and Evaluation NGO Nongovernmental Organization NPR Nepalese Rupee OCC Opportunity Cost of Capital O&M Operations and Maintenance PAD Project Appraisal Document PDO Project Development Objective PIO Project Implementation Office RAP Resettlement Action Plan RJKIS Rani Jamara Kulariya Irrigation Scheme SIMF Social Impact Management Framework SWCF Shadow Wage Conversion Factor WiP With Project WoP Without Project WUA Water User Association  TABLE OF CONTENTS DATA SHEET \. ERROR! BOOKMARK NOT DEFINED\. I\. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES \. 5 A\. CONTEXT AT APPRAISAL \.5 B\. SIGNIFICANT CHANGES DURING IMPLEMENTATION (IF APPLICABLE) \.9 II\. OUTCOME \. 10 A\. RELEVANCE OF PDO \. 10 B\. ACHIEVEMENT OF PDOs (EFFICACY) \. 11 C\. EFFICIENCY \. 15 D\. JUSTIFICATION OF OVERALL OUTCOME RATING \. 17 E\. OTHER OUTCOMES \. 17 III\. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME \. 17 A\. KEY FACTORS DURING PREPARATION \. 17 B\. KEY FACTORS DURING IMPLEMENTATION \. 18 IV\. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME \. 19 A\. QUALITY OF MONITORING AND EVALUATION (M&E) \. 19 B\. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE \. 21 C\. BANK PERFORMANCE \. 23 D\. RISK TO DEVELOPMENT OUTCOME \. 24 V\. LESSONS AND RECOMMENDATIONS \. 25 ANNEX 1\. RESULTS FRAMEWORK AND KEY OUTPUTS \. 27 ANNEX 2\. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION \. 38 ANNEX 3\. PROJECT COST BY COMPONENT \. 41 ANNEX 4\. EFFICIENCY ANALYSIS \. 43 ANNEX 5\. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS \. 51 ANNEX 6\. SUPPORTING DOCUMENTS \. 52  The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) DATA SHEET BASIC INFORMATION Product Information Project ID Project Name NP Modernization of Rani Jamara Kulariya Irrigation P118179 Scheme - Phase 1 Country Financing Instrument Nepal Specific Investment Loan Original EA Category Revised EA Category Partial Assessment (B) Partial Assessment (B) Organizations Borrower Implementing Agency Ministry of Finance Department of Irrigation Project Development Objective (PDO) Original PDO The project development objective is to improve irrigation water delivery to, and management in, the command area\. The command area is defined as the agricultural lands to be irrigated using infrastructure to be modernized under the project\. Page 1 of 52  The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) FINANCING Original Amount (US$) Revised Amount (US$) Actual Disbursed (US$) World Bank Financing 23,600,000 23,600,000 20,407,138 IDA-49810 19,400,000 19,400,000 14,378,996 IDA-H7160 Total 43,000,000 43,000,000 34,786,134 Non-World Bank Financing Borrower 5,000,000 5,000,000 4,550,570 Local Communities 1,000,000 1,000,000 2,753,034 Total 6,000,000 6,000,000 7,303,604 Total Project Cost 49,000,000 49,000,000 42,089,738 KEY DATES Approval Effectiveness MTR Review Original Closing Actual Closing 05-Jul-2011 30-Nov-2011 24-Nov-2014 30-Sep-2016 30-Sep-2017 RESTRUCTURING AND/OR ADDITIONAL FINANCING Date(s) Amount Disbursed (US$M) Key Revisions 17-Aug-2015 18\.38 Change in Loan Closing Date(s) 10-May-2017 31\.91 Reallocation between Disbursement Categories KEY RATINGS Outcome Bank Performance M&E Quality Moderately Satisfactory Satisfactory Modest Page 2 of 52  The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) RATINGS OF PROJECT PERFORMANCE IN ISRs Actual No\. Date ISR Archived DO Rating IP Rating Disbursements (US$M) 01 20-Mar-2012 Satisfactory Satisfactory 0 02 25-Sep-2012 Satisfactory Satisfactory 5\.00 03 17-May-2013 Satisfactory Satisfactory 5\.64 04 27-Nov-2013 Satisfactory Moderately Satisfactory 9\.73 05 21-Apr-2014 Satisfactory Moderately Satisfactory 11\.81 06 13-Jun-2014 Satisfactory Moderately Satisfactory 13\.54 07 30-Dec-2014 Satisfactory Moderately Satisfactory 16\.42 08 15-Jun-2015 Satisfactory Moderately Satisfactory 18\.38 09 11-Dec-2015 Satisfactory Moderately Satisfactory 20\.32 10 13-Jun-2016 Moderately Satisfactory Moderately Satisfactory 23\.23 11 31-Dec-2016 Moderately Satisfactory Moderately Satisfactory 24\.87 12 06-Jun-2017 Moderately Satisfactory Satisfactory 32\.36 SECTORS AND THEMES Sectors Major Sector/Sector (%) Agriculture, Fishing and Forestry 73 Agricultural Extension, Research, and Other Support 6 Activities Irrigation and Drainage 58 Public Administration - Agriculture, Fishing & Forestry 9 Public Administration 4 Other Public Administration 4 Page 3 of 52  The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) Transportation 4 Other Transportation 4 Water, Sanitation and Waste Management 19 Other Water Supply, Sanitation and Waste 19 Management Themes Major Theme/ Theme (Level 2)/ Theme (Level 3) (%) Finance 5 Finance for Development 5 Agriculture Finance 5 Urban and Rural Development 96 Rural Development 96 Rural Markets 5 Rural Infrastructure and service delivery 91 ADM STAFF Role At Approval At ICR Regional Vice President: Isabel M\. Guerrero Annette Dixon Country Director: Susan G\. Goldmark Qimiao Fan Senior Global Practice Director: John Henry Stein Guang Zhe Chen Practice Manager: Simeon Kacou Ehui Takuya Kamata Ahmed Shawky M\. Abdel Task Team Leader(s): Joop Stoutjesdijk Ghany, Purna Bahadur Chhetri ICR Contributing Author: Susanne M\. Scheierling Page 4 of 52 The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) I\. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES A\. CONTEXT AT APPRAISAL Context 1\. Nepal has largely an agrarian-based economy\. At appraisal, agriculture contributed a third of gross domestic product (GDP) and employed about 80 percent of the rural labor force\. Despite civil conflict and a difficult political situation, Nepal’s economy had been growing\. In FY10, real GDP increased by 4\.6 percent\. The incidence of poverty had fallen nationally from 32 percent in 2004 to about 22 percent in 2010\. During the 2000s, income shares appeared to change, with the share from remittances, non- agricultural entrepreneurial activities, wages, and property rising\. Although average income growth rates were high, inequality also increased and geographic disparities became more pronounced\. Nepal faced the dual challenges of further accelerating domestic growth and sharing this growth more broadly across the population\. 2\. Agriculture had made only modest contributions to improved living standards, which was in large part due to the poor performance in the crop sector\. Especially yields of the major cereal crops continued to be relatively low\. The rural population comprised mainly smallholder farmers, and the level of agricultural income was low by international standards\. The country’s agricultural sector had also become increasingly vulnerable due to erratic monsoon rains\. Farmers often experienced unreliable rainfalls, with both drought and high-intensity rainfall events often occurring in the same season\. More effective water control and management systems were seen as allowing farmers to focus more on other complementary investments—such as better agricultural techniques and inputs, and improved cropping intensity—that would help in transforming farming to more profitable levels\. Irrigation was thus viewed as a critical input into agriculture, both during the monsoon season to overcome periods of dry spells and during the dry season when rainfall was negligible\. The Government of Nepal (GoN) recognized the lack of intensive cropping, inadequate supply and use of basic agricultural inputs such as fertilizer and improved seeds, and the problems with deteriorated and inefficient irrigation systems\. 3\. The strategy and vision for irrigation development and management in Nepal was reflected in the Water Resources Strategy (2002), the National Water Plan (2005), and the Irrigation Development Vision and Action Plan (2006)\. The main vision described in the strategy and plans was to integrate agriculture and irrigation development to realize the full benefits from investment in irrigation and provide sustainable services to the agriculture sector through well-operating and well-managed irrigation facilities, based on local resource mobilization through a partnership of the users and the Government\. In particular, the emphasis was on: provision of year-round irrigation services to increase the productivity of irrigated agriculture and extending the cropping seasons; the importance of a service-oriented management approach as a means for providing more efficient, reliable and flexible water services to farmers; and the progressive shifting of operations and maintenance (O&M) costs to water users to enhance efficiency, equity, and sustainability\. Page 5 of 52 The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) 4\. Irrigation systems in Nepal can be distinguished between (a) traditional farmer managed irrigation systems (FMISs) developed and managed by the communities; (b) small to large-scale surface systems developed with full or partial support of the Government; (c) Government developed tube well irrigation schemes; and (d) individually owned and operated tube wells and pumps, mostly utilizing shallow aquifers, streams, ponds, and dug wells\. 5\. Nepal has a long tradition of the FMISs in the hills, mountains and the Terai (that is, the southern foothills of the Himalayas)\. The FMISs in the hills tend to be small in size compared to the medium to large irrigation systems in the Terai\. Overall, the FMISs cover about 70 percent of the 1\.2 million ha of land with some form of irrigation infrastructure in the country\. There tends to be a strong sense of ownership, and a direct association of water user associations (WUAs) in some form with the management of irrigation systems\. They are accountable for O&M, most of which is done through labor contributions\. 6\. The project for the further development of one of the largest FMISs in the country, the Rani Jamara Kulariya Irrigation Scheme (RJKIS), was to contribute to the borrower’s over-arching objective of sustainable economic growth and reduction of poverty, in part to be achieved through improved reliability of irrigation water and increased agricultural production, as outlined in the GoN’s approach paper for the Three-Year Interim Plan for 2010-13\. Activities to promote agriculture were to be guided by the Government’s National Agricultural Development Policy and Agricultural Development Plan\. The latter recognized the importance of irrigation for improving agricultural productivity\. 7\. The World Bank has had a long-standing role in the development of Nepal’s irrigation and water resources sector, including in command area development and rehabilitation and modernization of higher- order irrigation systems, as well as developing WUAs and transferring improved agricultural technologies to farmers\. The project for the RJKIS, located in the Kailali District of the far western Terai, one of the least developed regions in the country, was well-aligned with the World Bank’s assistance to Nepal\. In particular, a pillar of the Interim Strategy Note of 2009 focused on the productive sectors by laying the foundation for sustainable and inclusive economic growth, including agriculture and irrigation\. The project was ultimately to contribute toward both the borrower’s and the World Bank’s objectives of generating broad-based sustainable growth and poverty alleviation through increasing productivity in irrigated agriculture\. 8\. The initial proposal of the GoN requesting financing for the modernization of the RJKIS envisioned one project with three components: (a) infrastructure development, (b) institutional development with a focus on water users, and (c) agricultural development\. At Concept Note stage, World Bank support for the RJKIS was proposed in two phases\. The main reason was the availability of IDA funds to support the investment\. The phase 1 project was to focus on (a) modernizing the higher-order irrigation infrastructure (especially intakes, feeder, and branch canals); (b) enhancing the capacity of WUAs to operate and maintain the improved or new irrigation infrastructure; and (c) preparing and initiating an agricultural development program\. The phase 2 project was to cover (a) the modernization of the lower-order irrigation infrastructure (sub-branch and tertiary canals and water courses), (b) continuation of the WUA support program, and (c) implementation of a comprehensive agricultural improvement program\. In line with these plans, phase 1 was prepared and implemented\. Phase 2 was prepared during the last year of the implementation of phase 1 and is expected to be approved during FY18\. Page 6 of 52 The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) 9\. In addition to the two phases of the IDA supported activities, GoN planned to fund a new abstraction works on the Karnali River that supplies water to RJKIS, a main conveyance canal, and a sediment basin\. This new infrastructure would later connect with the feeder canal constructed under phase 1\. Yet the infrastructure funded under phase 1, including the intakes and the feeder canal, could operate independently but would be enhanced by these additional GoN investments\. Theory of Change (Results Chain) 10\. The theory of change, or logic, behind the design of phase 1—as described in the Project Appraisal Document (PAD)—is illustrated in figure 1\. The links between the activities supported under the main components of the project and the related key outputs, desired outcomes, and long-term outcomes are presented\. Table 1\. Overview of the Projects Theory of Change 11\. The outcomes as stated in the Project Development Objective (PDO) include (a) improved irrigation water delivery in the command area, to be achieved through the improved performance of the system— resulting from the activities under Scheme Modernization (Component 1); and (b) improved irrigation water management in the command area, to be achieved through WUAs assuming full responsibility for O&M of the scheme—resulting from the activities envisioned under Strengthening Water User Associations (Component 2)\. 12\. The activities under Agricultural Production Support (Component 3) were expected to lead to some gains in production increases, crop diversification, and improved marketing\. This was reflected in an outcome indicator on increased yields of the main irrigated crops\. Modest increases were expected to occur especially in the upper part of the command area and less in the lower command area as no investments in the lower-order irrigation infrastructure were planned to be made during phase 1\. The main aim of the agricultural support during phase 1 was to prepare for a comprehensive agricultural support program to be implemented during phase 2\. Page 7 of 52 The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) 13\. The outcomes as stated in the PDO were to contribute to the higher-level objective of building resilience against water-induced hazards, such as droughts, floods, and changes in water availability during the agricultural seasons\. Together with the support to agricultural development, this would result in increased agricultural production, productivity, and incomes, an important aspect in the strategy and vision for the country’s irrigation development and management\. In the long-term, a contribution would be made to more sustainable and inclusive economic growth, a higher-level objective of both the borrower and the World Bank’s Interim Strategy Note\. Project Development Objective (PDO) 14\. The PDO is to improve irrigation water delivery to, and management in, the command area\. The command area is defined as the agricultural lands to be irrigated using infrastructure to be modernized under the project\. 15\. The PDO was not changed during project implementation\. Key Expected Outcomes and Outcome Indicators 16\. The project’s key expected outcomes are the improvement of the performance of the irrigation systems and the strengthening of the community-based irrigation management\. In addition, agricultural development is supported, which will result in a modest increase in yields in especially the upper part of the command area, but the main aim is to prepare for a comprehensive agricultural support program to be implemented during phase 2\. 17\. The key outcome indicators are (a) irrigation service delivery by service providers (WUAs) assessed as satisfactory by water users; (b) resources generated by water users for the operation and maintenance of the modernized irrigation systems; (c) increase in irrigated crop yields of main crops rice, wheat and maize (in about 40 percent of the command area at the head of the canal systems); and (d) number of female and male water users (defined as member of the WUA) provided with improved water delivery services\. Also, to be measured is the percentage of female WUA executive committee members\. Components 18\. The project has four components, as summarized in the following paragraphs\. Component 1: Scheme Modernization (estimated allocation: US$38\.6 million; actual allocation: US$33\.3 million) 19\. Under this component, the feeder canal linking the three branch canal (or irrigation) systems Rani, Jamara, and Kulariya was constructed, and the three branch canals rehabilitated and modernized\. Also, protection works were carried out to protect the command area with gabion embankment against flooding from adjacent rivers\. Village roads were improved with gravelling works, and bridges and culverts were constructed\. Page 8 of 52 The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) Component 2: Strengthening Water User Associations (WUAs) (estimated allocation: US$ 2\.2 million; actual allocation: US$1\.1 million) 20\. This component was aimed at enabling the WUAs to assume full responsibility for O&M of the infrastructure constructed under Component 1\. Based on a training needs assessment, training modules were developed and training programs carried out\. Study tours to successful WUAs were organized\. In addition, offices for each of the three WUAs in their respective irrigation scheme and central WUA offices were constructed, and office equipment and motorcycles were procured\. Component 3: Agricultural Production Support (estimated allocation: U$S2\.9 million; actual allocation: US$2\.8 million) 21\. Activities under this component included demonstrations, farmer field schools, and field-based trainings\. Strategic studies on topics such as agricultural diversification and value addition were carried out, and packages developed on topics such as integrated pest management\. High quality seed production and marketing was promoted, as well as the production and collective marketing of fruits and vegetables\. Component 4: Project Management (estimated allocation: US$4\.3 million; actual allocation: US$2\.5 million) 22\. This component supported overall project management, monitoring and evaluation (M&E), and reporting\. This included operation of a small liaison office in Kathmandu, and construction and operation of a project office in Tikapur, a town within the command area of the RJKIS; arrangement for a management and information system and M&E; dissemination of project activities; and preparation of phase 2 of the project\. B\. SIGNIFICANT CHANGES DURING IMPLEMENTATION (IF APPLICABLE) Revised PDOs and Outcome Targets 23\. The PDO and outcome targets were not changed during project implementation\. Revised PDO Indicators 24\. The PDO indicators were not revised\. In 2014 three core indicators were added: (a) water users provided with new/improved irrigation and drainage services (total and female water users); (b) client days of training provided (total and female); and (c) technologies demonstrated in the project areas (for seed storage, soil testing, and seed multiplication)\. Revised Components 25\. The components were not substantially revised during project implementation\. Page 9 of 52 The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) Other Changes 26\. The project was restructured in 2015 and 2017\. The key revision in 2015 was a no-cost extension of the loan closing date by one year\. The Restructuring Paper approved in May 2017 provided for a reallocation of IDA funds between disbursement categories—without changes in project design or safeguards\. The reallocation involved a shifting of funds from category 2 to categories 1 and 3 for the grant part of the project and did not result in the implementation of additional activities as most of the planned activities under categories 1 and 3 had been committed\. A request made in 2017 for another extension of the closing date was not agreed to\. However, financing for additional activities to be undertaken before effectiveness of the proposed phase 2 project was made possible through retroactive financing\. Rationale for Changes and their Implication on the Original Theory of Change 27\. The rationale for the extension of the project implementation period in 2015 was to allow for the completion of some of the works\. The rationale for the reallocation of funds in 2015 was that category 1 had been overdrawn due to a limited increase in civil works costs compared to the pre-bid estimates and an increase in the amounts of works, and that category 3 had been overdrawn due to an increase in the demand for agricultural demonstrations under Component 3\. The remaining funds under Component 2 were sufficient for undertaking the activities as planned\. Overall, the changes did not have implications on the original theory of change\. II\. OUTCOME A\. RELEVANCE OF PDO 28\. The PDO ‘to improve irrigation water delivery to, and management in, the command area’ remained highly relevant to Nepal’s priorities in irrigation development and management and in agricultural development\. From its initiation, the GoN had included the RJKIS project among its national priority projects\. Based on the Water Resources Strategy (2002) and the National Water Plan (2005), the Department of Irrigation (DoI) of the Ministry of Irrigation (MoI) has continued to focus on rehabilitating FMISs as one of its main themes\. Based on the experience with the phase 1 project, for example, the DoI is currently preparing a project in Babai, another FMIS in the far western Terai; it will have the same PDO (and an additional objective to reflect an integrated agricultural and water component) and the same four components as the phase 1 project\. 29\. The PDO was consistent with the World Bank’s Interim Strategy Note at the time of approval and remained consistent with the current Country Partnership Strategy (CPS) for FY14-18 (83148-NP, discussed by the Board on May 19, 2014) and its aim to support poverty reduction and shared prosperity in Nepal\. In particular, the project was aligned with Pillar 2 of the CPS ‘Increasing Inclusive Growth and Opportunities for Shared Prosperity’\. It recognizes irrigation as a key sector for Nepal’s continued efforts to reduce poverty and enhance shared prosperity in the face of increasing vulnerability to erratic monsoon floods and droughts\. The project was also consistent with the World Bank’s twin goals of ending poverty and boosting shared prosperity\. Page 10 of 52 The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) Assessment of Relevance of PDOs and Rating 30\. With the alignment of the PDO to the current CPS, as well as its relevance to Nepal’s national irrigation and agricultural policies, the relevance of the PDO is rated ‘High’\. B\. ACHIEVEMENT OF PDOs (EFFICACY) 31\. The PDO consists of two parts: (a) improve irrigation water delivery in the command area, and (b) improve irrigation water management in the command area\. An outcome that is not explicitly reflected in the PDO but is included as an outcome indicator is: increase irrigated crop yields of the main crops rice, wheat and maize in about 40 percent of the command area at the head of the canal system\. This additional outcome is included in the assessment of efficacy\. Overall, the project largely achieved the PDOs according to the agreed outcome and intermediate results indicators\. Assessment of Achievement of Each Objective/Outcome 32\. PDO #1: Improve irrigation water delivery in the command area\. This first part of the PDO, improving irrigation water delivery, mainly involved the modernization of the RJKIS’s three branch canal systems Rani, Jamara and Kulariya by constructing control and regulating structures, command area protection, and rehabilitation of the rural road system\. The three systems were developed by farmers more than a century ago\. Each had an intake point at the Karnali River, an unpredictable gravel bed river that often changes its course\. The overall command area of the RJKIS covered 14,300 ha (comprising Rani with 5,359 ha, Jamara with 4,586 ha, and Kulariya with 4,355 ha) and included about 25,000 households, or 157,000 people, with the majority comprising people from the indigenous Tharu community\. The RJKIS regularly suffered from either shortage of water or severe flood damage\. It lacked permanent intake and control structures, flood protection works, and cross drainage and escape structures\. Typical problems included difficulty of coping with changes in the river morphology and in diverting water to the three systems during low river flows, uncontrolled major flooding during high river flow events that could inundate three quarters of the command area, sedimentation of the canals; frequent wash-out of the temporary diversion works made by WUAs at the intake and offtake sites from branch to sub-branch canals, erosion of canal banks from the uncontrolled intake of water; inability to manage the water equitably and efficiently, and poor road connections that often became inaccessible during the monsoon season\. 33\. Component 1 contributed to the first part of the PDO, with the main activities comprising the following: (a) construction of a feeder canal to link the three branch canal systems, including the construction of three offtakes, three road bridges and other structures in the feeder canal along with gravelling of the service road, and feeder canal lining of 7\.3 km from the Kulariya offtake to the Jamara offtake; (b) rehabilitation and modernization of the Rani, Jamara, and Kulariya branch canals (with 16\.6 km, 15\.8 km, and 14\.5 km, respectively) focusing on intake structures, control and diversion structures, and canal bank protection; (c) command area protection works against flooding from adjacent rivers, such as the Karnali, Mohana, and Patharaiya (involving gabion projection for 12 km, 3 km, and 8 km, respectively); and (d) upgrading of village roads with gravelling (117 km) and construction of bridges and culverts\. Page 11 of 52 The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) 34\. The intermediate results were measured with five indicators on completed structures\. These indicators have been achieved or exceeded, with one exception\. A total of 15 structures, compared to the planned 7, were built in connection with the feeder canal (including road bridges, drops and siphones)\. The three intakes to branch canals were built as planned\. Instead of 10 control structures in branch canals, 15 were built\. A total of 121 bridges and culverts were built compared to the 26 initially planned, in part as a result of the increased need due to the gravelling of the service road\. The exception was the construction of the offtakes to sub-branch canals, where 33 of the planned 41 were completed\.1 35\. Over the last two seasons, irrigation water has been supplied through the newly constructed structures in the three branch canals\. While irrigators have faced over several years of project implementation disruptions in the traditionally operated canal systems as a result of the construction works along the branch canals, and irrigation water was frequently interrupted and not delivered on time, some improvements are now being felt as a result of the reshaping and lining of the feeder canal and the new intake structures in the branch canals\. Owing to these permanent intakes and control structures, the intake of water from the Karnali River can now be much better controlled for all of the three systems, benefiting agricultural production activities\. In part, because the additional GoN investments in the headworks on the Karnali River are still awaiting completion (expected in mid-2018), a year-round supply of irrigation water is currently not yet available for the whole command area\. The water management practices of the WUAs at the different levels of the scheme are also still adjusting to the new structures\. A survey assessing farmers’ satisfaction with the irrigation water delivery through the WUAs was carried out in early 2017\. It was based on interviews with farmers, with three randomly selected respondents from each of the 48 sub-branches that are connected to the three branch canals, one each from the head, middle and tail area\. About 52 percent of the interviewed farmers were satisfied\. This was a significant improvement against the baseline of 8 percent, and exceeded the target of 50 percent\. The main cause of dissatisfaction was the continuing lack of a systematic water allocation system, in particular a proportional water distribution to all sub-branches and head- and tail-enders\. Progress at these levels of the systems is expected to come from the planned phase 2 investments\. They will focus on improving the lower-order structures and further strengthen the WUAs—including those responsible for allocating water at the lower levels, such as the sub-branches—thus helping to address current concerns\. 36\. The command area protection works were mostly completed, with some of the remaining works being carried out with retroactive financing of the phase 2 project\. According to a rapid impact assessment carried out in January 2018 to assess the impacts of the different project components, irrigators and local communities felt that the structures had been constructed well and in time, and were beneficial to them leading to the protection of many villages and cultivated lands against floods\. In previous years, settlements and crops were often affected by flooding\. Some communities were forced to live in temporary resettlements in each monsoon season\. During the big flood of 2013, 75 percent of the command area (or more than 11,000 ha) were inundated\. Yet during a period of torrential rain in August 2017, when large areas of the Kailali District (where the command area of the RJKIS is located) were inundated, the RJKIS was not much affected\. According to information from the DoI, only some parts of the command area (significantly less than during the big flood of 2013) were inundated and no 1In the PAD, the baseline for this intermediate results indicator was zero —even though 5 offtakes to sub-branch canals already existed at appraisal\. Therefore, only 36 offtakes had to be constructed to reach the planned 41 offtakes\. Of these, 33 offtakes were completed (thus achieving 92 percent of the target) and 2 are still under construction\. Page 12 of 52 The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) major loss of lives, property, or agricultural land was reported\. This was the result of the proper functioning of the command area protection work and drainage facilities, and the proper operation of the new canal structures that prevented excess water from entering the three branch canals\. 37\. The investments in rural infrastructure, including the planned upgrading of 117 km of village roads to gravel roads, and the related roads, bridges, and culverts, improved connectivity, access to markets and public health facilities, and reduced road accidents and casualties (such as injuries to children and the elderly) that had frequently occurred in the monsoon season near the old wooden bridges\. The rapid impact assessment carried out in early 2018 also found that farmers were able to get higher prices for their produce because they did not have to sell them locally\. Savings up to 50 percent were reported in the transportation of goods\. The improvements in roads and bridges also contributed to increased land values, with respondents reporting a doubling of land values especially in villages near Tikapur\. 38\. PDO #2: Improve irrigation water management in the command area\. This second part of the PDO, improving irrigation water management, was mainly aimed to strengthen WUAs to assume full responsibility for O&M of the works constructed under the project\. There were three WUAs, one for each of the branch canal systems and one central WUA (WUA federation) that coordinates the three systems\. The WUAs had much experience in mobilizing members to carry out tasks such as digging channels for water diversions from the Karnali River, desilting channels, and constructing make shift intakes from forest products\. The modernization of the infrastructure required different types of management and operation activities\. 39\. Component 2 supported the second part of the PDO\. The main activities were: (a) training and support to WUAs, carried out by the DoI in collaboration with specialized consultants and nongovernmental organizations (NGOs) with a focus on the development and implementation of adequate O&M plans, setting of irrigation service fees, maintenance of records and accounts, participatory monitoring, conflict resolution, improvement of higher-order system water management, and awareness raising on ethnic and gender issues; (b) construction of office buildings and provision of office equipment and field facilities for each of the three WUAs of the three branch canals as well as the central committee; (c) motorcycles and O&M equipment for diverting sufficient water from the Karnali River and desilt feeder and branch canals; and (d) organization of study tours for the WUA committee members and selected water users to successful WUAs, including two study tours to Thailand and Indonesia\. 40\. These activities have strengthened the capability of the WUAs to shoulder more responsibility for the O&M of the modernized system\. The three WUAs at the branch canals and the WUA federation are now registered under GoN rules, and their constitutions amended\. In 2016, new WUA Executive Committees were formed for a five-year tenure\. Their operation has improved with the new office buildings and equipment\. At project completion, the targets for annual WUA Executive Committee meetings (one in each month plus an annual general assembly meeting) were fully achieved for each of the four WUAs, compared to baselines of zero\. Another target for women holding a third of the positions in WUA Executive Committees was basically achieved at project completion (overall with 32\.2 percent, including seven, six, eight, and seven female members representing Rani, Jamara, Kulariya and the central committee, respectively)\. According to the survey on farmers’ satisfaction of 2017, WUAs at the 48 sub-branches have also been established, with a total 195 female members in the committees\. Page 13 of 52 The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) 41\. Training was provided to 87 percent of the envisioned 2,500 WUA members\. The training was based on a training needs assessment for WUAs carried out in 2014\. The three WUAs at the branch canals have been expediting efforts to register all water users in their area and list them as members\. Members receive cards, and close to 16,000 cards have been issued—covering about two thirds of the water users\. 42\. The WUAs are also focusing on increasing the collection of irrigation service fees\. During project implementation, the amount collected more than tripled to NPR 1\.3 million\. The resources generated for O&M were expected to reach 90 percent of the required resources, and estimates suggest that about 67 percent have been achieved\. This is a preliminary result, as the final O&M cost, including in-kind costs, need to be reassessed when the asset management plan (AMP) with the canal operation rules is completed (with retroactive financing under the phase 2 project)\. The WUAs have plans to double the irrigation service fee from NPR 150 to NPR 300 per hectare\. The labor mobilization for maintenance work by WUAs at different levels continued, most recently involving about 170,000 days per year\. Maintenance at the head intake is carried out every year and requires several days (in the past several months) for thousands of people\. Other types of canal repair and cleaning work at the branch and sub- branch level is carried out by the concerned farmers as needed\. 43\. Additional outcome: Improve yields of main irrigated crops in about 40 percent of the command area\. The activities related to agricultural production support focused on increasing the production and productivity of not only the main irrigated crops, but also vegetables and fruits, by introducing improved technologies and practices and better use of irrigation water\. 44\. The main activities included the provision of agricultural infrastructure such as collection centers for post-harvest handling of fresh fruits and vegetables, and storage houses for seed produced by members of cooperatives and farmer groups\. Also, farmer field schools, field based trainings and demonstrations were carried out—as well as studies on options for agricultural diversification and value addition\. 45\. All intermediate results indicators, except one, were achieved\. In addition to the three existing agriculture service centers, five additional agricultural contact points were planned\. Yet the existing centers were adequate for the technicians to provide quality extension services, and the lack of the additional agricultural contact points did not constrain the activities to largely accomplish the targeted programs\. Progress for farmer field schools was 95 percent of the targeted 90 farmer field schools due to a shortage of trained facilitators\. More than 2,200 farmers were trained in subjects such as crop management and integrated pest management\. In terms of the core indicator client days of training provided, more than 180 percent of the target of 7,000 days has been achieved; for women separately, more than three times the planned 2,250 days have been achieved\. Production demonstrations conducted in individual farmers’ fields and fields selected by farmers groups were targeted at 200\. Yet, 222 primary demonstrations were conducted; an additional 836 secondary or follow-up demonstrations were established in fields for wider dissemination\. The number of technologies demonstrated in the project area was fully achieved for seed storage and seed multiplication and more than double in the case of soil testing\. More than 1,800 soil samples were tested, and farmers received recommendations for the application of deficient nutrients\. Page 14 of 52 The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) 46\. Overall, the agricultural production support was implemented through farmers groups, agricultural cooperatives, and private agricultural firms in coordination with WUAs\. It focused on a demand-driven and community participatory approach of extension while delivering targeted services\. This further included the construction of five collection centers for vegetables and fruits, more than initially envisioned due to the demand of farmers who wanted to scale up their commercial activities\. The demonstrations for cereals, for example, included 17 varieties and 52 cultivation practices for commercial cultivation\. They were shown in farmers’ fields, covering 790 ha of land and helped these and other farmers to assess and learn about the best-performing practices\. Vegetable demonstrations included cauliflower, cabbage, potato, cucumber, chilli, and tomato, among others, and covered 410 hectares\. Banana production blocs covered 145 ha\. Seed production involving paddy, wheat, and potato was carried out on 750 ha, and produced more than 3,400 tons of seed\. Also, more than 400 agricultural machines, such as power tillers and paddy and wheat harvesting machines were provided for agricultural cooperatives, private firms, and farmer groups on a 50 percent cost-sharing basis\. According to data from the Project Implementation Office (PIO), this combination of activities contributed to a better outcome than expected, with yield increases for the main irrigated crops—in particular, spring and summer paddy, wheat, and maize—higher than their respective targets\. Justification of Overall Efficacy Rating 47\. Given that the project largely achieved its intended outcomes, the overall efficacy is rated ‘Substantial’\. C\. EFFICIENCY 48\. Economic analysis\. A cost-benefit analysis was conducted to reassess the project’s ex post economic viability\. Except some modifications, the analysis followed the approach adopted in the PAD to ensure methodological consistency and comparability\. 49\. Before phase 1, around 11,000 ha of the total RJKIS command area of 14,300 ha were linked to the canal irrigation network; yet water delivery was unreliable and insufficient, especially in the winter months\. The remaining 3,300 ha were rainfed (not linked to the canal irrigation network), and prone to uncontrolled annual flooding during the monsoon season\. During high river flow events, there could also be major flooding of up to three-quarters of the total command area\. Overall, the RJKIS lacked permanent intake and control structures, diversion and drop structures, flood protection structures, and cross drainage and escape structures\. 50\. The economic and financial analysis at appraisal expected that benefits would be derived from increased production, intensification of production, and reduced productivity losses caused by uncontrolled flooding\. In particular, the following benefits were assumed: (a) a 10 percent increase in agricultural production at the head section of the command area with 6,000 ha, (b) an increase in cropping intensity in from 157 percent to 191 percent (as a weighted average for the entire command area), (c) a 10 percent reduction in paddy yield losses caused by uncontrolled flooding, and (d) modest crop diversification in winter and spring crop seasons toward wheat, maize, and vegetables\. The benefits were measured with three farm models that represented typical situations of farms located in the head, middle, Page 15 of 52 The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) and tail-end sections of the command area\. The analysis was carried out for a period of 25 years at 2010 prices and used an opportunity cost of capital (OCC) of 12 percent\. The financial rate of return (FRR) was estimated at 13\.4 percent, the financial net present value (FNPV) at NPR 118\.2 million and the benefit-to- cost ratio (BCR) at 1\.04\. The economic rate of return (ERR) was estimated at 16\.9 percent, the economic net present value (ENPV) at NPR 415\.0 million, and the BCR at 1\.16\. 51\. During project implementation, the project benefits were not monitored separately for the head, middle, and tail-end sections of the irrigation scheme\. Thus, the economic and financial analysis at the Implementation Completion and Results Report (ICR) stage did not follow the farm model-based approach of the appraisal analysis\. Instead, it reassessed economic and financial benefits for the entire command area (with a success rate of 65 percent) based on actual crop yields, cropping intensity, and cropping patterns\. Since the crop yields reported in the PIO data were based on a few samples from farmers’ fields, the analysis used slightly more conservative yield levels\. Apart from these modifications, the ICR analysis used the same approach as the appraisal analysis, including a project life of 25 years and an OCC of 12 percent\. 52\. The ICR analysis estimated an ERR at 14\.3 percent and FRR at 12\.5 percent, somewhat lower than the appraisal values\. The ENPV at NPR 451 million and FNPV at NPR 146\.4 million were modestly higher than the appraisal values, largely due to the use of 2017 prices\. The average incremental net return was estimated at NPR 26,600 per hectare, higher than the appraisal estimate of NPR 22,000 per hectare\. 53\. Overall, even with a transfer of the parts of command area protection works (protecting around 1,000 ha in the command area) to phase 2 and a no cost extension of the project implementation period (that affected the accumulation of benefits), the phase 1 investments were estimated to generate a higher FNPV and ENPV and a higher BCR than the appraisal values but somewhat lower rates of return\. More details are in annex 4\. 54\. Administrative efficiency\. The administration of the project was planned for a five-year period from November 2011 to September 2016\. Even though project implementation was delayed by a number of factors, including external factors beyond project control (see section III\.B\.), it was only extended by a year\. The delays concerned all project components, and much effort was made, including during the last year of project implementation with the strengthening of WUAs, to still achieve most key outputs\. 55\. A restructuring in 2015 provided for the project extension and the use of savings in IDA loan and grant amounts for additional works and activities\. The savings resulted from competitive procurement of civil works, consultancies, and goods—with some contracts awarded below the amounts estimated at appraisal (see annex 3)\. A second restructuring in 2017 provided for a reallocation of IDA funds between disbursement categories and did not result in the implementation of additional activities\. Assessment of Efficiency and Rating 56\. Including both the efficiency of the economic analysis and the administrative efficiency, efficiency can be rated ‘Substantial’\. Page 16 of 52 The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) D\. JUSTIFICATION OF OVERALL OUTCOME RATING 57\. Based on the above-mentioned assessment and ratings—relevance of the PDO rated High, efficacy of the PDO rated Substantial, and efficiency of the project rated Substantial—the overall outcome rating of the project is rated ‘Moderately Satisfactory’\. E\. OTHER OUTCOMES 58\. Gender\. Even though the phase 1 project was not gender-tagged, it contributed to some extent to the closing of gender gaps\. Three indicators under Component 1 and one indicator under Component 3 were monitored disaggregated by gender, including (a) number of water users (defined as member of the WUA) provided with improved water delivery services, (b) number of water users provided with new/improved irrigation and drainage services, (c) percentage of female WUA Executive Committee members, and (d) client days of training provided\. The targets for the first and second indicators involved more male than female water users; both targets were not fully met, neither for male nor female water users\. Regarding the third indicator, membership in the WUA Executive Committees, the share of women significantly increased from 19\.0 percent to 32\.2 percent—close to the target of 33 percent set by the project, as well as by the GoN, for the WUA Executive Committees\. The fourth indicator, client days of training, related to Component 3 was more than three times higher for women than planned (with 7,453 days as compared to 2,250 days)\. The number of days for men was also higher, but to a lesser extent (with 5,385 days as compared to 3,750 days)\. This indicates a strong demand from women to be trained in subjects related to improved agricultural production\. Furthermore, the training for strengthening WUAs under Component 2 also included courses with modules on women’s participation in irrigation\. 59\. Institutional strengthening\. The phase 1 project contributed to institutional strengthening, particularly of the WUAs in the RJKIS (see section II\.B\.)\. III\. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME A\. KEY FACTORS DURING PREPARATION 60\. Phasing of project\. The initial Concept Note of the GoN envisioned one large project, with the modernization of the higher-order infrastructure (intakes and feeder and branch canals) as well as the lower-order infrastructure (sub-branch and tertiary canals and water courses) combined under Component 1\. Limited IDA funding at the time prevented this approach\. Also lessons from similar projects with large irrigation infrastructure components suggested that a phased approach is often better to allow institutional and agricultural components to also be implemented well\. Therefore, at appraisal, support to the modernization of the RJKIS was proposed in two phases\. Phase 2 was to start about two years after the start of phase 1, when the construction works on the branch canals and intakes was ongoing, to ensure a good overlap of the two phases\. 61\. At appraisal, an alternative design of phase 1 was considered, but not adopted, that is, to fully complete (with higher- and lower-order infrastructure investments) at least one of the three irrigation Page 17 of 52 The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) systems\. However, consultations with the WUAs and other stakeholders revealed that this approach would contribute to tension and possibly conflict among local beneficiaries\. Thus, a conflict sensitive approach was selected with an equal and equitable development of the three irrigation systems under the two phases\. 62\. Design of components and results framework\. The above background on the phasing of the project partly explains the design of the components and results framework for phase 1\. The design followed the Concept Note of the GoN with the three key components: scheme modernization, WUA strengthening, and agricultural production support\. Yet it envisioned that the main aim of the agricultural production support provided under phase 1 would be to prepare for a comprehensive agricultural support program to be implemented under phase 2\. 63\. In line with this thinking, the activities under Component 3 on agricultural production support were not included in the PDO, but reflected in an outcome indicator\. They were expected to lead to some gains in production increases, crop diversification and improved marketing\. The outcome indicator focused on increased yields for the main irrigated crops rice, wheat, and maize\. Modest increases were expected to occur especially in the upper part of the command area, and less in the lower command area as no investments in the lower-order irrigation infrastructure were planned for phase 1\. 64\. Adequacy of risk assessment\. At appraisal, the key project risks were adequately identified— including risks related to project stakeholders, the implementing agencies, and the project —and mitigation measures were proposed\. For example, to address the risk associated with contracts and contract management for the capital-intensive infrastructure works, it was recommended to use, to the extent possible, International Competitive Bidding (ICB) as the mode of procurement\. To ensure that the design of the infrastructure is conducive to the capacity of WUAs to properly operate and maintain them, the design was to be based on modern design standards yet compatible with local conditions and sustainable with acceptable levels of O&M requirements\. B\. KEY FACTORS DURING IMPLEMENTATION 65\. Government commitment and implementation arrangements\. Arrangements for project implementation were made at the national and local levels\. A Project Steering Committee with representatives from the relevant ministries and chaired by the Secretary of the MoI was set up as the apex body for the project\. The DoI had the main responsibility for project implementation, with the Department of Agriculture (DoA) of the Ministry of Agricultural Development as the implementing agency for the agricultural production support under Component 3\. A small liaison office was established in the DoI, but the PIO was located in Tikapur, a town within the command area of the RJKIS\. Component 3 was implemented for the first two years by the District Agriculture Development Office (DADO) in Dhangadhi, a town situated 110 km away from the project site, and later by a separate office, the Agriculture Component Implementation Unit, established in Tikapur\. The commitment and leadership of the GoN was evident though the attention and support the project received at all levels of the Government\. 66\. Implementation issues\. Project implementation was at times delayed by external factors that were beyond the control of the project, and internal factors that over time could be addressed\. Page 18 of 52 The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) 67\. Among the external factors was a big flood in 2013 that inundated a large part of the command area, and washed away part of the construction at the GoN funded abstraction works on the Karnali River\. A major earthquake in April 2015 caused significant disruption to the construction activities under Component 1\. While the direct impacts on the command area were limited, many machine operators, drivers, engineers and other staff came from districts that were severely impacted\. They had to leave to take care of their families, and hence work suffered during the peak construction season\. Frequent flooding of the command area during the monsoon season also led to the stoppage of work in the branch canals\. An economic blockade in the Terai along India’s border with Nepal, that began in September 2015 led to a shortage of fuel, cement, and other construction materials; and again, to significant disruption of the construction work\. 68\. Among the internal factors was the good but slower-than-expected work of one of the ICB contractors under Component 1; this was partly due to another contract on the main conveyance canal funded by the GoN\. Implementation of Component 3 was difficult for the first two years when it was managed by the DADO from Dhangadhi\. After the establishment of the separate office in Tikapur, service delivery accelerated, but a shortage of qualified DoA staff—especially in areas such as agronomy and plant protection—continued to affect implementation\. 69\. Frequent staff changes at the PIO, including the project director, senior engineers and other key staff, also had impact on project implementation\. Disruptions occurred specially when transfers took place, making the tasks difficult for the incoming staff, the contractors, and the water users\. The position of sociologist was kept vacant for a substantial period of time which affected the interactions with WUAs and the implementation of training program under Component 2\. The PIO staff included an environmental expert only at the beginning of project implementation; later this position was not filled any more\. The lack of dedicated M&E staff affected the amount and quality of project monitoring data\. IV\. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME A\. QUALITY OF MONITORING AND EVALUATION (M&E) M&E Design 70\. The project followed a clearly structured theory of change, as described in section I\.A\. It outlined how project activities of each component would contribute to achieving the PDO\. The PDO was disaggregated into four main PDO indicators that covered the activities’ contribution to the PDO\. 71\. The M&E activities under Component 4 envisioned a project monitoring, learning, and evaluation (MLE) framework to facilitate (a) results-based management through timely monitoring, analysis, and feedback of relevant indicators; (b) learning and process enhancement, through process monitoring by participatory methods, involving reviews and satisfaction survey; and (c) impact evaluation, involving the use of appropriate baseline and controls\. An M&E specialist in the PIO would be responsible for planning and coordinating the MLE activities, involving the implementing departments, an external M&E agency for intermittent surveys and studies, and the beneficiaries, primarily WUAs\. The PIO, supported by short-term consultants, would have overall responsibility for developing systems and procedures for appropriate Page 19 of 52 The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) analysis and presentation of the collected monitoring and learning data to ensure appropriate use of the indicators for project MLE\. 72\. The MLE activities were designed to include baseline studies, regular performance tracking of inputs and outputs by concerned implementing departments, intermittent performance monitoring by an external M&E agency, systematic (panel data type) analysis of project impacts through repeated monitoring of the same sample set of water users (farmers) through the project lifetime, and mid-term and final impact evaluations\. M&E Implementation 73\. The M&E activities were not implemented as designed, although a few World Bank missions mentioned the issue\. A mission in 2012 found that the Project Implementation Manual was inadequate in describing the requirements for an effective M&E system, and recommended that an M&E plan and terms of references for an M&E specialist be prepared\. A mission in 2014 downgraded the M&E performance rating to ‘Moderately Satisfactory’ due to the delay in recruiting the M&E specialist\. The Mid-term Review identified gaps in data collection, and recommended that contracts be awarded for conducting the specialized M&E studies as planned\. In 2016, an activity of the World Bank’s Development Impact Evaluation (DIME) initiated an impact evaluation of the modernization of irrigation systems and agricultural extension services\. Although the DIME activity was conducted and outcomes were useful for the preparation of phase 2, it could not serve as project M&E\. 74\. With the lack of an M&E specialist, the PIO focused on the systematic monitoring of the indicators of the results framework\. Contracts were also closely monitored\. A number of useful surveys were carried out, including (a) a survey based on a representative sample of households in the command area to establish a pre-intervention baseline for Component 3 in 2013 (with smaller follow-up surveys related to the agricultural support activities in the following years), (b) a training needs assessment of the WUAs for Component 2 in 2014, (c) a study on the status of project affected people of 2015, (d) a survey assessing farmers’ satisfaction with the irrigation water delivery through the WUAs for Component 1 in early 2017 , and (e) with retroactive financing, a rapid impact assessment for the overall project in January 2018\. M&E Utilization 75\. The M&E activities under phase 1 were used effectively to track the changes in outcome and intermediate results indicators and collect data in specialized studies\. The PIO acknowledges the need for phase 2 to mobilize full-time consultants for M&E\. It also plans to request the development of M&E software for phase 2\. Justification of Overall Rating of Quality of M&E 76\. M&E was not carried out as designed\. An M&E specialist was not hired, and the PIO staff carried out multiple tasks, including M&E roles\. Sufficient data were collected to allow the monitoring of the outcome and intermediate results indicators, and overall impacts were assessed in a study after project closing\. Therefore, the overall rating of quality of M&E is ‘Modest’\. Page 20 of 52 The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) B\. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE 77\. Environmental compliance\. The RJKIS abstracts water from the Karnali River, a major left-bank tributary of the Ganges River\. With its source in China, the Karnali River flows through Western Nepal into India\. It was thus identified as an international waterway for purposes of OP 7\.50\. Before phase 1, diversion of Karnali River water into the three branch canals of the RJKIS was uncontrolled, typically with excessive water entry and large losses through seepage and water logging\. With the expectation that the phase 1 investments would result in a reduction of water abstraction from the Karnali River, estimated at over 40 percent of the previous water abstraction, an exception to the notification requirement under OP 7\.50 was received from South Asia’s Regional Vice President in February 2011\. 78\. The environmental risks identified during preparation were mainly related to construction disturbances, human health and safety issues, as well as tree/forest and biodiversity issues\. Hence, OP 4\.01, OP 4\.04, and OP 4\.36 were triggered\. The adverse impacts on human health and safety and the natural environment were related to physical construction activities\. Furthermore, the Karnali and Mohana Rivers are known to have important aquatic species, and there were reports of occasional movement of wildlife in the adjoining forests\. Adjoining the command area of the RJKIS are community forests, and some sections of the feeder canal constructed under Component 1 were located in the community forests\. Hence, during project preparation, the DoI prepared the Initial Environmental Examination (IEE) as required by country law, and the Environmental Management Plan (EMP) to meet the World Bank environmental safeguard policies\. Specific mitigation measures related to OP 4\.01, OP 4\.04, and OP 4\.36 were identified in the IEE and EMP\. 79\. Project implementation did not encounter any highly significant or sensitive impacts\. During the early stage of project implementation, delays occurred in implementing some of the mitigation measures\. However, this improved over time as the PIO formed the Local Environmental Monitoring Committee; hired an environmental specialist; organized orientations to the contractor and awareness training to local stakeholders; and engaged with Community Forest User Groups, the District Forest Office, the National Park Authority, and local NGOs\. 80\. The main environmental mitigations work implemented included compensatory plantation for the loss of trees/ forest, water sprinkling to control dust, restriction on extraction of sand and gravel from river banks, sanitation facilities for workers, health and safety provisions, awareness raising on biodiversity, including Dolphin conservation, and awareness training on the risk of pesticide use, integrated pest management, and forest area fencing works for promoting the regeneration of trees and the protection of existing trees\. One of the difficulties faced during implementation was frequent turnover and, at times, absence of the environmental specialist—leading to inadequacy in regular on-site supervision, support, and coordination\. Overall, environmental performance was rated ‘Moderately Satisfactory’\. 81\. Social safeguards\. During project preparation, the DoI conducted a social assessment, based on which the Social Impact Management Framework (SIMF) was prepared\. The SIMF provided the detailed planning procedure to address the possible social impacts under the project\. It covered involuntary resettlement in compliance with World Bank OP 4\.12 on Involuntary Resettlement; issues related to indigenous people in compliance with OP 4\.10 on Indigenous Peoples; gender and social inclusion; as well Page 21 of 52 The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) as information dissemination, communication, consultation, and participation\. The SIMF included a Land Acquisition and Resettlement Framework; a Vulnerable Community Development Framework; a Gender Equality and Social Inclusion Strategy; and an Information, Communication, and Consultation and Participation Strategy\. 82\. During project implementation, no need for acquisition of private land arose but a few private structures were affected\. A Resettlement Action Plan (RAP) and an Indigenous Vulnerable Community Development Plan (IVCDP) to manage social impacts due to construction of the feeder canal were prepared in line with the SIMF\. The compensation covered cost of the structures and housing, business disruption allowances, and additional support to vulnerable groups among the households affected by the project\. These compensation amounts were paid in accordance with the valuation criteria set by the Compensation Fixation Committee\. However, training activities planned under the RAP and mitigation measures in the IVCDP could not be implemented as there was a change in community needs due to the delay in implementing the plans\. The Social Environmental and Institutional Unit, responsible for implementation of social safeguard activities, suffered from frequent turnover and absence of staff/specialist which greatly affected timely support, implementation, and monitoring of the planned mitigation activities\. During the preparation of phase 2, the social safeguard implementation gaps during phase 1 were assessed and, in consultation with the concerned community, mitigation plans were prepared\. 83\. Procurement\. The activities under Component 1 were carried out under two large ICB contracts (ICB-1 and ICB-2), several National Competitive Bidding contracts for command area protection works, and consulting services for tasks such as construction supervision and quality insurance\. Overall, procurement management was satisfactory with the timely completion of most procurement activities\. 84\. A number of challenges had to be overcome\. The work of the ICB-1 contractor was affected by the frequent transfer and turnover of key engineering staff\. Significant design changes became necessary after contract agreement\. Due to inadequate planning of supervision arrangements for the construction works, the allocated operating costs were quickly exhausted and alternative funding had to be sought\. Mobilization of personnel was delayed due to a long duration of unrest in Kailali, the district within which Tikapur and the command area of the RJKIS are located\. Delays also occurred due to frequent flooding in the command area, the major earthquake in April and, later in 2015, the economic blockade along India’s border with Nepal that led to a shortage of construction materials for several months\. Yet, despite such an adverse environment, the PIO team managed—through a continuous effort in reaching out to contractors, local agencies, and WUAs—to ensure the completion of almost all envisioned construction activities before project closing\. 85\. Financial management\. The project complied with the fiduciary covenants\. The books of accounts were properly maintained and updated\. The timeliness and quality of the financial monitoring reports (FMRs)/interim unaudited financial reports (IUFRs) were satisfactory\. There were some delays in the submission of audit reports, and auditors provided unqualified opinions in the audit reports\. The internal control arrangements were found adequate\. There were no outstanding FMRs/IUFRs, audit reports, or audit issues\. According to the last Aide Memoire, financial management performance was satisfactory\. The separate budgetary allocation, a strong financial management team, and good coordination were key to a smooth implementation\. Page 22 of 52 The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) C\. BANK PERFORMANCE Quality at Entry 86\. The project’s quality at entry was satisfactory\. The design of the project was strategically relevant, and in line with a well-prepared Concept Note of the GoN\. The Government’s decision to assist the farmers in one of the largest FMISs in the country, and to request World Bank assistance, was also in line with its overarching objective of sustainable economic growth and poverty reduction as it would help one of the poorest areas in the Kailali District\. The area is also inhabited by the indigenous Tharu community which make up about 48 percent of the local population\. The Tharus are known for their skills in digging and managing irrigation channels\. The uncontrolled flow of the Karnali River water into their systems through rudimentary channels and temporary brushwood and gabion works burdened them in terms of constant upkeep of the systems and made the diversion of river water into the branches, sub-branches, tertiary canals, and onto farmers’ land difficult\. 87\. The design of the project took into consideration lessons learned from the management and O&M by the WUAs of the RJKIS who for more than a century had used and improved upon their traditional methods\. The project was designed to largely keep these effective traditional customs in place\. The project also considered lessons from other nearby irrigation systems—especially from the Rajapur Irrigation System, another large FMIS located near the RJKIS, and also using water from the Karnali River\. Especially the design of the structures for protecting the command area was partly influenced by the lessons learned from the Rajapur Irrigation System\. The inclusion of these activities would save farmers’ land and villages from annual flooding and constant erosion from floodwaters of various neighboring rivers\. 88\. Fielding of World Bank task teams with capable technical, social, environmental, and fiduciary members added to the quality at entry\. Risk ratings and the M&E design were adequate\. Proper consultations with the GoN and with stakeholders in the field seem to have taken place\. The SIMF and EMP ensured that strong safeguard tools were built into the project design\. Another strong feature was the establishment of full-fledged project office in Tikapur, a town located in the project area\. Quality of Supervision 89\. The quality of supervision was satisfactory\. The World Bank task team provided implementation support to the GoN with sufficient staff and knowledge resources\. Aide-Memoires were regularly prepared, except during the period of the devastating earthquake event and the period of political unrest in the project area when the World Bank missions were suspended\. The task team drew the attention of the GoN and the PIO team to the issues in project implementation and provided appropriate advice and suggestions\. 90\. The Implementation Status and Results Reports (ISRs) realistically rated the performance of the project both in terms of achievement of development objectives and project implementation\. Implementation progress (IP) was continuously rated ‘Moderately Satisfactory’ starting from ISR-4 until ISR-11—mainly due to the slow progress of work under the ICB-1 contract\. Because of the delay in completing some of the important control structures which could have affected the project in meeting Page 23 of 52 The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) the project objective, the task team rightly downgraded the PDO rating from ‘Satisfactory’ to ‘Moderately Satisfactory\.’ The Practice and Country Management seemed to have provided proper guidance to the task team on this\. The task team regularly monitored safeguard and fiduciary compliances and drew attention on the need to establish an M&E system\. Constant project monitoring also helped address the main procurement issues, and the ICB-1 works were to a large extent completed on time\. The World Bank conducted a Mid-term Review in November/December 2014 and assessed progress on all project components, implementation issues, and the actions to be taken to ensure a successful completion of the project\. There was no turnover in team leadership or in members of the key team for a major part of the implementation period\. A change in team leadership only took place in April 2017\. Justification of Overall Rating of Bank Performance 91\. Based on the quality of World Bank performance at entry and at supervision, the overall rating of World Bank performance is ‘Satisfactory’\. D\. RISK TO DEVELOPMENT OUTCOME 92\. Even though the WUAs have been strengthened during the project, a risk to development outcome pertaining to project completion of phase 1 is the ability of the WUAs to assume full responsibility for the O&M of the modernized infrastructure under Component 1\. This necessitates the adaptation of a well-established traditional system involving many water users with small land holdings to the requirements of new irrigation infrastructure\. Much of the training activities under Component 2 has taken place only toward the end of the project implementation period\. According to the survey assessing farmers’ satisfaction carried out in early 2017, among the issues that still need to be addressed are the mobilization of all farmers for canal maintenance, an increased ability of the WUAs to carry out all their responsibilities, more awareness among farmers on the WUA functioning, and increased transparency and more effective communication by WUAs\. Another issue is that the WUA Executive Committees at the sub-branch levels have only recently been formed under the provision of the amended WUA constitutions and are not yet carrying out their roles and responsibilities\. They will be necessary to improve water allocation in the lower levels of the system\. According to the satisfaction survey, farmers feel that under phase 2 permanent intakes in all sub-branches and tertiary canals should be constructed to replace the temporary ones that traditionally have been manually secured\. 93\. The full O&M cost have not yet been determined because under phase 1 only higher-level infrastructure works were constructed, with some of them not yet fully operational\. O&M requirements may increase (though probably require less manual labor over time), and WUAs need to be able to manage the required resources\. Irrigation service fees are increasingly collected by the WUAs, but are currently not sufficient to meet the requirements in the three irrigation systems\. The AMP and the O&M manual are still under development with retroactive financing from the phase 2 project\. After their dissemination to the WUAs, a training program on the AMP and the O&M manual will be launched\. Another training program will be launched on the collection of irrigation service fee which can be in cash or labor contribution\. The traditional system of ‘Desawar’, the mass labor contribution by water users, will continue to be important for the desilting and reshaping of canals, but structural maintenance and some operational activities will require collected cash\. Aware of this risk to the development outcome, the Page 24 of 52 The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) design of phase 2 includes a substantial subcomponent on further strengthening of WUAs\. V\. LESSONS AND RECOMMENDATIONS 94\. Proper phasing of activities\. The phase 1 investments were designed based on the insight from the implementation of many irrigation projects that a focus solely on irrigation infrastructure (off- or on- farm) for improving water delivery and management may not achieve much in terms of higher-level outcomes\. Yet when infrastructure works are combined with institutional strengthening and agricultural support, the proper phasing of activities becomes important\. This tends to require coordination across different ministries and departments, and the timely involvement of relevant expertise in the project office and in the field\. This becomes even more important in an environment with high risks and uncertainties such as the one in Nepal\. 95\. In the case of modernization of the RJKIS, a decision was made during project preparation to design the interventions in two phases\. Phase 2 was originally envisioned to start after about two years of implementation of phase 1 when the construction on the three branch canals and intakes had begun\. It will now start several months after closing of phase 1, just in time to provide retroactive financing for the completion of some of the phase 1 activities\. The effect of this delay on the functioning of the RJKIS and the activities of the WUAs and water users in different parts of the command area has not been assessed, but it is likely to be nontrivial\. While the agricultural support component was not reflected in the PDO of phase 1, it played a major role in the creation of project benefits\. With its demand-driven and community participatory approach, farmers and farmer groups were keen to participate in its activities\. This interest will likely increase even more when the lower-order infrastructure investments of phase 2 will be initiated\. To help farmers benefit as much as possible from the additional gains in production, productivity, and diversification, it will be important to strengthen post-harvest support and marketing as part of phase 2\. 96\. The interventions of phase 1, combined with those planned under phase 2, focus on a particular approach for modernizing a large FMIS which the GoN intends to expand and replicate in other FMIS\. It may be worthwhile to explore an additional phase 3 activity that would more broadly help the GoN address policy and institutional reforms to facilitate these modernization efforts while at the same time ensuring more efficient allocation and sustainable management of water resources\. 97\. Focus on gender and social inclusion\. Phase 1 drew attention to the role of women as water users and WUA members with the monitoring of several gender-disaggregated indicators\. Yet women faced a number of constraints that should be further addressed during phase 2\. For example, the baseline survey of 2013 indicated that women are much less likely than men to own land\. Yet land ownership is a precondition for formal WUA membership, including the right to vote on key decisions such as water management, O&M, and labor contributions\. Currently even the wives of landowning men who left for work in a city cannot participate in WUA decision making\. Women owning land are, on average, also likely to hold smaller land sizes than men (less than 15 percent of land holdings in the RJKIS are larger than 0\.5 ha, according to the baseline survey of 2013)\. Yet Component C under phase 1 engaged with its improved seed activities only with individual landholders or farmer groups owning a minimum of 0\.6 ha; this made it difficult for many women to participate\. A related problem pointed out in the farmer satisfaction survey Page 25 of 52  The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) of 2017 was that, under the current WUA rules, households need to provide equal amounts of labor contribution for canal maintenance—independent of the size of their land holdings\. This is likely to create an extra burden for women owning land\. More attention needs to be given to such gender-related issues in phase 2\. 98\. The baseline survey of 2013 suggested that about seven percent of the households in the command area do not own land\. Such households benefited from the project only indirectly through the additional farm labor due to the increased construction and agricultural activities\. Landless farmers have recently been granted public lands by the GoN\. Under phase 2, care should be taken so that they are able to directly access the irrigation-related improvements if their land is located within the command area\. 99\. Addressing climate risks\. The command area of the RJKIS is exposed to the climate risks of flooding in the monsoon period and drought in the winter months\. Climate projections for the region suggest that rainfall is likely to intensify in flood-prone areas, while water-scarce regions become even more drought-prone\. The phase 1 investments, especially the higher-order infrastructure works for improved water delivery in the command area, are likely to have helped address some of these climate risks\. For example, the improved control of water intake and the more adequate drainage capacity in connection with the command area protection works have contributed to the prevention of major losses during the last big flood in 2017\. The water allocation during the dry winter months has, to some extent, also improved, but probably more in the upper than in the middle and lower sections of the command area\. The activities under phase 2 need to focus on further addressing these climate risks, particularly with the lower-order infrastructure investments and the additional command area protection works, and closely involve the WUAs at the different levels of the systems in the design and implementation of the activities\. \. Page 26 of 52  The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) ANNEX 1\. RESULTS FRAMEWORK AND KEY OUTPUTS A\. RESULTS INDICATORS A\.1 PDO Indicators Objective/Outcome: Improved irrigation water delivery in the command area Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Water users provided with Number 0\.00 25000\.00 15769\.00 new/improved irrigation and drainage services (number) 05-Jul-2011 30-Sep-2016 30-Sep-2017 Water users provided with Number 0\.00 6000\.00 3400\.00 irrigation and drainage services - female (number) 05-Jul-2011 30-Sep-2016 30-Sep-2017 Comments (achievements against targets): This core sector indicator was added in April 2014\. At completion, the project achieved 77percent of its original target for the total number of water users, and 57 percent for the female water users\. The values are based on certified WUA membership\. The achievement are lower than the target, partly because some of the modernized infrastructure is not yet fully operational, awaiting completion of GoN- funded part of the headworks by late FY18\. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Irrigation service delivery by Percentage 8\.00 50\.00 52\.10 Page 27 of 52  The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) service providers (WUAs) 05-Jul-2011 30-Sep-2016 30-Sep-2017 assessed as satisfactory by water users (measured in percentage of water users)\. Comments (achievements against targets): At completion, the project achieved 104 percent of its original target\. The assessment is based on a satisfaction survey conducted in May 2017\. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Number of female and male Number 0\.00 25000\.00 15769\.00 water users (defined as member of the WUA) 05-Jul-2011 30-Sep-2016 30-Sep-2017 provided with improved water delivery services\. Number of female water Number 0\.00 6000\.00 3400\.00 users\. 05-Jul-2011 30-Sep-2016 30-Sep-2017 Number of male water Number 0\.00 19000\.00 12369\.00 users\. 05-Jul-2011 30-Sep-2016 30-Sep-2017 Percentage of female WUA Percentage 19\.00 33\.00 32\.23 Executive Committee members\. 05-Jul-2011 30-Sep-2016 30-Sep-2017 Comments (achievements against targets): At completion, the project achieved 63 percent of its original target for total number of water users, 57 Page 28 of 52  The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) percent for female water users, and 65 percent for male water users\. The values are based on certified WUA membership\. The achievements are lower than the targets, in part because some of the modernized infrastructure is not yet fully operational, awaiting completion of GoN-funded part of the headworks by late FY18\. The project also achieved 98 percent of the original target for female WUA Executive Committee members\. Objective/Outcome: Improved irrigation water management in the command area Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Resources generated by Percentage 50\.00 90\.00 67\.00 water users for the operation and maintenance of the 05-Jul-2011 30-Sep-2016 30-Sep-2017 modernized irrigation systems (measured in percentage of required resources)\. Comments (achievements against targets): At completion, the project achieved 74 percent of its original target\. However, the final O&M cost, including in-kind costs, need to be further assessed after the completion of the asset management plan with the canal operation rules\. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Increase in irrigated crop Metric ton 0\.00 0\.00 0\.00 yields of main crops rice, wheat, and maize in about 05-Jul-2011 30-Sep-2016 30-Sep-2017 40% of the command area, at the head of the canal systems\. Paddy (winter) Metric ton 2\.80 3\.10 3\.20 Page 29 of 52  The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) 05-Jul-2011 30-Sep-2016 30-Sep-2017 Paddy (monsoon) Metric ton 2\.60 2\.90 3\.10 05-Jul-2011 30-Sep-2016 30-Sep-2017 Wheat Metric ton 1\.70 1\.90 3\.00 05-Jul-2011 30-Sep-2016 30-Sep-2017 Maize Metric ton 1\.60 1\.80 2\.90 05-Jul-2011 30-Sep-2016 30-Sep-2017 Comments (achievements against targets): At completion, the project achieved 103 percent of its original target for paddy (winter), 107 percent for paddy (monsoon), 158 percent for wheat, 161 percent for maize\. The yield values are based on crop cutting samples from farmer s’ fields\. A\.2 Intermediate Results Indicators Component: Component 1\. Scheme Modernization Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Completed Structures\. Number 0\.00 0\.00 0\.00 05-Jul-2011 30-Sep-2016 30-Sep-2017 Road bridges on branch Number 0\.00 26\.00 121\.00 Page 30 of 52  The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) canals 05-Jul-2011 30-Sep-2016 30-Sep-2017 Offtakes to sub-branch Number 0\.00 41\.00 33\.00 canals 05-Jul-2011 30-Sep-2016 30-Sep-2017 Control structures in branch Number 0\.00 10\.00 15\.00 canals 05-Jul-2011 30-Sep-2016 30-Sep-2017 Road Bridges, drops, Number 0\.00 7\.00 15\.00 siphons, etc\. on feeder canal 05-Jul-2011 30-Sep-2016 30-Sep-2017 Intake to branch canals Number 0\.00 3\.00 3\.00 05-Jul-2011 30-Sep-2016 30-Sep-2017 Comments (achievements against targets): At completion, the project achieved 465 percent of its original target for road bridges on branch canals\. This was the result of an increase need for these structures due to the gravel construction\. (They included 11 bridges, 15 culverts, and 95 hume pipe culverts\.) The project also achieved 80 percent of its original target for offtakes to sub-branch canals (see footnote 1 in the main text), 150 percent for control structures in branch canals, 214 percent for road bridges, drops, siphons, etc\. on feeder canal, and 100 percent for intakes to branch canals\. Component: Component 2\. Strengthening Water Users Associations Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Page 31 of 52  The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) Number of Executive Number 0\.00 13\.00 13\.00 Committee meetings and General Assembly meetings 05-Jul-2011 30-Sep-2016 30-Sep-2017 held per WUA (Annual, not cumulative)\. Comments (achievements against targets): At completion, the project achieved 100 percent of its original target\. As envisioned, each of the three branch canal WUAs and the federation WUA held executive monthly meetings\. General assembly meetings were held on an annual basis\. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion No of WUA members trained Number 0\.00 2500\.00 2177\.00 (annual number)\. 05-Jul-2011 30-Sep-2016 30-Sep-2017 Comments (achievements against targets): At completion, the project achieved 87 percent of its original target\. Component: Component 3\. Agricultural Production Support Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Technologies demonstrated Number 0\.00 5\.00 7\.33 in the project areas (number) 05-Jul-2011 30-Sep-2016 30-Sep-2017 Comments (achievements against targets): This core sector indicator was added in April 2014\. At completion, the project achieved 147 percent of its original target\. This is an average of three key technologies demonstrated: seed storage (original target 5, actual achieved value 5), soil testing (original target 5, actual achieved value 12), and seed multiplication (original target 5, actual achieved value 5)\. Page 32 of 52  The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Client days of training Number 0\.00 7000\.00 12838\.00 provided (number) 05-Jul-2011 30-Sep-2016 30-Sep-2017 Client days of training Number 0\.00 2250\.00 7453\.00 provided - Female (number) 05-Jul-2011 30-Sep-2016 30-Sep-2017 Comments (achievements against targets): This core sector indicator was added in April 2014\. At completion, the project achieved 183 percent of its original target for total client days, and 331 percent for training days for female clients\. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Agriculture Service Center Number 3\.00 3\.00 3\.00 and Agriculture Contact Points active and providing 05-Jul-2011 30-Sep-2016 30-Sep-2017 advisory services\. Comments (achievements against targets): At completion, the project achieved 100 percent of its original target\. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Number of farmer field Number 0\.00 0\.00 0\.00 Page 33 of 52  The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) schools and demonstrations 05-Jul-2011 30-Sep-2016 30-Sep-2017 implemented (annual number)\. Farmers Field Schools Number 0\.00 90\.00 86\.00 05-Jul-2011 30-Sep-2016 30-Sep-2017 Demonstrations Number 0\.00 200\.00 222\.00 05-Jul-2011 30-Sep-2016 30-Sep-2017 Comments (achievements against targets): At completion, the project achieved 96 percent of its original target for farmers field school, and 111 percent for demonstrations\. In addition to the 222 demonstrations, 836 follow-up demonstrations were established in farmers' fields\. Page 34 of 52  The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) B\. KEY OUTPUTS BY COMPONENT Objective/Outcome 1: Improve irrigation water delivery in the command area 1\. Irrigation service delivery by service providers (water user associations) assessed as satisfactory by water users (in percentage of water users) 2\. Number of female and male water users (defined as members of the WUAs) provided with improved water delivery services (i) Number of female water users Outcome Indicators (ii) Number of male water users (iii) Percentage of female WUA Executive Committee Members 3\. Core indicator: Water users provided with new/improved irrigation and drainage services (i) male and female water users (ii) female water users Component 1 Completed Structures: 1\. Intakes to branch canals (number) Intermediate Results Indicators 2\. Road bridges, drops, siphons etc\. on feeder canal (number) 3\. Control structures in branch canals (number) 4\. Offtakes to sub-branch canals (number) 5\. Road bridges/culverts on branch canals (number) 1\. 3 intakes to branch canals, compared to target 3 2\. 15 road bridges, drops, siphons etc\. on feeder canal, compared to target 7 Key Outputs by Component 3\. 15 control structures in branch canals, compared to target 10 (linked to the achievement of the Objective/Outcome 1) 4\. 33 offtakes to sub-branch canals, compared to target 41 (see footnote 1 in the main text) 5\. 121 road bridges/culverts on branch canals, compared to target 26 Page 35 of 52  The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) Objective/Outcome 2: Improve irrigation water management in the command area 1\. Resources generated by water users for the operation and Outcome Indicator maintenance of the modernized irrigation systems Component 2 1\. Number of Executive Committee meetings and General Assembly Intermediate Results Indicators meetings held per WUA (annual, not cumulative) 2\. Number of WUA members trained (annual number) Key Outputs by Component 1\. 13 meetings held per WUA, compared to target 13 (linked to the achievement of the Objective/Outcome 2) 2\. 2,177 WUA members trained, compared to target 2,500 Additional Outcome: Increase irrigated crop yields of main crops in about 40 percent of the command area 1\. Increase in irrigated crop yields of main crops rice, wheat, and, Outcome Indicator maize (in about 40 percent of the command area at the head of the canal system) Component 3 1\. Agriculture Service Center and Agriculture Contact Points active and providing advisory services Intermediate Results Indicators 2\. Number of farmer field schools and demonstrations implemented (annual number) 3\.Core indicator: Technologies demonstrated in the project area (annual number) 1\. 3 Agriculture Service Center and Agriculture Contact Points, compared to target 3 2\. 86 farmer field schools implemented, compared to target 90 Key Outputs by Component 3\. 222 demonstrations implemented, compared to target 200 (linked to the achievement of the Outcome Indicator) 4\. Core indicator: Client days of training provided (number) 5\. Technologies demonstrated: 5 on seed storage, compared to target 5 Page 36 of 52 The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) 12 on soil testing, compared to target 5 5 on seed multiplication, compared to target 5 Page 37 of 52  The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) ANNEX 2\. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION A\. TASK TEAM MEMBERS Name Title Unit Role Preparation Joop Stoutjesdijk Lead Irrigation and Drainage SASDA Task Team Leader Specialist Hiramani Ghimire Senior Governance Specialist SASGP Governance Shambhu Prasad Procurement Specialist SARPS Procurement Uprety Bigyan Pradhan Senior Financial Management SARFN Financial Management Specialist Mei Wang Senior Counsel LEGES Country Lawyer Akiko Ogawa Counsel LEGES Country Lawyer Tumurdavaa Senior Rural Development Specialist SASDA Rural Development Bayarsaihan Purna Bahadur Chhetri Senior Rural Development Specialist SASDA Rural Development Chaohua Zhang Senior Social Sector Specialist SASDS Social Safeguards Drona Raj Ghimire Environmental Specialist SASDI Environment Safeguards Tara Shrestha Team Assistant SASDO Team Assistant Narayan Sharma Road/Procurement Specialist - Road and Procurement Shyam Ranjitkar Consultant FAO Water Resources Achyut Man Singh Consultant FAO Engineer Kunduz Masylkanova Consultant FAO Economist Prachandra Pradhan Consultant FAO WUA Development Ohn Myint Consultant SASDA Irrigation Engineer Supervision/ICR Ahmed Shawky Senior Water Resources GWA06 Task Team Leader Management Specialist Purna Bahadur Chhetri Senior Agricultural Specialist GFA12 Task Team Leader Shambhu Prasad Senior Procurement Specialist GGO06 Procurement Specialist Uprety Chandra Kishor Mishra Procurement Specialist GGO06 Procurement Specialist Neena Shrestha Procurement Assistant GGO06 Procurement Specialist Rupa Shrestha Temporary GGO06 Procurement Assistant Yogesh Bom Malla Senior Financial Management GGO24 Financial Management Specialist Drona Raj Ghimire Senior Environmental Specialist GEN06 Environmental Safeguards Rekha Shreesh Social Development Specialist GSU06 Social Safeguards Bandita Sijapati Senior Social Development Specialist GSU06 Social Development Parthapriya Ghosh Senior Social Development Specialist GSU06 Social Development Suryanarayan Satish Senior Social Development Specialist GSU06 Social Development Page 38 of 52 The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) Jun Zeng Senior Social Development Specialist GSU06 Social Development Joop Stoutjesdijk Lead Irrigation and Drainage GWA02 Former Task Team Leader Specialist Zakia B\. Chummun Program Assistant GWA06 Program Assistant Kiran Gautam Senior Program Assistant SACNP Program Assistant Tara Shrestha Program Assistant SACNP Program Assistant Kazuhiro Yoshida Senior Irrigation and Drainage GWA09 Irrigation and Drainage Specialist Bigyan Pradhan Senior Operations Officer SACNP Operations Susanne M\. Scheierling Senior Irrigation Water Economist GWAGP ICR Author Prachandra Pradhan Consultant FAO WUA Development Shyam Ranjitkar Consultant FAO Irrigation Engineer Achyut Man Singh Consultant FAO Irrigation Engineer Pradeep Shrestha Consultant GGO24 Financial Management Ramesh Raj Bista Consultant GGO06 Procurement Ben Obrien Consultant FAO Agricultural Specialist Kunduz Masylkanova Consultant FAO Economist John Whittle Consultant FAO M&E Specialist Odbayar Batmunkh Consultant DECIE Data Analyst Hiromi Yamaguchi Consultant GEE03 Water Operations Dikshya Dawadi Consultant - Operations Khushbu Mishra Consultant - Economics and M&E Page 39 of 52  The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) B\. STAFF TIME AND COST Staff Time and Cost Stage of Project Cycle No\. of staff weeks US$ (including travel and consultant costs) Preparation FY10 4\.012 28,990\.85 FY11 38\.947 137,624\.17 FY12 2\.510 2,655\.80 Total 45\.47 169,270\.82 Supervision/ICR FY12 13\.024 57,926\.57 FY13 19\.633 70,453\.54 FY14 15\.604 59,257\.11 FY15 17\.245 66,986\.23 FY16 16\.619 65,503\.05 FY17 27\.730 114,585\.24 FY18 24\.963 120,247\.04 Total 134\.82 554,958\.78 Page 40 of 52 The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) ANNEX 3\. PROJECT COST BY COMPONENT Amount at Approval Actual Amount at Project Closing of Approval Percentage (US$, millions) (US$, millions) Water Water Users Users Total Total Components IDA GoN IDA GoN Loan Grant Loan Grant Component 1\. Scheme 22\.6 11\.2 4\.8 1\.0 39\.6 20\.0 8\.2 4\.4 2\.8 35\.4 89 Modernization Component 2\. Strengthening 0\.0 2\.1 0\.0 — 2\.2 0\.2 0\.6 0\.1 — 0\.9 41 Water Users Associations Component 3\. Agricultural 0\.5 2\.3 0\.1 — 2\.9 0\.3 3\.0 0\.0 — 3\.2 110 Production Support Component 4\. Project 0\.5 3\.8 0\.1 — 4\.3 — 2\.6 — — 2\.6 60 Management Total 23\.6 19\.4 5\.0 1\.0 49\.0 20\.4 14\.4 4\.6 2\.8 42\.1 86 1\. Project cost at approval—including physical and price contingencies, taxes and duties—was estimated at US$49\.0 million\. This comprised financing from IDA of US$43\.0 million (with a loan of US$23\.6 million and a grant of US$19\.4 million) and the GoN of US$5\.0 million, as well as in-kind contributions from the water users to the O&M of the irrigation schemes of US$1\.0 million\. 2\. Actual cost at project closing—including contingencies, taxes and duties—was estimated at US$42\.1 million\. This comprised financing from IDA of US$4\.4 million (US$20\.4 million from the loan and US$14\.4 million from the grant) and US$4\.6 million from the GoN, as well as in-kind contributions from the water users of US$2\.8 million\. The actual project cost excludes the cost of unfinished work of phase 1 of about US$1\.31 million that was transferred to the phase 2 project\. 3\. The implementation of the project was planned for a five-year period from November 2011 to September 2016\. In 2015, the project was restructured to extend the implementation period by one year and use savings in IDA loan and grant amounts for additional works and activities\. The savings resulted from competitive procurement of civil works, consultancies, and goods—with some of the contracts awarded below the amounts estimated at appraisal\. This included the five civil works packages for command area protection works along the Karnali and Mohana Rivers; they were estimated at appraisal at US$8\.6 million and procured for US$5\.2 million, resulting in savings of US$3\.4 million\. The heavy maintenance machinery for the WUAs was also procured below the cost estimated at appraisal\. Another factor that contributed to the savings were the higher-than-actual estimates for some civil works for which designs had not been available at appraisal for accurate cost projections\. The additional works and activities approved at project restructuring in 2015 included lining of feeder canals, command area Page 41 of 52 The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) protection works, and the preparation of an O&M manual for the irrigation scheme\. 4\. At project closing, not all works and activities were completed, partly due to disruptions in the supply of construction materials from India that occurred during the political turmoil in the second half of 2015\. Some of these works and activities, including command area protection works (US$1\.15 million), the preparation of the O&M manual (US$0\.25 million), and the impact assessment survey (US$15,000), were transferred to phase 2\. They are to be carried out through retroactive financing before the phase 2 project becomes effective\. 4\. The actual in-kind contribution of water users to routine and incremental project-related O&M work, amounting to US$2\.8 million, was higher than the estimate at approval of US$1\.0 million\. This may be partly the result of inaccurate records of the WUAs on labor contributions\. Another factor was increases in market wage rates during the period of project implementation\. At the time of appraisal, the daily market wage rate was around NPR 60to NPR 90\. Migration of rural labor to cities in Nepal as well as to India and the Gulf countries resulted in a substantial increase in daily wage rates\. In the last two years of project implementation, the average daily market wage rate was around NPR 300, reaching NPR 450 during peak agricultural seasons\. Page 42 of 52 The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) ANNEX 4\. EFFICIENCY ANALYSIS DETAILED ECONOMIC AND FINANCIAL ANALYSIS 1\. Cost-benefit analysis was conducted to reassess the economic viability of the Modernization of Rani Jamara Kulariya Irrigation Scheme – Phase 1 Project at the ICR stage\. Except some modifications, the analysis adopted the same approach as at project appraisal to ensure methodological consistency and comparability\. 2\. The modernization of the (RJKIS was planned for implementation under two phases\. Phase 1 aimed at improving irrigation water delivery to, and management in, the command area through investments in the following areas: (a) construction and modernization of the higher-order irrigation infrastructure, including a feeder canal, various hydraulic structures, command area protection works, and upgrading of village roads; (b) strengthening of WUAs to take full responsibility for the management and O&M of the modernized infrastructure; and (c) agricultural production support to prepare for a comprehensive agricultural support program under phase 2 when more reliable and year-round irrigation water delivery in the whole command area is secured through investments in the lower-order infrastructure\. 3\. The RJKIS depends on water from the Karnali River, an unpredictable gravel bed river that often changes its course\. Before the phase 1 investments, each of the three irrigation systems (Rani, Jamara, and Kulariya) comprising the scheme had an intake point on the Karnali\. The systems regularly suffered from either shortage of water or severe flood damage\. Overall, the scheme lacked permanent intake and control structures, diversion and drop structures, flood protection works, and cross drainage and escape structures\. Typical problems included difficulty of coping with changes in the river morphology and in diverting water to the three irrigation systems during low river flows; uncontrolled major flooding during high river flow events that could inundate three quarters of the command area; frequent wash-out of the temporary diversion works made by WUAs at the intake sites and offtake sites from branch to sub-branch canals; erosion of canal banks from uncontrolled intake of water; sedimentation of canals; inability to manage the water equitably and efficiently; and poor road connections that often became inaccessible during the monsoon season\. 4\. Before phase 1, about 11,000 ha of the total (developed) command area of the RJKIS of 14,300 ha were linked to the canal irrigation network\. Because of the unreliable and insufficient water delivery, some farmers also used groundwater which was costly\. The remaining 3,300 ha were rainfed and not linked to the canal irrigation network\. They were prone to uncontrolled annual flooding during the monsoon season, as well as uncontrolled major flooding during high river flow events\. This often led to yield reductions or total production losses, depending on the location of the land within the tail-end sections\. Economic and Financial Analysis at Project Appraisal 5\. The economic and financial analysis at appraisal expected that benefits would be derived from increased production, intensification of production, and reduced productivity losses caused by uncontrolled flooding\. In particular, the following benefits were assumed: (a) a 10 percent increase in Page 43 of 52 The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) agricultural production at the head section of the command area with 6,000 ha; (b) an increase in cropping intensity in from 157 percent to 191 percent (as a weighted average for the entire command area); (c) a 10 percent reduction in paddy yield losses caused by uncontrolled flooding; and (d) modest crop diversification in winter and spring crop seasons toward wheat, maize, and vegetables\. 6\. The benefits were measured with three farm models that represented typical situations of farms located in the head, middle, and tail-end sections of the command area\. The farmers in the head section with 6,000 ha were projected to benefit from modest improvements in canal water supply and adoption of improved agricultural practices, which would lead to (a) a 10 percent increase in crop yields, (b) a 27 percent increase in cropping intensity (from 180 percent to 207 percent), and (c) a modest diversification in the winter and spring seasons toward wheat, maize, and vegetables\. The farmers in the middle section with 5,964 ha were projected to benefit from a modest improvement in water availability and the adoption of improved agricultural practices, which would lead to (a) a 30 percent increase in cropping intensity (from 170 percent to 200 percent) and (b) a minor diversification toward vegetable and potato crops\. The tail-end farmers with 3,336 ha were assumed to benefit from (a) a 10 percent reduction in paddy losses from flooding and soil degradation that averaged about 10-25 percent of the yield, and (b) a 50 percent increase in cropping intensity (from 100 percent to 150 percent) as a result of improved water availability during the dry season coupled with improved agricultural practices\. 7\. The benefits were assumed to accumulate starting from project year 3 when around 30 percent of the rehabilitation and modernization works would be completed, and to reach 100 percent in project year 6\. The benefits were estimated for a period of 25 years, which would include the project implementation period of five years and the technical life of the irrigation and flood protection infrastructure—at 2010 prices and an OCC of 12 percent\. 8\. The financial prices for traded inputs (fertilizer, chemicals) and commodities were converted into economic prices by deducting transfer payments, taxes, and duties\. Economic prices of imported inputs and outputs were calculated at border parity prices\. Agricultural labor wages were converted at the shadow wage conversion factor (SWCF) of 0\.60\. 9\. The financial base cost of the project, including physical contingencies, was estimated at NPR 2\.7 billion (US$37\.5 million)\. Taxes and duties were removed from the financial base cost to obtain the economic cost of the project\. 10\. The appraisal analysis estimated the FRR at 13\.4 percent, the FNPV at NPR 118\.2 million, and the BCR at 1\.04 (table 4\.1)\. The ERR was estimated at 16\.9 percent, the ENPV at NPR 415\.0 million, and the BCR at 1\.16\. 11\. The sensitivity analysis suggested that the project would remain economical in the events when the project cost increases by 20 percent and when the benefits decline by 20 percent\. The ERR was projected to drop below 12 percent if there was a delay of two years in project implementation\. Page 44 of 52 The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) Table 4\.1\. Economic and Financial Indicators at Appraisal FNPV ENPV FRR ERR (NPR, BCR (NPR, BCR (%) (%) millions) millions) Base scenario 13\.4 118\.2 1\.04 16\.9 415\.4 1\.16 Project cost increase by 20% 9\.4 12\.8 Benefit decline by 20% 10\.1 13\.6 Two-year delay in benefit accumulation 8\.6 11\.3 12\. In terms of sustainability, the appraisal analysis assumed that farmers’ contribution to the O&M of irrigation schemes would double from the pre-project level at NPR672\. The respective shares of the incremental O&M cost in incremental gross margins for farmers were estimated at 2\.3 percent for the head section, 3\.6 percent for the middle section, and 4\.5 percent for the tail-end section\. Economic and Financial Analysis at the ICR Stage Methodology and Key Assumptions 13\. During project implementation, the project benefits were not monitored separately for the head, middle and tail-end sections of the irrigation scheme\. Thus, the economic and financial analysis at ICR stage did not follow the farm model-based approach of the appraisal analysis\. Instead, it re-assessed economic and financial benefits for the entire command area (with a success rate of 65 percent) based on actual crop yields, cropping intensity, and cropping patterns\. Apart from these modifications, the ICRR analysis used the same methodology as the appraisal analysis\. 14\. The ICR analysis assessed the project benefits for a period of 25 years, which includes the project implementation period of six years and the technical life of irrigation and flood protection infrastructures—at 2017 prices and an OCC at 12 percent\.2 15\. Financial prices of locally traded outputs and inputs were converted into economic values by removing transfer payments, taxes and duties\. The appraisal SWCF rate of 0\.60 was used to convert financial cost of unskilled labour into economic costs\. 16\. The actual total financial cost of the project, inclusive contingencies, taxes and duties, in the amount of NPR 4\.25 billion was used in the financial analysis\. It was converted into economic values by removing taxes and duties\. 17\. The analysis used the project M&E data, including agricultural data from the project baseline, mid- term and thematic surveys, and cross-cutting crop surveys conducted by the DoA\. In addition, the analysis used the data of the World Bank’s DIME survey, data and information shared by farmers during the implementation supervision mission in March-April 2017 and ICR mission in November 2017, and data 2 Although the new Bank guidelines on economic and financial analysis recommend using the OCC at 5 percent and less, the ICR analysis uses the appraisal value of 12 percent to make the results comparable with the appraisal estimates\. Page 45 of 52 The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) shared by the project implementation office\. The impact assessment survey was carried out in January 2018\. The survey did not collect required data for economic analysis, however\. Project Benefits 18\. Crop yields\. At project appraisal, a modest 10 percent yield increase was projected for the head section of the command area with 6,000 ha\. The PIO data reported higher-than-projected productivity increases, covering larger areas than projected at appraisal (table 4\.2)\. This included yields sampled in farmers’ fields with 3\.1 t/ha for summer (or monsoon paddy), 3\.2 t/ha for spring paddy, 3\.0 t/ha for wheat, and 2\.9 t/ha for maize\. With the data collection being based on a few samples, the analysis at the ICR stage was based on slightly more conservative yield values, including 2\.9 t/ha for monsoon paddy, 3\.0t/ha for spring paddy, 2\.7 t/ha for wheat, and 2\.1 t/ha for maize\. Table 4\.2\. Crop Yield Estimates at Appraisal and ICR Stage Appraisal ICR PIU6 1 Head Middle Tail Total Total Total WoP WiP WoP WiP WoP WiP WoP WiP WiP WiP Paddy (monsoon) 2\.6 2\.9 2\.6 2\.6 2\.0 2\.2 2\.6 2\.7 2\.9 3\.1 Paddy (winter) 2\.8 3\.1 2\.8 2\.8 n\.a 2\.8 n\.a 3\.0 3\.0 3\.2 Paddy (flooded areas) 1\.98 2\.2 1\.98 n\.a Wheat 1\.7 1\.9 1\.6 1\.6 n\.a 1\.6 1\.7 1\.8 2\.7 3\.0 Maize 1\.6 1\.8 1\.6 1\.6 n\.a 1\.6 1\.6 1\.7 2\.1 2\.9 Oilseeds 0\.5 0\.6 0\.5 0\.5 n\.a 0\.5 0\.5 0\.5 1\.1 n\.a Pulses/legumes 2 0\.3 0\.3 0\.3 0\.3 n\.a 0\.3 0\.3 0\.3 0\.6 n\.a Vegetables 3 15\.0 16\.5 13\.0 13\.0 n\.a 13\.0 14\.6 15\.1 19\.9 n\.a Potato 5\.0 5\.5 5\.0 5\.0 n\.a 5\.0 5\.0 5\.3 7\.5 n\.a Spice crops 4 8\.5 n\.a Fruits 5 18\.0 n\.a Sugarcane 64\.0 n\.a Notes: 1 Appraisal ‘with project’ (WiP) assumed a 10 percent reduction in yield losses to floods, and yields of other crops similar to the ‘without project’ (WoP) yields in the middle section\. 2 Pulses and legumes are represented by lentil\. 3 ICR WiP yields are for cucumber, cauliflower, bitter gourd, bottle gourd, cabbage, and tomato\. 4 Spice crops are represented by chilli\. 5 Fruits are represented by banana\. 6 PIU presentation from November 16, 2018\. 19\. In addition to modernization of the irrigation scheme, which was expected to improve water sources at off-farm level and link around 3,500 ha of arable lands to the irrigation network, the project invested in strengthening of WUAs and support to farmers’ agricultural knowledge and access to improved seeds and other inputs and markets\. Therefore, higher yield increases than anticipated resulted from a combination of factors, including (a) improved quality seeds of paddy, maize, wheat, potato, vegetables, mustard, and lentil produced under Component C; (b) better access to markets, including for quality seeds and high-yielding varieties as a result of the investments in rural roads and bridges under Component A; (c) improved soil fertility resulting from soil testing and training on the application of Page 46 of 52 The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) appropriate organic and nonorganic soil nutrients under Component C; and (d) adoption of improved agricultural practices, such as the system of rice intensification, direct and line sowing technologies for paddy, line sowing technology for wheat, mustard and maize, and zero tillage for wheat and maize crops promoted under Component C\. In terms of improved seeds, the seed cooperatives supported by the project annually produce around 960 tons of improved paddy, wheat, maize, and potato seeds through contract farming with project farmers\. According to the seed cooperatives, the seeds are largely used within the command area of the RJKIS\. 20\. Cropping intensity\. Based on the data available at the time of the project preparation, the appraisal analysis assumed the ‘without project’ (WoP) cropping intensity at 100 percent in the tail-end, 170 percent in the middle and 180 percent in the head sections, with the weighted average for the entire command area at 157 percent (table 4\.3)\. At project closing, the average cropping intensity in the entire command areas was reported at 208 percent by the PIU team\.3 (The DIME survey found a cropping intensity rate of 228 percent\.) The analysis at the ICR stage revised the WoP and ‘with project’ (WiP) cropping intensity rates based on the baseline survey and PIU data\. 21\. According to the PIO and the DoA team, improved access to quality and short duration seeds and markets for agricultural inputs and outputs as well as the adoption of production technologies that allow a shorter crop production period were critical drivers of higher than expected increases in cropping intensity\. At the project start, for instance, only one traditional variety of paddy with lower productivity and growing period was available\. The project introduced around 17 varieties of paddy through demonstrations and training\. The project also invested in production of six paddy varieties locally, of which two are short-duration and four are high-yielding varieties\. Apart from the paddy seeds, the project supported production, processing, and storage of improved, certified, and foundation seeds for wheat, potato, and vegetables\. Currently, the project-supported seed cooperatives produce improved seeds sufficient for around 50 percent of paddy, 62 percent of wheat, and 18 percent of potato areas\. Farmers, who are contracted for the seed production, earn 15-25 percent higher profits\. 22\. The project investments in rural roads and bridges, as some of the old wooden bridges were for pedestrian crossing only, improved farmers access to agricultural input and output markets\. Improved accessibility reportedly enabled farmers to purchase quality inputs when needed and at lower prices, contributed to reduction of farmgate sales at lower prices, and transportation losses of vegetables and other perishable cash crops such as leafy vegetables, cucumber, and tomatoes\. 3 Based on PIO presentations from November 16-17, 2017, and the feasibility study for phase 2\. Page 47 of 52 The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) Table 4\.3\. Estimates of Cropping Patterns and Intensity at Appraisal and ICR Stage Appraisal ICR Head Middle Tail Total Total WoP WiP WoP WiP WoP WiP WoP WiP WoP WiP Paddy (monsoon) 5,845 4,771 4,500 4,650 3,336 3,269 13,681 12,690 11,800 11,395 Paddy (winter/spring) - 1,908 - 1,400 - - - 3,308 1,430 755 Wheat 1,491 2,982 1,200 2,000 - 1,334 2,691 6,316 3,127 4,290 Maize 835 298 750 250 - 67 1,585 615 644 1,275 Oilseeds 895 477 750 250 - 33 1,645 760 1,855 2,145 Pulses/legumes 1,312 835 1,150 750 - 100 2,462 1,685 2,021 3,182 Vegetables 179 537 50 350 - 100 229 987 772 4,000 Potato 179 537 50 350 - 100 229 987 682 1,565 Spice crops - - - - - - - - 800 Fruits - - - - - - - - 31 143 Sugarcane - - - - - - - - 22 250 Cultivated areas (ha) 10,735 12,345 8,450 10,000 3,336 5,004 22,521 27,349 22,382 29,800 Physical areas (ha) 5,964 5,964 5,000 5,000 3,336 3,336 14,300 14,300 14,300 14,300 Cropping intensity (%) 180 207 169 200 100 150 157 191 157 208 23\. Diversification\. The appraisal economic analysis projected that winter and spring crops would diversify somewhat from maize, oilseeds, and pulses toward wheat, vegetables, and potatoes\. For example, the area of monsoon paddy would decrease by 14 percent and the areas of maize, oilseeds, and pulses by 5 percent each; and the areas of winter paddy, wheat, vegetables, and potato would increase by 12 percent, 11 percent, 3 percent, and 3 percent, respectively\. 24\. A comparison of the updated WoP cropping pattern with the actual cropping pattern at project closing shows that diversification toward high-value crops was moderately higher than the appraisal estimates\. Shares of paddy areas in gross cultivated areas, for instance, declined by around 24 percent, maize areas by 4 percent, and pulses by 1 percent\. The respective share of areas under vegetables was higher by 10 percent, spice crops by 3 percent, and potatoes and pulses by 2 percent each\. 25\. The appraisal estimates for diversification assumed that farmers would switch to non-paddy crops only when irrigation water delivery to farm fields will be secured under phase 2 of the project\. However, the project investments in farmer knowledge and improved access to seeds, markets, rural roads and bridges contributed to higher-than-expected diversification\. 26\. Flood benefits\. Because the RJKIS lacked flood protection structures, the command area was prone to annual and major flooding\. The most recent major flood occurred in July 2013 and inundated 75 percent of command area, damaging crops and houses, washing away livestock and necessitating the temporary relocation of 750 households\. Flood damages were estimated at NPR 7 million\. In addition, around 3,500 ha4 of command areas are prone to annual flooding\. Soil degradation, erosion, and excessive water from flooding would cause around 10-25 percent losses in already low paddy yields at 1\.98 t/ha\. The appraisal analysis assumed that the paddy losses would be reduced by 10 percent\. 4 At appraisal, the area estimated as being prone to annual flooding was 3,336 ha; this was updated to 3,500 ha\. Page 48 of 52 The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) 27\. Project investments in flood protection structures enabled the protection of 2,500 ha from major and annual flooding; current paddy yields in these areas were reported at 2\.4 t/ha\. The analysis however assumed only insignificant losses in paddy yield, or 2\.0 t/ha\. Parts of the command area protection works along the Mohana and Pathraiya Rivers, which would protect an additional 1,000 ha, were not completed under phase 1\. They have been transferred to phase 2 financing and are expected to be completed before the monsoon season in 2018\. The ICR analysis assumed no incremental change to paddy yields in these areas still unprotected from flooding\. 28\. Other unquantified benefits\. Project investments in rural roads and bridges significantly improved accessibility for the local population and generated positive impacts\. For example, some of the previous wooden bridges were designed only for pedestrians or had a low carrying capacity\. Vehicles, buses, and trucks would cross through sections of the irrigation canals\. Yet, during monsoon season, the traffic of vehicles through the canals would be blocked for up to 2\.5 months due to high water levels, and other bridges and roads located about 40 km away would have to be used\. In some years, flooding would make the bridges unusable\. Some parents were reluctant to send their children to school during monsoon season because of non-fatal accidents at the wooden bridges\. The newly built bridges can technically withstand major flooding and have higher carrying capacity\. The analysis at the ICR stage did not incorporate these positive impacts due to a lack of data\. Financial Analysis 29\. When the average farm sizes in each irrigation system are accounted, annual net incremental benefits to average farm households are estimated to range from around NPR 13,300 to NPR 17,300 (table 4\.4)\. Table 4\.4\. Summary Financial Returns to Farm Households Rani Jamara Kulariya Total Command area (ha) 5,359 4,586 4,355 14,300 Average landholding (ha) 0\.65 0\.50 0\.65 Total (undiscounted) incremental returns (NPR, millions) 18,300 15,700 14,900 48,817 Total (undiscounted) incremental returns per ha (NPR, millions) 3\.41 Average incremental returns per annum (NPR, millions) 142 122 116 380 Annual (undiscounted) incremental returns per ha (NPR) 26,600 26,600 26,600 26,600 Annual (undiscounted) incremental returns to average farm 17,300 13,300 17,300 household (NPR) 30\. Sustainability\. The incremental cost for O&M of the irrigation schemes during phase 1 is estimated at NPR 119 billion, or NPR 1,378 per hectare\. The phase 2 investments are expected to reduce the incremental O&M costs\. Not taking into account the expected phase 2 reduction in O&M cost, the incremental O&M cost per hectare amounts to about 5 percent of the average incremental net returns of NPR 26,600 per ha, suggesting the cost is affordable to farmers\. 31\. The ICR financial analysis estimated an FRR of 12\.8, slightly lower than the FRR at appraisal\. The FNPV is modestly higher, at NPR 146\.4 million, as is the BCR at 1\.06 (table 4\.5)\. Page 49 of 52 The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) Economic Analysis 32\. The economic returns estimated at the ICR stage are lower than the appraisal estimates, with the ERR at 14\.3 percent\. The ENPV is somewhat higher at NPR 450\.8 million, and the BCR is the same at 1\.16 (table 4\.5)\. Table 4\.5\. Economic and Financial Results at Appraisal and ICR Stage Appraisal ICR 12% OCC 12% OCC Financial Analysis FRR (%) 13\.4 12\.8 FNPV (NPR, millions) 118\.2 146\.4 BCR 1\.04 1\.06 Economic Analysis ERR (%) 16\.9 14\.3 ENPV (NPR, millions) 415\.4 450\.8 BCR 1\.16 1\.16 33\. Both the FNPV and ENPV estimates at the ICR stage are higher than the appraisal estimates because the ICR analysis uses 2017 prices and captures the impacts of improved access to agricultural inputs and outputs\. Page 50 of 52 The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) ANNEX 5\. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS 1\. Comments from the borrower were received on March 27, 2018\. They included editorial comments and comments elaborating on completed works and correcting data on accomplishments\. The ICR was revised to incorporate all comments\. Page 51 of 52 The World Bank NP Modernization of Rani Jamara Kulariya Irrigation Scheme - Phase 1 ( P118179 ) ANNEX 6\. SUPPORTING DOCUMENTS • PAD, 2011 • Aide Memoires of Implementation Review and Support Missions, 2012-2017 (nine plus one technical mission) • ISRs, 2012-2017 (12 ISRs) • Restructuring Paper, 2015 • Borrower’s Implementation Completion Report, 2018 • Rapid Impact Assessment of Rani Jamara Kulariya Irrigation Project, 2018 Page 52 of 52

REVIEW

P082801

Document of The World Bank Report No: ICR0000610 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-72130) ON A LOAN IN THE AMOUNT OF US$ 303\.10 MILLION TO THE TÜRKIYE SINAI KALKINMA BANKASI A\. FOR THE SECOND EXPORT FINANCE INTERMEDIATION LOAN (EFIL II) January 4, 2008 Private and Financial Sector Development Department ECCU6 Europe and Central Asia Region  CURRENCY EQUIVALENTS (Exchange Rate Effective October 2007) Currency Unit = TRY 1\.00 = US$ 0\.8515 US$ 1\.00 = 1\.174 TRY FISCAL YEAR January - December ABBREVIATIONS AND ACRONYMS BRSA Banking Regulation and Supervision Agency CAS Country Assistance Strategy EFIL Export Finance Intermediation Loan EIA Environmental Impact Assessment EU European Union IBRD International Bank for Reconstruction and Development IEG Independent Evaluation Group ISRs Implementation Status Reports IT Information Technology LIBOR London Interbank Offered Rate M&E Monitoring and Evaluation PAD Project Appraisal Document PDO Project Development Objectives PFI Participating Financial Intermediaries PIU Project Implementation Unit SAL Structural Adjustment Loan SME Small and Medium Size Enterprises TL Turkish Lira TSKB Türkiye Sinai Kalkinma Bankasi/Turkish Industrial Development Bank Vice President: Shigeo Katsu Country Director: Ulrich Zachau Sector Manager: Lalit Raina Project Team Leader: Lalit Raina ICR Team Leader: Steen Byskov  TURKEY Second Export Financial Intermediation Loan (EFIL II) CONTENTS Data Sheet A\. Basic Information B\. Key Dates C\. Ratings Summary D\. Sector and Theme Codes E\. Bank Staff F\. Results Framework Analysis G\. Ratings of Project Performance in ISRs H\. Restructuring I\. Disbursement Graph B\. Key Dates\. C\. Ratings Summary\. D\. Sector and Theme Codes \. E\. Bank Staff\. F\. Results Framework Analysis\. G\. Ratings of Project Performance in ISRs \. H\. Restructuring (if any)\. I\. Disbursement Profile\. 1\. Project Context, Development Objectives and Design\. 1 2\. Key Factors Affecting Implementation and Outcomes \. 3 3\. Assessment of Outcomes\. 7 4\. Assessment of Risk to Development Outcome\. 11 5\. Assessment of Bank and Borrower Performance \. 12 6\. Lessons Learned \. 14 7\. Comments on Issues Raised by Borrower/Implementing Agencies/Partners \. 15 Annex 1\. Project Costs and Financing\. 16 Annex 2\. Outputs by Component \. 17 Annex 3\. Economic and Financial Analysis\. 22 Annex 4\. Bank Lending and Implementation Support/Supervision Processes \. 23 Annex 5\. Beneficiary Survey Results\. 25 Annex 6\. Stakeholder Workshop Report and Results\. 26 Annex 7\. Summary of Borrower's ICR and/or Comments on Draft ICR\. 27 Annex 8\. Comments of Cofinanciers and Other Partners/Stakeholders\. 33 Annex 9: Financial Performance of Borrower and PFIs\. 34 Annex 10\. Distribution of loans by region, sector, and loan size\. 37 Annex 11\. List of Supporting Documents \. 38 MAP  A\. Basic Information Export Finance Country: Turkey Project Name: Intermediation Loan 2 (EFIL 2) Project ID: P082801 L/C/TF Number(s): IBRD-72130 ICR Date: 02/08/2008 ICR Type: Core ICR TURKIYE SINAI Lending Instrument: FIL Borrower: KALKINMA BANKASI (TKSB) Original Total Commitment: USD 303\.1M Disbursed Amount: USD 303\.0M Environmental Category: F Implementing Agencies: TSKB Cofinanciers and Other External Partners: B\. Key Dates Process Date Process Original Date Revised / Actual Date(s) Concept Review: 06/26/2003 Effectiveness: 03/19/2004 03/19/2004 Appraisal: 10/14/2003 Restructuring(s): Approval: 01/13/2004 Mid-term Review: 07/01/2006 Closing: 09/30/2009 09/30/2009 C\. Ratings Summary C\.1 Performance Rating by ICR Outcomes: Highly Satisfactory Risk to Development Outcome: Moderate Bank Performance: Highly Satisfactory Borrower Performance: Highly Satisfactory C\.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Highly Satisfactory Quality of Supervision: Highly Satisfactory Implementing Agency/Agencies: Highly Satisfactory Overall Bank Overall Borrower Performance: Highly Satisfactory Performance: Highly Satisfactory i  C\.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Performance Indicators (if any) Rating Quality at Entry at any time (Yes/No): Potential Problem Project No (QEA): None Problem Project at any Quality of time (Yes/No): No Supervision (QSA): None DO rating before Closing/Inactive status: Highly Satisfactory D\. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Banking 35 35 Micro- and SME finance 35 35 Other domestic and international trade 30 30 Theme Code (Primary/Secondary) Export development and competitiveness Primary Primary Other financial and private sector development Secondary Secondary Small and medium enterprise support Primary Primary E\. Bank Staff Positions At ICR At Approval Vice President: Shigeo Katsu Shigeo Katsu Country Director: Ulrich Zachau Andrew N\. Vorkink Sector Manager: Lalit Raina Khaled F\. Sherif Project Team Leader: Steen Byskov Lalit Raina ICR Team Leader: Steen Byskov ICR Primary Author: Steen Byskov F\. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) Project development objective (i) Provision of medium and long-term working capital and investment finance to private exporters, and contribute to further facilitating export growth in Turkey; and ii  (ii) Improvement in the quality, and safety of, and access to, finance through development of financial intermediation in the Turkish private financial sector by banks and leasing companies\. Revised Project Development Objectives (as approved by original approving authority) (a) PDO Indicator(s) Original Target Formally Actual Value Indicator Baseline Value Values (from Revised Achieved at approval Target Completion or documents) Values Target Years Financial intermediary participation as measured by the number of PFIs Indicator 1 : participating in the project and the number of PFIs different from those participating in the first EFIL\. 11 PFIs (5 banks and 6 leasing Value Five banks and companies) quantitative or At least three banks and three leasing participated, of Qualitative) two leasing companies companies which all but 2 banks were new relative to EFIL I\. Date achieved 12/04/2003 12/31/2006 10/01/2007 Comments (incl\. % Achieved well beyond target (38 percent above target based on the number of achievement) PFIs)\. Indicator 2 : Export multiplier: (incremental export/loans disbursed) - to be measured over a three year period The export multiplier for 2003 to 2006 is 7\.1\. Exports by participating firms grew by 117 Value percent from US$ quantitative or Not applicable Not available 2\.1 billion in 2003 Qualitative) to US$ 4\.6 billion in 2006\. For comparison, export growth for the country was 81 percent in the period\. Date achieved 12/04/2003 10/01/2007 10/01/2007 Comments Although a target was not set at approval, an export multiplier of 7\.1 is a very (incl\. % good achievement over a three year period\. iii  achievement) Sub-loan payment performance as measured by the amount of non-performing Indicator 3 : sub-loans and leases; and interest and (/or) principal defaults/total amount of sub-loans and leases disbursed Non-performing ratio: 1\.4 percent\. Value For comparison, quantitative or Not applicable Not available non-performing Qualitative) loans amount to total loans in Turkey equals 3\.7 percent\. Date achieved 12/04/2003 10/01/2007 10/01/2007 Comments (incl\. % Although a target was not set at approval, an NPL ratio well below the general achievement) NPL ratio in Turkey is very good\. (b) Intermediate Outcome Indicator(s) Original Target Formally Actual Value Indicator Baseline Value Values (from Achieved at approval Revised Completion or documents) Target Values Target Years Indicator 1 : Credit line utilization as measured by the amount of sub-loans disbursed to sub- borrowers Value (quantitative US$ 0 Disbursement of US$300 million or Qualitative) US$210 million Date achieved 12/04/2003 06/30/2007 06/30/2007 Comments (incl\. % The credit line was fully disbursed two years ahead of projections, and thus achievement) disbursement was very successful\. G\. Ratings of Project Performance in ISRs Actual No\. Date ISR Archived DO IP Disbursements (USD millions) 1 06/17/2004 Satisfactory Satisfactory 39\.27 2 12/19/2004 Highly Satisfactory Highly Satisfactory 160\.50 3 06/06/2005 Highly Satisfactory Highly Satisfactory 210\.49 4 04/14/2006 Highly Satisfactory Highly Satisfactory 270\.65 5 11/16/2006 Highly Satisfactory Highly Satisfactory 289\.72 6 07/17/2007 Highly Satisfactory Highly Satisfactory 303\.03 iv  H\. Restructuring (if any) Not Applicable I\. Disbursement Profile v  1\. PROJECT CONTEXT, DEVELOPMENT OBJECTIVES AND DESIGN 1\.1 Context at Appraisal Country and Sector Background\. A financial sector still recovering from the financial crisis in 2001 and continuing macroeconomic volatility led to difficulties in accessing investment finance for exporting companies\. With uncertainty surrounding domestic demand, exports were recognized as a driver of growth\. Inflation remained high and domestic currency financing was not realistic for investment needs, so dollar and euro loans were the norm for investment finance\. Firms and financial institutions were well aware of the risks of taking on foreign currency long term finance, but exporting firms were at least partially shielded from exchange rate risk and domestic demand conditions\. Rationale for Bank Assistance\. The Turkish authorities requested the Bank to provide an export credit line, which would be intermediated through the financial system and would help fill the gap in medium- and long-term finance to private exporters\. Notably, the requested EFIL II project would largely maintain the design of its successful predecessor EFIL I project that had provided a timely and focused response to the unmet demand from banks and exporting companies for medium- and long-term funding, both during the pre- and post-crisis periods\. The credit line would help the financial sector further develop its investment lending business by demonstrating that medium term lending can be a viable business proposition while building the necessarily skills at PFIs to appraise medium term loans\. Importantly, the Government of Turkey had demonstrated its commitment to policies and strategies intended to revitalize Turkey's real sector and export-oriented industries in particular, while the project was consistent with the FY04-06 CAS (R2003-0181) objectives\. The CAS noted that the process of crises recovery depended on revitalizing the real sector suffering from a credit crunch\. Its key priorities for the medium term included completing the banking and financial sector reforms and revitalizing the real sector by filling the gap in accessing credit facilities, supported by EFIL II\. 1\.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) The project specified the following PDOs: Provision of medium and long-term working capital and investment finance to private exporters, and contribution to further facilitating export growth in Turkey; Improvement in the quality, safety of and access to finance through development of financial intermediation in the Turkish private financial sector by banks and leasing companies\. To measure progress, the project designed the following performance indicators: Export multiplier: incremental average aggregate annual exports generated (measured over 3 years for all sub-borrowers)/total credit line disbursed; 1  Range of financial intermediaries participation: number of additional Participating Financial Intermediaries (PFIs) participating in EFIL II different from those in the first EFIL; Sub-loan performance indicators: amount of non-performing sub-loans and leases; interest and or principal defaults/total amount of sub-loans and leases disbursed\. 1\.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification The PDOs did not change during the operation\. 1\.4 Main Beneficiaries The main beneficiaries of EFIL II were Participating Financial Intermediaries (PFIs, banks or leasing companies) and Turkish private exporting enterprises (exporters)\. TSKB intermediated the credit line through PFIs to exporters\. The exporters would benefit from the provision of medium- and long-term working capital and investment finance to make productive investments at a time of (i) increasing demand for longer term credit as the economy was showing strong signs of rebounding from a recent slump and export performance was on the rise; and (ii) inability by the financial sector to support these trends with very much needed longer term finance at a reasonable cost\. The PFIs would benefit from access to medium- and long-term funding to help them expand their business in medium- and long-term lending and financial leasing1 (financial leasing is hereafter just referred to as leasing) while reducing maturity mismatches that lead to both interest rate risk and refinancing risk\. In addition, the project's requirements for compliance with banking and leasing regulations and financial covenants would help ensure that the PFIs remain financially sound\. The ultimate objective was to strengthen and improve the ability of the Turkish financial sector to provide medium- and long-term financial resources to the enterprise sector\. 1\.5 Original Components (as approved) The project had a single component, a credit line for exporters with the provision of medium- and long-term funds through two distinct channels, or sub-components: (i) commercial banks providing investment and working capital loans, and (ii) leasing companies providing lease finance for acquisition of productive assets (equipment and machinery)\. 1A financial lease, as opposed to an operating lease, is an arrangement in which ownership is transferred to the lessee at the end of the lease period\. Thus, a financial lease is more similar to a loan than an operating lease\. Operating leases by the leasing firms are currently not permitted in Turkey\. 2  The credit line was provided by the Bank to TSKB, with a government guarantee to the Bank, while TSKB passed it on in the form of subsidiary finance to PFIs for further on- lending to eligible exporters\. The structure of the credit line is summarized below in Figure 1\. Figure 1: Structure of the EFIL II Credit Line Government guarantees TSKB's IBRD repayment to IBRD IBRD extends credit Government of line to TSKB Turkey TSKB TSKB pays a guarantee fee to the Government TSKB extends subsidiary loans to PFIs PFI 1 PFI 2 PFI 3 \. PFI 11 PFIs extend sub-loans and leases to exporters Exporter 1 Exporter 2 Exporter 3 Exporter 4 Exporter 5\. Exporter n At the level of PFIs, the project had originally allocated US$100 million to lease finance and US$200 million to bank sub-loans\. 1\.6 Revised Components The component was not revised\. 1\.7 Other significant changes No significant changes were made\. Reallocations took place on two occasions between the leasing and the banking channel, which on a net basis increased leasing allocations by US$13 million and reduced the banking allocation with the same amount\. 2\. KEY FACTORS AFFECTING IMPLEMENTATION AND OUTCOMES 2\.1 Project Preparation, Design and Quality at Entry The project's preparation, design, and quality at entry were based on the following: (i) Consistency with Bank and Government priorities\. The project's design to fill the gap for export enterprises in accessing credit facilities fitted closely the FY04-06 CAS for recovery from the crises by revitalizing the real sector\. The project similarly supported the Government's principle objective of real sector recovery and growth\. (ii) Incorporation of lessons learned in the first EFIL project\. Important lessons incorporated in EFIL II were (i) project design should be kept as flexible as possible, with minimum or no statutory requirements; (ii) use sensible financial indicators for the 3  selection of both the PFIs and exporters in line with established market practices; (iii) avoid restrictive procurement requirements unsuitable for private sector borrowers, proven to be a hindrance to expeditious project implementation; (iv) combine the Borrower and Implementing Agency functions in one and the same entity for higher quality and expeditious project implementation; and (v) pre-commit financial intermediaries to borrowing a certain part of a credit line as an incentive to be quick and effective in finding and financing eligible sub-projects, thus leading to quicker disbursement of the loan\. (iii) Introduction of leasing in credit lines\. The inclusion of leasing companies as financial intermediaries was an innovative aspect of the project, not previously used in World Bank credit line operations in the ECA Region\. It helped: (i) reach smaller exporters, which do not necessarily have access to bank loans, but are accessible by leasing companies; (ii) assist the development of the leasing sector and thereby deepen the financial sector; (iii) provide a vehicle for the World Bank to engage with the leasing sector to identify development challenges\. (v) Decentralized decision-making and sound incentive structure\. With TSKB carrying the credit risk of and selecting PFIs, and PFIs carrying the credit risk of and selecting exporters in the project, the choices of the participants in the project was made by the entities best capable of identifying good financial intermediaries and firms\. Qualitative criteria set out in the project and monitored during supervision helped control that the choices were made on a sound basis\. (vi) Identification of risks and associated mitigation measures\. Risks included (i) macroeconomic risk with a large government debt overhang and high current account deficit; (ii) risk of delays in three state owned bank privatizations; and (iii) political risk, and implementation risks\. Mitigations included the Government's demonstrated commitment to sustained economic and political stability and reforms; that the economy had become more adaptive to negative shocks following the floatation of the currency; and exporters' track record of resilience to macroeconomic instability demonstrated on the occasion of the 2001 crisis\. On the project level, the World Bank team had strong confidence in the financial, institutional, managerial and technical capacity of TSKB, which had experience in managing foreign credit lines, including those from the World Bank\. 2\.2 Implementation The strong capacity of TSKB was the most important factor in the successful implementation of the credit line\. TSKB implemented very streamlined Internet-based loan processing procedures\. It proactively monitored the performance of PFIs and, in coordination with the PFIs and the Bank team, ensured that funds were allocated and re- allocated to well-performing PFIs with demand for the funds, so the credit line continued disbursement in a timely manner and with proper procedures in place for intermediating the funds to exporters\. Reallocations among PFIs included a shift towards leasing companies reflecting rapidly increasing demand for medium term funds from the leasing 4  industry\. Another example of TSKB's responsiveness to the market conditions is that TSKB renegotiating its lending rates to some of the already participating PFIs\. The project's implementation performance was successful in assessing credit risk with exporters, with only two out of the 249 participating firms classified as non-performing during the project's life time\. One of the companies recovered leaving non-performing loans standing at US$ 4\.3 million or 1\.4 percent of the total credit line as of October 2007\. Foreign ownership in the financial sector increased during the life of the Project and supported the PDO, but at the same time it posed a threat to the project\. Foreign ownership of financial intermediaries helped them gain access to funds at lower costs and thereby stimulated access to finance in Turkey\. At the same time, however, it created a more competitive environment for disbursing funds under the Project\. TSKB proved its responsiveness to the changing market conditions and renegotiated its lending rates with some of the PFIs\. 2\.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization The project had a good monitoring and evaluation framework design, with the original set of PAD indicators tracking performance at all stages of the credit line implementation\. This design was reinforced during the supervision mission by additional indicators for tracking developmental impact and financial prudence\. The original indicators proposed in the PAD were on export performance, the scope of financial intermediary participation, and on sub-loan/lease performance, (see section 1\.2)\. In addition, supervision missions monitored the following quantitative indicators (see also qualitative impacts discussed in Section 3\.2 and Annex 2): (a) planned employment impact associated with the project, (b) financial performance of the Borrower and PFIs, and (c) loan distribution by PFI, firm size, sector, and geographical location\. The indicators were effectively monitored\. TSKB developed an IT system to interface with PFIs for sub-loan applications and monitoring\. Financial performance of TSKB and the PFIs was monitored through independent auditors' reports and separate letters confirming adherence to the eligibility requirements\. TSKB performed occasional consistency check and cross referencing for the data\. 2\.4 Safeguard and Fiduciary Compliance Procurement, financial management practices, and the environmental review process for the operation were supported by the operational manual with guidance for TSKB and PFIs\. The well-developed operational manual and a diligent PIU helped ensure effective implementation of safeguards and fiduciary compliance\. With regard to fiduciary compliance, all financial management aspects related to implementation were satisfactory\. TSKB had worked with the World Bank before and 5  was very familiar with the Bank's fiduciary requirements related to procurement, disbursements and applicable safeguards\. The financial soundness of PFIs was supported by improved banking and leasing sector regulations, project requirements aligned with the regulatory environment, and an incentive structure that ensured that borrower were effectively pre-screened and monitored\. Banking and leasing sector supervision has improved since the EFIL I implementation period, and EFIL II ensured the soundness of PFIs through (a) a prudential regulation compliance certificate; and (b) independently audited IFRS financial reports\. For leasing companies separate eligibility requirements were applied and compliance was assessed based on quarterly project implementation reports, semi- annual external auditor compliance certificates, and annual external audit reports of the participating leasing companies\. During project implementation, supervision of the leasing sector was strengthened as the supervisory responsibility was transferred from the Turkish Treasury to the independent regulator, BRSA\. In addition, since TSKB carried the credit risk of PFIs, it had strong incentive to pre-screen and monitor PFIs to ensure that they are financially viable institutions\. Environmental protection procedures were effectively implemented at TSKB and PFIs\. Detailed procedures were designed in the operational manual\. The majority of the approved sub-loans were classified as having negligible environmental impact and not needing an Environmental Impact Assessment (EIA), whereas two sub-borrowers were required to provide an EIA and be monitored\. Some projects were rejected during loan the approval procedure based on environmental standards of loan applicants\. 2\.5 Post-completion Operation/Next Phase EFIL II was designed to enable participants to continue the activities independent of the project on a commercial basis as the Turkish financial sector's access to medium and long term funding increases, and this has been partially achieved\. The financial sector's access to medium term finance has improved, but deposits in Turkey remain short term, and syndicated loans are still mostly of 1-2 years maturity\. TSKB has built lending relationships and experience with PFIs\. PFIs have expanded their client base and honed their skills in making medium- and long-term credit\. They have used the loan to demonstrate that medium term lending can be a profitable business proposition\. Exporters have built a credit history with financial intermediaries and improved their financial records and documentation required for bank loans, thus improving their ability to gain access to credit\. However, additional operations could help sustain the achievements of EFIL II and expand the scale and scope of the development impact\. In particular the following needs remain relevant: (i) access to medium and long term funds; (ii) further development of medium term lending skills; (iii) expansion of the scope of financial institutions included; (iv) scaling up the project, which reaches only a small part of the exporting sector; (v) better reach smaller firms, which still suffers from poor access to credit; and (vi) better 6  reach borrowers outside major urban areas, which are experiencing relatively worse access to credit as evidenced in the recently published Turkey ICA\. EFIL II has already been followed up with a repeater operation, EFIL III, and a credit line for SMEs, the SME Access to Finance project\. EFIL III includes new banks and leasing companies as PFIs (relative to those included in EFIL I and EFIL II) and thereby expands the scope of the financial intermediaries benefiting from the project\. The SME Access to Finance credit line supports smaller firms and has an additional regional objective to serve an area in the central and eastern part of Turkey, where lending to SMEs is still weak\. Additional needs remain (i) for medium and long-term finance to private exporters, (ii) to further build capacity in the financial sector, (iii) to scale up the impact of the project, and (iv) to better reach smaller firms and those with inadequate access to medium term funds\. Exports/GDP in Turkey remains low compared to some other emerging markets, and with the proximity to EU and the customs union in place there is still ample scope for expansion of export industries if their investments can be funded\. For the leasing companies the funding mismatch remains an even greater concern than in the banking sector\. Additional credit line financing should be considered to build on the success of the past and ongoing projects\. 3\. ASSESSMENT OF OUTCOMES 3\.1 Relevance of Objectives, Design and Implementation The objective, design and implementation of the project remain highly relevant with regard to Turkey's and the World Bank's development objectives\. The CAS for FY04- FY07 (a new CPS is underway, but not yet completed), aimed to improve the business climate and identified export growth and stability of financial markets as key outcomes\. It identified increase in export capacity of enterprises financed through lines of credit as a Bank Group benchmark\. The Turkish Government in its development plan for 2007- 2013 includes competitiveness in export markets as a main objective and includes improvement to the financial system as a key underpinning goal to achieve this\. 3\.2 Achievement of Project Development Objectives The PDOs were very well achieved and ahead of time\. The first PDO indicator was overachieved, and the next two indicators showed better results than what should be expected in Turkey\. Providing medium- and long-term working capital and investment finance to private exporters\. The credit line provided US$ 300 million worth of medium term financing for exporters through 11 financial intermediaries\. US$187 million was provided by 5 banks, and US$113 million was provided by 6 leasing firms\. The project thus added US$300 million worth of financial intermediation\. This is equal to around 0\.3 percent of total domestic credit to the firm sector in Turkey, but it is a much larger part of investment 7  finance in Turkey, which remains underdeveloped\. The maturities of sub-loans and leases were quite long with more than half the loans having maturities of four years or more (Figure 2)\. The impact was well dispersed across 249 exporters in several industries and geographic areas (see Annex 10) with some concentration in the Marmara region and in the textile sector\. Figure 2: Maturity of Sub-loans and Leases 120 ses 100 eald an 80 ans 60 ub-losfo erb 40 Num 20 0 <1Y 1Y-2Y 2Y-3Y 3Y-4Y 4Y-5Y 5Y-6Y 6Y-7Y 7Y-8Y Maturity of loan The project reinforced the general trend of increased credit in Turkey\. Bank loans grew by 223 percent and leasing volume grew by 143 percent between 2003 and 2006 in US$ terms\. The growth continued in the first half of 2007 albeit at a slower pace\. Further facilitating export growth in Turkey\. The export multiplier (measuring incremental exports divided by loan amount) was 7\.1 for the project meaning that for every dollar of loan taken by an exporter, it increased exports by 7\.10 dollars\. Exports by sub-borrowers in the project grew by 117 percent (or US$ 2\.5 billion) between 2003 and 2006 and thereby reinforced the general trend of increasing exports\. Turkish exports in general expanded by a cumulative growth of 81 percent in US$ terms between 2003 and 2006\. The strong export performance has been in spite of a tendency of appreciation of the Turkish currency throughout the life of the project (Figure 3) and a strong growth in domestic demand, which increased by 31 percent between 2003 and 2006 and thereby creating an incentive for Turkish firms to become more inward-looking in their marketing\. 8  Figure 3: Turkish Currency has Appreciated in Real Terms Real Effective Exchange Rate Index, CPI-based 200 180 160 140 120 100 80 60 40 20 0 99 00 01 02 03 04 05 06 19 20 20 20 20 20 20 20 Dec Dec Dec Dec Dec Dec Dec Dec Source: Central Bank of Turkey\. Improving quality and safety of and access to finance through development of financial intermediation in the Turkish private financial sector by banks and leasing companies\. Sub-loans and leases performed reasonably well with 1\.4 percent being non-performing relative to a 3\.7 percent NPL ratio in the banking sector as of October 2007\. Two of the participating 249 exporters were classified as non-performing borrowers during the life of the project, and one of them later recovered to performing status\. The borrower and participating financial institutions remained financially healthy during the operation with one exception\. One PFI incurred losses and had to increase provisions for pension liabilities, which pushed the capitalization of the bank below the regulatory minimum\. The bank was subsequently recapitalized by its owners and is now in compliance with banking regulations\. The loans' concentration in the manufacturing sector and in the Marmara region is explained by the overall exporters' concentration in this sector and region\. Within the manufacturing sector, a large share went to the textile sector (36\.7 percent), which accounts for about 27 percent of Turkey's manufacturing exports2\. The concentration in this traditional Turkish export sector may reflect that these firms have better track records to prove their creditworthiness than emerging industries with better growth potential\. It suggests that there is still room for developing good credit appraisal practices for medium term financing\. Employment at participating exporters was planned to grow by 4,993 individuals as a result of the projects financed by EFIL II3\. At the time of sub-loan/lease application the 2 Including wearing apparel\. 3 The employment impact is specific to the project for which the loan proceeds are applied, but it reflects the planned impact at the exporter level rather than the actual impact\. During the loan application process borrowers were asked how many employees they planned to add in connection with the investment for which they were borrowing, and that is the basis for the data\. 9  exporters indicated what the planned employment impact of the project association with the loan would be\. Job creation was not an objective for the project when designed, but it is an important objective for the World Bank and for Turkey, and it is therefore an important added benefit of the project\. Furthermore, as Annex 2 further develops, the project had significant impact towards achieving the PDO through indirect channels, namely (i) a demonstration and spillover effect, with TSKB and the PFIs demonstrating that medium term lending can be a viable business proposition; (ii) capacity building for TSKB (for example a new IT system to process loan applications by PFIs through the Internet), PFIs (improving their skills in making medium and long term credit through better credit appraisal and higher documentation requirements) and exporters (improving formal documentation for gaining access and getting credit), (iii) improved environmental practices of exporters and the capacity of PFIs to assess environmental risks of borrowing companies\. 3\.3 Efficiency The project was efficient in terms of generating exports\. For every dollar of loan extended, the exporters increased exporters by 7\.1 dollar; and for every US$ 60,000 borrowed the exporters planned to add one employee (see also Annex 2 and section 3\.2)\. It is likely that the project had a causal effect on the outcomes although it cannot be firmly proved\. The alternative that the project merely crowded out private sector financing does not seem plausible\. First, there is very little financing of firms by leasing firms and banks that have the long maturities offered in EFIL II, suggesting that there is not a significant private market to crowd out\. Second, a regression analysis showed that firms that receive larger loans experienced greater export growth\. Third, for instance export growth and NPLs were benchmarked against and outperformed the rest of the economy\. The only way to firmly establish causality would be to benchmark against a control group created by randomly rejecting loan applications from firms that had already been approved by the PFI and TSKB ­ an experiment which is impossible in practice\. 3\.4 Justification of Overall Outcome Rating Rating: HS ­ Highly Satisfactory The development objectives of the operation were and remain highly relevant for Turkey's and the World Bank's development agenda\. The project overachieved on its indicators, it did so efficiently and faster than planned, and it had additional positive effects such as employment generation, improved environmental practices, capacity building at financial intermediaries, and a demonstration effect to develop medium term financing\. 3\.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development 10  The project's impact on poverty is indirect as it helps firms grow and create employment\. At the macroeconomic level, the project supported expanding export activity, which contributes to economic growth and social development\. The employment impact of creating about 4,993 jobs likewise has a positive social impact\. (b) Institutional Change/Strengthening The project helped strengthen leasing and bank project finance credit appraisal procedures among the PFIs\. Some PFIs, though not all, indicated that the credit appraisal and documentation requirements under the project helped them upgrade their lending practices and in some cases prepare for merger with international banks that required some of the same processes\. One leasing company was a new entrant when it started participation in the EFIL II project and used the requirements as a starting point for developing their credit appraisal processes\. TSKB built an Internet-based IT system to process sub-loan applications from PFIs, which is being used in other projects\. It allowed for an expeditious interaction with PFIs for the approval of sub-loans and leases, and the structured IT system reduced the scope for errors\. PFIs found the interaction with TSKB very efficient, and the system contributed to that\. The IT system is also being used in the EFIL III project and is an asset that will remain with TSKB\. The project improved the environmental practices of exporters and the capacity of TSKB and PFIs to assess environmental risks of borrowing companies\. The project's environmental requirements dictated that either an Environmental Impact Assessment (EIA) had to be submitted or an "EIA not required" certificate had to be provided\. In order to implement the requirement, the PFIs built capacity to assess environmental risks and the effectiveness of mitigation at borrowing firms\. TSKB and PFIs have used the loan to demonstrate that medium term lending can be a viable business proposition\. This has been a crucial higher-level objective for the project, aiming to ultimately encourage medium- and long-term credit by creating the market and demonstrating its business rationale\. This will further strengthen exporters' access to investment finance in the future (c) Other Unintended Outcomes and Impacts (positive or negative) None\. 3\.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops No survey was done or workshop was held\. 4\. ASSESSMENT OF RISK TO DEVELOPMENT OUTCOME Rating: Moderate Risks to the project outcomes encompass general country risks, risks to financial intermediation, export performance, and project specific risks\. General risks include 11  political risk, natural disasters (the Istanbul region, which is the hearth of commercial activity in Turkey, is earthquake prone), the war in neighboring Iraq, international financial market turbulence, and macroeconomic mismanagement all of which have happened in the past\. Specific export sectors could be affected by changes in the international competitive environment\. For instance the textile sector could see declining prices as China and India continue to grow their capacity\. The project aims to improve the domestic financial sector's resilience to shocks, but otherwise these factors are beyond the control of the project\. Project specific risks include the future performance of TSKB, the PFIs, and the sub- borrowers\. TSKB's financial performance has been monitored during supervision missions and the bank remains sound\. Its liabilities have long maturities making the bank fairly resilient to financial turbulence (Annex 9 provides additional information on the financial performance of TSKB and the PFIs)\. PFIs, likewise, have been monitored during supervision for their financial health and with one exception (see section 3\.2) found to be performing well\. Non-performance on the loan obligations by exporters may well happen as it has twice in the project\. The aggregate export performance of the sub- borrowers, however, will not be materially impacted by a few non-performing firms because the project is disbursed across 249 different firms, and as a group they are unlikely to pose a risk for the projects outcomes\. Box 1: IEG Lessons from World Bank 5\. ASSESSMENT OF BANK AND BORROWER Lines of Credit PERFORMANCE In 2006, IEG produced an evaluation of lines of credit and found the following characteristics to be associated with 5\.1 Bank Performance better outcomes: i) stable macroeconomic conditions; (a) Bank Performance in Ensuring Quality at ii) stronger financial sectors, including Entry satisfactory competition policies Rating: S - Satisfactory and good legal and regulatory The project's identification and design were regimes governing financial compatible with the CAS, the project built on institutions, and mostly market determined interest rates, few the lessons learned the first EFIL, and it was distortionary credit and tax policies, consistent with the Government's development and limited state ownership of strategy for the sector as also noted in section financial institutions; 2\.1\. iii) use of clear eligibility criteria in the selection of participating financial institutions; and Importantly, the project had the benefit of iv) use of only private sector financial learning from a predecessor operation, the first intermediaries\. EFIL, and it was able to refine the project to In addition, smaller size of lines of credit ensure a successful implementation\. A is associated with lower cancellation particular strength was the development of a rates\. detailed operational manual, which helped Source: Independent Evaluation Group ensure that the project was implemented (2006), "World Bank Lending for Lines effectively and that the PIU was following bank of Credit: An IEG Evaluation", The procedures\. World Bank, Washington, DC\. 12  The project design was well aligned with the later published IEG (2006) recommendations for lines of credit (Box 1): (i) the macroeconomic environment was stabilizing with inflation reaching single digit levels in 2004, although clear vulnerabilities remained; (ii) banking sector reforms (supported by World Bank SALs) were substantially progressing in improving the regulation of the banking sector; (iii) clear eligibility criteria for PFIs were identified in the PAD; and (iv) only private intermediaries were used (the Government was guarantor for TSKB's financial obligation to the World Bank, but not directly involved in implementation)\. Notably, the loan was disbursed quickly although the loan size was relatively large\. (b) Quality of Supervision Rating: HS ­ Highly satisfactory Effective supervision by the World Bank team helped ensure a successful project by responding to Borrower needs and by being proactive in addressing implementation hurdles on the horizon, which the team collaborated with TSKB to overcome\. TSKB in its feedback highlights the importance of effective collaboration with the World Bank team\. Moreover, development results were effectively monitored and the supervision expanded the scope of measurement to include for instance employment, which is a key development priority, and geographical and sectoral dispersion of the loans\. Importantly, the quality of supervision has resulted in the institutionalization of best practices for TSKB and participating PFIs\. TSKB's lending practices improved in sophistication and efficiency, including an IT system to expedite sub-loan processing, while PFIs benefited from building institutional capacity in assessing credit risk for medium term financing and managing environmental risks\. (c) Justification of Rating for Overall Bank Performance Rating: HS ­ Highly Satisfactory Based on the above, the overall Bank performance in ensuring quality at entry and quality of supervision is Highly Satisfactory toward achieving the development outcomes\. 5\.2 Borrower Performance (a) Government Performance Rating: HS ­ Highly Satisfactory The Government's performance was Highly Satisfactory\. Not only did the Government take the credit risk of TSKB by providing a guarantee, but throughout the life of the project the Government has been very supportive of the World Bank credit line project with TSKB\. Prudent macroeconomic policies and strengthening of the supervisory framework also contributed to the success of the project\. The regulatory framework was substantially strengthened in part as supported by a new banking law and in part with the transfer of supervisory responsibility of the leasing industry from the Turkish Treasury to the BRSA\. Although Government's direct role in a credit line project with the private sector is relatively small, it has been a critical and very positive role\. (b) Implementing Agency or Agencies Performance 13  Rating: HS ­ Highly satisfactory The performance of the Borrower and implementing agency, TSKB, was Highly Satisfactory\. TSKB pro-actively supported PFIs implementation, effectively performed its responsibilities, developed an IT system to help interaction with PFIs and project monitoring, and reacted swiftly to changing market conditions by reallocating funds between PFIs and renegotiation costs to PFIs with foreign participation\. PFIs voiced only praise for TSKB during the ICR mission except for the unanimous (and expected) complaints about pricing\. In addition, monitoring data was promptly produced and utilized in decision-making\. (c) Justification of Rating for Overall Borrower Performance Rating: HS ­ Highly Satisfactory Based on the above, the overall Borrower performance is rated Highly Satisfactory\. 6\. LESSONS LEARNED In addition to lessons learned from EFIL I as described in Section 2\.1, EFIL II offers the following lessons: Simplicity and alignment with existing business practices at PFIs speed up the implementation of the project\. Eligibility constraints and reporting requirements that go beyond what PFIs normally require increases transaction cost of the project, slows implementation, and may have a tendency to shift funds to firms with relatively better access to finance\. The application process for individual loans and leases reportedly required about twice the amount of manpower compared to normal lending practices\. A solution may be to rely on existing credit appraisal practices at PFIs to a greater extent\. Onerous environmental, procurement, and other project requirements tend to lead to funds being allocated to larger businesses rather than reaching those that need them most\. The fixed costs incurred by these requirements make it relatively more attractive for PFIs to lend the loan funds to larger customers with greater loan sizes\. PFIs indicated that project requirements made it uneconomical to cater to the smallest borrowers\. For leasing companies, loan sizes under the project were roughly twice what they were for the leasing companies' entire portfolio indicating that bigger firms are targeted in the project\. Reevaluating our safeguard requirements in the context of credit lines and carefully designing our information requirements to minimize compliance costs while serving the safeguard objectives will help ensure successful implementation and better achievement of the development objectives\. Responsiveness to changing market conditions reduces implementation delays\. During the project, loan funds for two banks in the project became uncompetitive and would not have continued to disburse\. Prompt reallocation to other PFIs ensured that the overall project was not delayed as a result\. 14  7\. COMMENTS ON ISSUES RAISED BY BORROWER/IMPLEMENTING AGENCIES/PARTNERS (a) Borrower/implementing agencies The borrower, TSKB's, ICR is included in Annex 7\. (b) Cofinanciers Not applicable\. (c) Other partners and stakeholders (e\.g\. NGOs/private sector/civil society) The following is a summary of the main points put forward by participating PFIs in written feedback and during interviews in the ICR mission\. The project has been successful in achieving its objectives by helping (i) PFIs grow their business; (ii) PFIs extend maturities of liabilities; (iii) increase awareness and expertise on environmental issues\. The credit line cost to PFIs become expensive towards the end of the implementation period\. Most, although not all, PFIs indicated that the price of the credit line had become high relative to other funding sources and in particular as price competition in the financial sector had become stronger\. It would be desirable to simplify credit appraisal requirements and to simplify the application process\. PFIs indicated that the time spent on applications under this loan was roughly twice the time for loans funded by own sources\. Obtaining environmental documentation from small firms was difficult\. The smaller the firm, the more likely it is to find it difficult or not worthwhile obtaining environmental documentation required under the project\. It would be desirable for PFIs to have a fixed (as opposed to variable) interest rate\. In particular leasing companies found that a fixed interest rate in the loan would help them manage interest rate risks\. Leasing contracts are at fixed interest rate, and some leasing companies used interest rate swaps to hedge the interest rate risks resulting from the variable rate lending from TSKB\. Including the tourism industry as an export industry would help implementation\. Firms in the tourism industry were not eligible as exporters although tourism services to non-residents are exports (by economic statistics definitions)\. There is strong demand for investment lending in the tourism industry, and several PFIs indicated that inclusion of tourism would have helped implementation of the project\. 15  ANNEX 1\. PROJECT COSTS AND FINANCING (a) Project Cost by Component (in USD Million equivalent) Appraisal Estimate Actual/Latest Components Percentage of (USD millions) Estimate (USD millions) Appraisal Total Baseline Cost 0\.00 0\.00 Physical Contingencies 0\.00 0\.00 0\.00 Price Contingencies 0\.00 0\.00 0\.00 Total Project Costs 303\.1 303\.01 100% Credit Line 300\.0 Unallocated \.069 Project Preparation Fund 0\.00 0\.00 \.00 Front-end fee IBRD 3\.031 3\.031 100% Total Financing Required 303\.1 303\.01 100% (b) Financing Appraisal Actual/Latest Source of Funds Type of Estimate Estimate Percentage of Cofinancing (USD (USD Appraisal millions) millions) Borrower 0\.00 0\.00 \.00 International Bank for Reconstruction and Development 303\.10 303\.01 100% 16  ANNEX 2\. OUTPUTS BY COMPONENT This Annex summarizes the outputs that have been realized under the project\. It assesses quantitative output targets against those set out in the PAD, in addition to the qualitative impact as assessed during supervision and by the ICR team\. The project had a single component, and the quantitative outputs are described below and in Table 1 according to the development objective they supported: (i) Provide medium- and long-term working capital and investment finance to private exporters\. Credit line utilization, as measured by the amount of sub-loans disbursed to exporters, was highly successful with the credit line to private exporters in Turkey fully disbursed (US$ 300 million) by June 2007, two years ahead of projections\. Financial intermediary participation, as measured by the number of PFIs participating in the project and the number of PFIs different from those participating in EFIL I, was high with 11 PFIs4 (5 banks and 6 leasing companies), of which all but 2 banks were new relative to EFIL I\. Thus, the project was successful in three dimensions: (i) attracting broad participation from institutions different from those in EFIL I; (ii) including leasing companies in addition to banks; (iii) including second-tier financial institutions, i\.e\. those that have otherwise more difficult access to funding\. (ii) Contribute to further facilitating export growth in Turkey\. Export growth impact, as measured by the export multiplier (incremental export/loans disbursed) for participating firms over a three year period, 2003 to 2006, was 7\.15\. In other words, for every dollar borrowed under EFIL II, exports by participating firms grew by 7\.1 dollars\. Although establishing causality is difficult, exports per se for the participating firms grew by 117 percent from US$2\.1 billion in 2003 to US$4\.6 billion in 2006, when, for comparison, export growth for the country as a whole was 81 percent over the same period\. A regression analysis showed that firms that receive larger loans experienced greater export growth, and that the effect was stronger for investment loans than for working capital loans\. (iii) Improve quality and safety of and access to finance through development of financial intermediation in the Turkish private financial sector by banks and leasing companies\. Sub- loan payment performance, as measured by (i) the amount of non-performing sub-loans and leases and interest and (/or) (ii) principal defaults/total amount of sub-loans and leases disbursed 4 Two of the participating banks merged during the operation, and they are counted as separate banks in this report, because they originally participated as separate banks\. In TSKB's ICR in Annex 7, the two merged banks are counted as one\. This explains why TSKB reports 10 PFIs in Annex 7, and this Annex reports 11 PFIs\. 5 The base year in the export multiplier is the calendar year before the first loan was given except if it was given in the last quarter of the year\. If the loan was given in the last quarter of the year, the base year is the calendar year in which the loan was given\. The incremental growth is calculated according to 2006 data regardless of the base year\. 17  has been very satisfactory\. Only two borrowers were classified as non-performers6 with a total of US$ 5\.6 million worth of outstanding balance equaling 1\.9 percent of the total disbursed amount\. One loan subsequently regained status as performing reducing the non-performing rate to 1\.4 percent\. For comparison, non-performing loans to total loans in Turkey equals 3\.7 percent\. The financial performance of TSKB and PFIs was closely monitored during supervision through reviews of audited financial statement\. With one exception, all intermediaries remained sound and well performing throughout the implementation period (Summary financial indicators are provided in Annex 9)\. One PFI's capital fell below the regulatory minimum in 2006, but the bank was recapitalized without intervention or Government support, but rather through capital injection and a merger with another bank in 2006\. The loan was broadly distributed across 249 firms with the largest individual loan amounting to 3 percent of the total project amount\. The loans were geographically concentrated in the Marmara region (73 percent), which includes Istanbul (see Annex 10)\. The regions hosts a large share of Turkey's exporting industries and the main offices of many firms operating throughout Turkey\. In addition, the financial sector is strongly concentrated in Istanbul, and therefore it is not surprising to see loan concentration in that area\. Loans were somewhat concentrated in the textile sector (36\.7 percent) and in the basic metals and fabricated metals sectors (21\.8 percent)\. 50 percent of the loan volume was for loans of more than $2\.5 million\. The level of big loans reflects that many big firms are also those that export\. (iv) Contribute to employment (added during supervision)\. Employment has become the most important development objective in Turkey, and supervision missions therefore collected data on the planned employment impact of the projects, although this is not an objective of the project\. At the time of application, the exporter reported the number of employment they planned to add as a result of the financing they received or project they undertook financed by the project\. 4,993 individuals would be added to the 56,461 already employed by the exporters according to the firms' plans\. In addition, EFIL II was designed to enable participants to continue activities independent of the project on a commercial basis, thus adding a qualitative impact dimension, assessed during supervision and by the ICR team: (i) Demonstration and spillover effect\. TSKB and PFIs have used the loan to demonstrate that medium term lending can be a viable business proposition\. This has been a crucial higher objective for the project, aiming to ultimately encourage medium and long-term credit by creating the market and demonstrating its business rationale\. The spillover effect is a longer-term goal, going beyond the scope of this ICR\. (ii) Capacity building\. The project has had a considerable impact among (i) TSKB, which has built lending relationships and experience with PFIs, and a new IT system to process loan applications by PFIs through the Internet; (ii) PFIs, which have expanded their client base and honed their skills in making medium- and long-term credit; (iii) exporters, which have built a credit history with financial intermediaries and improved formal documentation for gaining access to credit\. Indeed, a large number of the PFIs 6 Non-performing loans are classified according to BRSA regulations in the sub-standard, doubtful, and loss categories\. 18  indicated that the credit appraisal and documentation requirements under the project helped them upgrade their lending practices and in some cases prepared them for mergers with international banks that required similar lending processes\. (iii) Improved environmental practices\. The project has improved the environmental practices of exporters and the capacity of PFIs to assess environmental risks of borrowing companies\. The project's requirements for environmental protection procedures went beyond what the PFIs had in place and mostly required the exporters to obtain "EIA not required" certificates from the local authorities\. 19  Table 1: Quantitative impact assessment Indicator and target Results as measured Output: Provide medium and long term working capital and investment finance to private exporters Credit line utilization as measured by the amount The credit line was fully disbursed of sub-loans disbursed to sub-borrowers\. (US$ 300 million) by June 2007, two years ahead of projections\. Financial intermediary participation as measured 11 PFIs (5 banks and 6 leasing companies) by the number of PFIs participating in the project participated, of which all but 2 banks were and the number of PFIs different from those new relative to EFIL I\. participating in the first EFIL\. Output: Contribute to further facilitating export growth in Turkey Measured by the export multiplier: (incremental Exports by participating firms grew by 117 export/loans disbursed) - to be measured over a percent from US$ 2\.1 billion in 2003 to three year period US$ 4\.6 billion in 2006\. The PAD and ISRs did not specify a target\. For comparison, export growth for the country was 81 percent in the same period\. The export multiplier for 2003 to 2006 is 7\.1\. Output: Improve quality and safety of and access to finance through development of financial intermediation in the Turkish private financial sector by banks and leasing companies Sub-loan payment performance as measured by Two borrowers defaulted with a total of the amount of non-performing sub-loans and US$ 5\.6 million worth of outstanding leases; and interest and (/or) principal balance equaling 1\.9 percent of the total defaults/total amount of sub-loans and leases disbursed amount\. One borrower later disbursed regained status as performing thus reducing the non-performing ratio to 1\.4 percent as of October 2007\. For comparison, non-performing loans amount to total loans in Turkey equals 3\.7 percent\. Financial performance of the Borrower and PFIs With the exception of one PFI, which later recovered, all financial intermediaries in the project remained sound throughout the project's implementation period\. Financial indicators are included in Annex 9\. Loan distribution Loans are widely distributed among 249 entities with a maximum sub-borrower loan size of 3 percent of the total project amount\. There is significant concentration in the Marmara region (which includes Istanbul), in part because exporting industries are concentrated there, and possibly also because the PFIs are headquarter in this region\. The textile industry, which 20  accounts for about 27 percent of Turkey's exports, accounts for 37 percent of the loans\. Details are included in Annex 10\. Output: Employment (added during supervision) Employment growth of participating sub- The planned employment growth as a result borrowers of the project was 4,993\. The project did not specify a target for employment growth\. 21  ANNEX 3\. ECONOMIC AND FINANCIAL ANALYSIS At the level of exporters, which are the ultimate beneficiaries, economic and financial analysis has not been conducted, but outcomes (export performance and planned employment impact) have been measured (see Annex 2)\. There are 249 sub-borrowers in the project, and it would not be practical to go beyond those measures for economic and financial analysis considering that intermediaries already find it to be a significant cost of the project to collect just the outcome measures\. 22  ANNEX 4\. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION PROCESSES (a) Task Team members Names Title Unit Responsibility/ Specialty Lending Team leader Lalit Raina Lead Financial Sector Specialist ECSPF (preparation & supervision) Marius Vismantas Financial Sector Specialist ECSPF Team member Marie-Renee Bakker Lead Financial Sector Specialist ECSPF Team member Young Ok Hong Program Assistant ECSPF Team assistant Ahmet Gurhan Ozdora Sr\. Operations Officer ECSSD Team member Dilek Barlas Senior Counsel LEGEC Legal Rohit Mehta Senior Finance Officer LOAG1 Disbursement Salih Kemal Kalyoncu Procurement Specialist ECSPS Procurement Ayse Seda Aroymak Sr\. Financial Management Spec\. ECSPS Financial Management Supervision/ICR Team leader Lalit Raina Sector Manager ECSPF (preparation & supervision) Steen Byskov Financial Sector Specialist ECSPF Team leader (ICR) Nasreen Chudry Bhuller Program Assistant ECSPF Team assistant Ilias Skamnelos Financial Sector Specialist ECSPF Team member Marius Vismantas Financial Sector Specialist ECSPF Team member Irina L\. Kichigina Sr\. Counsel LEGEM Legal Ahmet Gurhan Ozdora Sr\. Operations Officer ECSSD Team member Ayse Seda Aroymak Sr\. Financial Management ECSPS Financial Specialist management Zeynep Lalik Mete E T Consultant ECSPS Financial management Furuzan Bilir Operations Officer ECSPS Disbursement Salih Kemal Kalyoncu Procurement Specialist ECSPS Procurement 23  (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands No\. of staff weeks (including travel and consultant costs) Lending FY03 1\.10 6\.99 FY04 54\.63 309\.43 FY05 1\.05 1\.35 FY06 \.03 0\.04 FY07 -- 0\.00 FY08 -- 0\.00 Total: 56\.81 317\.81 Supervision/ICR FY03 -- 0\.00 FY04 2\.45 22\.00 FY05 26\.88 135\.42 FY06 23\.31 123\.97 FY07 15\.06 73\.70 FY08 9\.22 -0\.09 Total: 76\.92 355\.00 24  ANNEX 5\. BENEFICIARY SURVEY RESULTS No survey was conducted\. 25  ANNEX 6\. STAKEHOLDER WORKSHOP REPORT AND RESULTS No workshop was held\. 26  ANNEX 7\. SUMMARY OF BORROWER'S ICR AND/OR COMMENTS ON DRAFT ICR Below is the original ICR of TSKB\. 1\. Assessment of the operation's objective, design, implementation and operational experience 1\.1 Operation's objective Primary objective of EFIL II was to provide medium and long-term investment finance as well as working capital to private exporting enterprises (Beneficiary Enterprises)\. The secondary objective of the loan was the further improvement in the ability of the Turkish financial sector to provide financial resources to the enterprise sector, through further development of intermediation by private financial institutions, including banks and leasing companies\. The operation's main objective above all was to intensify the export volumes of Turkish companies through very well structured financial intermediation scheme\. Evaluation of the results shows that the objectives of the operation were achieved\. 1\.2 Operation's design Lending was done through six leasing companies and four private banks (PFIs) throughout the loan utilization period\. Leasing companies have not been financial intermediaries in World Bank projects in Turkey before\. The inclusion of leasing companies as financial intermediaries is an innovative aspect of the project, not previously used in World Bank credit line operations in the Europe and Central Asia (ECA)\. The banks and the leasing companies that took part in the lending operations were selected according to the eligibility criteria agreed between the Bank and TSKB\. TSKB took the risk of the PFIs selected for participation\. The PFIs made the sub-loans to private exporting enterprises for the financing of raw materials, spare parts, plant and equipment, and works, both for working capital as well as investment purposes\. The PFIs took the credit risks of the borrowing enterprises\. As of the closure of the facility, the status of funds allocated and utilized by each PFI was: PFI Amount (USD million) Garanti Finansal Kiralama A\. 37\.00 TEB Finansal Kiralama A\. 20\.00 Fortis Finansal Kiralama A\. 19\.30 Fon Finansal Kiralama A\. 17\.50 Yapi Kredi Finansal Kiralama A\. 13\.34 Halk Finansal Kiralama A\. 5\.99 Turk Ekonomi Bankasi A\. 42\.00 27  Yapi ve Kredi Bankasi A\. 73\.30 Oyakbank A\. 44 Fortisbank (Disbank) at the time of the loan 27\.55 agreement A\. Total 299\.98 At the inception of EFIL II, four leasing companies (Garanti Finansal Kiralama A\., Yapi ve Kredi Finansal Kiralama A\., TEB Finansal Kiralama A\., Fortis Finansal Kiralama A\. (formerly Di Ticaret Finansal Kiralama) and four private banks (Oyakbank A\., TEB A\., Fortisbank A\. (formerly Disbank), Koçbank A\. (later on Yapi ve Kredi Bankasi A\.) and Yapi ve Kredi Bankasi A\. signed Subsidiary Loan Agreements (SLAs) with TSKB\. The original breakdown of the facility among the PFIs was USD 200 million for sub-loans and USD 100 million for lease financing\. FFK Fon Finansal Kiralama A\. and Halk Finansal Kiralama A\. entered the facility as PFIs afterwards\. 1\.3 Operation's implementation The implementation of the facility was swiftly carried-out by TSKB\. The PFIs were chosen according to the agreed criteria and the loan was committed to PFIs within a few months after the signing of the loan agreement\. Backed by the lessons learned from the previous credit line operations (EFIL I) the process was improved during the implementation period by TSKB\. In order to expedite a faster implementation of the project, a user friendly computerized system was developed by the IT department of TSKB\. With the aid of this time saving system, paperwork lessened considerably\. All the stages of sub-loan processing including the submission and approval of the original sub-loan applications as well as disbursement requests and disbursements of PFIs were done electronically\. The computerized system worked very satisfactorily and reduced the overall sub-loan processing cycle time\. TSKB demonstrated the functioning of the system to the PFIs before the implementation of the project\. The system was very much appreciated by the PFIs\. All the PFIs were given training about the system, the environmental requirements of the loan, project appraisal and disbursement process\. TSKB used its IT system at every stage of the operations and all authorizations and transactions were performed through the system\. In addition to the computerized record, TSKB also maintained backup paper files for those sub-loans where procurement and disbursements had taken place\. During the implementation period, TSKB PIU provided consultancy services to the PFIs both on-line and via phone and orchestrated the loan scheme successfully\. 1\.4 Operational experience 28  During the preparation phase, a separate Project Implementation Unit (PIU) was established by TSKB in parallel with the Bank's requirements under the supervision of an Executive Vice President to oversee the implementation of the project\. PIU staff worked closely with the Bank staff\. As the primary project counterpart for the Bank the team was entrusted the overall administration of all aspects of the credit line and required reporting (FMRs) to the Bank\. The interaction between TSKB and PFIs, and TSKB and the Bank was excellent during the project\. The disbursement to the PFIs was completed by June 6, 2007 well before the closing date of the project (September 30, 2009)\. The trainings given to the PFIs regarding environmental issues, procurement and project appraisal improved the PFIs institutional capacity\. Finally, TSKB's wholesale lending function, well established today, became more sophisticated and more effective to the benefit of the overall Turkish private sector\. 2\. Assessment of the outcome of the operation against the agreed objectives The Primary objective of EFIL II was to provide medium and long-term investment finance as well as working capital to private exporting enterprises (Beneficiary Enterprises)\. A total of 249 companies utilized funds amounting USD 299\.98 in the EFIL II facility\. Therefore the primary objective has been well achieved\. The secondary objective of the loan was the further improvement in the ability of the Turkish financial sector to provide financial resources to the enterprise sector, through further development of intermediation by private financial institutions, including banks and leasing companies\. The number of PFIs participating in EFIL II was higher than that of EFIL I\. In EFIL I there were six participating PFIs (all banks) where as in EFIL II there were ten PFIs (four banks and six leasing companies)\. Additionally, the leasing companies, which have access to smaller companies, were included for the first time in EFIL's history as well as the World Bank's previous implementations in the Europe and Central Asia (ECA) region\. This objective has also been fully achieved Additionally the facility has led to an important diversification towards the smaller companies across the country\. Smaller exporting companies typically not serviced by the banking system were financed with the proceeds of the loan through the intermediation of the leasing companies\. The smallest amount of leasing finance extended to a single company was around USD 55,000\. Koçbank A\. (Later on Yapi ve Kredi Bankasi A\.), Fortisbank A\. (Dibank formerly) and Yapi ve Kredi Bankasi A\. participated as PFIs both in EFIL I and EFIL II\. The remaining PFIs, which participated in EFIL II were all newcomers\. During the lifetime of EFIL II reallocations among the PFIs were realized\. The final breakdown between sub-loans and lease finance was USD 186\.9 million and USD 113\.1 million\. The small-unallocated amount USD 69,000 and unutilized amount USD 21,687\.85 was cancelled as of June 14, 2007 and August 10, 2007 respectively\. Of the 29  total loan amount, USD 210 million (70 percent) was utilized for investment loans and USD 89\.9 million (30 percent) was utilized for working capital loans\. Average loan sizes for the leasing and loan components of the facility were USD 631,982\.70 and USD 2\.4 million respectively\. For the overall credit line the average loan amount was USD 1\.2 million\. Overall sub-loan performance was very satisfactory\. Only two loans of negligible amounts were classified as non-performing loans by two PFIs\. The operation's main objective above all was to intensify the export volumes of Turkish companies through very well structured financial intermediation scheme\. This objective has also been achieved\. The exports of EFIL II sub-borrowers were 3\.6 billion USD in 2004 and 4\.6 billion USD in 2006\. The export multiplier has been calculated as 3\.5\. The export volume and the export multiplier are expected to go up in the coming years as 13% of the facility was disbursed in the second half of the year 2006 and since 70% of the loans were for investment purposes\. 3\. Evaluation of the borrower's own performance during the preparation and implementation of the operation, with the special emphasis on lessons learned that may be helpful in the future Since TSKB already had an experience in working with the Bank spanning over five decades, there weren't any problems regarding the adaptation to EFIL II operation\. Nevertheless it is important to state that for the first time, in a Bank loan ­ in EFIL II project, TSKB acted as an APEX Bank and had the Borrower and the Implementing Agency functions\. As TSKB was one of the sub borrowers in EFIL I intermediated by Eximbank, the experience gained helped TSKB to empathize the requirements and needs of the sub borrowers\. The lessons learned suggest that lines need to be designed as flexible as possible\. The documentation and paperwork involved and reporting requirements should be kept to a minimum\. Tourism, which is one of the main foreign exchange generating sectors, should be included among eligible sectors\. The inclusion of tourism sector would have sped up the disbursement of the facility\. With regards to procurement the deployment of local commercial practices expedites the disbursement process\. Setting higher thresholds for national and international competitive bidding will help the pace of disbursements\. 4\. Evaluation of the performance of the Bank, any co financers, or of other partners during the preparation and implementation of the operation, including the effectiveness of their relationships, with special emphasis on lessons learned The Bank's performance during the preparation and implementation stages was very satisfactory\. During the preparation and implementation of the project both parties (Bank staff in Washington and IBRD Ankara Office and TSKB PIU) had a very cordial 30  relationship and issues relating to the implementation of the project were swiftly resolved\. 5\. Description of the proposed arrangements or future operation of the project Achievements of the predecessor EFIL II project lead to the EFIL III project, which is still successfully implemented by TSKB\. The utilization of EFIL III has already amounted to USD 144\.9 million and EUR 48\.6 million as of September 17, 2007\. There are newcomers to the Loan such as Leasing, Finans Leasing, Alternatifbank, Alternatif Finansal Kiralama, Denizbank and Finansbank\. The successful completion of the EFIL loans may lead to newly structured financial intermediation loans\. 6\. Information on the economic, financial, social, institutional, and environmental conditions in which the operation was implemented\. The environment that EFIL II facility was realized was as follows: The Turkish banking sector suffered from a series of macroeconomic and structural problems in the years surrounding the 2001 Crisis\. After all, the "twin crises" of 2001 were also a banking crisis\. Consequently, the ratio of total assets/GDP dropped from 77% in December 2002 to 70% in December 2003\. In principle this negative development should have imperiled the sustainability of GDP growth performance and constituted an obstacle economic recovery had to surmount, but nothing of that sort has happened\. As explained below, loan growth and GDP growth have been kind of decoupled in the aftermath of the 2001 crisis, suggesting that the corporate sector, especially SMEs, have found other financing opportunities\. Unrecorded economy is sizeable, which further limited banks' penetration and loan growth perspectives, especially as far as corporate loans go\. Furthermore, despite the liberalization-oriented policy of the last 25 years, the government was (is) still a major player in the banking sector\. Theoretically, large public banks may play a role in regulating the market through cost-of-service -or, as more commonly known, rate-of-return- regulation by acting as von Stackelberg leaders in a leader-follower game, but historic experience did not hint to anything of that sort\. The picture depicted above has begun to change when non-retail loans, including corporate, started to respond in Q1 2004\. The balance sheet of the system had already begun to change in the second half of 2003 when retail loans were triggered by the ongoing recovery, and especially, by lower interest rates\. Inflation reversed course when the trend was clearly broken in April 2003, and from then on both inflation and the nominal and real rates of interest spiraled down visibly\. A balance sheet that was entirely dominated by the securities portfolio gave way to loan growth, and loans quickly rose to unprecedented levels\. The restructuring and transformation of the banking sector persisted into 2005 as banks tried to adapt themselves to lower interest rates and continue to rebalance their balance sheets in favor of loans and other new fee-generating instruments, especially mortgage, asset management and suchlike\. The strategy was clearly to bet on TRY stability, emphasize the loan book at the expense of the securities portfolio, turn to TRY loans and boost the interest income and fee & commission income through more emphasis on retail loans\. The loans to assets ratio continued to trend up in 31  2003-2004-2005, but still wandered (wanders) below the EU average, which showcases the potential for further profitability improvement\. Furthermore, expanded product lines and cross-selling opportunities associated with growing non-interest income may offer traditional diversification benefits for a bank's revenue portfolio\. If non-interest income and net interest income are negatively or only weakly correlated, for example, non- interest income may diversify bank revenue and improve the risk/return trade-off\. Profitability increased sharply in 2003 and banks continued to be profitable in 2004 also, but this was basically due to mark-to-market and trading gains -especially in 2003- although fee & commission income gained some momentum also\. By the end of 2004,the tendency to build retail corporate marketing units, specifically targeting SMEs, had already undergone some way\. But competition should be fierce in this area and spreads rather low\. SME finance, which we expected to come to the forefront by 2005 -and it did to some extent, is promising, and given existing European trends that are replicated in the accession countries, but it takes good risk management, a sizeable retail presence and franchise\. Although free equity has been on the rise, not all banks are unconstrained in that respect and that also adds an upper bound to whatever profits may be expected to accrue there\. Balance sheets are indisputably cleaner now, as compared to a few years ago\. Banks have had more free equity in 2005 as compared to 2003-2004\. Almost all major banks improved their free capital positioning in 2004\. 32  ANNEX 8\. COMMENTS OF COFINANCIERS AND OTHER PARTNERS/STAKEHOLDERS PFIs provided written comments and feedback during the ICR mission\. A summary is provided in Section 7\.c, but, due to confidentiality issues, the original comments are not available\. 33  ANNEX 9: FINANCIAL PERFORMANCE OF BORROWER AND PFIS TSKB Financial Performance 2004 2005 2006 2007H1 Percent Capital adequacy ratio 42\.8 36\.8 32\.9 25\.0 Equity/assets 16\.7 16\.7 14\.5 14\.0 Return on equity 13\.3 21\.4 18\.7 17\.9 Return on assets 2\.2 3\.5 2\.9 2\.6 Gross NPLs/loans 4\.2 2\.4 1\.3 1\.2 Millions US$ Total assets 1,707 2,470 2,881 3,609 Loans 1,038 1,329 1,757 2,018 Equity 285 412 418 504 34  Financial performance of banks acting as PFIs Return on Return on Percent assets equity Equity/assets TEB 2003 2\.0 17\.6 11\.4 2004 1\.1 9\.4 11\.1 2005 1\.7 18\.1 8\.7 2006 1\.5 20\.6 6\.7 2007 (as of June) 1\.5 23\.4 6\.6 YKB 2003 0\.9 5\.5 16\.8 2004 -0\.2 -1\.4 18\.8 2005 -6\.4 -49\.6 6\.7 2006 1\.4 20\.8 6\.8 2007 (as of June) 1\.7 22\.4 8\.0 Oyakbank 2003 1\.5 12\.6 11\.8 2004 2\.2 18\.5 11\.6 2005 4\.2 35\.7 12\.1 2006 1\.0 10\.6 8\.3 2007 (as of June) 1\.0 11\.5 9\.5 Koçbank 2003 1\.2 17\.7 7\.1 2004 1\.2 16\.4 7\.0 2005 1\.9 13\.8 18\.4 2006 n\.a\. n\.a\. n\.a\. 2007 (as of June) n\.a\. n\.a\. n\.a\. Fortisbank 2003 3\.8 23\.8 16\.8 2004 1\.7 11\.5 13\.8 2005 1\.3 9\.1 15\.4 2006 1\.0 6\.9 12\.9 2007 (as of June) 2\.5 16\.0 18\.6 35  Financial performance of leasing companies acting as PFIs Return Return on Net lease Equity/ Percent on assets equity receivables/assets assets Garanti Leasing 2003 3 12 80 29 2004 - - 91 20 2005 3 27 83 12 2006 3 34 97 11 2007 (as of June) 4 31 97 11 TEB Leasing 2003 4 25 71 15 2004 3 20 78 15 2005 4 24 77 15 2006 3 21 87 11 2007 (as of June) 2 21 82 11 Fortis Leasing 2003 - - 90 8 2004 2 23 92 9 2005 4 37 96 10 2006 3 34 88 6 Fon Finansal Kiralama 2003 15 86 74 21 2004 12 53 93 23 2005 7 37 72 18 2006 5 30 75 13 2007 (as of June) 3 21 67 16 YK Leasing 2003 14 40 82 34 2004 10 28 85 39 2005 8 24 90 28 2006 8 26 94 28 2007 (as of June) 6 26 92 22 Halk Leasing 2003 2 18 87 11 2004 3 29 89 10 2005 3 26 92 10 2006 4 37 89 10 2007 (as of June) 4 39 90 11 36  ANNEX 10\. DISTRIBUTION OF LOANS BY REGION, SECTOR, AND LOAN SIZE Amount Share Number Region ('000 US$) (percent) of loans Marmara 220,863 73\.6 183 Aegean 24,392 8\.1 23 Mediterranean 7,967 2\.7 11 Central Anatolia 18,048 6\.0 12 Black Sea Region 11,545 3\.8 6 Southeast Anatolia 17,164 5\.7 14 Total 299,979 100\.0 249 Amount Share Number Sector ('000 US$) (percent) of loans Textiles and textile products 110,065 36\.7 94 Basic metals and fabricated metal products 65,377 21\.8 57 Rubber and plastic products 32,220 10\.7 27 Pulp, paper and paper products, publishing and printing 26,755 8\.9 8 Electrical and optical equipment 16,134 5\.4 9 Food products 12,328 4\.1 11 Other non-metallic mineral products 7,885 2\.6 7 Wood and wood products 5,428 1\.8 2 Production and distribution of petroleum products 4,150 1\.4 1 Machinery and equipment 4,007 1\.3 10 Logistics 3,579 1\.2 2 Baby healthcare products 2,888 1\.0 1 Leather and leather products 1,575 0\.5 4 Chemicals, chemical products 4,319 1\.4 3 Agriculture and food packaging 1,626 0\.5 5 Furniture 1,182 0\.4 6 Mining and construction materials 462 0\.2 2 Total 299,979 100\.0 249 Amount Share Number Loan Size ('000 US$) (percent) of loans < $250,000 9,845 3\.3 69 $250,000 - $1,000,000 55,533 18\.5 97 $1,000,000 - $2,500,000 79,202 26\.4 48 > $2,500,000 155,398 51\.8 35 Total 299,979 100\.0 249 37  ANNEX 11\. LIST OF SUPPORTING DOCUMENTS Export Finance Intermediation Loan (EFIL) Project Appraisal Document, Report No: 19271-TR, June 1999\. Export Finance Intermediation Loan (EFIL) Implementation Completion Report, Report No: 27566, December 2003\. Second Export Finance Intermediation Loan (EFIL II) Project Appraisal Document, Report No: 26937-TR, December 2003\. Independent Evaluation Group (2006), "World Bank Lending for Lines of Credit: An IEG Evaluation", The World Bank, Washington, D\.C\. The World Bank (2007), "Turkey: Investment Climate Assessment" , The World Bank, Washington, D\.C\. Project Aide Memoires, various\. Operational Manual for EFIL II\. Financial reports for TSKB and PFIs\. 38  39

REVIEW

P097026

Document of The World Bank FOR OFFICIAL USE ONLY Report No: ICR00004422 IMPLEMENTATION COMPLETION AND RESULTS REPORT ON A CREDIT # IDA-46670-NG IN THE AMOUNT OF SDR50\.54 MILLION (US$80 MILLION EQUIVALENT) TO THE FEDERAL REPUBLIC OF NIGERIA FOR THE NIGERIA PUBLIC SECTOR GOVERNANCE REFORM AND DEVELOPMENT PROJECT ( P097026 ) July 30, 2018 Governance Global Practice Africa Region  CURRENCY EQUIVALENTS (Exchange Rate as of June 30, 2018) Currency Unit = Naira (NGN) NGN360\.71 = US$1 US$0\.70 = SDR 1 FISCAL YEAR July 1 - June 30 Regional Vice President: Hafez M\.H\. Ghanem Country Director: Rachid Benmessaoud Senior Global Practice Director: Deborah L\. Wetzel Practice Manager: Hisham Ahmed Waly Ikechukwu John Azubike Nweje, Helen Ogochukwu Task Team Leader(s): Okeke ICR Main Contributor: Amitabha Mukherjee  ABBREVIATIONS AND ACRONYMS 7PA Seven Point Agenda AfDB African Development Bank BATMIS Budget and Treasury Management Information System COFOG Classification of the Functions of Government CPS Country Partnership Strategy DA Designated Account DfID The Department for International Development of the UK Government EOI Expression Of Interest ERGP Economic Reform and Governance Project EU European Union EU-SRIP European Union Support to Reforming Institutions Programme FA Financing Agreement GFS Government Finance Statistics HRM Human Resource Management HRMIS Human Resource Management Information System ICT Information Communication Technology IDA International Development Association IFMIS Integrated Financial Management Information System IGR Internally Generated Revenue IPSAS International Public Sector Accounting Standards IRI Intermediate Result Indicator ISR Implementation Status Report LGC Local Government Council MDAs Ministries, Departments and Agencies M&E Monitoring and Evaluation MOF Ministry of Finance MTSS Medium Term Sector Strategy NPCU National Project Coordination Unit SPCU State Project Coordination Unit PAD Project Appraisal Document PDO Project Development Objective PER Public Expenditure Review PEMFAR Public Expenditure Management and Financial Accountability Report PFM Public Financial Management PforR Program for Results PSGRDP Public Sector Governance Reform and Development Project QER Quality Enhancement Review RFP Request For Proposal SDR Special Drawing Right SEEDS State Economic Empowerment and Development Strategy SEEFOR State Employment and Expenditure for Results SFTAS State Fiscal Transparency, Accountability and Sustainability SGCBP I First State Governance and Capacity Building Project SGCBP II Second State Governance and Capacity Building Project SLOGOR State and Local Governance Reform Project SLPER State Level Public Expenditure Review SOE Statement of Expenditure USAID United States Agency for International Development WB World Bank WBG World Bank Group  TABLE OF CONTENTS DATA SHEET \. ERROR! BOOKMARK NOT DEFINED\. I\. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES \. 8 A\. CONTEXT AT APPRAISAL \.8 B\. SIGNIFICANT CHANGES DURING IMPLEMENTATION (IF APPLICABLE) \. 14 II\. OUTCOME \. 18 A\. RELEVANCE OF PDOs \. 18 B\. ACHIEVEMENT OF PDOs (EFFICACY) \. 18 C\. EFFICIENCY \. 21 D\. JUSTIFICATION OF OVERALL OUTCOME RATING \. 21 E\. OTHER OUTCOMES AND IMPACTS (IF ANY) \. 22 III\. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME \. 23 A\. KEY FACTORS DURING PREPARATION \. 23 B\. KEY FACTORS DURING IMPLEMENTATION \. 23 IV\. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME \. 26 A\. QUALITY OF MONITORING AND EVALUATION (M&E) \. 26 B\. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE \. 28 C\. BANK PERFORMANCE \. 29 D\. RISK TO DEVELOPMENT OUTCOME \. 30 V\. LESSONS AND RECOMMENDATIONS \. 30 ANNEX 1\. RESULTS FRAMEWORK AND KEY OUTPUTS \. 31 ANNEX 2\. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION \. 48 ANNEX 3\. PROJECT COST BY COMPONENT \. 50 ANNEX 4\. EFFICIENCY ANALYSIS \. 51 ANNEX 5\. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS \. 53 ANNEX 6\. SUPPORTING DOCUMENTS \. 54 ANNEX 7\. MAP \. 55  The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) DATA SHEET BASIC INFORMATION Product Information Project ID Project Name Nigeria Public Sector Governance Reform and P097026 Development Project Country Financing Instrument Nigeria Investment Project Financing Original EA Category Revised EA Category Partial Assessment (B) Partial Assessment (B) Organizations Borrower Implementing Agency Ondo State Public Sector Governance Reform and Development Project, Kogi State Public Sector Governance Reform and Development Project, Ekiti State Federal Ministry of Finance Governance Reform and Development Project, Abia State Governance Reform and Development Project, Adamawa State Governance Reform and Development Project Project Development Objective (PDO) Original PDO The project development objective is to improve transparency, accountability and quality in public finance and human resource management systems, with a view to strengthen governance in the participating states\. Page 1 of 56  The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) FINANCING Original Amount (US$) Revised Amount (US$) Actual Disbursed (US$) World Bank Financing 120,000,000 120,000,000 71,374,994 IDA-46670 Total 120,000,000 120,000,000 71,374,994 Non-World Bank Financing Borrower 0 0 0 Total 0 0 0 Total Project Cost 0 120,000,000 71,374,994 KEY DATES FIN_TABLE_DAT Approval Effectiveness MTR Review Original Closing Actual Closing 29-Jun-2010 08-Nov-2012 08-Dec-2015 30-Nov-2015 31-Oct-2017 RESTRUCTURING AND/OR ADDITIONAL FINANCING Date(s) Amount Disbursed (US$M) Key Revisions 28-Dec-2011 0 Change in Results Framework Change in Components and Cost Change in Loan Closing Date(s) Cancellation of Financing Change in Procurement Change in Implementation Schedule Other Change(s) 20-Dec-2016 30\.37 Change in Results Framework Change in Loan Closing Date(s) Reallocation between Disbursement Categories Change in Disbursements Arrangements Change in Implementation Schedule KEY RATINGS Outcome Bank Performance M&E Quality Moderately Satisfactory Moderately Satisfactory Modest Page 2 of 56  The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) RATINGS OF PROJECT PERFORMANCE IN ISRs Actual No\. Date ISR Archived DO Rating IP Rating Disbursements (US$M) 01 05-Jul-2011 Satisfactory Satisfactory \.86 Moderately 02 03-May-2012 Moderately Unsatisfactory \.18 Unsatisfactory Moderately 03 20-Jan-2013 Moderately Unsatisfactory \.19 Unsatisfactory 04 20-Jun-2013 Moderately Satisfactory Moderately Satisfactory 3\.91 05 02-Feb-2014 Moderately Satisfactory Moderately Satisfactory 8\.22 Moderately 06 12-Jun-2014 Moderately Unsatisfactory 11\.52 Unsatisfactory 07 30-Dec-2014 Moderately Satisfactory Moderately Unsatisfactory 14\.79 08 21-Jun-2015 Moderately Satisfactory Moderately Satisfactory 17\.44 09 24-Feb-2016 Moderately Satisfactory Moderately Satisfactory 23\.21 10 29-Aug-2016 Moderately Satisfactory Moderately Satisfactory 28\.85 11 20-Mar-2017 Moderately Satisfactory Moderately Satisfactory 33\.83 12 28-Sep-2017 Satisfactory Satisfactory 51\.10 SECTORS AND THEMES Sectors Major Sector/Sector (%) Public Administration 100 Central Government (Central Agencies) 4 Sub-National Government 96 Themes Major Theme/ Theme (Level 2)/ Theme (Level 3) (%) Page 3 of 56  The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) Economic Policy 0 Fiscal Policy 6 Tax policy 6 Public Sector Management 0 Public Finance Management 34 Public Expenditure Management 28 Domestic Revenue Administration 6 Public Administration 62 Administrative and Civil Service Reform 22 Transparency, Accountability and Good 40 Governance ADM STAFF Role At Approval At ICR Regional Vice President: Obiageli Katryn Ezekwesili Hafez M\. H\. Ghanem Country Director: Onno Ruhl Rachid Benmessaoud Senior Global Practice Director: Sudhir Shetty Deborah L\. Wetzel Practice Manager: Anand Rajaram Hisham Ahmed Waly Task Team Leader(s): George Addo Larbi Ikechukwu John Azubike Nweje ICR Contributing Author: Amitabha Mukherjee Page 4 of 56  The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) EXECUTIVE SUMMARY Within a challenging operating context, the project supported states to strengthen public finances, personnel and payroll systems, revenue collection and agency capacity\. The Public Sector Governance Reform and Development Project (PSGRDP) was approved by the Board of Executive Directors of the World Bank on June 29, 2010, in the sum of US$120 million equivalent\. After Board approval and following a change of government in Nigeria, the new government requested changes in project scope and design, necessitating a restructuring even before the signing of the Financing Agreement (FA)\. The restructuring was approved on December 28, 2011, the FA was signed on June 29, 2012, in the sum of US$80 million equivalent 1 and thereafter, the project became effective on November 8, 2012 and disbursements began thereafter\. This Implementation Completion and Results (ICR) Report takes the above restructuring as the starting point for assessing project performance \. The original theory of change depicted in this ICR was not impacted by the changes wrought by the 2011 restructuring\. The 2011 restructuring (i) extended the closing date from November 30, 2015 to December 31, 2016, (ii) dropped five of the original sixteen beneficiary States which had received similar support under other Bank-financed projects, (iii) cancelled the credit amount by about US$40 million (from US$120 million to about US$80 million) for activities earmarked for the five dropped States, (iv) revised the Results Framework and Monitoring arrangements, (v) migrated the project to the 2011 World Bank Procurement Guidelines, and (vi) changed the project name from the Second State Governance and Capacity Building Project (SGCBP II) to the PSGRDP\. The project development objective (PDO) was to improve transparency, accountability and quality in the public finance and human resource management system, with a view to strengthen governance in the participating states\. The PDO remained unchanged through the life of the project, as the Bank and Borrower teams reconfirmed its relevance\. The project was implemented in eleven significantly autonomous Nigerian States, split into three categories\. Two States (Ondo and Kogi) implemented all three components of the project - Public Financial Management (PFM), Human Resource Management (HRM) and Monitoring and Evaluation (M&E)\. Two other States (Bauchi and Kaduna), known as original project States, scaled up activities piloted under a preceding project – the first State Governance and Capacity Building Project (SGCBP I)\. The seven remaining States (Abia, Adamawa, Ekiti, Imo, Kebbi, Niger and Plateau), were limited to putting in place the necessary legal and regulatory frameworks for PFM, strengthening tax authorities and automating state treasuries\. Overall Outcome is rated Moderately Satisfactory, M&E Quality Modest and Bank Performance Moderately Satisfactory, as depicted below\. Relevance of Efficacy Efficiency Overall M&E Quality Bank PDOs Outcome Performance Substantial Substantial Modest Moderately Modest Moderately Satisfactory Satisfactory 1 Though the datasheet at page 2 shows a revised net financing of N120 million, the inconsistency in the net commitment amounts come from issues with the Bank’s systems\. Page 5 of 56  The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) The relevance of PDOs is rated Substantial\. They were aligned to the World Bank Group Country Partnership Strategy (CPS) at approval2 and remained relevant to the current CPS3 at closing\. The objectives indicate the importance of improved governance, including enhanced transparency and accountability for delivering results to citizens\. The objectives were consistent with the Government’s Seven Point Agenda (7PA), Vision 2020, State Economic Empowerment and Development Strategies (SEEDS), and the Nigeria CPS II of the World Bank Group (WBG), prepared in partnership with the African Development Bank (AfDB), the United Kingdom’s Department for International Development (DfID) and the United States Agency for International Development (USAID)\. Efficacy is rated Substantial\. Five of seven PDO-level indicators achieved or exceeded the target and two were substantially achieved\. Out of 16 intermediate results indicators (IRIs), 12 exceeded or met the target, while three were substantially met and one was not achieved\. The project substantially achieved its objectives of improving the transparency, accountability and quality of public financial management (PFM), human resource management (HRM) systems and monitoring and evaluation (M&E) in the 11 participating states\. The project: ï‚ Helped Kogi and Ondo states (Tier I) to significantly increase their internally generated revenues (IGR)\. Taxpayer numbers increased in these states by 750 percent and 200 percent respectively, significantly exceeding the targeted increase of 30 percent\. In Tier II states, where support to the IGR component was extended since end-2016, significant additional taxpayers were identified: Kebbi added 160,000 business enterprises, Imo 200,000 and Adamawa 31,000\. ï‚ Strengthened PFM by automating work processes, a laborious and slow task\. However, modern integrated financial management information systems (IFMIS), including HRM systems and payrolls, were successfully deployed in Kogi and Ondo States\. Bauchi and Kaduna States successfully scaled up pilots deployed under an earlier project\. In Plateau, Ekiti, Niger and Kebbi States, treasuries deployed simpler financial management information systems (FMIS)\. ï‚ Institutionalized improvements in states’ public procurement systems – which yielded savings on public procurement of goods and services - strengthened transparency, competition and value for money\. Among Tier I states, Kogi state achieved the target of 70 percent competitively procured contracts while Ondo competitively awarded 69 percent of its contracts above threshold\. Tier II states put in place the legal and regulatory framework for public procurement that laid the foundation for competitive procurement and value for money\. ï‚ Reduced discrepancies between pay and nominal rolls to below 1 percent through modern HRM systems (with accurate and reliable data for all state government employees) and enhanced controls 2 World Bank\. 2009\. Nigeria - Country partnership strategy 2010-2013\. Washington, DC: World Bank\. http://documents\.worldbank\.org/curated/en/277521468288336478/Nigeria-Country-partnership-strategy-for- the-period-2010-2013 3 World Bank\. 2014\. Nigeria - Country partnership strategy FY2014-FY2017 \. Washington, DC; World Bank Group\. http://documents\.worldbank\.org/curated/en/214371468098983763/Nigeria-Country-partnership-strategy-for-the-period-FY2014- FY2017 Page 6 of 56  The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) (on establishments and salary bills), contributing to savings from elimination of ghost workers\. Efficiency is rated Modest\. The project mainly focused on capacity building and technical assistance and is not amenable to detailed economic and financial analysis\. Project implementation arrangements delivered efficiency gains, with overall project administrative cost of about 4\.5 percent at the end of the project’s life, roughly similar to other projects in Nigeria\. The overall quality of M&E is rated Modest\. Refinements to M&E design at the 2011 restructuring, before FA signing and project effectiveness, strengthened project M&E design and placed the project on a more robust footing\. The National Project Coordination Unit (NPCU) was responsible for consolidating states’ M&E reports, sharing them with the Bank, analyzing M&E issues in states and responding to them\. This did not happen, as efforts to persuade the NPCU to address this M&E gap did not yield results\. However, the NPCU gap was mitigated during implementation as individual states did reasonably well on M&E\. Bank performance is rated as Moderately Satisfactory\. There was evidence of proactive supervision at the beginning and toward the end, but there were missed opportunities in the middle years, evidenced by the Implementation Status and Results (ISR) reports, to engage substantively with lagging States, and provide targeted advice and specialized support on, for example, IFMIS and medium-term sector strategy (MTSS)\. Towards the end, supervision picked up, evidenced by the December 2016 restructuring\. The quality and candor of reporting appeared to follow this pattern\. Looking back, the project offers three key lessons: (a) realistically assessing federal and state-level ownership of ambitious institutional reforms projects is essential at the design stage, as is taking account of electoral cycle realities; (b) project ambition and implementation timelines need to match recipient implementation capacity – especially for difficult reforms; and (c) complex, risky and longer- term public sector institutional reforms can often benefit from World Bank support in significant ways, not often appreciated, understood or even measurable\. Two recommendations comprise: (i) in federal countries, when supporting implementation of reforms at the state level, it is desirable to give appropriate autonomy to state implementation entities - failing to do so risks slowing state-level implementation if federal project coordination arrangements do not work as well as anticipated; and (ii) in designing operations intended to be implemented by states in federal countries, it is desirable to use clear and predictable criteria to select participating states4, and to incorporate flexibility in design and implementation (especially in multi-state/multi- entity projects or programs) to address capacity and commitment variations across states and entities 4 The importance of the criteria used to select participating states became more evident during implementation\. The project could have benefited from including stronger competition through performance-oriented activities that could have allowed automatic reallocation of funds from underperforming states to more reform-oriented ones\. Page 7 of 56  The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) I\. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES A\. CONTEXT AT APPRAISAL Context 1\. Nigeria has a federal political framework with significant autonomy to its thirty-six states\. The country has a federal government at the center, a federal capital territory administration, thirty-six state governments, and seven hundred and seventy-four local government councils (LGCs)\. The Constitution assigns significant powers, resources, responsibilities, and autonomy to sub-national levels of government, particularly state governments\. Under the revenue-sharing formula then operating, about 55 percent, 25 percent and 20 percent of federation account revenues were allocated respectively to federal, state and local tiers of government\. Sub-national tiers of government, control close to half the public purse, thus, the quality of expenditures at these levels have significant effects on fiscal management, service delivery and poverty reduction\. 2\. Improving governance and the management of public resources were key national challenges\. The government had begun to put in place the institutional and legal framework, and other measures to promote transparency and accountability\. In 2007, procurement and fiscal responsibility laws were enacted by the federal government\. Though implementation of the procurement law was slow, due process and competition had begun to be applied to public contracts\. The fiscal responsibility law had begun to instill fiscal discipline and accountability in the management and use of public resources\. Despite the federal procurement and fiscal responsibility laws, and the introduction of a medium-term policy-based expenditure framework, such reforms did not automatically apply to states, which needed to institute their own reforms\. States (except for a few such as Lagos, Kano, Kaduna, and Cross River State) generally lagged behind on reforms\. Weaknesses in economic, fiscal, public financial management, and procurement systems at one tier impacted reform efforts and accomplishments at others\. Though Nigeria had a vibrant civil society, it was ineffective in engaging government effectively on policy and governance reforms and in improving demand-side governance on issues such as budgeting, procurement, revenue collection, and monitoring and evaluation\. 3\. State-level public financial management needed significant modernization: ï‚ Budget credibility at the state level was low\. All states had significant gaps in expenditure and revenue out-turns compared to original approved budgets\. In most states, the incremental budget system was used to project revenues and expenditures\. ï‚ Budget comprehensiveness and transparency was generally weak across states , with significant levels of extra-budgetary operations\. And states’ (e\.g\. Plateau, Niger) budget codes either did not conform to national and international standards, such as Government Finance Statistics (GFS) or Classification of the Functions of Government (COFOG), or incorrect classification of accounts was common (e\.g\. Anambra)\. ï‚ Policy-based budgeting was mostly absent at state level\. Most states’ budgets were not guided by a clear development strategy, though states had developed State Economic Empowerment and Development Page 8 of 56  The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) Strategy (SEEDS) in 2005\. Resource allocations and SEEDS priorities were weakly aligned\. In almost all states, sector plans and strategies were partially costed or not costed at all\. ï‚ Predictability and control over revenues and budget execution were uneven across states\. This included weak tax registration and IGR, contracts awarded by selective tendering, absence of cash flow forecasts, and monitoring and commitment ceilings for Ministries, Departments and Agencies (MDAs)\. Most states generated less than 10 percent of their total revenue from IGR (e\.g\. oil-producing states such as Bayelsa and Ondo generated about 3 percent and 6 percent, respectively)\. Spending was subject to significant centralized approval authority\. Capital projects were approved by the state chief executive (the Governor)\. Although states had drafted fiscal responsibility bills, they were yet to enact them into law and adopt revised frameworks for commitment control and payment authorization\. ï‚ States’ accounting, recording and reporting systems were generally weak \. Account reconciliations were not timely\. Regular and in-year budget reporting was either not done or irregular\. A major weakness was the poor quality and timeliness of annual financial statements: there were significant accounts arrears (e\.g\. Plateau state only had accounts up to 2004)\. Poor reporting was partly due to manual generation and processing of financial information and partly due to poor record-keeping\. Where automation existed, it tended to be restricted to the State Accountant-General on fragmented stand-alone systems\. 4\. States’ public services were deskilled and lacked professionalism: indeed, many PFM system weaknesses could be traced to human resource capacity issues\. Experience from the Bank-financed SGCBP I and interaction with state officials suggested that states had not recovered from prolonged neglect of their civil services during decades of military rule prior to 1999\. Many states did not have manpower development plans and state civil services lacked capacity to effectively implement government programs\. For years, states had not invested in building and upgrading staff skills\. States’ ability to attract and retain qualified staff was low in most states\. Training provisions were rarely included in state budgets\. Consequently, little training was conducted to develop skills and competencies required by states to modernize their public services\. Where training institutions existed, they were run-down and their curricula had become irrelevant to the needs of a modern state and public service\. The result was a public service with limited professional skills and competence and with the majority of staff lacking the requisite professional training for their positions\. Another major weakness was that most states did not have any system to enable linkage between personnel records and the payroll, with most records being manually maintained\. Reconciliation between payroll and personnel records was thus difficult, with high risk of abuse and the existence of ‘ghost workers’\. 5\. Within this challenging operating context, the project proposed to support states in addressing weaknesses in PFM, personnel and payroll systems, and in strengthening capacity of relevant agencies \. States seeking to implement coherent public financial and human resource reforms needed to develop a comprehensive, but realistic public sector reform strategy\. This entailed addressing: (a) lack of transparency and accountability in public expenditure management, including procurement; (b) states’ vulnerable HRM systems, especially personnel and payroll management; (c) development of staff skills to enable better civil service performance and (d) strengthening the capacity and systems for monitoring and evaluating public investments and resource use\. Page 9 of 56  The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) 6\. Some state governments that took office in 2007 commenced reforms to planning and budgeting, accounts classification and chart of accounts, cash management, and revenue administration \. The state-level public expenditure reviews (PERs) and public expenditure management and financial accountability reports (PEMFARs) also laid out action plans, which the states agreed to implement with support from the project\. In addition, with the sharp drop in the level of oil earnings since late 2008, it became imperative for states to strengthen their IGR bases, and align their development strategies with improved resource allocation and quality of public expenditure management to deliver results to citizens\. 7\. At appraisal, 13 new states had expressed interest in participating in the project, then named the Second State Governance and Capacity Building Project (SGCBP II) 5, in addition to the three already participating in SGCBP I\. There were then concerns, particularly with respect to the number of states to be taken on board and the ability of the Bank team to adequately supervise and provide implementation support\. The criteria for selection of states agreed between the Federal Ministry of Finance (MOF) and the Bank were: (i) a formal request for support from the Federal MOF; (ii) evidence of willingness and readiness to undertake a state PFM performance assessment (PER and Public Expenditure and Financial Accountability (PEFA) assessment or a PEMFAR) and adopt an agreed action plan for addressing weaknesses; data must be available and accessible for the exercise; (iii) commitment to public procurement and fiscal responsibility reforms - at least draft bills should be ready in the state; (iv) fiduciary performance of the state (procurement and financial management) on past/existing Bank-financed projects; and (v) balance in geographic and political representation of states, a requirement of the Government of Nigeria\. 8\. Based on the foregoing criteria, three states (Anambra, Kogi and Ondo) were selected to join the three states that implemented SGCBP I (Bauchi, Cross River and Kaduna)\. On the question of what to do with the remining states, the decision was taken to provide limited support\. Such support would include helping the selected states put in place the regulations, legislation and frameworks, which would not require intensive supervision, but would help prepare them for full participation in the next phase of the SGCBP\. Theory of Change (Results Chain) 9\. The project results framework could be connected to the key elements of the PDO\. The Project Appraisal Document (PAD) did not describe in detail the results chain or the logic behind the operation\. This was not required by Bank procedures at the time of preparation\. Nonetheless, these linkages can be discerned in several areas, as shown in the results chain\. The PDO is broken down into five sub-objectives to establish connections with indicators and activities\. The Figure below links sub-objectives with PDO indicators, intermediate results indicators and key activities under different sub-components\. 5 Project Appraisal Document, Report no\. 51483-NG, June 2, 2010 Page 10 of 56 The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) Page 11 of 56  The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) Project Development Objectives (PDOs) 10\. The project development objective was to improve transparency, accountability and quality in public finance and human resource management systems , with a view to strengthen governance in the participating states\. Key Expected Outcomes and Outcome Indicators 11\. The project had five key expected outcomes: (i) Improved quality and transparency in the use of public funds; (ii) Improved revenue collection efficiency; (iii) Improved credibility of the budget; (iv) Improved value for money in the procurement of public goods and services; and (v) Improved effectiveness of personnel and payroll controls\. 12\. Progress towards outcomes was to be measured by five key outcome indicators: a) State Government entities representing at least 75 percent of total expenditure are audited annually, covering revenue and expenditure and audit report submitted to the state legislature within six months from the end of the financial year in any state; b) Decrease in deviation of actual expenditure from budgeted expenditure in each participating state; c) Growth in the percentage of actual collection of projected internally generated revenue in each participating state; d) Growth in the percentage of public contracts above threshold awarded through competitive open process in each participating state and selected state; and e) Reduced discrepancy between personnel database and payroll database in each participating state\. 13\. Categories of states were clarified in detail \. Because there were three different categories of states, the PAD and the FA clarified the meaning of the following terms: (a) “Participating state” meant Anambra State, Kogi State and Ondo State, also referred to in the PAD as Tier I states; (b) “Selected State” meant Abia State, Adamawa State, Bayelsa State, Edo State, Ekiti State, Imo, Kebbi State, Niger State, Plateau State, and Yobe State, also referred to in the PAD as Tier II states and (c) “Original Project State” meant states carrying out activities under SGCBP I\. The term “State” meant a Participating State, a Selected State, or an Original Project State\. Components 14\. Due to the three different categories of states envisaged to be included in the project, the criteria for selection of states was somewhat complex\. The project, which had six components, was to initially support three participating (Tier I) states and ten selected (Tier II) states\. The three Tier I states (Anambra, Kogi and Ondo) met the full selection criteria at appraisal and would implement project components A to C, whilst component D was to be implemented by the ten selected (Tier II) states, based on their ability to meet the criteria\. Three other states (Original Project States) were Page 12 of 56  The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) expected, under component E, to scale up activities and deepen reforms commenced under the closed SGCBP I\. 15\. The project was designed around six components\. The first three components comprised the full package of support for the three Tier I states\. The fourth component was to be used to provide technical assistance support on basic PFM, including fiscal responsibility and procurement to states that did not meet the full criteria for selection at the time of appraisal\. The fifth component was to support the original project states (Bauchi, Cross River and Kaduna), to enable them to scale up activities under the Budget and Treasury Management Information System (BATMIS), reform budget preparation and execution, reform procurement, HR Management and Training Enhancement, and further capacity-building and strengthening of M&E systems in selected MDAs\. The sixth component was project coordination at national and state levels\. 16\. The six project components comprised the following: ï‚ Component A: Development and Modernization of Public Financial Management Systems (original US$39\.1 million, revised US$26\.7 million, actual disbursed US$26\.98 million) \. To enhance the quality of public expenditure in the states, the component supported fiscal planning and standardization of PFM procedures, processes, and reporting among participating state governments for consistency with the federal government\. Key activities included: (a) enactment and implementation of an organic public finance management legislation (including fiscal responsibility legislation); (b) strengthening capacity for budget preparation and public investment planning, presentation, implementation and monitoring, (c) improvement in accounting and financial reporting; (d) strengthening internal and external audit and oversight role of the State Houses of Assembly; (e) improving tax administration; (f) modernization and implementation of State Integrated Financial Management Information Systems (SIFMIS); (g) enactment of a sound and modern legal and regulatory framework for public procurement and technical assistance to strengthen capacity for public procurement; and (h) pilot capacity building for selected local governments\. The component mainstreamed independent monitoring into budget, procurement, audit and other PFM activities\. The PFM component was to be coordinated with other development partners’ support in selected states where applicable (e\.g\. with EU-SRIP in Anambra and Yobe)\. ï‚ Component B: Human Resource Management and Capacity Development (original US$9\.3 million, revised US$6\.2 million, actual disbursed US$6\.29 million)\. The objective of this component, limited to the two Tier I states, was to provide a structured and clearly defined training program, targeted capacity-building to PFM-related MDAs, strengthen training provision and personnel and payroll systems to minimize abuse and redirect potential savings to improve public services\. Activities included the conduct of a thorough assessment of existing skills and training needs of MDAs; targeted short- to medium-term trainings, provision of logistics support and development, development of service standards for selected MDAs and modernization of personnel records in the state public service\. Page 13 of 56  The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) ï‚ Component C: Monitoring and Evaluation System Development (original US$7\.5 million, revised US$5 million, actual disbursed US$5\.27 million)\. This component financed (a) diagnosis of existing M&E systems; (b) design and implementation of a new M&E system; (c) formulation of policies and drafting of enabling regulations; (d) training and skills development for staff of State Planning Commissions and MDAs; (e) establishment of an M&E secretariat to coordinate M&E activities across the state alongside capacity building; and (f) pilot evaluations and service delivery satisfaction surveys for key public services in the participating states\. ï‚ Component D: Improvement of Public Financial Management in Selected States (original US$24 million, revised US$16\.8 million, actual disbursed US$13\.42 million) \. This supported Tier II states, on a first-come first-served basis, to achieve Tier I status\. Support was limited to improving public finance and procurement legal and regulatory frameworks; accounting and financial reporting; and where necessary, analytic work to review public expenditure and financial accountability\. ï‚ Component E: Scaling up of Selected Activities Under The Original Project (original US$22 million, revised US$16\.8 million, actual disbursed US$15\.42 million)\. This component supported Bauchi, Cross River and Kaduna states to scale up activities under SGCBP I, in particular BATMIS, budget preparation, procurement, HRM and Training Enhancement and further capacity-building to consolidate and sustain the outcomes of project-supported reforms, and strengthen M&E\. ï‚ Component F: Project Coordination at National and State Levels (original US$8\.5 million, revised US$14\.7 million, actual disbursed US$3\.19 million)\. This component supported project coordination at federal and state levels, including centrally provided technical, quality assurance and other support services to states on PFM, procurement, FM and project audit\. It also funded operating costs for the National Project Coordination Unit (NPCU) and State Project Coordination Units (SPCUs)\. B\. SIGNIFICANT CHANGES DURING IMPLEMENTATION (IF APPLICABLE) Revised PDOs and Outcome Targets 17\. Following project approval on June 29, 2010, there were delays in FA signing and project start-up\. With the inauguration of a new government in Nigeria in early 2011, the government requested some changes in the project design, including attracting more grant financing\. The Bank reached out to the European Union (EU) which advanced Grants to Nigeria for similar purposes\. The Grants, which came in the form of Trust Funds, resulted in the preparation of an additional EUR60 million State and Local Governance Reform Project (SLOGOR/P133045) and the EUR100 million Additional Financing to the State Employment and Expenditure for Results Project (SEEFOR/P121455) for similar activities\. The greatest value-addition to these arrangements were that it (i) made more resources available to the country, (ii) enabled the Bank to bring in more donors into the fold, and (iii) enabled the extension of the support and reforms from sixteen to twenty- Page 14 of 56  The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) one States across the country\. The scale-up of the reform pace also necessitated redistribution of states across three projects\. All of this necessitated project restructuring, even before the FA was signed\. 18\. The PDO was not revised during the life of the project, because the federal and state governments and the Bank confirmed its relevance through the life of the project\. 19\. The project was first restructured on December 29, 2011, before the FA was signed (i\.e\. disbursement had not yet begun) as explained above\. The project’s geographic scope was reduced from 16 states to 11, requiring consequential modifications to outcome targets and project/component costs to reflect the reduced number of states\. Reforms in the five dropped states were financed by an EU Trust Fund which came on board\. 20\. A second restructuring on December 20, 2016 – among other things - updated the results framework to align end-project target dates with the extended closing date of October 31, 2017\. Revised PDO Indicators 21\. At the December 2011 restructuring, the following changes were made to PDO indicators: (a) the wording of some PDO indicators was refined for clarity by adding the time-frame within which they were to be achieved (submitted to the legislature within 6 months from end of financial year) and (b) a new Bank- mandated indicator (direct project beneficiaries, percent of which female) was added as a sixth PDO indicator in addition to the original five, to comply with the new Bank policy of tracking the number of female project beneficiaries\. 22\. Following the December 2011 restructuring, the revised PDO indicators stood as follows 6: a) Indicator One: A\.1 State Government entities representing at least 75 percent of the total expenditure are audited annually in any state and submitted to the legislature within 6 months from end of financial year; b) Indicator Two: A\.2\. Decrease in deviation of actual expenditure from budgeted capital expenditure in the participating Tier I states; c) Indicator Three: A\.3\. Growth in percentage of actual collection of projected IGR in participating Tier I states; d) Indicator Four: A\.4\. Growth in the percentage of public contracts above threshold awarded through open competition; e) Indicator Five: B\. Reduced discrepancy between personnel database and payroll database in participating states; and f) Indicator Six: Direct project beneficiaries, percent of which are female\. 6 The original indicators and results framework can be seen at Annex 1 Section C\. Page 15 of 56  The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) Revised Components 23\. The component names were not revised during implementation, but some changes were made to component scopes\. The December 2011 restructuring dropped five participating States (Anambra, Bayelsa, Cross River, Edo, and Yobe) which had in the meantime received similar support under other Bank-financed projects\. As earlier indicated, the availability of EU Grant funds to extend similar support to more States required reconfiguration of States across different projects\. Thus, while Anambra, Cross River and Yobe States moved to the State and Local Governance Reform Project (SLOGOR), Bayelsa and Edo became beneficiaries of the State Employment and Expenditure for Results Project (SEEFOR)\. Consequently, the credit amount was reduced from US$120 million to US$80 million by cancelling the funds earmarked for the five dropped states\. 24\. The December 2016 restructuring introduced two changes to component activities: (a) Extension of support to tax authorities in the seven Tier II states, to enhance IGR capacity \. In 2015, following a sharp drop in international crude oil prices, Nigeria suffered a huge drop in Federation Account revenues\. This resulted in serious revenue and expenditure management challenges across the country, with some state governments struggling to meet their statutory financial obligations, including payment of workers’ salaries\. This situation made it imperative for the Bank to immediately use existing operations to support the states in developing a more sustainable financial base through enhanced domestic revenue mobilization\. Thus, activities under Sub- Component A\.5 (Reform of the State Tax Authority) which, hitherto, were limited to Tier I and Original Project States, were extended to the seven Tier II States\. Improving the weak state-level revenue base was envisaged to contribute to stronger and more predictable fiscal planning and enhanced service delivery\. (b) Automation of treasuries in Tier II States: In May 2016, the Federal government and the governments of 36 States jointly adopted a 22-Point Fiscal Sustainability Plan, the fulfillment of which was to become the basis for further support from the federal to the state governments\. One of the actions required from states under the FSP was state treasury automation by adopting FMIS: as a result, the project extended support to the Tier II States to implement basic FMIS, essential for such states to receive financial assistance from the Federal Government\. Other Changes 25\. The 2011 restructuring changed the project name from SGCBP II to the PSGRDP\. 26\. The 2016 restructuring (i) reallocated the unallocated US$5\.6 million, (ii) modified project disbursement arrangements7, (iii) revised the results framework, and (iv) incorporated a project risk 7Under the original arrangement, the seven Tier II States disbursed through a joint designated account domicile at the NPCU in the Federal MOF\. This arrangement had not been optimal and on some occasions led to some States being without funds for six to eight months, delaying project implementation\. Creating a separate Designated Account for each Page 16 of 56  The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) assessment using the Bank’s Systematic Operations Risk-Rating Tool (SORT), which was not available at approval\. Rationale for Changes and Their Implication on the Original Theory of Change 27\. The 2011 restructuring was necessitated by two factors outside the control of the Bank or the Borrower, namely a new Federal government that took office in May 2011 after general elections, and the new government’s desire to align the project to its development priorities and availability of financing (especially grant funds) from other development partners\. 28\. This ICR takes the 2011 restructuring as the starting point for assessing project performance, since the FA was signed on June 29, 2012 after this restructuring, the project became effective on November 8, 2012 and disbursements began thereafter\. Hence, the original theory of change depicted in this ICR was not impacted by the changes wrought by the 2011 restructuring\. 29\. The rationale for the 2016 restructuring was fourfold, the first two of which were outside the control of the Bank: (i) to help address fiscal challenges at state level due to the macroeconomic crisis and align the project with the 22-Point Fiscal Sustainability Plan agreed between the Federal Government of Nigeria and the thirty-six States’ Governments; (ii) to align the project cost to the available US Dollar equivalent8; (iii) to address project disbursement bottlenecks; and (iv) to extend the project closing date to ensure attainment of project development objectives\. 30\. The original theory of change was not significantly impacted by the 2016 changes, except that the results framework was revised to reflect and track changes introduced by this restructuring and correct some errors\. As earlier noted, the December 2011 restructuring – before FA signing and project effectiveness – scaled down the project’s geographic spread from 16 states to 11, and the project cost from US$120 million to US$80 million\. The further reduction in project cost to US$68\.3 million was a recognition of the reality of depreciation, though it could be argued in hindsight that the funds available could have been deployed to help states and the federal government address the financial crisis that Nigeria was by then confronting\. As Annex 3 shows, the drawdown of the unallocated credit proceeds to zero at this restructuring enabled credit resources to be directed to priority activities under each component\. participating State would have accelerated implementation, improved disbursement and enhanced financial reporting\. Eventually, only Abia State, which joined the project close to the end, got a separate Designated Account\. 8 Due to exchange loss arising from the depreciation of the United States Dollar against Special Drawing Rights (SDR), the value of the credit available to beneficiaries fell to US$68,321,993\.60 at this restructuring\. The project had disbursed US$28 million (40\.30 percent) of the credit amount by then\. Total commitments across participating states were estimated at about US$20 million\. Page 17 of 56  The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) II\. OUTCOME A\. RELEVANCE OF PDOs Assessment of Relevance of PDOs and Rating 31\. The project’s development objectives were - and remain – relevant: they were aligned to the WBG CPS at approval and remained relevant to 2014-2017 CPS at project closing \. The objectives indicate the importance of improved governance, including enhanced transparency and accountability for delivering results to citizens\. The objectives are consistent with the Government’s Seven Point Agenda (7PA), Vision 2020, State Economic Empowerment and Development Strategy (SEEDs) and the Nigeria CPS (for 2014-2017) of the WBG, AFDB, DFID and USAID\. The project objectives contribute to “Governance for Results” of the 2014-2017 CPS, acknowledging that enhanced transparency and accountability and capacity development at decentralized level are foundational to improved service delivery\. 32\. In view of the above, the relevance of PDOs is assessed as Substantial\. B\. ACHIEVEMENT OF PDOs (EFFICACY) Assessment of Achievement of Each Objective/Outcome 33\. The project mostly achieved its development objectives of improving the transparency, accountability and quality of public finance and human resources management systems and monitoring and evaluation in the 11 participating states\. The outputs aimed at modernizing the public finance management, human resource management and M&E systems were mostly completed\. 34\. Outcomes were substantially achieved: five out of seven PDO-level indicators achieved or exceeded the target and two were substantially achieved, while twelve of sixteen IRIs exceeded or met the target, three were substantially met and one was not achieved \. Annex 1 (Section A) has details of achievement for each indicator\. Overall, there were significant improvements in how public funds and human resources were managed, and development results monitored and reported – key results are summarized below\. Outcome and Indicator Achievement Outcome 1\. Improved quality Accountability and transparency in use of public funds were strengthened: and transparency in the use ï‚ Auditor Generals’ reports in Kogi and Ondo states improved to a of public funds coverage of 85 and 100 percent of budgeted funds respectively\. ï‚ Improved capacity of public accounts committee in State Legislatures PDO Indicator 1\. State enabled them to carry out their legislative oversight functions in Tier I Government entities and II states\. representing at least 75 percent ï‚ Ondo, Kaduna and Niger States passed Finance Control and of the total expenditure are Page 18 of 56  The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) audited annually in any state Management Laws\. and submitted to the ï‚ Public Audit Laws passed and regulations and manuals adopted\. legislature within 6 months ï‚ Ondo state submitted its financial statements to the legislature within 6 from end of financial year\. months of the end of the fiscal year (down from an average of 12 months hitherto)\. ï‚ Improved PFM legal and policy framework helped clarify powers and responsibilities of branches of government and enforced quality, reliability, transparency and accountability across these players\. ï‚ Improved timeliness and comprehensiveness of audited financial statements in Tier I states, and transitioning to IPSAS for financial reporting, demonstrated more transparency and accountability in management of public funds\. ï‚ In Bauchi State the project pioneered the convening of Audit Forums, where the Auditor General’s reports were presented to and discussed with the public and other stakeholders, including civil society organizations\. This practice has been sustained, and was also adopted by Niger and other states under the SLOGOR project\. Results-based M&E systems became operational: ï‚ The targeted five pilot MDAs in each Tier I and original project state now submit annual reports as agreed\. ï‚ Staff skills were strengthened to maintain the system\. ï‚ Kaduna State spearheaded a state-of-the-art M&E system which geo- tags state capital assets and investments and provides a platform for citizen feedback\. Outcome 2\. Improved revenue IGR increased and continue to rise: collection efficiency ï‚ In Tier I States (Kogi and Ondo) o Monthly collection increased from NGN565 million and NGN814 PDO Indicator 2\. Growth in million in 2015 to NGN820 million and NGN846 million in 2017, percentage of actual collection respectively\. of projected IGR in o The number of taxpayers increased by 750 and 200 percent participating Tier I states respectively\. ï‚ Even in Tier II States where the IGR component was expanded after the 2016 mid-term review, institutional capacity to generate revenue significantly increased - hundreds of thousands of additional potential taxpayers were identified\. Outcome 3\. Improved ï‚ The adoption of laws and multi-year budgeting frameworks led to credibility of the budget fully-costed sector strategies in key sectors of Tier I States\. ï‚ Fiscal Responsibility Laws were passed in all 11 states\. PDO Indicator 3\. Decrease in ï‚ All participating states use the new harmonized national Budget deviation of actual expenditure Classification and Chart of Accounts to prepare budgets and accounts, from budgeted capital in line with GFS/COFOG standards\. expenditure in the ï‚ Participating States implemented a new accounting manual to manage participating Tier I states and control expenditure\. ï‚ Participating states have met the requirements to fully transition to using IPSAS (cash basis) in their financial reporting practices\. ï‚ A more modern and transparent SIFMIS in Tier I states and piloting a Page 19 of 56  The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) simpler FMIS in Tier II states\. Outcome 4\. Improved value ï‚ The adoption of public procurement laws by all 11 states were key for money in the procurement steps towards improved value for money in public procurement\. of public goods and services ï‚ Almost 70 percent of contracts above the threshold were awarded competitively, compared to 20 percent before the project interventions\. PDO Indicator 4\. Growth in ï‚ Niger, Ekiti, Adamawa and Plateau states recorded appreciable the percentage of public increases in the number of public contracts published, strengthening contracts above threshold transparency in public procurement\. awarded through open competition Outcome 5\. Improved ï‚ Modernized HRM M in Tier I (Kogi and Ondo) and Original Project effectiveness of personnel and (Bauchi and Kaduna) States reduced the discrepancy between pay and payroll controls nominal rolls below 1 percent through completed verification of personnel data including biometric records\. PDO Indicator 5\. Reduced ï‚ Migration of personnel data to the SIFMIS HR module\. discrepancy between personnel ï‚ Monthly reconciliation of pay and nominal rolls\. database and payroll database ï‚ Kaduna, an original project state, included the pension module in its in participating states IFMIS\. ï‚ Formal and structured training policies developed and adopted, away from previous ad hoc arrangements and procedures\. ï‚ Training needs analyses for PFM MDAs in Ondo and Kogi States\. ï‚ Training facility in Ondo State fully equipped to begin implementation of its business plan\. ï‚ The target of female beneficiaries substantially met by achieving 34\.2 PDO Indicator 6\. Direct percent participation against the target of 35 percent (performance project beneficiaries, percent was negatively impacted in states where aspects of the prevailing of which are female culture may have inhibited women’s participation in the formal public sector)\. 35\. Some PDO-level indicators and IRIs were revised in 2011 and some were added, as explained earlier\. However, these changes were made before FA signing and project effectiveness, signaling proactivity and a willingness to improve how results would be measured\. The 2016 changes detracted from this proactivity, although they indicated a willingness to correct errors discovered during supervision\. The weakness of the NPCU in playing its consolidating M&E role also detracted from the robustness of project M&E arrangements\. Supervision missions verified progress\. Justification of Overall Efficacy Rating 36\. Taking into account the significance of project achievements in the eleven participating States, overall efficacy is rated Substantial\. Two participating States (Ondo and Kogi) implemented all three components of the project - PFM, HRM and M&E\. Two other States (Bauchi and Kaduna), known as original project States, scaled-up activities piloted under SGCBP I\. The seven remaining States (Abia, Adamawa, Ekiti, Imo, Kebbi, Niger and Plateau), were limited to putting in place the necessary legal and regulatory frameworks for PFM, strengthening tax authorities and automating Page 20 of 56  The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) treasuries\. The preceding paragraphs have summarized the significance of the achievements and institutional reforms across the States supported by the project\. C\. EFFICIENCY Assessment of Efficiency and Rating 37\. Annex 3 depicts the original, revised and actual costs incurred for each component\. 38\. The project focused on capacity-building and technical assistance ; it is not amenable to ‘standard’ economic and financial analysis\. The overall administrative cost at the end of the project is about 4\.5 percent, roughly similar to other state-focused projects in Nigeria\. 39\. The project opted for cost-effective options to strengthen in-country training and used national peer-based learning, as opposed to using facilities and experiences outside the country – this increased the efficiency of use of project funds\. For instance, key project and other technical staff from participating states went on knowledge visits to pilot states (Bauchi, Cross River and Kaduna) to learn from these states’ experience on implementing SGCBP I\. The project encouraged peer learning by contracting reputable local and foreign institutions to organize joint training sessions in-country, saving funds that would have otherwise been spent on traveling and logistics\. Project implementation arrangements also delivered efficiency gains: states established local implementation units, staffed with trained personnel, generating savings on travel and salaries\. 40\. However, comparison of PSGRDP management costs with those in World Bank-financed operations in another territorially large federal resource-rich country – the Russian Federation – suggests that the efficiency of use of project funds could have been higher for the PSGRDP \. For example, the actual project management cost of the Bank-financed second Tax Administration Modernization Project (TAMP2) was 4\.1 percent of the total IBRD loan disbursement of US$86\.56 million9\. For the Customs Development Project (CDP), the actual project management cost came to US$4\.1 million or 2\.95 percent of the total IBRD loan disbursement of US$139\.15 million 10\. In each of these projects, there was a technically strong central project implementation unit (an external one in the case of TAMP2 and an internal one in the case of the CDP)\. However, the latter project reduced costs and demonstrated greater efficiency in the use of project funds\. 41\. In view of the above, efficiency is rated Modest\. D\. JUSTIFICATION OF OVERALL OUTCOME RATING 42\. The project objectives remained relevant, as demonstrated through states’ readiness to benefit from the proposed Bank-financed follow-on States Fiscal Transparency Accountability and Sustainability Program for Results (SFTAS PforR)\. Efficacy was rated substantial in view of the significant 9 World Bank ICR, Second Tax Administration Modernization Project (TAMP-II), Report no\. ICR0000716 dated May 29, 2009 10 World Bank ICR, Customs Development Project (CDP), Report no\. ICR00002946 dated December 24, 2013 Page 21 of 56  The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) achievements\. Efficiency gains were modest as a result of the issues described earlier\. The NPCU’s failure to play its designated project coordination and fiduciary roles remained a concern, and several states remained without funds for months, impeding implementation\. NPCU-contributed disbursement dysfunctions led to disbursement arrangements being revised less than a year before project closing to accelerate implementation and disbursements\. For the reasons stated, the overall outcome is rated Moderately Satisfactory\. E\. OTHER OUTCOMES AND IMPACTS (IF ANY) Gender 43\. The project substantially achieved its target of participating female beneficiaries (34\.2 percent actual achievement against the targeted 34 percent)\. Institutional Strengthening 44\. Several indications point to an institutional strengthening process that appears to be slowly taking root in the states covered by the project: ï‚ By end-2014, all participating states had adopted the new GFS/COFOG-compliant National Chart of Accounts and used it to prepare their 2015 budgets\. ï‚ The states are transiting to using IPSAS in their public financial management practices\. ï‚ On procurement reform, there has been a remarkable shift to the use of open competition for public procurements\. All participating states enacted state procurement laws\. ï‚ On financial reporting and external audit, some states have seen significant reductions in arrears of annual financial statements and audit\. ï‚ In Bauchi State the project pioneered the convening of Audit Forums, where the Auditor General’s reports were presented to and discussed with the public and other stakeholders, including civil society organizations\. This practice has been sustained\. It was adopted by Niger and other states under SLOGOR\. ï‚ In Kaduna state the project financed the implementation of a pension module in the IFMIS, which has revolutionized pension management\. Kaduna State is currently the only government (out of the federal and 36 State governments) to have successfully achieved this\. Mobilizing Private Sector Financing 45\. Not Applicable Poverty Reduction and Shared Prosperity 46\. While poverty reduction and shared prosperity was not an explicit objective of the project, states’ improved IGR performance enabled them to generate resources to support poverty reduction programs\. Other Unintended Outcomes and Impacts 47\. The significant reduction of project scope and project cost was not foreseen at approval\. Page 22 of 56  The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) III\. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME A\. KEY FACTORS DURING PREPARATION Factors subject to World Bank control 48\. Project design\. The project design was largely relevant at preparation, but reflected some weaknesses\. The substance of the project was informed by analytical work carried out in Nigeria including State-level Public Expenditure Reviews (SLPERs) and the PEFA assessment, while project management decisions were informed by lessons leant from implementing the SGCBP I and the Economic Reform and Governance Project (ERGP) at the federal level, the project baseline study and similar projects in other countries\. The studies and the implementation of SGCBP I and related projects suggested the need to focus states’ capacity development on public financial management systems (where close to 50 percent of the public expenditure takes place) and in human resources management (which has a high risk of disconnect between personnel records and payroll, facilitating abuse and “ghost workers”)\. Focusing limited resources on selected change-oriented and committed states to achieve results was in line with lessons learnt from other projects in Nigeria and elsewhere\. 49\. Knowledge and analytics\. The project design was informed by several analytical pieces focusing on Nigeria\. The SLPERs, the 2010 PEFA assessment, the 2010 PEMFAR and the project baseline study provided in-depth reviews of the public expenditure management systems\. Therefore, the key strategic choice for Bank’s engagement rightly focused on PFM, procurement, HRM, and M&E\. 50\. Quality at entry and lessons from previous projects: A Quality Enhancement Review (QER) was conducted for the project\. The design was simplified based on advice during the concept review and the QER, and by lessons learned from similar projects both in Nigeria (SGCBP I and ERGP) and other countries\. The lessons were addressed by: (i) focusing limited resources at the subnational level; (ii) more active engagement of participating states in addition to the federal MOF and identification of component champions during preparation to enhance ownership; and (iii) requiring full-time project coordinators to be in place in all participating states\. B\. KEY FACTORS DURING IMPLEMENTATION 51\. This section groups implementation factors into three groups: (a) factors subject to government and/or implementing agency control; (b) factors subject to World Bank control and (c) factors outside the control of the government and/or implementing agencies\. Factors subject to government and/or implementing agency control 52\. The 2011 federal electoral cycle significantly impacted the project: there was a hiatus of almost 18 months after Board approval of the project due to elections and the inauguration of a new government in May 2011\. As a result, the signing of the FA was pushed back as the new Page 23 of 56  The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) government took office and, among other things, articulated its development priorities and began reviewing its loan portfolio to align it with national priorities\. These developments, following the June 2010 Board approval, created uncertainty and a general loss of implementation momentum among participating states\. Following the December 29, 2011 restructuring, the FA was signed on June 29, 2012 and the project was declared effective on November 8, 2012\. 53\. During implementation, the project became a more strategic reform and modernization vehicle for several progressive states: these states began to use the project to address more ambitious and demanding priorities, such as clearing audit backlogs and attending to audit recommendations; improving budgeting, accounting and financial reporting standards by adopting a harmonized National Chart of Accounts and Budget Classification; contributing to tax reform and implementing basic financial management information systems in Treasury and Budget offices in these states\. This contributed to making the project and its resources more relevant to their modernization needs\. 54\. Effectiveness of implementation arrangements at the federal level: the NPCU under- performed throughout the project\. The NCPU was tasked with the core responsibilities of coordinating the states, supporting implementation quality assurance, managing the joint DA of Tier II states and consolidating states’ implementation progress reports for monitoring and evaluation (M&E) purposes\. Though there was some improvement in NPCU performance towards the end of the project, following high-level personnel changes, this came too late to address the issues of earlier years\. Mission aide memoires and ISRs showed that in spite of the proactive efforts of the new NPCU management to improve disbursements, particularly to Tier II states, the NPCU remained constrained by internal bureaucratic bottlenecks\. It failed to hire experts, including an internal auditor and a procurement officer, to fulfil its core mandates, affecting implementation and fiduciary arrangements\. There was also budgetary allocation for an IFMIS quality assurance consultant and one for M&E, to support the states, but they were not recruited till the end of the project\. 55\. Despite weak performance by the NPCU and some Tier II States, project management and implementation continued to improve, particularly in key states, where activities accounted for 70- 80 percent of credit proceeds\. In addition, since actual implementation was mainly driven by the needs and priorities of implementing states, project activities remained relevant to the states\. The objective of Component D was to help Tier II states put in place the basic legal and regulatory frameworks for PFM and public procurement and prepare them for more comprehensive reform\. 56\. States varied in commitment to the project and leadership to address implementation issues\. Tier I States performed well in this respect, reflected in the attainment of most project objectives and IRIs\. In Ondo, for example, where a new government took office in 2017, project implementation speeded up because of commitment to reforms and continuity demonstrated by the new government\. However, management capacity in Adamawa and Kebbi States remained weak\. Abia state did not sign the Subsidiary Agreement for most of the project’s life as the then government was not committed to the development objectives of the project\. Though a new and seemingly committed government came on board in 2015, it could not achieve much as the project was already winding down\. Page 24 of 56  The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) 57\. The implementation arrangements – relevant at preparation - were adjusted during implementation in response to changing circumstances\. The institutional arrangement gave the high-level coordination and support function to the federal-level NPCU housed at the MOF, staffed with existing personnel from SCCBP I and additional manpower, while leaving the primary responsibility for component implementation to state-level actors\. Participating states were given autonomy to maintain their individual designated accounts when the management of designated accounts by the NPCU was no longer efficient\. Factors subject to World Bank control 58\. Adequacy of supervision\. The Bank team supervised the project from the Country Office, ensuring close contact with federal and state counterparts and decision makers\. The team was fairly stable and possessed the appropriate skill mix\. As and when needed, as ISRs show, additional specialist skills (e\.g\. for PFM and IFMIS) were brought in, since several states required intensive implementation support\. Factors outside the control of the government and/or implementing agencies 59\. The states and the Bank task team worked together during the 2010-2011 hiatus to maintain morale, momentum and readiness\. The Bank team responded to the challenge by working with key stakeholder in the implementing states to restore commitment and implementation momentum\. The team conducted intensive implementation support and downgraded the project rating on both Development Objective (DO) and Implementation Progress (IP) to Moderately Unsatisfactory to draw the attention of key federal decision-makers\. At the same time, the team continuously supported and advised the states on implementation readiness activities that could still be undertaken ahead of the signing of the FA using the retroactive financing window, counterpart funding from the states and the project preparation advance\. Hence, by late 2011, some beneficiary-states had made progress in readiness for implementation while awaiting the signing of the FA by the federal government\. All states had put in place project teams, allocated office space, and trained key project team members\. In some states, procurement and work plans had been prepared and finalized: participating states were encouraged to go ahead with initial implementation actions such as preparation of activity terms of reference, expressions of interest (EOIs), and Requests for Proposals (RFPs) up to the point of contract award and, thereafter, to await restructuring and project effectiveness\. 60\. These efforts brought quick results in a few states which showed strong commitment and earnestly tried to make up for lost time\. However, the situation did not change in other states: management capacity in Adamawa, Kebbi and Plateau States remained weak and Abia State did not sign the Subsidiary Agreement for most of the project’s life\. There was weak political commitment for PFM reforms, particularly as it related to transparency, in the state\. Following general elections and the coming on board of a new regime in 2015, Abia state re-engaged with the Bank for support and then committed to implementing the project\. The formalities of readmitting the state, including transmission of the state’s request and signing a subsidiary credit agreement with the Federal Ministry of Finance also took a while to accomplish\. On different occasions, when the task team recommended removal of some states from the project or limiting the scope of activities for under-performing states Page 25 of 56  The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) or reallocation of credit proceeds to well-performing states, there was no evidence of follow-through by the federal government\. 61\. The project responded to help states address the 2015 fiscal crisis which confronted Nigeria\. The sharp drop in prices of crude oil in the international market had resulted in a major fiscal crisis in Nigeria, where states depend on transfers from the federal government for not less than 80 percent of their public expenditures and some 85 percent of the federal transfers accrue from oil revenue\. Hence the sub-national governments were hit hard\. The sharp reduction in allocation to states made it difficult for the states to fulfill their statutory financial obligation, including payment of workers’ salaries\. Consequently, in response to the request of the Federal Government of Nigeria, the project scaled up support to Tier II States beyond what was originally envisaged at project design\. In response to the challenges confronting the states, new activities such as support to tax administrations and the implementation of FMIS were introduced in Tier II States\. 62\. The 2016 restructuring, after the mid-term review, arose partly to address the 2015 fiscal crisis\. The restructuring formally expanded, to Tier II States, access to the IGR component to help them develop a more sustainable financial base through domestic revenue mobilization\. In addition, the restructuring reallocated the unallocated amount to the relevant Tier II and Kaduna States to enable these states implement activities on IGR and FMIS, extended the closing date by ten months to enable states to consolidate the initiated reforms; and amended the disbursement arrangement with creation of a separate Designated Account (DA) for every participating state to reduce the significant delay created by centralizing the DA at federal level\. IV\. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME A\. QUALITY OF MONITORING AND EVALUATION (M&E) M&E Design 63\. The June 2010 PAD articulated the M&E arrangements and the M&E framework to be used\. The project Results Framework in Annex 3 of the PAD laid out the indicators needed to monitor progress towards the PDOs\. However, there were shortcomings in the project results framework that needed to be addressed\. 64\. The M&E design reflected in the project Results Framework was updated and refined at the December 2011 restructuring\. After approval on June 29, 2010, there was a hiatus in next steps due to a new government assuming office in May 2011 following general elections\. The new government’s desire to align its credit portfolio with its national priorities, as well as the availability of financing to some participating states from another donor, led to the December 2011 restructuring which – among other things – modified the Results Framework\. The modifications and refinements comprised: (a) application of the results framework and the M&E design to 11 states instead of the original 16 (five states were dropped from the project); (b) improving the original PDO indicator 1 (it was split into two new PDO indicators 1 and 2 for ease of tracking and reporting); (c) aligning the Page 26 of 56  The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) end-project target dates for all PDO indicators and IRIs with the extended closing date of December 30, 2016; (d) clarifying that the number of direct project beneficiaries and the reference to female beneficiaries, for tracking purposes, was on the basis of the number of persons trained under the project; (e) splitting an original IRI into two new IRIs (numbers 20 and 21); (f) adding a new IRI (number 22) to track progress of Tier II states on a subcomponent that the project was already supporting and (g) adding another IRI (number 23) to track Tier II states that had just been included in a subcomponent\. 65\. The refinements to M&E design before FA signing and project effectiveness considerably strengthened project M&E design and placed the project on a more robust footing \. It happened during a time when the task team had reached out to participating states during the June 2010- December 2011 hiatus to persuade them to maintain readiness for implementation\. M&E Implementation 66\. During implementation, individual states did reasonably well on M&E\. They submitted periodic M&E progress reports to the Bank\. These reports enabled the Bank to review progress, focus implementation support and supervision resources and respond to M&E issues as they arose\. 67\. The NPCU turned out to be the weak link on M&E\. It was responsible for consolidating states’ reports, sharing them with the Bank, analyzing M&E issues as they arose in states, and responding to them\. However, this did not happen\. Mission aide memoires and ISRs record that the task team attempted to persuade the NPCU to address this gap, but the efforts did not yield results\. M&E Utilization 68\. Participating states used the M&E framework to assess progress towards PDO achievement and address implementation challenges\. This was especially true for Tier I states, which had higher capacity and longer experience of utilizing M&E arrangements in World Bank-financed projects\. Tier II states also performed well on improving PFM and HRM systems and – over time – learnt to use the project M&E arrangements to assess progress and identify issues and challenges\. It was partly because of effective utilization, by Tier II states’ management, of the project M&E framework that there was progress in achieving most of the PDOs and IRIs\. Justification of Overall Rating of Quality of M&E Overall rating of Quality of M&E: Modest 69\. As the preceding paragraphs depict, there were weaknesses in M&E design, implementation and utilization\. This has been stated in ISRs and other project documents\. The NPCU performance on its M&E responsibility remained weak throughout the project’s life, diminishing the impact of M&E implementation and utilization\. The efforts of individual states, which did well on the M&E dimension and periodically submitted satisfactory progress reports to the Bank, were insufficient to overcome this weak link\. Page 27 of 56  The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) B\. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE Environmental and Social Compliance 70\. This was an investment project financing (IPF) credit\. While no civil works were undertaken, minor refurbishments were done for installing some ICT systems\. The project was categorized as Category B for environmental assessment (EA) purposes\. A partial EA was done\. No environmental or social issues arose during implementation\. Fiduciary Compliance 71\. Project procurement was moderately satisfactory overall\. Procurement start-up suffered from the initial delay after approval\. Post-procurement reviews and other documentation indicate that, notwithstanding procurement capacity differences between states, and the failure of the NPCU to play its designated project coordination and implementation support, procurement improved as project implementation progressed\. Weak capacity in some states led to challenges in ICT and systems procurements, e\.g\. those relating to SIFMIS\. The last ISR downgraded the procurement rating to Moderately Satisfactory, mostly due to turnover of procurement staff\. 72\. Financial management (FM) was moderately satisfactory overall, mainly due to NPCU financial management and disbursement challenges\. FM practices in the two Tier I States (Kogi and Ondo) and the two original project States (Kaduna and Bauchi) were satisfactory\. However, FM practices in some of the seven Tier II states were moderately satisfactory\. The performance of the NPCU could have been better\. The NPCU managed a joint DA for the Tier II states and was responsible for consolidating financial reports for the whole project\. NPCU FM capacity remained weak\. In addition, as mission documents point out, the NPCU (i) failed to provide feedback or forward to the Bank a request from Niger State for allocating funds to augment their IFMIS implementation budget since December 2014; (ii) till 2016, failed to engage experts to provide technical support and quality assurance to participating states despite requests; (iii) failed to document disbursements of over US$1 million and replenish the accounts of the six Tier II States (some outstanding from October 2014) with some states unable to pay for services provided; (iv) impeded Bank efforts to carry out routine FM reviews of the NPCU; and (v) did not submit consolidated IFRs for the last two semesters\. 73\. While there was progress with NPCU’s project management during the last year of the project, delays continued in replenishing the accounts of the six Tier II states out of the centralized DA domiciled at the NPCU\. For instance, as of September 2017, several replenishment requests had been pending for over four weeks at the Federal MOF\. Where the DA had been replenished by the World Bank, based on Statements of Expenditures (SOE) from 5 Tier II states (processed after three months), the replenished funds remained in the DA, without being passed on to the beneficiary States for over a month after they were received from the Bank (though it is possible that some delays may have originated in the MOF, where requests/applications could be delayed for several months before being passed on to the NPCU for processing)\. Page 28 of 56  The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) C\. BANK PERFORMANCE Quality at Entry 74\. Quality at entry and lessons from previous projects\. A QER was conducted at the preparation stage\. The design was simplified based on advice from the concept review and the QER, and on lessons learned from similar projects both in Nigeria (SGCBP I and ERGP) and other countries\. The lessons from implementing SGCBP I and ERGP in Nigeria and some of the comments from the QER were addressed in the design by: i) focusing the limited resources to the subnational level where deep-rooted challenges still remain with respect to transparency and accountability and human capacities and which has significant implications for effective public service delivery; ii) adopting a more active engagement of the participating states in addition to the federal Ministry of Finance as well as clear identification of component champion during preparation to enhance ownership; iii) putting emphasis on well-thought-out, impact-oriented and sustainable training policy for an effective skill development including knowledge sharing platforms for the 13 new participating states to learn from the experiences and lessons on project implementation from the three pilot states (Bauchi, Cross River and Kaduna); and iv) requiring full time project coordinators to be in place in all the participating states\. 75\. However, the project design could have been stronger at entry \. It appears that this did not happen due to two reasons: (a) the criteria for selecting participating states in 2010 proved to be somewhat weak, as it did not make adequate provision to address capacity and commitment variations across states and entities, including adequate flexibility and stronger competition/ performance-oriented criteria to allow automatic reallocation of funds from underperforming states to more reform-oriented ones; (b) during implementation, variations emerged in ownership and commitment across different states, significantly affecting progress; and (c) although the PAD had expressed the intent to involve civil society organizations (CSOs) to monitor some activities (especially procurement and budget execution), this did not materialize because the project design did not include activities to build and expand citizen voice into the budget transparency and accountability systems\. Though the project design required CSOs to be represented on the respective state steering committees, this did not happen, except in Kaduna State\. Quality of Supervision 76\. Overall, the quality of Bank supervision is assessed as Moderately Satisfactory across the life of the project\. It started strongly, with the 2011 restructuring and working with states to jump- start the delayed project\. In the middle years, there were missed opportunities to speed up implementation and provide targeted specialized support for IFMIS and MTSS to some states with weaker institutional capacity\. Towards the end, supervision picked up as evidenced by the December 2016 restructuring\. The quality and candor of the reporting appeared to follow this pattern\. The team sought guidance from sector/global practice and country management on specific country relationship or implementation issues\. Justification of Overall Rating of Bank Performance Page 29 of 56  The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) 77\. Bank performance is rated Moderately Satisfactory overall \. There was evidence of proactive supervision at the beginning and toward the end, but there were missed opportunities in the middle years, evidenced by ISR comments, to engage substantively with lagging States and provide targeted advice and implementation support on issues within the Bank’s control\. D\. RISK TO DEVELOPMENT OUTCOME 78\. The risk to development outcome is assessed as substantial \. First, sustaining gains in states that underperformed will be challenging\. Second, well-performing states may require appropriate incentives to sustain and build on the project gains\. However, Nigeria’s development partners, including the World Bank, have learnt from this project – project design in subsequent operations (such as the SFTAS PforR) takes account of key lessons from this operation and others, diminishing some of the risks to sustaining project gains and results\. V\. LESSONS AND RECOMMENDATIONS 79\. Looking back, the project offers three key lessons : a) Realistically assessing federal and state-level ownership of ambitious institutional reforms projects is essential at the design stage, as is taking account of electoral cycle realities ; b) Project ambition and implementation timelines need to match recipient implementation capacity – especially where reforms are difficult or involve design and installation of ICT-based systems such as IFMIS; and c) Complex, risky and longer-term public sector institutional reforms can often benefit from World Bank support in significant ways, not often appreciated, understood or even measurable\. This was the case for the PSGRDP, where the Bank’s value-added included (i) its ability to bring relevant international experience to states when needed, (ii) keeping the states focused on results even in times of crisis or turbulence, (iii) its flexibility in helping states to adapt project activities to changing priorities (e\.g\. addressing the fiscal crisis in 2016-2017), and (iv) the protection the ‘Bank-financed status’ can provide to a project budget (and hence to reforms it finances)\. 80\. Two recommendations from the implementation experience of this project comprise: a) In federal countries, when supporting implementation of reforms at the state level, it is desirable to give appropriate autonomy to state implementation entities - failing to do so risks slowing state-level implementation if federal project coordination arrangements do not work well\. b) In designing operations intended to be implemented by states in federal countries, it is desirable to use clear and predictable criteria to select participating states 11, and to incorporate flexibility in design and implementation (especially in multi-state/multi-entity projects or programs) to address capacity and commitment variations across states and entities\. \. 11The importance of the criteria used to select participating states became more evident during implementation\. The project could have benefited from including stronger competition through performance-oriented activities that could have allowed automatic reallocation of funds from underperforming states to more reform-oriented ones\. Page 30 of 56  The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) ANNEX 1\. RESULTS FRAMEWORK AND KEY OUTPUTS A\. RESULTS INDICATORS A\.1 PDO Indicators Objective/Outcome: 1\. Improved quality and transparency in the use of public funds\. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Annual State Auditor Number 12\.00 0\.00 6\.00 7\.00 General's Report submitted to the legislature within 6 30-Jul-2009 30-Nov-2015 31-Oct-2017 31-Oct-2017 months from end of financial year (Tier I States) State Government entities Number 50\.00 75\.00 85\.00 97\.50 representing at least 75% of the total expenditure are 30-Jul-2009 31-Oct-2017 31-Oct-2017 31-Oct-2017 audited annually in any State (Tier I States) Comments (achievements against targets): Objective/Outcome: 2\. Improved credibility of the budget (in each participating state) Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Page 31 of 56  The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) Decrease in deviation of Percentage 55\.00 25\.00 35\.00 29\.40 actual expenditure from budgeted capital expenditure 30-Jul-2009 31-Oct-2017 31-Oct-2017 31-Oct-2017 in the Tier 1 states Comments (achievements against targets): Objective/Outcome: 3\. Improved revenue collection efficiency (in each participating state) Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Growth in percentage of Percentage 60\.00 90\.00 90\.00 79\.50 actual collection of projected IGR in Tier 1 states 30-Jul-2009 31-Oct-2017 31-Oct-2017 31-Oct-2017 Comments (achievements against targets): Objective/Outcome: 4\. Improved value for money in the procurement of public goods and services Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Growth in percentage of Percentage 20\.00 70\.00 70\.00 72\.00 public contracts above threshold awarded through 30-Jul-2009 31-Oct-2017 31-Oct-2017 31-Oct-2017 open competition Comments (achievements against targets): Page 32 of 56  The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) Objective/Outcome: 5\. Improved effectiveness of personnel and payroll controls (in each participating state) Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Reduced discrepancy Percentage 25\.00 5\.00 5\.00 2\.50 between personnel database and payroll database in 30-Jul-2009 31-Oct-2017 31-Oct-2017 31-Oct-2017 partiicipating (Tier 1) states Comments (achievements against targets): Objective/Outcome: 6\. Direct project beneficiaries, % of which female Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Direct project beneficiaries, % Percentage 10\.00 0\.00 35\.00 34\.20 of which female (Tracked on the basis of persons trained 30-Jul-2009 31-Oct-2017 31-Oct-2017 31-Oct-2017 under the project)\. Comments (achievements against targets): A\.2 Intermediate Results Indicators Component: Component A\. Development and Modernization of Public Financial Management Systems Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Page 33 of 56  The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) Adoption of revised legal Number 0\.00 0\.00 9\.00 11\.00 framework for commitment control and payment 30-Jul-2009 31-Oct-2017 31-Oct-2017 31-Oct-2017 authorization/approval limits In all implementing States Comments (achievements against targets): Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Development and use of Number 1\.00 0\.00 10\.00 20\.00 medium-term (3 year rolling) sector strategies and fiscal 30-Jul-2009 31-Oct-2017 31-Oct-2017 31-Oct-2017 planning in at least 5 MDAs in Tier I States The dimensions presented Number 0\.00 0\.00 2\.00 2\.00 in budget classification using GFS/COFOG 29-Jun-2012 31-Oct-2017 31-Oct-2017 31-Oct-2017 standards in Tier I States Comments (achievements against targets): Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Number of MDAs in each Number 0\.00 0\.00 5\.00 2\.00 Page 34 of 56  The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) participating state producing 30-Jul-2009 31-Oct-2017 31-Oct-2017 31-Oct-2017 financial statements using new SIFMIS - Tier I States Comments (achievements against targets): Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Time taken by state Months 48\.00 0\.00 12\.00 20\.00 legislature to scrutinize and issue report on external audit 30-Jul-2009 31-Oct-2017 31-Oct-2017 31-Oct-2017 report in participating States (Tier I) Comments (achievements against targets): Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Increase in taxpayer Percentage 0\.00 0\.00 30\.00 625\.00 coverage/tax database in participating states (Tier I 30-Jul-2009 31-Oct-2017 31-Oct-2017 31-Oct-2017 States) Comments (achievements against targets): Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Formally Revised Completion Page 35 of 56  The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) Target Number of participating Number 0\.00 0\.00 5\.00 8\.00 states with FMIS (Tier I, Tier II and Original Project States) 30-Jul-2009 31-Oct-2017 31-Oct-2017 31-Oct-2017 Comments (achievements against targets): While Kaduna, Ekiti and Plateau had achieved this result as at the last supervision mission which was the basis of the last ISR\. However, following the ISR, but before project closure, the IFMIS in Bauchi, Kogi and Ondo and the FMIS in Niger and Kebbi States were successfully commissioned\. Thus, eight (8) States met this indicator as at project closure\. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Procurement legislation Number 0\.00 0\.00 2\.00 9\.00 enacted and regulatory unit established in participating 30-Jul-2009 31-Oct-2017 31-Oct-2017 31-Oct-2017 and selected states Comments (achievements against targets): Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Increase in taxpayer Percentage 7500\.00 0\.00 300\.00 956\.00 coverage/database in Tier 2 states beyond the public 22-Nov-2016 31-Oct-2017 31-Oct-2017 31-Oct-2017 service PAYE taxpayers Comments (achievements against targets): Page 36 of 56  The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) Component: Component B\. Human Resource Management and Capacity Development Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Frequency of reconciliation Number 0\.00 0\.00 4\.00 6\.50 between personnel records and payroll database in 30-Jul-2009 31-Oct-2017 31-Oct-2017 31-Oct-2017 participating states (Tier I States) Comments (achievements against targets): Component: Component C\. Monitoring and Evaluation System Development Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Growth in the number of key Number 0\.00 0\.00 10\.00 21\.00 MDAs that submit annual reports with updated data on 30-Jul-2009 31-Oct-2017 31-Oct-2017 31-Oct-2017 agreed results indicators in participating State (Tier I States) Comments (achievements against targets): Component: Component D\. Improvement in Public Financial Management in Selected (Tier 2) States Indicator Name Unit of Measure Baseline Original Target Formally Revised Actual Achieved at Page 37 of 56  The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) Target Completion Growth in the percentage of Percentage 0\.00 0\.00 35\.00 46\.00 public contracts published (Tier 2 States) 29-Jun-2012 31-Oct-2017 31-Oct-2017 31-Oct-2017 Comments (achievements against targets): Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Number of selected (Tier 2) Number 2\.00 0\.00 6\.00 7\.00 states with draft fiscal responsibility legislation 30-Dec-2011 31-Oct-2017 31-Oct-2017 31-Oct-2017 submitted to state legislature Comments (achievements against targets): Component: Component E\. Scaling Up of Selected Activities from the Original Project Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion BATMIS implemented in line Number 0\.00 0\.00 15\.00 20\.00 ministries in original project states (Kaduna and Bauchi 30-Jul-2009 31-Oct-2017 31-Oct-2017 31-Oct-2017 States) MTEF/MTSS implemented Number 10\.00 0\.00 20\.00 24\.00 Page 38 of 56  The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) in at least 10 sectors in 30-Jul-2009 31-Oct-2017 each original project states Comments (achievements against targets): Component: Component F\. Project Coordination at National and State Levels Unlinked Indicators Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Number of Tier 2 States using Number 0\.00 0\.00 6\.00 7\.00 the GFS/COFOG standards New National Chart of 22-Nov-2016 31-Oct-2017 31-Oct-2017 31-Oct-2017 Accounts for budget presentation Comments (achievements against targets): Page 39 of 56  The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) B\. KEY OUTPUTS BY COMPONENT Outcome 1: Improved quality and transparency in the use of public funds 1\. State Government entities representing at least 75 percent of the total expenditure are audited annually covering revenue and expenditure Outcome Indicators 2\. Submitting audit report to the state legislature within 6 months from the end of the financial year in any state 1\. Adoption of revised legal framework for commitment control and payment authorization/approval limits in all implementing States Intermediate Results Indicators 2\. Time taken by state legislature to scrutinize and issue report on external audit report in participating States (Tier I) 1\. Enactment of Fiscal Responsibility Laws in all 11 States 2\. Enactment of Organic Public Finance Laws and Audit Laws in Ondo, Kaduna and Niger States and development of Bills in all 8 other states 3\. Training of staff on the new laws and regulation Key Outputs by Component 4\. Dissemination of the new laws to members of State Houses of Assembly, business community, (linked to the achievement of Outcome 1) representatives of civil society organizations and local government officials\. 5\. Development of modern accounting and financial reporting system based on the Standard Chart of Accounts and preparation of new operating manuals 6\. Restructuring the Office of the State Auditor General and internal audit Page 40 of 56  The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) 7\. Review of audit work planning, audit methods, techniques and reporting 8\. Provision of TA to clear audit backlog and establishment of mechanism to follow-up audit recommendations 9\. Capacity Building activities in OSAG through on-the-job training, completion of advance training courses as well as to members of the Public Account Committee of the State House of Assembly 10\. Acquisition of off the shelf application software package and development of a common ICT infrastructure backbone for all applications supported under the project (HRM, budget preparation, and execution including payroll, accounting, treasury management and reporting) 11\. Recruitment and payment of project manager and staff for SIFMIS 12\. Intensive training of different categories of users in supervising role, intensive users, system administrators of SIFMIS 13\. Review of M&E system, formulation of policies and enabling regulations and development of a new M&E system 14\. Establishment of M&E Secretariat and training for the State Planning Commission and MDAs 15\. Completion of diagnostic work (PER/PEFA/PEMFAR) for states where none has been undertaken Outcome 2: Improved credibility of the budget 1\.Reduction in the deviation of actual expenditure from budgeted capital expenditure in each Outcome Indicators participating state Page 41 of 56  The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) 1\. Development and use of multi-year budget framework and 3 year rolling sector strategies and fiscal planning in at least in 5 pilot MDAs in participating states 2\. Growth in the number of key MDAs that submit annual reports with updated data on agreed results indicators in participating states (Tier I States) 3\. The dimensions presented in budget classification using GFS/COFOG standards in Tier I States Intermediate Results Indicators 4\. Number of Tier II States using the GFS/COFOG standards New National Chart of Accounts for budget presentation 5\. Number of selected (Tier II) states with draft fiscal responsibility legislation submitted to state legislature 6\. MTEF/MTSS implemented in at least 10 sectors in each original project states 1\. Training of adequate group of budget and finance staff from the central ministries and the line MDAs 2\. Developed fully costed sector strategies in Tier I and original project states and built requisite capacity for their utilization in budgeting 3\. Acquisition of tools and techniques to enable the formulation of improved polices, Key Outputs by Component identification of priorities, the setting of fiscal objectives and the development of revenue (linked to the achievement of Outcome 2) projections and cost estimates in a medium-term fiscal horizon 4\. Building capacity of public investment management, project identification and assessment, investment planning, cost-benefit analysis, etc\. 5\. Capacity building for members of the Finance and Appropriation Committees of the State House of Assembly Page 42 of 56  The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) 6\. Support to engagement of the public in budget formulation, implementation and monitoring Outcome 3: Improved revenue collection efficiency 1\. Growth in the percentage of actual collection of projected internally generated revenue in each Outcome Indicators participating state 1\. Increase in taxpayer coverage / tax datable in participating states Intermediate Results Indicators 2\. Increase in taxpayer coverage/database in Tier II states beyond the public service PAYE taxpayers 1\. Completion of state-wide survey for identification of new taxpayers 2\. Development of basic ICT infrastructure for taxpayer database management and tax administration Key Outputs by Component 3\. Training on key aspects of taxation as well as the ICT system maintenance (linked to the achievement of Outcome 3) 4\. Review of organizational structure for the States Boards of Internal Revenue (SBIRs) 5\. Developed regulations and tools for the implementation of presumptive tax regimes for the informal sector in different states Outcome 4: Improved value for money in the procurement of public goods and services 1\. Growth in the percentage of public contracts above threshold awarded through open Outcome Indicators competitive process in any state Page 43 of 56  The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) 1\. Procurement legislation enacted and regulatory unit established in participating and selected states Intermediate Results Indicators 2\. Growth in the percentage of public contracts published / publication of major contract award decisions by participating and selected states 1\. Preparation of procurement reform strategy, procurement law, regulations and manuals 2\. Preparation of standard bidding documents for contract awards using open competition 3\. Establishment of transparent of complaints handling mechanism within the SPPA and establish me t of a reliable and regularly updated procurement databank in the state procurement agencies Key Outputs by Component 4\. Set up functional state public procurement agency and capacity building for post procurement (linked to the achievement of Outcome 4) reviews and value for money audits 5\. Undertook training needs assessment and training on procurement to public officials and non- government actors to help build demand for good procurement behavior 6\. State-wide campaigns in the form of seminars, conferences, printing and circulation of new laws\. Outcome 5: Improved effectiveness of personnel and payroll controls 1\. Reduced discrepancy between personnel database and payroll database in each participating Outcome Indicators state 1\. Frequency of reconciliation between personnel records and payroll database in participating states Intermediate Results Indicators 2\. HRMIS installed and operational in all line ministries in original project states Page 44 of 56  The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) 1\. Review of HRM policies, process and information system and development of state public service reform strategy 2\. Staff audit, payroll parades and civil service census 3\. Introduced use of biometric data features for identification and enumeration of civil servants\. Key Outputs by Component 4\. Training needs assessment for key MDAs and development of training policy (linked to the achievement of Outcome 5) 5\. Capacity needs assessment to determine appropriate manpower needs of government institutions\. 6\. Training on payroll management, HRM and computer skills 7\. Acquisition of logistic support to the office of the Head of Civil Service and state public service training institutions Page 45 of 56  The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) C\. ORIGINAL RESULTS FRAMEWORK AND RESULTS INDICATORS Page 46 of 56 The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) Source: PAD Page 47 of 56  The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) ANNEX 2\. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION A\. TASK TEAM MEMBERS Name Role Preparation Supervision/ICR Ikechukwu John Azubike Nweje, Helen Ogochukwu Okeke Task Team Leader(s) Sunday Esene Osoba, Bayo Awosemusi, Daniel Rikichi Procurement Specialist(s) Kajang Adewunmi Cosmas Ameer Adekoya Financial Management Specialist Joyce Chukwuma-Nwachukwu Team Member Amitabha Mukherjee Team Member Elsa Araya Team Member Olukemi Roseline Akinsola Team Member Ismaila B\. Ceesay Team Member Akinrinmola Oyenuga Akinyele Team Member Abimbola Ogunseitan Team Member Museme Munira Issa Team Member Omezikam Eze Onuoha Environmental Safeguards Specialist Michael Gboyega Ilesanmi Social Safeguards Specialist B\. STAFF TIME AND COST Staff Time and Cost Stage of Project Cycle No\. of staff weeks US$ (including travel and consultant costs) Preparation FY06 29\.696 171,349\.31 Page 48 of 56  The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) FY07 4\.484 30,748\.63 FY08 6\.297 44,036\.50 FY09 29\.016 114,868\.17 FY10 38\.725 186,621\.04 FY11 0 0\.00 Total 108\.22 547,623\.65 Supervision/ICR FY11 37\.730 153,109\.29 FY12 18\.549 76,681\.78 FY13 30\.082 131,996\.69 FY14 30\.079 140,498\.54 FY15 37\.692 153,267\.46 FY16 33\.855 144,148\.55 FY17 31\.241 121,444\.18 FY18 39\.072 181,781\.51 Total 258\.30 1,102,928\.00 Page 49 of 56  The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) ANNEX 3\. PROJECT COST BY COMPONENT Amount Amount After Actual at Percent of Percent of at Dec 28, 2011 Project Original Dec 28, 2011 Components Approval Restructuring Closing Approval Restructuring (US$M) (US$M) (US$M) (US$M) (US$M) A\. Development and Modernization of 39\.10 26\.70 22\.8 58\.31 85\.39 Public Financial Management Systems B\. Human Resource Management 9\.30 6\.20 5\.29 56\.88 85\.32 Strengthening C\. Monitoring and Evaluation System 7\.50 5\.00 4\.27 56\.93 85\.40 Development D\. Improvement of Public Financial 24\.00 16\.8 17\.61 73\.38 104\.82 Management in Selected States E\. Scaling up of Selected Activities 22\.00 14\.7 14\.51 65\.95 98\.71 Under Original Project F\. Project Coordination 8\.50 4\.50 3\.84 45\.18 85\.33 Unallocated 9\.60 6\.10 0\.00 Total 120\.00 80\.00 68\.32 56\.93 85\.4 Page 50 of 56 The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) ANNEX 4\. EFFICIENCY ANALYSIS 1\. The project activities contributed to improved public expenditure management and human resources management that will have an impact on service delivery \. However, since it mostly financed technical assistance, training and some ICT implementation, a standard economic analysis is not feasible\. Annex 3 depicts the original, revised and actual costs incurred for each component\. 2\. Efficiency is rated Modest\. The project focused on capacity-building and technical assistance; it is not amenable to ‘standard’ economic and financial analysis\. The overall administrative cost at the end of the project is about 4\.5 percent, roughly similar to other state-focused projects in Nigeria\. 3\. The project opted for cost-effective options to strengthen in-country training and used national peer-based learning, as opposed to using facilities and experiences outside the country – this increased the efficiency of use of project funds\. For instance, key project and other technical staff from participating states went on knowledge visits to pilot states (Bauchi, Cross River and Kaduna) to learn from these states’ experience on implementing SGCBP I\. The project encouraged peer learning by contracting reputable local and foreign institutions to organize joint training sessions in-country, saving funds that would have otherwise been spent on traveling and logistics\. Project implementation arrangements also delivered efficiency gains: states established local implementation units, staffed with trained personnel, generating savings on travel and salaries\. 4\. However, comparison of PSGRDP management costs with those in World Bank-financed operations in another territorially large federal resource-rich country – the Russian Federation – suggests that the efficiency of use of project funds could have been higher for the PSGRDP\. For example, the actual project management cost of the Bank-financed second Tax Administration Modernization Project (TAMP2) was 4\.1 percent of the total IBRD loan disbursement of US$86\.56 million12\. For the Customs Development Project (CDP), the actual project management cost came to US$4\.1 million or 2\.95 percent of the total IBRD loan disbursement of US$139\.15 million13\. In each of these projects, there was a technically strong central project implementation unit (an external one in the case of TAMP2 and an internal one in the case of the CDP)\. However, the latter project reduced costs and demonstrated greater efficiency in the use of project funds\. 5\. The tables below summarize the costs of selected ICT-related activities financed by the project, but do not offer a clear picture on efficiency of use of funds (because the coverage of each contract was different), other than that the contracts were competitively awarded\. 12 World Bank ICR, Second Tax Administration Modernization Project (TAMP-II), Report no\. ICR0000716 dated May 29, 2009 13 World Bank ICR, Customs Development Project (CDP), Report no\. ICR00002946 dated December 24, 2013 Page 51 of 56 The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) Tables: Comparison of Costs for Selected ICT-related Contracts 1\. SIFMIS Kogi State Ondo State $3\.77m $4\.262m ₦149\.74m €1\.01m (Financials, Budget, Payroll ₦309\.5m Modules and reporting tools) (Financials, Budget, HRMIS, Payroll Modules, reporting tools) 2\. SIFMIS Re-implementation (General Ledger, Budget Module, HRMIS & Payroll): Kaduna Bauchi USD3\.383m (Budget, Financials, USD1m (Budget and Financials Applications and Payroll and Pension Applications licenses; no hardware) and Licenses; with hardware) 3\. FMIS (General Ledger, Budget Module & Payroll): Niger Kebbi Ekiti USD1\.48m USD1\.3m $3\.77m ₦75m ₦149\.74m 4\. PFM (Generic Budget Preparation and Execution, MYBF/MTSS, Domestication of Chart of Accounts, Introduction to IPSAS and TNA of relevant MDAs) Kogi Ondo Plateau ₦62\.4m ₦61\.2m ₦61\.1m 5\. State M&E System (State Policy, Results Indicators for key MDAs, Implementation Manual, Functional specifications for Web-based MIS & TNA) Kogi Ondo ₦27m ₦23m 6\. Implementation of Web-Based MIS/Portal Kaduna Ondo ₦23m 7\. Taxpayer Survey/Enumeration of New taxpayer and recommendation of technical and functional specifications for an Electronic Database Management System (EDMS) Kogi Ondo Adamawa Imo ₦45\.4m covered 21 ₦40m covered 18 ₦XXm covered 6 LGAs ₦27m covered 9 LGAs LGAs LGAs *LGAs – Local Government Areas 8\. External Audit Reforms (Organizational Restructuring, Development of New Manuals and Audit Bill & capacity building for auditors and legislators) Kaduna Ondo Plateau Kebbi USD260,000 ₦21\.4m ₦19\.26m Page 52 of 56 The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) ANNEX 5\. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS Page 53 of 56  The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) ANNEX 6\. SUPPORTING DOCUMENTS World Bank\. State-level Public Expenditure Reviews (PERs) World Bank\. Public Expenditure and Financial Accountability (PEFA) Assessments World Bank\. Public Expenditure Management and Financial Accountability Review (PEMFAR) C\. Nwoko et a1, Anambra State of Nigeria: PFM Performance Measurement, June 2008\. Nwoko, C\. Anne Odein, A\. Bayelsa State of Nigeria: Fiscal Performance Analyses 2001-2008 Taiwo, O\. et a1, Ekiti State Public Expenditure Review, April 2008 Abubakar, H\. & Yam, M\.A\. Niger State Public Expenditure Management and Financial Accountability Review, March 2009 Taiwo, O\. et a1, Kogi State Public Expenditure Management and Financial Accountability Review, 2009 Nwoko, C\. Plateau State of Nigeria: Public Expenditure Management and Financial Accountability Review, 2009 Ondo State Public Expenditure and Financial Accountability Review, 2010 State Governance and Capacity Building Project, Baseline Assessment Report, 2009\. Page 54 of 56 The World Bank Nigeria Public Sector Governance Reform and Development Project ( P097026 ) ANNEX 7\. MAP Page 55 of 56

REVIEW

P098948

 ICRR 14374 Report Number : ICRR14374 IEG ICR Review Independent Evaluation Group 1\. Project Data: Date Posted : 06/27/2014 Country : Croatia Project ID : P098948 Appraisal Actual Project Name : Inland Waters Project US$M ): Project Costs (US$M): 140\.08 126\.59 L/C Number : L7453 Loan /Credit (US$M): Loan/ US$M ): 133\.41 119\.63 Sector Board : Water US$M): Cofinancing (US$M ): Cofinanciers : Board Approval Date : 03/15/2007 Closing Date : 12/31/2012 12/31/2012 Sector (s): Sewerage (53%); Water supply (34%); Flood protection (9%); Central government administration (4%) Theme (s): Water resource management (25% - P); Other urban development (25% - P); Urban services and housing for the poor (24% - P); Environmental policies and institutions (13% - S); Regional integration (13% - S) Prepared by : Reviewed by : ICR Review Group : Coordinator : Peter Nigel Freeman George T\. K\. Pitman Christopher David IEGPS1 Nelson 2\. Project Objectives and Components: a\. Objectives: The Project Appraisal Document (PAD, page 5) states that the development objectives are : "to improve water supply services, wastewater services, and flood protection measures in municipalities selected from the inland part of Croatia \. The area covered would be from the Sava and Drava, and Danube river basins and the proposed investments would enable Croatia to meet EU directives "\. The development objectives stated in the loan agreement (LA page 5) are: "to improve water supply services, and flood protection measures in the Sava /Drava, and Danube river basins of the Republic of Croatia "\. This review uses the PAD version of the objectives as they are more comprehensive \. The project underwent a level 2 restructuring in December 2011\. The objective remained unchanged and no additional safeguards were triggered \. b\.Were the project objectives/key associated outcome targets revised during implementation? No c\. Components: The project had two components : Technical Assistance (TA) and Investments\. A: Technical Assistance \. (Appraisal estimate US$ 6\.39 million; Restructuring estimate (December 2011) US$ 12\.60 million; actual US$ 7\.46 million)\. The technical assistance component included the following three sub -components: Al - EU Accession Support: Hrvatske Vode (HV) as a national entity for water management is principally responsible for the implementation of activities related to meeting EU directives and absorption of EU funds \. To this end, it implements the Water Management Strategy that involved strengthening of institutions and preparing projects that would receive funds from the EU or other sources \. This component included: Institutional strengthening of HV and Ministry of Agriculture (MOA) to implement the Water Management Strategy, including training and technical assistance linked to absorption of EU funds; and Preparation of projects for financing by the EU and other sources\. The Bank loan was to finance feasibility studies and other documentation needed for location and construction permits, including preliminary design, final design, environmental assessments, and bidding documents \. A2 - Project Implementation Support: This sub-component was implemented by HV and included financing of: Preparation of the Bank-financed investment program, including preparation of feasibility studies, securing necessary construction and environment permits, and preparation of bidding documents; Meeting the project's fiduciary (financial management and procurement ) and safeguards requirements (environment and land acquisition ); Preparation of project reports; and Preparation of annual audit reports \. A3 - Institutional Strengthening of Utilities : This sub-component focused on providing TA to the participating utilities and included: Preparation of feasibility studies and other documentation needed for location and construction permits, including preliminary design, final design and environmental assessments; Preparation of bidding documents; Construction supervision; Measures to increase operating efficiency and improve customer service, including specific TA to help utilities reduce commercial water losses and improve their financial position; Reporting to HV on the sub-project progress; and Customer surveys, at the beginning and end of sub -project implementation\. B: Investments \. (Appraisal estimate US$ 125\.61 million; Restructuring estimate (December 2011) US$ 117\.40 million; actual US$ 104\.01 million) The Investments Component included the following three sub -components: - Utility Investments\. This sub-component included three sets of utility investments : B1- Set 1 Investments: (i) Virovitica - increase sewerage coverage; (ii) Northern Baranja - improve water supply coverage; and (iii) Ogulin - increase sewerage coverage and construct a wastewater treatment plant \. Feasibility studies for these investments were prepared with support from the Japanese Policy and Human Resources Development (PHRD) Fund\. Set 2 Investments: (i) Davor-Nova Gradiska - improve water supply coverage; (ii) Slavonska Podravina region - improve water supply coverage; (iii) Nasice - increase sewerage coverage and construct a wastewater treatment plant; and (iv) Southern Baranja region - increase sewerage coverage \. The PHRD grant also supported the preparation of feasibility studies for set 2\. Set 3 Investments: At the time of appraisal only a partial list of projects was identified and ready, this included: (i) Vukovar - increase the sewerage coverage; (ii) Ilok - increase the sewerage coverage; (iii) Ivankovo - increase the sewerage coverage and construct a wastewater treatment plant; (iv) Otok and Komletinci - increase the sewerage coverage and construct a wastewater treatment plant; and (v) Cema - increase the sewerage coverage and construct a wastewater treatment plant \. During implementation, an investment in the sewerage system of Dugo Selo -Rugvica was also identified by HV as a priority and included in the investment program of the project \. B2 - Flood Protection\. This sub-component financed rehabilitation and expansion of flood protection infrastructure, including dykes, canals, and channels \. At the time of appraisal it envisaged only works in the Central Posavina area in the Sava river basin, but following the 2011 restructuring, activities were extended to also cover the Drava and Danube river basins \. Six investments were initially proposed - two in Lonjsko Polje (designated Ramsar wetlands), and four outside the wetland area \. Through the investments, the volume of flood water retained was expected to increase from 600 million m3 to 720 million m3 , reducing the risk of downstream  flood damage (for a 25- year flood event)\. The PHRD grant also financed a feasibility review of these investments\. 2011 : Following the level 2 restructuring in 2011: Component B2 (Flood Protection Investments ) was extended to cover investments in the Drava and Danube river basins, beyond the Central Posavina area, in the Sava River basin \. Component A (EU Accession Support, Project Implementation Support and Institutional Strengthening of Utilities) was adjusted to reflect project support for implementing water sector reforms \. This included TA services for institutional reform studies, the preparation of sub -projects and studies for future EU financing, and the cost of TA for strengthening project utilities \. Preparation of the water management strategy was dropped and subsequently carried out by HV\. d\. Comments on Project Cost, Financing, Borrower Contribution, and Dates: Project cost : The estimated cost of the project at appraisal was US$ 140\.08 million, while the actual cost at closure was US$ 126\.59 million\. In 2011 the project was restructured (level 2 restructuring by country director ) with the objective of maximizing the project's outcomes towards flood protection and EU accession support \. The values of several construction contracts were lower than estimated \. These savings allowed for more investments under component BI (in Dugo Selo-Rugvica) and for reallocation to other components \. Loan proceeds from Component B1 (Utility Investments) were allocated to Component B2 (Flood Protection investments) and to Component A (Technical Assistance) to meet higher than expected expenses for consulting services and enable expanded activities under these components \. Financing : An IBRD loan for EUR 100 million (US$ 133\.41 million equivalent) was approved for the project \. US$ 119\.63 million was disbursed and US$ 13\.78 million was cancelled\. Borrower contribution : The estimated borrower contribution was US$ 6\.67 million at appraisal and the actual amount expended was US$ 6\.96 million\. Dates : The estimated and actual dates for closure were the same i \.e\. December 31, 2012\. 3\. Relevance of Objectives & Design: a\. Relevance of Objectives: High Project objectives were relevant to the problems Croatia had to address as part of its accession process \. 76% of the overall population receives reliable water supply services \. However, the figures are much lower in the inland river basins of the Sava and Drava where coverage rates were as low as 31% in some counties\. Water losses were high (46% on average, nationally) and with 127 municipally-owned water companies in a country of 4\.5 million people, the sector was fragmented \. While 44% of the population was connected to the public sewerage system, only 25% of wastewater generated was treated –even then, only about half of the treated wastewater satisfied the effluent requirements, and most of the existing wastewater treatment plants needed to be upgraded to meet the EU directives on wastewater standards, Floods posed a threat to human life, agriculture and economic development in the inland areas \. A comprehensive flood protection scheme was designed in the late 1960s and subsequently this scheme was modified to make it consistent with the current approach towards flood protection in EU countries\. However, parts of the scheme are not yet completed, especially in the Sava and Drava river basins, and in 2010, for example, the flood-related damages in the country amounted HRK 1 billion (Euro 150 million equivalent)\. When the project was appraised Croatia was carrying out negotiations for EU accession \. In this context, a critical priority for the country was to meet compliance with EU directives, including drinking water and urban wastewater\. Targets not met within an agreed timeframe could result in penalties \. Thus the opportunity to obtain funds through an IBRD loan was an attractive option for the Government of Croatia \. The project was designed to concentrate investments on the poorer areas of the country, and to focus on communities where access to water supply and wastewater services was comparatively low \. A 'Study on Institutional Options in the Water Supply and Wastewater Sector' (IWP) provided a foundation for the agglomeration of water and sewerage utilities, a necessary condition for compliance with the EU directives on service efficiency \. The IWP was a key project in the Bank's 2004 Country Assistance Strategy (CAS), which had as its main objective assisting Croatia to join the  \. The project was also fully in line with the CAS's attention to sustainable natural resources management and EU\. measures to address improvements in Croatia's wastewater and water supply management and services, to comply with the EU requirements\. b\. Relevance of Design: Substantial The project design comprised activities that were consistent with achieving the stated objectives \. Specifically, the TA component focused on strengthening the financial capacity of local utilities, undertaking analytical studies, and preparing EU-funded projects\. All these tasks were of high importance to the Ministry of Agriculture, HV and the participating municipal water and sewerage companies (MWSCs)\. The 'Study on Institutional Options in the Water Supply and Wastewater Sector' provided a foundation for the agglomeration of water and sewerage utilities, an essential condition for compliance with the EU directives on service efficiency \. The physical roll out of the project was to be achieved through investments in utilities and flood protection measures \. The results framework included measurable indictors that would enable tracking of the causal chain and outcomes\. The design also called for longer preparation time, but this was not possible because of the tight timeframe for EU accession\. 4\. Achievement of Objectives (Efficacy): There were three objectives of the project - i) to improve water supply services; ii ) to improve wastewater services, and iii) to improve flood protection measures in the Sava /Drava, and Danube river basins of the Republic of Croatia \. Since the number and full scope of project investment activities were not defined at the beginning of the project, the baseline values had to be established at a later stage, when the final list of sub -projects and activities became known\. Similarly, the targets in the results framework were not all set at the beginning of the project due to lack of baseline data\. The EUR 3\.9 million that was expended on technical assistance was linked to investments worth EUR 123 million\. i) Improved water supply services : Substantial Outcomes On average the infrastructure investments increased water supply connections to household in targeted areas from 40 percent (2007 baseline) to 85 percent, (target 85 percent)\. Technical assistance aimed at reducing water losses, improving efficiency, and strengthening the financial position of the utilities\. The working ratio (operating expenses divided by collected revenues ) target of 1\.0 was exceeded at 0\.7 due to unspecified reductions in water losses and improvements in collection and billing procedures\. Outputs A study on Institutional Options for the Water Supply and Wastewater sector to provide a foundation for utility optimization and agglomeration\. Both the Ministry of Agriculture and HV recognized this as crucial to implementing the EU requirement for the sector efficiency and financial sustainability \. Eight project designs were submitted to the government for future financing either by the EU or other financial institutions, exceeding the target of seven \. The total estimated value of investments prepared was about EUR 123 million, or over 30 times the value of funds invested in this component \. ii) Improved wastewater services : Substantial ii) Outcomes Sewerage coverage increased from 35 percent (December 2011 baseline) to 73 percent (before the 2011 restructuring the target was 76 percent)\. Outputs The development of a model-based decision making process for the selection of wastewater treatment technology; Improvement of technological operation of Wastewater treatment plants; New technologies were introduced by the project, especially for wastewater treatment, which included biological treatment ponds and tertiary treatment with nano -filtration of the effluent\. Such investments have brought new knowledge to the water sector in Croatia and are likely to be replicated as necessary \. iii ) Improved flood protection measures : Substantial iii) Outcomes Overall, the project contributed to the flood protection of at least 51,300 people living in the Sava river basin area, around 12,000 ha of agricultural land, an international transport corridor, and several regional roads as  well as preserving the flora and fauna in the Lonjsko Polje Nature Park \. The project also benefitted neighboring countries by lowering the water levels of the Sava river \. The target retention volume for flood protection of 720 millon m3 was exceeded and 800 m3 was achieved\. According to the baseline data, this was a significant improvement from the baseline of 600 million m3\. The flood protection measures also paved the way for the restoration of several sites leading to the creation of recreational areas\. Outputs Project preparation for ecological and hydrological revitalization, predominately the revitalization of flood plains, the rehabilitation of meanders, and the creation of new aquatic systems \. iv) iv ) Utility Performance : substantial Outcomes: The initial financial results signal that the Municipal Water and Sewerage Companies (MWSCs) have strengthened their financial position over the course of the project; this is highlighted by the significant turnaround in the working ratio\. Working ratios were calculated by dividing operating expenses (excluding depreciation) by operating revenues, and were measured with fresh data collected from the utilities for 2012\. The data demonstrated a strong turnaround in the utilities' financial situations with an average (for all 12 utilities) of 0\.7, substantially exceeding the target of 1\.0 which was the threshold target at which MWSCs could meet their cash commitments through operating revenues \. The improvement in operating efficiency was measured by the bill collection rate \. Billing revenue nearly doubled between 2008 and 2012 as a result of increased water and sewerage tariffs \. The collection rate over the same period was high at around 90 percent\. All MWSCs were required to introduce development fees to cover loan repayments for the sub-projects\. The Joint Assistance to Support Projects in European Regions (JASPERS), an EU entity that reviews projects proposed by EU accession countries, commended the project for its capacity building \. JASPERS reported improved capacity, especially within HV for the assessment of investment proposals and complimented the TA component of the project and its contribution to the sector reform analysis and agenda for Croatia (ICR, partner comments,p\.23, 7c)\. Following JASPER'S favorable reviews of the feasibility studies the projects involved were regarded as eligible for EU financing \. Customer satisfaction with water and wastewater services was measured through a survey that was posted on municipality websites\. Some municipalities reached 93 percent satisfaction (Nasice was the best), but none were lower than 68 percent among those connected (Northern Baranja was the worst)\. On average, the satisfaction was about 81 percent among those who had been connected, just over the target of 80 percent\. 5\. Efficiency: Substantial Economic and Financial Efficiency No economic and financial analyses were undertaken during appraisal of the utility investments including flood protection, (covering 83 percent of the project costs)\. This was claimed to be because all the investment sub-projects had not been identified at that time \. Even so, a methodology could have been devised ex ante and assumptions made regarding average expected costs \. A comprehensive economic and financial analysis was undertaken at project closure \. The economic rate of return (ERR) for the utility investments at completion was 16 percent, , while the net present value (NPV) was HRK 2\.04 billion\. The economic analysis was based on the assumption that the economic benefits of compliance with EU Water related Directives was quantifiable through the willingness to pay for improved water supply and wastewater services \. Collection was used as a proxy for estimating the economic value of the willingness to pay\. The other proxy was the cost saving for consumers\. Two scenarios were generated to calculate the range for the financial rate of return (FRR)\. Using a conservative scenario whereby full cost recovery is reached only after 30 years still produces an FRR of 8 percent, whereas assuming full cost recovery is reached within four years produces an FRR of 13 percent\. IEG believes the result is likely to be in between these figures and that the methodology is sound \. Administrative Efficiency One hundred and ten contracts were awarded and 92 percent of the funds were disbursed, but six projects were  still ongoing at project closure, largely due to delays at the start of the project \. HV undertook to complete these remaining projects using its own budget \. Delays in the signing of the first two Subsidiary Financing Agreements (and therefore project effectiveness ) had a knock-on effect in the project\. Had preparation of the sub-investments started earlier all sub -projects might have been completed by project closure \. ERR )/Financial Rate of Return (FRR) a\. If available, enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re- re -estimated value at evaluation : Rate Available? Point Value Coverage/Scope* Appraisal No ICR estimate Yes 16% 83% * Refers to percent of total project cost for which ERR/FRR was calculated\. 6\. Outcome: With high relevance of objectives, substantial relevance of design, substantial efficacy for technical assistance, utility investments and flood protection and substantial efficiency, the outcome is satisfactory \. The development objectives were substantially met against a very tight time line \. a\. Outcome Rating : Satisfactory 7\. Rationale for Risk to Development Outcome Rating: Croatia became the 28th member of the EU on July 1, 2013 and, given that it has met the requirements for accession and gained access to the financial resources of the EU, the risk to the development outcome is considered low to negligible\. A quarter of the EU funds to be allocated to Croatia in the next seven years is for water and wastewater investment\. Loan repayments are covered by a development fee levied by the MWSCs \. However, to ensure long-term sustainability of all project investments, HV needs to continue to address the financial aspects\. The financial position of the utilities has indeed improved substantially, but to ensure sustainable revenues the municipalities must continue to accelerate the connection rate to new assets, especially sewer lines \. In some areas the willingness to connect was demonstrably low - as shown by the customer survey \. This appeared to be due to a lack of construction permits for many houses in the project areas \. A new policy has, however, recently been introduced to allow for connections to properties without permits, and for connections to become mandatory within a year of water supply and sanitation construction \. Some municipalities have already taken steps in this regard and HV is monitoring the situation closely \. a\. Risk to Development Outcome Rating : Negligible to Low 8\. Assessment of Bank Performance: a\. Quality at entry: The Bank had already financed two projects in the sector, from which lessons were learned and to the extent possible these lessons were adopted in the design of this project \. The Bank was aware of the limited capacity of many of the MWSCs and hence the project was designed to provide extensive support to participating MWSCs during implementation, and a substantial TA component was included to improve the utilities' institutional capacities\. From previous experience, the stakeholders were aware that without a ready sub-project pipeline implementation would likely be delayed, and the Bank correctly flagged this as a risk \. However, given the pressing conditions and the tight EU accession time line the project could not be held back to identify all needed investments before approval \. More sub-projects should have been prepared prior to effectiveness, however, and there should have been a greater effort by all parties in this area since the time line was dependent on having sufficient ready -to-go sub-projects\. In addition to a contingency plan to tackle the consequences of the very real risks of slippage, the Team could also have developed an assumption-based methodology for economic and financial analysis at appraisal \.  at -Entry Rating : Quality -at- Moderately Satisfactory b\. Quality of supervision: Supervision and procurement reviews were performed in a timely manner providing advice to the borrower and project implementation unit (PIU) as needed\. Supervision was carried out regularly and benefitted from the presence of a small team based in Zagreb \. The task team leader was in due course also assigned to the region allowing more frequent visits \. Response to variation order requests was effective, but the team was unable to persuade the borrower to take more interest in M&E \. The Bank team was proactive in assisting the implementing agency to accelerate performance to the point where, despite the delays, 90 percent of the project was accomplished \. The Borrower's ICR (page 20) says that although the Bank's team was changed during the project implementation, this change did not impact the continuity of the project performance \. Supervision and procurement reviews were performed in a timely manner providing advice to the Borrower and PIU as needed \. Close attention was given to the ensuring that the project complied with the Bank's safeguard policies \. Quality of Supervision Rating : Moderately Satisfactory Overall Bank Performance Rating : Moderately Satisfactory 9\. Assessment of Borrower Performance: a\. Government Performance: Generally, there was strong support and interest in the project from the sector Ministry, even though at times attention shifted to other priorities, towards the final years of the project \. The Borrower's financial contributions to the project were always timely \. Delays in the signing of the two Subsidiary Financing Agreements between HV and the municipalities led to delays in project implementation \. Negotiations on the local contribution and repayment conditions with many of the municipalities took longer than anticipated \. Difficulties were finally overcome, however, and the project was implemented and closed on time without extension\. The Borrower decided not to ask for an extension of the project closing date and to use HV's funds instead to complete all pending contracts \. While this decision put considerable pressure on HV to complete all contracts, it should also be seen as a sign of maturity that Croatia was soundly managing its external debt commitments\. Government Performance Rating Satisfactory b\. Implementing Agency Performance: Physical construction began 20 months after board approval\. The slow start was due to a combination of delays in signing the first two sub -loan agreements with participating utilities, (a condition of effectiveness ), delays in properly staffing the Project Implementation Unit (PIU), processing delays for subsequent sub -loan agreements with the other ten utilities; and time needed to complete design and bidding documents \. Additional preparation time would have allowed for more discussion on repayment terms and the contribution of municipalities, a better staffed PIU, and a completed Operations Manual \. It would also (according to the ICR, p\.20) have reduced uncertainty between the PIU and the Bank \. Overall, HV implemented the project fairly well, despite the long time to establish adequate implementation capacity; the PIU was inadequately staffed until the end of year two \. After that, however, implementation substantially accelerated and an effective PIU manager was brought in to lead the project \. Procurement, on the other hand, was never better than moderately satisfactory throughout \. HV also never showed much commitment towards providing an effective M&E system and was late in agreeing to have a customer satisfaction survey\. At first, the PIU focused mainly on designing and launching the physical components, but later it focused more attention to implementing the project's TA component\. It strategically revised the  content of the TA and asked for the Bank's support to supervise and design new TA activities, such as the study on utilities agglomeration\. A retrospective review of involuntary resettlement practice showed compliance with Bank safeguard OP 4\.12\. Implementing Agency Performance Rating : Moderately Satisfactory Overall Borrower Performance Rating : Satisfactory 10\. M&E Design, Implementation, & Utilization: a\. M&E Design: Appropriate arrangements for data collection and analysis were ineffective to begin with and the baseline survey commenced late\. This was because HV was unwilling with its limited capacity to do the M&E (as the design had intended) and a consulting firm had to be appointed to undertake this work \. Specific and measurable project development objective indicators were used to keep track of the results achieved with the utility investments, though some of the intermediate outcomes were included just for monitoring physical project implementation\. The percentage of contract value disbursed could have been substituted with more meaningful indicators measuring physical progress like km of sewer collector or drinking water pipelines built \. Baseline data were not collected until project implementation was underway \. b\. M&E Implementation: Despite the limited number of indicators, HV and participating utilities struggled to keep up with data collection, analysis and reporting\. Since not all sub-projects were initially identified, HV carried out an accurate baseline survey only in 2010, when all subsidiary agreements were in effect, but prior to the commencement of construction \. The baselines, however, were only updated in the results framework during the December 2011 restructuring\. Given the fast pace of implementation, HV and the utilities focused more on procurement and implementation than on data monitoring\. Initially, the utilities expected HV to carry out the M&E, but it claimed to have insufficient capacity \. At Bank insistence, additional consulting services were subsequently contracted to collect the necessary data and allow for results to be more accurately measured \. To keep the results framework manageable with sub -projects ongoing in 12 utilities, HV and the Bank agreed to measure the indicators as averages \. One indicator was dropped at restructuring in 2011 because it was found to be misleading and not representative of project achievements \. However, another core indicator was added, namely the number of utilities supported by the project\. A customer satisfaction survey was carried out only in 2010 due to delays with contracting the consulting company for this work and according to the ICR (p\. 9) "the novelty of the concept to the PIU and HV \." c\. M&E Utilization: The ICR does not report on how the M&E was utilized \. Since there was low ownership of the M&E it must be assumed that this was likely negligible \. In the discussion with the TTL he confirmed that both HV and the PIU regarded the M&E as something the Bank wanted and did not perceive its benefits to them \. M&E Quality Rating : Modest 11\. Other Issues a\. Safeguards: The project was classified as a financial intermediary (FI) project and the following safeguards were triggered : Environment (OP 4\.01), Natural Habitats (OP 4\.04), Involuntary Resettlement (OP 4\.12), Forests (OP 4\.36), and International Waterways (7\.50)\. Overall, compliance with safeguards was reported to be satisfactory (ICR page 10)\. Environment: As per Bank policy, an Environmental Framework was prepared, disclosed and followed \. Environmental Impact Assessments (EIAs) were prepared for the sub-projects as part of the feasibility studies \. Environmental Management Plans (EMP) were prepared and closely monitored \. The HV environmental  specialist visited the sites regularly and collected EMP reports from the site supervisors \. Irregularities were corrected in a timely manner and reported\. The Bank monitored the quality of the EIAs as well as the implementation of EMPs carefully and regularly \. Involuntary Resettlement: The project followed Croatian Law on Expropriation, and in November 2012 a detailed ex-post review confirmed that there were no claims and that the project was in compliance with Bank policies (ICR page 10)\. The assessment concluded that the designs were done considerately as to minimize the impact on private land\. Execution of works was also optimized to minimize disruption to private activities and property \. The review was undertaken because the project may not have fulfilled all requirements as laid out in the Land Acquisition and Resettlement Policy Framework, which was prepared and disclosed before appraisal \. The retrospective review found that in five cases the law on expropriation had been applied, accounting for about 0\.4 percent of the land affected by the project\. Natrural Habitats: The natural habitats safeguard policy was triggered due to project activities in areas listed by the Convention on Wetlands\. The EIAs and EMPs envisaged mitigation measures for borrow pits that would enhance biodiversity and extend water and wetland habitats \. This was done in consultation with the public, HV, and local non-governmental organizations\. The borrow pits were designed outside the wetlands in a manner such that the excavations replicated naturally shaped ponds and wetland areas \. The investment not only did not negatively affect critical habitats within the park area, but also had a positive impact (ICR page11)\. Forests: The policy was triggered due to project activities and dykes built in Lonjsko Polje that could increase water levels during flood events affecting the trees in the wetlands and flood plain \. However, given that the water would be retained in the area for limited periods, the impact on the local plants was not found to be significant \. International Waterways: The Croatian Government notified the International Commission for the Protection of the Danube River and the riparian countries about the project, but these countries raised no issues \. Overall, by financing improved wastewater treatment and the project was expected to have a positive impact on effluents \. b\. Fiduciary Compliance: Financial Management: FM was largely satisfactory throughout the project \. Unaudited Interim Financial Statement Reports (IFRs) were received by the Bank regularly and found acceptable \. The staff of the PIU working on the project reported that FM entailed a lot of work as the HV financial management software was not programmed to produce reports according to Bank requirements, hence IFRs had to be prepared "manually" using spreadsheets\. The project and entity audits were generally conducted on time (only the 2008 annual audit was late)\. Over the project life the auditors expressed unqualified opinions \. Procurement: was a major challenge because of the large number of contracts and the speed at which the project had to be implemented\. While the outcomes were mostly positive, procurement was rated moderately satisfactory (ICR page 11)\. About 110 contracts were awarded during the project \. Of these, all but six were completed by the project closing date\. One large procurement package, of EUR 1 million for equipment, had to be cancelled due to substantial delays in the awarding procedure \. Given the large number of contracts to be processed in a short period of time and the initially limited staff capacity allocated by HV to the PIU, the World Bank provided extensive support \. The HV staff that worked on the procurement of the project reported that they benefitted from the learning experience and found Bank's guidelines clear and adequate \. c\. Unintended Impacts (positive or negative): The project paved the way for the ecological restoration of several sites, which has led to the improvement of tourism services as well as the creation of recreational areas \. d\. Other: 12\. 12\. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Risk to Development Negligible to Low Negligible to Low Outcome :  Bank Performance : Moderately Moderately Satisfactory Satisfactory Borrower Performance : Satisfactory Satisfactory Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006\. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate\. 13\. Lessons: Lessons from the ICR: When the time for project preparation is shortened for political reasons, there is a higher risk that problems will occur and special arrangements may be needed to fast track legal processes \. If the project is to be implemented very quickly, with designs to be done during the implementation phase, sufficient capacity should be mobilized and trained at the very start of the project to accelerate the preparation of a pipeline of sub-projects\. Economies of scale should be considered in utility reform \. While some utilities have the capacity to implement, engage beneficiaries, and supervise the works effectively, others require considerable support \. In the weakest utilities works can be seriously delayed \. This indicates that a further merging of utilities would not only foster financial but also technical efficiency \. Political commitment for investment in water utilities must be sustained at the central level to implement reforms to move the sector (in this case towards EU compliance)\. Municipalities, elected mayors and council members had to make tough choices on tariff adjustments and enforce connection policies \. 14\. Assessment Recommended? Yes No Why? It would be useful to assess what was learned from the EU accession process and to ascertain whether the Bank pursued the best courses of action \. 15\. Comments on Quality of ICR: For the most part the ICR is well written, well presented, concise, and in conformity with the guidelines \. It also has appropriate lessons\. Some minor issues are that the ICR claims that the per capita investment costs per beneficiary were fairly small if compared to typical investment projects to meet EU requirements in other EU accession states, but examples to support this statement were not provided \. Although the loan was denominated in Euros it would have been helpful to the reviewer if the currency had been reflected in US dollars throughout; in the efficiency section NPV is also expressed in Croatian kuna \. More information would have been useful on whether the Bank could have done anything to speed up the delays before physical construction could start\. The Borrower implies that perhaps more could have been done, but specifics are lacking \. a\.Quality of ICR Rating : Satisfactory

REVIEW